Final Notes & Cases

MISREPRESENTATION Misrep concerns precontractual representations that are false. A misrep is a false statement of fact that acts as

an inducement to the party to whom it is addressed, and who is misled by it, to enter into a contract. The law on misrep is an amalgam of common law rules, equity and statutory provisions. There is also overlap

with the law of negligence. The law of MDC has overtaken the old law on misrep in commercial situations (‘trade or commerce’),

however the old rules are still required in situations that fall outside ‘trade or commerce’. They can still be used in commercial situations as well, but tend not to be.

Remedy of Rescission The party that has been misled (‘misled party’) by an actionable misrep is generally entitled to rescind the

contract if and when they choose (including if they are sued by the other party). They have a choice whether to continue with the contract or to rescind it, the contract us thus voidable.

A rescission of the contract entails restoring the original situation of the parties, taking things back to the status quo as if a contract had never been made (void ‘ab initio’). Everything done from the contract must be undone. As compared with termination, wherein the contract is valid up until the point of termination.

I CREATION OF THE RIGHT TO RESCINDActionable Misrepresentation

1. False Statement of Fact An actionable misrepresentation is a representation that is a false statement of fact A representation is a statement (or conduct) made by one party about an existing state of affairs or past event.FALSITY The question of whether or not a statement is false is to be determined objectively from the point of view of a

reasonable observer (in the position of the representee). Unlike the test for fraud, the representor’s state of mind is not relevant, and neither is the representee’s actual state of mind: Krakowski

Can draw on MDC decisions about what is misleading, as the concepts are not far removed from one another, but be careful here.

STATEMENT Misrepresentation is usually in the form of statement, but can be inferred from active conduct. Silence or non-disclosure generally does NOT constitute an actionable misrepresentation. Tacit acquiescence

in another’s self-deception generally creates no legal liability. Eg Alati (failure to disclose impending entry of supermarket not alleged to constitute a misrep)

Something more than silence is required (in exam, watch for something slightly more than silence) However, there are 3 exceptions to the rule that silence affords no ground of relief. To put it another way, there

are three circumstances in which there is a duty of disclosure on the part of the representor:(1) Half Truth: Where representor makes a representation on some matter it must be full and frank, not partial such

that what is left out makes it false or misleading. Although what was said might be literally true, it is considered to be actionably false because of what it leaves out: eg Krakowski

(2) Changed circumstances: Where a party makes a false statement that he believes is true, but then discovers that it is false, the truth must be disclosed. Similarly, if a party makes a true statement but changed circumstances make it false, that party is obligated to disclose the truth.

(3) Fiduciary duty and utmost good faith: certain classes of contractual relationship require one party to fully represent all material facts within their knowledge to the other party.

FACT An actionable misrep is traditionally required to be one of fact only. However courts have extended the

boundaries of ‘fact’ to encompass statements that are not merely factual In order to explain this it is important to remember that the essence of misrepresentation is that one person has

been misled by the other into contracting, and that reasonable people are often just as misled by opinions and predictions etc as they are by statements of pure fact.

A statement of intention cannot normally be said to be true or false. Consequently, such statements are not normally considered to be misrepresentations (unless of course they are contractual promises, in which case they may be breached). The exception is when such a statement is fraudulent (ie where D says he will do something knowing that he will not) in which case it may be actionable: Ritter

Statements of Opinion: Generally an honest statement of opinion will not generate an actionable misrep. However this clearly depends on the nature of the opinion and the circumstances. Some circumstances in which an ostensible opinion may nonetheless be actionable include:

- Representor did not actually hold the opinion: ie opinion is fraudulent/dishonest: Ritter, Nicholas; Gould

- Speaker entirely ignorant of facts on which opinion based, or, expressed another way, a reasonable person possessing the speaker’s knowledge could not honestly have held such an opinion: Ritter(?)

- Definite and Indefinite facts (borderline fact/opinion statements): eg ‘a very large sum of money’. ‘Very large’ is a relative term, thus not entirely factual. This called an ‘indefinite fact’, and the fact finder can decide whether such a stmt is a fact or opinion. Thus it is arguably sufficient that the opinion is somewhat comprised of fact: Nicholas;

- Note that the relative knowledge of the parties as to the subject matter of the opinion may be important, eg where the representor alone was in a position to know the facts upon which the opinion was based;

Puff: Flamboyant stmts about the quality of the subject matter that would not reasonably be considered to be literally true are not actionable ie sales gimmicks etc. however there is a fine line between puff and stmt of fact, so must be careful here.

2. Inducement/Materiality The onus of proof lies on representee to show that he was in fact induced by the misrep to enter into the

contract. Must ask:

1. Was the misrep material ie would a reasonable person in the position of the representee have been induced by such a statement? Gould Note that special knowledge by representor of facts that would make such a representation material to that particular representee are sufficient (eg Krakowski): Gould

2. Looked at objectively, was the misrep calculated/intended to induce?3. Was the misrep fraudulent?

If the answer is ‘yes’ to at least one of these questions, then, on the basis of Gould and Nicholas, it seems that inducement will be inferred and the misrep will be actionable…

UNLESS the representor can adduce evidence to show that, despite the misrepresentation, it did not in fact induce the particular representee. The inference may be rebutted in one of 3 ways. By showing that the representee:

(1) never knew of the existence of the misrep;(2) knew of it but knew that it was false. Must be actual knowledge. But P may still be able to recover if knew of

falsity but did not know the extent of the falsity: Gould;(3) knew of it but did not allow it to affect its judgment (usually overlap with 2). If the misrep was immaterial, not intended to induce, and innocent, it appears from Gould and Nicholas that it

will not be actionable (though would have to weigh up in each case, as would come under equity). CAUSATION OF INDUCEMENT The misrep need not have been the sole inducement. It is sufficient that it contribute some part, even if only a

minor part, in contributing to P’s entry into the contract: Gould MATERIALITY if D makes a material misrep (a misrep that would have induced a reasonable person to enter into the contract)

that was calculated (intended – is this to be determined objectively?) to induce P to enter into the contract, and P does, then it will be inferred that he was induced to do so by the misrep: Nicholas. In this case the onus is then shifted to D to rebut that inference: Gould (It appears that the inducement will be inferred if a reasonable person would conclude that the representor intended the statement to induce P to enter the contract, whether the stmt was fraudulent or innocent).

As to the requirement of materiality, this is somewhat elusive. In a case in which D intended the stmt (whether fraudulent or innocent) to induce and it did in fact induce, materiality will not be relevant: Nicholas

However, where D makes an innocent misrep, with no intention to induce and P was induced but a reasonable person would not have been (ie stmt not ‘material’ stmt), the misrep may not be actionable even if P can show (the onus being on him) that he was in fact induced (this would probably only be the case at equity).

Thus if P was induced and the inducing misrep was:- fraudulent and calculated to induce (intended by D to induce) actionable: Gould; Nicholas- innocent but calculated to induce (intended to induce but falsity not known) actionable: Nicholas- innocent, and not material (would not have induced a reasonable P), but D knew of P’s idiosyncrasy that made

such a representation important to that P (surely intention would be inferred) actionable: Nicholas.- innocent, not calculated to induce, and not material (would not have induced a reasonable P) potentially not

actionable on the basis of dicta in Nicholas and Gould In summary, this area of the law is confusing and entirely inadequate. Just go with the three question test

(above) and hope that at least one of them can be answered with a ‘yes’.

Fraudulent/Innocent misrepresentation

There are separate rights at common law and at equity. In order to rescind at common law the misrep must have been fraudulent. At equity, innocent misreps may also be actionable.

Fraudulent Misrep: - A representation that is made with knowledge that it is false or with reckless indifference to the truth of the

statement: John McGrath Motors; Krakowski - Did D believe representation to be true in the sense in which he understood it? Krakowski - Requires an examination of what the representor subjectively meant by the statement- Comes down to how believable D’s case is. Court will look at objective criteria.- However will be difficult for D to convince a court that he held a subjective meaning that is different to an

objective meaning.- If a corporation is involved the knowledge of the corporation will be comprised of that of all its officers, such

that it is no excuse that one officer didn’t know if another did know: Krakowski Innocent Misrep: A misrep that is not a fraudulent misrep (ie not known that it was false) The equitable right to rescind is somewhat limited. Eg, contracts for the sale of land can’t be rescinded for

innocent misrep after settlement. Krakowski There is an argument that this represents a wider form of the rule whereby can’t be rescinded for innocent

misrep after final execution of the contract. But this wider application of the rule is controversial (see C&Fifoot).

The ‘restitutio’ requirement Common Law: It is a requirement of the right to rescind at common law that restoration to the status quo that

existed before the contract should be precisely possible. Court must aid in making the necessary adjustments between the parties to restore them to the status quo: Alati

Equity: Rescission at equity is discretionary, so a court will weigh up the conduct of the party seeking the rescission and decide whether or not to grant it. Equity’s role is to achieve ‘practical restitution’, so must make the necessary adjustments to do what is practically just to restore the parties to the status quo: Alati; eg in Vadasz

Equity will be more willing to come to the aid of a victim of fraudulent misrep than innocent misrep: Alati Factors such as the use by P of D’s property, where such property is irreversibly altered, makes CL rescission

impossible (unless the property was altered by some cause that was not the fault of P: Alati). However, in equity, Court can make monetary compensation: Alati

Under equity, a court may order partial rescission if this is appropriate (see below): VadaszSummary of Differences at common law and at equity: Common Law: Rescission available only if:(1) misrep is fraudulent; AND(2) actual restitution (restoration to the status quo before the contract) is precisely possible. - If one of these two conditions is not satisfied, then must go for equity: Equity: Rescission available if:(1) misrep is fraudulent OR innocent; AND(2) if restitution is merely practically/substantially possible (ie through payment of a money sum).BUT: rescission is discretionary, involves weighing up conduct of party seeking rescission. Rescission at equity more likely if misrep was fraudulent than if it was innocent.Rescission at equity not available in sale of land after settlement (arguable that not available after any other contract has been executed). Hierarchy: Likelihood of rescission in descending order: (1) Common law (fraud and restitutio); (2)

Fraudulent at equity; (3) innocent at equity.II RESTRICTIONS ON THE EXERCISE OF THE RIGHT TO RESCIND

Contractual Restrictions Parties can include in their contract a restriction on the right to rescind, and they can exclude liability for

innocent misrep. Byers; Demagogue However, parties cannot exclude the right to rescind for fraudulent misrep, as this would be against public

policy. However it should be noted that, in Byers, Pincus J would not have held that the merger clause defeated the

claim for innocent misrepresentation were it not for the existing precedents, noting that the contract containing the clause was induced by a misrepresentation, which amounted to an estoppel in pais. Thus Dorotea would be estopped from departing from their representation that induced the assumption that Blvd North would be bigger and better. Byers

Note, Non-restriction: Failure to Read Contract

It should be noted that where a prior misrepresentation is inconsistent with the contract itself, but the representee has not read the contract (but has signed it anyway), D may still be liable for misrep. Thus this seems to trump the rule that if you sign a contract you assent to all its terms: see, eg, Vadasz

Unconscionability The right to rescind cannot be exercised if to do so would be unconscionable, esp under equity: Alati This is particularly influenced by the conduct of the representee after notice of rescission is proffered: they

must still act in good faith etc etc: AlatiPartial Rescission A court may make an order for partial rescission, wherein only part of the contract is rescinded and the rest of

it remains valid. However such an order may only be possible if the facts allow: Vadasz Only in some cases will it be possible to rescind the contract to the extent that P was misled: Vadasz Must ask whether P would have entered into a contract at all if not misled. If the answer is no, then partial

rescission cannot apply. However if P would have entered into a contract – but not the part over which he was misled – then, according to Vadasz, it may be possible to rescind only that part that he would not otherwise have entered into.

III LOSS OF THE RIGHT TO RESCINDElection to Affirm When the representee obtains knowledge of the facts that give rise to the right to rescind ie learns about the

misrep (and when they learn of the right to rescind?), he has a choice to affirm the contract or to rescind it. Representee must elect by clear and unequivocal conduct communicated to the other party, to elect or to rescind.

Election to affirm may be inferred from conduct, thus failing to rescind promptly may result in P losing the right to rescind

Waiver Basically same as election to affirm.Estoppel An estoppel may arise where A induces B to assume that A would not exercise his right to rescind, in which

case A may be estopped from exercising that right.IV RIGHT TO DAMAGES

No damages at Common law if misrep is innocent and non-negligent, but potential statutory liability: TPA; (also SA and ACT legislation).

Potential damages in tort: if misrep is fraudulent (deceit) or negligent (negligence). No damages for breach of contract unless misrep incorporated into the contract (eg Alati), but can still sue in

tort (note that can only obtain contract damages if contract is affirmed, not if it is rescinded; b/c if rescind, it is as if the contract never existed, so therefore can’t sue for breach of it).

Alati: damage measure in tort is the difference, if any, b/w the true value and the amount paid.

CASES (MISREPRESENTATION)

John McGrath Motors (Canberra) Pty Ltd v Applebee HCA 1964FACTS:

- P bought a car from D dealer in Canberra- Car was new in Sydney, but then driven from Sydney to the showroom in Canberra.- D represented the car to be ‘new’ as it was inspected by P. - Also, on the registration form the option ‘second hand’ was struck out, and new was ‘ticked’- Trial judge assigned a meaning to ‘new’ in the context and held that D’s rep was fraudulent because he knew

that the car was not new in the sense that the court held it should mean. D appealedRESULT:

- 3:0 in favour of DLEGAL IMPORTANCE:

- Court must determine what meaning D had in mind when he used those words and whether he knew the statement was false according to his subjective meaning.

- Court believed that D had meant ‘new’ as in ‘not second hand’ (this was obviously quite reasonable in the circumstances). Therefore his stmt was not fraudulent.

- The question is thus ‘whether [D] believed the representation to be true in the sense in which he understood it.’- NOTE however that the facts here were clearly important here in leading the Court to accept that D understood

‘new’ in a sense that differed from the ‘objective’ or ‘normal’ meaning. Thus clearly context has an important role to play.

- It might otherwise be difficult to convince a court that D held a subjective meaning that was unusual or alien to the context, thus the court will consider objective criteria rather than accepting D’s word for it.

Krakowski v Eurolynx Properties Ltd HCA 1995FACTS:

- K (purchaser & plaintiff) negotiated with E (vendor & defendant) for the purchase of a retail shop in a shopping centre.

- K made it clear that they wanted a reliable tenant to be found by E. They wanted a 10% return.- E informed K that they had found a tenant willing to pay $156 000 per year, thus purchase price would be

$1.56 million.- Ryan, a director of E, assured K that the tenant, Swaeder (S), was reliable etc.- E’s solicitors, Mallesons, and S’s solicitors then negotiated over the lease of the unit. E offered S, as

inducement to take the lease, a 3 month rent free period and a lump sum payment of $156 000. Without this inducement, S would not have taken up the lease.

- E and S agreed that these inducements would be executed in a separate letter, not included in the lease agreement.

- Neither Ks nor their agent knew of this separate agreement.- When it came time to execute the sale contract b/w K and E, a copy of the lease contract was annexed to it, but

it did not contain a copy of the separate agreement.- The sale contract contained a clause stating that the contract was conditional on the execution of a lease for

payment of $156 000 per annum.- The lease contract contained a merger clause.- A few days later K sent E a letter requesting particulars of all tenancy arrangements. A reply from E stated that

a copy of the lease was annexed to the contract. No mention was made of the separate agreement.- The sale contract was then executed.- When S failed to pay the rent, K discovered the truth about the separate agreement and filed for, inter alia,

rescission. RESULT:

- 4:1 in favour of KLEGAL IMPORTANCE:

- K had to show that the misrep was fraudulent in order to rescind, as can’t rescind a contract for the sale of land under equity after settlement unless the representation was fraudulent.

Statements and the duty to disclose- K thus argued that it was a fraudulent misrep to advance the lease without disclosing the separate agreement.

Whereas E argued they had no duty to disclose.- Court held that this was not a simple case of non-disclosure of fact, rather this was a category of ‘half-truth’

whereby an existing representation was distorted by what was not disclosed.- Negotiations took place on the footing that a lessee who was willing to pay $156 000 had been found. This was

not entirely true in the light of the separate agreement.- The annexation of the lease was a further positive representation that was distorted by the non-disclosure of the

separate agreement.- Additionally, the merger clause, which stated that the lease contained the entire agreement b/w S and E, could

itself be considered a positive misrepresentation made to K.Falsity- Falsity is to be determined from the perspective of the reasonable person in the position of the representee,

neither party’s actual state of mind is relevant.Fraud- A fraudulent misrep requires only that the representor did not honestly believe the truth of the representation in

the sense in which he subjectively understood it.- A representation may be fraudulent without prior planning or evil motive.- The Court held that in this case, the merger clause was capable of only one meaning. Eurolynx was conscious

of that meaning thus it committed fraud: knowingly making a false misrep.- E relied on the fact that one of its officers, Gilbert, was of the belief that inducements given to tenants were

immaterial to contract of sale of property. However Court held that the other officers of E knew that the particulars of the rent were of importance to K, therefore the corporation had the knowledge, it being no excuse that one of its officers did not.

- Thus the corporate mind is comprised of the knowledge of each of its officers.

- The Court inferred from the behaviour of the other officers of E and their solicitors that E knew of the merger clause and knew of its meaning. Thus was guilty of fraudulent misrep.

- The drawing of that inference was aided by the fact that E appeared to be deliberately concealing the evidence of the separate agreement, eg the reply by letter saying that all particulars were contained in the contract and the event of a phone call in which Ks inquired as to why the full rent had not been paid after the end of the first month and E replied that this was ‘an internal matter, just an adjustment problem’ rather than explaining that payment was actually not required from S due to the separate agreement.

Inducement- Although not explicitly discussed, it seems that Ks were induced to enter into the contract because they could

show that they were particularly interested in knowing the details of the tenancy arrangement. As Toohey’s dissenting judgment emphasises, they were going to get paid by E anyway, so it shouldn’t have mattered to them where that money came from. Arguably, this representation would not have induced the reasonable person to enter into the contract (or rather a reas person would not have been fussed by the arrangements b/w S and E) however it is clear that in this case the Ks were induced by it as they made it clear that it mattered. The fact that E knew that K cared about the lease arrangement was what (seemingly) made this fact material. As it was a material and fraudulent misrep, inducement could be inferred.

Nicholas v Thompson Vic SC Ct of Appeal 1924FACTS:

- N alleged that they were induced by fraudulent misreps from T to enter into two contracts to purchase interests in companies, for which N had paid $10 000.

- T had told N that he ‘had been offered a very large sum of money for his interests and had refused the same’ (so as to persuade N that his interests were quite valuable).

- At trial, the jury found that T made this stmt, that it was false, that T knew it to be false, and that they induced N to enter into the contracts.

- T appealed, arguing that the stmt was a stmt of opinion, therefore not actionable, and that the stmt was not material and therefore could not have induced N to enter into the contracts.

- [I don’t know why, if T appeals, N is the appellant (??)] RESULT:

- 3:0 in favour of N.LEGAL IMPORTANCE:

Statement of Fact not Opinion- Court held that the stmt that T had been offered and refused money was a stmt of definite fact, and the stmt

that the sum of money was ‘very large’ was a stmt of indefinite fact, but nonetheless a stmt of fact.- It is a question for the jury whether the amount could reasonably be described as a very large amount.- Thus stmts like this that are not entirely factual but are sort of partially factual are capable of being considered

factual for the purposes of actionable misrep.Material Inducement- Materiality is not really important.- ‘If the defendant makes the statement for the purpose of inducing, and the plaintiff is thereby induced, that is

sufficient’. It does not matter in such a case that the stmt was material.- ‘Material’ was held to mean capable of influencing a reasonable person, or, due to particular idiosyncrasies of

P that D knew of, capable of influencing that particular P. But the stmt in this case did not need to be material in this sense because the stmt was intended (calculated?) to induce.

- Thus it seems that, where there was no intention to induce (and no fraud?) and P was induced but a reasonable person would not have been (ie by a non-material stmt), rescission may be barred (this would probably only be the case at equity).

Alati v Kruger HCA 1956FACTS:

- K purchased a fruit business from A.- Stmt included in the contract that the average takings of the shop were $100 per week.- Trial judge found (and HCA upheld) that this statement was false, D knew it was false or did not care whether

it was false.- A supermarket was about to be opened opposite the fruit store. A (vendor) knew of this, but K did not.- The takings proved immediately to be much less than $100 per week.

RESULT:- 5:0 in favour of K (purchaser)

LEGAL IMPORTANCE:- because the representation was both precontractual (part of the ‘offer’) and a stmt in the contract, K had a

choice of rescission, OR breach of contractual warranty and damages. Elected rescission in this case.Restitution Requirement - Common law rescission not possible in this case b/c it was not precisely possible to restore the status quo. This

was so b/c K had used the property and also taken over the stock of the fruit shop.- The fact that the value of the business had deteriorated, however, did not affect the purchaser’s right to

common law rescission, because the deterioration of the business was not the fault of the purchaser (it was due to the presence of a supermarket opposite). Even the common law requirement that property be returned in its original condition is qualified so as to allow for incidents for which the buyer was not responsible, such as those caused by the purchaser in the exercise of rights accorded by the contract, or from the inherent devaluation of the property.

- Nonetheless, the taking of stock and the use of the property were sufficient to preclude common law rescission.- However, equity can step in where precise restoration not possible, in order to do what is practically just b/w

the parties, thus ‘substantially’ restoring the status quo.- Equity allowed the necessary adjustments in this case, ie payment of money sum and redistribution of property

etc.Unconscionability Affects Equitable Rescission- Equitable rescission is discretionary, depends on the circumstances and the actions of the party seeking

rescission.- Court held that if K had left the premises without giving A adequate warning, or failed to carry on the business

in good faith, the Court might refuse relief on the basis that K acted unconscientiously.- However K did not so act, rather K gave A a reasonable opportunity and also cooperated etc.Statement- It was not alleged that the failure of A to disclose the impending entry of the supermarket amounted to a

further misrepresentation.- This is presumably because K was not obligated to do so as the law requires no duty of disclosure other than in

the three specific circumstances. Presumably none of those circumstances were met here.

Vadasz v Pioneer Concrete (SA) Pty Ltd HCA 1995FACTS:

- PC had complete concreting works for V, for which V had not paid. V thus had outstanding debts owed to PC.- PC made V signed a guarantee which required V to guarantee payment of both past and future debts to PC

before they would agree to deliver any more concrete. However PC misrepresented to V that the guarantee only related to future debts, and V signed it on that basis.

- Trial judge and Court of Appeal held that contract could be partially rescinded to the extent of the misrep ie V would still be held to his guarantee of future debts, but the part relating to past debts would be rescinded.

- V appealed, arguing that the guarantee must be rescinded in its entirety.RESULT:

- 5:0 appeal dismissed, partial rescission allowableLEGAL IMPORTANCE:

- V could not rely on common law rescission b/c could not return the contract already supplied..Partial Rescission in Equity- In the case of equity, partial rescission is allowable if it is possible and just to do so in the circumstances.- Here the evidence shows that V would have entered into a contract for the guarantee of future debts. This is not

a case in which, had PC represented the whole truth V would not have entered into any contract at all. Thus rescission to the extent that V was misled is an appropriate equitable remedy.

- ‘If complete and unconditional remedy is to be granted, it must be to ensure the observance of good conscience and practical justice.’

Gould v Vaggelas HCA 1985FACTS:

- G wanted to buy V’s resort.

- G negotiated with V’s agent, during which time he made representations to her about the profitability of the resort.

- V told her accountant that she did not believe C’s claims re profitability, and her accountant told her that they were unreliable (however she did not know the extent to which they were being overstated)

- Nevertheless, she entered into the contract for the resort.- The resort venture failed – Goulds stuffed, seek rescission of contract for misrep.

RESULT:- On the issue of inducement: 5:0 in favour of G

LEGAL IMPORTANCE:Inducement

Brennan J: - an inference of inducement may be drawn when a party enters a contract after a material misrepresentation, but

this may be rebutted.- Fact that G did not believe the representation in full did not mean that V’s representations did not induce her.

She was induced despite suspicion that the representations were false, and V cannot escape liability simply because G did not believe him in full. ‘A knave does not escape liability because he is dealing with a fool.’

Wilson J (Dawson, Murphy and Gibbs agreeing):- Onus of proof lies on P to prove all elements of case, including that he was induced.- However if D makes a material representation that is calculated to induce, and P enters the contract, inference

will be drawn that P was induced by the misrep.- D must then adduce evidence to rebut that inference, ie by showing that P had actual knowledge of the truth, or

made it plain that he did not rely on the misrep.- Causation: the misrep need only be a cause of entry into the contract, need only be a minor influence.

Ritter v North Side Enterprises Pty Ltd HCA 1975FACTS:

- Prior to entering into a sale of land contract, NSE assured R that the land would be sewered by the local Council within four months.

- Only upon learning of this did R agree to enter the contract.- R alleged that NSE’s representation was fraudulent because it was made with either knowledge of, or reckless

disregard as to, its falsity. RESULT:

- 3:0 in favour of RLEGAL IMPORTANCE:

- Supports proposition that stmts of intention can be misrepresentations if made fraudulently.- Court said that this was a misrep as to fact, b/c NSE’s representative misrepresented his state of mind.

MISLEADING OR DECEPTIVE CONDUCT: TPA TPA s 52: A corporation [or person] shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

Note that, despite appearing in the part of the Act entitled ‘Consumer Protection’, s 52 is not restricted to consumer transactions. It has been applied in non-consumer business transactions on many occasions.

By virtue of s 9 of the FTA (Vic), this section also applies to ‘persons’.I MISLEADING (OR DECEPTIVE)

Conduct is misleading if it in fact misleads or is likely to mislead another party. The state of mind of the defendant is not relevant to the question of whether the conduct was misleading. Ie

there is no requirement of intention to mislead or knowledge that the conduct is misleading: Henjo It is necessary to show that the victim of the misleading conduct was actually led into error. And relied upon

that error as inducement into the contract. Here, the same principles that applied under the general law relating to misrep apply.

It is thus necessary to examine the conduct of the victim. It is not the case that conduct is misleading if a reasonable person would have been led by it. Rather, it must be shown that the victim was misled by it, yet there is also clearly a threshold that requires some degree of reasonableness on the part of the victim. They are allowed to be naïve and even gullible, but extraordinary stupidity would arguably result in conduct not being considered misleading.

Thus, just because someone is in error does not necessarily mean that the relevant conduct was misleading. In regards to entering contracts, the relevant questions are: was the conduct capable of being considered

misleading, from the perspective of the victim? Was the victim actually led into error? Was the victim reasonable in being misled by the conduct? If not, how unreasonable was it? Was the misleading conduct a factor that led to the entry into the contract (apply old rules)?

However there is no liability for merely ‘passing on’ information, that is, where the representor was acting as a ‘mere conduit’ for information generated elsewhere. But this depends on the circumstances. This is not a blanket rule, as merely passing on information could be construed as misleading if D gives no disclaimer when the context requires one, or adopts the information as his own or otherwise endorses it, or embellishes the information: see The Saints Gallery

Similarly, ‘if the circumstances are such as to make it apparent that the [defendant] is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth’ then it is doubtful that such conduct could be considered misleading: Yorke. This is consistent with Saints Gallery, in which the circumstances made it clear that F was not the source of the info and he impliedly disclaimed any belief in its truth or falsity.

II CONDUCTTPA s 4(2):

(a) A reference to engaging in conduct shall be read as a reference to doing or refusing to do any act, including the making of, or the giving affect to a provision of, contract or arrangement ... an understanding … [or] a covenant.(c) a reference to refusing to do an act includes a reference to: (i) refraining (otherwise than inadvertently) from doing that act.

Clearly, conduct includes making statements and other forms of conduct. The issue of engaging in conduct arises primarily in two situations: (1) silence; and (2) making of promises

Silence s 4(2) states that conduct includes ‘refusing to do any act’. Thus silence can amount to conduct. Silence may be considered ‘conduct’ in the situations in which it is so considered under the general law

relating to misrepresentation (Henjo). However, it is not limited to those circumstances: Demagogue The question is simply whether, having regard to all relevant circumstances, including silence, there has been

conduct that is misleading. There will be a ‘duty’ to disclose when failure to do so would be misleading: Demagogue

In terms of a practical test it has been held that: if the context in which information or advice is given gives rise to a reasonable expectation that certain facts would be revealed, then failure to reveal them is misleading: Demagogue (Black CJ) Thus must examine the context and look for a reasonable expectation of disclosure.

However the ‘silence’ issue must be understood in the light of s 4(2)(c)(i), which suggests that silence will only amount to conduct when it is other than inadvertent ie when it is deliberate.

So a defendant could always claim that, in failing to disclose something that led a plaintiff to be misled, he simply ‘forgot’. However this arguably leads to an inconsistency between s 52 and s 4(2)(c), seeing as s 52 imports strict liability, wherein D’s advertence to the subject matter is irrelevant. Thus Courts have tended to

hold that s 52 prevails. The primary issue is whether the silence is misleading, and the expanded definition of ‘conduct’ should not distract attention from this fundamental issue: Gummow J in Demagogue

This view is justified because a reference to refusing to do an act merely includes deliberately refraining from doing an act.

Predictions and Promises s 4(2) includes within its definition of ‘conduct’ the requiring or giving of a ‘covenant’ (promise) and the

arriving at, or giving effect to an ‘understanding’. It would thus seem hard to exclude other conduct relating to the future, as promises clearly relate to the future and understandings could also be reached regarding the future. See Jam Factory

However, since the inclusion of s 51(A) we no longer need to construe the definition of conduct.s 51(A)(1): For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.s 51A(2) reverses the onus of proof: ‘the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.’

Thus if someone makes a prediction that turns out to be wrong, he will have to adduce evidence to show that he had reasonable grounds for making that prediction, otherwise he will be deemed to have engaged in misleading conduct.

This provision has also been included in the FTA (Vic) s 4, so it also applies to ‘persons’.Statements of Opinion The general approach to opinions is similar to that under the old law relating to misrepresentation. Thus opinions are capable of being misleading if they are based on untrue facts or knowledge, or if they are

made dishonestly etc. Also look for disparities in knowledge, ie expert opinions.Contractual Promises and Statements of Intention Difficulty arises here due to the fact that promises and stmts of intention relate to future matters but at the same

time are representations as to current state of mind or present ability or intention to carry them into effect. ‘Pure’ promises, or stmts of intention are conduct relating to future matters. As such they are actionable under

s 52 if made dishonestly or recklessly, or if made without reasonable grounds: s 51A; Futuretronics. This so even if the promise is embodied in a contract, in which case the promisor must show that he had

reasonable grounds (eg ability, capacity, intention) for making the promise: s 51A; Accounting Systems The effect of s 51A on contractual promises is really complimentary in that it requires the promisor to adduce

evidence that a promise was made with reasonable grounds. But this should not prove difficult as most contractual promises are made with deliberation and on reasonable grounds. Nonetheless, the fact that the promisor bears the burden makes it difficult in some cases for a promisor: eg Futuretronics

Contractual warranties and other promises as to a present state of affairs (such as the quality of a product) can certainly be misleading (if the facts are not true): Accounting Systems

III TRADE OR COMMERCE These include any activity associated with a business contract, that is, when one commercial entity deals with

another or with a customer. There does not necessarily have to be payment for an activity to be in trade or commerce. However, a company dealing with its employees cannot be caught under s 52. Activities that, ‘of their nature, bear a trading or commercial character’ are capable of generating MDC:

Concrete Constructions However, those that are not of a trading or commercial character but that are undertaken merely ‘in the course

of, or as incidental to’ the operation of a commercial business, are not covered by the Act: Concrete Constructions

IV REMEDIES UNDER THE TPAContractual Restrictions:

Merger and exclusion clauses cannot operate to defeat an action under s 52: Byers; Henjo; Demagogue. Byers: Seller relies on cl 8 of the contract, which excludes the right of the purchaser to rely on any other

representations etc. But court holds that this only succeeded in excluding liability for innocent misrep; cannot exclude liability under the TPA.

Henjo: (Restaurant) D relies on merger clause. Court holds that the assertion that the TPA is defeated by a contractual provision would be contrary to public policy.

Demagogue: Exclusion clause not effective to defeat TPA but can be effective under the general law relating to innocent misrep.

Participants and Accessories: s 75B

The remedies provided by ss 82 and 87 are available against the corporation or the person who engaged in the misleading conduct AND, by virtue of s 75B, against any person ‘involved in the contravention’:

s 75B(1): A reference in this Part to a person involved in a contravention of a provision of Part [IVA (unconsc) or V (MDC)], shall be read as a reference to a person who: (a) has aided, abetted, counselled or procured the contravention; (b) has induced, whether by threats or promises or otherwise, the contravention; (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention.

In s 75B(1)(a) the words ‘aided, abetted, counselled or procured’ are imported from the criminal law. Under the criminal law, to be found guilty of aiding and abetting or counselling and procuring the commission of an offence, the accused must have intentionally participated in it. Such participation requires knowledge of the essential matters which go to make up the offence: Yorke

75B(1)(c) also requires knowledge, which is explicitly stated here: D must have been ‘knowingly concerned in, or party to, the contravention’. It is not enough that D be knowingly involved in the act of conveying the information, he must have knowledge of the essential elements of the contravention ie he must know that the representation is incorrect or potentially misleading: Yorke. See also Henjo (Saade knowingly involved) and Accounting Systems (Stokes not knowingly involved).

However note that there is arguably some discrepancy over whether there must be an intention to mislead (as the Court says in Yorke). The Court equates knowledge of the essential elements of the contravention with intention to mislead, but arguably these are not the same. Although, on one reading of the judgment the Court is saying that intention is constituted by knowledge, which leads one to wonder why they mention intention at all in relation to s 75B(1)(c), which mentions only knowledge.

In the case that both the corporation and another person, or simply more than one person, are held liable, the extent to which the cost of damages is to be divided (if at all) between each is not clear. [But it is probably enough for us to satisfy the interests of the plaintiff (ie in an exam ‘advise X’) and assume that the Ds are joint and severally liable].

Damages under s 82s 82(1): A person who suffers loss or damage by conduct of another person that was done in contravention of [s 52] may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

‘Loss or Damage’ Remedies under ss 82 (and 87) are not to be determined by analogies with tort and contract: Marks Under s 82, remedy only available for actual loss or damage incurred as a result of the misleading conduct:

Marks; Gates; Futuretronics Must examine what the victim would have done but for the misleading conduct and determine whether they

would have taken, if available, a more valuable course of action: Marks; Gates A more valuable course of action may have included not entering into any contract at all: Jam Factory The award of damages may be the equivalent of expectation loss if, but for the misleading conduct, they would

have taken a course of action that entitled them to what they expected under the existing contract: Marks NOTE also that the ‘loss’ may extend to loss of a chance: Sellars.‘By conduct … in contravention of’ (Causation/reliance issues) Loss is suffered ‘by’ a contravention if it is caused by that contravention. The normal rules of causation apply: thus the misleading conduct need only be a cause (Henjo), however it

might still be shown that P would have entered the contract anyway (ie it did not influence his mind – see the Gould principles), thus breaking the causal chain.

But it is necessary not just to show that the conduct induced them to make the contract, but that the loss was caused by the misleading conduct: See I & L Securities; Jam Factory

Is loss causation subject to the same principles as in damages?Proportionality

s 82(1B): Despite subsection (1), if: (a) a person (the claimant ) makes a claim under subsection (1) in relation to: (i) economic loss; or (ii) damage to property; caused by conduct of another person (the defendant ) that was done in contravention of section 52; and (b) the claimant suffered the loss or damage: (i) as a result partly of the claimant's failure to take reasonable care; and (ii) as a result partly of the conduct referred to in paragraph (a); and (c) the defendant: (i) did not intend to cause the loss or damage; and (ii) did not fraudulently cause the loss or damage; the damages that the claimant may recover in relation to the loss or damage are to be reduced to the extent to which the court thinks just and equitable having regard to the claimant's share in the responsibility for the loss or damage.

So, where:

(1) P has a claim for damages under s 82 based on misleading conduct causing loss or damage; AND(2) The loss or damage was economic loss or property loss; AND(3) The loss or damage to P was caused partly as a result of P’s failure to take reasonable care (negligence?); AND(4) D did not intend to or fraudulently cause the loss or damage*; THEN(5) P’s damages are to be reduced to the extent to which the court thinks just and equitable having regard to the

claimant's share in the responsibility for the loss or damage. * Note that at stage (4), a reduction based on proportionality will be refused only if D intended to cause the

loss or damage; arguably this is not necessarily the same as intending to make the misrepresentation, thus P must prove that D intentionally caused the particular damage. However, arguably the requirement that D did not fraudulently cause the loss or damage is merely a requirement that the loss or damage did not occur as a result of a fraudulent misrepresentation, thus D need only be proven to have knowingly (or recklessly) made a false representation that eventuated in P’s loss. [But this is only my interpretation as there are no cases on this yet.]

Another issue relates to the standard of care that P will be held to, as there are numerous decisions in which naïve, even stupid Ps have been awarded damages for MDC. Courts have held that Ps are not required to check the validity of representations made to them by D. Will this change now as a result of s 82 (1B)? Or will this only be invoked where the failure to take reasonable care is a separate cause (as in I&L Securities) rather than a failure to check/naivety situation (eg Henjo)? Arguably it will apply to any lack of care, including the Henjo-type situation, as the provision already precludes apportionment where D fraudulently misleads.

As a result of s 82(1B), enacted in mid 2004, the decision of the HCA in I&L Securities, as well as the decision in Jam Factory, are now redundant.

Mitigation and Remoteness To what extent is an award of damages restricted to losses that could not have been reasonably avoided

(mitigated) and which were reasonably foreseeable (not too remote)? It has been held by some members of the high court that remoteness does not limit liability for a breach of s 52:

Marks (McHugh, Hayne and Callinan JJ). But clearly remoteness principles must provide some practical limitation in extreme situations. This issue is not settled.Remedies under s 87

s 87(1): where … a party … has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in … in contravention of [s 52], the Court may … make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention … if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.(2) The orders referred to in subsection (1) and (1A) are:(a) an order declaring the whole or any part of a contract … void;(b) an order varying such a contract …; (ba) an order refusing to enforce any or all of the provisions of such a contract; [(c)-(g): other orders relating to requiring D to pay money to compensate P’s loss or to supply goods or services or fix goods loss or damage of which occurred as a result of the contravention, etc]

Loss or damage The central question here is whether ‘loss or damage’ in s 87 has a different meaning from that in s 82. It has been held that ‘loss or damage’ under s 87 does not necessarily mean pecuniary loss, but can extend to

the sort of unmeasurable loss that arises from the unwanted taking on of legal obligations that occurs when a party enters a contract on the basis of a misrepresentation and seeks to rescind that contract. Thus it is a sufficient ‘loss’ in itself that a party is bound to a contract induced by misrepresentation: Demagogue

Another way of distinguishing between losses under ss 82 and 87 is to say that, under s 82 the Court is concerned with the precise amount of loss arising from the misleading conduct, whereas under s 87 the Court’s task is a broader one of compensating loss or possible loss: Demagogue

This may have been overruled by three of the judges in Marks, who indicated their disapproval of Demagogue, but it is not clear which aspect of that case was overruled. These three judges seem to indicate that the sort of loss referred to above is not compensable under s 87 either.

‘Is likely to suffer’ P may be compensated for losses that they are likely to suffer as a result of the misleading conduct, and the

Court can take action to prevent such likely losses ‘Likely to suffer’ means only that loss or damage is a real chance or possibility, not that it is more likely than

not: Marks (Gaudron J)

‘By conduct … in contravention’ The same rules apply here as under s 82 (see above).Discretionary Factors Unlike s 82 which creates a right to damages for loss or damage, relief under s 87 is discretionary. Equitable principles may guide the determination of an appropriate remedy under s 87. Thus must consider

factors such as the parties’ conduct after learning of the misleading conduct; the nature of the breach etc: Marks (Gummow and Guadron JJ); Henjo.

See also Futuretronics (final paragraph), in which the judge seemed to apply the notion that one must come to equity with clean hands to the situation in that case.

There is no explicit right to rescind, however a court can declare a contract void ab initio. It appears that a remedy equivalent to rescission is thus available (although without the restrictions on that right that exist under the general law such as contractual exclusion clauses and election to affirm): Demagogue; Byers

In Henjo, rescission was denied to the plaintiff on the basis of the difficulty of restoring the status quo, its poor conduct in running the business and the various delays it imposed on the proceedings of the case in the courts.

Motive may also be relevant to the discretion to order rescission (ie P’s motive for getting out of the contract, whether fair or bad faith) (CHECK THIS WITH FRED)

Questions to ask re Loss or Damage under ss 82 and 87 What sort of relief does P seek? What loss has P suffered as a result of the misleading conduct? What would

have P done had the misrepresentation not occurred? Did P forego the opportunity of entering a more valuable contract elsewhere (and were such better deals available)? Or would P have entered the contract anyway? Or would P simply not have entered any contract at all (in which case P has taken on unwanted legal obligations that may provide the basis for rescission under s 87)?

CASES (MDC)Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd Fed Ct (Full Ct) 1988FACTS:

- Saade (director of Henjo) sold a restaurant to CM- The restaurant was only authorised to seat 84 people, but it in fact sat 128.- The restaurant was licensed to serve alcohol only in part of the restaurant, but not at the bar- Saade’s agent, Le May had been shown a card that said ‘Seats 128. Licensed’. Never was it revealed to Le

May that it was not licensed to seat 128. Le May also saw a sign in the front window which had said ‘fully licensed’.

