Exam 2017, questions and answers PDF

Preview

Summary

Examiners’ reports 2017Ex a m ine rs’ re port s 2 0 1 7LA1040 Contract law – Zone BI nt roduc t ionThe Contract law paper followed the same format as last year with a requirement to answer four questions out of eight, a mix of problem and essay questions and a free choice as to which to answer.Timin...

Description

Examiners’ reports 2017

Examiners’ reports 2017 LA1040 Contract law – Zone B Introduction The Contract law paper followed the same format as last year with a requirement to answer four questions out of eight, a mix of problem and essay questions and a free choice as to which to answer. Timing remains a problem for a small but significant number of students – too many answer only three questions or write pages for their first question and only two paragraphs for their fourth question. This inevitably has a huge impact on the overall mark. It is always disappointing to mark three good answers at 2:1 standard but only be able to give minimal marks for the fourth, resulting in a very low 2:2 or worse. Students must be disciplined enough to move on to the next question every 45 minutes – the first marks in a question are far easier to attain than the last. Another common fault, as in previous years, is to write a pre-prepared answer to the essay questions – the correct area of law is usually identified but the specific question posed is not properly addressed. Students are usually being asked to take a view on a statement and too often they simply provide a factual summary of the law in that area as if the question had been: ‘Write all you know about frustration/privity/illegality’, etc. Good marks can only be achieved by properly applying the law to the question asked. Finally, by way of general comment, many answers provide a reasonable analysis of a problem question but fail to support their assertions with the appropriate case law.

Comments on specific questions Question 1 Adele and Bella are sisters. On 1st February Adele meets her sister for a drink and tells her she is looking for a new sports car. Bella replies that she wants to sell her red Ferrari as there is now a better model available and that she is happy to sell it to her sister ‘on a business basis’. Bella says she wants ‘about £100,000’ for it. That evening Adele sends an email to Bella saying, ‘I accept your offer to sell the car for £100,000 and will transfer the money in a few days.’ On 3rd February Bella sends Adele an email that says: ‘Don't be stupid I wouldn’t sell the car for that, I want £125,000 for it. To avoid any further misunderstanding, do not email me again unless you do not want the car at this price.’ Adele was so annoyed on reading the first sentence of Bella’s email that she deleted it without reading further and did not reply. Three weeks later Bella rang Adele and demanded £125,000, offering to deliver the car.

1

Advise Adele. How, if at all, would your answer differ if, upon reading Bella’s email on 3rd February, Adele decided to purchase the car for £125,000 and Bella now refuses to deliver it? General remarks This question was answered by most students. It was reasonably well done but many lacked case law to support their analysis. It required a logical analysis of each of the communications between A and B to consider at each stage whether it amounted to an offer or an acceptance, with reference to well-established case law, and ultimately whether a contract was formed. Law cases, reports and other references the examiners would expect you to use As A and B are sisters, consider whether there is an intention to create legal relations. Balfour, Jones v Padavatti, etc. Rebutted here as there is reference to a ‘business basis’ Merritt. Then analyse the communications: Feb 1: B to A saying ‘I want about £100,000 for it’ is an invitation to treat (ITT) Gibson v MCC. Feb 1 evening: A to B email probably an offer to purchase although phrased as an acceptance. The law looks to the substance not the form of communications Hyde v Wrench. Discuss status of email communication. Feb 3: A to B counter offer Hyde v Wrench. Consider effect of counter offer destroys previous offer. B’s ‘silence’ after Feb 3 is not evidence of acceptance. Consider Felthouse v Bindley and Rust v Abbey Life. No contract concluded. For the alternative scenario, good students will recognise that a contract could possibly be concluded as there are limits to the so-called rule that silence cannot constitute acceptance if the offeree agrees. Common errors The most common error was not correctly identifying that B’s statement of ‘about £100,000’ was an ITT rather than an offer as the price lacked certainty. It is reasonable to discuss whether or not it is an offer, with use of authorities but if incorrectly assessed as an offer then it makes analysis of the rest of the question flawed. If logically followed through then misidentifying the initial statement is not fatal. However, to make the question work many students tried to argue that a contract had been formed at the outset and then ‘revoked’ – only an offer can be revoked not a contract itself – which showed very muddled thinking and was a serious error. Most missed the issue in the alternative scenario about waiving the right to communication. Easy marks were missed by the many students who failed to notice the ‘sisters’ point and therefore didn’t discuss intention to create legal relations. A good answer to this question would… use a clear and logical structure to consider each interaction between A and B in turn, speculate as to the possible status of each and state clearly and with relevant case law authority to support their argument whether it was an offer or ITT or acceptance, picking up the cases outlined above and as evidenced in the extract below. Poor answers to this question… made the key error identified above in not recognising the first interaction as an ITT, which created an illogical and muddled overall response. Also, many students wrote a page or two about general principles of offer and acceptance – talking about unilateral contracts, auctions, adverts, etc. – often supported with examples and case law but of absolutely no relevance to the problem question posed. Knowledge of the law should be demonstrated by a thorough analysis of the question, not a

