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MISTAKE

SOMETIMES A PERSON OR PERSONS ENTER INTO A CONTRACT BECAUSE OF A MISTAKE.

IF THE MISTAKE WAS MATERIAL, THAT IS, IF IT INVOLVED A FACT THAT INDUCED THE PARTY TRYING TO

AVOID THE CONTRACT TO ENTER INTO THE BARGAIN, IT MAY BE POSSIBLE TO SET ASIDE THE CONTRACT.

THE COURTS EXAMINES WHETHER

ONLY ONE PERSON TO THE CONTRACT WAS IN ERROR, OR

BOTH PARTIES TO THE CONTRACT WERE OPERATING UNDER A MISTAKEN BELIEF.

A MISTAKE IS UNILATERAL IF ONLY ONE PARTY HELD A MISTAKEN BELIEF,

WHEREAS IT IS BILATERAL IF ALL THE PARTIES WERE MISTAKEN.

IF THE MISTAKE IS A UNILATERAL MISTAKE OF FACT, THE COURTS GENERALLY WILL NOT GRANT RELIEF TO

THE PARTY SEEKING TO AVOID THE CONTRACT.

HOWEVER, THE COURTS DO TRY TO ACHIEVE A JUST RESULT, AND MANY COURTS WILL GRANT RELIEF TO

THE MISTAKEN PARTY IF IT MAY BE GRANTED WITHOUT CAUSING A HARDSHIP OR EXPENSE TO THE

OTHER PARTY.

FURTHERMORE IF THE NON MISTAKEN PARTY KNOWS OR SHOULD KNOW OF THE MISTAKE, THE

CONTRACT IS VOIDABLE. IF ALL THE PARTIES WERE MISTAKEN AS TO A MATERIAL FACT, THE CONTRACT IS

VOIDABLE.

WHAT IS THE MEANING OF ‘OPERATIVE MISTAKE’ IN CONTRACT LAW?

WHERE A PARTY ENTERS INTO A CONTRACT BY MISTAKE IT ONLY AFFECTS THE VALIDITY OF THE

CONTRACT

IF THE MISTAKE IS ONE THAT THE LAW REGARDS AS ‘OPERATIVE’- THAT IS

IF THE MISTAKE IS ‘SUFFICIENTLY SERIOUS TO AFFECT THE WHOLE OPERATION OF THE CONTRACT’

WHAT ARE THE ESSENTIAL ELEMENTS OF AN OPERATIVE MISTAKE?

a) IT MUST BE A MISTAKE OF FACT, AND NOT A MISTAKE OF LAW

b) THE MISTAKE OF FACT MUST BE SUCH AS TO RENDER THE AGREEMENT NO AGREEMENT AT ALL. IF BOTH

PARTIES HAVE MADE THE SAME MISTAKE (COMMON MISTAKE) THE AGREEMENT MADE CANNOT BE

SUPPORTED IN LAW AND MUST BE DECLARED VOID BY MISTAKE

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HOW DO WE CLASSIFY MISTAKES?

INTO THREE GROUPS, A) UNILATERAL MISTAKE; (B) MUTUAL MISTAKE; C) COMMON MISTAKE.

WHAT IS A MUTUAL MISTAKE?

IT IS WHERE THE PARTIES ARE AT CROSS PURPOSES.

A INTENDS ONE THING, B ANOTHER.

USUALLY THERE IS NO CONSENSUS AS IDEM AND THE CONTRAST IS VOID.

HOWEVER, IF THE LAW, ACTING AS AN OBJECTIVE THIRD PARTY, CAN SEE THAT THE VIEWPOINT OF ONE

PARTY HAS THE GREATER MERIT, EQUITY WILL UPHOLD THE CONTRACT EVEN IF THE DECISION IS HARSH.

IF, EVEN AFTER APPLYING THE OBJECTIVE TEST, THE PARTIES ARE GENUINELY AT CROSS-PURPOSES AS TO THE SUBJECTMATTER, OR AS TO THE TERMS OF OFFER OR ACCEPTANCE, THE CONTRACT WILL BE VOID.

RAFFLES V. WICHELHAUS (1864) THE PARTIES CONTRACTED TO BUY A CARGO OF COTTON TO ARRIVE “EX PEERLESS FROM

BOMBAY”. TWO SHIPS, BOTH NAMED “PEERLESS” SAILED FROM BOMBAY – ONE ARRIVING IN OCTOBER

AND THE OTHER IN DECEMBER. THE PARTIES EACH INTENDED THAT THE CONTRACT SHOULD BE IN RESPECT OF THE DIFFERENT

SHIPS. HELD: THE CONTRACT WAS AVOIDED.

THE CASE OF SCRIVEN V. HINDLEY REFERRED TO UNDER (D) MISTAKE AS TO THE QUALITY OF THE

SUBJECTMATTER (ABOVE) COULD ALSO BE CONSIDERED TO FALL INTO THIS CATEGORY. ONE PARTY THOUGHT THE CONTRACT WAS FOR HEMP, THE OTHER THOUGHT IT WAS FOR TOW.

WHAT IS A COMMON MISTAKE?

IT IS A MISTAKE MADE BY BOTH PARTIES, IN GOOD FAITH.

THIS IS WHERE THE MISTAKE IS SHARED BY BOTH PARTIES, IT MAY MEAN THAT THERE IS NO TRUE

AGREEMENT OR“CONSENSUS AD IDEM”.

THERE IS AGREEMENT OF A SORT BUT IT IS BASED ON A FALSE ASSUMPTION, HENCE, COMMON LAW

MAY DECLARE THE CONTRACT VOID ON THE GROUNDS THAT THE AGREEMENT IS NOT A TRUE

CONSENSUS.

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MENTION 5 EXAMPLES OF COMMON MISTAKES

THERE ARE ONLY A FEW CIRCUMSTANCES WHERE THIS WILL APPLY.

(A) MISTAKE AS TO SOME FACT WHICH LIES AT THE BASIS OF THE CONTRACT

(B) MISTAKE AS TO THE EXISTENCE OF THE SUBJECT-MATTER OF THE CONTRACT

(C) MISTAKE AS TO TITLE

(D) MISTAKE AS TO THE QUALITY OF THE SUBJECT-MATTER

(E) FALSE AND FUNDAMENTAL ASSUMPTION

BRIEFLY EXPLAIN EACH TYPE OF MISTAKE

(A) MISTAKE AS TO SOME FACT WHICH LIES AT THE BASIS OF THE CONTRACT

IF BOTH PARTIES ASSUME SOME FACT TO BE TRUE, AND THAT FACT IS A ROOT CONDITION OF THE

CONTRACT, AND IT IS EITHER FALSE OR NON-EXISTENT, THEN THE CONTRACT IS NULLIFIED.THE LEADING

EXAMPLE OF THIS IS BELL V. LEVER BROTHERS LTD (1932).

(B) MISTAKE AS TO THE EXISTENCE OF THE SUBJECT-MATTER OF THE CONTRACT

THIS, USUALLY, OCCURS IN CONTRACTS FOR THE SALE OF GOODS.

IF BOTH PARTIES THINK THEY ARE CONTRACTING FOR A CERTAIN THING, AND UNKNOWN TO BOTH IT

DOES NOT ACTUALLY EXIST, THEN THE CONTRACT IS VOID.

THERE ARE A NUMBER OF IMPORTANT CASES TO ILLUSTRATE THIS PRINCIPLE.

IN COUTURIER V. HASTIE (1856)

THE PARTIES CONTRACTED FOR A CARGO OF CORN WHICH WAS BELIEVED TO BE IN A SHIP

BOUND FROM GREECE TO ENGLAND.

IN FACT, BEFORE THE DATE OF THE SALE, THE CORN HAD RAPIDLY DETERIORATED, AND THE SHIP

HAD PUT IN TO TUNIS AND SOLD THE CARGO FOR WHAT IT WOULD FETCH.

HELD: THE CONTRACT WAS VOID BECAUSE OF MISTAKE AS TO THE EXISTENCE OF THE SUBJECT-

MATTER.

IN BARROW, LANE & BALLARD LTD V. PHILLIP PHILLIPS & CO. (1929)

THERE WAS A CONTRACT TO BUY SPECIFIC BAGS OF NUTS, STORED IN A WAREHOUSE.

UNKNOWN TO BOTH PARTIES, AT THE TIME OF THE SALE, THOSE PARTICULAR BAGS OF NUTS

HAD BEEN STOLEN.

HELD: THE CONTRACT WAS VOID.

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(C) MISTAKE AS TO TITLE

THE PRINCIPLE IS THAT, IF A MAN MAKES A CONTRACT IN THE BELIEF THAT THE SUBJECT-MATTER

BELONGS TO THE OTHER PARTY WHEREAS IN REALITY IT IS HIS OWN PROPERTY, THE CONTRACT WILL BE

VOID (COOPER V. PHIBBS).

IN COOPER V. PHIBBS (1867)A CONTRACTED TO LEASE A FISHERY IN IRELAND FROM B. UNKNOWN TO

BOTH OF THEM AT THE TIME, A WAS,IN FACT, “TENANT IN TAIL” (I.E. BENEFICIAL OWNER) OF THE

FISHERY.

HELD: THE LEASE WOULD BE SET ASIDE.

IN A CONTRACT WHICH INVOLVES SALE OF GOODS, THE SELLER WARRANTS HIS TITLE TO THE GOODS. SO,

IF THERE IS A COMMON MISTAKE, THE CONTRACT IS NOT AVOIDED, AND THE SELLER MAY BE LIABLE FOR

DAMAGES FOR BREACH OF WARRANTY. IT IS ONLY WHERE THERE IS NO SUCH WARRANTY THAT THE

CONTRACT WILL BE VOID IF THE BUYER PURCHASES HIS OWN PROPERTY.

(D) MISTAKE AS TO THE QUALITY OF THE SUBJECT-MATTER

AN ORDINARY ERROR AS TO QUALITY WILL NOT AVOID THE CONTRACT, ALTHOUGH IT MAY WELL GIVE

RISE TO AN ACTION FOR DAMAGES.

IN ORDER TO QUALIFY AS A MISTAKE WHICH WILL SERVE TO AVOID THE CONTRACT:

-IT MUST BE COMMON TO BOTH PARTIES, AND

-IT MUST BE SUCH THAT THE QUALITY MAKES THE THING CONTRACTED FOR AN ESSENTIALLY DIFFERENT

THING FROM THAT WHICH IT WAS THOUGHT TO BE.

