University of Queensland

Law of Contract B

[Type the document subtitle]

Misrepresentation

Is it incorporated? Importance to parties - Couchman v Hill (pregnant cow) Strength of party position – Dick Bentley v Howard Smith (false information re car mileage) Unlikely to be a term if representor tells representee they must verify truth (reverse Couchman)

Is it a mere puff? Dimmock v Hallet – “fertile and improvable” – too vague Carlil v Carbolic Smoke Ball – “three times daily for two weeks” & bank deposit – not mere puff Mitchell v Valherie – “immaculate style” was mere puff, “perfect presentation nothing to spend” was not

Elements of Misrepresentation

1. False Factual Statement

Must be able to be presently true or false. Courts fearful of extending liability too far. Conduct

o Gordon v Selico – Actively did something to cover up dry rot Opinion

o Smith v Land and House Property Corp – Bowen CJ – when facts are not equally known, a statement of opinion by the party with knowledge is an implied statement that he knows facts justifying his opinion. Desirable tenants case.

o Matters relevant to a determination of whether a statement of opinion is a misrepresentation:- The relative knowledge and position of each parties- The actual words used and meaning conveyed- Whether fraud is established. Did the person giving the opinion have a genuine belief in his or her opinion no

matter how erroneous?o Bisset v Wilkinson – fraudulent if a) on facts reasonable person would not have held opinion or b) it was not actually

held. On the facts it was honestly stated (had no prior experience). Law - Eaglesfield – not actionable unless fraudulent. See also Taylor. Intention

o Edgington v Fitzmaurice – implied factual statement that you hold the intention.o Applied in Ritter.

Silence o Old rule – not actionable – Keates v Earl of Cadogan – caveat emptoro Half-truth

- Dimmock v Hallet – “farms are fully let” was a misrepresentation because one had given notice. Your silence makes a statement which is otherwise true, untrue.

o Becomes false- With v O’Flanagan – Clinic reduced in value between misrepresentation and contract. Duty to make sure

statement is correct. See also Jones v Dumbrell.o Duty to disclose

- Fiduciary relationships (McKenzie v McDonald), insurance contracts, sometimes guarantees.

2. Addressed to misled party

Peek v Gurney – Prospectus was addressed to first-time share purchasers, not purchasers of shares from others. Sufficient that A communicates to X while intending misrepresentation to reach and induce (be acted upon) by B, or a class

(including B), or even public at large (Peek).

3. Material

Would a reasonable person have been influenced by the statement to enter the contract? (Nicholas v Thompson). Filters out trivial cases; does not apply where statement is fraudulent.

4. Inducement

Misrepresentation does not have to be sole reason, just has to be ‘real’ inducement (materially affected decision) (Edgington) Redgrave v Herd – failure to verify accuracy of representation (even if easy) not a bar to claim. No inducement where:

o Unaware of misrepresentation

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o Knowledge of falsity – but, even if knowledge that part of statement is untrue, but does not know extent of falsity, might still be misrepresentation (Gipps v Gipps NSWCA)

o Contracting on a different basis – Holmes v Jones – P became aware of false number of cows but later purchased property on totally different basis as regards stock.

Onus of proofo On representee (Gould).o If statement was by its very nature calculated to induce then there is an evidentiary presumption that you did rely.o May not apply outside fraud cases. Strongest in fraud cases (Smith v Kay per Lord Chelmsford LC).

Types of Misrepresentation

Fraudulent

Action in deceit; scenarios from Derry v Peek:o Making a statement knowing it is falseo Making a statement without believing it is trueo Making a statement recklessly/carelessly as to whether it is true/false (higher standard than negligence).

Krakowski v Eurolynx Properties – Can be fraudulent without evil motive/malice. Inquiry always to subjective state of representor’s mind: question is whether the statement, as its maker believed it would be

understood, conveys a true or false impression (Krakowski; John McGrath Motors).

Negligent

Hedley Byrne v Heller: A person to whom a negligent statement has been made could recover damages in tort if a special relationship existed.

MLC v Evatt – damages available for negligent misrepresentation. Also per Barwick CJ, no need for special skill (rejected PC). Shaddock v Paramatta City Council - Gibbs CJ - a person should be under no duty to take reasonable care that advice or

information which he gives to another is correct, unless he knows, or ought to know that:o the other relies on him to take such reasonable care and may act in reliance on the advice or information which he is

given, and o it would be reasonable for that other person so to rely or act

Innocent

No damages, only rescission. Only where not negligent or fraudulent. Residual.

Excluding liability Can do so, provided the misrepresentation is not fraudulent. If innocent, no issue because cannot get damages. If negligent, could possibly exclude- torts area.

Rescission

Main Rule Structured discretion. Common law – no rescission unless parties can be put back in same position before contract (precise restitutio) Equity – more flexible, sufficient that substantial restitutio is possible. Equity allows for adjustments to be made (Alati v Kruger)

Bars

Affirmation

Coastal Estates v Melevende- if right to elect comes from common law, require both knowledge of facts (which give right to rescind) and knowledge of right to rescind. If right to elect comes from contractual term, only require knowledge of facts which activate term.

Once elected, can’t go back and rescind. Doing nothing? Authorities unclear.

o Paterson- just a fact courts consider.o Carter- Must elect within reasonable time. Governed by whether time period amounts to unequivocal conduct

affirming contract. Period longer for executory contracts.o Leaf v International Galleries- UK case- lapse of time is bar where innocent misrepresentation. Aus position unclear.

Third party rights involves

Law favors innocent third party. Car Financing v Caldwell- no rescission, third party rights prevail.

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Execution of the contract (Rule in Sneddon’s Case)

Wilde v Gibson- where sale of land, and sale has been concluded, rescission will not be allowed unless fraudulent. Does it apply outside land contracts? Authorities unclear.

o Practitioner’s book (O’Sullivan) says rule only applies in cases of land.o Leason v Princes Farms- NSW - only land.o Paterson- one way around rule- where misrepresentation unconscionable, that really is fraud, and rule won’t apply.

Damages Can only be awarded where fraudulent or negligent. General principle- put parties back into original position (tort). Damages designed to reflect difference between price paid and real value, and fix gap. Where tort is deceit, consequential losses can also be recovered- see Professional Services of Australia v Computer Accounting. Do losses need to be reasonably foreseeable?

o Professional Services- as long as linked to deceit, losses could be recovered.o Archer v Brown- gives idea of what consequential losses might include.

Generally easier to recover in deceit once it is proved. Claiming damages in contract and tort?

o If contract affirmed, can claim in either tort or breach (if misrepresentation is a term) but not both.o If contract is rescinded, cannot sue for breach, and cannot sue for damages in tort because that would be double

dipping. But may be able to sue for consequential losses. May be difficult to show that loss was suffered.

Misleading and Deceptive Conduct

Bodies subject Corporations (s 131), natural persons (s 6), persons involved in contravention (s 2)

o Sutton – must have knowledge of essential facts of contravention, cannot be constructive- Crocodile Marketing

Liability for passing on Need to know information is erroneous and be passing it on as one’s own. Compare John G Glass (agent liable; brochure from vendor wrong) and Butcher (reasonable person would believe not source of

information; expressly & impliedly disclaimed liability).

‘In trade or commerce’ Defined broadly in s 2. Not for personal injury claims: Concrete Constructions v Nelson. Does not cover domestic sale of non-business asset: O’Brien. Using commercial techniques insufficient. Houghton v Arms – employees of business, still working in trade/commerce. Bevanere v Lubidineuse – a) sale of capital asset, even though not in normal activities, is sufficient, b) extends to representations

about employees. TCN Channel 9 v Illvariy – can refer to activity of either party. Bond – includes professional activity (note also words in statute).

Is the conduct misleading or deceptive? Are misleading and deceptive the same?

o Henjo – Lockhart J – not synonymous, mislead is wider, deceive involves moral turpitude.o Parkdale – Gibbs CJ – not confined to intentional or negligent conduct.

Being misled means having been led into error (Henjo), and being deceived means being induced to believe a false thing that the other party knows is false (Re London & Globe Financial; Henjo).

Campbell v Backoffice – French CJ – does the conduct viewed as a whole have a tendency to lead a person into error? Consider cause and effect relationship between conduct and state of mind of relevant person or class of persons.

Downey v Carlson (referring to Butcher and Campomar) – what a reasonable person in the position of the [representee], taking into account what they know, would make of the [representor’s] behavior.

Individual

Butcher v Lachlan Elder Realty – consider:o Conduct as a whole (was a disclaimer)o Nature of representee (P was shrewd, intelligent and self-reliant)

Disclaimer not absolute; a factor to be considered.

Public at large

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Campomar v Nike – audience were ordinary and reasonable members of the public who are prospective purchasers.

Issues

Silence

Henjo follows common law. Demagogue v Ramensky – is there a reasonable expectation of disclosure? Miller v BMW – no reasonable expectation because know of matter likely to be important to other. Consider nature of parties. Particular facts must be considered in light of ordinary incidents and character of commercial behavior (General Newspapers).

Accidental silence

Section 2(2) speaks of “refraining (otherwise than inadvertently)”. Does it need to be deliberate? Authorities unclear. Fraser, Johnson Tiles, Fabcot suggest misleading/deceptive even if didn’t know of facts not disclosed. Rhone-Poulenc – has to be deliberate.

Mere puff/exaggerated claims

Byers v Dorothea – comparison with other apartments not too vague. Where correctness can be sensibly objectively tested, it is more likely to be viewed as M/D if inaccurate (Byers; Downey). Judicial caution against overly broad liability (General Newspapers).

Statement as to future

Special rules in s 4 ACL. See LG for examples. What is a representation as to the future?

o Miba v Nescor – accepted that it was a statement as to the present belief of what takings would be. Accepted. Narrow?o Digi Tech v Brand – Miba seemed narrow. May be a current factual element but its probably a forecast.

Promises

Mere non-fulfillment of a promise is not misleading or deceptive. Futuretronics v Ghadzis – contract unenforceable (formality issue). Per ACL s 4 inquiry no longer limited to considering implied

representations about intention and ability to perform. Inquire whether at the relevant time the promisor had reasonable grounds for making the implicit representation that he/she intends to perform.

Concrete Constructions v Litevale – representation as to capacity far more difficult. Before applying s 4 court must determine whether a representation has been made and exercise restraint since promise may have relied on nothing more than contractual rights from promise. Expansive approach to “reasonable grounds.”

Opinion

Merely stating an opinion not misleading or deceptive (cf Henjo, rejected in Johnson and Johnson Pacific). Global Sportsman v Mirror – possible to argue implied statement of fact that I hold the opinion and it is based on fact.

Belief

Could be an implied representation that your belief is based on reasonable foundations. Havyn v Webster – paced out size of apartment. Actionable.

Law

Inn Leisure Industries Pty Ltd v. DF McCloy Pty Ltd - Can be misleading when the person making the statement holds himself as having expertise.

