Contract and tort discussion on The transit Link Transport Authority

The transit Link Transport Authority (TTA) has been created by statute to run an integrated network of transport services (rail, bus, train) in the City of Melchester. It is charged with the task of running transport services without a state subsidy and is under a number of statutory obligations laid out in the City of Melchester (transport services) Act 1999. These obligations include: a) running a number of bus services on prescribed routes and at specifically stated intervals; and b) giving rebate to passengers who have purchased yearly season tickets provided that a stated number or more of bus services has been cancelled in the course of the year.

To invest a new holistic transport system, TTA enters into a contract with Popular Coachworks plc (PC) on 1 January 2000 for the construction of 40 trams costing 20 million pounds to come into service after delivery on 1 January 2003. Payment is to be made in full at the time of delivery of the trams. On 30 June 2002, PC contracts TTA to indicate that the cost of parts and fittings for the trams to be supplied to PC by overhead Cable Cars (OCC) has been increased under an escalator clause in the PC-OCC contract and that OCC is demanding an immediate Cash injection of 2 Million to ease cash flow problems. This means says PC that it cannot complete the trams for TTA at the agreed price of 20 million and needs a further 2 million. TTA agrees to pay PC this extra sum of 2 million provided that the money is paid over immediately to OCC.

In consequence of having to pay the extra money, TTA approaches the Melchester City Council (MCC) for financial aid. MCC agrees to pay half of the additional sum, namely 1 million to TTA that it complies with its statutory obligations including it’s duty to pay passenger rebates

Discuss:

1) PC, having already received 2 million from TTA is paid only 18 million when the trams are delivered and claims to be entitled to a further 2 million.

2) TTA claims to be entitled to receive from MCC the promised sum of 1 million in the event that it has to pay the extra 2 million to PC

3) Sid Bonkers (Sid) a yearly season ticket holder is claiming directly from TTA a rebate on the cost of his ticket for the year 2002 because the provision of bus services has fallen short of the statutory standard.

In English legal system for a contract to be formed there must be 3 basic elements, namely offer, acceptance and consideration. An offer is an expression which shows the willingness to enter into a contract. Acceptance is when unqualified expression of consent to the terms proposed by the offeror. Consideration refers to the promise should not be able to enforce a promise unless he has given or promised to give something in return thus leading to his detriment or unless the promisor has obtained something in return i.e. benefited.

The orthodox interpretation of consideration can be shown Currie v Misa (1875) LR 10 EX 153, where it says consideration is “a valuable consideration, in the sense of law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.” The presence of benefit or detriment is always a sufficient reason for enforcing a promise. As shown in this question the main relationship can be drawn up as follows:

There are 3 main relationships in this situation. First being the statutory provision relationship between Melchester county council where it is under a public duty to establish a public transport provider within the city and under a number of statutory obligations under Transport services Act 1999 thus Transit Link Transport Authority has been established to try and fulfill this duty, TTA has a duty to:

1) Run a number of bus services on prescribed routes, at regular intervals

2) Giving rebate to passengers who have purchased yearly season tickets provided that a stated number or more of bus services has been cancelled in the course of the year.

TTA has entered into contracts with Popular Coachworks plc to supply trams for 20 million pounds to be used from 1st January 2003. This is a basic bilateral contract where the two parties have already agreed on the terms of the contract and both are bound to comply with them unless they both concur that they should and will forfeit the contract. There is final contract is between PC and Overhead Cable Cars OCC where it is basically a bilateral contract where OCC has agreed to supply parts for to PC for the production of the trams, however, there is a escalation clause which states that if they run into financial difficulties they would have the power and ability to demand an increase in price and thus subsequently charge PC more than the agreed 2 million pounds.

1) PC, having received 2 million from TTA is paid 18 million we need to discuss whether it is appropriate or necessary to pay and extra 2 million. The orthodox view of this type of approach to whether there is consideration when a party does a conduct or action which was required of them before, thus whether past consideration is a valid consideration. This could be illustrated in Stilk v Myrick; where 2 sailors abandoned ship and the Captain agreed to split the wages of the two deserted sailors amongst the rest. He failed to do this and the courts held that due to the fact that the sailors was doing what they were already bound to do then there was no consideration. However, Williams’s v Roffey Bros. & Nicholls (Contractors) LTD radically changed this orthodox view.

