5.01  Excuses for failure to perform may be of various kinds, but in the present context we shall consider them under four headings: (1) exclusions and exceptions; (2) discharge by agreement, variation, waiver and estoppel; (3) prevention by the promisee; and (4) other supervening events.

5.02  A promisor may seek to negative or limit liability by reference to exclusions and exceptions contained in the contract. On the face of it this is a simple matter of construction, but the law has traditionally been suspicious of such clauses, and they therefore merit special attention in the present context. In the pages which follow we shall look at some common varieties of exclusion clause and at the ways in which such clauses may be incorporated into the contract, before turning to the ways in which the law limits their application. The principles involved are of course of general application,¹ but we shall be concentrating on how they apply to questions of delay.

5.03  Exclusion clauses can exist in several guises. Since these may raise different legal issues, it is worth looking more closely at some of the distinctions that have been drawn in this context.

5.04  One distinction is between clauses which seek to exclude the liability of the promisor altogether and those which merely limit it. Thus for instance clause 9.4 of the standard set of conditions issued by the Freight Transport Association² completely excludes the carrier’s liability for delay arising from specified causes, including act of God, seizure or forfeiture under legal process, strikes and so on, while clause 10 limits liability for consequential loss to the claimant’s bona fide loss or to the carriage charges, whichever shall be the less. In the past it has been said that the law takes a more relaxed attitude to limitation clauses than to those which seek to exclude liability altogether,³ and that the principles of strict construction used in relation to the latter will not apply with the same rigour to the former.⁴ In recent years, as we shall see, the courts have tended to move away (p. 85) from these principles, and in the light of this the distinction may now be less important than once it was.⁵

5.05  Another relevant distinction is between clauses which exclude or limit the promisor’s liability for breach of a relevant legal duty and those which prevent that duty arising in the first place.⁶ An example of the first type of clause would be where a building contract excludes liability for loss arising from delay, or limits such recovery to a set sum. An example of the second would be where the contractors tell the employer that they will do their best, but cannot guarantee to have the work done by any particular time. Though the two may often boil down to the same thing in practice, they can raise different issues of analysis.⁷ However the traditional approach of English law is to ignore this logical distinction and to treat all three types of clause as exclusion clauses pure and simple.⁸

5.06  The law draws a distinction between limitation clauses, the purpose of which is to limit the liability of the promisor to pay damages, and liquidated damages clauses, the purpose of which is to provide for an agreed scale of compensation to be paid in any event.⁹ The distinction can be illustrated by reference to Suisse Atlantique Societe d’Armement Maritime SA v Rotterdamsche Kolen Centrale,¹⁰ which involved a demurrage clause in a charterparty whereby the charterer agreed to pay a fixed daily rate of damages for delays in loading and unloading. The owners of the ship sought to claim damages at large, arguing that the charterer’s breaches were so serious as to disentitle them from relying on the demurrage clause. But the House of Lords held that this argument was misconceived. Whatever the status of the principle contended for by the owners, it could have no application to a demurrage clause, which was not an exceptions clause at all, but merely a clause providing for liquidated damages for a certain kind of breach. Though as a general rule sums recoverable as demurrage would be less than what (p. 86) would be recovered had damages been left at large,¹¹ the point was that the shipowner was entitled to recover for delay at the agreed rate whatever the loss might be: no more and no less.¹²

5.07  Exclusion clauses are often found in standard form contracts that are then adopted en bloc by the parties. Problems can then arise when the standard terms appear to contradict specific terms agreed on by the parties for the particular contract in question. The general approach of the law is to try as far as possible to construe the contract so as to avoid conflict, but to give priority to the ‘tailor-made’ term in the last resort.¹³ In Marifortuna Naviera SA v Government of Ceylon¹⁴ the provisions of a voyage charterparty made the owners liable for the failure of the vessel to be ready to load in accordance with notice of readiness, but the charter also contained a ‘clause paramount’ incorporating the Hague Rules. When sued for delay under the clause in question, the shipowner sought to rely on the exceptions contained in the Hague Rules. It was held that the express clause should prevail over the standard form exception, firstly on the basis of the principle generaliter specialibus non derogant, and secondly on the ground that if the clause paramount were allowed to prevail the express clause would be rendered virtually nugatory.

5.08  In this case no reconciliation between the two provisions was possible, but in The Leonidas¹⁵ a speed warranty in a charterparty providing that the vessel should proceed ‘at 11 knots weather and safe navigation permitting’ was held to be subject to a similar clause paramount incorporating the Hague Rules. In this case, unlike the one mentioned in the previous paragraph, it was possible to read the clause subject to the exceptions in the Rules without depriving it of meaning. The court added that whilst as a general rule a tailor-made clause would prevail over one in standard form, this only applied where the two were in conflict. The court would seek to construe the contract as a whole, and if a reasonable commercial construction of the whole could reconcile two seemingly contradictory provisions, whether typed or printed,¹⁶ then such construction would be adopted.¹⁷

5.09  As we shall see, exclusion clauses can be incorporated into the contract in a variety of ways,¹⁸ but in most cases this will involve the parties agreeing to adopt a standard set of printed terms. As has often been pointed out, this can be a perfectly legitimate way of allocating contractual risks and saving transaction costs, but a less defensible aspect of such terms has been the exploitation or abuse of superior bargaining power, in which the stronger party has been in a position to dictate terms to the weaker.¹⁹ Though the courts have by no means turned a blind eye to this aspect of the matter,²⁰ it is of particular importance in relation to statutory controls on exclusion clauses, which draw a clear distinction between cases where the terms are agreed by parties of equal bargaining power and where they are not.²¹

5.10  A force majeure clause has been defined as a term by virtue of which the promisor is entitled to cancel the contract, or is excused from performance, in whole or in part, or is entitled to suspend performance or to claim an extension of time for performance, upon the happening of a specified event or events beyond his or her control.²² Such clauses have been said not to be exception clauses in the proper sense,²³ but they are subject to similar restrictions. Thus, for instance, the burden of proof is on the party relying on such a clause to show that it covers the event in question, that the non-performance was due to circumstances beyond his or her control and that there were no reasonable steps that could have been taken to mitigate the event or its consequences.²⁴ In the same way, clauses of this type may fall foul of the statutory controls discussed below.²⁵

5.11  Before any exclusion clause can be relied on, it must be shown that it has contractual effect in the first place.²⁶ The usual ways of incorporating an exclusion clause into a contract are by signature, by notice and by course of dealing;²⁷(p. 88) since these principles are of general application and of no particular relevance to cases of delay, there is no need to repeat them here. However, it is worth noting in this context that exclusion clauses may also be incorporated into the contract by implication of law, as with the conventions relating to international contracts of carriage,²⁸ such as the CMR Convention,²⁹ the COTIF Convention,³⁰ the Hague-Visby Rules³¹ and the Warsaw Convention.³² These conventions, which govern the international carriage of goods by road, rail, sea and air respectively, all contain provisions which limit the liability of the carrier for loss, damage or delay.³³ The difference between these terms and those we have just been considering is that they apply as a matter of law,³⁴ without the carrier having to demonstrate that they have been incorporated into the contract or drawn to the attention of the other party.³⁵

5.12  The courts have traditionally been suspicious of exclusion clauses, and have in the past sought to limit their effect by using techniques of construction.³⁶ In particular, it has been said that such clauses must be construed strictly according to their terms,³⁷ and that any ambiguity should be read contra proferentem, that is to say, against the party who seeks to rely on the clause.³⁸ However, these techniques are (p. 89) not as important as once they were for two reasons, one being the introduction of statutory controls,³⁹ and the other the general tendency of courts in recent years to adopt a common sense approach to matters of construction rather than using what has been called ‘the old intellectual baggage of legal interpretation’.⁴⁰ Nevertheless, the principle that clauses of this type should be clear and unambiguous still remains,⁴¹ and to that extent at least one can still talk in terms of strict construction in the present context. The relevant principles are well known and are of general application, and there is no need to discuss them at length here.⁴² However, there are three rules of construction that are of particular relevance to delay, namely: (1) the ‘main purpose’ rule; (2) deviation; and (3) the so-called doctrine of fundamental breach.