Plaintiffs who fail to take care

Gibbs CJ in Parkdale suggested legislation shouldn’t protect those who fail to take reasonable care of their own interests. Suncoast Pastoral v Coburg – Applegarth J suggests it isn’t strong authority- only has support of Gummow J in Reeves. Purpose

of Act was to protect imprudent as well as prudent, trusting as well as the suspicious. O’Hagan v Classic Cars – found liability despite extreme failure to take care. Accepted: could break chain of causation in theory.

Remedies Section 232: Injunctions. Section 236: Damages. Debate about how assessed. Not limited to pecuniary losses. No exemplary. Gates v City Mutual Life – torts measure. Moving towards wider notion in Marks v GIO. Murphy v Overton – allowed recovery of continuing financial obligation that D incurred under lease. Expectation loss. Jamieson v Westpac per Jackson J – no other authority, ACL about correcting wrong, expectation measure overcompensates. Can get damages for loss of opportunity under s 236: Sellars v Adelaide Petroleum. Section 237 allows various orders including those listed in s 243. Section 137B – where economic loss/damage to property, court can make reduction under s 236 for P’s own fault.

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Disclaimers/exclusion/acknowledgment clauses

Fair Trading Act 1989 (Qld) s 107 – Act has effect despite any contrary clause. Recall disclaimer in Butler – look at in context of relationship and course of conduct. Acknowledgment clauses – Campbell – work in theory but depends on facts. Courts reluctant to allow use.

Duress

Elements Universe Tankships v ITWF per Lord Scarman:

o 1) Pressure amounting to compulsion of the will of the victim (rejected by McHugh JA in Crescendo citing DPP v Lynch).o 2) Illegitimacy of pressure asserted.

Modern formulation:o 1) Pressure that is illegitimate.o 2) Pressure that causes the plaintiff to enter the contract.

Duress to the Person Actual violence/threat of violence to a person or close relative is illegitimate pressure: Barton v Armstrong. Illegitimate pressure includes a threat to prosecute someone for a crime: Mutual Finance v John Whetton. Not enough if amount actually owed and valid consideration; have to show additional impropriety: Scolio. Duress only needs to be a cause of the contract: Barton v Armstrong.

Duress to Goods Can recover goods as well as money paid to prevent unlawful seizure or to obtain release (in restitution): Astley v Reynolds. Can be used to avoid contract (Siboen overruling Skeate); threat need not be express, reasonable belief enough: Hawker Pacific. Needs to be a cause.

Economic Duress Two situations:

o 1) P has made payment under ED in absence of contract or contract without consideration (unjust enrichment)o 2) Contractual modification

Payments

Smith v William Charlick – recognized possibility but was no illegitimate pressure. Cf White Rose Flour Milling – threatened to not supply in breach of contract- ED. TA Sundell v Yannoulatos – Money can be recovered.

Contractual modification

Siboen & Sibotre – economic duress can be used to rescind, not just recover payments. Same result in Pao On v Lau Yiu Long.

When is there economic duress/commercial pressure?

Crescendo per McHugh J:o 1) Did pressure applied induce victim to enter contract or modify existing one?o 2) Did pressure go beyond what law prepared to countenance as legitimate?

Does pressure have to be unlawful? Or is illegitimate pressure wider? Threatening to breach contract is unlawful (Furphy v Nixon) but may not be if done in good faith (Mitchell per Keane JA). Kirby P in Equiticorp – scrap duress and deal with under other doctrines. Karam – NSWCA limited duress to threatened or actual unlawful conduct. Woodside – Murphy J limited it to conduct unlawful/wrongful according to some external legal standard. McLure P (Newnes JA

agreeing) – if actual/threatened unlawful conduct, prima facie illegitimate. If lawful conduct, maybe illegitimate if no reasonable/justifiable connection between pressure applied and demand. HC decided on other grounds.

Mitchell v Pacific Dawn – Keane JA – duress and unconscionable conduct are distinct doctrines.

Protest

McHugh JA in Crescendo – non-definitive factor. Windeyer J in Mason v NSW – relevant to whether acted freely/under compulsion; non-conclusive factor.

Commercial Pressure

Siboen & Sibotre (1976)– asked to reduce charter cost; charter market particularly bad. Mere commercial pressure. Atlas v Kafco (1989)– A underquoted price. Asked for more or wouldn’t deliver. Christmas time. Found economic duress.

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Reconciling them?o Timing – courts have become more willing to find ED.o Charter market’s bad state may have been an important factor.o In Siboen they asked for less. In Atlas they asked for more; owner had to pay because was 80% of business.

Causal Link

McHugh JA in Crescendo cited Barton and said a cause. Burchett J (FI) in News v Aust Rugby Football League cited Lord Goff in Evia Luck and said significant cause (preferable).

Remedies

Rescission

Standard. But, if pressure subsequently lifted and contract affirmed, not available (Atlantic Baron). Payments under contract recoverable, otherwise - restitution.

Restitution

Not available until after the contract has been rescinded: Evia Luck.

Damages

Universe Tankships – preferable view is Lord Diplock- damages not available unless pressure is also a tort. ACL s 20(1) – unconscionable conduct within meaning of common law. ACL s 50- physical force/undue harassment/coercion with supply/payment of goods/services or land interest. Excite Mobile – fell under both provisions.

Undue Influence

What is it? Never been defined (Allcard v Skinner per Lindley LJ). If defined, people will avoid it (Chesterfield v Jannsen per Lord Hardwick). Allcard per Lindley LJ: “some unfair and improper conduct, some coercion from outside, some overreaching, some form of

cheating and generally, though not always, some personal advantage obtained by a donee placed in some close and confidential relation to the donor.”

Johnson v Buttress per Dixon J: “unconscientious use of any special capacity or opportunity that may exist or arise of affecting the alienor’s will or freedom of judgment in reference to such a matter.”

Influence itself is not per se objectionable: Allcard per Kekewich J. Balance between autonomy and protection by court (see Kakavas). Court won’t help you get out of a bad bargain. But not necessary to show loss of autonomy: Tufton v Sperni.

Categories See Lord Nicholls in Royal Bank of Scotland v Etridge (No 2). Johnson per Latham CJ:

o 1) Actual undue influenceo 2) Presumed undue influence (then have to rebut)

From recognized categories Relationship of influence

Actual Undue Influence Bank of Credit and Commerce International SA v Abody per Slade LJ: Person relying on actual undue influence must show that:

o 1. other party (or someone who induced the transaction for his own benefit) had the capacity to influenceo 2. the influence was exercisedo 3. its exercise was undueo 4. its exercise brought about the transaction.

Eg Williams v Bayley – threat of prosecution of son for forgery. Would have been different if father had gotten legal advice. Actual undue influence can happen in a marriage: Farmer’s Co-operative Executors v Perks (SA).

Presumed Undue Influence

Special relationship

1. parent and child (Bainbridge v. Browne); 2. guardian and ward (Powell v. Powell); 3. solicitor and client (Westmelton (Vic) Pty Ltd v. Archer and Shulman);

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4. trustee and beneficiary (Wheeler v. Sargeant); 5. doctor and patient (Dent v. Bennett); 6. religious adviser and advisee (Allcard v. Skinner; Hartigan v. International Society for Krishna Consciousness Incorporated). Not between spouses (Yerkey v Jones). The categories are not closed: Louth v Diprose.

Relationship of influence

Johnson v Buttress - where relationship of influence shown, burden on other party to show that no influence on contract. Lloyds Bank v Bundy - CA presumed undue influence and bank were unable to show that the transaction was not the product of

undue influence. o Denning set aside on inequality of bargaining power- now rejected.o Majority said that while he had independent advice, that was a factor.

Shows presumption can arise on any facts, and secondly on once-off transactions (see also Tufton v Sperni).

Disadvantageous

English case law (Morgan, Pitt, Etridge)- show transaction manifestly disadvantageous in cases of presumed undue influence. Australian position unclear, but unlikely Dixon CJ omitted to mention this in Johnson v Buttress. Barburin v Barburin- QSC- there is no requirement of manifest disadvantage. Cf one judge in Farmers’ Co-operative. Watkins v Combes - only Isaacs J says it is required.

Rebutting the presumption

Westmelon v Archer & Schulman - VSC- there is no set rule; depends on facts. Acknowledged independent legal advice relevant. Badman v Drake - D befriended old woman; she bought house for him. D failed to rebut presumption. Acknowledged that things

might have been different if there had been safeguards.

Third Party Transactions P (wife) is guarantor of third party’s debts (husband), seeking to get transaction set aside against D (bank) because of improper

conduct by third party: Yerkey v Jones. Reaffirmed and applied by the HCA in Garcia v NAB. Yerkey principle does not require creditor to have notice of husband-wife unconscionable dealing. Two arms of Yerkey doctrine. Will be unconscionable to enforce such a contract where:

o 1. Actual undue influence by husband- nothing but independent legal advice will suffice here.o 2. Wife fails to understand the purport and effect of the transaction- the creditor needs to take steps to explain the

transaction to her, or has discovered that a stranger (competent, independent and disinterested) has done this. In the second type of case, what makes it unconscionable is the combination of circumstances that:

o (a) in fact the surety did not understand the purport and effect of the transaction;o (b) the transaction was voluntary (surety obtained no gain from contract the performance of which was guaranteed);o (c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her

husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet

o (d) lender did not itself take steps to explain transaction to the wife or find out that a stranger had explained it to her. HC stressed rule was not based on notions of female subservience, but on relationship of real trust and confidence between

spouses. Expressly left open question of whether doctrine could apply in reverse/same-sex relationships. Kirby J unhappy. Alirezai - per McMurdo P: Not a closed category. Could potentially arise for parent-child, disabled-carer, others. In England- Royal Bank of Scotland - treated as undue influence.

Unconscionable Dealing

Difference from Undue Influence Amadio per Deane J: UI (like duress) looks to quality of consent/assent of weaker party; UD looks to conduct of stronger party in

attempting to enforce/retain benefit of a dealing with person under a special disability where it is unconscionable to do so.

Development Blomley v Ryan (leading authority before Amadio) – cheap sale of land by alcoholic while buyer supplying alcohol.

o HC said undervalue is not enough.o Fullagar J- special disadvantage- poverty, need, sickness, age, sex, infirmity of body/mind, drunkenness, illiteracy/lack

of education, lack of assistance/explanation where necessary. o Does not appear necessary that party at disadvantage should suffer loss or detriment by the bargain.

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Amadio per Mason J - the categories are not closed. Berbatis - mere inequality of bargaining power is not a special disadvantage.

Elements Essentially five elements:

o 1. Party seeking relief must at time of entering into transaction suffer from a special disability vis-a-vis the other party;o 2. The special disability must seriously affect the party’s capacity to judge or protect their own interests;o 3. The other party must know of the special disability;o 4. That party must take advantage of the opportunity presented by the disability; ando 5. The taking of advantage must be unconscionable.

