LLB Contract Law - Practice Paper 2

Critically analyse the concept of "good faith" in English contract law and assess whether English law should adopt a general duty of good faith in contractual performance, as exists in many civilian jurisdictions and under Article 1.7 of the UNIDROIT Principles. Consider the incremental development of good faith through specific doctrines such as the implied term of mutual trust and confidence in employment contracts (Malik v BCCI (1998)), the duty not to exercise a discretion capriciously (Braganza v BP Shipping (2015)), and the recognition of relational contracts in Yam Seng Pte Ltd v International Trade Corporation Ltd (2013). Evaluate the arguments for and against a general duty and whether the piecemeal approach adequately protects contracting parties.

Zenith Pharmaceuticals plc enters into a five-year exclusive distribution agreement with MedSupply Ltd, under which MedSupply will be the sole distributor of Zenith's products in the UK. The agreement contains the following clauses: Clause 5: "MedSupply shall use its best endeavours to promote and sell Zenith products throughout the UK." Clause 12: "Either party may terminate this agreement upon 6 months' written notice." Clause 15: "Zenith shall not be liable for any losses arising from the withdrawal of any product from the market, howsoever caused." After two years, Zenith discovers that one of its best-selling products, PainRelief Pro, has a manufacturing defect that causes minor side effects in 0.5% of users. Zenith voluntarily withdraws PainRelief Pro from the market without informing MedSupply in advance. PainRelief Pro accounted for 40% of MedSupply's revenue under the agreement. Three months later, Zenith gives 6 months' notice of termination, stating it intends to appoint a larger distributor. MedSupply claims: (a) Zenith breached an implied duty of good faith by withdrawing the product without notice; (b) the termination is wrongful because the real reason is to appoint a cheaper distributor; (c) Clause 15 is unreasonable under UCTA 1977. Advise the parties.

Rosalind, a talented but impoverished art student, enters a gallery owned by Victor. She sees a painting she believes to be a worthless reproduction and offers Victor £200. Victor, who knows the painting is an original by a minor but increasingly collectible artist worth approximately £15,000, accepts immediately without correcting Rosalind's mistake. Victor also sells Rosalind a sculpture, representing it as being made of solid bronze. Rosalind pays £5,000. The sculpture is in fact made of bronze-plated resin and is worth £500. Two months later, a fire at the gallery destroys Victor's records. Rosalind discovers the true value of the painting when she takes it for restoration and is advised it is worth £20,000 (the artist's prices having risen). She also discovers the sculpture is resin. Advise Rosalind on whether she can: (i) have the painting contract set aside; and (ii) claim remedies in respect of the sculpture. Consider mistake, misrepresentation, and unconscionability.

Critically assess the doctrine of anticipatory breach in English contract law. Evaluate the innocent party's election between acceptance of repudiation and affirmation of the contract, and consider the limits placed on the right to affirm by White & Carter (Councils) Ltd v McGregor (1962) and subsequent case law. Discuss whether the 'legitimate interest' qualification developed in The Oasis Chief (2018) and MSC Mediterranean Shipping v Cottonex Anstalt (2016) provides a satisfactory framework for balancing the interests of the repudiating and innocent parties. Consider whether the doctrine of mitigation provides an adequate alternative constraint on the affirming party.

Luxuria Hotels Ltd operates a chain of premium hotels. It enters into a contract with ChefElite Recruitment Ltd for the exclusive supply of head chefs to its six London hotels for three years, at an annual fee of £300,000. Clause 7 contains a restrictive covenant: "Upon termination of this agreement, ChefElite shall not supply head chefs to any hotel within a 5-mile radius of any Luxuria hotel in London for a period of 24 months." Clause 10 states: "In the event of breach of Clause 7, ChefElite shall pay Luxuria £500,000 as liquidated damages." After 18 months, ChefElite terminates the agreement (lawfully, under a termination for convenience clause) and immediately begins supplying chefs to The Grand Hotel, which is 3 miles from Luxuria's flagship property. Luxuria seeks to enforce both the restrictive covenant and the liquidated damages clause. ChefElite argues the covenant is an unreasonable restraint of trade and the liquidated damages clause is a penalty. Advise the parties.