IN SCRIVEN BROTHERS & CO. V. HINDLEY & CO. (1913)HINDLEY BID AT AUCTION FOR WHAT HE BELIEVED

WAS HEMP. THE AUCTIONEER THOUGHT HE WAS OFFERING TOW.HELD: HEMP AND TOW ARE TOTALLY

DIFFERENT COMMODITIES, AND THE CONTRACT WAS, THEREFORE, VOID.

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(E) FALSE AND FUNDAMENTAL ASSUMPTION

THIS IS THE LAST CATEGORY OF COMMON MISTAKE. AS WAS SAID IN BELL V. LEVER BROS:

“WHENEVER IT IS TO BE INFERRED FROM THE TERMS OF THE 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 ”.

THERE ARE TWO IMPORTANT CASES WHICH ILLUSTRATE HOW A FALSE AND FUNDAMENTAL

ASSUMPTION BY BOTH PARTIES WILL SERVE TO AVOID A CONTRACT.

IN MAGEE V. PENNINE INSURANCE CO. LTD (1969MR MAGEE CLAIMED ON HIS INSURANCE

COMPANY FOR DAMAGE TO HIS CAR. THE DAMAGE WAS CAUSED BY A RISK WHICH WAS

COVERED UNDER THE POLICY. THE INSURANCE COMPANY AGREED TO PAY. IT LATER

TRANSPIRED THAT, UNBEKNOWN TO BOTH PARTIES, AT THE TIME OF THE ACCIDENT THE POLICY

WAS, IN FACT,VOIDABLE BY THE INSURANCE COMPANY.HELD: THE CONTRACT WAS AVOIDED BY

REASON OF THE FALSE AND FUNDAMENTAL ASSUMPTION OF BOTH PARTIES THAT THE POLICY

WAS VALID.

IN SHEIKH BROTHERS LTD V. OCHSNER (1957)THE COMPANY GRANTED OCHSNER A LICENCE TO

CUT SISAL ON ITS ESTATE IN KENYA, ON CONDITION THAT HE DELIVERED TO THE COMPANY FOR

PROCESSING 50 TONS PER MONTH OF THE SISAL CUT. UNKNOWN TO BOTH,THE ESTATE WAS

INCAPABLE OF PRODUCING THIS QUANTITY OF SISAL.HELD: THE CONTRACT WAS AVOIDED. IT

WAS BASED ON A FALSE AND FUNDAMENTAL ASSUMPTION.

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WHAT IS UNILATERAL MISTAKE?

THIS IS WHERE ONE PARTY MAKES A MISTAKE AND THE OTHER PARTY KNOWS IT ALL.

THE OTHER PARTY’S FAILURE TO ACQUAINT THE FIRST PARTY WITH HIS OR HER MISTAKE MAY AMOUNT

TO A FRAUDULENT MISREPRESENTATION.

IN DECIDING WHETHER THE OTHER PARTY KNEW OF THE FIRST PARTY’S MISTAKE, THE RULE IS THAT THE

OTHER PARTY IS DEEMED TO KNOW WHAT WOULD BE OBVIOUS TO A REASONABLE PERSON

THIS OCCURS WHEN ONLY ONE PARTY IS MISTAKEN.

IT IS FUNDAMENTAL THAT NO CONTRACT CAN VALIDLY BE FORMED IF OFFER AND ACCEPTANCE DO NOT CORRESPOND.

SO, IF ONE PARTY MAKES AN OFFER WHICH IS ACCEPTED IN A RADICALLY DIFFERENT SENSE BY THE OTHER, THERE IS NO VALID AGREEMENT.

HOWEVER, CONTRACTS ARE CONSTRUED OBJECTIVELY – SO, THE TEST IS NOT WHAT THE INTENTION OF THE ONE MISTAKEN PARTY WAS BUT, RATHER, WHAT WOULD A HYPOTHETICAL REASONABLE MAN HAVE UNDERSTOOD FROM THE WORDS USED?

MENTION TWO EXAMPLES OF UNILATERAL MISTAKE

MISTAKE CONCERNING SIGNING OF DOCUMENTS

MISTAKE ABOUT THE IDENTITY OF THE OTHER PARTY

MISTAKES CONCERNING SIGNED DOCUMENTS

(NON EST FACTUM-NOT MY ACT)

WHAT IS THE BASIC PRINCIPLE ABOUT SIGNING DOCUMENTS?

GENERALLY SPEAKING , WE ARE BOUND BY THE TERMS OF THE DOCUMENT WE SIGN EVEN IF WE DO

NOT READ THEM (L’ ESTRANGE V GRACOUB 1934)

OUR COURTS’ ATTITUDE TOWARDS SIGNATURES ON DOCUMENTS IS SERIOUS.

IT IS SETTLED THAT A MISTAKE ABOUT THE CONTENTS OF A SIGNED DOCUMENT WILL BE NO EXCUSE. THE

SIGNER IS BOUND.

WHAT DO YOU HAVE TO DO TO ESCAPE THE BINDING NATURE OF YOUR SIGNATURE TO A DOCUMENT?

YOU HAVE TO PLEAD “NON EST FACTUM”- “NOT MY ACT ”

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WHEN IS “NON EST FACTUM”- “NOT MY ACT” USED?

IN CASES WHERE A PARTY CLAIMS THAT THE ACT HE PERFORMED (USUALLY THE SIGNING OF A DOCUMENT) WAS

NOT THE ACT HE THOUGHT HE WAS PERFORMING- HE WAS FRAUDULENTLY MISLED BY THE OTHER PARTY

GIVE TWO EXAMPLES OF CASES IN WHICH NON EST FACTUM WAS AN ISSUE

FOSTER –V- MC KINNON (1869)

SAUNDERS V. ANGLIA BUILDING SOCIETY (1970)

BRIEFLY EXPLAIN FOSTER –V- MC KINNON (1869)

IN FOSTER –V- MC KINNON (1869),AN OLD MAN OF FEEBLE SIGHT WAS INDUCED TO SIGN HIS NAME ON

THE BACK OF A CHEQUE THUS MAKING IT PAYABLE TO BEARER,BECAUSE HE WAS TOLD HE WAS SIGNING

A GUARANTEE.

HELD: IN THE ABSENCE OF NEGLIGENCE ON HIS PART HE COULD NOT BE HELD LIABLE ON THE CHEQUE

BECAUSE IT WAS NOT HIS ACT

BRIEFLY EXPLAIN SAUNDERS V. ANGLIA BUILDING SOCIETY (1970)

IT WAS A CASE WHERE A PLEA OF NON EST FACTUM FAILED.

AN ELDERLY WIDOW SIGNED A DOCUMENT WITHOUT READING IT, BELIEVING IT TO BE A DEED OF GIFT

OF HER HOUSE TO HER NEPHEW,BUT IT ACTUALLY TRANSFERRED THE LEASE OF HER HOUSE TO

ANOTHER PERSON

IN THIS CASE A 78 YEAR OLD LADY WHO HAD LOST HER READING GLASSES WAS HELD BOUND BY HER

SIGNATURE ON A DOCUMENT WHICH HAD BEEN PREPARED BY A CROOK AND HAD THE EFFECT OF

TRANSFERRING HER HOUSE TO HIM.

HELD SHE WAS BOUND BECAUSE SHE WAS NEGLIGENT IN NOT READING IT

WHAT ARE THE REQUIREMENTS THAT MUST BE SATISFIED IN ORDER TO SUCCEED WITH A PLEA OF NON EST

FACTUM-NOT MY DEED

TO ESCAPE THE BINDING NATURE OF YOUR SIGNATURE YOU WOULD NEED TO PROVE THAT

1. THE DOCUMENT SIGNED WAS RADICALLY DIFFERENT FROM THE ONE THOUGHT TO HAVE BEEN SIGNED;

2. THE SIGNING HAD NOT BEEN DONE NEGLIGENTLY (CARELESSLY);

3. HAD THE TRUE CONTENTS OF THE DOCUMENT BEEN KNOWN, IT WOULD NOT HAVE BEEN SIGNED..

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MISTAKES ABOUT THE IDENTITY OF THE OTHER PARTY

THE NEXT CATEGORY OF MISTAKE IS WHERE ONE PARTY IS MISTAKEN AS TO THE PERSON WITH WHOM HE HAS

CONTRACTED.

IT IS IN THIS AREA WHERE MOST CONFUSION ARISES, AND IN WHICH THE COURTS HAVE DRAWN FINE DISTINCTIONS.

THERE ARE TWO VITAL QUESTIONS WHICH MUST BE ASKED:

“DOES THE IDENTITY OF THE PERSON WITH WHOM THE CONTRACT IS BEING MADE MATTER?” IN OTHER WORDS, IS IT THE INTENTION TO CONTRACT WITH THAT PARTICULAR PERSON, AND NO OTHER? AND, IF THE ANSWER IS “YES”, THEN:

“IS THE MISTAKE AS TO HIS IDENTITY, NOT AS TO HIS ATTRIBUTES” (E.G. SOLVENCY; CHARACTER; SOCIAL STANDING; ETC.)?

IF THE ANSWER TO BOTH THESE QUESTIONS IS “YES”, THEN, IN ALL PROBABILITY, THE CONTRACT WILL

BE AVOIDED IF A MISTAKE HAS BEEN MADE. IF SOMEONE MAKES A CONTRACT WITH YOU AND HE IS LYING ABOUT WHO HE IS, SHOULD IT MATTER? PARTICULARLY, IF HE SELLS THE GOODS HE HAS OBTAINED FROM YOU TO AN INNOCENT THIRD PARTY,

SHOULD YOU BE ABLE TO RECOVER THE GOODS FROM THAT THIRD PARTY WHO BOUGHT THEM IN GOOD FAITH? THE ANSWER SEEMS TO BE NO.

WHAT ARE THE ELEMENTS THAT MUST BE SATISFIED BY TRUE OWNER TO RECOVER PROPERTY FROM THIRD

PARTY?

1. THAT HIS MISTAKE AS T O IDENTITY OF THE PERSON WITH WHOM HE DEALT WAS KNOWN TO THAT

PERSON.

2. THAT HE INTENDED TO DEAL WITH THE NAMED PERSON,AND NOT THE ONE WHO PURPORTED TO BE

THE NAMED PERSON.

