Contract Law Casebook [3 ed.] 0190304766, 9780190304768

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Table of contents :
TABLE OF CONTENTS
Table of Cases
Table of Statutes
Preface
Acknowledgments
PART 1: OVERVIEW
CHAPTER 1: INTRODUCTION
The development of Australian contract law
Recognition of the writ of assumpsit
Slade’s Case
Requirement of consideration
Rann v Hughes
Eastwood v Kenyon
Equitable estoppel
Potential reform
Questions for reflection
CHAPTER 2: NEGOTIATION
Introduction
Elements of negotiation
Bargaining strategies
‘Don’t Bargain Over Positions’
Phases of negotiation
‘The Transaction’
Questions for reflection
PART 2: FORMATION
CHAPTER 3: AGREEMENT
Introduction
Offer
Defining an offer
Carlill v Carbolic Smoke Ball Company
Electronic Transactions (Victoria) Act 2000 (Vic), s 14B
Categorising transactions
Harvey v Facey
Smythe v Thomas
Communication of an offer
Termination of an offer
Dickinson v Dodds
Acceptance
Offeree must accept terms of offer
Crown v Clarke
Hyde v Wrench
Stephenson, Jaques, & Co v McLean
Acceptance must be communicated to offeror
Carlill v Carbolic Smoke Ball Company
Henthorn v Fraser
Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd
Electronic Transactions (Victoria) Act 2000 (Vic), s 13A
Electronic Transactions (Victoria) Act 2000 (Vic), s 14E
Questions for reflection
CHAPTER 4: CERTAINTY AND COMPLETENESS
Introduction
Ambiguity and uncertainty
Whitlock v Brew
Incomplete agreements
United Group Rail Services Ltd v Rail Corporation of New South Wales
Godecke v Kirwan
‘Subject to contract’
Masters v Cameron
Questions for reflection
CHAPTER 5: INTENTION TO CREATE LEGAL RELATIONS
Introduction
Modern approach
Ermogenous v Greek Orthodox Community of SA Inc
Government activities
Circumstances indicating absence of intention
Questions for reflection
CHAPTER 6: CONSIDERATION
Introduction
Rules governing consideration
Consideration must move from the promisee
Coulls v Bagot’s Executor and Trustee Company Ltd
Consideration: specific examples
Performance of an existing contractual duty
Stilk v Myrick
Williams v Roffey Bros & Nicholls (Contractors) Ltd
Musumeci v Winadell Pty Ltd
Bargained-for conduct already performed
Pau On v Lau Yiu Long
Questions for reflection
CHAPTER 7: EQUITABLE ESTOPPEL
Introduction
Recognition of equitable estoppel
Waltons Stores (Interstate) Ltd v Maher
Relevant remedy
Commonwealth v Verwayen
Giumelli v Giumelli
Questions for reflection
PART 3: CONTENT
CHAPTER 8: TERMS I: ESTABLISHING CONTRACTUAL TERMS
Introduction
Incorporating written terms
Incorporation by signature
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd
Incorporation by notice—unsigned documents and signs
Incorporation by notice—website
Incorporation by reference
Incorporating oral terms
Oscar Chess Ltd v Williams
JJ Savage & Sons Pty Ltd v Blakney
Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd
Implied terms reflecting the intention of the parties
Term implied on the basis of business efficacy
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales
Term implied from a previous consistent course of dealings between the parties
Term implied from custom or usage
Term implied to complete agreement
Terms implied regardless of intention
Term implying duties of good faith, fair dealing and reasonableness
Renard Constructions (ME) Pty Ltd v Minister for Public Works
Vodafone Pacific Ltd v Mobile Innovations Ltd
Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL
Questions for reflection
CHAPTER 9: TERMS II: CONSTRUCTION OF TERMS
Introduction
Interpreting the meaning of terms
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales
Franklins Pty Ltd v Metcash Trading Pty Ltd
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd
Legal effect of words: types of terms
Associated Newspapers Ltd v Bancks
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd
Darlington Futures Ltd v Delco Australia Ltd
Council of The City of Sydney v West
Questions for reflection
PART 4: LIMITS ON ENFORCEMENT OF CONTRACTS
CHAPTER 10: CAPACITY
Introduction
Minors
Common law
Nash v Inman
Contracts of employment and apprenticeship
De Francesco v Barnum
Contracts that are binding unless repudiated
Steinberg v Scala (Leeds) Ltd
Legislation
Supreme Court Act 1986 (Vic), s 49
Supreme Court Act 1986 (Vic), s 50
Supreme Court Act 1986 (Vic), s 51
Minors Contracts (Miscellaneous Provisions) Act 1979 (SA), s 4
Minors Contracts (Miscellaneous Provisions) Act 1979 (SA), s 5
Minors Contracts (Miscellaneous Provisions) Act 1979 (SA), s 6
Minors Contracts (Miscellaneous Provisions) Act 1979 (SA), s 7
Minors Contracts (Miscellaneous Provisions) Act 1979 (SA), s 8
Minors (Property and Contracts) Act 1970 (NSW), s 19
Minors (Property and Contracts) Act 1970 (NSW), s 20
Minors (Property and Contracts) Act 1970 (NSW), s 23
Minors (Property and Contracts) Act 1970 (NSW), s 24
Minors (Property and Contracts) Act 1970 (NSW), s 26
Minors (Property and Contracts) Act 1970 (NSW), s 27
Minors (Property and Contracts) Act 1970 (NSW), s 28
Minors (Property and Contracts) Act 1970 (NSW), s 29
Minors (Property and Contracts) Act 1970 (NSW), s 30
Minors (Property and Contracts) Act 1970 (NSW), s 31
Minors (Property and Contracts) Act 1970 (NSW), s 33
Minors (Property and Contracts) Act 1970 (NSW), s 34
Minors (Property and Contracts) Act 1970 (NSW), s 36
Minors (Property and Contracts) Act 1970 (NSW), s 37
Mental incapacity
Gibbons v Wright
Queensland
Guardianship and Administration Act 2000 (Qld), s 12
Other Australian jurisdictions
Governments and the Crown
New South Wales v Bardolph
Questions for reflection
CHAPTER 11: FORMALITIES
Introduction
Nature of a guarantee
Yeoman Credit Ltd v Latter
Harvey v Edwards, Dunlop & Co Ltd
Statutory requirement of writing—guarantees
Property Law Act 1974 (Qld), s 56
Nature of land contract needing writing
Powercell Pty Ltd v Cuzeno Pty Ltd
Statutory requirement of writing—land contracts
Property Law Act 1974 (Qld), s 59
Content of writing—general
Pirie v Saunders
Acknowledgement of agreement
Signed by party to be charged or agent
Durrell v Evans
Joinder of documents
Harvey v Edwards, Dunlop & Co Ltd
Fauzi Elias v George Sahely and Co (Barbados) Ltd
Todrell Pty Ltd v Finch
Adequacy of electronic ‘writing’ and ‘signature’
Writing
Electronic Transactions (Victoria) Act 2000 (Vic), s 8
Instruments Act 1958 (Vic), s 129
Signature
Electronic Transactions (Victoria) Act 2000 (Vic), s 9
Effect of statutory non-compliance: common law
Effect of statutory non-compliance: equity
Doctrine of part-performance
Regent v Millett
Estoppel
Powercell Pty Ltd v Cuzeno Pty Ltd
Variation and termination of contract
Electronic Industries Ltd v David Jones Ltd
Questions for reflection
CHAPTER 12: PRIVITY
Introduction
Statutory abrogation of privity
Western Australia
Property Law Act 1969 (WA), s 11
Queensland and Northern Territory
Property Law Act 1974 (Qld), s 55
So-called ‘exceptions’
Trident General Insurance Co Ltd v McNiece Bros Proprietary Ltd
New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (The Eurymedon)
Questions for reflection
PART 5: VITIATING FACTORS
CHAPTER 13: MISREPRESENTATION AND MISLEADING OR DECEPTIVE CONDUCT
Introduction
Elements of misrepresentation
False statement of past or present fact
Edgington v Fitzmaurice
Bisset v Wilkinson
Dimmock v Hallett
Reliance
Gould v Vaggelas
Types of misrepresentation
Innocent misrepresentation
Fraudulent misrepresentation
Derry v Peek
Negligent misrepresentation
Shaddock & Associates v Parramatta City Council
Rescission
Alati v Kruger
Misleading or deceptive conduct
Overview
Elements
Concrete Constructions (NSW) Pty Ltd v Nelson
Campomar Sociedad Limitada v Nike International Ltd
Downey v Carlson Hotels Asia Pacific Pty Ltd
The appropriate level of analysis
Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd
Australian Consumer Law, s 4
Bennett v Elysium Noosa Pty Ltd (in liq)
Remedies for a contravention of s 18
Damages
Henville v Walker
Reduction of damages for failure to take reasonable care
Competition and Consumer Act 2010 (Cth), s 137B
Apportionment of loss between wrongdoers
Competition and Consumer Act 2010 (Cth), ss 87CB-87CC
Rescission
Tenji v Henneberry & Associates Pty Ltd
Exclusion of misleading conduct
Downey v Carlson Hotels Asia Pacific Pty Ltd
Butcher v Lachlan Elder Realty Pty Ltd
Questions for reflection
CHAPTER 14: MISTAKE
Introduction
Common mistake
McRae v Commonwealth Disposals Commission
Solle v Butcher
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The Great Peace)
Mutual mistake
Unilateral mistake
Taylor v Johnson
Mistaken identity
Lewis v Averay
Mistake as to the nature of the contract (‘non est factum’)
Petelin v Cullen
Questions for reflection
CHAPTER 15: DURESS
Introduction
Types of duress
Barton v Armstrong
Australia and New Zealand Banking Group Ltd v Karam
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (The Atlantic Baron)
Statute
Questions for reflection
CHAPTER 16: UNDUE INFLUENCE
Introduction
Classes of undue influence
Khan v Khan
Johnson v Buttress
Undue influence and third party sureties
Garcia v National Australia Bank
Questions for reflection
CHAPTER 17: UNCONSCIONABLE CONDUCT
Introduction
Unconscionable conduct in equity
Commercial Bank of Australia v Amadio
Louth v Diprose
Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd
Kakavas v Crown Melbourne Ltd
Statute
Australian Consumer Law
Australian Consumer Law, s 20
Australian Consumer Law, s 21
Australian Consumer Law, s 22
Contracts Review Act 1980 (NSW)
Contracts Review Act 1980 (NSW), s 7
Contracts Review Act 1980 (NSW), s 9
West v AGC (Advances) Ltd
Questions for reflection
CHAPTER 18: VOID AND ILLEGAL CONTRACTS
Introduction
Void contracts
Nordenfelt v Maxim-Nordenfelt Guns and Ammunition Co Ltd
Illegal contracts
Illegality by statute
Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd
Equuscorp Pty Ltd v Haxton
Illegality at common law
Wilkinson v Osborne
Effects of illegality
Fitzgerald v FJ Leonhardt Pty Ltd
Severance
Common law
Attwood v Lamont
Goodinson v Goodinson
Statute
Restraints of Trade Act 1976 (NSW), s 4
Competition and Consumer Act 2010 (Cth), s 4L
Questions for reflection
PART 6: DISCHARGE OF THE CONTRACT
CHAPTER 19: DISCHARGE BY PERFORMANCE
Introduction
Types of obligations
Independent obligations
Dependent obligations
Automatic Fire Sprinklers Pty Ltd v Watson
Dependent and concurrent obligations
Recovering the contract price
Divisible contract
Steele v Tardiani
Entire obligations
Cutter v Powell
Obligations requiring substantial performance
Hoenig v Isaacs
Establishing substantial performance
Bolton v Mahadeva
ACN 002 804 702 (Formerly Brooks Building) v McDonald
Partial performance and breach
Connor v Stainton
Quantum meruit as alternative to contract price
Questions for reflection
CHAPTER 20: DISCHARGE BY TERMINATION
Introduction
Common law right of termination
Breach of essential term or intermediate term
Repudiation
Anticipatory breach
Foran v Wight
Examples of repudiation
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd
DTR Nominees Pty Ltd v Mona Homes Pty Ltd
Almond Investors Ltd v Kualitree Nursery Pty Ltd
Termination for delay
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd
When is time essential?
Termination where time not essential
When to give a notice to complete
Louinder v Leis
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd
Election to terminate
Sargent v ASL Developments Ltd
Restrictions on termination
Ready willing and able
Foran v Wight
Terminating party not in breach of contract
Almond Investors Ltd v Kualitree Nursery Pty Ltd
Contractual and statutory restrictions
Effect of discharge of contract
McDonald v Dennys Lascelles Ltd
Questions for reflection
CHAPTER 21: DISCHARGE BY AGREEMENT
Introduction
Variation distinguished from discharge
Morris v Baron & Co
Requirements of writing
Discharge
Variation
Novation
ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue
Abandonment
Fitzgerald v Masters
Questions for reflection
CHAPTER 22: DISCHARGE BY FRUSTRATION
Introduction
Test for frustration
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales
Ocean Tramp Tankers Corporation v V/O Sovfracht (The Eugenia)
National Carriers Ltd v Panalpina (Northern) Ltd
Limits on frustration
Express contractual provision
Claude Neon Ltd v Hardie
Supervening event foreseeable
oOH! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd
Supervening event self-induced
Maritime National Fish Ltd v Ocean Trawlers Ltd
Effect of frustration
Common law
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd
Statute
Frustrated Contracts Act 1978 (NSW), s 7
Frustrated Contracts Act 1978 (NSW), s 8
Frustrated Contracts Act 1978 (NSW), s 10
Frustrated Contracts Act 1978 (NSW), s 11
Frustrated Contracts Act 1978 (NSW), s 12
Frustrated Contracts Act 1978 (NSW), s 13
Frustrated Contracts Act 1978 (NSW), s 15
Frustrated Contracts Act 1959 (Vic), s 3
Frustrated Contracts Act 1988 (SA), s 6
Frustrated Contracts Act 1988 (SA), s 7
Questions for reflection
PART 7: REMEDIES
CHAPTER 23: DAMAGES
Introduction
Commonwealth v Amann Aviation Pty Ltd
Limits on recovery of damages
Causation
Alexander v Cambridge Credit Corp Ltd
Remoteness
First limb of Hadley v Baxendale
Second limb of Hadley v Baxendale
Victoria Laundry (Windor) Ltd v Newman Industries Ltd
Mitigation
Payzu Ltd v Saunders
Assessment of loss and heads of damage
Loss of opportunity
Commonwealth v Amann Aviation Pty Ltd
Rectification of defective work
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd
Mental distress
Baltic Shipping v Dillon
Restrictions on recovery of damages
Termination
Ready willing and able to perform
Foran v Wight
Liquidated damages and penalties
Application of the doctrine of penalties
Andrews v Australia and New Zealand Banking Group Ltd
Penalty or genuine pre-estimate
Paciocco v Australia and New Zealand Banking Group Ltd
Effect of clause being a penalty
Questions for reflection
CHAPTER 24: RESTITUTION
Introduction
Pavey & Matthews Pty Ltd v Paul
Restitution between contracting parties
Termination of contract
Alternative claims
Unjust enrichment
Recovery of money paid
Failure of consideration
Baltic Shipping v Dillon
Money paid under a mistake
David Securities Pty Ltd v Commonwealth Bank of Australia
Illegality
Equuscorp Pty Ltd v Haxton
Claims for services rendered
Services as a benefit
Claim where contract governs payment
Lumbers v W Cook Builders Pty Ltd (in liq)
Ineffective contracts
Pavey & Matthews Pty Ltd v Paul
Partially performed contracts
Steele v Tardiani
Defence—change of position
Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd
Questions for reflection
CHAPTER 25: EQUITABLE REMEDIES
Introduction
Specific performance
JC Williamson Ltd v Lukey and Mulholland
Defences to specific performance
Where the contract was entered as a result of mistake or misrepresentation
Where enforcement would create undue hardship upon the defendant
Fairborne Pty Ltd v Strata Store Noosa Pty Ltd
Where the plaintiff is in breach of contract or not ready, willing, and able to perform his or her obligations under the contract
Performance of the contract is not possible or would be futile
Where the plaintiff is guilty of laches
That the contract is unenforceable because of informality
Injunction
JC Williamson Ltd v Lukey and Mulholland
Questions for reflection
PART 8: CONSUMER PROTECTION
CHAPTER 26: UNFAIR CONTRACT TERMS
Introduction
Contracts to which unfair terms applies
Consumer contract
Small business contract
Nature of goods and services
Less than twenty employees
Meaning of ‘business’
Limit on upfront price of contract
Standard form contract
Australian Consumer Law, s 27
Application to contracts after commencement
Exempt contracts
Identifying unfair terms
Excluded terms
Office of Fair Trading v Ashbourne Management Services Ltd
Unfair Contract Terms Law: A Guide for Businesses and Legal Practitioners
Australian Consumer Law, s 26(2)
Office of Fair Trading v Foxtons Ltd
Test for an ‘unfair term’
Approach to assessment—whole of contract and transparency
Australian Consumer Law, s 24(2), (3)
Director of Consumer Affairs (Vic) v AAPT
Australian Consumer Law, s 25
Director of Consumer Affairs Victoria v Backloads.com Pty Ltd
Remedies and enforcement
Declaration
Compensation
Injunction
Questions for reflection
CHAPTER 27: CONSUMER GUARANTEES
Introduction
Consumer guarantees relating to the supply of goods
Supply
Goods
Consumers
Trade or commerce
Goods that are not covered
Guarantee as to title—s 51
Australian Consumer Law, s 51(1)
Guarantee as to undisturbed possession—s 52
Guarantee as to undisclosed securities—s 53
Australian Consumer Law, s 53(1)
Guarantee as to acceptable quality—s 54
Australian Consumer Law, s 54(1)
Australian Consumer Law, s 54(2)
Guarantee as to fitness for any disclosed purpose—s 55
Australian Consumer Law, s 55(2)
Guarantee relating to supply of goods by description—s 56
Guarantee relating to supply of goods by way of sample or demonstration model—s 57
Australian Consumer Law, s 57(1)
Guarantee as to repairs and spare parts—s 58
Guarantee as to express warranties—s 59
Australian Consumer Law, s 2
Australian Consumer Law, s 102(3)
Competition and Consumer Regulations 2010 (Cth), r 90
Consumer guarantees relating to the supply of services
Guarantee as to due care and skill—s 60
Guarantee as to reasonable time for supply—s 62
Remedies in relation to goods
A major failure
Australian Consumer Law, s 260
Remedies against suppliers for major failures
Remedies against suppliers for minor failures
Recovery of damages from the supplier for consequential loss
Remedies against manufacturers of goods
Australian Consumer Law, s 271(2)
Australian Consumer Law, s 271(4)
Manufacturers’ liability to indemnify suppliers of goods
Remedies in relation to services
A major failure
Australian Consumer Law, s 268
Remedies for minor failures
Damages for consequential loss
Contracting out of consumer guarantees
Terms that may be void
Limiting liability
Australian Consumer Law, s 64A
Australian Consumer Law, s 64A(4)
Recreational service providers
Proof of transaction
Questions for reflection
Index
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title: BUT_CLC3E_04768_CVR

format: 245mm x 170mm

spine: 38.1mm



New case extracts, including: ●

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd



Kakavas v Crown Melbourne Ltd



Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd



Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd



Paciocco v Australia and New Zealand Banking Group Ltd



oOH! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd







Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd Equuscorp Pty Ltd v Haxton

Questions for reflection updated, helping you get the most from the cases

The fifth edition of Contract Law offers an in-depth examination of Australian contract law and its principles. The expert author team explores contemporary issues in depth and illustrates complex topics with succinct case summaries, improving your legal reasoning and analytical skills while refining your understanding of the law.

SHARON CHRISTENSEN is a Professor in the Faculty of Law at the Queensland University of Technology. New to this edition

■ ■

Fully updated with discussion of recent cases

Explores important decisions handed down, including:







● ●



The High Court decision in Paciocco v Australia and New Zealand Banking Group

The Federal Court decision in Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd

Relevant chapters updated to include:

The application of the electronic transactions legislation across Australia

The expansion of unfair contract terms provisions in the Australian Consumer Law

Incorporates statutory changes since 2013

New to this edition ■

New case extracts, including:



Questions for reflection updated, helping you get the most from the cases

● ●



Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd Kakavas v Crown Melbourne Ltd

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd



Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd



Paciocco v Australia and New Zealand Banking Group Ltd

● ●



oOH! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd

Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd Equuscorp Pty Ltd v Haxton

DES BUTLER is a Professor in the Faculty of Law at the Queensland University of Technology. TITLE: Contract Law

Format: 245mm x 170mm

Spine: TBC (20mm) Colours used: CMYK

The fifth edition of Contract Law offers an in-depth examination of Australian contract law and its principles. The expert author team explores contemporary issues in depth and illustrates complex topics with succinct case summaries, improving your legal reasoning and analytical skills while refining your understanding of the law.

SHARON CHRISTENSEN is a Professor in the Faculty of Law at the Queensland University of Technology. New to this edition ■ ■

Fully updated with discussion of recent cases

Explores important decisions handed down, including: ●



The High Court decision in Paciocco v Australia and New Zealand Banking Group

The Federal Court decision in Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd



Relevant chapters updated to include:



Incorporates statutory changes since 2013

● ●

The application of the electronic transactions legislation across Australia

The expansion of unfair contract terms provisions in the Australian Consumer Law

BILL DIXON is an Associate Professor in the Faculty of Law at the Queensland University of Technology.

CONTRACT LAW

CONTRACT LAW

FIFTH EDITION

LINDY WILLMOTT is a Professor in the Faculty of Law at the Queensland University of Technology.

SHARON CHRISTENSEN is a Professor in the Faculty of Law at the Queensland University of Technology. DES BUTLER is a Professor in the Faculty of Law at the Queensland University of Technology.

CONTRACT LAW

FIFTH EDITION

CASE BOOK

THIRD EDITION

Des Butler Sharon Christensen Bill Dixon Lindy Willmott

Willmott Christensen Butler Dixon

BILL DIXON is an Associate Professor in the Faculty of Law at the Queensland University of Technology.

LINDY WILLMOTT is a Professor in the Faculty of Law at the Queensland University of Technology.

To get the most from this text, read it in conjunction with this author team’s new edition of Contract Law Case Book, which provides access to an expanded selection of primary and secondary materials.

THIRD EDITION

Lindy Willmott Sharon Christensen Des Butler Bill Dixon

ISBN 978-0-19-030475-1

9 780190 304751

visit us at: oup.com.au or contact customer service: [email protected]

WIL_CL5E_04751_CVR_5pp.indd All Pages

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To get the most from this text, read it in conjunction with this author team’s new edition of Contract Law, which provides an in-depth examination of Australian contract law and its principles.

CONTRACT LAW CASE BOOK THIRD EDITION

Des Butler Sharon Christensen Bill Dixon Lindy Willmott

FIFTH EDITION

ISBN 978-0-19-030476-8

9 780190 304768

visit us at: oup.com.au or contact customer service: [email protected]

To get the most from this text, read it in conjunction with this author team’s new edition of Contract Law Case Book, which provides access to an expanded selection of primary and secondary materials.

