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LWB137 Exam Outlines

DISCHARGE OF A CONTRACT Performance and Breach

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Introduction Nature of contract? Divisible Lump sum Nature of Obligations? Dependent Independent Entire Degree of Performance Exact Substantial Nature of defect Relative cost of rectification Partial Wrongful prevention of performance? Benefit conferred Free acceptance Incontrovertible benefit Termination Time for Performance Remedies Damages

1. Requested services 2. 3.
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Causation Remoteness Mitigation Quantum Meruit

LWB137 Exam Outlines

INTRODUCTION General Rule: the general rule is that performance of a contract must be precise and exact. A party that performs a contract exactly according to its terms will be discharged from further performance and will be entitled to claim the contract price from the other person. However, in some circumstances a party who has not exactly but has substantially performed the contract will also be able to obtain payment of the contract price less an amount for the defective performance: Hoenig v Isaacs. If one party has failed to perform their obligations on time, they are liable for breaching the terms of the contract (either actual or anticipatory). NATURE AND TYPE OF CONTRACT Divisible Contracts A divisible or severable contract is a contract in which the consideration and payment for the contract are apportioned or capable of apportionment according to the work to be done: Steele v Tardiani. Where the performance of the work is divided into separate transactions and payment/consideration is therefore also divided amongst each transaction and the Court will consider each part separately, as though each were separate agreements.

For example (apportioned contract): A contract that provides for a seller to provide 1000 carburettors to a buyer at $10 each at the following times 350 by the 30/6/92, 350 by the 30/8/92, and the balance on or before the 30/9/92; with payment upon delivery, will be divisible. The contract itself has divided the performance of the work and the payment of the consideration expressly. For example (capable of apportionment): Although the contract itself did not specify that it was divisible, the High Court considered the contract to be infinitely divisible: Steele v Tardiani. This finding allowed the defendants to claim the contract price or a rateable proportion for the work performed according to its terms.

Lump Sum Contracts A lump sum contract is a contract that provides for payment of a specific sum upon the completion of specific work: Hoenig v Isaacs. A lump sum contract is not capable of apportionment and complete and exact performance will not be a condition precedent to payment. Hoenig v Isaacs Facts
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An interior decorator and designer of furniture was employed to decorate and furnish a flat for 750 pounds The terms of payment being net cash, as the work proceeds, and balance on completion. The defendant paid 400 pounds by installments, occupied the flat and used the furniture, but refused to pay the balance on the ground of defective workmanship. The plaintiff then claimed for the balance Held (Denning LJ) This case raises the familiar question of whether entire performance was a condition precedent

to payment.

It was a lump sum contract, but that does not mean that entire performance was a condition precedent to payment. When a contract provides for a specific sum to be paid on completion of specified work, the courts lean against a construction of the contract which would deprive the contractor of any payment simply because there are some defects or omissions.

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The promise to complete the work is, therefore, construed as a term of the contract, but not as a condition. It is not every breach of that term which absolves the employer from his promise to pay the price, but only a breach which goes to the root of the contract, such as abandonment of work when it is only half done. Unless the breach does go to the root of the matter, the employer cannot resist payment of the price. The defendant cannot repudiate the liability on the ground that the work, though substantially performed is in some respects not in accordance with the contract. The defendant, therefore, was liable for the balance, less a deduction based on making good the defects. Even if entire performance was a condition precedent to payment under the contract, in taking the benefit of the work by using the defective furniture the defendant had waived the condition and must pay the contract price subject to the appropriate deductions. NATURE AND TYPE OF OBLIGATION After identifying whether the contract is divisible, the court will generally proceed to consider the nature of the parties obligations under the contract either as a whole or for each divisible part of the contract. The first issue of interpretation for the court will be whether the obligations of the parties are dependent or independent.

Independent is where one person must perform regardless of whether the other does so or not. For example, a contract for the sale of goods may provide for payment on a certain day, however the goods may not be delivered on that day: Sale of Goods Act (Qld) section 50(2). Dependent one party must perform their obligations before the other: Automatic Fire Sprinklers v Watson. The performance by the second party is dependent on the first party. This is because the contract price is payable for the actual goods and not for the willingness or promise to deliver the goods. Therefore, the buyer of goods is not required to pay for goods until the seller delivers the goods and they are accepted by the buyer. It follows that until the seller delivers the goods in accordance with the contract, the seller is not entitled to sue for the contract price of the goods: Sale of Goods Act (Qld) section 51(2). If the goods are not accepted by the buyer, the sellers only claim is for damages for breach and not for the contract price: Automatic Fire Sprinklers v Watson. For example, contract to build a house. Once contract is terminated for breach the aggrieved party entitled to damages or enforcement of obligations accrued prior to breach. If the obligations are dependent, the court will need to consider whether the obligation is also entire:

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If the obligation is entire the contract will only be payable in exchange for exact performance. If the obligation is not entire the party will be entitled to claim the contract price in exchange for substantial performance of the contract. More information on entire obligations on next page

Dependent and Concurrent While the obligations under a contract for the sale of land or goods are described as dependent, it should be noted that performance of those obligations will usually take place concurrently. There will be little opportunity for substantial performance where the obligations are both dependent and concurrent.

Entire Obligations

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The general rule is that the contract price or any part of it is only payable in exchange for exact performance of the whole contract, or in the case of a divisible contract, exact performance of the particular part of the contract. There are some contracts where the terms clearly indicate that the parties obligation is entire, that is, an obligation to perform the entire contract exactly. An entire obligation will exist where:

complete performance is a condition precedent to payment of the contract price; benefit expected by the defendant is to result from the enjoyment of every part of the work jointly; and the consideration is neither apportioned by the contract nor capable of apportionment: Cutter v Powell.

The mere fact that the contract provides for the contract price to be payable in a lump sum or payable on completion is not enough for the obligation to be entire. The contract must clearly indicate that complete performance of the obligation to provide services or goods is a condition precedent to payment: Hoenig v Isaacs. Cutter v Powell, a seaman died before he completed the voyage in respect of which he was to be paid. The court took for granted that, as the seaman had not served for the entire voyage, his executrix could not recover his wages even though there was no breach by the seaman. Nor could she recover a proportionate part of the wages, since the contract did not provide for payment on a pro rata basis. The case also illustrates another important feature of the entire contract doctrine, that where the condition precedent fails the court will not award a reasonable sum in respect of benefits conferred. Thus, the Court refused to allow restitution (a quantum meruit claim), in respect of the services actually rendered by the seaman. Summary: The Court held that the contract was entire and therefore, the estate was not entitled to recover under the contract or on a quantum meruit. Ashhurst J said, as it [the contract] is entire, and as the defendants promise depends on a condition precedent to be performed by the other party, the condition must be performed before the other party is entitled to receive anything under it. Where the obligation to perform is entire the contract price is only recoverable if the plaintiff has performed the contract exactly according to its terms. If the performance is defective (substantial) or only partial the plaintiff will not be entitled to any part of the contract price. However, the plaintiff may be entitled to recover damages or a quantum meruit (restitutionary claim) in certain circumstances: Appleby v Myers. DEGREE OF PERFORMANCE (if not entire) Was the contract performed exactly, substantially or partially? Exact

Performance of a contract must generally be precise and exact. However, the courts will lean against a construction of the contract which would deprive the contractor of any payment simply because there are some defects or omissions: Hoenig v Isaacs. Therefore, where a contract does not clearly and expressly provide that exact performance is a condition precedent and the obligation is therefore not entire, contemplates discharge by substantial performance.

Substantial Performance If the obligation to perform is not entire in nature, the fulfilment of every part of the obligation will not necessarily be essential to payment of the contract price even though the obligations of the parties are dependent.

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If a contract or part of a divisible contract is substantially performed the party will be entitled to the contract price less an amount for rectifying the defects in the performance: Hoenig v Isaacs. A party will usually be considered to have substantially performed a contract where the defects in the services or goods are of a minor nature. Usually, a determination of whether the performance is substantial will be a question of degree to be determined by the court after consideration of all the relevant facts. The court will take into account (Bolton v Mahadeva): Warranty failure to perform any aspect will be minor Condition or Intermediate Term:

The nature of the defect; and The cost of rectifying the defect compared to the contract price.

A claim for the contract price based upon substantial performance can be made after termination provided the obligation to pay the contract price has unconditionally accrued prior to termination: GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd. Application to different types of contract Divisible Contract The principle of substantial performance will apply to each part of a divisible contract as if it were a separate contract. Therefore, a person who has substantially performed a part of the contract is entitled to be paid for that part less damages for any defective performance. It should be noted that substantial performance will not apply if the severable parts of the contract are considered to be entire: Steele v Tardiani. Lump Sum Contract When determining if a lump sum contract has been substantially performed, the court will look to the whole of the performance as compared to the whole of the required performance under the contract. If the obligations are entire, the doctrine of substantial performance will not apply. A party who partially performs a lump sum contract will not be entitled to the contract price. They may be entitled to damages or a quantum meruit in certain circumstances: Appleby v Myers. Partial
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A party who partially performs a contract is not entitled to recover the contract price Alternative remedies Damages for breach of other party only if plaintiff is not in breach themselves Restitutionary claim for QM for value of services provided to other party Party is not entitled to seek both If plaintiff party is in breach themselves, compensation limited to claim for QM

LWB137 Exam Outlines

Quantum Meruit

Is there a contract?



Has the plaintiff provided a benefit to the defendant?

No QM claim

Were the performed services requested by the defendant?

Were the services freely accepted?

Has the defendant obtained an incontrovertible benefit from the Services?

If YES to one of the three Was the benefit provided at the expense of the plaintiff?

If NO to all three then no QM claim

Is it unjust that the defendant retains the benefit?

If YES to both, QM claim for reasonable value of work

If NO to either, no QM claim

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QUANTUM MERUIT Quantum Meruit is a claim for the reasonable value of the work performed by the party. A claim for quantum meruit may be sought where there is no contract or no effective contract between the parties or the contract is at an end: Rover International v Cannon Film Sales. In such a case, the law may imply an obligation on the defendant to pay the reasonable value of the services rendered: Pavey & Matthews v Paul. A quantum meruit is only available where the contract has been terminated, rescinded, frustrated or is unenforceable or void: Automatic Fire Sprinklers v Watson. Party NOT in breach QM or damages The party will not be entitled to both damages and a quantum meruit and will need to elect between the remedies at judgment. If the plaintiff has performed his or her obligations exactly or substantially, there will be a claim in contract for the price. A claim in quantum meruit will not be available as the contract could not be terminated for breach. Three elements need to be made out:
i. ii. iii.

Has the plaintiff provided a benefit to the defendant? Was the benefit provided at the expense of the plaintiff? Is it unjust that the defendant retains the benefit?

Party IN breach only quantum meruit available. Parties in breach of a contract will be unable to claim damages because they are unable to rely on their own breach to obtain benefit under the contract: Suttor v Gundowda. Services will generally only be considered to provide a benefit if:

The services performed were requested by the defendant; or The services were freely accepted; or The defendant has obtained an incontrovertible benefit from the services.

It will be difficult for the plaintiff to convince a court that work that does not comply with a request actually provides a benefit to the defendant. The exception to this applies where the other party prevents the performance of the agreement: Planche v Colburn. The concept of free acceptance means that the defendant has a choice whether to accept or reject the work and has freely decided to accept the work which does not comply with the contract. Where the work concerns improvements to land the plaintiff will have a very difficult task in proving free acceptance: Sumpter v Hedges. To determine what is available, it is necessary to determine which party is in breach.

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BREACH A breach of contract will occur where a party fails to perform a contract according to its terms. There are two types of breach (Foran v Wight):

Actual - a party who fails to perform on time Anticipatory - a party renounces obligations before time of performance the contract may be terminated immediately.

Time of Performance Parties can expressly provide for time of performance after which the contract is discharged and a date specified for performance may be essential or inessential. If the performing party has not performed by the required date they may be in breach of the contract depending upon classification of the time stipulation as essential or inessential. Contracts generally provide a time frame in which obligations under the contract must be performed by. If one party fails to perform by the specified date, it is necessary to determine whether the date for performance was essential or inessential in order to determine whether the performing party is in breach of the contract. IF essential a failure to perform exactly at the time will result in a breach, entitling the other party to terminate: MacDonald v Denny Lascells. The party in breach will be liable to pay compensation and will not be able to claim the contract price: Sumpter v Hedges. The definition for essentiality is that one party would not have entered the contract unless assured of strict or substantial performance of the term and the other party knows or ought to have known of this: Tramways v Luna Park. Here, the performance was an essential term of the contract and ---s failure to perform by the --- (exactly at the time specified) is a breach of the terms in the contract. As a result, --- is entitled to terminate the contract: McDonald v Denny Lascelles. The party in breach may also be liable to pay compensation and will not be able to claim the contract price: Sumpter v Hedges. IF NOT essential a failure to perform will still constitute a breach, however the other party will not be able to terminate. Although the party in breach may be liable to pay compensation and there is still a possibility that the contract price may still be recoverable if the contract was substantially performed: Hoenig v Isaacs. Here, the date for performance is inessential and ---s failure to perform exactly by ---- (the time specified) is a breach; however --- (the innocent party) has no right to termination and may only claim damages. ---(party in breach) may be able to claim the --- (contract price) if performance was substantial: Hoenig v Isaacs. IF NOT stated - must be performed within a reasonable time (determined at the time when performance is alleged to be due): Perri v Coolangatta Investments. This will still constitute a breach however party will have to serve a notice to complete before being able to terminate. The party in breach may be liable to pay compensation. The party in breach may still be able to recover the contract price if substantial performance has occurred. Here, a date for performance has not been specified however the contract must be performed within a reasonable time: Perri v Coolangatta Investments, Sale of Goods Act s31(2), a question of fact which is determined at the time performance is alleged to be due: Perri v Coolangatta Investments. If --- (Party in breach) fails to perform the contract within a reasonable time then --- is in breach of the contract however --(innocent party) is not entitled to terminate the contract. --- (party in Breach) may be liable to pay damages however they will also be able to recover the contract price if they substantially performed their obligations under the contract.

LWB137 Exam Outlines

TERMINATION BY FRUSTRATION Doctrine of Frustration: a contract is discharged where, subsequent to its formation, a change in circumstances beyond the control of either of the parties renders the contract legally or physically impossible of performance. General Rule: Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that - which was undertaken by the contract: Codelfa v State Rail Authority of NSW. The effect of the supervening event on the contract is more important than the nature. There is no frustration just because the performance of a contract becomes more onerous, inconvenient or expensive that first thought/agreed: The Eugenia. Codelfa v. State Rail Authority Facts

Codelfa Constructions contracted to perform excavations for the Eastern Suburbs railway It was required to complete the work within a fixed time, and so it commenced operating three shifts a day seven days a week. The excavations however made a considerable noise, and it was restrained by interlocutory injunctions, granted at the suit of a third party, from working between 10pm and 6am from the 28 June 1972. On 27 November 1972, it agreed to reduce the noise in these hours and not work on Sundays. Because of these restrictions, Codelfa claimed from the rail authority, an additional price to that agreed under the contract for the extra costs and loss of profits arising from the impact of the injunction. There was no implied term that if Codelfa was restrained by an injunction from carrying out the work as desired, then the rail authority would indemnify it from the extra costs involved, or grant extra time. Mason J:

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An implied term is one which is presumed the parties would have agreed upon had they turned their minds to it. It is not a term they have actually agreed upon. For obvious reasons the courts are slow to enforce a term. In many cases what parties have actually agreed upon represents the totality of their willingness to agree. The more detailed and comprehensive the contract, the less ground there is for supposing the parties have failed to address their minds to the question at issue. Courts have been at pains that it is not enough that it is reasonable to imply a term: it must be necessary to do so to give business efficacy to the contract. Evidence of surrounding circumstances is admissible to assist in the interpretation of the contract of the language is ambiguous or susceptible to more than one meaning. he prior negotiations will tend to establish objective background facts which were know to both parties an the subject matter of the contract. However, in the events that had happened, the performance of the contract was radically different from what had been contemplated, and therefore the contract had been frustrated by the granting of the injunctions.