3. THAT THE IDENTITY OF THE NAMED PERSON WAS BASIC TO THE CONTRACT MADE.

4. THAT HE TOOK REASONABLE STEPS TO IDENTIFY THE PERSON WITH WHOM HE WAS DEALING.

MENTION TWO CASES INVOLVING MISTAKE SA TO IDENTITY OF THE OTHER PARTY IN THE CASE OF LEWIS V. AVERAY (1972), THE CROOK PRETENDED TO BE RICHARD GREENE, THE ACTOR (WHO USED TO PLAY ROBIN HOOD ON TELEVISION). A CAR WAS SOLD AND PAID FOR WITH A CHEQUE WITH A FILM STUDIO PASS AS EVIDENCE OF IDENTITY. IT WAS SOLD ON TO A STUDENT BEFORE THE CHEQUE BOUNCED. THE ORIGINAL OWNER SUED THE STUDENT TO GET THE CAR BACK. HE LOST. HE HAD TO ESTABLISH THAT THE CONTRACT BETWEEN HIMSELF AND THE CROOK WAD SPOILT (MADE VOID) BY HIS MISTAKE, THEREBY PREVENTING THE OWNERSHIP PASSING TO THE STUDENT ON THE SECOND SALE. HE HAD PARTED WITH OWNERSHIP. THE CROOK COULD SELL IT TO THE STUDENT. IN CUNDAY V. LINDSAY (1978) X WAS INDUCED BY A MAN NAMED BLENKAM TO SUPPLY GOODS TO HIM. BLENKAM HAD INTENTIONALLY SIGNED HIS LETTER TO X IN SUCH A WAY AS TO MAKE HIM BELIEVE THAT IT CAME FROM A WELL KNOWN FIRM, BLENKIRON & CO. IT WAS HELD THAT X HAD NEVER INTENDED TO CONTRACT WITH BLENKAM, THERE WAS NO CONTRACT BETWEEN THEM, AND X WAS ENTITLED TO RECOVER THE GOODS FROM AN INNOCENT PURCHASER WHO HAD BOUGHT THEM FROM BLENKAM.

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MISREPRESENTATION

1) WHAT IS A REPRESENTATION?

IT IS A STATEMENT

MADE IN THE COURSE OF NEGOTIATIONS LEADING TO A CONTRACT,

DESIGNED TO INDUCE THE OTHER PARTY TO ENTER INTO THE CONTRACT

2) WHAT IS A MISREPRESENTATION?

IT IS A FALSE STATEMENT OF FACT

MADE DURING THE NEGOTIATIONS LEADING UP TO A CONTRACT WHICH WAS INTENDED TO

INDUCE,

AND DID INDUCE,

THE OTHER PARTY TO ENTER INTO THE CONTRACT

3) DISTINGUISH BETWEEN A REPRESENTATION FROM A MISREPRESENTATION

A REPRESENTATION IS A STATEMENT MADE IN THE COURSE OF NEGOTIATIONS LEADING TO A CONTRACT,

TO INDUCE THE OTHER PARTY TO ENTER INTO THE CONTRACT

A MISREPRESENTATION IS A FALSE STATEMENT OF FACT MADE DURING THE NEGOTIATIONS LEADING UP

TO A CONTRACT WHICH WAS INTENDED/DESIGNED TO INDUCE,AND DID INDUCE,THE OTHER PARTY TO

ENTER THE CONTRACT

4) WHAT ARE THE FIVE(5)ESSENTIAL ELEMENTS OF A MISREPRESENTATION?

THE REPRESENTATION CAN HOWEVER BE MADE BY CONDUCT- A NOD, A SHAKE

IT MUST NOT BE A STATEMENT OF OPINION

IT MUST INDUCE THE CONTRACT

MENTION THE FIVE ELEMENTS OF MISREPRESENTATION

THERE WILL USUALLY BE A POSITIVE STATEMENT: SILENCE IS NOT A MISREPRESENTATION.

OF FACT

WHICH IS FALSE

WHICH IS MADE BY ONE CONTRACTING PARTY;AND

WHICH INDUCED THE CONTRACT

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1) A STATEMENT

MENTION THE TWO WAYS IN WHICH MISREPRESENTATION MAY BE MADE?

EXPRESS- IN WRITING OR ORAL

IMPLIED -BY CONDUCT AND BEHAVIOUR

DOES SILENCE CONSTITUTE MISREPRESENTATION? WHAT IS THE GENERAL RULE ABOUT SILENCE IN RELATION TO

MISREPRESENTATION?

THE GENERAL RULE IS THAT SILENCE DOES NOT CONSTITUTE MISREPRESENTATION

MENTION THE THREE CIRCUMSTANCES WHERE SILENCE WILL CONSTITUTE MISREPRESENTATION?

WHERE THERE IS A CONTRACT “OF UTMOST GOOD FAITH”(CONTRACTS UBERRIMAE FIDE)

THIS WHERE ONE PARTY IS IN POSSESSION OF VITAL INFORMATION,IT MUST BE COMMUNICATED

TO THE OTHER PARTY SO THAT HE CAN ASSESS THE ADVISABILITY OF ENTERING INTO THE

CONTRACTUAL RELATIONSHIP.

A COMMON EXAMPLE IS A CONTRCAT OF INSURANCE,WHERE THE ONLY PERSON AWARE OF KEY

INFORMATION ABOUT THE RISK TAKEN IS THE PERSON SEEKING INSURANCE COVER.

WHERE SILENCE DISTORTS A POSITIVE REPRESENTATION

A HALF TRUTH MAY BE FALSE BECAUSE OF WHAT IT LEAVES UNSAID

WHERE A PARTY MAKES AREPRESENTATION DURING THE COURSE OF NEGOTIATIONS WHICH IS TRUE

AT THE TIME, BUT WHICH BECOMES FALSE BEFORE THE CONCLUSION OF THE CONTRACT

HE IS THEN UNDER DUTY TO DISCLOSE THIS FACT TO THE OTHER PARTY.

IF HE DOES NOT THE ORIGINAL STATEMENT HAS BECOME A MISREPRESENTATION.

WITH -V- O’ FLANAGAN(1936)

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2) STATEMENT OF FACT

MENTION THE FOUR STATEMENTS WHICH DO NOT QUALIFY AS STATEMENTS OF FACT ,AND THEREFORE AS

MISREPRESENTATIONS

A STATEMENT OF FACT IS A STATEMENT OF AN EXISTING STATE OF AFFAIRS/SITUATION.THE FOLLOWING

STATEMENTS ARE NOT STAEMENTS OF FACT

STATEMENT OF LAW:

A STATEMENT OF LAW IS NOT A STATEMENT OF FACTS,THUS A FALSE STATEMENT OF LAW WILL

NOT AMOUNT TO MISREPRESENTATION

STATEMENT OF OPINION:

AN HONEST STATEMENT OF OPINION,HOWEVER UNFOUNDED , IS NOT A MISREPRESENTATION

FOR AN OPINION IS NOT A FACT

STATEMENT OF INTENTION

MERE PUFF:

MERE “SALES TALK” WILL NOT CONSTITUTE MISREPRESENTAION

SOME PHRASES USED IN SELLING ARE MERE PUFFS-EXAGGERATED STATEMENTS MADE FOR THE

SAKE OF EFFECT- AND NOT TO BE TAKEN SERIOUSLY

THIS IS A LIGHT-HEARTED REPRESENTATION WHICH EVERYONE KNOWS IS NOT REALLY TRUE

3) A MISREPRESENTATION IS A STATEMENT WHICH IS FALSE

A STATEMENT IS FALSE NOT ONLY WHEN IT IS UNTRUE BUT ALSO WHEN IT IS MISLEADING IN THE

CONTEXT.

4) A MISREPRESENTATION MUST BE MADE BY THE CONTRACTING PARTY

THE STATEMENT MUST BE MADE BY THE CONTRACTING PARTY OR HIS AUTHORISED AGENT.

A STATEMENT WHICH REACHES THE OTHER PARTY INDIRECTLY IS ACTIONABLE PROVIDED THE

MISREPRESENTOR INTENDED IT TO REACH THE MISREPRESENTOR

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5) A MISREPRESENTATION MUST INDUCE (CAUSE ) THE CONTRACT.

THE MISREPRESENTATION MUST HAVE INDUCED THE CONTRACT.

A MISREPRESENTATION WHICH DOES NOT AFFECT THE PLAINTIFF’S JUDGMENT AS TO WHETHER TO

EMBARK ON THE CONTRACT IS NOT ACTIONABLE

THUS , INNOCENT PARTY CANNOT AVOID THE CONTRACT IN THE FOLLOWING CIRCUMSTANCES:

IF THE FALSE STATEMENT WAS MADE AFTER THE CONTRCAT WAS CONCLUDED

IF HE DID NOT KNOW OF THE CONTRACT

IF HE KNEW OF THE UNTRUTH OR FALSEHOOD OF THE STATEMENT

OF HE DID NOT RELY ON THE ON THE FALSE STATEMENT I .E WHERE HE IGNORED IT OR MADE

INDEPENDENT INVESTIGATION

MENTION THE THREE TYPES OF MISREPRESENTATION/WHAT ARE THE THREE TYPES OF MISREPRESENTATION?

INNOCENT MISREPRESENTATION

NEGLIGENT MISREPRESENTATION

FRAUDULENT MISREPRESENTATIO

BRIEFLY EXPLAIN THE MEANING AND LEGAL EFFECT/REMEDY OF EACH OF THE THREE TYPES OF

MISREPRESENTATION

THERE ARE THREE DIFFERENT TYPES OF MISREPRESENTATION THAT CAN BE MADE, AND THEIR EFFECTS ON THE CONTRACT ARE DIFFERENT.

WHEN THE MISREPRESENTATION IS THE ISSUE,THE CONTRACT IS VALID BUT VOIDABLE AT THE OPTION

OF THE PARTY MISLED.

IT IS CALLED THE RIGHT TO RESCIND THE CONTRACT

DAMAGES ARE AVAILABLE AS WELL AS RESCISSION

DAMAGES CAN ALWAYS BE RECOVERED AND, IN CERTAIN CIRCUMSTANCES, THE CONTRACT CAN ALSO BE AVOIDED BY THE INNOCENT PARTY.

THE QUESTION IS PARTLY DECIDED BY COMMON LAW, AND PARTLY BY VIRTUE OF THE

MISREPRESENTATION ACT 1967.

