Mutuality

McBryde's 5 principles

(1) A party who is in breach of obligations cannot enforce performance by the other party. (2) The party who is not in breach may withhold performance until the other has performed or is seen to be willing to perform the counter stipulations. Once the breach ends, so does the right to suspend performance. The party who is entitled to withhold performance may also be entitled to quantify a claim as damages or sue for sums due under the contract. (3) The mutuality concept only applies if the obligations of the parties are the causes of one another or are reciprocal undertakings. (4) The operation of the principle can be affected by the express terms of the contract. (5) It may not be for every trifling breach, or every breach, that a party can withhold performance of part of the contract.

Effects on contract of rescission

(i) termination of innocent party's future obligations of performance under contract (ii) restitution of performances rendered before rescission insofar as these haven't been met by anticipated counter-performance

Inveresk v Tullis Russell Papermakers

-Supreme court affirmed approach in Turnbull v McLean -Lord Hope: "The guiding principle is that the unity of the overall transaction should be respected. The analysis should start from the position that all the obligations that it embraces are to be regarded as counterparts of each other unless there is a clear indication to the contrary." -therefore whether each obligation is counterpart of the others is ultimately a matter of circumstance, but starting point is to recognise the unity of the contract. -also recognises that in some cases may be mutuality between obligations contained in different contracts between the same parties, so long as it is clear that these are part of the same transaction.

Materiality

-goes to root of contract -no rigid categorisation of material and immaterial terms -this flexibility can be weakness for party who wants to know whether or not can rescind without himself being guilty of breach

Macari v Celtic Football Club

-manager still doing job managing team, but retaining some of his obligations. Can he pick and choose? -general obligation of trust and confidence goes to root of employment contract. Probably offered on all of other side of contract. Counterpart must be all obligations which employee undertakes. -Prof Thomson argues other side cannot pick and choose, would have to retain everything. -McBryde argues some obligations in contracts so general being offered in exchange for all obligations on other side.

Forster v Messrs Ferguson & Forster & Others

-solicitor embezzling client funds from firm -resigns from firm, then tries to sue firm for his pension -firm had agreed 10 year pension to former partners -during course of contract, cannot sue, would be in breach -but he terminated the contract, can he now sue for performance? Withdrawn from contract -Lord Clarke says he cannot. Rule still applies and he is barred. Cannot escape the bar by getting out of contract then suing.

Must breach be material?

-uncertain -in Inveresk v Tullis Russell, Lord Hope refers to Lord Drummon Young, who says there must be a material breach -common view from Supreme Court is breach must be material -Gloag: idea that there are degrees of materiality. May not be material enough for rescission, but enough for retention.

PECL

Allows for performance to be withheld for as long as it is clear that there will be a non-performance by other party when his performance becomes due.

SLC proposal on danger of abuse (good faith)

As an alternative to the solutions mentioned in the last two propositions it would be possible to provide that the remedy of suspension of performance must be exercised in good faith. If it were not exercised in good faith then the failure to perform would be a breach of contract and the other party would have the usual remedies. This would perhaps be a neater and more flexible solution and more in line with international models. It would be a limited invocation of the principle of good faith and therefore not so likely to introduce excessive uncertainty into contract law.

Termination

Both PECL and PICC prefer word 'termination' -may be termination in advance of the time that there will be fundamental non-performance (anticipatory breach) -provides for partial termination (corresponding fundamental non-performance) -whole contract can only be terminated if the fundamental non-performance affects the whole contract

Cure

Both PECL and PICC recognise non-performing party may tender a cure -PECL: only allows it where there has first been an unaccepted tender of performance and time for performance not yet arrived/delay is such as to constitute 'fundamental non-performance' -PICC: more generous. Non-performing party must give notice of intention to and mode of cure. Must be appropriate in the circumstances, aggrieved party must have no legitimate interest to refuse, cure must be effected promptly. An effective notice of cure suspends inconsistent rights of aggrieved party until time for cure expires.

Turnbull v McLean (per Lord Justice-Clerk Moncrieff)

Classic statement on mutuality. "I understand the law of Scotland in regard to mutual contracts to be quite clear - first, that the stipulations on either side are the counterparts an the consideration given for each other; second, that a failure to perform any material or substantial part of the contract on the part of one will prevent him from suing the other for performance; and, third, that where one party has refused or failed to perform his part of the contract in any material respect the other is entitled either to insist for implement, claiming damages for the breach, or to rescind the contract altogether - except so far as it has been performed."

How do you counter-part obligations?

Court will pair up. i.e. landlord providing occupational premises for tenant in exchange for tenant paying rent.