- CM’s rep, on seeing an advertisement in the paper, phones Le May, who told him that the restaurant was licensed with about 120 seats, and showed them the card (above).

- The three men then took a tour of the premises and saw it operating in this way- CM engaged a solicitor to check the licensing specifics of the restaurant, but the solicitor failed to do the

required checks and therefore did not discover that the restaurant was operating in breach of its licensing requirements. CM then entered into the contract

RESULT:3:0 in favour of CM as to liability under s 52. 2:1 as to the issue of relief.LEGAL IMPORTANCE:

Misleading- s 52 does not require any intention to mislead, so long as the conduct was misleading in the context.- Must examine the conduct from the point of view of the plaintiff.- Here, the info given was apt to mislead without disclosure of the true facts as to the licensing arrangement.Conduct and Silence- Here, it was the failure to disclose the truth that was misleading.- Lockhart J imports the misrepresentation rule relating to non-disclosure. Clearly this case fits within the ‘half

truth’ category [however, since Demagogue, duty to disclose is not limited to misrepresentation rules]- It was immaterial that the solicitor failed to make the correct checks. The circumstances do not negate the duty

to disclose.Reliance/Inducement- Appears that the same rules apply here as in misrep cases. The loss must be caused by the misleading conduct. - Nonetheless, the MDC need only be a cause, so the fact that CM hired a solicitor who failed to make the

relevant checks did not affect the fact that the misleading conduct was one of the causes, that being sufficient for an award of damages under s 82.

- However, due to the recent enactment of s 82(1)(b), this would probably have resulted in a proportional reduction if the case was heard today.

s 75B and Saade- Saade clearly knew the true position and had knowledge of the matters that constituted the contravention (ie he

knew of the card, the sign and the restaurant licensing etc), thus held to be knowingly involved in the contravention. [But it is arguably not enough that Saade knew of the card etc, rather the fact that Saade must have knowingly acquiesced in the misrepresentation itself, which was constituted by the non-disclosure of the truth about the licensing agreement, that caused him to be liable under s 75B].

Discretion under s 87- The Court opposed CM’s application for rescission on the basis that CM had made various lengthy delays in

the trial proceedings and, during its time in charge of the restaurant, had caused it to make large losses and to squander much of its goodwill. Not only is precise restitutio not possible, but it would arguably be unfair in this case due to the irreparable damage done by CM to the business.

- This situation was distinguished from Alati v Kruger on its facts.- It is preferable that an award of damages be made to CM to compensate it for its losses.

Byers v Dorotea Pty Ltd Fed Ct 1986FACTS:

- Byers (P) purchased units in a gold coast bldg called Blvd North, which was represented to them as being ‘bigger and better’ than its existing twin, Blvd Towers, in which Ps already owned units.

- It was represented that certain features of the new bldg would be superior in size and quality to the existing one.

- It was also represented, in a brochure, that there would be a heated indoor pool in the complex. However there was never intended to be a pool, and in a later brochure, the reference to the pool was crossed out and reference to a tennis court added. An accompanying letter stated ‘please note a change to the brochure, there will now be a full-sized tennis court’. No attention, other than the cross out, was drawn to the pool.

RESULT:- D liable for MDC

LEGAL IMPORTANCE:Misleading- It was contended that the reference to ‘bigger and better’ was mere puff. Judge held that, in other

circumstances this may be so, ‘but here, the statement was intended to, and did, convey a clear and wrong impression’. Thus it was important that there was a reference point ie it was bigger and better than Blvd Towers in certain specified ways.

- The representation regarding the pool was also held to be misleading, despite the fact of the later letter and amended brochure. Found that the initially misleading brochure was still operating on the minds of the Byers as the amended brochure and letter were not sufficiently clear as to the situation regarding the pool.

Affirmation of the Contract- Byers did not rescind immediately, rather asked for extensions on settlement numerous times.- Held that, under the general law (misrep) this would have amounted to an affirmation, thus barring rescission.- However, the right to obtain relief under the TPA is not necessarily brought to an end by affirmation.Exclusion clauses and contractual restrictions- Such exclusion clauses or merger clauses as were contained in the contract here cannot operate to defeat a

claim under s 52 of the TPA.- However, his Honour felt bound by authority to hold that such clauses are capable of defeating claims under

the general law re misrep.- However it should be noted that his Honour (Pincus J) would not have adopted such a view were it not for the

existing precedents, noting that the contract containing the clause was induced by a misrepresentation, which amounted to an estoppel in pais. Thus Dorotea would be estopped from departing from their representation that induced the assumption that Blvd North would be bigger and better.

Causation/Inducement- In this case it was held that the misleading representations were still acting on the minds of B when they

entered into the contract, thus they were a cause of the loss occasioned by entry into the contract.Discretionary factors under s 87- The powers under s 87 of the TPA are broad enough to allow an order that the deposits be returned (effectively

a rescission of the contract. - Such an order is not precluded by affirmation.- The making of such an order was further justified by the fact that neither the builder nor the architect of the

building were as specified and represented by Dorotea.

Demagogue Pty Ltd v Ramensky Fed Ct (Full Ct) 1992FACTS:

- R made a contract in March 1989 to buy a home unit from D. Settlement was to take place in Feb 1990.- The building in which the unit was to be contained was not yet constructed, R had been shown a plan of the

site annexed to the contract.- The only access to the land was from a nearby road which could only be entered via public land. D still had to

obtain a license to build a connecting road over the public land, which they did.- However Rs had no idea that access to the road was via public land. The plan that they had been shown

showed a driveway apparently within the boundary of the land on which the home unit was to be built.- When the Rs asked the real estate agent about site access, he also told them that the developers would build a

driveway up to the road.- Immediately upon finding out about the road their solicitors wrote to D rescinding the contract and claiming a

breach of s 52 of the TPA.RESULT:

- 3:0 in favour of R. Appeal dismissed.LEGAL IMPORTANCE:

Silence as ConductGummow J:- Situations in which silence is actionable are not limited to those under the general law.- ‘It should be no inhibition to giving effect to the legislation that the result may be to achieve consequences and

administer remedies which differ from those obtaining under the general law’.- It is not helpful to look at this issue in terms of a ‘duty’ to disclose.- The question is simply whether, in the light of all the circumstances, including any relevant acts, omissions,

statements or silence, there has been conduct that is misleading or likely to mislead.- In this case, there was both positive misrep as to the provision of driveway access, and misleading conduct

from failing to say anything about the public access road and the licence.- As to the issue of inconsistency between s 52 and s 4(2)(c): s 52 imports strict liability, wherein D’s advertence

to the subject matter is irrelevant, whereas as 4(2)(c) requires that silence be ‘otherwise than inadvertent[]’. However, the primary issue is whether the silence is misleading, and the expanded definition of ‘conduct’ should not distract attention from this fundamental issue.

Black CJ:- Agrees with Gummow. Question is simply whether, having regard to all relevant circumstances, there has been

conduct that is misleading.- The context may include facts giving rise to a reasonable expectation that if particular matters exist they will

be disclosed.Exclusion and merger clauses- Merger and exclusion clauses cannot operate to defeat an action under s 52. The position is different under the

general law (this was also held in Byers).‘Loss or Damage’ under s 87- D argued that there was no relevant loss here as the value of the property was not affected by the fact that there

was no direct vehicular access, and that a remedy under s 87 required proof of actual loss or damage as required under s 82. The Court rejected this argument.

Gummow J:- Loss or damage under s 87 is concerned with more than pecuniary recovery.- Rs suffered a loss merely by entering into legal relations from which they otherwise would have abstained.- But Gummow J complicates things further by saying that, even if some pecuniary detriment is required, can

look at what has happened since the contract, ie fact that they have an action against them for specific performance if rescission not granted, and that the land has depreciated, which means that there is a real chance (ie it is ‘likely’) that it will sustain a future loss as a result of entry into the contract.

Black CJ- Under the general law in an action for rescission it is not a requirement that a misrepresentation has caused any

pecuniary loss (ie it sufficient that the misrep was actionable and that the contract is unwanted – as it implicitly is if they are trying to rescind it). It would be odd if an action for rescission were to require such a pecuniary loss under the TPA.

- Loss or damage under s 87 is not limited to that under s 82, rather it includes the detriment suffered by being bound to a contract induced by MDC.

The Saints Gallery Pty Ltd v Plummer Fed Ct (Full Ct) 1988

FACTS:- P, a professional art dealer and valuer who conducted valuations and authentications of works at TSG, bought

4 paintings under contract from TSG.- TSG’s director, F, explained to P the history and origins of the paintings according to what he (F) had been

told by the seller of the paintings (K).- K had told F that the Fairweather paintings had come straight from a client and that the Rees paintings had

originally come from an exhibition at a gallery in Brisbane. The trial judge found that all of this information was an accurate representation of what K had told F.

- However, this information was entirely false and the paintings were in fact forgeries.- It is important to note that P knew more about art than F. - The two knew each other through the work done by P in valuing paintings at TSG. It was held to be common

ground that F lacked the capacity to judge the authenticity of paintings, and that P placed no reliance F’s ability to do so.

- F made no personal disclaimer as to his knowledge of the truth of what he said, however nor did he have a particular reason to. Indeed, the Court found that P was really taking a punt on the paintings: ‘a speculation, pure and simple’.

RESULT:- 3:0 in favour of TSG. No MDC

LEGAL IMPORTANCE:- F was merely passing on information from K. There was nothing in his comments that was misleading, since

he at all times made it clear that he was recounting the information that been given to him from K.- This was not a situation in which F had to make a disclaimer about the fact that he was merely passing on

information that he had been given. Rather ‘a disclaimer of any personal knowledge of the paintings’ authenticity was deducible from the parties’ relationship and the whole of the circumstances.’

- Clearly, P’s knowledge of art, his qualifications and his relationship with F meant that nothing F had said to him could be construed as misleading, and nothing more by way of disclaimer needed to be provided by F.

- However the Court acknowledged that it would be quite a different matter is F were shown to have done anything other than explain what K had represented were the facts.

- [Thus it seems that someone who is an ‘intermediary’ or a ‘mere conduit’, simply passing on information, will not be liable if that information is false. However this will clearly depend on the circumstances, as merely passing on information could be construed as misleading if D gives no disclaimer when the context requires one, or adopts the information as his own or otherwise endorses it, or embellishes the information.]

Brown v Jam Factory Pty Ltd Fed Ct 1981FACTS:

- Bs leased a shop in JF’s chopping centre. Sought relief under TPA for MDC by JF and by its real estate agent through its officer M, who made 3 statements prior to their entry into the lease contract:

1. at that time (the present), all shops in the centre except two have been let (stmt of fact)2. when the centre opens, all shops will be let and open for business (rep re future ie 3 or 4 months into the future

– a prediction)3. We (owner and agent) will obtain permission from the local authority to trade 7 days per week (again, a

prediction)- But, when open day comes along, the shopping centre is about half empty.- Furthermore, no permission to trade 7 days has been obtained. - Nonetheless, Bs trade for 8 months and then crash, so they bring this action against the owner and agent under

s 52- Note that s 51A had not yet been enacted by the Commonwealth

RESULT:- Browns win. Stmts 1 and 2 are misleading.

LEGAL IMPORTANCE:Predictions as ‘Conduct’ (prior to enactment of s 51A)- As to stmt (1): this was ‘grossly inaccurate’ and clearly misleading. No problem here.- Stmt was not considered misleading b/c Mr Brown was an experienced businessman who knew that approval

to trade 7 days per week wsa rarely granted, thus he cannot be taken to have been induced by such a stmt. B would have understood this only as ‘exaggerated salesman’s talk’ and merely as an expression of ‘hope’. [But does this mean the stmt is not misleading or that it was misleading but Bs were not induced by it? Arguably

- As to stmt (2): Court had to decide whether this statement of intention (or opinion of JF’s intention) was capable of being misleading in light of the fact that a statement of opinion or intention can’t be true or false at the time it was made.

- Court holds that it can be, and in this case was, misleading.- Looked at from Bs perspective, the statements created a reasonable belief in their mind that the JF was likely to

be a busy, thriving shopping centre- Thus we can now interpret MDC as covering a continuum of conduct in that a stmt can be held to be

misleading when it turns out to be false. - [This case stands for principle that stmts re the future can be misleading by construing s 52 alone (ie without

the need for s 51A)].- [We could surely say here, though, that JF’s stmt no. 2 was misleading b/c it was dishonestly or recklessly

made, or that jam factory has some responsibility to inform Browns of the likelihood of the stmts being true; by making a very certain prediction that was arguably apt to mislead them and not informing of the actual likelihood of the stmt coming true, this could arguably be considered misleading.]

Relief under s 82- The Judges stated that the applicable damages were analogous to the tort measure, and went on to award

damages equivalent to what the Browns spent in reliance on the running the business.- Such an award is based on the assumption that the Browns would not have entered the contract at all were it

not for the representations, so there is no need to show that they would have taken a different contract etc as in Marks.

Causation and remedy- Need to show that misleading conduct caused not just entry into the contract, but also caused the loss.- Here, the judge deducted a percentage from the final award because he held that part of the loss was caused by

the Browns’ management incompetence.- [However this was criticised by I & L Securities, which held that the judge was wrong to apportion damages.

The MDC caused them to enter the contract, therefore they were entitled to damages for any loss arising from the contract.

- But now s 82(1)(b) has enacted a proportionality principle, so Brown approach now arguably correct.- But isn’t there a difference b/w cause of entry into contract and cause of loss?]

Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd Fed Ct (Full Ct) 1993FACTS:

- In 1987 AS acquired from Focus a right to the use of, but not an assignment of copyright in, a focus computer program providing an accounting system.

- Using this focus program AS developed a new computer program providing an accounting system specifically targeted at tax agents (‘the AS program’)

- AS then embarked on a joint venture agreement with CCH and Castle Douglas to further develop the software.- The parties executed 6 contracts, one of which contained warranties by AS that (ii) it was entitled to assign

copyright of the AS program to CD without the consent of anyone whomsoever, and (iii) there is no potential claim against the assignor for breach of copyright.

- Upon learning of the original Focus agreement, CCH instituted these proceedings seeking rescission for breach of s 52.

- Trial judge held that the AS program infringed Focus’ copyright, thus Focus had a claim for breach of copyright, and that AS was not entitled to assign copyright to CD without the consent of focus. Thus the contractual warranties were false.

RESULT:- 2:1 Appeal dismissed

LEGAL IMPORTANCE:Contractual Promises as ‘Conduct’- the issue is whether promises embodied in a contract can generate liability under s 52.- s 4(2)(a) states that ‘conduct’ can include the making or giving effect to provisions of a contract. Therefore,

contractual promises are a potentially actionable form of misleading conduct.- Where the contractual promise is a ‘warranty’ – an assurance as to an existing fact or state of affairs – and that

warranty is false, the making of that warranty may constitute misleading conduct.- Where the contractual statement relates to a future matter (ie embodied in a contractual promise), a case for

MDC must rely on the extra steps embodied in s 51A.- Thus contractual promises as to the future can only be misleading if made without reasonable grounds, the

onus being on the promisor to rebut the presumption that the promise was not made with reasonable grounds.

- Thus, according to this case, s 51A regulates/determines the extent to which misleading promises can constitute MDC.

s 75B and Stokes- The trial judge found that Stokes honestly believed that AS had acquired copyright in the software that it

assigned to CD. Thus he was not a knowing participant in the misleading conduct and cannot be held liable.s 87 and ‘loss’- Here, it was ‘likely’ that CCH would lose $1 million from having to buy the copyright from focus. This was

held to be a sufficiently likely loss so as to enliven s 87. It did not matter that they had yet suffered no tort loss or would not suffer a contractual loss.

Futuretronics International Pty Ltd v Gadzhis Vic SC 1992FACTS:

- F owned a commercial building and wanted to sell it by auction. - Mr Gadzhis (G) inspects the building and makes an offer of 2.4 million paid in instalments, which F reject b/c

want a lump sum immediately. But FI encourages G to come to the auction to create a better atmosphere. - At the auction, after 11 (dummy) bids, the price is 2.2 million, then puts in a bid for 2.25 million. Then G puts

in a bid and auctioneer sells it to him. - G then claims that he was not making a real bid, rather was just creating an atmosphere, so he refuses to sign

the contract. - FI sue G for specific performance ie buying the building (Can’t sue for breach of contract b/c sale of land

contract must be signed – statute of frauds).- FI tried a collateral contract argument but this rejected. - Action brought under the Vic FTA (b/c G an individual, not a corporation) mirroring provisions for MDC. - Judge found that at the time he made the bid, G did not intend to sign (ie he did make a genuine bid). Only

after the hammer came down did he change his mind.RESULT:

- G breached s 52, however G succeeded on the remedy issueLEGAL IMPORTANCE:

- Breach of a contract can’t of itself be a breach of the Act, otherwise, every breach of contract would be regarded as MDC, this not what the Act intended.

- Promises can be misleading if dishonestly made. Or, notwithstanding it was honestly made, that it was made without reasonable grounds (either never intended to fulfil it or did not have the capacity to fulfil it), in accordance with s 51A.

- Held that G, at the time he made the bid, did intend to carry it out (thus honestly made); however he did not have reas grounds for making the promise. Section 51 requires G to adduce evidence that he had reas grounds for making the promise. He failed to do this (did not show that he was in fact capable of purchasing the building within the specified time as required), and so was deemed not to have reasonable grounds, therefore his conduct was misleading.

- Judge also said: ‘Breach [of a contractual promise] may, but only may, provide evidence from which one could infer that the promisor never intended or never had the ability to fulfil his obligation’. However, by virtue of s 51A(2), the Court in fact must presume that D had no reasonable grounds.

- Nonetheless, F failed on the remedy issue.Remedy under s 87- On the basis of Gates, the judge refused to grant the remedy sought by F – specific performance – as this

would amount to enforcing the expectation interest.- In this case, F suffered no actual loss, as there was no other bidder at the auction and, even if there was, the

auctioneer could have reheld the auction in accordance with the 20-minute clause.- The Judge thought that this was fair considering the dodgy way in which the auction had been conducted.

[Perhaps this would be a relevant factor in granting relief under s 87 in the light of Gummow J’s comments in Marks re equity guiding the determination of remedy under s 87. Here, F did not have ‘clean hands’ and arguably this would militate against the granting of remedy under s 87 under the Gummow approach.]

Concrete Constructions (NSW) Pty Ltd v Nelson HCA 1990FACTS:

- P injured at work after D foreman told him it was safe to remove a grate when it in fact wasn’t.- P sued D for misleading conduct.- D argued that the injury did not occur in trade or commerce.

RESULT:

- 7:0 appeal allowed. (But minority say s 52 restricted to conduct that misleads consumers)LEGAL IMPORTANCE:

Majority- s 52 is not to be read down b/c of the heading ‘Consumer Protection’. MDC is prohibited in trade or

commerce, regardless of whether or not a consumer is involved.- Distinguishes between activities that, ‘of their nature, bear a trading or commercial character’ and those which

are not of a trading or commercial character but which are undertaken ‘in the course of, or as incidental to’ the operation of a commercial business.

- The requirement that the activity be ‘in trade or commerce’ is restricted the former – that is, activities that are inherently of a commercial or trading character.

- The conduct here was merely a conversation between two employees of a company in the course of building a building. That conduct was not, of its nature, in trade or commerce.

- The minority (Brennan and McHugh JJ) interpret s 52 in the light of the ‘Consumer Protection’ heading in the TPA. They argue that s 52 only operates in respect of misled consumers in the course of trade or commerce. However this view has not prevailed.

Yorke v Lucas HCA 1985FACTS:

- The Yorkes bought their business from Treasureway Stores, for whom Ross Lucas Pty Ltd (represented by Mr Lucas) were acting as agents.

- Mr Lucas falsely represented to the Yorkes that the average weekly turnover of the business was $3500 and average weekly profit was $1200, thus inducing the Yorkes to buy the business.

- Lucas and his company were merely ‘passing on’ this information to Y, and neither possessed any knowledge of the falsity of the representations.

- Treasureway, its director and the Lucas company were held liable at first instance.- Y appealed the finding that Lucas himself was not liable, but failed.- Issue whether individual persons involved in the commission of a misleading representation can be held liable

on the basis of s 75B(1)(a) and (c) despite the fact that they had no knowledge of the dishonest/misleading nature of the reps.

RESULT:- Appeal dismissed. Lucas not liable. Court strongly hints that, had it been cross-appealed, the Lucas company

would not have been liable either due to the ‘passing on information’ defence.LEGAL IMPORTANCE:

Knowledge and s 75B(1)(a) and (c)- In s 75B(a) the words ‘aided, abetted, counselled or procured’ are imported from the criminal law.- Under the criminal law, to be found guilty of aiding and abetting or counselling and procuring the commission

of an offence, the accused must have intentionally participated in it. Such participation requires knowledge of the essential matters which go to make up the offence.

- Although the TPA does not expressly state that the words in this context import their criminal meanings, the Court held that the words should be interpreted as importing the criminal law requirements unless any contrary intention appears (which it does not).

- Section 75B ‘makes use of an existing concept drawn from the criminal law and there is nothing to support the view that the concepts which it introduces should be given a new or special meaning.’

- 75B(1)(c) also requires knowledge, which is explicitly stated: D must have been ‘knowingly concerned in, or party to, the contravention’. It is not enough that D be knowingly involved in the act of conveying the information, he must have knowledge of the central elements of the contravention ie he must know that the representation is incorrect or potentially misleading.

Knowledge and s 52 – a corporation that merely ‘passes on’ info- The Court strongly hinted that, had Lucas’ company cross-appealed, the finding against it would have been

overturned.- Although under s 52 it is irrelevant whether the company intended to mislead (ie a corporation may have

honestly and reasonably engaged in conduct that misled, yet still be found liable), ‘that does not, however, mean that a corporation which purports to do no more than pass on information supplied by another must nevertheless be engaging in misleading or deceptive conduct if the information turns out to be false. If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth’ then it is doubtful that such conduct could be considered misleading.

Gates v City Mutual Life Assurance Society Ltd HCA 1986FACTS:

- G took out an insurance policy with CM. It was represented to him that if he suffered a certain debilitating injury and could no longer undertake his existing occupation, a premium would be payable.

- In fact, the relevant clause only allowed a premium where G was incapable of undertaking any work.- G was injured and unable to participate in his existing job, thus sought payment, only to discover that none was

in fact available under the actual contract.- G sued, alleging breach of s 52 and seeking damages under s 82 of the equivalent of the amount payable under

the insurance policy (ie the amount payable had the agent’s representation been true).- The issue before the court was whether the tort measure or contract measure of damages should apply.

RESULT:- Tort measure applies, G incurred no loss. Appeal dismissed

LEGAL IMPORTANCE:- In contract, damages are awarded with the object of placing the plaintiff in the position he would have been in

had the contract been performed. He is entitled to expectation loss and reliance loss.- In tort, damages are awarded with the object of placing the plaintiff in the position he would have been in had

the tort not been committed (similar to reliance loss).- It is thus relevant to look at the opportunities foregone by P in relying on the stmt (and entering the contract)- Court held that the tort measure is applicable in ‘most, if not all’ s 52 cases, as such conduct is similar to

tortious conduct such as fraudulent stmts.- Thus, applying the tort measure, it is necessary to ask what G would have done had the representation not been

made and relied on.- In this case, the evidence shows that P would have entered the contract anyway, as G did not adduce any

evidence that any other insurance company in fact offered the premium he desired.- But for the misrepresentation, G would have proceeded exactly as he did, except that he would not have paid

the extra amount for the total disability cover.- It was also not proved by G that the extra amount he paid for total disability cover was not in fact worth what

he had paid for it.- So there is no relevant loss that can be compensated by the tort measure. G gets nothing

Marks v GIO Australia Holdings Limited HCA 1998FACTS:

- M borrowed money from GIO under a loan contract called the AAA facility.- The rate of interest under the facility was represented as being ‘fixed’ at a margin of 1.25% above an external

variable rate.- However, the contract in fact contained a clause that entitled GIO to vary any of the terms in the contract as it

sees fit.- *Part way during the term of M’s loan, GIO decided to raise the margin to 2.25%. GIO notified M of the raise

and offered them the option of withdrawing from the loan without suffering the penalty that would normally accompany an early withdrawal. [This fact was important because, for Gummow and Gaudron, giving Ms a free option to get out of the contract allowed GIO to avoid paying for relief under s 87].

- There is no dispute that GIO’s initial representations were misleading.- However, at all material times, the interest rate was the lowest available on the market, even after being raised

to 2.25%.- Thus Ms only suffered ‘loss’ in the sense of expectation loss.- It was not suggested here that Marks would not have borrowed at all if the true facts had been represented to

them. Thus this is not a case like Demagogue in which it was open for P to argue that they suffered loss by incurring legal obligations that they otherwise would not have incurred.

- The issue on appeal regarded damages under s 82 and an order for contract amendment under s 87: in essence, whether or not M could be compensated under the Act for their alleged loss.

RESULT:- 5:1 in favour of GIO.

LEGAL IMPORTANCE:- All judges agreed that the type of remedies available under ss 82 and 87 are not to limited by analogies with

tort and contract remedies. The analogies may be useful but they do not determine the sorts of loss that are compensable under the Act.

- It is incorrect to interpret Gates as holding that the tort measure always applies.

- Majority hold that there is no compensable loss here b/c Ms could not show that they had incurred any actual loss or that they were likely to incur any actual loss as a result of the MDC.

McHugh, Hayne and Callinan JJ- ‘Very often’ the amount of loss or damage caused by s 52 will be the same as what would have been allowed

in deceit (ie the tort measure), but it is not limited to this measure of damages.- Section 82 requires a causal link between the loss and the misleading conduct, so must look at the position the

party would have been in but for the conduct.- Under s 82, a P can only recover ‘for actual loss or damage incurred, as distinct from potential or likely

damage.’- A party suffers no loss or damage unless they could have acted in a way more beneficial or less detrimental

than the course adopted due to the misleading conduct, and only if the more valuable alternative course was available (and would have been adopted) could it be said that the party suffered a loss by acting on the misrepresentation.

- Similarly, section 87 can only provide a remedy if actual loss has been, or is likely to be, suffered. In this sense, these three judges seem to be departing from what was said in Demagogue, but they simply say that, to the extent that Demagogue held the contrary, ‘we consider it to be wrong’. However it is not at all clear which aspect of Demagogue they were referring to.

- On one hand, the footnote and accompanying text re actual loss seem to imply that an order for rescission based on the mere loss that arises from entry into an unwanted contract due to misleading conduct is not in fact available under s 87, as that section requires the same sort of actual loss or damage as does s 82. In which case, this amounts to an overruling of what the whole Court said in Demagogue.

- On another reading they might only be disapproving of what Gummow J said about being able to pinpoint a pecuniary loss by looking at what has happened to the party after the contract (which was a bit far-fetched anyway). In which case the notion that ‘loss’ is broader under s 87 and can extend to unwanted contractual arrangements has not been overruled.

- This vague footnote and assertion has left the law in this area unclear.- However one might argue that Demagogue still stands as only these three judges of the High Court have

disapproved, and it is not clear what aspect they have disapproved of, so should continue to apply what was held – at least regarding the broader definition of loss under s 87 – in Demagogue.

Gaudron J- This judgment explains quite clearly the situation in regards to remedy.- Her honour makes the useful point that tort and contract damages represent the kind of wrong that occurs in the

respective situations. Contract damages (for expectation loss), rather than being a generic type of damages applicable in other contexts, reflect the nature of contract law – the expectation of parties that promises will be fulfilled.

- The sort of loss occasioned by misleading conduct is not an inherently contractual loss – it is a separate legal creature – thus there should be no immediate right to the damages that are awarded for breach of contract.

- The Act provides for damages for loss suffered as a result of a contravention. The task is simply to identify the loss actually suffered (or, in the case of s 87, likely to be suffered), which may be equivalent to damages that equate to expectation loss, but may not (as is the case here).

- Re s 87, P must show that loss/damages has been suffered or is likely to be suffered. ‘Likely to suffer’ imports only that loss or damage is a real chance or possibility, not that it is more likely than not.

- If Ms had been held to their contract and they could successfully argue that the rate would increase again to levels above that of market competition, a remedy may have been available under s 87.

- Agrees with Gummow J that equitable principles can help guide the provision of remedies under s 87.Gummow J- Loss or damage is the gist of the action for MDC. The cause of action does not accrue until actual loss or

damage is sustained.- Equitable principles can help guide the provision of remedies under s 87.- Before granting a remedy under s 87, must look at the circumstances, including the conduct of the parties after

they knew of the misleading conduct. In this case, GIO did not take advantage of its misrep as it wrote to the Ms giving them the option of withdrawing from the loan contract. The fact that it was an innocent misrep and that the rate was still the cheapest on the market influenced the outcome.

- In the end, no proof that loss had occurred or was likely to occur, so no remedy under s 87.Kirby J (dissenting)- Cannot overlook the fact that GIO has breached s 52 of the TPA. The purpose of the Act is to promote fair

trade practices and to provide remedies for victims of unfair trade practices.

- Thinks it extremely ‘odd’ that despite the broad remedial powers conferred by s 87 the Court cannot provide a remedy for a serious breach of s 52.

- Essentially, thinks that ‘loss or damage’ ‘extends to loss of expectation of profits’. Therefore, the Court has the power under s 87 to grant relief that accords with the loss suffered by the Ms.

Ratio- Remedies under ss 82 and 87 are not to be determined by analogies with tort and contract.- Under s 82, remedy only available for actual loss or damage incurred as a result of the misleading conduct –

this may be the equivalent of expectation loss if, but for the misleading conduct, they would have taken a course of action that entitled them to what they expected under the existing contract.

- Under s 87, remedy depends on proof of actual loss or loss likely to occur as a result of the misleading conduct.

o Gaudron J: ‘Likely to suffer’ imports only that loss or damage is a real chance or possibility, not that it is more likely than not.

o Gummow and Guadron JJ: Equitable principles may guide the determination of appropriate remedy under s 87. Thus must consider factors such as the parties’ conduct after learning of the misleading conduct; the nature of the breach etc.

o Not clear whether loss is a broader concept under s 87 due to 3 judges’ disapproval of Demagogue.

I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd HCA 2002 (NOTE: overruled by s 82(1B))FACTS:

- I&L, a lender, loaned a third party developer, C, $950 000. - The loan was secured by a mortgage over C’s land, which was valued by HTW at $1.5 million- The land was in fact valued at substantially less than that – the valuation was conducted negligently.- C defaulted on its payments and went under. I&L could only sell the land for some $500 000.- It sued HTW for MDC for the difference.- The lower courts held I&L one third responsible for the loss due to its failure to make adequate checks on C’s

ability to repay the loan, and reduced damages accordinglyRESULT:

- 6:1 Full award of damages reinstated. No proportionality principle under ss 82 or 87LEGAL IMPORTANCE:

- Majority held that an award of damages under s 82 could not be reduced in proportion with the fault of the plaintiff, as the Act does not allow for such action. In particular, the wording of s 87 does not confer a discretion to reduce the award of damages under s 82.

- However this is no longer the case due to the recent enactment of s 82(1B), which allows a proportionality approach to be taken.

MISTAKE REMEMBER: mistake may also provide grounds for arguing frustration. The doctrine of mistake may apply where one or both of the parties to a contract has insufficient or erroneous

information about the transaction for reasons unrelated to the conduct of the other part. Mistake is quite a vague doctrine and has been treated haphazardly by the courts. Court must decide whether te mistake is sufficiently serious to vitiate the contract. There is both a common law and an equitable jurisdiction of mistake. Courts have been reluctant to hold contracts void ab

initio at common law, but have been more willing to render a contract voidable under equity. Where a party is trying to get out of a contract argue first under the common law (void) and then try equity (voidable).

Common Mistake Situation: Both parties to the C have made the same mistake (eg both thought ship was in the dock.)Common Mistake at Common Law AND at Equity Courts are very reluctant to void contracts for common mistake, even if the mistake is a fundamental one. However, there are two situations in which a court may render a contract void or voidable under common law or at equity.

Both of these are problems in that they are both cases of a complete failure of consideration on the part of one party:o Parties believe subject matter of contract exists, when in fact it does not (res extincta) (eg disappeared/never

existed);o Subject matter to be sold/leased is in fact already owned by the purchaser (res sua)

However the HCA declined to apply the res extincta approach in McRae, so argue this as well:Common Mistake at Common Law There is a serious question as to whether this doctrine even exists. Try the McRae approach: McRae: Where a common mistake is alleged, need to examine ‘what did the promisor really promise?’ This is a question

of construction. Ask:o Was the existence of the subject matter a condition of formation?o Or did one of the parties impliedly assume the risk of the subject matter not being in existence, such that the risk

when materialised that party was at fault? breach contract. However, if common mistake is an independent doctrine, it is unlikely to be found by the Court. Even if the mistake is fundamental, it is not likely to render the contract void: Solle. Where D induced the mistake through its own recklessness/negligence, it may be precluded from relying on mistake:

McRae. Summary: thus it seems unlikely that there is a doctrine of common mistake at common law. Try the construction

approach. Even if there is a doctrine, Courts unlikely to apply it; unless perhaps if there is a total failure of consideration or the subject matter was in existence but has ceased to be in existence (unlike McRae).

Common Mistake at Equity Even if the contract is not void at CL, mistake may still lead to the C/T being rescinded or varied on equitable grounds’:

SolleJURISDICTION But note that the UK Ct of App overturned Solle and held that common mistake is to be treated at common law, not

equity. This leaves the Australian situation in some doubt. However, as it stands, equitable doctrine still applies in Australia on the basis of Taylor v Johnson. Although that case

related to unilateral mistake, it appears that the Court incorporated the equitable jurisdiction for all categories of mistake.EQUITY Assuming that Solle is still good law in Aus and that the equitable jurisdiction applies here, the court has the power to set

aside a contract whenever it is of the opinion that it would be unconscientious for the other party to retain the advantage gained: Solle.

Equity will relieve a party against the consequences of mistake, as long as this can be done without causing injustice to a third party.

TEST: Solle: A court may set a contract aside in equity, provided all of the following are made out: 1. Misapprehension: there was a common misapprehension as to facts/future rights2. Fundamental: the misapprehension was fundamental, and 3. Not at Fault: No fault on the part of the party seeking to set aside the C/T

OUTCOME: Court may rescind the contract at equity, but may adjust the outcome to do what is practically just between the parties, with the aim of putting them in the situation they would have been in had the mistake not occurred: Solle.

Partial or substantial execution will NOT be a bar to rescission: Seddon’s case not followed in: Solle NOTE: Mistake is different from rectification, wherein the parties have mistakenly recorded their agreement in a

document, court may order rectification so long as there is a common intention: Pukallus

McRae v Commonwealth Disposals Commission HCA 1951

FACTS: - Cth advertised in newspapers inviting tenders for the purchase of an oil tanker, described in the ads as lying on

a reef near Papua.- M submitted a tender, which was accepted by the Cth. The Cth then gave M the location of the tanker.- However, in fact, there was at no material time ever such a tanker lying at or anywhere near the location given.- The Cth argued that the parties had made a common mistake as to the existence of the tanker (the entire subject

matter of the contract) and therefore contract should be void ab initio.RESULT:

3:0 Appeal by M successful. Cth in breach.LEGAL IMPORTANCE:

- Judges held that the law does not recognise common mistake as an actionable doctrine.- Only way in which non existence of tanker could render contract void is if it were shown that the existence of

the tanker was a condition of formation.- This is a question of construction of the contract based on their presumed intentions to be inferred form the

contract and surrounding circumstances: ‘what did the promisor really promise?’ - Court held that, here, the proper construction of the contract was that the Cth promised that there was a tanker

in the location specified. Since there was no such tanker, Cth breached its contract and M entitled to damages.- Comes down to a question of allocating the risk of a mistake – here Cth bore the risk of the tanker not being

where it said it was.- However, if there is a doctrine of common mistake, Cth precluded from relying on mistake because it induced

the mistake through its own recklessness/negligence – it in fact had no reasonable grounds for asserting the existence of the tanker.

- [Nothing is mentioned in this case about equity.]

Unilateral Mistake Occurs when one of the parties is mistaken as to the effect/content of the transaction. Courts are reluctant to intervene here. On the one hand, consider the unfairness of binding a party who has

made an error and thus hasn’t really consented. On the other hand there is a necessity to hold the parties to the contract that they have objectively consented to.

Common Law Unilateral Mistake If there is an objective meaning to the contract, notwithstanding one party has made a mistake, the contract will

be enforced and the objective meaning of the contract prevails: Taylor v Johnson The only exceptions to this are: (1) Non est factum: Petelin v Cullen (Most well known exception); (2)

Mistake as to identity (3) ‘Informal contracts’ (potentially due to dicta in Taylor, but no-one knows what the majority means here) See below.

Unilateral Mistake at Equity Similar to the situation at common law, the Courts will apply the objective test such that regardless of whether

one party subjectively made a mistake, that party will be held to the bargain. HOWEVER, at equity unconscionability on the part of the non-mistaken party may be relevant:

Court looks to the effect of the mistake and the conduct of the non-mistaken party: Taylor v Johnson Taylor v Johnson: A will be entitled to equitable relief (ie contract voidable) if all of the following are

satisfied:o Serious Mistake : A entered the contract under a serious mistake about its contents in relation to a

fundamental term;o Knowledge : B is aware of the circumstances that indicate that A is entering the contract under a

serious mistake; and o Unconscionability: B deliberately sets out to ensure that A does not become aware of the mistake.

What happens where B knowing that the other party is mistaken but remains passive? This may satisfy the above test, but this was left open in Taylor v Johnson. This may indicate that some sort of positive conduct is required. [If this comes up in an exam, note the lack of clarity but apply the general notion of whether it is unconscionable in all the circumstances to allow the contract to stand. Question whether this ‘broader’ principle can be applied in light of Taylor. Perhaps apply substantive unconscionability (ie outcome of transaction) as well to see if that tips the balance either way.]

If B is found to have acted unconscientiously, the contract will be voidable. Note that substantive unconscionability (ie outcome of transaction) may also be relevant, this factor probably

influenced the decision in Taylor (though not expressly mentioned).

Limits to the Principle: B must not have materially altered his position and the rights of third parties must not have intervened: Taylor v Johnson.

NOTE: can Taylor v Johnson be interpreted as standing for a broad principle that contracts can be set aside for mistake if to enforce them would be unconscionable in the circumstances? Or is it limited to the type of situation in Taylor v Johnson?

NOTE: Dawson J’s dissent in Taylor v Johnson: emphasises the objective approach; necessity of certainty in commercial dealings. Says that rescission in equity only available where there is ‘fraud, misrepresentation or, perhaps, sharp practice falling short of fraud’. Leans toward the accepted-doctrines-of-unconscionability approach. Could use this as basis for arguing that current HCA might follow this approach in line with Tanwar, as current Court seems reluctant to allow unconscionability on the basis of ‘at large’ equity principles and vague notions of ‘unconscionability’.

Mistakenly Signed Documents– non est factum (Common Law) This may be invoked where A mistakenly signs a document. It has the effect of rendering the contract void. Thus argue it where equity unavailable b/c can’t show knowledge and unconscionability; or where a third

party has acquired an interest in the subject matter and you want to defeat their claim to its title. The onus of proving non est factum is hard to discharge; clearly restricted to extreme cases. Petelin: The doctrine is available to A – thus contract rendered void – where A can prove that:

o A is illiterate or blind or totally reliant on others to advise him re the document or otherwise through no fault of his own is he is unable to have any understanding of the purport of a the document; AND

o A signed the document in the belief that it was a thing radically different from what it was; ANDo A’s failure to read the document was not due to carelessness (failure to take reasonable precautions) on

his part [this probably covered by first requirement]. This last requirement (lack of carelessness) is crucial if asserting the contract as against innocent third parties

who have no knowledge of the circumstances in which it was signed. It seems in Petelin that the defendant’s state of mind can be (to an extent) objectively determined.Mistakes as to Identity A contracts with B, who fraudulently claims to be C or C’s agent. B acquires property from A under the

contract and on-sells it to D, the innocent third party. If B skips town, who bears the loss, A or D? If common law applies and contract is void for mistake, nemo dat applies, D bears loss and returns property. If equity applies, contract is voidable for mistake, the innocent party D prevents the order for rescission In light of Taylor, Court may swing towards equity, favouring the innocent third party.

Mutual Mistake No difference b/w common law and equity. Parties have conflicting views about a contract’s meaning, and both are incorrect. This may arise if the contract is objectively ambiguous, ie something is susceptible of more than one

meaning and each party adopts a different interpretation. In such a situation, could argue that contract void for uncertainty; in the rare case may hold that it is void due

to common law mutual mistake. The contract may be void for mistake if it cannot be ascribed an objective meaning: Raffles (2 ships called

Peerless in the port of Bombay, each party thought contract referred to a different ship) However if the contract is capable of being given its objective meaning then it will be enforceable.

Mistake and s 52 Where there is a reasonable expectation of disclosure, failure to inform other party of mistake may amount to

misleading conduct, ie party with knowledge may be obliged to tell the mistaken party (eg Demagogue).

