ANSWER OUTLINES

MISREPRESENTATION

1. Grounds for complaint (Identify the misleading/deceptive statement)

[plaintiff] may wish to complain about:a) Statement 1b) Statement 2c) Statement 3 (as many as applicable)

2. Are the oral statements terms of the contract/representation/puffery or form the basis of a collateral contract?

It must be determined whether the statement/s were terms or representations?

A statement before a contract may be a puff, term, representation or collateral contract. In the circumstances, a specific statement that ________ goes beyond mere sales talk.

However, the intention of the parties must also be considered, by looking at (Oscar Chess):i. The words and conduct of the parties – if the statement is important in the minds of the

parties, it is probably a term;ii. If there is a long interval between the statement and the conclusion of the contract the

statement is probably a term;iii. If it is an oral statement not reduced into writing, it is probably not a term;iv. If one party is in a better position to ascertain the truth of the statement it is probably a term;v. If the statement maker has control of the information, it is probably a term.

Through balancing these factors, the statement(s) seems not to be promissory but rather merely something said to induce the contract to be formed.

3. Were there any actionable misrepresentations by [defendant]?

Elements[plaintiff] would need to show:

a) False statement of past or existing fact- Identify each statement as either (one or more):

o statement of future intento statement of opiniono statement of lawo silenceo puff.

b) Addressed to the representor by the representorc)Before or at the time when the contract was made

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d) Which was intended to and did induce the representee to make the contract- intention to induce- Reliance by representee

o 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).

o A person is not obliged to take steps to verify the statement – a representee is entitled to take the representor at their word (Redgrve v Hurd)

o 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).

o A person cannot be induced by act by a statement addressed to someone else (Peek v Gurney)

o Rules relevant to reliance/inducement in Gould v Vaggelas which are:- Notwithstanding that a representation is both false and fraudulent, if the representee

does not rely upon it, they have no case - 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

- The inference may be rebutted, for example, by showing that the representee (plaintiff), before they entered into the contract, either:o Was possessed of actual knowledge of the true facts and knew them to be trueo Made it plain that whether they knew the true facts or not they did not rely on the

representation

Therefore, [plaintiff] can show at least [number] innocent misrepresentations.

Innocent misrepresentation

This occurs where the representor has been neither fraudulent nor negligent. There is no common law right to damages for innocent misrepresentation (Redgrave v Hurd). [Plaintiff] only has the right to rescind the contract.

4. Were the statements fraudulent or negligent?

Fraudulent misrepresentation

Are [statements] fraudulent? To be fraudulent, [defendant] would need to have made the statement: (Derry v Peek)

1. Knowingly; or2. Without belief in its truth;

- [def] won’t be guilty of fraud unless [plaintiff] can prove that [def] did not honestly believe the representation to be true in the sense in which he understood it (Akerheim v De-Mare)

3. Recklessly, not caring of whether it is true or false

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[Plaintiff] can recover damages in the tort of deceit and the contract is voidable in equity and common law. However, the right to rescind is lost if a bona fide 3rd party acquires interest in the goods.

Negligent misrepresentation

Where:a) Duty of careb) Breach of dutyc) Damage which is not too remote

[Plaintiff] can recover damages in tort if [def] owes the representee a duty of care (Hedley Byrne), however, this now extended to:

- When a person gives info/advice about a serious matter where the speaker realises/ought to realise he is being trusted and;

- It is reas in the circumstances for the other person to act on the info/advice

- The speaker comes under a duty to exercise reas care (MLC v Evatt)

[Plaintiff] can recover damages in tort for negligence, in addition to having a right to rescind (Redgrave v Hurd).

5. What remedies are available to [plaintiff]?

i) Innocent misrepresentation (remedy – rescission)ii) Negligent misrepresentation (remedy – damages in tort and contract voidable in equity)iii) Fraudulent misrepresentation (remedy – contract voidable in common law and equity and

damages in tort for deceit)

As in contract, damages in tort are only recoverable if the plaintiff can prove that the loss was caused by the misrepresentation, and that the loss was not too remote. The traditional test for establishing causation in contract and in tort is the ‘but for’ test. That is, the loss would not have occurred but for the breach or wrong of the defendant. However, where there are multiple causes of the loss, the question of causation is based on whether as a matter of ‘common sense’ and policy, the defendant materially contributed to the plaintiff’s loss (March v Stramare).

In tort, remoteness is generally governed by the reasonable foreseeability test, that is if it is just the kind of damage that was likely to occur: Wagon Mound (No 2)

IF Negligent Misrepresentation: the court will be concerned with whether the loss caused by the statement was reasonably foreseeable in the circumstances.IF Fraudulent Misrepresentation: all losses that flow directly from the misrepresentation will be recoverable. It is unclear whether the losses must also be reasonably foreseeable: Gould v Vaggelas.

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Therefore, [plaintiff] may recover all reasonable losses: ____________.

6. Are any limits to recession applicable OTF? (only discuss the ones relevant to the problem)

a) Affirmation – decides to continue with contract despite the misrepresentation (Coastal Estates v Melevende)

b) Lapse of time - right to rescind must be exercised within a reasonable time of discovery of the falsity of the statement or they may be taken to have affirmed by conduct (Leaf v International Galleries)

c) Impossibility of restitutio in integrum – Where parties cannot be substantially restored to their pre-contractual positions (Atali v Kruger)

d) Third party rights have intervened – where an innocent third party acquires an interest in the subject matter of the contract (McKenzie v McDonald)

e) Execution of the contract – only available for innocent misrepresentation (Seddon’s case) – if a contract has been fully executed then can’t rescind, however there is Aust authority that Seddon’s rule does not apply to contracts for the sale of goods (Leason Pty Ltd v Princess Farm)

Therefore, [plaintiff] can/cannot rescind the contract depending on ________ (identify relevant problematic limits).

7. Does the ACL apply? (Go through misrepresentation under statute)Was it a private sale etc or did it occur in trade/commerce?