CONTRACT LAW FIFTH EDITION

Lindy Willmott Sharon Christensen Des Butler Bill Dixon

THIRD EDITION

ISBN 978-0-19-030475-1

9 780190 304751

visit us at: oup.com.au or contact customer service: [email protected]

To get the most from this text, read it in conjunction with this author team’s new edition of Contract Law, which provides an in-depth examination of Australian contract law and its principles.

Butler Christensen Dixon Willmott

LINDY WILLMOTT is a Professor in the Faculty of Law at the Queensland University of Technology.

Willmott Christensen Butler Dixon

BILL DIXON is an Associate Professor in the Faculty of Law at the Queensland University of Technology.

Butler Christensen Dixon Willmott

DES BUTLER is a Professor in the Faculty of Law at the Queensland University of Technology.

CONTRACT LAW

The Contract Law Case Book is a collection of extracts from the most significant cases in Australian contract law. This text has been updated to include new case extracts, commentary, and excerpts from important statutes, enabling you to experience the law through the judges’ own words and to develop your ability to interpret and analyse cases.

SHARON CHRISTENSEN is a Professor in the Faculty of Law at the Queensland University of Technology.

CASE BOOK

BILL DIXON is an Associate Professor in the Faculty of Law at the Queensland University of Technology. LINDY WILLMOTT is a Professor in the Faculty of Law at the Queensland University of Technology.

CONTRACT LAW

DES BUTLER is a Professor in the Faculty of Law at the Queensland University of Technology.

CONTRACT LAW

New to this edition

CASE BOOK

The Contract Law Case Book is a collection of extracts from the most significant cases in Australian contract law. This text has been updated to include new case extracts, commentary, and excerpts from important statutes, enabling you to experience the law through the judges’ own words and to develop your ability to interpret and analyse cases.

CMYK

CONTRACT LAW CASE BOOK THIRD EDITION

Des Butler Sharon Christensen Bill Dixon Lindy Willmott

ISBN 978-0-19-030476-8

9 780190 304768 visit us at: oup.com.au or contact customer service: [email protected]

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CONTRACT LAW CASE BOOK

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CONTRACT LAW CASE BOOK THIRD EDITION

Des Butler Sharon Chirstensen Bill Dixon Lindy Willmott

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1 Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trademark of Oxford University Press in the UK and in certain other countries. Published in Australia by Oxford University Press 253 Normanby Road, South Melbourne, Victoria 3205, Australia © Des Butler, Sharon Christensen, Bill Dixon and Lindy Willmott 2018 The moral rights of the authors have been asserted. First published 2009 Second edition 2013 Third edition 2018 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by licence, or under terms agreed with the appropriate reprographics rights organisation. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above. You must not circulate this work in any other form and you must impose this same condition on any acquirer. National Library of Australia Cataloguing-in-Publication entry Creator: Butler, D. A. (Des A.), author. Title: Contract law case book / Des Butler; Sharon Christensen; Bill Dixon; Lindy Willmott Edition: Third Edition ISBN: 9780190304768 (paperback) Notes: Includes index. Subjects: Contracts--Australia--Cases. Other Creators/Contributors: Christensen, Sharon, 1966- author. Dixon, Bill, author. Willmott, Lindy, author. Reproduction and communication for educational purposes The Australian Copyright Act 1968 (the Act) allows a maximum of one chapter or 10% of the pages of this work, whichever is the greater, to be reproduced and/or communicated by any educational institution for its educational purposes provided that the educational institution (or the body that administers it) has given a remuneration notice to Copyright Agency Limited (CAL) under the Act. For details of the CAL licence for educational institutions contact: Copyright Agency Limited Level 15, 233 Castlereagh Street Sydney NSW 2000 Telephone: (02) 9394 7600 Facsimile: (02) 9394 7601 Email: [email protected] Edited and proofread by Carolyn Leslie, AE Typeset by Newgen KnowledgeWorks Pvt. Ltd., Chennai, India Indexed by Glenda Browne and Jon Jermey Cover image: Shutterstock Printed by Sheck Wah Tong Printing Press Ltd Links to third party websites are provided by Oxford in good faith and for information only. Oxford disclaims any responsibility for the materials contained in any third party website referenced in this work.

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TABLE OF CONTENTS Table of Cases ............................................................................................................................................................xix Table of Statutes.....................................................................................................................................................xxxii Preface.................................................................................................................................................................. xxxviii Acknowledgments.................................................................................................................................................xxxix

PART 1: OVERVIEW ........................................................................ 1 CHAPTER 1: INTRODUCTION ....................................................................................................... 3 The development of Australian contract law .......................................................................................................... 3 Recognition of the writ of assumpsit ................................................................................................................. 3 Slade’s Case ................................................................................................................................................... 4 Requirement of consideration............................................................................................................................. 5 Rann v Hughes ............................................................................................................................................... 5 Eastwood v Kenyon ....................................................................................................................................... 7 Equitable estoppel ................................................................................................................................................ 7 Potential reform .................................................................................................................................................... 8 Questions for reflection ............................................................................................................................................. 9

CHAPTER 2: NEGOTIATION ........................................................................................................ 10 Introduction ............................................................................................................................................................... 10 Elements of negotiation ........................................................................................................................................... 10 Bargaining strategies..................................................................................................................................................11 ‘Don’t Bargain Over Positions’.....................................................................................................................11 Phases of negotiation ............................................................................................................................................... 13 ‘The Transaction’.......................................................................................................................................... 13 Questions for reflection ........................................................................................................................................... 14

PART 2: FORMATION ..................................................................15 CHAPTER 3: AGREEMENT .............................................................................................................17 Introduction ................................................................................................................................................................17 Offer .............................................................................................................................................................................17 Defining an offer ..................................................................................................................................................17 Carlill v Carbolic Smoke Ball Company ..................................................................................................... 18 Electronic Transactions (Victoria) Act 2000 (Vic), s 14B ........................................................................24

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Categorising transactions ..................................................................................................................................25 Harvey v Facey .............................................................................................................................................25 Smythe v Thomas......................................................................................................................................... 27 Communication of an offer ...............................................................................................................................29 Termination of an offer ......................................................................................................................................29 Dickinson v Dodds .......................................................................................................................................29 Acceptance ................................................................................................................................................................. 31 Offeree must accept terms of offer .................................................................................................................32 Crown v Clarke .............................................................................................................................................32 Hyde v Wrench .............................................................................................................................................34 Stephenson, Jaques, & Co v McLean .........................................................................................................35 Acceptance must be communicated to offeror..............................................................................................36 Carlill v Carbolic Smoke Ball Company .....................................................................................................36 Henthorn v Fraser ........................................................................................................................................38 Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd .............................................................................40 Electronic Transactions (Victoria) Act 2000 (Vic), s 13A ........................................................................44 Electronic Transactions (Victoria) Act 2000 (Vic), s 14E ........................................................................46 Questions for reflection ...........................................................................................................................................46

CHAPTER 4: CERTAINTY AND COMPLETENESS ......................................................................47 Introduction ...............................................................................................................................................................47 Ambiguity and uncertainty ......................................................................................................................................47 Whitlock v Brew ...........................................................................................................................................47 Incomplete agreements ...........................................................................................................................................50 United Group Rail Services Ltd v Rail Corporation of New South Wales................................................52 Godecke v Kirwan ........................................................................................................................................59 ‘Subject to contract’ .................................................................................................................................................62 Masters v Cameron ......................................................................................................................................62 Questions for reflection ...........................................................................................................................................64

CHAPTER 5: INTENTION TO CREATE LEGAL RELATIONS......................................................65 Introduction ...............................................................................................................................................................65 Modern approach ......................................................................................................................................................66 Ermogenous v Greek Orthodox Community of SA Inc .............................................................................66 Government activities ..............................................................................................................................................68 Circumstances indicating absence of intention....................................................................................................68 Questions for reflection ...........................................................................................................................................69

CHAPTER 6: CONSIDERATION ...................................................................................................70 Introduction ...............................................................................................................................................................70 Rules governing consideration ................................................................................................................................70 Consideration must move from the promisee .......................................................................................................71 Coulls v Bagot’s Executor and Trustee Company Ltd ................................................................................71 Consideration: specific examples ............................................................................................................................ 72 Performance of an existing contractual duty ........................................................................................................ 74

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Stilk v Myrick ................................................................................................................................................ 74 Williams v Roffey Bros & Nicholls (Contractors) Ltd ............................................................................... 75 Musumeci v Winadell Pty Ltd ..................................................................................................................... 77 Bargained-for conduct already performed ............................................................................................................86 Pau On v Lau Yiu Long .................................................................................................................................86 Questions for reflection ...........................................................................................................................................88

CHAPTER 7: EQUITABLE ESTOPPEL ...........................................................................................89 Introduction ...............................................................................................................................................................89 Recognition of equitable estoppel ..........................................................................................................................89 Waltons Stores (Interstate) Ltd v Maher ...................................................................................................89 Relevant remedy........................................................................................................................................................94 Commonwealth v Verwayen ......................................................................................................................94 Giumelli v Giumelli ......................................................................................................................................99 Questions for reflection .........................................................................................................................................102

PART 3: CONTENT .................................................................... 103 CHAPTER 8: TERMS I: ESTABLISHING CONTRACTUAL TERMS...........................................105 Introduction .............................................................................................................................................................105 Incorporating written terms ..................................................................................................................................105 Incorporation by signature.....................................................................................................................................105 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd ..............................................................................................106 Incorporation by notice—unsigned documents and signs ................................................................................109 Incorporation by notice—website.........................................................................................................................109 Incorporation by reference..................................................................................................................................... 110 Incorporating oral terms ........................................................................................................................................ 110 Oscar Chess Ltd v Williams ........................................................................................................................111 JJ Savage & Sons Pty Ltd v Blakney.......................................................................................................... 113 Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd ................................................................... 114 Implied terms reflecting the intention of the parties ........................................................................................ 119 Term implied on the basis of business efficacy ................................................................................................... 119 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales ...........................................120 Term implied from a previous consistent course of dealings between the parties ...........................................................................................................................................121 Term implied from custom or usage .............................................................................................................. 122 Term implied to complete agreement ........................................................................................................... 122 Terms implied regardless of intention.................................................................................................................. 122 Term implying duties of good faith, fair dealing and reasonableness ....................................................... 123 Renard Constructions (ME) Pty Ltd v Minister for Public Works ........................................................... 123 Vodafone Pacific Ltd v Mobile Innovations Ltd ......................................................................................126 Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL ......................................................128 Questions for reflection ......................................................................................................................................... 129

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CHAPTER 9: TERMS II: CONSTRUCTION OF TERMS.............................................................130 Introduction .............................................................................................................................................................130 Interpreting the meaning of terms .......................................................................................................................130 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales ............................................131 Franklins Pty Ltd v Metcash Trading Pty Ltd............................................................................................136 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd ....................................................................151 Legal effect of words: types of terms ...................................................................................................................154 Associated Newspapers Ltd v Bancks ......................................................................................................154 Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd..................................................................156 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd ............................................................160 Darlington Futures Ltd v Delco Australia Ltd .......................................................................................... 167 Council of The City of Sydney v West .......................................................................................................169 Questions for reflection ..........................................................................................................................................171

PART 4: LIMITS ON ENFORCEMENT OF CONTRACTS.....173 CHAPTER 10: CAPACITY ............................................................................................................. 175 Introduction ............................................................................................................................................................. 175 Minors ........................................................................................................................................................................175 Common law ..................................................................................................................................................... 175 Nash v Inman ............................................................................................................................................. 176 Contracts of employment and apprenticeship ............................................................................................. 178 De Francesco v Barnum ............................................................................................................................ 178 Contracts that are binding unless repudiated .............................................................................................. 181 Steinberg v Scala (Leeds) Ltd ...................................................................................................................182 Legislation ..........................................................................................................................................................183 Supreme Court Act 1986 (Vic), s 49 .......................................................................................................184 Supreme Court Act 1986 (Vic), s 50 .......................................................................................................184 Supreme Court Act 1986 (Vic), s 51........................................................................................................184 Minors Contracts (Miscellaneous Provisions) Act 1979 (SA), s 4 .........................................................185 Minors Contracts (Miscellaneous Provisions) Act 1979 (SA), s 5 .........................................................185 Minors Contracts (Miscellaneous Provisions) Act 1979 (SA), s 6 .........................................................185 Minors Contracts (Miscellaneous Provisions) Act 1979 (SA), s 7 .........................................................186 Minors Contracts (Miscellaneous Provisions) Act 1979 (SA), s 8 .........................................................186 Minors (Property and Contracts) Act 1970 (NSW), s 19 ....................................................................... 187 Minors (Property and Contracts) Act 1970 (NSW), s 20 ...................................................................... 187 Minors (Property and Contracts) Act 1970 (NSW), s 23 ...................................................................... 187 Minors (Property and Contracts) Act 1970 (NSW), s 24 ...................................................................... 187 Minors (Property and Contracts) Act 1970 (NSW), s 26 ......................................................................188 Minors (Property and Contracts) Act 1970 (NSW), s 27.......................................................................188 Minors (Property and Contracts) Act 1970 (NSW), s 28 ......................................................................188 Minors (Property and Contracts) Act 1970 (NSW), s 29 ......................................................................189 Minors (Property and Contracts) Act 1970 (NSW), s 30 ......................................................................189 Minors (Property and Contracts) Act 1970 (NSW), s 31 .......................................................................190

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Minors (Property and Contracts) Act 1970 (NSW), s 33 ......................................................................190 Minors (Property and Contracts) Act 1970 (NSW), s 34 ......................................................................190 Minors (Property and Contracts) Act 1970 (NSW), s 36 ...................................................................... 191 Minors (Property and Contracts) Act 1970 (NSW), s 37....................................................................... 191 Mental incapacity .................................................................................................................................................... 192 Gibbons v Wright ....................................................................................................................................... 192 Queensland ........................................................................................................................................................194 Guardianship and Administration Act 2000 (Qld), s 12 ........................................................................194 Other Australian jurisdictions ......................................................................................................................... 195 Governments and the Crown ................................................................................................................................ 195 New South Wales v Bardolph ................................................................................................................... 195 Questions for reflection ......................................................................................................................................... 197

CHAPTER 11: FORMALITIES .......................................................................................................198 Introduction .............................................................................................................................................................198 Nature of a guarantee ............................................................................................................................................198 Yeoman Credit Ltd v Latter .......................................................................................................................199 Harvey v Edwards, Dunlop & Co Ltd....................................................................................................... 202 Statutory requirement of writing—guarantees ........................................................................................... 203 Property Law Act 1974 (Qld), s 56 ................................................................................................................. 203 Nature of land contract needing writing ............................................................................................................ 203 Powercell Pty Ltd v Cuzeno Pty Ltd......................................................................................................... 204 Statutory requirement of writing—land contracts ......................................................................................207 Property Law Act 1974 (Qld), s 59....................................................................................................207 Content of writing—general ................................................................................................................................. 208 Pirie v Saunders ......................................................................................................................................... 208 Acknowledgement of agreement ....................................................................................................................211 Signed by party to be charged or agent..........................................................................................................211 Durrell v Evans ........................................................................................................................................... 212 Joinder of documents ............................................................................................................................................. 213 Harvey v Edwards, Dunlop & Co Ltd........................................................................................................ 213 Fauzi Elias v George Sahely and Co (Barbados) Ltd................................................................................ 215 Todrell Pty Ltd v Finch ...............................................................................................................................218 Adequacy of electronic ‘writing’ and ‘signature’ ............................................................................................... 220 Writing ............................................................................................................................................................... 220 Electronic Transactions (Victoria) Act 2000 (Vic), s 8..................................................................... 220 Instruments Act 1958 (Vic), s 129 .................................................................................................... 221 Signature ............................................................................................................................................................222 Electronic Transactions (Victoria) Act 2000 (Vic), s 9 ......................................................................222 Effect of statutory non-compliance: common law ............................................................................................223 Effect of statutory non-compliance: equity ........................................................................................................224 Doctrine of part-performance.........................................................................................................................224 Regent v Millett .........................................................................................................................................224 Estoppel ..............................................................................................................................................................226 Powercell Pty Ltd v Cuzeno Pty Ltd..........................................................................................................226

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Variation and termination of contract .................................................................................................................229 Electronic Industries Ltd v David Jones Ltd ............................................................................................ 230 Questions for reflection ......................................................................................................................................... 231

CHAPTER 12: PRIVITY .................................................................................................................232 Introduction .............................................................................................................................................................232 Statutory abrogation of privity .............................................................................................................................233 Western Australia..............................................................................................................................................233 Property Law Act 1969 (WA), s 11 .........................................................................................................................233 Queensland and Northern Territory ............................................................................................................. 234 Property Law Act 1974 (Qld), s 55 ........................................................................................................................ 234 So-called ‘exceptions’ .............................................................................................................................................235 Trident General Insurance Co Ltd v McNiece Bros Proprietary Ltd ..................................................... 236 New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (The Eurymedon) ................................ 248 Questions for reflection .........................................................................................................................................252

PART 5: VITIATING FACTORS .................................................253 CHAPTER 13: MISREPRESENTATION AND MISLEADING OR DECEPTIVE CONDUCT ....255 Introduction .............................................................................................................................................................255 Elements of misrepresentation .............................................................................................................................256 False statement of past or present fact .........................................................................................................256 Edgington v Fitzmaurice ...........................................................................................................................256 Bisset v Wilkinson ......................................................................................................................................258 Dimmock v Hallett ................................................................................................................................... 260 Reliance .....................................................................................................................................................................262 Gould v Vaggelas .......................................................................................................................................262 Types of misrepresentation................................................................................................................................... 264 Innocent misrepresentation ........................................................................................................................... 264 Fraudulent misrepresentation ........................................................................................................................ 264 Derry v Peek ...............................................................................................................................................265 Negligent misrepresentation ......................................................................................................................... 266 Shaddock & Associates v Parramatta City Council ................................................................................267 Rescission................................................................................................................................................................. 269 Alati v Kruger .............................................................................................................................................270 Misleading or deceptive conduct ..........................................................................................................................272 Overview ............................................................................................................................................................272 Elements .............................................................................................................................................................273 Concrete Constructions (NSW) Pty Ltd v Nelson ...................................................................................275 Campomar Sociedad Limitada v Nike International Ltd ........................................................................278 Downey v Carlson Hotels Asia Pacific Pty Ltd.........................................................................................282 The appropriate level of analysis ................................................................................................................... 284 Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd...................................287 Australian Consumer Law, s 4 ...........................................................................................................................291 Bennett v Elysium Noosa Pty Ltd (in liq) .................................................................................................292

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Remedies for a contravention of s 18 .................................................................................................................. 296 Damages .................................................................................................................................................................. 296 Henville v Walker .......................................................................................................................................297 Reduction of damages for failure to take reasonable care ......................................................................... 300 Competition and Consumer Act 2010 (Cth), s 137B ...........................................................................................301 Apportionment of loss between wrongdoers .............................................................................................. 302 Competition and Consumer Act 2010 (Cth), ss 87CB–87CC ........................................................................... 303 Rescission................................................................................................................................................................. 304 Tenji v Henneberry & Associates Pty Ltd ................................................................................................ 305 Exclusion of misleading conduct ................................................................................................................... 309 Downey v Carlson Hotels Asia Pacific Pty Ltd.........................................................................................310 Butcher v Lachlan Elder Realty Pty Ltd....................................................................................................314 Questions for reflection ......................................................................................................................................... 316

CHAPTER 14: MISTAKE ...............................................................................................................318 Introduction .............................................................................................................................................................318 Common mistake ....................................................................................................................................................318 McRae v Commonwealth Disposals Commission................................................................................... 319 Solle v Butcher ........................................................................................................................................... 321 Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The Great Peace) .........................323 Mutual mistake ....................................................................................................................................................... 330 Unilateral mistake .................................................................................................................................................. 330 Taylor v Johnson ........................................................................................................................................ 331 Mistaken identity.................................................................................................................................................... 333 Lewis v Averay ........................................................................................................................................... 333 Mistake as to the nature of the contract (‘non est factum’).......................................................................335 Petelin v Cullen ......................................................................................................................................... 336 Questions for reflection ........................................................................................................................................ 338

CHAPTER 15: DURESS ............................................................................................................... 339 Introduction ............................................................................................................................................................ 339 Types of duress........................................................................................................................................................ 339 Barton v Armstrong .................................................................................................................................. 339 Australia and New Zealand Banking Group Ltd v Karam .......................................................................341 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (The Atlantic Baron) ......................... 344 Statute ......................................................................................................................................................................347 Questions for reflection ........................................................................................................................................ 348

CHAPTER 16: UNDUE INFLUENCE .......................................................................................... 349 Introduction ............................................................................................................................................................ 349 Classes of undue influence.................................................................................................................................... 349 Khan v Khan............................................................................................................................................... 350 Johnson v Buttress .................................................................................................................................... 354 Undue influence and third party sureties ........................................................................................................... 358 Garcia v National Australia Bank ............................................................................................................ 358 Questions for reflection ........................................................................................................................................ 360

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CHAPTER 17: UNCONSCIONABLE CONDUCT......................................................................361 Introduction ............................................................................................................................................................. 361 Unconscionable conduct in equity ....................................................................................................................... 361 Commercial Bank of Australia v Amadio ................................................................................................ 362 Louth v Diprose ......................................................................................................................................... 365 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd ........................367 Kakavas v Crown Melbourne Ltd ..............................................................................................................374 Statute ...................................................................................................................................................................... 378 Australian Consumer Law ................................................................................................................................379 Australian Consumer Law, s 20 .............................................................................................................................379 Australian Consumer Law, s 21............................................................................................................................. 380 Australian Consumer Law, s 22 ............................................................................................................................ 380 Contracts Review Act 1980 (NSW) ........................................................................................................ 384 Contracts Review Act 1980 (NSW), s 7 ................................................................................................. 384 Contracts Review Act 1980 (NSW), s 9................................................................................................. 385 West v AGC (Advances) Ltd ......................................................................................................................387 Questions for reflection ........................................................................................................................................ 390

CHAPTER 18: VOID AND ILLEGAL CONTRACTS....................................................................391 Introduction .............................................................................................................................................................391 Void contracts ..........................................................................................................................................................391 Nordenfelt v Maxim-Nordenfelt Guns and Ammunition Co Ltd ...........................................................392 Illegal contracts ...................................................................................................................................................... 394 Illegality by statute .......................................................................................................................................... 394 Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd ....................................................................... 395 Equuscorp Pty Ltd v Haxton .................................................................................................................... 398 Illegality at common law ................................................................................................................................ 403 Wilkinson v Osborne................................................................................................................................. 404 Effects of illegality ........................................................................................................................................... 407 Fitzgerald v FJ Leonhardt Pty Ltd ............................................................................................................ 407 Severance .................................................................................................................................................................414 Common law .....................................................................................................................................................414 Attwood v Lamont .....................................................................................................................................415 Goodinson v Goodinson ............................................................................................................................416 Statute ................................................................................................................................................................418 Restraints of Trade Act 1976 (NSW), s 4 .........................................................................................................418 Competition and Consumer Act 2010 (Cth), s 4L .......................................................................................... 420 Questions for reflection ........................................................................................................................................ 420

