Agreed remedies
5 types: termination clause, stipulated damages clause, deposits, exemption clauses, specific
performance clauses
Damages (normal)
● Normal rule that damages for breach of contract should cover expectation damages – the
profits that would have been made if the contract had been properly performed – here the
higher sum
Termination clause
1. Termination
a. General rule: that termination is only available for a fundamental breach of contract
that deprives the injured party of the substantially the whole benefit of the
transaction (Hong Kong Fir)
i. Either for breach of condition or ‘innominate terms’ that are sufficiently
serious
2. Effect: the clause gives express right to terminate the contract
a. Courts usually use interpretative technique to limit harsh results if it would be
unreasonable to interpret the termination clause literally/ offends ‘commercial
sense’ (Rice v Great Yarmouth BC [2003])
i. but this may go against the freedom of contract
3. Requirement for a termination clause
a. A term being a condition of a contract
i. Distinguish different types of terms
1. Condition: breach always gives right to terminate
2. Warranty: breach never gives right to terminate
3. Innominate term: right to terminate only if breach is sufficiently
serious
ii. Unspecified classification: courts default treat it as an innominate term
(Bunge v Tradax) or condition if commercial contract parties’ intention
indicates
1. Likely to be condition: involves single performance with clearly
specified time limit and sequence of performance, vital to the
contract/ necessary for commercial certainty, can only be breached
in one way
2. Likely to be intimate: can be breached in different ways with varying
degree of seriousness
iii. Condition has to be in the technical sense (ie substance of the word
condition, not its mere insertion/ form, is being assessed) (Schuler v
Wickman [1974])
, 1. Although the parties’ use of the word ‘condition’ was a ‘strong
indication’, the fact that ‘a particular construction leads to a very
unreasonable result must be a relevant consideration. The more
unreasonable the result the more unlikely it is that the parties can
have intended it, and if they do intend it the more necessary it is
that they shall make that intention abundantly clear’
b. Ways to construct a termination clause
i. State expressly that a term of the contract is a condition OR
ii. State expressly that one party has a right to terminate
4. No termination clause
a. Step 1: Interpretation
i. Ask: what does it mean in the context of the whole contract (Schuler v
Wickman)
1. Schuler: party did not mean ‘condition’ in the technical sense → not
entitled to terminate
ii. Ask: Is it ambiguous? (Arnold v Britton [2015])
1. Arnold: despite the fact that the literal interpretation of the
provision led to the bizarre result that tenants would pay over half a
million pounds in service charges per year by 2072, courts held that
the words of agreement must be given their ordinary meaning
a. if a party wishes to argue that an agreement does not reflect
the subjective intention of the parties at the time of
entering into agreement, they ought to bring a claim for
rectification
iii. Ask: Does it comply with commercial common sense? (Rice v Great
Yarmouth BC)
1. **Commercial common sense asked and ascertained by courts only
if terms are ambiguous
2. Rice: no right to terminate because it would be unreasonable to
interpret the termination clause literally
a. Facts: allowed C to terminate the contract ‘if the contractor
commits a breach of any of its obligations
b. Commercial common sense = D’s performance involved ‘a
myriad of obligations of differing importance and varying
frequency’ which could be broken in many different ways
with varying consequences typical of innominate terms
b. Step 2:
i. (only if it really prevents termination)
ii. Ask: is this a standard term of business
1. Yes → next step
iii. Ask: is it valid under UCTA 1977 s.3
(1) This section applies as between contracting parties where one of them deals ... on the
other’s written standard terms of business.
(2) As against that party, the other cannot by reference to any contract term—
, (a) when himself in breach of contract, exclude or restrict any liability of his in respect
of the breach; or
(b) claim to be entitled—
(i) to render a contractual performance substantially different from that
which was reasonably expected of him, or
(ii) in respect of the whole or any part of his contractual obligation, to render
no performance at all,except in so far as (in any of the cases mentioned
above in this subsection) the contract term satisfies the requirement of
reasonableness
1. Ask: is this an exclusion clause as defined in UCTA?
a. s3(2)(a) – no liability
b. s3(2)(b)ii – claim to be entitled to render no performance at
all
c. s13(1)(b) ‘excluding or restricting any right’