Sec 18 ACLSec 18 states that:

‘a corporation shall not in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive’.(1) Corporation – business relationship involved

However, a ‘person’ will also fall under sec 18 because of sec 6 ACL(2) Trade or commerce – normally, the conduct of any corporation will be conduct in the course

of trade or commerce. ‘Trade or commerce’ has been given a wide interpretation and covers most commercial transactions (O’Brien v Smolonogov) eg a commercial arrangement, commercial elements to a transaction

(3) Engage in conduct – includes conduct (eg a statement) that contains or conveys a misrepresentation as well as doing or refusing to do any act. Therefore it catches statements (like puffery and predictions) and omissions which includes silence (Demagogue v Ramensky) (look at common law misrep for conduct under ACL)

(4) Mislead or deceive – objective test is applied which asks ‘would that statement ordinarily mislead an ordinary member of the community?’ An actual intention to mislead isn’t necessary (Henjo Investments v Collins Marrickville)

Remedies: Injunction – sec

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Damages – sec Rescission – sec

ILLEGAL CONTRACTS

(1) Is the contract illegal?Identify whether the contract is illegal:

a) by statute; or b) on the ground of public policy (if there is no statute, then illegal on grounds public

policy)Illegal by statute

1. Is there an express statutory prohibition? (prevents the contract from being formed eg. entering into contracts without a license)

2. Is there an implied statutory prohibition? (prevents the conduct, not the contract being formed)- Whether contract is illegal is a question of its construction (St John Shipping v

Joseph Rank) - Relevant factors in determining implied statutory prohibition:

a) Where the purpose of imposing the penalty is to:i. Increase revenue – contract probably legal (Cope v Rowlands)ii. Protect the public – contract probably illegal (Pretorius v Muir & Neil)

b) Whether scope and purpose of statute will be sufficiently served by penalties imposed and inconvenience to public life if the contract is held to be void (First Chicago v Yango)

c) Any inconvenience to public or commercial life (as opposed to the parties of the contract) if the contract is held to be void (First Chicago v Yango)

4. Is the contract illegal as formed or performed?Relevant question is:

- Was there a way this particular contract could have been performed without breaking the prohibition?

If no – contract illegal as formedIf yes – contract illegal as performed

5. What’s the effect of the illegality?- ex turpi causa rule applies – therefore, where a breach of an illegal contract occurs,

there is no action on the contract available (Holman v Johnson)- if illegal as formed, ex turpi causa rule applies to both parties and none of the

parties can sue on the contract- if illegal as performed, ex turpi causa rule only applies to the guilty party; the

innocent party may claim a remedy as usual6. Exceptions to ex turpi causa

- four exceptions to the ex turpi causa rule where a remedy may be obtained, including restitutionary claims (Nelson v Nelson). These include:

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1) Claimant ignorant or mistaken as to the factual circumstances (not the law) which made the contract illegal (Ambassador Refrigeration v Trocadero Building and Investment Co)

- But where contract illegal as formed, then both parties are taken to have intended to break the law

- If a party should have known something, then this doesn’t fall within the exception2) Statute rendering contract illegal is to protect class of which plaintiff is a member

(Kiriri Cotton Co v Dewani)- However, it is insufficient if the statute is passed not for the protection of a

particular defined group as a class but for the benefit of the general public as a whole: SA Cold Stores v Electricity Trust of Australia.

3) Illegal agreement was induced by defendant’s fraud, oppression or undue influence (Williams v Bayley).

4) Repentance – illegal purpose has not been carried into effect eg (Payne v McDonald)

- Only applied to illegality at common law7. Flexible approach apply?

- If conduct doesn’t fall within the exception to ex turpi causa then the flexible approach may apply

- This approach especially related to restitution of money /transfer prop (Nelson v Nelson) and applies to both illegality under statute and common law (Fitzgerald v Leonhardt)

- Modern courts are more reluctant than in the past to imply illegality

Illegal under common law (contravenes public policy)

1. At common law contracts may be illegal on the grounds of being contrary to public policy: Holman v Johnson.

- A number of heads of policy have been recognised and, although the list is regarded as finite, Australian courts have adopted a flexible approach to the heads: Fitzgerald v Leonhardt.

2. Identify which ‘head’ of public policy the contract falls intoa) Contract to commit a crime or tort (Cowan v Milbourn)b) Contracts to defraud the revenue (Miller v Karlinski)c) Contracts prejudicial to the administration of justice (A v Hayden)d) Contracts tending to corrupt public officials (Wilkins v Osborne)e) Contracts prejudicial to national security or foreign relations (A v Hayden)f) Contracts promoting sexual immorality (Pearce v Brooks)

3. In this case, the contract is illegal at common law on the grounds of _________(state authority)4. This would be the most appropriate head, although there may be other heads that could be

referred to, such as contracts to ________.

(3) Effect- apply steps 4,5,6,7, 8 from ‘Illegal under Statute’

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PERFORMANCE AND BREACH

(i) Is [plaintiff] entitled to the amount claimed or any part thereof?

Whether [plaintiff] may recover the balance of the contract price or any part thereof depends upon:

1. The nature of the contract;2. The nature of the obligation(s); and3. The degree of performance which was rendered

1. What is the nature of the contract between the [plaintiff] and [defendant]? (Is the contract divisible)

Different types of contract:

1. A divisible contract, which is one in which the consideration and payment thereof is apportioned according to the work to be done (Steele v Tardiani).

2. A lump sum contract, which is one which provides for the payment of a specific sum on completion of specific work (Hoenig v Isaacs).

IF DIVISIBLE: This contract is most likely a divisible contract because the consideration and payment is apportioned according to the work to be done. Of the total contract price [$total], [amount 1] was apportioned to be paid on completion of [part 1], [amount 2] to be paid on completion of [part 2], and [amount 3] on completion of [part 3].

(If divisible, split up into the ‘parts’ and label them as ‘part 1’, ‘part 2’ etc. then go through the following for each part – ie. whether or not entire and what level of performance for each part/stage of the work)

IF NOT DIVISIBLE (LUMP SUM): A lump sum contract provides for payment of a specific sum at the completion of specific work (Hoenig v Isaacs)Here, this contract is not divisible. Merely having amounts allocated to different stages of the work does not suffice. The [number] stages of work do not coincide with the [number] payments by [defendant].

2. What are the nature of the obligations? Are they entire Obligations?

IF DIVISIBLE: As a divisible contract, each of the parts should be considered separately to determine whether they are entire obligations. An entire obligation is one which provides that exact performance of the contract is a condition precedent to payment (Cutter v Powell). Here, _______.

IF NOT DIVISIBLE: An entire obligation is one which provides that exact performance of the contract is a condition precedent to payment (Cutter v Powell). Here, _______.

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NB. In this regard, stating that an amount is due on ‘completion of all work’ does not make full and complete performance a precondition to payment (Hoenig v Isaacs). The performance obligation here is therefore not entire.