PART 6: DISCHARGE OF THE CONTRACT........................... 421 CHAPTER 19: DISCHARGE BY PERFORMANCE..................................................................... 423 Introduction ............................................................................................................................................................ 423 Types of obligations ............................................................................................................................................... 423

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Independent obligations ................................................................................................................................. 424 Dependent obligations .................................................................................................................................... 424 Automatic Fire Sprinklers Pty Ltd v Watson ............................................................................................425 Dependent and concurrent obligations .........................................................................................................427 Recovering the contract price .............................................................................................................................. 428 Divisible contract.................................................................................................................................................... 429 Steele v Tardiani........................................................................................................................................ 429 Entire obligations.................................................................................................................................................... 430 Cutter v Powell ..........................................................................................................................................431 Obligations requiring substantial performance ..................................................................................................432 Hoenig v Isaacs ..........................................................................................................................................432 Establishing substantial performance ................................................................................................................. 436 Bolton v Mahadeva .................................................................................................................................. 436 ACN 002 804 702 (Formerly Brooks Building) v McDonald................................................................ 438 Partial performance and breach ........................................................................................................................... 439 Connor v Stainton..................................................................................................................................... 439 Quantum meruit as alternative to contract price ................................................................................441 Questions for reflection .........................................................................................................................................441

CHAPTER 20: DISCHARGE BY TERMINATION ...................................................................... 442 Introduction ............................................................................................................................................................ 442 Common law right of termination....................................................................................................................... 443 Breach of essential term or intermediate term.................................................................................................. 443 Repudiation ............................................................................................................................................................. 444 Anticipatory breach ......................................................................................................................................... 445 Foran v Wight ............................................................................................................................................ 445 Examples of repudiation ................................................................................................................................. 448 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd ................................................................. 449 DTR Nominees Pty Ltd v Mona Homes Pty Ltd ...................................................................................... 453 Almond Investors Ltd v Kualitree Nursery Pty Ltd ................................................................................. 456 Termination for delay............................................................................................................................................. 458 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd ................................................................. 459 When is time essential? ........................................................................................................................................ 460 Termination where time not essential .......................................................................................................... 462 When to give a notice to complete ..................................................................................................................... 462 Louinder v Leis .......................................................................................................................................... 463 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd .................................................................. 471 Election to terminate ..............................................................................................................................................474 Sargent v ASL Developments Ltd .............................................................................................................475 Restrictions on termination ....................................................................................................................478 Ready willing and able......................................................................................................................................478 Foran v Wight .............................................................................................................................................479 Terminating party not in breach of contract ............................................................................................... 486 Almond Investors Ltd v Kualitree Nursery Pty Ltd ................................................................................. 487 Contractual and statutory restrictions ................................................................................................................491

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Effect of discharge of contract ..............................................................................................................................491 McDonald v Dennys Lascelles Ltd ........................................................................................................... 492 Questions for reflection ........................................................................................................................................ 494

CHAPTER 21: DISCHARGE BY AGREEMENT .......................................................................... 496 Introduction ............................................................................................................................................................ 496 Variation distinguished from discharge ........................................................................................................ 496 Morris v Baron & Co ..................................................................................................................................497 Requirements of writing ........................................................................................................................................ 500 Discharge ........................................................................................................................................................... 500 Variation ............................................................................................................................................................ 500 Novation ...................................................................................................................................................................501 ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue ................................ 502 Abandonment ..........................................................................................................................................................507 Fitzgerald v Masters ................................................................................................................................. 508 Questions for reflection ........................................................................................................................................ 509

CHAPTER 22: DISCHARGE BY FRUSTRATION .......................................................................510 Introduction .............................................................................................................................................................510 Test for frustration ..................................................................................................................................................510 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales ...........................................510 Ocean Tramp Tankers Corporation v V/O Sovfracht (The Eugenia) ..................................................... 513 National Carriers Ltd v Panalpina (Northern) Ltd .................................................................................. 515 Limits on frustration ...............................................................................................................................................518 Express contractual provision ................................................................................................................................518 Claude Neon Ltd v Hardie......................................................................................................................... 519 Supervening event foreseeable ............................................................................................................................ 520 oOH! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd .................................................................... 520 Supervening event self-induced ............................................................................................................................522 Maritime National Fish Ltd v Ocean Trawlers Ltd...................................................................................522 Effect of frustration .................................................................................................................................................523 Common law .....................................................................................................................................................523 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd...........................................................524 Statute ................................................................................................................................................................527 Frustrated Contracts Act 1978 (NSW), s 7 .......................................................................................527 Frustrated Contracts Act 1978 (NSW), s 8 .......................................................................................527 Frustrated Contracts Act 1978 (NSW), s 10 .................................................................................... 528 Frustrated Contracts Act 1978 (NSW), s 11 ..................................................................................... 528 Frustrated Contracts Act 1978 (NSW), s 12 .....................................................................................529 Frustrated Contracts Act 1978 (NSW), s 13 .....................................................................................529 Frustrated Contracts Act 1978 (NSW), s 15 .....................................................................................529 Frustrated Contracts Act 1959 (Vic), s 3 ......................................................................................... 530 Frustrated Contracts Act 1988 (SA), s 6 ...........................................................................................532 Frustrated Contracts Act 1988 (SA), s 7 ...........................................................................................532 Questions for reflection .........................................................................................................................................533

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PART 7: REMEDIES .....................................................................535 CHAPTER 23: DAMAGES ............................................................................................................537 Introduction .............................................................................................................................................................537 Commonwealth v Amann Aviation Pty Ltd ............................................................................................ 538 Limits on recovery of damages..............................................................................................................................541 Causation ...........................................................................................................................................................541 Alexander v Cambridge Credit Corp Ltd..................................................................................................541 Remoteness ............................................................................................................................................................. 544 First limb of Hadley v Baxendale.............................................................................................................545 Second limb of Hadley v Baxendale .......................................................................................................545 Victoria Laundry (Windor) Ltd v Newman Industries Ltd ..................................................................... 546 Mitigation ................................................................................................................................................................ 550 Payzu Ltd v Saunders ................................................................................................................................. 551 Assessment of loss and heads of damage ...........................................................................................................553 Loss of opportunity ...........................................................................................................................................554 Commonwealth v Amann Aviation Pty Ltd .............................................................................................554 Rectification of defective work .......................................................................................................................557 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd ..............................................................................557 Mental distress .................................................................................................................................................. 561 Baltic Shipping v Dillon .............................................................................................................................562 Restrictions on recovery of damages....................................................................................................................565 Termination........................................................................................................................................................565 Ready willing and able to perform ................................................................................................................ 566 Foran v Wight ............................................................................................................................................ 566 Liquidated damages and penalties ...................................................................................................................... 568 Application of the doctrine of penalties ....................................................................................................... 568 Andrews v Australia and New Zealand Banking Group Ltd ...................................................................570 Penalty or genuine pre-estimate ....................................................................................................................575 Paciocco v Australia and New Zealand Banking Group Ltd...................................................................576 Effect of clause being a penalty ..................................................................................................................... 583 Questions for reflection ........................................................................................................................................ 584

CHAPTER 24: RESTITUTION..................................................................................................... 585 Introduction ............................................................................................................................................................ 585 Pavey & Matthews Pty Ltd v Paul ........................................................................................................... 585 Restitution between contracting parties .............................................................................................................587 Termination of contract ...................................................................................................................................587 Alternative claims ............................................................................................................................................ 588 Unjust enrichment ................................................................................................................................................. 588 Recovery of money paid ........................................................................................................................................ 589 Failure of consideration ......................................................................................................................................... 589 Baltic Shipping v Dillon ............................................................................................................................ 590 Money paid under a mistake .................................................................................................................................592 David Securities Pty Ltd v Commonwealth Bank of Australia .............................................................. 593

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Illegality ....................................................................................................................................................................595 Equuscorp Pty Ltd v Haxton .................................................................................................................... 596 Claims for services rendered .......................................................................................................................... 605 Services as a benefit ............................................................................................................................................... 605 Claim where contract governs payment............................................................................................................. 606 Lumbers v W Cook Builders Pty Ltd (in liq)............................................................................................. 606 Ineffective contracts ...............................................................................................................................................610 Pavey & Matthews Pty Ltd v Paul ............................................................................................................610 Partially performed contracts .........................................................................................................................614 Steele v Tardiani.........................................................................................................................................616 Defence—change of position ..........................................................................................................................618 Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd ............................................... 619 Questions for reflection ........................................................................................................................................ 623

CHAPTER 25: EQUITABLE REMEDIES...................................................................................... 624 Introduction .............................................................................................................................................................624 Specific performance ..............................................................................................................................................624 JC Williamson Ltd v Lukey and Mulholland .............................................................................................625 Defences to specific performance.........................................................................................................................627 Where the contract was entered as a result of mistake or misrepresentation ........................................627 Where enforcement would create undue hardship upon the defendant .................................................627 Fairborne Pty Ltd v Strata Store Noosa Pty Ltd ..................................................................................... 628 Where the plaintiff is in breach of contract or not ready, willing, and able to perform his or her obligations under the contract ......................................................................................................632 Performance of the contract is not possible or would be futile ................................................................ 633 Where the plaintiff is guilty of laches ........................................................................................................... 633 That the contract is unenforceable because of informality....................................................................... 633 Injunction................................................................................................................................................................. 634 JC Williamson Ltd v Lukey and Mulholland ............................................................................................ 634 Questions for reflection ........................................................................................................................................ 636

PART 8: CONSUMER PROTECTION ..................................... 637 CHAPTER 26: UNFAIR CONTRACT TERMS ............................................................................ 639 Introduction ............................................................................................................................................................ 639 Contracts to which unfair terms applies ............................................................................................................. 640 Consumer contract .......................................................................................................................................... 640 Small business contract ........................................................................................................................................ 642 Nature of goods and services ......................................................................................................................... 642 Less than twenty employees .......................................................................................................................... 643 Meaning of ‘business’ ...................................................................................................................................... 643 Limit on upfront price of contract ................................................................................................................. 644 Standard form contract ................................................................................................................................... 644 Australian Consumer Law, s 27 ........................................................................................................................ 645 Application to contracts after commencement .......................................................................................... 646

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Exempt contracts ............................................................................................................................................. 646 Identifying unfair terms ...................................................................................................................................647 Excluded terms ..................................................................................................................................................647 Office of Fair Trading v Ashbourne Management Services Ltd ............................................................ 648 Unfair Contract Terms Law: A Guide for Businesses and Legal Practitioners ...................................... 653 Australian Consumer Law, s 26(2).......................................................................................................... 654 Office of Fair Trading v Foxtons Ltd .........................................................................................................655 Test for an ‘unfair term’ ..........................................................................................................................................661 Approach to assessment—whole of contract and transparency ...............................................................661 Australian Consumer Law, s 24(2), (3) ...................................................................................................661 Director of Consumer Affairs (Vic) v AAPT ............................................................................................. 664 Australian Consumer Law, s 25 ................................................................................................................667 Director of Consumer Affairs Victoria v Backloads.com Pty Ltd .......................................................... 668 Remedies and enforcement ...................................................................................................................................672 Declaration.........................................................................................................................................................673 Compensation ...................................................................................................................................................673 Injunction ...........................................................................................................................................................674 Questions for reflection .........................................................................................................................................674

CHAPTER 27: CONSUMER GUARANTEES ..............................................................................675 Introduction .............................................................................................................................................................675 Consumer guarantees relating to the supply of goods .....................................................................................676 Supply ....................................................................................................................................................................... 676 Goods..................................................................................................................................................................677 Consumers .........................................................................................................................................................677 Trade or commerce ...........................................................................................................................................678 Goods that are not covered.............................................................................................................................678 Guarantee as to title—s 51 ..............................................................................................................................679 Australian Consumer Law, s 51(1)............................................................................................................679 Guarantee as to undisturbed possession—s 52........................................................................................... 680 Guarantee as to undisclosed securities—s 53 ............................................................................................. 680 Australian Consumer Law, s 53(1) .......................................................................................................... 680 Guarantee as to acceptable quality—s 54 ....................................................................................................681 Australian Consumer Law, s 54(1) ...........................................................................................................681 Australian Consumer Law, s 54(2)...........................................................................................................681 Guarantee as to fitness for any disclosed purpose—s 55........................................................................... 683 Australian Consumer Law, s 55(2) .......................................................................................................... 684 Guarantee relating to supply of goods by description—s 56 .................................................................... 685 Guarantee relating to supply of goods by way of sample or demonstration model—s 57 .................. 685 Australian Consumer Law, s 57(1) .......................................................................................................... 685 Guarantee as to repairs and spare parts—s 58 ............................................................................................ 686 Guarantee as to express warranties—s 59 ....................................................................................................687 Australian Consumer Law, s 2 ..................................................................................................................687 Australian Consumer Law, s 102(3)........................................................................................................ 688 Competition and Consumer Regulations 2010 (Cth), r 90.............................................................................. 689 Consumer guarantees relating to the supply of services ........................................................................... 690

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Guarantee as to due care and skill—s 60 ......................................................................................................691 Guarantee as to reasonable time for supply—s 62 ..................................................................................... 693 Remedies in relation to goods .............................................................................................................................. 693 A major failure .................................................................................................................................................. 693 Australian Consumer Law, s 260 ............................................................................................................ 694 Remedies against suppliers for major failures ............................................................................................. 694 Remedies against suppliers for minor failures ............................................................................................. 695 Recovery of damages from the supplier for consequential loss................................................................ 696 Remedies against manufacturers of goods ...................................................................................................697 Australian Consumer Law, s 271(2) .........................................................................................................697 Australian Consumer Law, s 271(4) ........................................................................................................ 698 Manufacturers’ liability to indemnify suppliers of goods .......................................................................... 699 Remedies in relation to services .................................................................................................................... 699 A major failure ...................................................................................................................................................700 Australian Consumer Law, s 268 .............................................................................................................700 Remedies for minor failures ............................................................................................................................. 701 Damages for consequential loss .....................................................................................................................702 Contracting out of consumer guarantees .....................................................................................................702 Terms that may be void ...................................................................................................................................703 Limiting liability.................................................................................................................................................703 Australian Consumer Law, s 64A .............................................................................................................703 Australian Consumer Law, s 64A(4)........................................................................................................704 Recreational service providers ........................................................................................................................704 Proof of transaction ..........................................................................................................................................704 Questions for reflection .........................................................................................................................................706

Index ....................................................................................................................707

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TABLE OF CASES A & S Corp. v Midwest Commerce Banking Co. 525 N.E.2d 1290 6.12 Abalos v Australian Postal Commission (1990) 171 CLR 167 17.09 Abbey National plc v Office of Fair Trading [2009] EWCA Civ 116 26.36 ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 5.03 Aboody v Ryan [2012] NSWCA 395 17.16 ACN 002 804 702 (Formerly Brooks Building) v McDonald [2009] NSWSC 610 19.21 Actionstrength Ltd v International Glass Engineering IN.GL.EN SpA (2003) 2 AC 541 11.36 Adams v Lindsell (1818) 106 ER 250 3.39, 3.40 Addis v Gramophone Co Ltd [1909] AC 488 23.25 Administration of the Territory of Papua and New Guinea v Daera Guba (1973) 130 CLR 353 9.06 Afovos Shipping Co v Pagnan [1983] 1 All ER 449; [1983] 1 WLR 195 20.11 Agius v Sage [1999] VSC 100 11.36 Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 9.06 Ahmed Angullia Bin Hadjee Mohamed Salleh Angullia v Estate and Trust Agencies (1927) Ltd [1938] AC 624 4.10 Air Canada v British Columbia [1986] 2 SCR 539 24.18 Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 9.06 Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236; (2000) 16 BCL 70 4.10 Ajit v Sammy [1967] 1 AC 255 20.35 Alaska Packers’ Ass’n v Domenico; 117 F 99 (9th Cir 1902) 6.12 Alati v Kruger (1955) 94 CLR 216 13.24, 13.65 Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 4.10, 8.25 Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310 23.06 ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue [2012] HCA 6 21.13

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Allcard v Skinner (1887) LR 36 ChD 145 16.04, 17.05 Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198 20.21, 20.46 Amadio Pty Ltd v Henderson (1998) 81 FCR 149 17.07, 24.20 Amalgamated Property Co v Texas Bank [1982] QB 84 7.03 Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527 9.17 AMCI (IO) Pty Ltd v Aquila Steel Pty Ltd [2009] QSC 139 4.10 AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 23.34 Anangel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co Ltd (No. 2) [1990] 2 Lloyd’s LR 526 6.12 Andrews v Australian and New Zealand Banking Group Ltd [2011] FCA 1376 23.30, 23.34, 23.37, 23.38 Anglia Television Ltd v Reed [1972] 1 QB 60 23.03 Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 9.17, 20.25, 20.46 Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 9.06 Appleby v Myers (1867) LR 2 CP 651 19.17 Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] 1 QB 74 18.14, 18.20 Asia Television Ltd v Yau’s Entertainment Pty Ltd (2000) 48 IPR 283 4.10 Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 9.13, 9.17 Astley v Reynolds (1731) 2 Str 915 15.08 Attorney-General (Hong Kong) v Humphreys Estate Ltd [1987] 1 AC 114 7.03 Attwood v Lamont [1920] 3 KB 571 18.25 Austin Instrument Inc v Loral Corp; 29 NY 2d 124; 324 NYS 2d 22; 272 NE 2d 533 (1971) 6.12 Austin v United Dominion Corporation [1984] 2 NSWLR 612 23.34 Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 17.07

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Australia and New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149 15.07, 15.09 Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 12.10, 24.15, 24.18 Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328 14.09 Australian Breeders Co-operative Society Ltd v Jones [1997] FCA 1405; (1997) 150 ALR 488 18.16, 24.20 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 9.06 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 9.06 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; (2003) 197 ALR 153 17.07 Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd (2015) 239 FCR 33 26.42, 26.43, 26.50 Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 17.16 Australian Competition and Consumer Commission v Samton Holdings (2002) 189 ALR 76; (2002) 117 FCR 301 17.07 Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276 13.49 Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 307 ALR 512 24.33, 24.35 Australian Securities and Investment Commission v National Exchange Pty Ltd [2005] FCAFC 226 17.16 Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 7.07 Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424 5.03 Automatic Fire Sprinklers v Watson (1946) 72 CLR 435 19.06 Axelsen v O’Brien (1949) 80 CLR 219 4.12 Babacomp Ltd v Rightside Properties Ltd [1974] 1 All ER 142 20.32 Baker v McLaughlin [1967] NZLR 405 20.32 Balog v Crestani (1975) 132 CLR 289 20.32, 20.35 Baltic Shipping v Dillon (1993) 176 CLR 342; 67 ALJR 228 23.25, 24.06, 24.11, 24.12, 24.13 Bank Line Ltd v Arthur Capel & Co [1919] AC 435 22.13 Bank of Credit and Commerce International SA v Ali [2001] 2 WLR 735 9.06

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Bank of New Zealand v Simpson (1900) AC 182 9.04 Bank of NSW v Commonwealth [1948] HCA 7; (1948) 76 CLR 1 13.31 Banque Worms v Bankamerica International 570 NE 2d 189 24.35 Barclays Bank v O’Brien [1994] 1 AC 180 16.02, 16.12 Barclays Bank v W J Simms Son & Cooke (Southern) Ltd [1980] QB 677 24.18 Barnsley v Taylor (1867) 37 LJ QB 39 19.06 Barr v Gibson (1838) 3 M&W 390; 150 ER 1196 14.04 Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 9.06 Barton v Armstrong [1973] 2 NSWLR 598 15.03 Bates v Omareef Pty Ltd (unreported; Federal Court of Australia 16 October 1997) 9.17 Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243 4.10 Beattie v Fine [1925] VLR 363 4.10, 4.12 Bell v Lever Bros Ltd [1932] AC 161 14.06, 14.07, 14.08, 14.09 Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228 4.10 Bellgrove v Eldridge (1954) 90 CLR 613 23.22, 23.23 Benlist Pty Ltd v Olivetti Australia Pty Ltd (1990) ATPR 41–043 13.69 Bennett v Bennett [1952] 1 All ER 413 18.27 Bennett v Elysium Noosa Pty Ltd (in liq) [2012] FCA 211 13.49 Benson v Lamb (1846) 9 B. 502; 15 LJ Ch. 218 20.32 Bentsen v Taylor Sons & Co [1893] 2 QB 274 9.15 Bernard v Williams [1928] All ER Rep 698 20.32 Beswick v Beswick [1968] AC 58 12.10 Bettini v Gye (1876) 1 QBD 183 9.13 Birmingham and District Land Co v London and North Western Railway Co (1888) 40 Ch D 268 7.05 Birmingham v Renfrew (1937) 57 CLR 666 12.10 Bissett v Wilkinson (1926) All ER 343 13.08 Blake v Thirst (1863) 2 H&C 20; 159 ER 9 19.11 Blakeley v Muller & Co (1903) 19 TLR 186 14.08 Blomley v Ryan (1956) 99 CLR 362 17.03, 17.04, 17.05, 17.07 Boissevain v Weil [1950] AC 327 24.20 Bolton v Mahadeva [1972] 1 WLR 1009 19.20, 19.21 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 4.10 Boone v Eyre (1777) 1 H Bl 273 19.17 Boston v Boston (1904) 1 KB 124 11.07 Bow v McGrath Builders Ltd [1974] 2 NZLR 442 20.32

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Bowdell v Parsons (1808) 10 East 359 9.15 Bowes v Chaleyer (1923) 32 CLR 159 20.11 Bowler v Hilda Pty Ltd (1998) 80 FCR 191 13.69 Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65 18.21 Boyarsky v Taylor [2008] NSWSW 1415 25.07 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 8.27 Bressan v Squires [1974] 2 NSWLR 460 3.40 Brickenden v London Loan and Savings Co [1934] 3 DLR 465 13.65 Bridgewater v Leahy (1998) 194 CLR 457 17.07 Brinkibon Ltd v Stahag Stahl Und Stahlwarenhandels Gesellschaft MbH [1983] 2 AC 34 3.40 Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143 22.03, 22.12 British and Beningtons Ltd v NW Cachar Tea Co [1923] AC 48 20.43 British Columbia Saw-Mill Co. v Nettleship LE 3 CP 499 23.11 British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 23.14 Brogden v Metropolitan Ry Co (1877) 2 App Cas 666 3.36 Bullock v Lloyds Bank Ltd [1995] 1 Ch 327 16.04 Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187 4.10, 8.25 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; (2004) 212 ALR 357; [2004] HCA 60 13.38, 13.69, 13.71, 13.72, 13.73 Butt v McDonald (1896) 7 QLJ 68 4.10 Byrne v Australian Airlines Ltd (1987) 10 NSWLR 468 8.25 Byrne v Australian Airlines Ltd (1995) 185 CLR 410; 131 ALR 422 8.25 Byrne v Van Tienhoven 5 CPD 344 3.39, 20.43 C Czarnikow Ltd v Koufos [1966] 2 QB 695 23.25 C G Berbatis Holdings Pty Ltd v Australian Competition and Consumer Commission (2001); 185 ALR 555 17.07 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 13.32, 13.66, 13.67, 13.70 Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45; [2000] HCA 12 13.34, 13.38 Canada Steamship Lines Ltd v R [1952] UKPC 1 9.21 Canning v Temby (1905) 3 CLR 419 20.25, 20.32 Capolingua v Phylum Pty Ltd (as Trustee for the Gennoe Family Trust) (1991) 5 WAR 137 4.10

