The Complex Commercial Litigation Law Review: Isle of Man
The law relating to commercial contracts in the Isle of Man does not vastly differ from that of England and Wales and many other common law jurisdictions. In a dispute pertaining to a breach of a commercial contract, the claimant must, in most cases, issue a claim form with the Isle of Man Court within six years of the breach. The High Court of Justice of the Isle of Man is well used to determining commercial contract claims, and has considerable experience in relation to cross-border jurisdiction claims.
In the Isle of Man a contract is not required to be in writing, in most cases; however, there are some exceptions, although it is highly advisable to ensure that any agreement is reduced to writing, in case something goes wrong later. The lack of a written contract, however, does not prevent a claim being issued, although it is of course more difficult to prove the agreed terms. In most cases, the outcome will turn upon the deemster's (High Court judge) assessment of the evidence before it, particularly where there is a lack of documentary evidence.
There is not a significant number of judgments issued by the Manx (Isle of Man) courts in relation to these types of dispute on an annual basis and, therefore, in order to get a proper understanding of the Manx legal position, a review of more historic cases is required.
The law in relation to the formation of contracts in the Isle of Man is identical to that of England and Wales.
A contract is not required to be reduced to writing; however, for commercial contracts it is highly advisable to ensure certainty of the agreement reached between the parties. There are, however, certain contracts that must be in writing in order that they may be enforced, such as the transfer of shares, guarantees and assignments of contractual rights or intangible assets (for example, the goodwill in a company). When dealing with the transfer of land, the transfer agreement must not only be in writing but must be in the form of a deed.
The law governing commercial contracts in the Isle of Man will be reassuringly familiar to any practitioner acquainted with the laws of England and Wales. The courts consistently follow and apply case law from England and Wales concerning contract law, and there is little, if any, difficulty in supporting legal arguments with case law from the courts of England and Wales. Commentary from English legal textbooks such as Chitty on Contracts is regularly cited in judgments.
In Gittins & Otrs v. Simpson2 the court reaffirmed, by reference to Chitty on Contracts, that in Manx law the three basic essentials to the creation of a contract are agreement, contractual intention and consideration.
Manx law considers an agreement as having been reached when an offer made by one of the parties is accepted by the other.
In commercial agreements, there is a strong presumption in favour of the proposition that the parties intended to be legally bound.
The courts will look to case law from England and Wales when faced with a disagreement between parties as to whether there has been the requisite consideration provided. Consideration must not be past consideration. Consideration must move from the promisee to the promisor. Consideration need not be adequate but it must have some value. Performance of existing public or contractual duty is not sufficient consideration. Contracts by way of deed are an exception to the rule and do not require consideration.
Conditions precedent or subsequent are permitted and routinely found in commercial contracts governed by Manx law.
The general rule is that contracts cannot be enforced either by or against third parties unless certain conditions are met. The Isle of Man has enacted the Contracts (Rights of Third Parties) Act 2001, which closely resembles the Contracts (Rights of Third Parties) Act 1999 (an Act of Parliament). Owing to the similarities between the two Acts, decisions of the courts of England and Wales would be followed by the Manx courts. In the recent Staff of Government (Appeal Court) decision in Excalibur & otrs v. Horie,3 third-party rights were considered in the context of an anti-suit case. In Excalibur, the Staff of Government Division held that an anti-suit injunction was an equitable relief and, therefore, at the discretion of the court but that discretion was not unfettered. The following principles, contained in the English jurisprudence, applied equally to the Isle of Man:
- the general practice was to give exclusive jurisdiction clauses, as between the parties to them, a generous interpretation;
- the exercise of the broad discretion conferred on the court by Section 42 of the High Court Act 1991 to grant an injunction in all cases in which it appeared to the court to be just and convenient to do so was controlled by principles to be derived from a substantial line of authority;
- if contracting parties agreed to give a particular court exclusive jurisdiction to rule on claims between those parties, and a claim falling within the scope of the agreement was made in proceedings in a forum other than that which the parties had agreed, the court would ordinarily exercise its discretion by restraining the prosecution of proceedings in the non-contractual forum abroad to secure compliance with the contractual bargain, unless the party suing in the non-contractual forum (the burden being on him) could show 'strong reason' for suing in that forum. Whether a party could show 'strong reason' sufficient to displace the other party's prima facie entitlement to enforce the contractual bargain, would depend on all the facts and circumstances of the particular case;
- a party could lose his claim to equitable relief by dilatoriness (or other unconscionable conduct); and
- interests of justice were best served by the submission of the whole dispute to a single tribunal that was best fitted to make a reliable, comprehensive judgment on all the matters in issue. Further, damages would not usually be an adequate remedy, since damages would not be easily calculable and could only be calculated by comparing the advantages and disadvantages of the respective fora. That was likely to involve an even graver breach of comity than the granting of an anti-suit injunction.