3. Has there been exact, substantial or partial PERFORMANCE of the obligations?

IF DIVISIBLE: Generally speaking, performance must be exact. In this case, [part 1/2/3 etc] was exactly performed.However, there was not exact performance of the [part 1/2/3] or [part 1/2/3] stages. If Divisible and Not Entire: [part 1/2/3] were not exactly performed, however, they were not entire obligations and [plaintiff] may claim substantial/partial performance (Hoenig v Isaacs).Where there has been substantial performance the contractor is entitled to the contract sum as a debt, but is subject to a counter-claim or set-off for the cost of remedying any defect in performance (Hoenig v Isaacs).If Divisible and Entire:[part 1/2/3] required exact performance because those obligations were entire. When an obligation is entire, recovery of the contract price can only occur when there has been exact performance (Hoenig)

IF NOT DIVISIBLE: Generally speaking, performance must be exact. In this case, _______. If Divisible and Not Entire: However, where an obligation is not entire then the plaintiff may claim substantial/partial performance (Hoenig v Isaacs). In such a case, the contractor is entitled to claim the full contract price subject to a counter-claim or set-off for the cost of remedying any defect in performance (Hoenig v Isaacs).If Divisible and Entire: 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, [plaintiff] may be entitled to recover damages or a quantum meruit (restitutionary claim) in certain circumstances.

SUBSTANTIAL PERFORMANCE:Depends upon two factors:

a) The nature of the defects; andb) The relative cost of remedying the defect compared to the contract price.

[PART 1/2/3 etc]Here, the defects were __________. The cost of remedying these defects is [amount 1] plus [amount 2] plus [amount 3]; or [total cost of remedying] compared to a contract price of [contract price], that is, ___%.

In Hoenig v Isaacs; the defects in a renovation contract were minor. The comparative cost of remedial measures was only about 7% of the contract price. The court held that there was substantial performance.

In contrast to Bolton v Mahadeva; where the installation of a water heating system resulted in fumes being emitted, the system not working properly and the premises being made uninhabitable. The cost

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of rectification was between one-third and one-quarter of the contract price. The court held that there had not been substantial performance.

IF CLOSER TO 25-33%: This case seems closer to the Hoenig kind of situation. Consequently, in this case it seems there has been substantial performance of the obligation [or obligation under particular divisible part]. [Plaintiff] is entitled to recover a portion of the contract price, subject to set-off or counter-claim for the _______ defect.

IF CLOSER TO 33% or more: This case seems closer to the Bolton kind of situation [mention how difficult it would be to remedy to defect]. There does not seem to have been substantial performance. [Plaintiff] is therefore not entitled to payment under the contract for its partial performance of the obligation [or obligation under particular divisible part].

4. Is there any other compensation available in RESTITUTION (quantum meruit) for partial performance? (therefore in regards to the party in breach)

[Plaintiff] may be entitled to something for partial performance of the obligation [or in relation to each divisible part]. However, for there to be a claim for partial performance in restitution, the contract must have been terminated (Pavey & Matthews v Paul) [see below for whether the contract has been validly terminated].

A party may recover some measure of payment for partial performance in two circumstances:

a) Where the reason for partial performance is that the other party prevented further performance (as an alternative to damages for breach of contract): Planche v Colburn, Automatic Fire Sprinklers v Watson

- this is/is not available on the facts. The reason that [plaintiff] only partially performed was/was not because [defendant] stopped/prevented further performance.

b) Where a benefit has been conferred at the expense of the plaintiff and where it would be unjust to allow the defendant to retain that benefit (Pavey & Matthew v Paul)

- the three ways of showing that a benefit has been conferred is that:i. the defendant requested the services;

ii. the defendant freely accepted the services; oriii. the defendant incontrovertibly benefit by the services.

Request- [party in breach] will/may have difficulty in proving that the [party not in breach]

requested services which have only been partly performed.Free Acceptance

- In this case [party in breach] will/will not have freely accepted the lesser performance because ____.Incontrovertible benefit

- Incontrovertible benefit may be clearly shown where the defendant converts the services into money.

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The better view is that [the party in breach] can/cannot claim a quantum meruit.

NOTE: Damages for the party NOT in breach:

A party who is not in breach under a contract where services have been provided will be able to seek compensation for the work performed. The party may elect to seek compensation on the basis of either (Automatic Fire Sprinklers Pty Ltd v Watson):

a) a quantum meruit; orb) damages.

The party will not be entitled to both damages and a quantum meruit (Baltic Shipping Co Ltd v Dillon) and will need to elect between the remedies

5. TERMINATION – Was the party entitled to terminate and claim damages? (only if it is a live issue)

NOTE: See below for more in-depth termination

An innocent party will be able to terminate a contract where there has been:a) Breach of an essential term (Tramways Advertising v Luna Park);b) Sufficiently serious breach of an intermediate term (Bunge Corp v Tradax);c) Repudiation by the other party to the contract: Shevill v Builders Licensing Board.

For Essential TermWhere one ne party would not have entered in the contract unless assured of the strict / substantial performance of the term and the other party knows/ought to know of this (Associated Newspapers v Banks). A breach of an essential term enables the party not in breach to terminate and/or claim damages

For Intermediate TermIs the term capable of a variety of breaches and has the breach deprived the innocent party of substantially the benefit of the contract (Hong Kong Fur Shipping v Kawaski)If breach serious – innocent party entitled terminate contract and/claim damages (Hong Kong v Kawasaki)

For REPUDIATIONRepudiation occurs when a party:

a) Evinces an intention, expressly by words/impliedly by conduct to no longer be bound by the contract or; (Laurinda v Capalaba)

b) Indicates clearly an inability to perform (Shelvill v Builders Licensing Board)c) Where there has been an anticipatory breach

- innocent party can terminate immediately or wait for the time of performance – so can either accept the repudiation or wait for time of performance and then it would be breach of an essential term

- However if they wait the other party may actually be able to go through with performance and the party cannot rely on the previous anticipatory breach and claim damages (Foran v Wight)

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Examples of repudiation include:1) Late payment coupled with persistent breaches of other terms of a lease (Progressive Mailing

House v Tabali)2) Express refusal to perform (Hochester v De la Tour)3) Implied refusal to perform (Laurinda v Capalaba Park Shopping Centre)4) Unjustifiable interpretation of contract (Luna Park v Tramways Advertising)5) Wrongful termination of contract (Braidotti v Qld City Properties)6) Commencement of proceedings (Lombok v Supentina) 7) Inability to perform (Foran v Wright)

The rules for when a party must be ready and willing/not wholly and finally disabled include:- Where obligations are not dependant and concurrent (sale of land and goods)