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Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 3.05, 3.06, 3.12, 3.18, 3.36, 12.14 Carr v JA Berriman Pty Ltd (1953) 89 CLR 327 20.15, 20.32, 20.43 Carswell v Collard [1893] AC 635 20.15 Re Casey’s Patents; Stewart v Casey [1892] 1 Ch 104 6.14, 6.15 Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468 8.25 Caton v Caton (1866) LR 1 Ch App 137 11.35 Cavendish Square Holding BV v Makdessi [2016] AC 1172 23.36, 23.37 CCC Films Ltd v Impact Quadrant Films Ltd [1985] QB 16 23.03 Central Exchange Ltd v Anaconda Nickel Ltd (2001) 24 WAR 382; (2002) 26 WAR 33 4.10 Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 7.02 Chandler v Webster [1904] 1 KB 493 22.15 Chaplin v Hicks [1911] 2 KB 786 4.10 Charrington & Co Ltd v Wooder (1914) AC 71 9.04 Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101 9.06 Chichester Diocesan Fund and Board of Finance (Inc) v Simpson [1944] AC 341 26.30 Christison v Warren [1903] St R Qd 186 4.12 Christopher Hill Ltd v Ashington Piggeries Ltd [1972] AC 441 9.06 Clark v Macourt (2013) 253 CLR 1 23.02 Claude Neon Ltd v Hardie [1970] Qd R 93 22.10 Clydebank Engineering Co v Castaneda: HL 19 Nov 1904 23.37 Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 4.09, 4.10 Coastal Estates Pty Ltd v Melevende [1965] VR 20.39 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 5.03, 8.16, 8.17, 9.04, 9.05, 9.06, 9.08, 9.09, 22.03 Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288 20.43, 23.28 Collin v Holden [1989] VR 510 11.36 Collins v The Queen (1975) 133 CLR 120 9.09 Combe v Combe [1951] 2 KB 215 7.02, 7.03 Commercial Bank of Australia v Amadio (1983) 151 CLR 447 15.07, 17.03, 17.05, 17.07, 17.13, 17.16 Commercial Life Assurance Co v Drever [1948] 2 DLR 241 18.14 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 23.03, 23.20, 24.35 Commonwealth v Verwayen (1990) 170 CLR 394 7.05, 7.06, 7.07, 7.08, 11.36, 17.05, 24.35

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Con Kallergis Pty Ltd v Calshonie Pty Ltd (1998) 14 BCL 201 4.10 Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1985) 160 CLR 226 8.19 Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 13.30, 13.31 Connor v Stainton (1924) 27 WALR 72 19.23 Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541 12.10 Cooney v Burns (1922) 30 CLR 216 11.35 Cooper v Phibbs (1867) LR 2 HL 149 14.08 Cope v Rowlands (1836) 2 M&W 149; 150 ER 707 18.14 Corporate Affairs Commission (SA) v Australian Central Credit Union [1985] HCA 64; (1985) 157 CLR 201 18.16 Cort v Ambergate Rly Co (1851) 17 QB 127 20.43 Cory v Thames Ironworks Co (1868) LR 3 QB 181 23.11 Coulls v Bagot’s Executor and Trustee Company Ltd (1966) 119 CLR 460 4.10, 6.04 Council of the City of Sydney v West (1965) 114 CLR 481 9.23 Couturier v Hastie (1852) 8 Ex 40; 155 ER 1250 14.04 Cox v Philips Industries Ltd [1976] 3 All ER 161; [1976] 1 WLR 638 23.25 Cp Plaimar Ltd v Waters Trading Co Ltd (1945) 72 CLR 304 19.06 Crabb v Arun District Council [1976] Ch 179 7.05 Crawford v Toogood (1879) 13 Ch D 153 20.32 Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 15.07 Cricklewood Property and Investment Trust Ltd v Leighton’s Investment Trust Ltd [1945] AC 221 22.07 Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26 8.13 Crown v Clarke (1927) 40 CLR 227 3.29 Cummings v Lewis (1993) 41 FCR 559 13.49 Cundy v Lindsay (1878) 3 App Cas 459 14.14, 14.17 Cutter v Powell (1795) 6 TR 320; 101 ER 573 19.15, 19.17 Dahl v Nelson; Donkin & Co (1881) 6 AC 38 22.13 Dakin v Lee [1916] 1 KB 566 19.17, 19.20 Dakin v Oxley (1864) LR 5 PC 159 19.17 Dalgety & Co Ltd v Gray (1919) 26 CLR 249 11.07 Dalgety and New Zealand Loan Ltd v VC Imeson Pty Ltd (1963) 63 SR 998 18.14 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 8.04, 9.20, 9.21

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David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 24.13, 24.15, 24.17, 24.18, 24.20, 24.35 Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 22.03, 22.05 De Francesco v Barnum (1890) 45 Ch D 430 10.06 De Lassalle v Guildford (1901) 2 KB 215 8.13 De Medina v Norman (1842) 9 M & W 820; (1842) 152 ER 347 20.43 De Soysa v De Pless Pol [1912] AC 194 20.25 Deacon v Transport Regulation Board [1958] VR 458 15.08 Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361; [1971] 2 All ER 216 9.17 Deglman v Guaranty Trust Co of Canada and Constantineau [1954] 3 DLR 785 24.20 Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265 22.03 Dent v Bennet (1839) 4 My & Cr 269; 41 ER 105 16.08 Denton v Great Northern Ry Co (1856) 5 El & Bl 860; (1856) 119 ER 7015 3.05 Derry v Peek (1889) 14 App Cases 337 13.15, 13.16, 13.17 Dickinson v Dodds [1876] 2 ChD 463 3.21 Dimmock v Hallett (1866–67) LR 2 Ch App 21 13.11 Director General of Fair Trading v First National Bank plc [2002] 1 AC 481 26.30, 26.45 Director of Consumer Affairs (Vic) v AAPT [2006] VCAT 1493 26.46, 26.54 Director of Consumer Affairs (Vic) v Backloads. com Pty Ltd (Civil Claims) [2009] VCAT 754 26.54 Doherty v Allman (1878) 3 App Cas 709 23.23 Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 13.37, 13.38, 13.49, 13.69 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12 9.04, 9.06, 9.09, 20.17, 20.18, 20.19, 20.43, 20.46 Duggan v Barnes [1923] VLR 27 4.03 Dunkirk Colliery Co v Lever (1878) 9 Ch D 20 23.14 Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Company Ltd [1915] AC 79 23.34, 23.37 Dunlop v Higgins (1848) 1 HL Cas 381; (1848) 9 ER 805 3.39 Durrell v Evans (1862) 158 ER 848 11.16 Eastwood v Kenyon (1840) 11 A&E 438; 113 ER 482 1.10 Edgington v Fitzmaurice [1881–85] All ER 856 13.06, 13.12 Edwinton Commercial Corporation & Anor v Tsavliris Russ (Worldwide Salvage & Towage

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Ltd) (The ‘Sea Angel’) [2007] 2 Lloyd’s Rep 517 22.12 Egerton v Brownlow [1853] EngR 885; 4 HL C 1 18.18 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 9.08, 9.09 Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288 11.37 Elfic Ltd v Macks [2000] QSC 18 4.10 Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd (1995) 36 NSWLR 709 4.10 Emhill Pty Ltd v Bonsoc Pty Ltd (No 2) [2007] VSCA 108 20.46 Entores LD v Miles Far East Corp [1955] 2 QB 327 3.40 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 9.06 Equuscorp Pty Ltd v Haxton (2012) 286 ALR 12 18.16, 24.20 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 5.03, 5.04, 9.06 Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 12.10 Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49 8.04 Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 4.10, 8.27 Evanturel v Evanturel (1874) LR 6 PC 1 18.18 Export Credits Guarantee Department v Universal Oil Products Company and Ors (1983) 23 BLR 106 23.34 Express Airways v Port Augusta Air Services [1980] Qd R 543 3.40 FA Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397 22.03 Fairborne Pty Ltd v Strata Store Noosa Pty Ltd [2009] QSC 250 25.07 Falcke v Scottish Imperial Insurance Co (1887) 57 LT 39 24.24 Falconer v Wilson [1973] 2 NSWLR 131 20.32 Far Horizons Pty Ltd v McDonald’s Australia Ltd [2000] VSC 310 4.10 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 236 ALr 209 9.17 Fauzi Elias v George Sahely and Co (Barbados) Ltd [1983] 1 AC 646 11.19, 11.20 Fercometal SARL v Mediterranean Shipping Co SA [1989] AC 788 20.43 Ferguson v Wilson (1866) LR 2 Ch App 77 25.07

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Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 22.15, 22.16, 22.17 Field v The Company [1929] 1 Ch 277 20.32 Filmer v Gott (1774) 4 Brown 230; [1774] EngR 40; 2 ER 156 17.07 Fink v Fink (1946) 74 CLR 127 23.25 Fislier v Pyne 1 M & G 265 3.05 Fitzgerald v FJ Leonhardt Pty Ltd (1977) 189 CLR 215 18.16, 18.20 Fitzgerald v Masters (1956) 95 CLR 420 21.16 Fitzgerald v Penn (1954) 91 CLR 268 23.06 Foakes v Beer (1884) 9 App Cas 605 6.12 Foran v Wight (1989) 168 CLR 385; [1989] HCA 51 20.11, 20.20, 20.21, 20.43, 20.46, 23.28 Ford v Tiley (1827) 6 B&C 325 9.15 Forrestt and Son Ltd v Aramayo (1900) 83 LT 335 20.43 Forslind v Bechely-Crundall [1922] SC (HL) 173 20.15 Foster v Wheeler (1888) 38 Ch D 130 4.12 Fox v Percy (2003) 214 CLR 118 17.09 Franklins Pty Ltd v Metcash Trading Pty Ltd (2009) 76 NSWLR 603 9.06, 9.07 Freeth v Burr (1874) LR9CP 208 20.15 French v Macale (1842) 2 D&W 269 23.34 Frost v Knight (1872) LR. 7 Ex 111 20.43 Fry v Lane (1888) 40 Ch D 312 17.03, 17.05 Fubilan Catering Services Ltd v Compass Group (Australia) Pty Ltd [2007] FCA 1205 13.49 Fullers Theatres Ltd v Musgrove (1923) 31 CLR 524 25.07 G Scammell and Nephew Ltd v HC & JG Ouston [1941] 1 AC 251 8.13 Garcia v National Australia Bank (1998) 194 CLR 395 9.06, 16.12 Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235; (2008) Aust Contracts Reports ¶90–274 9.06 Garrard v Frankel (1862) 30 Beav 445; 54 ER 961 14.12 Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR ¶41–703 4.10 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 13.53 GEC Marconi Systems v BHP Information Technology (2003) 128 FCR 1 4.10 Gibbons v Wright (1954) 91 CLR 423 10.17 Gillett v Holt & Anor [2000] EWCA Civ 66 24.35 Gingis v Mount Scopas Memorial College Ltd [1998] VSCA 49 16.04

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Gino D’Alessandro Constructions Pty Ltd [1987] 2 Qd R 40 24.27 Gissing v Gissing [1971] AC 886 9.06 Giumelli v Giumelli (1999) 196 CLR 101 7.08, 7.09 Glynn v Margetson & Co [1893] AC 351 9.06 Godecke v Kirwan (1973) 129 CLR 629 4.12 Re Golden Key Ltd [2009] EWCA Civ 636 9.09 Goodinson v Goodinson [1954] 2 All ER 255 18.27 Goss v Lord Nugent (1833) 5 B & Ad 58; 110 ER 713 9.04 Gould v Vaggelas (1984) 157 CLR 215 13.12, 13.13, 13.55 Graves v Legg (1854) 9 Ex 709; 156 ER 304 9.13 Gray v Dalgety & Co Ltd (1916) 21 CLR 509 11.07 Great Northern Railway Co v Witham (1873) LR 9 CP 16 12.14 Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] 1 QB 680 14.08, 14.09 Great Western Railway and Midland Railway v Bristol Corporation (1918) 87 LJ Ch 414 9.04, 9.06 Great Western Railway Co v Sutton (1869) LR 4 HL 226 15.08 Greek Orthodox Community of SA Inc v Ermogenous (2000) 77 SASR 523 5.03 Green v Sevin (1879) 13 Ch D 589 20.32, 20.35 Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 7.03, 24.35 H & E Van Der Sterren v Cibernetics (Holdings) Pty Ltd (1970) 44 ALJR 157 9.20 Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 23.07, 23.08, 23.09, 23.11, 23.20, 23.22, 23.25 Hamilton v Geraghty (1901) 1 SR Eq 81 7.05 Hamilton v Mendes (1761) 2 Burr 1198; 97 ER 787 9.06 Hamlin v Great Northern Rly Co (1856) 26 LJ Ex 20 23.25 Harmer v Armstrong [1934] Ch 65 12.10 Harrison v National Bank of Australasia Ltd [1928] 23 Tas LR 1 17.03 Harris’s Case Law Rep 7 Ch 587 3.36, 3.39 Hartog v Colin & Shields [1939] 3 All ER 566 14.12 Harvey v Edwards, Dunlop & Co Ltd (1927) 39 CLR 302 11.03, 11.11, 11.18 Harvey v Facey [1893] AC 552 3.10 Haskew v Equity Trustees Executors and Agency Co Ltd (1919) 27 CLR 231 16.08 Havyn v Webster (2005) 12 BPR 22 13.54, 13.73 Hawkesworth v Turner (1930) 46 TLR 389 11.07 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 13.21

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Heilbut, Symons & Co v Buckleton [1913] AC 30 8.10, 8.13 Hensley v Reschke (1914) 18 CLR 452 23.28 Henthorn v Fraser [1892] 2 Ch 27 3.39, 3.40 Henville v Walker (2001) 206 CLR 459; (2001) 182 ALR 37 13.54, 13.55, 13.56 Heyman v Darwins Ltd [1942] AC 356 9.17 Heywood v Wellers [1976] QB 446 23.25 Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 9.06 Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503; [1932] All ER Rep 494 9.06 Hirachand Punamchand v Temple [1911] 2 KB 330 6.12 Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 22.07, 22.13 Hobbs v London & South Western Rly Co (1875) LR 10 QB 111 23.25 Hochster v De la Tour (1853) 2 E&B 678; 118 ER 922 23.28 Hodgson v Johnson (1858) EB & E 685; 120 ER 666 11.07 Hoenig v Isaacs [1952] 2 All ER 176 19.08, 19.17, 19.20 Holland v Wiltshire (1954) 90 CLR 409 20.25 Holman v Johnson (1775) 1 Cowp 341; 98 ER 1120 18.16, 18.20, 24.20 Holmes v Burgess [1975] 2 NZLR 311 9.17 Holwell Securities Ltd v Hughes [1974] 1 WLR 155 3.40 Homburg Houtimport BV v Agrosin Private Ltd (The ‘Starsin’) [2004] 1 AC 715 9.06 Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 9.15, 9.17, 20.46 Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194 4.10 Horsey v Graham (1869) LR 5 CP 9 11.07 Horton v Jones (1935) 53 CLR 475 8.13, 11.07, 24.27 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 8.13 Household Fire and Carriage Accident Insurance Company v Grant (1879) 4 Ex D 216 3.39, 3.40 Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68 9.06 Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 4.10 Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91 4.10 Huguenin v Baseley (1807) 14 Ves 273; 33 ER 526 16.08 Hunt v Wilson [1978] 2 NZLR 261 20.32

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Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 18.16, 24.20 Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd (1933) 39 Com Cas 1 9.04 Hyde v Wrench (1840) 49 ER 132; 3 Beav 334 3.31, 3.33 Iambic Pty Ltd v Northwind Holdings Pty Ltd [2001] WAS C 44 25.07 Idameneo (No 123) Pty Ltd v Ticco Pty Ltd [2004] NSWCA 329 20.46 Imperial Loan Co v Stone (1892) 1 QB 599 10.17 Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 16.08 Ingram v Little [1961] 1 QB 31 14.15, 14.16 Inland Revenue Commissioners v Duke of Westminster (1936) AC 1 19.06 Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11 6.12 Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 8.23 International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 9.06, 9.08, 18.16 Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (2008) 257 ALR 292 23.34 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 9.06 ITO Ltd v Miida Electronics Inc (1986) 28 DLR (4th) 641 12.10 Jackson v Broatch (1900) 37 SLR 707 3.29 Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468 12.10 Jackson v Union Marine Insurance Co Ltd (1874) LR 10 CP 125 9.15 James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 9.06 Jamshed Khodaram Irani v Burjorji Dhunjibha (1915) LR43IndApp 26 20.32 Janson v Driefontein Consolidated Mines Ltd [1902] AC 484 18.18 JC Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282 11.07, 25.03, 25.13 Jetstar Airways Pty Ltd v Free [2008] VSC 539 26.54 JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 8.12, 8.13 Jobern Pty Ltd v BreakFree Resorts (Victoria) Pty Ltd (2008) Aust Contract Reports ¶90–269 4.10 Jobson v Johnson [1989] 1 All ER 621 23.34 Johnson v Buttress (1936) 56 CLR 113; [1936] HCA 41 16.04, 16.08

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XXV

Johnson v Dodgson (1837) 2 M&WR 656 11.16 Johnson v Smith [2010] NSWCA 306 17.16 Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 17.09 Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 20.39 Kandall v Hamilton (1879) 4 App Cas 504 20.39 Kerr J’s Case [1976] 1 Lloyd’s Rep. 293 15.08 Khan v Khan [2004] NSWSC 1189 16.04 King v Wilson [1960] NZLR 272 20.35 King’s Norton Metal Co Ltd v Edridge Merrett & Co Ltd (1897) 14 TLR 98 14.15 Kiriri Cotton Ltd v Dewani [1960] AC 192 24.20 Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 13.65 Kleinwort Benson Ltd. v Lincoln City Council [1999] 2 AC 349 24.35 Kocotis v D’Angelo (1957) 13 DLR (2d) 69 18.14 Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 9.06 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 241 ALR 88; [2007] HCA 61; (2007) 233 CLR 115 9.16, 9.17, 20.21, 20.46 Koufos v Czarnikow Ltd [1969] 1 AC 350 23.08 L Schuler AG v Wickman Machine Tool Sales Ltd (1974) AC 235 9.04, 9.06 Laing O’Rourke v Transport Infrastructure [2007] NSWSC 723 4.10 Laird v Pim (1841) 7 M & W; 151 ER 20.52 Lake v Simmons [1927] AC 487 9.06 Lakeman v Mountstephen (1874) LR 7 HL 17 11.03 Lampleigh v Braithwaite (1615) 80 ER 255 6.14, 6.15 Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd [2014] WASC 162 24.31 Lamshed v Lamshed (1963) 109 CLR 440 25.10 Lancashire Loans Ltd v Black [1934] 1 KB 380 16.08 Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 13.65 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23 9.17, 20.11, 20.15, 20.21, 20.24, 20.25, 20.35, 20.43 Laythoarp v Bryant [1835] EngR 383; (1835) 1 Bing NC 421; (1835) 131 ER 1179 3.05 Leach Nominees Pty Ltd v Walter Wright Pty Ltd [1986] WAR 244 3.40 Lee v Surfers Paradise Beach Resort Pty Ltd [2008] 2 Qd R 249; [2008] QCA 29 20.46 Leeman v Stocks [1951] Ch 941 11.14

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Legione v Hateley (1983) 152 CLR 406 7.06, 16.12, 20.11, 23.34, 23.37 Lego Australia Pty Ltd v Paul’s (Merchants) Pty Ltd (1982) 42 ALR 344 13.34 Lenneberg v McGirr (1919) 19 SR (NSW) 83 20.35 Les Affreteurs Reunis Societe Anonyme v Leopold Walford (London) Ltd [1919] AC 801 12.10 L’Estrange v F Graucob Ltd [1934] 2 KB 394 8.04 Lewis v Averay [1972] 1 QB 198 14.15, 14.16 Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350 23.06 Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 9.04, 9.06 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 9.07 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 24.35 Loftus v Roberts (1902) 18 TLR 532 4.10, 4.12 London and River Plate Bank Ltd v Bank of Liverpool Ltd [1896] 1 QB 7 24.35 Long v Millar (1879) 4 CPD 450 11.19 Louinder v Leis (1982) 149 CLR 509 20.25, 20.32 Louth v Diprose (1992) 175 CLR 621 17.05, 17.07, 17.09 Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 24.05, 24.22, 24.24, 24.31 Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; (1938) 61 CLR 286 9.17 Macdonald v Longbottom (1859) 1 E & E 977; 120 ER 1177 9.04 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 20.46 Macrory v Scott (1850) 5 Ex 907 11.03 Maddison v Alderson (1883) 8 App Cas 467 7.03, 11.35 Magee v Pennine Insurance Co Ltd [1969] 2 QB 507 14.08 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 9.06 Maguire v Makaronis (1997) 188 CLR 449; 144 ALR 729 13.65 Mahoney v Lindsay (1980) 33 ALR 601 20.43 Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 9.06 Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524 22.05, 22.12, 22.13 Marks v GIO Australia Holdings Pty Ltd (1998) 158 ALR 333 13.64, 13.65 Martinez v Socoma Companies Inc (1974) 521 P (2d) 841 12.10

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Maskell v Horner [1915] 3 KB 106 15.08 Masters v Cameron (1954) 91 CLR 353 4.14, 4.15, 4.16, 5.03 May and Butcher Ltd v The King [1934] 2 KB 17 4.12 Mayfair Trading Co Pty Ltd v Dreyer (1958) 101 CLR 428 24.20 Mayson v Clouet (1924) AC 980 20.52 MBF Investments Pty Ltd v Nola [2011] VSCA 114 9.07 McBride v Sandland (1918) 25 CLR 69 11.35 McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 9.06 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 20.52 McGrath; re Pan Pharmaceuticals v Australian Naturalcare Products (2008) ATPR ¶42–213 13.49 McMurray v Spicer (1868) LR5Eq 527 20.32 McNally v Waitzer [1981] 1 NSWLR 294 20.32 McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 14.04, 14.08, 14.12 McWilliam’s Wines Pty Ltd v McDonald’s System of Australia Pty Ltd 13.34 Medical Benefits Fund of Australia Ltd v Cassidy [2003] FCAFC 289 13.69 Meehan v Jones (1982) 149 CLR 571 4.10 Melanesian Mission Trust Board v Australian Mutual Provident Society [1997] 1 NZLR 391 9.06 Mersey Steel and Iron Co v Naylor; Benzon & Co (1882) 9 QBD 648 20.15 Metro-Goldwyn-Mayer Pty Ltd v Greenham [1966] 2 NSWR 717 23.34 Midland Silicones Ltd v Scruttons Ltd [1962] AC 446 12.14 Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 270 ALR 204 13.40, 13.42 Miller v Miller (2011) 242 CLR 446 18.16, 24.20 Miramar Maritime Corporation v Holborn Oil Trading Ltd [1984] AC 676 9.06 Mitchinson v Hewson (1799) 7 TR 348 1.10 MLC Assurance v Evatt (1968) 122 CLR 556 13.20, 13.21 Mondel v Steel (1946) 72 CLR 386 19.17, 24.32 Moore v Dimond [1929] HCA 43 20.15 Moorwell Holdings Ltd v Barr [1956] Ch. 551; [1956] 1 WLR. 918 20.32 Morgan v Beeby [1968] 2 NSWR 609 20.32 Morris v Baron & Co [1918] AC 1 21.03, 21.06 Morrison v Coast Finance Ltd (1965) 55 DLR (2d) 710 17.03