In the recent case of Auto-Cycle Union & otr v. Mercer4 the court was concerned with an application for a declaration that the courts of the Isle of Man had jurisdiction to hear any claim issued by the respondent arising out of an incident which occurred on 30 May 2018 during the Isle of Man TT, a world famous motorcycle racing event. In order to participate in the races, the respondent had signed to confirm he had read the terms and conditions and agreed to be bound by them. Those terms and conditions contained an exclusive jurisdiction clause and the Court concluded that there were no sufficiently strong reasons, let alone exceptional circumstances, to displace the applicant's entitlement to enforce the contractual term.
Integration clauses, merger clauses, no oral modification clauses and assignment-related clauses are permitted in contracts governed by Manx law. There has not been a decision in the Isle of Man in relation to no oral modification clauses; however, there is no reason to believe the courts would not find a no oral variation clause valid, in line with the Supreme Court of England and Wales decision in Rock Advertising Ltd v. MWB Business Exchange Ltd .5
The general rule in Manx law is that contracts can be made quite informally: no writing or other form is necessary in the vast majority of circumstances. The courts will enforce oral contracts. Proof that a contract has been formed can therefore be provided orally or by documentary evidence. The conduct of the parties may also be relevant in determining the terms of the contract.
There is no requirement for contracts over a certain value to be in writing, but statute does provide for certain types of contracts to be in writing. For example, Section 1(1) of the Law Reform (Enforcement of Contracts) Act 1956 provides that:
No action shall be brought whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriage of another person; or upon any contract for the sale or other disposition of land or any interest in land; unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto by him lawfully authorised.
Where a person has been unduly enriched at the expense of another, the courts would treat that person as being required to make restitution to them as if a contract had been in place. In Blackwood v. McCallion,6 the court approved the claimant's submissions that the law of restitution covers unjust enrichment and actions for money had and received. Quoted therein was the English Authority of Fibrosa Spolka Akcjna v. Fairbairn Lawson Combe Barbour Ltd,7 which states:
Such remedies in English law are generally different from remedies in contract or tort and are now recognised to fall within a third category of the common law which has been called quasi-contract or restitution.
The modern doctrine of promissory estoppel, as formulated in the English cases of Central London Property Trust Ltd v. High Trees Ltd (1947) and the House of Lords in Tool Metal Manufacturing Co Ltd v. Tungsten Electric Co Ltd, HL (1955), would be followed in the Isle of Man. At Paragraph 54 of Campbell & otr v. Le-Roy Beck & otr,8 it is stated that:
Promissory estoppel is a well-recognised equitable remedy under Manx common law; see Hanson v. Cowin 1952-60 MLR 376 and Peel Town Comms v. Irving 1987-89 MLR 16.
The doctrine of quantum meruit will be applied in the Isle of Man. An example of when it was applied can be found in Bladon v. Shrigley-Feigl,9 where at paragraph 98 the High Bailiff states that:
The Defendant did not honour the Supply Contract. The value of the work that he did for the Claimant in my view falls to be judged on a quantum meruit basis taking into account the serious defects in that work. The purpose of the Court is to put the Claimant back into the position he would have been in had the contract been fully performed.
Manx courts largely follow the common law of England and Wales when it comes to contract disputes and construction, including choice of law. The Isle of Man, however, is not party to and is not bound by any of the Rome Convention, the Luxembourg Convention or the Brussels Protocol. The Contracts (Applicable Law) Act 1992, which brings the above-mentioned Conventions and Protocol into Manx law, has not yet come fully into force. Therefore, there is some difference between the Isle of Man and England and Wales in that regard. That said, common law remains the leading authority in terms of determining these issues and this does not appear to cause the Isle of Man courts any difficulties.