If these elements are established there is a presumption that the transaction was unconscionable. Can be rebutted by showing either steps were taken which negative the special disability or the unconscientious taking of

advantage (eg the receipt of independent advice), OR that the transaction was otherwise fair, just and reasonable. CBA v Amadio - elderly Italian migrants (no English, no independent advice) guarantee debts of son for mistaken amount (bank

knew son was in financial trouble). Bank knew of disadvantage. o Was unable to show that there had been no taking advantage (ie parents had had advice) or that transaction was

otherwise fair, just and reasonable. Louth v Diprose - HCA extended doctrine to emotional dependency. Bridgewater v Leahey - Farmer made a will, but sold land to nephew at undervalue. He was compos mentis and did this to have

the business carry on. Was an astute businessman and had taken legal advice. Held unconscionable transaction. Kakavas v Crown Melbourne - Property developer with gambling problem. HC stressed autonomy of parties. Say he was in

control, didn’t suffer disability of the relevant kind. Have to have actual knowledge of disability. o Had been suggested in obiter in Amadio that constructive knowledge was enough- not anymore.o Implicitly acknowledged that HC went too far in Louth.

Statute Section 20- unconscionable conduct within the meaning of the unwritten law. Section 21- unconscionable conduct in connection with goods or services (not limited to common law). In trade/commerce. Section 22- matters the court may have regard to for the purposes of section 21.

Remedies Rescission Statutory remedies

Performance and Agreement

Discharge A contract is discharged by:

o Exact performance as per the contract unless… Law does not concern itself with minor issues – Shipton Anderson v Weil Intention of parties shows substantial performance sufficient – Luna Park

o Agreement o Breach o Frustration

Method of performance Performance should not have to be demanded – MS Fashions v BCCI

Alternative methods of performance

If not specified, the performer can choose how to perform – Reed v Kilburn Co-operative Society per Blackburn J

Vicarious performance

Vicarious performance is permitted unless:o Stated within the termso Element of personal skill or expertise or personal confidence – Bruce v Tyley

Reasonable person test applicable in deciding this – British Waggon Co v Lea Court may imply term that performance is to be personal: “exercise every care” inconsistent with vicarious performance –

Davies v Collins

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Variation of performance

Variation of performance must be supported by consideration and is a matter of intention – Tallerman v Nathans per Kitto J Keep in mind Williams v Roffey and economic duress.

Order of performance

Condition precedent

Performance by A is a condition precedent to the liability of B.

Concurrent conditions

Performance by A and B is to take place at the same time. See SOGA s 30 regarding delivery of goods and payment.

Independent promises

Each party can enforce their promise even though they have not performed their own. Courts reluctant to classify promises as independent unless their intentions are very clear: Kingston v Preston. Disincentives performance and destroys the traditional reciprocity of contract.

Time of performance If not stated then implied reasonable time per circumstances – Perri v Coolangatta Invest per Wilson J. To be determined at time performance is alleged to be due rather than at the moment of contractual formation.

Duty to co-operate Parties implicitly agree to do all necessary to allow each other to enjoy the benefit of the contract – Secure Income Real Estate v

St Martins Investments per Mason J. Also ACT Cross Country Club v Cudy; Peters v Petersville. Expectation v Pinnacle VRB - “if performance of the contract is conditional on some event which is to any degree within the

control of a party, that party must co-operate reasonably in bringing it about. Failure to co-operate in that way will generally disqualify the defaulting party from relying upon the non-fulfilment of the condition, or, to put it differently (as is sometimes done), courts will, in such cases, treat the condition as having been satisfied.“

“If non-compliance with a contractual obligation is to take away the defaulting party’s right to terminate, there must be a direct causal relationship between that non-compliance and the failure to complete the contract, with the onus of proof lying upon the non-defaulting party.”

Good faith (broader than duty to cooperate) Can imply good faith term – Burger King v Hungry Jacks Unsure if to imply into all or just commercial contracts – Vodafone v Mobile Innovations Some judges are cautious- Trans Petroleum Australia v White Gum Petroleum - “The court should be cautious about implying a

term which the parties have not agreed to in circumstances where the parties have expressly provided for termination for cause, but have chosen to express the term of the agreement as terminable on notice and without cause.“

Courts should be careful about intruding into commercial dealings – GSA Group v Siebe HCA did not comment. Kirby J unhappy - Royal Botanic Gardens v South Sydney Council

Promise to negotiate in good faith Promise to negotiate in good faith deemed unenforceable (pre-contractual) – Walford v Miles But Coal Cliff Colieries

Performance provisions under ACL Performance provisions under ss 20-22 ACL. Cannot breach these.

Entire and severable obligations Entire obligation means that the entirety of the obligation must be performed before the consideration of the other party

can be demanded – Baltic Shipping v Dillon. Useful - whether complete performance is condition precedent to liability.o Phillips v Ellingson Brothers – where a contract is entire, complete performance is required.

Severable obligation chopped wood right and wrong size got paid for the correctly chopped wood because considered a severable obligation – Steele v Tardiani. Matter of interpretation.

Partial performance sailor died halfway through journey and claim successfully rejected because he hadn’t finished journey – Cutter v Powell

Doctrine of substantial performance To mitigate harshness of entire contract rule.

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Promisee still liable to pay contract price; damages are set off in an award of the contract price. Hoenig v Issacs per Cairns LJ - furniture defective in flat redecoration but held substantially performed so simply adjusted price.

o Performance substantial unless failure goes to root of contract. Bolton v Mahadeva - given amount of defects and significant cost of remedying water system, could not be said that P had

substantially performed.o Apparent restriction of doctrine to situations where small expenditure can remedy error.

Inconsistency?

Part performance Part performance (rather than exact or substantial) is not entitled to recover contract price. Sumpter v Hedges – house abandoned after foundations and walls put up. Connor v Stainton – fence posts wrong distance apart. Droppers could have fixed it. Not for D to decide this.

Agreement to terminate Term in the original contract

o Crawford Fitting v Sydney Valve & Fitting - whether a commercial agreement for an indefinite period may be terminated depends upon whether the agreement properly construed contains an implied term to that effect.

o Check subject matter of agreement, circumstances in which it was made and the things that parties had or had not agreed on.

o Was said that the courts have a presumption against implying termination agreement, but, particularly where the parties were commercial, the courts were allowed to imply that the contract should be brought to an end on notice otherwise it would continue forever.

o Pan Foods v Australia and New Zealand Banking Group Subsequent separate contract agreement – McDermott v Black

Abandonment Lapse of time is not enough. Construe the contractual subject matter and the circumstances of the parties behaviour to

determine intention – Fitzgerald v Masters – nothing for 16 years, but if abandoned seller could keep money and house. No termination because followed false procedure. Subsequently nobody did anything. Intention to terminate clear from both

parties behaviour – DTR Nominees v Mona Homes

Discharge for Breach

Right to terminate The right to terminate arises from:

o 1. conferred by the contracto 2. conferred by law (implied right to terminate)

(a) common law (we focus on this one) (b) statute

Three situations where the right will be implied (right conferred by law):o 1. breach of a conditiono 2. sufficiently serious breach of an intermediate termo 3. an absence of readiness or willingness to perform constituting a repudiation or capable of being treated as an

anticipatory breach of contract (we consider this in the next topic) Nature of the term determines remedy

o Breach of a condition (even trivial: Shevill) damages (up to point, and beyond for loss of bargain) and terminationo Breach of a warranty damages (up to point only: Ellul v Oakes).o Breach of an innominate or intermediate term (Hong Kong Fir) depends on the seriousness of the breach.

What is breach? Two types of breach, depending on when the breach happens:

o 1. Failure to perform after the time for performance has expired.o 2. An anticipatory breach prior to the time for performance falling due.

Liability generally strict, except where express/implied term says you must perform with due care/skill/diligence (ACL ss 60-1).

What is termination? Photo Production v Securicor Transport per Diplock LJ- termination means that:

o 1. Innocent party is relieved from his obligation as to further performance.

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o 2. Guilty party’s obligations/right to further performance also ended. Replaced by a secondary obligation to pay money to the innocent party in compensation for loss resulting from failure to perform the primary obligations.

Termination is not automatic. Election is required. Self-help remedy (don’t have to go to court unless challenged by guilty party). First consider whether express contractual term/right to terminate for breach (eg if drafted as “any breach”). Le Qureshi - QDC- QLS standard form contract for sale of land- seller may affirm/terminate if buyer fails to comply with anything.

Classification of conditions Two main ways to classify them.

o 1. Is breach of the term likely to cause serious loss/detriment to promisee? If every breach likely to be serious, then generally a condition (Wallis v Pratt).

Even if non-serious breach, may still be a condition if the parties have accounted the breach a serious matter, either by express agreement or by implied agreement that the term is to be so treated.

o 2. Distinguishes cases in which precise or literal compliance with the term is essential from cases in which substantial performance is essential.

Luna Park per Jordan CJ: “ If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight. If he contracted in reliance upon a substantial performance of the promise, a substantial breach will ordinarily justify a discharge.“

Second class should be referred to as intermediate terms post- Honk Kong Fir.

Express agreement

Luna Park v Tramways – Latham/Rich/McTiernan - condition because the word guarantee was used. Emphasized natural meaning of word. Dixon - Too narrow to place weight on grammatical construction. Need to look at wider context. Consider context of clause, consider weight placed on it. A matter of intention.

Schuler v Wickman - Label of condition is an important factor, but not determinative. Here treating it as a condition would be unreasonable. Where label means the result will be unreasonable and disproportionate, more likely that parties cannot have intended it.

o Mere use of word ‘condition’ not enough because of its inherent ambiguity.o One surefire way to classify a term as a condition by express agreement is contractual right to terminate.

Implied agreement

Parol evidence rule applies. Cannot negotiations, seriousness of established breach, or how the parties have treated the term. Prior decisions (classification by courts) If standard form contracts, presumption that parties agreed to previous interpretation. If term not precisely the same, courts still follow previous interpretations in the interests of consistency and uniformity. The Mihalis Angelos - Denning - clause stipulated readiness in a charter party - condition because all cases said clauses like this

are a condition. Everyone contracts on this basis. Ankar v National Westminster Finance - term in a surety contract always seen as a condition in previous cases. Motivation for entry into contract Luna per Jordan CJ: “The test of essentiality is whether it appears from the general nature of the contract considered as a whole,

or from some particular term or terms, 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 a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor. . . “

Approved and applied by HCA in Associated Newspapers v Bancks - No ordinary employee; importance to the artist that his work was not ‘mutilated’; parties regarded the term as essential, and therefore it was a condition.

Because prior negotiations not admissible, Jordan CJ’s test is therefore objective. Structure of term and contract If clear and precise words, more likely to be a condition. See eg Luna. Term must be construed as a whole, and won’t be condition if right to terminate for any breach inconsistent with its express

permission to terminate in defined circumstances (DTR Nominees). Contract has to be construed as a whole; Schuler - another provision allowed termination for material breach. Interrelationship between the obligations of the parties; in Bancks, B’s obligation to furnish a drawing was a condition, and

because of the direct link the obligation to publish, that was a condition too. Likely consequences of breach Bettini v Gye - whether term goes to the root of the matter, on the basis that a failure to perform it would render performance

of the rest of the contract by the plaintiff a thing different in substance from what the defendant has stipulated for.

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Hong King Fir - Diplock LJ- term will be a condition if it can be said that every breach of the term will give rise to an event which will deprive the party not in default of substantially the whole benefit of contract.

