Spotlight: breach of contract claims in Isle of Man – Lexology

An extract from The Complex Commercial Litigation Law Review, 2nd Edition

Breach of contract claims

A breach of contract claim can be brought where one party fails, or indicates they do not intend, to fulfil their obligations under the contract. The Rules of the High Court of Justice 2009 provide that where a claim is based on a written agreement, a copy of the contract or document constituting the agreement must be attached to or served with the particulars of claim. The Rules provide that where the claim is based upon an oral agreement, the particulars of the claim should set out the contractual words used and state by whom, when and where spoken. The Rules further provide that where the claim is based upon agreement by conduct, the particulars of claim must specify the conduct relied on and state by whom, when and where the acts constituting the conduct were done.

Damages are ordinarily limited to placing the injured party in the same financial position as if the contract has been properly performed. There is a duty on the claimant to take all reasonable steps to mitigate their losses caused by the breach. If there were reasonable steps the non-breaching party could have taken to avoid or mitigate their loss as a result of the breach, they cannot recover damages for such avoidable loss.

Courts will award damages for a breach if they arise naturally from the breach or if they should have been in the reasonable contemplation of the parties at the time of the contract, as being probable as a result of the breach. Should the breach be sufficiently serious, the other party to the contract may have sufficient grounds to cancel the contract entirely. The court can order specific performance or injunctions where damages would be an inadequate remedy.

The Supply of Goods and Services Act 1996 implies certain conditions into a contract. In relation to the supply of goods in the course of business, these are that:

  1. the seller has title to sell;
  2. the goods correspond with the description;
  3. they are of satisfactory quality;
  4. they are reasonably fit for purpose (the buyer must expressly or impliedly make the seller aware of the purpose); and
  5. a sample provided will correspond with the bulk of the goods.

For supply of services in course of business, the implied terms are:

  1. the supplier will use reasonable care and skill;
  2. the service will be carried out within a reasonable time; and
  3. if the contract is silent as to consideration, the contracting party will pay a reasonable charge.

The court also considered its powers to imply clauses into contracts in the case of Hodgson v. Tuck.

Evidence as to the intentions of the parties and the precise terms of the contract, especially when dealing with oral contracts, are the most common evidentiary issues that face the courts. Care should be taken to ensure that the contract accurately records the entirety of the agreement between the parties and that both parties understand their obligations.

A recent judgment, Carters & otr v. FCS & otrs, highlights that a claimant must be careful and provide clear evidence of the losses claimed. The court will be reluctant to award the damages sought if not supported with clear evidence of the loss.

Defences to enforcement

The contract may lack an essential ingredient for the formation of a valid contract. For example, a contract may be ‘void for uncertainty’.

In Willers v. Nugent the Staff of Government Division stated:

Mr Willers relied on one additional authority, decided since the Judgment: Openwork Limited v. Forte [2018] EWCA Civ 783. The parties there had entered into a written agreement with some standard terms. The dispute was whether a ‘clawback provision’ was sufficiently clear in specifying how it was to operate, when there was no express formula by which the relevant calculation was to be made. The trial judge, Mr Leslie Blohm QC, sitting as a judge of the High Court, had provided his own such formula based on the clear objective intention of the parties. The Court of Appeal dismissed the appeal because the parties had evinced a definite meaning, to be extracted from criteria expressed in the relevant clause, on which the court could safely act: per Simon LJ (with whom Arden and Newey LJJ agreed) at [30]. At [26] Simon LJ had referred to Scammell & Nephew Limited v. Ouston [1941] AC 251 where Lord Wright had stated at 268: ‘The object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted. But the test of intention is to be found in the words used. If these words, considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract. Such a position is not often found.’At [29], Simon LJ referred to Lewison’s Interpretation of Contracts (6th Ed) at p473: ‘A provision in a contract will only be void for uncertainty if the court cannot reach a conclusion as to what was in the parties’ minds or where it is not safe for the court to prefer one possible meaning to other equally possible meanings.’

The Limitation Act 1984 is in broadly similar terms to the English equivalent. A party has six years in which to bring a claim in respect of a simple contract, including cases of fraud, concealment or mistake. However, such six-year period does not commence until such time as any fraud, concealment or mistake has been discovered or could, with reasonable diligence, have been discovered.

In common law, a promise is not, as a general rule, binding as a contract unless it is supported by consideration.

