Overview
Having a solid comprehension of contract discharge, remedies, and the duty to mitigate is essential for success in the SQE1 FLK1 exam. This guide explores contract termination, remedies for affected parties, and the important principle of mitigation. Understanding these concepts equips candidates to tackle complex scenarios, showcasing the legal knowledge required for the exam and their careers.
Discharge of Contracts
Contracts can end in various ways, each with distinct legal considerations:
Performance
Contracts are most simply discharged when both parties complete their duties. The principle of substantial performance is key, as shown in Hoenig v Isaacs [1952] 2 All ER 176, where minor defects did not prevent discharge if the contract's main purpose was fulfilled.
Breach
A breach occurs when one party fails to meet obligations, influencing available actions:
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Breach of Condition: A breach of a core term allows the innocent party to terminate the contract and claim damages, as in Poussard v Spiers and Pond (1876) 1 QBD 410.
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Breach of Warranty: A breach of a less critical term permits claiming damages but not termination, distinguished in Bettini v Gye (1876) 1 QBD 183.
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Innominate Term: The court examines the breach's impact, as established in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.
Frustration
Frustration occurs when unexpected events make performance impossible or illegal. Principles include:
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Supervening Illegality: Laws change, making the contract’s purpose illegal (Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265).
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Destruction of Subject Matter: As established in Taylor v Caldwell (1863) 3 B & S 826.
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Non-Occurrence of an Event: Example, Krell v Henry [1903] 2 KB 740.
Agreement
Parties may choose to end a contract by mutual consent:
- Accord and Satisfaction: Creating a new agreement.
- Waiver: Giving up a contractual right.
- Release: A formal agreement to end obligations.
Remedies for Breach
When a breach occurs, several remedies are available:
Damages
Monetary compensation, guided by:
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Expectation Damages: Compensating for the expected outcome had the contract been fulfilled (Robinson v Harman (1848) 1 Ex 850).
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Reliance Damages: Covering losses from relying on the contract (Anglia Television Ltd v Reed [1972] 1 QB 60).
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Restitution: Reclaiming benefits given to the other party (Planché v Colburn (1831) 8 Bing 14).
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Liquidated Damages: Pre-set amounts due upon breach, respecting penalty rules (Cavendish Square Holding BV v Makdessi [2015] UKSC 67).
Limitations include:
- Remoteness: Damages must be foreseeable (Hadley v Baxendale (1854) 9 Ex 341).
- Mitigation: Claimants must limit their losses.
- Causation: Losses must be directly due to the breach.
Specific Performance
This equitable remedy requires the breaching party to fulfill their obligations when damages alone are inadequate. Considerations include the uniqueness of the subject and adequacy of damages. Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 highlights reluctance for ongoing obligations.
Injunction
Orders to prevent breach of a negative covenant involve similar discretion. American Cyanamid Co v Ethicon Ltd [1975] AC 396 provides principles for interim injunctions.
The Duty to Mitigate
Mitigation requires the injured party to minimize losses after a breach. Failing to do so can reduce damages:
Key Points
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Reasonableness: The injured party must behave sensibly, not perfectly (Payzu Ltd v Saunders [1919] 2 KB 581).
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Burden of Proof: The defendant must show failure to mitigate (Geest plc v Lansiquot [2002] UKPC 48).
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Timing: The duty begins post-breach (Pilkington v Wood [1953] Ch 770).
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Risk Sensibility: Parties are not expected to take unreasonable risks (Pilkington v Wood [1953] Ch 770).
Interaction with Anticipatory Breach
In anticipatory breach scenarios, the injured party has options:
- Accept the Repudiation: End the contract and start mitigation.
- Affirm the Contract: Maintain the contract, delaying mitigation.
White and Carter (Councils) Ltd v McGregor [1962] AC 413 allows for affirmation and claiming full contract price, with limits on interest and good faith (Gator Shipping Corporation v Trans-Asiatic Oil Ltd SA [1978] 2 Lloyd's Rep 357).
Examples and Applications
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Construction Contract Dispute
A developer's project is abandoned by a contractor. The developer must replace the contractor reasonably and promptly to minimize damages, as noted in Reichman v Beveridge [2006] EWCA Civ 1659.
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Sale of Goods Contract
A retailer is informed by a manufacturer about an inability to fulfill an order. Options include terminating the contract or affirming it. Mitigation should also be considered, guided by White and Carter (Councils) Ltd v McGregor [1962] AC 413.
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Employment Contract Termination
An executive dismissed unfairly with a fixed-term contract should seek reasonable alternative employment to mitigate losses (Brace v Calder [1895] 2 QB 253).
Conclusion
A thorough comprehension of contract discharge, remedies, and the duty to mitigate is vital for success in the SQE1 FLK1 exam. Candidates must effectively apply these principles in complex scenarios. Key takeaways:
- Contracts end via performance, breach, frustration, or agreement.
- Damages, specific performance, and injunctions are potential remedies.
- Mitigation involves taking sensible steps to reduce losses, considering real-world constraints and legal duties.
- Analyzing these principles requires careful examination of facts, cases, and context.
By applying these rules effectively, candidates can display the analytical skills and legal reasoning necessary for both the SQE1 FLK1 exam and their future legal practice.