Breach Of Contract By The Buyer Law Contract Essay

Published Date: 02 Nov 2017

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PROJECT TITLE: THE SELLER'S REMEDIES FOR A BREACH OF CONTRACT BY THE BUYER: WHICH AVENUE TO FOLLOW?

[Should the buyer commit a breach of contract the seller will have a personal remedy against the buyer for damages, and will also have possible remedies against the goods, i.e. lien, rights of stoppage in transit and rights of re-sale? The project will explain and evaluate the effectiveness of these remedies and consider which of them is most appropriate.]

STUDENT NAME: PANAYIOTIS NEOFYTOU

SUPERVISOR NAME: DAWN JONES

MODULE CODE – NAME: 6LW002 - RESEARCH METHODS AND PROJECT

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PROJECT TITLE: THE SELLER'S REMEDIES FOR A BREACH OF CONTRACT BY THE BUYER: WHICH AVENUE TO FOLLOW?

[Should the buyer commit a breach of contract the seller will have a personal remedy against the buyer for damages, and will also have possible remedies against the goods, i.e. lien, rights of stoppage in transit and rights of re-sale? The project will explain and evaluate the effectiveness of these remedies and consider which of them is most appropriate.]

STUDENT NAME: PANAYIOTIS NEOFYTOU

STUDENT NUMBER: 0915348

SUPERVISOR NAME: DAWN JONES

MODULE LEADER: MARGARET WALSH

SUBMISSION DATE: 29TH of March 2013

WORDS COUNT: 7270

Table of Contents

Declaration

Presented in partial fulfilment of the assessment requirements of the Undergraduate Award Board

This work or any part thereof has not previously been presented in any form to the University of Wolverhampton or any other institutional body whether for assessment or for other purposes, save for any express acknowledgements, references and/or bibliographies cited in the work. I confirm that the intellectual content of the work is the result of my own efforts and of no other person and thus give my consent to the work being scanned through the University’s turn it in software.

It is acknowledged that the author of any dissertation work shall own the copyright. However, by submitting such copyright work for assessment, the author grants to the University a perpetual royalty-free licence to do all or any of those things referred to in Section 16(1) of the Copyright Designs and Patents Act 1988 (viz. to copy work; to issue copies to the public; to perform or show or play the work in public; to broadcast the work or to make an adaptation of the work).

Signed: ……………………………………

Date: 29/04/2013

Acknowledgment

First of all I would like to take this opportunity to express my sincere gratuities to my dissertation supervisor Mrs. Howell Lorraine who with his friendly and generous way helped me to carry out my dissertation. Additionally, I want to clarify that the specific study would not be able to be finished without his advice, experience and support.

Continuing, I would like to thank the specialist in psychologist Mr. Patounas Petros for the time that he spent to participate in my interview giving me basic information for my dissertation

Finally I would also like to acknowledge my family and friends who really supported me to finish my work and for the opportunity that my parents are giving me to study by covering all my financially fees that I needed at United Kingdom these three years.

Abstract

This report highlights the seller's remedies should he find that buyer to be in breach of contract. It collectively assesses the remedies available under contract in addition to commercial law. By adopting this holistic approach, it was felt that a greater appreciation of contractual and commercial principles would result, than would be the case if the subjects were dealt with in isolation. The results identified a number of opportunities available to the seller but also highlighted areas where the current legal position is somewhat lacking. Conclusions were that damage is a powerful remedy but it is used inappropriately which causes a number of problems with achieving contractual certainty. The report therefore recommends a number of changes that would resolve the issues highlighted. The main change recommended is to stop trying to quantify the unquantifiable. This could be achieved by using remedies of specific performance in place of damages. In addition where parties predetermine amounts to be paid, should a party breach the contract, this should not subsequently become open to challenge within the courts. As such there is no validity to the concept of preventing punitive damages.

Chapter one

Introduction

A contract has been defined as "an agreement giving rise to obligations which are enforced or recognised by law." [1] Whilst contracts can be created informally or formally, there are a number of elements that an agreement will need to contain if it is to be a valid contract. The purpose of drawing this distinction is such, that if the agreement does not contain the necessary elements, there is no contract. If there is no contract, there cannot have be any breach of it. If there is been no breach there can be no remedy.

A breach of contract is therefore defined as "a failure, without lawful excuse, to perform a contractual obligation". [2] There are a number of remedies available to a seller if the buyer should commit a breach of contract. The conventional remedy for such a breach is a personal remedy against the buyer for damages. There are a number of rules to be applied in respect of a claim for damages, which seek to prevent any level of punitive reward and instead aim to restore the seller to the position that he would have been in had the breach not occurred. [3] This report aims to assess the benefits of seeking damages in the event of a breach of contract, whilst also highlighting areas where damages will not assist a seller. A number of alternative remedies are available to a seller who has suffered a breach, these include seeking an order for specific performance and thereby requiring the breaching party to undertake the contractual obligations or even an injunction aimed to prevent the breach from occurring in first instance.