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FRAUDULENT MISREPRESENTATION:

THIS OCCURS WHERE AN UNTRUE STATEMENT IS MADE KNOWINGLY OR WITHOUT BELIEF IN ITS TRUTH.

IN DERRY V. PEEK (1889), A COMPANY WAS EMPOWERED TO RUN TRAMS BY HORSEPOWER, OR (WITH THE

CONSENT OF THE BOARD OF TRADE) BY STEAM. THE DIRECTORS BELIEVED THAT THE BOARD OF TRADE’S CONSENT WOULD BE FORTHCOMING,

AND THEY ISSUED A PROSPECTUS, STATING THE COMPANY HAD THE RIGHT TO USE STEAM-TRAMS.

THE BOARD OF TRADE REFUSED CONSENT. HELD: THE MISREPRESENTATION WAS NOT MADE FRAUDULENTLY

“FRAUD IS PROVED” ,SAID LORD HERSCHELL IN DERRY -V- PEEK(1889)

“WHEN IT IS SHOWN THAT A FALSE REPRESENTATION HAS BEEN MADE

KNOWINGLY; OR

WITHOUT BELIEF IN ITS TRUTH;OR

RECKLESSLY,CARELESS WHETHER IT BE TRUE OR FALSE

THE EFFECT OF A FRAUDULENT MISREPRESENTATION IS TO ALLOW THE PARTY DECEIVED AS OF RIGHT TO RESCIND THE CONTRACT, AND SEEK DAMAGES FOR LOSS SUSTAINED.

OF COURSE, HE DOES NOT HAVE TO RESCIND IT.HE CAN ALWAYS AFFIRM IT, AND MERELY SEEK DAMAGES.

HOWEVER, IT IS IMPORTANT TO REMEMBER THAT RESCISSION IS ALWAYS AVAILABLE TO HIM. NEGLIGENT:

A FALSE STATEMENT IS MADE “NEGLIGENTLY” WHEN IT IS MADE CARELESSLY, OR WITHOUT REASONABLE GROUNDS FOR BELIEVING IT TO BE TRUE.

AS YOU WILL APPRECIATE, THE DISTINCTION BETWEEN FRAUD AND NEGLIGENCE CAN BE A FINE ONE. HOWEVER, BROADLY SPEAKING, A MISSTATEMENT IS NEGLIGENT IF IT WAS MERELY CARELESSLY MADE, BUT IT IS FRAUDULENT IF IT IS MADE WITH EVIL INTENT OR RECKLESSLY.

IT IS A SPECIAL CASE OF INNOCENT MISREPRESENTATION.

THE MAKER BELIEVES IT TO BE TRUE , BUT HAS NOT TAKEN THE TROUBLE TO CHECK UP THAT IT IS

TRUE.

AS WITH ALL NEGLIGENCE THERE MUST BE A DUTY OF CARE TO PERSON TO WHOM THE

REPRESENTATION IS MADE.

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INNOCENT :

IT IS REPRESENTATION WHICH THE MAKER BELIEVES TO BE TRUE BUT WHICH IN FACT IS UNTRUE

IN THIS CASE THE REPRESENTOR HAS GROUND FOR BELIEVING HIS STATEMENT BUT IT WAS NONE

THELESS UNTRUE

A TELLS B THAT HIS HOUSE IS FREE FROM WOODWORM.IN FACT BE FINDS WOODWORM PRENT AFTER

PURCHASE

THIS TYPE OF FALSE STATEMENT IS ONE WHICH WAS MADE NEITHER FRAUDULENTLY NOR NEGLIGENTLY.

BY VIRTUE OF SECTION 2(1) AND 2(2) OF THE 1967 ACT, THE REMEDIES FOR AN INNOCENT MISREPRESENTATION ARE EITHER RESCISSION OR DAMAGES – BUT NOT BOTH.

FURTHER, NEITHER OF THESE REMEDIES CAN BE CLAIMED AS OF RIGHT. THE COURT HAS THE

UNFETTERED POWER TO MAKE WHICHEVER ORDER WOULD BE JUST AND EQUITABLE IN THE CIRCUMSTANCES.

DESCRIBE THE PRINCIPLE CAVEAT EMPTOR

IT MEANS “LET THE BUYER BEWARE”

IT MEANS BUYERS ARE NOT PROTECTED IN LAW FOR FOOLISHNESS , OR NEGLIGENCE IN MAKING A

BAD BARGAIN.

IT MEANS BUYERS MUST TAKE RESPONSIBILITY FOR DOING THEIR DUE DILIGENCE , CHOOSING AND

NEGOTIATING WISELY BEFORE ENTERING INTO CONTRACTS.

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DURESS AND UNDUE INFLUENCE

WHAT IS THE RELATIONSHIP BETWEEN DURESS AND UNDUE INFLUENCE?

THEY ARE THE TWO WAYS OF BRINGING ABOUT A CONTRACT ABOUT BY UNFAIR METHODS.

THE LAW WILL NOT RECOGNISE A CONTRCAT MADE UNDER UNFAIR COMPULSION WHETHER PHYSICAL

(DURESS) OR MORAL (UNDUE INFLUENCE)

THE COURTS WILL NOT UPHOLD A CONTRACT UNLESS THE PARTIES TO THE CONTRACT HAVE ENTERD

IT VOLUNTARILY WITHOUT ANY EXTERNAL PRESSURE OR INFLUENCE

SUCH PRESSURE MAY BE DIRECT PRESURE ON THE INDIVIDUAL CONCERNED IN THE FORM OF ACTUAL

VIOLENCE OR FALSE IMPRISONMENT TO SECURE THE VICTIM’S ASSENT TO THE AGREEMENT ;OR

IT MAY BE SUBTLE MORAL PRESSURE.FOR INSTANCE THERE ARE MANY SITUATIONS IN FAMILY LIFE

WHERE PARENTS MIGHT EXERT PRESSURE ON CHILDREN.WHILE OTHER RELATIONSHIPS LIKE SOLICITOR

AND CLIENT,ACCOUNTANT AND CLIENT ETC , COULD EQUALLY PERMIT UNDUE INFLUENCE TO ENTER

INTO THE MAKING OF CONTRACTS

WHAT IS DURESS?

THIS IS ACTUAL OR THREATENED PHYSICAL VIOLENCE TO THE PERSON MAKING THE PROMISE OR

RESTRAINTS ON THE LIBERTY OF THAT PERSON TO SECURE THEIR CONSENT

IT IS ACTUAL OR THREATENED PHYSICAL VIOLENCE OR FALSE IMPRISONMENT OR THREATENED CRIMINAL PROCEEDINGS

AGAINST A CONTRACTING PARTY OR HIS OR HER NEAR RELATIVE

TO COMPEL A PARTY TO ENTER INTO THE CONTRACT

WHAT IS THE EFFECT OF DURESS?

THE LAW WIL NOT RECOGNISE THE CONTRACT BECAUSE AN ESSENTIAL FEATURE OF CONTRACTS IS THAT CONSENT TO THE BARGAIN MADE MUST BE FREELY GIVEN

THE CONTRACT IS VOIDABLE AT THE OPTION OF THE PARTY THREATENED.

THE ONUS OF PROOF LIES UPON THE PERSON UTTERING THE THREATS TO PROVE THEY DID NOT AFFECT THE MAKING OF THE CONTRACT

MENTION ONE CASE OF DURESS?

BARTON –V- ARMSTRONG (1975)

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WHAT WAS THE CASE OF BARTON –V- ARMSTRONG (1975)ALL ABOUT?

IT WAS AN AUSTRALIAN CASE WHICH CAME BEFORE THE PRIVY COUNCIL ,IN WHICH ARMSTRONG

THREATENED BARTON’S LIFE IF HE DID NOT SIGN A DOCUMENT TO GIVE ARMSTRONG EXCESSIVE

COMPENSATION FOR RESIGNING FROM CERTAIN COMPANIES

HELD ,THE AGREEMENT WAS VOID, BARTON HAD SIGNED UNDER DURESS

MENTION THE FIVE (5)METHODS OF DURESS

PHYSICAL VIOLENCE(BARTON -V- ARMSTRONG(1976))

THREATS OF PHYSICAL VIOLENCE TO CONTRACTING PARTY OR IMMEDIATE RELATIVES (WILLIAM –V-

BAYLEY)

THREATENED CRIMINAL PROCEEDINGS (KAUFMANN –V-GERSON(1904))

THREAT AGAINST A PERSON’S GOODS(AS OPPOSED TO HIS BODY)

ECONOMIC DURESS: THREAT OF ECONOMIC LOSS(ATLAS EXPRESS – V- KAFCO(1989))

ECONOMIC DURESS

WHAT IS ECONOMIC DURESS?

IT IS ILLEGITIMATE PRESSURE OR COMMERCIAL PRESSURE THAT VITIATES FREE WILL

THE THREAT OF LOSS OF PROFITS IF A CONTRACT IS NOT MADE IS CALLED “ECONOMIC DURESS”.

IT HAS ONLY FAIRLY RECENTLY BEEN RECOGNISED BY THE LAW AS A POSSIBLE CAUSE FOR AVOIDING A CONTRACT, AND THE LAW ON ECONOMIC DURESS IS NOT YET FULLY DEVELOPED.

THE PROPOSITION IS THAT, IF A PERSON IS INDUCED TO ENTER INTO A CONTRACT BY FEAR OF LOSS IF

HE DOES NOT AGREE TO THE CONTRACT, THIS MAY CONSTITUTE ACTIONABLE DURESS.

HOWEVER, THE DEGREE OF COERCION MUST BE SUBSTANTIAL.

IN PAO ON -V- LAU YIU (1979), THE PRIVY COUNCIL SAID: “THERE IS NOTHING CONTRARY TO PRINCIPLE IN RECOGNISING ECONOMIC DURESS AS A FACTOR

WHICH MAY RENDER A CONTRACT VOIDABLE,

PROVIDED THE BASIS OF SUCH RECOGNITION IS THAT THE DURESS MUST AMOUNT TO COERCION OF WILL WHICH VITIATES CONSENT.

IT MUST BE SHOWN THAT THE PAYMENT MADE OR THE CONTRACT ENTERED INTO WAS NOT A

VOLUNTARY ACT.”