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LWB137 Exam Outlines

There are three main questions in relation to frustration:

1. General test: was there any event in the facts that is sufficient to satisfy frustration (is it radically

2. When did the frustration occur?

3. What was the effect of the frustration?


Destruction or unavailability of subject matter - without fault of either party, the subject matter of the contract has been destroyed (ie concert hall burns down and the contract for hire is discharged because the hall will be regarded as having been essential to the performance of the hire contract: Taylor v Caldwell).

Where one of the parties has agreed (expressly or impliedly) to bear the risk of any destruction, the result may differ (ie under a sale of land that includes a house, it is common for the risk to pass to the purchaser on the execution of the contract, so that if the house were to be destroyed by fire at a time after the contract was executed but before settlement, that destruction would be at the risk of the purchaser. To get around this, the buyer usually arranges insurance from the date of settlement: Fletcher v Manton

There may be other cases where, although the subject matter has not been destroyed, it has, nevertheless, been effectively lost to the parties. Thus the contract may be regarded as being frustrated where:

land subject to contract is compulsorily acquired by the government: Austin v Sheldon; or a vessel subject to a charter party is requisitioned for government service: Bank Line Ltd v
Arthur Capel & Co

Temporary unavailability may be insufficient to frustrate the contract: FA Tamplin Steamship Co v Anglo-Mexican Petroleum Products Co.

Death or incapacitation of a party the death or incapacitation of a person essential for performance may frustrate a contract: Simmons Ltd v Hay.

Incapacitation in the form of illness: Carmichael v Colonial Sugar Co, the following should be considered: Nature and duration of probable illness; Sick leave; and Terms and nature of the contract.

There may be illness of such unreasonable length that the contract may be taken as having been frustrated perhaps at the expiry of all sickness benefits under the contract.
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Imprisonment: FC Shepherd & Co v Jerrom Internment: Horlock v Beal Conscription: Morgan v Manser

Failure on the basis of contract - a contract may be frustrated where an event (that the parties have agreed to be the basis of the contract) does not occur: Krell v Henry. The event must be the true basis on the contract and not mere co-incident. However, non-occurrence of an event to which the contract is related will not always frustrate a contract: Herne Bay Steam Boat Co v Hutton.

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Krell v Henry: the sole purpose for hiring the flat was to watch the coronation of Edward VII. Herne v Hutton: hired a vessel for the purpose of viewing the naval review associated with the coronation of Edward VII. The basis of the contract had not been frustrated as the defendant was still able to use the vessel to cruise around, despite the fact that the review had been cancelled.

Method of Performance is impossible The parties may stipulate or contemplate that a particular method of performance was to be employed, without making it subject of an express provision in the contract. Where a supervening event renders a particular method of performance impossible, the contract may be frustrated: Codelfa v State Rail Authority of NSW.

Excessive delay - an event that causes temporary delay in performance may frustrate the contract where the delay is such as to render performance something radically different from what was originally undertaken: Jackson v Union Marine Insurance Co. A court may be required to assess either a past or prospective delay in performance and two factors must be taken into account: Pioneer Shipping v BTP Tioxide.
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the probabilities of the length of delay; and the time the contract still has left to run or during which performance might have been expected to be completed.

Some cases require informed assessment: Embincos v Sydney Reid but some cases the parties are required to wait and see: Pioneer Shipping v BTP Tioxide.

Illegality - a contract may be frustrated where at some point after formation, performance becomes illegal. This may arise in different ways.

Change in the law - the contract will be discharged if the law changes to prohibit further performance of the contract: Cooper & Sons v Neilson & Maxwell. The following should be considered:
Nature and terms Surrounding circumstances (extrinsic evidence)

Not all legislation renders performance radically different: Scanlan v Tooheys.


Contracting with the enemy - any contract with enemy nation, business or individual is illegal and therefore frustrated: Hirsch v Zinc Corp. If that entity provides assistance to enemy, the contract is also frustrated: Fibrosa v Faiborn.

Contracts concerning land the doctrine of frustration will apply to both sale contracts and leases of land.

Sale contacts - upon execution of the contract, anything that happens to the land between the time of the execution of the contract and time for completion is at the risk of the purchaser because purchaser gains an equitable interest upon signature: Fletcher v Manton. If there is a radical change of circumstances between the time of the execution of the contract and its settlement that prevents the vendor from transferring the legal estate to the purchaser, specific performance will no longer be available, the purchaser cannot be treated as the owner in equity nor as having been at risk and the contract will be frustrated. Case examples use analogies Austin v Sheldon: land is resumed by the government and legal estate cant be transferred - 6 out of 7 acres were being resumed, possibly if less were resumed, the contract may not have been frustrated. National Carriers v Panalpina (Northern): where the land no longer exists due to a landslide.

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Fletcher v Manton: In a sale of land including a building and that building is destroyed, a contract is not frustrated because the purchaser is still able to acquire legal interest in the land and will be taken to have taken the risk of damage to structures built on the land.

Leases of land - the position in Australia is in a state of confusion as a result of Firth v Halloran. Destruction of leased premises is insufficient, must be vast convulsion of nature that results in total disappearance of the land: Cricklewood v Leightons, National Carriers v Panalpina. The effect of a supervening event on a lease must be to render performance of the contract something radically different from the original agreement, taking into account:
Duration of lease and time left to run as at the time of the supervening event Nature and object of the lease Length or prospective length of any interruption to the lessees possession From: Roberston v Wilson.

National Carriers Ltd v Panalpina (Northern) Ltd: a warehouse was leased for a period of ten years, the closure of the only vehicular access to the warehouse rendered it useless. However, this lease was not frustrated, because after the interruption, there was likely to be a period of about three years during which the warehouse could be used for its intended purpose. Cricklewood Property and Investment Trust Ltd v Leightons Investment Trust Ltd: A ninety-nineyear building lease was held to not be frustrated by building restrictions imposed during wartime. Limits on the doctrine of frustration May be radically different but due to limitations it is still enforceable.

Express contractual agreement a contract will not be frustrated where there is an express contractual provision dealing with the intervening event. In such a case, the parties will be taken to have provided for the risk of the event in the contract: Claude Neon v Hardie. Should not be confused with a force majeure clause (a clause which excludes liability for an act of god/circumstance that renders performance incapable and allows party to escape liability) it may have same effect as frustration. Interpreted contra proferentum (against person relying on the clause): Fairclough Dodd v JH Vantol.

Supervening event foreseeable in general, the event must not have been foreseen by the parties, apart from the case of intervening illegality: Codelfa Construction Co v SRA of NSW. Where the supervening event:
was, or should have been, foreseeable by the parties as a serious possibility, which the parties did not make express provision,

the inference is that the parties nevertheless assumed the risk of the event occurring, and the contract will not be frustrated: Krell v Henry. The event must be foreseeable as a serious possibility, rather than merely being reasonably foreseeable. Also, even where the event is foreseeable, the contract may still be frustrated where the effect of the interference caused by the event exceeded anything that could have been contemplated: WJ Tatem Ltd v Gamboa.

Supervening event induced by one of the parties in order for a contract to be frustrated, the supervening event must be without fault or negligence of either party. Negligence on the part of one of the parties is sufficient to constitute default: Super Servant Two. However a number of factors may be relevant including:

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the degree of seriousness of the negligence: Joseph Constantine Steamship Line v Imperial Smelting Corp. the closeness of the cause or connection between the negligence and the frustrating event whether the negligence was directed towards performance of the contract the type of contract, such as whether it was a commercial or personal contract

The onus of proving that a supervening event amounted to a self-induced frustration lies on the party who makes the allegation: Joseph Constantine Steamship Line v Imperial Smelting Corp. Effect of Frustration

At common law, frustration automatically discharges a contract as to the future at the time of the frustrating event: Hirji Mulji v Cheong Yue Steamship Co Ltd. The contract is discharged by force of law and neither party has a say in the matter: Cachia v State Authorities Superannuation Board. Frustration does not void the contract ab initio (from the beginning): Baltic Shipping Co v Dillon.

Unconditional rights and liabilities accrued prior to the frustrating event, including rights to sue for damages for prior breach of contract: MacDonald v Denneys Lascelles, remain enforceable: Baltic Shipping Co v Dillon. Rights not yet accrued at the time of frustration remain unenforceable, or in other words, obligations not yet accrued are discharged. But some clauses may continue to bind the parties: eg. arbitration clause: Codelfa Construction v SRA of NSW. Neither party is entitled to damages after frustration. The loss arising from the discharge lies where it falls unless there is a total failure of consideration: Fibrosa SA v Fairbairn Lawson Combe Barbour. Rights or liabilities accrued prior to the frustrating event will be unenforceable if there has been total failure of consideration: Fibrosa Spolka v Fairbairn Lawson Combe Barbour.
For example, where money has been paid prior to the supervening event the party who paid an amount may recover it in restitution if the agreed consideration for it has totally failed.

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Where there has only been a partial failure of the agreed consideration, there will still be no right to recover any payment made: Baltic Shipping Co v Dillon.
For example, where the contract is for the provision of services that have been partly rendered at the time the frustrating event occurs, there will be no ground on which money that has been paid can be recovered.

Work done under the contract after frustration may be claimed on a quantum meruit basis: Codelfa No. 1 case. Since frustration does not render a contract void ab initio, it is possible for some clauses to continue to operate, even though all performance under the contract is at an end: Heyman v Darwins Ltd. However, for this to happen, it must be clear that the parties intended this result: BP Exploration Co (Libya) Ltd v Hunt (No 2). Parties may agree to treat the contract as still being on foot notwithstanding the frustrating event: Burmic Pty Ltd v Goldview Pty Ltd.

NOTE: the introduction of certain statutory provisions in jurisdictions (NSW, VIC & SA) outside QLD, which deal with the frustration of contracts, for example the NSW Frustrated Contracts Act (1978), have sought to provide for a more equitable resolution between the parties where a contract has been frustrated.

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TERMINATION BY AGREEMENT General Rule: a contract may be discharged and freed from their obligations if the parties make an agreement (contractual discharge) or if conduct implies an extinguishment of the contract (non-contractual discharge). Contractual Discharge An existing contract may be discharged by a further contract between the parties. The usual requirements of contract formation will apply to the contract of discharge:

offer and acceptance: BP Refinery v Shire of Hastings consideration and intention Clear intention to bring the parties obligation to an end: Fitzgerald v Masters

Where one party has completely performed his or her side of the contract, any release by that party of the other party must be under seal or supported by fresh consideration accord and satisfaction: McDermott v Black. Contractual discharge may result from an express term of the contract or the parties may just agree that the no longer wish to continue.

Express term of the contract this will arise where parties have inserted a term in the contract that allows for termination by either party, usually with a period of notice. Usually in employment contracts where either party may terminate or contracts of indefinite duration may also be subject to an implied right to terminate by notice. Parties agree to discontinue where parties mutually agree, prior to the completion of the contract, to discharge their obligations.

Discharge distinguished from variation The variation of a contract will leave the original contract on foot but modify some particulars, whereas a discharge terminates all contractual obligations: Federal Commissioner of Taxation v Sara Lee. The variation is a question of degree and intention of the parties, however, discharge of all contractual obligations must be distinguished from partial discharge or variation: Tallerman v Nathans Merchandise. Requirements of writing A contract for the disposition of an interest in land is required to be made or evidenced in writing: Property Law Act 1974 (Qld) s 59. If the contract is one required to be evidenced in writing, any variation will be unenforceable by action unless evidenced in writing: Australian Provincial Association Ltd v Rogers. The contract can be discharged by oral agreement, and if an oral agreement discharges the written contract and substitutes a fresh contract, there is no enforceable contract at all: If the oral contract is inconsistent with the written contract to an extent that goes to the root of it, the inference is that the parties intended to discharge and replace it: British & Benningtons Ltd v NW Cachar Tea Co. Non-contractual discharge

A party may be estopped from insisting on their contractual rights: Walton Stores v Maher Estoppel applies to parties conduct A variation may sometimes be called a waiver and signifies that one party has dispensed with contractual requirement, but not so as to give rise to a variation of the contract requiring written evidence: Phillips v Ellison Bros Pty Ltd.

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waiver to vary mode/time of performance is NOT a variation does not have to be in writing to be enforceable

Estoppel arises where conduct by one party induces the other to assume the contract is varied: Walton Stores v Maher.

LWB137 Exam Outlines

TERMINATION FOR BREACH Termination is available under common law where there is a

Breach of an essential term Commits a serious breach of an intermediate term; or Repudiation or anticipatory breach

In any of those cases, the innocent party has (except in a case where the Sale of Goods Act, s 14(3) applies) an option to accept the breach and terminate the contract or to affirm the contract Termination discharges parties from any future obligations; however, obligations that have accrued prior to termination are still enforceable. Termination distinguished from rescission: Termination releases the parties form future obligations to perform but accrued obligations (such as an obligation to pay a deposit) may be enforceable. Rescission ab initio means to discharge the contract from the beginning, and it will be as though the contract never existed. A court will only grant rescission where the parties can be returned substantially to their original positions. After rescission, neither party is able to enforce any obligations under the rescinded contract. This also applies to obligations that were due for performance prior to rescission, such as the payment of a deposit. As part of the order of rescission the court will return all monies paid and property passed, to the original parties. The right to terminate a contract will only be available for breach of contract, repudiation or frustration. Rescission of a contract is available for misrepresentation, mistake, unconscionable conduct, duress, undue influence, or misleading or deceptive conduct. Termination for breach A right to terminate the contract will arise:

Pursuant to a clause in the contract; or Pursuant to the common law for breach of an essential term or a serious breach of an intermediate term.

Contractual right more in full notes The contract may contain clause that allows party to terminate contract. It will depend on the construction of the contract and:

Have the events that activate the clause occurred? Has the party exercised the right to terminate according to the contract?

The types of clauses that may give rise to a contractual right to terminate are many and varied. In accordance with the usual approach to interpretation of contracts, the court will try to give effect to the parties intention in each case: Telfair Shipping Corp v Athos Shipping Co SA. The contractual right to terminate will be construed strictly, particularly where a time limit is imposed for exercising the right: Rawson v Hobbs. Other types of termination clauses may entitle a party to terminate for breach of any term (which alters the position at common law under which a party may only terminate for breach of an essential term or where there is repudiation of the contract). However, a seller considering termination of this type should take into account any limitations arising under statute or in equity that could impact on their rights. Equitable principles concerning time of the essence may also impact: Petrie v Dwyer. If a buyer breaches an inessential time provision in the contract, the principles of equity would require a notice to complete to be given prior to any purported termination whether at common law or under a contractual term. A further

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potential limit discussed in the case of Le v Qureshi is a requirement for the exercising party to act reasonably in exercising their rights. The fact that a party has exercised a contractual right to terminate will not equate in all cases to a right to damages for breach of an essential term. A claim for damages will depend upon the injured party proving that the term breached is essential, or that repudiation has occurred. The right to damages is linked to the type of breach, rather than the right to terminate: Progressive Mailing House v Tabali. Common law right more in full notes This right arises where there has been a breach of an essential term, or a serious breach of an intermediate term.

Breach of an essential term


The test of essentiality is used to classify a term as essential or inessential: Associated Newspapers v Bancks.