The Hansa Nord - where the term can be breached trivially, it is unlikely to be a condition. Assessment of damages and reasonableness of result If damages would be an adequate remedy this indicates that the term was not intended to be a condition (Friedlander). If damages is not adequate (ie difficulty in assessing them), indication that term intended to be a condition (Ankar). Where construing the term as a condition would achieve an unreasonable result the court will presume that the parties did not

intend that construction to be placed on the contract (Schuler, Hong Kong Fir). Subject to contrary intention.

Classification by statute

SOGA s 3(1)- definition of warranty s 14- when condition to be treated as warranty s 54- remedy for breach of warranty

Intermediate terms Hong Kong Fir - term regarding seaworthiness; not a condition in the past; could be breached in very trivial ways. Recognized a

third residual category of terms: innominate/intermediate. If breach deprived the innocent party of substantially the whole benefit which he should obtain, then he could terminate (Diplock LJ). Accepted in subsequent HoL authorities.

Koompahtoo v Sanpine - HC unequivocal recognition of innominate terms in 2007. Kirby J dissents. If term not intended to be a condition presumed to be intermediate in character, unless intention that warranty (Hansa Nord). Bunge v Tradax - Stresses residual nature of the term. Scarman LJ thinks the category creates uncertainty.

Express agreement

Classification may be by express agreement, even where parties have used other terminology such as material/serious breach.

Implied agreement

1) on the basis of the presumption above; 2) because of an exclusion clause restricting the right to terminate to specific types of breaches; 3) because the parties have not expressed an intention to depart from the construction previously adopted in a standard form

contract.

Degree of seriousness required

Express provisiono Strictly speaking, this becomes an express contractual right, rather than an implied right (conferred by law).

Criterion at common lawo 1. Seriousness of the breach depends not only on the breach itself but also on the consequences of the breach, both

actual and foreseeable, for the promisee.o Actual consequences

Promisee must establish deprivation of substantially the whole benefit of the contract (Hong Kong Fir). The Hansa Nord - Orange rind case. Damaged and sold to third party. CA held seller’s breach not sufficiently

serious. Diminution of value could be explained, not only because of breach, but also because the market price of sound goods had fallen, and the goods had been resold in suspicious circumstances, for less than their true value. Also could still be used as cattle feed (not substantially different from intended: animal feed).

o Foreseeable consequences Can rely on this and actual consequences. Any foreseeable consequences relied on must have been reasonably

foreseeable at the time of termination.o 2. It is the effect of the breach on the contract as a whole which matters: due to the promisor’s breach the

performance of the contract must be substantially different from that intended by the parties.o 3. The assessment of the consequences of the breach is essential a factual matter on which opinions are likely to differ.o 4. In commercial contracts at least, the degree of seriousness required is the same as that applied under the doctrine of

frustration. Because the ‘frustrating’ event is caused by the promisor’s breach, (1) the promisor is liable in damages and (2) the contract is not automatically discharged.

Repudiation and anticipatory breach

Terminology

Repudiation

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(1) Repudiation has traditionally been used to mean conduct which evinces an unwillingness or an inability to render substantial performance of the contract (in other words, conduct which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party’s obligations).

o The HCA in Koompahtoo suggested the use of new terminology, in which this is known as renunciation. (2) The second sense in which repudiation has been used is in the sense of a repudiatory breach, which is any breach which

justifies termination by the other party (on the basis that any such breach may be treated by the promisee as a repudiation of the whole contract). This is the meaning the HCA preferred to leave for repudiation in Koompahtoo.

o Can terminate and claim damages OR affirm and claim damages.

Anticipatory breach

Absence of readiness or willingness (or inability) preceding the time at which performance is due, which can be treated as a ground for termination by the promisee.

A repudiation which precedes the time of performance may be accepted by the promisee as an anticipatory breach. For an anticipatory breach to occur the promisee must terminate the performance of the contract.

Election to terminate Active act by which innocent party must unequivocally signal acceptance of the breach or elect to affirm the contract. If they do nothing one way or the other, the law will treat the contract as affirmed by default. Consequences discussed in McDonald v Denny Lascelles and Securicor. (see below) Where election to terminate, both parties are discharged from future performance, but accrued rights remain.

Conduct

Vitol v Norelf - Buyers sent sellers telex rejecting the cargo because they said it wouldn’t be loaded in time (but then was).o Was the failure to perform the contract on the part of the innocent party equal to an election?- HoL said yes.

Reasons

Party electing to terminate need not put forward real reasons for electing to terminate, provided there are good reasons. May rely on any good ground for electing to terminate even if not aware of it when they elected (Shepherd v Felt and Textiles).

Early termination

Can you terminate early if it is clear that performance won’t happen? The Mihalis Angelos - terminated early on basis that ship would not be ready by prescribed date. Could cancel early.

Timing

The innocent party is not bound to elect at once but runs the risk of affirming if they do not. Stoczia Gdanska v Latvian Shipping Company (No. 2) - Rix LJ - Innocent party has a period of time to make up their mind. If he

does nothing for too long, there may come a time when the law will treat him as having affirmed.o If he maintains the contract in being for the moment, while reserving his right to treat it as repudiated if his contract

partner persists in his repudiation, then he has not yet elected.o As long as the contract remains alive, the innocent party runs the risk that a merely anticipatory repudiatory breach,

can be overtaken by another event which prejudices the innocent party’s rights under the contract such as frustration or even his own breach.

o He also runs the risk that the party in breach will resume performance and thus end any continuing right in the innocent party to elect to accept the former repudiation as terminating the contract.

An election once made is final: Ogle v Comboyuro Investments per Barwick CJ.

Right to terminate lost

Affirmation

Innocent party indicates to the other party that they are affirming OR does nothing, then that is a final election to affirm.

Not ready and willing to perform

If innocent party is themselves in breach of contract, then as a general rule that does not preclude them from electing to terminate except where the innocent party’s breach would give the other party a right to terminate.

Foran v Wright - Could purchaser of land terminate following statement by vendor that they would be unable to complete the contract on time (which was a condition) because they couldn’t register for a right of way over the land.

o Party wishing to terminate must themselves be ready and willing to perform the contract.o On the facts, P gave up trying to find finance on basis of vendor’s statement. Deane and Dawson (estoppel), Gaudron

(waiver).

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Estoppel

Where innocent party by words/conduct leads party in breach to believe that contract will not be terminated and they rely. Suspends rights rather than terminating them; can bring it to an end with reasonable notice. Too long affirmation?

Relief against forfeiture

As a result of the breach, party in breach loses (by virtue of termination) a proprietary/property or possessory right, then relief against forfeiture may be granted.

Typically occurs in the context of leasehold covenants, where a court may grant extra time to perform. Restricts a landlord’s right to forfeit the a lease for breach of the covenant.

It is clear that courts are disinclined to grant relief where the parties are commercial parties: The Scrap Trade. Legione v Hateley - if termination were allowed, purchaser would lose their interest in the land. HC said where time is of the

essence, granting relief against forfeiture will be exceptional; on the facts, however, it is appropriate. o It was significant that payments were by installments and during the time the purchaser was paying these, they had

built a house. The value of the land had increased.o Relief could only be granted where there was an interest. Other factors listed by Mason and Deane JJ:

1. Whether the conduct of the vendor contributed to the purchaser’s breach. 2. Whether the breach was trivial or slight and inadvertent and not wilful. 3. Would damage or adverse consequences follow to the vendor as a result of the purchaser’s breach. 4. What was the magnitude of the purchaser’s loss and vendor’s gain if the forfeiture was allowed to stand. 5. Was the vendor sufficiently protected by an order for specific performance with or without compensation.

Relief against unconscionable termination

Stern v McArthur - sale of land, payment in installments, vendor entitled to some profits, and any fault by the purchasers of any installment entitled vendor to whole contract price, and if that whole price remained unpaid, the vendor was entitled to terminate. Marriage broke down later, husband stops paying without wife’s knowledge. She tries to make up for it when she realises, but the vendor demands payment of entire price, and then terminates as she cannot pay.

o Relief against forfeiture granted by majority (Mason and Brennan dissenting) as it would be unconscionable to rely on that legal right to terminate.

o Deane and Dawson JJ said that to rely on the right was unconscionable because of the nature of the arrangement. Gaudron J said it wasn’t necessary for the vendor to bring the contract to an end to get what they wanted (money) because they could simply have gotten a court order to get the installments paid.

Election to Affirm Sargent v ASL Developments - Mason CJ- It is a requirement that you know the other party is in breach, but you do not need to

know that you have a legal right to terminate. Rule was also applied in Khoury v GIO NSW and Tropical Traders v Goonan. Electing to affirm is final: Sargent.

Right to Affirm Barred Australian position not clear. White and Carter v McGregor - D changed mind later in the day. Renunciated. Is a breach sufficient to allow termination. HoL

said they could affirm (no obligation to accept D’s breach). But exceptions mentioned by Lord Reid:o 1. Where the innocent party cannot continue his performance without cooperation of party in breach.o 2. Where can show innocent party has no legitimate interest of any kind (financial or otherwise) in performing contract,

he ought not be allowed to saddle the other party with an additional burden with no benefit at all. The Alaskan Trader - Ship chartered by P to D for 24 months; needed repairs after a year; D said they had no further use for ship

but P insisted charter continue. P acted wholly unreasonably in refusing to accept D’s breach.

Consequences of electing to terminate Neither party has to perform the remaining obligations AND the innocent party can receive damages for loss of their bargain for

past breaches damages for unperformed future obligations. What about rights arising prior to termination? McDonald v Denny Lascelles - Sale of land by installments. Vendor terminates. Installments that fall due after termination are

not payable. Those already paid? HC distinguished between installments and deposits. Installments relate to the contract as a whole, and therefore can be recovered. Deposits cannot be recovered.

Baltic Shipping v Dillon - P tried to recover in a restitutionary claim the ticket price on the basis of failure of consideration. HC rejected because the contract had been partly performed.

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Consequences of electing to affirm Peter Turnbull v Mundus Trading- Contract continues; both parties required to perform obligations. Slight exception where innocent party is not liable to keep performing, where, although they have affirmed, the other party

intimates that performance would be futile.

Renunciation and anticipatory breach Renunciation occurs where one party by words or conduct evidences an intention not to perform part or all of the contract prior

to the time that performance is due (the old terminology knows this as repudiation). There are two ways of establishing repudiation:

o 1. by reference to the promisor’s words and conduct; ando 2. by reference to the promisor’s actual position.

In each case the promisee must establish that the absence of readiness or willingness is, or will be, a serious matter. Either:o 1. that the absence of readiness or willingness relied on extends to all the promisor’s obligations; or

May be an issue with the bona fides of the promisor.o 2. that it clearly indicates that promisor will breach the contract in a way which gives rise to right to terminate.

Renunciation based on words or conduct

Express renunciation (express refusal to perform) o Occurs when there is a refusal to perform all of the contract.o Hochster v De La Tour - D wrote to P before services due and told him he was no longer needed; this was an express

renunciation that went through the whole of the contract. Plaintiff accepted repudiation anticipatory breacho A renunciation may arise in less extreme cases (ie renunciation of part of the contract), provided that the requirement

of seriousness (see above) is satisfied.o In such a case there can be repudiation even if there is no express refusal to perform a particular term.

