Contract: The Law of Contract (Common Law Series)

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Commentary

The Law of Contract
Sixth Edition. Up to date to 14 November 2017

The Law of Contract provides a comprehensive and authoritative treatment of all aspects of the law of contract. It is both accessible and detailed, designed specifically to meet the needs of practitioners in the field.

The latest key decisions are covered and accompanied by incisive analysis, including Patel v Mirza which deals with the interaction of contract and unjust enrichment in relation to illegal contracts.

This title also contains significant statutory and common law changes since the last edition:
o The new Consumer Rights Act 2015, with an easy-to-follow flowchart on applying the Act to 'unfair terms'
o Major rewrites in key chapters in relation to liquidated damages, entire agreement clauses, non-reliance clauses, construction of contracts, implied terms and 'subject to contract' stipulations
o Important Supreme Court cases including Arnold v Britton, Marks & Spencer Plc v BNP Paribas, Wood v Capita Insurance Services Ltd and Impact Funding Solutions Ltd v Barrington Support Services
o Changes to the law in respect of non-consumer contracts arising from the Insurance Act 2015
o Developments in relation to the intention to create legal relations and on notices making time of the essence


General editor
Michael Furmston

Contributors
Professor Neil Andrews
Professor Roger Brownsword
Professor Jason Chuah
Goh Yihan
Professor Roger Halson
Aaron Khan
Eliza Mik
John E Stannard
G J Tolhurst


Foreword to the first four editions
by the Right Honourable The Lord Steyn, Lord of Appeal in Ordinary
The law of contract is the core subject in the law of obligations. Upon its boundaries depend the spaces left for the law of tort and in the law of restitution. Historical and cultural factors in different countries dictate the boundaries between these allied subjects. Most legal systems, common law and civilian, to which we look for guidance in a difficult case assign to the law of contract a greater role than English law at present accommodates. In England the law of contract has been restricted by the requirements of privity of contract and consideration. Lord Goff of Chieveley, a master of the common law, observed a few years ago in The Pioneer Container [1994] 2 AC 324 at 335, that it is an open question how long those principles can be maintained. If this assessment is correct, as I believe it to be, it follows that the very foundations of our contract law may be re-examined by the courts in the next few years. This ought to cause no apprehension. It is healthy to re-examine from time to time whether the existing law fulfils the only purpose for which it exists, namely the needs of contemporary society. And the structural soundness of our law of contract is of great importance.
This work is principally aimed at practitioners. Practitioners require in the first place a map of the vast and complex subject. This book provides a most detailed and careful map of the contours of our contract law. But while the orthodox view of the law is carefully stated and explained, I am glad to see that throughout the work problems are placed in context and tensions between competing considerations are carefully addressed. That is a most valuable part of this book. After all, as adult lawyers we must address the problem that sometimes in contract cases the requirements of certainty and efficiency may be countered by the requirements of moral legitimacy and individualised justice. How the courts should approach those conflicts, notably in appellate courts, is a subject of supreme importance for those appearing in the courts.
If I had to single out any part of this book for special praise, it is the substantial Chapter 1, General Considerations. It examines the grand themes of our contract law – freedom of contract, reasonableness, good faith or the reasonable expectations of parties, and so forth – in an impressive style. Nothing quite like it has ever been published in English law. It abounds in meaningful insights. It will be required reading for practitioners in the law of contract. And it is wise for practitioners to bear in mind that the higher you go in the legal system the more important it is to concentrate on the footholds of secure theoretical foundations.
I regard the publication of this work as a major event in the development of our contract law. I will make constant use of it. I unreservedly commend it to practitioners, judges, academic lawyers and students.

Preface to the sixth edition
In this edition Malcolm Clarke and Brenda Sufrin have been succeeded by Neil Andrews and Aaron Khan. We are very grateful to Brenda and Malcolm for their contributions, spread in Malcolm’s case over the first five editions. We were very sorry that ill health at the last moment prevented him from continuing, but delighted that we did not have to leave Cambridge for an excellent replacement.
There have been significant changes both statutory and common law since the 5th edition. The Consumer Rights Act 2015 and Patel v Mirza are perhaps the most obvious examples.

Michael Furmston
November 2017

Preface to the fifth edition
This fifth edition seeks to add discussion of new developments up until late 2014, including important decisions of the House of Lords/Supreme Court in Office of Fair Trading v Abbey National plc; Oceanbulk Shipping & Trading SA v TMT Asia; Rainy Sky SA v Kookmin Bank; Radmacher v Granatino; ENE Kos 1 Ltd v Petroleo Brasileiro SA; Edwards v Chesterfield Royal Hospital NHS Foundation Trust; Geys v Société Générale and President of the Methodist Conference v Preston. There have of course been many interesting and instructive cases from lower courts.
The editorial team has seen more changes than for any of the previous editions. John Adams and Robert Bradgate have sadly been taken from us; John Carter and Elizabeth Macdonald were unable to continue. In all four cases the text still owes a very great deal to their efforts. We welcome Jason Chuah, Goh Yihan, Eliza Mik and John Stannard to the team.