The test is that the promise is of such importance to the promisee that he would not have
entered into the contract unless he had been assured of strict or substantial performance of that promise.
o o o

The effect of classifying a term as essential is that all breaches of that term will allow the innocent party to terminate the contract. A statement that time is of the essence of this agreement will result in the courts construing the time requirements of the contract strictly. If the contract is subject to the parol evidence rule (ie, fully reduced to writing) the court will be unable to have regard to prior negotiations of the parties or subsequent conduct to ascertain their intentions. The court will be limited to the contract itself which may cause difficulties in construction and lead the court to lean towards a construction that encourages performance rather than one allowing termination: Ankar v National Westminster Finance (Australia) Ltd.

Where the parole evidence rule does not apply (ie, not been wholly reduced to writing) the court may consider: did the parties act in a way consistent with the terms being essential? Associated Newspapers v Bancks. did it state precisely the obligations of the parties? contract?: Hongkong Fir Shipping Co v Kawasaki Kisen Kaisha.

would the party have entered into the contract unless assured of strict performance?:

will every breach of the term deprive the innocent party of substantially the whole benefit of the

Breach of an intermediate term An intermediate term is one which cannot be satisfactorily be construed as a condition or warranty. Typically an intermediate term is one that may give rise to a variety of breaches, some trivial and some serious. Both express and implied terms may be intermediate in nature. Whether a particular breach will entitle the innocent party to terminate the contract depends on the seriousness of the breach and the consequences both actual and foreseeable: Hongkong Fir Shipping Co v Kawasaki Kisen Kaisha. If the consequences of the breach deprive the innocent party of substantially the whole of the benefit of the contract, termination will be possible: Koompahtoo Abo Land Council v Sanpine Pty Ltd.

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Termination for Delay A contract may be terminated for a delay in performance of the agreement. This may be by:

A breach of a time provision (of essence) in the contract allowing the innocent party to terminate; or If time is not of the essence of the agreement, termination is only possible where:
o o

A notice making time of the essence has been served and the other person fails to comply with the notice; or No notice is served making time of the essence but the conduct of the person is such as to amount to a repudiation of the contract.

A contract may be terminated for delay in performance in one of two circumstances:

1. the defaulting party may not perform at the appointed time. This will involve a direct breach of a time
stipulation in a contract allowing termination is the provision is essential. However, there may be some circumstances in which breach of an inessential time provision will give rise to termination because of unreasonable delay. It is only in this situation that the rules of common law and equity concerning time provisions are relevant.

2. may arise as a consequence of breach of another term of the contract. This does not give rise to the
direct breach, but the injured party may suffer loss arising from the delay in performance. Whether the injured party may terminate the contract will depend on the nature of the other term that is breached and whether the delay is so unreasonably long that there is an intention not to perform the contract according to its terms. If the breach is not serious enough for termination, the injured party can claim damages. Time stipulations

At common law when seeking a remedy, a date specified in the contract will generally be considered essential unless the contrary intention is indicated in the contract. In equity when seeking a remedy, time is not considered to be of the essence unless it is expressly stated to be of the essence in the contract, or where there was something in the nature of the property or the surrounding circumstances which would render it inequitable to treat it as a non-essential term: Stickney v Keeble.
o o

Section 62 of the Property Law Act 1974 (Qld) resolves the conflict between common law and equity, providing for the rule in equity to prevail. However, the rules of equity regarding time will only have application in the context of equitable claims, that is, where the plaintiff is seeking specific performance, an injunction or some other equitable remedy: Holland v Wiltshire.

The statute does not prevent a claim for damages at common law for failure to perform on time. Where an equitable remedy is being sought, the failure to perform on time is a breach of an inessential term giving rise to a right of damages, unless the contract expressly provides that time is of the essence: Stickney v Keeble. Where no equitable remedy is being sought, a failure to comply with the time provision should be analyzed in accordance with the common law rules. This means that if a date is specified, it will usually indicate that the parties intended time to be of the essence. Time will be of the essence where:

The contract expressly so stipulates (common law and equity): Harold Wood Brick Co v Ferris. This requires more than the mere provisions of a date for performance, and it usually applies where the term states time is of the essence in this agreement; or

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The surrounding circumstances or the subject make it imperative that the agreed date be precisely observed (common law and equity): Bunge Corp v Tradax SA. The terms of the contract are such that time of the essence should be inferred (common law): Wacal Investments v Hurley.

Examples Commercial contracts In commercial contracts time stipulations are generally regarded as essential: Bunge v Tradax. If a date for performance of the contract is stipulated then a failure to perform on that date will entitle the innocent party to terminate the contract. In general, equity follows and upholds the common law in these situations. Land contracts Payment of a deposit on time is prima facie essential because of its special character as an earnest of performance: Brien v Dwyer. Failure to pay a deposit is a breach of an essential term entitling the innocent party to terminate the contract. Payment of the balance of the purchase monies is subject to the rules of equity concerning time performance in contracts for the sale of land. Time for settlement is subject to rules of equity (time not of the essence) unless surrounding circumstances or subject matter makes time of the essence: Stickney v Keeble. Time not of the essence (termination for breach of an inessential time stipulation)

If time is not of the essence, failure to perform on time will merely be a breach of an inessential term of the contract. Termination is only possible when:
o a notice making time of the essence has been served and there is failure to comply with the notice o no notice is served, but conduct of person is enough to repudiate the contract.

Time for giving a notice to complete

Where the contract does NOT specify a date for completion, and a reasonable time is expressed or implied, time is not of the essence at common law or in equity: Canning v Temby. Where no date of performance is stated, it will be implied that performance should occur within a reasonable time: Perri v Coolangatta Investments. Where there is no date, the innocent party must wait for a reasonable time to elapse before a notice can be given. To prove unreasonable delay in this case, there must be two periods of unreasonable delay:
o It is not until a reasonable time has elapsed that the other party has failed to perform according to the

terms of the contract what will be unreasonable time is a question of fact.

o A notice to complete is served after a reasonable time has lapsed: Louinder v Leis. It should provide

a further reasonable time for performance. If the notice is not complied with the innocent party will, at that time have a right to terminate as repudiation will be inferred: Laurinda v Capalaba Park Shopping Centre.

Alternatively, where there is a specified date for completion in the contract, and time is not of the essence, if one party does not complete on that day the innocent party can immediately serve a notice giving a further reasonable time for completion: Louinder v Leis. Failure to complete on that further date in accordance with the notice will be considered an unreasonable delay allowing the innocent party to terminate.

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Requirements of the notice The real effect of a notice to complete is to make the time fixed by the notice essential: Louinder v Leis. There is no specific form for the notice, but it must contain the following:

Advice of the obligation to be performed: Falconer v Wilson; Fix a reasonable time in which the contract must be completed (court will take into account, all aspects). Notice that failure to comply will give rise to a right to terminate. It must clearly state that in the event of non-compliance, the other party will be entitled to terminate: Laurinda v Capalaba Park Shopping Centre.

Once a notice to complete is served, both parties are bound by the notice and it is effective on both parties: Quadrangle Development & Construction Co v Jenner.

Right to terminate will arise for breach of non-essential time stipulation without the service of notice if delay is unreasonable or amounts to repudiation: Laurinda v Capalaba.

Restriction on the right to terminate Election A contract will not automatically terminate due to the breach or repudiation by one of the parties: Kelly v Desnoe. In general, a party (innocent) who has the right to terminate has a choice whether to:

Affirm the contract; or Accept the repudiation or breach of contract and terminate the contract.

There is no requirement that the right be exercised immediately. An elector is entitled to a reasonable time to consider his or her position: Champtaloup v Thomas. The option may be kept open provided that the innocent party does not affirm the contract or prejudice the other party by delay: Champtaloup v Thomas. The innocent party may terminate the contract immediately for repudiation or breach of an essential term and is not obliged to give the defaulting party the opportunity to rectify the breach unless legislation requires it. An innocent party who elects to terminate the contract will be prevented at a later date from seeking to enforce the contract, as it no longer exists: Evans v Watt, while a party who elects to affirm the contract will be prevented at a later date from terminating the contract for the same breach: Sargent v ASL Developments Requirements of a valid election: Once it is recognised that an innocent party is entitled choose between termination or affirmation, it is necessary to determine whether this election has occurred. The issues relevant to this determination are

Has the party elected by unequivocal words or conduct? Did the party have knowledge of the necessary facts (knowledge of the breach) that imply that an election was made?

Further performance impossible Where further performance of the contract requires the co-operation of the other party or is impossible, the innocent party may have no choice but to terminate the contract for breach: Automatic Fire Sprinklers v Watson.

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Where an essential term is breached it is unnecessary to consider repudiation: Associated Newspapers v Bancks. Occurs where the defendant, by words or conduct, clearly indicates an unwillingness or inability to perform the contract or be bound by it: Shevill v Builders Licensing Board. Refusal / inability to perform must relate to contract as a whole, or to an essential term: Laurinda v Capalaba Park Shopping Centre, Foran v White.

Underlying this definition of repudiation is the notion that parties should be ready, willing and able to perform their contractual obligations at the relevant time. A party who is not ready, willing and able to perform the contract at an appointed time may be indicating an intention no longer to be bound by the contract. Repudiation may also occur to the time prior to the time for performance, and is then referred to as anticipatory breach. Repudiation does not automatically bring a contract to an end as with breach of contract, the promisee must elect to terminate the contract. In the context of repudiation, termination of the contract is also necessary for acceptance of the repudiation. Acceptance of repudiation is necessary to trigger a right to damages. A promisee may elect to terminate for repudiation only if the promisors absence of readiness and willingness to perform the contract extends to all of the promisors obligations, or to an essential respect: Laurinda v Capalaba Park Shopping Centre; Foran v Wight. In other words, the absence of readiness or willingness to perform the contract must be a serious matter: Hochster v De la Tour. Examples of Repudiation Whether the conduct of a contracting party will amount to repudiation is a question of fact. Proof of repudiation will fall into two broad categories

Repudiation by words or implied by conduct

o Express refusal to perform Hochester v De la Tour (courier told he wasnt needed)

This is the clearest case of repudiation. Refusal to perform all of the obligations under the contract will clearly amount to repudiation. Repudiation may also occur where the promisor refuses to perform some of his or her obligations under a contract, provided the refusal is a sufficiently serious matter. Also, a refusal to perform in accordance with the contract will also be repudiation even though there is no express refusal to perform a particular term (e.g. Associated Newspapers v Bancks not complying with the terms of the contract constituted repudiation.
o Implied refusal to perform Laurinda v Capalaba Park Shopping Centre

Repudiation may be implied from a partys words or conduct. Repudiation may be inferred where a reasonable person in the shoes of an innocent party would clearly infer that the other party would not be bound by the contract or would fulfil it only in a manner substantially inconsistent with that partys obligations and in no other way: Laurinda v Capalaba Park Shopping Centre.
o Unjustifiable interpretation of the contract Luna Park v Tramways Advertising Pty Ltd

If a party acts on an erroneous construction and breaches one or more terms of the contract or shows an intention not to perform except in accordance with the erroneous interpretation, the party may have repudiated his or her obligations if the requirement of seriousness is satisfied, as where the erroneous interpretation concerns the performance of significant contractual obligations.
o Wrongful termination of a contract - Braidotti v Qld City Properties Ltd

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Where a party purports to terminate a contract in circumstances where he or she has no legal right to do so, the partys conduct will constitute a repudiation of the agreement. As the purported termination is wrongful, it will not be effective to terminate the contract. Consequently, the innocent party will still have to elect to terminate the contract for repudiation: White and Carter (Councils) Ltd v McGregor.
o Commencement of proceedings Lombok v Supertina

The commencement of proceedings will not constitute a repudiation of a contract unless those proceedings are commenced in such circumstances as to make it plain that the party commencing them thereby shows an intention no longer to be bound irrespective of the outcome.

Repudiation through inability to perform

o Express declaration by words or actions - this is the clearest example of repudiation based on

inability to perform. A party may also declare by its actions that it is unable to perform a contract: Schmidt v Holland.
o Implied inability - even though the defendant has not expressly indicated an inability to perform, the

facts may indicate that the defendant will be unable to perform. In that case, the plaintiff must prove that the defendant is wholly and finally disabled from performing the contract: Sunbird v Maloney or there is a substantial incapacity to perform: Rawson v Hobbs. It will be necessary to prove the defendants actual position rather than what the defendant has said or done: Universal Cargo Carrier Corp v Citati. Acceptance of repudiation

Repudiation of a contract must be accepted by terminating the contract. Acceptance of repudiation is a requirement both for termination and to complete the injured partys right to damages. Prior to acceptance of repudiation, it may be possible for the repudiating party to retract a verbal repudiation and perform the contract. However, where the verbal repudiation has been relied upon by the innocent party in performing or failing to perform the contract, the retracting party will need to give notice to the innocent party (allowing time for performance): Foran v Wight. If reasonable notice of retraction is not given, the innocent party may refuse to perform: Peter Turnbull & Co v Mundus Trading Co. The consequences of accepting repudiation are the same as electing to terminate for breach. The contract will be discharged along with the parties obligations to perform.

Proof of repudiation: repudiation may be proved by reference to the parties words, conduct or position (i.e. whether on the basis of the surrounding facts they are in a position to perform the contract). The unwillingness or inability to perform must relate either to

the whole of the partys obligations under the contract, or be sufficient to allow termination of the contract for breach of an essential term or a serious breach of an intermediate term.

Where relying on the words or conduct as indicating a refusal to perform, there is no requirement for proof that the defendant is unable to perform. The plaintiff may simply rely upon the defendants stated intention not to perform, and terminate the contract. Anticipatory Breach

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Anticipatory breach is a form of repudiation. It occurs where a party, prior to the time for performance under the contract, evinces an intention to no longer be bound to the contract according to the terms. A promisee may terminate for an anticipatory breach immediately, even if the time for performance has not arrived. However, the breach must have been of a sufficiently serious nature. In other words, if the anticipatory breach relates to a breach of an essential term, or the repudiation goes to the root of the contract (ie. serious breach of an intermediate term), the promisee may terminate prior to the time for actual performance: Foran v Wight. If the breach occurs at the time for performance of the contract the terminating party must be ready willing and able at the time of performance. An innocent party who is not able to show they are ready willing and able may not terminate the contact. If the breach is prior to the time for performance, ie. anticipatory breach, the terminating party need only show that at the time of performance they were not wholly and finally disabled (not substantially incapable) from performing the contract: Foran v Wight. Proof of this at the time of the anticipatory breach will enable the party to terminate the contract, however, if the party wishes to claim damages it will be necessary to show that they would on the balance of probabilities have been ready willing and able on the date for completion. Where the obligations are not dependant and concurrent the terminating party does not need to show they are ready, willing and able: Kelly v Desnoe. Note: the obligations in a contract for the sale of goods are regarded as dependent and concurrent by virtue of the Sale of Goods Act (Qld) s 30. Consistent with the fact that anticipatory breach is a form of repudiation; the breach must be accepted before it may be acted upon. This means if the innocent party does not elect to terminate the contract prior to the time for performance, the contract will continue on foot, for the benefit of both parties. In that case, it is possible for the repudiating party (i.e. the blameworthy party) to change his or her mind and complete the contract.

Election to Terminate

Termination for breach of time stipulation is not automatic: Kelly v Desnoe. Innocent party can terminate immediately for repudiation of breach of an essential term Innocent party must choose whether:
o To accept breach of contract and terminate o To affirm contract

Sargent v ASL Developments

If innocent party affirms contract, cannot later revive the right to terminate Requirements of a valid election
o Party elected by unequivocal words/conduct? o Party has knowledge if necessary facts that imply an election was made?