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Moses v Macferlan [1558-1774] All ER Rep 581; (1760) 2 Burr 1005; (1760) 97 ER 676 24.08, 24.20 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 Clr 104 9.09, 9.10 Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 13.54 Muskham Finance Ltd v Howard [1963] 1 QB 904 14.20 Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 6.11, 6.12 Nader v Urban Transit Authority of New South Wales (1985) 2 NSWLR 501 23.06 Nash v Inman [1908] 2 KB 1 10.04 National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 22.07 National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90; (2004) 49 ACSR 369 13.38, 13.69 National Insurance Co of New Zealand Ltd v Espagne (1961) 105 CLR 569 23.06 Needler v Guest (1647) Aleyn 9; 82 ER 886 19.11 Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 20.25, 20.32, 20.35 Neill v Hewens (1953) 89 CLR 1 11.14 Nelson v Bellamy (2000) 10 BPR 19,011 9.17 Nelson v Nelson (1995) 184 CLR 538 18.16, 18.20, 18.21, 24.20 New South Wales v Bardolph (1934) 52 CLR 455 10.21 New South Wales v Commonwealth of Australia No 1 (1992) 46 CLR 155 10.21 New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] 1 AC 154 4.10, 12.14 Nichols v Jessup (1986) 1 NZLR 226 17.05 Noble v Ward (1867) LR 2 Ex. 135 21.03 Noor Al Houda Islamic College Pty Ltd v Bankstown Airport Ltd (2005) 215 ALR 625 13.44 Nordenfelt v Maxim-Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 18.06, 18.07, 18.18 North Ganalanja Aboriginal Corporation v Queensland (1996) 185 CLR 595 9.09 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] 1 QB 705 15.08 Norton Australia Pty Ltd v Streets Ice Cream Pty Ltd (1968) 120 CLR 635 23.06 NT Power Generation Pty Ltd v Power and Water Authority (2001) 184 ALR 481; (2001) ATPR ¶41–814 4.10 Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd [1994] 1 VR 74 3.40

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O’Brien v Melbank Corporation Ltd (1991) 7 ACSR 19 18.16 Ocean Tramp Tankers Corporation v V/O Sovfracht [1964] 2 QB 226 22.05 Office of Fair Trading v Abbey National plc [2010] 1 AC 696 26.30, 26.36 Office of Fair Trading v Ashbourne Management Services Ltd [2011] EWHC 1237 26.30 Office of Fair Trading v Foxtons Ltd [2009] EWHC 1681 26.36 Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 20.43 Olsson v Dyson (1969) 120 CLR 365 21.13 Ooh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255 22.12 Ormes v Beadel (1860) 2 De GF & J 333; (1860) 45 ER 649 15.08 O’Rorke v Bolingbroke (1877) 2 App Cas 814 17.03, 17.05 O’Rourke v Hoeven (1974) 1 NSWLR 622 11.07 Oscar Chess Ltd v Williams [1957] 1 All ER 325 8.10 Overlook Management B V v Foxtel Management Pty Ltd [2002] NSWSC 17 8.27 Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (2005) Aust Contract Reports 90–213 4.10 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 9.06, 9.07, 9.08 Paciocco v ANZ Banking Group [2015] FCAFC 50; (2016) 333 ALR 569 17.16, 23.35, 23.36, 23.37 Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 All ER 470 24.24 Re Pan Pharmaceuticals v Australian Naturalcare Products (2008) ATPR ¶42-213 13.49 Panoutsos v Raymond Hadley Corporation of New York [1917] 2 KB 473 20.32 Pao On v Lau Yiu Long [1980] AC 614; [1979] 3 All ER 65 6.12, 6.15 Park v Brothers [2005] HCA 73; (2005) 80 ALJR 317 9.06 Park v Park (1954) P 112 10.17 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 13.34, 13.67 Parker v Great Western Railway Co (1844) 7 Man & G 253 15.08 Parkin v Thorold (1852) 16 Beav 59; (1852) 51 ER 698 20.32 Pasedina (Holdings) Pty Ltd v Khouri (1977) BPR 9460 25.07 Pasley v Freeman (1789) 3 Term Rep 51 13.17 Patel v Ali [1984] 1 Ch 283 25.07

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Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 12.10, 24.02, 24.03, 24.18, 24.20, 24.24, 24.26, 24.27 Payzu Ltd v Saunders [1919] 2 KB 581 23.14 Pearce v Watts (1875) LR 20 Eq 492 4.03 Pegg v Wisden (1852) 16 Beav 239; (1852) 51 ER 770 20.35 Peirce v Corf (1874) LR 9 QB 210 11.19 Perpetual Trustee Co Ltd v Khoshaba NSWCA 41 17.16 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 20.32 Petelin v Cullen (1975) 132 CLR 355 14.20 Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235 20.11, 20.39, 20.43 Phillips v Brooks [1919] 2 KB 243 14.15, 14.16 Phillips v Ellinson Brothers Pty Ltd (1941) 65 CLR 221 24.03 Phillips v Lamdin [1949] 2 KB 33 20.32 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 8.04, 9.20 Pillans v Van Mierop 3 Burr (1663) 1.07, 1.08 Pilmer v Duke Group Ltd (In Liq) (2001) 207 CLR 165 17.07 Pinnel’s Case (1602) 77 ER 237 6.06, 6.12 Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) (HL) [1982] AC 724 22.12 Pirie v Saunders (1960) 104 CLR 149 11.14 Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 4.10, 4.12, 5.03 PMT Partners Pty Ltd (in liquidation) v Australian National Parks and Wildlife Service (1955) 184 CLR 301 11.07 Pordage v Cole (1669) 1 Wms Saund 319l 19.11 Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1978) 139 CLR 231 9.20, 12.10 Portman v Middleton (1858) 4 CB (NS) 322 23.11 Powell v Jones [1968] SASR 394 4.12 Powercell Pty Ltd v Cuzeno Pty Ltd [2004] NSWCA 51; (2004) 11 BPR 21,429 11.07, 11.36 Prenn v Simmonds [1971] 3 All ER 237 9.04, 9.06, 9.09 Price v Price (1852) 1 DeG M & G 308 16.08 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 9.17, 20.25 Psaltis v Schultz (1948) 76 CLR 547 20.43

Queensland Stations Pty Ltd v Commissioner of Taxation (1945) 70 CLR 539 19.11

Quadrangle Development and Construction Co Ltd v Jenner [1974] 1 All ER 729; [1974] 1 WLR 68 20.35

Sadler v Henlock (1855) 4 El & Bl 570; 119 ER 209 19.11

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Radford v De Froberville [1978] 1 All ER 33; [1977] 1 WLR 1262 23.23 Raineri v Miles [1981] AC 1050 20.32 Ramsden v Dyson (1866) LR 1 HL 129 11.36 Rann v Hughes (1778) 4 Brown 27; 7 Term Reps 350n; 101 ER 1014n 1.07, 1.08 Rannie v Irvine (1844) 7 Man & G 969; 135 ER 393 18.06 Rawson v Hobbs (1961) 107 CLR 466 20.17, 20.21, 20.43 Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989; 3 All ER 570 9.04, 9.06, 9.09 Rederiaktiebolaget Amphitrite v The King (1921) 3 KB 500 10.21 Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516 23.06 Regent v Millett (1976) 133 CLR 679 11.35 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 4.10, 8.22, 8.23 Reynolds v Fury (1921) VLR 14 19.06 Richards Construction Co v Air Conditioning Co of Hawaii Inc; 318 F 2d 410 (9th Cir 1963) 6.12 Rightside Properties Ltd v Gray [1975] Ch 72 20.32 Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656; 22 ALR 306 23.34, 23.37 River Wear Commissioners v Adamson (1877) 2 App Cas 743 9.04 Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (Formerly CEL Home Video Pty Ltd) (1997) 42 NSWLR 462 20.46 Robinson v Harman (1848) 1 Ex 850; 154 ER 363 23.03, 23.15, 23.18, 23.20, 23.23 Ross T Smyth & Co Ltd v T D Bailey; Son & Co [1940] 3 All ER 60 20.15 Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; 185 ALR 335 24.11 Royal Bank of Scotland Plc v Etridge (No 2) [2002] 2 AC 773 16.09 Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45; 76 ALJR 436; 186 ALR 289 4.10, 5.03, 9.06, 9.08 Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 2 AC 378 4.10, 16.04 Ruxley Electronics Ltd v Forsyth [1996] AC 344 23.23 Ryder v Wombwell (1868) LR 4 Ex 32 10.04

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Samsung Electronics Australia Pty Ltd v LG Electronics Australia Pty Ltd [2011] FCA 664 13.35 Re Sandwell Park Colliery Co; Field v The Company [1929] 1 Ch 277 20.32 Sargent v ASL Developments Ltd (1974) 131 CLR 634 20.39 Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004 14.20 Saunderson v Jackson 2 B&P 138 11.16 Scarf v Jardine (1882) 7 App Cas 345 21.13 Re Schebsman (1944) Ch. 83; [1943] 2 AER 768 12.10 Schneider v Norris (1814) 2 M. & S. 286 11.16 Scotson v Pegg (1861) 6 H & N 295 12.14 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 4.10, 9.04 Seddon v North Eastern Salt Company Ltd [1905] 1 Ch 326 13.23 Re Selectmove Ltd (Court of Appeal of England, 21 December 1993; unreported) 6.12 Selig v Wealthsure Pty Ltd (2015) 320 ALR 47 13.61 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 4.10, 24.35 Selmer Co v Blakeslee-Midwest Co 704 F 2d 924 (7th Cir 1983) 6.12 Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 4.10 Seton v Slade [1775-1802] All ER Rep 163; (1802) 7 Ves 265 20.32 Sewell v Webster (1859) 29 LJ Ch 71 25.07 Shaddock & Associates v Parramatta City Council (1981) 150 CLR 225 13.21 Sharjade Pty Ltd v The Commonwealth [2009] NSWCA 373; (2009) 15 BPR 28 20.46 Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 20.43 Shevill v Builders Licensing Board (1982) 149 CLR 620 9.17, 20.21, 20.25 Shogun Finance Ltd v Hudson [2004] 1 AC 919 14.17 Short v Stone (1846) 8 QB 358 9.15 Simpson Steel Structures v Spencer [1964] WAR 101 19.21 Sinclair v Bowles (1829) 9 B&C 92 19.17 Singh v The Commonwealth (2004) 222 CLR 322 9.06 Sir Harry Peachy v Duke of Somerset (1720) 1 Strange 447 23.34 Slade’s Case (1602) 4 Co Rep 91; 76 ER 1072 1.03, 1.04, 1.05 Smith v Hamilton [1951] Ch 174 20.32

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Smith v Hughes (1871) LR 6 QB 597 14.06, 14.12 Smith v Kay (1859) 7 HLC 750; 11 ER 299 16.08 Smith v Land and House Property Corporation (1885) 28 Ch D 7 13.07, 13.08 Smith v William Charlick Ltd (1924) 34 CLR 38 15.08 Smythe v Thomas [2007] NSWSC 844 3.14 Solle v Butcher [1950] 1 KB 671 14.04, 14.06, 14.07, 14.08, 14.09 South Australia v The Commonwealth (1962) 108 CLR 130 5.03 South Eastern Railway Co v Associated Portland Cement Manufacturers (1900) Ltd [1910] 1 Ch 12 4.03 South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478; (1999) 10 BPR 18 9.06 Spencer v Harding (1870) Law Rep 5 CP 561 3.05 Spriggs v Federal Commissioner of Taxation (2009) 239 CLR 1 26.16 St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267 18.14 State of … see names of states State Trading Corporation of India Ltd v Golodetz Ltd [1989] 2 Lloyds Rep 279 20.46 Steadman v Steadman [1976] AC 536 11.19, 11.35 Steele v Tardiani (1946) 72 CLR 386 19.11, 24.24, 24.31, 24.32 Steinberg v Scala (Leeds) Ltd [1923] 2 Ch 452 10.08 Stephens v Board of Education of City of Brooklyn, 79 NY 183, 35 Am.Rep. 511 24.35 Stephenson, Jaques & Co v McLean (1880) 5 QBD 346 3.33 Stern v McArthur (1988) 165 CLR 489 20.11 Stickney v Keeble [1915] AC 386 20.32, 20.35, 20.43 Stilk v Myrick (1809) 170 ER 1168 6.08, 6.09, 6.10, 6.12, 6.13 Stivactas v Michaletos (No 2) (1993) Aust Contract Reports 90–031 16.04 Stocznia Gdanska SA v Latvian Shipping Company [1998] 1 WLR 574 24.31 Stokes v Whicher [1920] 1 Ch 411 11.18, 11.19, 11.20 Re Stone and Saville’s Contract [1963] 1 All ER 353 20.32 Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 9.20 Summers v The Commonwealth (1919) 26 CLR 180 20.43 Sumpter v Hedges [1898] 1 QB 673 19.11, 19.17, 24.24

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XXX TABLE OF CASES

Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 4.12, 20.21, 25.07 Svanosio v McNamara (1956) 96 CLR 186 14.07, 14.09, 14.12 Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699 4.12, 20.17 Sydney Corporation v West (1965) 114 CLR 481 9.20 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 23.23 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 13.34, 13.38 Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 15 98 CLR 93 3.40 Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 17.09 Ex parte Taylor 8 DM&SG 254 10.08 Taylor v Brown (1839) 2 Beav 180; (1839) 48 ER 1149 20.32, 20.35 Taylor v Johnson (1983) 151 CLR 422 9.06, 14.07, 14.09, 14.12 Taylor v The Crowland Gas and Coke Co (1854) 10 Ex 293; 156 ER 455 18.14 Tenji v Henneberry & Associates Pty Ltd (2000) 172 ALR 679 13.64, 13.65 Texas Bank (Amalgamated Investment and Property Co) v Texas Commerce International Bank [1982] QB 84 7.03, 7.05 Thames and Mersey Marine Insurance Co Ltd v Gunford Ship Co Ltd [1911] AC 529 18.18 The Craftsmen Restoration & Renovations Pty Ltd v Boland [2011] NSWCA 147 20.46 Thom (or Simpson) v Sinclair [1917] AC 127 23.06 Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd (1966) 115 CLR 353 9.20 Thomas v Brown (1997) 37 IPR 207 24.27 Thomas v Monaghan [1975] 1 NZLR 1 20.32 Thomas v The Queen (1874) LR 10 QB 31 10.21 Thomas v Williams (1830) 10 B & C 664; 109 ER 597 11.07 Thompson v Palmer (1933) 49 CLR 507 7.03 Thorby v Goldberg (1964) 112 CLR 597 4.12 Tilley v Thomas (1867) LR3 ChApp 61 20.32 Timmins v Moreland Street Property Co Ltd [1958] Ch 110 11.19, 11.20 Ting v Blanche (1993) 118 ALR 543 13.49 Todrell Pty Ltd v Finch [2007] QS C 363; BC200710537 11.20 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 8.04, 9.06, 9.07, 9.08 Tooth v Fleming (1859) Legge 1152 3.40

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Torrance v Bolton (1872) 8 Ch App 118 14.06 Trade Inc v Iino Ltd [1973] 2 All ER 144 20.43 Trading Corporation of India Ltd v Golodetz cf Geraldton Building Co Pty Ltd v Christmas Island 20.46 Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 9.13, 9.14, 9.17, 20.25 Trans-Pacific Insurance Co (Australia) Ltd v Grand Union Insurance Co Ltd (1989) 18 NSWLR 675 9.17 Trawl Industries of Australia Pty Ltd & ors v Effem Foods Pty Ltd [1992] FCA 377 4.10 Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689 9.17 Trident General Insurance Co Ltd v McNiece Bros Proprietary Ltd (1988) 165 CLR 107 12.10, 12.11, 12.12 Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93 22.05 Tweddle v Atkinson (1861) 1 B&S 393; 121 ER 762 12.10 Twinsectra Ltd v Yardley [2002] 2 AC 164 4.10 Union Bank of Australia Ltd v Whitelaw [1906] VLR 711 17.03 United Group Rail Services Ltd v Rail Corporation of New South Wales (2009) 74 NSWLR 618 4.10 United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 20.32 United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 4.10 United States v Stump Home Specialities Manufacturing Incorporated 905F 2d 1117 (1990) 6.12 Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401 9.15, 20.43 Universe Tankships Inc v International Transport Workers’ Federation [1983] 1 AC 366 15.07 Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 4.10 Utica City National Bank v Gunn (1918) 118 NE 607 9.04, 9.06 Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 12.10 Vane v Vane (1873) 8 Ch App 383 20.39 Vickery v Woods (1952) 85 CLR 336 21.13 Victoria Laundry (Windor) Ltd v Newman Industries Ltd [1949] 2 KB 528 23.10, 23.11 Victors v Davies 12 M & W 3.05

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TABLE OF CASES

Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 4.10, 8.25, 8.27 W J Tatem Ltd v Gamboa. [1939] 1 KB 132 22.05 Walford v Miles [1992] 2 WLR 174 4.07, 4.10 Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd (2005) 218 ALR 1 9.17 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 1.11, 7.03, 7.04, 7.05, 7.06, 7.09, 11.36, 12.10, 20.43 Watcham v Attorney-General of the East Africa Protectorate [1919] AC 533 9.06 Waterside Workers’ Federation of Australia v Stewart [1919] HCA 63 23.34 Watkins v Combes (1922) 30 CLR 180 16.04, 17.03 Watts v Morrow [1991] 4 All ER 937 23.25 Wauthier v Wilson (1912) 28 TLR 239 11.03 Webster v Cecil (1861) 30 Beav 62; 54 ER 812 14.12 Wenham v Ella (1972) 127 CLR 454 23.25 Wenzel v Australian Stock Exchange Ltd (2002) 125 FCR 570 4.10 West Sussex Properties Ltd v Chichester District Council [2000] All ER (D) 887 14.08 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 17.22 Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12 24.20 Western Export Services Inc v Jireh International Pty Ltd (2011) 86 ALJR 1; 282 ALR 604; [2011] HCA 45 9.08, 9.09 Western Transfer Co v Fry (1920) 55 DLR 291 6.12 Westminster City Council v National Asylum Support Service [2002] UKHL 38; 1 WLR 2956; 4 All ER 654 9.06 Westralian Farmers Co-operative Ltd v Southern Meat Packers Ltd [1981] WAR 241 12.10 Whelpdale’s Case (1604) 5 Co Rep 119a; 77 ER 239 8.04 Whincup v Hughes (1871) LR 6 CP 78 24.13 White v Neaylon (1886) 11 App Cas 171 11.35

BUT_CLCB3_04768_CH0_4pp_SI.indd 31

XXXI

Whitlock v Brew (1967) 118 CLR 445 4.03 Wigan v Edwards (1973) 47 ALJR. 586 6.12 Wigand v Bachmann-Bechtel Brewing Co 118 NE 618 (1918) 4.10 Wilde v Gibson (1848) 9 ER 897 13.23 Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 9.08 Wilkinson v Osborne (1915) 21 CLR 89 18.18 Williams v Carwardine (1833) 5 C&P 566 3.05 Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1; [1990] 1 All ER 512 6.10, 6.11, 6.12 Williamson v Murdoch (1912) 14 WALR 54 19.23 Wilson v Darling Island Stevedoring and Lighterage Co Ltd (1956) 95 CLR 43 12.10, 12.13, 12.14 Wilson v Dexter 135 Ind App 247; 192 NE 2d 469 (1963) 6.12 Winchcombe Carson Trustee Co Ltd v Ball-Rand Pty Ltd [1974] 1 NSWLR 477 20.32 Wisconsin Knife Works v National Metal Crafters 781 F 2d 1280 6.12 Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 All ER 571; [1980] 1 WLR 277 20.35 Woods v Mackenzie Hill Ltd [1975] 2 All ER 170; [1975] 1 WLR 613 20.32 Woods v Tomlinson [1964] NZLR 399 20.32 Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 18.14, 18.16, 18.20 Yaxley v Gotts [2000] Ch 162 24.20 Yeoman Credit Ltd v Latter [1961] 1 WLR 828 11.03 Yerkey v Jones (1940) 63 CLR 649 16.10, 16.12 Yoshimoto v Canterbury Golf International Ltd [2001] 1 NZLR 523 at 542 9.06 Zamperoni Decorators Pty Ltd v Lo Presti [1983] VR 338 19.21 Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530 9.06, 9.09

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TABLE OF STATUTES COMMONWEALTH A New Tax System (Goods and Services Tax) Act 1999 27.112 Acts Interpretation Act 1901 26.06 s 2B 26.08 Australian Constitution s 27 10.21 s 29 10.21 s 51(i) 13.31 s 75(iv) 10.21 Australian Consumer Law 12.09, 13.01, 13.02, 13.25, 15.09, 17.11, 26.07, 26.28, 27.01, 27.02, 27.03, 27.04, 27.05, 27.53, 27.55, 27.58, 27.59 Ch 3 Pt 3-2 Div 1 27.01 s 2 13.30, 13.32, 13.52, 26.05, 26.60, 27.06, 27.08, 27.11, 27.13, 27.49, 27.57 s 2(1) 17.17 s 2(2) 13.39 s 3 26.09, 27.09 s 4 13.46, 13.47, 13.48, 13.50 s 4(3) 13.50 s 5 27.06 s 7 27.07, 27.44 s 8 27.08 s 15 26.57 s 15(1)(m) 27.102 s 18 13.02, 13.26, 13.27, 13.28, 13.29, 13.41, 13.49, 13.51, 13.52, 13.56, 13.60, 13.62, 13.64, 13.66 s 18(1) 27.102 s 20 17.12, 17.13, 17.16 s 21 17.14, 17.15, 17.16 s 21(4)(a) 17.16