The English case of The Spiliada10 sets out a seven-limb test for the courts to consider when seeking to assess the appropriate forum for dealing with a contract dispute. This seven-limb test and the principles expounded by Lord Goff in The Spiliada has been followed by the courts of the Isle of Man and now forms part of Manx law. Briefly, the seven-limb test requires the court to consider, when ascertaining the most appropriate forum for dealing with the dispute, the following:
- the forum with the most real and substantial connection to the case in point;
- which forum is the most convenient;
- which forum would be better in terms of cost;
- the availability of witnesses;
- the law governing the relevant transaction;
- the place where the parties carry on business; and
- would the parties obtain justice in another forum.
If the parties to a contract insert a choice of law clause or a court jurisdiction clause, then the courts in the Isle of Man will generally follow the same. Should there be no choice of law clause, the court will consider which jurisdiction the contract has the closest and most real connection to.11 This point has been considered by the Manx court in a number of cases including Bryan v. Waterman:12
[I]t has to be construed liberally, or generously, and consistently with the assumption that the parties, as rational business parties, intended any dispute arising out of their relationship to be decided by the same tribunal and that if they had wished to exclude any issues from its scope they would have said so.
54. As a matter of English law, where parties have agreed a contract providing for the non-exclusive jurisdiction of the English court, there is a strong prima facie case that English jurisdiction is the correct one and that although the court has a discretion to depart from it, the court will do so only where there are overwhelming, or at least very strong reasons for doing so and it is not open to one of the parties to argue about the relative merits of fighting the case in the unchosen, as opposed to the chosen, jurisdiction on the basis of any factor which was foreseeable at the time the clause was agreed. The fact that proceedings may have started in the unchosen jurisdiction first is irrelevant because a party cannot rely upon its own disregard of the clause. A number of English authorities were cited to me in support of these contentions, including Antec International Ltd v. Biosafety USA Inc  EWHC 47 at paragraph 7 per Gloster J. I do not understand it to be said that the law in the Isle of Man differs in this regard and the decision of Deemster Corlett at first instance in Excalibur Almaz Ltd v. Horie (24 August 2017) (at paragraph 36) indicates that strong reasons are required to justify departure from the application of the clause.
The issue was considered in the case of Nectrus v. UCP & otrs,13 where the court determined that in light of the contract containing a non-exclusive jurisdiction clause of England and Wales, the Manx case would be stayed and it was not necessary to undertake a Spiliada analysis. More recently, in Old Mutual v. Lynch & otr14 an application to discharge an anti-suit injunction granted in January 2018 was dismissed, on the basis that the contract between the parties contained a Manx exclusive jurisdiction clause and that there remained a high degree of probability that a the dispute in the Spanish courts was caught by the clause.
The issue was most recently considered, in Old Mutual & Otr v Leonteq Securities & otrs15 where the court was considering applications for both service of the claim form out of the jurisdiction pursuant to Rule 2.41 of the Rules of the High Court of Justice 2009 (the equivalent to Rule 6.20 of the Civil Procedure Rules in England and Wales) and whether the Island is the proper place to bring the claim, in accordance with Rule 2.42 (equivalent to Rule 6.21).
On the Rule 2.41 'jurisdictional gateway' issue, the court stated that, following recent UK Supreme Court decisions, the law in this area may be said to be reasonably settled. The Deemster went on to set out several recent Supreme Court and Privy Council cases, further evidencing the court's willingness to be guided by English law principles in this area. On the Rule 2.42(3) 'proper forum' issue the court, yet again, affirmed that the principles set out in Spiliada are to be followed by the Manx courts.
In the recent case of Kniveton v. Public Services Commission,16 the court was tasked with considering the interpretation of a settlement agreement and whether or not it excluded a pension claim being made or not. The court took into account the parties' knowledge and experience of negotiating and drafting contracts when assessing how the contract should be interpreted. The court determined that in considering the interpretation of the contractual clause in question it was necessary to consider what a reasonable person in the position of the parties would have understood the words in the clause to mean, taking into account and including the factual matrix.