Michael Furmston
February 2015

Preface to the fourth edition
Keeping a book of this kind up to date continues to be like painting the Forth bridge – a never ending task though fortunately more interesting to those doing it. Although it has been possible to update the electronic versions of the text since 2007, it now seems time to produce a new print edition.
There have been a number of important decisions of the House of Lords in Datec Electronic Holdings v United Parcels Service [2007] UKHL 23; Stack v Dowden [2007] UKHL 17; Lonsdale v Howard & [2007] UKHL 32Hallam; Riverside Housing Association v White [2007] UKHL 20; The Golden Victory [2007] UKHL 12; Sempra Metals v IRC [2007] UKHL 34; Chartbrook v Persimmon [2009] UKHL 38; The Achilleas [2008] UKHL 48; Stone & Rolls v Moore Stephens [2009] UKHL 39; Fisher v Brooker [2009] UKHL 41; of the new Supreme Court in Office of Fair Trading v Abbey National [2009] UKSC ; RTS v Muller [2010] UKSC 14; and of the Privy Council in MacLeod v MacLeod [2008] UKPC 64; AG of Belize v Belize Telecom [2009] UKPC 10.
Probably the changes in relation to the description of the process of Interpretation of Contracts and the Calculation of Damages for Breach are the greatest. There have of course been many other cases in lower courts. We have tried to take account of developments up to early 2010.
The editors are very grateful for the help provided by Nigel Voak, Evelyn Reid and Judith Anderson.

Michael Furmston
September 2010

Preface to the third edition
This third edition appears less than four years after the appearance of the second edition and thus continues the policy of keeping up to date by new editions rather than by supplements. The publishers and my fellow editors have shown great drive and enthusiasm in making this possible.
His coauthors were delighted when Andrew Phang was appointed to the High Court in Singapore and soon afterwards to the Court of Appeal but at the same time we miss him. I have taken over his responsibility for chapter 5 except for the treatment of competition law which is now in the safe hands of Brenda Sufrin.
Some of the developments noted in the preface to the second edition such as the invasion of traditional contract law by consideration of human rights law and the increasing importance of globalisation in the development of contract law have been marked by the decision of the House of Lords in Wilson v Secretary of State for Trade and Industry and the appearance of the second edition of the Unidroit Principles for international commercial contracts. There have been important decisions of the House of Lords also in Dunnachie v Kingston upon Hull; Eastwood v Magnox; Jackson v Royal Bank of Scotland; Jindal Iron &Steel v Islamic Solidarity; Lagden v O'Connor and Shogun Finance v Hudson and a helpful decision of the Privy Council in Pratt Contractors v Transit.
There have of course been many other cases with particular richness in relation to the unfair terms in consumer contracts regulations and commercial agents. We have tried to take account of developments up to the end of October 2006.
Evelyn Reid and Judith Anderson from the publishers have at all times been helpful and encouraging.

Michael Furmston
February 2007

Preface to the second edition
The first edition of this book appeared in 1999. The authors were much encouraged by the friendly reception which it received and it soon became clear that urgent thought should be given to the question of keeping the work up to date. The authors and the publishers agreed that a completely new edition was a better solution than updating by means of supplements and we therefore present this second edition almost exactly four years after the appearance of the first.
Contract law lives in an age of major change. The Contract (Rights of Third Parties) Act 1999 has now come into force though its precise effect remains a matter for speculation. It has become clear that serious consideration has to be given to the impact of human rights legislation on contract law and we await with the greatest interest the decision of the House of Lords in the Wilson case. Globalisation proceeds apace with the completion of the Principles of European Contract Law and a revised and extended edition of the UNIDROIT Principles for International Commercial Contracts being very close to completion. Both human rights and globalisation have required extensive new consideration in this new edition. The major changes in competition law introduced by the Enterprise Act 2002 required careful consideration. We have made a start on the examination of the impact of electronic commerce on the process of contract formation but it is clear that there will be much more by way of development of this topic in the future. Similarly, the important review of the law of gambling may well require significant changes in a future edition.
There have been a significant number of decisions of the House of Lords of major importance. These include the contrasting views of the process of construction in the particular context of agreements by way of release in BCCI v Ali; the first decision of the House of Lords on the Unfair Terms in Consumer Contracts Regulations in Director General of Fair Trading v First National Bank; Royal Bank of Scotland v Etridge (No 2); Hurst v Bryk; On Demand Information plc v Michael Gerson Finance plc; and Panatown v McAlpine.
Important decisions have not of course been confined to the House of Lords. Other cases which perhaps deserve mention include Baird Textiles v Marks & Spencer; Carlton Communications v Football League; The Great Peace; Shogun v Hudson; Awwad v Geraghty; Mohammed v Alaga; Carnduff v Rock and Stocznia Gdanska v Latvian Shipping. There has also been a substantial body of cases on the Commercial Agents Directive.
Modern developments in law reporting, particularly through the use of the internet meant, that we are all in constant danger of being drowned in material. The authors do not claim to have referred to every case which might be found on some database somewhere but they do hope to have covered all significant reported cases which had appeared by the end of the year 2002 and to have taken note of at least some which have appeared in the early part of 2003.
The production of this edition has proceeded in a happy spirit of co-operation to which the good offices of Julian Roskams, Deborah Saunders and Helen Vaux (strictly in alphabetical order) at LexisNexis UK have greatly contributed.

