The case of Max ltd and Steely ltd within English Contract Law

Bizning Vakil By Bizning Vakil, 28th Jun 2012 | Follow this author | RSS Feed | Short URL http://nut.bz/_dsj8iwe/
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Using English Contract Law, the case between the Max ltd which relies on steel for its business and Steely ltd which produces steel is discussed. The task asks to advice Steely ltd concerning his obligations to Max ltd and what he can do to safeguard his position in the future.

Introduction

A task is to study analytically in order to advice a client from law. The task concerns the English Contract Law and the case is between the Max ltd which relies on steel for its business and Steely ltd which produces steel. Max ltd is set in Southampton and its annual requirement of steel is 10,000 tons. Therefore, on February 1, 2010, this company invited tenders in the trade press. The invitation was “for the supply during the coming 12 months of Grade 1 steel, not exceeding 10,000 tons in total, delivery to be made as and when demanded by Max Ltd”. Steely Ltd tendered at the price of 400 £ per ton and Max Ltd replied: “I accept your tender.” Following that, on March 1, 2010, Max ltd ordered for 1,000 tons of steel and Steely ltd supplied it as requested. And then, on April 1, 2010, Max ltd made further order for another 1,000 tons of steel from Steely ltd. However, at this point, a national steelworkers strike began and steel became virtually impossible to obtain. It also results to an increase in the market price of steel to rise to 600£ per ton. The task asks to advice Steely ltd concerning his obligations to Max ltd and what he can do to safeguard his position in the future.

Analyses of the Case

Any contract has legal status. After contract is made, the parties will have reliability, which can differ greatly and they must meet it or they will be taken to court. So we must find out who is responsible for what in this case. Dr Robert Moles (2010) states that “offer and acceptance are a means of analyzing the process of negotiation to decide whether and when a contract has been made and what therefore constitute its terms.” So Max made an offer and Steely tendered it. Another way is they made agreement. So they have a contract. And if Steely does not supply Max with 1,000 tons of steel at price of 400 £ per ton, he will break the rule. Again from Dr Robert Moles’s website, in Tamplin v James, the judge said: “If a person will not take reasonable care to ascertain what that person is contracting about, that person must take the consequences.” But steely did not know about the national steelworkers strike.

But in Gibson v Manchester City Council (Dr Robert Moles, 2010), Lord Denning said that the analysis of the relationship in terms of offer and acceptance was not so important. Another thing is that Dr Robert Moles argues that making an offer “exposes one to the imposition of legal liability by another.” In such cases, courts use two objective tests to check whether there was offer. These are:

1. The offeror must cause a "reasonable person" to believe that he/she is making the alleged offer.
2. The alleged offeree must believe that the offeror is making a genuine offer

In Harvey v Facey (1893 cited in Dr Robert Moles, 2010), plaintiff and defendant had made statements. It is – defendant replied to a telegraph by saying: “lowest price for Bumper Hall Pen is £900” and plaintiff then said: “we agree to buy at £900 - send deeds.” The court’s decision was that there was no contract: a mere statement of price is not enough to constitute an offer but a provision of information.

But the tender offer was offer and therefore, the final conclusion here is that there is a contract between Max ltd and Steely ltd. In Bell v Lever Bros (1932, cited in Dr Robert Moles, 2010), there was a contract and Lord Atkin said: “It is of paramount importance that contracts should be observed, and that if the parties honestly comply with the essentials of the formation of contracts, that is agree in the same terms on the same subject matter, they are bound, and must rely on the stipulation of the contract for protection from the effect of facts unknown to them.” We should pay more important to the last words: “protection from the effect of facts unknown to them.” Although it refers to some illegal action either from Max ltd or Steely, we can use this to refer to the national strike, which was unknown to both parties and will likely cause problems between them. And here, what comes is Force Majeure Clause.

Force Majeure

Abdul Aziz Hussin from University Sains, Malaysia says: “Force Majeure Clause should be defined clearly in order to get its true scope of coverage. The said clause, in several events, may be used successfully to all parties in the contract in order to avoid liabilities relating to the breach of contract.” So, what is this? It is a French law term (Powell-Smith, 1988, cited in Abdul Aziz Hussin, 2010) and brief definition is “irresistible compulsion or coercion.” It is like common law term “Act of God” but its meaning is imprecise according to Abdul Aziz Hussin (2010). In simple words, it refers to any “overwhelming superhuman event” (ibid). So, in this case, the strike of national steelworkers is Force Majeure.

There are several cases which can be example. In Lebeaupin v. Crispin (1920) Mc Cardie, J. said: “This term is used with reference to all circumstances, independent of the will of man, and which it is not in his power to control….” (ibid). It is interesting that there is a section in standard contract forms like PWD 203 (or 203A) the clause 43(a) in construction issues. In such cases, the contractor gives written notice and they agree to extend the time for completion of the work (cited in Abdul Aziz Hussin).

Very relevant to our case is here: again in Lebeaupin v. Crispin (1920), McCardie, J. said further: “….It has even been decided that a strike of workmen constitutes a case of force majeure” (ibid). From other cases like the case of Matsaukis v Priestman & Co. (1915), the dislocation of business caused by the general coal strike and breakdown of machinery are instances of force majeure. And here, the final conclusion is that the case between Max ltd and Steely ltd has the presence of Force Majeure.

However, there is one more thing to discuss which is not really good for Steely ltd. Abdul Aziz Hussin (2010) explained the Force Majeure with reference to many cases and scientific works. And in his conclusion, he said: “the event relied upon as force majeure must make the performance of the contract wholly impossible.” Here, the event of workers’ strike does not make the performance of the contract wholly impossible: only price has increased by 50%. Therefore, there might be still a little problem. But the argument against this is that it is not expected for any business to perform with a loss. 50% is really a lot and unnatural to obey the contract. Therefore, the strike of the workers is Force majeure.

Conclusion

As the final advise to Steely ltd to safeguard its position in the future is to include the possibility of Force Majeure even it is just an offer and acceptance without any written documents. Therefore, when something happens like this strike event, Steely ltd can easily postpone the possibility of the contract performance.

Bibliography

Abrahamson, M.W. 1979. Engineering Law and the I.C.E. Contracts. 4th. Edition. Essex: Applied Science Publishers Ltd.
Abdul Aziz Hussin, 2010, Force Majeure Clause, Universiti Sains Malaysia, . Available from: http://www.hbp.usm.my/aziz/FORCE%20MAJEURE.htm
Dr Robert N.M., (no date). Networked Knowledge – Law lectures. . Available from: http://netk.net.au/Contract/02Formation.asp
Keenan, D and Riches, S., (2002). Business Law. 6th ed. England: Pearson Education Limited.
Poole, J., (2001). Textbook on Contract law. 6th ed. New York: Oxford University Press Inc.
Poole, J., (2003). Casebook on Contract Law. 6th ed. New York: Oxford University Press Inc.

Picture reference: http://upload.wikimedia.org/wikipedia/commons/thumb/b/b2/Ecrivains_consult_-_Texte_4_mains.jpg/300px-Ecrivains_consult_-_Texte_4_mains.jpg

Tags

English Contract Law, Force Majeure, Max Ltd Vs Steely Ltd, The Case Law

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author avatar Bizning Vakil
An economist by definition, a teacher by practice, a journalist by nature, I find it hard to find any one permanent place to settle down...

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Comments

author avatar MyShoh
14th Jul 2012 (#)

law case, very stunningly complicated and destroyingly simpple

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