BUT_CLCB3_04768_CH0_4pp_SI.indd 32

s 22 17.14, 17.15 s 23 26.01, 26.04, 26.09, 26.37, 26.56, 26.58 s 23(2) 26.01, 26.56 s 23(4) 26.11 s 24 26.01, 26.38, 26.39, 26.43, 26.52 s 24(2) 26.40, 26.41 s 24(3) 26.40, 26.42 s 24(4) 26.47 s 25 26.38, 26.51, 26.52, 26.53 s 26(1) 26.28 s 26(2) 26.32, 26.33 s 27 26.01, 26.19, 26.21, 26.22 s 27(1) 26.20 s 27(2) 26.20 s 28 26.24 s 28(1)(c) 26.24 s 29(1)(m) 27.102 s 30 13.61 s 50 15.09 s 51 27.14, 27.104 s 51(1) 27.15, 27.16, 27.17 s 51(2) 27.17 s 51(3) 27.17 s 52 27.14, 27.19, 27.104 s 52(1) 27.18 s 52(3) 27.18 s 53 27.14, 27.21, 27.104 s 53(1) 27.20 s 53(2) 27.22 s 53(3) 27.23 s 53(4) 27.24 s 54 27.27, 27.84, 27.89, 27.91 s 54(1) 27.25 s 54(2) 27.26, 27.28

s 54(3) 27.28 s 54(4) 27.27 s 54(5) 27.27 s 54(6) 27.27 s 54(7) 27.27 ss 54-59 27.05, 27.11, 27.13 s 55 27.31, 27.33, 27.36, 27.91 s 55(1) 27.30 s 55(2) 27.34 s 55(3) 27.36 s 56 27.38, 27.43, 27.85, 27.89, 27.91 s 56(1) 27.37 s 56(2) 27.38 s 56(3) 27.39 s 57 27.39, 27.41 s 57(1) 27.40 s 57(2) 27.43 s 58 27.45, 27.46, 27.86, 27.89 s 58(1) 27.44 s 58(2) 27.47 s 59 27.50, 27.51, 27.52 s 59(1) 27.48, 27.86, 27.89 s 59(2) 27.48 s 60 27.61, 27.67 ss 60-62 27.54 s 61 27.67 s 61(1) 27.62, 27.63 s 61(2) 27.64, 27.65 s 61(3) 27.67 s 61(4) 27.67 s 62 27.67, 27.68 s 63(a) 27.60 s 64 26.37, 27.101, 27.104, 27.109 s 64A 27.104, 27.108 s 64A(3) 27.105

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TABLE OF STATUTES XXXIII

s 64A(4) 27.107 s 87CC 13.60 s 100(1) 27.112 s 100(4) 27.112 s 102(1) 27.53 s 102(3) 27.52 s 139A 27.109, 27.110, 27.111 s 139A(2) 27.109 s 139A(4) 27.110 s 139A(5) 27.110 s 232 17.17, 26.55 s 232(1) 26.60 s 232(3) 26.60 s 236 13.51, 13.52, 13.56, 13.60, 13.64, 17.17, 26.56 s 237 13.51, 13.60, 13.61, 13.64, 17.17, 26.55, 26.56, 26.57, 26.58, 26.59 s 237(1) 26.59 s 237(3) 26.59 s 243 13.64, 17.17 s 243(a) 26.59 s 243(d) 26.59 s 244 13.64 s 250 26.56 s 250(1) 26.55 s 259(2) 27.77 s 259(2)(b) 27.78 s 259(3)(a) 27.72 s 259(3)(b) 27.75 s 259(4) 27.80, 27.90 s 259(5) 27.80 s 259(6) 27.69, 27.80 ss 259-266 27.69 s 260 27.70 s 262(1) 27.73 s 262(2) 27.73 s 263(2) 27.72 s 263(3) 27.72 s 263(4) 27.74 s 263(5) 27.74 s 264 27.74 s 265 27.76 s 265(2) 27.76 s 265(3) 27.76 s 266 27.06, 27.10 s 267(1)(c) 27.100 s 267(2)(a) 27.98

BUT_CLCB3_04768_CH0_4pp_SI.indd 33

s 267(2)(b) 27.99 s 267(3) 27.95 s 267(4) 27.100 s 267(5) 27.93, 27.100 ss 267-270 27.93 s 268 27.94 s 269(2) 27.96 s 269(3) 27.96, 27.99 s 270 27.97 s 270(1)(c) 27.97 s 270(1)(d) 27.97 s 270(1)(e) 27.97 s 271 27.83, 27.90 s 271(1) 27.84 s 271(2) 27.84 s 271(3) 27.85 s 271(4) 27.85 s 271(5) 27.86 s 271(6) 27.89 s 271(7) 27.87 ss 271-273 27.69, 27.83 s 272 27.88 s 273 27.87 s 274(1) 27.90 s 274(2) 27.91 s 274(4) 27.92 s3 26.08 Australian Securities and Investments Commission Act 2001 26.01, 26.06, 27.03, 27.58 ss 12BF-12BM 26.02, 26.05 Banking Act 1959 s 8 18.14 Carriage of Goods by Sea Act 1924 12.14 Carriage of Goods by Sea Act 1991 s 7(1) 26.24 Competition and Consumer Act 2010 13.25, 18.29, 27.01 Pt V Div 2 18.03 Pt XI 13.28 Pt XI Div 2 27.01 Sch 2 13.25, 15.09, 17.11, 26.60, 27.01 s 4 13.28 s 4F(1)(b) 26.10 s 4L 18.32, 18.33 s 6 13.28, 27.03 s 52 13.57 ss 87CB-87CC 13.62

ss 87CB-87CI 13.59 s 87CD 13.59 s 87CF 13.59 s 130 27.01 s 131 13.28, 26.01, 27.03 s 131A 26.01, 26.05, 27.60 s 137B 13.52, 13.56, 13.57 ss 138-138B 26.60 s 139A 26.37 s 237(1) 26.60 s 290A 26.12 Competition and Consumer Regulations 2010 reg 90 27.53 Contracts Review Act s 9(2)(a) 15.07 Corporations Act 2001 10.21, 27.58 Income Tax Assessment Act 1936 s 261 24.18 Insurance Contracts Act 1984 s 9 26.25 s 15 26.25 s 48 12.12 Judiciary Act 1903-1933 s 58 10.21 s 64 10.21 s 65 10.21 s 66 10.21 Limitation Act s 5(6) 7.05 National Credit Code 26.26 Telecommunications Act 1975 13.28 Trade Marks Act 1955 13.34 Trade Practices Act 1974 13.02, 13.28, 13.58, 15.09, 27.02 Pt IV 13.65 Pt IVA 13.65 Pt IVB 13.65 Pt V 13.55, 13.65 Pt V Div 2 27.01 Pt VI 17.07 s 51(2) 13.49 s 51A 13.48, 13.49, 13.50 s 51A(1) 13.49 s 51A(2) 13.49 s 51AA 15.07, 17.07, 17.12 s 51AB 15.07, 17.07 s 51AC 15.07

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XXXIV TABLE OF STATUTES

ss 51B-51AC 17.14 s 52 13.02, 13.25, 13.31, 13.34, 13.40, 13.49 s 52(1) 13.31 s 53A 13.49 s 66 27.29 s 70 26.28 s 71 26.28 s 74 26.28 s 74A 27.07 s 82 13.51, 13.55 s 82(1) 13.55 s 82(1B) 13.52, 13.58 s 87 13.51, 13.64, 13.65 s 87(1) 13.65 s 87(2) 13.65 s 87(2)(a) 13.65 Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2009 26.01 Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2010 26.51 Sch 7 Pt 2 26.23 Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 26.01 Uniform Companies Acts Pt IV 18.16 Sch 7 18.16 s 82 18.16

AUSTRALIAN CAPITAL TERRITORY Civil Law (Property) Act 2006 s 204 11.10 s 501 20.27 Electronic Transactions Act 2001 s 8 11.27 s 9 11.31 s 13A 3.43 s 13B 3.44 s 14B 3.08 s 14E 3.46 Fair Trading Amendment (Australian Consumer Law) Act 2010 13.25, 26.01 Fair Trading (Australian Consumer Law) Act 1992 13.25, 26.01, 26.23

BUT_CLCB3_04768_CH0_4pp_SI.indd 34

s 7 17.11, 27.03, 27.07 s 10 26.06, 26.08 s 11 13.29, 26.01 Guardianship and Management of Property Act 1991 s 8 10.20 Land Titles Act 1925 s 92 8.08 Mercantile Law Act 1962 s 12 11.6, 11.12 Personal Property Securities Act 2009 s 339 27.22 Sale of Goods Act 1954 s 52(2) 19.03, 19.05

NEW SOUTH WALES Builders Licensing Act 1971 s 45 24.03, 24.20, 24.27 City and Suburban Electric Railways Act s 11 8.16 Civil Liability Act 2002 13.58 Civil Procedure Act 2005 s 26 4.10 s 27 4.10 s 56 4.10 Companies Act 1961 s 83 24.20 s 86 24.20 Companies Code Pt IV Div 6 24.20 s 164-77 18.16 s 169 24.20 ss 169-171 24.20 s 170 18.16, 24.20 s 174 18.16, 24.20 s 174(1) 18.16 s 174(2) 18.16 Contracts Review Act 1980 6.12, 15.09, 17.11, 17.18 s 4 17.22 s 6(1) 17.21 s 6(2) 17.21 s 7 17.19, 17.22 s 7(1) 17.22 s 9 17.19 s 9(1) 17.20 s 9(2) 17.20 s 9(2)(a)-(j) 17.22

s 21 17.21 Conveyancing Act 1919 s 13 20.27, 20.32 s 52A 26.28 s 54A 11.07, 11.10, 11.36, 25.11 s 66K 26.28 s 66S 26.28 s 66X 26.28 s 129 20.47 s 129(2) 20.48 Duties Act 1997 s 50(2) 21.13 Electronic Transactions Act 2000 s 8 11.27 s 9 11.31 s 13A 3.43 s 13B 3.44 s 14B 3.08 s 14E 3.46 Fair Trading Act 1987 13.25 Sch 5 cl 17 26.23 s 28 17.11, 27.03 s 31 26.06, 26.08 s 32 13.29, 26.01 Fair Trading Amendment (Australian Consumer Law) Act 2010 13.25 Fair Trading Amendment (Unfair Contract Terms) Act 2010 26.01 Forfeiture of Leases Act 1901 s 1 20.48 s 4 20.48 Frustrated Contracts Act 1978 s 6 22.17 s 7 22.19 s 8 22.19 s 9 22.20 s 10 22.19, 22.20 s 11 22.19 s 12 22.19, 22.20 s 13 22.19, 22.20 s 15 22.19, 22.20 Guardianship Act 1987 22.19 s 25G 10.20 Industrial Arbitration Act 1940 s 88F 17.22 Minors (Property and Contracts) Act 1970 10.14 s 19 10.15

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TABLE OF STATUTES XXXV

s 20 10.15 s 23 10.15 s 24 10.15 s 26 10.15 s 27 10.15 s 28 10.15 s 29 10.15 s 30 10.15 s 31 10.15 s 33 10.15 s 34 10.15 s 36 10.15 s 37 10.15 Real Property Act 1900 20.39 s 80A 8.08 Restraints of Trade Act 1976 s 4 18.30, 18.31 Sale of Goods Act 1923 s 51(2) 19.03, 19.05

NORTHERN TERRITORY Consumer Affairs and Fair Trading Act 1990 13.25, 26.01 Sch 3 Pt 2 26.23 s 27 17.11, 27.03 s 30 26.06, 26.08 s 31 13.29, 26.01 Consumer Affairs and Fair Trading (National Uniform Legislation) Act 2010 13.25, 26.01 Electronic Transactions (Northern Territory) Act s 8 11.27 s 9 11.31 s 13A 3.43 s 13B 3.44 s 14B 3.08 s 14E 3.46 Guardianship of Adults Act s 11 10.20 Land Title Act 2000 s 169 8.08 Law of Property Act s 6 12.07 s 56 12.08 s 56(6) 12.07 s 58 11.06 s 58(2) 11.12 s 62 11.10, 25.11

BUT_CLCB3_04768_CH0_4pp_SI.indd 35

s 65 20.27 s 69 20.47 s 137B 20.47, 20.48 Sale of Goods Act 1972 s 51(2) 19.03, 19.05 Water Act 1992 18.20 s 50 18.20 s 51 18.20 s 56 18.20 s 56(1) 18.20 s 57 18.20

QUEENSLAND Australian Consumer Law s 51 26.58 Body Corporate and Community Management Act 1997 s 214 20.48 s 224 20.48 Electronic Transactions (Queensland) Act 2001 s 11 11.27 s 14 11.31 s 24(1) 3.43 s 25 3.44 s 26B 3.08 s 26E 3.46 Environment Protection Act 1994 s 421 13.45 Fair Trading Act 1989 13.25, 26.01 s 16 17.11, 27.03 s 19 26.06, 26.08 s 20 13.29, 26.01 s 26 26.23 s 51 26.60 s 123 26.23 Fair Trading Amendment (Australian Consumer Law) Act 2010 13.25, 26.01 Guardianship and Administration Act 2000 s 12 10.19 Land Sales Act 1984 Pt 2 25.07 s 8 25.07 s 9 25.07 s 10A 26.28 s 11 26.28 s 19(1) 25.07 s 19(1)(b) 25.07

s 19(2) 25.07 s 23 26.28 Land Title Act 1994 s 170 8.08 Motor Dealers and Chattel Auctioneers Act 2014 s 105 26.37 Property Agents and Motor Dealers Act 2000 s 133 26.28 s 364 26.28 s 370 20.48 Property Law Act 1974 s 40 11.20 s 55 12.06, 12.08, 12.10 s 55(1) 12.10 s 55(2) 12.10 s 55(3)(d) 12.10 s 55(6)(c)(ii) 12.10 s 56 11.05 s 56(2) 11.12 s 59 11.09, 11.20, 21.08 s 62 20.27, 20.35 s 72 20.47, 20.48 s 124 20.47, 20.48 Sale of Goods Act 1896 s 50(2) 19.03 s 51(2) 19.05

SOUTH AUSTRALIA Electronic Transactions Act 2000 s 8 11.27 s 9 11.31 s 13A 3.43 s 13B 3.44 s 14B 3.08 s 14E 3.46 Fair Trading Act 1987 13.25, 26.01, 26.23 s 14 17.11, 27.03 s 17 26.06, 26.08 s 18 13.29, 26.01 Frustrated Contracts Act 1988 22.17 s 6 22.22 s 7 22.22 Guardianship and Administration Act 1993 s 35 10.20 Land and Business (Sale and Conveyancing) Act 1994

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XXXVI TABLE OF STATUTES

s 5 26.28 s 18 26.28 s 24I 26.28 Landlord and Tenant Act 1936 s 11 20.48 Law of Property Act 1936 s 16 20.27 s 26 11.10, 25.11 Minors Contracts (Miscellaneous Provisions) Act 1979 s 4 10.12, 10.13 s 5 10.13 s 6 10.12, 10.13 s 7 10.13 s 8 10.12, 10.13 Real Property Act 1886 s 129A 8.08 Sale of Goods Act 1895 s 48(2) 19.03, 19.05 Statutes Amendment and Repeal (Australian Consumer Law) Act 2010 13.25, 26.01

TASMANIA Australian Consumer Law (Tasmania) Act 2010 13.25, 26.01 s 6 17.11, 27.03 s 9 26.06, 26.08 s 10 13.29, 26.01 s 51 26.23 Conveyancing and Law of Property Act 1884 s 15(2) 20.48 s 36 11.10, 25.11 Electronic Transactions Act 2000 s 6 11.27 s 7 11.31 s 11A 3.43 s 11B 3.44 s 12B 3.08 s 12E 3.46 Guardianship and Administration Act 1995 s 51 10.20 Land Titles Act 1980 s 169D 8.08 Mercantile Law Act 1935 s 6 11.06 s 12 11.12 Sale of Goods Act 1896

BUT_CLCB3_04768_CH0_4pp_SI.indd 36

s 53(2) 19.03, 19.05

VICTORIA Australian Consumer Law and Fair Trading Act 2012 13.25 s 8 27.03 s 11 26.06 s 12 13.29, 26.01 s 16 26.23 Casino Control Act 1991 s 3(1) 17.09 s 78B 17.09 Chancery Regulation Act 1862 25.13 Civil and Administrative Tribunal Act 1998 s 148 8.13 Companies Act 1955 26.23 s 10 18.16 Companies Act 1958 s 63(a) 18.16 Companies Code s 170 18.16 s 174 18.16 Conveyancing Act 1919 s 13 9.17 Electronic Transactions Act 2000 s 8 11.24, 11.26, 11.27 s 9 11.30 ss 13A-13B 3.42 s 14B 3.07 s 14E 3.45 Fair Trading Act 1999 13.25, 26.45 s 9 17.11 s 11 26.08 s 32G 26.28 s 32GB 26.28 s 32H 26.28 s 32W 26.46 Fair Trading Amendment (Australian Consumer Law) Act 2010 13.25 Fair Trading Amendment (Unfair Contract Terms) Act 2010 26.01 Frustrated Contracts Act 1959 22.17 s 3 22.21 Gambling Regulation Act 2003 s 12.1.2 17.09

Gaming Legislation (Amendment) Act 2002 s 77(2) 17.09 Goods Act 1958 s 12 22.21 s 55(2) 19.03 Guardianship and Administration Act 1986 s 46 10.20 Instruments Act 1915 s 228 11.03 Instruments Act 1958 s 126 11.06, 11.10, 11.26, 11.27, 25.11 s 126(2) 11.25, 11.27 s 127 25.11 s 129 11.12 Judicature Act 1873 s 25(7) 9.17 Property Law Act 1958 s 41 20.27 s 146 20.47 s 146(2) 20.48 Sale of Goods Act 1958 s 55(2) 19.05 Sale of Land Act 1962 s 9AA 26.28 s 9AB 26.28 s 9AD 26.28 Supreme Court Act 1986 s 49 10.10, 10.11 s 50 10.10, 10.11 s 51 10.10, 10.11 Transfer of Land Act 1958 s 91B 8.08

WESTERN AUSTRALIA Electronic Transactions Act 2011 s 9 11.27 s 10 11.31 s 14 3.43 s 15 3.44 s 18 3.08 s 21 3.46 Fair Trading Act 2010 13.25, 26.01 s 11 13.29, 26.01 s 19 17.11, 27.03 s 23 26.06, 26.08 s 38 26.23

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TABLE OF STATUTES XXXVII

Guardianship and Administration Act 1990 s 64 10.20 Imperial Acts Adopting Ordinance 1867 11.12 Law Reform (Statute of Frauds) Act 1962 s 2 11.06, 11.10, 25.11 Property Law Act 1969 s 11 12.04, 12.10 s 11(3) 12.05, 12.10 s 21 20.27 s 81 20.47 s 81(2) 20.48 Sale of Goods Act 1895 s 48(2) 19.03, 19.05 Transfer of Land Act 1893 s 54 8.08

NEW ZEALAND Consumer Guarantees Act 1993 s 18(4) 27.82 Contracts (Privity) Act 1982 12.10 s 4 12.10 s 8 12.10

UNITED KINGDOM Australian Consumer Law (ACL) s 24 26.27 s 25 26.27 Bills of Lading Act 1855 12.14

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Consumer Rights Act 2015 Pt 1 26.29, 26.45 Pt 2 26.29, 26.45 Education Act 10.6 Law of Property (Miscellaneous Provisions) Act 1989 s 2 24.20 s 2(5) 24.20 Law Reform (Frustrated Contracts) Act 1943 s 1(3) 19.17 Mercantile Law Amendment Act 1856 s 3 11.12 Rent Restrictions Acts 14.06 Sale of Goods Act 1893 9.15 s 62(1) 19.17 Sale of Goods Act 1896 21.03 Statute of Frauds 1677 11.01, 11.03, 11.16, 11.18, 11.19, 21.03, 24.03, 24.20, 24.27, 25.03, 25.13 s 4 11.36, 24.20 Unfair Contract Terms Act 1977 8.23 Pt 2 26.45 Unfair Terms Act 1977 26.29 Unfair Terms in Consumer Contracts Regulations 1999 26.26, 26.29, 26.45 reg 3(2) 26.30 reg 3(2)(b) 26.30 reg 5(1) 26.30

reg 6 26.36 reg 6(2) 26.30, 26.36 reg 6(2)(a) 26.30, 26.36 reg 6(2)(b) 26.30, 26.36

UNITED STATES Restatement of the Law: Contracts (2d) (1981) 4.10 §311(3) 12.10 Restatement of the Law: Restitution and Unjust Enrichment (3d) §29 24.24 §31 24.20 §32 24.20 §65 24.35 Uniform Commercial Code 8.23

GERMANY German Civil Code s 343 23.34

INTERNATIONAL INSTRUMENTS Hague Rules art III, r 6 12.14 United Nations Convention on Contracts for the International Sale of Goods art 7(1) 8.23

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PREFACE The virtue of a case book is that it provides students with ready access to a collection of cases so that they may experience the law through the judges’ own words. They are, therefore, an aid for students in acquiring the lifelong skill of reading and analysing cases in order to understand the law. It should be remembered, however, that judges write their judgments primarily to provide considered reasons to dispose of the case before them. Not every part of every judgment in a case is needed to provide students with an understanding of the relevant legal principles. Like the previous edition, this case book seeks to extract the essential portions of the major cases making up the landscape of Australian contract law. A book like this also provides the opportunity to gather together a selection of relevant statutory provisions in a single accessible collection. This we have also done. Since the last edition there have been a number of important developments in Contract Law. This is reflected by the inclusion in this edition of extracts from cases including the High Court decisions in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (interpretation of contracts); Kakavas v Crown Melbourne Ltd (unconscionable conduct); Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (collateral contract); Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (restitution and change of defence); and Paciocco v Australia and New Zealand Banking Group Ltd (doctrine of penalites), as well as the Victorian Court of Appeal decision in oOH! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (frustration). New extracts from Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (misleading or deceptive conduct) and Equuscorp Pty Ltd v Haxton (restitution), and further commentary have also been added. While this case book is capable of standing alone, it is best used in conjunction with the principal text, L Willmott, S Christensen, D Butler, W Dixon, Contract Law, 5th edn, Oxford University Press, 2018. We would like to thank Emily Wu from Oxford University Press and our editor Carolyn Leslie for their help in bringing this book to fruition. We have endeavoured to state the law as at 30 June 2017, although in some instances we have been able to include material of a later date.

Des Butler Sharon Christensen Bill Dixon Lindy Willmott July 2017

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ACKNOWLEDGMENTS All legislative material herein is reproduced by permission but does not purport to be the official or authorised version. It is subject to Commonwealth of Australia copyright for Federal legislation; Reproduced with the permission of the Council of Law Reporting for NSW for NSW Law Reports; Courtesy of the High Court of Australia for their material; Crown in right of the State of New South Wales for their material; © State of Victoria, Australia Copyright in all legislation of the Parliament of the State of Victoria, Australia, is owned by the Crown in right of the State of Victoria, Australia. This product or service contains an unofficial version of the legislation of the Parliament of State of Victoria. The State of Victoria accepts no responsibility for the accuracy and completeness of any legislation contained in this product or provided through this service for their material; Supreme Court Library Queensland and Queensland Courts for QCA material; Commonwealth Law Reports Reproduced with permission of Thomson Reuters (Professional) Australia Limited, www.thomsonreuters.com.au.