Implied refusal to perform o Can infer from promisor’s words or conduct.o Whether the acts or conduct. . . amount to an intimation of an intention to abandon and altogether to refuse

performance of the contract (Freeth v Burr per Coleridge CJ).o Bancks - newspaper not printing the cartoon on the front page was conduct that was equivalent to an express

renunciation.o Followed by HC in Carr v Berriman and Larinda v Capalaba Park Shopping Centre.o In Capalaba it was said that the conduct by itself wasn’t sufficient, but it was sufficient because it was combined with a

notice to perform. Erroneous construction of the contract

o Where a promisor adopts an erroneous construction of the contract a repudiation (renunciation) may occur if the promisor acts on the construction by breaching one or more terms, or by evincing an intention to perform only in accordance with his or her construction.

Wrongful termination o General rule: wrongful termination of the performance of a contract constitutes a repudiation.

Renunciation based on inability

Declared inability and disabling conduct o Promisor expressly declares that it is unable to perform all contractual obligations.o Can be inferred from conduct if the only reasonable inference from the promisor’s words or conduct is an inability to

perform the contract (Universal Cargo Carriers).o Not necessary to show as a matter of fact that the defendant was unable to perform.o The seriousness requirement may be satisfied because the words or conduct relate to all (or substantially all)

obligations. However, the words or conduct need not go that far.o Foran v Wright - vendors told purchasers they would be unable to settle on time. This was a repudiation (renunciation)

by the vendors because time was of the essence. Factual inability

o Necessary to show that the defendant was as a matter of fact unable to perform (Bowdell v Parsons).o Must prove promisor was wholly and finally disabled (Beningtons).o Universal Cargo Carriers v Citati – not enough to have reasonable grounds - had to be able to prove metal definitely

couldn’t have been loaded on time.

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o Rowson v Hobbs - sale of land, held the vendor was disabled from performing because it was proved that they would not have been able to obtain title to the land before the conveyancing date.

Inferred inability o Termination based on the ground that a reasonable person in the promisee’s position would draw the inference that

the promisor is wholly and finally disabled from performing.

Renunciation based on erroneous belief

General rule is the fact that the defendant operated under an erroneous belief about what the contract required is not relevant: Luna Park.

No inquiry into the state of mind of the renunciating party (this would create uncertainty). Nevertheless the honest or bona fide belief of the defendant may mean that the renunciation has no legal effect because they

are not really renunciating the contract. Woodar Investments v Wimpy - sale of land, P purported to bring contract to an end based on a contractual clause (genuinely

thought they were allowed to do this). P argued they hadn’t renunciated because they could not have had the requisite intention. HoL accepted this argument. Parties were friendly, simply wanted a determination of the legal position (potentially distinguishable). Viewed narrowly by Australian courts.

DTR Nominees v Mona Homes (pre- Woodar)- ultimately whether a party renunciates or not is a matter of intention. Courts have to ask whether they intended to renunciate. HC said that where supposed renunciation concerned a condition, it is not possible to argue you did not intend to renunciate. Reason: condition is seen as an essential term of the contract. Where you say you will not be performing, difficult to come to any other conclusion than that you intend to renunciate.

Frustration

Obligations are frustrating event remain binding, obligations arising after event are extinguished. National Carriers v Panalpina per Lord Simon – An event which changes the nature of obligations so dramatically that the parties

would have found it unjust to enforce at time of formation.

Justification Implied term the parties had an implied term to that extent – Taylor v Caldwell, The Eugenia Construction true construction of contract not apply to new situation

o Davis v Fareham - Job of court is to determine whether on true construction of contract, the new factual situation was covered by the contract. If it was, then the contract was not frustrated. Where the new situation was not covered, then the contract was frustrated. There must be such a change that the thing performed would be so different from that agreed. The court held the contract covered the new situation.

o Codelfa: Court also adopted the construction theory. In this case an injunction was granted to prevent construction of railway between certain hours. Held that the injunction amounted to a frustrating event. Aickin J: Here because both the significance of the obligations undertaken as well as the surrounding circumstances had changed, the contract, on its true construction didn't apply to the new facts – hence it was frustrated.

Total failure of consideration some judges in National Carriers.

Frustrating events

Impossibility

Music hall burnt down – Taylor v Caldwell No steamer sailing from Japan to Sydney anywhere near agreed time: Cornish v Kanematsu. Suez canal crisis. Not frustrated because did not explicitly state to take canal. Increased expenditure does not lead to frustration

– Tsakiroglou v Noblee per Lord Simmons.

Temporary impossibility

Ran aground. Repairs. Late. Looks at context of overall duration to determine frustration. Deemed to frustrated – Jackson v Union Marine

Increased burden of performance

Increased burden doesn’t cause frustration. Must be fundamentally different – The Eugenia – stuck in Suez Canal. Codelfa

Illegality

Can’t trade with enemy during war – Fibrosa v Fairbairn National Carriers

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Frustration of common purpose of parties

Hired room to watch procession. Cancelled procession. Contract did not explicitly state reason for hiring. Frustrated – Krell v Henry

Similar facts as Krell but for boat. Comes down to how do you define common purpose – Herne Bay Steam Boat v Hutton War decision. Did not guarantee neon sign could be illuminated. All terms could be performed. Matter of contractual

interpretation – Scanlan’s New Neon v Toohey Purpose of obligations compared to those present in actual situation – Bris. CC v Group Projects per Stephen J

Limits on frustration Self-induced Given 3 licenses. Used on other boats. Could have chosen to use it on boat in question – Maritime National Fish

v Ocean Trawlerso One ship sank, had to choose who to charter other to- self induced: The Super Servant

Foreseen events if you contemplate an event it prevents frustration (fits with true construction theory)o Denning in The Eugenia distinguishes foreseeing and making a contractual provisiono Krell v Henry

Express provision for an event then that event cannot frustrate o Whether it is catered for is a matter of construction – Codelfa, Meriton, AGL.

Special case of land Courts traditionally reluctant. UK change can apply to leases 10 year lease. No access for 20 months not frustrated but in theory could in dire

circumstances – National Carriers AUS cannot apply to lease contracts – Halloran v Firth in the NSWSC, but contrary HC obiter Frustration only excluded if lessee taken possession of land – obiter per Williams J in S. New Neon

Effects of Frustration Only discharged from obligations accruing AFTER frustrating event Money paid prior to frustration

o Cannot recover paid money – Re Continental v Rubbero UK can recover money if consideration completely fails – Fibrosao Consideration didn’t totally fail – Baltic Shipping per Mason in obiter suggested Fibrosa is law in AUS

Benefits received prior to frustration o OLD CASE. Depends on facts. On facts, right to payment only accrued after completion of work. Not completed = no $ -

Appleby v Myers Benefits received after frustration

o Value of work done after frustrating event can be recovered in restitution - Codelfa

Privity

General rule Contracts only take effect between those who are parties. This means that:

o 1. Non-parties cannot (generally) be bound by another’s contract; it is not possible to burden a third party. Reasonably uncontroversial. Subject to a property law exception.

o 2. A non-party cannot enforce a contract made for his or her benefit (more controversial). Doctrine confirmed in Gandy v Gandy per Bowen LJ. Clearly confirmed in Dunlop Pneumatic Tyre Co v Selfridge - rejected claim because:

o 1. Not a party to the contract.o 2. Do not provide consideration for the contract.

Windeyer J in Coulls v Bagot’s Executor (1967)- both must be met before a plaintiff can bring a claim.

Current status of doctrine

Australia

Trident v McNiece Brothers - 3 members allowed claim under contract even though privity rule was breached (narrow exception). 2 members allowed the claim for reasons that are unconnected to the law of contract. 2 dissent (privity applies). Disagreement in reasoning within majority.

England

Clear statement by HoL in Scruttons v Midland Silicone (1962) - Bound by Dunlop. 17

However, even after 1966, still affirmed doctrine of privity. Lord Reid- it sucks that we’re bound by Dunlop. Denning LJ dissented.

Lord Denning again tried to overturn doctrine in Beswick v Beswick in the CA, but the HoL held their ground. Didn’t matter; an exception applied anyway.

Long-standing exceptions Deane J in Trident - not exceptions because not based on contract- really bringing claim under other areas of law (agency, trust).

Collateral contract

Shanklin Pier v Detel- Pier painting case. P (owner) instructed contracter to use D’s paint. Defective. No contract between owner and manufacturer. Collateral contract between owner and maker of paint.

Negotiable instrument

A (drawer) writes a cheque in favour of B - order to her bank (the drawee) to pay B. Contract between A (drawer) and bank (drawee). Nevertheless, B can demand payment from the bank. B has no contract with bank.

Agency agreements

A (principal) employs B (agent) to negotiate on their behalf with C. Contract is between B and C, and not between A and C. If B is an agent, B stands in the shoes of A, and the contract takes effect between A and C.

The Trust

A promises B that she will confer a benefit on C; the promise to confer a benefit has been treated as trust property - the so called trust of a promise. B (trustee) holds trust property on trust for C (beneficiary).

Where B brings a claim for damages against A, the damages Bill recovers are not his own (having suffered no loss) but C’s. He holds these on trust for C (Leopold Walford).

Courts traditionally unwilling to impose a trust (especially where commercial) - there must be an intention to create a trust. After 1950s HC, said that Court shouldn’t be shy in imposing a trust. See Wilson v Darling Island Stevedore per Fullagar J and

Trident per Mason and Wilson JJ- not uncertain; trust should be recognised where it appears from the language of the parties construed in its context including the matrix of circumstances that the parties so intended.

Assignment

A promisee can assign his or her contractual rights to a third party. Common amongst commercial parties.

Tort law

Hill v Van Erp - A solicitor prepared a will for a client. They were to make a testamentary disposition to a friend (third party). Disposition null and void under legislation.

English case called White v Jones on same facts. Both of the supreme courts say there is a claim in negligence. Even though no beneficiary-solicitor contract, can bring claim in negligence. Clearly courts willing to find DOC here but torts cannot be used in all third party circumstances.

The Himalaya Clause

Designed to allow a third party to rely on a defence or limitation in a contract to which they were not a party. A enters into a contract with B for the benefit of C and the contract states that B is the agent of C (as principle) and therefore C

acquires rights and liabilities under the contract between A and B. Utilises agency reasoning. The Eurymedon - Owner-carrier contract. Third party (stevedores) damaged goods. Limitation clause in contract if carrier

damaged the goods. “ No servant or agent, including independent contractor, of the carrier was to be liable for other act or default in the course of his employment. Every limitation available to the carrier should be available to such persons. The carrier is an agent and trustee of such a person. Such persons to this extent were parties to the contract. “

o Said that third party could rely on that limitation because the Himalaya rules created an agency agreement.o Lord Wilberforce- became a full contract with carrier as agent when the stevedore performs. 2 conditions:

1. Carrier needed to be an agent 2. Stevedore needed to unload the ship

o Flaw- carrier needed to be an agent of the stevedore. Made clear that not simply enough for carrier to declare that they are an agent of the stevedore. In order to be an agent you have to have the authority of the principal. Had authority because carrier and stevedore were within same group of companies.

