Common Law and Legal Principles - Coursework Example

Common law Principles Compensating Claimant for Suffering Economic Loss According to English common law, a contract is formed when the parties expresses their consent to form a legal relationship for business purpose (Burrows, 2013). The parties must be having the intention to enter a legal relationship at the time of forming a contract. The English common law recognizes the existence of the contract and the obligation parties owe each other and sets remedies for the breach of the contract (Burrows & Peel, 2010). Though many people enter into a legal agreement every day, some contracts could be written while others are made orally. The laws of contract ensure that all parties adhere to the terms of the agreement and impose a penalty for those who are found guilty of breaching the agreement. This document focuses on how the common law compensates wronged plaintiffs who have suffered economic loss. Forming a Contract A contract is formal relationship that subsists between parties intending to be bound legally for a common purpose (McKendrick, 2014). The parties forming a contract must have the capacity to contract, the contract must be for legal purpose, parties must have sober mind, have attained the age of majority and should not be intoxicated at the time of forming a contract (Burrows & Peel, 2010). In order for the court to effectively compensate the claimant for economic loss suffered because of negligence or failure to perform the contract in accordance to the agreed terms, the contract must be legally established (Burrows, 2013). Elements of a contract There must be an offer by one party which must be accepted by the other party in order to establish a legal relationship (McKendrick, 2014). The other party must agree to the terms of the offer without qualification or without imposing new terms, otherwise, introducing new terms is tantamount to counter-offer that may or may not be accepted by the other party. When contracting parties agrees to the terms of the offer and accepts to form a binding relationship, they must give a consideration (Burrows & Peel, 2010). Consideration could be anything including promises, money, services, etc. by one party to the other. The implication of consideration that one party stands to lose of gain at the expense of the other due to failure to honour the conditions of the contract (Burrows, 2013). The English common law protects one party against fraudulent activities of the other party and determines compensation to the party who suffers economic loss as the consequences of a breach of the agreement by the other party. Under the common laws, the terms of the contract may be express of implied (Burrows, 2013). In the case of Carlill v. Carbolic Smoke Ball Co. [1893] Q.B. 256 (C.A.), the defendant produced and sold the Carbolic Smoke Ball. The company placed an offer on the on the newspaper offering a reward if 100 pounds to anyone who would use the smoke balls three times a day according to the instructions and contract any disease. The plaintiff saw the advert and bought the balls which she used as directed. She contracted influenza and claimed for the reward. The defendant declined to pay the reward compelling the plaintiff to sue for breach of contract. The court held that the defendant had waived the right of notification of acceptance by placing an advertisement on the newspaper thus the contract was valid. The defendant was compelled to pay the plaintiff for the damages suffered after consuming the Smoke Balls. The parties should adhere to the terms of the agreement set at the time of forming the contract failure to which the wronged party can sue for economic loss suffered. The loss could be pure or consequential economic loss. The law provides compensation to the wronged party by requesting the party in breach to pay for damages or request for specific performance of the contract (McKendrick, 2014). Economic loss Consequential economic loss is monetary loss relating to physical damages to claimant or property. An example of consequential economic loss could be medical expenses or the lost revenue incurred by a victim of accidents following the collision of vehicles (Burrows, 2013). The principle of recovering the consequential loss is similar to the one applied in claiming for physical damages. This means that the court has to determine whether the loss was reasonably foreseeable and occurred due to negligence of the defendant. In the case of Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] 1 QB 27, the plaintiff owned and operated a stainless steel factory that was drawing its power from the power station using a direct cable. The defendant (Martin & Co Ltd) negligently damaged the power cable while working with an excavator on the ground. The damages on the cable caused power loss to the stainless factory for fifteen