Where further performance requires cooperation of parties or is impossible, innocent party may have no choice but to terminate Automatic Fire Sprinklers v Watson

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Limitations on the right to terminate Ready, willing and able

if obligation is dependent and concurrent, terminating party must be able to show they were ready, willing and able to perform at the time of performance in order to terminate: Foran v White. If the terminating party who cannot prove they were R, W & A, they may not be able to terminate. Where obligations of parties are NOT dependent and concurrent there is no requirement t prove they were R, W & A: Kelly v Desnoe. Terminating party cannot take advantage of own breach.
o Default to terminate contract o acquire a benefit under contract

TCN v Hayden Ent. The right to terminate may be lost or excluded The right to terminate may be lost or excluded in several situations:

Affirmation: Tropical Traders v Goonan Right to relief in equity

o Equitable estoppel: Legione v Hateley o Relief against forfiture: Stern v McArthur - the courts may relieve against forfeiture, that is, prevent a

party from being obligated to pay money or property, where: Shiloh Spinners v Harding The object of the transaction and the insertion of a right to forfeit are essentially to secure the payment of money The party possesses a sufficient interest under the contract Intervention by equity must be appropriate, either because there has been unconscionable conduct, or because the forfeiture provision acts as a penalty

o Intervention by equity to grant relief against the consequences of a forfeiture will only arise if it is

unconscionable in the circumstances: Legione v Hateley.

o Relief from the consequences of termination will not usually be granted where the failure to perform is

a breach of an essential time provision: Tanwar Enterprises v Cauchi. This is because equity does not intervene where time is expressly of the essence: Steedman v Drinkle. The doctrine of repudiation may be expressly excluded by the parties. For example, the contract may provide that the common law concept of repudiation does not apply. It would be rare for a contract to expressly provide for this to occur. However, the terms of the contract may provide for a code in relation to the termination of the contract which impliedly excludes the operation of the doctrine of repudiation: Amann Aviation Pty Ltd v The Commonwealth. The effect of the clause on common law rights of termination is a matter of construction of the clause: Commonwealth of Australia v Amann Aviation Pty Ltd.

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Consequences of Termination Discharge of obligations After termination for breach or repudiation, both parties are relieved from all future obligations under the contract from that time: McDonald v Dennys Lascelles. Although discharge of the parties obligations occurs at the time of termination and does not relate back to the breach or repudiation, the practical effect is that all obligations, except accrued obligations, are discharged For example, if a contract for the sale of land is discharged after the time for performance by the vendor, the obligation of the purchaser to pay the contract price will be discharged. The vendor will not be able to require payment of the balance of the contract price after termination, however damages will be payable for failure to perform. On the other hand, the obligation of the purchaser to pay the deposit will be enforceable as an accrued right. Terms that operate after termination Certain contractual terms will be intended to operate after termination of the contract. Clauses such as restraints of trade, exclusionary provisions, arbitration clauses, confidentiality clauses or agreed damages clauses will usually be enforced by a court after termination. Clauses effective after termination may be enforced by either party: Heymans v Darwins.

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REMEDIES An obligation to pay damages for a failure to perform an obligation assumed under a contract arises impliedly from the entry into the contract: The Heron. The primary objective of damages in contract is to compensate a party for the actual loss suffered as a result of the other partys failure to perform the contract: Hungerfords v Walker. This should be contrasted with the objective of restitution, which is to return a benefit received unjustly by the other party. If no loss is suffered, only nominal are recoverable. It should be noted that a wrongdoer will not have to compensate the plaintiff for all of the loss suffered. In order to claim damages in contract it will be necessary to consider the following:

Is there causation? Has the defendants breach of contract in fact caused the plaintiff to suffer a loss? This is a question of fact. Proof of loss or damage is not a precondition to a cause of action, but damages will only be awarded if the plaintiff has proof of actual loss. Did the breach actually cause the loss? Is the loss suffered too remote? Commonly referred to as the rule in Hadley v Baxendale Has the plaintiff acted reasonably to mitigate unnecessary loss?


The onus of proving the elements mentioned above lies on the plaintiff Generally the plaintiff must prove their case on the balance of probabilities, however this doctrine is not applied rigidly to ach element. The only onus imposed upon the defendant is to prove the plaintiff has failed to mitigate their loss.

CAUSATION The defendant is only liable for the loss caused by the breach. General Test question of fact The traditional test for establishing causation is the but for test. That is, the loss would not have occurred but for the breach of the defendant. If the loss would have occurred anyway, only nominal damages will be payable. Multiple Causes While the but for test is still the first to be used, it is plainly inadequate where there are two separate events, each of which could have caused the damage. It was indicated in Alexander v Cambridge Credit Corp that the but for test should only be used as a guide. The ultimate question was whether as a matter of common sense, the relevant act or omission was a cause of the loss. Intervening causes Where the chain of causation between the defendants conduct and the loss to the plaintiff has been broken, the defendant will not be liable for the loss: Monarch SS Co v Karlshamns Oljefabriker. Where the intervening event is foreseeable by the parties this will not break the chain of causation: The Wilhelm. Monarch SS Held: War broke out and resulted in increased costs for the shipping of cargo. The outbreak of war did not intervene and break the chain of causation because the appellants ought have foreseen that war might shortly break out, and that any prolongation of the voyage might cause the loss/diversion of the ship.

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REMOTENESS Remoteness is the second control mechanism that will operate to limit a plaintiffs recovery of compensation for the loss suffered. A loss, which is causally related to the breach, will nonetheless not be compensable if it is too remote. Two limbs of Hadley v Baxendale Remoteness of damage is governed by the rule in Hadley v Baxendale. The principle is that damage is not too remote if it is such as may reasonably be considered:

As arising naturally according to the usual course of things from the breach; or To have reasonably been in the contemplation of the parties at the time they made the contract as the probable result of it.

First limb of Hadley v Baxendale Damage that arises naturally according to the usual course of things as the probable result of the breach will be recoverable: Hadley v Baxendale. To determine what loss would be within the reasonable contemplation of parties at the time of entry into the contract, the court, in the absence of special knowledge, will look to the knowledge of a reasonable person in the position of the parties to the contract: Koufos v Czarnikow. Thus, the first limb concerns general damages which are presumed to flow from a breach. In Australia, the favoured interpretation is not unlikely to result or sufficiently likely to result: Burns v MAN Automotive (Aust) Pty Ltd. Case examples Hadley v Baxendale first limb not satisfied: It would be expected that the owner of a mill might have had a spare shaft in his possession, and thus the plaintiffs loss of profit arising from the delay in delivery of a replacement shaft was not something the defendant could have contemplated as occurring in the usual course of things (not a result that would have occurred in the multitude of cases) Koufos v Czarnikow first limb satisfied: Defendants agreed to carry sugar from A to B, but deviated during the course of the voyage, resulting in a delay of 9 or 10 days. Sugar prices fell in B, resulting in the plaintiffs suffering a loss of profit by selling at a lower price that would have been obtained but for the deviation. Because the defendants had knowledge (that the plaintiffs were sugar merchants and a sugar market existed in B, although not any knowledge of the exact contracts), they should have contemplated that a failure to deliver on time could result in a decrease in value of goods and thus a loss of profit. The lack of knowledge of the exact contracts was irrelevant. Victoria Laundry v Newman Industries part of loss recovered under first limb, but balance of loss too remote: Defendant delayed for five months in delivery of a boiler for use in plaintiffs dyeing and drycleaning business. Court awarded plaintiff an amount for loss of business in respect of dyeing contracts that were reasonable expected ie. loss from the ordinary business of the plaintiff. However, plaintiff failed to recover the loss arising from the loss of its more lucrative contracts, because although the loss from the contract have been foreseeable, it was not a loss that would have occurred in the majority of cases and thus not a probable result of breach.

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Second limb of Hadley v Baxendale A plaintiff who claims loss not arising in the usual course of things must come within the second limb if the loss is to be recovered. The second limb concerns special damages, which are only recoverable where at the time of entry into the contract the defendant has actual knowledge of special facts such that they could reasonably be said to have foreseen that the particular loss will follow breach. The basis of this rule is said to be that the defendant with actual knowledge of special facts is undertaking to bear a greater loss: Koufos v Czarnikow. In addition to actual knowledge of the special circumstances, it is necessary either:

For the defendant to acquire this knowledge from the plaintiff; or For the plaintiff to know the defendant is possessed of the knowledge at the time the contract is entered into,

And so the defendant could reasonably be said to have foreseen that an enhanced loss was likely to result from a breach: Castle Construction v Fekala. Extent of the loss The principle of remoteness requires the parties to contemplate that the loss that occurred was a probable result of the breach the parties only need to contemplate the type of injury that has occurred not the precise extent of the loss: H Parsons (Livestock) v Utterly Ingham & Co. MITIGATION The general rule is that the plaintiff must take reasonable steps to minimise his or her loss. The plaintiff is not entitled to claim for loss, which the plaintiff could have avoided by taking reasonable steps: Dunkirk Colliery Co v Lever. The principle of mitigation acts as a negative duty upon the plaintiff. The onus is on the defendant to prove that the plaintiff did not mitigate their loss (the plaintiff acted unreasonably): TC Industrial Plant v Roberts Queensland. Whether a plaintiff has acted reasonably or unreasonably is a question of fact that will depend on the individual circumstances of the case: Payzu v Saunders. Plaintiffs are only required to take steps that are reasonable; they do not have to resort to steps that are costly or extravagant: British Westinghouse Electric and Manufacturing Co v Underground Electric Railways. Particular situations where the mitigation issue arises YOU ALSO NEED TO CONSIDER THE FOLLOWING: Should the plaintiff enter into or negotiate a further contract with the defendant? If the parties had the opportunity to enter into a new bargain after breach, which might have eliminated the loss suffered, the issue is whether the plaintiff has acted reasonably in refusing to enter into a new contract: Shindler v Northern Raincoat Co.

Commercial contract In the case of a commercial contract, where the defendant makes a reasonable offer to resume the contract, it should generally be accepted by the plaintiff: Payzu v Saunders.
o If it is NOT accepted, the question is then. WAS IT REASONABLE FOR REFUSAL?

Where the new offer requires the plaintiff to take a risk or to take steps that may cause their financial ruin, the refusal to enter into the contract would be reasonable.

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Any refusal to negotiate because of any ulterior motive may also deny the plaintiff any damages where to enter into another contract with the defendant would have been reasonable: Payzu v Saunders.

Employment contracts Generally, where there is an offer to enter into another contract of employment, the plaintiff does not have to accept: Payzu v Saunders.

circumstances make it reasonable to reject offer:

The new offer of employment is at a lower status: TCN Channel 9 v Hayden Enterprises. The new offer of employment requires the plaintiff to abandon his or her legal rights arising from
the breach: Shindler v Northern Raincoat Co.

The offer of employment is made during the course of the proceedings claiming damages, where
the offer was made to reduce damages awarded: Shindler v Northern Raincoat Co. Are reductions or increases in the amount of loss taken into account?

Where the plaintiff obtains extra benefits as the result of the breach of the defendant then these benefits must be accounted for in assessing damages payable.
o Any damages payable to an employee who was unfairly dismissed will be reduced by the amount

earned from another employer after dismissal: Lavarack v Woods of Colchester.

o The advantage of newer and more efficient machinery purchased to replace defective machinery:

British Westinghouse v Underground Electric Railway. Should the plaintiff purchase a substitute in the market place? In the ordinary course it is expected that an injured party would attempt to avoid loss by making a substitute arrangement. Limitation of mitigation The duty to mitigate does not arise until there is an actual breach of contract or an anticipatory breach that is accepted as a repudiation of the contract: Shindler v Northern Raincoat Co. Where there is an anticipatory breach of contract, the duty to mitigate does not arise until termination has taken place: White and Carter (Councils) v McGregor. If the plaintiff chooses to affirm the contract, no obligation to mitigate arises. ASSESSMENT OF DAMAGES

The general rule is that where a party sustains a loss by reason of a breach of contract, the party is, so far as money can do it, to be placed in the same position as if the contract had been performed: Robinson v Harman. This objective is usually achieved by awarding damages for the lost performance of the contract. This is referred to as the expectation loss.
o In some circumstances calculation of damages in this way does not accurately reflect the loss of the


In this case damages may be awarded to cover the expenditure wasted by the plaintiff in performing the contract. This is referred to as reliance loss. Where the contract involves the sale of goods or land, the general measure of the lost expectation will be the difference between the contract price and the market value of the goods or land on the date of the breach.

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Where the breach of contract has prevented the opportunity to earn the expectation or profit from arising, the court would need to estimate the value of the expected expectancy: Tszyu v Fightvision. The fact that damages may be difficult to estimate is not a prevention of recovery: Fink v Fink.

Different methods of assessing damages There are two primary methods of assessing the damages suffered by the plaintiff:

Expectation loss: the value of the expectancy which the promise created. This can be compensated in a suit for specific performance or by making the guilty party pay the money value of the promise (usually equated with loss of profits); or Reliance loss: where one party in reliance on the promise of another expends money (eg. purchaser of land expends money on investigating the title).

Which method is used by the Courts will depend on the circumstances. Loss of profit or value (expectation loss) As damages for breach of contract are designed to place the injured party so far as money can do it in the same situation as if the contract had been performed, they are normally assessed on the basis of expectation loss or loss of profits.

This is the value of the expectancy which the promise created. The difference between the contract price and the value of the subject matter of the contract at the date of the breach. This measure of loss will apply in the case of contracts for the sale of real property and goods. The object of reliance loss is to put the innocent party in the same position he/she was in before he/she entered into the contract. Moneys expended in the performance of a contract may be recovered as part of the loss of expectation suffered as a result of the breach. Thus, if the contract is breached, the innocent party will be able to recover the amount of money expended to date in the performance of the contract in addition to the lost profit. there is no way of quantifying the expectation loss: McRae v CDC ; or no profit will be made on the contract: Commonwealth v Amann Aviation.

Wasted expenditure or reliance loss

As a general rule damages may be recoverable on the basis of reliance loss where:

However, recovery of damages on the basis of reliance loss is not available if the defendant can prove the plaintiff had entered into a losing contract (see below) and would not have been able to recoup the expenditure even if the defendant had performed all his/her obligations. Recovery of both reliance and expectation loss It has been suggested that a plaintiff cannot pursue a claim for both expenditure (reliance loss) and loss of profits (expectation loss) as this would lead to double recovery and the plaintiff would be in a better position than if the contract had been performed: Anglia TV v Reed. Losing contracts Where the plaintiff has entered into a contract which if performed would result in the plaintiff making a loss (rather than a profit or breaking even), it is a losing contract. In these circumstances the plaintiff will not be able to recover any amount of loss of expectation because if the contract had been performed there would be no profit.

LWB137 Exam Outlines

The plaintiff may, however, be able to recover some amount for wasted expenditure. However the wasted expenditure will be reduced by the amount which would have been lost under the losing contract: The Commonwealth v Amann Aviation. Net loss only recoverable To ensure that damages are awarded to put the plaintiff in the position they would be in had the contract been performed, the court will take into account any benefits or saved expenses received by the plaintiff as a result of the breach. Therefore, the court will take into account the following factors to avoid double compensation:

As a result, the value of any asset in the hands of the plaintiff must be accounted Likewise where the plaintiff is to perform services under a contract account must be taken of the expenditure in the course of the contract. The position is more difficult where the plaintiff purchases a machine for the purposes of making a profit and the machine is defective. It will usually be necessary to account for the cost of purchase of the machine when calculating the loss of the plaintiff. If the plaintiff is claiming lost profit on a further sale future saved costs must also be accounted for.