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MENTION THE REQUIREMENTS FOR SETTING ASIDE A CONTRACT ON THE GROUND OF ECONOMIC DURESS

THAT THE DURESS MUST BE SUCH AS TO VITIATE CONSENT, AND THAT ANY CONTRACT ENTERED INTO OR MONEY PAID MUST BE DONE UNDER FORMAL PROTEST, AND

RESCINDED AS SOON AS THE DURESS HAS LIFTED. DESCRIBE THE FACTS AND DECISION IN ATLAS EXPRESS –V- KAFCO(1989)

THE CLAIMANTS WERE CARRIERS WHO CONTRACTED WITH THE DEFENDANTS TO DELIVER BASKETS TO ONE OF DEFENDANT’S IMPORTANT CUSTOMERS,WOOLWORTHS ,FOR AN AGREED PRICE.

IN DUE COURSE THE CLAIMANT’S DEPOT MANAGER REFUSED TO COLLECT THE GOODS UNLESS THE

DEFENDANT SIGNED AN AGREEMENT TO PAY MORE FOR THE CARRIAGE OF GOODS

THE DEFENDANTS SIGNED UNDER PROTEST,BUT SUBSEQUENTLY REFUSED TO PAY THE INCREASED RATES.HELD: THE CLAIMANTS COULD NOT ENFORCE THE HIGHER RATE SINCE THE DEFENDANT’S CONSENT HAD BEEN OBTAINED BY ECONOMIC DURESS

A SIMILAR RULING WAS MADE IN THE CASE OF UNIVERS TANKSHIP -V- ITWF(1983)

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UNDUE INFLUENCE WHAT IS UNDUE INFLUENCE?

IT IS A LESSER FORM OF PRESSURE THAN DURESS, IN WHICH A PARTY IS INDUCED TO SIGN A CONTRACT AS A RESULT OF THREE POSSIBLE INFLUENCES

A THREAT OF CRIMINAL PROCEEDINGS

WRONGFUL DETENTION OF PROPERTY

A FIDUCIARY RELATIONSHIP(ONE INVOLVING TRUST BETWEEN THE PARTIES),LEADING TO THE STRONGER AND MORE INFLUENTIAL PARTY GOING BEYOND MERE PERSUASION, IN BREACH OF THE FIDUCIARY RELATIONSHIP DUTY OWED TO THE WEAKER PARTY

IT IS BASED ON THE CONCEPT THAT ONE PARTY HAS A STRONGER MIND(OR WILL)THAN THE OTHER

SUCH THAT THE OTHER IS UNABLE TO EXERCISE FREE AND INDEPENDENT JUDGMENT.

THE ESSENCE THEN IS : MENTAL AND MORAL COERCION

WHAT IS THE LEGAL EFFECT OF UNDUE INFLUENCE?

THE LEGAL EFFECT OF UNDUE INFLUENCE IS THAT THE CONTRACT IS VOIDABLE AT THE INSTANCE OF

THE AGGRIEVED PARTY

MENTION THE TWO CATEGORIES OF CONTRACTS THAT MAY BE RESCINDED FOR UNDUE INFLUENCE.STATE THE

DIFFERENCE IN APPLICABLE LEGAL PRINCIPLES

WHERE THERE IS NO FIDUCIARY RELATIONSHIP BETWEEN THE PARTIES

HERE, UNDUE INFLUENCE MUST BE PROVEN AS A FACT

WHERE THERE IS A FIDUCIARY RELATIONSHIP BETWEEN THE PARTIES

HERE, UNDUE INFLUENCE BY THE STRONGER PARTY OVER THE WEAKER PARTY WILL BE

PRESUMED TO EXIST.

IT IS UP TO THE STRONGER PARTY TO PROVE THAT THERE WAS NO UNDUE INFLUENCE

WHAT IS A FIDUCIARY RELATIONSHIP? ONE INVOLVING TRUST BETWEEN THE PARTIES

GIVE EXAMPLES OF FIDUCIARY RELATIONSHIPS SOLICITOR/LAWYER AND CLIENT PARENT AND CHILD DOCTOR AND PATIENT RELIGIOUD ADVISER (PASTOR/PRIEST)AND DISCIPLE(CONGREGANT) GUARDIAN AND WARD BANKER AND CUSTOMER

WHAT IS THE LEGAL EFFECT OF UNDUE INFLUENCE?

THE CONTRACT IS VOIDABLE AT THE SUIT AND INSTANCE OF THE AGGRIEVED PARTY

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ILLEGALITY: VOID AND ILLEGAL CONTRACTS 1) WHAT IS THE GENERAL PRINCIPLE ABOUT THE LEGALITY(LAWFULNESS) OF CONTRACTS?

WE MAY CONTRACT ON ANY TERMS WE LIKE SO LONG AS THE PROMISE,CONSIDERATION AND

OBJECT OF CONTRACT ARE LAWFUL

2) WHAT HAPPENS IF CONTRACT IS ILLEGAL?

THE CONTRACT IS VOID BY ILLEGALITY AND CANNOT BE ENFORCED BY THE COURTS

3) WHAT IS THE LEGAL MAXIM THAT HOLDS THAT ALL ILLEGAL CONTRACTS ARE VOID?

EX TURPI CAUSA NON ORITOR ACTIO (NO ACTION ARISES FROM A WRONGFUL OR BASE CAUSE)

4) IN PRACTICE,WHAT IS THE LEGAL EFFECT OF ILLEGAL CONTRACT/ARE ALL ILLEGAL CONTRACTS

UNENFORCEABLE

THERE ARE DEGREES OF ILLEGALITY, HOWEVER AND OUR COURTS WILL DECIDE WHAT DEGREE OF RIGOUR/STRICTNESS TO APPLY IN EACH PARTICULAR CASE.

THERE ARE CONTRACTS WHICH ARE STRICTLY ILLEGAL AND CONTRACTS WHICH ARE NOMINALLY ILLEGAL.

WHERE A CONTRACT IS STRICTLY ILLEGAL, THE COURT WILL NOT LEND ITS AID TO ANYONE AND WILL NOT

HEAR A CASE FOUNDED ON AN ILLEGAL ACT.

THE GENERAL PRINCIPLE AND POLICY IS THAT ALL ILLEGAL CONTRACTS ARE VOID, AN ACTION BASED ON THEM WILL NOT AND CANNOT BE ENTERTAINED.

THE RULE OR LEGAL MAXIM THAT HOLDS THAT ALL ILLEGAL CONTRACTS ARE VOID IS EX TURPI CAUSA NON ORITUR ACTION

THIS SIMPLY MEANS THAT ONE MAY NOT CONCLUDE A CONTRACT WHICH IS ILLEGAL (CONTRARY TO

THE LAW).

ACCORDING TO OUR LAW, ANY CONTRACTUAL ARRANGEMENT ENTERED INTO BETWEEN PARTIES IN DIRECT CONTRAVENTION OF THE PROHIBITIONS OF THE LAW IS VOID AND OF NO EFFECT.

SUCH CONTRACT WILL BE REGARDED BY OUR COURTS AS NEVER HAVING BEEN ENTERED AT ALL IS: EX TURPI CAUSA NON ORITUR ACTION (NO ACTION ARISES FROM A BASE OR WRONGFUL CAUSE).

WHERE A CONTRACT IS ILLEGAL THE COURTS WILL NOT LEND THEIR SUPPORT TO EITHER PARTY IN THE MATTER AND NO REDRESS WILL BE PROVIDED, EVEN WHERE PARTIES SUFFER LOSS UNEQUALLY AND THE HARDSHIP IS THEREFORE UNFAIRLY SHARED.

WHERE THE ILLEGALITY IS ONLY NOMINAL AND THE ILLEGAL ELEMENT IN IT CAN BE SEVERED AND REJECTED, WHILE THE SOUND PART CAN BE UPHELD, THE COURT WILL DO SO.

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BRIEFLY EXPLAIN THE LEGAL EFFECT OF ILLEGALITY IN CONTRACTS

IN SUM, EFFECT OF ILLEGALITY IS THAT THE CONTRACT IS RENDERED VOID AND UNENFORCEABLE. IN OTHER WORDS, THE CONTRACT WILL BE DENIED ITS FULL VALIDITY BECAUSE OF THE ILLEGALITY, AND CANNOT BE ENFORCED.

THE COURTS WILL NOT IMPLEMENT IT IF THERE IS EQUAL WRONG DOING.

THE RULE IS THAT IF THERE IS EQUAL WRONGDOING THE POSITION OF THE DEFENDANT IS STRONGER.

WHERE ONE PARTY IS MORE AT FAULT THAN THE OTHER THE COURT MAY EXERCISE DISCRETION IN FAVOUR OF THE MORE INNOCENT PARTY.

WHERE A CONTRACT COVERS MORE THAN ONE MATTER, AND ONE, OR SOME OF THEM, ARE ILLEGAL. THE COURT MAY SEVER THE GOOD PART FROM THE BAD AND UPHOLD THE CONTRACT TO THAT EXTENT ONLY. THIS IS THE SO-CALLED “SEVERANCE” OF A CONTRACT.

WHEN WILL A CONTRACT BE ILLEGAL?

WHEN IT IS PROHIBITED BY

STATUTE

PUBLIC POLICY

WHAT DOES “CONTRARY TO PUBLIC POLICY MEAN”?

IT MEANS THAT THE PROPOSED CONTRACT IS AGAINST PUBLIC INTEREST

FOR EXAMPLE, IT MAY ENCOURAGE IMMORALITY OR CRIME

IT IS THEREFORE ILLEGAL AT COMMON LAW

WHAT IS AN UNENFORCEABLE CONTRACT?

HOWEVER, ALL THESE WIDE VARIETIES OF CONTRACTS ARE CONTRARY TO PUBLIC POLICY. THEY ARE ALL ILLEGAL CONTRACTS, WHICH MAY BE VOID AB INITIO, OR THEY MAY BE MERELY UNENFORCEABLE.

ONE WHICH IS DENIED FULL VALIDITY BECAUSE OF A TECHNICALITY

THE BEST EXAMPLE IS WHEN HOUSES ARE BOUGHT AND SOLD “SUBJECT TO CONTRACT”

THE BARGAINS MADE ARE CONTRACT,BUT CANNOT HAVE FULL EFFECT UNTIL WRITTEN CONTRACTS

ARE DRAWN UP,SIGNED AND EXCHANGED.

