Discharge of a Contract - Essay Example

?Business Law School QUESTION Compare and contrast the effects of discharge of contract by breach with discharge of contract by frustration. Discharge of a contract refers to the process by which the primary obligations of the parties would come to an end. When discharge by breach occurs it would give to secondary obligations in the form of payment of damages. When the discharge occurs by performance the need to complete secondary obligations would be absent as the primary obligations of the contract are completed. When discharge by frustration, there would be no secondary obligations, but there would be a need for restitution under the law. Other than discharge of the contract by performance, breach and frustration, the contract could also be discharged by agreement, wherein both the parties would agree to put an end to the contract and have a new contract in place to overcome the shortcomings of the earlier contract (Wallis 2008). Discharge by frustration is a process by which the contract is ended by demonstrating frustration. These include certain limited circumstances wherein courts would have deemed that further performance of the contract would be impossible. Usually at the time of discussion and entry of either party into the contract, the factors or causes of frustration should not be known to either party and due to the fault of neither party the event has been caused such that further performance of the contract would be deemed impossible. At first, the doctrine of frustration arose in the case Taylor v Caldwell (1863) 3 B & S 826 where Blackburn J used the [presence of unforeseen circumstances that suddenly arose and rendered further performance of the contract as impossible and due to no fault of either party. In the case, Taylor hired Caldwell for the performance of concert events for 4 days at Pounds 100. The contract was created but due to a fire at the hall of the event, the entire event could not be performed. The plaintiff suffered huge losses due to non-performance of the event. However, there was no provision within the contract that provided a resolution in case of such events. The plaintiff sued the defendant, and the defendant said that due to the non-presence of the hall the event could not be performed (Wallis 2008). The Hon’ble Judge Blackburn found that within the contract there was an implied term which meant that both parties would be excused in case the contract becomes impossible to perform due to no fault of either party that enter into the contract. These circumstances may be unforeseen due to no fault of either party, and even if one party has a doubt that such an event could occur, then the onus would be put on that party (Szantyr 2011). There may be four conditions for discharge of contract by frustration to be satisfied. It may occur as an unforeseen event, it should not be known to either party, it should make performance of the contract impossible and it should create a radically different situation from what was described in the earlier contract. Besides, there are 2 alternative tests for frustration including implied theory test and radical change test. The implied theory test was what was used in Taylor vs. Caldwell, whereas the radical change test was developed in the case Davis Contractors v Fareham UDC [1956] AC 696 (Wallis 2008). Discharge of contract by breach may include defective performance as well as non-performance and would be included either as a condition, warranty or innominate. In order to treat such breach as primary and to repudiate the contract, the opposing party should have breached the conditions and not the warranties. In case the warranties are breached, then the contracted cannot be discharged but since the secondary obligations are not fulfilled, damages can be sought (Law Teacher 2012). Unlike discharge by frustration, an anticipatory breach may arise when one party feels that the performance of the contract would be in doubt and have expressed their willingness to discharge the contract. The opposing party may choose to stay with the contract and sue for damages or chose to repudiate the contract and seek discharge of them (Wallis 2012). Breach of the contract may occur expressively when one party expresses their intention to discharge the contract, or in an implied manner when one party breaks certain conditions of the contract (Law Teacher 2012). Unlike frustration, the innocent party has the opportunity to seek damages and terminate the contract. The innocent party can also seek other remedies from the court. Unlike frustration, where only frustration in general can occur, breaches can occur in terms of breach of conditions or breach of warranties. There is a third term known as fundamental breach where the consequences of breach are so severe that the innocent party should be given an opportunity to seek termination of the contract and obtain damages. This was observed in the case Baltic Shipping vs. Dillon. Here, there were three parties involved, the ship owners, the cruise operators and the passengers. Between the cruise operators and the passengers, the seaworthiness of the ship was a minor term, and with the contract between the cruise operators and the ship owners, the seaworthiness was a major term. However, the ship was not seaworthy, and hence since it had grave consequences, the passengers could terminate their contract with the cruise operators and sue for damages (Szantyr 2012). QUESTION 2. ‘Alternative dispute resolution is but a fad. All the parties to a dispute want is a clear answer as to what their rights are.’ Discuss. Alternative dispute resolution (ADR) is an umbrella term that is used to describe various forms of dispute resolution mechanisms that are employed by means other than the normal in-court mechanism of litigation. Some of the often used processes of ADR that may be used by the parties include conciliation, negotiation, mediation, arbitration, etc (Advice Service Alliance 2012). The process of ADR may be used for several purposes including stimulation of court-like atmosphere, encouragement of using a non-formal approach of obtaining justice, greater intention of obtaining a solution rather than using the law to create difficulties for either parties, ease at which it can be used to resolve family or personal issues, intention of mediating rather than solving a legal problem, etc. In most situations, the decision that arises out of ADR would not be binding on each party, and only the decision that may arise in court may be binding on either party. Besides, ADR is usually chosen as a voluntary route by both the parties to seek justice or attain a solution. However, there may also be situations in which ADR may be imposed on either party. For example, many of the judicial systems consider that trivial issue be first subjected to negotiation, conciliation, mediation or arbitration before they can enter court. Besides, in certain circumstances arbitrary awards may be binding on each party. Though ADR as a process may take a very few meetings between either party and the judge, there may also be instances wherein it may be difficult to obtain a solution by such means and hence even after several sittings and several discussions a solution may be difficult to obtain (Shamir 2003). Any party before seeking justice from the legal system would want to know what chance he/she stands of seeking justice. AN important point to be taken into consideration before seeking justice is the rights that the person would be having and the abuse of the rights of that person by another person or the government. If the rights of that person have been abused or if another person has failed to express or do his duty towards another person, then such violations would be measured in terms statutory regulations and hence justice would be sought (Advice Service Alliance 2012). However, in the past, the process of seeking justice is long, complex, involves very complicated and difficult procedures and witnesses who may be difficult to come to court repeatedly. Besides, in some instances even family and trivial issues that are not exactly legally enforceable may be approached to the court. Hence, the process of ADR has been suggested. ADR may be one way of solving a situation wherein rights of one party is abused by another, or a duty of care from one party to another was not instilled (USAID 1998). ADR has become a trend in recent times, due to several reasons:- Can be applied even for minor cases Can help to overcome the backlog that is clogging the legal systems of several nations currently Can be used even in case of illiterate people or in vast geographical areas, where litigations may be difficult There is huge bulk of cases to be resolved by the legal system Complex disputes that may be difficult to be treated by the law Poor satisfaction rates by using the legal system Greater application of cultural norms Achieving outcomes innovatively rather than mere seeking of justice Poor compliance rates from decisions given by the court Legal system is not adapted to the local conditions that are prevailing in a particular nation Greater presence of bias in the formal legal system Costs of litigations are high Disputes that are not resolved by the courts create tensions in society (USAID 1998) Hence to overcome this, the legal system has chosen to implement ADR as an alternative means to enable people to take advantage of such a system before they approach a formal court. However, the ADR system has also way not guaranteed that the rights of people are enforced, as certain limitations are noted with the ADR processes themselves:- They do not create precedents as often decisions are made on a case by case basis. For enforcing rights, certain consistent patterns should be noticed ADR considers greater efforts in ensuring solution of the problem within the shortest duration. Hence, people may often have to sacrifice their rights in the hope that a solution may be attained. Besides, having the solution obtained within the shortest duration of time may not give enough time for the lawyers to take all legal issues into consideration With ADR it may be very difficult to tackle injustice, discrimination or violations of basic human rights as often whilst resolving such issues local norms are taken into consideration When there is extreme difference in power between the opposing parties, ADR may not work as there is greater chance for bias to exist. None of the arbitrary awards are actually punishing or acting as a deterrent on the defaulting party, and hence if one person abuses another person’s rights and if ADR is used in such instance, the effort would be made at resolving the issue rather than punishing the defaulting party. This will not stop the defaulting party to create the same problem again. ADR requires active participation and involvement in discussion from both sides. When one person’s rights are abused, there are chances that such people may not be in position to speak or come to the meetings frequently. Hence, ADR may not be very attractive for such parties. ADR would not bring about general judicial reforms and often matters and outcomes obtained are kept private (USAID 1998) Due to these limitations, ADR may not really be effective in delivering justice and merely acting as a legal reform to solve the problems of various parties. It may be difficult for parties to enforce their rights, as most of the procedures are formal, and efforts are made to create a win-win situation for either party, without punishing the defaulting party. QUESTION 3. ‘Adjudication under the Housing Grants, Construction and Regeneration Act 1996 is simply expert determination by another name.’ Discuss. Adjudication is a process of resolving disputes that may arise in the construction industry quickly and in an inexpensive manner. The process is held by an adjudicator who is impartial and decides on various issues that are provided to him by both the parties. Unless the decision that is provided by the adjudicator is overturned by the courts, such a decision would be binding and imposing on either party. The process is usually held over a 28-day period and can be used effectively to obtain justice (NSSC 2010). In the Housing Grants, Construction and Regeneration Act 1996 (Construction Act), when any dispute regarding a person’s construction contract arises, then the person has the right to seek adjudication in this matter at any point of time, when the consumer is not a customer but a business. An important factor is the need to take into consideration the financial situation of the opposing party before entering into the process of adjudication, as if the financial position is poor, there are chances that adjudication would be costly. Besides, if the opposing party is insolvent, the chances of not receiving the payment for adjudication are also present (Wallace 2012). The decision provided by the adjudicator is final, and the contract should be having an adjudication/arbitration clause mentioned. Besides, arbitration should be sought within a time limit. In most situations as the area of real estate needs expert determination rather than mere arbitration, an expert in the area is needed who can help estimate the rent in question or the lease of business property. The review of rent occurs every 3 to 5 years and when both the parties are unable to make a decision, the expert valuator would determine the rent if both the parties are unable to make such a decision. Such an expert needs to possess professional knowledge of how rent estimation should be made, the various factors that need to be taken into consideration whilst evaluating rent. The expert valuator would not be acting in a way that an arbitrator would be acting wherein the arbitrator would be using his judicial knowledge to arrive at the rent value that would be agreeable by both the parties. Like any decision provided by an expert, only if the same has given an advice that if found to be unreasonable and the same is clear, can such a decision be challenged (Jackson 2009). The adjudicator’s decision is considered to be very similar to the expert determination and also to informal arbitration. Usually between adjudication, expert determination and informal arbitration in Construction areas, the process of ADR chosen, there would be a lot of similarities with these 3 processes and often it should be based on personal preferences. Even if informal arbitration is done, it would be subject to a lot of common law and statutory laws. Having the process called as expert determination would result in application of a lot of judicial processes and judicial decisions. By using the term ‘adjudication’, it would be easy for having greater freedom in the process, applicable of knowledge in the field rather than mere statutory or common law guidelines. Hence, such processes would be less time consuming, the costs would be lower and both parties are able to better control the processes that may be present. It is important that the adjudicator develops a decision that is agreeable by both the parties and resolves the dispute by the use of knowledge from the field itself rather than arbitrarily or from the application of statutory or common law guidelines, considering that the parties in dispute are business consumers. Hence, there is a need that the adjudicator is an expert from the field rather than from the judicial area. However, it is also important that the adjudicator appointed has the jurisdiction to act and give his decision based on expert determination. Both parties should have the adjudication clause in the contract agreement, and when the final expert determination decision is given, it should be in writing and signed by both the parties (Noble 2011). Usually, the courts would enforce a decision that is made by the process of adjudication and would not determine if the same is correct, unless in 2 situations: firstly if the jurisdictional issues may be present, and secondly when natural justice is not delivered. Jurisdictional issues may arise when the adjudicator makes a decision on a subject matter that usually he does not have the authority to act. For example, if the contract between the 2 parties is exactly not for construction business but for something else, and if the adjudicator has made a decision on a different subject matter, then it would be under judicial review. On the other hand, if decision is not given in all fairness and as per the procedures, or when the adjudicator is acting impartially and does not give either party to be heard, then in such a situation natural justice may not be delivered, and may be subject to judicial review. However, in most cases the adjudicator’s decision is final even though it is a mere expert determination. Hence, the authority given to adjudication is very high (Construction Umbrella Bodies Adjudication Task Group 2003). Total Word Count (Excluding headings, headers, in-text citations, references, etc): 2750 Bibliography Advice Service Alliance 2012. Pros and Cons of ADR. [online], Available: http://www.adrnow.org.uk/go/SubSection_41.html Construction Umbrella Bodies Adjudication Task Group 2003. USERS’ GUIDE TO ADJUDICATION. [online], Available: http://www.cic.org.uk/services/usersguide.pdf Jackson, S. 2009. Why adjudicate if you can use expert determination? [online], Available: http://construction.practicallaw.com/blog/construction/pinsents/?p=48 Law Teacher 2012. Discharge Of Contract Lecture Notes. [online], Available: http://www.lawteacher.net/contract-law/lecture-notes/discharge-lecture.php Noble, A. 2011. Alternative Dispute Resolution (ADR) Procedures. [online], Available: http://www.nobleadr.com/introduction_to_alternative_dispute_resolution.html NSSC 2010. Top 10 Tips for Adjudication. [online], Available: http://www.fairpaymentcampaign.co.uk/docs/Top10TipsforAdjudication.pdf Shamir, Y. 2003. ALTERNATIVE DISPUTE RESOLUTION APPROACHES AND THEIR APPLICATION. [online], Available: http://webworld.unesco.org/water/wwap/pccp/cd/pdf/negotiation_mediation_facilitation/alternative_dispute_resolution_approaches.pdf Szantyr, M. 2012. Discharge. [online], Available: http://220.227.161.86/16817Discharge.pdf USAIDS 1998. ALTERNATIVE DISPUTE RESOLUTION - PRACTITIONERS' GUIDE. [online], Available: http://www.usaid.gov/our_work/democracy_and_governance/publications/pdfs/pnacb895.pdf Wallace, C. 2008. Discharge of Contract – Performance, Breach, Frustration. [online], Available: http://www.chriswallis.com/uni/cnlaw231l08.pdf Wallace. F. 2012. QUESTIONNAIRE CONCERNING DISPUTE ADJUDICATION AND OTHER FORMS OF ADR. [online], Available: http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCMQFjAA&url=http%3A%2F%2Fwww.eurojuris.net%2Fassets%2Fquestionnaire%2520re%2520dispute%2520adjudication%2520%26%2520other%2520forms%2520of%2520adr%2520-%2520england.doc&ei=v7mgT-29O8zPrQeWlL3lCA&usg=AFQjCNEwt8rhgC2BjU1K3GD7aivB7XnL_Q Read More