5.13  Courts are generally reluctant to construe an exclusion clause in such a way as to defeat the main object of the contract.⁴³ To put it another way, exclusion clauses drafted in general terms will not be allowed to defeat the specific requirements of the contract; as is sometimes said, the back of the contract will not be allowed to prevail over the front.⁴⁴ Thus in Leduc v Ward⁴⁵ goods were shipped on a vessel bound from Fiume to Dunkirk for delivery at Dunkirk, the contract giving the shipowner liberty to call ‘at any ports in any order’. It was held that the shipowner was not covered when the vessel was sunk in the Firth of Clyde during the course of a deviation to Glasgow. Again, in Connolly Shaw Ltd v A/S Det Nordenfjeldske D/S⁴⁶ a clause drafted in similar terms was held to cover a shipowner who had deviated to Hull en route from Palermo to London with a cargo of lemons, but it was said that the clause would not have covered a deviation round Cape Horn,⁴⁷ as this would have frustrated the contract. As a general rule the courts will do all they can to interpret exclusion clauses in a way that is consistent with the main (p. 90) object of the contract,⁴⁸ but in extreme cases they will not hesitate to disregard particular words or even entire provisions where to do otherwise would render the contract nugatory.⁴⁹

5.14  There is a long-standing rule relating to contracts of carriage by sea whereby a carrier who deviates from the agreed route cannot rely on exclusion clauses in the contract.⁵⁰ This applies even where the loss incurred seems to have nothing to do with the deviation. Thus in Joseph Thorley v Orchis SS Co⁵¹ a cargo of locust beans was damaged during the course of unloading due to the negligence of the stevedores. It was held that the shipowners were disbarred from relying on an exclusion clause due to the fact that the ship had deviated en route. The rationale seems to be that in such cases the exclusions are only intended to apply to the contract voyage and not to a totally different voyage,⁵² and this reasoning has been extended to contracts for the carriage of goods by land⁵³ and also to cases where a bailee of goods stores them in a place other than the one agreed.⁵⁴ Indeed, it has been said that as a general rule exclusion clauses should not be construed as applying to loss or damage caused outside the ‘four corners’ of the contract.⁵⁵ As we shall see, there is no longer any rule of law preventing a party from relying on an exclusion clause in cases of serious breach,⁵⁶ and it has been (p. 91) suggested that the deviation cases need to be reinterpreted in the light of this.⁵⁷ However, it has also been said that they should be regarded as sui generis,⁵⁸ and if this is so, a carrier who deviates may still be barred as a matter of substantive law from relying on exclusion clauses, at any rate in cases where the owner of the goods chooses to terminate the contract.⁵⁹

5.15  The cases cited above were used to support a broader principle whereby exclusion clauses were said not to protect a party who had committed a fundamental breach of the contract.⁶⁰ Thus it was said that exclusion clauses would not protect one who sought to render a contractual performance totally different from that which was contemplated by the parties, as where a seller delivered peas instead of beans,⁶¹ or wheat instead of barley,⁶² or a horse instead of a tractor.⁶³ In the same way an exclusion clause was said not to apply in a case where the promisor deliberately repudiated his or her basic obligations under the contract; say, for instance, a carrier of goods threw them into the sea or gave them away to a passerby,⁶⁴ or say the captain of a tug threw off the tow, allowing the ship to drift onto the rocks.⁶⁵ A similar principle was said to apply where the breach had a catastrophic effect. In Bontex Knitting Works Ltd v St John’s Garage⁶⁶ the claimants hired a van and driver from the defendants to deliver some goods. It was agreed that the delivery would take about two and a half hours, and that the driver should be paid by the hour. The driver collected the goods and then left the van unattended for an hour while he had a meal. During this time the goods were stolen and never recovered. It was held that the defendants could not rely on an exclusion clause protecting them from liability for loss of the goods, on the grounds that the driver had committed a serious breach of the contract. The defendants were under a duty to deliver the goods forthwith, and whilst a break of five minutes to go to the lavatory might have been excusable in the circumstances, a break of a whole hour was totally excessive.⁶⁷

(p. 92) 5.16  Some of the cases prior to 1980 suggested that the doctrine of fundamental breach was a rule of law barring reliance on exclusion clauses,⁶⁸ but it is now clear that it is a rule of construction only,⁶⁹ and that a properly worded exclusion clause can apply even to the most serious breaches. In the light of this it has been suggested that there is no longer even a presumption that exclusion clauses do not extend to cases of fundamental breach,⁷⁰ but this must be read subject to two qualifications. First of all, clauses which purport to exclude liability for breach altogether, or which give the promisor complete discretion whether or how to perform the contract, must still be construed in line with the main object of the contract, if only because to do otherwise would often make the contract meaningless.⁷¹ Secondly, even where the clause merely limits liability, the more serious the breach, the clearer it must be that the clause was intended to cover it.⁷² To this extent it still makes sense to talk of a doctrine of fundamental breach.

5.17  In recent years there have been an increasing number of statutory controls put in place with regard to exclusion clauses, the most important of which are for present purposes the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015. We shall examine each of these in outline before touching on some other relevant statutory controls. All of these provisions are of general application, but we shall concentrate on those parts of them that are relevant to delay in performance.

5.18  The focus of the Unfair Contract Terms Act 1977 is on the application of exclusion clauses in English law in the business context.⁷³ The provisions of the Act are wide-ranging and complex, but for the purposes of the present discussion we shall look at four matters: (1) the scope of the Act; (2) the restrictions imposed by the Act, in so far as they are relevant to the problem of delay in performance; (3) the test of reasonableness used in the Act; and (4) contracts excluded from the scope of the Act.

5.19  The Unfair Contract Terms Act 1977 is both narrower and wider in scope than its short title suggests. It is narrower since, as we shall see, it is not concerned with unfair contract terms generally but only, as its long title makes clear, with exclusion clauses. It is wider insofar as it covers non-contractual exclusions, such as notices which purport to exclude liability in tort.⁷⁴ However, it is with contractual exclusions that we are primarily concerned in the present context.

5.20  Section 1(3) of the Act makes it clear that, with one exception which does not concern us here,⁷⁵ the relevant controls only apply in relation to business liability, that is to say with liability for breach of obligations arising from things done or to be done by a person in the course of a business or from the occupation of premises used for business purposes of the occupier.⁷⁶ However, given that private individuals rarely if ever seek to restrict their contractual liability by means of exclusion clauses, this limitation is of little relevance in the present context.⁷⁷

5.21  As stated above, the Act is generally confined to the control of exclusion clauses, which as we have seen can be of many varieties.⁷⁸ As Lord Donaldson MR once said, ‘it is a trite fact (as contrasted with being trite law) that there are more ways than one of killing a cat’,⁷⁹ and the drafters of the Act were therefore well prepared for the various techniques by which a promisor might seek to wriggle out of his or her liabilities. Thus, to the extent that the relevant provisions of the Act prevent the exclusion or limitation of liability, they also prevent: (1) making the liability or its enforcement subject to restrictive or onerous conditions;⁸⁰ (2) excluding or restricting any right or remedy in respect of the liability, or subjecting a person to any prejudice in consequence of his pursuing any such right or remedy;⁸¹ or (p. 94) (3) excluding or restricting rules of evidence or procedure.⁸² The same restrictions apply equally to terms and notices which exclude or restrict the relevant obligation or duty.⁸³ The Act also controls the use of clauses by reference to which the promisor claims to be entitled to render a contractual performance ‘substantially different from that which was reasonably expected of him’.⁸⁴ These provisions do not, however, apply to arbitration clauses,⁸⁵ nor it would seem to agreed liquidated damages clauses.⁸⁶ It has been said that whether a particular clause is one which purports to exclude or restrict liability under the Act is a question of substance and not of form.⁸⁷

5.22  The Unfair Contract Terms Act 1977 contains several key provisions restricting the use of exclusion clauses, but the most relevant ones in the present context are sections 2(2) and 3. Section 2(2) says that in the case of loss or damage other than death or personal injury a person cannot exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness.⁸⁸ ‘Negligence’ is defined in this context as including the breach of any obligation arising from the express or implied terms of a contract to take reasonable care or to exercise reasonable skill in the performance of the contract,⁸⁹ so this might very well apply to a case of delay, say where a carrier of goods failed to deliver on time because the goods had been lost on the way or sent to the wrong destination.⁹⁰

5.23  Of more relevance to delay is section 3, which applies as between contracting parties other than consumers⁹¹ when one of them deals on the other’s written standard terms of business.⁹² In this context ‘deals’ refers to the making of the deal, irrespective of any prior negotiations.⁹³ Section 3 will clearly not apply where the terms in question are ‘boilerplate’ clauses used by parties of equal bargaining (p. 95) power in a particular trade,⁹⁴ and it clearly will apply where the standard form in question has been imposed on the weaker party on a ‘take-it-or-leave-it’ basis,⁹⁵ but difficult questions may arise when one party’s standard terms have been modified to a greater or lesser extent to meet the needs of the other.⁹⁶ Whether a party deals on the other’s written standard terms of business in any given case is a question of fact,⁹⁷ and the burden of proof is on the party who argues that this applies to show that this is the case.⁹⁸

5.24  Assuming that section 3 does apply, three types of clause are targeted. The first of these is clauses which exclude or restrict the promisor’s liability for breach of contract.⁹⁹ This is of course the most common type of exclusion clause. Next, there are clauses by reference to which the promisor claims ‘to be entitled to render a contractual performance substantially different from that which was reasonably expected of him’.¹⁰⁰ A classic example of this in the context of delay would be a clause allowing a carrier of goods undue liberty to deviate from the agreed route, as if a contract for the carriage of goods from London to Southampton allowed the carrier to deviate by way of Glasgow or Aberdeen.¹⁰¹ Finally, there are clauses by reference to which the promisor claims ‘to be entitled, in respect of the whole or any part of his contractual performance, to render no performance at all’.¹⁰² This would cover an unreasonable force majeure clause,¹⁰³ or a clause allowing the promisor to terminate the contract at will.¹⁰⁴ Section 3 states that the promisor may not rely on any of these types of clause except in so far as the term in question satisfies the test of reasonableness. It is to this test that we must now turn.