The starting point for the court is to establish what the intention of the parties entering into the contract at the time was. This is evidenced by considering not only the words of the contract itself but also the documentary, factual and commercial context of the agreement. Although the court must examine the full background, it cannot look at prior negotiations or the parties' declarations of subjective intent. This means that the court cannot look to extrinsic evidence such as oral negotiations and exchanges of letters preceding the contract. This was confirmed in the case of DED v. DSC Limited.17
In the case of FPA Limited (in liquidation),18 deemster Doyle helpfully quoted Lord Neuberger's summary of commercial contractual interpretation given in the UK Supreme Court in the case of Marley v. Rawlings.19 To paraphrase, Lord Neuberger stated that the Court needed to discern the intention of the parties from the meaning of the relevant words of the contract:
a. in light of:
i. the natural and ordinary meaning of those words;
ii. the overall purpose of the document;
iii. any other provisions in the document;
iv. the facts known or assumed by the parties at the time of the contract;
v. common sense; and,
b. ignoring subjective evidence of any party's intentions.
Manx courts do not have tracks but have different procedures, determined by the value or nature of the case. All commercial contract cases are allocated to the High Court. The small claims procedure deals with any contractual dispute with a value of £10,000 or less, provided that any counterclaim does not exceed £10,000. There are some circumstances in which the Court may decide the small claims procedure is not appropriate notwithstanding the value of the claim, such as where fraud is in issue. The summary procedure deals with claims with a value between £10,001 and £100,000, and the ordinary procedure deals with claims with a value in excess of £100,001. The process followed between the different procedures is not vastly different, save that the small claims procedure is less formal and advocates' costs are generally irrecoverable, beyond the fixed costs of issuance.
The chancery procedure deals with cases where there is no material factual dispute. Proceedings must be brought under the chancery procedure for those brought pursuant to certain legislation and in relation to claims relating to certain subjects, such as copyright, moral rights, passing off and trade marks. Insolvency matters are brought in the chancery procedure, as are claims brought pursuant to the Isle of Man's company legislation.
The courts of the Isle of Man will enforce arbitration clauses contained within contracts and will stay proceedings should a party seek a stay in order to enforce an arbitration clause. In circumstances where all parties agree to litigate in place of arbitration, the court will hear the claim. Further, the court will also grant enforcement relief in relation to arbitration awards as considered and discussed in the case of Golar LNG NB13 Corporation v. Sahara Energy Resource.20
Manx courts further encourage mediation between the parties or other methods of alternative dispute resolution. The Rules of the High Court of Justice 2009 provide a procedure by which a party can seek a mediation direction from the court, and the court proceedings are ordinarily stayed to allow this to take place. The court will take into account any refusal by a party to enter into mediation or other alternative dispute resolution process when considering the matter of costs at the end of any claim. Notwithstanding a party succeeding before the court, it may refuse costs if it considers the winning party's conduct to have been unreasonable in any such refusal.
Breach of contract37
A breach of contract claim can be brought where one party fails, or indicates they do not intend, to fulfil their obligations under the contract. The Rules of the High Court of Justice 2009 provide that where a claim is based on a written agreement, a copy of the contract or document constituting the agreement must be attached to or served with the particulars of claim. The Rules provide that where the claim is based upon an oral agreement, the particulars of the claim should set out the contractual words used and state by whom, when and where spoken. The Rules further provide that where the claim is based upon agreement by conduct, the particulars of claim must specify the conduct relied on and state by whom, when and where the acts constituting the conduct were done.
Damages are ordinarily limited to placing the injured party in the same financial position as if the contract has been properly performed. There is a duty on the claimant to take all reasonable steps to mitigate their losses caused by the breach. If there were reasonable steps the non-breaching party could have taken to avoid or mitigate their loss as a result of the breach, they cannot recover damages for such avoidable loss.
Courts will award damages for a breach if they arise naturally from the breach or if they should have been in the reasonable contemplation of the parties at the time of the contract, as being probable as a result of the breach. Should the breach be sufficiently serious, the other party to the contract may have sufficient grounds to cancel the contract entirely. The court can order specific performance or injunctions where damages would be an inadequate remedy.
The Supply of Goods and Services Act 1996 implies certain conditions into a contract. In relation to the supply of goods in the course of business, these are that:
- the seller has title to sell;
- the goods correspond with the description;
- they are of satisfactory quality;
- they are reasonably fit for purpose (the buyer must expressly or impliedly make the seller aware of the purpose); and
- a sample provided will correspond with the bulk of the goods.
For supply of services in course of business, the implied terms are:
- the supplier will use reasonable care and skill;
- the service will be carried out within a reasonable time; and
- if the contract is silent as to consideration, the contracting party will pay a reasonable charge.
