THE LAW OF CONTRACT Fourteenth Edition THE LAW OF CONTRACT Fourteenth Edition EDWIN PEEL, B.C.L., M.A. Professor of Law Clarendon Harris Fellow in Law, Keble College, Oxford Barrister, One Essex Court First Edition 1962 Second Edition 1966 Third Edition 1970 Fourth Edition 1975 Fifth Edition 1979 Sixth Edition 1983 Seventh Edition 1987 Eighth Edition 1991 Ninth Edition 1995 Tenth Edition 1999 Eleventh Edition 2003 Twelfth Edition 2007 Reprinted 2010 Thirteenth Edition 2011 Fourteenth Edition 2015 Published in 2015 by Thomson Reuters (Professional) UK Limited trading as Sweet & Maxwell, Friars House, 160 Blackfriars Road, London, SE1 8EZ (Registered in England & Wales, Company No 1679046. Registered Office and address for service: 2nd floor, 1 Mark Square, Leonard Street, London EC2A 4EG) For further information on our products and services, visit www.sweetandmaxwell.co.uk Typeset by Letterpart Limited, Caterham on the Hill, Surrey, CR3 5XL. 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Application for permission for other use of copyright material, including permission to reproduce extracts in other published works, shall be made to the publishers. Full acknowledgement of the author, publisher and source must be given. © 2015 G.H. Treitel Preface to the Fourteenth Edition In the four years since the last edition the more significant changes in the law have been the result of legislation rather than decisions of the courts. The most significant of such developments have been the amendments made to the Consumer Protection from Unfair Trading Regulations 2008 and the passing of the Consumer Insurance (Disclosure and Representations) Act 2012, the Insurance Act 2015 and the Consumer Rights Act 2015. At the time of writing, neither of the two Acts of 2015 are yet in force. Most of the changes to the law introduced by the Insurance Act 2015 will come into force on 12 August 2016 and affect the duties of disclosure and liability for misrepresentation of insureds. They are therefore anticipated in various parts of Ch.9, which also includes the changes already made by the 2012 Act. The timing of the Consumer Rights Act 2015 created a particular dilemma. It only received royal assent a few weeks before this edition had to be submitted for publication and it is understood that it will come into force in October 2015. However, for several years at least, and certainly for the duration of this edition, the courts are more likely to be required to consider contracts which were entered into under the law as it currently stands. Given the extensive changes introduced by the 2015 Act, in terms of where the law is to be found if not always in terms of substance, it is covered by way of a separate chapter which can be consulted if the 2015 Act is applicable. In other chapters, most notably Ch.7, the current law is stated but the reader is alerted, where appropriate, to the changes that will be introduced by the 2015 Act; so, for example, Ch.7 still covers the Unfair Terms in Consumer Contracts Regulations 1999, but they will be revoked and replaced by provisions in Part 2 of the Consumer Rights Act 2015. Once the date upon which the 2015 Act is in force is known, it is hoped that, by reference to the date when the contract in hand has been entered, it will be possible for the reader to locate the applicable law. The amendments made to the Consumer Protection from Unfair Trading Regulations 2008 have resulted in civil remedies for consumers who have been the victims of certain “prohibited practices”, including “misleading action” and “aggressive practice”. These changes are reflected in Chs 9 and 10. If the more significant developments have taken place in Parliament, this is not to say that the courts have been quiet. In the last edition, Ch.6 took into account the decision of the Court of Appeal on the limits of “purposive” interpretation in Rainy Sky SA v Kookmin Bank and it now assesses the reversal of that decision by the Supreme Court. It must be a source of some regret that the defence of illegality should have been considered by the Supreme Court on three occasions (Allen v Hounga; Les Laboratoires Servier v Apotex Inc;and Jetivia SA v Bilta (UK) Ltd) and yet it still was observed by Lord Neuberger, on the last of these occasions, that “the proper approach to the defence of illegality needs to be addressed by this court (certainly with a panel of seven and conceivably with a panel of nine Justices) as soon as appropriately possible.” The continued uncertainty in this “notoriously knotty territory” (Sir Robin Jacob in ParkingEye Ltd v Somerfield Stores Ltd) is reflected in Ch.11. In Geys v Société Générale a majority of the Supreme Court endorsed the view long held in this book that a contract, including a contract of employment, is not automatically terminated by a repudiatory breach (see Ch.18) and in Benedetti v Sawiris the Court provided welcome clarification on the valuation of services provided pursuant to a “failed” contract (see Ch.22). In the Court of Appeal, the decisions in Makdessi v Cavendish Square Holdings BV and ParkingEye Ltd v Beavis have invigorated the debate about the scope of the rule against penalties, as has the decision of the High Court of Australia in Andrews v ANZ Banking Group Ltd to return to its