IF ONE PARETY DISHONOURS HIS PROMISE THE OTHER HAS NO REDRESS

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WHAT TYPE OF CONTRACTS ARE ILLEGAL BY STATUTE?

ANY WHICH ARE SPECIFICALLY FORBIDDEN BY AN ACT OF PARLIAMENT, BUT OTHERS MAY BE RENDERED

STATUTE MAY DECLARE CERTAIN TYPES OF CONTRACT VOID AB INITIO – THAT IS, THE CONTRACT ITSELF IS ILLEGAL AND INCAPABLE OF CREATING ANY RIGHTS.

CERTAIN GAMING AND WAGERING CONTRACTS FALL INTO THIS CATEGORY.

THE GAMING ACT 1845, SECTION 18, STATES AS FOLLOWS. “ALL CONTRACTS OR AGREEMENTS....BY WAY OF GAMING OR WAGERING SHALL BE NULL AND VOID....NO

SUIT SHALL BE BROUGHT OR MAINTAINED IN ANY COURT OF LAW OR EQUITY FOR RECOVERING ANY SUM OF MONEY OR VALUABLE THING ALLEGED TO BE WON UPON ANY WAGER.”

GAMING AND WAGERING: WHAT IS WAGERING CONTRACT A WAGERING CONTRACT IS ONE WHERE THERE MUST BE TWO PARTIES OR SIDES WHO BOTH STAND TO

WIN OR LOSE ON AN UNCERTAIN EVENT. BUYING A SWEEPSTAKE TICKET, ENTERING A COUPON FOR THE POOLS, OR BETTING ON THE“TOTE” AT A

RACECOURSE, ARE NOT WAGERING CONTRACTS.

IN ALL OF THESE, ONLY ONE OF THE PARTIES STANDS TO WIN OR LOSE.

ANOTHER ESSENTIAL OF A WAGERING CONTRACT IS THAT THE PARTIES HAVE NO INTEREST IN THE CONTRACT, OTHER THAN THAT CREATED BY THE BET.

THIS LETS OUT OF THE CATEGORY SUCH TRANSACTIONS AS INSURANCE CONTRACTS AND STOCK EXCHANGE BARGAINS, BOTH OF WHICH BEAR A SUPERFICIAL RESEMBLANCE TO WAGERING.

5) WHAT TYPE OF CONTRACTS ARE ILLEGAL BY PUBLIC POLICY ? MENTION FOUR(4) CONTRACTS THAT ARE

ILLEGAL (UNLAWFUL) BY PUBLIC POLICY

PUBLIC POLICY DECREES THAT THE COURTS WILL NOT ASSIST PARTIES WHO HAVE MADE CERTAIN TYPES OF CONTRACT.

THE CONTRACT IS NOT ILLEGAL TO MAKE BUT ITS OBJECT IS ILLEGAL.

THERE ARE NINE BROAD CATEGORIES

a) AGREEMENTS TO COMMIT A CRIME, A TORT, OR TO PERPETRATE A FRAUD b) AGREEMENTS INJURING THE STATE IN RELATION TO OTHER STATES c) AGREEMENTS WHICH TEND TO HARM THE PUBLIC SERVICE d) AGREEMENTS TO PERVERT THE COURSE OF JUSTICE e) AGREEMENTS TENDING TO ABUSE THE LEGAL PROCESS f) AGREEMENTS CONTRARY TO GOOD MORALS g) CONTRACTS IN RESTRAINT OF MARRIAGE WHICH AFFECT THE DUE DISCHARGE OF PARENTAL DUTY h) AGREEMENTS WHICH OUST THE JURISDICTION OF THE COURTS i) AGREEMENTS IN UNDUE RESTRAINT OF TRADE

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BRIEFLY EXPLAIN EACH TYPE OF AGREEMENT ILLEGAL VIA BEING CONTRARY TO PUBLIC POLICY

(A) AGREEMENTS TO COMMIT A CRIME, A TORT, OR TO PERPETRATE A FRAUD

PLAINLY, A CONTRACT THE OBJECT OF WHICH IS TO COMMIT A CRIMINAL OFFENCE CANNOT BE ENFORCED.

HOWEVER, IF AN ILLEGAL ACT IS COMMITTED DURING THE PERFORMANCE OF AN OTHERWISE PERFECTLY LAWFUL CONTRACT, IT WILL NOT NECESSARILY RENDER THE WHOLE CONTRACT UNLAWFUL.ARCHBOLDS (FREIGHTAGE) LTD V. S SPANGLETT LTD (1961)

(B) AGREEMENTS INJURING THE STATE IN RELATION TO OTHER STATES

THESE CAN EITHER BE CONTRACTS WITH AN ENEMY IN TIME OF WAR, OR THEY CAN BE CONTRACTS WHICH ARE HOSTILE TO A FRIENDLY STATE.

IN THE FIRST PLACE, ANY CONTRACTS WITH AN ALIEN ENEMY IN WARTIME ARE ILLEGAL AT COMMON LAW.

THEY ARE ALSO ILLEGAL BY STATUTE, BY VIRTUE OF THE TRADING WITH THE ENEMY ACT 1939. IT IS FORBIDDEN TO ENTER INTO OR PERFORM A CONTRACT WITH AN ALIEN ENEMY DURING A WAR, AND EVEN TO PERFORM SUCH A ONE WHICH WAS MADE BEFORE WAR BROKE OUT.

APART FROM ANY CRIMINAL PENALTIES THAT MAY BE PROVIDED BY STATUTE, SUCH CONTRACTS ARE UNENFORCEABLE.

(C) AGREEMENTS WHICH TEND TO HARM THE PUBLIC SERVICE ANY AGREEMENT WHICH TENDS TO HARM THE PUBLIC SERVICE IS CONTRARY TO PUBLIC POLICY. EXAMPLES ARE:

i. CONTRACTS FOR THE SALE OF PUBLIC OFFICES; ii. THE ASSIGNMENT OF SALARIES FROM PUBLIC OFFICES; iii. CONTRACTS FOR A PERSON TO USE HIS INFLUENCE TO SECURE FOR ANOTHER A TITLE, A PUBLIC OR

GOVERNMENT OFFICE, OR SIMILAR. PARKINSON V. COLLEGE OF AMBULANCE LTD (1925) THE SECRETARY OF THE COLLEGE OF AMBULANCE PROMISED COL. PARKINSON THAT, IF HE MADE A LARGE DONATION TO THE COLLEGE, WHICH WAS A CHARITABLE INSTITUTION, HE WOULD RECEIVE A KNIGHTHOOD. THE COLONEL MADE A LARGE DONATION, AND, NOT RECEIVING HIS KNIGHTHOOD, HE SUED FOR THE RETURN OF HIS MONEY.HELD: THE ACTION FAILED, BECAUSE THE CONTRACT WAS AGAINST PUBLIC POLICY AND ILLEGAL. (D) AGREEMENTS TO PERVERT THE COURSE OF JUSTICE

CONTRACTS UNDER THIS HEADING USUALLY COMPRISE AGREEMENTS NOT TO DISCLOSE CRIMES, OR NOT TO PROSECUTE FOR CRIMINAL OFFENCES.

THEY ARE UNENFORCEABLE BUT, IN ADDITION, BY VIRTUE OF THE CRIMINAL LAW ACT 1967, CONCEALING AN “ARRESTABLE OFFENCE” IS ITSELF A CRIMINAL OFFENCE.

“CONCEALING” IS COMMITTED IF A PERSON ACCEPTS A PRICE, OTHER THAN MERELY MAKING GOOD LOSS CAUSED BY THE OFFENCE, FOR NOT DISCLOSING THE OFFENCE.

(E) AGREEMENTS TENDING TO ABUSE THE LEGAL PROCESS THESE LARGELY COMPRISE THE ACTS OF “MAINTENANCE” AND “CHAMPERTY”.

MAINTENANCE IS THE SUPPORTING (USUALLY FINANCIALLY) OF LITIGATION IN WHICH THE PERSON MAINTAINING HAS NO LEGITIMATE INTEREST.

CHAMPERTY IS WHERE A PERSON ASSISTS IN LITIGATION IN EXCHANGE FOR A SHARE IN ANY PROCEEDS GAINED FROM IT – E.G. A SOLICITOR REPRESENTING A CLIENT FOR A PERCENTAGE OF THE DAMAGES AWARDED TO HIS CLIENT.

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(F) AGREEMENTS CONTRARY TO GOOD MORALS

CONTRACTS WHICH ARE FOR IMMORAL PURPOSES WILL NOT BE ENFORCED.

IN PEARCE V. BROOKS (1866)A FIRM OF COACH BUILDERS HIRED TO A PROSTITUTE A COACH WITH AN INTERESTING DESIGN. IT WAS KNOWN TO THE FIRM THAT IT WOULD BE USED BY HER IN PLYING HER TRADE. SHE FAILED TO PAY THE HIRE.HELD: THE CONTRACT WOULD NOT BE ENFORCED.

(G) AGREEMENTS PREJUDICIAL TO THE SANCTITY OF MARRIAGE

THESE WOULD INCLUDE

A PROMISE TO PROCURE A MARRIAGE FOR A FEE AND OTHER SUCH DEALS.

CONTRACTS FOR FUTURE SEPARATION OF HUSBAND AND WIFE.

CONTRACTS TO RESTRAIN OR PREVENT ONE FROM GETTING MARRIED

(H) AGREEMENTS WHICH OUST THE JURISDICTION OF THE COURTS

THESE ARE DEALS WHERE THE PARTIES AGREE NOT TO TAKE DISPUTES TO COURT

THE JUDGES DO NOT MIND AGREEMENT TO GO TO SOME ARBITRATION BEFORE THEY GO TO COURT

BUT AGREEMENTS WHICH SEEK TO OUST (REMOVE) THE JURISDICTION (POWER) ARE SIMPLY

IGNORED,AND THE COMPLAINING PARTY MUST ACCEPT COURT’S JURISDICTION.

IT IS THE RIGHT OF EVERY SUBJECT OF THE QUEEN TO HAVE HIS RIGHTS DETERMINED BY THE ORDINARY

COURTS. HENCE, ANY AGREEMENT TO OUST THE COURTS IS VOID.

ARBITRATION AGREEMENTS TO REFER ANY DISPUTE ARISING UNDER A CONTRACT TO ARBITRATION HAVE

LONG BEEN ACCEPTABLE, PROVIDED THAT THE AGREEMENT DID NOT PRECLUDE THE PARTIES FROM

REFERRING ANY POINT OF LAW TO THE COURTS.

