Week 7 Illegality and Frustration Flashcards
(20 cards)
Pacta illicita
Deal with agreements to do something which is either impossible or illegal at the time the contract is entered into
Frustration
deals with evens which occur after the formation of the contract which renders teh contract impossible or illegal or commericalyy fustrated which is not so similair to illegality
Force majeure
parties dealing within their express contract terms with the kind of circumstances that could otherwise potentially frustrate the contract.
When might an agreement be pacta illicita
Agreements to commit a crime or delict (this may also amount to the crime of conspiracy)
-Agreements in which the objects of the agreement are lawful, but the parties intend to fulfil their obligations in an illegal way (Malik v Ali 2004 SLT 1280)
-‘Immoral’ contracts are also unenforceable (see Justinian’s Digest - D.28.7.15) – though quite what constitutes boni mores (good morals) is subject to rapid change in society – question is of ‘public policy’ (see MacQueen and Thomson, para.8.16)
-Contracts which promote sexual immorality unenforceable – but ideas of sexual immorality changing.
Consequences of pacta illicita
1) Ex turpi causa non oritur actio (‘no action arises from an illegality’) – Unenforceability
An illegal contract is unenforceable:
the parties to an illegal agreement cannot rely on its terms, ie. cannot enforce it (although, as the agreement is not a complete legal nullity, property might still lawfully pass from the hands of one party to the other)
The court will not order specific implement (a court order forcing a party to carry out its contractual obligations), nor will it grant damages for breach of contract.
Consequencess of pacta illicita (2)
unjsutified enrichment
if a property has been passed to the hands of another under ana illegal contract,the party as at a loss may have a case in unjustified enrichment
If they arent peri delicito(equally not to blame)
equitable element What does it mean
Practically if the parties are in peri delicito ,then any losses suffered the parties endure
-if only one party is to blame,and done nothing morally wrong the court may help the innocent party
Cutherbertson v lowes
Another case (Jamieson v Watt’s Trustees) shows the opposite outcome:
Even if someone seems a little less guilty, they still might not get help if what they did was still legally wrong.
Following patel v Mirza what are the new prinicples the court must look at for a illegal contract
Did someone try to make money from doing something wrong?
➝ If yes, maybe they shouldn’t be helped.
Is someone unfairly keeping something that belongs to the other?
➝ If yes, that’s not fair either.
Would saying “no” to the claim actually help the law?
➝ For example, does it stop people from breaking the rules in the future?
Would stopping this claim mess up another important law or rule?
Is it fair and sensible to say “no” to the claim? Or is that too harsh?
➝ The court wants to make a fair call, not just follow a rule blindly
VMS Enterprises Ltd v The Brexit Party Ltd (2021) case
Restricitive covenants
xclusivity clause:
Party A must only work with Party B—not with anyone else.
Non-compete clause:
Party A can’t start a similar business and compete with Party B.
Non-solicitation clause:
Party A can’t steal Party B’s customers or clients.
Restricitive covenants
Case
Nordenfelt v maxim nordernfekt
The court will let Party B (the one who wants the rule) use the rule if they can prove:
It protects something important (like keeping customers or secrets safe).
It’s fair to both sides (not too harsh or unfair to Party A).
It’s good for everyone, not just the two people in the deal (helps the public too).
Further cases to remember
Partnership agreement Anthony v Rennie
Employment contracts
Malden timber ltd v leitch
Law of penalities
key case Makdessi and parking eye
The rule against penalties is a rule of contract law based on public policy…[T]he public policy is that the courts will not enforce a stipulation for punishment for breach of contract”.
So that is related to the general concept that (court-awarded) damages are aimed at providing compensation for loss suffered due to breach of contract – and noting that punitive damages not available in Scots law.
The law against penalties tries to ensure that contractually agreed liquidated damages similarly focus on compensation, not on punishment.
If a clause is considered to be a penalty, it becomes illegal and unenforceable.