5.25  The Unfair Contract Terms Act 1977 controls clauses in two ways. One is the outright ban, by which clauses are deprived of legal effect.¹⁰⁵ The other is by subjecting them to a test of reasonableness.¹⁰⁶ It (p. 96) is the latter test that is of most importance in relation to delay, as this is the test relevant to both section 2(2) and section 3, both of which provide that the term in question will only be valid in so far as it satisfies the test of reasonableness. What this means in relation to contract terms is explained in section 11(1); the question is whether the term was a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. This means that an unreasonable exclusion clause may be struck out even if in the circumstances applying at the breach or at the time of the action it would be perfectly reasonable for the promisor to rely on it; it is the term itself which must be considered as a whole.¹⁰⁷ It is for those claiming that a contract term or notice satisfies the test of reasonableness to show that it does.¹⁰⁸

5.26  Reasonableness is a question of fact,¹⁰⁹ and the question of whether a term is reasonable in a given case is one which very much depends on the particular circumstances of that case. For this reason it has been said that reported decisions on the point can have only limited value as precedents.¹¹⁰ Much depends on the approach of the trial judge, and it has been said that though the decision cannot strictly speaking be characterised as an exercise of discretion, an appellate court will be slow to interfere with a decision unless satisfied that it proceeded on some erroneous principle or was plainly and obviously wrong.¹¹¹ Subject to that there are a number of guidelines provided in the Act and elsewhere for deciding whether a term is reasonable or not.

5.27  First of all we have Schedule 2 of the Act,¹¹² which refers to five criteria to which regard is to be had in particular in deciding whether a term satisfies the test of reasonableness.¹¹³ The first is the strength of the bargaining positions of the parties relative to each other, taking into account (amongst other things) alternative means by which the customer’s requirements could have been met.¹¹⁴ (p. 97) Did the customer have any real choice in the matter, or was it a case of either agreeing to the clause in question or doing without the service required? The second is whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons but without having to accept a similar term.¹¹⁵ A term is more likely to be reasonable if the customer received some consideration for agreeing to it, such as a lower price. The third is whether the customer knew or ought reasonably to have known of the existence and extent of the term having regard, amongst other things, to any custom of the trade and any previous course of dealings between the parties.¹¹⁶ Was the clause one with which the customer was or should have been familiar, or was it something unusual or unexpected? The fourth refers to cases where the term excludes or restricts liability if some condition is not complied with, and asks whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable.¹¹⁷ A promisor who makes his or her liability subject to unreasonable or capricious conditions may as well exclude it altogether. The final test relates to the supply of goods, and to whether the goods in question were supplied, processed or adapted to the special order of the customer.¹¹⁸ This last criterion is of less relevance in cases of delay, but the thinking behind it seems to be that a customer to whom the criterion applies should be in a better negotiating position than one to whom it does not.

5.28  Section 11(4) of the Act makes special provision for clauses which purport to restrict liability to a specified sum of money.¹¹⁹ Here regard is to be had in particular to two factors: (1) the resources which the promisor could expect to be available to him for the purpose of meeting the liability should it arise; and (2) how far it was open to him to cover himself by insurance. As has been pointed out, this provision was clearly designed to protect small businesses and professional people from being exposed to liabilities which it was beyond their ability to cover.¹²⁰ In relation to such clauses it may be relevant to look at other standard form contracts (p. 98) in the trade to see if they restrict liability to a similar degree.¹²¹ In many cases either party may have been able to obtain insurance, and the court will then have to ask which of the two was in the best position to do so at a reasonable cost.¹²² The question addressed by section 11(4) relates to the availability of insurance; whether it was actually taken up is neither here nor there.¹²³

5.29  A number of contracts are specifically excluded from the scope of all or part of the Unfair Contract Terms Act 1977, and some of these exclusions are of particular importance in relation to delay; indeed, their overall effect would seem to be to exclude from the ambit of the Act most of the reported cases on the topic.

5.30  First of all we have international contracts of sale or supply.¹²⁴ It was generally thought to be undesirable for the law to control the use of exclusion clauses in this context for a number of reasons; in particular, it was thought that for the law to interfere in these cases would place English exporters under an unfair disadvantage without any discernible benefit, given that such contracts usually involved large transactions between business organisations who were well able to protect their own interests in this regard.¹²⁵ For this reason section 26 of the Act specifically provides that international supply contracts are not subject to any requirement of reasonableness under section 3.¹²⁶ For section 26 to apply there are two tests that must be met. First of all, the contract in question must be one for the sale of goods or one under or in pursuance of which the possession or ownership of goods passes, and it must be made by parties whose places of business (or, if they have none, habitual residences) are in the territories of different states.¹²⁷ Secondly, one of three further requirements must be satisfied: either (1) the goods in question are, at the time of the conclusion of the contract, in the course of carriage, or will be carried, from the territory of one state to the territory of another;¹²⁸ or (2) the acts constituting the offer and acceptance have been done in the territory of different states;¹²⁹ or (3) the contract provides for the goods to (p. 99) be delivered to the territory of a state other than that within whose territory the acts were done.¹³⁰

5.31  As well as this, section 27 of the Act excludes any situation where the law applicable to the contract is the law of some part of the United Kingdom only by choice of the parties, and apart from that choice would be the law of some country outside the United Kingdom.¹³¹ The only exception to this is where the term appears to have been imposed wholly or mainly for the purpose of enabling the party imposing it to evade the operation of the Act.¹³²

5.32  By section 29(1) of the Act nothing removes or restricts the effect of, or prevents reliance on, any contractual provision which either: (1) is authorised or required by the express terms or necessary implication of an enactment;¹³³ or (2) being made with a view to compliance with an international agreement to which the United Kingdom is a party, does not operate more restrictively than is contemplated by the agreement.¹³⁴ The effect of this, among other things, is to remove from the ambit of the Act provisions such as the Hague-Visby Rules and other international conventions such as those relating to the carriage of goods by road, rail and air.¹³⁵

5.33  Finally, there is Schedule 1 of the Act, which restricts the scope of the Act in relation to various classes of contract¹³⁶ including contracts of insurance,¹³⁷ contracts relating to the creation, transfer or termination of an interest in land,¹³⁸ contracts relating to the creation, transfer or termination of patents or other intellectual property interests,¹³⁹ contracts relating to the formation or dissolution of companies,¹⁴⁰ contracts relating to the creation or transfer of securities or any right or interest in securities,¹⁴¹ contracts of marine salvage or towage,¹⁴² marine charterparties¹⁴³ and contracts for the carriage of goods by ship or hovercraft.¹⁴⁴ As well as this, it is stated that section 2 of the Act does not apply to a contract of employment except in favour of the employee.¹⁴⁵

5.34  The Consumer Rights Act has its origin in an EC Directive adopted in 1993 which sought to lay down minimum standards for the protection of consumers against unfair terms in the Member States.¹⁴⁶ At the time there were already legislative provisions in the UK directed towards this end, most notably the Unfair Contract Terms Act 1977, but this was not enough to meet the requirements of the Directive; in particular, the Act as we have seen deals only with exclusion clauses,¹⁴⁷ whereas the Directive is concerned with unfair terms generally.¹⁴⁸ With a view to complying with the obligations of the UK under the Directive, the Unfair Terms in Consumer Contracts Regulations 1994 were enacted, coming into force the following year.¹⁴⁹ Five years later, with a view to complying more closely with the requirements of the Directive, these were repealed and replaced by the Unfair Terms in Consumer Contracts Regulations 1999.¹⁵⁰ However, following the recommendations of the Law Commission,¹⁵¹ the decision was made some fifteen years later to implement a unified legislative regime for consumer contracts, and this was duly done in the Consumer Rights Act 2015. As part of this project the 1999 Regulations were repealed and incorporated, with some amendments, into Part 2 of the Act, to which we shall now turn.

5.35  Part 2 of the Act is headed ‘Unfair Terms’, and the basic provisions at its heart are section 62(1), which states that an unfair term in a consumer contract is not binding on the consumer, and section 62(2), which makes similar provision for consumer notices. Obviously it is section 62(1) with which we are most concerned.