Michael Furmston
June 2003

Preface to the first edition
This book is the first of a new series to be published by Butterworths to include texts on the major areas of common law such as contract, tort, agency, sales etc. The series is designed to meet the needs of practitioners in modern legal practice.
The classical distinction between student texts and practitioner texts is, like many classical distinctions, very different today from what it was a hundred years ago. Major texts written primarily for the student market are routinely used by practitioners; Lords of Appeal in Ordinary write books of the highest academic distinction; academic lawyers are to be found writing handbooks to guide the practitioner through the complex interactions of the coalface. Nevertheless, the needs of practitioners are not the same as those of students. Practitioners need a text which clearly and accurately states the accepted view but they need more than this. The accepted view will not in all cases last forever. Advocates before appellate courts need material to purpose reformulations of the accepted view which may put their case on the right rather than the wrong side of the line, and from time to time to argue for one of those major leaps forward which are characteristic of the common law at its best.
The modern common law of contract has a global reach. It is commonplace for the House of Lords, the High Court of Australia and the Supreme Court of Canada to pay careful attention to each other's views in this area and by no means unheard of to note the relevance of the United States or the great civil law systems. It is a great pleasure in this context that three of the authors come from outside of England and Wales, one from Singapore and two from Australia. Still, this remains an account of the English law of contract and does not attempt an exhaustive statement of other material or a detailed analysis of the Commonwealth decisions. We do hope, however, to have drawn attention to some of the most interesting and instructive material.

Michael Furmston

Contents
Contributors
Foreword to the first four editions
Preface to the sixth edition
Preface to the fifth edition
Preface to the fourth edition
Preface to the third edition
Preface to the second edition
Preface to the first edition
Abbreviations
Table of statutes
Table of SIs
Table of cases

Chapter 1
General Considerations
Roger Brownsword
Chapter 2
Formation of Contracts
Michael Furmston, Eliza Mik and GJ Tolhurst
Chapter 3
Contents
Jason Chuah
Chapter 4
Vitiating Factors
Malcolm Clarke
Chapter 5
Illegality and Public Policy
Michael Furmston, Brenda Sufrin
Chapter 6
Third Parties
Michael Furmston, Goh Yihan and GJ Tolhurst
Chapter 7
Termination
JW Carter and JE Stannard
Chapter 8
Remedies for Breach of Contract
Roger Halson


Abbreviations
AA 1996Arbitration Act
1996
BEA 1882Bills of Exchange Act
1882
BS(A)A 1882Bills of Sale (Amendment) Act
1882
BSA 1878Bills of Sale Act
1878
C(RTP)A 1999Contracts (Rights of Third Parties)
Act 1999
CA 1985Companies Act
1985
CA 1989Companies Act 1989
CA
2006
Companies Act 2006
CA 1998Competition
Act 1998
CCA 1974Consumer Credit Act
1974
CLSA 1990Courts and Legal Services Act
1990
CPR 1987Consumer Protection (Cancellation of
Contracts Concluded Away from Business Premises) Regulations
1987
CRA 2016Consumer Rights Act
2016
EA 2002Enterprise Act 2002
ERA
1996
Employment Rights Act 1996
ERRA
2013
Enterprise and Regulatory Reform Act 2013
HRA
1998
Human Rights Act 1998
IA 1986Insolvency
Act 1986
ICA 1970Illegal Contracts Act 1970 (New
Zealand)
LA 1980Limitation Act
1980
LP(MP)A 1989Law of Property (Miscellaneous
Provisions) Act 1989
LPA 1925Law of Property Act
1925
LPCD(I)A 1998Late Payment of Commercial Debts
(Interest) Act 1998
SGA 1979Sale of Goods Act
1979
UCTA 1977Unfair Contract Terms Act
1977
UTCCR 1999Unfair Terms in Consumer Contracts
Regulations 1994