Kinds of damages Damages may be recovered

For physical injury caused by breach of contract: Cullen v Trappell. For disappointment: Jarvis v Swan Tours. For mental distress: Baltic Shipping v Dillon; Cf Farley v Skinner award for mental distress after a surveyor failed to warn a client of aircraft noise over the property being purchased. For delay in performance. This now extends to delay in the payment of money: Hungerfords v Walker. For lost opportunity: Commonwealth v Amman Aviation Pty Ltd.

The Court also has a discretion to award interest on damages. Agreed damages clause The contracting parties may agree what sum shall be payable by way of damages in the event of breach. If the sum so fixed is a genuine pre-estimate of loss, it will be accepted by the court and awarded as liquidated damages. Where the sum fixed by the contract bears little relationship to the loss incurred, that clause of the contract may be struck down as being a penalty this will not be enforced by the courts. Factors which the court takes into account in determining whether a particular clause is a penalty, include Dunlop Pneumatic Tyre Co v New Garage:

The bargaining power of the parties; The intention of the parties; Whether the stipulated sum is clearly in excess of the greatest possible loss that might be expected to follow from the breach; The presumption that the stipulated sum is a penalty if it is payable on the occurrence of one or more of several events, some of which will result in serious, and others in only trifling loss:

Where a clause is struck down, the innocent party will be left to prove their loss in the normal way.

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RESTITUTION (separate area of law giving back what you took from someone) A person may claim compensation in restitution for a benefit provided to another person where it would be unjust for the other person to retain the benefit. The emphasis in a claim for restitution is the return of the benefit and is founded on UNJUST ENRICHMENT. Lord Mansfield in Moses v MacFerland (1760) 97 ER 676 stated: The gist of this kind of action is that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money. While in Australia the law is still developing, it is now widely accepted that restitution is founded on unjust enrichment: Pavey & Matthews Pty Ltd v Paul. The principle of unjust enrichment involves three things:

The defendant has been enriched by the receipt of a benefit; The defendant has been enriched at the expense of the plaintiff; and It would be unjust to allow the defendant to retain the benefit.

Recovery for the party NOT in breach Money The injured party is entitled to recover sums paid for which there has been a total failure of consideration. Alternatively, the plaintiff may claim damages (any award taking into account any prepaid sum which has not been recovered). However it is not possible to claim both restitution and damages: Rowland v Divall. Services Where an injured party, who has performed work for the party in breach, elects to discharge for breach, the injured party may, as an alternative to a damages claim, claim on a quantum meruit for the value of the work done: Brenner v First Artists Management. This form of relief will be particularly relevant where the effect of the breach prevents further performance by the injured party: Planche v Colburn; Automatic Fire Sprinklers v Watson. Also, where the contract is unenforceable because of a statutory provision requiring the contract to be in writing, the party who has completed the contract may be able to claim on a quantum meruit for work done: Pavey v Matthews Pty Ltd v Paul. Recovery for the party IN breach Money The party in breach is entitled to recover any part payment(s) of the contract price for which no consideration has been received. However, the party in breach is not entitled to the return of a pre-paid deposit (as sum paid as an earnest or guarantee of due performance, commonly 10 per cent or less of the contract price), or any other payment which is forfeited pursuant to a provision (express or implied) in the contract: McDonald v Dennys Lascells. Given this, there exists an equitable power to relieve against forfeiture, that is, where the agreed contractual provision forfeiting the payment is in the nature of a penalty and it would be unconscionable for the other contracting party to retain the money: Pitt v Curotta. Services and goods The party in breach is generally not entitled to a restitutionary claim unless the other party has freely accepted the services or goods: Sumpter v Hedges.

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A key element to a claim based on free acceptance is the failure of the defendant to take a reasonable opportunity to reject the services where there is knowledge that payment is expected for the services by the plaintiff: Brenner v First Artists Management Pty Ltd. Free acceptance involves the acceptance of a benefit in circumstances where the defendant exercised a real choice whether to accept or reject the benefit: Steele v Tardiani. Recovery may also be possible if the party not in breach prevented the performance by the other party or converted the goods or services into money into their hands (incontrovertible benefit): Steele v Tardiani. In each of the above cases, the party in breach will be able to say that the other party has received a benefit, which it is unjust to retain unless payment is made.

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EQUITABLE REMEDIES Under specific circumstances, a promise to do a thing may be enforced by an order for specific performance and an express or implied promise to forbear by an injunction. These equitable remedies are usually only given where common law damages are an inadequate remedy. They are within the courts discretion and the conduct of both the plaintiff and defendant will be relevant when considering whether or not to grant a remedy. Specific performance

A court orders a defendant to perform the contractual obligations. Its main application is in the case of contracts for the sale or other disposition of land. However, by s 53 Sale of Goods Act 1896 (Qld) the court may, if it thinks fit, direct that a contract for the sale of goods be specifically performed.
o Such order will not be made except where the chattel sold is unique in some way. In some way, an

order to pay an agreed sum of money may be obtained: Beswick v Beswick. Injunction Injunctions are particularly effective remedy where the plaintiff seeks to prevent breach by the defendant of an express negative promise (a promise not to do something), eg breach of an enforceable restraint on trade clause. Limitation of actions Common law In Queensland, the period within which an action founded on simple contract must be brought is six years from the date upon which the cause of action arose (s 10(1)(a) Limitation of Actions Act 1974). An action brought outside of this time period will be dismissed by a court. The cause of action accrues on the date the breach of contract is committed: Ward v Lewis. Exceptions to the rule

Where a cause of action is based on fraud or for relief from the consequences of mistake, the period of time before the aggrieved party discovers the fraud or mistake is not included within the six year time period (s 38). If the plaintiff is under a disability (eg an infant or a person of unsound mind) at the date on which a right of action accrues, the limitation period is extended for a period of six years from the date on which that person ceases to be under a disability (s 29(2), (3)).

Equity If a plaintiff is guilty of delay, the action may be barred by the equitable doctrine of laches. This doctrine operates where a plaintiff has acquiesced to a defendant's breach and had not taken action against a defaulting party within a reasonable time. Section 43 Limitation of Actions Act 1974 provides that the Act does not affect the rules of equity concerning the refusal on the grounds of acquiescence or otherwise.

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STATUTORY CONSUMER GUARANTEES The Commonwealth has limited constitutional power to make laws and because of this the ACL (Com) is limited to conduct engaged in by corporations (see s131 of the CCA ) but is extended to persons by s 6 of the CCA. You should note though that the states have applied the ACL and the ACL (Qld) applies to the conduct of persons or corporations. The limitations in relation to the application of the ACL (Com) noted above are now in a practical sense overcome because where a claim is made against a non-corporate entity, that claim can be made under Queenslands mirror legislation. The ACL introduces a statutory system of consumer guarantees, relating to certain contracts entered into by consumers. The effect of the consumer guarantee system is to impose minimum standards when goods or services are supplied to consumers. The significance of the ACL for consumers is that rather than implying a term into the contract, a failure of a statutory consumer guarantee by a supplier can be directly enforced as a breach of the ACL. The consumer guarantees stand independently of the contract. Importantly, the consumer guarantees system allows a consumer to seek redress from anyone in the supply chain; for example the retailer or the manufacturer. This is intended to overcome problems of privity previously experienced when seeking to imply the TPA terms where there was no contractual relationship between the parties. The guarantees are available in addition to any other rights a consumer may have. Who is a Consumer? ACL s 3 defines a consumer. ACL s3(1) deals with the acquisition of goods and provides that: A person is taken to have acquired particular goods as a consumer if, and only if:

They paid no more than $40 000 for the goods; or The goods were of a kind ordinarily acquired for personal, domestic or household use or consumption; or The goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads. For re-supply, or To use them up, or transform them, in trade or commerce, in the course of production or manufacture, or To use them up, or transform them, in trade or commerce, to repair or treat other goods or fixtures on land. They paid no more than $40 000 for the services; or The services were of a kind ordinarily acquired for personal, domestic or household use or consumption.

A person is not a consumer if they acquire the goods:

ACL s3(3) provides a person is taken to have acquired particular services as a consumer if, and only if:

The recipient of a gift can also enforce the guarantees. (ACL s266) Supply in trade or commerce or by way of auction The consumer guarantees (apart from those in s 51 53 ACL) apply only if the goods are supplied in trade or commerce. They therefore do not apply to private sales. Nor do they apply where the supply of goods is by way of auction. Once again, s 51 53 are excluded from this. Consumer Guarantees relating to supply of goods In relation to goods, you should be familiar with ACL s51 59. In particular:

LWB137 Exam Outlines

ACL s54 provides that goods must be of acceptable quality. See s 54(2) for the definition of acceptable quality. Matters such as its fitness for purpose, appearance, presence of defects and its safety and durability are relevant. An objective test is used based on whether a reasonable consumer would regard the goods as being of acceptable quality. ACL s55 provides that the goods must be reasonably fit for any purpose that a consumer, expressly or by implication, makes known to the supplier or manufacturer. ACL s56 provides that where goods are sold by description, there is a guarantee that goods will comply with that description. Consumer guarantees relating to supply of services In relation to services you should be familiar with ACL s2 and s60 63. In particular: ACL s2 - the definition of services is found here. ACL s60 provides a guarantee that services will be rendered with due care and skill. ACL s61(1) provides a guarantee that services will be fit for a particular purpose made known to the supplier. ACL s61(2) provides a guarantee that services will achieve a result made known to the supplier ACL s63 provides a guarantee that services will be completed in a reasonable time. Is it possible to contract out of the consumer guarantees? Refer to ACL s64 and 64A. It is not possible to contract out of the consumer guarantees but if the goods or services are of a kind not ordinarily acquired for personal, domestic or household use or consumption then it is possible to limit remedies to:

Replacement/repair of goods or the cost of replacement or repair, or Resupply or the cost of resupply of services

Remedies The enforcement and remedies provisions are in Chapter 5 of the ACL. You should note Part 5.4. In particular: Goods see ACL s259 - 266 The remedies available against a supplier or manufacturer of goods include repair, replacement, refund and damages depending on the severity of the failure. The ACL distinguishes between failures that are major and those that are not. ACL s260 outlines the failures that are major. If the failure is major or cannot be remedied, the consumer may choose to reject the goods or alternatively, keep the goods but seek compensation. [ACL s259(3)]The right to reject the goods is lost in some circumstances. [see ACL s262] If the failure can be remedied and is not a major failure, the consumer can require the supplier to remedy the failure within a reasonable time. [ACL s259(2)] In this case the supplier may choose between the remedies described in ACL s261. These remedies are primarily repair, replacement or refund. If the supplier fails to provide the remedy within a reasonable time, the consumer may remedy the failure and recover the costs from the supplier or notify the supplier that it rejects the goods and why. [ACL s259(2)] The consumer may recover damages for any consequential loss suffered because of the failure of the supplier to comply with the guarantee. [See ACL s259(4)] A consumer has an action for damages against the manufacturer of goods in certain circumstances. [ACL s271 273] Services

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Again the remedies available depend on whether the failure is major or not. ACL s 268 defines major failure. If the failure is major or cannot be remedied, the consumer may choose to terminate the contract or recover compensation. [ACL s267(3)] If the failure can be remedied and is not a major failure, the consumer can require the supplier to remedy the failure within a reasonable time. [ACL s267(2)(a)] If the supplier fails to provide the remedy within a reasonable time, the consumer may either remedy the failure and recover the cost of doing so from the supplier or terminate the contract. [ACL s267(2)(b)]. The consumer may recover damages for any consequential loss suffered because of the failure of the supplier to comply with the guarantee. [See ACL s267(4)].

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MISREPRESENTATION: MISLEADING OR DECEPTIVE CONDUCT Where a pre-contractual statement is untrue, the misinformed party may seek redress from the statementmaker by arguing one or all of the following:

The statement formed part of the contract (that is, it was a term) and as the statement is now untrue, there has been a breach of contract entitling the innocent/misinformed party to terminate and seek damages The statement was a representation and as the statement is now untrue there has been a misrepresentation that may entitle the innocent/misinformed party to rescind the contract and in, some cases, seek damages. The statement constituted misleading/deceptive conduct that may entitle the misled party to rescind the contract and seek damages pursuant to either the Australian Consumer Law (ACL) or Fair Trading Act (FTA).

Elements of Misrepresentation

False statement of past or present fact

A misrepresentation is founded upon the existence of a false statement of past or present fact. The statement made by the representor must actually be false in fact. This is determined objectively: John McGrath Motors v Applebee. The statement need not be in writing; it can also be made by means of conduct (a nod or a wink, or a shake of the head or a smile intended to induce): Walters v Morgan, particularly where it occurs in response to a question. This will suffice as long as the person making the statement as misrepresented the state of his or her mind: Edgington v Fitzmaurice. However, a representation of fact must be distinguished from:
o Statement of future intent, promise or assurance - A representation about a persons intention or a

future state of affairs will not amount to a representation where the statement amounts to a promise not to do something in the future: Civil Service Co-Operative Society of Victoria v Blyth. However, where the intention was never held, the statement can amount to a representation: Edgington v Fitzmaurice.
o Statement of opinion while a statement of opinion is not itself a statement of present fact, it may

convey an inherent representation that the person making the statement holds that opinion, or is aware of the facts that justify that opinion: Fitzpatrick v Michael. A statement of opinion can be a misrepresentation where:

Fraud can be established (statement is made without belief in its truth did the person giving the opinion have a genuine belief in his or her opinion no matter how erroneous?) The opinion was unreasonably held: Bisset v Wilkinson The representor had no facts to support the opinion: Fitzpartick v Michael

o Statement of law - generally, a statement of law is not a representation. However, the representor will

be liable for a statement of law where:

It is made fraudulently (statement is made without belief in its truth): Public Trustee v Taylor. It is given in a situation where the representor owes the representee a duty of care to ensure that the information given is accurate and it is reasonable for the representee to rely on the information (For example Shaddock: local government found to owe a duty of care when providing information).

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It would be unconscionable in all circumstances to allow the representor to escape liability, such as where estoppel is created.

o Puffs generally NOT a misrepresentation: Dimmock v Hallet.

However, sales talk or puffery may constitute misleading or deceptive conduct under the ACL if a reasonable person would believe it.
o Silence - at common law, silence is not a false statement unless:

Half-truths a half-truth is a statement that is true, but it creates a false representation because other information is not disclosed. Despite the fact that every word of the statement are true, the failure to disclose all relevant information distorts the truth: Dimmock v Hallett.

Where the information is deliberately withheld, or the representor has been reckless,
statement will be a fraudulent misrepresentation: Jennings v Zihali-Kiss. If the representor owes a duty of care to the representee and has been careless in not ascertaining the additional information, there will be a negligent misrepresentation.

Statement that becomes false prior to contract a statement that was originally correct but later becomes false may found a claim for misrepresentation. The representor owes a duty to the representee to correct any untrue statements prior to a contract being executed: With v OFlanagan. Similarly, where the statement was untrue from the beginning and the representor later discovers its falsity, a duty arises to disclose this fact to the representee: Davies v London Marine Insurance Co.

Duty of disclosure - a duty of disclosure arises at common law in limited circumstances.

Where there is a fiduciary relationship: Tate v Williamson. Where there is a contract of uberrimae fidei (meaning utmost good faith).
A failure to disclose will amount to a representation (See s 21 Insurance Contracts Act 1984 (Cth)) (e.g. insurer & insured, within a partnership). Addressed to the representee by the representor: The representation that induces the contract should be made by the representor to the representee. A person cannot be induced to act by a statement addressed to a third party.

Before or at the time when the contract was made: Only representations made prior to the time of the contract can be misrepresentations as a statement made after the contract is formed could not have induced that contract.

Therefore the scope of this cause of action is generally limited to pre-contractual negotiations. Misrepresentations made after the contract was formed will not entitle plaintiff to rescind the existing contract.