The defendant’s building contractors were refurbishing a block of flats for the owners; they sub-contracted the carpentry work to the plaintiff. The plaintiff started the work but ran into financial difficulties and there was a risk that they would not complete the job. Under the main contract the defendants were liable to pay a financial penalty if the refurbishment was not completed on time, the defendants agreed to pay an additional sum of money per flat to the plaintiff if they complete the work on time. It was held that the plaintiff could recover the additional sum. The defendants received a practical benefit because the work was completed on time, and they did not have to engage another sub-contractor.

This case has many similarities with the present case brought forward where there was a preexisting contract but due to external factors the contract could not be fulfilled and thus leading to the inevitable breach of that contract unless and until there is a further injunction of capital to ease the transaction period and the shortage of money. One of the main problems within this relationship between TTA and PC is that there is no escalation clause between the parties which are present in the OCC and TTA relationship, and without the clause which states that the parties have the power or ability to increase the price given that they have a valid reason. The escalation clause is a term which allows the parties to negotiate whether the terms within the contract primarily the price is negotiable. The sudden increase in price would lead to the breach of the contract and due to the fact.

2) TTA should not be entitled to receive from MCC the promised sum of 1 million pounds due to the fact that the completion of the supply of the trams would be just fulfilling the past conduct which was required, thus the performance of an existing duty. A case to illustrate this would be Collins v Godefroy 1831, where Godefroy was the plaintiff in this case, he promised to pay the witness, Collins, six guineas as an attendance fee Collins had been ordered by the court to give evidence.

It was held that Collins had not provided consideration for Godefroy’s promise and that a promise to do something which you are already bound to do under the general law is not consideration thus not a contract. TTA when providing the trams would only be fulfilling it’s statutory duty of providing public transport. Due to the fact that a contract can only be formed when there is consideration given by to promisee to the promisor for the offer. In this case between TTA and the MCC, TTA is the promisee and MCC is the promisor. There was no consideration passed from MCC to provide more capital to TTA to ease temporary financial difficulties.

3) Here there are 2 main methods to rebate the cost of his ticket for the year 2002. 1) To sue in the capacity of a third party to the PC and TTA contract. 2) Another capacity in which Sid Bonkers can sue which is under the statutory duty to provide refunds for the tickets under part b of the Transport Services Act 1999 where it stipulates that one of it’s obligations include the giving rebate to the passengers who have purchased yearly season tickets provided that a stated number or more of bus services has been cancelled in the course of the year. This clearly shows that Sid has the ability to have a refund for his ticket for the year 2002 for under a statutory right. We must consider another point in which an action could be possible to be brought forward, which is whether Sid has a third party right under the Third Parties Act 1999 and being a third party to the TTA and PC contract, to see if he has the capacity to benefit from the breach in contract of the TTA and PC contract.

There are four main underlying principles contained in the Rights of Third Parties Act 1999. 1) the third party has a right of action under the Act but not at common law to sue. 2) The third party has no claim under the Act but does have a claim apart from the act say at common law or by virtue of some other legislative provision. In such as case the third party has no rights under the Act or at common law. In such a case the third party will only be entitle to bring a claim if they can prove that it ought to introduce a new exception to the doctrine of privity. If we can establish that there is a contract between MCC and TTA i.e. part 2 of this essay we can say that using the Third Parties Act 1999 we can establish that the local authority is bound to refund the season pass to passengers as the breach in the TTA and PC contract would have a knock on effect and breach the obligations assigned to TTA.

4) If we however say that there was no contractual relationship for MCC to provide funds to TTA then it would be even more unlikely that the third party can sue TTA for the rebate on the cost of his ticket, thus his claim in the capacity of a third parties to the contract between TTA and MCC would fail if there was no contract between the parties in the first place. We can also use the doctrine of privity to analyze the situation. First a third party to the contract cannot be subjected to the burden of a contract to which they are not a party to.

The second is that the person who was not a party to the contract could not claim the benefit of it, even thought the contract was entered into the object of benefiting that third party, this rule has been radically modified by the 1999 Act. We can apply the burden rule here, due to the external changes for the OCC and PC contract, i.e. the price increase for OCC, Sid should not be subjected to the burden by a contract thus Sid would be protected as Sid’s group- passengers are explicitly mentioned in the obligations levied on TTA by MCC.