(J) AGREEMENTS IN UNDUE RESTRAINT OF TRADE WHAT ARE CONTRACTS IN RESTRAINT OF TRADE?

THESE ARE CONTRACTS WHICH SEEK TO RESTRICT/ PREVENT THE RIGHT OF A PERSON TO USE HIS OWN

TALENTS FOR HIS OWN ENRICHMENT IN HIS CHOSEN TRADE,BUSINESS, OR PROFESSION

PRIMA FACIE(ON THE FACE OF IT) THE COURTS WILL NOT SUPPORT SUCH CONTRACTS IN PRINCIPLE-BUT

THEY MAY SUPPORT REASONABLE RESTRAINTS

WHERE THE RESTRAINTS IS REGARDED AS REASONABLE BY THE COURTS(AS BETWEEN THE PARTIES AND

IN THE PUBLIC INTEREST)THEN THEY ARE ALLOWED;

BUT WHERE THEY ARE UNREASONABLE (BECAUSE THEY ARE TOO WIDE OR LAST TOO LONG)THEY ARE

NOT ALLOWED

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MENTION THE THREE TYPES OF RESTRAINT IN TRADE

IN AN EMPLOYER-EMPLOYEE AGREEMENT, WHERE AN EMPLOYER REQUIRES HIS EMPLOYEE TO AGREE

NOT TO SOLICIT HIS CUSTOMERS OR HIS TRADE SECRETS AFTER LEAVING HIS EMPLOYMENT.

IN A VENDOR/PURCHASER AGREEMENT,WHERE THE VENDOR OF A BUSINESS AGREES WITH

PURCHASER THAT HE WILL NOT CARRY ON A COMPETING BUSINESS

WHERE A PERSON ENTERS INTO A LONG TERM AGREEMENT WITH ANOTHER TO PURCHASE ALL HIS

SUPPLIES FROM THAT PERSON(A SOLUS AGREEEMENT(USUALLY BETWEEN PETROL COMPANIES AND

PETROL STATION PROPRIETORS))

GIVE EXAMPLES OF AGREEMENTS IN RESTRAINT OF TRADE

A SELLS HIS BUSINESS TO B WHO PUTS A CLAUSE IN THE CONTRACT SAYING THAT A MUST NOT SET

UP A SIMILAR BUSINESS WITHIN FIVE KILOMETRE RADIUS.(FITCH V DEWES(1921))

A SELLS HIS BUSINESS TO B WHO PUTS A CLAUSE IN THE CONTRACT REFERRING TO A 500 KM

RADIOUS.THIS IS UNREASOANBL-THERE IS TOO LARGE AN AREA FROM WHICH A IS BEING EXCLUDED.

WHAT ARE THE TWO PROPOSITIONS THAT CLASH IN RESTRAINTS OF TRADE CLAUSES

THE RIGHT TO RESTRICT THE LIBERTY OF A PERSON IN THE FUTURE TO CARRY ON TRADE WITH PERSONS WHO ARE NOT PARTIES TO THE CONTRACT – THAT IS TO SAY, TO RESTRAIN TRADE.

THE RIGHT TO PROTECT HIS INTERESTS AND HIS BUSINESS FROM UNFAIR COMPETITION.

THERE IS AN OBVIOUS CLASH BETWEEN THESE TWO PROPOSITIONS.

WHAT IS THE GENERAL RULE REGARDING RESTRAINT IN TRADE ?

THE GENERAL RULE IS THAT THESE CLAUSES ARE CONTRARY TO PUBLIC POLICY AND THEREFORE VOID

AT COMMON LAW

HOWVER, THE CLAUSE MAY BE ENFORCEABLE IF THE PERSON ATTEMPTING TO RELY ON IT CAN PROVE

THAT IT IS REASONABLE.

SO, THE PRINCIPLE IS THAT A PERSON MAY RESTRICT THE RIGHT OF ANOTHER TO TRADE, ONLY SO FAR AND TO THE EXTENT THAT IS NECESSARY AND REASONABLE TO PROTECT HIS LEGITIMATE INTERESTS.

EACH CASE MUST BE CONSIDERED SEPARATELY, AND THE GENERAL RULE IS THAT EVERY CONTRACT IN RESTRAINT OF TRADE IS PRIMA FACIE VOID UNLESS THE RESTRAINT(S) CAN BE SHOWN TO BE REASONABLE AS BETWEEN THE PARTIES, AND NOT INJURIOUS TO THE PUBLIC INTEREST.

25

MENTION THE THREE REQUIREMENTS FOR THE VALIDITY OF THE RESTRAINT IN TRADE

THE RESTRAINT IS REASONABLE ,IF ALL OF THE FOLLOWING CIRCUMSTANCES APPLY:

1) IT IS IMPOSED TO PROTECT A LEGITIMATE INTEREST

2) AS BETWEEN THE PARTIES IT IS A REASONABLE SAFEGUARD OF THAT INTEREST(IE IT IS NO WIDER THAN

NECESSARY GEOGRAPHICALLY OR IN TERMS OF TIME OR SKILLS TO PROTECT INTEREST)

3) IT IS REASONABLE IN THE INTERESTS OF THE PUBLIC

BRIEFLY EXPLAIN EACH REQUIREMENT

1) IT IS IMPOSED TO PROTECT A LEGITIMATE INTEREST

THE FIRST STEP IS TO IDENTIFY AND DEFINE THE INTEREST WHICH IS TO BE PROTECTED.

THE TESTS ARE APPLIED STRICTLY TO RESTRAINT OF TRADE IMPOSED BY EMPLOYERS ON THEIR

EMPLOYEES SINCE THE BARGAINING STRENGTH OF THE PARTIES MIGHT BE UNEQUAL.

MENTION THE THREE ILLEGITIMATE INTERESTS THAT CANNOT BE PROTECTED BY A RESTRAINT OF

TRADE CALUSE

THE EMPLOYER IS NOT ALLOWED TO USE A RESTRAINT OF TRADE CLAUSE MERELY TO PREVENT A

FORMER EMPLOYEE

FROM COMPETING WITH HIM,(MORRIS V SAXELBY(1916))

FROM OBTAINING OTHER EMPLOYMENT (ATTWOOD V LAMMONT(1920)); OR

FROM USING PERSONAL SKILLS OR GENERALLY AVAILABLE KNOWLEDGE

(FACCENDA CHICKEN V FOWLER (1986)).

MENTION THE TWO INTERESTS WHICH ARE LEGITIMATE INTERESTS

THE TWO INTERESTS WHICH ARE LEGITIMATE INTERESTS ARE

TRADE SECRETS

CLIENT CONNECTIONS

MENTION A CLASSIC CASE WHERE A RESTRAINT IN TRADE OF CLAUSE WAS UPHELD

HARRIS V LITTLEWOODS ORGANISATION(1978)

A FORMER DIRECTOR TRIED TO JOIN A RIVAL COMPANY WITHIN THE TWELVE MONTH RESTRAINT

PERIOD STATED IN HIS CONTRACT

HELD: AS THE NATURE OF THE BUSINESS WAS PARTICULARLY COMPETITIVE AND THE EMPLOYER WAS

SENIOR ENOUGH TO KNOW MANY OF THE EMPLOYER’S TRADE SECRET,THE RESTRICTION WAS VALID

EMPLOYMENTS WHICH PUT THE EMPLOYEE IN CONTACT WITH CUSTOMERS RAISE A PRIMA FACIE

LEGITIMATE INTEREST FOR THE EMPLOYER TO PROTECT:

HOME COUNTIES DAIRIES V SKILTON(1970)

DAIRIES CREST LTD V WISE (1989)

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2) NO WIDER THAN NECESSARY GEOGRAPHICALLY OR IN TERMS OF TIME OR SKILLS TO PROTECT

INTEREST)

WHAT IS THE GENERAL RULE REGARDING THE GEOGRAPHIC EXTENT AND DURATION OF

RESTRAINT OF TRADE

THE GENERAL RULE IS THAT THE RESTRAINT IMPOSED MUST BE REASONABLE IN SCOPE,

GEOGRAPHICAL EXTENT AND DURATION

IF IT IS EXCESSIVE IT WILL NOT BE UPHELD(MASON V PROVIDENT CLOTHING(1913),WHERE A

RESTRICTION COVERED AN AREA WITH A 25 MILE RADIUS AROUND LONDON

HOW DO THE COURTS GO ABOUT ASCERTAINING THE ACCEPTABILITY OF A RESTRAINT AS TO AREA

AND TIME?

THE COURT MUST BALANCE THE RESTRICTIONS RELATING TO AREA AND TIME AGAINST EACH

OTHER

THE GREATER THE AREA,THE SHORTER THE TIME LIMIT MUST BE

MAY AN EMPLOYER IMPOSE A WORLD-WIDE RESTRAINT OVER EMPLOYEE

AN EMPLOYER MAY IMPOSE A WORLD WIDE RESTRAINT OVER EMPLOYEE’S COMPETITIVE

ACTIVITIES IF HIS THE BUSINESS IS CONDUCTED OVER SUCH A WIDE AREA,PROVIDED THE

EMPLOYEE’S INFLUENCE OVER CLIENTS IS ALSO WORL-WIDE

3) REASONABLE IN THE INTERESTS OF THE PUBLIC

WHEN IS A RESTRAINT OF TRADE CLAUSE DEEMED TO BE REASONABLE?

A RESTRAINT OF TRADE CLAUSE IS DEEMED TO BE REASONABLE IF IT PASSES THE TEST OF NOT

PREJUDICIAL (HARMFUL)TO THE PUBLIC INTEREST

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MENTION THE FIVE TYPES OF CONTRACTS IN RESTRAINT OF TRADE i. EMPLOYER AND EMPLOYEE ii. SALE OF GOODWILL OF A BUSINESS

iii. SUPPLY OF GOODS – VERTICAL AGREEMENTS iv. SUPPLY OF GOODS – HORIZONTAL AGREEMENTS OR CARTELS v. EXCLUSIVE SERVICE AGREEMENTS

BRIEFLY EXPLAIN THE FIVE TYPES OF CONTRACTS IN RESTRAINT OF TRADE

i. EMPLOYER AND EMPLOYEE

THIS OCCURS WHERE AN EMPLOYER INSERTS IN A CONTRACT OF EMPLOYMENT CLAUSES RESTRICTING HIS EMPLOYEE FROM ENGAGING IN A COMPETING BUSINESS AFTER HE HAS LEFT THE EMPLOYMENT CONCERNED.