Which was intended to and did induce the representee to make the contract

There are two aspects to this last element.

o Intention to induce - This will usually not be an issue. It is generally readily apparent that if the

statement is made during pre-contractual negotiations, the representor intends to induce the contract by the statement. However, if a statement is made innocently and with no intention to induce the contract and it would be unreasonable for the representee to rely upon the statement, inducement may not be established: Peek v Gurney.

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o Reliance by the representee - The representee must rely upon the statement made by the

representor. The onus is on the representee to prove that they relied on the statement: Gould v Vaggelas. A representation need not be the sole or decisive inducement, but it needs to be material to the decision to enter the contract: Edgington v Fitzmaurice. The rules relevant to reliance: Gould v Vaggelas per Wilson J

1. If the representee does not rely upon it, they have no case. 2. If a material representation is made which is calculated to induce the representee to enter into a
contract and that person in fact enters into a contract there arises a fair inference of fact that they were induced to do so by the representation. 3. The inference may be rebutted by showing that the representee (plaintiff), before they entered into the contract, either
a. Was possessed of actual knowledge of the true facts and knew them to be true. b. Made it plain that whether they knew the true facts or not they did not rely on the


Wilson J went on to confirm that the onus of proof of inducement rests on the representee but, as can be seen from rule 2 above, that onus may be discharged in circumstances where, as a matter of common sense, an inference can be drawn that the statement did induce if it was calculated to induce. An evidentiary onus may then shift to the representor, as shown by rule 3: Peek v Gurney. Some of the common situations involving reliance
i. Statement is ignored by representee - Despite the fact a statement may be made to the

representee prior to the contract, the representee may choose to ignore the statement or rely upon their knowledge or judgment in entering the contract, thus not relying on the representor: Holmes v Jones.
ii. The representee has knowledge of the true state of affairs at time of contract - if the representee

has knowledge of the fact that the statement made by the representor is untrue at the time of contract, no claim for misrepresentation will lie. The representor is required to establish that the representee had actual knowledge of its falsity and proceeded in any event: Holmes v Jones. The representees knowledge must be as such to destroy the effect of the statement as an inducement. Therefore, knowledge that the statement is partly untrue may not be enough to prevent the representee from obtaining a remedy: Gipps v Gipps.
iii. The representee has the means of discovering the falsity of the statements - The representee may

still be held to have relied upon the representors statements despite the fact that they may have been able to discover the statements falsity. The representees carelessness will not prevent a remedy from being obtained if it is proved that they relied upon the statement: Redgrave v Hurd. Types of Misrepresentation There are three types of misrepresentation. Different tests apply in relation to each category and different remedies are available for their breach.

Innocent misrepresentation
o This occurs where the representor has been neither fraudulent nor negligent. The maker of the

statement honestly believes the statement to be true.

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o Four above elements are to be proved. o There must be no evidence of fraud: Derry v Peek o Representor must not be under a duty of care to the representee. o The onus is on the representee to prove either fraud or negligence: Dorotea v Christos Doufas

o If an innocent misrepresentation is proved, the representee may elect to rescind the contract and

should be made in a reasonable time.

o Only rescission is available. Damages are not: Redgrave v Hurd.

Fraudulent misrepresentation
o This occurs where the four elements are satisfied and the representor has acted fraudulently. Fraud

is proved when it is shown that a false representation has been made

Knowingly; or Without belief in its truth; or Recklessly, not caring of whether it is true or false (no genuine belief)

with the intention that is should be acted upon by the representee who is thereby induced to act upon it: Derry v Peek.
o The test is subjective: Derry v Peek. o The representor will not be guilty of fraud unless the representee can prove that representor did not

honestly believe the representation to be true in the sense in which he understood it: Akerhiem v DeMare.

Negligent misrepresentation
o First four elements to be satisfied. o This area of law has developed as part of the law of torts but does impact upon the area of contracts.

Under the general rule of torts, negligence has three elements:

A duty of care owed by one person to another; A breach of that duty; and Loss or damage which is not too remote.

o The first recognition regarding the law of negligent misrepresentations emerged in the case of Hedley

Byrne v Heller in the 1964 by the House of Lords.

o As a result of various cases, the Australian High Court has broadened the application of the principle

of misrepresentation: MLC Assurance & Another v Evatt and L Shaddock & Associates v Council of the City of Parramatta. ... whenever a person gives information or advice to another upon a serious matter, in circumstances where the speaker realises, or ought to realise, that he is being trusted to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable in the circumstances for the other party to act on that information or advice, the speaker comes under a duty to exercise reasonable care in the provision of the information or advice he chooses to give. per Mason J in Shaddock.
o Therefore negligent misrepresentation does not require a statement of past or present fact. It merely

requires the giving of information or advice.

o This includes statements of opinion and statements of intention.

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Remedies The remedies available for misrepresentation will depend upon the category of misrepresentation.

Innocent misrepresentation equitable remedy of rescission. The contract is voidable by the representee who has a right to resist an action for specific performance or to institute an action for rescission. Limits on rescission apply, as below. There is no right to damages for innocent misrepresentation.

Negligent misrepresentation recovery of damages in tort (but not in contract) in respect of negligence and the contract is voidable in equity. Limits on rescission, as below. Fraudulent misrepresentation - recovery of damages in tort for deceit (but not in contract) and the contract is voidable in equity. Limits on rescission, as below.

Limits on rescission The right to rescind may be lost in a number of circumstances: Redgrave v Hurd. These include:

Affirmation: the right to rescind the contract will be lost if the party who has suffered the misrepresentation has elected to affirm the contract: Coastal Estates v Melevende. Lapse of time: the right to rescind will be lost if the injured party does not exercise their right promptly: Leaf v International Galleries. Impossibility of restitutio in integrum: in order for the court to allow rescission for a pre-contractual misrepresentation, it must be possible for the parties to be returned to the pre-contractual position: Brown v Smit. Where a third party bona fide and for consideration acquires an interest in the subject matter It is important to note that if the property is purchased in good faith by an innocent third party prior to the rescission of the voidable contract; the third party obtains good title. No title will pass in any property transferred after the rescission of the contract: McKenzie v McDonald.

Execution of the Contract: This limitation only applies in relation to innocent misrepresentation. According to the rule in Seddon v North Eastern Salt Company, where the misrepresentation is innocent and the contract has been executed then rescission will not be available. It is suggested that this rule is limited to contracts for the sale of land and contracts for the purchase of shares.

MISLEADING CONDUCT AND AUSTRALIAN CONSUMER LAW section 18 Section 16 of the Fair Trading Act 1989 (Qld) now applies the ACL as a law of Queensland. Australian Consumer Law (Cth)

(Queensland is on next pages)

The ACL (Cth) provides extensive remedies for misrepresentation. Section 18 of the ACL provides: A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive...

The Commonwealth has limited constitutional power to make laws. s18 of the ACL (Cth) is limited to conduct engaged in by corporations (see s 131 of the CCA) but is extended to certain persons by s 6 of the CCA. Where a claim is made against a non corporate entity, that claim can be made under the mirror legislation of the state. ACL (Qld) applies to the conduct of persons or corporations.

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Elements of an action under s 18 ACL

Corporation is defined in s 4 of the CCA. Engage in Conduct is defined in the ACL s 2(2)
o Includes doing or refusing to do any act or refraining (otherwise than inadvertently) from doing an act.

This means that conduct will include silence: Demagogue Pty Ltd v Ramensky.

Trade or Commerce - the Act will only apply if the person is acting in trade or commerce.
o The meaning of "trade or commerce" was fully canvassed in O'Brien v Smolonogov and has been

given a wide interpretation and covers most commercial transactions.

o The sale of a private dwelling even through an agent is not in trade or commerce: O'Brien v

o The sale of any business will be in trade or commerce: Bevanere Pty Ltd v Lubidineuse.

Misleading or Deceptive - whether conduct is misleading or deceptive is a question of fact to be determined on the facts. This is an objective test. It is not necessary to show an intention to mislead or deceive: Parkdale Custom Built Furniture v Puxu.
o Where misleading conduct is directed at a particular person, whether the conduct is misleading

should be viewed from the perspective of that particular person taking into account what the person knew and did not know and the nature of the transaction: Butcher v Lachlan Elder Realty Pty Ltd.
o Whether silence is misleading or deceptive will depend on whether having regard to all the facts and

circumstances, there is a reasonable expectation that, if a particular matter existed, it would be disclosed: Demagogue Pty Ltd v Ramensky.
o The person failing to disclose a fact must have knowledge of that fact due to the definition of conduct

in s 2. Other relevant sections Section 29 - prohibits the making of false representations in connection with the supply of goods or services. NB: section 30 , 33 and 37 of the ACL also. Section 4 - provides that the person making the future representation has an evidentiary burden to show evidence of reasonable grounds for making the statement. If evidence is not provided, the representation is deemed misleading. Remedies Section 232 Section 236 Section 237 and 243

injunctions to prevent the conduct from continuing; damages; and the court has the discretion to make other orders including rescission of the contract and compensation.

A remedy may be sought against the person engaging in the conduct and any person involved in the contravention. Involved is defined in section 2. The person must have knowledge of the essential facts of the contravention: Yorke v Lucas. Six years to bring the action: s 236 and 237.

LWB137 Exam Outlines

Australian Consumer Law (Qld) The ACL applies at both the Commonwealth and State levels but as the States have wide constitutional power to make laws, the ACL (Qld) is not restricted in its application to corporations. As a result section 18 of the ACL (Qld) applies generally to persons and will catch conduct by corporations, partnerships and individuals. Note: An action for misrepresentation under the common law will still have its place where the parties do not come within the ambit of the ACL. For example, the representor has not engaged in trade or commerce. An example of this might be the private purchase of a motor vehicle by one individual from another individual. To have a remedy under the ACL, you need to go to court. If the party wishes to rescind the contract under common law, they will not have to go to court. ACL in contrast to FTA / TPA
ACL Engage in conduct Misleading representation re future matters Misleading or deceptive conduct False or misleading representations about goods or services False or misleading representations about sale, etc of land Misleading conduct as to the nature etc of goods Misleading representations about certain business activities Who is involved in a contravention? Conduct of director, employee, agent deemed conduct of body corporate Conduct of employee or agent deemed conduct of principal Injunction Damages Discretionary orders 2(4) 4 18 29 30 33 37 2 139B TPA 4(2) 51A 52 53 53A 55 59 75B 84 QLD FTA 5A 37 38 40 40A 44 49 5F 95

139C 232 236 237/243

84 80 82 87

95 98 99 100

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MISTAKE A mistake is operative when it is made by one or both of the parties prior to or at the time the contract is formed. The nature of an operative mistake will determine the effect upon the contract and which remedy may be sought. Types of mistake There are three possible types of mistake common mistake, mutual mistake and unilateral mistake.

Common mistake: this occurs where both parties make the same mistake. There is no difficulty concerning consensus ad idem. Mutual mistake: this occurs where both parties are mistaken, but each party makes a different mistake. The parties are at cross purposes. Unilateral mistake: this occurs where only one of the parties is mistaken and the other party knows or ought to know of the mistake.

Common Mistake Common Law

Occurs where both parties make the same mistake. A contract is void at common law only where there is:
o Res extincta: mistake as to the existence of the subject matter.

Where unknown to the parties the subject matter of the contract no longer exists, the contract is therefore impossible to perform and void: Couturier v Hastie. Section 9 of the Sale of Goods Act provides that where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void. A party to a contract can, of course, guarantee or warrant the existence of the subject matter. In such cases a non-existence will not be grounds for having the contract set aside: McRae v CDC. Res extincta may be distinguished from two other situations:

Adventure: where the contract is for an adventure, it is a question of construction whether the purchaser has agreed to take a chance on whether or not the subject matter is in existence, or for goods lost or not lost: Couturier v Hastie. Here, the true subject matter of the contract is not the goods themselves but the chance of their existence. Warranty: where there is a warranty as to the subject matters existence: if the goods are either no longer in existence or never existed, that party may be liable in damages for breach of contract: McRae v Commonwealth Disposals Commission.

o Res sua: mistake as to title

This is where unknown to both parties; the buyer or the lessee of the property is already the owner of that property: Bell v Lever Bros Ltd. In such a case, the contract is void since the seller or lessor has nothing to sell or lease and performance of the contract is impossible due to the absence of any subject matter. Common mistake as to the qualities or attributes of the specific subject matter of the contract, does not make the contract void at common law: Svanosio v McNamara.
o Mistake as to subsisting circumstances

The parties may contract on the bases of a common assumption that circumstances existed at one time continued to exist at the time when the contract was made, when in fact they had changed: Griffith v Brymer.

LWB137 Exam Outlines

Equity Equity generally follows the common law, so that in the case of res extincta and res sua, or the foundation of the contract becoming impossible prior to the contract being formed, equity will also treat the contract as having no effect. Currently in Australia, equity goes further than the common law and in appropriate circumstances, may:

a) set aside the contract on such terms as it sees fit (rescission): Cochrane v Willis,
b) rectify the contract or c) refuse specific performance. a) Rescission In order for the contract to be set aside for common mistake, three elements must be shown: Solle v Butcher:
o o

a common misapprehension as to facts or as to the parties rights; which is of a fundamental nature

a mistake may be described as fundamental if it affects the nature or quality of the subject matter; a mistake concerning the value of the subject matter; and

absence of fault on the part of the party who is seeking to rescind the contract.

The requisite equitable fraud (unconscionability) may be satisfied by a party seeking to uphold the bargain when he/she is receiving an unexpected windfall under the contract due to the mistake: Lukacs v Wood. If rescission is available, the limits on the right to rescind still operate (i.e. affirmation, lapse of time, impossibility of restitutio in integrum, innocent third party rights have interfered): Hudson v Jope. b) Rectification In order to rectify a common mistake in the recording of an agreement the following elements must be shown: Maralinga Pty Ltd v Major Enterprises Pty Ltd.

There was a prior concluded agreement and the parties then erroneously record that agreement in a written document or at least a common intention to continue down the execution of a contract: Slee v Warke. Further, it seems that it is sufficient if the parties can use other means to prove the common intention, including pre- and post- contractual facts: NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd; or

o o

There is evidence or convincing proof that the written document does not give effect to the parties common intention or that the document differs from the parties common intention. A bona fide (innocent) third partys rights are not prejudiced: Smith v Jones.

Relief will not be denied simply because a party did not read the contract prior to signing it: Coset No 15 Pty Ltd v Blagojevic. Rectification will be refused in the following circumstances:
o o

Where there is a change in the common intention and the document in fact accurately reflects the final agreement between the parties. Where the parties are mistaken as to the meaning or the practical effect of the words they used, as there is no disagreement between the words used and the common intention: Frederick E Rose (London) Ltd v William H Pim & Co Ltd.

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Where the parties are acting under a common mistake that something can be done when it is impossible, but the written word gives effect to that common intention: The Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd. Where rectification would affect the rights of third parties: Smith v Jones Coolibah Pastoral Co v Commonwealth.

Onus: The party seeking rectification of the instrument bears a heavy onus of proof there must be convincing proof that the document differs from the parties common intention: Limits: Where a court orders a document to be rectified, it is treated as having been in its rectified form as from the date of execution: Issa v Berisha. Accordingly:
o o

A court will not order rectification where it would affect the rights of third parties: Coolibah Pastoral Co v Commonwealth. Although authority suggest that a party who seeks to rely on the unrectified document is not deemed to have affirmed the contract and thereby prevented from seeking rectification: Market Terminal Pty Ltd v Dominion Insurance Co of Australia, it may be that asserting the document with knowledge of the mistake could from the basis of an estoppel preventing that party from seeking the remedy: Cf. Standard Portland Cement Pty Ltd v Good.