hours. Consequently, the plaintiff sued the defendant for the lost profit due to damaged metal, un-melted metal and the physically damaged factory’s furnace and metal. Pure economic losses refer to monetary loss not related to damages to the property or claimant’s person. Such situation may arise when a person is relying on negligently prepared financial report to make an investment that generates a loss to the investor because of poor performance of the company (Burrows, 2013). When dealing with issues of pure economic loss the court takes into consideration of the negligence liability by examining whether the defendant could reasonably have had awareness of the plaintiff in mind when the carried out the actions that resulted to harm on the plaintiff (McKendrick, 2014). The court will also inquire whether the harm caused to the plaintiff was foreseeable to any reasonable person in the defendant’s position. The case in Donoghue v. Stevenson established the neighbour principle to determine the negligence liability for recovery of economic loss. However, in the case of Anns v. Merton London Borough Council the House of Lords established a rule to direct the reclamation for pure economic loss. The neighbour principle becomes the first step the court apply to establish the proximity of the parties as an evidence of a sufficient relationship followed by examination of any policy that may or may not deny liability (Burrows, 2013). The rule also examines whether the defendant negligently did something that caused the injury to the plaintiff after which there arises a duty of care. Misrepresentation of the contract Misrepresentations arise when one party makes false promises to the other party with the intention to lure them into the agreement (McKendrick, 2014). For example, in the contract for the sale of goods the sale may issue a false statement in regard to the nature or quality of the products. Undue influence It is possible for a party to enter into a contract because they were influenced by a powerful party or the other party used influence of power to threaten them into entering into an agreement (Burrows, 2013). The law of contract protects the party who has been forced into a contract without his or her intention to do so. For example, in the case of Barton v. Armstrong the defendant was alleged to have threatened to kill the plaintiff in case he fails to sign the contract thus compelling the court to set the contract aside. Remedies for breach of contract A breach of contract occurs when parties fail to perform according to the terms stated in the contract. The remedy for breach of contract is in a monetary award for damages or where the contract was dealing with special matter the court may order for ‘special performance.’ S.1 Crow Proceedings Act 1947 provided a room for parties to raise legal claims against the crown for breach of a legal agreement (Burrows, 2013). The purpose of awarding compensation to the injured party is to restore that party in the same position they would have the other party perform the contract according the stipulated terms (McKendrick, 2014). The consequential damages and direct damages are given to the wronged party to the contract to compensate for physical injuries or loss to property suffered due to breach of the contract. In case the parties anticipate breach of contract at the beginning of the contract it is referred as anticipatory breach and the court may engage ‘reliance measure’ by offering monetary award to the wronged party in order to restore him or her to the same economic state they were at the time of forming a contract (McKendrick, 2014). Apart from safeguarding the wronged party the measure prevents the breaching party from being enriched through unfair means. Negligence Negligence is a lack of exercise of care in circumstance where a reasonable person would have applied sensible care. The court will have to establish the negligence by establishing the duty of care owned by the party alleged to have acted negligently. The court must establish a direct relationship between the plaintiff and the loss suffered. In the case of British Celanese Ltd -v- AH Hunt (Capacitors) Ltd; QBD 1969, the wind blew metal foil from defendant’s factory to the electricity substation that subsequently led to malfunctioning of the plaintiff’s machine. Lawton J issued that the “direct victim” could be defined as a person whose property was damaged by the functions of the laws of nature without human involvement (Burrows, 2013). In the case of Caparo Industries Plc v Dickman [1990] UKHL 2, the o of lords in the court of appeal stated that the parties must be in a relationship of proximity, the harm must be reasonably foreseeable in relation to defendant’s conducts and must be just, reasonable and fair to inflict liability. Breach of duty The court must establish the defendant was in breach of duty of care