d. YES → UCTA s3 applies
2. Ask: does it satisfy the test of reasonableness?
a. Consider exemption clause notes
b. NB:
i. unlikely that a term will be regarded as
unreasonable between two commercial parties
ii. However, a term may be really extraordinary in its
scope and might be regarded as unreasonable if
indeed it means no termination even if D does
absolutely nothing it is supposed to
Hong Kong Fir case
● Facts
○ H chartered a ship to K for 24 months, but breached the term requiring the ship to
be ‘in every way fitted for ordinary cargo service’ by failing to provide competent
personnel to maintain the aged ship
● Held
○ The seaworthiness term was held to be an innominate term, the breach of which
would only entitle the charterer to terminate if its consequence was so serious as to
frustrate the commercial purpose of the venture
○ the legal consequences of the breach of innominate terms ‘do not follow
automatically from a prior classification of the undertaking, as a “condition” or a
“warranty” ’
○ It depends upon whether the breach has deprived or will deprive the claimant ‘of
substantially the whole benefit which it was intended he should obtain from the
contract’
○ The essence of innominate terms is that they can be breached in different ways,
resulting in consequences of varying seriousness. On the facts, it was held that, in
spite of the delays already occurring and likely to occur, the steps H had taken to
remedy the failings and the length of the charter period remaining meant that K was
not substantially deprived of the whole benefit of the contract
, ● In determining whether a breach of innominate term entitled C to terminate - high threshold
○ Must go to the ‘root of the contract’ (Handsard nord)
○ ‘Frustrate commercial purpose of the venture’ (The Angelia [1973])
Rice v Great Yarmouth Borough Council
● Issue: whether the Council is entitled to terminate the contract with a clause that stipulates
if the the party “commits a breach of any of its obligations” the Council may terminate the
contractor’s employment
● Reasoning
○ as a general rule of English law, the consequences of a breach depended upon the
importance of the term broken, depending on whether the term can be constructed
as a condition or an innominate term within the context of the contract (Hong Kong
Fir)
○ Clause does not designate any particular term as a condition/ indicate what terms
justify termination, seemingly to encompass all terms no matter how small/ trivial →
parties cannot have intended that any breach of an innominate term entitle the
innocent party to terminate the whole contract
○ Whether the breaches of multiple obligations entitle the party to determinate
depends on whether the breach deprived the innocent party of the substantial
benefit of the contract
Schuler AG v Wickman Machine Tool Sales Ltd [1974]
● Facts
○ Clause 7(b): ‘It shall be a condition of this agreement that [Wickman] shall send its
representatives to visit [the six largest UK car manufacturers of the time] at least
once in every week for the purpose of soliciting orders for panel presses.’
● Held
○ Use of the word " condition " is an indication—even a strong indication—of such an
intention but it is by no means conclusive.
○ The fact that a particular construction leads to a very unreasonable result must be a
relevant consideration. The more unreasonable the result the more unlikely it is that
the parties can have intended it, and if they do intend it the more necessary it is that
they shall make that intention abundantly clear.
**Stipulated damages clause
Before: Dunlop v Garage [1915]
● for a stipulated damages clause to be valid, it must attempt to pre-estimate the victim’s loss;
● it will be unenforceable (under the rule against penalties) if the predominant purpose was to
deter breach + not a genuine pre-estimate of loss because the sum is ‘extravagant and
unconscionable in amount in comparison with the greatest loss … from the breach’
Post Makdessi: 2 stage rule (Makdessi v Cavendish [2015])
5 types: termination clause, stipulated damages clause, deposits, exemption clauses, specific
performance clauses
Damages (normal)
● Normal rule that damages for breach of contract should cover expectation damages – the
profits that would have been made if the contract had been properly performed – here the
higher sum
Termination clause
1. Termination
a. General rule: that termination is only available for a fundamental breach of contract
that deprives the injured party of the substantially the whole benefit of the
transaction (Hong Kong Fir)
i. Either for breach of condition or ‘innominate terms’ that are sufficiently
serious
2. Effect: the clause gives express right to terminate the contract
a. Courts usually use interpretative technique to limit harsh results if it would be
unreasonable to interpret the termination clause literally/ offends ‘commercial
sense’ (Rice v Great Yarmouth BC [2003])
i. but this may go against the freedom of contract
3. Requirement for a termination clause
a. A term being a condition of a contract
i. Distinguish different types of terms
1. Condition: breach always gives right to terminate
2. Warranty: breach never gives right to terminate
3. Innominate term: right to terminate only if breach is sufficiently
serious
ii. Unspecified classification: courts default treat it as an innominate term
(Bunge v Tradax) or condition if commercial contract parties’ intention
indicates
1. Likely to be condition: involves single performance with clearly
specified time limit and sequence of performance, vital to the
contract/ necessary for commercial certainty, can only be breached
in one way
2. Likely to be intimate: can be breached in different ways with varying
degree of seriousness
iii. Condition has to be in the technical sense (ie substance of the word
condition, not its mere insertion/ form, is being assessed) (Schuler v
Wickman [1974])
, 1. Although the parties’ use of the word ‘condition’ was a ‘strong
indication’, the fact that ‘a particular construction leads to a very
unreasonable result must be a relevant consideration. The more
unreasonable the result the more unlikely it is that the parties can
have intended it, and if they do intend it the more necessary it is
that they shall make that intention abundantly clear’
b. Ways to construct a termination clause
i. State expressly that a term of the contract is a condition OR
ii. State expressly that one party has a right to terminate
4. No termination clause
a. Step 1: Interpretation
i. Ask: what does it mean in the context of the whole contract (Schuler v
Wickman)
1. Schuler: party did not mean ‘condition’ in the technical sense → not
entitled to terminate
ii. Ask: Is it ambiguous? (Arnold v Britton [2015])
1. Arnold: despite the fact that the literal interpretation of the
provision led to the bizarre result that tenants would pay over half a
million pounds in service charges per year by 2072, courts held that
the words of agreement must be given their ordinary meaning
a. if a party wishes to argue that an agreement does not reflect
the subjective intention of the parties at the time of
entering into agreement, they ought to bring a claim for
rectification
iii. Ask: Does it comply with commercial common sense? (Rice v Great
Yarmouth BC)
1. **Commercial common sense asked and ascertained by courts only
if terms are ambiguous
2. Rice: no right to terminate because it would be unreasonable to
interpret the termination clause literally
a. Facts: allowed C to terminate the contract ‘if the contractor
commits a breach of any of its obligations
b. Commercial common sense = D’s performance involved ‘a
myriad of obligations of differing importance and varying
frequency’ which could be broken in many different ways
with varying consequences typical of innominate terms
b. Step 2:
i. (only if it really prevents termination)
ii. Ask: is this a standard term of business
1. Yes → next step
iii. Ask: is it valid under UCTA 1977 s.3
(1) This section applies as between contracting parties where one of them deals ... on the
other’s written standard terms of business.