Taylor v Johnson HCA 1983FACTS:

- Mrs Johnson (J) owns land; sells it to T via a contract document that says total $15,000 for 10 acres. - But J thinks the contract says $15,000 per acre – she didn’t read the contract because she didn’t bring her

glasses. She thought she was getting a bargain. - Under its then current zoning, the value of the land was $50 000, and that would have increased to $195 000 if

a proposed rezoning of the land had been effective.- HCA took the view of the evidence that was taken by the Court of Appeal: they inferred from the

circumstances that T was aware of J’s mistake and that by refraining from mentioning the true price and by the manner in which he procured the execution of the contract (positive conduct?), he deliberately set out to ensure that J was not disabused of her mistake.

RESULT:

3:1 Appeal by T dismissed; contract set aside.LEGAL IMPORTANCE:

Majority- The court allows Mrs Johnson to avoid contract, because Mr Taylor knew Mrs Johnson had made a mistake

and intended to keep Mrs Johnson in a state of ignorance. Taylor was engaging in unconscionable conduct. T took steps to keep Mrs Johnson from learning the truth; didn’t want her disabused of her mistake.

- This principle is that a contract can be avoided if it would be unconscionable to enforce the contract in light of the mistake. We will allow a mistake to invalidate a contract if it would be unconscionable in light of the mistake to enforce the contract.

- Could also interpret it to represent the finer, narrower principle that a party who enters into a contract on the basis of a mistake that the other person was aware of, and the other party takes deliberate steps to ensure that they are not disabused of their mistake, a contract will be void.

- [What happens where B knowing that the other party is mistaken but remains passive? This was left open in Taylor v Johnson. This may indicate that some sort of positive conduct is required. Seems that the positive conduct here was the taking of steps to procure the execution of the contract in the way that he did (not clear what he did from facts). This was obviously enough in the circumstances.]

- [Consider substantive unconscionability: at some point it becomes unconscionable to be deprived of property below its value; can reflect on the outcome of the transaction.]

Dawson J (dissenting)- emphasises the objective approach; necessity of certainty in commercial dealings. - Says that rescission in equity only available where there is ‘fraud, misrepresentation or, perhaps, sharp practice

falling short of fraud’.- [Similar to HCA in Tanwar – current HCA might follow Dawson approach].

Petelin v Cullen HCA 1975FACTS:

- C paid P $50 for an option to purchase P’s land and paid a further $50 later.- P spoke only a little English and could not read at all. - C’s agent asked him to sign a piece of paper to acknowledge the 2nd payment – the document he signed was

actually an extension of the option.- Thus P thought that he was signing a receipt, whereas he was in fact signing the option extension.- P argued that the option should be void under the doctrine of non est factum

RESULT:- Contract Void. Appeal by D successful

LEGAL IMPORTANCE:- Court held that the doctrine is available where P is blind/unable to read/must rely on others for advice; and to

those who through no fault of their own are unable to have any understanding of the purport of a particular document.

- P must show that s/he signed the document in the belief that it was a thing radically different from what it was; and that failure to read was not due to carelessness (failure to take reasonable precautions) on his part.

- This last requirement (lack of carelessness) is crucial if asserting the contract as against innocent third parties who have no knowledge of the circumstances in which it was signed.

- But if merely careless and the other party knew of the circumstances then mistake may apply [NOTE appears this situation now covered by Taylor v Johnson].

- Court finds Petelin not careless, but even if he was, C knew he could not speak English.- [It seems in Petelin that the defendant’s state of mind can be (to an extent) objectively determined.]- The onus of proving non est factum is hard to discharge; high standard required.

DURESS Duress is about unacceptable pressure or coercion being exerted against A by B prior to entering the contract. Duress may blur into other vitiating factors, so may also need to explore UI, UD, UC, misrep and MDC. There has been a shift of focus from the victim of the duress (whether voluntarily entered the contract) towards

a focus on the perpetrator of the duress, focussing on the legitimacy of the pressure exerted by him. The test for duress is whether illegitimate pressure of an actionable nature has been applied by B; and such

pressure induced A to enter into the contract. We need only concentrate on the right to rescind for duress. A finding of duress will render a contract voidable.1. Prerequisite: Restitutio? Does this apply to the right to rescind for duress? We don’t know. Perhaps it ought to, but there are no

apparent cases in which this has been the issue. Perhaps mention briefly in exam and state an opinion before quickly moving on.2. Illegitimate Pressure This requires an examination of the conduct of the party exerting the pressure (D) so as to determine whether

or not the acts committed are capable of being viewed as ‘illegitimate pressure’ in the eyes of the law. Duress either comprises (1) an unlawful threat; or (2) unconscionable conduct (although it is an open concept,

there may be other forms of duress): Crescendo The currently (but not closed) recognised forms of duress are thus: threats to commit crimes or torts (against

the other party or his property); economic duress (illegitimate commercial pressure); and the broader category of unconscionable conduct (thus even lawful acts may be illegitimate if unconscionable).

THREATS TO THE PERSON Actual violence or threats of violence by B or an agent of B against A or someone close to A clearly constitute

illegitimate pressure. Such threats are clearly unlawful: See Barton.THREATS TO DAMAGE OR DETAIN GOODS Situation occurs when A has B’s goods and won’t return them unless A signs a contract; or where A threatens

to damage goods belonging to A. Both types of conduct are likely to be unlawful, both in criminal and in civil law; and there is no longer any

impediment to a finding of duress in relation to A’s goods: Hawker Pacific Even if the withholding of the property may not be unlawful (ie if both parties have a proprietary right), argue

that it was unconscionable: Crescendo. A threat does not have to be express, but can be implied via conduct in the circumstances: Hawker Pacific.ECONOMIC DURESS Courts have recognised that economic pressure can amount to duress: TA Sundell. However courts will be cautious to intervene in the world of commerce, where clearly varying types of

economic pressure are applied by market players all the time. The Crescendo test applies (unlawful or unconscionable) as it does elsewhere. An example of successful economic duress is where a bank withholds money lawfully owed to a customer to

get him/her to sign another contract: Crescendo ECONOMIC DURESS: CONTRACT VARIATION A common example of economic duress is where B Withholds or threatens to withhold performance of an

existing contract to get A to agree to vary it: eg TA Sundell. Clearly, such a threat can amount to duress: TA Sundell. However note that TA Sundell is an old case that was decided before the introduction of the practical benefit

doctrine and before the foundational case of modern duress, Crescendo. Therefore should argue afresh whether economic duress is made out in a contract variation case. Issues of lawfulness (and whether or not threat to breach a contract is ‘unlawful’); unconscionability (evil or legitimate motive for taking advantage of A’s desire to have the contract fulfilled?) and implications for the practical benefit doctrine should be considered

Person alleging duress should argue: no valid variation as the payment was made under duress and the other party has offered no fresh consideration, promising only to perform an existing legal duty. Argue that the duress is unlawful b/c amounts to a breach of contract (anticipatory breach); or unconsc in the circs; should try and show that A protested; manifested discontent at the situation being imposed (Sundell); B’s evil motive.

person who procured the variation should argue: A waived his rights under the original contract by agreeing to the variation; variation gave A a practical benefit (Musumeci) new contract has been formed; merely threatening to breach contract not ‘unlawful’ in the required sense (must also be wrongful); argue not unconscionable in circumstances; legitimate motive; A did not protest etc.

In an exam, the language used by the parties and the circumstances under which A agrees to the variation will have to be examined closely to determine whether he was willing to accept the practical benefit or he was in fact begrudgingly coerced into agreeing to the variation. In this regard, the issue of whether A protested may be relevant (Sundell).

OTHER FORMS OF DURESS Economic torts (eg inducing intimidation and inducing breach of contract) Blackmail, which is ‘making an unwarranted demand … with menaces’ (Crimes Act (Vic) 1958 s 87). So a

contract induced by blackmail could be voided for duress. Exploiting a situational monopoly/life-threatening situations: The Port Caledonia and the Anna (A in life

threatening situation, needed rescue by B, B charged exorbitant price). This probably covered using unconscionability (evil motive etc).

PRESSURE MAY BE IMPLICIT FROM CONDUCT/CIRCUMSTANCES A threat does not have to be express, but can be implied via conduct in the circumstances: Hawker Pacific.2A. Intention/Evil motive? Is the intention of B to impose illegitimate pressure on A to enter the contract relevant/necessary? Arguably

not according to Sundell, but probably an important factor in Barton. Or does it merely go to the issue of unconscionability? Canvass this in an exam, discuss the above two cases.3. Causation/Inducement The threat need only be a reason for entering the contract (not THE reason or the main reason): Barton The onus of proof in cases of duress is shifted onto the party who makes the threat. That party must show that

the duress contributed nothing to A’s decision to enter the contract: Barton Thus in Barton, but for the threats, Barton may still have signed BUT the onus was on Armstrong to show that

the threat had no impact at all. The onus is thus extremely difficult to discharge, thus if illegitimate pressure is established, causation will

follow almost automatically. Should argue as a counter-argument that this onus is far too high and court should shift it back to the party

alleging the duress, esp in cases not involving violence and threat to persons (seeing as Barton was a murder threat Court obviously keen to make the onus difficult to discharge; could thus argue that in cases of property or economic duress that the test should be loosened). Use the minority from Barton to argue this (minority held that the pressure was not operative; onus on A to show causation was a cause but even that not established).

Restrictions on the Right to Rescind (i) Contractual Restrictions (ii) Unconscionability (ii) Partial Rescission: Could be possible. Degree of rescission is determined by what A would have done but

for the duress (applying Vadasz). If A would have entered/varied part of the contract, could probably apply partial rescission. If would not have entered contract at all, then full rescission.

Loss of the Right to Rescind Election to affirm: Hawker Pacific. Did A elect to affirm the contract at a later stage (obviously when the

duress had subsided)? But clearly A must be aware that they have a right to get out of the contract for duress, otherwise they could just be fulfilling obligations b/c feel obliged to. Thus, as usual, must be an unequivocal election to affirm the contract.

Waiver: same as always. Estoppel: Hawker Pacific. If A promises to complete the contract regardless of the duress, may be estopped

from refusing to complete (again, seems that A must expressly promise not to rely on duress); must be relevant detriment suffered by the other party in assuming that the contract would be completed (this was measured in terms of reliance loss in Hawker Pacific, where it was held that the reliance loss was too minimal to amount to a ‘material detriment’).

Effect and Remedies under the General Law Voidable: A contract that has been entered into under duress is voidable NOT void: (Barton) gives the

wronged party a choice Damages: Where a contract has been declared void ab initio, the victim must recover in tort, because the C/T

no longer exists.

Duress and the TPA s 53A(2) relates only to coercion in connection with the sale or grant of an interest in land.

s 60 deals only with corporations as they relate to consumers: A corporation shall not use physical force or undue harassment and coercion in connection with the supply of Goods and Services to a consumer (or FTA s21(1),(2) , substituting ‘person’ in place of ‘corporation’ and ‘consumer’).

Note the use of the term ‘undue harassment or coercion’ as potentially larger in scope than common law duress.

However no apparent cases dealing with undue harassment leading to entry into a contract, as distinct to harassment to enforce a contract, to which it may apply (eg debt collectors)

Although note (but don’t read) ACCC v McKaskey. Potential for repeated approaches toward consumers to amount to a breach of s 60 if these approaches lead to formation of contract.

Remember, if can establish a breach of these sections, remedies would be potentially available under the Act (ss 80, 82 and 87).

In an exam, raise this and discuss briefly, but doesn’t seem to be an important part of the course.

CASES: DURESSHawker Pacific Pty Ltd v Helicopter Charter Pty Ltd NSWCA 1991FACTS:

- HP had in its possession two of HC’s helicopters, on which it was carrying out painting work pursuant to HC’s request that the original painting work be rectified (it was inadequate).

- HC’s representatives went to HP to retrieve the helicopters, which they urgently needed to use that day.- HP’s representative knew that HC needed the helicopters urgently.- HC then produced a document (the contract) specifying that HC would pay the monies owing for the painting

work and releasing HP for any liability.- HC’s rep believed that if he did not sign that document he would be prevented from retrieving the helicopters,

so he signed it.- HP’s rep did not actually make any representations to that effect, however the court held that HC’s belief that

they had to sign the contract to get the helicopters was justified in the circumstances.- HC argued that it signed the contract under duress.- A few days later, when HP went to collect the cheques, they were told to come back tomorrow. HP on

numerous occasions thereafter went to collect the cheque, but HC kept ‘fobbing them off’.RESULT:

Appeal by HP dismissed 3:0. Duress establishedLEGAL IMPORTANCE:

- Court specifically rejected the traditional view that threats to property cannot constitute duress.- Held that the threat to withhold the property does not have to be express, but can be implied via conduct in the

circumstances. The circumstances were such that HP’s actions constituted duress.- [Was holding the copter an unlawful act? Hawker had no lien b/c copter only being returned to fix up original

inadequacies. Thus HP, by withholding the copter, were in breach of civil proprietary right and thus ‘unlawful’ Also could be considered unconscionable (taking advantage of vulnerability constituted by the urgency of the situation).]

- Estoppel: HP argued that HC, by saying they would pay (but continually fobbing them off) amounted to a promise to affirm the contract, denial from which they should be estopped.

- Court held: (i) HC did not unequivocally represent that they agreed to be bound by the contract.- (ii) HC’s disadvantage was minimal, only involved expense of going to try and collect the cheque on numerous

occasions – this not sufficient ‘material detriment’ for estoppel.- Also argued that the fobbing off amount to an election to affirm, again, not sufficiently unequivocal.

TA Sundell & Sons Pty Ltd v Emm Yannoulatos (Overseas) Pty Ltd NSWCA 1956FACTS:

- EY manufactured galvanized iron, and by contract agreed to sell to Sundell (S) 88 tons worth if iron at a price of $108 per ton.

- About 4 months later, EY wrote to S: ‘shipment will shortly commence provided adjustments can be made in the price owing to the fantastic rises in the price of zinc.’

- EY made it abundantly clear that if he did not increase his price he would lose his iron, and that he was merely ‘passing on’ costs.

- S urgently needed the galvanised iron to fulfil a contract with the Qld Housing Commission.- S agreed to pay the increase in price but made it clear that he wished to reserve his rights under the original

agreement.- EY shipped the goods and S paid the full (increased) amount.

- However S then sued to recover the difference between the increase and the original agreed amount, arguing that he had only agreed to pay the increase in protest and under duress.

- Issue whether EY’s action constituted duressRESULT:

- Duress made out.LEGAL IMPORTANCE:

- EY argues that refusal to perform a contractual duty cannot amount to duress, but court rejects this.- Fact that S clearly did not agree to the rise relevant here. Court held that EY clearly made a threat not to ship

the iron if it did not get its price rise, and S’s agreement to pay the increase was explicitly conditional that he get it back again.

- So duress made out.- [Note however that this case is very old and would nowadays no doubt be confused by developments in

contract law, notably the practical benefit issue (Musumeci) and the duress requirement in Crescendo:- Here, EY’s failure was strictly ‘unlawful’ in that it was a threat to breach the contract.- But S obtained a practical benefit from having the contract fulfilled, as he was able to fulfil his existing

contract with the Housing Commission – a better outcome than EY defaulting and S having to sue him and default on his Housing Commission contract. So if threat to breach a contract is ‘unlawful’ then every contract variation situation in which B threatens not to perform will amount to duress. The consequences of this are that it would virtually eliminate the practical benefit doctrine.

- What about the question of unconscionability and the relevance of an evil motive? Here, EY’s increase was quite legitimate (passing on costs). In Barton the Court implied that the evil intent was relevant, but the lack of unconscionable motive here was not discussed. Arguably it was also clearly relevant here.

- In the end, S probably would have prevailed anyway here as he made clear all along that he was not agreeing to the variation (or that the variation he agreed to included a term that the difference would be refunded), but a party may not be so explicit about its rights in an exam.]

Barton v Armstrong 1975 Privy Council (on appeal from the NSWCA)FACTS:

- Concerns a development project on land in Surfer’s Paradise (‘Paradise Waters’).- A was the original owner of the land and sold it to the Landmark corporation (the developer of the project), of

which A was the Chairman and largest shareholder. B was managing director of Landmark.- Landmark came into serious financial strife re financial troubles and project costs.- This led to stress on the parties involved and eventually a falling out b/w A and B - There was then a boardroom struggle in which A was turfed out, upon which he demands the money to which

he is entitled under his contract. B seeks a loan to pay this but it is refused. - So the parties do a deal (the deed), the idea being that A agrees to resign from all the companies, in return for

which a number of promises are made to A, such as payments, shares, penthouse etc. B himself makes a personal guarantee on these promises.

- The trial judge found that A made a very long list of threats to have B killed, including hiring a convicted criminal to watch him and to threaten to kill him unless B entered the above agreement.

- It was also found that these threats had a very real impact on B, who hired bodyguards and moved house.- B claims that this sequence of events constitutes duress. - Despite these attempted rescue operations, Landmark goes under, so B brings this action seeking an injunction

declaring that a contract was invalid so as not to be held personally liable.- Trial judge found that, although A’s actions clearly illegitimate pressure, that B would have entered the

contract anyway, as it was the only commercially sensible thing to do – the company had to get rid of A.RESULT:

3:2 Appeal by B allowedLEGAL IMPORTANCE:

Majority- This is an obvious case of illegitimate pressure, which clearly impacted on B.- Trial judge applied wrong test of causation, need only show that pressure was a cause of entry into the

contract.- Even though B probably would have entered anyway, clear that the threats were a factor inducing him to enter

into the contract.- The onus of proof in cases of duress is shifted onto the party who makes the threat. That party must show that

the duress contributed nothing to A’s decision to enter the contract.

- Thus even though but for the threats, Barton may still have signed, the onus was on Armstrong to show that the threat had no impact at all. So duress established.

Minority- Agreed that need only show a cause, and that this will usually be fairly easy for A to prove.- However in some exceptional cases, of which this is one, the evidence may reveal that A in fact entered the

contract entirely for other reasons.- Evidence here established that B happy with the agreement, entered out of commercial necessity. So

inducements not even a cause [but surely this is not how one applies the ‘a’ cause test??]

UNDUE INFLUENCE UI concerns the ‘improper exercise of ascendancy or domination … affecting the will or freedom of judgment’: Buttress Whereas duress is about forcing someone to enter a contract against his will, UI occurs when A wants to enter the contract

but his will is overborne by B such that he has been influenced to form that will or desire ie no longer exercises independent judgment.

Intention by B to benefit himself is not necessary; nor is moral wrongdoing on the part of B. It is enough that B has, in his ascendant position, not made the welfare of A his paramount consideration.

It is a purely equitable doctrine creating the right to rescind. Right to rescind for UI is created in one of three ways:

1. Actual UI: A affirmatively proves that his will was so overborne by B that the transaction cannot be considered a free and voluntary act. Uncommon but can arise where there is no antecedent relationship to raise a presumption. A must prove UI as a fact in particular case.

2. Presumed UI type A (Automatically Presumed): Parties are in a r/ship that falls within the traditional categories of r/ship in which the law presumes UI. Usually arises in r/ships where B has exceptional authority over A and is under a duty to give disinterested advice such that the possibility that B might have put his own interest uppermost is so obvious that B under a duty to prove that the position has not been abused. UI presumed; onus on B to rebut presumption of UI.

3. Presumed UI type B (Presumed in Particular Case): Where the r/ship is not one of the traditional relationships recognised in category 2, but where A establishes that s/he generally reposed such trust or confidence in the wrongdoer that the Court should presume UI. onus on A to establish the general reposition of trust; onus then shifts to B to rebut presumption of UI.

AUTOMATIC PRESUMPTIONS UI is automatically presumed (category 2) in the following categories:

o Solicitor-client; Doctor-patient; Parent-child (or person in loco parentis – child); Religious adviser/spiritual master-disciple; Trustee-beneficiary(?); Engaged couples (?)

o NOT husband-wife (a fortiori probably not de facto couples); and NOT financial adviser-client or bank-customer;

Note, however, that where a r/ship is not presumed (eg husband and wife) does not preclude A from establishing the relationship in a particular case (ie using category 1 or 3).

ESTABLISHING A PRESUMPTION It is not enough to merely show that B exercised influence over or advised A; the influence must be ‘undue’ such that A’s

will is overborne by B’s influence. In Buttress, of particular importance was the fact of B’s old age, his illiteracy combined with the fact that B had become

very close to J – reposing his general trust and confidence in her and relying on her for management of his personal affairs – meant that the presumption of UI was raised.

REBUTTING THE PRESUMPTION Where B must rebut the presumption (categories 2 and 3) the onus is on B to affirmatively prove that A in fact acted

voluntarily, of his own free will in entering the contract. That is, A entered the contract without being subjected to UI; or entered it independently of the relationship with B: Buttress

Independent advice is often a determining factor here: if A has received independent advice about the transaction, then this may be sufficient to demonstrate that A was exercising an independent will. However, this depends on the circumstances. In some cases, even if independent advice is attained, the UI may be so strong that the presumption will not be rebutted. Remember that the onus is always on B to prove that A had an independent will – the mere fact of advice may not be material.

On the other hand, the absence of advice may indicate lack of free will, however there is no rule of law that says that advice is required if the contract is to stand: Buttress.

Thus, there may be other ways for B to rebut the presumption, for example: full disclosure and careful advice was given by B; there was no abuse of the position of confidence (no ‘undue’ influence); the UI was not at all a cause of entry into the contract.

B could also try and show that the consideration was fair and that the outcome did not put A at a (material?) disadvantage as evidence that there was no UI. Dixon and Starke JJ in Buttress mentioned that adequacy of consideration was a relevant factor. However there is some question over whether substantive/outcome factors are relevant at all.

Other Factors Affecting the Right to Rescind for UI Is restitutio a prerequisite? Since UI is an equitable doctrine it would seem that practical restitution is enough. Restrictions and loss of the right: presumably the same as for duress: election to affirm; waiver; estoppel. Although it

would have to be shown that the UI had ceased to be acting on A when the election or promise was made. Partial rescission would presumably be available although UI seems to really be an all or nothing doctrine.Remedy The remedy is rescission – contract void ab initio. Equitable compensation in respect of loss suffered as a result of UI has been awarded in Canada and England, but does

not appear to be available in Aus. There is a possibility that s 51AA of the TPA, which covers UC within the meaning of the unwritten law, giving rise to

TPA remedies. Need only mention this in an exam.

Johnson v Buttress HCA 1936FACTS:

- Mr Buttress (B) and his wife lived on a small cottage until Mrs B died.- B was elderly, completely illiterate and quite ignorant of business affairs. He was totally reliant on others for

the management of his affairs, particularly his wife.- After Mrs B’s death, Mr B formed a r/ship with Mrs Johnson (J) – a distant relative whom he had known for

some 20 years and who had cared for Mrs B before her death.- The two saw each other increasingly and it became evident that B was very much reliant on J, for example J

handled B’s problem regarding tenants of his house.- B and J went to J’s solicitor where B altered his will to transfer his property to J as a gift.- B understood that he was giving up his property to J, but it was not clear whether he understood the full

consequences of his actions or that he was getting nothing in return.- This transaction was challenged by B’s son after B’s death

RESULT:5:0 Appeal by J fails, transfer of property to J set aside

LEGAL IMPORTANCE:- The circumstances were such as to give rise to a presumption that J exerted undue influence over B.- Of particular importance was the fact of B’s old age, his illiteracy combined with the fact that B had become

very close to J – reposing his general trust and confidence in her and relying on her for management of his personal affairs – meant that the presumption of UI was raised and fell on J to rebut.

- J failed to rebut the presumption, therefore the transaction was set aside.- Affirmed the categories in which UI is presumed, but reiterated that these are not closed, and that it is open to

any party to try and establish a relationship of trust and confidence such as to give rise to the preumption of UI, or to try and prove ‘actual UI’ in a particular case (see above).

- Dixon and Starke J noted the relevance of the inadequacy of consideration and the improvidence of the transaction from B’s perspective.

- Latham CJ said that it may not be necessary for the donee to establish that the donor received independent legal advice, but evidence of such is the most obvious means of rebutting the presumption; and absence of legal advice will ‘plainly be a most important factor’.

THIRD PARTY IMPROPRIETY Context: A contracts with B due to undue influence exerted by C. Common scenario regards guarantees: A

agrees to act as guarantor for B (Bank/creditor), but does so due to undue influence exerted by C (usually a spouse). Can A have the guarantee contract set aside?

Thee are four different ways in which A may be able to have the contract set aside.1. Agency: undue influence of the agent is effectively the influence of the contracting party;2. Notice: if B had notice of the existence of A’s earlier equitable right to have the contract set aside;3. Unconscionable Dealing: the UI against A exerted by C may put B in a situation of special disadvantage.

When B takes advantage of the special disadvantage by accepting the guarantee, A may be able to argue that the contract should be set aside on the basis of Unconscionable Dealing.

4. Special Equity: The Garcia principle (see below).Special Equity This is the dominant mechanism by which a surety can have a contract set aside against a lender. The doctrine is based simply on the fact that spousal r/ships involve repositions of trust and confidence by one

party (usually the wife) in the other regarding business matters: GarciaTO WHOM IS IT AVAILABLE? Originally this doctrine was only available to a surety where she was the wife of the borrower: Yerkey However the Court in Garcia said that the Yerkey doctrine was simply an application of accepted equitable

principles arising out of relationships of trust and confidence. Thus on the one hand they seemed to say the doctrine could be extended beyond mere husband-wife situations on principle.

However they were cautious in saying the principle ‘may be’ extended to other emotional relationships that fall short of marriage. Thus a narrow, or really a literal, interpretation of the majority judgement is that they confined the doctrine to wives (but they clearly set the scene for incremental development of the law).

Kirby J held that the principle should apply to all intimate relationships in which one party had reposed trust and confidence in the other, even if these fell short of marriage.

The Vic CA has held that the Garcia doctrine does extend to any relationships of trust and confidence, however, once taken outside the bounds of intimate r/ships (in which the trust and confidence is assumed), the Bank must know of the actual trust and confidence or of the circumstances giving rise to it: Kranz.

WHAT IS THE TEST? The surety can have the contract set aside in one of two ways, according to Garcia:1. Actual undue influence: If Bank knows that guarantor is borrower’s wife, and the husband/borrower has exercised UI over her, then ‘nothing but independent advice or relief from the ascendancy over her judgement would suffice’, irrespective of whether the wife actually made a mistake or if the Bank explained the transaction properly. Thus a borrower’s wife who is actually induced by undue influence of the husband is excused:

o If the lender knows she is the borrower’s wife OR partner OR a r/ship of trust and confidence subsisted (applying principles from Kranz);

o Even if she made no mistake;o Even if the lender took steps to ensure understanding eg. Explanation;o UNLESS she received independent advice.

This first principle is justified from the wife’s perspective: she didn’t have a free will or independent judgment, so she should be able to get out of contract irrespective of whether the lender knew of the actual UI

Although Kranz deals with the extension of the Garcia doctrine beyond intimate r/ships it only discusses the Bank’s obligations and required state of knowledge in regards to mistaken information arising from a r/ship of trust or confidence. It does NOT discuss what would happen where such a surety was under actual undue influence from the borrower. But, applying the principles from Kranz it would seem that the Bank need only know that there was a r/ship of trust and confidence (as re wives they only need know that there is a r/ship of husband and wife)

2. Mistaken Understanding of Effect of Transaction: If no actual undue influence, then surety must show that she was mistaken in some respect about the effect of the guarantee and that she was a ‘volunteer’. In such a case the lender then comes under a duty to take reasonable steps to ensure that the surety is adequately informed about the effect of the transaction. Thus the surety, if not actually induced by undue influence of the borrower, may still be excused if she can show:

o Lender knows she is the borrower’s wife OR partner OR a r/ship of trust and confidence subsisted (Kranz); AND

o She was mistaken about the effect of the guarantee; ANDo She is a volunteer (obtained no [material?] benefit from the contract being guaranteed – not an

interested party);o UNLESS the lender took reasonable steps to ensure understanding, including enquiring as to whether

she had received independent advice (but independent advice not necessary). This second principle is justified as a failure from the lender’s perspective: failed to give adequate

explanation/information in circumstances where there is a known intimate r/ship. The issue of notice is not relevant except that the lender must know that the surety is the borrower’s wife [or

partner, if the doctrine is to be extended]: Garcia However where the surety r/ship is such that it would not normally be presumed to be one involving trust and

confidence (ie not an intimate r/ship) it is crucial that the lender know (or should have assumed) that the relationship is one of trust and confidence before the Garcia principles can be invoked: Kranz.

As to the ‘voluntary’ requirement, must examine the extent to which the surety was acting in her own interests: Garcia suggests there are two thresholds in operation re the voluntariness requirement. If wife/partner is NOT to be considered voluntary (ie lender will argue):

o Surety must have received a ‘real’ [substantial?] benefit. Merely indirect benefits flowing from husband’s ability to expand his business probably not enough: Garcia

o Surety must have been ‘directly involved’ with the company getting the loan. Mere ‘formal’ involvement with company (ie wife named as director of husband’s company but has nothing substantive to do with running of business) will not be enough: Garcia.

ONUS OF PROOF However note that the HCA did not deal with the question of who bears the onus of proof. Must the wife show

that she was not an interested party and that the lender didn’t take reasonable steps or must the lender show that she was a disinterested party and that it did take reasonable steps? The NSWCA has held that the onus is on the lender to displace the operation of the [Garcia] principle once it is prima facie shown that the loan was taken out by the husband or his company and that the wife was mistaken about the transaction. The lender must then argue that the surety was an interested party and/or that the bank took all reasonable steps: Warburton v Whiteley (not on the course).

Garcia v National Australia Bank Ltd HCA 1998FACTS:

- In 1979 Mr and Mrs G executed a mortgage over their home in favour of the Bank, securing all monies owing from time to time, including any future guarantees that either of them might execute.

- Mr G ran a business buying and selling gold, conducted through a company of which Mrs G was a director and shareholder, though in name only – she had nothing to do with the running of the business.

- Mrs G signs a further guarantee securing debts of the company in dubious circumstances:- Mr G had pressured her into signing the guarantee so he could expand his business and he told there was no

risk b/c he was purchasing gold.- He consistently told her that she was a fool in commercial matters and he was an expert.- Trial Judge found that Mrs G was trying to save the marriage.- Mr and Mrs G went to the bank and signed the agreement, it took less than 1 minute.- Mrs Garcia was a physiotherapist and was a capable professional herself. She understood that she was

executing a guarantee in favour of her husband’s business but did not realise that it was linked to the original mortgage they signed in 1979 – some eight years earlier. She was also mistaken about the level of risk involved.

- Mr and Mrs G divorced. Mr G’s business went into liquidation and NAB sought to enforce the guarantee.- Mrs G argued to have the guarantee set aside on the basis of the Yerkey v Jones principle of special equity.

RESULT:6:0 in favour of Mrs G. But different applications of the principles.

LEGAL IMPORTANCE:Majority- Upheld Yerkey doctrine, which they say was simply an application of accepted equitable principles.- The doctrine is based simply on the fact that spousal r/ships involve repositions of trust and confidence by one

party (usually the wife) in the other regarding business matters. It is not always attributable to power, emotional or other dependence or misrepresentations by the husband.

- Principle ‘may be’ extended to other emotional relationships that fall short of marriage. Majority stop short of extending the doctrine in this case, but clear that principles could apply to similar r/ships.

- Based on Yerkey, principle applies in two circumstances: (1) undue influence actually exerted by H (power situation); (2) inadequacy of information supplied to W.

- Actual undue influence: If Bank knows that guarantor is borrower’s wife, and the husband/borrower has exercised UI over her, then ‘nothing but independent advice or relief from the ascendancy over her judgement would suffice’, irrespective of whether the wife actually made a mistake or if the Bank explained the transaction properly. Thus a borrower’s wife who is actually induced by undue influence of the husband is excused:

If the lender knows she is the borrower’s wife; Even if she made no mistake; Even if the lender took steps to ensure understanding eg. Explanation; UNLESS she received independent advice.

- Mistaken Understanding of Effect of Transaction: If no undue influence, then wife must show that she was mistaken in some respect about the effect of the guarantee and that she was a ‘volunteer’ (obtained no [material?] benefit from the contract being guaranteed; not an interested party). In such a case the lender is under a duty to take reasonable steps to ensure that the surety is adequately informed about the effect of the transaction. Thus borrower’s wife who was not actually induced by undue influence of the husband is still excused if:

She was mistaken about the effect of the guarantee; AND Lender knows she is the borrower’s wife; AND She is a volunteer (obtained no [material?] benefit from the contract being guaranteed; not an

interested party); UNLESS the lender took reasonable steps to ensure understanding, including enquiring as to whether

she had received independent advice (but independent advice not necessary).- Majority held that the issue of notice was not relevant except that the lender must know that the surety is the

borrower’s wife [or partner, if the doctrine is to be extended].- The doctrine is justified in regard to (1) from the wife’s perspective, didn’t bring free will, able to get out of

contract irrespective of whether the lender knew of the actual undue influence; and (2) from the lender’s perspective, failed to give adequate explanation.

- The ‘volunteer’ issue: here, Bank argued (1) that Mrs G not a volunteer b/c was a director/shareholder. But Court held this didn’t matter because this was only formal, not substantive – she was not ‘directly involved’ with the business; and (2) that Mrs G obtained a benefit from the contract indirectly through the expansion of the companies facilitated by the loan. But Court held that this not really enough, she obtained ‘no real benefit’. [This suggests there are two thresholds in operation re the voluntariness question: Surety must have been ‘directly involved’ with the company getting the loan and must have received a ‘real’ [substantial?] benefit.

Kirby J- Should not single out ‘wives’ by putting them in a special category.- Rather the doctrine should apply to all relationships of trust and confidence of a familial/emotional/sexual

nature; eg de facto r/ships; other familial r/ships etc.- Aside from that, proposes a test similar to the majority.

Kranz v National Australia Bank Ltd Vic CA 2003FACTS:

- Involved a guarantee exercised by a brother-in-law (Kranz).- Kranz was himself a successful businessman with interests in a number of properties, although he could not

write, he could read English.- Tom Lefkovic borrowed money from NAB to buy shares in a company. Bank demanded security at the last

moment. - Tom doesn’t tell Kranz about the risky nature of the transaction or other key details about the transaction –

misled Kranz over the documents and applied pressure in the hasty situation. - Kranz did not read the documents and relied on Tom’s representations. Trial Judge found that Kranz would not

have signed if he knew the true nature of the documents.- Bank seeks to enforce the guarantee, and Kranz seeks to avoid it by establishing an antecedent relationship of

trust and confidence in Tom and applying the Garcia principle.- All the Bank knew of Kranz was that he was a brother-in-law and that he was a successful businessman.

RESULT:3:0 appeal dismissed.

LEGAL IMPORTANCE:- Trial judge held that Garcia limited to intimate family relationships. However CA reject this. Principle in

Garcia applies to any relationships of trust and confidence.- However it is crucial that the lender know (or should have assumed) that the relationship is one of trust and

confidence before the Garcia principles can be invoked.- Clearly here the Bank did not actually know, nor is there any evidence from which the Bank should have

assumed that the r/ship was one of trust or confidence.- There was nothing to put the Bank on notice that Kranz might have received an inadequate explanation as to

the nature of the transaction.- On the contrary, the only information that the Bank had regarding Kranz was that he was himself a successful

businessman with interests in a number of properties.- Therefore Bank not required to give further adequate explanation of the nature of the transaction.- Court also rejected the argument that the contract should be set aside on the basis of UD. Although Kranz was

in a position of special disadvantage (due to lack of assistance when assistance needed) vis-à-vis the Bank, the Bank again did not know of this [demonstrates that the two doctrines can overlap]; thus UD not made out.

- [Thus the result is that Garcia extends to r/ships of trust and confidence BUT Bank must know of the relationship of trust and confidence as that forms the basis for the duty to ask more questions (but Court says nothing about what would have happened if Kranz was under actual undue influence; presumably would have made no difference as Banks would still have to know of the r/ship of trust and confidence but not of the actual UI) – in relation to wives, the trust and confidence is deemed to be assumed from the status of marriage, but when the trust and confidence would not normally be assumed (ie outside of intimate r/ships) it makes sense that the trust and confidence must be known or must ought to have been known].

UNCONSCIONABLE DEALING This is an equitable doctrine that concerns the right of a party to rescind a contract because the other party has

knowingly taken advantage of a special disability/disadvantage during the negotiating process.Special Disadvantage

P must first show that he is at a special disadvantage vis-à-vis the other party. A special disadvantage is one that ‘seriously affects the ability of the innocent party to make a judgment as to

his own best interests’: Amadio (Mason J). Clearly, something more than mere inequality of bargaining power is required: Amadio. (However comment by

majority in Bridgewater seems to cast doubt on this) What amounts to special disadvantage depends on all the circumstances, however a list of factors that may

amount to special disadvantage includes: ‘poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, and lack of assistance or explanation where assistance or explanation is necessary’: Blomley (Fullagar J)

Another category includes emotional attachment (Louth; Bridgewater). However it is unlikely that this in itself is enough. Rather, something more would be required (such as pressure, urgency and atmosphere of crisis in Louth) to create a special disadvantage. However, the decision in Bridgewater casts some doubt on this.

Commercial vulnerability? Will be difficult to argue: Sampton. How important is the fact that the alleged victim possessed independence of mind, capacity to exercise

judgment, knew what he was doing and its effect, time to make a deliberate decision etc? The dissentients in Louth, Blomley and Bridgewater thought the presence of all of these things was a compelling factor that militated against a finding of special disadvantage. However, clearly, the majorities in those cases didn’t think that this mattered so much. Arguably it is indeed possible for a party to know what they are doing and want to do it yet still be in a position of special disadvantage, as is illustrated by the facts in Louth.

The fact that P partly caused the disadvantage may militate against a finding of special disadvantage: Sampton.Taking Unfair Advantage

Once the special disadvantage has been established, P must then establish that the disadvantage was sufficiently clear to the other party to make it prima facie unconscionable for them to procure P’s signature: Amadio

In an exam, analyse the three factors below, one by one. If it seems difficult to pin actual knowledge or even constructive knowledge on the defendant, point out that P only need to make a prima facie case that the disadvantage was sufficiently clear.

Knowledge It is well established that constructive knowledge of the other party’s disadvantage is sufficient. Once it is

accepted that the other party ought to have known of the disadvantage, the stronger party comes under a duty to ensure that the other party is properly advised: Amadio.

But must make sure there is at least a prima facie case that the other party should have known, watch for similarities to Amadio, ie was the fact that Mr A commented on the fact that he thought the loan was for 6 months a crucial factor in making out a case of constructive knowledge?

Procedural Unconscionability The transaction must be examined so as to determine the unconscionable element. In unconscionable dealing at

equity, the primary concern is to ascertain some procedural unconscionability, that is, unfairness in terms of the bargaining process: Amadio

This is obviously intimately bound up with the issues of special disadvantage and knowledge, as it requires consideration of the circumstances of the bargaining process.

The existence of procedural unconscionability is a necessary requirement of unconscionable dealing: Amadio. However, this is questionable in the light of Bridgewater, which appears to have been based mainly on

substantive unconscionability. How active was D in influencing the transaction? Very active: Louth (putting pressure on, deliberately

deceiving Diprose etc); Blomley (deliberately supplying alcohol and encouraging drunken bargaining). This may have an impact.

But clearly, taking advantage does not require much (see esp Bridgewater). Deciding when more action needed to be taken to redress the imbalance by D may be an issue: Amadio. The provision of legal advice will usually help redress any disadvantage (eg Sampton). However, it is clear that

the presence of solicitors and advice is not decisive (Blomley; Bridgewater technically Louth as Diprose was a solicitor). It clearly depends on the quality of advice given to P and whether the solicitor is really on his side (unlike Blomley and possibly Bridgewater).

The absence of sound legal advice, even if that might not have influenced the outcome, may affect this issue (majority in Bridgewater, but arguably this is really a causation issue).

Substantive Unconscionability A secondary concern of unconscionable dealing is substantive unconscionability, that is, unfairness of

outcome, such as where one party is at a serious disadvantage as a result of the transaction. This is not a necessary nor sufficient element of unconscionable dealing, however it does help to build an

overall picture of the circumstances: Amadio; Blomley Where the outcome is severely unfair, it will be difficult to resist the conclusion that it was obtained by

unconscionable dealing (but it will not necessarily be so). On the other hand, a manifestly fair outcome can be used by the defendant in its defence (see below).

Arguably the High Court in Bridgewater elevated the importance of substantive unconscionability as a basis for determining unconscionable dealing.

Causation Once these elements have been proved, the inference will normally be drawn that the unconscionable dealing

was a cause of entry into the contract. Nonetheless, the other party may be able to show on the facts that there was no causal connection. However, the causation issue was largely ignored in Bridgewater, where it seemed that there was a strong

argument that there was no causation.Shifting the onus: the ‘fair, just and reasonable’ defence Once P has proved special disadvantage and made a prima facie case for taking unfair advantage, the onus

shifts to D to show that the transaction was ‘fair, just and reasonable’: Amadio. Relevant factors in discharging this onus would be the adequacy of consideration and the substantive fairness

of the contract’s terms. The fact that P obtained independent advice is relevant but not conclusive in this regard. [It is here that the difference b/w unconscionable dealing and undue influence is most clear. In the latter, D

must prove that P acted independently. Here D must prove that the transaction was fair.]Restrictions on and loss of the right to rescind for UD

Partial Rescission Deane J in Amadio raised the notion of partial rescission wherein the contract could be set aside to the extent

that it was impacted on by the unconscionable dealing (eg, in Amadio setting aside the guarantee to the extent that it was unlimited but leaving it in tact to the extent of $50 000 – the amount that they thought they were contracting for), but decided against partial rescission in that case.