The court also considered its powers to imply clauses into contracts in the case of Hodgson v. Tuck.
Evidence as to the intentions of the parties and the precise terms of the contract, especially when dealing with oral contracts, are the most common evidentiary issues that face the courts. Care should be taken to ensure that the contract accurately records the entirety of the agreement between the parties and that both parties understand their obligations.
A recent judgment, Carters & otr v. FCS & otrs, highlights that a claimant must be careful and provide clear evidence of the losses claimed. The court will be reluctant to award the damages sought if not supported with clear evidence of the loss.
Defences to enforcement
The contract may lack an essential ingredient for the formation of a valid contract. For example, a contract may be 'void for uncertainty'.
In Willers v. Nugent 23 the Staff of Government Division stated:
Mr Willers relied on one additional authority, decided since the Judgment: Openwork Limited v. Forte  EWCA Civ 783. The parties there had entered into a written agreement with some standard terms. The dispute was whether a 'clawback provision' was sufficiently clear in specifying how it was to operate, when there was no express formula by which the relevant calculation was to be made. The trial judge, Mr Leslie Blohm QC, sitting as a judge of the High Court, had provided his own such formula based on the clear objective intention of the parties. The Court of Appeal dismissed the appeal because the parties had evinced a definite meaning, to be extracted from criteria expressed in the relevant clause, on which the court could safely act: per Simon LJ (with whom Arden and Newey LJJ agreed) at . At  Simon LJ had referred to Scammell & Nephew Limited v. Ouston  AC 251 where Lord Wright had stated at 268: 'The object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted. But the test of intention is to be found in the words used. If these words, considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract. Such a position is not often found.'At , Simon LJ referred to Lewison's Interpretation of Contracts (6th Ed) at p473: 'A provision in a contract will only be void for uncertainty if the court cannot reach a conclusion as to what was in the parties' minds or where it is not safe for the court to prefer one possible meaning to other equally possible meanings.'
The Limitation Act 1984 is in broadly similar terms to the English equivalent. A party has six years in which to bring a claim in respect of a simple contract, including cases of fraud, concealment or mistake. However, such six-year period does not commence until such time as any fraud, concealment or mistake has been discovered or could, with reasonable diligence, have been discovered.
In common law, a promise is not, as a general rule, binding as a contract unless it is supported by consideration.
A lack of consideration is an issue that seldom arises in commercial contracts, as few commercial parties would do something for nothing. However, rarely, such issues can arise. If the parties agree that one party will do something that the party is already contractually obliged to do, so that any new obligation assumed by the other party is unsupported by fresh consideration, there will be no consideration, and therefore no binding contract.
Further, consideration may also become an issue if the parties seek to vary the contract, as a variation requires fresh consideration from each party. A defect in consideration cannot be resolved by reliance on consideration that does not exist or that has been given in the past.
In the case of McSween v. Royal London Mutual Insurance Society Limited,24 the court considered a case for negligent misrepresentation where the claimants had pleaded economic duress in respect of their agreement to increased insurance premiums. Therein, the deemster stated:
I am wholly unpersuaded that economic duress is a factor in this case. I need only refer to the headnote of the Privy Council decision in Pao On v Lau Yiu  3 All ER 65 in which it is stated that 'to constitute duress of any kind there had to be coercion of will so as to vitiate consent, and in relation to a contract commercial pressure alone did not constitute duress'. While the Claimants may have been unhappy to pay increased premiums and may have felt under some pressure to do so, this is a long way from establishing duress.
A contract entered into under duress is voidable.
Undue influence was introduced to deal with cases where a contract was entered into as a result of pressure, but this pressure did not amount to duress. Undue influence can arise where there is a relationship between the parties that has been exploited by one party to gain an unfair advantage.
The Manx court considered the position regarding undue influence in the case of Jolly v. Watson,25 where the claimant had entered into a property transaction subject to the undue influence of a figure akin to a family member. Taking into account all of the circumstances, the court determined that the claimant was subject to undue influence and therefore voided the contract.
There are numerous circumstances in which issues may arise in a contract as a result of public policy. The most common circumstances are where the contract involves illegality or restraint of trade are based on public policy. Other circumstances include contracts that are damaging to good government, in terms of domestic and foreign affairs, contracts that interfere with the machinery of justice, contracts involving the funding of litigation in exchange for a share of proceeds or where a contract would be damaging to the ideals of marriage or morality.