[terminating party] does not need to show they’re ready, willing and able- When an anticipatory breach [terminating party] must only show that at the time

of performance they were not wholly and finally disabled (not substantially incapable) from performing the contract – proof of this at the time of the anticipatory breach enables [terminating party] to terminate – however, if they wish to claim damages they must prove on the balance of probabilities that they would have been ready, willing and able on the date for completion

- 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 (Foran v Wight)

For Termination Because of DELAY IN PERFORMANCE

If time is of essence- [innocent party] is entitled to terminate for breach of time stipulation immediately

(Bunge v Tradax)- Time is of the essence where:

a) The contract expressly stipulates (Harold Wood Brick Co v Ferris)b) Surrounding circumstances/subject matter make it imperative that the agreed date be

precisely observed (Bunge Corp v Tradax- dates for performance in commercial contracts will generally be treated by the common law as essential where they relate to substantive obligations under the contract )

c) Terms of the contract are such that time is of the essence should be inferred (Wacal Investments v Hurley)

- In the sale of land contract payment of a deposit on time is prima facie essential so failing to pay on time will be breach of an essential term Brien v Dwyer)

If time is NOT of essence

Here, as time is not of the essence, [def’s] failure to perform is a breach of an inessential term. Before [plaintiff] is able to terminate they must serve notice of completion. A notice is required where

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1) The contract doesn’t specify date for completion- Where con doesn’t specify date and reasonable time is express/implied then time is not of

essence in common law/equity (Canning v Temby)- [plaintiff] must wait for reasonable time before they give notice- The notice should provide further time for performance and if this not complied

with then can term (Louinder v Leis)

2) Contract does specify date for completion - Where there is a specified date and time is not of the essence then the innocent

party can immediately serve notice giving further reasonable time for completion- Failure to complete on the further date enables [plaintiff] to terminate

In each case, the notice must contain:a) Advice of obligation to be performedb) Fix reasonable time for performancec) Notice that failure to comply gives rise to right to term (Laurinda v Capalaba)

However, the exception to the requirement of a notice is when the breach of non-essential time stipulation occurs where the delay is unreasonable and the delay amounts to repudiation (Laurinda v Capalaba)

6. If the question asked whether DAMAGES could be sought. For damages.....

1. Identify whether the contract was breached

A cause of action for breach will arise if one of the parties fails to perform one or more obligations under that contract. In this case the defendant breached the contract.

o ACL sec 60 - warranty that services rendered with due care and skill

2. Has [plaintiff] suffered loss? (Identify the losses suffered)

Damages may be recovered for: Loss of profit or value (expectation loss) – value of expectancy which the contract created

is recoverable – measure of loss is difference between contract price and the value of the subject matter of the contract

Wasted expenditure (reliance loss) – if calculation of damages on basis of expectation loss will not accurately reflect the plaintiff’s loss, wasted expenditure can be claimedo Loss of profit impossible to calculate – plaintiff’s expenditure would be recoverable

where the evidence indicates that the plaintiff was not going to make a profit on the contract but was not going to make a loss either (Commonwealth v Amann Aviation)

o Losing contract – plaintiff will be able to recover wasted expenditure where they would make no profit from the contract. But the wasted expenditure must be reduced by the amount which they would have lost under the losing contract (Commonwealth v Amann Aviation)

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Physical injury - Damages may be recovered for physical injury caused by breach of contract (Cullen v Trappell).

Loss of opportunity – damages for this are recoverable (Commonwealth v Amann Aviation) Delay in payment of money – damages may be recoverable for the cost of borrowing

money to replace money paid away or withheld in consequence of the defendant’s breach (Hungerfords v Walker)

Recovery for mental distress (distress and disappointment) – damages for mental distress are not recoverable unless one of the exceptions apply (Baltic Shipping Co v Dillon). Exceptions are:o breach of contract has caused personal injury to plaintiff (Godley v Perry)o plaintiff suffered actual physical discomfort and inconvenience (Hobbs v London &

South Western Rly Co)o object of contract was for pleasure and enjoyment or freedom from mental distress

(Heywood v Hellers) Loss of reputation - There is English authority which has held that damages for loss of

reputation or publicity are recoverable where the contract expressly or impliedly promises publicity or enhancement to reputation (Marbe v George Edwardes (Daly’s Theatre) Ltd).

3. Various limits have been imposed on the recovery of loss for breach of contract:???

4. Causation – did [defendant]’s acts cause the loss?

But for test – loss would not have occurred but for the defendant’s breach (March v Stramare)

Common sense approach – where there was more than one cause of loss, as a matter of common sense, was [defendant’s] act a cause of the loss (March v Stramare)

In relation to the _______, it might be that the chain of causation may be broken by an intervening clause (London Joint Stock Bank v MacMillan)

5. Remoteness – was the loss suffered by [plaintiff] not too remote? Remoteness is determined in accordance with the rule in Hadley v Baxendale, that is,

damage will not be too remote if it can be reasonably considered to:a) arise naturally according to the usual course of things from the breach. In

Australia, this has been interpreted as ‘not unlikely to result’ or ‘sufficiently likely to result’ (Burns v MAN Automotive (Aust) Pty Ltd) (1st limb); or

b) be such as may reasonably be supposed to have been contemplated as a probable result of the breach because it arises from special facts known to both parties at the time they made the contract.

- In addition to special knowledge it is necessary either:i. for the defendant to acquire the knowledge from the plaintiffii. for the plaintiff to know the defendant is possessed of the knowledge at the

time the contract is entered into

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Whichever limb the damage falls under, the parties need only to contemplate the type of loss incurred, not the full/precise extent of the loss: H Parsons (Livestock) v Utterly Ingham & Co.

6. What is the quantum of damages?

The object of damages is to place the innocent party in the position as if the contract was not breached (Robinson v Harman)

Therefore, state the relevant losses and the quantum of damages the plaintiff will receive (eg. salary for four weeks)

7. Mitigation General principle is that the plaintiff must take reasonable steps to mitigate against their

loss (Shindler v Northern Raincoat) Onus is on the defendant to prove that the plaintiff did not mitigate against their loss (TC

Industrial Plant v Robert’s Queensland) Plaintiff only required to make reasonable steps to mitigate – no need to take steps that

are costly or extravagant (Metal Fabrications v Kelcey) May need to consider:

o Should the plaintiff enter into or negotiate a further contract with the defendant?

o Are reductions or increases in the amount of loss taken into account?o Should the plaintiff purchase a substitute in the market?