2

Examiners’ reports 2017

generic answer describing offer and acceptance. No marks given for irrelevant material however comprehensive. Student extract The courts would ascertain the intentions of contracting parties objectively by assessing their words used. Following Gibson v MCC and Scammel v Ouston, it might be submitted that the word ‘about’ might suggest that B’s statement is just an ITT, given that it was vague in nature and there is still room for negotiation. So, when A sent an email to B and said that she would buy the car at £100,000 and transfer the money in a few days it would amount to an offer, Storer v MCC. That makes A the offeror in this case. The next step would be whether B accepted the offer made by A. She said that she wanted £125,000 for the car and this could not be valid acceptance. Acceptance is defined by Prof Treitel as an unconditional assent to all the terms of the offer, as a mirror image of the offer (Hyde v Wrench) and the acceptance must be communicated to the offeror (Powell v Lee) to be valid. Looking into the facts, the price is different with the proposal by A and therefore it would be a counter offer (Hyde v Wrench) and the counter offer would terminate the original offer made by A. Another problem arises in this question in that B’s counter offer requires silence acceptance as it stated that ‘do not send me email unless you do not want the car at this price.’ Following Felthouse v Bindley silence could not amount to valid acceptance because the offeror could not impose the burden on the offeree to speak up. On the other hand, in Re Selectmove (obiter) Gibson LJ stated that if the offeree himself placed the burden on himself to speak up, he is undertaking himself to speak up if he does not want to conclude the contract. In this case, it was the offeror, B, who requested for silence acceptance following Felthouse. Silence would not amount to valid acceptance. Comments on extract This extract is from a much longer answer, which was awarded a first class mark (And the student scored a first overall on the contract paper.) It demonstrates the logical analysis required and appropriate use of relevant case law. Question 2 Discuss TWO of the following statements: a) A ‘mere’ increase in costs will never operate to frustrate a contract. b) It is never possible to revoke a unilateral offer once the offeree has begun performance of the stipulated act. c) Damages for breach of contract are always assessed by reference to the ‘cost of cure’ rather than any ‘diminution in value’ caused by the breach of contract. d) Specific performance is not available when damages would be an adequate remedy. General remarks Not a very popular question, although for those that attempted it properly there was an opportunity to achieve good marks. The biggest issue was failing to follow the instruction to answer two out of the four questions. Some answered all four (in which case all four parts were marked and students were scored on the best two); this wasted time and resulted in answers that were too superficial. A pass mark was