(2) As against that party, the other cannot by reference to any contract term—
, (a) when himself in breach of contract, exclude or restrict any liability of his in respect
of the breach; or
(b) claim to be entitled—
(i) to render a contractual performance substantially different from that
which was reasonably expected of him, or
(ii) in respect of the whole or any part of his contractual obligation, to render
no performance at all,except in so far as (in any of the cases mentioned
above in this subsection) the contract term satisfies the requirement of
reasonableness
1. Ask: is this an exclusion clause as defined in UCTA?
a. s3(2)(a) – no liability
b. s3(2)(b)ii – claim to be entitled to render no performance at
all
c. s13(1)(b) ‘excluding or restricting any right’
d. YES → UCTA s3 applies
2. Ask: does it satisfy the test of reasonableness?
a. Consider exemption clause notes
b. NB:
i. unlikely that a term will be regarded as
unreasonable between two commercial parties
ii. However, a term may be really extraordinary in its
scope and might be regarded as unreasonable if
indeed it means no termination even if D does
absolutely nothing it is supposed to
Hong Kong Fir case
● Facts
○ H chartered a ship to K for 24 months, but breached the term requiring the ship to
be ‘in every way fitted for ordinary cargo service’ by failing to provide competent
personnel to maintain the aged ship
● Held
○ The seaworthiness term was held to be an innominate term, the breach of which
would only entitle the charterer to terminate if its consequence was so serious as to
frustrate the commercial purpose of the venture
○ the legal consequences of the breach of innominate terms ‘do not follow
automatically from a prior classification of the undertaking, as a “condition” or a
“warranty” ’
○ It depends upon whether the breach has deprived or will deprive the claimant ‘of
substantially the whole benefit which it was intended he should obtain from the
contract’
○ The essence of innominate terms is that they can be breached in different ways,
resulting in consequences of varying seriousness. On the facts, it was held that, in
spite of the delays already occurring and likely to occur, the steps H had taken to
remedy the failings and the length of the charter period remaining meant that K was
not substantially deprived of the whole benefit of the contract
, ● In determining whether a breach of innominate term entitled C to terminate - high threshold
○ Must go to the ‘root of the contract’ (Handsard nord)
○ ‘Frustrate commercial purpose of the venture’ (The Angelia [1973])
Rice v Great Yarmouth Borough Council
● Issue: whether the Council is entitled to terminate the contract with a clause that stipulates
if the the party “commits a breach of any of its obligations” the Council may terminate the
contractor’s employment
● Reasoning
○ as a general rule of English law, the consequences of a breach depended upon the
importance of the term broken, depending on whether the term can be constructed
as a condition or an innominate term within the context of the contract (Hong Kong
Fir)
○ Clause does not designate any particular term as a condition/ indicate what terms
justify termination, seemingly to encompass all terms no matter how small/ trivial →
parties cannot have intended that any breach of an innominate term entitle the
innocent party to terminate the whole contract
○ Whether the breaches of multiple obligations entitle the party to determinate
depends on whether the breach deprived the innocent party of the substantial
benefit of the contract
Schuler AG v Wickman Machine Tool Sales Ltd [1974]
● Facts
○ Clause 7(b): ‘It shall be a condition of this agreement that [Wickman] shall send its
representatives to visit [the six largest UK car manufacturers of the time] at least
once in every week for the purpose of soliciting orders for panel presses.’
● Held
○ Use of the word " condition " is an indication—even a strong indication—of such an
intention but it is by no means conclusive.
○ The fact that a particular construction leads to a very unreasonable result must be a
relevant consideration. The more unreasonable the result the more unlikely it is that
the parties can have intended it, and if they do intend it the more necessary it is that
they shall make that intention abundantly clear.
**Stipulated damages clause
Before: Dunlop v Garage [1915]
● for a stipulated damages clause to be valid, it must attempt to pre-estimate the victim’s loss;
● it will be unenforceable (under the rule against penalties) if the predominant purpose was to
deter breach + not a genuine pre-estimate of loss because the sum is ‘extravagant and
unconscionable in amount in comparison with the greatest loss … from the breach’
Post Makdessi: 2 stage rule (Makdessi v Cavendish [2015])