Same in New York Star. Wilberforce: Although the court should not look to fine distinctions, must be authority of third party. At mercy of judicial construction.

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The Starsin - If the Himalaya clause included exemptions or limitations which conflicted with international sea transport rules, then the clause was not enforceable (The Hague, Rotterdam Rules etc).

Statutory exceptions Property Law Act 1974 (Qld) s 55. Note: If the Act does not apply (fail to comply with requirements), then the common law will still apply (s 55(7)).

Basic premise

s 55(1): A promisor who, for a valuable consideration moving from the promisee, promises to do or to refrain from doing an act or acts for the benefit of a beneficiary shall, upon acceptance by the beneficiary, be subject to a duty enforceable by the beneficiary to perform that promise.

Promises

Promise defined in s 55(6)(c): promise means a promise—o (a) which is or appears to be intended to be legally binding; ando (b) which creates or appears to be intended to create a duty enforceable by a beneficiary;

Must create or be intended to create a duty enforceable by the beneficiary: Sorbello v Sorbello - Wife entered life insurance policy; husband sole beneficiary. H and W had discussions about where life insurance money would go when she died (including children). Children argued legislation applied- no intention to create legal relations.

The Act only applies to benefits and not burdens: Rural View Developments v Fastfort. Third party = beneficiary- s 55(6)(b). Need not be identified at the time of the promise; must be identified at time of acceptance:

Portland Downs Pastoral v. Bexalaw.

Beneficiary’s obligations

Need not provide consideration (that is provided by promisee). Beneficiary must accept the promise made for his or her benefit. Acceptance defined in s 55(6)(a). Time runs from point when beneficiary knows that promise has been made for their benefit. Re Davies- beneficiary purported to accept a year after they had notice. Too late. Another example- Portland Downs.

Consequences of accepting

s 55(3)(a)- the beneficiary may sue in their own name and recover damages for loss and get specific performance/injunction. Can’t impose burdens, but can be used to impose conditions which beneficiary is bound by when accept: s 55(3)(b)-(c).

Variation

Prior to acceptance promisor & promisee can vary contract: s 55(2). Once accepted, need beneficiary’s consent: s 55 (3)(d).

Defences

Defences which promisor had against promisee, those defences are preserved against the third party: s 55(4).

Burdens

General rule: burdens cannot be imposed on a third party to a contract. Common law says freehold covenant is only binding between the original parties. Equity allows restrictive covenant to bind subsequent owners of land: Tulk v Moxhay. Lord Stathcona Steamship Co Ltd v. Dominion Coal Co Ltd - tried to extend Tulk rule outside real property (to personal property).

New owner of ship bound by existing time charter. Shell Oil Co of Australia Ltd v. Mcllwraith McEacharn Ltd - NSWSC distinguished it. Jordan CJ- it’s exception for charter parties. Howie v. NSW Lawn Tennis Ground Ltd - HC (Dixon CJ, McTiernan and Fullagar JJ) doubted outcome. Has also been doubted in England, by Diplock LJ in Port Line Ltd v Ben Line Steamers.

Damages

A – B contract for benefit of C. A has contract but no loss (nominal damages only), C has loss but no contract. General rule is person can only recover for own loss, and can’t recover for another. Two exceptions:

o 1. Jackson v Horizon Holidays- Lord Denning- father could recover for his own mental distress as well as that of his wife and children. Other

judges less happy. Goes totally against precedent. Wilberforce in Woodar v Wimpy- says it is an exception, but is limited to holidays. Bagot per Windeyer J- A – B contract to pay C. A might not be able to recover if breach, but they might be able

to get some damages on other grounds - A relying on the payment to reduce/discharge his indebtedness to C, or if it was for a joint venture.

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HC in Trident- Mason CJ and Wilson J- called Jackson highly dubious. Haven’t got a firm Australian decision.o 2. (not law in Australia, impliedly) The St Martins Property Exception. Goes back as far as Dunlop v Lambert.

Revived in The Albazero per Lord Diplock: original party treated as having entered into the contract for the benefit of all persons who may have or may acquire an interest in the goods before they are lost or damaged, and is entitled to recover by way of damages for breach of contract the actual loss sustained by those for whose benefit the contract is entered into.

Narrow exception Parties must be commercial parties (buyer and seller). Contract must concern sale of goods. Third party must have acquired property interest before the loss was suffered. They mustn’t have a claim on their own behalf against the carrier.

Some English HoL cases have sought to extend it beyond narrow exception- Linden Gardens Trust v Lenesta Sludge (sale of land which was subject of a building contract), Darlington B.C. v Wiltshier.

However has been some rowing back from that position- Alfred McAlpine Construction Ltd v. Panatown Ltd- said that you need to be careful in applying this kind of exception. It’s very narrow.

Australian cases- no discussion of doctrine. Arguably the Dunlop v Lambert exception could be used in an Australian case. English cases extended doctrine to cases in which land had been transferred.

Mistake

Formation mistakes Parties are at cross purposes and there has been no consensus ad idem.

Mutual mistakes

The objective facts are equivocal, and the subjective states of mind of the parties are at odds. Raffles v Wichelhaus - two ships called the “Pierless”. No clear reasons. Pollock says it is a mutual mistake case. Scriven v Hindling - Sale of hemp and tow. Seller referring to tow, buyer referring to hemp. No contract.

Unilateral mistakes

Mistake as to term

Smith v Hughes - P supplied new oats, D thought he was buying old oats. P knew D wanted to buy old oats and that they’d made a mistake. Mere mistake as to age of oats did not render contract void, but per Blackburn J, if mistake had gone to whether they had been warranted to be old oats, parties are not ad idem, there is no contract.

Hartog v Colin and Shields - Offer to sell at 10 pence per pound instead of each. D refused to deliver goods. Mistake by seller; and no way buyer could have thought that it reflected their true intention- negotiations had taken place as price each.

Taylor v Johnson –o Smith v Hughes follows subjective theory (contract is void ab initio if one party enters under a serious mistake as to

contract or existence of fundamental term and other party has knowledge).o Contrast with objective theory, which is concerned with outward manifestations and not real intent. Only voidable.o Adopted objective theory; quoted Denning in Solle: ". . . once a contract has been made, that is to say, once the parties,

whatever their inmost states of mind, have to all outward appearances agreed with sufficient certainty in the same terms on the same subject matter, then the contract is good unless and until it is set aside for failure of some condition on which the existence of the contract depends, or for fraud, or on some equitable ground."

o "Neither party can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake."

o Precludes operation of common law unilateral mistake as to term. However, mistake in equity? (see below)

Mistake as to identity

Identity must be material

Boulton v Jones - D sends servant to P’s shop with an order addressed to Mr Brocklehurst. P crosses out name, writes own, and supplies goods. D (through servant) accepts them. Identity material because goods means of paying off debt owed Brocklehurst.

(1) Identifiable person, contracting at a distance

Cundy v Lindsay - P (Lindsay) receives distance order from certain address, signed as known respectable firm. P knew actual address different, but nonetheless sends the goods. Rogue doesn’t pay, sells them to D (Cundy) and disappears.

o Held no contract by HoL- did not intend to deal with the rogue, but with the firm.

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o Carter – says unsatisfactory decision – L intended to deal with that address? No analysis of whether they should have taken steps to verify address- basically party took advantage of its own mistake to defeat rights of innocent third party.

Shogun Finance v Hudson - sale of car of at distance. Rogue had Patel’s driving license- company checked credit rating and gave him the finance. HoL held no contract (like Cundy). Nicholls and Millett LJJ dissented.

(2) Not an identifiable person, dealing at a distance

Usually called fraud. King’s Norton Metal Co v Edridge, Merrett and Co - rogue posed as non-existent company. Rogue sells goods on and disappears.

Held P intended to contract with the author of the letter; there was a contract; no mistake as to identity.

(3) Identifiable person, dealing face to face

Law presumes that where A and B deal face to face, A intends to deal with the person physically present. Phillips v Brooks – Rogue produced cheque book claiming to be Sir George, P checked address, and R ran off with ring. Sold it.

Contract held valid (only voidable)- Horridge J: P’s subjective intention not to contract with anyone else not enough. Inferred that P intended to deal with person physically present in his shop (identified by sight & hearing), but that he would not have done so but for the fraudulent misrepresentations. Voidable only. Could not get ring back.

o Held looking up name in directory insufficient to rebut presumption. Ingram v Little - After drive with rogue agreed on price. P declined payment by cheque and would only accept cash. Changed

mind when he said he was PGM Hutchinson and they checked address. Rogue sells it to D. P sues D for conversion.o No contract. P intended to deal with the person they thought they were dealing with and not the person before them.o Acknowledged presumption, and made clear that it could only be rebutted by clear evidence.o Reference made to fact that any cheque sale proceeded on footing that he was PGM Hutchinson.o Sufficient evidence to rebut presumption.

Lewis v Avery - Rogue pretends to be famous actor. P allows him to take car. Sold to Avery. o Applying Phillips - contract. Applying Ingram - no contract.o Held a contract, but a voidable one (preferred Phillips). Property could not be recovered.o Denning MR & Phillimore LJ - nothing to rebut presumption.o Megaw LJ - viewed the mistake as one going to a mere attribute of the rogue, namely, his creditworthiness.o Denning MR condemned fine distinctions between contracting & releasing goods, and between identity & attributes.o Reasoning unsatisfactory. But Denning LJ says the two above decisions cannot be reconciled.o Then says mistake of identity can never render a contract void, only voidable- doubts Ingram v Little.o Taken literally, this is inconsistent with Cundy v Lindsay; therefore has come under criticism.

Shogun Finance - Phillips and Walker LJJ agree with Phillimore LJ and say (in obiter) that it is a very strong presumption.o Lords Millett and Walker hold Ingram to be bad law.

Porter v Latec Finance - son obtains loans in father’s name, and sets up a complex fraud scheme where one bank (Latec) is paying money on his behalf directly to another bank (Porter). Latec argued money paid under a mistake and therefore could recover it because no contract.

o Majority: no mistake; facts were that L were making a payment on behalf of son; identity of son was not fundamental.o Minority (Kitto and Windeyer JJ) disagree and say that the loan was intended not for son but for father. In a minority

but they both assume you can deal face to face and make this sort of mistake and it will render transaction void.o Windeyer J referred to Phillips as shaky. o But:

Dissenting Before Denning doubted Ingram in Lewis Facts not similar to 3 English cases. To extent that matter has been discussed subsequently in Australia, Lewis treated as authoritative.