5.36  The scope of Part 2 is set out by section 61(1), which states that it applies to contracts concluded between a trader and a consumer. A ‘trader’ is ‘a person acting (personally or through an agent) for purposes relating to that person’s trade, business, craft or profession’.¹⁵² Thus an individual person can be covered as well as a company, so long as he or she is not contracting for purposes unrelated to the relevant ‘trade, business, craft or profession’. A ‘consumer’ is ‘an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession’. Whether this is so is clearly a matter of degree; thus, for instance, a painter who goes out and buys a tin of paint and a packet of cigarettes may be a consumer in relation to the second but not the first.¹⁵³

(p. 101) 5.37  Two other preliminary points need to be made. First of all, despite the heading to Part 2 it makes provision in relation to contract terms generally, not just those specifically defined as ‘unfair’.¹⁵⁴ Secondly, the provisions of Part 2 are both wider and narrower in scope than the Unfair Contract Terms Act 1977. They are wider in that they apply not just to exemption clauses but to unfair terms of all kinds. They are narrower in that they only apply to consumer contracts; in particular no provision is made, as in the Unfair Contract Terms Act, for the non-consumer contract where one party deals on the other’s written standard terms of business.¹⁵⁵

5.38  According to the Act,¹⁵⁶ a contractual term shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.¹⁵⁷ This gives rise to three issues, namely: (1) what is meant by ‘the requirement of good faith’; (2) what is meant by ‘a significant imbalance’; and (3) what is the rule that excludes the core terms of the contract from scrutiny on the grounds of unfairness.

5.39  The requirement of good faith in the contractual context is one familiar to civil lawyers, but causes difficulties of interpretation when transplanted into the common law context. The principle has been described in the House of Lords as one of ‘fair and open dealing’,¹⁵⁸ one which ‘looks to good standards of commercial morality and practice’.¹⁵⁹ According to the terms of the Directive upon which these provisions are based, the factors relevant to good faith include ‘the strength of the bargaining positions of the parties, whether the consumer had an inducement to agree to the term and whether the goods or services were supplied to the special order of the consumer’.¹⁶⁰ As we have seen, these very tests are used in the Unfair Contract Terms Act 1977 to define whether a term satisfies the test of reasonableness,¹⁶¹ and to this extent the concepts of good faith and of reasonableness can be seen to overlap, even if they are not identical in scope.¹⁶²

5.40  The Act does not expressly define what is meant by a ‘significant imbalance’.¹⁶³ However, the Directive states that the assessment, according to the general criteria chosen, of the unfairness of the terms, in particular in sale or supply activities (p. 102) of a public nature providing collective services which take account of solidarity among users, must be supplemented by a means of making an overall evaluation of the different interests involved,¹⁶⁴ and this has been said to indicate that the test of significant imbalance is not to be applied in a rigid and mechanical fashion.¹⁶⁵ According to Lord Bingham, the requirement as to significant imbalance is met if the term in question is ‘so weighted in favour of the supplier as to tilt the parties’ rights and obligations under the contract significantly in his favour’.¹⁶⁶ This may be done by the granting of a beneficial option or discretion or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty.¹⁶⁷

5.41  The Act also makes it clear that the unfairness of a contractual term has to be assessed taking into account the nature of the goods and services for which the contract was concluded, and by referring, at the time when the contract was concluded, to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it was dependent.¹⁶⁸ As well as this, Schedule 2 gives a useful list of terms which may be regarded as unfair and which may therefore be presumed to have that effect; these will be discussed more fully below.¹⁶⁹

5.42  The Act is concerned with unfair terms in consumer contracts rather than with unfair contracts as such, and section 64(1) provides that, in so far as it is transparent¹⁷⁰ and prominent,¹⁷¹ the assessment of the fairness of a term shall not relate to the definition of the main subject matter of the contract,¹⁷² or to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.¹⁷³ The first part of this provision may cause difficulties with the kind of exception clause that works by delimiting the extent of the promisor’s duty,¹⁷⁴ for instance a clause giving a carrier liberty to deviate from the direct route,¹⁷⁵ or a clause which states that a key date in the contract is only intended to (p. 103) be approximate,¹⁷⁶ or a clause in an insurance contract which purports to define the insurer’s liability in restrictive terms.¹⁷⁷ However, these difficulties should not be overstated. In particular, section 64(1) only applies where the term is in ‘plain intelligible language’, so it would not apply where the term in question was ambiguous or obscurely worded.¹⁷⁸ The courts have also made it clear that they are fully aware of these problems, and that they will not interpret these exceptions in such a way as to frustrate the object of the Act as a whole.¹⁷⁹

5.43  The rules for defining when a term is unfair for the purposes of the 2015 Act are complex, but once a term is found to satisfy that criterion the consequences are simple: the term in question is not binding on the consumer,¹⁸⁰ but the contract shall continue, so far as practicable, to have effect in every other respect.¹⁸¹ This causes no difficulty where the term is ancillary to the main part of the contract, but difficult questions may arise where a term is so essential that the effect of its not being binding on the consumer is to render the contract totally unworkable.¹⁸² In that sort of situation the implication is that the contract shall not continue to bind the parties, and if this is so the unfairness of the term may result in the contract being effectively rescinded in toto.

5.44  So far we have been considering the effect of the unfair term on the parties to the contract. The 2015 Act also contains provisions designed to combat unfair terms on a broader front.¹⁸³ In particular, powers are given to the Competition and Markets Authority¹⁸⁴ and to other consumer protection bodies¹⁸⁵ to consider complaints about standard form contracts, and where it appears that any term in such a contract is unfair an injunction may be issued against those responsible¹⁸⁶ and undertakings sought as to their future conduct.¹⁸⁷

5.45  Schedule 2 Part 1 of the Act sets out an ‘indicative and non-exhaustive list of terms which may be regarded as unfair’.¹⁸⁸ The crucial word here is ‘may’; it is nowhere stated that terms included on the list are deemed to be unfair, but inclusion of a term on the list raises a strong inference that in most circumstances a clause of this kind should be treated as unfair.¹⁸⁹ Schedule 2 has therefore been aptly described as not so much a black list as a grey list.¹⁹⁰ Many of the items on the list are not exclusion clauses at all,¹⁹¹ but it includes terms which purport to exclude liability for death or personal injury,¹⁹² or for loss caused by breach of contract generally,¹⁹³ or which enable the seller or supplier to alter unilaterally without a valid reason any characteristics of the product or service to be provided,¹⁹⁴ or which exclude or restrict the remedies of the consumer in the event of default.¹⁹⁵

5.46  Just as various categories of contract are excluded from the ambit of the Unfair Contract Terms Act 1977,¹⁹⁶ Part 2 of the 2015 Act also contains exclusions of a similar kind, though these are much narrower in scope. These include contracts of employment or apprenticeship,¹⁹⁷ mandatory statutory or regulatory provisions,¹⁹⁸ and the provisions or principles of international conventions to which the Member States or the EU are party.¹⁹⁹ The third of these is of particular importance, as it excludes from the ambit of Part 2 the provisions of the conventions for the international carriage of goods by road, rail, sea or air, at least in so far as these apply to a consumer contract.²⁰⁰

5.47  It is also important to take note of the conventions governing the international carriage of goods, many of which contain detailed provisions for the liability of the carrier for loss or damage, including loss caused by delay.²⁰¹ Up to now we have been looking at these in so far as they provide for circumstances in which that liability is excluded or limited,²⁰² and we have seen that these exclusions or limitations are not subject to the general legislative control applied to (p. 105) such clauses generally.²⁰³ However, the corollary of this is that any contract terms which purport to exclude the carrier’s liability under the relevant convention are invalidated. Thus for instance Article III of the Hague-Visby Rules²⁰⁴ lays various duties on the carrier, including the duty to exercise due diligence to make the ship seaworthy,²⁰⁵ and the duty to take due care in the loading and discharge of the cargo.²⁰⁶ It then goes on to state that any ‘clause, covenant or agreement’ which purports to exclude or limit the carrier’s liability as prescribed by the Article ‘shall be null and void and of no effect’.²⁰⁷ Similar provisions can be seen in the CMR Convention²⁰⁸ and in the Warsaw Convention.²⁰⁹ The upshot of this to ensure that the carrier’s liability in contracts to which these conventions apply is as prescribed by the convention in question, no more and no less.

5.48  A promisor who has failed to perform on time may argue that the promisee consented to the delay. Such consent can operate in a number of ways, depending on whether it was backed by consideration, or by reliance, or by neither of these factors. In the pages which follow we shall examine four doctrines which are of relevance in the present context, these being discharge by agreement, variation, waiver and estoppel.

5.49  A contract may be discharged by mutual agreement.²¹⁰ Where this has taken place following a delay, the promisor is no longer bound to perform on time, and the promisee relinquishes any remedies that he or she may have for any delay that has already occurred. We shall now examine when this occurs, and consider its legal implications.

5.50  Discharge by agreement may be in express terms,²¹¹ but it is also open to a court to infer that the parties have agreed to abandon the contract where it is followed by a prolonged period of delay or inactivity on both sides.²¹² So in Pearl Mill Co Ltd v (p. 106) Ivy Tannery Ltd²¹³ the defendants agreed to sell to the plaintiffs a quantity of skins ‘delivery as required’. After a few deliveries the plaintiffs made no more orders, their manager having forgotten about the contract. Over the next three years the plaintiffs placed orders elsewhere, and then finding themselves in difficulties sought to hold the defendants to the original contract. But the court held that the contract had been effectively rescinded, on the ground that it was reasonable after such a long lapse of time to conclude that the contract had been abandoned, and the plaintiffs had led the defendants by their conduct to believe that this was so.