Do the limitations on the mitigation principles apply?i. Anticipatory breach: 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).

ii. Agreed damages clauses

Are these clauses liquidated damages clauses or penalties? (If applicable)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”. Whether a sum is a penalty or liquidated damages does not depend on any particular expression or label used (such as penalty or liquidated damages). Instead, it is question of construction to be decided on the terms and inherent circumstances of each particular contract, judged as at the time of the contract rather than the time of breach.

Factors which the court takes into account in determining whether a particular clause is a penalty, include – (Dunlop Pneumatic Tyre Co v New Garage):

1) The bargaining power of the parties2) The intention of the parties3) Whether the stipulation sum is clearly in excess of the greatest possible

loss that might be expected to follow from the breach

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4) The presumption that the stipulated sum is a penalty if it is payable on the occurrence of one or more several events, some of which will result in serious, others only trifling loss (Dunlop)

Also:

It will be a penalty if the sum stipulated is extravagant and unconscionable in amount compared to the greatest possible loss that could have resulted from the breach.

It will be a penalty if the breach consists of a failure to pay money, and the sum stipulated is greater than the sum that should be paid.

There will be a presumption that it is a penalty when a single sum is payable on the occurrence of one or more or all of several events, some of which might result in serious loss and others only trifling loss.

It is no obstacle to it being a genuine pre-estimate that the circumstances make precise pre-estimation almost impossible.

A clause construed as a penalty will be void and unenforceable by either party. The clause is struck down and the innocent party will be left to prove their loss in the usual way ie causation, remoteness and mitigation (W&J Investments Ltd v Bunting).

8. Conclusion – the plaintiff will therefore be able to recover (list recoverable things)

EQUITABLE REMEDIES

1. Identify whether the contract was breached A cause of action for breach will arise if one of the parties fails to perform one or more

obligations under that contract. In this case the defendant breached the contract.

2. Specific performance Specific performance is a discretionary remedy – orders a party to force a party to perform

a contract or perform obligations that are unperformed Specific performance available where damages are an inadequate remedy (Dougan v Ley)

o Contracts for sale of land – damages not adequate because every block of land is unique (Adderly v Dixon)

o Contracts for the sale of personalty – some contracts for personalty may be specifically enforced where the item of personalty is unique (i.e. not readily available on the open market or only obtainable through inconvenience and difficulty to the plaintiff

o Contracts for sale of specific goods – contracts for the sale of goods custom built or rare articles may be specifically enforced (s 53 Sale of Goods Act 1896 (Qld))

3. Injunction Grant of injunction is a discretionary remedy – order for a party to refrain from doing an

act to restrain a breach of contract or a threatened breach of contract Injunction is available where damages are an inadequate remedy

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Interlocutory injunction maintains the status quo until the trial starts

TERMINATION BY AGREEMENT

1. Nature of original contract

2. Nature of subsequent agreementThe complete discharge of all contractual obligations must be distinguished from the variation or partial discharge of an agreement by the parties. The variation of a contract will leave the original contract on foot but modify some particulars, whereas a discharge terminates all contractual obligations.

o Is the subsequent agreement a variation or discharge and substitution? A purported variation will be a discharge when the agreement is

inconsistent to the extent that it goes to the root of the original contract (Morris v Baron).

Whether the agreement between the parties is a discharge or variation appears to be a question of degree and intention (Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd).

IF CONTRACTUAL DISCHARGE: There are requirements for a valid discharge by agreement. 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 (Westernport) Pty Ltd. Consideration NB. The provision of consideration will not be a problem where neither party has

performed their obligations. However, where one party performs their obligations, fresh consideration will be required unless the agreement is in the form of a deed (Atlantic Shipping & Trading Ltd v Louis Dreyfus & Co).

Clear intention to bring the parties’ obligation to an end: Fitzgerald v Masters. There can also be an agreement to discharge a contract and not replace it

Requirements of writing: The contract can be discharged by oral agreement but if an oral agreement discharges the

written contract and substitutes a fresh contract then no enforceable contract at all (Morris v Brown)

IF VARIATION

If contract is required to be in writing (guarantees, sale of land) then any variation will be unenforceable unless it’s in writing (Aust Provincial Association v Rogers)

3. Effect on the ContractExplain the effect this will have on the contract

TERMINATION BY FRUSTRATION

(i) Has the contract between [pff] and [def] been frustrated?

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1. General Test

The test for frustration is whether, without the fault of either party, performance of the contract has become radically different from that contemplated (Codelfa Construction v State Rail Authority of NSW).

2. Do the occurrences fall within one of the common instances of frustration?

There have been a range of occurrences which potentially could amount to frustrating evens, namely: (list the occurrences)

a. Destruction or unavailability of subject matter – well recognised frustrating event: Taylor v Caldwell.

NB. The destruction must occur before the contract is already frustrated.b. Death / sickness / incapacity of a party – may frustrate a contract: Simmons v Hay.

Whether sickness renders a contract something radically different depends on: (Carmichael v Colonial Sugar)

i. Nature and probable duration of the sickness (compared to duration of contract)

ii. Nature and terms of the contractc. Failure of the basis of the contract – a contract may be frustrated where an event

(that the parties agreed to be the basis of the contract) does not occur: Krell v Henry NB. must be the true basis of the contract and not mere co-incident

d. Method of performance impossible – a supervening event (eg. injunction) may render the contemplated method of performance impossible: Codelfa. (Look at whether the contract can be performed by the planned date notwithstanding the reduction in time allowed for performance)

e. Excessive delay – A supervening event may have the capability of frustrating the contract by causing excessive delay in performance such as to render performance something radically different from what was originally undertaken: Jackson v Maritime Union Insurance.

i. Whether a delay in performance will render a contract frustrated will depend on the probability of the length of delay as compared to the time left to run on the contract, which performance might have been expected to have been completed (Pioneer Shipping Ltd v BTP Tioxide Ltd).

ii. Two approaches:1. assessment of commercial probabilities2. ‘wait and see’ (eg. strike)

iii. NB. if businesspersons assessed the contract as having been frustrated, it is immaterial if subsequently the event no longer exists or has affect (Embiricos)

f. Supervening illegality – arises either by:i. Change in the law: contract frustrated if law changes to prohibit further

performance (Cooper v Neilson)

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ii. Contracting with the enemy: if war breaks out, any contract with a national of the other country will be rendered illegal and thus frustrated (Hirsch v Zinc Corp)

g. Contracts concerning land - if there is a radical change in the circumstances between these times that prevents the vendor from transferring the legal estate to the purchaser, the contract will be frustrated.

i. Sale of landii. Lease of land

iii. NB. sale of land including a building which is destroyed; also may better fit within destruction of subject matter category

3. Do any limits on frustration apply?

If the general test for frustration was considered to be satisfied, the limits on frustration need to be considered, namely:

1. Express contractual agreement2. Supervening event foreseeable3. Supervening event induced by one of the parties

NB. The mere fact that the supervening event renders performance of the contract more onerous or expensive will not mean that performance has become ‘radically different’ from that originally undertaken (The Eugenia).

