CILEx L6 Advanced Contract Law 2 — Questions and Answers
Question 1: What is the 'Interfoto' principle on incorporation of onerous terms?
- A particularly onerous or unusual clause must be fairly and reasonably brought to the attention of the other party or it will not be incorporated (Correct answer)
- All written terms in a signed document are automatically incorporated
- Onerous terms are void unless agreed in a separate document
- Unusual terms require the other party's express agreement to be incorporated
Correct answer: A particularly onerous or unusual clause must be fairly and reasonably brought to the attention of the other party or it will not be incorporated
In Interfoto Picture Library v Stiletto Visual Programmes [1989] QB 433, the Court of Appeal held that a particularly onerous or unusual clause will not be incorporated by general notice — sufficiently explicit steps must be taken to draw it to the other party's attention.
Question 2: What is the significance of Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] for remoteness?
- The parties' assumed responsibility for a type of loss at the time of contracting, not just foreseeability, determines recoverability (Correct answer)
- Remoteness is determined solely by whether the loss was foreseeable at the time of breach
- All consequential losses from breach are recoverable
- The Hadley v Baxendale rules were abolished by The Achilleas
Correct answer: The parties' assumed responsibility for a type of loss at the time of contracting, not just foreseeability, determines recoverability
In The Achilleas [2008] UKHL 48, the House of Lords (Lord Hoffmann and Lord Hope) introduced an 'assumption of responsibility' gloss to Hadley v Baxendale — the question is whether the defendant had assumed responsibility for the type of loss in the context of the contract.
Question 3: What is the doctrine of 'frustration by supervening illegality'?
- Where performance of the contract becomes illegal after formation due to a change in the law, the contract is frustrated (Correct answer)
- Where one party deceives the other about the legality of performance
- Where performance was illegal from the outset
- Where a party is unable to perform due to government action
Correct answer: Where performance of the contract becomes illegal after formation due to a change in the law, the contract is frustrated
Frustration by supervening illegality arises where a change in the law after contract formation makes performance unlawful. The contract is discharged, with the Law Reform (Frustrated Contracts) Act 1943 governing the financial consequences.
Question 4: What did Robinson v PE Jones (Contractors) Ltd [2011] EWCA Civ 9 decide about concurrent liability in contract and tort?
- A building contractor owes no duty in tort to their employer (as opposed to a third party) in respect of pure economic loss arising from defective work where the only loss is to the building itself (Correct answer)
- Builders owe a concurrent duty in both contract and tort in all cases
- Tort duties always arise alongside contractual duties between contracting parties
- Concurrent liability in contract and tort is not possible
Correct answer: A building contractor owes no duty in tort to their employer (as opposed to a third party) in respect of pure economic loss arising from defective work where the only loss is to the building itself
In Robinson v PE Jones, the Court of Appeal held that a building contractor owes no Hedley Byrne duty in tort to the employer for pure economic loss from defective work — the Defective Premises Act 1972 and contract law provide the appropriate remedies.
Question 5: What is the rule in Hadley v Baxendale [1854] and how does it limit damages?
- Only losses arising naturally or in the reasonable contemplation of the parties as a probable consequence of breach at the time of contracting are recoverable (Correct answer)
- All losses flowing from breach are recoverable
- Losses are limited to the value of the contract
- Only direct financial losses are recoverable
Correct answer: Only losses arising naturally or in the reasonable contemplation of the parties as a probable consequence of breach at the time of contracting are recoverable
The rule in Hadley v Baxendale [1854] 9 Exch 341 provides two limbs: (1) losses arising naturally from the breach, and (2) losses within the reasonable contemplation of both parties at the time of contracting. Both limit recovery by excluding unforeseeable losses.
Question 6: What is 'gain-based' damages in contract law and when might they be awarded?
- Damages measured by the defendant's gain rather than the claimant's loss, available in exceptional cases involving cynical breach where compensatory damages would be inadequate (Attorney General v Blake [2001]) (Correct answer)
- Damages awarded to give the claimant the benefit of their bargain
- Damages representing the value of the services contracted for
- Damages equivalent to the profits the claimant would have earned if the contract had been performed
Correct answer: Damages measured by the defendant's gain rather than the claimant's loss, available in exceptional cases involving cynical breach where compensatory damages would be inadequate (Attorney General v Blake [2001])
In AG v Blake [2001] AC 268, the House of Lords held that in exceptional cases (here, breach of a contract with the Crown by a spy), an account of profits may be ordered in contract. The remedy is discretionary and available only where compensatory damages would be inadequate.
CILEx L6 Advanced Contract Law 2
What is the 'Interfoto' principle on incorporation of onerous terms?