5.51  This same reasoning was used in a line of cases in the 1980s dealing with arbitration contracts. In these cases a claim was made and then submitted to arbitration, but was then allowed to lie dormant, the claimant being unwilling to pursue it but disinclined to withdraw it either. The question then arose whether it was open to the claimant to revive the claim after a protracted interval. This would have been very inconvenient for the respondent, since records might have been thrown away, or essential witnesses might be no longer available. In these circumstances it would obviously be unjust to allow the claimant to pursue such a stale claim, but at the time the courts had no inherent power to strike out an arbitration claim,²¹⁴ as opposed to an ordinary civil claim,²¹⁵ for want of prosecution.²¹⁶ One way round the problem was to say that the contract had been terminated; the claimant had led the other to believe that the claim had been abandoned and the other had relied on the belief in some way,²¹⁷ and this approach was adopted by the Court of Appeal in The Splendid Sun²¹⁸ and by the House of Lords in The Hannah Blumenthal.²¹⁹

5.52  The difficulty with applying this analysis to cases of delay was highlighted by the Court of Appeal in The Leonidas D.²²⁰ Since there would have been no express agreement to rescind, one would have to be inferred from the conduct of the parties. However, mere inactivity on either side could not constitute the necessary conduct,²²¹ it would be difficult to find consensual abandonment in the absence of proof of an intent to abandon,²²² and mere silence would often be equivocal, (p. 107) being equally consistent with the claimant having forgotten the arbitration as with a decision to abandon it.²²³ Notwithstanding these technical difficulties, there were some bold decisions on the subject,²²⁴ but the problem was eventually solved in another way by giving the court a statutory power to strike out arbitration proceedings in such cases.²²⁵

5.53  One of the main problems in this area is that the common law insists on the existence of consideration for the discharge of a contract no less than for its creation.²²⁶ So a mere agreement by the promisee to release the promisor from his or her contractual obligations is not binding in the absence of consideration to support it.²²⁷ There is no problem here where both parties still have obligations outstanding under the contract, for in that case each party’s agreement provides the consideration for that of the other: the agreement to rescind is said to ‘generate its own consideration’.²²⁸ But what if the contract is fully executed on one side? Here the party who has not yet performed may provide consideration by returning any benefit provided by the one who has – for instance, a buyer of goods already delivered may agree to return them to the seller²²⁹ – but otherwise separate consideration has to be provided; as it is said, there must be both ‘accord’ and ‘satisfaction’.²³⁰ Like any other consideration, such satisfaction can be either executed or executory,²³¹ but some consideration there must be, otherwise the agreement to release the promisor will be unenforceable, as a purely gratuitous undertaking.²³²

5.54  Where discharge by agreement takes place, the contract is abandoned in toto. It cannot be revived;²³³ all the parties can do is to make a completely fresh contract (p. 108) relating to the same subject-matter.²³⁴ This means that a promisor who seeks to argue on these lines in a case of delay is not saying merely that he or she does not have to perform on time, or is no longer liable for having failed to do so; rather, the argument involves saying that the contract is at an end, and that neither party is bound by it any more. For this reason discharge by agreement is a very crude argument to rely on, and together with the problem of showing consideration this makes it of limited value as an excuse for delay.

5.55  Variation occurs when the terms of the contract are validly modified in some way. The contract is amended and not abandoned in toto. Variation can take place in two ways: it may be permitted by the terms of the contract itself, or may be brought about by the subsequent agreement of the parties.

5.56  A contract may contain provisions allowing for its terms to be amended if certain conditions are met. The most obvious example of this is where a construction contract contains a clause giving power to the architect to order ‘variations’.²³⁵ Under such clauses the architect can instruct the contractor either to do extra work or indeed to omit work, though the work cannot be taken away from the contractor and given to someone else.²³⁶ In such cases the contractor will generally want to claim extra payment. However, it has been held that this cannot be demanded unless the contractor can prove an express or implied contract to that effect.²³⁷ This can be done either by showing that the work was properly ordered under a term in the original contract providing for extra payment,²³⁸ or that there is a fresh contract to pay for the work in question.²³⁹

5.57  Another situation which is of particular significance in the present context is where a construction contract allows for extensions of time.²⁴⁰ As we shall see later, such contracts generally provide for the payment of liquidated damages by (p. 109) the contractor who fails to complete the work on time,²⁴¹ but these are not payable where the delay was due to extra works ordered by the employer.²⁴² For this reason, as well as for the protection of the contractor, such contracts often contain a provision allowing for extensions of time to be granted by the architect,²⁴³ and where this is done liquidated damages are then payable as from the substituted date.²⁴⁴

5.58  In this sort of situation the power to vary the terms of the contract is given to a third party, but it is perfectly possible for a contract to provide for its terms to be varied by one of the parties to it, as where a creditor is allowed to vary the rate of interest payable by the debtor.²⁴⁵ However, such terms are regarded with suspicion by the courts, and will not be interpreted in such a way as to give the party in question complete carte blanche to alter the terms of the contract at will.²⁴⁶ As well as this, they may very well fall foul of statutory controls, at any rate in the consumer context.²⁴⁷

5.59  In other cases the parties may agree to vary the terms of a contract after it has been concluded. As in the case of discharge, this can only be done by mutual agreement; a mere unilateral notification will not suffice in this context.²⁴⁸ Even where the parties are in agreement, however, the variation may fail to be effective for want of consideration.²⁴⁹ When the proposed variation is capable of benefiting both parties, there is no problem; once again the variation is said to ‘generate its own consideration’.²⁵⁰ But where it is purely for the benefit of one party, the variation (p. 110) is unenforceable unless some extra consideration is provided to support it.²⁵¹ The fact that the party benefiting from the variation may still have obligations to perform under the contract is neither here nor there, since an agreement to do so is no more than an agreement to do what the party in question was already bound to do anyway.²⁵² However, the well-known case of Williams v Roffey Bros & Nicholls (Contractors) Ltd²⁵³ shows that the courts are ready in such cases to find consideration if the variation is in practical terms beneficial to both parties and not extracted by undue pressure.²⁵⁴ In that case a contractor’s promise to pay a subcontractor extra money for completing the work on time was held to be binding and supported by good consideration; the subcontractor was in financial difficulties at the time, and if he had failed to finish the work the main contractor would have been placed in default and would then have had to pay heavy sums by way of liquidated damages under the head contract. The same reasoning might very well be used in relation to an agreement to extend the time of performance, especially where the choice was between late performance and no performance at all.

5.60  The effect of a valid variation is that the contract continues in force subject to the amendments in its terms made by the variation. It is therefore far less crude in its effects than rescission, and is to that extent more suited to dealing with the situation where the promisee agrees to let the promisor perform late. However, its main disadvantage is the need to show good consideration, and this makes it a less attractive argument for the promisor in this kind of situation.²⁵⁵

5.61  Waiver is a rather amorphous concept in the law of contract covering a number of situations with no obvious common rationale. The term ‘waiver’²⁵⁶ is used in a number of different ways,²⁵⁷ but as Lord Goff explained in The (p. 111) Kanchenjunga,²⁵⁸ it covers two situations, one being ‘a forbearance from exercising a right’ and the other ‘an abandonment of a right’.²⁵⁹ The first of these arises where a promisee allows the promisor to perform in a manner other than that specified in the contract; this is sometimes called ‘waiver by forbearance’.²⁶⁰ The second covers the situation where the promisee with a choice of remedies opts for one rather than another; this is sometimes called ‘waiver by election’.

5.62  Waiver by forbearance occurs when the promisee agrees to accept a substituted performance, as where a buyer of goods agrees to extend the date for delivery, or to allow the seller to deliver the goods at some place other than that specified in the contract. In some cases this will be done for the benefit of the promisee, and here it is clear that the promisee cannot then turn round and seek to enforce the contract according to its terms. This is what happened in Levey & Co v Goldberg,²⁶¹ where a buyer of goods requested the seller to withhold delivery of the goods, and then sought to reject them on the ground that they had not been delivered on time. Not surprisingly, the court rejected the argument that the waiver was unenforceable for want of form, and held that in the circumstances the buyer was bound to accept the goods. Here the delay in delivery was at the promisee’s request, but more often it is the promisor who tells the promisee that he or she will not be able to perform on the date set, and requests further time. If the promisee agrees to this, is it binding? The problem here is that there is no consideration for the promisee’s agreement. The promisor is doing nothing more than he or she is already bound to do; indeed, by performing late he or she is in some sense doing less.²⁶²

5.63  Despite these problems, the common law did give some effect to the forbearance, as is demonstrated by the case of Tyers v Rosedale and Ferryhill Iron Co.²⁶³ In this case the sellers contracted to deliver a quantity of iron to the buyers over the year 1871 in twelve monthly instalments. After the first delivery, the buyers asked the sellers to suspend deliveries for a period, and this was duly done. Then in December 1871 they called on the sellers to deliver the entire balance of the iron. The sellers refused to deliver more than the normal monthly quantity, and the (p. 112) question then arose as to the effect of the buyers’ previous request. It was held that the sellers were still bound to deliver the balance of the iron, though not necessarily all in one batch. The sellers having acquiesced in the suspension, they were not entitled to insist on the contract being performed strictly according to its terms. All they were entitled to was to be given a reasonable time to deliver the balance of the goods.²⁶⁴ In this case it was the date of performance that was postponed, but the same principle was applied to a seller who acquiesced in payment under a non-conforming letter of credit,²⁶⁵ and to a buyer who allowed the goods to be delivered to a destination other than the one named in the contract.²⁶⁶