Supplementing the personal remedies against the buyer, are a number of actions that can be taken against the goods in question, as such these will only apply to contracts for the provision of goods as opposed to service contract. The remedies available include a lien over property, which entitles the seller to hold onto the property until such time as a debt is paid. [4] There are also rights of stoppage in transit and rights of re-sale. Remedies against goods originate from commercial law as opposed to damages which derive from contract and tort.

1.2 Research Aims

This report aims to explain the different remedies available to a seller who finds his contract has been breached by a buyer. In turn, each remedy will be assessed, discussed and evaluated in terms of its effectiveness, in an attempt to ascertain which of all the available remedies, is most appropriate to use in a particular type of breach. It is envisaged that there will be areas of law, touched upon in this report, where leading academics suggest and promote change. Given that the fundamental principle behind contract law is the freedom to contract, there is generally a great deal of reluctance to impose further regulation or place more conditions on the parties to a contract. Conclusions will therefore need to be drawn as to whether such change is necessary, or whether it has the potential to cause further issues.

1.3 Structure of Report

This report comprises of a literature review of learned writers in both, book and journal format, a focus and methodology to the research undertaken; the findings and analysis and finally, a number of conclusions and suggestions of areas in which change would be recommended.

Chapter Two

2.0 Literature Review

2.1 Personal Remedies

Personal remedies include action for price and damages and are available against the buyer. The remedies in this section are purely contractual in nature but confer a number of rights on the seller.

2.1.1 Damages

Contractual damages seeks to restore the claimant to the position he would have been in had the contract been performed. [5] The aim of damages is therefore restitution, as opposed to punishment or deterrence, although it is conceded that it may have a deterrent effect. [6] Ruxley Electronics and Construction Ltd v Forsyth, Lord Lloyd advised that: "It is first necessary to ascertain the loss the plaintiff has suffered by reason of the breach. If he suffered no loss, as sometimes happens, he can recover no more than nominal damages. For the object of damages is always to compensate the plaintiff, not to punish the defendant." [7] However, damages can be difficult to quantify for example in Farley v Skinner, the claimant was seeking an award for loss of enjoyment of his property by virtue of aircraft noise. [8] The property in question had not diminished in value since his purchase and as such there was no quantifiable or pecuniary loss. The breach of contract was the surveyor’s failure to report on aircraft noise and was a specific term in the contract. In this case the claimant was awarded £10,000.

The method of calculating damages is stated in the Sale of Goods Act 1979 (SGA) in respect of buyers remedies, section 51(3) SGA stipulates that the "measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered." Although we see by virtue of section 49(3) that the seller can claim interest from the date the payment became due. In modern contracts we often see the imposition of indemnity clauses, which seek to pay a specific sum on the event of a breach of contract. In situations where there is an indemnity clause, damages will only be available under this clause and therefore no longer available under the common law. [9] Such indemnities often exist in large building contracts and operate as a promise to undertake the work to an agreed timescale. Failure results in the claimant being entitled to a certain amount of damages for the period of the delay. This process can assist contractors to quantify the cost of delay at the outset. [10] The difficulty faced, is that liquidated or pre-ascertained damages unless compensating the injured party, could be assessed as punitive and thereby held to be unenforceable. [11] A number of principles were adopted by Lord Dunedin in the case Dunlop Pneumatic Tyre Co Ltd v New Garage Motor Co. Ltd, including that such clauses must represent a genuine pre-estimate of loss and must not be in any way unconscionable or punitive. [12] 

Given the non punitive nature of damages, it has been noted that there are occasions that it may be more "efficient" to create a breach than to complete the contract. This was the situation in Attica Sea Carriers Corporation v Ferrostaal Poseidon Bulk Reederei GmbH, where a charter party with repair obligation returned the vessel, breaching the contract when repairs exceeded the value of the ship. [13] Provided that the compensation payable will be less than the benefit derived from the breach then it will be deemed to be an efficient breach. [14] This freedom to contract or indeed break the contract, underpins the economic culture or essentially the capitalist society. [15] In treating the contract as repudiated i.e., the seller, on breach by a buyer of a condition of the contract as opposed to a warrantee, is treating the contract as having come to an end and refuses to perform his obligations. It is important to note that in situations where the contract has been breached by the buyer, the seller is under a duty to mitigate his loss. [16] Therefore any damages he may be entitled to will be reduced to the extent that his loss was not mitigated. In British Westinghouse Electric and Manufacturing Co Ltd v. Underground Electric Railways Co of London Ltd, the defendants replaced the turbines that appellant had supplied under the contract as these did not meet the contractual specifications. The cost of this replacement was significantly less than the cost of running the inefficient turbines over their estimated lifetime. As such the defendants were entitled to claim this cost from the appellant as this was acceptable mitigation of losses. [17] 