However, a contract cannot automatically be rescinded by virtue of involving issues that are against public policy.
In Bank of Ireland Holdings (IOM) Limited,26 the court considered whether it was against public policy for the Directors of Bank of Ireland to be compelled to disclose the information to the Irish Revenue:
- if all of the information was held by the Bank of Ireland in Dublin in any event but in unwieldy form;
- if some of the information was held by Bank of Ireland in Dublin in any event, but in unwieldy form; and
- if none of the information was held by Bank of Ireland in Dublin.
The deemster concluded:
In the circumstances of this case, it would be against public policy for this Court to exercise its discretion to compel the Directors to comply with the Disclosure Resolution, in each of the circumstances envisaged by the Preliminary Issues. If all, or part of the Information is held by the Bank of Ireland in Ireland then no authority has been produced that mere inconvenience on the part of the Bank of Ireland should be capable of outweighing the duty of confidentiality attaching to the accounts in the Isle of Man. If all, or part of the Information is held in the Isle of Man, then public policy dictates that it should not be disclosed.
Limitation of liability clauses are used to manage the risks associated with a contractual relationship. If there is no clause limiting liability, there is no financial limit on the damages a party can ask for in the event of a breach of contract. A party who wished to reduce the potential risks of a contract should consider an express limitation of liability clause.
Limitations of liability cannot be applied to claims for death or personal injury caused by negligence, cases involving fraud or fraudulent misrepresentation; breach of the implied terms in respect of certain aspects involving sale of goods and the supply of goods and services, as provided pursuant to Manx statute.
In HSBC v. Alder and other,27 the court considered a case of alleged mistake, and whether a contract provided for who bore the risk of such mistake and considered the doctrine of impossibility.
Frustration is a statutory remedy, pursuant to the Law Reform (Frustrated Contracts) Act 1944. A contract may be considered frustrated, and be consequently discharged, if something occurs after the contract is formed that renders it physically or commercially impossible for the contract to be fulfilled, or changes the contractual obligation into a radically different obligation from that envisaged when the contract was entered into. This concept ties into the concept of impossibility of performance. This was considered by the Manx court in Lourie v. Marketstheworld.28
The court considered misrepresentation in the case of McSween & otr v. Royal London,29 and followed English precedent as part of its assessment. The issue was also considered as part of an application to strike out in the case of Blackshaw v. Viking Renovations & otr30 – such case also considered the law on negligent misstatement.
Fraud, misrepresentation and other claims
Manx courts will consider claims, alongside breach of contract, for fraud, misrepresentation, negligent misstatement and promissory estoppel. There is no prohibition in the Isle of Man to running these claims within the same proceedings as breach of contract; in fact, if arising from the same set of circumstances, it would be preferable.
In the case of Old Mutual & otr v. Leonteq Securities & otrs,31 the court considered a case involving misrepresentation (including fraudulent misrepresentation), conspiracy, constructive trust, breach of fiduciary duty, knowing receipt, dishonest assistance and unjust enrichment, when faced with an application for a freezing injunction and disclosure.
The law relating to promissory estoppel and undue influence was considered by the court in the case of Westerman & otr v. McGinn & otr,32 where the court held that, based upon the facts set out, the use of the same as a defence to the claim had to fail.
Cases of this nature will always turn on their own facts; however, the Manx courts follow the jurisprudence from England and Wales to assist in the determination of such matters.
i Compensatory damages
The principle remedy in the Isle of Man for a breach of contact is damages – usually compensatory damages, which are awarded to compensate a party for loss.
In Manx law, the purpose of an award of damages for breach of contract is to compensate the injured party for loss, rather than to punish the wrongdoer, and, as far as possible, to place the aggrieved party in the same position as if the contract had been performed.
When claiming damages, causation is relevant, and the onus is on the claimant to prove that the breach is linked to the loss. Damages may be directly linked to the breach, or indirectly, but in both cases the claimant must demonstrate that the loss was foreseeable in the circumstances of the case and that the link between breach and loss is sufficiently close, or risk the claim being considered too remote. This principle is materially the same in both contract and tort cases. An intervening act, unrelated to the breach, may break the chain of causation and limit or remove the availability of damages.