5.64  The principle was further considered in Hartley v Hymans,²⁶⁷ in which the sellers agreed to deliver a quantity of cotton, delivery to begin in September 1918 and to continue at a specified rate thereafter. The buyers were entitled to cancel the contract if the goods were not all delivered on time. The sellers fell behind in their deliveries, but the buyers continued to press for performance both before and after deliveries should have been completed in November 1918. Eventually they purported to cancel the contract in March 1919. It was held by McCardie J that though time was of the essence here, the buyers had waived their rights. The buyers had led the sellers to believe that they were not insisting on prompt performance of the contract; the sellers having acted on that basis at great expense to themselves, the buyers could not be allowed to turn round and enforce the contract according to its terms.²⁶⁸ A similar line of reasoning was used in The Petrofina,²⁶⁹ where shipowners had been accustomed to accept payment of monthly instalments of charter hire by cheque, despite the express provision of the charterparty that hire had to be paid by cash in advance. It was held that the owners could not terminate the charterparty on the ground of late payment without giving the charterers a proper opportunity to put matters right; the owners had plainly manifested their willingness to accept a substituted method of performance, and could not, when payment was made in the accepted manner, take advantage of some provision in the contract which gave them a remedy in default of payment.²⁷⁰

5.65  Waiver by forbearance differs from discharge by agreement and from variation in that it does not irrevocably alter the rights of the parties under the original contract. (p. 113) In particular, it seems that the promisee will be entitled to withdraw the waiver and insist once again on performance in accordance with the contract, provided that proper notice is given to the promisor.²⁷¹ It has also been said that waiver by forbearance does not exist as a separate doctrine, and that the cases can all be explained as cases of equitable estoppel.²⁷² This may very well be so, and certainly there is a considerable overlap between the two doctrines,²⁷³ but there are two reasons for treating them as separate in the present context. First of all, the doctrines have a distinct pedigree, and though some of the later cases do cite Hughes v Metropolitan Railway²⁷⁴ and other authorities based on equitable estoppel, by no means all of them do.²⁷⁵ Secondly, the emphasis of the two doctrines is different; the essence of equitable estoppel, as we shall see, is on the conduct of the party for whose benefit the forbearance is made, whereas in waiver by forbearance the main emphasis is on the conduct of the party who makes the forbearance.²⁷⁶

5.66  The essence of waiver by election, as Lord Goff explains in The Kanchenjunga,²⁷⁷ is that a party with inconsistent rights or remedies chooses to exercise one rather than another.²⁷⁸ In this situation he or she cannot blow hot and cold; ‘a party to a contract may not both approbate and reprobate’.²⁷⁹ The most obvious example of this is where the promisor has committed a serious breach amounting to repudiation: either a breach of ‘condition’²⁸⁰ or some other breach going to the root of the contract.²⁸¹ In this situation the promisee has a choice; he or she can either terminate the contract or affirm it.²⁸² If the promisee chooses to terminate, or as (p. 114) is sometimes said ‘accept the repudiation’, the right to insist on further performance is lost; the primary obligation of the promisor to perform lapses, and is replaced by a secondary obligation to pay damages.²⁸³ But if the promisee chooses to affirm, the contract remains fully binding on both sides,²⁸⁴ and the promisee cannot turn round later and terminate without giving the promisor another opportunity to perform.²⁸⁵ This is obviously of great relevance to a case of delay. Take a case where the promisor has agreed to deliver goods at a certain date, time being of the essence of the contract. If the goods are delivered late, the promisee can reject them and terminate the contract, but if he or she decides to affirm, say by continuing to press for delivery, then the right to terminate is lost.²⁸⁶ The promisor must be given another chance.²⁸⁷

5.67  In order for waiver by election to take place in this situation the promisee must be aware of the facts giving rise to the right to terminate.²⁸⁸ The waiver can be communicated to the other party by words or conduct, but such communication must be in ‘clear and unequivocal terms’.²⁸⁹ In some cases it will be obvious that the promisee has chosen to terminate; for instance he or she may give the promisor express notice to that effect,²⁹⁰ or may refuse to perform the contract further,²⁹¹ or may make another contract inconsistent with the previous one.²⁹² In other situations the promisee’s conduct will be consistent only with affirmation, (p. 115) as where he or she continues to press for performance,²⁹³ or does some other act indicating that the contract is still on foot.²⁹⁴ What if the promisee does nothing to give any indication one way or another? Obviously he or she must be given a reasonable amount of time to decide how to react to the breach,²⁹⁵ and in some cases a period of inactivity may be enough to indicate to the promisor that the promisee no longer intends to be bound by the contract,²⁹⁶ but some indication there must be, otherwise the promisor will be entitled to assume that the contract is still in force.²⁹⁷

5.68  The effect of waiver by election in this situation is that the right in question is lost and cannot be revived without the promisor being given another chance to perform. This is well illustrated by the facts of Charles Rickards Ltd v Oppenhaim,²⁹⁸ where a firm of car dealers agreed to deliver a Rolls-Royce chassis, which was to be fitted out and delivered to the customer by 20 March 1948. The car was not delivered on time, but the customer continued to press for delivery. On 29 June the customer told the dealers that if the car was not delivered in four weeks he would not accept it. In fact it was not ready until October, by which time the customer had had enough, and refused to take it. The Court of Appeal held that the customer was entitled to reject the car. Time was originally of the essence, and the customer could have terminated at once for failure to deliver on the agreed date. This right had been lost by waiver, and could not be revived without giving the dealers another chance to perform. However, when they still failed to deliver, the customer was entitled to serve a notice making time of the essence (p. 116) once more;²⁹⁹ when this fresh deadline was still not met, the contract could then be terminated.

5.69  Like waiver by forbearance, waiver by election has often been compared to equitable estoppel. However, as Lord Goff points out in The Kanchenjunga, there are important differences as well.³⁰⁰ In particular, waiver by election does not require proof of any degree of reliance; rather, the principle is, as we have seen, that the party in question is not allowed to blow hot and cold, but must decide as to which of two inconsistent rights to pursue.³⁰¹ As well as this, though both waiver by election and equitable estoppel are based on the notion of an express or implied representation, the representation in the two cases is different in character. In the case of an election, the party concerned is making a representation as to the present – that is to say, as to his or her choice whether or not to exercise a right that already exists. In the case of equitable estoppel, the representation is as to the future; that is to say, the party concerned is representing that he or she will not enforce certain rights.³⁰² Indeed, that is why it is sometimes called ‘promissory’ estoppel.

5.70  The essence of equitable estoppel was set out by Lord Goff in The Kanchenjunga as follows:³⁰³

5.71  The fons et origo of equitable estoppel is seen in the case of Hughes v Metropolitan Railway,³⁰⁴ decided in 1877. In this case a lease contained a provision for forfeiture if repairs were not done. The landlord served a notice requiring such repairs to be done within six months, but then entered into negotiations with the tenant for the purchase of the lease. When the negotiations broke down, he sought to forfeit the lease on the ground that the six-month period had now expired and the tenant had not done the repairs. But the claim was rejected. In the words of Lord Cairns:³⁰⁵

In the same way in Central London Property Trust v High Trees House Ltd,³⁰⁶ Denning J, as he then was, referred to promises which were intended to create legal relations, and which, to the knowledge of the person making the promise, were going to be acted on by the person to whom they were made, and which were in fact so acted on, saying that in such cases the promise should be honoured.³⁰⁷ Though he denied that these were really cases of estoppel, the title ‘equitable estoppel’ or ‘promissory estoppel’ is now commonly used for situations of this sort. The doctrine is frequently relied on where a promisee under a contract³⁰⁸ indicates that he or she will not insist on strict performance, and the promisor acts in reliance on the promise. To what extent will the promise be enforced? In this situation we need to consider both the requirements of equitable estoppel and its effect.

5.72  According to Robert Goff J as he then was, in BP Exploration Ltd v Hunt,³⁰⁹ the principle of equitable estoppel presupposes three things: (1) a legal relationship between the parties; (2) a representation, express or implied, by one party that he will not enforce his strict rights against the other; and (3) reliance by the representee (whether by action or by omission to act) on the representation, which renders it inequitable, in all the circumstances, for the representor to enforce his strict rights, or at least to do so until the representee is restored to his former position.

