Junior Aids Legal Position - Article Example

Infasuck Ltd is a company manufacturing baby's dummies. It appoints a company called Junior Aids Ltd as its distribution and selling agents. The contract is for five years starting on 1 January 2000 and clause 6 of the agreement says: "it shall be a condition of this agreement that Junior Aids Ltd visits the offices of the 4 major retail groups dealing with maternity aids at least once a week, in order to solicit orders". After a year, Junior Aids feel that visiting the retail group once a week is futile and unnecessary, and they write to Infasuck saying so. On 1 January 2001, Infasuck write back saying Junior Aids need only visit once every fortnight, and from that date onwards Junior Aids visits accordingly. However, in February 2001 Junior Aids forget to send a representative to one of the major retailers during one 2 week period and miss a small order from that company. Infasuck, who have been looking for an opportunity to replace Junior Aids, immediately repudiate the agreement and claim damages: (b) for failure to comply with clause 6 of the original agreement from 2000. Consider Junior Aids Legal position. In order to be able to assess Junior Aids Legal Position it is necessary to examine the ways in which a contract can be repudiated. The starting point in this type of situation is to examine the terms of the contract to determine whether there has been a breach. This will enable a conclusion to be drawn as to the rights of the parties in terms of repudiation of the contract. In law either party might be entitled to repudiate the contract. In this particular situation Infasuck Ltd might be entitled to repudiate the contract because the other party has not adhered to a clause in the contract. In order to decide whether repudiation is likely to be authorised by the court it is necessary to examine the content of the contract to determine whether the clause amounts to a condition. In this particular situation it is obvious that Clause 6 amounts to a condition as the agreement is that Junior Aids will visit the groups at least once a week. Repudiation was considered in the case of Bettini v Gye1 in which the plaintiff had signed a contract for a season of concerts. The plaintiff arrived 3 days late of the agreed date due to being ill but had failed to inform the respondent that he would be late. As a result of this lateness the plaintiff failed to attend rehearsals which were viewed as a lesser part of the contract. The court held that there had been a breach of the warranty to attend the rehearsals but that the defendant was only entitled to compensation for this loss and was not entitled to repudiate the contract. In some cases the court will not allow the parties to repudiate if a substantial part of the contract has been performed before the breach occurred. This was the case in Hong Kong Fir Shipping2 where the court found that as a substantial part of the contract had been completed the plaintiff was only entitled to claim compensation for loss of profit and earnings whilst the vessel could not be used. In these cases the court held that there had been a breach of warranty but not a breach of a condition in the contract. By contrast in the case of Poussard v Spiers3 the court reached the conclusion that there had been a breach of a condition inserted within the contract. The court stated in this case that the plaintiff was entitled to repudiate the contract on the grounds of the breach as the breach rendered the contract void. In general terms the person seeking to repudiate a contract must do so as soon as the breach becomes apparent. In the situation above Infasuck Ltd knew of the breach some time before hand, but had allowed the contract to continue and had amended the terms of the contract. The court might hold in such a case that by doing so Infasuck Ltd had affirmed the contract, in which case the court may decide that they are not entitled to repudiate the contract. In Hayes (t/a Orchard Construction) v Gallant[2008]4 the court had to determine whether there had been an agreement between the parties with regard to the contract. In this case the contract had been a verbal agreement only and the plaintiff was seeking to rely on this in order to claim repudiation of the contract when the respondent failed to pay for any further work. The respondent was asserting that because there had been no written agreement there was no contract and that the work carried out by the respondent was on the basis of the ordering of further work to be done once the original task had been completed. In reaching their decision the court stated that the conduct of the parties was sufficient to aver that a contract had been agreed between the parties. The court applied the decision of Photo Production Ltd v Securicor Transport Ltd [1980]5 asserting that there had been a fundamental breach of the contract and that as such the plaintiff should be entitled to repudiate the contract. The court stated that for such a fundamental breach to be considered as grounds for repudiation the breach must go to the root of the contract as was held to be the case in Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1979]6 . The court stated that in order for the contract to be regarded as repudiated the parties had to accept the repudiation and that failure to continue to perform could be used as evidence of the acceptance of the repudiation. This was deemed to be the case in Vitol SA v Norelf Ltd (The Santa Clara) [1996]7 . Using this as a guideline in the present situation above it could be argued that the second breach by Junior Aids Ltd demonstrates their unwillingness to be bound by the contract. If they have not taken any steps to continue with the contract since the breach the court could regard this as evidence of acceptance of the repudiation which could mean that Junior Aids Ltd would be held liable for breach of contract and might be awarded to pay compensation to the plaintiff for any loss of income or profit. When deciding whether the contract can be repudiated, the court will examine the actions of the parties in relation to the breach to determine whether their actions amount to an affirmation. In Ram Media Ltd (In Adminsitration) v Ministry of Culture of the