3

difficult to achieve. More seriously, some only answered one question – making it impossible to obtain a pass – a student would have to score 80% on the one subsection they answered to gain a bare pass on question 2 overall. The two sections carried equal weight so answers needed to be of similar length and content to achieve a good overall mark. Law cases, reports and other references the examiners would expect you to use Whichever sections were answered, it was important to get a balance between description and criticism. a) Consider especially Davis v Fareham and the ‘Suez’ cases. b) Consider Errington and Daulia. Better answers will realise that this is an overstatement as the rule according to Luxor v Cooper depends upon the implication of a term. c) The two different bases for assessment should be clearly distinguished. Ruxley is the obvious starting point, which clearly contradicts the statement. d) The so-called ‘bar’ to specific performance that damages are an adequate remedy could be discussed by reference to cases involving ‘unique’ goods such as Behnke v Bede and the Bronx Engineering case as well as the ‘standard’ approach to contracts for the sale of land. Common errors a) A popular choice but many simply wrote a descriptive essay about frustration (often repeated almost identically in answer to Q8 on the paper). A proper discussion of the above cases was needed to obtain a good mark. b) Again a common choice and answered reasonably well but often failed to focus on revocation: long descriptions of the Carlill case were not helpful. c) Poorly answered – many omitted to discuss Ruxley at all and there was little critical analysis of the statement in the question. d) Very few answered this and those who did made very poor attempts. There was no reference to the above cases and many seemed to have little understanding of what specific performance is and how it operates. A good answer to this question would… choose two subsections and analyse and criticise or support the statement in that section with reference to well-established case law, focusing on the narrow element of the area of law identified. Poor answers to this question… consisted of the students writing all they knew about frustration/unilateral offers/damages/specific performance respectively. Question 3 Devi is a self-employed dress designer. Her old computer breaks down just as she is completing a design sketch to send to a client. She rushes to Office Supplies to buy a new computer to use in her business. She decides to buy a new desk top computer for £2,000. She asks Erich, the sales assistant, if it is a good computer and whether it will run specified software which is used for clothes design. Erich says that all computers sold are tested in store before being put on the shelf for sale and that he knows it will run the specified software. Devi signs an agreement to purchase the new computer which contains the following terms:

4

Examiners’ reports 2017

1. Office Supplies will not in any circumstances be liable for physical injury caused by its products. 2. Office Supplies will not be liable for any damage to property caused by its products. 3. Any other liability of Office Supplies resulting from the sale of defective goods shall be limited to ten times the value of the goods sold. As Devi leaves the store she passes and reads a large sign that says: ‘We sell computers at the lowest possible price and so all goods sold in this shop are sold without any warranty as to quality.’ When she gets back to her office she finds the computer will not run the specified software. When she returns to the office the next morning she sees that the computer is overheating. As she approaches, it explodes and burns her arm and expensive cashmere coat. She also suffers some loss of business while she locates a replacement computer. Advise Devi. General remarks The question is about express and implied terms and exclusion or limitation clauses. Students should note at the outset that this is a B2B contract and so UCTA 1977 and not the CRA 2015 will apply. Marks are given for good technique in answering the question especially those who try to identify what liability would arise without the relevant clauses, before considering the effect of the different clauses. Many jumped straight in to how the exclusions work without considering what claims are possible. Law cases, reports and other references the examiners would expect you to use The contract is for the sale of goods so consider SGA 1979 SS 14(2) (satisfactory quality) in relation to the overheating and ss.13 (description) and 14(3) in relation to the compatibility with the specified software (also possible liability for breach of an express assurance). The identifiable losses suffered by D include the physical injury (burnt arm), damage to property (coat), the amount paid for a useless computer and some loss of business. Only then consider the effect of the various clauses. The sign at the exit will have no effect as it is notified too late Interfoto, Olley v Marlborough Court. The terms are signed so other clauses incorporated (L’Estrange). Use UCTA, not CRA: damage to Devi’s arm (clause 1) consider UCTA, s.2(1); damage to Devi’s coat (clause 2) consider UCTA, s.2(2); for exclusion of other losses consider UCTA, s.3(2); for all losses where recovery is based upon breach of a statutory implied term consider UCTA, s.6; when discussing UCTA ss.2(2) and 6, consider the standard of reasonableness in s.11 and Sch.2. Common errors Failing to identify that Devi was buying a computer for her business and so was not a consumer. The whole question was then addressed using the wrong legislation (CRA rather than UCTA). Also, many wasted time talking about possible misrepresentation by the shop assistant, Erich, when the key claim would be for breach of contract not misrepresentation. A good answer to this question would… analyse the problem as outlined above in logical and clear steps supported by relevant case law and statute. Good students will note the significance of clause 3 being a limitation as opposed to an exemption clause and also the developing approach of allowing commercial contractors of equal bargaining power greater