he or she owes the plaintiff. The law holds that everyone has a duty of care towards others and his or her property. The implication of the requirement is that when a person act is negligently posing an unreasonable risk to others and the property that eventually result to harm a person is considered to have neglected the duty of care. In the case of Bolton v. Stone [1951] AC 850, [1951] 1 All ER 1078, the house lords held that a person can be held accountable for the harm that was could not be foreseeable by a reasonable person. Therefore, the plaintiff (Miss. Stone had no claim against Bolton because the distance at which she was hit by a stone was a far and could not be foreseen to cause danger to someone standing at such distance because it was not usual. Proximate cause For the court to award compensation to the wronged party, there should be a direct relationship between the loss suffered and the particular act or omission of the defendant. The criteria are to establish whether the loss could have occurred if the defendant did not breach the duty they owed the other party. In the case of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, Hedley Byrne an advertising agent. A client (Easipower Ltd) placed a big order and out of concern Hedley made an inquiry of their financial from the client’s bank (Heller & Partners Ltd) through their bank the National Provincial Bank. The reply was positive which they replied it was “considered good for ordinary business engagement.” Later, Easipower Ltd went into liquidation, and Hedley sued Heller and partners for their negligence which caused them a loss of £17,000. The court held there was the proximate cause between the losses suffered by the defendant liable for misleading the plaintiff with irresponsible information which they relied upon. Therefore, the court established the loss suffered by the plaintiff has a direct relationship with the defendant’s action or omission. Evidence of loss The plaintiff should prove there was a loss suffered in relation to the negligence of the defendant. The implication of the required for prove of harm is that the plaintiff does not receive compensation just because of the defendants’ negligence, but because the negligence had economic loss on the plaintiff (Burrows, 2013). In the case of Constantine v Imperial Hotels Ltd [1944] KB 693, the court held that the defendant had a duty of care to offer reasonable accommodation, but failed to perform their duty thus they were liable to compensate the plaintiff. Types of damages Nominal damages are minimum charges imposed to obtain legal information about the party in breach of the agreement. Punitive damages are compensation awarded in regard to fraudulent circumstances to punish the defaulting party (Burrows, 2013). Specific performance applies where monetary compensation is not sufficient as a remedy for the wronged party. The remedy of specific performance is an order by the court requiring the breaching party to perform the contract in accordance to terms stated in the agreement. 2. Competition Law in Europe The competition law prohibits agreements limiting public policy or restraining other persons from engaging in free trade. The first competition law was imposed in Europe as anti-cartel law in 1923 but was later abandoned following the great depression in 1929 (Zimer, 2012). They were reinstated after the Second World War to ease the pressure from United States. The Treaty of Lisbon prohibits anti-competitive contracts including agreements to fix prices. Business collisions are restricted except for the distribution or technological innovations; the cartels aimed at offering ‘fair share’ to the consumers and contain reasonable restraint that may prohibit competitions in other areas (Gerber, 2012, p. 237). A restraint of trade is a doctrine of common law regarding the application of contractual prohibitions on freedom to operate a business. It applies between the seller and buyer or between employees and the employers and intends to prohibit an employee or the employer from engaging in related businesses within particular geographical region and for a specified period (Buttigieg, 2009, p. 149). The aim is to safeguard the trade secrets or exclusive information. The doctrine is applicable as long it is reasonable in relation to the party whom it is imposed and is not conflicting with public policy. The policies aim at eliminating anti-competitive agreements and manage mergers and acquisitions with intention to control monopolistic conducts by the businesses (Gerber, 2012). The focus of the anti-competitive laws is to promote open, a single market, promote fair competitions, to reduce over-concentration of firms, to encourage fairness and global competitiveness. The European commission is charged with the responsibility for punishing those in breach of competition law. The commission draws power