PECL impossibility

Divides non-performance into excused and not excused. Excused when due to impediment beyond control and could not reasonably have been taken into account. -remedies of seeking performances and damages precluded, but not withholding performance and termination

Conditionality/reciprocity

Does not tell you whether all obligations on one side are reciprocal to all others; or whether you don't presume that and need to look for evidence of specific matching between obligations.

Lindley Catering v Hibernian FC

Hints at principle that where a material breach is remediable, the guilty party should be given a chance to do so. -idea of good faith??

Definition of mutuality

Idea that terms on each side of contract may be conditional on the other side's terms, i.e. I will do x, if you do y. Exchange occurring.

Retention and rescission relationship

If first withheld performance, then rescind contract, you may go on and sue for damages.

Any contracts not governed by mutuality?

In Scots law gratuitous contracts. No role to play.

Hoult v Turpie

Lord Dummond Young developed theory for a breach to justify retention, must be such as to threaten the future performance of the contract. -MacQueen argues this is overstating the position. -presumption that contract to be regarded as a whole and that stipulations on either side are interdependent -MacQueen notes judge, Lord Drummon Young, was losing counsel in Bank of East Asia case. No mention of such a presumption in McBryde

Suspension for anticipated breach?

Not in Scots law just now. SLC say from the point of view of commercial people it might seem to be entirely reasonable that a party should not be bound to perform if it is clear that the other party is not going to perform. The Vienna Convention and the European Principles so recognise.

Operation of retention

Operates where other party's obligation due to be performed before yours. -what about contemporaneous obligations? Can anybody retain?

Danger of abuse? Cannot easily be remedied

Performance has been substantially completed but it is defective in a way which cannot reasonably be remedied. Example: suppose that a builder has been engaged to build a house in accordance with certain specifications for a fixed price payable in a lump sum. The builder uses a type of cement other than the type specified. The type used is adequate for the job but would not be adequate for certain more demanding applications. The other party refuses to pay, taking the view that payment can lawfully be withheld until the contract is performed according to its terms. If the remedy of suspension of performance is available without any qualification in this type of case, the result would be unreasonable. The builder can reasonably be expected to pay damages for the breach of contract but cannot reasonably be expected to pull the house down and start again. Yet until the defect is remedied the price cannot be recovered. The other party is not in breach. The contract, however, is not terminated and so the builder cannot resort to the law on unjustified enrichment. Any enrichment of the other party is the result of a contract which is still in full force. It is therefore justified. The builder has no way of bringing the contract to an end.

Difference between retention and rescission

Retention is the temporary suspension of the requirement to perform, while rescission terminates obligation to perform in the future.

Remedy of retention definition

Self-help remedy. if someone has not performed their side of contract, you are allowed to withhold corresponding performance of your side. Can withhold until other party performs.

MacQueen: mutuality principle upholds primacy of performance in Scots law of breach

The inability of the contract-breaker to recover through the contract is a strong incentive to perform according to its terms. -NB he also thinks this does not justify that a contract-breaker who avers breach by other party as well is disabled from having his claim even considered.

Bank of East Asia Ltd v Scottish Enterprise

The remedy of retention of performance was available only where the obligations in question were the counterparts of each other. Here the obligation to pay was the counterpart of the work already completed at the earlier stage. It was not the counterpart of the builders' obligations under any later stage of the contract. Lord Jauncey said: "in a contract to be performed by both sides in stages, the counter obligation and consideration for payment of stage one is the completion of the work for that stage conform to contract", and "retention may be operated against corresponding obligations prestable but unfulfilled, but has no relevance to obligations duly performed".

SLC proposal on danger of abuse (substantial defective performance)

The remedy of suspension of performance should not be available where the other party has substantially performed but the performance is defective and it would be unreasonable to require the defects to be remedied.

Suspension for non-material breach?

There is an obvious risk if the remedy of suspension of performance is too readily available. Parties who have received performance would be tempted to find slight failures in the performance rendered in order to delay payment until the faults were remedied. In the European Principles and Unidroit Principles there is an overriding principle that rights must be exercised in good faith. In the absence of such a principle it would be necessary at least to have an exception for trivial breaches.

Danger of abuse problem solved by Bank of East Asia?

This problem is not resolved by the Bank of East Asia case. The two obligations - completion of the house according to contract and payment for the job - are the counterpart of each other. The employer is not withholding a sum due for past work as a sort of security for claims in relation to future work but is withholding the sum due for the past work until it is duly performed. Under the Unidroit Principles and the European Principles the problem could be solved by using the overriding rule that rights must be exercised in good faith. The employer would not be in good faith in asking the builder to remedy the defect in this situation.

Should a party who has not performed his side of contract be disabled from claiming performance by other party?

Yes, one of McBryde's 5 principles. In breach of performance, cannot sue other side. If you are not performing your side of the bargain, why should you be able to enforce the other side to perform their side of the bargain?