The level of damages is determined by the extent of the breach and the level of loss to the aggrieved party. To calculate the level of damages, it is necessary to compare the position the aggrieved party is in following the breach with the position they would have been in but for the breach. The level of damages is calculated by quantifying all the harms caused by the breach and then deducting or crediting any benefits created by the breach.
A contract may provide for indemnification, whereby one party agrees to indemnify the other in the case of the other's loss. Clauses such as this are often seen in commercial contracts dealing with loans. Such a clause is independent of, rather than the dependent on, the obligations of the borrower. This means that if the underlying transaction is set aside for any reason, the indemnity will remain valid. A claimant may seek to enforce or seek an indemnity pursuant to the Civil Liability (Contribution) Act 1981.
A court order for specific performance compels a party to perform its contractual obligations. It is a discretionary remedy that is not available in all breach of contract cases. The court has a discretion as to whether to order a specific performance. Specific performance is regarded as an exceptional remedy, and may only be available where there is a valid and enforceable contract and where damages would not be an adequate remedy.
In Lewin v. Braddan Parish Commissioners,33 the court considered a claim arising from an alleged breach of Mr Lewin's contract of employment, wherein specific performance was sought. This claim was ultimately struck out by the deemster.
Rescission of a contract is an option exercisable by a party to the contract in response to a defect in the formation of the contract, with the intention of unravelling the contract. Rescission effectively means that the contract is void from the beginning, and the parties are restored, so far as possible, to the position that they were in before the contract was entered into.
In Sandpiper CI Retail v. Millstreams,34 the Manx court considered an application to strike out the defendant's defence and counterclaim and for summary judgment, in respect of a claim arising from the sale of a retail business, in a claim for rescission.
The courts in the Isle of Man largely follow the principles of England and Wales concerning litigation involving commercial contracts. The case law and legal commentary from England and Wales is, therefore, extremely helpful and a good starting point in relation to any contractual based claim.
Courts are currently considering cases arising from confidentiality and non-disparagement clauses contained in commercial contracts, and it will be interesting to see how Manx courts determine these issues in the coming year and whether they stay strictly in line with England and Wales. Further, the issues arising from unjust enrichment will also be considered by Manx courts.
1 Vicki Unsworth is a director at Advocates Smith Taubitz Unsworth Ltd. She was assisted in writing this chapter by associate advocate Matt Wilshaw.
2 CHP 2017/83 judgment dated 4 January 2018.
3 2DS 2017/19 judgment dated 24 November 2017.
4 ORD 2018/53 23 August 2019.
5  UKSC 24.
6 ORD 2015/63 judgment dated 20 December 2017.
7  AC 32.
8 SUM 2012/6 judgment dated 4 December 2013.
9 DEF 2009/1432 judgment dated 21 April 2011.
10  3 All ER 843.
11 AB v. CD CHP 2016/7 judgment dated 30 June 2016.
12 ORD 2011/82 judgment dated 14 March 2012.
13 ORD 2017/27 judgment dated 9 July 2018.
14 ORD 2019/09 judgment dated 12 February 2020.
15 ORD 2018/12 judgment dated 27 February 2020.
16 SUM 2015/49 judgment dated 26 October 2017.
17 SUM 2015/4 judgment dated 7 March 2016.
18 CHP 2011/98 judgment dated 6 August 2014.
19  UKSC 2.
20 CHP 2017/117 judgment dated 27 October 2017.
21 SUM 2015/80 judgment dated 25 August 2016.
22 ORD 2015/56 judgment dated 15 August 2018.
23 2DS 2018/2 judgment dated 15 June 2018.
24 SUM 2016/129 judgment dated 9 August 2018.
25 ORD 2010/77 judgment dated 1 March 2012.
26 CP 2006/20 judgment dated 27 October 2006.
27 ORD 2013/47 judgment dated 11 November 2016.
28 SUM 2017/15 judgment dated 18 October 2017.
29 SUM 2016/129 judgment dated 9 August 2018.
30 SUM 2015/91 judgment dated 20 July 2018.
31 ORD 2018/12 judgment dated 20 March 2018.
32 ORD 2013/12 judgment dated 23 January 2014.
33 ORD 2009/60 judgment dated 11 January 2014.
34 ORD 2017/11 judgment dated 25 October 2017.