A lack of consideration is an issue that seldom arises in commercial contracts, as few commercial parties would do something for nothing. However, rarely, such issues can arise. If the parties agree that one party will do something that the party is already contractually obliged to do, so that any new obligation assumed by the other party is unsupported by fresh consideration, there will be no consideration, and therefore no binding contract.

Further, consideration may also become an issue if the parties seek to vary the contract, as a variation requires fresh consideration from each party. A defect in consideration cannot be resolved by reliance on consideration that does not exist or that has been given in the past.

In the case of McSween v. Royal London Mutual Insurance Society Limited, the court considered a case for negligent misrepresentation where the claimants had pleaded economic duress in respect of their agreement to increased insurance premiums. Therein, the deemster stated:

I am wholly unpersuaded that economic duress is a factor in this case. I need only refer to the headnote of the Privy Council decision in Pao On v Lau Yiu [1979] 3 All ER 65 in which it is stated that ‘to constitute duress of any kind there had to be coercion of will so as to vitiate consent, and in relation to a contract commercial pressure alone did not constitute duress’. While the Claimants may have been unhappy to pay increased premiums and may have felt under some pressure to do so, this is a long way from establishing duress.

A contract entered into under duress is voidable.

Undue influence was introduced to deal with cases where a contract was entered into as a result of pressure, but this pressure did not amount to duress. Undue influence can arise where there is a relationship between the parties that has been exploited by one party to gain an unfair advantage.

The Manx court considered the position regarding undue influence in the case of Jolly v. Watson, where the claimant had entered into a property transaction subject to the undue influence of a figure akin to a family member. Taking into account all of the circumstances, the court determined that the claimant was subject to undue influence and therefore voided the contract.

There are numerous circumstances in which issues may arise in a contract as a result of public policy. The most common circumstances are where the contract involves illegality or restraint of trade are based on public policy. Other circumstances include contracts that are damaging to good government, in terms of domestic and foreign affairs, contracts that interfere with the machinery of justice, contracts involving the funding of litigation in exchange for a share of proceeds or where a contract would be damaging to the ideals of marriage or morality.

However, a contract cannot automatically be rescinded by virtue of involving issues that are against public policy.

In Bank of Ireland Holdings (IOM) Limited, the court considered whether it was against public policy for the Directors of Bank of Ireland to be compelled to disclose the information to the Irish Revenue:

  1. if all of the information was held by the Bank of Ireland in Dublin in any event but in unwieldy form;
  2. if some of the information was held by Bank of Ireland in Dublin in any event, but in unwieldy form; and
  3. if none of the information was held by Bank of Ireland in Dublin.

The deemster concluded:

In the circumstances of this case, it would be against public policy for this Court to exercise its discretion to compel the Directors to comply with the Disclosure Resolution, in each of the circumstances envisaged by the Preliminary Issues. If all, or part of the Information is held by the Bank of Ireland in Ireland then no authority has been produced that mere inconvenience on the part of the Bank of Ireland should be capable of outweighing the duty of confidentiality attaching to the accounts in the Isle of Man. If all, or part of the Information is held in the Isle of Man, then public policy dictates that it should not be disclosed.

Limitation of liability clauses are used to manage the risks associated with a contractual relationship. If there is no clause limiting liability, there is no financial limit on the damages a party can ask for in the event of a breach of contract. A party who wished to reduce the potential risks of a contract should consider an express limitation of liability clause.

Limitations of liability cannot be applied to claims for death or personal injury caused by negligence, cases involving fraud or fraudulent misrepresentation; breach of the implied terms in respect of certain aspects involving sale of goods and the supply of goods and services, as provided pursuant to Manx statute.

In HSBC v. Alder and other, the court considered a case of alleged mistake, and whether a contract provided for who bore the risk of such mistake and considered the doctrine of impossibility.

Frustration is a statutory remedy, pursuant to the Law Reform (Frustrated Contracts) Act 1944. A contract may be considered frustrated, and be consequently discharged, if something occurs after the contract is formed that renders it physically or commercially impossible for the contract to be fulfilled, or changes the contractual obligation into a radically different obligation from that envisaged when the contract was entered into. This concept ties into the concept of impossibility of performance. This was considered by the Manx court in Lourie v. Marketstheworld.

The court considered misrepresentation in the case of McSween & otr v. Royal London, and followed English precedent as part of its assessment. The issue was also considered as part of an application to strike out in the case of Blackshaw v. Viking Renovations & otr – such case also considered the law on negligent misstatement.

Source: lexology.com

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