4. Effect of frustration?

The effect of frustration is that the contract automatically comes to an end at the date of frustration: Hirji Mulji v Cheong Yue Steamship. Loss lies where it falls but unconditionally accrued rights and liabilities remain unaffected: MacDonald v Denneys Lascelles, but conditionally acquired rights and liabilities and all future rights and liabilities are discharged. Neither party is entitled to damages after frustration. Thus, the loss arising from the discharge lies where it falls unless there has been a total failure of consideration: Fibrosa SA v Fairbairn. Here, ______.

NB. Work done under the contract after frustration may be claimed on a quantum meruit basis (Codelfa), if it conferred a benefit on [defendant] at [plaintiff]’s expense, and for it to be unjust for that benefit to not be restored (see quantum meruit)

State what amount(s) will be recovered.

5. TERMINATION? (Only if this is applicable)

If, on the other hand, the contract was not frustrated then the question will be whether [defendant] had a right to terminate the contract. [Defendant] would have this right where at least one of the following occurred:1. Breach of an essential term (Tramways Advertising v Luna Park);2. Sufficiently serious breach of an intermediate term (Bunge Corp v Tradax);3. Repudiation by the other party to the contract: Shevill v Builders Licensing Board.

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The definition of essentiality is that one party would not have entered the contract unless assured of a strict or substantial performance of the term and the other part knows or ought to know: Tramways v Luna Park. Here, [innocent party] makes it clear it would not have entered into this contract unless assured of completion by _______. A breach of an essential term enables the party not in breach to terminate and/or claim damages. [innocent party] rightly terminated immediately for failure to perform by _______.

OR The failure to ________ is presumably a breach of an essential term – [Defendant] would not have entered into the contract unless assured of a strict or substantial performance of the promise to _______ and [plaintiff] knows or ought to know of that fact: Tramways v Luna Park.

An inability to perform also amounts to a repudiation of the contract. This would seem to occur as______. This would enable [defendant] to elect whether to terminate or affirm the contract.

NB. The fact that a party subsequently regained the ability to perform would be irrelevant. [innocent party] would be entitled to damages in the amount of any additional cost it incurred to pay for ________ (eg. supplies from another caterer).

Termination does not discharge any rights or liabilities accrued unconditionally prior to the date of termination, but does discharge conditionally acquired rights and liabilities and any future obligations: McDonald v Dennys Lascelles.

MISTAKE

1. Is the contract void for mistake?

3 types of mistakes:1. Common mistake: both make same mistake2. Mutual mistake: both make different mistake (cross-purposes)3. Unilateral mistake: one party is mistaken and other party knows or ought to know

Here, there has been a [common] [mutual] [unilateral] mistake because _______.

IF Common Mistake Common Law? void at common law where contract is res extincta and res sua

1) Res extincta – unknown to both praties, the subject matter of the contract no longer exists so that the contract is impossible to perform and is accordingly void (Dell v Beasley)........frustration?

NB. distinguish from an adventure and warranty2) Res sua – unknown to both parties, the buyer or the lessee of the property is already

the owner of that property (Bell v Lever Bros) – contract is void because seller/lessor has nothing to sell/lease

NB. mistake as to qualities/attributes does not void the contract (Svanosio v McNamara)

Equity? contracts void at common law for mistake also regarded as void in equity (Bell v Lever Bros). Two exceptions where equity will intervene

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1) Rescission – may declare the contract voidable where the common mistake relates to the fundamental nature or quality of the subject matter and the party alleging mistake is not at fault (Solle v Butcher). Three elements to set aside for common mistake:

a) Common misapprehensionb) Of a fundamental naturec) Absence of fault on party seeking rescission

NB. usual limits to rescission apply2) Rectification – to rectify a common mistake in the recording of a written agreement,

the following must be shown (Maralinga v Major Enterprises)1. There was a prior concluded agreement and the parties then erroneously record that

agreement in a written document – 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

2. 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 therefore not amounting to a concluded agreementAND

3. A bona fide (innocent) third party’s rights are not prejudiced (Smith v Jones).

NB. relief not denied simply because did not read the contract prior to signing it: Coset No 15 v Blagojevic; also note circumstances where rectification will be refused and the limitsOnus – heavy onus of proof on the party seeking rectification of the instrument

IF Mutual Mistake Common Law? Court must try to assign a meaning as to what the parties had agreed – that is

how would a reasonable person understand the contract? (Smith v Hughes)1) The contract will be void at common law if impossible for a reasonable third party to

prefer one meaning over the other: Raffles v Wichelhaus.2) Where the parties’ agreement may bear a particular meaning objectively, that

meaning will be imputed to it (Houlahan), and the contract (given that meaning) is valid and binding on both parties (Goldsborough).

Equity? Since equity generally follows the law, where the common law assigns a meaning, that meaning will also be assigned in equity (Tamplin v Jones)

IF Unilateral Mistake

Where one party is mistaken and the other knows, or ought to know of the mistake (Hartog v Collin & Shields; Smith v Hughes). 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” ( condut that may be unethical)(Taylor v Johnson)

Common law? There is no remedy for a unilateral mistake except in special cases of a) mistaken identityb) non est factum.

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Therefore, the common law does not render a contract void for unilateral mistake unless one of the two exceptions can be proved (Taylor v Johnson).

Mistaken Identity

Where one party claims to be mistaken as to the identity of the other party, the agreement will be void where:

1. At the time of the apparent agreement, the identity of the other party was material (Boulton v Jones)

- it may be relevant whether parties contract face to face or at distance – presumption is that there’s a contract when parties dealing face to face (Phillips v Brooks Ltd)

- What is needed to rebut the presumption is dependent upon the circum but generally:a) Need to show that the contract was not with the person in front of themb) The true identity of the person was material (Lewis v Avery).

2. There was an intention to contract, not with the other party, but with a separate entity (Cundy v Lindsay)

- a plea of mistaken identity will succeed only where two distinct entities involved (Kings Norton Metal v Edridge)

3. 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). Therefore, in no circumstances will a third party dealing with a rogue (who is in on the scam) acquire good title in goods that the rogue may have obtained under a contract formed by mistaken identity. However, lost right to rescind if innocent third party acquires interest in subject matter. 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).