under article 105 “Treaty on the Functioning of the European Union (TFEU)” (Buttigieg, 2009, p.213). It is in charge of implementing articles 101 and 102 TFEU and scrutinizes the alleged infringement of the articles. After realizing the infringement of the articles, the European commission establishes a methodology to of imposing fines to the offenders. The approach is to set the fine involved in each in the undertaking and regulating the basic sum depending on the prevailing conditions (Gerber, 2012). Competitive laws are applied in order to limit the business malpractices and penalize the businesses engaged in malpractices such as abuse of dominant position and anti-competitive practices. Abuse of dominant position The anti-competitive laws are implemented to restrict dominant position of firms to prohibit them from engaging in business malpractices such as charging exorbitant prices, suppressing production activities, price discrimination, hoarding of essential commodities and other malpractices likely to disadvantage the consumers and put the business at a better position (Zimer, 2012). Anti-competitive practices The UK legal regime imposes a fine on the firms involved in anti-competitive behaviour of up to 10% of the firms’ global turnover for engaging in damaging (Buttigieg, 2009). To some extent the firms involved in anti-competitive activities can face criminal sanctions for severe violations of competitive laws. The EU and UK competition laws control two types of ant-competitive behaviour Conditions For enforcement of competitive laws There should be legitimate interest to protect In the case of Nordenfeldt v Maxim Nordenfeldt Guns & Ammunition [1894] AC 535, Nordenfellt was a firm manufacturing machine gun. The owner sold the business and entered into a restrictive agreement prohibiting him from operating any business manufacturing gun, ammunition, explosives or any other competing business for a period of 25 years. However, Nordenfeldt joined another gun manufacturing company thus compelling the plaintiff to sue the defendant for damages. At that time during the reign if Queen Elizabeth 1st all contracts in restraint of trade was void because they were contrary to public policy. However, the current position is that any agreement interfering with the individual liberty to participate in trade is void if they contradict the public policy (Buttigieg, 2009). The laws on restraint to trade may be enforceable to protect the interest of the public, the restraint is sensible to the parties involved and the interests being protected are authentic. Reasonableness When imposing the laws on restraint on trade, the restraint should be reasonable to the parties involved. In the case of Pharmaceutical Society of G.B. v Dickson [1970] AC 403, the court decided that restricting the pharmacies from selling other products other than traditional goods or pharmaceutical products could be detrimental to the pharmacists. This is because most of the pharmacies may not survive competition if they fail to deal with diverse products. Therefore, the restraint was not reasonable before the parties. Public policy The parties should engage in activities that legal in nature. Any activities that contradict the interest of the public do not require the protection of the law thus any undertaking that violates public policy is restricted by the lower (Zimer, 2012). Conclusion The court award compensation the injured party for the economic loss suffered because of failure by one party to fulfil the terms of the contract. The loss could be related to direct or related to lost revenue during of the business. The court also protects businesses against anticompetitive practices to ensure dominant firms do not increase prices or abuse their dominant positions by to promote anti-competitive practices. Bibliography Bolton v. Stone [1951] AC 850, [1951] 1 All ER 1078 British Celanese Ltd -v- AH Hunt (Capacitors) Ltd; QBD 1969 Burrows, A. (2013). English Private Law, (3rd Ed.). UK: Oxford University Press. 1-1434. Burrows, A. & Peel, E. (2010). Contract Formation and Parties. OUP Oxford. Pp. 1-288. Buttigieg, E. (2009). Competition Law: Safeguarding the Consumer Interest. Great Britain: Kluwer Law International. Pp. 1-423. Caparo Industries Plc v Dickman [1990] UKHL 2 Carlill v. Carbolic Smoke Ball Co. [1893] Q.B. 256 (C.A.) Constantine v Imperial Hotels Ltd [1944] KB 693 Gerber, D. (2012). Global Competition: Law, Markets, and Globalization. UK: Oxford University Press. Pp. 1-416. Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 McKendrick, E. (2014). Contract Law: Text, Cases, and Materials. UK: Oxford University Press. Pp. 1-1088. Nordenfeldt v Maxim Nordenfeldt Guns & Ammunition [1894] AC 535 Pharmaceutical Society of G.B. v Dickson [1970] AC 403 Zimmer, D. (ed.). (2012). The Goals of Competition Law. UK: Edward Elgar Publishing. Pp. 1- 520. Read More