TEST FOR PENALITIES
The rule against penalties applies only to a contractual term which takes effect upon a breach of contract;
The rule applies only to terms which constitute a primary obligation of performance under the contract (not to a secondary obligation imposed upon non-performance of primary obligations).
The ‘penalty test’ should be applied to decide whether the clause in question is a penalty clause or not. The different judges (helpfully) expressed the test differently:
-A clause will be a penalty where it imposes a detriment to the party in breach which is out of all proportion to any legitimate interest of the innocent party in enforcing the contract’s primary obligations;
-A clause will be a penalty where it is exorbitant or unconscionable, having regard to the innocent party’s interest in performance of the contract
-A clause will be a pentalty where there is an extravagant disproportion between the stipulated sum and the highest level of damages a court could possibly award for the breach.
Fustration of contact
pacta sunt servanda-agreements must be kept
If you agree to buy 100 cows in February, when they are valued at £100 per cow, but the price subsequently falls to £75 per cow by the time you take delivery of the herd, you are expected to absorb the loss incurred – you can’t complain about the fact that the asset fell in value, nor can you demand that I sell the asset to you for a reduced price. Pacta sunt servanda!
B)Fustration Supervening impossiblity
This applies where it becomes impossible to perform the contract (often where the subject matter of the contract is destroyed, or where a person necessary for performance of the contract (delictus persona) dies)
taylor v caldwell
doctrine of fustration i
s a exception allowing parties to be freed from their obligations-Taylor v Caldwell-supervening event
Its first appearance in Scots law in its modern form was in the 10th edition of Bell’s Principles in 1899 at s.29: “When by the nature of the contract its performance depends on the existence of a particular thing or state of things, the failure or destruction of that thing or state of things, without default on either side, liberates both parties.”
It has been accepted by the Court
A) Frustration supervening illegality-
-situations where performance of the contract becomes illegal after the contract has been formed either becasue a new is passed or because of a change in circumstances which rendered performance unlawful
examples
Coronavirus – made it illegal to travel to stay in an AirBnB
Note – where a change in the law is foreseeable (ie. government has its intention to legislate for outlaw a particular type of contract before the contract is concluded), it is likely that frustration cannot operate – but the contract might instead be pacta illicita.
C)Fustration commerical fustration
Commercial frustration/frustration of purpose– this is where a contract is frustrated on the basis that a supervening event goes to the root of the contract and renders performance radically different from what the parties envisaged when they made the contract. Illustrated by two similar English cases with different outcomes, collectively known as the ‘Coronation Cases’:
Krell v Henry [1903] 2 KB 740
What does lord hodge say about fustration
Robert purvis plant hire ltd v Farqubar brewster
Frustration is about fairness – it’s used to avoid injustice when things change drastically.
It’s rare – the courts don’t use it lightly and it’s limited to very specific cases.
If frustration applies, the contract ends automatically—no need to cancel it or go to court first.
The thing that caused frustration must be an outside event, not something the person did to themselves (no “self-made excuses”).
The person can’t be at fault for the frustrating event—they must be innocent.
Consequenes of frsutration
-Both (or all) parties to the contract are freed from performing their obligations from the date of frustration onwards.
This only applies to de futuro performance, and has no retrospective effect – the contract continues to exist (it is not avoided), terms which can be given effect remain enforceable – such as a dispute resolution clause, or an exemption clause to limit liability.
Where the parties have signed the contract but have not yet performed any part of it, they can simply walk away with neither having suffered any loss.
However, what about situations where one party has performed, and due to the frustration of the contract will now not receive any equivalent performance in return (ie. deposit paid in Cantiere San Rocco)? The answer can again be found in the Robert Purvis case:
“In Scotland the law of unjustified enrichment is available in appropriate cases to give a remedy to enrichment at another’s loss as a consequence of the frustration.” Lord Hodge at para 14)
Force majeur clause
An express contractual term which set out how parties obligations will be impacted in supervening events
=act of god in french,event outwith control of parties and unexpted
- a forced majeur clause is more flexible,allows what kind of events that engage the force majeur clause and specify their preferred consequences