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PART 1 OVERVIEW

1 2

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Introduction 3 Negotiation 10

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CHAPTER 1 INTRODUCTION

THE DEVELOPMENT OF AUSTRALIAN CONTRACT LAW [1.01] Australian common law, including contract law, may be seen as an emerging body of jurisprudence with its own distinctive niche in the common law world. While not denying its English heritage, with the abolition of appeals to the Privy Council and recognition of the High Court of Australia as the ultimate Court of Appeal in the Australian judicial system, it is no longer the case that Australian courts slavishly follow English precedents. Instead there is a greater willingness to develop the common law as adapted and appropriate to Australian society and conditions.

Recognition of the writ of assumpsit [1.02] Australian contract law can trace its origins to the writ system employed by the common law in medieval England. This system was based on a limited number of causes of action recognised by the common law, each cause of action being represented by a form of writ for pleading the relevant case. If the wording of a particular writ could accommodate the circumstances that arose in a particular case, the plaintiff was entitled to a remedy. Failure to complete the writ properly—even in the form of writing—meant that the claim failed. There were two forms of writ which were recognised as being available for contract-type disputes: debt and covenant. However, both had their limitations which prevented them from being useful for actions for breach of promise. The writ of covenant was for breach of a promise contained in a deed, while a writ of debt could only be used where work had been fully performed, or in the case of money that had been lent, where the sum in dispute was an agreed amount. Accordingly, neither writ was suitable for cases involving an informal exchange of promises. [1.03] A writ for a dispute based on an exchange of promises was not recognised until Slade’s case in 1602. The writ in that case is recorded in the case report and is extracted below in order to give an idea of the complexity and intricacy involved in the system of the time. The case concerned a claim by a farmer called John Slade for damages in the amount of £16 for breach of a promise by one Humphrey Morley to pay for the farmer’s harvest of wheat and rye, despite

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repeated demands for payment. Note how the plaintiff farmer used a trespass writ and pleaded that he had been ‘injured and hath sustained damage’ as a result of the breach. [1.04] To a modern reader the formality of the language and expression in the old cases may be difficult to navigate. To assist with comprehension of the following case, certain words and passages have been emphasised in bold.

Slade’s Case (1602) 4 Co Rep 91; 76 ER 1072 King’s Bench Be it remembered that heretofore, that is to say, in the term of St Michael last past, before the lady the Queen at Westminster, came John Slade, by Nicholas Weare his attorney, and brought here into the Court of the said lady the Queen, then there, his certain bill against Humphrey Morley, in custody of the marshal, &c. of a plea of trespass upon the case:  and there are pledges of prosecuting, to wit, John Doe and Richard Roe, which said bill followeth in these words: John Slade complaineth of Humphrey Morley, being in custody of the marshal of the Marshalsea of the lady the Queen before the Queen herself, for that, that is to say, that whereas the said John, the 10th day of November, in the thirty-sixth year of the reign of the said Lady Elizabeth, now Queen of England, &c. was possessed for the term of divers years then and yet to come, of and in one close of land, with the appurtenances in Halberton, in the county aforesaid, called Rack Park, containing by estimation eight acres, and being so possessed thereof, the said John afterwards, that is to say, on the said 10th day of November, in the thirtysixth year aforesaid, had sowed the said close with wheat and rye, which wheat and rye in the close aforesaid, by the said John (so as before is said) being sowed, afterwards, that is to say, on the 8th day of May, in the thirty-seventh year of the reign of the said lady the now Queen, were grown into ears, the said Humphrey, on the aforesaid 8th day of May in the said thirtyseventh year aforesaid, the said wheat and rye in ears upon the close aforesaid (as before is said) then growing, at Halberton aforesaid, in consideration that the said John then and there, at the special instance and request of the said Humphrey had bargained and sold unto the said Humphrey to the use and behoof of the said Humphrey, all the ears of wheat and corn which then did grow upon the said close, called Rack Park (the tithes thereof to the rector of the church of Halberton aforesaid due only excepted) did assume, and then and there faithfully promised, that he the said Humphrey £16 of lawful money of England to the aforesaid John in the Feast of St. John the Baptist, then next following, would well and truly content and pay: yet the said Humphrey, his assumption and promise aforesaid little regarding, but endeavouring and intending the said John of the aforesaid £16 in that part subtilly and craftily to deceive and defraud, the said £16 to the said John, according to his assuming and promise, hath not yet paid, nor any way for the same contented him, although the said Humphrey thereunto afterwards, that is to say, on the last day of September, in the thirty-seventh year of the reign of the said lady the now Queen aforesaid, at Halberton

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CHAPTER 1 INTRODUCTION 5

aforesaid, by the said John was oftentimes thereunto required, but the same to pay him, or any way to content him, hath altogether refused, and doth yet refuse; whereupon the said John saith he is injured, and hath sustained damage to the value of £40 and thereof he bringeth suit, &c.

[1.05] The reporting of the decision itself is short. It seems that the jury hearing the case was satisfied that Humphrey Morley had agreed to purchase the wheat and rye but initially were not sure that the terms of the agreement were as alleged by John Slade. However, they made this finding following a ruling by Justices Walmesley and Fenner, the two judges who were sitting with them. John Slade was therefore awarded £16 damages and costs in the amount of 20 shillings. John Slade was able to succeed despite there being no writ specifically available for breach of an unwritten promise because it was argued with ingenuity by his lawyer that a writ of trespass, designed for a claim against a person for wrongly doing something (a misfeasance), could also be used for a claim against a person for wrongly not doing something (a nonfeasance). Thereafter this adapted form of pleading—which came to be known as a writ of assumpsit, based on the defendant’s assumption of an obligation—became the writ used for claims for breach of contractual promise.

Requirement of consideration [1.06] Following the abolition of the writ system two causes of action in particular emerged which were relevant to contractual claims. One was the descendent of the writ of covenant and enforced the promises made in a formal deed, the formality of the document and solemnity of its execution under seal providing the rationale for its enforcement. The second was assumpsit for enforcement of contracts not made under seal, which later came to be known as ‘simple contracts’. An element of the pleading of assumpsit was the ‘consideration’—the motive behind the defendant’s promise. While initially a matter of evidence, consideration became an essential element in establishing a simple contract. [1.07]

Rann v Hughes (1778) 4 Brown 27; 7 Term Reps 350n; 101 ER 1014n Court of Exchequer Chamber Rann and another were executors of the will of Mary Hughes deceased. Isabella Hughes was the administratrix of the estate of John Hughes, who had died intestate. While they were alive Mary and John had several disputes which were referred to arbitration, with the result that John was to pay Mary a sum of £983 in settlement. This amount was still outstanding at the time John died. After Mary died, her executors made a demand for payment of the debt on John’s estate, believing it to be worth at least £3000. Isabella promised that the amount would be paid, but failed to do so since there were insufficient funds in the estate. The executors thereupon sued Isabella,

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claiming that her promise had not been as administratrix but in her own right, and therefore not dependent on there being sufficient funds in the estate. The plaintiffs were successful at trial, the verdict being upheld on appeal to the King’s Bench. On appeal to the Court of Exchequer this judgment was reversed in favour of the defendant. This reversal was challenged by a writ of error. The defendant maintained that the promise was made as administratrix, but that even if it was a promise to be personally liable it was unenforceable either because the contract was not made in writing or because there was no consideration. It was submitted on behalf of the plaintiff that: In reason, there is little or no difference between a contract which is deliberately reduced into writing, and signed by the parties, without seal, and a contract under the same circumstances, to which a party at the time of signing it puts a seal, or his finger on cold wax. In the case of a deed, ie an instrument under seal, it must be admitted that no consideration is necessary; and in the year 1765, it was solemnly adjudged in the court of King’s Bench (Pillans v Van Mierop 3 Burr 1663), that no consideration was necessary when the promise was reduced into writing.

However, the defendant’s counsel submitted that: … the duty of an executor or administrator is to collect the effects of the deceased, and apply the same as far as they will extend, to the payment of the debts of the deceased, in a due course of administration, and to distribute the surplus, if any, amongst the legatees or next of kin; no creditor can claim from the representative beyond the amount of the effects, and yet there may be inducements to a representative to enter into an engagement with a creditor, for the positive payment of his debt, in consideration that the creditor will give him time for such payment, or will abstain from pursuing legal measures to recover his demand, or the like; and the creditor grants the indulgence. In these cases, there is a reasonable foundation to interpret the promise of the executor, as an additional security to the creditor; who, in confidence thereof, accedes to terms of forbearance and delay, which may be attended with the loss of witnesses, and other consequences injurious to the creditor. But the present case did not afford a pretext of any benefit or indulgence stipulated for by the defendant, or any thing to be done or omitted by the plaintiffs, as a consideration for the promise stated to have been made by the defendant; and which the plaintiffs contend, ought to subject her, out of her own estate, to the payment of the debt claimed; though it appeared upon the record, that the defendant had faithfully discharged her duty, and honestly applied the effects of the deceased in the payment of his debts, in a proper course of administration.

The Court accepted the submissions of the defendant and found no error in the judgment of the Court of Exchequer. Isabella’s promise was not enforceable against her due to the lack of writing and the absence of consideration. [1.08] Accordingly, after Pillans v Van Mierop and Rann v Hughes promises were enforceable when made under seal or if supported by sufficient consideration.

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CHAPTER 1 INTRODUCTION

7

[1.09] However, viewing consideration only in terms of being the reason for the promise meant that moral obligations or ‘ties of conscience’ were sufficient for the purpose. Consideration, as it is known today, was not recognised until the early nineteenth century. [1.10]

Eastwood v Kenyon (1840) 11 A&E 438; 113 ER 482 Queen’s Bench The plaintiff acted as guardian for an infant girl after her father died, spending money for her education and general well-being. He borrowed money secured by a promissory note for this purpose. When the girl attained majority, she undertook to repay the plaintiff the amount he had borrowed. After the girl married, her husband (the defendant) assumed the promise to repay the amount. The defendant failed to pay and the plaintiff brought an action to recover the amount promised. The Court (delivered by Lord Denman CJ) It was … argued for the plaintiff that the declaration disclosed a sufficient moral consideration to support the promise … The enforcement of such promises by law, however plausibly reconciled by the desire to effect all conscientious engagements, might be attended with mischievous consequences to society; one of which would be the frequent preference of voluntary undertakings to claims for just debts. Suits would thereby be multiplied, and voluntary undertakings would also be multiplied, to the prejudice of real creditors. The temptations of executors would be much increased by the prevalence of such a doctrine, and the faithful discharge of their duty be rendered more difficult. Taking then the promise of the defendant, as stated on this record, to have been an express promise, we find that the consideration for it was past and executed long before, and yet it is not laid to have been at the request of the defendant, nor even of his wife while sole (though if it had, the case of Mitchinson v Hewson (1799) 7 TR 348, shews that it would not have been sufficient), and the declaration really discloses nothing but a benefit voluntarily conferred by the plaintiff and received by the defendant, with an express promise by the defendant to pay money. A worthy motive was therefore not sufficient to constitute consideration: instead something of value was required.

Equitable estoppel [1.11] The next major development in Australian contract law did not occur until the High Court’s decision in Waltons Stores (Interstate) Ltd v Maher in 1988.1 This case held that in certain circumstances a plaintiff may have a cause of action in equity based on a promise that is not supported by consideration. It is necessary in such cases for the plaintiff to show detrimental

1

(1988) 164 CLR 387. See Chapter 7.

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reliance on the promise with the knowledge of the defendant. If this is shown equity will seek to address the defendant’s unconscionable conduct by granting a remedy which avoids the detriment suffered the plaintiff. This doctrine of ‘equitable estoppel’ is examined in greater detail in Chapter 7.2

Potential reform [1.12] In May 2012, the then Labor Federal Government issued a discussion paper to explore the scope for reforming contract law in Australia.3 Drivers for reform that were identified in the discussion paper included the increasingly complex landscape of common law, equitable and restitutionary principles, as well as various Commonwealth, state and territory legislation that may govern contractual relations in this country. The discussion paper also noted a desire to improve certainty, simplify the law and remove unnecessarily technical rules, harmonise differences that continue to exist in the contract law around Australia due to continuing differences in state and territory statutes, support innovation and maximise participation in the digital economy, and internationalise the law to facilitate cross-border trade and investment.4 In relation to internationalisation, it was noted that Australia’s first, second and fourth largest trading partners (China, Japan and South Korea respectively) have systems of law which differ significantly from Australia’s English-heritage common law system. The contract law in Australia’s third largest trading partner, the United States, has also diverged from its origins in the English common law.5 These differences in legal systems may result in increased risks and costs and lost opportunities. It was also noted that there have been ongoing attempts to harmonise law within the European Union and that failure to take cognisance of those changes may also result in lost opportunity.6 The Federal Government did not regard reform as an ‘all or nothing’ approach. Instead, options identified for reform include: •

Restatement, which would entail making only minimal changes to the substance of the law while expressing the law in a single text to increase its accessibility, either in a similar fashion to a non-binding, American-style restatement or a binding codification;



Simplification, which would involve changing the law to eliminate unnecessary complexity without attempting a general overhaul; and



Full-scale reform, which would mean making significant changes to the substance of contract law.7

2

See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, Chapter 7.

3

Attorney-General’s Department (Cth), Improving Australia’s Law and Justice Framework: A Discussion Paper Exploring the Scope for Reforming Australian Contract Law (2012).

4

Ibid, 3–6.

5

Ibid, 11–14.

6

Ibid, 16–17.

7

Ibid, 18–19.

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CHAPTER 1 INTRODUCTION 9

The Labor Government was defeated at the 2013 federal election, and reform of contract law was not part of the Coalition Government’s agenda. The question of a legislative reform of contract law has therefore lost impetus for the time being.

QUESTIONS FOR REFLECTION (1) Equitable estoppel is a manifestation of Australia developing its own species of common law. It has been observed that Indigenous Australians had a concept of contract and the trading of goods and services.8 It has been further suggested that modern Australian contract law needs to integrate its Aboriginal antecedents to properly mature.9 (a) Do you agree with this suggestion? (b) How might such a process of integration be effectively achieved? (c) What implications would this have for the existing common law in Australia? (2) What would be the advantages and disadvantages of each of the different options for possible reform of Australian contract law, such as: •

restatement;



simplification; and



full-scale reform?

8

MP Ellinghaus, ‘Towards an Australian Contract Law’, in MP Ellinghaus, AJ Bradbrook and AJ Duggan (eds) The Emergence of Australian Law, Butterworths, Sydney, 1988, 44–69, especially at 54–63.

9

Ibid, especially 65–9.

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CHAPTER 2 NEGOTIATION

INTRODUCTION [2.01] Negotiation is a social process which intersects with the law of contract in a number of ways. It is frequently the precursor to formation of contracts, the specific processes in contract law including offer and acceptance. It is also relevant to the closure of the relationship. This may be in the form of attempts by one contracting party to reach a settlement of a contractual dispute with the other contracting party or parties or the mutual release of the parties’ contractual obligations. Further, it may be involved in an adjustment of contractual rights and duties falling short of discharge—in other words, variation of contract. [2.02] Negotiation may be examined from a number of perspectives. These include the various elements of negotiation, the main bargaining strategies that may be employed in the process of negotiation, and the different phases of the process.

ELEMENTS OF NEGOTIATION [2.03] The elements of negotiation are: (1) the style of the negotiator—including their personality and ‘people skills’; (2) the status of the negotiator as a member of a community or profession—for example, the perception that all lawyers are skilled and confident negotiators; (3) negotiation as a transaction-based exchange—that is, based on a notion of giving something in return for getting something, and whether the relationship between the parties is transient or ongoing; (4) the relational aims of negotiation when viewed as a process—such as the parties feeling they were treated fairly, were able to present their side, had control over the process, and reached a satisfying outcome; (5) the objects of any particular negotiation; (6) the values negotiators bring to the negotiation; and

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CHAPTER 2 NEGOTIATION 11

(7) the skill base of negotiators, including their research skills, communication skills, lateral thinking skills, analytical skills, and drafting skills.1

BARGAINING STRATEGIES [2.04] Bargaining strategies can be divided into two groups:  positional bargaining (such as adversarial or ‘hard’ bargaining) and interest-based bargaining. [2.05] It is common for parties engaged in negotiation to adopt a positional bargaining approach. This involves each side taking a position, arguing in support of it and perhaps making concessions in order to reach a compromise. For example, party A may offer to buy at $8000, party B may offer to sell at $10 000 and, after one or more concessions, the parties may reach a compromise of, say, a $9000 price. Such positional bargaining may be termed ‘hard’ or ‘soft’ depending on whether the party is strong in maintaining his or her position and demands concessions from the other side or is less adversarial and willing to yield in order to reach agreement. Positional bargaining can provide a measure of certainty and sometimes be a means of producing an acceptable agreement. However, the approach can be criticised as more likely to produce unwise agreements that fail to address the underlying concerns of the parties. It is also inefficient since the process can easily stall; it may endanger an ongoing relationship since it involves a contest of wills that can strain relations; it is unsuitable when there is more than one party to the negotiation; and will always allow a hard-bargaining party to dominate a softbargaining party.2 [2.06] A more effective and efficient approach is to eschew positional bargaining for an interestbased strategy. [2.07]

‘Don’t Bargain Over Positions’ R Fisher, W Ury and B Patton, Getting to Yes: Negotiating Agreement Without Giving In3 The answer to the question of whether to use soft positional bargaining or hard is ‘neither’. Change the game. At the Harvard Negotiation Project we have been developing an alternative to positional bargaining: a method of negotiation explicitly designed to produce wise outcomes efficiently and amicably. This method, called principled negotiation or negotiation on the merits, can be boiled down to four basic points.

1

See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 2.2 for further discussion of these elements.

2

R Fisher, W Ury and B Patton, Getting to Yes: Negotiating Agreement Without Giving In, 3rd edn, Penguin Books, Melbourne, 2011, 3–10.

3

Ibid, 11–14.

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These four points define a straightforward method of negotiation that can be used under almost any circumstance. Each point deals with a basic element of negotiation, and suggests what you should do about it. •

People: Separate the people from the problem.



Interests: Focus on interests, not positions.



Options: Invent multiple options looking for mutual gains before deciding what to do.



Criteria: Insist that the result be based on some objective standard.

The first point responds to the fact that human beings are not computers. We are creatures of strong emotions who often have radically different perceptions and have difficulty communicating clearly. Emotions typically become entangled with the objective merits of the problem. Taking positions just makes things worse because people’s egos become identified with their positions. Making concessions ‘for the relationship’ is equally problematic, because it can actually encourage and reward stubbornness, which can lead to resentment that ends up damaging the relationship. Hence, even before working on the substantive problem, the ‘people problem’ should be disentangled from it and dealt with separately. Figuratively if not literally, the participants should come to see themselves as working side by side, attacking the problem, not each other. Hence the first proposition: Separate the people from the problem. The second point is designed to overcome the drawback of focusing on people’s stated positions when the object of a negotiation is to satisfy their underlying interests. A negotiating position often obscures what you really want. Compromising between positions is not likely to produce an agreement which will effectively take care of the human needs that led people to adopt those positions. The second basic element of the method is: Focus on interests, not positions. The third point responds to the difficulty of designing optimal solutions while under pressure. Trying to decide in the presence of an adversary narrows your vision. Having a lot at stake inhibits creativity. So does searching for the one right solution. You can offset these constraints by setting aside a designated time within which to think up a wide range of possible solutions that advance shared interests and creatively reconcile differing interests. Hence the third basic point: Before trying to reach agreement, invent options for mutual gain. Where interests are directly opposed, a negotiator may be able to obtain a favourable result simply by being stubborn. That method tends to reward intransigence and produce arbitrary results. However, you can counter such a negotiator by insisting that his single say-so is not enough and that the agreement must reflect some fair standard independent of the naked will of either side. This does not mean insisting that the terms be based on the standard you select, but only some fair standard such as market value, expert opinion, custom, or law determine the outcome. By discussing such criteria rather than what the parties are willing or unwilling to do, neither party need give in to the other; both can defer to a fair solution. Hence the fourth basic point: Insist on using objective criteria. [2.08] Negotiation does not mean reaching agreement regardless of the cost. Sometimes the best outcome is to walk away from the negotiation without reaching agreement. It is for this reason that an additional consideration in a negotiator’s preparation should be the ‘BATNA’—or

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CHAPTER 2 NEGOTIATION 13

Best Alternative to a Negotiated Agreement. This is the ‘Plan B’ in the event that a satisfying deal cannot be reached.4 It sets a minimum standard against which a proposed deal may be measured. By contrast a ‘WATNA’—or Worst Alternative to a Negotiated Agreement is a worstcase scenario which reminds the negotiator how important it is to strive to reach agreement. Anticipating the other side’s BATNA and WATNA can also help an understanding of the parameters of the negotiation.

PHASES OF NEGOTIATION [2.09] A  negotiation should not be thought of as just the face-to-face bargaining exchange between the parties. [2.10]

‘The Transaction’ N Spegel, B Rogers and R Buckley, Negotiation: Theory and Techniques5 Before any negotiation commences, at least one party has identified a need, considered how it can be met, and determined with whom to try to meet it. Provided the other party is willing to participate, a negotiation then follows. If an agreement is reached in the negotiation, the final phase comes into play—putting the agreement into operation. As you can see, the face-to-face negotiation is only one part of the journey towards a result. We have called the complete journey ‘the transaction’. Just as the game of chess has an opening, a middle game and an endgame, a transaction will involve the three phases of preparation, negotiation, and agreement. We can further subdivide these phases into stages …

Phase

Stages

Preparation

Identifying the need Research Contacting the other party

Negotiation

Identifying each side’s positions and interests Generating options to meet those interests Bargaining Committing to an agreement

4

Ibid, 97–106.

5

N Spegel, B Rogers and R Buckley, Negotiation: Theory and Techniques, Butterworths, Sydney, 1998, 8–9.

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Phase

Stages

Agreement

Implementation Post-implementation obligations

QUESTIONS FOR REFLECTION (1) Negotiation may have a further intersection with contract law. In what circumstances will contract law provide relief to a contracting party based on something said or not said in the course of negotiation by the other party? (2) Fisher, Ury and Patton advocate an interest-based approach rather than a position-based approach to negotiation. (a) What are the advantages of an interested-based approach? (b) Does an interest-based approach to negotiation necessarily mean the same thing as full disclosure? (c) Should contracting parties be required by law to make full disclosure during negotiation? What would be the advantages and disadvantages of such a requirement?

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PART 2 FORMATION

3 4 5 6 7

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Agreement 17 Certainty and Completeness 47 Intention to Create Legal Relations 65 Consideration 70 Equitable Estoppel 89

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CHAPTER 3 AGREEMENT

INTRODUCTION [3.01] An ‘agreement’ or ‘concluded bargain’ is an essential element of a binding contract. Generally, an agreement is reached when an offer is made to the offeree, and the offeree accepts that offer. The contract is usually regarded as having been formed at the time and at the place that the acceptance was communicated to the offeror. Many transactions are more complex in nature, and it may not be possible to isolate an ‘offer’ and an ‘acceptance’ of that offer. This will not preclude a judicial finding that a concluded bargain has been reached. If an objective bystander would consider a concluded bargain to have been reached, the contractual requirement of agreement will be satisfied. [3.02] Agreement alone will not constitute a binding contract. Among other things, the agreement must be sufficiently certain and the parties must intend the agreement to have legal consequences. As will be seen in the case law examined below, there is an interrelationship between these concepts and, at times, they cannot be considered in isolation.