5

latitude in the application of these rules. The best answers may question the application of this factor to the circumstances of a small business such as Devi’s. Poor answers to this question… talked only about the exclusion clauses and not the potential substantive claims for breach and/or used the CRA rather than UCTA and/or wrote pages about misrepresentation. Question 4 The Nice Girls are a successful pop group. On 1st January they enter the following contracts: a) With Simon, to act as their manager for a year at a salary of £100,000. b) With Whinger, to join the group as a new singer at an annual salary of £300,000. c) With Edith, to act as Deputy Sound Engineer at an annual salary of £30,000. All the contracts further provide that they can be terminated by either side with one month’s notice. On 1st February the Nice Girls offer to pay Simon an extra £50,000 after they hear a rumour that he wants to leave them to start a TV show. At the same time, they tell Whinger that they are disappointed with the public reaction to her joining the band and so they want to reduce her salary to £150,000. Whinger agrees because she thinks the group will otherwise terminate her contract and she needs money to pay for her boyfriend’s drug rehabilitation programme. Also on 1st February Edith says she wants to leave immediately unless she is paid more money. The Nice Girls realise that protesting will make no difference and cannot find a replacement before their World Tour begins on 1st March. Therefore, they agree that Edith will be promoted to Chief Sound Engineer at a new annual salary of £45,000. The World Tour is a great success but when it is completed on 1st June the Nice Girls tell Simon and Edith that they will no longer pay them the increased salaries. Whinger is demanding to have her salary paid at the original rate and says she is entitled to the balance of the ‘underpayments’ made for February and March. Advise the Nice Girls. General remarks This was quite a difficult problem question and was poorly answered by many. Students needed to identify that this question raised issues of modification not formation. While many did identify that the question centred on issues of consideration, the various concepts were often poorly explained or applied to the wrong parts of the question. Each of the three individuals who have a contract with the Nice Girls needs to be considered in turn to determine the liability of the Nice Girls for the higher payment in each case. Poor structure and muddled thinking caused marks to be lost. Law cases, reports and other references the examiners would expect you to use In relation to Simon Is the salary increase supported by consideration? Discuss Stilk v Myrick and especially Williams v Roffey where, as here, there was no threatened breach of contract by Simon. For this reason, there is no evidence of economic duress – the increase was offered by Nice Girls without any demand from Simon and the Nice Girls received a practical benefit by retaining his services.

6

Examiners’ reports 2017

In relation to Whinger Is the salary decrease supported by consideration? In the past the CA had held that Williams v Roffey had no application to ‘reducing’ modifications (Re Selectmove) but strong answers will be aware of the change effected in MWB v Rock (2016). Does Whinger get a practical benefit sufficient to be consideration by retaining the benefit of continuing employment? If so, consider whether the reduction was nonetheless obtained by economic duress. Discuss the requirements of the doctrine: Did the Nice Girls threaten to breach Whinger’s contract? If so, did she act under compulsion, consider the relevance of: protest, the existence of alternatives, etc. as discussed in Pao On, Atlantic Baron. In relation to Edith The salary increase is supported by consideration even under the old Stilk approach because of the promotion. Then consider the requirements of economic duress as above especially the absence of protest, Atlas v Kafco. Common errors Very few came close to identifying the issues identified above. Many wasted time discussing offer and acceptance. The salary decrease for Whinger caused particular confusion. Many were able to describe the principles of Stilk v Myrick and Williams v Roffey but less able to apply them accurately to the scenarios. Any discussion of the principles of duress was often lacking. A good answer to this question would… analyse each of the scenarios as outlined above with supporting case law and reach clear conclusions about whether the promise payments were payable or not and why that was the case. Poor answers to this question… just described concepts of consideration and may have mentioned some of the key cases such as Williams v Roffey but without applying them in the correct context. Question 5 Colin is the Manager of the Barton Bulldogs, a second division football club. He...