The High Court has since endorsed the concept in relation to misrepresentation (Vadasz) so it is eminently arguable (and likely) that it would now be applied here should the occasion arise.

Partial rescission was sort of applied by the High Court in Bridgewater. Thus must ask whether P, if properly advised, would have agreed to part of the contract or whether they would

have not entered it at all.Loss of the Right It appears that the right is difficult to lose (Blomley), but presumably an unequivocal election to affirm or

waiver of rights from P when no longer in the position of special disadvantage would result in a loss of the right. Indeed it seems from Blomley that this would be the case.

CASES: UNCONSCIONABLE DEALING

Commercial Bank of Australia Ltd v Amadio HCA 1983FACTS:

- V, the son of the Amadios (A), ran a business that was in serious financial trouble.- V was exceeding his overdraft with the Bank (‘CBA’), but CBA was keen to keep propping him up for various

immaterial reasons.- V, in requesting an increased overdraft limit, told CBA that it could use his parents’ property as security for the

increased overdraft.- The Amadios thought V’s business was flourishing – by all outward manifestations it was.- V told his parents that they would be providing a temporary guarantee of $50 000 limited to 6 months,

however that claim was completely false. CBA had always maintained that the guarantee would be unlimited and last for an unlimited time, and this was what the contract stated.

- CBA’s manager visited As and obtained their signature for the unlimited guarantee, the circumstances were as follows:

- As were elderly, aged 76 and 71.

- They were born in Italy and had lived in Aus for over 40 years. Mr A had reasonable spoken English but poor written English. Mrs A had some understanding of spoken English but gave evidence through an interpreter.

- Neither had much business experience.- During the transaction the Amadios did not read the contract, nor was it explained to them, as Virgo (from

CBA) assumed that V had informed them of the nature of the contract.- However Mr A did remark that the guarantee was limited to 6 months, whereupon Virgo explained that it was

unlimited. However Mr A believed his son and the trial judge found that, when the agreement was signed, the Amadios believed the guarantee was limited to $50 000 and 6 months.

RESULT:- 5: 2 in favour of As. Unconscionable dealing made out, As win.

LEGAL IMPORTANCE:Mason J

Special disadvantage- A ‘special’ disadvantage is one that ‘seriously affects the ability of the innocent party to make a judgment as to

his own best interests’.- The types of situation in which a special disadvantage will arise are not limited or closed.- Here, Amadios were in a position of special disadvantage because their ability to judge whether the transaction

was in their best interests was lacking due to their desire to help out their son, whom they believed only in need of temporary assistance. Combined with their old age and lack of English ability and business skills, they were at a serious disadvantage in the transaction.

Knowledge- It is sufficient that, instead of having actual knowledge of the situation, D is aware of the possibility that the

situation may exist or is aware of the facts that would raise that possibility in the mind of any reasonable person.

- Virgo knew that the Amadios were elderly and lacked English skills. The fact that the transaction was manifestly not in the Amadios’ interests should have alerted Virgo to the fact that they might not have been fully apprised of the situation.

- Mr A’s comment regarding the 6 months should definitely have alerted Virgo to think that the A’s did not know what they were getting themselves into.

- Even if, after all of this, V did not know the full extent of the Amadios’ lack of understanding, he certainly ought to have known, and ought to have remedied the situation.

- [Note that, in an exam, absence of any indication by victim (unlike here re Mr A’s comment) that they are unaware of the true nature of the agreement, might give rise to an argument that there was no basis for D having ought to have known – no basis for thinking that there should be a need to inquire further.]

Procedural Unconscionability - The position of special disadvantage of the Amadios, was taken advantage of by Virgo in the negotiating

process by his lack of explanation of the true situation regarding the loan and of the true financial position of V.

Substantive Unconscionability- The effect of the transaction was disastrous for the Amadios, who stood to lose thousands on their son’s

hopeless overdraft. Whereas CBA had a huge windfall – security over a loan that no rational person would have secured – moreover, the security even surpassed their exposure from the increased overdraft.

Causation- Any rational person wouldn’t have entered into the contract if unconscionable dealing had not taken place.

Causation inferred.Deane J (Wilson J agreeing)

Special Disadvantage- The combination of age, lack of English skills, lack of knowledge of the contents of the document and the

circumstances in which it was presented to them all show that they lacked the necessary assistance and advice.Knowledge and prima facie unconscionability- Given that Virgo knew of the effect of the agreement and was aware of the obvious disabilities that the

Amadios had, as well as the comment from Mr A about 6 months, it was prima facie unconscionable for them to have procured their signature.

- It was no excuse that they didn’t inquire more. Once it was shown that the disadvantage was sufficiently evident to Virgo, he then came under a duty to enquire and redress the disadvantage.

Substantive Unconscionability - This is not a necessary element, but helps to build an overall picture.Partial Rescission

- Deane J toyed with the idea of rescinding the contract only to the extent that it was unlimited in time and amount, however decided against such a partial rescission.

- Although in light of Vadasz a court today made have made such an order, it depends on how important was the point about Virgo not disclosing the extent of V’s financial troubles. Arguably the Armadios’ lack of knowledge of this aspect of the transaction would have made even a partial rescission unfair.

Blomley v Ryan HCA 1956FACTS:

- R sold his farm property to B- B visited R on numerous occasions seeking to barter a low price for the property.- R was an alcoholic. B knew of this and on his visits always took some rum with him for them all to drink.- R had maintained that he would not sell the property for less than $33 000. However, on one visit by B, when

asked ‘what’s your price today Tim?’, a drunken R replied ‘$25 000’.- Upon hearing this B attempted to procure R’s signature, however R said he would get his solicitor to undertake

the transaction on his behalf.- The next day, B organised a meeting with R’s solicitor. Evidence was given that the next morning, R was still

drunk and looking very sick.- The solicitor was present at the meeting, in which the parties executed the contract of sale, however the court

found that the solicitor did not advise R as to the unfair nature of the contract’s terms. It seems that the solicitor was there to oversee the execution of the contract. He was really acting for both parties. He had no knowledge of the events of the previous day, nor the true value of R’s property.

- R was 76 years old and had poor literacy skills.- The property was being sold at about $8000 under market value, the deposit was ‘unprecedentedly low’, the

interest was 1% below the current rate, and the provisions to pay off the property over four years operated for the benefit of the purchaser.

RESULT:- 2:1 in favour of R

LEGAL IMPORTANCE:McTiernan J

Special Disadvantage- Due to R’s drunkenness he was at a special disadvantage, as he was ‘not sufficiently in possession of what

threads of intellect he retained to protect his interests’.Procedural Unconscionability and Knowledge- During the negotiations and the conclusion of the contract, B was aware of R’s drunkenness and lack of ability

to properly consider his situation. Thus B’s knowledge was clearly present.- B proceeded very quickly so as to deny R the time he needed for recovery so as to regain control of his mental

faculties. He also contributed to his drunkenness by supplying alcohol.- This was unconscionable in the circumstances.- The fact that the solicitor was present did not change things, as the solicitor did not actively advise R as to his

position and his best interests.Substantive Unconscionability- The terms were clearly disadvantageous to R- This helped to influence the presumption of unconscionability.

Fullagar JSpecial Disadvantage- Makes the distinction between cases where P is intoxicated and then tries to get out of a contract because of it

(normally no liability) and cases such as this in which P has been encouraged to drink by the other party for the purposes of obtaining his signature to a contract.

- Clearly the active participation in the drinking was an important factor here.- Among the many circumstances that could give rise to an unfair disadvantage are ‘poverty or need of any kind,

sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, and lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other.’

- The solicitor was acting for both parties and was of no help to R.- Fullagar J notes, though, that R was not completely ‘gone’ as he was the night before, and still understood the

basic nature of the transaction. [Presumably, however, his Honour thought he was nonetheless unable to act in his best interests. This supports the proposition that P need not be totally clueless as to the transaction for it to be se aside].

Substantive Unconscionability- Inadequacy of consideration and substantive unfairness are not necessary to support a finding of UD, however

such unfair outcomes will support the inference that a position of disadvantage existed.- Here, the terms were clearly disadvantageous to R.Affirmation precluding Rescission- D argued that P precluded rescission by affirming the contract.- It took some two months between the execution of the contract and the rescission by R.- But the his Honour held that he was not sufficiently aware of the full detail of the transaction until he consulted

solicitors two months later. In the intervening period R only had a hazy recollection of the transaction and had continued to drink heavily, even though he was aware that he had sold his property.

- The fact that R acted promptly once fully aware of his position meant that he did not affirm the contract.- It seems, however, that if the contract had been affirmed by R in a normal state, rescission would be precluded.

Kitto J (dissenting)- Reads the facts in an entirely different (and, one would have to say, far more comprehensive and convincing)

manner. Points to the evidence of the solicitor as to the state of R, the dealing with the accountant during the conclusion of the contract, the long delay between the conclusion of the contract and the changing of his mind and other factors. All of these points were glossed over by the other two judges and far too easily dismissed.

- Finds that, on the facts, R was not in such a position of relative disadvantage, rather he acted deliberately and according to what he wanted at the time.

- Moreover the conduct of B could not be considered unconscionable. Sure they took advantage of a great offer, but they did not do so in circumstances in which R was in a position of special disadvantage.

- [I think that if this was appealed to the current High Court, all judges except Kirby would follow Kitto’s reasoning.]

Louth v Diprose HCA 1992FACTS:

- L (woman) and D (man) were in a relationship in Tasmania for about a year before L moved to Adelaide.- D was completely in love with her and pursued her to Adelaide, where they again took up a sort of casual

relationship.- During this time, L made out to be severely depressed, even suicidal, having shown D cuts on her wrist etc [the

majority found that she had ‘manufactured an atmosphere of crisis’]- D helped her out by paying some of her bills etc.- L was living with here sister and her sister’s husband in a house owned by them. They decided to sell this

house. L discussed her predicament with D.- L made out that she would be homeless and suicidal if she could not stay in the house, implying a sense of

urgency in her situation.- However there was no such pressure or urgency.- D agreed to purchase the house for L for $58 000. He and his son then moved in with L.- However the relationship broke down. D then demanded that the house be returned to him or that the money be

repaid. He instituted proceedings claiming various legal grounds, including UD.- D owned an old car an aeroplane (worth less than $30 000) and shares in a property. His net assets apparently

totalled less than $100 000. He was a solicitor.RESULT:

- 5:1 appeal by L dismissed. UD made out.LEGAL IMPORTANCE:Majority

Special Disadvantage- D’s special disability arose in the peculiar facts of the case. Although borne out of his infatuation with and love

for L, this alone was not a sufficiently special disadvantage. It was the fact that he possessed such love for L in circumstances in which L had manufactured a ‘false atmosphere of crisis’.

- The special disadvantage was thus constituted by D’s emotional dependence on a woman whom he believed would soon be evicted from her house and commit suicide. For it was the combination of these factors that led D into a position wherein he was totally vulnerable and unable to act in his own best interests.

- [The question to ask is whether emotional dependence itself amounts to a special disadvantage or whether something more, as in this case, is required. Deane J emphasised the fact that the ‘special disability arose not merely from [D’s] infatuation’. Of course, it is a question of circumstances in each case. We can surely at least say, to paraphrase Brennan J, that ‘a special disadvantage may have its origin in an emotional attachment’. In the light of Bridgewater, it seems that mere emotional attachment is sufficient!]

Procedural Unconscionability and Knowledge- It seems that the of the false atmosphere of crisis was part of the special disadvantage and its manufacture was

part of L’s unconscionable conduct.- The fact that L manipulated D’s affection for her by manufacturing a false atmosphere of crisis and then took

advantage of that by effectively asking him to buy the property for him, amounted to procedural unconscionability.

- More than mere knowledge of disadvantage, the Court was particularly influenced by the fact that L deliberately set out to establish the disadvantageous circumstances and then to play on those circumstances. This more than satisfied the constructive knowledge requirement.

Substantive Unconscionability- The majority stated the outcome was clearly an improvident one from D’s perspective. They emphasised his

lack of personal assets and the fact that he gained nothing whereas she gained everything from the transaction (although this was not a major point – after all, they were dealing with an intended gift rather than a bargain).

- [But is this the case? If viewed from the time of the transaction, one can see that D wanted to give L the house, and felt gratified by his caring for and satisfying L’s desires. This was arguably his choice.]

Toohey J (dissenting)- Important in his Honour’s dissent was the fact that D did not make a rash and hasty act, rather he had plenty of

time to consider what he was doing. The transaction took place over 1 month, and he himself did all of the relevant conveyancing work for it. He ‘was well aware of all of the circumstances and of his actions and their consequences.’

- However this conclusion was influenced by the fact that Toohey held that D must have known that there was actually no urgency in relation to the eviction from the house (because D spoke to L’s brother-in-law, the owner), and so the ‘false atmosphere of crisis’ had little effect on D.

- [Thus we can use this to argue that time and consciousness of one’s actions and their effects can be a factor that negatives a conclusion that P was in a position of special disadvantage. On the other hand, the fact that the majority ignored this can be used to counter that argument – ie it is not a major factor.]

Bridgewater v Leahy HCA 1998FACTS:

- The action was bought by the daughters and widow of Bill York against Bill’s nephew Neil and his wife. Leahy was the executor of Bill’s will but played no part in the proceedings.

- Bs challenged the validity of contracts entered into by Bill in which Bill, nine months before his death, sold to Neil 3 farm properties at a very low price that made them practically a gift.

- The other relatives were left with very little.- Bill was extremely fond of Neil, who had worked on Bill’s properties for most of his life. Bill never had a son,

and always felt much more affection for Neil. The trial judge found that Bill wanted to reward Neil and that he (Bill) thought Neil was entitled to the properties at such a cheap price. He was not worried that his daughters wouldn’t get much as he felt that they had never really helped him or cared for him.

- When Bill made the contracts and the will, he was 85, however it was held that he knew perfectly well what he was doing and was quite capable of making decisions about his personal affairs.

- The solicitor acting for Bill was also acting for Neil, so Bill didn’t receive unbiased legal advice. However the trial judge found that, even if he had received such advice, he probably would have gone ahead with it anyway.

RESULT:- 3:2 in favour of the relatives. UD found.

LEGAL IMPORTANCE:Majority:

Special Disadvantage- Reaffirmed that a special disadvantage ‘may stem from a strong emotional dependence or attachment.’ Indeed

this decision seems to affirm the fact that an emotional attachment without much more will be enough to constitute special disadvantage.

- Bill was suffering from some physical disability due to old age etc. However this was arguably not material as he clearly knew what he was doing etc.

- The majority found that Bill’s judgment was impaired due to his emotional dependence on Neil.- ‘the relationship between Bill and Neil meant that they were meeting on unequal terms’. [But mere unequal

terms does not give rise to a special disadvantage!!]- [However, the majority say nothing really about his inability to act in his best interests. It seems, rather, that

Bill was very much acting in his best interests – it just so happened that his interests coincided with Neil’s.]

- [Can use this situation as authority for an argument that mere unequal terms or only slight disadvantage is enough to constitute special disability.]

Knowledge- Neil clearly knew of Bill’s dependence on him, and he conceded that he always got what he wanted from Bill.Procedural Unconscionability - Seemingly it was the fact that the initiative for the transaction originated from Neil, thus it was Neil’s seeking

to procure the properties at a low price in circumstances in which Bill was emotionally attached to him that made this transaction procedurally unconscionable. [But there was no pressure in this situation, unlike in Louth. Surely requesting a gift from a close relative is not unconscionable merely because the relative is attached to you!]

- The majority considered that lack of independent legal advice was an element of unconscionability, despite the fact that it would not have made much of a difference – it was the failure to provide for it that was unconscionable.

- [The problem here is that Bill knew he was transferring the properties at below market value; he didn’t mind not leaving money for his wife and children; trial judge found that even if he had had independent advice he would still have done what he did.]

Substantive Unconscionability- Daughters and wife get very little, and Neil can obtain property well below market price. It seems that this was

the substantial factor that influenced the decision.- [However this goes against authority that downplays the importance of the outcome. It is not sufficient on its

own.]Causation- [Not mentioned by the majority. Arguably there was no causation here b/c even if legal advice was given, Bill

probably would have gone ahead anyway.]Partial Rescission- Neil gets to keep the properties, but he must pay more money for them. This is essentially a partial rescission,

extending only to the deed accompanying the transfers which forgives the price.Gleeson CJ and Callinan J (dissenting):

- There was no special disability in the required sense here. Emphasised that Bill was of sound mind and quite determined to give his Nephew the properties, for reasons that he justified.

- ‘Bill York’s independence of mind and capacity to exercise judgment are relevant to all aspects of the case.’- Furthermore, there was no procedural unconscionability (although they don’t use this term) because, according

to them, the transaction was Bill’s initiative. Bill was simply giving effect to his wishes. Neil did nothing wring by acquiescing in that decision.

- Pointed out that the facts here were far removed from the situations in Amadio, Blomley and Louth.

UNCONSCIONABLE CONDUCT UNDER THE TPA The leading provisions prohibit corporations from engaging in unconscionable conduct (‘UC’) in trade or

commerce. ‘Trade or commerce’, ‘remedies’ (ss 80, 82, 87), exclusion by contractual provision, s75B, ‘loss’, causation,

mitigation and remoteness and other damages issues etc all apply in this section in the same way as for MDC. The recently enacted apportionment provisions, s 82(1B) do not apply to UC. Mirroring legislation has been passed by all state and territory jurisdictions. In Victoria the mirroring

legislation covers all three sections of the TPA. Two areas excluded altogether: financial services (ASIC Act contains equivalent). However, an ordinary bank

loan will fall under the TPA, not ASIC Act. 51AC, however does not exclude financial services, so they are covered both by the TPA and the ASIC Act. The other context not included is employment contracts. Services are defined so as to exclude contracts of

service from all sections. The questions to ask in each section are:(1) To what type of transactions does each section apply?(2) What does ‘unconscionability’ in each section mean?(3) What factors are specified for the Court’s consideration in each section?

s 51AAs 51AA: (1) A corporation [or person] must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.(2) This section does not apply to conduct that is prohibited by section 51AB or 51AC.

Thus, any unconscionable dealing situation that occurs in trade or commerce and is NOT covered by ss 51AB or 51AC can attract the remedies available under the TPA. So first must look at whether the scenario is covered by 51AB or 51AC. If it is not, it will be soaked up by 51AA and the UD law will apply.

Section 7 of the FTA (Vic) covers person-person transactions, thus it seems that any conduct that amounts to common law UD, if in trade or commerce, will be covered by the TPA. So can presumably get damages under the FTA for person-person transactions.

The reference to the unwritten law includes the common law relating to unconscionable dealing: Berbatis; Sampton.

It may also include other equitable doctrines involving an element of unconscionability (eg unilateral mistake ie Taylor v Johnson; undue influence incl Garcia extension; unconscionable dealing; equitable estoppel; forfeiture and penalties). On one view, s 51AA can only be invoked to deal with a specific equitable doctrine: Sampton; Berbatis.

However, it has been suggested that breach of the underlying equitable principles can themselves enliven s 51AA: Boral.

s 51AB: Unconscionable Conduct in connection with the Supply of Consumer Goods & Servicess 51AB(1) A corporation [or person] shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a person, engage in conduct that is, in all the circumstances, unconscionable.

The process for analysing a s 51AB case should be as follows:Does this section apply?

(5) A reference in this section to goods or services is a reference to goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption.(6) A reference in this section to the supply or possible supply of goods does not include a reference to the supply or possible supply of goods for the purpose of re-supply or for the purpose of using them up or transforming them in trade or commerce.

This section is truly consumer-oriented. Must look first at whether there is a supply or possible supply of goods and services, then look at the nature/kind of the goods and determine whether fit within sub-s (5) and then look at purpose of goods or services and make sure they are not transformable goods, which are excluded by sub-s (6).

It apparently covers real estate/sale of land contracts: George T Collings.Other Preliminary Matters Under the TPA the defendant/supplier must be a corporation. However, thanks to s 8 the Fair Trading Act (Vic),

the supplier can also be a natural person. The recipient of the goods or service (ie the consumer/plaintiff) must be a person. Presumably this includes

corporations (George T Collings; Acts Interpretation Act), so this section can apply to:o Corporation supplying G&S to a person (TPA)o Corporation supplying G&S to a corporation (though not likely b/c must be consumer goods)o Person supplying G&S to a person (FTA s 8)o Person supplying G&S to a corporation (FTA s 8)

The transaction must take place ‘in trade or commerce’. This has the same meaning as elsewhere. ‘Engage in conduct’ means the same as s 52: includes doing or refusing to do any act (7) ‘Section 51A applies for the purposes of this section in the same way as it applies [to s 52]’. Thus

representations as to future matters are considered ‘conduct’. 4(a) the Court shall not have regard to any circumstances that were not reasonably foreseeable at the time of the

alleged contravention; and 4(b) the Court may have regard to conduct engaged in, or circumstances existing, before the commencement of this

section.The Meaning of Unconscionable In ss 51AB and 51AC, there is no reference to the unwritten law. Instead there is in each section a list of matters to

which a court may have regard. These sections are thus not limited to the parameters of equity: Simply No-Knead. s 51AB(2) ‘… the Court may have regard to:(a) the relative strengths of the bargaining positions of the corporation and the consumer; [this factor is not decisive in equity. Under doctrine of UD, special disability is not constituted by mere relatively weak bargaining power (requires substantial impairment of judgment). Thus this quite potent. See George T Collings (standard form contract and fact that consumer relied on the representations of supplier as to content of contract result in disparity of bargaining power)].(b) whether, as a result of conduct engaged in by the corporation, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the corporation; [What constitutes a legitimate interest? Majority in Berbatis thought that the mutual release clause was at least ‘commercially relevant’, seems they would have held this to be legitimate commercial interest too. See also George T Collings (indeterminate agency clause not legitimate interest). This is substantive unconscionability as it relates to the terms or outcome of the transaction, the Act is inviting a very broad casting of the net with this section.](c) whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services: [in what sense is understand meant? Does that mean that could consider fact that a person cannot understand legalease? This would be quite different to normal doctrines if this were the case.](d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the corporation or a person acting on behalf of the corporation [is this limited to the equitable doctrine of undue influence? Probably not as it is accompanied by ‘pressure’ and ‘tactics’; ‘unfair tactics’ might broaden this somewhat. What amounts to ‘unfair’?](e) the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the corporation; [this potentially quite powerful as departure from standard prices or circumstances could in theory effect a TPA action (but probably won’t be interpreted this broadly)]. Note that the factors to which the court may have regard in determining unconscionability are not limited to those

specified above.s 51AC Unconscionable Conduct in Business Transactions

The provisions of s 51AC are essentially aimed at protecting small businesses, be they suppliers or acquirers of goods or services, in commercial transactions with big businesses (however the section ‘catches’ more than just big business-small business transactions).

s 51AC(1) A corporation must not, in trade or commerce, in connection with:(a) the supply or possible supply of goods or services to a person (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company);engage in conduct that is, in all the circumstances, unconscionable.(2) A person must not, in trade or commerce, in connection with:(a) the supply or possible supply of goods or services to a corporation (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a corporation (other than a listed public company);engage in conduct that is, in all the circumstances, unconscionable.

In what circumstances does s 51AC apply? Section 51AC will be appropriate where:

o A corporation (defendant) supplies goods or services to a small business consumer that is either a natural person or a corporation that is not a listed public company (1)(a); OR

o A corporation (defendant) acquires goods or services from a small business supplier that is either a natural person or a corporation that is not a listed public company (1)(b); OR

o A natural person (defendant) supplies goods or services to a (small business consumer) corporation that is not a listed public company (2)(a); OR

o A natural person (defendant) acquires goods or services from a (small business) supplier corporation that is not a listed public company (2)(b); OR

o A natural person (defendant) supplies goods or services to a small business consumer that is a natural person FTA (Vic) s 8A(1)(a); OR

o A natural person (defendant) acquires goods or services from a small business supplier that is either a natural person FTA (Vic) s 8A(1)(b);

AND:o The acquisition of the goods or services being supplied is for the purpose of trade or

commerce [sub-ss (7), (8). Thus this excludes consumption goods and limits it to business transactions]; AND

o The price of the goods or services being transacted does not exceed $3 million [sub-ss (9),(10)];

o [Note that, in theory, a big corporation could bring an action if it were not a publicly listed company and was engaging in a transaction worth $3 million or less. ie there is no requirement that they actually be a ‘small’ business (see Boral). I just used ‘small business’ for ease of identification.]

s 51AC will NOT be appropriate where:o The plaintiff, be it supplier or acquirer, is a listed public company (ie big business);o The price of the transaction exceeds $3 million;o The purpose goods or services being supplied or acquired is other than trade or commerce

Other Preliminary Matters ‘Engage in conduct’ means the same as s 52: includes doing or refusing to do any act (12) ‘Section 51A applies for the purposes of this section in the same way as it applies [to s 52]’.

Thus representations as to future matters are considered ‘conduct’. (6)(a) the Court must not have regard to any circumstances that were not reasonably foreseeable at the

time of the alleged contravention; and (6)(b) the Court may have regard to circumstances existing before the commencement of this section

but not to conduct engaged in before that commencement.

The Meaning of Unconscionable

Again, there is a non-exhaustive list of matters to which a court may have regard. s 51AC adopts the five criteria from s 51AB and adds a further 6

Remember to first ascertain who the defendant is and whether they are the supplier (sub-s (3)) or acquirer (sub-s (4)).

s 51AC(3) or (4) ‘… the Court may have regard to:(a) relative strengths of the bargaining positions; and (b) conditions not reasonably necessary for the protection of the legitimate interests of the defendant; and (c) ability of plaintiff to understand any documents; and (d) undue influence, pressure, any unfair tactics used against the plaintiff [see Simply No-Knead]; (e) the amount for which, and the circumstances under which, the plaintiff could have transacted identical or equivalent goods or services from a person other than the defendant [ie could P have supplied for more money or acquired for less money?]; and (f) the extent to which the supplier’s conduct towards the business consumer was consistent with the supplier's conduct in similar transactions between the supplier and other like business consumers; and (g) the requirements of any applicable industry code; [Part IVB defines ‘applicable industry code’ as the provisions of a mandatory industry code for that industry – ie prescribed by regulations – and the prescribed provisions of any voluntary industry code that binds the defendant corporation. Compliance by D with the industry code may militate against a finding of unconscionability: Garry Rogers Motors] and (h) the requirements of any other industry code, if the plaintiff acted on the reasonable belief that the defendant would comply with that code; and (i) the extent to which the defendant unreasonably failed to disclose to the plaintiff: (i) any intended conduct of the defendant that might affect the interests of the plaintiff; and (ii) any risks to the plaintiff arising from the defendant’s intended conduct (being risks that the

defendant should have foreseen would not be apparent to the plaintiff); [This very expansive. What does it require in terms of disclosure? In Simply No-Knead this was held not to apply. Does this indicate that it will be interpreted in a less expansive way?] and

(j) the extent to which the defendant was willing to negotiate the terms and conditions of any contract for supply or acquisition of the goods or services with the plaintiff; and (k) the extent to which the defendant and the plaintiff acted in good faith [this can apply to require negotiation of variations to existing contract, not just pre-contractual negotiations: Simply No-Knead. Also, to what extent does GF here restrict the right of pursuit of legitimate interests? Simply No-Knead seems to suggest that no evil motive is required for breach of GF. Arguably SNK requires a higher standard of GF than does the universal implied duty].

Sub-s (5) provides that it is not of itself unconscionable to institute legal proceedings

CASES: UNCONSCIONABLE CONDUCT UNDER THE TPA

ACCC v Samton Holdings Pty Ltd Fed Ct (Full Ct) 2002FACTS:

- The ACCC brought this action on behalf of the Ranaldis (Rs), who operated a lunch bar shop under lease from Sampton (S).

- The lease and business were previously held by another party, and the lease was due to expire on 2 June 1997. It could be renewed by notice in writing to the lessors up to 3 months before the expiration of the lease.

- The other party sold the business to the Rs and S assigned the lease to them. The date of settlement was three days before the notice of renewal was due.

- Mr R forgot to renew the lease until 16 days after the required date of renewal.- The trial judge found that the lessors must have known that Mr R was busy taking over the new business and

would have forgotten about the renewal, but that they clearly wanted to renew it (having only bought it less than a month prior).

- At first S declined to renew the lease, but then changed their mind on the advice of their solicitor and instead demanded $70 000 in payment from the Rs.

- Rs alleged unconscionable conduct un der s 51AA and sought an order for compensation to be paid to them by S.

- Note that s 51AC, which would probably govern the situation today, had not yet entered into force.RESULT:

- 3:0 in favour of S – no UC.LEGAL IMPORTANCE:

s 51AA- The wording of s 51AA (unwritten law) refers to unconscionable dealing in the Amadio sense, but also

encompasses other specific equitable doctrines involving an element of unconscionability (eg unilateral mistake ie Taylor v Johnson; undue influence incl Garcia extension; unconscionable dealing; equitable estoppel; forfeiture and penalties).

- ‘Unconscionable’ in s 51AA does not mean unconscionability ‘at large’ ie the dictionary meaning of the concept (unfair, contrary to conscience etc), rather it is confined to specific equitable doctrine as recognised in the common law of Australia.

Was Sampton’s conduct Unconscionable Dealing?- Held that S’s conduct did not amount to UD. Rs were not in a position of special disadvantage that impaired

their ability to make a judgment in their own best interests.- Of key importance here was the fact that Rs had lost their right to renewal through their own fault. They had

been told that they had to exercise the option to renew, and they had legal advice from a solicitor. The fact that they forgot was simply due to their own carelessness, even though it might have been understandable in the circumstances.

- The decision to pay the $70 000 was made in Rs’ best business interests – it was better than losing the lease. He was clearly able to make a decision as to the best course of action in the circumstances.

- ‘At least in the case of an experienced businessperson there must be something more than commercial vulnerability (however extreme) to elevate disadvantage to special disadvantage’.

- S had acquired rights after R failed to exercise the option, it put a premium on those rights by offering them to R. Although this was perhaps morally offensive, it was not unconscionable in the required sense.

ACCC v CG Berbatis Holdings Pty Ltd HCA 2003FACTS:

- The ACCC brought this action on behalf of the Roberts (Rs) who were lessees and operators of a fish and chip shop in a shopping centre owned by Berbatis (B).

- Rs’ lease was due to expire in Feb 1997.- In 1995 they alerted B that they were thinking of selling their business because their daughter was suffering from a

serious and expensive illness.- Rs requested a new lease so as to enable them to make a satisfactory sale.- For some years the Rs, along with other tenants in the centre had been contesting the validity of some of the charges

levied on them under their leases. B wanted to put an end to the claims and litigation.- In October 1996 Rs signed a contract of sale to H subject to the assignment of a 7-year lease.- A few weeks before settlement was due, B’s agent sent Rs new lease documents containing a ‘mutual release’

clause, which required Rs to drop their claims against the centre regarding the charges.- Before the lease had been sent to them, Rs had been left with the belief that the release clause would not be insisted

upon. Rs did not know that the new lease document contained the MR clause until it was pointed out to them by a lawyer who looked through the documents while waiting for his fish and chips!

- Rs informed their solicitor, who phoned B to inquire about the MR clause. But he was told that the clause must stay.- Not wanting to miss out on the opportunity to sell their business and feeling that they had little option but to accept

the new lease, Rs executed the new lease and sold their business to H.- The trial judge found for the ACCC, holding that they had breached s 51AA. The full court upheld B’s appeal.- Section 51AC, which would probably govern the situation today, had not yet entered into force.

RESULT:- 4:1 in favour of B.

LEGAL IMPORTANCE:Majority

s 51AA- Upholds the Sampton approach to interpretation of s 51AA: relates to specific equitable doctrines involving

unconscionability.Special Disadvantage - Fact that Rs were in a difficult bargaining position because they had no legal right to renewal and wanted to sell

their business did not put them in the category of special disadvantage. They had legal advice, and they were still quite capable of making a judgment in their own best interests.

- Rs were businesspeople who had to make choices in commercially difficult circumstances, but there was nothing special about their disadvantage.

- Important that the parties were businesspeople in everyday business dealings (Gleeson CJ emphasised this point).- Callinan J expressed ‘serious doubt’ that the concern for their daughter’s illness were circumstances capable of

giving rise to a ‘special disadvantage’.Unconscionably taking advantage- It was not unconscionable in the circumstances for B to drive a hard bargain. It is common in commercial dealings

for one party to extract concessions (such as waiving existing legal rights) from another party.Kirby J (dissenting):

- Viewed the parties’ positions and conduct in a different light.- Rs did suffer from a special disadvantage, which was the product of concern for their daughter’s illness and need to

sell their business. The primary factor was the fact that they had proceeded for some time, due in no small part to the actions of B, on the footing that a MR clause would not be inserted. Only after it was pointed out to them by the lawyer were they able to question it. In the circumstances they effectively had the clause thrust on them at the last moment, which put them in a disadvantageous situation and meant that they were ‘unable to assess properly their options and interests.’

- The conduct of B, in inserting the clause late in the dealing and in seeking to exploit the weak position of Rs, was unconscionable.

- Equally resourced corporate players are different to small-traders of the sort that the Act was designed to protect.[Hypothetical – Assume that 51AC existed when Berbatis was decided, would the outcome have been different?

- There was a disparity in bargaining positions;- Could it be said that the mutual release clause was not in the legitimate interests of the shopping centre

management? Perhaps arguable, but probably not in light of what was said by majority.- Unfair tactics? Yes, hit them with the clause right at the end (see Kirby jjment esp)- Willingness to negotiate? Roberts’ solicitor rang them up and they said no negotiation, so definitely arguable.- Good faith: opportunistic action? Evil motive. Unwillingness to negotiate. Definitely arguable- So a different outcome would have certainly been possible.]

Boral Formworks & Scaffolding Pty Ltd v Action Makers Ltd NSWSC 2003FACTS:

- B (a NSW company) and AM (a UK company) made a contract by which AM undertook to manufacture and deliver scaffolding equipment to B as ordered, for a period of 4 years.

- AM warranted that the goods would meet certain specifications. A clause in the contract also specified that if B had a valid warranty claim, AM had the option of requiring B to retain the products while granting to B an appropriate allowance against the contract price.

- In Feb 2003 B were supplied goods that failed to meet the warranted standard.- It wrote immediately to AM informing them of the situation and stating that B would retain the goods and

complete the extra work on them that was needed and then deduct the cost of the work from the amount they would pay AM.

- AM’s receivers wrote to B demanding payment of the full amount.- The payment arrangement b/w the parties was conducted via the Bank, through a system in which AM would

take the money through a secure line on presentation of a certificate and invoices, and B would then pay the debt to the Bank (a ‘letter of credit’ system).

- AM was able to obtain the full amount of the disputed order under this system of payment.- B sought an injunction prohibiting the Bank from paying the full amount and requiring that B retain the

$174065 that it claimed was the cost of fixing the defective goods.RESULT:Boral wins. Makes orders for injunctions due to breach of s 51AC (and also finds a breach of 51AA)LEGAL IMPORTANCE:

s 51AA- Seems that judge holds that there was an estoppel here. By acquiescing in B’s decision to retain and fix the

goods and deduct the cost, AM were then estopped from claiming the full amount of the payment owing.- By demanding the money from the bank, AM were making a false statement. Such action was unconscionable.- [However his Honour simply states that the behaviour was ‘unconscionable’ without applying any specific

doctrine, as is required according to Berbatis and Samton. Rather, Austin J is invoking broad equitable principles. Therefore, this casts a shadow on the meaning of UC under s 51AA, b/c arguably his Honour has applied the dictionary concept of UC. However, insofar as it is inconsistent with Berbatis, no doubt Berbatis should be followed.]

s 51AC- Rejects the submission that this does not apply b/c Boral is not a small, weak business of the type that the

section was clearly designed to protect. So long as Boral is not a listed company and the transaction was less than $3 million, Boral was entitled to relief under s 51AC.

- Simply says that AM’s conduct was unconscionable under s 51AC without addressing the criteria.

George T Collings (Aust) Pty Ltd v HF Stevenson (Aust) Pty Ltd Vic SC 1990FACTS:

- HFS engaged GTC (real estate agents) to try and sell a property. - The terms of the engagement of GTC’s services were contained in a ‘sole agency agreement’. The purpose of

such an agreement is to ensure that the agent, during the agreed term of engagement, shall have the exclusive right to try and sell the property and that, should they sell it, they be entitled to their commission.

- GTC represented to HFS that they were entitled to commission under the agreement should they sell (sell was defined in the agreement as receiving an offer) the property to a person introduced by them during the term of the agreement and for a period of 120 days after its expiration.

- Upon signing the agreement HFS’s representative asked whether there were any onerous provisions, she was told that there were not.

- In fact, there was. One of the clauses conferred upon GTC the right to commission, should they sell the property, for an unlimited time after the expiration of the agreement. This could only be brought to an end by notice in writing from the vendor or by sale of the property via other means.

- Some time after the term of the agreement had expired, HFS received an offer for the property. They notified HFS, but HFS declined the offer, thinking it was no longer bound by the terms of the agreement. HFS then received a bill for $71 160 in commission.

- When HFS refused to pay, GTC brought this action, asserting its rights under the disputed clause.RESULT:Nathan J found for HFS: Breach of, iter alia, s 51AB.

LEGAL IMPORTANCE:s 51AB- ‘Person’: Note that the fact that the consumer was a company was not a problem, despite the fact that the act

refers to the consumers as a ‘person’. - Consumer transaction re supply of services? Nathan J states that the provision of real estate services

amounts to provision of services within the meaning of the section. But did the real estate agent’s services fit within the required definition of G&S in s 51AB? Was it a service ordinarily acquired for personal or household use? This should have been discussed rather than simply stated.

- (2)(b) Legitimate Interests: The clause was not reasonably necessary for the protection of the legitimate interests of GTC. GTC’s legitimate interest was to protect the commission to which it was entitled by virtue of a sole agency agreement only – this is what they had represented, this is arguably the extent of their legitimate interest. [Surely it was in GTC’s interest to make as much money as possible. But this arguably not a legitimate interest as was beyond the scope of what one would expect under such an agreement.]

- (2)(a) Bargaining Strengths: Held that GTC possessed superior bargaining strength. Although both were commercial parties, fact that this was a standard form contract probably made GTC the stronger party. Nathan J focuses on the fact that HFS’s representative was relying on GTC’s assurances that there were no onerous terms etc. She thus divested her bargaining power and placed her trust in GTC. This amounted to a disparity in bargaining power.

- Nathan J also examines misleading conduct briefly. Arguably that was by far the more appropriate path to go down in a case like this.

ACCC v Simply No-Knead (Franchising) Pty Ltd Fed Ct 2000FACTS:

- Mr Bates, managing director of SNK owned a franchise system whereby he supplied training and materials for making bread in the home.

- He entered into 5 franchise agreements with the plaintiffs (on behalf of whom the ACCC brought this action). - Bates decided he wanted to get rid of his franchisees and to operate in the market himself. So he devised a plan

to cause the Fs to terminate their franchise agreements. - He refuses to deliver franchised products to them, refuses to negotiate matters in dispute with them, distributes

materials promoting his company without including the Fs, and requires them to pay for them, competes with his Fs by selling products in their territories.

- Fs don’t pay for the promotional materials and demand a meeting with Bates, which he ignores. He refused to deliver Fs’ weekly orders unless they pay for the advertising.

- He also refuses to provide current disclosure documents, in breach of the franchise industry code.RESULT:Judge finds for ACCC, Bates and SNK contravened s 51ACLEGAL IMPORTANCE:

s 51AC- Meaning of unconscionable in s 51AC goes beyond its meaning in equity (and 51AA).- B’s conduct in this case was overwhelmingly unconscionable. The following criteria were relevant:- (d) applied undue pressure and tactics. Requirement of Fs to pay for advertising in which they were not

included was unreasonable. Fs’ refusal to pay for this quite reasonable. B’s refuse to deliver Fs’ weekly orders unless they paid for the advertising amounted to unfair pressure/tactics. [Competing with them could also amount to unfair tactics.]

- (e) lack of good faith. Held that the refusal to negotiate evinced lack of good faith on part of Bates [important here that this can apply to require negotiation of variations to existing contract, not just pre-contractual negotiations].

- Also described as a breach of good faith was B’s engaging in competition with the local Fs. Sundberg J says that this amounted to a lack of good faith because it was calculated to damage the Fs ‘in the sense that SNK must have known it would damage them’, and because ‘it was inconsistent with a proper relationship between franchisor and franchisee’. [However it was surely only a lack of good faith because B had an evil motive – an intention to harm Fs. Otherwise this is inconsistent with the findings in Far Horizons, in which it was acceptable for D to compete with his franchisor, although that was an explicit term of the contract in that case, nonetheless, it demonstrates that there may be no such thing as a ‘proper’ franchising relationship.]

- ACCC argued that (i) also applied, b/c B failed to disclose intended conduct that might affect Fs’ interests. Sundberg J doubts whether this applies, but doesn’t say why. He does not express a concluded view on this issue.

- (g) industry code breached by B.

Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd Fed Ct 1999FACTS:

- In 1997 GRM was appointed by S as its authorised dealer.- The terms of the agreement provided that either party may terminate the arrangement by giving the other

notice in writing.- After appointment as S’s dealer GRM updated its showroom and spent considerable funds on preparing its

business for the S dealership. - GRM was a good dealer, always exceeding its sales targets.- This arrangement continued up until 1998 (although the contract expired in 1997, this didn’t seem to matter).- In Feb 1997 S introduced a ‘6-Star revitalisation program’ under which all dealers were required to make

certain changes to their showrooms, decorations, signage etc.- GRM did not implement the changes required under the program, and was told to do so in Feb 1998 by S.- In May 1998 Rogers wrote to S saying that he would increase the size of the showroom but not make the other

changes.- In June 1998 S terminated the dealership in accordance with the contract.- GRM changed its mind and subsequently made all of the required changes. Rogers showed S the new changes.

However S refused to withdraw its notice of termination.- Further negotiations took place, GRM proposed to build a new showroom, it wrote to the Vic Automobile

Chamber of Commerce (VACC), but to no avail.- GRM then brought these proceedings, alleging, inter alia, breach of s 51AC

RESULT:Subaru wins. No breach of 51AC.LEGAL IMPORTANCE:

- The only criterion applied by the judge here is the applicable industry code. The Franchising Code of Conduct, which applied to the dealership agreement, authorises the franchisor (S) to terminate the franchise agreement provided that reasons and reasonable notice are given to the franchisee.

- Although S did not provide reasons, the reasons were obvious to GRM. It was not unconscionable to terminate the agreement without giving reasons where those reasons were known to GRM.

- [Interesting thing here is that not only is there is no positive unconscionable conduct, but also the judge uses one of the criterion in a reverse way: seeing as S DID comply with the criterion – the industry code – militates towards a finding that its actions were not unconscionable].

- Failure to withdraw the termination after GRM complied with the 6-Star program was not unconscionable, rather was reasonable due to the fact that GRM’s original non-compliance resulted in a breakdown of confidence and trust in GRM, which could not be repaired by a change of heart.

TERMINATION FOR BREACH This area of contract law deals with the right of a party to terminate the contract prospectively, such that the contract

is valid up until the point of termination but not after. Once the contract has been terminated both parties are absolved from further performance.

CREATION OF THE RIGHT TO TERMINATE The right to terminate for breach may be conferred by law and/or by the contract itself. The right at law is conferred on a party in the event of any of the following:1. Breach of an Essential term (aka breach of a ‘condition’) by the other party: Breach of an obligation that is central/fundamental to the contract2. Repudiation: occurs when the other party has manifested an intention to reject obligations under the contract ie if they are unwilling (or unable) to perform.3. Substantial loss: where the other party’s breach of term (be it essential or otherwise) causes a substantial loss

Breach of an Essential Term Actual failure to perform an obligation when it is due creates a right of termination in the other party if the

obligation is an essential term (also called a ‘condition’) of the contract. The parties may themselves expressly designate a term as essential, whether or not it is objectively so. In such cases

the Court will normally respect the choice of the parties to determine what is essential, so long as the term’s essentiality for the purpose of conferring a right to terminate is clearly stated.

In the event that essentiality is not specified, the Court must determine objectively what was essential. In determining essentiality the Court has adopted (in Bancks) the Tramways test of Jordan CJ. Under this test, a term

is essential if:o it appears from the general nature of the contract as a whole, or from some particular term or terms, that the

term is of such importance to the promisee that he would not have entered the contract unless he had been assured of its strict or substantial performance.

In order to ascertain the importance placed by the parties on a particular term, the Court will look to the contract as a whole and to other particular provisions. In addition, post-formational factors such as the effect of the breach and the parties’ reaction to it may bear on the court’s consideration of essentiality.

Thus the Court may look at:o Other relevant terms (Burger King);o The existence within the contract of other sanctions for the breach of the term (Burger King);o The wording used by the parties in the relevant term as compared with other terms of the contract or

previous contracts used by the parties (Burger King);o The effect of the breach, ie, how did it affect the parties’ interests (Burger King; Bancks);o The terminating party’s motives (Burger King);o Whether the relevant terms was the quid pro quo of an essential term (Bancks);o Whether the term was enforceable by way of damages (if it is not, may indicate that it must be considered

as essential otherwise its breach would have no consequences): AnkarRepudiation

A repudiation occurs where a party manifests unwillingness or inability to perform a contract at all or in some essential respect or an intention only to fulfil it in a manner substantially inconsistent with his or her obligations: Shevill.

The focus here is on the attitude or conduct of the contract-breaker. No actual intention to repudiate is required, the issue is determined objectively: DTR Nominees. Repudiation by Actual Breach Failure to perform an obligation as required (ie actual breach) may evince a lack of willingness or ability to perform

the contract and hence amount to a repudiation. Thus breach of an essential term may also amount to a repudiation (eg Bancks), however even breach of an

inessential term may indicate that the party is no longer willing to perform the contract as a whole. Where a single breach may not be effective to repudiate the contract, numerous or successive breaches may

aggregate to a cumulative manifestation of intention to no longer be bound: Carr; see also Bancks. In Bancks the fact that the breach was repeated and accompanied by AN’s assertion that it was entitled to do what it

was doing and that it intended to keep doing it in the future amounted to a repudiation.Repudiation by Anticipatory Breach A party may repudiate a contract by manifesting an inability or unwillingness to perform before any performance is

due. This is known as an ‘anticipatory breach’ and will result in a repudiation where the manifestation of unwillingness

or inability relates to the whole contract or an essential term of it, or will result in the loss of the substantial benefit of the contract: Foran.

In that event, the innocent party may terminate the contract forthwith, without having to wait until performance falls due.

Once the repudiation by anticipatory breach has been accepted by the innocent party, that is, an election to terminate has been made, the breach cannot be retracted or made good, even by performing as required under the contract.

On the other hand, if the innocent party does not terminate, the contract remains in existence and the repudiator retains the opportunity to perform the contract as required. Also the repudiator may take advantage of any subsequent event that excuses performance of the contract, eg frustration, non-performance of contingent condition, breach by the other party: Bowes.

Repudiation by Unjustified Termination Normally, a party who purports to terminate a contract without having the right to do so thereby repudiates the

contract. In addition to the termination being ineffective, it amounts to repudiation. EXCEPTION: unjustified termination will only be ineffective, not repudiatory, in a different interpretation of terms

scenario (see below).Adherence to Incorrect Interpretation of Contract If one party adheres to an interpretation of the contract that is incorrect (whether this results in a breach or

anticipatory breach), such adherence may amount to a repudiation. But this depends on a number of factors: Was the mistaken party aware that their interpretation was incorrect? If it was plainly incorrect and unjustified,

adherence to it may amount to a repudiation. However, normally the other party must first attempt to persuade the mistaken party that its interpretation is incorrect and give it an opportunity to reconsider its interpretation. Only once the mistaken party is aware of its error will insistence on it amount to an unwillingness to abide by the correct interpretation of the contract: DTR Nominees.

If the terms of the contract are not clear and there is a dispute over their meaning, a bona fide insistence on a particular interpretation, even if contentious, will not amount to a repudiation: DTR Nominees.

Thus in the event that A adheres to its interpretation which, although bona fide, turns out to be incorrect, B’s termination on the basis of A’s adherence to its interpretation might on one view be considered unjustified, as A’s conduct was not repudiatory. However, the Court in DTR Nominees instead held that such a termination by B of itself does NOT amount to a repudiation of the whole contract, but only evinces an intention not to be bound by the contract insofar as it is incorrectly interpreted by A. Thus the termination by B is not effective but is also not repudiatory. The contract then remains on foot. [!!!!!]

Termination for Failure to Perform on TimeWHEN IS PERFORMANCE ON TIME ESSENTIAL? The parties may expressly stipulate (either re the whole contract or re a specific clause) that ‘time is of the essence’

ie that performance by the specified time is an essential term. Where performance on time is not explicitly designated as essential, the court must determine the issue by reference

to the Tramways test. Thus courts look at the wording, surrounding provisions, nature of the contract, parties’ interests and the effect of breach etc.

Where the contract fixes the time only approximately, the normal inference must be that performance on time is not an essential term: see eg DTR Nominees.

Where the contract specifies no time at all for performance, the Court may imply a reasonable time. In such a case, the obligation to perform on time (within the reasonable time) is not likely to be essential: Laurinda.

WHAT HAPPENS WHEN THERE IS A FAILURE TO PERFORM ON TIME? If the obligation to perform on time is essential (time is of the essence) and performance is not forthcoming when

due, the other party may forthwith elect to terminate the contract. However failure to do so may result in time ceasing to be of the essence, and therefore in the loss of the right

terminate without notice (see also loss of the right). If time is not of the essence, or has ceased to be of the essence, the innocent party cannot terminate for delay without

first giving notice requiring performance within a specified reasonable time: Laurinda; Carr. The onus is on the party serving the notice to show that the specified time was reasonable: Laurinda The notice must clearly state that the contract may be terminated if not complied with: Laurinda (but note differing

judicial opinion as to what is required); arguable also that Pan Foods signals a less strict approach to the requirement of notice.

DELAY MAY NONETHELESS AMOUNT TO REPUDIATION If time is not of the essence, failure to perform on time may nevertheless give rise to a right to terminate without

further notice if the delay is so long or occurs in such circumstances as to amount to a repudiation of the contract: See Carr; Laurinda.

Of course, the delay and the evidence of repudiation must relate to either the whole contract or an essential part of it in order to evince a repudiation capable of giving rise to a right to terminate: Laurinda.

Breach Causing Substantial Loss

There has been some recognition of a third category of conduct giving rise to the right to terminate: where the breach has caused substantial loss to the other party.

This requires focus on the effect of the breach. Courts will often consider the effect of the breach in order to determine whether a term is essential or whether

the contract has been repudiated, but a breach causing substantial loss may give rise to the right to terminate notwithstanding that the term breached was not essential and not accompanied by repudiatory conduct: see Ankar; Carr.

Right to Terminate Arising from the Contract Itself A right to terminate the contract for any breach whatsoever, or for any specific breach, may be expressly

provided for by the parties in their contract.INTERPRETATION Whether a clause applies in particular case is a matter of construction as with any other clause, and resort must

be had to the rules that govern contract construction, including the rule that, in the event of an ambiguity, the clause will be construed so as to ‘avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust.’ See, eg, Burger King.

COMPLIANCE WITH NOTICE REQUIREMENTS AND EFFECTIVE TERMINATION It is also common for parties to specify the manner in which the right to terminate must be exercised and what

effect its exercise shall have. Such requirements (ie the provision of notice) have tended to be construed strictly in the past: Tricontinental. However, the High Court decision in Pan Foods appears to be signalling a retreat from such strictness in

commercial transactions in preference to a more ‘practical’ approach concerned more with substance rather than form.

Nonetheless, the counter-argument is that it was only really Kirby J who advocated this flexible approach. The other members of the Court decided in favour of ANZ on the basis that they had in fact complied with the notice requirements sufficiently strictly, not because they did not have to technically comply, as Kirby seemed to be saying.

RESTRICTIONS ON THE EXERCISE OF THE RIGHT TO TERMINATE The right to terminate a contract for breach has long been subject to a variety of restrictions designed to

prevent its unfair exercise. These are explored below.Readiness and Willingness A party can only terminate for breach if that party is itself ready and willing (and able) to perform the contract. The terminating party must show that it was ready and willing to perform at the time of termination (or at the

time of service of the notice if notice is required). In a case of termination for anticipatory breach, the terminating party is not required to show that it would have

been ready to perform on the day on which performance was actually due, so long as they can show that at the time of termination they were not already unwilling or unable to perform: Foran (Dawson, Brennan, Mason).

An estoppel may operate to preclude reliance on the R&W principle: ForanTHE TENDER PRINCIPLE An application of the R&W principle is the tender principle. In sale of land contracts, both parties must

perform their obligations contemporaneously (at settlement). It is a prerequisite of termination that the terminating party has itself ‘tendered’ performance.

However, tender is excused where it is prevented by the other party or clearly pointless in the circumstances (ie where other party has committed an anticipatory breach): Foran

Thus in Foran, the vendor, by committing an anticipatory breach by intimating that it would not be able to perform its obligations, had induced the purchasers to assume that tender of performance was no longer required. The vendor was therefore estopped from disputing the purchasers’ failure to tender, thus clearing the way for the purchaser to validly terminate the contract on the grounds of the vendor’s anticipatory breach. [But the issue of detriment was contentious].

Unjust Forfeiture of a Proprietary Interest & Unconscionable Exercise of a Legal Right at Equity Before the day of settlement, the buyer has a proprietary interest in the land. Therefore, in some circumstances

the buyer can rely on the equitable doctrine of unjust forfeiture in order to obtain relief, even though their breach would normally give rise to a right of termination in the other party.

We will look only at this doctrine in the specific context of the vendor’s right to terminate the contract as a result of the purchaser’s failure to settle when time is of the essence.

There is an English doctrine and an Aus doctrine. We will examine the Australian doctrine, looking at three cases that illustrate when this doctrine can be used by the purchaser to obtain relief.

Broadly speaking, the court has the power to grant relief against forfeiture resulting from a termination for breach whenever in the circumstances it is unconscionable for the vendor to insist on the forfeiture: Legione; Stern.

As to what amounts to unconscionable circumstances, there has been much difference of opinion. In Legione and Stern, majorities of the High Court held that it is relevant to consider not just traditional

doctrines of unconscionability, but to look more broadly at the circumstances, particularly at the effect forfeiture/termination would have on both parties, and also at the nature of the breach (how serious? Was it deliberate?)

However the Majority of the HCA in Tanwar seemed to express the view that the doctrine does not exist, and that the vendor’s right to terminate for the purchaser’s breach of an essential term is not qualified by any notion of unconscionability other than the established doctrines of fraud, mistake, accident or surprise. The only additional factor being whether the vendor, ‘in some significant respect’ caused or contributed to the breach.

This is largely inconsistent with the established notion that courts have the broad power to grant relief against an unconscionable termination: Foran; Stern.

It thus appears in light of Tanwar that it will be most difficult for a purchaser to obtain equitable relief against a valid termination for breach in the absence of one of the ‘vfmas’ circumstances or an estoppel (although relief for R&W, above, and based on statute, below, may be available).

Unconscionable Conduct Sections 51AA, AB and AC of the TPA are also potential sources of restrictions on the exercise of a legal right.Breach of Implied Obligations Breaches of implied obligations (good faith; reasonableness; cooperation) can invalidate the termination of a

contract: Burger King; Renard. In both these cases, P was prevented from performing due to D’s breach of its implied duty of

cooperation/good faith. D’s right to terminate for breach was thus denied because of its earlier breach. But surely valid termination of a contract of itself cannot amount to a breach of an implied obligation, as that

would be inconsistent with the legal rights of the parties.LOSS OF THE RIGHT

Election to Affirm or Waiver When the right to terminate arises in a party, that party must choose whether or not to exercise that right. It

may choose to affirm the contract, in which case, the right to terminate will be lost. Two issues arise in regards to the election of a party to affirm the contract:1. What kind of conduct constitutes an election to affirm? 2. Is it purely an objective test? Or is there an element of subjectivity in the test, such that a party’s subjective

intention not to affirm (but to reserve its right to terminate) may be relevant? The case law is varied in this area. At one extreme, it has been held that mere failure to exercise the right to terminate can constitute an election to

affirm: Suttor Traditionally, the decision to affirm or terminate is to be judged objectively from the conduct of the party

concerned. Thus there need not be an actual intention to affirm: Carr (affirmation inferred from B’s conduct in continuing on with obligations under the contract and failure to give notice making time of the essence).

At the other extreme, it has been held that the act of affirmation must be unequivocal, and that the mere doing of acts consistent with the contract whilst in possession of the right to terminate does not necessarily result in an affirmation. Depending on the circumstances, the act may also be consistent with reserving the right to terminate and thus may not be lost. The election need not be made at once: Immer (esp Brennan J)

Where time is of the essence, failure to terminate (election to affirm) may result in time ceasing to be of the essence. In such a case, the innocent party loses the right to terminate without notice. However, the obligation must still be performed, so the right to terminate may be regained by the service of a notice specifying a reasonable time for performance: Laurinda; Carr.

KNOWLEDGE, SUBJECTIVITY AND ‘CONSCIOUS CHOICE’ It has been held that the affirming party need not know of the existence of their legal right to terminate in order

for their conduct to be objectively judged as an affirmation, it being a sufficient prerequisite that the affirming party know the fact(s) on which the right to terminate was based: Sargent

The majority in Immer qualified this further b/c the affirming party was acting under the mistaken assumption that the CC no longer needed to be fulfilled (thus was as if it had been fulfilled or had simply ceased to be relevant to the contract). In this case, the fact that the affirming party knew that the CC had not been fulfilled did not render its continuance of the contract an affirmation (at that stage, Immer did not have to make a ‘conscious choice’ to affirm or terminate) until the later stage at which the true situation was discovered. After

that time they were confronted with a ‘conscious choice’ to terminate or affirm, and they did so: Immer (esp majority).

Thus it seems knowledge of the relevant circumstances is a relevant subjective element in affirmation.Estoppel The right to terminate may also be lost if the party wishing to exercise the right has engaged in conduct that

leads the other party to assume that the right will not be exercised, and that other party relies on that assumption to its detriment. In such a case an estoppel may operate to preclude the first party from terminating: Legione.

The conduct giving rise to the estoppel must be sufficiently clear and unambiguous (though it need not be express). This will depend on the context: Legione (note Gibbs/Murphy take a less strict approach, but the unambiguous approach was also adopted in Mobil.)

The Court in Foran found detriment simply in the loss of opportunity of performing the contract (ie lost opportunity of raising the required funds). Dawson J identified the detriment as ‘taking the risk’ of being liable for failure to perform.

CASES: RIGHT TO TERMINATE FOR BREACH

Associated Newspapers Ltd v Bancks HCA 1951FACTS:

- B contracted with AN to produce, for a substantial salary, a weekly comic for ten years that would be published on the front page of newspaper owned by AN.

- On three successive occasions, and despite the protests of B, the newspaper did not print the comic on the front page, but on a different page.

- After the third occasion, B gave notice to AN that in light of its repeated failure to abide by its promise re front page, he would no longer be bound by the contract (termination).

- AN brought proceedings seeking an injunction.RESULT:5:0 in favour of BancksLEGAL IMPORTANCE:

Breach of Essential Term- The casse turns on the issue of whether the undertaking to publish the comic on the front page was an essential

term of the contract.- The Court approved and adopted the following passage from Jordan CJ (the Tramways test):- ‘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 the contract unless he had been assured of a strict or substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor.’

- Important factor was that the obligation to publish on the front page was the correlative promise (the quid pro quo) for the drawing of the comic (obviously an essential term), thus it would be strange that B’s obligation was essential and AN’s return obligation was not. [But surely payment of salary was the primary quid pro quo?]

- It was ‘obviously’ of prime importance to B that his work be published on the front page of the paper. Analogised with other artistic-related cases in which self-promotion was held to be an essential term in addition to salary.

- Another factor mentioned was that AN had committed three successive breaches. Because of this B was ‘certainly’ entitled to terminate the contract. [but how is this relevant to essentiality? Perhaps it simply gets around a possible argument by AN that the contract was still ‘substantially’ performed – an argument that might be plausible had there only been a once-off failure].

Repudiation- Breach also amounted to a repudiation of the contract as AN’s conduct amounted to a ‘refusal to be bound by

the contract’.- Here, the conduct of AN in maintaining that it was entitled to do what it was doing and that it intended to keep

doing it in the future amounted to a refusal to be bound by the contract and hence was a repudiation that accompanied the actual breach.

- Fact that the breach was successive/repetitive more clearly evinces an intention not to be bound by the contract.

Burger King Corporation v Hungry Jacks Pty Ltd NSWCA 2001

FACTS:- Clause 2.1 required HJ to open a minimum of four new restaurants per year.- Other provisions provided sanctions for breach of this term (loss of fees and concessions).- In previous agreements between the parties, the equivalent clause was expressly designated as essential, it was

not in this case.RESULT:Clause 2.1 not essentialLEGAL IMPORTANCE:

Essentiality- Clause 2.1 was held not to be essential under the Tramways test for the following reasons:- The absence of the express designation of essentiality from this contract where such appeared in two previous

contracts are surrounding circumstances that can aid in determining the parties’ intention as to essentiality. Here, it tends toward a conclusion that the parties did not view it as essential;

- The fact that other clauses in the contract imposed sanctions for breach of this term, thus it is not possible to say that BKC would not have entered the contract if it was not assured of ‘strict performance’ of this promise;

- BKC’s main benefits under the contract (income, promotion, training) had not been significantly affected;- BKC had an ulterior motive for the termination (ie negatives a possible inference that BKC’s termination was

due to breach of something important to them).Construction of Termination Clause- Clause 15.1 provided that BKC has the right to terminate the agreement if (d) HJ ‘fails to comply with any

terms, provisions or conditions of this Agreement’, including, of course, the provision requiring HJ to open four new restaurants each year (clause 2.1).

- However, the contract also included cl 8.1: Any failure to adhere to the Development Schedule shall attract a liability to pay a franchise fee in respect of each restaurant required to be but not opened. Such franchise fees shall be paid at the end of the year following the failure, but not if such failure is made good by that time.

- The combination of these clauses made the contract ambiguous, as it was open to two constructions: (1) The clause providing for remedy of the breach in the following year suggested that no breach of the restaurant-opening requirement could occur until the end of the following year; or (2) the requirement to pay a fee could operate only if BKC elected not to terminate.

- The court adopted the first construction (that favoured HJ) as this provided the more just and reasonable outcome (if (2) was adopted, BKC could terminate if franchisee was only slightly behind schedule and had made substantial investments). Court applied ABC v APRA (preference for more reasonable interpretation).

- [Arguable that they really applied a contra proferentem approach to reach a more ‘just’ result].

Carr v J A Berriman Pty Ltd HCA 1953FACTS:

- The parties were in an arrangement regarding the construction of a factory building on land owned by C.- Under the arrangement, B was to be paid to supply the steel (which it had arranged to do through a sub-

contractor) and to construct the building.- C undertook to excavate the site in readiness for the construction by 29 May, but this was not done until

December.- The construction never took place.- C had failed to prepare the site as required. Furthermore, C had decided to get the steel from elsewhere.- B’s solicitor wrote to C informing them that these two failures constituted two separate breaches of the

contract and that, in accordance with cl 20 of the contract, B was exercising its right to terminate.- In fact, clause 20 had no relevance at all, thus B had provided an inapplicable reason for termination. However

according to the rule in Shepherd v Felt & Textiles it doesn’t matter that the reason specified for termination was incorrect, so long as there was a valid right to terminate at the time of the termination.

- Thus the issue was whether, at the time of the letter, C’s breaches gave rise to a right to terminate.RESULT:5:0 in favour of BerrimanLEGAL IMPORTANCE:

Repudiation- The failure to excavate the site by 29 May was not by itself a repudiation of the contract.- Late performance where time is not of the essence does not of itself give rise to the right to terminate.

Furthermore, B’s conduct after 29 May indicated only that it wished to continue with the contract.- Failure to prepare the site could amount to a repudiation if it manifested an intention no longer to be bound by

the contract but instead to perform it when it suited C. However there was a strong suggestion that failure to

prepare the site was due to inclement weather. This does not excuse the breach but it does suggest that C still intended to complete the contract (ie negatives the inference that C no longer willing to perform) thus this was not of itself a repudiation. [But combined with other conduct, eg change of supplier, there was then a clear manifestation of unwillingness to perform]

- Change of steel supplier alone, however, amounted to a repudiation. This was a deliberate decision by B no longer to be bound by an essential part of the contract – a clear repudiation. [But was it repudiation by actual breach? C had not breached the obligation as it was B’s obligation to supply, C had simply manifested an intention not to be bound by the contract, of course, this is enough.]

Cumulative Breaches- However, when combined with the second breach re changing steel suppliers, there was a manifest

unwillingness to be bound by the contract. Thus the two breaches combined ‘may have a significance which it might not be legitimate to attach to the first alone’.

- Nonetheless, the cumulative breach argument did not have to decide the matter, as grounds for termination were provided solely by C’s breach of the steel supply provision.

Breach Causing Substantial Loss- The steel supply represented a ‘substantial part’ of the contract. It was worth a lot of money to B and B also

became liable to its subcontractor for the cost of the steel.- The Court does not say anything about this fact alone justifying termination, but arguably it would on the basis

that the breach caused substantial loss to B.Election to Affirm- In respect of the first alleged breach (failure to excavate), B lost the right to terminate for breach because its

conducted supported the inference that it had affirmed the contract. It went on with the order of steel and continued to perform its obligations.

- Assuming that the failure to excavate was a breach of an essential term, B, in electing to affirm, lost its right of termination. It could only have been regained by serving notice requiring performance within a specified reasonable time.

- Assuming time was not of the essence, B did not obtain the right to terminate until service of such a notice.- The Court rejected the notion that each passing day after the due date of performance amounted to a new

breach. Once the promise to do something by a due date has been broken, it is broken finally. Continued failure to perform is nothing but a failure to remedy the past breach, not the commission of any further breach.

Bowes v Chaleyer HCA 1923FACTS:

- B contracted to purchase 1780 yards of silk ties from C, which C was to have shipped from France.- The contract was formed on 8 March 1920 and provided that C would ship 1780 yards of silk ties, ‘half as soon

as possible, half two months later.’- 3 June (before shipment due) B cancels the order b/c can’t find buyers.- 21 October, seller goes ahead anyway but ships only 380 yards.- 17 November, seller ships 820 yards.- 13 December, seller ships remainder.- B refused to accept any of the goods on arrival, claiming that the contract had been cancelled by agreement.

RESULT:3:0 in favour of BLEGAL IMPORTANCE:

- The cancellation of the order amounted to a repudiation by anticipatory breach on the part of B.- At that point, C obtained the right of termination, however it did not exercise that right, rather he proceeded

with the contract.- Seeing as C elected to proceed with the contract, he remained liable to fulfil his obligations in full, and B was

enabled to take advantage of any supervening circumstance that excused his performance.- C’s failure to ship the goods as required under the contract amounted to breach of an essential term. Thus B

was then entitled to terminate the contract for C’s essential breach.- So B is excused from performing his obligation of paying for the goods.

DTR Nominees Pty Ltd v Mona Homes Pty Ltd HCA 1978FACTS:

- MH had entered a contract for the purchase of land owned by DTR.- The contract was formed on 12 November 1973. MH agreed to purchase 9 lots of subdivided land.- Clause 4 of the contract stated as follows: ‘The Plan of Subdivision, a copy of which is annexed hereto, has been lodged

with the Fairfield Municipal Council. The vendor will proceed with all due dispatch to comply with the conditions of approval of the council and to have the relevant plan of subdivision lodged for registration as a deposited plan [with the Registrar General] … If the said plan has not been lodged for registration as a deposited plan within a period of 12 months from the date hereof …either the Purchaser or the Vendor may … rescind this contract whereupon all moneys paid to the Vendor hereunder shall be refunded to the Purchaser …’

- At the time of the contract DTR had not lodged the plan referred to in the first sentence of cl 4 (the one annexed to the contract). Instead it had lodged a plan that sought approval of so much of the subdivision as related to the 9 lots. This subdivision was approved by the Council prior to the formation of the contract.

- 25 Feb 1974: A plan to give effect to this approval was lodged with the Registrar General.- 7 June 1974: Lodged plan was registered.- 19 July: MH purported to terminate the contract on the grounds that the plan lodged on 25 February was the incorrect plan

and thus constituted a repudiation of the contract (MH had only just become aware of the incorrectness of the plan).- 25 July: DTR informed MH that it considered their termination unjustified and, on that basis, purported to terminate the

contract themselves, forfeiting the deposit and reserving its right to damages.- Both parties essentially had a different interpretation of clause 4 and what was meant by ‘the relevant plan’. The task of

the court was thus to determine the validity of the purported terminations.RESULT:Contract abandoned, deposit returned.LEGAL IMPORTANCE:

- Court held that the correct interpretation of clause 4 was that DTR was required to lodge and register the plan annexed to the contract (the 35 lot plan). The registration of ‘the relevant plan’ was a reference to the plan referred to in the previous sentence: the 35 lot plan.

Breach of Essential Term- By failing to lodge with Council and then failing to register the correct plan, DTR was in breach of cl 4.- However, the requirement that the correct plan be lodged ‘with all due dispatch’ was NOT an essential term. Court gives

two reasons: applies Tramways test, no foundation for holding that MH would not have entered into the contract had they known that DTR had not lodged the correct plan [but why?]; furthermore, time was not of the essence, and cl 4 provided the right to terminate after 12 months (which had not yet expired), which suggests that mere failure to not act expeditiously was not an essential term. Therefore its breach did not give MH the right to terminate.

Repudiation- It was then argued by MH that the breach was repudiatory, in that it evinced an adherence to an incorrect interpretation of

the contract (and thus manifested an unwillingness to abide by the correct contract).- Whilst adherence to an unjustifiable interpretation can amount to a repudiation, it does not necessarily do so. Rather the

other party must first attempt to persuade the party in error that its interpretation was incorrect and give it an opportunity to reconsider its interpretation. To put it another way, the mistaken party must evince a deliberate intention to do away with the contract, therefore it must know that its interpretation is unjustified or wrong.

- DTR were unaware that MH had adopted a different interpretation until it terminated the contract. MH made no attempt to inform DTR of its mistake, so it was not entitled to terminate.

- Furthermore, where the terms of the contract are not clear and there is a dispute over their meaning, so long as the insistence on the interpretation was bona fide it will not amount to a repudiation.

- Although DTR’s interpretation was wrong, it was bona fide and did not amount to a repudiation.Repudiation for Unjustified Termination- Seeing as there was no repudiation by DTR, MH’s termination was unjustified. Normally, this would give DTR the right

to repudiate the contract.- However, here the Court says that MH’s letter of termination did not amount to a repudiation of the contract as a whole,

as it only amounted to an intention not to be bound by DTR’s interpretation of the contract. Therefore MH’s termination was not a repudiation by unjustified termination. [This is a bit cute but arguably produced a fair result.]

- Thus DTR were not entitled to terminate on that basis.- Since neither party had validly terminated, the contract remained on foot. When these proceedings were launched, it could

be inferred that the parties had abandoned the contract.- The Court therefore ordered that the deposit be returned to MH.Readiness & Willingness- DTR’s termination (on the basis of MH’s unjustified termination) was itself unjustified for the further reason that, at the

time of the termination, it was itself not willing to perform the contract on its correct interpretation.- [Thus MH’s termination was not repudiatory because it only repudiated the incorrect interpretation, but DTR’s

termination was considered unjustified because it evinced an unwillingness to perform the contract as correctly interpreted.]

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd HCA 1989FACTS:

- L sought to terminate a lease between itself and C, the lessor. The facts were as follows:- 31.10.85 Capalaba [shopping centre owner] and Laurinda [tenant] sign agreement to complete and execute

annexed lease [commencing 1.12 85]. - Clause 6.1 provided that C would grant and L would accept a lease that was annexed [but only partially

completed]- Clause 15.7 provided that: ‘The obligations of the Lessor and the Lessee are not conditional or in any way

dependent upon the preparation and execution of the lease and are not affected by any delay in execution of the Lease’.

- 28.11.85 Capalaba's solicitor informs Laurinda's solicitor that a lease has been executed and will be sent shortly.

- 03.12.85 Laurinda moves in, operates business.- 14.03.86 Laurinda requests lease as soon as possible. Capalaba replies: ‘in the not too distant future’.- 21.08.86 Laurinda's solicitor writes again, stating that it is of ‘critical importance to our clients that the Lease

be registered immediately to safeguard their rights of tenure … our clients require you to complete registration within fourteen days ... If the registration is not completed within that time then our clients naturally reserve their rights’.

- 03.09.86 Capalaba's solicitor replies that it has referred the letter to their clients for instructions.- 05.09.86 Laurinda terminates lease agreement for breach by Capalaba of implied obligation [implication

conceded] to register the lease or deliver to L a registrable lease.- Laurinda sues for a declaration and damages.

RESULT:5:0 Appeal by Laurinda allowed.LEGAL IMPORTANCE:

- Court reads cl 15.7 in light of cl 6, which required that C would grant and L would accept the annexed lease, so as to conclude that C was not entitled simply to dispense with the lease. Rather, the lease had to be executed though no time for completion was fixed.

- As a result, time for the performance of cl 6.1 was not of the essence, thus ‘something more’ was required’ in order to give L the right to terminate: either serving of an effective notice making time of the essence; or delay amounting to a repudiation.

Effective Notice Making Time of the Essence- REASONABLE TIME:- Court held that C were actually only given 13 days’ notice b/c letter was received on 22 August. - 13 days was not proved by L (the onus being on them) to be a reasonable time. At least 14 days would have

been a reasonable time for such a conveyancing transaction.- CLEAR INTENTION (differing opinions)- Brennan, Deane and Dawson JJ: The phrase ‘our clients naturally reserve their rights in respect of your client’s

default’ was not sufficiently clear as to communicate the requirement that the lease had to be completed within 14 days, after which L may elect to terminate. Focuses more on the form of the notice, must plainly convey the intention.

- Mason CJ: ‘The notice must convey a definite and specific intent to require strict compliance, so that the recipient will be aware that the party giving the notice may elect to treat the contract at an end.’ Thus focuses more on substance, ie whether, given the recipient’s knowledge of circumstances, the notice was sufficient to communicate the intention.

- Deane and Dawson JJ note that an unequivocal statement that the party WILL terminate if notice not complied with is not required, only need to show that they will obtain the right to terminate upon expiration of the reasonable time.

Repudiation by Delay- The Court held that the sheer length of the delay, combined with the fact that C had made repeated assurances

that it would complete the lease ‘shortly’ and ‘in the not too distant future’, yet continued to delay, and the evidence of C’s wanting to maintain the delay because doing so suited its commercial interests sustain an inference that its delay was accompanied by an intention not to complete the contract until it suited it, which amounted to a repudiation.

- Brennan J: Noted that the execution of the lease was, substantively, an essential term, thus repudiation of it was sufficient grounds for termination.

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd HCA 1987FACTS:

- A provided a guarantee for a loan made by NW to another company. Under the arrangement, A provided a security deposit of $125 000 to NW.

- NW breached the following two terms of the Security Deposit agreement:- 8. [NW] agrees with the Depositor that it will use its best endeavours to ensure that the machinery …. shall

remain in the possession of the Lessee and will … notify the Depositor should the Lessee propose to sell or assign its interest in any of the said machinery.

- 9. Upon the Lessee being in default under the Lease Agreement [NW] shall agree to notify the Depositor whereupon [NW] and the Depositor shall consult with a view to determine what course of action will be taken by [NW] ...

- The lessee both defaulted on the lease and assigned its interest to its parent company. NW failed to notify A of either of these events.

- The issue is whether these two breaches entitled A to terminate the agreement and get its money back.RESULT:5:0 in favour of AnkarLEGAL IMPORTANCE:

Breach Causing Substantial Loss- Court gives three reasons for holding that clauses 8 and 9 are essential terms thus giving rise to a right of

termination by A.- 1. Neither clause is readily enforceable by way of damages [presumably this means that, since damages would

be difficult to prove, a breach of this term would have no consequences for the breaching party and provide no benefit to the innocent party unless it were construed as an essential term.]

- 2. Requirement of an obligation to give notice is designed to allow the guarantor (the surety) to safeguard its interests. Failure to give notice to A could have seriously affected its ability to safeguard the risk arising from the lessee’s default and reassignment of the lease.

- 3. Similarly, it was clearly disadvantageous for A to be liable for a lessee of equipment who no longer had possession of the equipment.

- The Court decided that these factors (along with the desirability of construing surety contracts in favour of the surety) outweighed the fact that the wording of the clause tended not to express essentiality (indeed there was no fixed time limit for the provision of notice by NW etc).

- Importantly, the focus of the last two reasons on the effect on A of the terms’ breach seems to be a recognition of the idea that the right to terminate arises as a result of substantial loss. Although the Court says that the effect of the breach is a reason for holding that the term was essential, it is arguably saying that, on one hand the terms are not essential, but in light of the effect of breach, they give rise to a right to terminate.

- This is the closest the HCA comes to explicitly countenancing the existence of this basis of the right to terminate (although there are numerous other cases in which this basis for termination is implicitly sanctioned).

Pan Foods Company Importers & Distributors Pty Ltd v ANZ Banking Group Ltd HCA 2000FACTS:

- Pan obtained finance to carry on its business from ANZ under a credit facility.- The Bank received reports from accountants that Pan was in financial trouble and would continue to trade at

losses of $200 000 per year and that Pan did not intend to restructure their operations so as to become profitable.

- Under such circumstances, the contract provided that the Bank was able to terminate the agreement. However the contract required it to do so in a specific manner. The relevant terms were as follows:

11.1 The Bank may … if an Event of Default has occurred, by notice to the Customer(d) terminate its obligations under the Agreement;(e) declare that all moneys owing are due and payable15.3 A notice from the Bank to the Customer must be given by an Authorised Representative, in writing.- On 15 June 1994 ANZ delivered the following notice to Pan:- ‘TAKE NOTICE THAT [ANZ] HEREBY DEMANDS payment of [all monies, debts and liabilities to the

Bank] … TAKE FURTHER NOTICE that if you do not pay … by 10am on 16th June 1994 the Bank may without further notice to you institute proceedings for the recovery of the said indebtedness and liabilities or exercise rights [conferred on it by the contract].

- The Letter was signed by the Bank’s solicitors and hand delivered by Bew, one of ANZ’s managers. - Pan was unable to comply with the demand.- On 28 June 1994 ANZ appointed receivers to sell all of Pan’s assets etc.- Pan launched this action to obtain an injunction to stop the action. It claimed that the notice served by the Bank

was ineffective because it failed to comply with the requirements of clauses 11.1 and 15.3.

- Pan argued that the notice (i) was not in declaratory form; (ii) did not specify an event of default; and (iii) was signed by the Bank’s Solicitors, not an ‘authorised representative’ of the Bank.

RESULT:5:0 in favour of ANZLEGAL IMPORTANCE:

- Four of the judges found for ANZ simply on the basis that the notice had been complied with. They held that (i) the notice was declaratory in that it was a communication to Pan of an ‘expression of its will’; (ii) it was not required to specify the event of default, so long as default had occurred, which it had, therefore the notice was a valid exercise of its rights; (iii) it was sufficient that Bew had physically ‘given’ Pan the letter. It did not matter that the Solicitors had signed it, as they had done so under the instructions of Bew and that was reinforced by Bew’s handing it over personally.

Kirby J:- Whilst agreeing with the outcome Kirby J seemed to dismiss the appeal on broader grounds. His Honour

advocated a more flexible approach to the construction of commercial documents, refusing to annul the parties’ substantive rights simply due to some minor technical error (if there were any).

- ‘Commercial documents … should be construed practically, so as to give effect to their presumed commercial purposes and so as not to defeat the achievement of such purposes by an excessively narrow and artificially restricted construction.’

- ‘Business is entitled to look to the law to keep people to their commercial promises.’- [Thus this case may signal a departure from the strict approach adopted in Tricontinental. However, a strong

counter-argument is that it seems that only Kirby J really advocated this flexible approach to commercial documents. The other members of the Court decided in favour of ANZ on the basis that they had in fact complied with the notice requirements, not because they did not have to technically comply.]

Foran v Wight HCA 1989FACTS:

- F was purchaser and W was vendor in a contract for the sale of land.- Dec 1982 Contract of sale Wight to Foran. Price: $75,000; $7,500 deposit. Settlement to take place on 22 June

1983. ‘In this respect time is of the essence’. Sellers required to register a right of way.- 20 June 83 F’s solicitor telephones to make appointment for settlement on 22 June. Sellers’ solicitor says W

can’t settle - right of way not registered. Buyers stop trying to raise finance. - 22 June Neither party attends. Forans had only $56,000. [Trial judge: they would not have raised the full

amount even if they kept trying for those two days prior to settlement.] - 24 June Forans serve notice of termination.- 22 July Vendor registers right of way.- Sept 84 Vendor resells for $68,000 (loss of $7000).- W brings this action for payment of the deposit from F.

RESULT:4:1 in favour of Foran (purchaser)LEGAL IMPORTANCE:

- All judges (except Deane) agree on the existence of the R&W principle, which requires that a party wishing to terminate the contract for breach must itself be ready and willing to perform the contract.

- An application of the R&W is the tender principle, which requires both parties to tender performance where performance is contemporaneous, as in settlement of a sale of land contract. All judges accept that this is a relevant principle.

- W argued that F’s termination was unjustified because F was not R&W to perform as it had not yet raised the required funds (not R&W), and that, similarly, F did not tender performance.

Readiness & Willingness- All judges held that W could not rely on the R&W principle to invalidate F’s termination, but differed in

reasoning [ignore Gaudron: off on tangent].- Dawson and Brennan JJ: F needed only to show that, at the time of W’s anticipatory breach, he was not

unwilling to raise or incapacitated from raising the amount required to complete the contract.- Deane J: Took the estoppel approach to both R&W and tender principle: W estopped from denying that F not

required to be ready and willing to perform. Detriment to F is loss of chance of performance.