equitable origins and reject the limitation of its application to sanctions imposed only for a breach of contract by the payer. All three decisions are assessed in Ch.20 and the appeals to the Supreme Court in Makdessi and ParkingEye represent the more eagerly anticipated of the decisions which will need to be reflected in the next edition. Mention might also be made of the decision of the Court of Appeal in Daventry District Council v Daventry & District Housing Ltd. The observations of the Lords Justices in that most unusual of cases, along with those of many other judges, have called into question the suggested approach of Lord Hoffmann in Chartbrook v Persimmon Homes Ltd to claims for rectification on the basis of “common mistake”. This debate is considered in Ch.8. At first instance, there have been several intriguing developments. Most notable among them is the decision of Leggatt J. in Yam Seng Pte Ltd v International Trade Corp Ltd to acknowledge the existence of a duty to perform a contract in good faith, based on the methodology of terms implied in fact. That has received something of a mixed reception, but it is a development which looks like it is here to stay and it is assessed in Chs 1 and 6. In part prompted by the decision in Yam Seng, Teare J. has also inflicted another blow on the proposition that there is no enforceable obligation to negotiate in good faith in Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd (see Ch.2). In The Glory Wealth the same judge directly challenges the proposition advanced in this book that, in the assessment of damages, it should not be required of the claimant to prove that he could have performed his future obligations after he has terminated the contract on the basis of the defendant’s breach (see Chs 17 and 20). Teare J. based his conclusion on this issue on the decision of the House of Lords in The Golden Victory, the scope and effect of which is also carefully considered by Popplewell J. in Ageas (UK) Ltd v Kwik-Fit (GB) Ltd (see Ch.20). Finally, a particular mention may be made of Credit Suisse International v Stichting Vestia Groep and Andrew Smith J.’s assessment of the actions potentially available to protect against corporate incapacity (see Ch.12). I welcome the opportunity to place on record my thanks to the fellows and staff of Keble College and the Oxford Law Faculty for providing the support and infrastructure which made the work on this edition possible, not least the provision of the IT services which are so essential when everything which is decided in the courts is so readily available. I have continued to benefit from invaluable discussions about the development of the law with my colleagues in the faculty and at One Essex Court, in particular: Andrew Burrows; Adrian Briggs; Andrew Dickinson; James Goudkamp; Laurence Rabinowitz; Adam Rushworth; and Steven Elliott. I am also very grateful for the valuable insights provided by supervising the research of Niranjan Venkatesan and Andrew Dyson, and examining the thesis of Dr. Carmine Conte. Stefan Enchelmaier very kindly provided guidance on the short section in Ch.11 which endeavours to give an account of competition law in the context of restraint of trade. The Senior Publishing Editor, Nicola Thurlow, once again has seen through the work on this edition and was kind enough to extend the deadline for submission of the text to the maximum extent possible. This was further assisted by the House Editor, Alice Batley, who very kindly accommodated the restrictions on my time for consideration of the proofs. This has allowed me to endeavour to state the law as I understand it to be as at 30 April 2015. As always, my greatest thanks go to my family: my wife Helen and children Emily and Charlotte. In the latter stages of working on this edition, it was necessary to sacrifice too many weekends and spring evenings for my liking, or theirs, but I was offered only patience, support and encouragement in return. This edition is dedicated to my father, who was always an inspiration. He sadly died shortly before the work on this book was completed. Edwin Peel Oxford, 1 May 2015 The cover image is a painting of the vessel “The Peerless”. It is known that the vessel shown was employed on the Indian route at the time of the events which led to the decision in Raffles v Wichelhaus (see para.8–042), but it is not known whether this is one of the vessels that was the subject of that case itself. Given the issue before the court, this seems entirely apt. TABLE OF CONTENTS PAGE Preface to the Fourteenth Edition v Table of Cases xxix Table of Statutes ccix Table of Statutory Instruments ccxxvii Table of European Legislation ccxxxi PARA 1. INTRODUCTION 2. AGREEMENT 1. OFFER (a) Offer Defined 2–002 (b) Offer Distinguished from Invitation to 2–006 Treat (c) Where and When an offer Takes 2–015 Effect 2. ACCEPTANCE (a) Acceptance Defined 2–016 (b) Communication of Acceptance (i) General rule 2–024 (ii) Exceptional cases 2–025 (iii) Acceptance by post 2–029 (c) Prescribed Method of Acceptance 2–040 (d) Acceptance by Silence 2–043 (e) Acceptance in Ignorance of Offer 2–048 (f) Acceptance in Unilateral Contracts 2–051 3. TERMINATION OF OFFER (a) Withdrawal 2–058 (b) Rejection 2–062 (c) Lapse of Time 2–064 (d) Occurrence of Condition 2–066