Unilateral mistake in equity

Taylor v Johnsono Quoted Dixon CJ and Fullagar J in Svanosio: “difficult to conceive any circumstances in which equity could properly give

relief by setting aside the contract unless there has been fraud or misrepresentation or a condition can be found expressed or implied in the contract.”

o “Presumably, their Honours were referring to "fraud" in the wide equitable sense which includes unconscionable dealing.”

o Rule: “[A] party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that

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circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension.”

o Written contract, D sells two plots of land cheaply but had made a mistake because they thought the price was per acre. NSWCA: on facts purchaser ought to have known they couldn’t be getting that much land for that little money.

o HC: can the purchaser successfully argue specific performance? Said there was a unilateral mistake in equity. There was deliberate concealment on the facts, but this is not required. Easy to regard as unconscionable here because the

other party knew of the mistake and contracted anyway. Leibler v Air New Zealand - not necessary for the non-mistaken party to deliberately conceal the mistake; sometimes enough

that they merely leave the other party under a misapprehension. Mistaken party's solicitor had erroneously deleted from an agreement a clause which should only have been amended, not deleted, and the other party, knowing that a mistake had been made, concluded the agreement without drawing attention to the mistake.

Smith v Smith - NSWSC: The essential elements are, first, that one person enters into a contract under a serious mistake about its content in relation to a fundamental matter; second, that the other party is aware that circumstances exist indicating that the first person is entering into the contract under a serious mistake about the content or subject matter of that aspect of the contract; and, third, that the second party deliberately sets out to ensure that the first party does not become aware of the existence of the mistake, either by positive acts or omitting to bring it to their attention.

o Enough that one party becomes aware of the mistake. Don’t have to deliberately set out to ensure mistaken party does not become aware. Positive act not required; mere omission to tell them may be enough.

XCB v Creative Brands – VSC - Whelan J – Liebler had special circumstances (agreement completely at variance with previous discussions, considerable complexity of drafting problems, fundamental importance of deleted provision, closeness of parties).

o It seems to me that something more than mere knowledge of the mistake and a failure to correct is required.o Mere knowledge of a mistake and a failure to correct will be sufficient only "in some circumstances", and those

circumstances will be "special."

Common Mistakes Contract is formed on the objective test. At common law very difficult to make a contract void for common mistake. Equity has

special rules (but voidable only). Two main requirements for an operative common mistake at law:

o 1. The mistake must be shared; ando 2. The mistake must be fundamental.

Common mistake rendering contract void

Absence of consideration (contract void) vs failure of consideration (contract not necessarily void) Common law mistake requires ‘total failure of consideration’. If the consideration for a payment fails totally it may be recovered

by the payer, because it would unjustly enrich the payee to retain the payment in the circumstances. Common law courts could not readily order the repayment of money where the consideration only partially failed. Could not be

treated as void in these cases.

Non-existence of subject matter of contract

Easiest scenario; shared mistake and is fundamental. Couturier v Hastie - (gave rise to SOGA rule) - Before contract was made, corn had started to ferment, and had been sold on.

o Court of Exchequer Chamber emphasised that the case turned on the construction of the contract.o House of Lords unanimously supported the Exchequer Chamber judgment. Lord Cransworth LC emphasized that the

whole question turned on the construction of the contract, and gave as the true construction that the contract showed that the parties contemplated ‘an existing something to be sold and bought’ and that if that something was sold and bought, then the benefit of the insurance should go with it.

o Did not use term void or suggest that the contract was void. Holding was that it could not be enforced against the buyer.

o Rejected a construction that the contract was for an adventure; ie the true subject matter is not the goods but the chance of their existence.

o Can’t be more fundamental. SOGA s 9: “ When 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. “ Might expect same treatment of contract where subject matter never existed. HC in McRae clarified that this is not so. McRae v Commonwealth Disposal Commission - different approach in that it all turned on the construction of the contract.

o D purported to sell a non-existent wreck of a tanker to P.

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o In the leading judgment, Dixon and Fullagar JJ (with whom McTiernan J agreed) analysed Couturier and concluded that the question whether a contract is void for common mistake is primarily one of construction of the contract to ascertain ‘whether the contract was subject to an implied condition precedent that the goods were in existence. Prima facie, one would think, there would be no such implied condition precedent, the position being simply that the vendor promised that the goods were in existence.

o Concluded impossible to imply such a term. ‘It is not a case in which the parties can be seen to have proceeded on the basis of a common assumption of fact so as to justify the conclusion that the correctness of the assumption was intended by both parties to be a condition precedent to the creation of contractual obligations.’

o Seller made that assumption, but the buyers simply accepted the seller’s assurance that there is a tanker.o The only proper construction is that it included a promise by the Commission that there was a tanker in the position

specified. The Commission contracted that the tanker was there.o Pointed out that meaning of Couturier was that since the contract was construed as one for the sale of specific goods,

there was a total failure of consideration so far as the buyer was concerned, with the result that he was not liable for the price.

o Buyer recovered damages.o Note: HC gave an alternative ground for not being able to rely on mistake; it arose from fault of its own servants

(Commission’s) in recklessly, and without reasonable grounds, asserting the existence of the tanker at the specified locality. It seems there is a general principle prohibiting reliance on common mistake where there is an element of fault.

Usually easy to say it is fundamental, but cf: Svanosio v McNamara - D sells to land to P; P believes they are buying hotel on land as well, and that it is wholly on the land.

Both parties under this mistaken assumption; part of hotel is on Crown land.o Could have sued for damages and said there was an implied undertaking that the whole of the hotel was on land

subject to the sale, but they didn’t want to because they simply wanted the transaction set aside (at law or in equity) so they could recover their money.

o Clearly a mistake as to the subject matter of the contract and its existence, but HC held valid contract.o Case illustrates the difficulty in arguing that a partial absence of subject matter has the effect of rendering the contract

void where both parties believed the entire subject matter existed. o Dixon CJ and Fullagar J approved passage of Denning in Solle where he said that once parties have objectively agreed

with sufficient certainty in the same terms on the same subject matter, then the contract is good unless it is set aside for failure of some condition on which the existence of the contract depends, or for fraud, or on some equitable ground.

o Dixon CJ and Fullagar J - equity couldn’t be used here because there’s a common mistake and it’s hard to see that there’d been any unconscionable behaviour on the part of the seller. Don’t deny that equitable mistake can be granted to set aside contract in this kind of situation, but on facts they’re not willing to do so.

o Fact that it was sale of land seems to weigh heavily- there is a rule specific to land sales.

Mistakes as to acquiring an interest in property that already belongs to the buyer (res sua)

Cooper v Phibbs - basis for this group of authorities. Lease is taken out on land the tenant already owns (unbeknown to lessor and lessee). Held that such a transaction could be set aside in equity.

o Person trying to lease the land hasn’t got title, and in this situation (according to Bell and McNarama too) contracts can be set aside.

o Atkin LJ obiter in Bell says void at law, voidable in equity. In McNamara HC seems to treat these cases in equity.

Mistakes as to quality

Here performance is still possible question of how far the contract deviates from the parties’ common purpose. Mistakes as to quality will not void the contract. Mistakes of substance or essence will. In England the narrow common law doctrine is tempered by the broader doctrine of mistake in equity. In Australia common mistake is equally narrow, but equity retains a role under the guise of unconscionability. Bell v Lever Bros - D ended contract and paid compensation money. Both parties were under belief compensation money was

required. Could D argue compensation contract payments were void for mistake?o HoL by majority said mistake may have been common, but not fundamental. The parties’ erroneous assumption that

the service agreements were not terminable (except by consent) did not involve the actual subject matter of the contract but a mere quality thereof or motive therefor, and so were not of a sufficiently fundamental character.

o Not a mistake like earlier cases, relating to the existence of a thing, but here was about the quality of service agreements (were they valid or not) and this was not fundamental.

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o Per Lord Atkin, test is ‘Does the state of the new facts destroy the identity of the subject matter as it was in the original state of facts?’ Everything hinges on construction of contract, and identification of the subject matter.

o Per Lord Thankerton: to be a fundamental mistake as to quality, both parties have to regard the validity of the service as vital. Bell did not.

o Case does accept that a contract can be void at law if the common mistake as to quality is fundamental.o Examples of mistake not sufficiently serious to merit relief

Purchase of an unsound horse believed to be sound Picture believed to be by a master turning out to be a copy Uninhabitable furnished house

Taylor v Johnson - HC accepted Lord Atkin’s speech in Bell as authority for the proposition that the formation of the contracts is to be determined objectively, with the consequence that, until the objective approach is displaced, there is a contract which remains binding unless and until it is set aside for fraud, failure of an agreed condition precedent or on some equitable ground.

Solle v Butcher - Denning LJ thought common law mistake was too narrow. Landlord and tenant enter into a lease believing the property free from rent controls. Per Bell, the mistake is not sufficiently fundamental; valid at law.

o Denning thinks it is still voidable in equity (equitable common mistake, not equitable unilateral mistake as in Taylor). Equity will make a contract voidable provided that:

1. Both of parties were under the common mistake, 2. Provided that the mistake is fundamental, 3. Provided party seeking to set it aside is not at fault.

Denning’s formulation of the equitable doctrine of common mistake in Solle has been recognised or accepted in several other English cases (Magee, Associated Japanese Bank, William Sindall). Has also been applied in Australia (Clasic International v Lagos).

But three points:o 1. Many of the subsequent English cases involved Lord Denning.o 2. Difficult to reconcile these cases with Bell, unless it is assumed that that the case was solely concerned with the issue

of voidness (obiter from several speeches suggests otherwise).o 3. Although Australian law accepts that there are cases in which rescission may be obtained on the ground of common

mistake in relation to a fundamental matter, it is not clear that the formulation of Lord Denning in Solle is an accurate statement of the legal requirements.

Great Peace Shipping v Tsavliriso Equitable jurisdiction that Denning asserted was a significant extension of any jurisdiction exercised up to that point

and one that was not readily reconcilable with Bell.o Terms of his judgment also left unclear the parameters of the jurisdiction. The mistake had to be ‘fundamental’ but

how far did this extend beyond Lord Atkin’s test of a mistake ‘as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be?’

o The majority decision in Solle was based on the assumption of a jurisdiction founded in equity to order rescission of a contract binding in law (which was a conclusion not open to them if Bell had established that common mistake had no effect on a contract unless it was so significant as to render the contract void).

o Only possible to reconcile Solle with Bell by postulating that there are two categories of mistake, one that renders a contract void at law and one that renders it voidable in equity.

o Conclusion: there is no jurisdiction to grant rescission of a contract on the ground of common mistake where that contract is valid and enforceable on ordinary principles of contract law.

o Solle approved by HC in guarded terms in Svanosio but much more strongly in Taylor (per Mason ACJ, Murphy and Deane JJ).

Note that Taylor was a unilateral mistake case and they only approved parts of it. QCA (Jerard and Atkinson JJA) in Australia Estates applied Great Peace Shipping (they mention Heydon J’s criticisms of Solle in a

NSW case). However, it needs to be noted that this was a case of unilateral mistake and not common mistake, and therefore was not the appropriate case to be examining Great Peace Shipping in the first place.