Tender Principle

- Deane and Dawson, Brennan JJ: W estopped from denying that F not required to tender performance. W’s anticipatory breach (a repudiation) induced an assumption in F that they no longer had to raise the finances and tender performance.

- Deane says relevant detriment is loss of a real chance of performing the contract.- Dawson says that the detriment was that, after W’s repudiation, F took the risk of not raising the money and

thus becoming liable for failing to tender performance [but this is surely tenuous].- Brennan says nothing about detriment.- Mason CJ: an estoppel could operate here but does not in this case b/c F suffered no relevant detriment as a

result of its induced assumption that performance would not be required. It lost the chance of performing, but that chance would have amounted to nothing (according to the trial judge) because they could not have scraped together the funds. F’s later termination was thus invalid as he was not R&W nor had he tendered performance.

Legione v Hateley HCA 1983FACTS:

- H (purchaser) and L (vendor).- Contract for sale of land made in July 1978. Deposit paid. Completion due 1 July 1979 “Time shall be of the

essence in all respects” subject to 14-day notice of settlement.- Purchasers (Hateley) take possession and build house on land.- 14 June 1979 Vendor’s solicitor sends remainder- 29 June Purchaser’s solicitor requests 3 month extension- 1 July Time of completion expires- 12 July Vendor’s Solicitor (VS) writes refusing extension- 26 July VS serves notice requiring payment by 10 August.- 9 August PS telephones VS: ‘Ready to settle on 17 August.’ Williams (partner’s secretary): "I think that'll be

all right but I'll have to get instructions."- 10 August On the basis of secretary’s response, Purchasers do not tender money although they could have.- 14 August VS claims contract has been terminated- 15 August Purchasers tender bank cheque: rejected.- Purchasers sue for specific performance. Vendors claim they have validly terminated.

RESULT:3:2 Vendors not estopped from terminating4:1 But relief against unjust forfeiture potentially available. Remitted.LEGAL IMPORTANCE:

Estoppel- Mason/Deane, Brennan: Secretary’s stmt could NOT be treated as a representation that V would extend the

time for settlement to 17 August. A representation founding an estoppel does not have to be express, but it does have to be sufficiently clear and unambiguous in the circumstances. Here, the conversation took place in the context of P’s consistent failure to abide by the contract and V’s continued insistence that they wished settlement to proceed promptly. Such a statement by the secretary was not sufficiently clear as to amount to an agreement to the proposed extension of settlement.

- Gibbs/Murphy (dissenting re estoppel): V was estopped from terminating the contract for P’s breach (not tendering money for settlement on 10 August). Secretary’s comments induced in P the belief that they would not need to tender performance until further advice from V’s solicitors. They acted on that assumption by not tendering performance. Therefore V estopped from terminating.

Unjust Forfeiture - Brennan (dissenting re UF): [English position.] P in breach of essential term, therefore not entitled to specific

performance. The English position is that where P is not entitled to SP due to a breach of an essential term, they lose their equitable interest in the land. Thus P forfeits interest here.

- Mason/Deane, Gibbs/Murphy (majority): [Australian position] Equitable relief potentially available even if buyer in breach of essential term if termination by V is unconscionable

- Gibbs/Murphy: Equity will provide relief to a P ‘if it will prevent injustice’. Seem to hint that, where P has breached an essential term it will normally be inequitable to insist on retention of the proprietary interest, but it depends on the circumstances. They emphasised the EFFECT of the breach: P would lose house, V would get a large windfall, breach was not deliberate nor did it have a serious effect on V (only four days late etc).

- Mason/Deane: Agree generally with Gibbs/Murphy approach. Note that it would ‘ordinarily’ be unjust/inequitable to allow P to retain its proprietary interest despite its breach of an essential term. Note that equity will provide relief only in exceptional circumstances.

- No problem if there has been fraud, mistake, accident, or surprise retention or purchaser’s proprietary interest. But in the absence of any of these, in order to determine when termination is unconscionable, Mason/Deane say must ask these subsidiary questions:

(1) Did the conduct of the vendor contribute to the purchaser's breach?(2) Was the breach (a) trivial/slight, (b) inadvertent and not wilful?(3) What adverse consequences did the vendor suffer by the breach?(4) What is the purchaser's loss and the vendor's gain if forfeiture is to stand?(5) Is compensation an adequate safeguard for the vendor?’

- Here it was ostensibly unconscionable for the vendors to terminate:- 1 Vendor contributed to breach (Williams’ statement)- 2 The breach was slight – payment only a few days late – and not wilful- 3,4,5 The vendors potentially gained a windfall (house, higher value of land)- However, evidence not clear - case remitted.- RATIO : - Equity, through the doctrine of unjust forfeiture, can come to the relief of a P if it would be unconscionable for

V to exercise its right of termination- Normally, if P has breached an essential term of the contract, equity will not allow P to retain its proprietary

interest. BUT, it depends on the circumstances.- Exercise of the right to terminate will be unconscionable for the purposes of UF if P’s breach was due to fraud,

mistake, accident, or surprise: nature of the breach.- But must also examine whether V contributed to breach and whether the breach trivial or serious, deliberate or

inadvertent: also nature of the breach.- And also examine the effect of the breach on the parties and the effect of the forfeiture on the parties.

Stern v McArthur HCA 1988FACTS:

- M (purchaser) S (vendor) in sale of land contract.- 1969 Date of contract. Instalments to be paid by P over 13½ years.- Clause 15. If any default, vendor shall be entitled to terminate.- Clause 18. Entire balance payable if default continues (ie not remedied) for 4 weeks.- Buyers build house on land and reside there.- 1975 Buyers separate, wife (Bates) remains on land- 1977 Husband ceases to pay instalments, without her knowledge.- 1978 Bates resumes payment of instalments.- But sellers demand balance under cl 18.- Bates tenders payment of all arrears - refused. Property put on market but not sold.- Jan 79 Sellers give notice to pay within 21 days. [This made time of the essence.]- Feb 79 Sellers give notice of termination.- May 79 Bates pays balance into sellers’ bank account.- Sellers terminate contract of sale and sue to recover land. Buyers counterclaim for specific performance.- V stands to gain a large windfall from the termination, as the value of the land has increased substantially. P, on the

other hand lose out big time (although V agrees to pay for the improvements to the land ie building of the house etc).

- However V in no way contributed to the breach here. Rather V did everything right.RESULT:3:2 Vendors not entitled to terminate; buyers entitled to specific performance.LEGAL IMPORTANCE:

- All judgments recognise that Legione allows relief against termination to a party in breach of an essential term if termination is unconscionable. However the judges take different approaches:

Gaudron J:- Essentially the only one who followed the thrust of Legione. She did not specifically refer to the subsidiary

questions, in fact she only really deals with unconscionable exercise of a right generally. However she does use the substantive elements that the four majority judges in Legione use.

- Focuses on the EFFECT of forfeiture: P would lose home, interest under the contract, appreciation in land value and would forfeit deposit etc as security. V would obtain large windfall.

- Also looked at nature of breach: breach by P was slight and not wilful. Deane/Dawson JJ: - Affirm Legione. Recognise that relief can be granted against forfeiture to P in exceptional circumstances; requires

presence of unconscionable conduct.- vfmas provide grounds for court to intervene, but these are not the sole grounds; can look at other aspects of equity.- They say this transaction is really like a mortgage, vendors have, as security, a right to terminate and thus take the

land. So they draw an analogy with the doctrine of ‘equity of redemption’, which would come to the aid of P here so as to enforce the retention of their proprietary interest.

- They then go on to say that this is supported by the fact it is not a commercial contract (so can afford to be more equitable), and that the effect of forfeiture is to grant a large windfall to V.

- Note Deane does not mention his subsidiary questions, but nonetheless applies the ‘effect’ criteria generally.Mason CJ (dissenting): - Affirms Legione but reiterates that relief allowed in ‘exceptional circumstances only’. - Here, there were no such exceptional circumstances. V did nothing unconscionable. It gave sufficient time for

performance and offered to pay for the improvements made on the land. Crucially, the breach was due to the default of P and in no way due to the fault of V [unlike Legione].

- Mason makes no mention of his ‘subsidiary questions’ and ignores the windfall and other effects of forfeiture here. Has this been done away with? Was this a Deane-inspired initiative?

- Signals that the vendor’s contribution is an important [a hurdle?] requirement.Brennan J (dissenting):- Accepts the majority jjment in Legione. But dismisses the Gibbs/Murphy ‘justice’ concept as too broad; equity will

only restrain the exercise of rights where such exercise is unconscionable.- Vendor did not contribute here, thus can distinguish Legione. - Also, no ‘fraud, accident, mistake or surprise’. - Windfall irrelevant, P only entitled to compensation for improvements made to the house.RATIO:- Majority recognise that EFFECT (windfall etc) still a relevant factor in determining unconscionability; along with

slight nature of breach etc.

- Minority do away with windfall: vfmas are the only factors that give rise to circumstances in which it would be unconscionable to terminate.

Tanwar Enterprises Pty Ltd v Cauchi HCA 2003FACTS:

- Tanwar (P) made 3 contracts to purchase land owned by Cauchi (V) and others.- Total purchase price $4.5 million. 10% deposit payable in instalments; Completion when development approvals

obtained by T.- Feb 2000 Approvals obtained by T, but extension to August 2000.- Aug 2000 V serves notices of termination but does not enforce. T completes payment of deposit plus 10% of

balance.- Jun 2001 Parties sign deeds extending completion to 4 pm on 25 June: ‘time of the essence … a final arrangement to

complete the sale’.- 25 June Vendors informed at settlement meeting that funds delayed by a day due to Singapore govt failing to

approve the financial transaction.- 26 June Funds received, but vendors terminate.- Buyers sue for specific performance.

RESULT:7:0 The sellers had validly terminated the contracts; specific performance (relief against UF) not availableLEGAL IMPORTANCE:Unjust Forfeiture and Unconscionable Exercise of Legal Rights

- Tanwar relied on forfeiture, arguing that termination was unconscionable in light of the Mason/Deane ‘subsidiary questions’ (Legione). T argued that its breach was trivial and inadvertent, that the vendors suffered no adverse consequences, and that the vendors stood to gain a windfall by obtaining Tanwar’s development approvals and the increase in value of the land.

Gleeson/McHugh/Gummow/Hayne/Heydon:- Appear to reject the whole notion of unjust forfeiture of a proprietary interest: the relevant interest of the purchaser

‘is commensurate with the availability of specific performance.’ Thus, where P has breached an essential term of the contract and V has validly terminated by the contract, P has no ‘interest’.

- Caution against reliance on ‘unconscionability’ as providing a basis for restricting the valid exercise of a legal right simply on the basis that such exercise might seem unfair or involve hardship.

- ‘[It is a] false notion that there is an equitable defence to the assertion of any legal right where it has become unconscionable for the plaintiff to rely on that legal right.’

- Specifically reject Gaudron’s approach (in Stern), which relies on broader equitable principles.- Only established doctrines of unconsc (not unconsc ‘at large’) may provide a basis for equitable intervention.- ‘Fraud, accident, mistake or surprise identify in a broad sense the circumstances making it inequitable for the

vendors to rely on their termination. Where accident and mistake are not involved, it will be necessary to point to the conduct of the vendor as having in some significant respect caused or contributed to the breach of the essential time stipulation.’ [ie, vfmas]

- Thus the ‘subsidiary questions’, and the relevance of the effect/windfall have been dropped [cf Romanos v Pentagold Investments].

- ‘Exceptional circumstances’ dropped. But: ‘the court will not readily relieve against loss of a contract validly rescinded for breach of an essential condition’.

- In this case: No fraud or mistake; no surprise (no ‘lulling’ as in Legione); vendor did not contribute (unlike Legione).

- T argued that accident applied here b/c funds not available due to Singapore govt doing a random check on external transactions. But Court says there was no accident because the risk of Singapore govt not allowing the transfer was fairly within contemplation of T, so not the kind of accident that the doctrine requires. So foreseeable and guardable risks arguably do not amount to accidents

Callinan J- Has his own ‘6-requirements’ test that is essentially an amalgamation of the vfmas + subsidiary questions test. But

this clearly a minority view. Although outcome was the same.Kirby J:- On the one hand says that more than the ‘subsidiary question’ can be considered to determine unconscionability. On

the other hand he resorts to vfmas. But neither approach applies in this case.- Heavily influenced by the fact that this was a large commercial transaction.RATIO:- Unjust forfeiture apparently non-existent as a basis for restricting the right to terminate for breach.- Equity may intervene to provide relief if exercise of the right is unconscionable in the sense of established doctrines

of unconscionability: namely vfmas- Assessment of windfall and effect of forfeiture, other ‘subsidiary questions’, broader equitable principles approach

to determination of unconscionability and reliance on ‘exceptional circumstances’ are all gone – that’s right, it’s the High Court’s bumper precedent clear-out sale, decades-old precedents out the door! No justifications required!

- [But note: of the 15 cases that have considered Tanwar, 13 of them have held that the doctrine of UF still exists].

TERMINATION FOR NON-FULFILMENT OF CONTINGENT CONDITION The obligation to perform a contract or part of it may be conditional on the occurrence of a specified

contingency for which neither party has undertaken to be liable. These are called contingent conditions (‘CCs’), and are to be distinguished from promissory terms.

CCs are not promissory, as neither party promises to bring them about. Consequently, non-fulfilment of a CC is not of itself a breach of contract.

Whilst some CCs are conditions of formation (eg ‘subject to contract’, see Sem 1), we will here be dealing with CCs of performance. CCs of performance operate after formation, thus some obligations may have to be performed before it is known whether the condition will be filled.

Whether a CC is a condition of formation or of performance is a matter of construction, however the High Court has indicated a preference for treating CCs as conditions of performance: Perri.

Non-fulfilment of a CC excuses performance no matter what kind of contingency has been specified: ‘The expression of a provision in the form of a [CC] endows it with the character of essentiality’: Perri. Thus, in the event of non-fulfilment of a CC by the fixed (or implied) time, either party may terminate the contract forthwith, without having to serve a notice of intention to terminate: Perri (majority).

A duty to cooperate is implied in every contract. Most (though not all) CCs fall within the ambit of control of at least one of the parties. Where performance is conditional on a contingency that is to any degree within the control of a party, that party is bound to do what is reasonably necessary to enable the condition to be fulfilled, or at least not prevent its fulfilment: Perri; Meehan

Where the CC operates for the benefit of one of the parties, that party may elect to waive the benefit of the contingency: Perri; Gange.

Restrictions on the Right to Terminate for Non-Fulfilment of CCElection Usually Required to Terminate Where a CC confers the right to terminate upon non-fulfilment, election to terminate is of course required.

However, even where a CC purports to be self-executing (eg ‘upon non-fulfilment the contract will come to an end’) the courts will normally construe this as giving rise to the right of the parties to elect to terminate, rather than bringing the contract automatically to an end: Gange; Suttor.

Thus it seems that the parties will have to be very explicit if they want their contract to end automatically upon non-fulfilment.

The normal procedure is therefore that the parties must elect to terminate, however this does not require notice setting a further reasonable period: Perri (majority).

The other rules for termination for breach also apply here, thus an unequivocal communication that the contract has been terminated is required.

Breach of Implied Duty to Cooperate Where performance is conditional on a contingency that is to any degree within the control of a party, that

party is bound to do what is reasonably necessary to enable the condition to be fulfilled, or at least not prevent its fulfilment. Perri; Meehan.

Breach of the implied duty not only disqualifies the defaulter from reliance on non-fulfilment as a ground for termination, but may also attract the usual remedies for breach of contract (and may provide the other party with a right to terminate).

When determining what ‘reasonable efforts’ requires, the interests of both parties must be kept in mind. Thus in Perri, putting the price of Lilli Pilli too high over the winter months would have probably been considered as unreasonable because the other party should not be excepted to wait until summer for completion of the contract.

Unjust Forfeiture of a Proprietary Interest Unlikely that this would apply to CCs, especially in light of Tanwar. In relation to sale of land contracts, the traditional rule is that P in fact obtains no equitable proprietary right in

the title until the CC is fulfilled; (see Brennan J in Perri). Tanwar seems to strengthen this position that UF not available in this context. So it seems that it would be

doubly difficult for a purchaser of land to rely on UF in the face of a vendor’s termination for non-fulfilment of a CC.

Equitable Relief against Unconscionable Reliance on Conditions of Willingness or Satisfaction Some CCs are phrased such that their fulfilment depends not merely on an external event but on the opinion,

willingness or satisfaction of one of the parties (eg ‘subject to P obtaining satisfactory finance’; right to terminate if ‘unwilling or unable to comply with requisition’).

Such conditions do not confer an unfettered discretion to avoid obligations under the contract. Rather, such CCs may not be relied upon if it would be unconscionable to do so: Pierce Bell Sales.

The issue is whether in each case termination in reliance on such a CC is or is not unconscionable. In Pierce Bell Sales, V terminated b/c they were unwilling to comply with a requisition from P, in accordance

with a clause that allowed such conduct. HCA held that they did not act unconscionably, the important factors were that (i) complying with the requisition involved considerable expense and effort because P was a commercial party; and (ii) disparity in bargaining power, Vs had no legal advice and had misunderstood the relevant provisions of the contract.

Unconscionable Exercise of a Legal Right Generally The question is whether the unconsc requirement applies to conditions other than that specific type of

condition (where fulfilment dependant on a party’s state of mind etc). A few cases have held that it applies to other conditions. Indeed, in Pierce Bell the judges acknowledged that

they were applying basic principles relating to the enforcement of contracts generally, suggesting that termination for non-fulfilment must not be exercised unconscionably.

However, Tanwar would suggest that these ‘at large’ unconscionability principles do not operate to provide relief. So Tanwar gives ammunition to vendors in these circumstances.

Note, however, that the universal duties of reasonableness and good faith still apply regardless of Tanwar and would be applicable in such cases: eg Meehan.

Unconscionable Exercise of a Legal Right (Statute) The TPA provisions s 51AA, AB, AC all apply here as they would termination for breach.

Loss of the Right to Terminate for Non-Fulfilment of CCElection to Affirm As with breach, when the right to terminate for non-fulfilment arises in a party, that party must choose whether

or not to exercise that right. It may choose to affirm the contract, in which case, the right to terminate will be lost.

Two issues arise in regards to the election of a party to affirm the contract:3. What kind of conduct constitutes an election to affirm? 4. Is it purely an objective test? Or is there an element of subjectivity in the test, such that a party’s subjective

intention not to affirm (but to reserve its right to terminate) may be relevant? The case law is varied in this area. Traditionally, it must be shown that the person who has the right to terminate has objectively manifested the

desire to affirm the contract and to abandon the right to terminate; subjective intention of the affirming party not being relevant.

At one extreme, it has been held that mere failure to exercise the right to terminate can constitute an election to affirm: Suttor

At the other extreme, it has been held that the act of affirmation must be unequivocal, and that the mere doing of acts consistent with the contract whilst in possession of the right to terminate does not necessarily result in an affirmation. Depending on the circumstances, the act may also be consistent with reserving the right to terminate and thus may not be lost. The election need not be made at once: Immer (esp Brennan J)

KNOWLEDGE, SUBJECTIVITY AND ‘CONSCIOUS CHOICE’ It has been held that the affirming party need not know of the existence of their legal right to terminate in order

for their conduct to be objectively judged as an affirmation, it being a sufficient prerequisite that the affirming party know the fact(s) on which the right to terminate was based: Sargent

The majority in Immer qualified this further b/c the affirming party was acting under the mistaken assumption that the CC no longer needed to be fulfilled (thus was as if it had been fulfilled or had simply ceased to be relevant to the contract). In this case, the fact that the affirming party knew that the CC had not been fulfilled did not render its continuance of the contract an affirmation (at that stage, Immer did not have to make a ‘conscious choice’ to affirm or terminate) until the later stage at which the true situation was discovered. After that time they were confronted with a ‘conscious choice’ to terminate or to affirm, and they did so: Immer (esp majority).

Thus it seems knowledge of the relevant circumstances is a relevant subjective element in affirmation.Waiver Where a CC is clearly for the benefit of one of the parties, that party can waive the benefit of that condition –

ie its non-fulfilment – with the result that the other party is also deprived of the right to waive the benefit of the CC: eg Perri; Gange

In some situations the contract may expressly provide that the CC is purely for the benefit of one of the parties, or a right to terminate for non-fulfilment may only be exercised by one of the parties: eg Sandra

However difficulty may arise where both parties may benefit from the CC, just not to the same extent. It is not entirely clear how one-sided the CC has to be before it falls within the ambit of this principle. Does the CC

have to be exclusively for the benefit of one of the parties? Or merely primarily for the benefit of one of the parties? This question remains unresolved: Sandra.

It seems that where it is substantially/primarily for the benefit of one of the parties, that will be sufficient to confer a unilateral right of waiver on that party but not the other, even if the other may get some minor benefit flowing from the fulfilment of the CC: Sandra

Estoppel Estoppel is also a potential basis for denying a party its right to terminate for non-fulfilment if the terminating

party has induced an assumption in the other party that the CC will not be relied upon as a basis for termination.

Could Immer’s conduct have given rise to an estoppel? Was its conduct sufficiently unequivocal?

CASES: NON-FULFILMENT OF CONTINGENT CONDITION

Perri v Coolangatta Investments Pty Ltd HCA 1982FACTS:

- Ps owned a property called Lilli Pilli (LP). They wished to sell it and purchase another, owned by CI.- April 1978: P and CI entered into a contract. Special Condition 6 provided: ‘This contract is entered into

subject to purchasers completing a sale of their property [LP]’. No fixed time provided, so reasonable time implied.

- May 1978: CI begins pressing Ps for a sale.- 17 July 1978: CI serves notice on Ps requiring them to complete on or before 8 August 1978, threatening

termination.- Ps declined to complete, maintain that the contract should remain.- 10 August 1978: CI serves notice of termination.- September 1978: Reasonable time to sell LP expires, according to trial judge. Failure to sell was caused by Ps

wanting to sell at too high a price.- 29 September: CI commenced proceedings seeking a declaration that it had validly terminated the contract. At

which point Ps began trying to raise finance to purchase the CI property.- 27 Feb 1979: Ps wrote to CI seeking completion of the sale, purportedly waiving the benefit of the CC. CI

reply stating that they have already terminated.- 9 March 1979: Ps enter into contract to sell LP.- 13 June 1979: Sale of LP completed.

RESULT:4:1 in favour of CI; 3:2 no notice required for termination for non-fulfilment of CCLEGAL IMPORTANCE:

- P argue that CI served an invalid termination b/c CI did not serve the notice after the time set by the contract (reasonable time) had elapsed. Trial judge finds that a reasonable time did not elapse until September, thus accepts this argument (since notice was served in August).

Brennan J (Stephen J agreeing) and Gibbs CJ:- The sale of LP was a CC of performance. When the time (be it fixed or implied) required for fulfilment has

elapsed and the CC has not been fulfilled or waived, either party, if not in default, has the right to terminate the contract without notice.

- Termination did not depend on the service of a valid notice, thus it did not matter that the notice was served before the reasonable time had expired. The commencement of the proceedings was notice that CI wished to terminate.

- Since the waiver of the CC occurred after the termination, it came too late to have any effect.Wilson J- A notice was required, however a reasonable time had elapsed by the 17th of July when the notice was served,

therefore the notice was effective.Mason J (dissenting)- Also held that a notice was required. Since it was served before the reasonable time had elapsed it was not

effective.- Court will tend to conclude that a CC is a condition precedent to performance rather than to formation.- The condition carries with it the implied obligation to make all reasonable efforts to fulfil the contingency.- The expression of a provision in the form of a CC endows it with the character of essentiality. Thus CCs are

automatically considered essential terms. However Mason says that this rule is qualified here because time is not normally of the essence where no time is fixed. Points out (validly, I think) that it is undesirable that the

rights of the parties should rest conclusively on the expiration of a reasonable time, neither party knowing when such time is. As such, notice is required.

- It seems he is saying that, normally a CC will be essential (and thus not require notice?) but where there is no fixed time for its fulfilment, it cannot be regarded as of the essence. As such, notice requiring fulfilment in a reasonable time (where such is possible, ie where due largely to one party) will be required before termination, in order that the parties understand their rights and position under the contract.

- [However, the majority view has prevailed: no notice is required to terminate for non-fulfilment of a CC. In the event of non-fulfilment, either party may terminate after the time provided (or implied) for fulfilment. Nonetheless, Mason’s reasoning in respect of CCs in which no time is fixed (and where under control of one party) is highly persuasive.]

Gange v Sullivan HCA 1966FACTS:

- G (P) and S (V) were parties to a contract for the sale of S’s land dated 12 March 1965.- Clause 2 provided: ‘This contract is subject to the purchaser obtaining development approval from the

Warringah Shire Council for the following purposes: [improvements to service station; existing newsagency to continue; redevelopment of the rest of the property for commercial purposes] … The purchaser agrees to make an application within seven days … and in the event of the said council not granting such approval … by 31 May 1965, then this contract shall be deemed to be at an end … in the event of Council granting the approval [Purchaser will complete within 20 days of its being granted].

- 2 April: Council’s town planner wrote to P granting approval ‘in principle’ subject to certain minor modifications that it required.

- 30 April: V’s solicitor writes to P noting that the vendor was entitled to completion of the contract on 23 April as this was 20 days after approval granted by Council on April 2nd. ‘We would be pleased to hear from you regarding completion within the next seven days, failing which the vendor will take such action as he may be advised in the circumstances.’

- 11 May: P’s solicitor replies saying that only in principle approval was granted on 2nd April, we expect unconditional approval within 28 days.

- 25 May: Vendor elects to treat the contract at an end (terminates).RESULT:5:0 in favour of S (vendor)LEGAL IMPORTANCE:

- Although words of the contract seem to suggest that the contract will end automatically once the CC has not been fulfilled by the required time, there is ‘a disposition to treat non-fulfilment [of a CC] as rendering a contract voidable rather than void’. Thus it is the parties that must elect to terminate the contract in the event of non-fulfilment.

- Also construe the CC as a condition of performance, rather than formation.- 4 judges held that the town planner’s letter did not constitute approval because it was not an unconditional

approval. Therefore, the CC remained unfulfilled on 25 May, when the parties’ solicitors agreed to terminate the contract [although the CC did not have to be filled until 31 May, it appears that the unlikelihood of that happening was sufficient for the parties to agree to terminate – anticipatory non-fulfilment??)

- Barwick CJ held that the approval was sufficient, because all that the contract required was approval for business and commercial purposes, and that much was approved. However the fact that the town planner approved it and not the council directly meant that approval had not been granted by the Council. His Honour therefore came to the same conclusion as the others re termination.

- All judges agreed that the clause was wholly for the benefit of the purchaser, therefore the purchaser was entitled to waive the benefit of it and complete the purchase without the relevant approval. However he was not prepared to waive it in this case, so both parties were able to treat the contract as at an end.

- [Note that, had the Court accepted that the 2 April letter was a valid approval as required by the CC, the situation would have been quite messy. As the CC had been fulfilled, P would have then come under a promissory obligation to complete the contract within 20 days. It appears that time was not of the essence, as V waited a while. Did V’s notice make time of the essence? Was 7 days a reasonable time? If so, P would have breached an essential term by failing to complete, giving rise to V’s right of termination. But P was relying on a bona fide interpretation of the contract, so arguably he could not have been held to his breach, in which case the termination by V was invalid (but not repudiatory). Hmmm]

Meehan v Jones HCA 1982FACTS:

- Contract of sale of land made subject to special conditions that the purchaser (Meehan) would 1. (a) with the specified 3rd party, ‘...enter into a satisfactory agreement ... for a satisfactory quantity of … oil’ AND (b) ‘...receiv[e] approval for finance on satisfactory terms and conditions’

- Jones (owner) argued contract was void for uncertainty because language was meaningless.RESULT:Unanimous decision that contract enforceableLEGAL IMPORTANCE:Mason J:

- Special conditions 1(a) and (b) were included to protect the purchaser. It was clear in the context of the contract that an approval for finance on ‘satisfactory terms and conditions’ meant satisfactory to the purchaser, clause designed to ensure purchaser not obligated to buy if could not obtain finance.

- Court implied the qualification that the purchaser must act ‘honestly and reasonably’ in ‘endeavouring to obtain and deciding whether to accept finance.’

- Thus purchaser was bound to the agreement to purchase unless, acting honestly and reasonably, he could not obtain suitable finance.

- ‘The courts are quite capable of deciding whether the purchaser is acting honestly and reasonably.’- The same applies to clause (a), need only be satisfactory to the purchaser.- Espoused traditional doctrine: courts should be astute to adopt a construction which will preserve validity of

contract. - Re-stated general rule that settlement and giving of possession coincide – where contract does not indicate how

final balance is to be paid.Gibbs CJ:

- Similar to Mason J but thought court had to choose b/w whether the purchaser need only be subjectively satisfied of finance, or whether purchaser required to accept finance that a reasonable man would consider satisfactory. Gibbs adopted the first option – purchaser only need to be subjectively satisfied.

- In this sense differed from Mason – purchaser need not act reasonably, only honestly.- Thus court must find as a fact whether purchaser thought finance satisfactory.- If test was objective (although Gibbs thought it not) court could look at ‘financial position of the purchaser, the

amount required to complete and the prevailing rates and conditions on which loans are made’.- The principle that a promise may be illusory only relates to promissory conditions, not to contingent

conditions. In regards to CCs, the party is wholly at his discretion to fulfil the CC. - [The law in regards to CCs has developed along the lines Mason has advocated, namely implied duty to make

reasonable efforts to complete fulfil the CC. Gibbs should not be followed.]

Pierce Bell Sales Pty Ltd v Frazer HCA 1973FACTS:

- PBS were the purchasers of land owned by F.- Condition 14 of the sale of land contract stated that; ‘If the Vendor shall be unable or unwilling to comply with

… any requisition [made by the purchaser … the Vendor shall be entitled [to terminate]’.- [A requisition is a formal requirement made by a purchaser to the vendor instructing V to remove any

encumbrances etc so as to ensure that the title is clear for the purchase. V is normally required as a matter of law to comply with requisitions.]

- But here, due to clause 14, the ability and willingness of V is regarded as a CC of performance – a sort of factual contingency that may or may not happen.

- The Fs had obtained their land under the Closer Settlement legislation ( a special statutory scheme), and there is a caveat on the title that restricts them from selling the land to a corporation.

- By this time of this transaction, the legislation had been amended to allow owners of closer settlement land to apply to the Minister to have that land removed from the ambit of the Act.

- The legislation requires the owners to apply and to pay a fee that may be up to 5% of the value of the land to the Minister. The Minister will then certify that the Act no longer applies to that land.

- PB (a corporation) make a requisition to Fs to apply to the minister for such a certification so that they can validly purchase the land.

- PB indicate that they are willing to pay the application costs but not willing to pay the substantive fee for the removal and certification.

- Fs respond and say that they are unwilling to comply with that requisition, and so terminate the contract in accordance with cl 14. [There are also some other reasons for wanting to terminate.]

- PB say that Fs acting unconscionably.RESULT:

3:0 Fs win, no unconscionable termination.LEGAL IMPORTANCE:

- All judges confirm the principle that one cannot terminate a CC of willingness or satisfaction if to do so would be unconscionable in the circumstances.

Barwick CJ (McTiernan J agreeing)- Noted that ‘it must be a relatively rare case’ that a clause such as cl 14 (requiring mere ‘willingness’ or

‘ability’) could be used conscionably to avoid an obligation.- However, this was such a case, and a number of factors influenced this finding:- Most important was the fact that PB were a corporate entity. This was significant in a substantive way here

because the fact of their being corporate meant that Fs would have to meet considerable expense in applying for the certificate. [For Gibbs J, the only unconscionable factor was the fact that PB did not offer to pay for this, had they paid the full fee, Fs would not have been entitled to terminate]. [But would it have been any different if all new purchasers, including natural persons, were prevented from acquiring Closer Settlement land, in which case Fs would have had to apply anyway? Court says nothing about this but could have made a difference if it were the case.]

- Of additional importance was the disparity in bargaining power and the fact that the Fs had misunderstood the effect of the contractual provisions, had no legal advice etc.

- And the final important factor was that it was PB who had drawn up the contract.

Sandra Investments Pty Ltd v Booth HCA 1983FACTS:

- Contract of sale subject to Council’s approval of subdivision. In the event of non-approval within 6 months the contract expressly conferred a right of election to terminate on the purchaser (only).

- After the 6 months and no approval, the purchaser wrote to the vendor and waived the benefit of the condition. However V then notified P that they no longer wanted to continue with the contract.

- P then sued for specific performance.RESULT:

Appeal by P successful. Only P was able to waive the benefit of the CCLEGAL IMPORTANCE:

- Here, right to terminate for non-fulfilment of the CC was expressly for the benefit of the purchaser, so no problem as to purchaser’s right to waive the benefit of it.

- Majority say that even if it were available to both parties, it is for the benefit only of the purchaser, so they were entitled to waive it anyway.

- Only Wilson J, in obiter, questions the circumstances in which the right of waiver will accrue to a benefiting party. Does it have to be exclusively for the benefit of one of the parties? Primarily for the benefit of one party?

- Nonetheless, here was sufficiently clear that it was for the benefit of purchaser anyway.- V made some rather stretched arguments about how V also got some benefit from that clause, therefore P had

no right to waiver. But Court disregards these arguments. Seems it would be sufficient that the CC be primarily for the benefit of one party.

- Nonetheless, Wilson J cautions: ‘one should lightly imply a right of waiver in one party to the possible prejudice of the other unless it clearly emerges on the face of the contract.’

Suttor v Gundowda Pty Ltd HCA 1950FACTS:

- Contract for sale of land. Cl 12 provided: ‘In the event of the consent of the Treasurer not being obtained within two months the contract shall be deemed cancelled.’

- Parties then varied this clause to swap two months for ‘a reasonable period’.- Consent of the treasurer was not obtained, but G (purchaser) did not immediately exercise the right to

terminate. Rather, G asked for certain variations in the contract. [Although he didn’t really do much at all]- Did this amount to an affirmation?- S wants to enforce the performance of the contract.

RESULT:3:0 Contract affirmed, appeal dismissed

LEGAL IMPORTANCE:- Court holds that where a party has the right to terminate ‘but does not clearly exercise that right the other party

may terminate.’

- Consent from the Treasurer was not obtained by G within the reasonable time, yet G failed to waive the benefit of the CC. By the time the consent was obtained, it was too late to terminate.

- Court basically says that the failure to exercise the right may itself constitute an election to affirm.- [This case is thus at one end of the spectrum in terms of conduct required to manifest affirmation – G hardly

did anything, merely failed to exercise termination, yet was held to have affirmed the contract.]

Sargent v ASL Developments Ltd HCA 1974FACTS:

- Contract for Sale of Land; V (Sargent) sold land to development company (ASL); was a terms contract, for 3 years V accepted payments under the contract and did other things that affirmed the contract.

- After 3 years V were approached by another development company, who told them that they were willing to pay much more for the land, and asked whether V could find a way to get out of the contract.

- They found a way: relied on a CC in the contract, which said contract subject to the land in question not being subject to a planning scheme, but the land had in fact become subject to a planning scheme. So Vs terminated the contract.

- P pointed to fact they had for 3 years V had affirmed the contracts. - V says that they can’t have elected to affirm or terminate b/c they didn’t know they had that right to.

RESULT:ASL wins

LEGAL IMPORTANCE:- HCA says affirmation is possible even if you don’t know that you have the right to terminate, so long as you

know the fact on which the right to terminate was based. - In this case, Vs knew the fact that the land was subject to a local planning scheme.- [note that in this case Vs’ conduct was pretty unconscionable; they had an illegitimate motive for wanting to

get out of the contract etc]

Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) HCA 1993FACTS:

- UC was the owner of ‘Pilgrim House’, a historic building precinct in Sydney, which it proposed to refurbish.- UC was entitled by the Council to use a specific volume of floor space, and to sell any remaining space subject

to its approval.- The Council acknowledged in a letter to UC dated 14/9/88 that an allotted amount of space could be

transferred, but could only be transferred on the condition that the space not be incorporated into any other development ‘until restoration work on Pilgrim House has been completed to the Council’s satisfaction.’

- Immer was developing land in the same precinct and agreed to purchase the floor space from UC.- Under the contract, Immer was required to apply within 14 days to the Council for approval of the transfer of

the space. - [The following is Fred’s fact slide (blue = before deadline; black = after deadline, red = conduct relied on by

UC as evincing Immer’s affirmation, bold red = particularly important evidence).14.09.88: Council writes to UC: transfer subject to completion of restoration.14.10.88: Deed of transfer UC to Immer. Clause 7: ‘In the event that approval is not granted by 1.4.89 then the Purchaser may at any time thereafter rescind [terminate] this Deed by notice in writing.’ Completion of the contract to occur within 7 days of approval. Immer pays deposit and applies for approval.29.03.89: Council solicitor to Immer solicitor: approval "recommended" subject to certain conditions, not including completion of restoration.1. 04. 89: Deadline for approval under cl 7 passes.24.04.89: UC solicitor to Immer solicitor: all conditions satisfied, restoration not required, request completion without delay.09.05.89: Another letter requesting completion, reiterating restoration not required.29.05.89: Immer solicitor sends to UC solicitor an assignment form required by statute.21.06.89: Council direct to UC: transfer conditional on completion of restoration.23.06.89: UC solicitor (unaware of this letter) telephones Immer solicitor to press for completion. Immer solicitor (also unaware) agrees to send draft deed of assignment "immediately" and to arrange for settlement "soon".26.06.89: Immer solicitor (still unaware) sends draft deed (reciting approval), with letter stating “I am awaiting instructions as to the final date for completion.”29.06.89: UC solicitor and Immer solicitor (now aware) discuss the Council’s letter of 21.06 by telephone. Immer solicitor: ‘settlement might still take place next week, Immer is waiting on its financier, I will chase the matter up’. Representations to Council follow.

14.08.89: Council resolution affirming restoration is a condition of approval.25.08.89: Immer serves notice of rescission under clause 7, claims return of deposit.25.09.90: Council approves transfer.RESULT:

5:0 Immer did NOT affirm the contract, thus validly terminated. Appeal allowed.LEGAL IMPORTANCE:

Majority- Objectively speaking, Immer’s conduct would appear to have evinced an election to affirm, as the approval had

not been granted by the required date (April 1 1989), yet Immer continued with arrangements under the contract.

- Nonetheless, the Court held that the fact that Immer (indeed, both parties) believed that the approval was no longer necessary (due to Council’s not requiring it in its recommendation) was relevant here.

- Although they knew the fact that gave rise to the right to terminate, they were acting under the mistaken belief that no approval was necessary.

- When it became known that the Council did in fact wish the parties to wait until its further approval, Immer elected to terminate.

- At the time Immer was made aware of the Council’s true position, it was then confronted with a ‘conscious choice’ as to whether it had to terminate or affirm. Whereas when the previous deadline for fulfilment of the CC had passed, Immer did not have to make such a conscious choice as to termination or affirmation because it was as if that CC had ceased to be relevant, thus their proceeding with the contract could not be considered an affirmation.

- [however the Court conveniently ignores the phone conversation of 29 June between the solicitors, in which Immer’s solicitor, now aware of the Council’s true position, made comments about being ready for settlement soon etc – highly consistent with affirming the contract. It might be argued that the solicitor’s comments were not sufficiently unequivocal, or that they had not yet received instructions from Immer regarding their wish to affirm etc. nonetheless, the fact that the Court ignores this is a weak point in the jjment].

Brennan J - said that: An act amounting to an election must be unequivocal. The right to terminate is not necessarily lost by

the promisee doing any act consistent with the continuance of the contract. If the act is also consistent with a reservation of a right to terminate, the right to terminate is not is not lost by the doing of the act.’

- [But this is surely too wide – what is an action ‘consistent with a reservation of a right to terminate’? is Brennan doing away with the Sargent rule and the objective conduct rule? The majority seems to rely on the mistaken views regarding the Council’s position, but Brennan seems to be saying that an affirmation must be express]

- [Is there now a subjective element in election to affirm? Or is the test only subjective insofar as the affirming party’s knowledge of the circumstances must be taken into account?]

- [Note that there is a clear distinction between the merits of the cases – Sargent vendors were acting unconscionably, had ulterior motive etc; whereas in Immer, it is arguable that Immer were acting quite reasonably, esp compared with that of the vendors in Sargent. So an intelligible distinction can be made b/w the two cases on this basis. However the HCA doesn’t discuss this, instead they say a lot of other stuff about not being confronted by a conscious choice etc. Perhaps we could analyse on this basis and say a court would bend the rules to do justice using the Sargent and Immer cases??]

TERMINATION BY CONSENT A contract can be terminated, and varied, by the mutual consent of the parties. This may be achieved in a number of ways.

Termination by Formation of a Contract of Discharge A contract may be terminated if the parties form a new contract by which they release each other from their obligations

under the old contract. Whether such a contract has been formed is determined by the usual rules of contract formation: offer, acceptance,

consideration, intention, certainty: BP Refinery Thus in BP Refinery, the Council’s argument that the rating agreement had been terminated by a communication of two

letters was rejected by the Court as the letters were not in the language of offer and acceptance and could simply not be read as an agreement to terminate the contract.

A problem may arise in relation to consideration. Normally, consideration in a discharge contract is the mutual release of obligations. However, where one party has performed all of its obligations, he will have nothing to release and therefore provide no consideration. So must look for an unperformed obligation that may be released in order to establish good consideration.