Damages will not be available in situations where the loss is considered to be remote and this was applied in the leading case of Hadley v Baxendale. [18] The facts in brief relate to a contract for the repair of a steam engine crank shaft used by the plaintiffs for the operation of their mill. The plaintiffs contracted the services of the defendant transportation company for the delivery of the crankshaft to an engineering firm, in order for a replacement to be made. The defendant did not deliver the item for a period of seven days which was a breach of contract. The plaintiff sought damages for loss of profit and payment of wages that had been suffered as a direct result of the delay. In finding for the defendant the court applied the following rule stating that damages will not be available in situations where it is so remote that it could not "have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it". [19] 

2.1.2 Specific Performance

This is an equitable remedy that may be available in certain instances of the buyer breaching the contract. Essentially the court could order that one party to the contract carry out their obligations. Failure to do so results in contempt of court in which fines and imprisonment can be levied as punishment. [20] Given that specific performance is an equitable remedy, the court will only issue this where the claimant has done no wrong. The basic equitable principle or maxim being that "he who seeks equity must come with clean hands" continues to underpin the equitable rules. Falcke v Gray, is an example where the court decided that whilst the contract was of a nature that specific performance could assist (as damages would not have been adequate in the circumstances), such order was declined as the claimant had substantially undervalued the items of which he had full knowledge of their market value and the defendant did not. [21] This case highlights the fact that specific performance is only available when damages will not amount to sufficient remedy. As such contracts for ordinary chattels will not be protected but those for rare items or antiques will have the benefit of this remedy. [22] Naturally there have been many cases and debates as to what amounts to unique or special qualities, for example in England land is considered to have this quality despite the fact that a housing estate could have several plots that are identical. Indeed McInnes raises the issues that Canadian courts have encountered, since their reversal of this rule and highlights the uncertainties and potential injustice that this has caused. [23] 

If the Draft Common Frame of Reference is adopted then the remedy of specific performance will be more readily available and therefore the exceptional element will no longer be a requirement. [24] The primary reason for broadening the application of the specific performance principle would be to bring England in line with Europe, so that contracting parties across Europe would be contracting on the same terms. Mulcahy suggests that there has been a relaxation of the specific performance rules in any event and as such the remedy has become more widely used. [25] That said, there still appears to be some reluctance to offer this remedy more widely. The reasons for which is the difficulty encountered when compelling a party to undertake their obligation. [26] 

2.1.3 Injunction

Injunctions can be granted in situations of illegality or public policy as was the case in Attorney General V Blake. [27] In this case Blake worked for UK Intelligence but was a double agent and spying for Russia. He was convicted for spying and incarcerated however, he managed to escape and flee to Russia. During his time spent in Russia, Blake wrote his autobiography of which he secured a sale to a publisher for £150,000 of which £40,000 had been paid. The auto-biography contained details of his work with Intelligence and was in breach of his contract of employment. The Attorney General sought an injunction to prevent Blake for receiving the remaining £90,000 due under the publishing contract. The injunction was granted by the House of Lords who held that in certain circumstances a claimant would be successful in seeking an account of profits in an action for breach of contract. Such action was deemed only to be available in exceptional circumstances. The defendant in this case had broken the law and this was sufficiently exceptional. Since this case there has been the introduction of the Proceeds of Crime Act 2002 which underpins the principle that the criminal should not be able to benefit from his crime.

In theory injunctions can also be granted in respect of preventing or restraining a person from action that will amount to a breach. [28] However, if an order for specific performance would not be granted then it is very unlikely that an injunction preventing breach of contract will be granted. Again this is a discretionary remedy available through equity and is granted in cases of exceptional circumstances. Notable examples are seen with contracts for performing artists as was the case in Lumley v Wagner, where the singer was prevented from singing in other theatres. [29] It did not stop her working as a singer and therefore was perfectly acceptable. The slightly more contentious Warner Bros v Nelson, Bette Davies was restrained from working in films or theatre for any other company. [30] This was acceptable at the time as it "apparently" didn't force her to work for Warner Bros, although whether this would be accepted today is somewhat debatable.