For the purposes of rectification, evidence of a common intention not recorded in the final document is treated as an exception to the parol evidence rule.

Withhold specific performance Refusal where a decree of specific performance where it would be a hardship on the promisor to specifically enforce the contract: Dell v Beasley.

Mutual Mistake Occurs where both parties are mistaken but each makes a different mistake. Neither party knows of the other partys mistake. Common Law The court must try to ascertain the sense of the promise from an objective point of view; that is how would a reasonable person understand the contract?: Smith v Hughes. If it is not possible for a reasonable third party to prefer one meaning over the other, the mutual mistake will render the contract void: Raffles v Wichelhaus. Where the parties agreement objectively bears a particular meaning the contract is given that meaning and is therefore valid and binding: Houlahan v Aus & NZ Banking. Equity As neither party knows or ought to know of the others mistake, there is no unconscionability to justify relief in equity: Riverlate Properties Ltd v Paul. At most, equity may withhold specific performance where particular hardship would result from holding a party to a contract: Malins v Freeman. Since equity generally follows the law, where the common law assigns a meaning, that meaning will also be assigned in equity: Tamplin v Jones.

LWB137 Exam Outlines

Unilateral Mistake Common Law This is where one party is mistaken and the other knows, or ought to know of the mistake: Hartog v Collin & Shields. The appropriate test is the objective test and that in applying such a test, the contract is not void at common law: Taylor v Johnson. However, the contract may be voidable where the conduct of the party not mistaken amounts to sharp practice (sneaky or cunning behavior that is technically within the rules of the law but borders on being unethical): Taylor v Johnson.

Mistake as to identity
o o

Generally, when a party is mistaken as to the identity of the other party to the contract, the issue is one of the proper construction of the offer. Where one party claims to be mistaken as to the identity of the other party, the agreement will be void where: At the time of the apparent agreement, the identity of the other party was material: Boulton v Jones;
(1) (2) (3)

There was an intention to contract, not with the other party, but with a separate entity: Cundy v Lindsay; and This intention was known or ought to have been known to the other party. The effect of a unilateral mistake as to identity is to render the contract void: Porter v Latec Finance (Qld) Pty Ltd. A contract may also be void for mistaken identity where a plaintiff does not want to contract with someone but is deceived by a rogue into doing so: Said v Butt.

o o

In relation to elements (i) and (ii), it may be important as to whether the parties contracted face to face or at a distance; there being a presumption that there is a contract where there is a dealing between the parties face-to-face. The question will often turn on the evidence and its sufficiency to rebut such a presumption:
o o

Merely seeking to confirm an alleged identity by reference to a directory will be insufficient: Phillips v Brooks. Attempting to rely on identification offered by the other person will not be sufficient to show that the identity of the other person is material or that there was an intention to contract with another person: Papas v Bianca Investments Pty Ltd. Any distinction between a person and that persons attributes (such as their wealth or social position) does not provide a valid basis for rebutting the presumption: Lewis v Averay.

Non est factum: Mistake as to the nature of the contract This plea seeks to accommodate two competing policy considerations the injustice of holding a person to a bargain to which they have not consented to and the necessity of holding a person to a promise after they have signed the document. In order to plead non est factum, three conditions are necessary:

The claim must belong to the class of persons (see below) able to recover under the plea. Lord Reid suggested that the plea is available to those who are permanently or temporarily unable through no fault of their own to have without explanation any real understanding of the purport of a particular document, whether that be from defective education, illness or innate capacity: Saunders v Anglia Building Society.

LWB137 Exam Outlines

Relevant class includes:


Are unable to read, through blindness or illiteracy, and who must rely on others for advice as to what they are signing; or Through no fault of their own are unable to have an understanding of the purport of the particular document: Petelin v Cullen. The class may include a foreign person who is unable to speak English very well: Lee v Ah Gee; One who is suffering from a mental incapacity: Gibbons v Wright. See PROPER NOTES.

The claimant must show that the document was signed in the belief that it was radically different from what in fact it was.

Whether a document is radically or fundamentally different from what the signer thought it to be is a question of fact to be determined subjectively: Petelin v Cullen

As against innocent persons, the failure of the claimant to read and understand must not be due to carelessness on his part: Petelin v Cullen.

The claimants mistake may be as to the character of the document or as to its contents must not as to its legal effect: Gallie v Lee. There is a heavy onus on the person seeking to rely on the plea: Petelin v Cullen. Equity In equity, the contract may be treated as voidable, it may be rectified or the remedy of specific performance may be withheld.

Voidable contract: Equity will set aside the contract in the case of unilateral mistake where the court is of the opinion that there has been sharp practice that is, it is unconscientious for parties to have the legal advantage they have obtained by virtue of the contract: Torrance v Bolton. Three elements must be shown:
o o o

A party enters into a written contract under a serious mistake about its contents in relation to a fundamental term The other party is aware or has reason to be aware that circumstances exist that indicate the first party is entering the contract under some serious mistake or misapprehension The other party deliberately sets out to ensure that the first party does not become aware of the existence of his or her mistake or apprehension.

What amounts to sharp practice may depend upon the individual circumstances of the case. Sharp practice is not limited to the formulation in Taylor v Johnson. Equitable relief may be granted wherever it would be unconscientious or inequitable to hold the mistaken party to the contract. For example:

Something less than actual knowledge of the mistake may suffice, such as a strong suspicion: Misiaris v Saydels Pty Ltd or having reason to know Everglades Country Club Ltd v Eadie of the mistake. Wilful blindness or wilful failure to make enquiries that an honest and reasonable person would also suffice: Commission for the New Towns v Cooper (Great Britain). In some cases, silence coupled with knowledge of the mistake, if not amounting to deliberately setting out to ensure the mistaken party does not become aware, may nevertheless be unconscientious in the circumstances: Leibler v Air New Zealand Ltd.

o o

Limits: Once again, the limits on the right to rescind still operate (i.e. affirmation, lapse of time, impossibility of restitutio in integrum, innocent third party rights have interfered).

LWB137 Exam Outlines

Rectification: Equity may rectify a written document where only one party mistakenly believes that the document accurately reflects the parties agreement and the party who is not mistaken engages in unconscionable conduct or sharp practice: Riverlate Properties Ltd v Paul. The elements for rectification are as follows Thomas Bates & Son Ltd v Windhams (Lingerie) Ltd:
o o o o

The plaintiff wrongly believes that the written document contains a particular term or does not contain a particular term The defendant is aware of the plaintiffs wrong belief The defendant says nothing to correct the plaintiffs wrong belief The mistake either provides an advantage to the defendant or is a detriment to the plaintiff

Although the elements are cast in terms of actual knowledge, it seems that it is sufficient if the defendant must have known or strongly suspects that the plaintiff is making a mistake: Misiaris v Saydels Pty Ltd. It is yet to be determined whether the Court should be entitled to give the party not mistaken the option of having the contract rectified (thus preserving the contract) or set aside (thus destroying the contract): Garrard v Frankel; Paget v Marshall; Coxon v Masters.

LWB137 Exam Outlines

DURESS General If one party pressures the contractual consent of another by duress the contract is voidable by that other party. The common law has long recognised that duress, in the form of coercion of the plaintiffs will through illegitimate pressure or threats to the plaintiffs interests, render a contract voidable: Barton v Armstrong. Economic duress: A contract entered into under pressure to a partys economic interests is voidable on the grounds of duress: Universe Tankships Inc v International Transport Workers Federation. Economic duress may therefore be defined as actual or threatened conduct harmful to the plaintiffs economic interests. The proper approach to determine whether there has been an economic duress, is to ask: Crescendo Management v Westpac Banking Corp.

Was any pressure applied to induce the victim to enter into the contract?; and Did the pressure go beyond what the law was prepared to tolerate as being legitimate?

Pressure may be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. Although these categories are not closed, even overwhelming pressure not amounting to unconscionable or unlawful conduct will not necessarily constitute economic duress: Crescendo Management v Westpac Banking Corp. For the purposes of economic duress, unconscionable conduct refers to the effect of the pressure, upon the quality of the consent of the pressured party, rather than the quality of the conduct of the party against which relief is sought: Westpac Banking Corporation v Cockerill. Economic duress may include a threat to break a contract unless it is renegotiated without any legal justification for doing so: North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (The Atlantic Baron). Threats to person: Where a threat is made against a partys life and was one of the reasons for that party entering into a contract, relief should be granted for duress. It is immaterial that there may have been other reasons (including good business sense) if the threat contributed to that decision: Barton v Armstrong. This notion extends to actual or threatened imprisonment or confinement: Barton v Armstrong. Threats to personal property: Where money is paid in order to avoid the wrongful seizure of goods or in order to obtain the release of goods wrongfully seized may be classified as duress to personal property. These goods may be recovered in what is known as restitution as money had and received: Astley v Reynolds. Note: Also, there is no distinction between recovery of money paid under compulsion in order to get possession of goods wrongfully detained and money paid under a contract made under duress to goods (Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd). Remedies from old notes so BE CAREFUL!!!

o o o

A contract entered into under duress is rendered voidable, not void, The principal remedy for duress is rescission: North Shipping v Hyundai. The right to rescission may be lost

Affirmation Plaintiff engages in conduct that unequivocally indicates adoption/affirmation of the contract Fails to promptly rescind the contract: North Shipping v Hyundai. A third party acquires an interest in the subject matter of the contract

LWB137 Exam Outlines

Where the parties are unable to be restored / restitutio in integrum is no longer possible. However substantial restitutio in integrum may be sufficient

o o o o

Some cases the plaintiff may be able to recover sums paid under coercion in restitution as money had and received: Hawker v Helicopter. Modern basis for a restitutionary claim is unjust enrichment at the plaintiff's expense General Rule: restitution of moneys paid is not possible while the contract remains on foot Therfore it is necessary for the contract to have been either discharged or rescinded before a restitutionary claim can be made: The Evia Luck.

Duress under statute See ACL s 50(1) Harassment and Coercion which provides: A person must not use physical force, or undue harassment or coercion, in connection with:

the supply or possible supply of goods or services; or the payment for goods or services; or the sale or grant, or the possible sale or grant, of an interest in land; or the payment for an interest in land.

LWB137 Exam Outlines

UNDUE INFLUENCE If one party induces the consent of the other by undue influence the contract is voidable in equity. There are two situations when the equitable doctrine will be applied:

Where there is no special relationship between the parties in which case the party alleging undue influence must prove that he/she was subjected to influence which excluded his/her free consent; National Westminster Bank v Morgan; Johnson v Buttress. Where there is a special or confidential relationship between the parties, it is presumed that undue influence was applied and the onus is on the party in whom confidence was reposed to show that undue influence was not used. Solicitor and client, doctor and patient, religious adviser and disciple are examples of situations where a confidential relationship is presumed to exist.

In Hospital Products Ltd v US Surgical Corp, Gibbs stated a test as to when a fiduciary relationship may arise: It seems not an inappropriate test in this case that a fiduciary relationship exists where in a particular manner a person has undertaken to act in the interest of another and not in his own and has been entrusted with the power to affect the interests of the other in a legal and practical sense. In Allcard v Skinner, it was stated by Lindley J at 183: The influence of one mind over another is very subtle, and of all influences religious influence is the most dangerous and the most powerful, and to counteract it courts of equity have gone very far. TWO CLASSES ON UNDUE INFLUENCE: Class One actual undue influence

Concerns situations where the transaction was entered into as a result of actual undue influence The court must be satisfied the transaction is a result of actual undue influence exercised by a party in a position of ascendancy over another for the purpose of inducing the transaction One party to the transaction had the capacity to influence the other That influence was exercised Its exercise was undue Its exercise brought about the transaction: Stivactas v Michaletos (No 2).


In cases involving third parties, the elements are slightly different. See text book page 563. Class Two presumed undue influence

Where the relationship between the parties at the time of the transaction is such as to raise a presumption that the party in a position of ascendancy exercised influence over the other. Involves the categories of relationships that are regarded as being of a nature that gives rise to a presumption that undue influence induced any transaction between the parties. Sub divided into two classes:
o o

Class A - contains certain well-defined categories accepted as naturally giving rise to a relationship of influence (fiduciary relationships): Johnson v Buttress. Class B - relationships attracting presumption. The court will take into consideration:

The standard of intelligence, education, character and personality of the claimant The age, state of health and blood relationship of the claimant Experience or lack of it in business affairs of the claimant

LWB137 Exam Outlines

The length of friendship or acquaintanceship between the claimant and other person The relevant strength of character and personality of the dominant party The opportunity afforded the dominant party to influence the claimant in business affairs: Union Fidelity v Gibson.

Therefore where a person is seeking to avoid a transaction on the basis they do not fall within one of the recognised categories, they should first establish that undue influence ought to be presumed. Proof the shifts to the defendant to rebut the presumption The defendant may rebut the presumption by establishing the plaintiff

Knew and understood what they were doing Were acting independently of any influence arising from the ascendancy: Lancashire Loans v Black. Age Standard of intelligence Character Experience Johnson v Buttress

The court may also consider plaintiff's

Remedies Where undue influence is shown or presumed and cannot be rebutted the contract is voidable in equity.

LWB137 Exam Outlines

UNCONSCIONABLE CONDUCT General Equity also exercises jurisdiction to set aside a contract which may be described as harsh and unconscionable. The notion of unconscionability is extremely difficult to define. But it has been defined as being: a ground of relief whenever one party by reason of some condition or circumstance is placed at a special disadvantage in comparison with another and unfair or unconscious advantage is taken of the opportunity created: Commercial Bank of Australia Ltd v Amadio. The critical element of unconscionable conduct is the defendants conduct, which in the circumstances is not consistent with equity or good conscience: Commercial Bank of Australia Ltd v Amadio. Unconscionable conduct is seen as conduct which takes advantage of anothers special disability or disadvantage, in a way that is harsh or oppressive: Commonwealth v Verwayen. Equity will grant relief for unconscionable conduct where the following elements can be proven : Commercial Bank of Australia v Amadio:

One party is in a position of special disadvantage to which the other party creates circumstances of unfair advantage; The other party knows or ought to know of that special disadvantage and exploits the others weakness in some morally culpable manner; The resulting transaction is oppressive.

Special disadvantage definition: This is an advantage which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party: Commercial Bank of Australia v Amadio. Relevant circumstances include Blomley v Ryan:

poverty of any kind sickness age sex infirmity of body or mind drunkenness illiteracy or lack of education lack of assistance or explanation where assistance or explanation is necessary.

However, this list does not cover all of the situations in which relief will be granted for unconscionable conduct: Commercial Bank of Australia Ltd v Amadio. Emotional dependence, or being subject to emotional influence, is a relevant disadvantage that might constitute a ground to set aside a transaction as unconscionable: Louth v Diprose. Additionally, special disadvantage might exist not only in constitutional disadvantage, such as age or infirmity, but also in situational disadvantage, such as disadvantage arising out of an intersection of the legal and commercial circumstances in which the plaintiff may find themselves: Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd.

LWB137 Exam Outlines

Special disadvantage distinguished from simple disadvantage: Special advantage must be distinguished from simple disadvantage a person will not be in a position of special disadvantage just because of a mere inequality of bargaining power. There is a difference between unconscientiously exploiting another persons inability or reduced ability to protect this own interests and taking advantage of a superior bargaining position. Special disability must be sufficiently evident to the defendant: CBA v Amadio. Relief will be refused where the stronger party neither knows nor ought to know of the weaker partys special disadvantage: Melverton v Commonwealth Development Bank of Australia. Note: standard-form contracts:

Typically used by parties who are in such a strong bargaining position that they are able to prescribe the terms on which they are prepared to contract, ie. a take it or leave it basis Unconscionability may be capable of relating not only to formation of contracts (procedural unconscionability) but also to the substantive terms in a contract (substantive unconscionability) If this proves to the base, a Court may deem terms of a contract so unreasonable that they represent the stronger party taking advantage of a disability on the part of the weaker party perhaps because of a pressing need for the goods or services. For example, Familiar Pty Ltd v Samarkos Held: The administration fee of $50,000 in respect of a loan of $50,000 set aide on the grounds that the payment was unconscionable.

