Monday 30 September 2024
Your weekly SQE Prep Quiz has arrived
Dear Subscriber,
I hope you had a great weekend. Please see below for the question, the answer to the previous question and associated resources. This is the web version of this newsletter.
Question: GlobeEnterprises Ltd., a UK-based company, has entered into a contract with an international supplier, OceanTrade Ltd., for the purchase of rare marine equipment. The contract includes a clause that specifies that any disputes arising under the contract must be resolved through arbitration rather than through the courts. A few months into the contract, GlobeEnterprises Ltd. discovers that the equipment provided by OceanTrade Ltd. does not meet the required technical specifications, leading to significant losses for GlobeEnterprises Ltd. Despite the arbitration clause, GlobeEnterprises Ltd. wants to pursue a legal action in the UK courts, arguing that the clause is unfair and should not apply.
Which of the following principles or laws will the UK courts most likely consider when determining whether GlobeEnterprises Ltd. must resolve the dispute through arbitration, as stated in the contract?
1. The Arbitration Act 1996, which upholds arbitration clauses in the majority of cases.
2. The doctrine of frustration, which would release GlobeEnterprises Ltd. from the contract due to unforeseen circumstances.
3. The Unfair Contract Terms Act 1977, which automatically invalidates all arbitration clauses in international contracts.
4. The principle of promissory estoppel, which prevents OceanTrade Ltd. from enforcing the arbitration clause after the breach.
5. The Consumer Rights Act 2015, which protects businesses from unfair terms in business-to-business contracts.
Study Material: For more on ADR see the video linked here and if you are looking for a relevant title, see here. Discount Code: Use core “REVSQE10” for 10% off all products (including bundles) and free p&p for printed resources when purchasing directly at https://revise4law.co.uk/revisesqe-shop/
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Answer and feedback to last week’s question: Daniel owns a small construction company and agrees to build a custom greenhouse for Sarah’s home for £20,000, with a completion deadline of three months. The contract specifies that the greenhouse will be constructed using standard materials, and time is of the essence due to Sarah’s plans to host a significant event in her garden shortly after the project’s completion.
Two months into the project, a sudden global shortage of construction materials causes prices to skyrocket, and a new environmental regulation prohibits the use of the initially agreed-upon materials without costly modifications. Facing these challenges, Daniel informs Sarah that he cannot complete the project on time unless she agrees to pay an additional £10,000. In return, Daniel offers to use premium, eco-friendly materials that comply with the new regulations and extends a five-year warranty instead of the standard one-year warranty.
Under significant pressure to have the greenhouse completed before her event, and with little time to find an alternative builder, Sarah reluctantly agrees to the new terms. After the project is completed, Sarah is dissatisfied with the additional cost and refuses to pay the extra £10,000.
Which of the following is correct?
1. Daniel is prevented from enforcing the additional payment because Sarah relied on the original agreement.
2. Daniel provided fresh consideration by offering premium materials and an extended warranty, making the modification enforceable.
3. Sarah can void the modification as Daniel applied illegitimate pressure without giving her a reasonable alternative.
4. The contract was frustrated by the new regulations, discharging both parties from their obligations.
5. Sarah was unduly influenced by Daniel’s position of power and her urgent need to complete the project.
Correct Answer: 3. Sarah can void the modification as Daniel applied illegitimate pressure without giving her a reasonable alternative. Feedback: The most relevant legal principle here is the doctrine of economic duress. Under English contract law, a contract modification may be voidable if one party can prove that the other applied illegitimate pressure, leaving them with no reasonable alternative but to agree to the new terms. In this scenario, Sarah was under significant time pressure due to her upcoming event and had little opportunity to find an alternative contractor, which may support a claim of economic duress.
While Daniel did offer fresh consideration by providing premium, eco-friendly materials and an extended warranty (Option 2), which could ordinarily make a contract modification enforceable, the presence of economic duress can override this. The courts will consider whether the pressure applied was illegitimate and whether Sarah had a practical choice.
Option 1 (promissory estoppel) is inapplicable because Sarah is not attempting to enforce a promise made by Daniel; instead, she is disputing the enforceability of the modification. Option 4 (frustration) does not apply because the contract could still be performed, albeit at a higher cost; frustration discharges a contract only when an unforeseen event makes performance impossible or radically different. Option 5 (undue influence) is less relevant here, as undue influence typically involves a relationship where one party abuses a position of trust or authority, which is not evident in this scenario.
Therefore, the enforceability of the contract modification hinges on whether Sarah can successfully demonstrate that Daniel’s demand constituted economic duress, making the modification voidable at her option.
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Dr Ioannis Glinavos
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