2.2 Real Remedies

Real remedies are actions available to the seller in respect that they are attached to the goods. [31] In situations where the seller has not been paid the seller will have a number of actions available to him against the goods. A fairly typical contract is the provision of goods for a defined price. If the buyer reneges on this payment he will be in breach of contract. It should be noted that a bounced cheque also constitutes non payment and is specifically provided in the Sale of Goods Act 1979. [32] If the goods have passed to the buyer then the seller's recourse for non payment would be to sue the buyer for the price. [33] The following rights of recourse are available to the unpaid seller who maintains possession of the goods:

2.2.1 Lien

A lien has been described as a type of security that can exist in property. [34] Essentially there are two types of lien, the first is the general lien which gives the person in possession the right to retain the goods until the whole debt is repaid. [35] General liens are thought to be somewhat extinct and best left to the 19th Century legal history. The second lien is known as a particular lien and is a right over property, which gives the person in possession, the right to retain said property until such time as the debt in respect of those goods is repaid. [36] The particular lien is provided for by section 41 SGA as occurring when goods are "sold without any stipulation as to credit... [or] sold on credit but the term of credit has expired... [or] where the buyer becomes insolvent." Whilst it is noted that there are different types of "particular lien", this report is only concerning itself with those of a contractual nature. A lien can exist despite the property transferring to the buyer as demonstrated in Bristol Airport Plc v Powdrill, [37] although there is a requirement to seek leave of administrators or the court if it is to be exercised when a company has become insolvent. [38] Liens in respect of property transferred to the buyer are created by specific provision in the contract thereby stipulating that possession will not pass until payment has been met in full. [39] This position was affirmed by the House of Lords in Armour v Thyssen Edelstahlwerke AG, who stipulated that contractual provisions regarding property passing were an absolute right and could not be undermined. [40] A seller who passes property to the buyer without this "right of disposal" or, has waived his lien will lose this right. [41] 

Liens operate as an effective method of seeking payment but they do not automatically give the holder the right to sell or otherwise transfer the property. Section 48 SGA provides that the seller must first give the buyer notice of his intention to sell. Perhaps the most important objective of creating a lien is to reduce the seller’s risk of being "only an unsecured general creditor of the buyer, should the latter become bankrupt". [42] By taking this action the seller will secure priority over other creditors seeking repayment should the buyer become insolvent as the goods do not transfer to the buyer until paid for.

2.2.2 Right of Stoppage in Transit

Section 44 SGA gives the seller the right to stop the goods in transit should the buyer become insolvent and thereby retain possession. If the goods are with a courier, then the seller needs to instruct the courier to return them although the cost of this will be borne by the seller. [43] Given the opportunity of the seller retaining possession through retention of title clauses and lien, until payment has been met in full, the benefits in relation to stoppage in transit have somewhat diminished. Although there is always the possibility that goods subject to a lien or retention of title clause will be challenged in court and therefore this operates as an additional safeguard to protect the seller’s interests. Goods are deemed to be "in transit" from the moment the seller delivers the item to an independent courier for the purpose of transferring it to the buyer. [44] Transit continues until such point as the goods are delivered to the buyer or his agent. [45] Some slightly strange technicalities could however, cause potential problems for a seller reliant on this right. Section 45(5) provides that is the goods are delivered to a ship that has been chartered by the buyer then "it is a question depending on the circumstances of the particular case [as to] whether they are in the possession of the...[seller through] a carrier or as agent to the buyer". This again highlights that the stoppage in transit right of the seller is not sufficient in itself to protect the seller from complete loss should the buyer become insolvent. This remedy is perhaps best used as an additional precaution as opposed to a standalone protection.

Uniserve Ltd v Croxen, highlights the successful use of stoppage in transit by the courier. [46] The supplier had granted a lien to the courier for sums outstanding. On the sellers insolvency the courier exercised it stoppage in transit rights. Although this was contested by the Administrator, the courier was successful in their claim and was thereby given priority over the Administrator.

2.2.3 Re-Sale

The right of resale can be exercised by the seller after giving notice of intention to sell to the buyer. [47] If, after a reasonable period from giving notice, the buyer has not paid for the goods the seller has the right of re-sale. If the seller did not exercise his right in the correct manner i.e., give notice to the buyer, any subsequent buyer would still take good title, [48] although it is clear that the seller would become liable to the original buyer for breach of contract. [49] Additionally the SGA makes specific reference for the seller to use contractual terms to confer his right of resale should the buyer default. [50] Where the seller resells the goods he does so in the capacity as owner. As such, if he is able to ascertain a higher price for the goods then he is entitled to keep the increase in profit. [51] Conversely any losses on resale would be recouped from the buyer by way of a claim for damages, although in regards to an insolvent buyer the seller would then have to join the creditors queue. [52] If however, the seller was extremely lucky to be in profit after resale and all funds outstanding by the buyer were repaid in full, the seller would then be obliged to refund any sums already paid by the buyer, to the extent that he does not make a loss. [53] 

2.3 Sellers' Remedies in General

Clearly the seller has a great number of potential remedies each with its respective benefits. Damages appear to far outweigh the other options available but there are certain limitations imposed. Although it is acknowledged that there are situations where a sum is awarded where the loss is not quantifiable, the general context is that damages cannot be made available if they are in any way punitive in nature. These remedies available to the seller are not mutually exclusive and therefore can be combined. A seller could potentially stop goods in transit, resell the goods at the best price available and then seek damages against the defendant for loss of profit.