Non Est Factum Common law? Where one party alleges document signed was of a wholly different nature to

which he intended to sign In order to plead non est factum, three conditions are necessary:

1. The claim must belong to the class of persons able to recover under the plea.Ie the class of persons who are a) unable to read because of blindness or illiteracy and who must rely on the advice of others regarding what they are signing or b) who through no fault of their own are unable to understand the purport of the document eg defective education, illness or innate capacity: Saunders v Anglia Building Society.

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

3. 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)

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There is a heavy onus on the person seeking to rely on the plea (Petelin v Cullen). Where the plea is successful, the contract is void ab initio, therefore no title passes to the rogue and any third party interests would be defeated (for example, pg 138 Q & A if a successful plea then no title to the car would have past and Stanley could recover the car from the student).On the other hand, where the plea is not established, the right to rescind the contract is still limited by the limitations on the right to rescind – hence, the right must be exercised promptly (e.g. before a third party’s rights have interfered).

(1)Relevant class

The relevant class is restricted to those mentioned above ie blind/illiterate etcThe class may include a foreign person who is unable to speak English very well (Lee v Ah Gee); or it may include one who is suffering from a mental incapacity, provided that the effect of the incapacity is that the claimant is neither minded nor intending to sign a document of that character or class (Gibbons v Wright).

Note: In an exceptional case, it was held that the class included a person of full capacity who had been misled by a trusted friend to believe that they were merely witnessing the friend’s signature on highly confidential documents that had material parts covered up (Lewis v Clay).

(2) Radically differentWhether a document is radically from what the signer thought it to be is a question of fact to be determined subjectively (Petelin v Cullen). The document must be ‘essentially different in substance or in kind from the transaction intended’ (Gallie v Lee). However, the plea will not succeed where the document, while differing from what the signer believed it to be, is essentially the same (Saunders v Anglia Building Society).

(3) Carelessness of claimantThis third element is only operative in some circumstances and refers to a mere failure to take reasonable precautions in ascertaining the character of a document before signing it (Petelin v Cullen). Where a document is signed with blank spaces to be filled in at a later date, there may be an indication that the signer has been careless, thereby excluding the plea, even though the first two elements of belonging to a relevant class and believing the document to be radically different have been demonstrated.

Equity?In equity, the contract may be treated as voidable, it may be rectified or the remedy of specific performance may be withheld.

a) 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). Special circumstances are ordinarily required before it would be unconscientious for one party to enforce it against another party who was under a mistake as to its terms or subject matter (Taylor v Johnson). Three elements must be shown – (Taylor v Johnson):

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1. A party enters into a written contract under a serious mistake about its contents in relation to a fundamental term

2. 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

3. 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:

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).

b) 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 Windham’s (Lingerie) Ltd):

a) The plaintiff wrongly believes that the written document contains a particular term or does not contain a particular term

b) The defendant is aware of the plaintiff’s wrong beliefc) The defendant says nothing to correct the plaintiff’s wrong beliefd) 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).

UNDUE INFLUENCE (see other notes for detail)

Undue influence involves one person who occupies a position of ascendancy or influence over another improperly using that position for the benefit of himself or someone else, so that the acts of the person influenced cannot be said to be his voluntary acts (Johnson v Buttress).There are said to be recognised classes of undue influence (Allcard v Skinner)

a. Class 1: actual undue influenceThese elements must be shown by the party seeking to rely on the plea:

1. one party to the transaction had the capacity to influence the other2. that influence was exercised3. its exercise was undue; and4. its exercise brought about the transaction

(Bank of Credit v Aboody)b. Class 2: presumed undue influence

Class 2A: recognised relationships1. Most relationships in this category are widely recognised, such as:

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a. solicitor and client (McPherson v Watt)b. trustee and beneficiary (Dougan v MacPherson)c. doctor and patient (Bar-Mordecai v Hillston)d. parent and child (Phillips v Hutchinson)

i. does not apply to child -> parentii. does not apply if child is emancipated from parent

(Lamotte v Lamotte)e. spiritual adviser and devotee (Norton v Relly)f. man and fiancé (Zamet v Hyman)

Class 2B: classes attracting presumptionThis can arise in any relationships where fiduciary characteristics are seen (Johnson v Buttress)The court looks at:

a) standard of intelligence, education, character, personality, age, state of health, any blood relationships, lack of experience in business affairs of claimant

b) length of acquaintanceship and intricacy of their business affairsc) strength of character and personality of the dominant partyd) the opportunity afforded the dominant party to influence the

claimant in business affairs (Union Fidelity v Gibson)eg banker and customer relationship does not arise a presumption of undue influence under class 2A, but may do so under class 2B (National Westminster Bank v Morgan)

In either of the classes, the presumption can be rebutted:By proving that the trusting party:

1. knew and understood what they were doing; and2. was acting independently of any influence arising from the ascendancy

(Lancashire Loans v Black)RemediesThe contract is rendered voidable, therefore enabling rescission of the contract.The usual limits on recission apply. If the right to recsission is lost, court may still order equitable compensation (Mahoney v Purnell).

DURESS (see other notes for detail)If the entry into a contract by an innocent party is as a result of duress by the other party, the contract is voidable by the innocent party (Seear v Cohen)At common law, it is clear that actual or threatened violence to the party of the contract, or their family or relatives, constitutes duress (Barton v Armstrong)

Economic DuressDuress can also extend to threatened or actual harm to personal property (Hawker v Helicopter)In terms of economic duress, the court will ask:

a. whether any pressure induced the victim to enter into the contract?; andb. whether that pressure went beyond what the law will countenance as legitimate?

(Crescendo management v Westpac)

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No matter how extreme the duress was, it will have no effect on the contract if it had no material part to play in its formation (Barton v Armstrong)

RemediesRescission - As a contract entered into under duress is voidable, the principle remedy is rescission of the contract (North Ocean Shipping), however, the usual limits to rescission are applicableRestitution (quantum meruit) – may be applicable and the usual rules apply, namely, that:

a) the contract must be at an end (terminated).b) Then can recover in restituion as moneys had and received (Hawker v

Helicopter)Damages - May be available if duress causes damage or loss (Universe Tankships)

Duress under statuteSec ............. of the ACL prohibits the use of physical force or undue harassment by corporations when contracting with a consumer

“consumer” is defined in s 4The FTA s 50 also prohibits the conduct by persons contracting with consumers

“consumer” is defined in s 6The statutes allow a wider range of remedies including injunctions (Sec...........ACL/98 FTA), rescission, restituion and variation of the contract (sec.......ACL/100 FTA), and damages (sec.......ACL/99 FTA).