5.73  The first requirement mentioned by Robert Goff J is that there must be some legal relationship between the parties.³¹⁰ In most cases this will be a contractual relationship, but this need not necessarily be so.³¹¹ Where there is no such relationship, the doctrine cannot operate; still less can it be used to create such a relationship where none existed before.³¹²

5.74  Next, there has to be a promise or representation that the contract will not be enforced according to its terms. In some cases this will be in express terms, but in some cases, as in Hughes v Metropolitan Railway itself, it will be sufficient that a reasonable person in the shoes of the representee would have inferred that the representor did not intend to insist on strict compliance with the contract.³¹³ However, the facts must point to a promise or representation of some sort.³¹⁴ Thus in The Scaptrade³¹⁵ the fact that shipowners had acquiesced in the late payment of hire on past occasions was held not to debar them from withdrawing the ship on that ground, since they had never expressly or impliedly represented that they would not insist on punctual payment. In the same way, in The Laconia,³¹⁶ another charterparty case, the fact that the shipowners’ bank had accepted a late payment of hire was held to be insufficient, since the bank had no authority to make any kind of promise or representation so as to bind the owners.

5.75  As in the case of waiver, the promise or representation has to be clear and unequivocal.³¹⁷ Thus in Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd³¹⁸ an attempt by buyers to argue that the sellers had agreed to allow payment in sterling rather than in the currency specified in the contract was held not to give rise to an equitable estoppel, since it was not clear whether the agreement related to the currency of account or merely the currency of payment. In the same way it was held in The Post Chaser³¹⁹ that the buyers under a c.i.f. contract had not waived their rights simply by failing to object to a late declaration of the vessel by the sellers; this was not enough, it was said, to amount to the necessary unequivocal declaration by the buyers that they did not intend to enforce their strict rights.

5.76  One of the purposes of this requirement that the promise or representation be clear and unequivocal is said to be to prevent a party from losing his or her legal rights under a contract merely by failure to insist on strict performance of the contract at all times, or by granting some other indulgence. To what extent will a promisee who accepts late performance be deemed to have represented that they (p. 119) do not intend to enforce the contract according to its strict terms? Sometimes the cases are not easy to reconcile. Thus in The Petrofina³²⁰ it was held that shipowners who had allowed the charterers to pay the monthly instalments of hire by cheque rather than by cash in advance as stipulated by the contract could not withdraw the ship on this ground without giving the charterers proper notice that they intended to insist on their strict contractual rights from now on; in effect, the accepted method of payment under the charterparty had been modified. In The Scaptrade,³²¹ by contrast, it was held by Lloyd J at first instance that the mere fact that the shipowners had accepted late payments of hire in the past did not imply any representation to the charterers that they did not intend to enforce the contract according to its terms. In Hazel v Akthar³²² the defendant applied for a new tenancy under Part II of the Landlord and Tenant Act 1954, but the application was opposed by the landlords on the ground that the tenant had been guilty of persistent delay in paying the rent when due. It was held that the landlord was estopped from relying on this ground, as the delays were not serious in nature, and had been perfectly acceptable to the previous landlords. It was therefore not open to the present landlords to penalise the tenant on this ground when they had not given him sufficient notice of their intention to insist on prompt payment from now on. Three factors seem to be relevant in the present context. First of all, there is the question of consistency. A mere acceptance of late performance will not give rise to equitable estoppel unless it is sufficiently systematic to indicate a change in the way the contract is performed. Secondly, there is the relative strength of the parties. The courts will be more inclined to make allowances for a private individual dealing with a business than in a case where two businesses are dealing at arm’s length. Thirdly, there is the nature of the contract. In commercial contracts, where time is often of the essence, equitable estoppel will be harder to establish than in the property context, where prompt performance is of less significance.

5.77  The key element of equitable estoppel, and the one which distinguishes it from waiver in the strict sense, is the requirement of reliance; the representation or promise must, in the words of Denning J, have been ‘acted on’. We have seen how in Hughes v Metropolitan Railway³²³ this requirement was satisfied when the tenants allowed the deadline for the repairs to pass while they negotiated with the landlords for the sale of the lease. Similarly, in Hartley v Hymans,³²⁴ sellers of cotton yarn were held to have acted in reliance on the buyers’ indication that they would accept late delivery by continuing to place orders with their suppliers, since the yarn in question was of a special kind and not suitable for sale on the general (p. 120) market. But where no such reliance can be shown, the doctrine of equitable estoppel will not operate. Thus in Avimex SA v Dewulf & Cie³²⁵ a buyer of goods was held not to have waived his rights by acceptance of a defective force majeure notice in the absence of any indication that the seller had acted on the faith of this acceptance, say by appropriating goods to the contract. In the same way, the charterers in The Scaptrade³²⁶ were held not to have demonstrated any degree of reliance in failing to pay instalments of hire on time, despite the fact that this was done without any objection from the owner. No doubt they would have paid promptly if they had been warned that the owners were about to withdraw the vessel, but this was not enough.³²⁷

5.78  Some of the cases seem to suggest that mere reliance will not be enough unless it is accompanied by some degree of ‘detriment’. In The Post Chaser³²⁸ the sellers under a c.i.f contract failed to declare a vessel on time as required by the contract. The buyers, however, made no protest about this, and later requested the sellers to present the shipping documents. It was held that this request did not amount to an unequivocal declaration by the buyers that they did not intend to rely on their rights,³²⁹ and that even if it did, the sellers had not shown the necessary reliance. They had indeed relied on the buyers’ request to the extent that they had conducted their affairs in accordance with it, but they had suffered no detriment by doing so and it was therefore not inequitable for the buyers to resile from their promise.³³⁰ The requirement of detriment has been stated in other cases as well,³³¹ but it was denied by Lord Denning MR,³³² and is said to be based on a misleading analogy.³³³ The point is not of great importance at the end of the day. In cases where no detriment has been suffered by the party concerned, it will generally not be inequitable for the other to go back on the promise or representation in question; and if it would be so inequitable, the courts are not going to hold the doctrine inapplicable for lack of detriment.³³⁴

5.79  The doctrine of equitable estoppel creates no new causes of action where none existed before;³³⁵ in that sense, it is said to be a shield and not a sword.³³⁶ Rather, the effect is, in the words of Lord Cairns, that a person who otherwise might have enforced his or her rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.³³⁷ Such a person may be deprived of a cause of action,³³⁸ or of a defence that he or she would otherwise have had,³³⁹ but there is no independent right to enforce the promise.³⁴⁰ This limitation is of no significance in the present context, but there are two other aspects of the matter that need to be considered. First of all, when is it inequitable to allow someone to enforce his or her rights in this situation? Secondly, to what extent can the party concerned resume these rights for the future?

5.80  Normally it would be inequitable to allow someone to go back on a promise or representation he or she has made, especially where that promise or representation has been acted on by someone else. However, there are cases where this will not apply. For instance, the promise may have been procured by threats or undue pressure, as in D & C Builders v Rees,³⁴¹ where the debtors of a small business, knowing that the business was in financial difficulties, prevailed on them to accept part payment on the basis that otherwise they would get nothing at all. Again, a promisee who agrees to allow the promisor to perform late may be justified by subsequent events in resiling from that undertaking. In Williams v Stern³⁴² the plaintiff gave the defendant a bill of sale as security for a loan, under which certain furniture could be seized if the loan was not paid on time. The plaintiff asked for extra time to pay, and the defendant agreed to this, but then, hearing that the plaintiff’s landlord intended to distrain on the property, he went ahead and seized the furniture. It was held that in the circumstances it was not inequitable for the defendant to act as he did. In the present context it is also relevant, as we have seen, to ask to what extent the representee under the contract has changed position in reliance on the representor’s undertaking not to enforce his or her contractual rights. Where the representee has incurred some degree of detriment it will generally not be equitable to allow the representor to (p. 122) resile from that undertaking, but this may not be so where the representee has not been prejudiced in any way by relying on it. This is what happened in The Post Chaser,³⁴³ where the buyers under a c.i.f. contract called on the sellers to present the shipping documents despite the fact that the vessel had not been nominated in time as required by the contract. Shortly afterwards the contract was terminated by the buyers on the ground of the delay, but it was held that though the buyers’ request may have led the sellers to believe that the buyers had decided to overlook the late nomination, they had not been prejudiced as a result.³⁴⁴

5.81  Where a contract is discharged by agreement or altered by variation, the effect is permanent: the promisee can no longer insist on the promisor performing according to its terms.³⁴⁵ But where the alteration is by way of waiver or equitable estoppel, the cases establish that the representor can generally resume his or her position by giving due notice to the representee.³⁴⁶ Thus, a buyer who agrees to accept late delivery can give the seller a new deadline,³⁴⁷ and where the contract calls for performance by instalments the representor can insist that from now on the contract must be performed strictly in accordance with its terms.³⁴⁸ However, in cases where it is impossible or impracticable to restore the representee to his or her original position the doctrine may serve to extinguish the representor’s rights altogether.³⁴⁹ The reason for the general rule is said to be the discretionary nature of the equitable jurisdiction; the court is allowed to give such relief as is just and equitable in all the circumstances, and in most cases of this sort it would be neither just nor equitable to treat the representor’s rights as being totally extinguished.³⁵⁰

5.82  The promisor will obviously have a good excuse for the delay when timely performance was prevented by the act of the promisee.³⁵¹ To adapt the words of (p. 123) Tindal CJ, where the promisee himself has occasioned the breach of contract, that is a good answer to any complaint founded on that breach, in so far as the act complained of is the act of the promisee rather than the promisor: the promisor may say, ‘This is your own act, and therefore you are not damnified.’³⁵² In Jones v Barkley³⁵³ the plaintiff covenanted with the defendant to execute a release; he duly offered to do so, and tendered a draft for the defendant’s perusal, but the defendant refused to look at it and said that he would have no more to do with it. It was held that the plaintiff was discharged from his duty to perform. The same reasoning was said to apply to a case where A covenants with B to build a house on his land, and B refuses to allow him onto the land to do the work.³⁵⁴ In all these cases the promisor is excused in so far as his or her performance is prevented by the act of the promisee.