Chapter Three

3.1 Methodology

The research conducted for this report was based solely on secondary data as is common for research of a legal nature. Using secondary data has benefits in respects of reduced cost and time, it is considered to be the only appropriate method of collecting and analysing legal data which is not quantitative in nature.

The initial starting point for the research was to assess the contribution of learned authors by way of academic texts. Following on from this, a separate analysis of cases was conducted as an appropriate checking mechanism to ensure that the results concurred with the view purported in the texts. Statute law was also given appropriate exploration. Before any conclusions could be drawn in the literature review further research was conducted by way of learned articles. Such articles often promote healthy discussions on certain aspects of the law and often recommend areas where improvements could be made. They also promote peer review which offers some element of quality control.

By approaching the research in this way, it was hoped that a complete picture in respect of the seller’s rights could be formulated. Previously this area was divided between two law subjects, namely contract law and commercial law. As such this created difficulties in establishing all of the available rights that a seller could impose and which would be the most optimum route of redress for the seller if the buyer should breach the contract. In addition, it appeared of vital importance to assess how these respective rights could operate together to enable the seller the maximum potential benefit.

3.2 Ethical Consideration

As this research was purely secondary in nature the ethical consideration is limited to ensuring that proper credit was given by virtue of correct citation to the originator of any theory or statement.

Chapter Four

4.1 Findings and Analysis

Whilst the seller has a number of remedies available to him in terms of the buyer breaching the contract, there are certain limitations to the contractual as opposed to the commercial elements of these remedies. In respect of damages, there were issues in relation to attaining contract certainty by virtue of pre-defined penalty clauses or liquidated damage clauses. The issues raised are in relation to punitive damages not being enforced by the courts; this in addition to the exception rule, in regards to specific performance and injunctions.

4.2 Punitive Damages

The leading law books, journals and case law all appear at pains to state that the law of contract does not allow for any aspect of punitive damages. This concept can be found in early cases such as Addis v. Gramophone Co Ltd, where the Law Lords were at pains to state that these punitive damages were never an acceptable aspect of contract law and were best left to the remedies available in tort. [54] In order to understand the rationale behind this the only explanation proffered was given by Lord Loreburn "...it is difficult to imagine a better illustration of the way in which litigation between exasperated litigants can breed barren controversies and increase costs in a matter of itself simple enough." [55] Increased costs is one explanation however, it is suggested that the fact that punitive damages are not available causes many more issues than it solves. By not allowing damages of this nature, contracting parties find it difficult to ascertain certainty in the contract, at the outset and this in itself has had the effect of increasing costs in the event of a breach.

If we assess the example of "liquidated damages", we can clearly see that the parties’ intention is to create certainty of contract, thereby stipulate what actions are to be taken including the remedies available should a breach occur. This is particularly important in contracts of a construction nature where delays from one contractor have the potential to delay the whole contract, thereby increasing the construction costs considerably. Whilst liquidated damages appear to be an acceptable element of a valid contract, it is left open for the party in breach to claim that the damages were punitive as opposed to reflecting a true loss. [56] This was the situation in Dunlop Pneumatic Tyre Co Ltd v New Garage Motor Co. Ltd, in which a clause claiming to be a liquidated damages clause was challenged all the way to the House of Lords. [57] In this case, the contract stipulated that the goods could not be sold at a price lower than list price. Breach of this contractual term was subject to a penalty of "5l" for each and every item sold. Both the Court in first instance and the House of Lords found this to be a valid liquidated damages clause. The Court of Appeal held the opposing view and believed this to be a penalty clause. At first sight such a clause does resemble a penalty clause as it is difficult to envisage the company occurring losses of that scale per tyre sold. If however, the non quantifiable loss in respects of reputation is added to the equation then it is easier to suppose that the clause is merely seeking compensation for loss. Whilst the House of Lords in reaching judgement on this case, have issued guidelines which appear to have somewhat relaxed the rules as to what will be considered a penalty. Although the issue in relation to certainty of contract remains, in that a defendant said to be in breach of such a term could argue its validity despite the fact that the parties agreed to the term prior to entering into the contract. Protracted legal battles are costly and this in itself is likely to be a deterrent to a company wishing to enforce such a clause.

Williams v Roffey Bros & Nicholls (Contractors) Ltd, highlights the importance of such contract terms to contractors. [58] In this case, the main contractor who was subject to a penalty on late completion had sub-contracted out the carpentry to the plaintiff. In seeing that the plaintiff was unlikely to meet the contractual obligations the contractor offered additional incentives by way of a bonus. When this bonus payment was not forthcoming the plaintiff sued. Whilst it was argued that there was no fresh consideration for the bonus payment and as such it was not valid, this argument was rejected in that the consideration was by way of the main contractor not incurring the penalty. This result, whilst finding a positive in a negative, does appear to suggest that the courts are willing to endorse the concept of liquidated damages clauses.