FOR EXAMPLE, A COMPANY MAY LEGITIMATELY WISH TO PREVENT A SALESMAN FROM TRYING TO TAKE AWAY ALL THE CUSTOMERS ON WHOM HE CALLS, AND TRANSFER THEIR CUSTOM TO A RIVAL COMPANY, IF IT LATER EMPLOYS HIM.

ON THE OTHER HAND, THE SALESMAN HAS A RIGHT, WHICH THE LAW WILL RESPECT, TO EARN HIS LIVING IN THE MANNER OF HIS CHOICE.

SO, A COVENANT WILL BE ENFORCED WHICH SEEKS TO PREVENT AN EMPLOYEE FROM COMPETING AFTER HE LEAVES THAT EMPLOYMENT, PROVIDED IT IS NO WIDER IN GEOGRAPHICAL AREA AND IN TIME THAN IS REASONABLY NECESSARY TO PROTECT THE EMPLOYER’S LEGITIMATE INTERESTS. WHAT IS “REASONABLE” IN A GIVEN CASE WILL DEPEND ON THE STATUS OF THE EMPLOYEE, AND ON THE RIGHTS WHICH NEED PROTECTING.

IN SIR W C LENG & CO. LTD V. ANDREWS (1909)A JUNIOR REPORTER ON A PROVINCIAL NEWSPAPER WAS REQUIRED NOT TO BE CONNECTED WITH ANY OTHER NEWSPAPER WITHIN 20 MILES OF SHEFFIELD. HELD: THE CONSTRAINT WAS UNREASONABLY WIDE.

IN FOSTER & SONS LTD V. SUGGETT (1918)A WORKS MANAGER WAS NOT PERMITTED TO ENGAGE IN GLASS-MAKING ANYWHERE IN THE UK.HELD: IT WAS REASONABLE, AS THE EMPLOYEE WAS TRAINED IN TRADE SECRETS WHICH WERE APPLICABLE THROUGHOUT THE COUNTRY.

IN LITTLEWOODS ORGANISATION LTD V. HARRIS (1978)HARRIS WAS A DIRECTOR OF THE MAIL-ORDER SIDE OF LITTLEWOODS’ BUSINESS. HIS CONTRACT PRECLUDED HIM FROM WORKING FOR ANY OTHER MAIL-ORDER COMPANY FOR 12 MONTHS AFTER LEAVING LITTLEWOODS’ EMPLOYMENT. HE WISHED TO JOIN GUS LTD – A RIVAL MAIL-ORDER BUSINESS. HELD: THE RESTRAINT WAS REASONABLE, IN THE SENSE THAT MAIL-ORDER BUSINESS IS HIGHLY SKILLED AND VERY COMPETITIVE. HARRIS WAS A DIRECTOR, AND IN A POSITION TO KNOW AND SUPPLY MANY TRADE SECRETS.

IN DETERMINING WHAT CONSTITUTES REASONABLENESS THE COURTS OCCASIONALLY ADOPT A COMMON SENSE APPROACH.

THE COURTS WILL NOT AUTOMATICALLY TAKE THE EMPLOYER’S VIEW OF ANY SITUATION. IT IS FOR THE EMPLOYER TO PROVE THAT HE IS GENUINELY TRYING TO PROTECT HIMSELF AGAINST UNFAIR COMPETITION BY THE EX-EMPLOYEE.

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ii. SALE OF GOODWILL OF A BUSINESS IF THE RESTRAINT IS MERELY TO STOP COMPETITION WITHOUT PROTECTING THE BUSINESS

SOLD, IT WILL BE UNENFORCEABLE.

IN NORDENFELT V. MAXIM NORDENFELT GUNS AND AMMUNITION CO. LTD (1894) NORDENFELT WAS AN INVENTOR AND MAKER OF GUNS. HE SOLD HIS BUSINESS TO MAXIM, AND AGREED THAT HE WOULD NOT, FOR 25 YEARS, ENGAGE IN THE MANUFACTURE OF GUNS. HE WAS, HOWEVER, PERMITTED TO DEAL IN EXPLOSIVES, ETC. AFTER SOME YEARS, HE WANTED TO JOIN A RIVAL GUNMAKER. HELD: ALTHOUGH UNRESTRICTED AS TO GEOGRAPHICAL AREA, AND LENGTHY AS TO TIME, THE COVENANT WAS NOT UNREASONABLY WIDE IN THE CIRCUMSTANCES. THIS WAS ESPECIALLY SO AS NORDENFELT HAD RECEIVED A VERY LARGE SUM OF MONEY FOR THE SALE OF GOODWILL.

iii. SUPPLY OF GOODS – VERTICAL AGREEMENTS THIS TYPE OF CONTRACT IS WHERE SUPPLIERS OF GOODS HAVE RESTRICTED AGREEMENTS WITH

THE BUYERS – E.G. A WHOLESALER AGREEING TO PURCHASE ALL HIS REQUIREMENTS FOR PARTICULAR GOODS FROM A SINGLE MANUFACTURER. A COMMON FORM OF THIS, NOWADAYS, IS THE “SOLUS” PETROL AGREEMENT BETWEEN OIL COMPANIES AND GARAGES.

ESSO PETROLEUM CO. LTD V. HARPER’S GARAGE (STOURPORT) LTD (1968) MR HARPER OWNED TWO GARAGES. IN RESPECT OF THE FIRST, HE AGREED WITH ESSO TO

PURCHASE ONLY ITS PETROL FOR 4½ YEARS. IN RESPECT OF THE SECOND, HE MORTGAGED IT TO ESSO FOR 21 YEARS, IN RETURN FOR A

LOAN OF £7,000. HE AGREED THAT HE WOULD NOT REDEEM THE MORTGAGE DURING THIS PERIOD, AND

THAT HE WOULD, FOR THE WHOLE 21 YEARS, BUY ONLY ITS PETROL. HELD: THE FIRST AGREEMENT, LASTING 4½ YEARS, WAS REASONABLE. AS REGARDS THE

SECOND, 21 YEARS WAS FAR TOO LONG FOR THE PETROL TIE, AND UNNECESSARY TO PROTECT ESSO’S INTERESTS, WHICH WERE ADEQUATELY SECURED BY THE MORTGAGE. IT WAS, THEREFORE, UNENFORCEABLE.

iv. SUPPLY OF GOODS – HORIZONTAL AGREEMENTS OR CARTELS IN CARTELS, MANUFACTURERS OR DEALERS IN SIMILAR GOODS BAND TOGETHER TO CONTROL

THE PRICE OR OTHER CONDITIONS FOR SALE, ETC. THESE ARE, CLEARLY, IN RESTRAINT OF TRADE – AND, SO, THEY ARE VOID AT COMMON LAW.

IT IS ONLY IF THEY CAN POSITIVELY BE SHOWN TO BE IN THE PUBLIC INTEREST THAT THEY WILL BE ENFORCED.

RE MOTOR VEHICLE DISTRIBUTION SCHEME AGREEMENT (1961) UK MOTOR MANUFACTURERS AGREED AMONG THEMSELVES TO SELL THEIR CARS ONLY

THROUGH SPECIALLY APPOINTED DEALERS, WHO WOULD BE REQUIRED TO KEEP ADEQUATE STOCKS AND SPARES, TO PURCHASE A FIXED NUMBER OF VEHICLES A YEAR, AND TO PURCHASE AT THE MANUFACTURER’S RETAIL PRICE LESS A FIXED DISCOUNT.

THE MANUFACTURERS CLAIMED THAT THE AGREEMENT WAS IN THE PUBLIC INTEREST, BECAUSE IT KEPT IN EXISTENCE AN EFFICIENT DISTRIBUTION NETWORK.

HELD: THE COURT WOULD HAVE NONE OF IT. THE AGREEMENT WAS IN RESTRAINT OF TRADE.IN ADDITION, CARTELS AND SIMILAR AGREEMENTS ARE CONTROLLED BY STATUTE.

.

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V EXCLUSIVE SERVICE AGREEMENTS UNDER THESE AGREEMENTS THE EMPLOYEE IS, IN EFFECT, AGREEING TO WORK ONLY FOR THE

EMPLOYER.

HERE THE COURTS ARE SOMETIMES CONSCIOUS OF THE INEQUALITY OF THE BARGAINING POWER OF THE RESPECTIVE PARTIES.

SIMPLY PUT, IF THE COURTS FEEL THAT THE EMPLOYEE IS IN A WEAK POSITION AND STANDS TO

GAIN LESS FROM THE CONTRACT THAN THE EMPLOYER THEN THEY WILL NOT ENFORCE IT.

IN SCHROEDER MUSIC PUBLISHING LTD V. MACAULAY (1984) AN UNKNOWN SONGWRITER ENTERED INTO AN AGREEMENT GIVING THE PUBLISHERS THE

FULL WORLD COPYRIGHT IN ALL OF HIS SONGS. THE AGREEMENT ALSO GAVE THE PUBLISHERS THE RIGHT TOTERMINATE THE CONTRACT

OR ASSIGN THE BENEFIT OF IT AT ANY TIME. THERE WAS NO CORRESPONDING DUTY TO PUBLISH OR PROMOTE ANY OF THE

SONGWRITER’S COMPOSITIONS.HELD: THIS WAS AN UNREASONABLE RESTRAINT OF TRADE.

IF THE COURT DECIDES THAT A PARTY IS GENUINELY TRYING TO PROTECT HIMSELF AGAINST UNFAIR COMPETITION, BUT THE WORDING OF THE RESTRAINT IS TOO RESTRICTIVE, IT MAY CONSIDER USING SEVERANCE. FOR SEVERANCE TO BE APPLIED, THE COURT MUST BE SATISFIED ON SEVERAL ISSUES: - THAT THE CONTRACT CAN BE SPLIT INTO SEPARATE COMPONENTS - THAT THOSE COMPONENTS ARE CAPABLE OF STANDING ALONE AND BEING ENFORCEABLE AS

SEPARATE CONTRACTS

- THAT NO REWORDING OF THE CONTRACT IS REQUIRED - THAT THE UNENFORCEABLE PART IS A RELATIVELY MINOR PART OF THE CONTRACT AS A WHOLE.