VOID CONTRACTS

Restraint of trade

NB. Covenantee = plaintiff seeking to rely on the restraint of trade (covenantor = person subject to the restraint)

1. Does the restraint of trade fall within the ambit of sec 45 ACL

Prima facie, since [Plaintiff company] is a corporation, it has breached sec 45 in making an arrangement/contract substantially lessens competition.

However, sec provides the exceptions to s 45.

2. Is the restraint of trade void at common law?

Clause _____ imposes a restraint on [defendant]’s trade. At common law, all restraints are prima facie void (Nordenfelt v Maxim Nordenfelt)

The presumption will be rebutted and the restraint justified if it is shown to be reasonable both in the interests of the parties and in the interests of the public (Nordenfelt). This is an objective test. The onus is on the covenantee to show that the restraint is reasonable between parties and on the covenantor to show it is unreasonable in the public interest.

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Reasonableness if adjudged as at the time the contract was made, not when the covenantee seeks to enforce the restraint or any other time (Lindner v Murdock’s Garage).

3. Is the restraint reasonable in the interests of the parties?

(a) Does [plaintiff] have a legitimate interest?

The covenantee must have a legitimate interest: (Amoco case)o Sale of business – protect the goodwill of the business: Nordenfelto Employment contract – protect the goodwill of the business (solicitation of

clients/customers) (Peters American Delicacy v Patricia’s Chocolates and Candies); confidential information (secrets of the business/processes/products) (Bacchus Marsh Concentrated Milk v Joseph Nathan)

o Ensuring the stability of an industry/business: Amoco caseo Protecting even competition between teams in a sporting league/association: Buckley v

Tuttyo NOT purchasers of capital equipment: ICT v Sea Containers.

The legitimate interest here is ________.

o NB. Courts tend to take different attitudes to the assessment of the above considerations depending on the type of contract.

Sale of Business: Restrains in contracts for the purchase of a business are construed more liberally than, say, a covenant in a master/servant contract. This is because the covenant allows the purchaser to get full price and the vendor to get full value (Nordenfelt).

Employment contract: Courts normally take a more strict approach to restraints in employment than, for example, business restraints (or in the sale of goods) because often all a person has to sell is his or her labour (Schroeder v Macaulay).

(b) Does the restraint go no further than necessary to protect that interest?

To show that a restraint is reasonable in the interests of the parties, it must go no further than is reasonably necessary to protect the legitimate interests of the covenantee (Amoco case).

When judging whether or not the restraint exceeds that needed to protect the legitimate interest, the factors to be taken into account include:

Duration and geographical area of restraint – if it is a long duration, then the area must be small, and vice versa (Butt v Long)

Activities covered by the restraint – if covers unrelated activities, likely to be unreasonable (Nordenfelt v Maxim Nordenfelt)

Relative bargaining positions of the parties – relevant, but not conclusive whether covenantee (relying on restraint) is in stronger position (A Schroeder Music Publishing Co v Macauley)

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The consideration paid in exchange for the restraint – the more money paid for the restraint, the more reasonable (Nordenfelt v Maxim Nordenfelt)

Context of the contract – for example restraint inserted in partnership agreement by two experienced solicitors (Bridge v Deacons)

Here, __________. Therefore, the balance may be in favour of the restraint being/not being reasonable in the interests of the parties.

4. Is the restraint reasonable in the interests of the public?

In any event, the restraint must also be reasonable in the interests of the public.

IF OF INDEPENDENT SIGNIFICANCE: Public interest often follows private interest, but may have independent significance: Amoco case. That is the case here: regardless of whether it was in the interests of the parties, it could be argued from at least a competition point of view it is not in the interests of the public in a small country town to restrict the number of available lawyers/doctors etc. (whatever is applicable) to only one (or whatever small number it is).

OTHERWISE: Therefore, because the restraint is unreasonable in the interests of the parties, it is therefore contrary to public policy.

5. If the restraint is unreasonable, can the offending clause or part of the clause be severed?

Severance – in an appropriate case, it may be possible to sever the restraint to allow the remaining part of the contract to be enforced (Thomas Brown & Sons v Fazal Deen)o Can you sever part of the clause? (Attwood v Lamont)

Is the clause divisible? The promise must be divisible (Attwood v Lamont) The clause may be divisible according to the activities covered. Also, the clause may

be divisible in terms of duration and area.o Can you sever the whole clause itself? (O’Loughlin v O’Loughlin)

IF CLAUSE INDIVISIBLE: The whole contract will fall with clause [#] unless the clause itself can be severed. To sever the clause it must not be substantially the whole of the consideration. This is/is not the case here. The restraint may/may not therefore be severed from the rest of the contract, which remains/which does not remain on foot.

NB.o Severance must alter the extent only and not the nature of the restraint (McFarlane v

Daniell).o The court will not rewrite the clause, therefore the area or duration of the restraint

cannot be reduced (Attwood v Lamaont).o Clause ____ will have no effect since it amounts to an attempt to abdicate to the court

the responsibility for drafting a valid restraint (Lloyd’s Ships Holdings v Davros)

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7. Conclude what will be recovered under obligation or obligation under each part.

Summary:1. Is the contract divisible?

If divisible, split up into the ‘parts’ and label them as ‘part 1’, ‘part 2’ etc

2. Is the obligation (or each obligation under the divisible part) entire or not entire? Entire – performance must be exact Not entire – performance can be substantial (Hoenig v Isaacs)

3. Exact or substantial or partial performance of the obligations? Exact – contract price payable/cost of division payable

o Complete performance is a condition precedent to payment of contract priceo Benefit expected by defendant results from enjoyment of all of the work jointlyo Consideration is not apportioned nor capable of apportionment (Cutter v Powell)

Exact performance – plaintiff entitled to contract price Substantial – test for substantiality (Bolton v Mahadeva)

o Nature of defecto Cost of rectifying defect compared to contract price

Substantial performance – plaintiff entitled to contract price minus set off Partial performance – cannot claim contract price, only alternative is quantum meruit

4. Is there any other compensation available in restitution? (Quantum meruit)

** Identify any parts that have been only partially performed

3 elements (Pavey & Matthews v Paul)(1) Benefit – has plaintiff provided benefit to defendant?

Services performed requested by plaintiff Services freely accepted (Sumpter v Hedges) Incontrovertible benefit (Steele v Tardiani)

(2) Expense – was the benefit provided at the plaintiff’s expense?(3) Unjust enrichment – is it unjust that the defendant retains the benefit?

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