Taking the liquidated clauses issues aside and assessing penalty clauses in their own right, the only rationale against them is that they supposedly increased costs. However, if penalty clauses are assessed in terms of the principle "freedom to contract" then it could be argued that they are necessary features which enable the parties to define certain elements from the outset of the contract. A further inference could be drawn in that compensation for breach of contract does not offer the parties the same level of certainty. Given the extent of the protection in place for contracts affecting consumers it is contended that there is no valid reason to exclude the punitive aspect of damages for contracts purely of a business nature. Notwithstanding that such clauses could be drafted in a way that is excessively burdensome on the breaching party as to be considered unjust. If such an event were to occur, it could be resolved under the pre existing legislation, namely the Unfair Contract Terms Act 1977.

There is also the issue that many claims for compensation are of a non pecuniary nature. There is no account of how a trial judge should make an assessment and as Stone rightly says "it seems to be left to the virtually unfettered discretion of the trial judge as to how much should be given under this head." [59] The difficulties encountered in Ruxley Electronics and Construction Ltd v Forsyth in which the swimming pool ordered to particular specification, namely depth of 7ft 6", the defendant constructed the pool 9" too shallow and was held to be in breach of contract. [60] Damages awarded however, were insufficient to rectify the issue, and merely offered loss of compensation for amenity, as it was deemed excessive to order the pool to be rebuilt. This reinforces the argument that there is no justifiable rationale for the exclusion of penalty clauses, it also highlights a necessity to develop guidelines which judges could utilise when assessing the level of compensation to award.

4.3 Specific Performance

This equitable remedy is being challenged on the basis that it is not available generally and is only used by virtue of the SGA specifying the situations where it can be used. [61] The specific inclusion in the SGA is slightly confusing in that it is an equitable remedy that was available long before the implementation of the SGA. The limits in its use are again somewhat perplexing. The arguments put forward are such that it is difficult to force a party to a contract, to complete his obligations and as such it is only used where it is considered likely to succeed. Someone has to ask the question why it should be postulated, that cases where the item is deemed to be unique, that a claim for specific performance will be more likely to succeed? Surely this is not a valid distinction.

It is clear that there are many challenges in this area notwithstanding the recommendations contained in the Draft Common Frame of Reference seeking to harmonise European contract law. Furthermore as Stremitzer argues, it is economically viable to allow for specific performance in contracts and this is preferential to the liquidated damages approach. [62] The clear argument in support of specific performance is such, that it takes aside the issues of damages. By forcing a party to perform their obligations, they will be in the position intended to be in at the completion of the contract. As such it removes the potential issue of a seller or indeed buyer being in a better position than that which the contract conferred. The only rational conclusion to be drawn is that surely this must be the way forward.

4.4 Injunction

It is suggested that this remedy should become more readily available. For example if a party was aware that a breach was about to occur they could seek an injunction to prevent it happening. By doing so the parties would know where they stand and would be able to minimise the costs of any actions. The only readily available examples of this equitable remedy are the cases Attorney General V Blake. [63] Given that we now have the Proceeds of Crime Act 2002, the circumstances of the Blake case are unlikely to be repeated. Likewise in the performing contract cases such as Warner Bros v Nelson, in which it was noted that Bette Davies was restrained from working for any other film or theatre company. [64] If such a restrictive clause as was found in the Bette Davies contract would most likely fail under current employment regulations.

It has been noted that injunctions are rarely used as a method of redress and the only examples available were considered obsolete. That said they could offer a seller a very beneficial right of redress and as such it is argued that they should, like specific performance become more readily available. The primary reason for expanding the options is that very often damages cannot restore the injured party to the position to the position he would have been in had the contract been performed. The situation in Ruxley Electronics and Construction Ltd v Forsyth is a classic example of this. Damages did not give the plaintiff the depth of swimming pool that he ordered. An injunction or specific performance would require the defendant to meet his obligations and the plaintiff would actually have been restored to the position he should have been in.

4.5 Remedies against the Goods

Lien gives the seller most protection in the event of a buyer becoming insolvent. By maintaining possession in a legal sense, i.e., regardless of whether the goods have passed to the buyer, the seller can ensure that they take priority over other creditors as this property does not fall into the hands of the administrators. As a remedy for breach of contract in regards to payment, this remedy can also be more effective than damages when the buyer in question has not paid due to insolvency, there are strict regulations as to the order in which creditors will be repaid out of the remaining funds the insolvent company has. As lien is a powerful remedy, it would be wise for any seller to adopt it within their contracts of sale, as a matter of course. This provides the availability of protection just in case a buyer should become insolvent. Naturally a lien can be exercised before the goods have transferred to the buyer through either retention or by exercising rights of stoppage in transit. The preferable option however, must be regarded as the contractual lien. Stoppage in transit is of less importance as a seller would need to know the exact point in which a buyer became insolvent in order to alert the shipping company in sufficient time to allow them to retain the goods. Whereas with the contractual option it is not necessary to involve a third party.