QCA in Australia Estates v Cairns City Council adopted the approach of Great Peace Shipping in holding that 5 elements were required for common law to grant a remedy for common mistake:

o 1. there must be a common assumption as to the existence of a state of affairso 2. there must be no warranty by either party that the state of affairs existso 3. the non-existence of the state of affairs must not be attributable to the fault of either partyo 4. the non-existence of the state of affairs must render performance of the contract impossibleo 5. the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances

which must subsist if performance of the contract is to be possible.24

Rectification Where a contract is in written form and it fails to accurately reflect the common intentions of the parties it can be rectified to

reflect their common intentions. Rectification can also be used in cases of unilateral mistake where it would be unconscionable for the non-mistaken party to

enforce the contract. Party seeking rectification must provide “clear and convincing” proof (Pukallus v Cameron). Common intention must continue up to the time of execution of the contract in question (Pukallus). Leading authority: Maralinga Pty Ltd v. Major Enterprises Pty Ltd - sale of land. Auctioneer said price could be mortgaged. Draft

contract provided for payment on completion; no provision for price to remain on mortgage. HC refused rectification. No mistake had been made as to what the written contract contained; both parties knew it was different to the antecedent bargain.

Cf Winks v WH Heck

Non est factum A person is generally bound by a document that they sign (Toll v Alphapharm) To this there is a defence of non est factum. Originally used by the illiterate. Has been extended but is still very difficult to raise. If successful it renders the contract void. L’Estrange v Graucob - P bought an automatic slot machine from D, their contract had an exclusion clause for liability and stuff

that P didn’t read, the machine didn’t work and P brought a claim for breach of warranty, contract was held to be binding nonetheless.

Saunders v Anglia Building Society - widow of 78 transferred house to rogue instead of nephew. Her glasses were broken. HoL: non est factum was not confined to illiterate people but also those who were permanently or temporarily unable, through no fault of their own, to have, without explanation, any way of understanding the document, whether through defective education, illness or innate incapacity. Necessary too that the contract as it is thought to be, is radically, substantially or fundamentally different that actually signed. Here the transaction wasn’t fundamentally different to the one she thought it was.

Petelin v Cullen - Poor understanding of English. P just thought they were signing a receipt, not agreeing to an option, and it was held on the facts that they could raise the defence but it was noted that if there is fault (ie carelessness) on the part of the person raising the defence, that might exclude it, but that rule will be less strictly applied where the other party was aware of (or ought to be aware of) the circumstances under which the contract was signed (as was the case on the facts).

Conflicting policies:o Injustice of holding parties to bargains to which they did not consento Allowing a signature to be challenged creates uncertainty and difficulty for the other party.

Remedies I

Punitive damages not awarded in contract – Addis v Gramaphone Reason for damage

o Expectation measure Designed to put P into original position had the contract been performed. Market value – value of thing. More beneficial if market value is higher than sum paid (good bargain).

o Reliance measure P relied to his detriment upon the contract. Position had the contract never been entered into. Sum paid – value of thing. More beneficial if sum paid higher than market value (bad bargain).

o Gain-based (restitutionary) damages Strip D of benefit of the contract

Assessing damages Burden of proof on the balance of probabilities is upon P. Damages are assessed at the date of the breach. When necessary to do justice can depart from this rule – Johnson v Perez per

Mason CJ. Nominal damages can be awarded in absence of loss.

Expectation Damages Common law rule placed in same position as if contract performed – Robinson v Harman Clark v Macourt - Sale of IVF clinic. Had to buy American sperm. Passed cost to clients. Argued that they had suffered a loss. Cost

was having to go into the market and find/buy sperm. Look at the position they would have been in had the contract been performed: they would have had a freezer of sperm. Hayne J: May be that the sperm might have been intended for other uses; he says the plaintiff may have used it in her other practice, or indeed given it away. P here had suffered a genuine loss; cost of buying it for $1m from US.

Stable market price no loss

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Market value has risen loss (to buyer) is new price – promised price Market value has dropped loss (to seller) is promised price – market price.

Problems with expectation damages

Damages for cost of cure (CoC) – building done badly ($ for repair or for difference in value)o SOGA s 54

(2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of the warranty.

(3) In the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value which they would have had if they had answered to the warranty.

o Ruxley Electronics and Constructions v Forsyth - No $ CoC Pool made too shallow. Still safe to use. No market value depreciation. Significant CoC. Said award would be disproportionate to any resulting benefit; would be wholly unreasonable. Likely influenced by background considerations - guy didn’t even want to use $ for repair.

o Bellgrove v Eldridge - $ CoC Faulty foundations. Cost of demolition and rebuilding (CoC) higher than original contract value. Can get when reasonable and necessary that they should be given. Can’t get CoC when wholly unreasonable. Does P intend to use $ for cure? HCA said irrelevant if they want to or not.

o Westpoint Management v Chocolate Factory Apartments – Rationalised it as expectation damages. Said whether or not P intends to use money to cure defect goes to question of reasonableness. HC in Bellgrove said irrelevant.

o Tabcorp Holding v Bowen - $ CoC Agreed with Westpoint that they are expectation damages. Lessor altered office without permission. HCA “we will award unless fairly exceptional circumstances like Ruxley”

Loss of chanceo Lost chance to win pageant. Can recover loss even if chance <50% - Chaplin v Hickso Recoverable under TPA as long as contract breached – Sellars v Adelaide Petroleum

Mental distress courts are reluctant (refer torts- floodgates arguments etc)o Baltic Shipping per Mason CJ. Can recover. Here are exceptions.

Injured feelings for damages for breach of promise of marriage Pain and suffering if breach caused physical injury Physical inconvenience train didn’t take to right train station or purchasing property with defects not

revealed by survey Physical inconvenience due to breach leading to mental suffering Object of contract = relax. If you are distressed due to breach.

o Holiday booked on faith of brochure (relaxing etc…). Opposite. – Jarvis v Swan Tourso Didn’t fall within: general Baltic doctrine/Mason exceptions – McDonald v SA

Reliance damages Implied term that tanker existed. Expectation measure impossible to quantify – McRae v Cth

o “means of compensating P where there has been no loss of profit or P cannot prove loss of profit with any certainty” – Toohey J

Gain-based damages Escaped spy writes successful book. Due to exceptional case award GB damages. Fiduciary duty was breached by spy – AG v

Blake. Hobhouse dissent as to uncertain when this applies Distinguished out of existence.

Cth v Amann Aviation D breached contract and denied P chance of renewal and chance to make profit. Presumption where parties enter into contract that had contract been performed, that the P would at least have recovered the

expenditure. Rebuttable by D. Issues:

o Presumption not always trueo Based upon prospect of something happening rather than on an existing contracto Allows Amann to recover cost of expenditure while arguing expectation damages

Remedies II (Limitations upon expectation measure + Debt + Liquidation Damages)

Causation Reg Glass v Rivers Locking Systems - Burglar proof door not burglar proof. Stolen stuff. Single entrance. Causation.

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(1) Other cause of losso Alexander v Cambridge Credit Corporation - Was there another cause of the loss? Need to show breach was a cause of

loss, based upon “common sense principles” (not but for). Difficulty in deciding this. (2) Break in chain of causation

o P should have “been aware or check” the trailer mechanism before driving off. P caused the accident – Lexmead (Basingstoke) v Lewis

Remoteness Hadley v Baxendale The damage received in respect of the breach should be:

1. Such as may fairly and reasonably be considered to arise naturally according to the usual course of things from breach; or2. Such as should have been within the reasonable contemplation of both parties at the time of the making of the contract

and be a probable result of the breach of it Mason CJ and Dawson in Amann considered these to be of a single principle simply dependent upon the degree of relevant

knowledge possessed by the parties:o Imputed knowledge reasonable person knowledge (first limb)o Actual knowledge knowledge particular to the parties (second limb)

Arise naturally

The Heron II - Simply shipping people are presumed to know that prices in commercial markets change. Being late will change the sale price of sugar.

Wenham v Ella – Where hired to organise transfer of land interest, and transfer doesn’t occur, P will lose return on investment.

Reasonable contemplation (RC)

Lucrative government contract not RC for laundry business – Vic. Laundry v Newman Ind. Test is not just reasonable foreseeable. Standard higher- The Heron II

Reasonable contemplation still enough?

HoL Ordinary foreseeability rule only prima facie presumption. Could be rebutted where the context, surrounding circumstances or general understanding of the relevant market showed that a party would not reasonably have been regarded as assuming responsibility for the loss – Transfield Shipping v Mercator Shipping

Not good law in Australia – Amann

Mitigation Fail to mitigate losses – D not liable for amount mitigatable1. All reasonable steps to mitigate loss

Faulty truck. 1 year noticed kept driving shorter distances (less $). Failure to mitigate. Should’ve terminated agreement. Isolated losses to that 1 year – Burns v MAN Automotive

2. Not unreasonably incur expense subsequent to the breach Acted unreasonably only had to go to office to get a certificate – Ardlethan Options v Easdown Just because other ‘better’ option available in hindsight doesn’t mean you acted unreasonably – Banco de Portugal v

Waterlow per McMillan LJ – not for D who created emergency to point this out3. Plaintiff obtains a benefit

Only entitled to nominal damages losses completely mitigated by extra profit gained by P’s actions – British Westinghouse Electric & Manufacturing v Underground Electric Railways – applies only where benefit flows directly from breach.

Contributory negligence Not referring to breach of duty of care, but to acts/omissions of P which contribute to loss claimed: Astley v Austrust Provided it isn’t also a failure to mitigate, generally doesn’t affect losses that can be recovered (unless the negligence didn’t

break the chain of causation). Only relevant where the claim in contract is concurrent to a claim in tort (contractual duty of care): Law Reform Act 1995 s 5. Otherwise may have different outcomes in the actions, on the same facts. Duty has to be concurrent and co-extensive.

Debt Debt Contract is for a fixed sum of money. Claim for sum owing not damages. Remoteness and mitigation do not apply – Young v Qld Trustees

Liquidated damages Amount payable in case of breach genuine pre-estimate of loss if breach

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If not genuine pre-estimate then considered a penaltyo Penalty only enforceable to extent of the genuine loss

Dunlop Pneumatic Tyre v New Garage o Name of clause not decisiveo Calculated from time of draftingo A sum is a penalty if: “extravagant and unconscionable in amount, in comparison with greatest conceivable loss

from potential breach” Stressed that it had to be extravagant and unconscionable – Ringrow v BP Australia

Remedies III

Specific performance Specific performance Compel a party to do something to put parties in position per contract – JC Williamson v Lukey Equitable but structured discretion Used when damages are inadequate. Very rarely used – Turner v Bladin (available where all that remains in land sale is for

purchaser to pay). Some contracts excluded employment – Byrne v Australian Airlines Can seek before performance is due. Factors as to when to award

o Is there a lack of mutuality? Specific performance must be full and final relief – JC Williamson v Lukey per Dixon Jo If specific performance requires constant supervision only a factor – Patrick Stevedores Operations v Maritime

Union of AUSo Delay of P if would prejudice other party will be refused o Hardship to D (illegal action ordered) – Nocton v Anguso P must be willing to perform their obligations too

Injunctions Equitable remedy to do or not (typical) to do something Only available where damages are inadequate remedy Where negative: either perpetual (final) or until final determination of liability is made. Example of positive stipulation – Burns Phillip Trust v Kwikasair – let him look at register. Will not be granted where superior court would be cutting of the jurisdiction of another court/body – Dalgety Wines. Will not be granted where its effect would be directly or indirectly to compel the defendant to perform acts in circumstances

where specific performance would not be granted- Dalgety Wines Estates v Rizzon.

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