Hellenic Republic (Secretariat General of Sport [2008]8 the court held that although there had been several discussions in relation to the variation of the original agreement neither party had managed to reach an agreement in principal. The court stated that in this case the plaintiff was entitled to treat the original breach of contract as grounds for the repudiation of the contract. The courts will also consider the past conduct of the parties when determining whether a claim for repudiation should be allowed. This was the case in Alan Auld Associates Ltd v Rick Pollard Associates [2008]9. In this case the judge examined the previous conduct of the parties in previous dealings and reached the conclusion that the action of the respondent seemed to suggest that they had no intention of being bound by the agreement. The court stated that their repeated breaches of the contract were sufficient for the court to assume that such breaches would continue to occur and therefore the plaintiff should be allowed to repudiate the contract. By contrast in Stocznia Gdynia SA v Gearbulk Holdings Ltd [2008]10 the court stated that the actions of the respondent amounted to an affirmation of the initial breach of contract and as such the contract was not to be regarded as having being repudiated. The judge stated that for the respondent to be able to claim repudiation they should have terminated the contract as soon as the breach became apparent. However, in Westbrook Resources Ltd v Globe Metallurgical Inc Westbrook Resources Ltd v Globe Metallurgical Inc [2007]11the court held the contract to be repudiated despite the plaintiff allowing the contract to proceed. The court stated in this case that despite the apparent affirmation the actions of the plaintiff were sufficient to suggest that they had not truly accepted the breach. The court in Peregrine Systems Ltd v Steria Ltd [2005]12 examined the conduct of the parties and was able to conclude that the contract had been affirmed. In this case the court concluded that the behaviour of the respondent amounted to affirmation since they had had full knowledge of the relevant facts surrounding the breach by the plaintiff and had continued to do business with them regardless. A similar decision was reached in Simms v Sainsbury's Supermarkets Ltd Employment Appeal Tribunal 09 March 2005, in which the court held that the delay of the plaintiff in resigning amounted to an affirmation of his contract of employment. The court stated that repudiation could not be averred from his actions confirming the decision awarded by the courts in Post Office v Roberts [1980]13 considered. The court stated that the continued employment after the receipt of the solicitors letter amounted to an affirmation. Applying the case of WE Cox Toner (International) Ltd v Crook [1981]14 the court stated that the contract of employment was valid and that the plaintiff was not entitled to repudiation for the initial breach. Applying all of the above to the present situation it is likely that the court would not allow Infasuck Ltd to repudiate the contract as their actions in allowing the variation would amount to an acceptance of the initial breach. If the new terms had been incorporated into a new agreement the court might then allow a claim for repudiation on the grounds that the respondents have breached the new agreement. The court might decide to follow the decision of Alan Auld Associates Ltd v Rick Pollard Associates [2008]15 above, if they determine that the conduct of Junior Aids Ltd suggests that they do not intend to be bound by the agreement. This could be averred from the fact that they have breached the original agreement as well as the variation. If the courts do allow repudiation Junior Aids Ltd could also be ordered to pay compensation to the plaintiff for the losses incurred as a result of the lost contract. This would be calculated on the basis of the amount that the plaintiff would have received had the contract been correctly performed. The conclusion that can be reached from the above is that the court may allow repudiation if they are satisfied that the conduct of the respondent is sufficient to show that they had no intention of being bound by the terms of the agreement. However, the courts may decide that the variation of the original clause amounts to an affirmation of the breach and therefore not allow the plaintiff to repudiate the contract. Bibliography Beale, HD, Bishop, WD, Furmston, MP, Contract Cases and Materials, 3rd Ed, 1995, Butterworths Bixby M.B., Beck-Dudley C., Cihon P.J. The Legal Environment of Business, (2002). Civil Procedure Volume 1 2002, Sweet & Maxwell Civil Procedure Volume 2, The White Book Service, 2002, Sweet and Maxwell Dignam, Alan J., "Company Law", 4th ed. / Alan Dignam, John Lowry, Oxford Oxford University Press, 2006 Goode, R M, "Commercial law ", 3rd Edition, London, Penguin 2004. Harvey, b & Marston , J . Cases & Commentary on Tort, 1998, 3rd Ed, Pitman Publishing Keenan, D and Riches, S, Business Law, 7th Ed, 2005, Longman Mozeley & Whiteley's, Law Dictionary, 1993, 11th Ed, Butterworths Rose, FD, Statutes on Contract, Tort & Restitution, 10th Ed, 2000, Blackstone's Treitel, G H. Law of Contract, 1999, 10th Ed, Sweet & Maxwell Alan Auld Associates Ltd v Rick Pollard Associates [2008] EWCA Civ 655; [2008] B.L.R. 419; (2008) 152(21) S.J.L.B. 28 Bettini v Gye (1876) 1 QBD 183 Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1979] A.C. 757 HL Hayes (t/a Orchard Construction) v Gallant[2008] EWHC 2726 (TCC) Hong Kong Fir Shipping [1962] 1 All ER 474 Peregrine Systems Ltd v Steria Ltd [2005] EWCA Civ 239; [2005] Info. T.L.R. 294 Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827 HL Post Office v Roberts [1980] I.R.L.R. 347 Poussard v Spiers (1876) 1 QBD 410 Ram Media Ltd (In Adminsitration) v Ministry of Culture of the Hellenic Republic (Secretariat General of Sport [2008] EWHC 1835 Stocznia Gdynia SA v Gearbulk Holdings Ltd [2008] EWHC 944 (Comm); [2008] 2 Lloyd's Rep. 202; [2008] 1 C.L.C. 816 Vitol SA v Norelf Ltd (The Santa Clara) [1996] A.C. 800 HL WE Cox Toner (International) Ltd v Crook [1981] I.C.R. 823 Westbrook Resources Ltd v Globe Metallurgical Inc Westbrook Resources Ltd v Globe Metallurgical Inc [2007] EWHC 2353 (Comm) Read More