The right of re-sale should be exercised with caution. Clear intention of re-sale must be conveyed to the buyer. The opportunity to make the payment must form part of this notice. Above all, reasonable time must be given to the buyer in order to allow such payment to be made. Whilst the concept of "reasonable" is left open for interpretation in each case, it is suggested that the courts will not require any term that is particularly harsh on the seller. It should be stated that what is reasonable will depend also on the particular goods; if they are of a perishable nature then clearly what is reasonable will need to take into account the lifespan of the product. The extreme care that is necessary with the right of re-sale is to protect the seller from being sued in breach of contract by the original buyer. It was noted that good title will pass to any subsequent buyer on re-sale regardless of whether formalities have been adhered to. Naturally the seller will wish to protect himself from lawsuits and therefore should follow the correct procedure.

4.6 Personal Action v Action Against the Goods?

The remedies available to the seller through the law of contract and commercial law combine to ensure a holistic approach. The rights against the goods are best used when faced with a buyer’s insolvency. As discussed in regards to lien, contractual provision should be made against property passing to the buyer before payment is made. Care should be taken in the correct drafting of such clause as challenge from administrators is a real and distinct possibility. Damages on the other hand, offer protection that extends beyond the buyer becoming insolvent. It deals with the situation where the buyer refuses to pay or breaches some other term in the contract. Damages are available on breach of a condition or even a warrantee and are currently considered to be the most viable option available to a party suffering a breach. However, where it is difficult to quantify the exact nature of the loss then damages are not the best option. Unless and until, guidelines are provided stipulating how damages should be calculated there will always be uncertainty. It has been argued that such uncertainty could also be resolved with the revival of injunctions. In addition specific performance could be utilised as a method of actually restoring the parties to the position that they would have been in had the contract been performed. In the absence of these changes contracting parties will muddle on but the uncertainty of contract will remain.

Those who argue in favour of the underlying principle "freedom to contract" are dismayed as to the level of interference that the courts and statutes bring to contracts, in which the parties were free to bargain and devise terms according to their requirements. There is clearly some validity in this argument, notwithstanding the fact that such erosion into this freedom can have damaging consequences on the economy. One could argue however, that the majority would not wish to allow terms considered grossly unfair in nature, to be given legal support. In response to this argument it could be suggested that allowing the equitable remedies of injunction and specific performance to be more widely used would offer substantial benefits. This would confer a greater certainty for all parties by holding those considering breaching their contractual obligations to account. The so called economic breach would become obsolete, and the risks borne by the parties at the start of the contract would therefore be carried through to the end.

Chapter Five

5.1 Conclusion

By approaching contract law in terms of the seller’s rights, it has enabled a greater appreciation of the contractual forces and requirements that contract and commercial law seek to underpin. The balance of power can continually shift and therefore it is important for a seller to have in minded what rights of redress are available to him. If approaching this subject from just a contract law perspective, more credence would be given to support the arguments against general implementation of specific performance and injunctions. By assessing the subject holistically, it becomes possible to identify where there are weaknesses, in the law of contract. The immediately apparent weakness is in the lack of certainty offered to contracting parties, who may find themselves in a position far from what they envisaged at the point of entering into the contract. Many of the cases represent struggles by the judge to identify and quantity the level of damages that should be awarded, in order to restore the parties to the position that they would have been in had the contract been performed.

It has been argued that this struggle is unnecessary. There is little need to pull numbers out of thin air to quantify that which is unquantifiable. There are other remedies available which do not present the problems outlined. The actually put the party in the position that they would have been in had the contract been performed. Damages have certain benefits but so too has specific performance and it is high time it was recognised for the benefits it has to offer. If such change occurred then the seller would have the full protection available but would be prevented on using the economic breach option in his favour. As such protection would be offered to both the buyer and the seller.

Lien is a powerful remedy available to a seller provided that it is incorporated into the contract. It use in combination with other rights such as stopping in transit, right of re-sale and damages offer a robust level of protection to the seller. Whilst clearly some offer more in terms of benefit than others and therefore could be considered to be more valid; it is however, suggested that this combined use, provides an extra precaution. Such precaution is deemed necessary if the exercise of one or more of the remedies is challenged.

The issues highlighted in regards to punitive damages not being allowed within the law of contract is somewhat outdated and as such does not appear to have a justifiable rationale. As such it is recommended that such clauses (unless extremely unfair) should be allowed by freely consenting contractual parties. The Unfair Contract Terms Act 1977 should protect a party from that which would be considered excessively unfair.

WORDS COUNT: 7270

Chapter Six

6.1 Bibliography

Benjamin's Sale of Goods, edited by M Bridge , Sweet & Maxwell, London, 2010.