5.83  This principle has often been relied on in relation to construction contracts. In the words of Coulson J, the essence of the prevention principle in this context is that the employer cannot hold the contractor to a specified completion date if the employer has, by his own act or omission, prevented the contractor from completing by that date.³⁵⁵ The effect of this is said to be that time is now ‘at large’; the completion date no longer applies, with the result that the contractor need only complete within a reasonable time.³⁵⁶ Needless to say, this rule could have catastrophic consequences for a construction project, and for this reason most contracts in this field include provision for extensions of time to be granted in this sort of situation.³⁵⁷ In relation to this, three general principles were laid down by the Technology and Construction Court in Multiplex Constructions Ltd v Honeywell Control Systems Ltd,³⁵⁸ a case involving delays to a subcontractor involved in the construction of the new Wembley Stadium. According to Jackson J, three propositions were derived from a review of authority:³⁵⁹ (1) actions by an employer which were perfectly legitimate under a construction contract might still be characterised as prevention if those actions caused delay beyond the contractual completion date; (2) acts of prevention by an employer did not set time at (p. 124) large if the contract provided for extension of time in respect of those events; and (3) in so far as an extension of time clause was ambiguous, it should be construed in favour of the contractor. Since, however, it was held that the variations ordered by the claimant fell within the ambit of the clauses in question, it was held that the claimant was entitled to a declaration to that effect.

5.84  These principles were applied to a shipbuilding contract in Adyard Abu Dhabi LLC v SD Marine Services,³⁶⁰ where the buyer of a ship sought to terminate the contract following lengthy delays by the shipbuilders. The shipbuilders sought to shelter behind the prevention principle, saying that the delays were due to variations ordered by the buyer. However, this defence was rejected by the court, on the ground that the contract provided for extensions of time in this situation,³⁶¹ and that the only reason why an extension had not been granted was that the shipbuilders had not applied for one as specified by the contract.³⁶² Moreover, for the prevention principle to apply a causal link had to be shown between the variations and the delay; in this case the project was already in irretrievable critical delay well before the relevant date.³⁶³

5.85  Though most of the cases involve building contracts, the same reasoning was applied to a voyage charterparty in The Mass Glory,³⁶⁴ where it was held that the shipowner was not liable for delay where the ship had been prevented by the charterer’s breach from getting to the point where notice of readiness to load could be given. In all these cases the promisor is not responsible for the delay; indeed, the conduct of the promisee in hindering or preventing performance may itself give rise to a claim in damages, or even amount to a repudiation of the entire contract.³⁶⁵

5.86  Our final topic is the extent to which timely performance may be excused by supervening events. There are four situations in which this may happen: (1) under the terms of a force majeure clause; (2) where the contract is discharged by breach or frustration; (3) in other cases of impossibility falling short of frustration; and (4) under the rule in Hick v Raymond & Reid, where a party who is bound to (p. 125) perform within a reasonable time is hindered by circumstances beyond his or her control. We have already dealt with the last of these at some length,³⁶⁶ but the other three need further elaboration.

5.87  Contracts frequently contain terms by which a promisor is excused from performance altogether, or allowed to delay or interrupt performance, on the happening of certain events beyond his or her control. Such terms are known as force majeure clauses, and their effect is to give the promisor an excuse for failure to perform when this might not be allowed under the general law.³⁶⁷ A party relying on such a clause has to prove three things: (1) that it covers the event in question; (2) that the non-performance was due to circumstances beyond his or her control; and (3) that there were no reasonable steps that could have been taken to mitigate the event or its consequences. As well as this, the contract may impose further conditions on a promisor who wishes to invoke the protection of such a clause.

5.88  Whether a force majeure clause covers the contingency in question obviously depends on how it is worded. For instance, a clause relieving the promisor from liability if he or she is ‘prevented’ from performance will not cover a situation where performance was merely rendered more difficult or onerous.³⁶⁸ A clause using the word ‘hindered’ may be given a wider scope,³⁶⁹ though a mere change in economic or market circumstances, affecting the profitability of a contract or the ease with which the parties’ obligations could be performed, will not be regarded as being a force majeure event.³⁷⁰ Quite often the clause in question will refer to some particular contingency, such as ‘Act of God’, or ‘restraint of princes’, or ‘perils of the sea’.³⁷¹ In such cases it will be necessary to see how the words in question have been interpreted in other cases on the topic, always bearing in (p. 126) mind that expressions used in relation to one type of contract may not be appropriate in the context of another.³⁷²

5.89  The promisor will not be able to rely on a force majeure clause if he or she was responsible for the occurrence of the event in question.³⁷³ However, difficulties arise where the promisor was not directly responsible for the event, but should have realised that it was likely to occur.³⁷⁴ In The Angelia³⁷⁵ the clause in question referred to ‘unavoidable hindrances’, and it was said that the promisor could not rely on the clause if the existence of facts showing that it was bound to operate should reasonably have been known to the promisor prior to the conclusion of the contract, and would have been expected by the promisee to be so known.³⁷⁶ However, in a later case this was doubted, on the grounds that there was no principle of law that prevented a party from relying on the terms of a contract just because he or she was improvident in entering into it.³⁷⁷ Obviously a lot depends on the wording of the clause in question, but it has been pointed out that the parties are unlikely to have intended to allow the promisor to be excused from performance in this sort of case.³⁷⁸

5.90  As a general rule, a force majeure clause expressed in general terms will not apply where the promisor is allowed to perform in a number of different ways, only some of which are covered by the clause.³⁷⁹ Thus for instance, where a seller of goods is prevented from shipping from a particular port, he cannot shelter behind the clause if there are other ports available to which the restraint does not apply.³⁸⁰ In the same way a seller who is prevented from acquiring goods from the normal supplier may be able to acquire them from another source, albeit at a higher price.³⁸¹ However, this principle is said to be no more than a rule of (p. 127) construction, and one which may be displaced by the terms of the clause or by some other term of the contract.³⁸²

5.91  A promisor who wishes to rely on a force majeure clause may be required to fulfil certain preconditions before being allowed to do so; in particular, the contract may contain a provision requiring due notice to be given to the other party by a certain time and in a certain form.³⁸³ Where this is the case, the promisor will not be able to rely on the clause where he has failed to give any notice at all, but problems may arise where the notice given does not comply with the terms of the contract. In many cases the notice is given out of time, and here the courts have to consider whether time was intended to be of the essence; if it was, a late notice will be totally ineffective, whereas in other cases the delay will sound in damages only.³⁸⁴ Problems will also arise when the other party purports to accept a notice which is out of time, or which for some other reason does not comply with the contract;³⁸⁵ in this situation the courts will have to apply the principles stated above in relation to waiver and the doctrine of equitable estoppel.³⁸⁶

5.92  The promisor will obviously have a good excuse for failing to perform on time if the contract has been validly discharged by breach or frustration; indeed, where this is the case there is no obligation to perform at all. Discharge by breach, as we shall see, occurs when one party to the contract commits a breach of condition,³⁸⁷ or some other breach going to the root of the contract.³⁸⁸ In this situation the other party can opt to terminate the contract, and where this is done both parties are then released from having to perform their primary obligations under the contract.³⁸⁹ Discharge by frustration occurs when a contractual obligation becomes incapable of performance, either through impossibility or illegality, or because the circumstances in which performance is called for would render it a thing radically different from that which was contemplated by the contract.³⁹⁰ In this case the contract comes to an end automatically and both parties are (p. 128) discharged.³⁹¹ These doctrines need no further elaboration in the present context, as they will be dealt with at length in Part III below.³⁹²

5.93  A promisor may be excused from performance by subsequent events even where those events are insufficient to amount to frustration.³⁹³ Thus for instance an employee will not be in breach of contract if he or she fails to turn up to work due to sickness, even though the illness is not of such a duration as to frustrate the contract,³⁹⁴ and it has been held that a tenant was not in breach of his covenant to redevelop the land by a certain date when a building on the site was listed.³⁹⁵ In the same way it is suggested that a builder or plumber might not be liable for failure to complete the work on time where this was due to some extraneous event beyond their control, such as a flood or power failure or a heavy snowstorm. The contract would not be frustrated in these cases, but the promisor would still have a valid excuse for the delay.