Also, be careful as to certainty issues – the extent to which obligations/rights have been released may not be entirely clear. Such a contract may be made verbally. Note also that contracts required to be in writing by the Statute of Frauds can be

terminated verbally, but cannot be varied verbally: see, eg, Creamoata.Global Approach to Termination by Further Contract A global approach may be adopted in regards to the formation of the contract of discharge, whereby the conduct of the

parties manifests a clear intention to bring all obligations to an end: Creamoata. In Creamoata the High Court inferred from the circumstances of the case that the parties agreed to terminate the contract.

The important factor here was that the obligations and rights under the contract were so bound up in the membership of the Association that it was not at all practicable to have one without the other. On that basis the Court could infer from the resignation and separation by C that the parties intended to bring all of the relevant obligations to an end.

Abandonment The parties may treat their contract as having come to an end without any express agreement to that effect. In such

circumstances, the contract is said to have been abandoned. Abandonment can be manifested by mutual unwillingness to perform: thus in DTR both parties had ineffectively

terminated such that the contract was still on foot, by the time proceedings were brought it was clear that the contract had been abandoned;

It may also be manifested by prolonged inactivity (long time lapse in which neither party has done anything or called on the other to do anything in relation to the contract): Fitzgerald

However the inference of abandonment will be less readily drawn where the contract has been performed to some extent, or if proprietary rights have been created: see Fitzgerald.

In Fitzgerald, despite the long lapse of time, the Court concluded that the contract had not been abandoned. Importantly, Masters had paid half the price, had an equitable interest in the land and had registered his contract. If he had at any time regarded the contract at an end he would have surely demanded repayment.

Variation The parties may vary their existing contract. This is to be distinguished from termination. Where the contract is varied, the contract must still be performed, though in modified form: Electronic Industries Whether a contract has been varied or terminated depends on the interpretation of the words and conduct of the parties. As

with termination by consent, variation must take place by agreement. Two different views can be taken of the effect of a variation:

1. The variation can terminate the existing contract and replace it with a new one, on the new terms, commencing from the replacement date.

2. The variation merely alters the existing contract such that the existing contract remains on foot, in modified form, and its commencement was on the date it originally commenced.

In some situations it will not matter which view is taken. However, in other circumstances, this issue will be crucial, as the date of formation may be relevant to an obligation etc: eg Sara Lee.

The effect of contract of variation depends on the intention of the parties as manifested by the wording of the later agreement and their conduct and the degree of variation that is accomplished by the contract of variation (sort of a two-stage test).

Intention : This may be inferred primarily from the wording used by the parties in the later agreement, but may also be inferred from parties’ conduct and the surrounding circumstances: Sara Lee

Degree of variation : The parties’ intention may be inferred from the degree to which the original contract has been modified. Note that the fact that the changes are large in and of themselves is not so relevant as the degree to which the amendments alter the original agreement. Thus in Sara Lee increasing the price by $1 million and reducing the no. of employees by 40 were not insubstantial, but in the context of the original contract, which contained many obligations and had global operation, these two alterations were really quite minor.

Restrictions The normal restrictions of estoppel and waiver apply. Thus if one party induces an assumption that the new contract

terminated or was merely an amendment of the original one he may be estopped from denying that promise.CASES: TERMINATION BY CONSENT

BP Refinery (Westernport) Pty Ltd v Shire of Hastings Privy Council 1977FACTS:

- The parties were under a contract called a ‘preferential rating agreement’, which fixed the rates payable by BP for use of the Council’s land at preferential levels for a period of 40 years.

- BP wrote a letter to the Shire stating that, as part of its corporate restructuring, it proposed to transfer the site to another company in the BP group. The letter went on: ‘I hope I may assume that there will be no difficulty over transferring rights and privileges.’

- The Shire secretary replied: ‘Council has resolved to allow the agreement to lapse’.RESULT:

No contract of discharge formedLEGAL IMPORTANCE:

- BP’s letter cannot be read as a contractual offer to terminate, nor can the Council’s letter be read as an acceptance or even a counter-offer.

- The Council’s reply was merely a notice informing BP of a resolution that the Council had passed in response to BP’s letter.

- There was clearly no agreement reached here on the termination of the contract.

Creamoata Ltd v Rice Equalization Association Ltd HCA 1953FACTS:

- In the late 1940s, rice grown in NSW became vested in the Rice Marketing Board. Rice Millers applied to the Board for allocations of rice to mill.

- Prior to 1949, there were 8 rice millers in NSW. They decided to form an incorporated association.- To that end, each miller made a contract with the new association, recorded in a deed, whereby each agreed on

portions of rice that would be obtained from the Rice Marketing Board. The purpose was to equalize the distribution of rice for milling.

- Under the contracts, each party agreed not to obtain any variation on their quotas without the consent of the other parties.

- The Articles of the Association provided that if a party resigned from the Association, that does not affect any contract between the association and the members.

- Creamoata (C) enters the picture in 1949, deciding that it wants to enter into the milling business. It applies for an allocation of the rice harvest and joins the Association.

- C are allocated a mere 5.5% of the harvest, but they are bound not to attempt an alteration of the 5.5% harvest by their contract.

- Soon after, a growers’ cooperative is formed that opts to enter the milling market. The millers get worried and there is much antagonism to the entry of the growers’ cooperative coming from most of the millers, but not C.

- Rumour circulates that C prepared to cooperate with the new cooperative and were prepared to mill for it until it established its own mill.

- The other members agree to have a meeting and execute a supplemental deed, obliging them all not to assist the growers’ cooperative. C refuses to participate.

- At a meeting of the board of directors of the Association, the other members interpreted C’s refusal as a determination on C’s part to go its own way and as an implied withdrawal from the Association, and order C to resign.

- C resigns and then goes and applies for an increase in the quota, thinking it was no longer bound by the contract.

- The Association brings this action, arguing that the meeting’s resolution was confined to an agreement that C would resign, but that it would remain bound by the contract.

RESULT:Appeal by C successful

LEGAL IMPORTANCE:- C were released from the contract as a whole as a result of the meeting.- In this case, Court inferred from conduct that parties agreed to terminate. - Williams ACJ: ‘The powers of control which the Association could exercise over the businesses of the

defendant were so wide that it is impossible that any present at the meeting’ could conclude that C could resign but still remain bound to the contract.

- Kitto J: essentially agrees with Williams. Points to the minutes of the meeting as evincing the clear intention of the Association to present C with a choice of remaining part of the whole scheme or opting out, such that: ‘It

was surely not the dry husk of membership that was in question, but the whole scheme’. Must have been clear to all present that the r/ship b/w C and the Association was over.

- Thus important factor here was that the obligations and rights under the contract were so bound up in the membership of the Association that it was not at all practicable to have one without the other. On that basis the Court could infer that the parties intended to bring all of the relevant obligations to an end. This was clearly supported by the evidence of the circumstances of the meeting.

- Fullagar J: thinks that the evidence does not establish a sufficiently clear agreement b/w the parties to terminate the contract. But allows the appeal for a different reason: implies a CC that the contracts will come to an end if the rice marketing board allocates part of the rice harvest to a party other than a member of the association.

- [Note, this case also shows that can make an oral contract to terminate an existing contract (but can you orally terminate a contract that the Statute of Frauds requires to be in writing as, at the time, this one did? Yes you can. But not in the case of variation.)]

Fitzgerald v Masters HCA 1956 FACTS: 1927 Contract of sale of ½ interest in Fitzgerald’s farm to Masters.Price £850. £350 paid before signing. Balance by monthly installments of £10.Further payments of £130. Masters entitled to possession from date of contract.1929 Masters begins work on farm.1931 Masters moves to farm with wife and child. Offers further payments, but Fitzgerald requests him not to.1932 Masters leaves property. Consults solicitor and has contract stamped and registered.Tells Fitzgerald he intends to retain his equity in the property. Fitzgerald: "You put your money into the property, Rupe. You own half of it, and I won't let you down. You will get your money back some day." Masters: "It will be a long time, Jack, but I will probably have to take you through the Equity Court to do it."1937 Masters writes letter to Fitzgerald prompted by account sent to him (no reply).1948 Masters’ solicitor writes to Fitzgerald asking for "suggestions". No reply.1951 Fitzgerald dies. Further correspondence.1953 Masters commences action.RESULT:

5:0 Masters wins, contract not abandoned.LEGAL IMPORTANCE:

- F’s first argument was that the contract was terminated by consent/agreement. This harks back to the conversation ‘you will get your money back someday.’ F argued that this showed that they had agreed to terminate the sale of an interest and to return the money. But Court rejects this as an unconvincing interpretation of the phrase in the context.

- F secondly argued that the contract had been abandoned, based on the fact that 16 years had elapsed b/w 1932 and 1948 in which no effort to perform any obligations was made by either party.

- Court answered F’s claim that the fact that M had not paid certain monies on a required date led to the conclusion that M unwilling to perform, by pointing out that F had requested that M not pay that sum b/c wanted to avoid tax (or something like that).

- Court held that prolonged silence and inactivity may give rise to the inference that the contract has been abandoned.

- However, the Court they then goes on to say that abandonment cannot be inferred, despite the 16 years. Even such a long time in these circumstances was not strong enough to lead to the conclusion that the contract was abandoned.

- Important in the conclusion that there was no abandonment were the following facts: Masters had paid half the price; he had an equitable interest in the land; and he had registered his contract. If he had at any time regarded the contract at an end he would have surely demanded repayment.

Electronic Industries Ltd v David Jones Pty Ltd HCA 1954FACTS:

- EI agrees to install TV equipment to DJ to give demonstrations on certain dates (idea that this will draw customers to the store during winter).

- However, there is a coal strike in June 1949, and DJ requests a postponement of the demonstration. - EI says: ‘We appreciate the difficulties you face … we will be pleased to vary our agreement with you by an

alteration of dates of the demonstration.’ - DJ later replied, stating it would discuss the matter when the industrial position becomes clear.

- Coal strike ends, months pass, but DJ says nothing. - EI wonders what’s happening, sends DJ a letter noting the settlement of the industrial action and the return to

normality, and requesting the fixing of a date for the demonstration. - DJ then replied, declining to proceed ‘at this late date’.- EI brings this action. DJ argued contract had been terminated.

RESULT:5:0 Appeal by EI successful

LEGAL IMPORTANCE:- Court held that this was merely a variation, such that there were still obligations under the contract. - Clear that EI always intended to perform and to hold DJ bound to the contract. All EI did was to accede to DJ’s

request for a postponement.- The fact that a time was not immediately fixed did not matter. DJ was required to suggest a reasonable time for

the performance of the contract and reasonably comply with requests from EI (as was EI to DJ). DJ failed to do this.

- [note here that the terms were very clearly in the language of variation. This may not always be the case, ie in an exam.]

- [Note that which view of variation the court took here is irrelevant to the outcome, but that is not always the case – see Sara Lee, below]

Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd HCA 2002FACTS:

- 31 May 1991 SL made a contract to sell its business to Roche (R), to be completed by a transfer of assets after 30 July.

- This agreement was signed by a director of SL (Patten) who was at the time not authorised by the board of SL to sign such agreements. The signature was ratified by the Board on 20 August.

- 30 August 1991: parties executed an ‘amendment agreement’ which increased the price by $1 million, reduced the number of employees to be retained by R, and provided for the transfer of SL’s assets to a subsidiary of R.

- The deed of assignment stated that it was made ‘pursuant to a [the 31 May Agreement] as amended.’- The ‘amendment agreement’ itself contained a clause (cl 11) stating: ‘This Amendment Agreement shall be

deemed an amendment of the [31 May Agreement] … Except as provided in this amendment … the Agreement [of 31 May 1991] remains in full force and effect.’

- The Income Tax legislation provided that a capital gain occurs when an asset is disposed of , and the disposal of an asset under contract occurs when the contract was made.

- The Commissioner claimed tax from SL on the basis that a capital gain had occurred at the formation of the contract on 31 May, as it provided for the sale of assets.

- SL argued that the ‘amendment’ agreement terminated the original contract, thus the sale did not take place until 30 August, in which case they were entitled to certain deductions due to the fact that that date was after the end of financial year.

RESULT:5:0 allowing the appeal by the Commissioner: contract varied not replaced.

LEGAL IMPORTANCE:- Court held that the ratification of the signature takes effect retrospectively so as to remedy the initial

deficiency, so the original contract was effective on 31 May.- The effect of contract of variation depends on the intention of the parties as manifested by the wording of the

later agreement and their conduct and the degree of variation that is accomplished by the contract of variation (sort of a two-stage test).

- Intention: The Court was easily convinced that the intention of the parties was to leave the original contract alive Important factors were: Provisions of the Amendment Agreement itself, esp cl 11; the deed of assignment also refers to the original agreement as amended.

- As to degree of variation, concedes that upping the price by $1 million and reduction of employees by 40 were not insubstantial, but in the context of the original contract, which contained many obligations and had global operation, these two alterations were really quite minor.

- So held that original agreement remains and is varied, so Cmr of Tax wins. SL also argued that the CC not fulfilled, but Court held that this was a CC of performance, not formation.

TERMINATION BY FRUSTRATION Concerns the occurrence of an event after a contract has been made that has some adverse impact on the

contract or on a party’s ability to perform its obligations. Frustration brings about an automatic termination from the time at which the frustrating event (FE) occurs. But one makes a contract as a guarantee of performance in the face difficult circumstances; so therefore has to

be some limits on the ability of parties to be excused from contracts just because of difficult circs. Contract is about allocation of risk and there will always be a degree of uncertainty about the future. That is why courts are generally reluctant to excuse performance of a contract on the basis of frustration. The original response of English law (eg 18th century) was to say ‘too bad’, unless party actually qualified performance within the contract itself (eg through CCs). Old rule was ‘absolute contracts are absolutely enforceable’. But this has softened somewhat.

Nonetheless, mere hardship or difficulty faced by one party is insufficient to amount to frustration (c/f UNIDROIT principles)

r/ship of frustration to other vitiating factors and termination doctrines: quite often frustration arises concurrently; indeed there are some recurrent concurrencies:

o Mistake/Frustration: mistake about mistakes at time of formation whereas Frustration about events after formation. But as Codelfa shows, they can be argued concurrently.

o Frustration/non-fulfilment of CC: A school of though that says that implied CC can become the rationale for frustration (see Scanlons) (But this no longer the dominant school). Other possibility is that may concurrently rely on F and non-ful CC.

Mistake and Frustration The fact that the parties made a mistaken assumption when they entered the contract as to the current or future

state of affairs does not preclude a finding that an injunction can be a FE: Codelfa If parties make a mistaken assumption about future fact is a frustration issue: Codelfa If parties make a mistaken assumption about present fact is a common mistake issue: Codelfa Mason in Codelfa says the assumption about not being any prospect of injunctions is a mistake about the

future, thus is a frustration issue, although surely it could be said that the mistake was about the present state of the law? Seems could go either way.

Frustrating Event The first task is to IDENTIFY THE ALLEGED FE. Types of FEs are infinite, although there are commonly recurring categories that have become popular

examples, eg outbreak of war, natural disasters, incapacitation or death of persons, destruction of infrastructure of contracts (eg ship sinks etc), industrial action, change in the law (eg Scanlons), cancellation of events, act of authority/govt agency (eg compulsory acquisition of land, court injunctions etc).

In order to determine whether an event is an FE, courts now apply the fundamental difference test (see below). However it is worth noting other tests that have been used in the past

Objective Justice Test Simplest test. When court has to decide whether an event is a FE, court simply looks at the situation and

determines whether it is objectively just to terminate the contract. But this rejected by HCA in Scanlan’s. Nonetheless, it is a good way to guide the inquiry. Objective justice clearly has a subconscious or non-official

influence, as it always does in law. In an exam, start by briefly mentioning your ‘gut feeling’ with regards to what seems just (Fred likes this).

Implied Contingent Condition test This test has been used in the past, and still lingers to an extent, although it has been officially superseded by

the FD test (below). Court would determine whether to imply a CC in the contract providing that in the event of such a FE the

contract will come to an end. Implication under this doctrine could be made only on two levels: o Universal: basis of the contract, implied in every contract that if something happens that destroys the

basis of the contract, then the contract comes to an end; ORo Specific: hypothetical intention of reasonable parties, whether implied in the specific contract that if X

happens, the contract will come to an end.Fundamental Difference Test HCA has adopted this test. Involves a comparison of two situations: the performance situation as it was

envisaged when the parties formed their contract; and the situation that has actually eventuated. If there is a FD b/w these two situations, then there is a FE. This is the modern view.

Important factors in determining FD are:o Extent to which benefits of performance are diminished;

o Extent to which the FE has obstructed the commercial purpose of the contract. Group Projects: Compulsory acquisition of the land that that was the basis of a contracted-for development

project meant that the project had fundamentally changed. For GP, the whole purpose of the contract had been removed as had all benefits from the contract. But important factor here was fact that BCC received no disadvantage from loss of contract b/c was a govt body and sought no profit, thus its benefits were not diminished. The FE obstructed entirely the commercial purpose of the contract. [Different from Scanlan’s: S stood to lose out, had completed their side of bargain; T still received some benefit].

Codelfa: Performance of the contract on a two-shift basis was F/D from performance on a three-shift basis [this doesn’t seem as F/D as was the case in Group Projects. Perhaps decided on the basis of commercial purpose].

Meriton ? F/D not recognised back then but court says Green Bans potentially frustrating, as they substantially diminished the value of the land and frustrated the commercial purpose for which the land was purchased.

Other Factors In addition to the FD test, there are three further factors that must be considered in order to establish a FE; they

are like prerequisites or limiting factors.IMPOSSIBILITY What relevance is it that the FE makes the performance of a party’s obligations impossible? It is a relevant factor in all the cases, but is not determinative. If performance is largely impossible, may tend

towards a finding of frustration and visa versa, but this clearly depends on all of the other factors. Scanlan’s: The change in the law did not affect the parties’ ability to perform their obligations: S had already

installed the signs and T could still pay rent No FE BUT, in Group Projects, the performance by GP of its obligations was still possible (although would have

been pointless), nonetheless the HCA found that there was a FE. Codelfa: Codelfa could still build the tunnels, however performance of the contract on time no longer possible

– C severely prohibited in performance of obligations. Mason J thought this was a relevant factor in concluding that there was a fundamental difference FE

NOT SELF-INDUCED Where a party actually causes the FE, he then cannot rely on frustration to terminate the contract. This seems obvious, but there are clearly complications that might arise. eg, what sort of causation is required,

what about indirect causation. Unfortunately there is not much law on this issue. So just mention it in an exam and speculate briefly. Codelfa: fact that noise was induced by Codelfa did not preclude a finding of frustration. Probably b/c noise

was done pursuant to the contract exactly as was anticipated. Not like Codelfa set fire to the railway tunnel etc.RISK ALLOCATION If the risk allocated to one party then cannot claim FE. Commonly 2 kinds of Risk Allocations:

o Express: stipulated in contract; requires interpretation. Can come in the form of Force Majeure clauses (provide for a FE); CCs; absolute promises to perform; specific allocation of a particular risk to a party.

o implied allocation: in circumstances, assumption of risk may be implied to one of the parties. Scanlan’s: fact that contract provided that rental payable “whether or not the sign shall be used or operated by

the lessee” indicated that risk of inability to illuminate borne by lessee of the signs. The clause didn’t apply specifically to the FE, but can be used as the basis for impliedly allocating risk. Contrast with Group Projects.

Group Projects: cl 7: GP’s obligations are to remain in force although it is for any reason “precluded from benefiting either wholly or partly” from rezoning. Seems to allocate the risk of inability to reap benefit from land to GP. However Court holds that this clause not intended to apply to the situation. Thus can argue that the FE was clearly beyond the purview of what the parties contemplated when they included the clause in question. Thus a clause that ostensibly allocates risk may not necessarily do so in the circumstances.

Codelfa: similar to Group Projects. A clause provided ‘The Contractor shall not be entitled to additional payment if the Engineer requires that measures be taken to reduce noise and pollution’. Seems to allocate risk to Codelfa, but Mason says that this clause does not cover this situation; is a matter of interpreting the clause to see if it was intended to cover this type of situation.

Meriton: Court held that Meriton impliedly bore risk of green bans or other industrial action b/c express allocation to McLaurin of the risk of non-approval by Council implied that, once approval was granted all other risks were allocated to Meriton. [Note this seems a very radical basis for allocating risk; court says that one party has an express risk, other party impliedly assumes all other risks. But perhaps f/seeability of this risk made it easier to imply to Meriton]

FORESEEABILITY

It has been said that a party who has foreseen a FE or should have foreseen it but failed to provide for it in the contract impliedly accepted the risk of the FE (thus f/seeability really linked to Risk allocation).

However fact of foreseeability does not necessarily preclude a finding of FE, as the parties may have deliberately agreed not to provide for the event – indeed every f/seeable contingency cannot possibly be provided for.

Scanlan’s: some indication that potential for lighting restrictions before the war was common knowledge; thus more likely that the purchaser/lessee of such signs would bear the risk.

Codelfa: Mason J approves of the foreseeability requirement. Says parties were given legal advice that an injunction was not possible; but argument that they could have foreseen that the legal advice was wrong. However holds that Codelfa were an Italian company and were well entitled to accept the legal advice obtained by the SRA, thus the injunction was not reasonably f/seeable. Thus Mason seems to suggest that f/seeability a subjective test; considers idiosyncrasy of being Italian).

Meriton: This sort of industrial action (Green Bans) was a kind of risk that a purchaser might be expected to encounter in the execution of a commercial development [Reas f/seeability thus seems to influence the decision.]

Effect of Frustration Automatic termination: The effect of a FE is that the contract automatically comes to an end, such

termination being prospective from the date at which the FE occurred: Scanlan’s, BCC, Beaton, Meriton But problems may arise if benefits have already been received under a contract.Common Law & Restitution ‘Total failure of consideration’ doctrine: Baltic: a passenger who went on a holiday cruise which sank after 9

days; passenger seeking fare back. High Court holds the passenger gained 9 days worth of holiday, hence no total failure of consideration.

‘Acceptance of the benefit’ doctrine: The acceptance of a benefit gives the plaintiff a restitutionary cause of action.

o Codelfa: after injunctions issued, Codelfa constructed tunnel with permission of State Rail Authority. Restitution relating to post-frustration benefits; difficult where benefits received while contract still on foot. See also Beaton.

Nowadays benefits accrued under a contract may be dealt with under the law of restitutionRestitution (legislation)

Frustrated Contracts Act 1959 (Vic)Section 3 Adjustment of Rights and Liabilities of Parties to Frustrated Contracts.(1) Where a contract has … been … frustrated … and the parties thereto have for that reason been discharged … the following provisions … shall … have effect …(2) All sums paid or payable to any party in pursuance of the contract before the time of discharge shall …be recoverable and … cease to be so payable:Provided that, if the party to whom the sums were so paid or payable incurred expenses before the time of discharge in or for the purpose of the performance of the contract, the court may, if it considers it just to do so having regard to all the circumstances … allow him to retain or … recover …. the sums so paid or payable, not being an amount in excess of the expenses so incurred.(3) Where any party ... has by reason of anything done … in or for the purpose of the performance of the contract obtained a valuable benefit … before the time of discharge, there shall be recoverable from him … such sum (if any) not exceeding the value of the said benefit … as the court considers just …Section 4 Application of this Act(3) Where any contract to which this Act applies contains any provision … intended to have effect in the … circumstances … the court shall give effect to the said provision …

Things to consider are:o All sums paid before the time of discharge [the FE] shall be recoverable, all sums payable shall cease

to be payable.o Except to the extent that the party returning the money incurred expenses for the purpose of the

performance of the contract. In such a situation, that party may retain some of the money if it considers it just;

o A must pay compensation to B if A incurred a valuable benefit under the contract.

CASES: TERMINATION BY FRUSTRATION

Scanlon’s New Neon Ltd v Tooheys Ltd HCA 1943FACTS:

- Scanlan’s installs and leases neon signs to Tooheys (on top of ATooheys hotels) for 5 years at a monthly rental.

- Cost of installation is 50-80% of total rental, thus S makes its profit by installing and then recouping the costs through rental.

- S installs the signs, thus completing in full its part of the bargain.- The purpose of the signs is obviously to be bright and conspicuous and thus have advertising value.

However, even when unlit the signs are visible and legible and still have some advertising value.- After Japan’s entry into war (1942) NSW government prohibits illumination of signs indefinitely

under National Security Act 1939-1940 (Cth).- T stops paying rent b/c says can no longer illuminate the sign, S brings this action. - T gets less benefit out of the contract as a result of less advertising. - Contract provides that rental payable “whether or not the sign shall be used or operated by the

lessee”.RESULT:

3:0 No frustrationLEGAL IMPORTANCE:

- Latham rejects the idea that F to be determined by objective justice test, but says that even if it did apply, would not be unfair to deny that this was a FE, b/c S has already given most of its performance/consideration etc.

- They decide this case on specific implication of a CC. Decide that was not an implied CC that contract would come to an end in event of illegality of the signs.

- No impossibility: the allegedly FE does not make performance of the contract impossible for either party, all it does is reduce the benefits flowing to T.

- Compares the situation to the purchaser of goods (ie the weeding dress – fact that wedding gets cancelled doesn’t entitle bride to get a refund for frustration – same applies here).

- Foreseeability? Williams seems to think that potential of lighting restrictions was common knowledge, even before Japan entered the war. Latham seems to agree.

- Thus foreseeability does play a role here (though not as an independent factor, rather it is merged in to the overall decision to find against T).

- Allocation of risk: clause in the contract that states that rent payable regardless of whether signs operated by lessee. Although clause not specifically designed to allocate risk in these circumstances, it is clearly a basis on which an argument about allocation might be made.

Brisbane City Council v Group Projects Pty Ltd HCA 1979FACTS:

- GP was the owner of land which it sought to develop, however zoning prevented development. With a view to facilitating re-zoning to allow the development, GP entered into negotiations with BCC, resulting in the following arrangement:

- 30 Oct 1975: deed by which BCC agrees to apply for rezoning of land to enable its development- GP “in the event of [approval of] the application” agrees to pave roads, provide curbs, channels,

footpaths, contribute to cost of sewerage, water, electricity, parks, bridge, invest $122,600 in Council shares, and furnish $200,000 performance bonds as security

- Clause 7: GP’s obligations are to remain in force although it is for any reason “precluded from benefiting either wholly or partly” from rezoning.

- But cl 19 provides that in the event only partial rezoning is granted, GP’s obligations are to be reduced.

- 13 Nov 1976: State govt compulsorily acquires land (FE)- GP encourages BCC to get approval for rezoning b/c it intends to appeal the compulsorily acquisition.- 25 Dec 1976: BCC’s application for rezoning successful; Land rezoned.- But compulsory acquisition takes effect. GP is not prevented from performing its obligations on the

land, however it is entirely deprived of the benefit that was intended to flow from the agreement.- GP sues for declaration that contract terminated by frustration on 13 Nov (date land compulsorily

acquired – the FE).RESULT:Contract terminated (5:0) on the basis of(a) Non-fulfilment of contingent condition (3 judges)(b) Frustration (2 judges)LEGAL IMPORTANCE:

Stephen J- Stephen J’s jjment has become the classic case.- The alleged FE is the compulsory acquisition, GP have lost the intended benefit of the contract; loss

of value (ie from the inability to develop the land). Both judges hold this was a frustrating event. - Stephen J starts by noting that this is not an ordinary commercial venture. BCC did not seek

commercial profit, but the attainment of a new subdivisional area to be used for amenities. Thus cannot be said that BCC really lost any benefit as a result of the FE [different from Scanlan’s where S stood to lose out if T stopped paying rent due to FE]

- The FE did not prevent GP from performing its obligations (ie no impossibility), however the FE ‘wholly destroyed GP’s purpose in undertaking obligations at all’.

- Rejects the implied CC approach, but decided to import from the UK the fundamental difference test (see above). They say of course there is a fundamental difference here, b/c the project that the parties originally envisaged was fundamentally different from the post-FE situation.

- Not self-induced. - Foreseeable? Stephen seems to approve of the foreseeability req’t but doesn’t say anything about its

application.- Allocation of risk? What about clause 7? Both judges decide that this doesn’t apply to this kind of

situation [which begs the question, to what sort of situation is the clause intended to apply? Surely it applies here? Stephen J seems to say that comp acq was completely beyond the purview of their contemplation when they entered the contract; the clause interpreted as not intending to apply to this type of situation.]

- Also cl 19 indicates that rezoning is linked to GP’s obligations, so militates in favour of finding a FE.

Codelfa Construction Pty Ltd v State Rail Authority of NSW HCA 1982FACTS:

- Codelfa, an Italian firm, won a contract to construct two tunnels for the building of a railway by the SRA. The contract contained the following terms:

- The contract set out the amount payable to Codelfa, and stated that the work had to be carried out by a certain date regardless of its difficulty.

- The contract also stated in Cl G.44(7) that the SRA could not cancel the contract because of delays that were beyond the control of or not caused by Codelfa.

- “The Engineer shall … extend the time for completing the works when, in the opinion of the Engineer, the findings of fact justify an extension.”

- “The operation of all plant and construction equipment shall be such that it does not cause undue noise, pollution or nuisance. … The Contractor shall not be entitled to additional payment if the Engineer requires that measures be taken to reduce noise and pollution.”

- The contractor was deemed to have informed itself fully of the conditions affecting its carrying out of the works. If it did not inform himself fully it was not thereby to be relieved of the responsibility "for satisfactorily performing the works as required regardless of their difficulty".

- Codelfa commenced work when instructed. But soon local residents began to complain about the noise.- An agreement was reached between the residents and Codelfa restricting Codelfa’s hours of operation- Codelfa then claimed for additional payment from the SRA b/c of the increased costs and reduced profit it

would receive as a result of the new construction timetable.- Codelfa continued to work on the tunnels, and correspondence as to compensation and an extension of time

passed b/w the parties for some two years. Eventually a large extension was granted, but when the work had not been completed by the extended date, SRA cancelled the contract with Codelfa.

- Codelfa, in suing the SRA claimed, in addition to the implied term argument, that the contract had been frustrated.

- The arbitrator found that both parties had entered the contract under the common understanding that the works would be able to be undertaken on a full 3-shift per day basis, and that the SRA had represented and Codelfa had accepted that no injunction or restraining order could be granted against them in relation to noise or other work.

RESULT:4:1: Contract frustrated (fundamental difference)

LEGAL IMPORTANCE:Brennan J- Decides that is is really a mistake issue. No basis for frustration; situation not fundamentally different.Mason J- Says the fact that the parties made a mistake when they entered the contract as to the potential for future

injunctions does not preclude a finding that an injunction can be a FE.- If parties make a mistaken assumption about future fact is a frustration issue- If parties make a mistaken assumption about present fact is a common mistake issue.- Mason says this is a mistake about the future, thus is a frustration issue [although surely it could be said that

the mistake was about the present state of the law? Seems could go either way].- Adopts the fundamental difference test from BCCC v GP.- Holds that performance of the contract on a two-shift basis was F/D from performance on a three-shift basis.- Important that the FE made it impossible for Codelfa to complete its obligations.- Self-induced? Codelfa were responsible for noise, perhaps could have reduced it if changed its practices. But

this not even discussed. Cl G44(7) provides that the SRA could not cancel the contract because of delays that were beyond the control of or not caused by Codelfa. But arguably C were just doing what they thought they were entitled to do under the contract – surely can’t say that their obligation in and of itself caused the FE.

- Foreseeability? Mason says fact that must show that the injunction was not foreseen nor foreseeable. Says parties were given legal advice that an injunction was not possible; but argument that they could have foreseen that the legal advice was wrong. However holds that Codelfa were an Italian company and were well entitled to accept the legal advice obtained by the SRA, thus the injunction was not reasonably f/seeable (so is f/seeability a subjective req’t? consider idiosyncrasy of being Italian?)

- Allocation of risk? Mason discusses the plant and equipment clause: ‘The Contractor shall not be entitled to additional payment if the Engineer requires that measures be taken to reduce noise and pollution’. But Mason says that this clause does not cover this situation (similar to BCC v GP); this clause about changing practices re noise pollution but not so wide as to extend to completely changing the operation of work. [what about the fact that an extension had been granted?]

Beaton v McDivitt NSWCA 1987FACTS:

- D (Mr McDivitt) owned a large block of land which he had decided to divide into 4 blocks.- D agreed to give P (Mr Beaton) one of the blocks if P engaged in permaculture on that block- When council were to rezone the land, D would transfer the title of the block to P.- P considered the proposal and some time later, (26 December 1977) upon inquiring whether the ‘offer’ was

still open, ‘accepted’ that offer.- 5 days later (31 Dec 1977), P offered to pay the rates for the block, but agreed upon D’s request that he would

maintain the road that bisected two of the properties instead.- Jan 1978: road cleared by D providing access to P’s block- April 1978: P and family moved in, over time constructed a residence and began permaculture.- May 1982-August 1984: Dispute arose between parties over use of the land. Council inspected P’s residence

but building did not comply with council regs. Council ordered its demolition, informed D.- D told P that bldg was to be demolished, asked P to leave, barred road access to P’s block.- Beaton sues to enforce promise by McDivitts to transfer block of land on rezoning expected in 2 years.- 10 years later the land is still not rezoned; ‘no present prospect’.

RESULT:- 2:1 Appeal by Beaton dismissed.- Kirby P: No consideration no contract can’t be frustrated McDivitt wins- Mahoney JA: Consideration Contract BUT contract frustrated McDivitt wins- McHugh JA (dissenting): Consideration Contract contract NOT frustrated

LEGAL IMPORTANCE:Mahoney J:

- Says this is a Non-fulfilment of CC situation: performance was contingent on the rezoning of the land within a reasonable time. Such time has elapsed, the contract should be terminated. BUT the parties did not argue this.

- So holds that the contract was frustrated by the lack of rezoning. Does this on the basis of an implied CC – objective bystander approach.

- [But very hard to pin down an ‘event’ here, so how can it be a FE?]McHugh J:

- Contract not frustrated (rezoning not essential to subdivision; frustration ‘has not yet been reached’)

Meriton Apartments Pty Ltd v McLaurin & Tait (Developments) Pty Ltd HCA 1976FACTS:

- McLaurin agrees to sell to Meriton land adjoining Centennial Park, Sydney.- Contract subject to approval of development application by Sydney City Council. Approval had to be obtained

by McLaurin. The approval was successfully obtained- ‘Green bans’ imposed by building Unions.- Meriton claims termination. - McLaurin sues for specific performance. - Meriton argues that contract frustrated by green ban.

RESULT:3:0 Appeal by Meriton dismissed. No FE.

LEGAL IMPORTANCE:- Green bans potentially frustrating, as they substantially diminished the value of the land and frustrated the

commercial purpose for which the land was purchased [fundamental difference?]- But held that Meriton impliedly bore risk of green bans or other industrial action b/c express allocation to

McLaurin of the risk of non-approval by Council implied that all other risks occurring once approval was granted were allocated to Meriton.

- [Note this seems a very radical basis for allocating risk; court says that one party has an express risk, other party impliedly assumes all other risks. But perhaps f/seeability of this risk made it easier to imply to Meriton …]

- Said that this sort of industrial action was a kind of risk that a purchaser might be expected to encounter in the execution of a commercial development [Reas f/seeable?]

DAMAGES Damages for breach of contract are awarded with the object of placing the injured party in the situation he

would have been in had the contract been performed, thus preserving that party’s expectation of performance (known as his ‘expectation interest’).

The awarding of damages thus involves a comparison between the situation that would have occurred had the contract been performed and the situation that actually occurred as a result of the breach. If the value of the hypothetical performance position is greater than that of the actual position, a loss has occurred.

Damages are awarded to cover the full expectation loss, including all benefits, direct or indirect, that would have flowed from full performance of the contract.

Expectation damages are distinguished from reliance damages (as in tort), awarded to compensate the plaintiff for expenses incurred in reliance on the contract, in which the object is to put the plaintiff in the position he would have been in before the contract was made or breached.

But note that reliance damages may also be awarded for breach of contract, as they sometimes form part of the overall expectation interest. For example, where a party spends money in readiness for a contract, it then expects to recoup the start-up costs and make a profit. The gross expectation interest is the total of the reliance expenditure plus the expected profit, and the net expectation interest is the expected profit.

It is important to remember that the award of damages is to some extent a pragmatic process. As such, the following should be treated as guidelines rather than as rigid rules: Amann (Deane J).

Compensatory damages The purpose of contract damages, as noted above, is to compensate the injured party. To that end, Aus law does not recognise other sorts of non-compensatory damages (eg exemplary damages,

disgorgement damages – although this available in the UK; Blake spy case).Termination and Damages It is not necessary to terminate in order to claim damages for actual breach. However, it is necessary to

terminate before damages can be sought for anticipatory breach.Applications of Expectation Damages

Loss of Profit Any profit that would have been made if the contract had been fully performed is normally recoverable (profit

= income/receipts – costs incurred). The onus is on P to prove that he would have made a profit. However damages for loss of profit are not awarded on a merely speculative basis. Thus in McRae, the value of the tanker never existed and its value could not by any means be ascertained, thus

the plaintiff was limited to damages covering wasted expenses and loss of chance/opportunity.Wasted Costs Reasonable costs or liabilities incurred by P in preparation for or in the course of performance of a contract

may be recoverable. Limitation I: Such costs can only be recovered to the extent to which no value has been gained. This is b/c

where P, in reliance on the contract, has incurred expenditure in the purchase of a valuable asset, he may nonetheless retain some value from the acquisition (ie he can use it elsewhere/sell it etc). Thus the inherent value of an asset must be taken into account when considering the net loss incurred in purchasing the asset. Thus: wasted costs = total expense incurred in reliance – value of assets attained: eg in Amann, the amount awarded for wasted cost on airplanes was reduced by the residual value of the airplanes.

Limitation II: Such costs can only be claimed to the extent to which they would have been recovered or recouped if the contract had been fully performed. P will not be put in a better position than that which he would have been if the contract had been fully performed. According to Amann:

o P must prove that the costs were reasonably incurred;o Once he has done this, there is a presumption that the costs would have been recouped;o the onus shifts to D to try and prove that those costs would not have been recouped;

Thus in Amann, once the chance of renewal of the contract had been taken into account, Cth could not demonstrate that Amann would not have recouped its expenses.

Loss of Chance or Opportunity The law awards damages for loss of any foreseeable chance or opportunity of a benefit that can be causally

linked to a breach of contract [AND to a breach of TPA: Sellars]. Thus P may be compensated not merely for a loss of a chance that the other party promised to provide, but also

for a loss of chance that was not promised but may have otherwise arisen as a result of performance of a contract: Amann.

Damages are assess by reference to the probability of success. The advantage of this is that it allows greater flexibility in the award of damages than does a simple all or nothing approach.

It is not necessary to establish that the probability was greater than 50%: any probability is capable of being compensated: Amann; Sellars

Unless the chance is so low as to be speculative (eg less than 1%), the Court will take the chance into consideration when assessing damages. (Obviously if the chance is so high as to be a virtual certainty, it will be treated as such); Sellars.

A precise figure or percentage does not have to be calculated (though this is the normal approach); a global or lump sum assessment is OK: Burger King.

In recognising that a chance of less than 50% is compensable, the courts have not done away with the requirement that P must prove the loss on the balance of probabilities. P must still prove on the balance of probabilities:

o That performance of the contract would have led to the creation of the chance at all in that that chance had some value and was not merely speculative or negligible (once this is shown then can proceed to assessing the likelihood of the chance eventuating) (Sellars) ;

o Where realisation of the chance depends on P’s own decision to avail himself of the chance, P must prove on balance that he would have taken it up;

o In accordance with normal causation principles, P must prove that the breach relied on caused the loss of the chance in question (see below).

Personal Injury It is clear that damages can be awarded for physical injury as well as mental injury such as nervous shock etc.Distress and Disappointment In most cases, breach of contract not only deprives a party of expected benefits but causes them distress and

disappointment. (Note this is different from actual mental injury, which is clearly compensable). Damages for distress and disappointment are only awarded in some defined circumstances. HCA has noted that the rule rests on shaky policy grounds, and is based on pragmatism rather than logic (ie

logically P should be compensated, but this is difficult in practice to calculate), and policy reasons such as not wanting to inflate awards of damages: Baltic

Thus, the rule is that, in general, disappointment and distress is too remote and thus not available. There is, however, a general exception in situations in which it would have been in the contemplation of the

parties that disappointment and stress would have followed from a breach [in an exam, could mount an argument that this general exception applies] However the Court says that the general exception applies to two specific circumstances (Baltic):

o If the breach of contract causes physical injury or physical inconvenience, P may recover for distress where it results from that physical injury or inconvenience;

o If the distress is caused by breach of an express or implied promise to provide pleasure, entertainment or relaxation or to prevent molestation or vexation (such as a pleasure cruise).

Calculation of Damages The onus is on the plaintiff to establish both the fact and the amount of the loss: Amann. However awarding damages necessarily involves a degree of speculation and pragmatic calculation; the fact

that calculating damages may be difficult or evidence of value inconsistent or lacking does not deter the court from doing its best to place P in the position he would have been in if the contract had been performed.

Nonetheless, if P has failed to produce a minimum amount of evidence the court may refuse to grant damages for the relevant item.