Justification Once the two elements are established by the weaker party, the onus shifts to the stronger party to justify the conduct by showing that the transaction was fair, just and reasonable: Commercial Bank of Australia v Amadio. Proof that the weaker party had the benefit of receiving independent advice may be one way of showing that the transaction was far, just and reasonable. However, this is not conclusive: Commercial Bank of Australia v Amadio. Remedies The main remedy will be rescission of the contract, although partial rescission (rescission to the extent of the unconscionability) may be possible in some cases: Commercial Bank of Australia v Amadio. The limits on the right to rescind still operate in these circumstances (i.e. affirmation, lapse of time, impossibility of restitutio in integrum, innocent third party rights have interfered or execution of the contract). UNCONSCIONABILITY UNDER STATUTE The ACL sections 20, 21 and 22 deal with unconscionable conduct. Section 20 of the ACL ACL section 20 prohibits a person in trade or commerce from engaging in unconscionable conduct within the meaning of the unwritten law, from time to time. Sections 21 and 22 of the ACL By contrast to ACL section 20 which prohibits a person in trade or commerce from engaging in unconscionable conduct within the meaning of the unwritten law, from time to time, whether there has been unconscionable conduct in contravention of ss 21 and 22 is determined by reference to a catalogues of factors set out in those sections.

LWB137 Exam Outlines

Remedies for unconscionable conduct under the ACL include: Section 232 Section 236 Section 237/243 injunction. damages. the court has a discretion to make other orders including rescission of the contract.

Below is a comparative table showing the new ACL reference and the now superseded TPA and FTA provisions for the main statutory provisions we cover in this area:
ACL Unconscionable conduct by a person within the meaning of the unwritten law Unconscionable conduct Unconscionable conduct by a person in business dealings Injunction Damages Discretionary orders 20 21 22 232 236 237/243 TPA 51AA 51AB 51AC 80 82 87 98 99 100 QLD FTA 39

LWB137 Exam Outlines

UNFAIR CONTRACT TERMS The Competition and Consumer Act 2010 (Cth)(CCA) now also includes provisions relating to unfair contract terms. The ACL (Cth) applies if the supplier is a corporation. There is no such restriction in relation to the ACL (Qld) which applies to corporate and non-corporate suppliers. A term of a contract is VOID if the term:

Is in a consumer contract Is an unfair term; and The contract is a standard form contract

However, the contract will continue to bind the parties if the contract can still operate without the unfair term. ACL s 23(2) Consumer Contract A consumer contract means a contract

For the supply of goods/services or the sale/grant of an interest in land; and To an individual; and Who is acquiring the goods, service or interest wholly or predominantly for personal, domestic or household use or consumption

You should note that whether a contract is a consumer contract depends on the subjective purposes of the individual who acquired the goods, service or interest. Unfair Term What is meant by unfair term? See ACL s 24 An unfair term is one which, on the balance of probabilities:

Causes a significant imbalance in the parties rights and obligations under the contract; and Is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and Would cause detriment (financial or otherwise) if it were applied or relied on.

All three elements above must be satisfied. How will the court determine whether a term is unfair? To determine whether a term in a consumer contract is unfair, a court MAY take into account matters it thinks are relevant, but MUST take into account:

The contract as a whole; and Transparency of the term (refer acl s 24(3) for the meaning of a transparent term)

Where does the onus lie? The onus is on the person advantaged by the term to show that it is reasonably necessary to protect their legitimate interests. Note the presumption in ACL s 24(4). Standard form contract The term, standard form contract, is not defined, but ACL s 27(2) says that, when determining whether a contract is a standard form contract, a court MAY take into account such matters as it thinks relevant, but MUST take into account:

LWB137 Exam Outlines

Whether one party has all or most of the bargaining power. Was the contract prepared by one party before any discussion between the parties? Was the other party effectively required to take it or leave it? Was the other party given an effective opportunity to negotiate the terms of the contract? Did the terms take into account the specific characteristics of the other party or the particular transaction? A telecommunications contract for a mobile phone, A construction contract for a domestic building, A contract with a gym, A contract for a flight or a cruise and A utilities contract for such services as electricity and gas.

Typical standard contracts may include

If a contract is alleged by a party to be a standard form contract it is presumed to be so unless the other party proves otherwise. ACL s 27(1). Restrictions on challenging unfair contract terms There are certain restrictions on the kind of terms that can be challenged under the unfair contract terms law. Accordingly, it is not possible to challenge a term that defines the main subject matter of the contract by alleging that it is unfair. This would amount to challenging it on the basis that the individual had changed their mind. See ACL s 26(1). Similarly, it is not possible rely on the provisions relating to unfair contract terms to challenge a term that sets the upfront price payable under the contract or a term that is required or permitted by law. Refer to ACL s 26. There are also certain contracts that cannot be challenged on the basis of the unfair contract terms in the ACL (eg certain insurance contracts and maritime contracts, both of which are already subject to extensive legislative provisions). See ACL s 28. Enforcement and remedies If the unfair terms provisions are contravened the following remedies are available:

ACL s 250 - a party to a consumer contract can apply for a declaration that the term is unfair. ACL s 232 - injunction to prevent use of the term. ACL s 237 - discretionary orders including compensation order pursuant to s 237 for loss suffered.

If declared unfair, the term is void (ACL s 23). The void term can be severed from the main contract if the remainder of the contract is capable of operating without the term. ACL s 15 provides that the fact a term is void under s 23 is not a contravention of the ACL. However, if a party continues to rely on or enforce the term which has been declared unfair, a person suffering loss or damage may seek a remedy (including compensation) pursuant to s 237. The orders the court might make are outlined in s 243. There is no right to damages under ACL s 236.

LWB137 Exam Outlines

VOID AND ILLEGAL CONTRACTS Certain contracts, or classes of contract, are regarded as void or illegal. This may be by virtue of contravening public policy at common law or by virtue of a provision in a statute. There are therefore four broad divisions in this area: (1) Contracts void by statute (2) Contracts void at common law on the grounds of public policy (3) Contracts illegal by statute (4) Contracts illegal at common law on the grounds of public policy. Void Contracts Void contracts are basically those which contravene a provision in a statute or public policy at common law but to which the ex turpi causa (neither party may sue on or obtain rights under the contract) principle does not apply. Void contracts are those that are NOT ex turpi causa, but are:

Deemed void by statute Contrary to public policy


Contracts containing clauses that attempt to oust the jurisdiction of the court Contract which purport to destroy the right to submit questions of law to the courts are void at common law on the ground of public policy: Baker v Jones.

Contracts prejudicial to the status of marriage A total restraint on marrying is void: Lowe v Peers. Contracts in unreasonable restraint of trade Restraint of trade is defined as where one party agrees with any other party to restrict his liberty in the future to carry on trade with other persons not parties to the contract in such manner as he chooses: Petrofina Ltd v Martin. While prima facie all restraints of trade are void, a restraint is valid if it can be shown to be reasonable in the interests of:

Both parties, having regard to the transaction as a whole, and The public.

Nordenfelt v Maxim Nordenfelt Guns Ltd Reasonableness two tests, PARTIES then PUBLIC If a restraint is to be reasonable between the parties it must be no greater in area of operation than is reasonably necessary to protect a legitimate trade interest of the covenantee which requires protection. Whether a restraint is reasonable is a question of law for the judge. The burden of proving reasonableness in the parties' interests usually lies on the the party benefitting from the restraint. The burden of proving unreasonableness in the public interest is usually on the party subject to the restraint. The validity of a restraint must be decided as at the date of the agreement: Lindner v Murdock's Garage.

LWB137 Exam Outlines

Examples of contracts containing restraints of trade

Master and servant agreements As between master and servant, interests which the master is entitled to protect are his/her trade secrets, including secret manufacturing processes: Foster Ltd v Suggett and his/her business connections, if any, of which the servant has knowledge: Herbert Morris Ltd v Saxelby. The period and area of restraint are particularly relevant: Mason v Provident Clothing Co. A restraint for life is not necessarily void: Fitch v Dewes. Contracts of exclusive service A contract for exclusive service is not necessarily invalid: Warner Brothers v Nelson. An agreement between employers restricting the employment of each other's former employees may be void: Kores Co. Ltd v Kolok Co Ltd. A restraint imposed upon rugby league players when transferring was considered justified and reasonable: Adamson & Others v New South Wales Rugby League Ltd and Others.

Solus Agreements A solus (single source of supply) agreement may be in restraint of trade: Esso Petroleum Co. Ltd v Harpers Garage Stourport Ltd.

Contracts for the sale of a business A restraint imposed on the vendor of a business is more readily upheld by the courts than one imposed on a servant. Without such a restraint the vendor would not get a fair price and the purchaser would not get the benefit of his purchase. But there must be a genuine sale: Vancouver Malt Ltd v Vancouver Breweries Ltd. Note s 45 of the Competition and Consumer Act 2010 which prohibits corporations from entering into or giving effect to any contract arrangement or understanding which is an exclusionary provision or which has the purpose or would likely to have the effect of substantially lessening competition. Section 4D Section 45(3) See also s 47 Section 51(2) contains exceptions to s 45 (note in particular ss (b), (d) and (e) which relate to contracts of employment, partnerships and sales of businesses). The effect of s 51(2) is that a restraint of trade provision will not breach s 45 unless it is an unreasonable restraint of trade at law. defines exclusionary provisions. defines competition.

Illegal Contracts Illegal contracts are strictly defined as those to which the ex turpi causa principle applies. This may occur where the contract is expressly or impliedly prohibited by statute, or where there is a contravention of public policy at common law where the contract is for an illegal or immoral purpose.

Contracts illegal by statute Express prohibition A contract may be expressly prohibited by a statute as formed (eg a statute states contracts entered into for the capture of stray dogs are prohibited) or as performed (eg a statute states contracts entered into for the capture of stray dogs are prohibited in the absence of the catcher possessing a current licence): Mahmoud and Ispahani.

LWB137 Exam Outlines

A rule of thumb regarding the difference between a prohibition as formed or as performed is this: Was there a way the contract could have been performed without infringing the prohibition? If no contract is illegal as formed. If yes contract is illegal as performed. Express statutory prohibition is comparatively rare. Implied prohibition In some cases, although the statute does not expressly prohibit a contract, a court may be prepared to hold that by its terms the statute impliedly prohibits the contract, as formed or performed. Whether the contract, or its performance, is impliedly forbidden is a question of construction of the statute: St John Shipping Corporation v Joseph Rank Ltd. Relevant factors in construing a statute include:
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Where a penalty for contravention of a statute is imposed, whether the object of the penalty was to increase the revenue (contract probably legal): Cope v Rowlands. Or whether the object was to protect the public (contract probably illegal): Pretorius Pty Ltd v Muir & Neil Pty Ltd. Whether the scope and purpose of the statute will be sufficiently served by the penalties imposed and the inconvenience to the public or to commercial life, if the contract is held to be void: First Chicago Australia Ltd v Yango Pastoral Co. Pty Ltd. Any inconvenience to the public or to commercial life (as opposed to the parties to the contract), if the contract is held to be void: First Chicago Australia Ltd v Yango Pastoral Co. Pty Ltd.

Contracts illegal on grounds of contravening public policy Today the High Court would seem to favour a flexible discretion whether to refuse to enforce a contract on the ground that it is immoral or illegal and therefore contrary to public policy at common law: Fitzgerald v Leonhardt. The old fixed list of heads may now serve as useful examples of cases held to be immoral or illegal and therefore contravene public policy. These examples include:

A contract to commit a crime, a tort or a fraud on a third party: North v Marra Developments Ltd. This head extends to a contract to commit a statutory offence (ie a contract to perform an act prohibited by statute): St. John Shipping Corporation v Joseph Bank Ltd.

A contract which is sexually immoral or which tends to sexual immorality: Pearce v Brooks. This is of diminishing significance with the change in societys attitudes. A contract prejudicial to the public safety such as a contract with an alien enemy: Porter v Freudenberg. Or a contract that if performed would involve doing in a friendly foreign country an act which violates the law of the country: Foster v Driscoll.

A contract prejudicial to the administration of justice, eg a contract to stifle a prosecution for a public offence: Keir v Leeman. A private offence (eg common assault) may be the subject of a compromise: Fisher & Co. v Appollinaris Co.

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A contract tending to promote corruption in public life: Horne v Barber. A contract designed to defraud the revenue: Miller v Karlinski.

LWB137 Exam Outlines

In the case of contracts illegal at common law, it is sometimes easy to mask the illegality behind a contract that appears on its face (ex facie) to be illegal. For example, A and B might enter a contract for the sale of As house, but with an ulterior motive of A avoiding tax. This might be seen as a contract ex facie lawful but nevertheless illegal because it was designed to defraud the revenue. If a contract is ex facie unlawful, eg a contract to assassinate someone, the contract is regarded as illegal as formed. If a contract is ex facie lawful (as in the contract between A and B), an additional question is asked whether the intention to break the law is shared in which case the contract is illegal as formed or only held by one party (say, A) in which case the contract is regarded as illegal as performed. Consequences of illegality Ex turpi causa principle Where a contract is illegal by statute or at common law the ex turpi causa rule applies. This means that no court will lend its aid to someone who founds his/her cause of action upon an immoral or illegal act: Holman v Johnson. So neither party can claim, eg damages, amounts due under the contract, specific performance, injunction, etc. Similarly if money or property has already passed under the contract no restitution of that money or property can be obtained. Exceptions In Nelson v Nelson four exceptions to the general rule were approved:

Claimant was ignorant or mistaken as to the factual circumstances, which rendered the contract illegal. Ignorance raises the issue of intention to break the law. Where a contract is illegal as formed both parties are taken to have intended to break the law. Where the contract is illegal as performed and one party is ignorant of the illegality (did not know and should not have known of illegality), that party will be able to claim a remedy as usual. Similar position follows if the claimant was mistaken about the presence of illegality. Where the statutory scheme which rendered the contract illegal was enacted for the benefit of a class of which the claimant is a member: Kiriri Cotton Co v Dewani. Where the illegal agreement was induced by the defendants fraud, oppression or undue influence. Where the illegal purpose has not been carried into effect repentance. This only applies in the case of illegality at common law: George v Greater Adelaide Land Development Co.

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This may apply to both illegality by statute and illegality under the common law: Fitzgerald v F J Leonhardt Pty Ltd. Severance In appropriate circumstances, an illegal or void part of a contract may be severed, enabling that which remains to be enforced. There are three main forms of severance:

Severance of a transaction from associated transaction in a larger enterprise: An associated transaction will also be invalid if it is so closely associated as to be part of the one transaction: Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd.

LWB137 Exam Outlines

Severance of an objectionable promise from a contract: Severance will be allowed where the elimination of the invalid promises changes the extent only of the contract and not the kind of contract: Thomas Brown & Sons Ltd v Fazal Deen. An illegal or void promise can be severed from a contract if it is not substantially the whole consideration given by the party making it: Goodinson v Goodinson.

Severance of part of an objectionable promise without severing the entire promise from the contract: An illegal or void part of a promise may be severed if the promise is divisible. The court will not rewrite the promise or destroy the substance what was agreed: Attwood v Lamont.