Carter, J and Courtney, W. 'Indemnities against breach of contract as agreed damages clauses', Journal of Business Law, Issue 7, 2012, pp. 555-578.

Chetwin, M. 'Comparative analysis of some aspects of assessment of damages for contractual breaches in England and Wales, Australia and New Zealand', International Journal of Law, Issue 3, Vol. 2, 2011, pp.113-125.

Drew, J and Warren, G. 'Breach of software development agreement', Computer and Telecommunications Law Review, Issue 17, Vol. 3, 2011, pp. 67-69

Fitchen, J. Commercial Law 2010–2011, Routledge, Oxon, 2010.

Harris, B. 'Should insurance risk avoidance be reformed and would reform be of a right of equitable rescission or a right sui generis?', Journal of Business Law, Issue 1, 2013, pp. 23-38.

Hoar, C. 'An update on liquidated damages in construction contracts', Construction Newsletter, Mar/Apr, 2012, pp. 4-5

Khoo, J. 'Non-compensatory damages for breach of contract: far reaching and disruptive?' Cambridge Student Law Review. Issue 7, Vol. 1, 2011, pp. 21-41.

Krishnaprasad, K. 'From the mill shaft to the coal cruiser: contractual damages after the Achilleas', International Company and Commercial Law Review, 2011, Issue 22, Vol. 7, pp. 218-223.

Kupelyants, H. 'Specific performance in the draft common frame of reference', UCL Journal of Law and Jurisprudence, 2012, Issue 1, Vol. 2, pp. 15-45.

McInnes, M. 'Specific performance and mitigation in the Supreme Court of Canada', Law Quarterly Review, 2013, Issue 129, Vol. Apr, p.165-169

McKendrick, E. Contract Law: Text, Cases, and Materials, Oxford University Press, Oxford, 2012.

McLauchlan, D. 'The redundant reliance interest in contract damages', Law Quarterly Review, Issue 127, Vol. Jan, 2011, pp. 23-27.

Mulcahy, L. Contract Law in Perspective, Routledge, Oxon, 2008.

Poole, J. Casebook on Contract Law, Oxford University Press, Oxford, 2012.

Property Law Bulletin Case Comment. 'Breach of contract - what should you do?' P.L.B. Issue 33, Vol. 4, 2012, pp 25-26.

Ryder, N, Griffiths, M and Singh, L, Commercial Law: Principles and Policy, Cambridge University Press, Cambridge, 2012.

Shearman & Sterling LLP. 'United Kingdom: bonds - construction of terms', Journal of International Banking Law and Regulation, Issue 26, Vol. 3, 2011 pp. 34-36.

Stremitzer, A. 'Standard breach remedies, quality thresholds, and cooperative investments' Journal of Law, Economics & Organization, 2012, Issue 28, Vol. 2, p.337-359

Stone, R. The Modern Law of Contract, Routledge, Oxen, 2011.

Treitel: Law of Contract, edited by E Peel, Sweet & Maxwell, London, 2011.

Williams, R. 'Lady & Kid A/S v Skatteministeriet (C-398/09) and Ministre du Budget, des Comptes Publics et de la Fonction Publique v Accor SA (C-310/09): unjust enrichment and the Court of Justice of the European Communities, a loss of national competence and principle?', British Tax Review, Issue 6, 2011, pp. 631-643

6.2 Table of Cases

Addis v. Gramophone Co Ltd [1909], AC 488.

Armour v Thyssen Edelstahlwerke AG [1991], 2 A.C. 339.

Attica Sea Carriers Corporation v Ferrostaal Poseidon Bulk Reederei GmbH, The Puerto Buitrago [1976], 1 Lloyd’s Rep 250 (CA).

Attorney General v Blake [2001], 1 AC 268.

Bristol Airport Plc v Powdrill [1990], Ch. 744.

Dunlop Pneumatic Tyre Co Ltd v New Garage Motor Co. Ltd [1915], AC 76.

Farley v Skinner [2001], UKHL 49.

Falcke v Gray [1859], 4 Drew 651.

Hadley v Baxendale [1854], 156 E.R. 145.

Lumley v Wagner [1852], 1 De GM & G 604.

Re Cosslett (Contractors) Ltd [1998], Ch. 495.

Ruxley Electronics and Construction Ltd v Forsyth [1996], AC 344.

Uniserve Ltd v Croxen [2012], EWHC 1190 (Ch).

Warner Bros v Nelson [1937], 1 KB 209.

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991], 1 Q.B. 1.

6.4 Table of Statutes

Insolvency Act 1986 s.11 (3) (d), 175(2)

Proceeds of Crime Act 2002

Sale of Goods Act 1979, s38, 43(1), 44, 48, 49, 51(3).

Unfair Contract Terms Act 1977