Time Damages are normally assessed as at the time of the breach. This means that damages are assessed by reference to events that have occurred or could reasonably be

expected to occur as of that date, and market or other values then prevailing or predictable.Market Value Where performances of the kind contracted for can be readily obtained elsewhere there is said to be a market in

such performances. Where such a market exists, the value of the lost performance is the difference between the contract price and the market price/value: eg P agrees to sell D a fridge for $120, but D backs out of the contract before the transaction takes place. The market value of the fridge is $100. P is entitled to receive $20 from D (as P is presumed to readily be able to sell the fridge elsewhere for $100)

But not all losses can be quantified in this way, not only b/c not everything is marketable, but also b/c it is not always appropriate to apply market values even if they exist.

The market value will only apply if the market substitute is a true equivalent of the performance contracted for. Where such an equivalent is not available, the injured party would not be adequately compensated by a market-based award. Therefore, the actual cost of remedial action may be awarded instead: Bellgrove.

Thus in Bellgrove, E contracted for a house built on her land in conformity with certain specifications. A building not built to specifications may be valuable but E still incurs a loss – the loss here is not simply that of a marketable commodity, therefore damages could only be measured by the cost of rectification

BUT, the principle is qualified: rectification must be reasonable (eg. If E had required second hand bricks and the builder installed new bricks, which were actually worth more, it would not be reasonable to require rectification). Can’t make trivial, irrational objections. However:

a. Just b/c rectification is economically wasteful does not necessarily mean that it is unreasonable (eg some eco waste in Bellgrove but not unreasonable)

b. That P might pocket the damages and resell the goods/house is immaterial: they are entitled to damages based on full performance.

Contingency Discounts If there is an identifiable chance that the loss in question would have occurred independently of the breach,

damages may be reduced or discounted accordingly: Amann In Amann, three of the judges held that a discount for a contingency should only be made if the probability of

its occurrence is more than 50%; but this is to apply a different principle than that applied when positively assessing damages for loss of chance (as in Sellars), namely, damages are assessed by reference to the probability, whatever that probability may be.

However the majority [Deane etc + Brennan] agreed in principle to the discounting of damages on the same basis as Sellars. SO damages can be reduced due to a contingency having any probability of occurrence.

In addition to specific contingencies, a general sum may be discounted for vicissitudes.Causation

P must show that the loss claimed was caused by the breach of contract relied on. In contract (as in negligence) causation of loss is to be determined by common sense (March). It is generally enough that the breach be a cause of the loss: Alexander. But it may not be enough merely to show that the breach is a ‘but for’ cause of the loss. The causal chain may

be broken by a NIA, or the Court may hold that common sense and policy considerations dictate that the breach was not sufficiently causally potent to be regarded as the cause: Alexander.

In Alexander, causation was denied b/c, so far as common sense and good policy were concerned, the incorrect audit was not the legally relevant cause of the losses. Rather there were many other causal chains in operation that contributed to the losses in question such that policy regarded the original cause as spent.

It will often simply come down to an unstated decision as to where it is more just to let the loss lie.Novus actus interveniens Alexander (McHugh and Glass): an intervening act or event breaks the causal chain if it is ‘in a practical

sense’ the only cause of the loss - unless it should have been foreseen as a serious possibility. [Thus similar to tort: unforeseeable, unreasonable, voluntary acts are considered to break the chain of

causation] Alexander (McHugh): The package of economic factors, starting with an expansionary budget in 1972 leading

to rapidly rising interest rates in 1973 and the collapse of land prices in 1974, together with the decisions of the directors of Cambridge to increase its borrowings and investment in real estate constituted, a NAI.

Limiting Factors There are two main factors that can limit the award of damages:Remoteness Damages may not be awarded for a loss that is considered too remote. Generally speaking, a loss is too remote if a reasonable person in the defendant’s position at the date of

formation of the contract would not have foreseen the loss as a likely consequence of the breach: Burns; Amann

However, f/seeability seems to have been replaced by reasonable ‘contemplation’, which McHugh J thinks is a narrower or less remote concept: Alexander; Burns v MAN.

In an exam, apply both, although it seems that the ‘contemplation’ test is now more in favour. The parties need not contemplate the degree or extent of the loss; nor need they contemplate the precise events

giving rise to the loss. It is sufficient that they contemplate the kind or type of loss or damage suffered: Alexander (McHugh)

Loss may be foreseeable on the basis of (i) D’s imputed knowledge of ‘the usual course of things’; (ii) D’s actual knowledge.

Mitigation

Losses that could have been mitigated (reduced/prevented by reasonable effort) by P are not recoverable. The party in breach (D) bears the onus of proving failure by P to mitigate: Burns. There is overlap b/w mitigation, remoteness and causation. (eg failure to mitigate may be a NAI; failure to

mitigate is considered unreasonable thus may be beyond the bounds of f/seeability and therefore too remote). However the doctrine has an independent ethical basis.

In general, if P can, through reasonable (but not too costly/onerous) steps, obtain a substitute performance elsewhere, any loss that flows from the failure to obtain it is not compensable.

Eg: if D sells P a faulty bike in the CBD, and P fails to buy a new one in a reasonable time, then P can’t claim for loss of income as a result of not being able to ride the bike.

Failure to mitigate due to impecuniosity probably does not bar P from claiming damages; certainly this would be the case where the breach contributes to P’s lack of means: Burns

Burns (Brennan J dissenting): MAN had to show Burns acted unreasonably in engaging in intrastate haulage. Reasonableness must be assessed in light of the party's actual financial situation. Here, given Burns’ impecuniosity, which precluded him from reconditioning the engine, or terminating the h-p agreement (which would leave him with a debt), it was not unreasonable for Burns to act as he did.

Agreed Damages The parties may themselves stipulate what damages shall be payable for a particular breach. These are called

‘liquidated damages’. The law will generally accept such provisions, however it does exercise some control over them: liquidated

damages clauses that do not rest on a genuine pre-estimate of loss but require payment of an exorbitant amount constitute a ‘penalty’ and are unenforceable (Plessnig). In which case the injured party is still entitled to receive damages for the actual loss under the normal common law procedure.

Thus the critical issues are the degree of difference b/w the actual loss likely to be suffered and the loss provided for in the L/D clause, and whether or not the parties made a genuine attempt at a pre-estimate.

Plessnig: An agreed sum is a penalty only if it is ‘extravagant, exorbitant or unconscionable’, ie ‘out of all proportion to the damage likely to be suffered’, not a ‘genuine pre-estimate’. The mere possibility of windfall not enough.

In considering the penal nature of the provision, the court is entitled to consider the genesis of the clause and the nature of the r/ship b/w the parties: Plessnig.

Court in Plessnig indicated that the courts should give greater latitude to the parties’ own agreements on L/D than has sometimes previously been the case: ‘there is much to be said for greater latitude’.

However note Deane J thought that unjust enrichment may be available.

Commonwealth of Australia v Amann Aviation Pty Ltd HCA 1991FACTS:

- A successfully tendered for a 3 year contract to provide air surveillance on the north coast of Australia. - Previously Skywest had done this job, but they lost the tender to Amann. - A was obligated to operate 11 aircraft in surveillance and to comply with specifications in the contract. - On the day that performance is due to start, A only has 7 planes ready and they do not accord with the specifications

of the contract. Cth had known about this for a while. - Skywest have told Cth that if they want to reinstate Skywest, they need to do so ASAP because otherwise Skywest

will sell their planes.- Contract includes a ‘show cause’ clause, whereby the Cth must demand A show cause why Cth should not

terminate.- On day performance was scheduled to start, Cth terminates the contract on common law grounds b/c they are in a

hurry (want to reinstate skywest), but they did not terminate in accordance with the show cause clause. - Judge says that the show cause clause impliedly removes any right to terminate the contract on common law

grounds – it is an exclusively applicable clause; judge finds anyway that the breach was not sufficiently serious. Thus Cth wrongfully terminated the contract, which is a repudiation, entitling A to terminate.

- A exercised its right to terminate and sued for damages.- By time get to HCA, all of this is accepted. Only issues is damages.- Below is a list of relevant figures:

Net revenue expected over 3 years:Payments by Cth 17.1mRefund of security deposit 0.1mTotal 17.2mMinus operating expenses 15.8mNET REVENUE 1.4mDamages claimed by Amann:

Pre-performance expenses (ie what had to spend to equip themselves for contract performance):Net cost of aircraft 4.4m (5.3m less residual value 0.9m [planes specially equipped so market value low])Other pre-performance expenses 0.9mSecurity deposit 0.1mTotal 5.4mPlus termination payments to employees 0.1mTOTAL DAMAGES 5.5m

- If A had performed the contract for three years, they would have made an operating profit (of 1.4m) but would have made an overall loss taking into account pre-performance losses.

- A undertook the contract b/c assumed it would be renewed (numerous times).RESULT:

Damages for wasted costs awarded to A.LEGAL IMPORTANCE:

Wasted Costs- If Amann had proved in this case, taking into account the value of the loss of the chance of renewal, and comparing

it with the actual and putative expenses, that the contract would yield a profit, then the expectation damages principle would entitle them to sue for the loss of those profits. They chose not to do this: too speculative/difficult.

- Rather, they sued for damages for wasted expenses rather than for lost profit. - Normally, if suing for loss of profit, can’t also recover wasted expenses, as they are included in the profit

calculation. Thus Court held that in a case like this – a losing contract – can recover wasted costs.- However there is a limit on recoverability of wasted costs: can only recover to the extent that the costs would have

been recouped in the course of the contract.- Commonwealth has the onus of proving the expenses would have been recouped.- Mason, Dawson, Gaudron, Toohey: Amann had established that these expenses were reasonably incurred, and hence

a presumption arises that expenses would have been recouped. Hence onus lies on the Commonwealth to establish that the expenses would not have been recouped. Toohey: a prima facie inference. Gaudron: an assumption.

- Deane/Brennan, McHugh: the breach by the Commonwealth made it difficult to assess whether costs would have been recouped (ie. by repudiating the contract on the first day of operations), hence the onus lies on them. The exercise becomes purely speculative due to the breach by the Commonwealth.

- Once chance of renewal taken into account, Cth could not prove that costs would not have been recouped by A.Loss of Chance- This situation raises question whether, in valuing the contract, court can take into account not merely the promised

benefits, but the other/non-promised benefits? Very powerful (though remember that there are remoteness constraints etc etc).

- Court holds that unpromised benefits are included in calculation of damages. So do take into account loss of chance. - Court does assert that loss of chance is part of the value of the performance. - A did not apply for loss of chance damages here, but Court said they would have been available.- Loss of chance damages available even if probability is less than 50%. - Mason/Dawson: loss of chance does not apply to purely aleatory contracts [contract in which promisor’s obligation

to pay becomes enforceable on the occurrence of a fortuitous event that neither party wants to happen, eg an insurance contract. No assurance of benefits]; (eg. McRae: why is it not a purely aleatory contract? Nobody knew whether there was oil in the tanker). How pure does the chance have to be?

Contingency discounts- Cth argued that although their termination was unjustified on that day, the contract gave it a right of cancellation on

which it could have relied thereafter. - It was accepted that there was a 20% chance that the Cth would have exercised that right (in which case A would

have lost the benefits anyway)- Deane, Toohey and McHugh JJ held that the damages should be discounted by 20%.- Brennan J agreed with that in principle, but held that the damages should not be so reduced in this case (goes off on

his own tangent; don’t even bother.)- Mason CJ, Dawson and Gaudron JJ held that although there was a 20% chance, this should not be taken into

account. Such a contingency should only be taken into account if it is more probable than not ie greater than 50% chance [but this is to apply one principle here and a different principle when assessing damages for loss of a chance – surely both assessments should be made in accordance with the same principles.]

- Thus, in this case, a majority [Mason etc + Brennan] held that the damages should not be reduced by 20%.- However a different majority [Deane etc + Brennan] agreed in principle to the discounting of damages on the same

basis as Sellars: damages discounted by reference to the probability, whatever that probability may be.

Sellars v Adelaide Petroleum NL HCA 1994FACTS:

- Regards an action for misleading conduct under the TPA; but court makes it expressly clear that recovery based on loss of chance is equally applicable to contract law.

- AP entered negotiations with two separate companies, Poseidon and Pagini with a view to an agreement which would help to attract underwriters for a new share issue.

- AP came close to agreement with Pagini. A draft contract was drawn up. It was subject to 7 contingent conditions of performance (incl. approvals, finance)

- But AP was induced by false representations of an executive of Poseidon (Sellars) to make a contract with Poseidon instead. Sellars said that Poseidon directors would come on board and assume management of AP.

- When Poseidon refused to do this, AP resumed negotiations with Pagini. A new contract with Pagini was executed, less beneficial in specified respects.

- AP sued Poseidon and Sellars for damages for misleading conduct under the Trade Practices Act.- The trial judge (French J) held that, on the balance of probabilities, the first Pagini contract would have been

executed but for Sellars’ misleading conduct, and the nominated benefits would have been realized on completion. But there was only a 40% chance of completion because it was subject to contingent conditions, therefore AP was entitled only to 40% of the value of the benefits which would have been realized.

- Sellars and Poseidon appealed. The Full Court and High Court dismissed the appeal.RESULT:

5:0 appeal dismissedLEGAL IMPORTANCE:

Mason CJ, Dawson, Toohey and Gaudron JJ:- [355] The general standard of proof in civil actions will govern the issue of causation and the issue whether the

applicant has sustained loss or damage. The applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. In a case like the present, the applicant shows loss by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities.

- [350] [Court cites with approval from Malec]: Unless the chance in so low as to be regarded as speculative - say less than 1 per cent - or so high as to be practically certain – say over 99 per cent – the court will take that chance into account in assessing damages.

Misleading conduct prevented realization of chance of benefit- Here the original Pagini contract would on the balance of probabilities have been entered into, but for the

misleading conduct of Sellars and Poseidon.- This would have created a ‘significant chance’ of its completion, resulting (again on the balance of

probabilities) in significant chances for Adelaide and its directors to dispose of and acquire shares, to obtain payouts and options, and to raise and invest capital.

- These chances were lost as a result of Sellars’ misleading conduct (which induced Adelaide to abandon Pagini and to negotiate with Poseidon).

Damages were recoverable although chance of completion less than 50%- Because there would have been only a 40% chance of completion of the contract because of the contingent

conditions, damages were recoverable for 40% of the value of the specified benefits.

Baltic Shipping Co v Dillon HCA 1993FACTS:

- Dillon was taking a pleasure cruise on BSC’s ship.- Ship sank on the 10th day of a 14 day holiday cruise. - Dillon pursued a breach of contract action (a negligence action was abandoned). In it, he claimed for damages

for ‘disappointment and distress’- At trial damages were awarded on the following basis:Damages for breach of contract1. Loss of personal property ($4,265)2. Personal injury [emotional trauma] ($35,000)3. ‘Disappointment and distress’ ($5,000)Restitution:4. Restitution for balance of fare ($1,417) [HC refuses because restitution is only available if there is a ‘total

failure of consideration’; further reason for refusing is that there is double compensation: damages for distress represent the missing enjoyment because of the sinking of the ship. Restitution of the fare gives double compensation (ie. in order to get enjoyment, would have had to pay fare)].

- Only 3 and 4 challenged on appeal.RESULT:7:0 Dillon was entitled $5000 to damages for distress and disappointment. BUTDillon was not entitled to restitution of the balance of the fare.LEGAL IMPORTANCE:

- In general, disappointment and distress is too remote. Pragmatic rather than logical rule. (But note that if it is in the reasonable contemplation of the parties that there will be distress and disappointment). Policy reasons to limit the recovery of damages.

- But exceptions:o Breach of promise of marriage [no longer available in Australia]o Distress caused by physical injury or inconvenience caused by breach;o Distress caused by breach of an express or implied promise to provide pleasure, entertainment or

relaxation or to prevent molestation or vexation.- The last exception is the premise on which the courts allow the plaintiffs to recover damages in this case. Here,

Baltic had impliedly promised to provide pleasure. [Also caused physical injury and inconvenience, surely.]

Bellgrove v Eldridge HCA 1954FACTS:

- Bellgrove builds a house for Eldridge on her land. - The contract specified that all concrete used should contain certain proportions of metal, sand and cement. - But B used concrete that did not at all conform to these requirements- As a result, the house is unstable. - Eldridge claims damages of $4950 comprising the cost of demolition and re-erection.- Bellgrove argues that building could still have been resold, thus damages should be the difference between the

value ‘as is’ and the value which it would have had if built to specifications.RESULT:3: 0 Eldridge entitled to the cost of rectification.LEGAL IMPORTANCE:

- Court held that the normal measure (eg. sale of goods) is prima facie the difference between market value and hypothetical performance value.

- However E contracted for a house built on her land in conformity with the specifications. Thus the loss here not simply that of a marketable commodity [Perhaps different if built for a commercial developer?] therefore damages could only be measured by the cost of rectification. In this case, the foundations were dodgy so rectification involved demolition and reconstruction of the house.

- BUT, the principle is qualified: rectification must be reasonable (eg. If E had required second hand bricks and the builder installed new bricks, which were actually worth more, it would not be reasonable to require rectification). Can’t make trivial, irrational objections.

- But:c. Just b/c rectification is economically wasteful does not necessarily mean that it is unreasonable (eg

some eco waste here but not unreasonable)d. That Eldridge might pocket the damages and sell the house was immaterial.

Alexander v Cambridge Credit Corporation Ltd NSWCA 1987FACTS:

- In 1971 Alexander (auditors) prepared incorrect reports for CCC.- The trial judge found that correct reports had been prepared and thus the truth had been known the trustee

would have appointed a receiver forthwith. - Instead Cambridge continued to trade at a loss until liquidated in 1974. - Cambridge sued the auditors for breach of contract, claiming as damages the total loss accumulated by the

company after 1971. [In 1971 Cambridge’s liabilities exceeded assets by $10m. By 1974 the shortfall was $155m. Thus trial judge awarded the difference, $145m, as damages]

- The trial judge awarded the damages claimed on the footing that the incorrect report was a but for cause of the loss, therefore causation was established.

RESULT:Held: appeal allowed (2:1).1 Causation. The loss sued for was not caused by the breach(a) Not ‘commonsense’ causation (McHugh, Mahoney)

(b) There had been a novus actus interveniens (McHugh)2 Remoteness. The loss was too remote (McHugh)3 Mitigation?LEGAL IMPORTANCE:

Causation in general1. The inquiry is not scientific or philosophical but commonsense.2. It is not necessary to show dominant, efficient or real cause. It is enough if the breach is ‘a’ cause.3. McHugh and Glass: but-for test is applied according to commonsense and policy. (Mahoney rejects but-for test.)4. McHugh and Mahoney: not commonsense to say that the company’s position deteriorated because it continued to exist. Glass JA dissenting: it is commonsense.

McHugh J:- The causative effect of the 1971 audit was soon spent, as it was followed by further audits and reports.- Cambridge did not suffer a single loss. There were independent causal chains leading to separate losses eg

flooding in Queensland.Novus actus interveniens- McHugh and Glass: an intervening act or event breaks the causal link if it is ‘in a practical sense’ the only

cause of the loss - unless it should have been foreseen as a serious possibility.- McHugh: The package of economic factors, starting with an expansionary budget in 1972 leading to rapidly

rising interest rates in 1973 and the collapse of land prices in 1974, together with the decisions of the directors of Cambridge to increase its borrowings and investment in real estate constituted, a novus actus interveniens.

- Glass (diss): The auditor’s breach remained a cause but for which the loss could not have occurred.Remoteness- Reg Glass v Rivers (1968): The loss must be ‘when the contract was made, reasonable foreseeable as likely to

result from such a breach’. Wenham v Ella (1972), Burns v MAN (1986), Alexander (1987) ‘on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss flowed naturally from the breach or that loss of that kind should have been within his contemplation’ (Hadley v Baxendale)

- McHugh: the 1974 economic situation could not have been in contemplation. - Glass (diss): there was a serious possibility. Auditors of land development companies should reasonably

contemplate that a boom will be followed by a slump.

Burns v MAN Automotive (Aust) Pty Ltd HCA 1986FACTS:

- MAN (supplier of truck) falsely warrants to Burns (driver) that engine has been fully reconditioned. Burns hire-purchases the truck.

- MAN knows that truck will be used for interstate haulage. - For one year Burns tries the truck, but truck proves unsuitable for interstate haulage; - Instead Burns attempts intra-state haulage, but also breaks down; - Burns can’t make repayments and truck is repossessed. - Burns sues MAN for breach of contract. Trial judge awards $220,000: Profits from interstate haulage for life of engine as warranted [4 years] Losses incurred in intrastate haulage $2000 for nervous stress

RESULT:- Full Court and High Court (4:1) award $70,000:

LEGAL IMPORTANCE:1. No damages for nervous stress: causation not proved. Stress didn’t manifest for some years after the contract.

Given the gap in time, can’t prove that nervous stress is due to failure of the truck to operate.2. Reconditioning cost + loss of profit for 1 year only, rest too remote. The losses beyond one year were not

within the reasonable contemplation of the parties: not in reasonable contemplation that he would keep trying to use the truck; he should have stopped. (But he depends on the truck for his livelihood: how can we expect him to stop?)

3. No losses from intrastate haulage: too remote.4. Gibbs: not reconditioning was not a failure to mitigate (due to B’s impecuniosity), but not stopping in Nov

1979 was failure to mitigate (hence intrastate losses not recoverable). 5. Brennan (dissenting): neither was a failure to mitigate (impecuniosity).Overlap of causation, remoteness and mitigationBrennan (dissenting):

- Causation: Burns’ decision to continue operations by engaging in intra-state haulage was not a novus actus which destroyed the chain of causation, as the breach caused or contributed to Burns' impecuniosity which led him to make this choice.

- Remoteness : Losses incurred in intra-state haulage were also not too remote. ‘Foreseeability extends until it would be unreasonable to fail to act to mitigate.’

- Mitigation: The onus is on the contract breaker to show failure to mitigate. MAN had to show Burns acted unreasonably in engaging in intrastate haulage. Reasonableness must be assessed in light of the party's actual financial situation. Here, given his impecuniosity, which precluded him from reconditioning the engine, or terminating the h-p agreement (which would leave him with a debt), it was not unreasonable for Burns to act as he did.

Esanda Finance Corp Ltd v Plessnig HCA 1989FACTS:

- Esanda lends $44,000 to Plessnig to buy a second-hand truck (hire-purchase contract)- Repayment by 36 monthly installments [total $67,640]- Plessnig pays installments for 14 months [total $24,900] [outstanding: 32,740]- 4 successive non-payments- Esanda terminates under clause 5, repossesses truck, sells it for $27,000- Esanda claims $13,000 from Plessnig under clause 6:Total instalments payable 67,640Plus repossession costs: 70 ____ 67,710MinusInstalments paid 24,900Sale proceeds 27,000Rebate 6,520 _______58,410Amount of loss 9,300Plus interest 3,700TOTAL 13,000- Effect of clause 6- Esanda’s receipts after 16 months (on loan of $44,000):Instalments paid 25,000Sale of truck 27,000Amount due under clause 13,000Minus repossession costs 70Total 64,930Profit 20,930Profit under contract after 3 years: 23,000.

RESULT:- 5:0: not a penalty. E wins

LEGAL IMPORTANCE:- Plessnigs argue that clause 6 was a penalty because:- 1. It could give Esanda a windfall if at the time of termination the truck was worth more than unpaid

installments (it wasn’t here).- 2. It defined value of goods as wholesale value. [Truck worth more than 27,000 retail.]Wilson/Toohey:- An agreed sum is a penalty only if it is ‘extravagant, exorbitant or unconscionable’, ie ‘out of all proportion to

the damage likely to be suffered’, not a ‘genuine pre-estimate’. - ‘There is much to be said for greater latitude’.- Mere possibility of windfall not enough. - (Deane: unjust enrichment may be available.) - Wholesale value reasonable as Esanda not dealer.

EQUITABLE REMEDIES (ERs) Involves r/ship of equity and common law. ERs are designed to serve an ancillary role – used only if damages are not available or are inadequate in

the case. ERs are discretionary; as c/f damages which are available as of right to a P who can establish a breach of

contract. Of course the discretion is guided by equitable rules (not an unfettered discretion). Most relevant remedies to contract are: Specific Performance (SP) (particular to the law of contracts);

injunctions (not confined to contract – this fact has caused difficulty in contract); and equitable damages (statutory remedy, aka Lord Cairns’ Act).

This raises a jurisprudential issue: if ERs are discretionary and auxiliary, can we really say that our law requires the enforcement of contracts OR is it the case that a contract provides a choice to perform or to pay damages – because compelling a party to perform is an auxiliary remedy (OW Holmes). C/f European system where compulsion of performance is the starting point for remedies.

Specific Performance SP is an order to do some ‘definite thing’ that is required for the performance of the contract (eg execution of a

transfer, payment of money, delivery of goods etc). SP is often applied to sale of land contracts, for the simple reason that every piece of land is said to be unique,

thus damages for breach will always be inadequate. If SP is to be granted, the whole contract must be specifically performed – cannot grant specific performance

of some obligations and not others [but under conditionality doctrine can make full SP conditional on other things]: JCW.

Conditionality Orders of SP can be conditional, this is important b/c this is how the remedy can be made more flexible. Conditional decrees can help get around ‘supervision’ issues (eg Dougan). Eg also Fitzgerald v Masters in which Court makes SP conditional on compensation for improvements of the

land. Need to be able to make a decree that takes into account various factors that may have changed since the breach etc.

Prerequisites CONSIDERATION The effect of this prerequisite is that equity will not enforce gratuitous contracts enforced in a deed. Equity

won’t come to the aid of a volunteer to enforce a contract.. INADEQUACY OR UNAVAILABILITY OF DAMAGES SP will be precluded in most cases b/c an award of damages would be adequate. However, this is not always

the case. ‘The Court gives SP instead of damages only when it can by that means do more perfect and complete justice’:

Approved in Dougan. Types of case in which damages are inadequate usually involve goods or services that are ‘unique’ or ‘special’

in some way, such that an alternative (or rectification of the existing thing) is not readily available. Sale of land is the obvious example The hypothesis here is that every piece of land is unique, so to give

damages fails to honour the uniqueness of the land (ie buyer wants that particular piece of land). Dougan: Not really sale of a car, but the sale of a business; taxi has a special value b/c it includes license and

registration. [Note it didn’t matter that the purchasers had actually managed to buy another taxi. That particular taxi still had special value] order of SP granted.

Curro: exclusivity agreement for personal services – damages are entirely inappropriate b/c what is wanted is the exclusive thing. [However SP is often precluded in personal services cases (see below).]

JC Williamson: In this case a purely oral agreement was not enforceable due to the old Statute of Frauds requirement contracts lasting more than 1 year be in writing. So damages not available. But doctrine of part performance. Question of whether other remedies available where damages are not so much inadequate, but unavailable. Court says yes, unavailability is a basis for invocation of the equitable jurisdiction.

Damages will also provide an inadequate remedy to enforce a contract that confers a benefit on a third party (privity), so SP will be granted, even if the relevant obligation is simply to pay money: Coulls

Discretionary Factors (DFs) The following DFs must be taken into account by the court in determining whether it should exercise its

discretion to grant SP:

MUTUALITY

Most fundamental DF. P will not be able to get SP unless the other party can get SP. So must ask whether D could get SP from P (ie look for elements of personal service or difficulty of supervision). Unless both partis could get SP from each other there will be an inclination not to award SP.

This is so b/c it would be unfair to decree SP against D where the Court could not ensure performance of D’s obligations.

Note that mutuality can also work positively in P’s favour: if D would have been entitled to a grant of SP, P should also be entitled to such a grant notwithstanding that damages are an adequate remedy for P.

JC Williamson: Sweet vendor has to show an entitlement as to SP (to get Eq damages). Held that he has no such entitlement b/c theatre owner could not have got SP from the sweet seller (due to supervision factor). Thus application of supervision occurs within the context of a mutuality argument. Indeed all of the other DFs are applicable to, and must be considered in relation to, both parties.

Dougan: Seller (D) argues no mutuality b/c couldn’t have got SP against purchaser due to supervision, as purchaser has to go and apply for a transfer, satisfy the Commissioner of Transport that he is a fit and proper person etc. But Court says can get around this by conditional SP.

Curro: Curro relies on no mutuality b/c of supervision requirement, said she couldn’t enforce the contract against the production company b/c that would require supervision. But this fails, as is only a discretionary factor to be weighed with all the others.

DELAY (AKA ‘LACHES’) Whether P has delayed in seeking relief. Court considers whether the delay has caused disadvantage to D that cannot be compensated. Fitzgerald: V says P waited too long. Court addresses this at some length. Dixon/Fullagar say that the delay

can be ignored b/c it hasn’t worked to the prejudice of the V; on the contrary it has advantaged the vendor as he has maintained sole possession during the whole time in which P was entitled to share it. Improvements can be accounted for by conditional SP. (Other judges say this is normally sort of case in which delay relevant, but the Moratorium Acts had the effect of putting the contract on hold, so Rupe didn’t have to pay anymore therefore he hasn’t delayed).

BREACH BY P Whether P himself is in breach of the contract. This analogous to the R&W principle and is an illustration of the maxim ‘he comes to equity must do so with

clean hands’. This as an important factor in considering whether to grant SP, HOWEVER it will not necessarily preclude a P

from being granted SP. Fitzgerald: Purchaser supposed to have paid off the land in 5 years, but had not paid it off. Normally this

would disentitle P from being granted SP, but in this case, V actually requested him to stop paying and never countermanded that request. So Court said that although there was a technical breach, it did not let it guide their discretion b/c of the circumstances.

READINESS AND WILLINGNESS Whether P himself is ready, willing and able to perform all of his obligations.HARDSHIP Whether requiring D to actually perform his obligations is just too harsh to D. D can simply argue that SP simply too harsh. Suttor (subject to approval of Treasurer case) Argues that if he goes through with it he will have to pay too

much tax. Court says hardship is potentially available as a ground, but there must be some element of unconscionability on part of the other party linked to the hardship. (But even though there was unconscionability in this case, court says can’t rely on it in HCA b/c didn’t bring it up in the court below).

Meriton: Green-ban case. Brought by V for SP. Linked to the frustration issue; court held not an issue of hardship.

MISTAKE OR MISREPRESENTATION Court may refuse SP if D entered into the contract on the basis of mistake or misrep, even where such a

mistake or misrep was not such as to justify rescission. Taylor (?): Mrs J says not enforceable on the basis of mistake. What if court held that it was a valid contract?

Mistake could still be raised at the remedial level, Mrs J could argue that should not be required to give SP on the basis of mistake (but we don’t know whether would have succeeded)

IMPOSSIBILITY If the obligation simply can’t be performed, Court may refuse to grant it.ILLEGALITY If performance involves some illegal act, court can take into account when deciding whether to order SP.FUTILITY

A label applied to a rag-bag of cases where simply futile to perform. Eg Group Projects; could also argue that the undertaking is worth nothing b/c undertaking involves large element of discretion, or heavily conditional etc. Court may simply say it is pointless to order SP.

SUPERVISION (& PERSONAL SERVICES) Whether the performance is of such a nature that the continued supervision of the Court would be required in

order to ensure SP. Most commonly cited example here is personal services (eg employment contracts; partnership etc). It is

considered both undesirable for a court to force a person to perform such a contract and practically impossible to enforce b/c involves continuing acts on both sides and cooperation.

Look at the type of acts that are alleged to require onerous supervision. Are they merely simple and definite acts, easily capable of supervision (Williams J in Dougan)? Or are they more complex and onerous?

Dougan: Seller (D) argues no mutuality b/c couldn’t have got SP against purchaser due to supervision, as purchaser has to go and apply for a transfer, satisfy the Commissioner of Transport that he is a fit and proper person etc. But Court says can get around this by conditional SP. Williams J simply said supervision not required b/c acts required here were simple and definite (Fred agrees with this).

Curro: BP could not rely on SP as this was a contract for personal services, thus supervision not possible. Therefore relies on injunction to restrain her breach of the negative obligation.

JC Williamson: Argument that performance by sweets vendor requires acts that require supervision (a bit odd that this was a successful supervision argument, nonetheless, it is the basis of the court’s finding here).

Suttor: Like personal services?Injunctions

An injunction is an order of the Court forbidding or commanding the performance of an act. Whereas SP can only be granted to ensure compliance with the whole contract, an injunction can be granted to

ensure compliance with a particular term. Injunctions are generally granted to restrain breaches of negative stipulations in contracts; eg undertakings not

to do something. Courts are reluctant to grant injunctions requiring compliance with positive obligations as this would be

tantamount to an order of SP for a term. The distinction b/w positive/negative obligations is not unproblematic: all obligations can be put in terms of

positive and negative light eg to perform and not to breach. However an obligation will be generally considered as negative obligation if inactivity would constitute compliance.

Inadequacy of damages is not a strict requirement here, but is taken into consideration. Court will usually consider whether it would be just to confine P to a remedy of damages.

The discretionary factors relating to injunctions are basically the same as those for SP (above).PERSONAL SERVICES AND FORCED PERFORMANCE As SP is not generally available for contracts of personal services, the only possible relief other than damages

is an injunction forbidding the service-provider from performing his/her services elsewhere. However, courts are confronted with a dilemma: they cannot force the provision of the services by decreeing

SP, yet at the same time if they were to grant an injunction as is normally done in situations of negative obligations, their actions would be tantamount to forcing the provider to perform the services under the contract.

The issue is resolved by applying the rule in Lumley v Wagner (Opera singer restricted by contract from performing in any other theatre): courts have the power to forbid the infringement of the negative stipulation in a contract for ‘special’ personal services (eg celebrities, musicians). It is said that in these circumstances, despite being precluded from performing elsewhere by an injunction, the performer will usually have the option of earning a living in some other way, thus s/he is not ‘compelled’ to specifically perform the original contract if an injunction is ordered.

The exception to the rule in Lumley v Wagner is that: where the injunction forbidding the service provider from performing elsewhere results in them being positively compelled to complete their initial contract or starve, then the injunction will not be granted (eg in Lumley the opera singer had no other option than to go back to her original employer). [Basically, this whole area is ridiculous].

In Curro, Court holds that this was a contract for ‘special services’ (TV star), thus according to the rule in Lumley v Wagner, the court has the power to forbid the breach of a negative undertaking not to act as a TV presenter anywhere else by awarding an injunction restraining such a breach. Such a result would obviously encourage C to perform her contract fully with BP, however it did not amount to ‘compelling’ her to do so, as this was not a case where she had no other option than to act as a TV presenter for BP, she could have earned a living via other means.

Court in Curro also noted also that the injunctions would only operate for a very short period, and that C’s breach was ‘flagrant and opportunistic’.

Equitable Damages Statutory form of damages; ancillary to the award of SP and injunctions. Section 38 of the Supreme Court Act 1986 (Vic): if Court has jurisdiction to entertain an application for

injunction or SP, it may award damages in addition to or in substitution of an injunction or SP. Seems to refer to the prerequisites – if court has the RIGHT to exercise a discretion then it can instead award

damages. However the words have not been interpreted in this way by the HCA. Instead the court says must show not just that there was jurisdiction but also have to show that the award of SP or injunction would (or could?) have been awarded; there must not be any discretionary factors that preclude the award. Hence the argument of all of the issues in JC Willaimson.

However there have been a number of Sup Ct cases since this that hold that need only show that the prerequisites have been met – jurisdiction of equity to grant discretion must be established but that is all. Case most relied on for this interpretation: Madden v Kevareski (NSW SC). So some doubt now about what is meant by the words of the section.

Situations in which EDs could be awarded include where SP or injunction have been refused on some discretionary ground, or where it is more convenient to award damages rather than specific relief, or where it is necessary to award some damages in addition to specific relief.

Some discretionary grounds for refusing relief will also result in a refusal to award EDs, eg where P himself is in breach or is not R&W to perform himself.

However other discretionary obstacles to specific relief, eg hardship/delay will not preclude an award of EDs Obviously the provisions are most important where damages are not recoverable at common law (eg due to

statute of frauds) and SP has been refused due to discretionary factors. Most judges have agreed that damages here are awarded on the same compensatory basis as contract damages

at common law (eg expectation-based compensation).

CASES: EQUITABLE REMEDIESDougan v Ley HCA 1946FACTS:

- The parties contracted for the sale of Dougan’s taxi to Ley for $1850.- L sued D for SP of the contract of sale (ie transfer to him of the taxi).- Taxis were tightly regulated by legislation that limited their total number and the number of transfers.- Transfers were subject to approval by the Transport Commissioner; thus L would have been required to apply for

the transfer and to prove himself an able driver etc.- Despite the short supply of taxis, just before the hearing of the action L was able to purchase another taxi for $1900.- The trial judge awarded SP, ordering D to do everything necessary to allow the transfer of the registration and

license and to deliver the cab if the transfer was approved.RESULT:

- Appeal by D dismissed. SP grantedLEGAL IMPORTANCE:

- D argued that damages should have been awarded b/c (1) were available; (2) was wanting in mutuality because L’s act in having transfer approved required supervision

- Equity will decree SP where the performance (eg goods) is/are unique/special/peculiar.- Equity can also protect persons who have interests in licenses and also where the goods are necessary for P to carry

on business.- In this case the taxi was special b/c it contained both these elements. It was not merely a car, but a valuable privilege

annexed to a car; a business. Indeed the greater part of the consideration was for the licensing and registration rather than the vehicle itself – these were unique and rare commodities

- As to mutuality/supervision: Court made order of SP conditional on the granting of the transfer by the Commissioner. Once transfer granted, D obliged by SP to transfer the cab – no supervision required.

- Williams J simply said that supervision is not required b/c the acts required here were simple and definite, easily capable of supervision by the Court [thus arguably some supervision is OK if acts are easily definable and simple].

- The fact that L had managed to buy another taxi was irrelevant, they were entitled to buy more taxis for their business without prejudice to the original contract.

JC Williamson Ltd v Lukey and Mullholland HCA 1931FACTS:

- JCW owned a theatre and an adjacent sweet stall. The original lessee of the sweet stall was Divoli.

- Ps made an oral contract with JCW whereby they agreed to take over the existing lease of the sweet shop from Divoli, and then after the lease expired to lease the ship for a further 5 years from JCW. During this time Ps were to have the exclusive right to sell sweets in the theatre.

- Ps took over the lease in 1927 and upon expiry took a further 5 year lease. For 3 years Ps sold sweets in the theatre.- However in 1930 JCW awarded the exclusive right of selling sweets to another party, claiming that no fixed period

had been agreed b/w the plaintiffs.- Ps sought a declaration that they had the exclusive right to sell sweets and SP of the contract granting that right as

well as an injunction preventing JCW from stopping them exercise their right.- JCW claimed that the contract was unenforceable due to the Statute of Frauds, which required contracts for greater

than one year’s duration to be in writing.- However the Statute only bars common law remedies. P is still capable of receiving an equitable remedy if he has

partly performed the contract, thus trial Juge held that this oral contract was enforceable b/c there had been part performance.

- Trial judge awarded damages but not SP or injunction; JCW appealed. RESULT:

5:0 Appeal by JCW allowed.LEGAL IMPORTANCE:

Specific Performance - Court accepts the argument by JCW that performance by sweets vendor requires acts that require supervision,

therefore SP barred for want of mutuality.- Held that both the acts of the Ps (selling sweets as required) and the acts of JCW (enforcing the exclusivity

agreement) required constant supervision of the Court, therefore SP is barred.- Also applied the rule that if SP is to be granted, the whole contract must be specifically performed – cannot grant

specific performance of some obligations and not others [but under conditionality doctrine can make full SP conditional on other things]

Injunctions - Ps also sought an injunction to restrain JCW from allowing anyone else to sell sweets in the theatre.- Although there has been part performance as Ps had been selling for three years, Dixon says all that tells us is that

he had a right to sell; does not establish that there was a negative duty to exclude all others from selling. So really a construction issue – Court not satisfied that the contract contained the alleged negative duty, therefore unprepared to order to the injunction.

- Moreover, even if there was such an exclusivity agreement, can’t order the injunction restraining breach of a negative duty here as this would require the positive and negative duties to be separated. However they cannot be so separated – can’t have one without the other. [I think this is what they are saying].

Curro v Beyond Productions Pty Ltd NSWCA 1993FACTS:

- BP was the producer of the TV series ‘Beyond 2000’ on channel 7, on which Curro was the main presenter.- BP sued C to restrain her from working for a competitor, Channel 9.- Beyond relied on two contracts made in August 1991: a ‘service agreement’ made with C herself, and a ‘services

agreement’ made with her and her company, Talking Heads, jointly.- The agreements required that C work exclusively for BP for the duration of the contracts (binding until August

1993)- In Jan 1993 Curro advised BP that she had been offered a job as a reporter for Channel 9 and that she wished to

accept the offer. Two weeks later she signed a contract with Ch 9.- BP then bought this action seeking an injunction restraining C from working for Ch 9

RESULT:Appeal by Curro dismissed.

LEGAL IMPORTANCE:- Court holds that this was a contract for ‘special services’ (TV star), thus according to the rule in Lumley v Wagner,

the court has the power to forbid the breach of a negative undertaking not to act as a TV presenter anywhere else by awarding an injunction restraining such a breach.

- Such a result would obviously encourage C to perform her contract fully with BP, however it did not amount to ‘compelling’ her to do so, as this was not a case where she had no other option than to act as a TV presenter for BP, she could have earned a living via other means.

- Court noted also that the injunctions would only operate for a very short period, and that C’s breach was ‘flagrant and opportunistic’.