OFFER Defining an offer [3.03] An offer can be defined as the expression to another of a willingness to be legally bound by the stated terms, and must be communicated to the offeree. The nature of an offer varies according to whether the contract is a bilateral or unilateral one. Under a bilateral contract, each party undertakes to do or to refrain from doing something. An ‘offer’ in the context of a bilateral contract is one which, if accepted, is effective to bind both parties to perform his or her undertaking. Under a unilateral contract, a party undertakes to do or to refrain from doing something if the other party does or refrains from doing something. However, there is no obligation on the other party to do or refrain from doing anything. Offers of reward can form the basis of a unilateral contract.

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Offers to public at large [3.04] Offers are generally made to a specific person or persons. However, this is not always the case and, as illustrated by the following landmark case, an offer that is made to the world at large can form the basis of a binding contract. It should also be noted that this case involved the making of a unilateral contract. [3.05]

Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 English Court of Appeal The defendant (the Company) was the manufacturer of a product called the Carbolic Smoke Ball, which was designed to prevent the user of the smoke ball from contracting the flu. To promote its product, the Company advertised in a newspaper to pay £100 to any person who contracted the flu after using one of their smoke balls in the specified manner for a specified period. The plaintiff relied on the advertisement, purchased one of the smoke balls, and used it in the prescribed manner and for the prescribed period. The plaintiff contracted the flu and sued the Company to recover the £100. Lindley LJ The first observation I  will make is that we are not dealing with any inference of fact. We are dealing with an express promise to pay £100 in certain events. Read the advertisement how you will, and twist it about as you will, here is a distinct promise expressed in language which is perfectly unmistakable—‘£100 reward will be paid by the … Company to any person who contracts the influenza after having used the ball three times daily for two weeks according to the printed directions supplied with each ball.’ We must first consider whether this was intended to be a promise at all, or whether it was a mere puff which meant nothing. Was it a mere puff ? My answer to that question is No, and I base my answer upon this passage: ‘£1000 is deposited with the Alliance Bank, shewing our sincerity in the matter.’ Now, for what was that money deposited or that statement made except to negative the suggestion that this was a mere puff and meant nothing at all? The deposit is called in aid by the advertiser as proof of his sincerity in the matter—that is, the sincerity of his promise to pay this £100 in the event which he has specified. I say this for the purpose of giving point to the observation that we are not inferring a promise; there is the promise, as plain as words can make it. Then it is contended that it is not binding. In the first place, it is said that it is not made with anybody in particular. Now that point is common to the words of this advertisement and to the words of all other advertisements offering rewards. They are offers to anybody who performs the conditions named in the advertisement, and anybody who does perform the condition accepts the offer. In point of law this advertisement is an offer to pay £100 to anybody who will perform these conditions, and the performance of the conditions is the acceptance of the offer. That

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rests upon a string of authorities, the earliest of which is Williams v Carwardine (1833) 5 C&P 566, which has been followed by many other decisions upon advertisements offering rewards. [Having opined that an offeree does not have to communicate acceptance for it to be effective] We, therefore, find here all the elements which are necessary to form a binding contract enforceable in point of law, subject to two observations. First of all it is said that this advertisement is so vague that you cannot really construe it as a promise—that the vagueness of the language shews that a legal promise was never intended or contemplated. The language is vague and uncertain in some respects, and particularly in this, that the £100 is to be paid to any person who contracts the increasing epidemic after having used the balls three times daily for two weeks. It is said, When are they to be used? According to the language of the advertisement no time is fixed, and, construing the offer most strongly against the person who has made it, one might infer that any time was meant. I do not think that was meant, and to hold the contrary would be pushing too far the doctrine of taking language most strongly against the person using it. I do not think that business people or reasonable people would understand the words as meaning that if you took a smoke ball and used it three times daily for two weeks you were to be guaranteed against influenza for the rest of your life, and I think it would be pushing the language of the advertisement too far to construe it as meaning that. But if it does not mean that, what does it mean? It is for the defendants to shew what it does mean; and it strikes me that there are two, and possibly three, reasonable constructions to be put on this advertisement, any one of which will answer the purpose of the plaintiff. Possibly it may be limited to persons catching the ‘increasing epidemic’ (that is, the then prevailing epidemic), or any colds or diseases caused by taking cold, during the prevalence of the increasing epidemic. That is one suggestion; but it does not commend itself to me. Another suggested meaning is that you are warranted free from catching this epidemic, or colds or other diseases caused by taking cold, whilst you are using this remedy after using it for two weeks. If that is the meaning, the plaintiff is right, for she used the remedy for two weeks and went on using it till she got the epidemic. Another meaning, and the one which I rather prefer, is that the reward is offered to any person who contracts the epidemic or other disease within a reasonable time after having used the smoke ball. Then it is asked, What is a reasonable time? It has been suggested that there is no standard of reasonableness; that it depends upon the reasonable time for a germ to develop! I do not feel pressed by that. It strikes me that a reasonable time may be ascertained in a business sense and in a sense satisfactory to a lawyer, in this way; find out from a chemist what the ingredients are; find out from a skilled physician how long the effect of such ingredients on the system could be reasonably expected to endure so as to protect a person from an epidemic or cold, and in that way you will get a standard to be laid before a jury, or a judge without a jury, by which they might exercise their judgment as to what a reasonable time would be. It strikes me, I confess, that the true construction of this advertisement is that £100 will be paid to anybody who uses this smoke ball three times daily for two weeks according to the printed directions, and who gets the influenza or cold or other diseases caused by taking cold within a reasonable time after so using it; and if that is the true construction, it is enough for the plaintiff. I come now to the last point which I think requires attention—that is, the consideration. It has been argued that this is nudum pactum—that there is no consideration. We must apply to

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that argument the usual legal tests. Let us see whether there is no advantage to the defendants. It is said that the use of the ball is no advantage to them, and that what benefits them is the sale; and the case is put that a lot of these balls might be stolen, and that it would be no advantage to the defendants if the thief or other people used them. The answer to that, I think, is as follows. It is quite obvious that in the view of the advertisers a use by the public of their remedy, if they can only get the public to have confidence enough to use it, will react and produce a sale which is directly beneficial to them. Therefore, the advertisers get out of the use an advantage which is enough to constitute a consideration. But there is another view. Does not the person who acts upon this advertisement and accepts the offer put himself to some inconvenience at the request of the defendants? Is it nothing to use this ball three times daily for two weeks according to the directions at the request of the advertiser? Is that to go for nothing? It appears to me that there is a distinct inconvenience, not to say a detriment, to any person who so uses the smoke ball. I am of opinion, therefore, that there is ample consideration for the promise … It appears to me, therefore, that the defendants must perform their promise, and, if they have been so unwary as to expose themselves to a great many actions, so much the worse for them. Bowen LJ I am of the same opinion. We were asked to say that this document was a contract too vague to be enforced. The first observation which arises is that the document itself is not a contract at all, it is only an offer made to the public. The defendants contend next, that it is an offer the terms of which are too vague to be treated as a definite offer, inasmuch as there is no limit of time fixed for the catching of the influenza, and it cannot be supposed that the advertisers seriously meant to promise to pay money to every person who catches the influenza at any time after the inhaling of the smoke ball. It was urged also, that if you look at this document you will find much vagueness as to the persons with whom the contract was intended to be made—that, in the first place, its terms are wide enough to include persons who may have used the smoke ball before the advertisement was issued; at all events, that it is an offer to the world in general, and, also, that it is unreasonable to suppose it to be a definite offer, because nobody in their senses would contract themselves out of the opportunity of checking the experiment which was going to be made at their own expense. It is also contended that the advertisement is rather in the nature of a puff or a proclamation than a promise or offer intended to mature into a contract when accepted. But the main point seems to be that the vagueness of the document shews that no contract whatever was intended. It seems to me that in order to arrive at a right conclusion we must read this advertisement in its plain meaning, as the public would understand it. It was intended to be issued to the public and to be read by the public. How would an ordinary person reading this document construe it? It was intended unquestionably to have some effect, and I think the effect which it was intended to have, was to make people use the smoke ball, because the suggestions and allegations which it contains are directed immediately to the use of the smoke ball as distinct from the purchase of it. It did not follow that the smoke ball was to be purchased from the defendants directly, or even from agents of theirs directly. The intention was that the circulation of the smoke ball should be promoted, and that the use of it should be increased. The advertisement begins by saying that a reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic after using the ball. It has

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been said that the words do not apply only to persons who contract the epidemic after the publication of the advertisement, but include persons who had previously contracted the influenza. I cannot so read the advertisement. It is written in colloquial and popular language, and I think that it is equivalent to this: ‘£100 will be paid to any person who shall contract the increasing epidemic after having used the carbolic smoke ball three times daily for two weeks.’ And it seems to me that the way in which the public would read it would be this, that if anybody, after the advertisement was published, used three times daily for two weeks the carbolic smoke ball, and then caught cold, he would be entitled to the reward. Then again it was said: ‘How long is this protection to endure? Is it to go on for ever, or for what limit of time?’ I think that there are two constructions of this document, each of which is good sense, and each of which seems to me to satisfy the exigencies of the present action. It may mean that the protection is warranted to last during the epidemic, and it was during the epidemic that the plaintiff contracted the disease. I think, more probably, it means that the smoke ball will be a protection while it is in use. That seems to me the way in which an ordinary person would understand an advertisement about medicine, and about a specific against influenza. It could not be supposed that after you have left off using it you are still to be protected for ever, as if there was to be a stamp set upon your forehead that you were never to catch influenza because you had once used the carbolic smoke ball. I think the immunity is to last during the use of the ball. That is the way in which I should naturally read it, and it seems to me that the subsequent language of the advertisement supports that construction. It says: ‘During the last epidemic of influenza many thousand carbolic smoke balls were sold, and in no ascertained case was the disease contracted by those using’ (not ‘who had used’) ‘the carbolic smoke ball,’ and it concludes with saying that one smoke ball will last a family several months (which imports that it is to be efficacious while it is being used), and that the ball can be refilled at a cost of 5s. I, therefore, have myself no hesitation in saying that I think, on the construction of this advertisement, the protection was to enure during the time that the carbolic smoke ball was being used. My brother, the Lord Justice who preceded me, thinks that the contract would be sufficiently definite if you were to read it in the sense that the protection was to be warranted during a reasonable period after use. I have some difficulty myself on that point; but it is not necessary for me to consider it further, because the disease here was contracted during the use of the carbolic smoke ball. Was it intended that the £100 should, if the conditions were fulfilled, be paid? The advertisement says that £1000 is lodged at the bank for the purpose. Therefore, it cannot be said that the statement that £100 would be paid was intended to be a mere puff. I think it was intended to be understood by the public as an offer which was to be acted upon. But it was said there was no check on the part of the persons who issued the advertisement, and that it would be an insensate thing to promise £100 to a person who used the smoke ball unless you could check or superintend his manner of using it. The answer to that argument seems to me to be that if a person chooses to make extravagant promises of this kind he probably does so because it pays him to make them, and, if he has made them, the extravagance of the promises is no reason in law why he should not be bound by them. It was also said that the contract is made with all the world—that is, with everybody; and that you cannot contract with everybody. It is not a contract made with all the world. There is

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the fallacy of the argument. It is an offer made to all the world; and why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition? It is an offer to become liable to any one who, before it is retracted, performs the condition, and, although the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement. It is not like cases in which you offer to negotiate, or you issue advertisements that you have got a stock of books to sell, or houses to let, in which case there is no offer to be bound by any contract. Such advertisements are offers to negotiate—offers to receive offers— offers to chaffer, as, I think, some learned judge in one of the cases has said. If this is an offer to be bound, then it is a contract the moment the person fulfils the condition. That seems to me to be sense, and it is also the ground on which all these advertisement cases have been decided during the century; and it cannot be put better than in Willes, J’s, judgment in Spencer v Harding (1870) Law Rep 5 CP 561 at 563 ‘In the advertisement cases,’ he says, ‘there never was any doubt that the advertisement amounted to a promise to pay the money to the person who first gave information. The difficulty suggested was that it was a contract with all the world. But that, of course, was soon overruled. It was an offer to become liable to any person who before the offer should be retracted should happen to be the person to fulfil the contract, of which the advertisement was an offer or tender. That is not the sort of difficulty which presents itself here. If the circular had gone on, ‘and we undertake to sell to the highest bidder,’ the reward cases would have applied, and there would have been a good contract in respect of the persons.’ As soon as the highest bidder presented himself, says Willes J, the person who was to hold the vinculum juris on the other side of the contract was ascertained, and it became settled. [After considering the issues of acceptance and communication of acceptance Bowen LJ considered whether there had been consideration given for the company’s promise.] A further argument for the defendants was that this was a nudum pactum—that there was no consideration for the promise—that taking the influenza was only a condition, and that the using the smoke ball was only a condition, and that there was no consideration at all; in fact, that there was no request, express or implied, to use the smoke ball. Now, I will not enter into an elaborate discussion upon the law as to requests in this kind of contracts. I will simply refer to Victors v Davies 12 M & W and Serjeant Manning’s note to Fislier v Pyne 1 M & G 265, which everybody ought to read who wishes to embark in this controversy. The short answer, to abstain from academical discussion, is, it seems to me, that there is here a request to use involved in the offer. Then as to the alleged want of consideration. The definition of ‘consideration’ given in Selwyn’s Nisi Prius, 8th ed p 47, which is cited and adopted by Tindal, CJ, in the case of Laythoarp v Bryant 3 Scott, 238, 250, is this: ‘Any act of the plaintiff from which the defendant derives a benefit or advantage, or any labour, detriment, or inconvenience sustained by the plaintiff, provided such act is performed or such inconvenience suffered by the plaintiff, with the consent, either express or implied, of the defendant.’ Can it be said here that if the person who reads this advertisement applies thrice daily, for such time as may seem to him tolerable, the carbolic smoke ball to his nostrils for a whole fortnight, he is doing nothing at all—that it is a mere act which is not to count towards consideration to support a promise (for the law does not require us to measure the adequacy of the consideration). Inconvenience sustained by one

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party at the request of the other is enough to create a consideration. I think, therefore, that it is consideration enough that the plaintiff took the trouble of using the smoke ball. But I think also that the defendants received a benefit from this user, for the use of the smoke ball was contemplated by the defendants as being indirectly a benefit to them, because the use of the smoke balls would promote their sale. A L Smith LJ The first point in this case is, whether the defendants’ advertisement which appeared in the Pall Mall-Gazette was an offer which, when accepted and its conditions performed, constituted a promise to pay, assuming there was good consideration to uphold that promise, or whether it was only a puff from which no promise could be implied, or, as put by Mr Finlay, a mere statement by the defendants of the confidence they entertained in the efficacy of their remedy. Or as I might put it in the words of Lord Campbell in Denton v Great Northern Ry Co 5 E & B 860, whether this advertisement was mere waste paper. That is the first matter to be determined. It seems to me that this advertisement reads as follows: ‘£100 reward will be paid by the Carbolic Smoke Ball Company to any person who after having used the ball three times daily for two weeks according to the printed directions supplied with such ball contracts the increasing epidemic influenza, colds, or any diseases caused by taking cold. The ball will last a family several months, and can be refilled at a cost of 5s.’ If I may paraphrase it, it means this: ‘If you’—that is one of the public as yet not ascertained, but who, as Lindley and Bowen, LJJ, have pointed out, will be ascertained by the performing the condition—‘will hereafter use my smoke ball three times daily for two weeks according to my printed directions, I will pay you £100 if you contract the influenza within the period mentioned in the advertisement.’ Now, is there not a request there? It comes to this: ‘In consideration of your buying my smoke ball, and then using it as I prescribe, I promise that if you catch the influenza within a certain time I will pay you £100.’ It must not be forgotten that this advertisement states that as security for what is being offered, and as proof of the sincerity of the offer, £1000 is actually lodged at the bank wherewith to satisfy any possible demands which might be made in the event of the conditions contained therein being fulfilled and a person catching the epidemic so as to entitle him to the £100. How can it be said that such a statement as that embodied only a mere expression of confidence in the wares which the defendants had to sell? I cannot read the advertisement in any such way. In my judgment, the advertisement was an offer intended to be acted upon, and when accepted and the conditions performed constituted a binding promise on which an action would lie, assuming there was consideration for that promise. The defendants have contended that it was a promise in honour or an agreement or a contract in honour—whatever that may mean. I understand that if there is no consideration for a promise, it may be a promise in honour, or, as we should call it, a promise without consideration and nudum pactum; but if anything else is meant, I do not understand it. I do not understand what a bargain or a promise or an agreement in honour is unless it is one on which an action cannot be brought because it is nudum pactum, and about nudum pactum I will say a word in a moment. In my judgment, therefore, this first point fails, and this was an offer intended to be acted upon, and, when acted upon and the conditions performed, constituted a promise to pay. In the next place, it was said that the promise was too wide, because there is no limit of time within which the person has to catch the epidemic. There are three possible limits of time to

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this contract. The first is, catching the epidemic during its continuance; the second is, catching the influenza during the time you are using the ball; the third is, catching the influenza within a reasonable time after the expiration of the two weeks during which you have used the ball three times daily. It is not necessary to say which is the correct construction of this contract, for no question arises thereon. Whichever is the true construction, there is sufficient limit of time so as not to make the contract too vague on that account. … It was then said there was no person named in the advertisement with whom any contract was made. That, I suppose, has taken place in every case in which actions on advertisements have been maintained, from the time of Williams v Carwardine 4 B & Ad 621, and before that, down to the present day. I have nothing to add to what has been said on that subject, except that a person becomes a persona designata and able to sue, when he performs the conditions mentioned in the advertisement. Lastly, it was said that there was no consideration, and that it was nudum pactum. There are two considerations here. One is the consideration of the inconvenience of having to use this carbolic smoke ball for two weeks three times a day; and the other more important consideration is the money gain likely to accrue to the defendants by the enhanced sale of the smoke balls, by reason of the plaintiff ’s user of them. There is ample consideration to support this promise.

Offers made through the internet1 [3.06] At common law, the traditional contractual principles will apply to determine whether goods and services which are advertised for sale over the internet will be an offer or an invitation to treat. Offers made on the internet may be offers made to the public at large in the same way as the advertisement in Carlill’s Case.2 The fact that offers made electronically can potentially reach a wider audience does not, in itself, affect these legal principles. Depending on the facts of the case, the communication may constitute an offer or an invitation to treat. [3.07] Legislation in all Australian States and Territories provides guidance regarding whether an electronic communication should be regarded as an offer or an invitation to treat in the context of contract formation.

Victoria

Electronic Transactions (Victoria) Act 2000 (Vic) 14B Invitation to treat regarding contracts (1) A proposal to form a contract made through one or more electronic communications that—

1

For more detail about such offers, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 3.2.4.

2

[1893] 1 QB 256.

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(a) is not addressed to one or more specific parties; and (b) is generally accessible to parties making use of information systems— is to be considered as an invitation to make offers, unless it clearly indicates the intention of the party making the proposal to be bound in case of acceptance.

(2) Subsection (1)  extends to proposals that make use of interactive applications for the placement of orders through information systems.

Other Australian jurisdictions [3.08] Equivalent provisions exist in all other Australian States and Territories.3

Categorising transactions [3.09] Whether a statement or a course of conduct constitutes an offer depends on the facts and context of the particular case. However, generally the following do not amount to offers that are capable of acceptance: •

Mere puff such as an exaggerated or unsustainable claim about a product that is made in an advertisement;4



Supply of information, for example, given in response to a request from another negotiating party;5



Invitation to treat which is an indication of that person’s willingness to negotiate entry into a contract.6

[3.10]

Harvey v Facey [1893] AC 552 Privy Council One party (the appellants) was anxious to purchase property of another (belonging to the respondents), the property being known as ‘Bumper Hall Pen’. The prospective purchasers sent a telegram to the owners in the following terms: ‘Will you sell us Bumper Hall Pen? Telegraph lowest cash price.’ The owners responded: ‘Lowest price for Bumper Hall Pen £900’. The final

3

Electronic Transactions (Queensland) Act 2001 (Qld), s 26B; Electronic Transactions Act 2000 (NSW), s 14B; Electronic Transactions Act 2011 (WA), s 18; Electronic Transactions Act 2000 (SA), s 14B; Electronic Transactions Act 2000 (Tas), s 12B; Electronic Transactions Act 2001 (ACT), s 14B; Electronic Transactions (Northern Territory) Act (NT), s 14B.

4

Compare Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 where it was argued unsuccessfully that the advertisement constituted a puff. For more detail about a puff, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, 2018, section 3.3.1.

5

For more detail about these transactions, see ibid, section 3.3.2.

6

For more detail about these transactions, see ibid, section 3.3.3.

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communication was by the purchasers to say: ‘We agree to buy Bumper Hall Pen for £900 asked by you …’ The purchasers brought an action for specific performance when the owners refused to complete the purchase. Lord Morris (delivering the judgment of the Court) … their Lordships concur in the judgment of Mr Justice Curran that there was no concluded contract between the appellants and L M Facey to be collected from the aforesaid telegrams. The first telegram asks two questions. The first question is as to the willingness of L M Facey to sell to the appellants; the second question asks the lowest price, and the word ‘Telegraph’ is in its collocation addressed to that second question only. L M Facey replied to the second question only, and gives his lowest price. The third telegram from the appellants treats the answer of L M Facey stating his lowest price as an unconditional offer to sell to them at the price named. Their Lordships cannot treat the telegram from L M Facey as binding him in any respect, except to the extent it does by its terms, viz, the lowest price. Everything else is left open, and the reply telegram from the appellants cannot be treated as an acceptance of an offer to sell to them; it is an offer that required to be accepted by L M Facey. The contract could only be completed if L M Facey had accepted the appellant’s last telegram. It has been contended for the appellants that L M Facey’s telegram should be read as saying ‘yes’ to the first question put in the appellants’ telegram, but there is nothing to support that contention. L M Facey’s telegram gives a precise answer to a precise question, viz, the price. The contract must appear by the telegrams, whereas the appellants are obliged to contend that an acceptance of the first question is to be implied. Their Lordships are of opinion that the mere statement of the lowest price at which the vendor would sell contains no implied contract to sell at that price to the persons making the inquiry. Their Lordships will therefore humbly advise Her Majesty that the judgment of the Supreme Court should be reversed and the judgment of Curran, J, restored. [3.11] Various modes of practice are commonly used by business people and others. While general rules have evolved about whether or not the conduct constitutes an offer capable of acceptance, every case will turn on its particular facts. [3.12] Advertisements7—Advertisements appearing in catalogues, circulars, newspapers, magazines or on the internet will usually be invitations to treat rather than offers. The same is the case for goods displayed on shelves. However, as illustrated in Carlill’s Case above, this is not always the case and the outcome depends on the facts of the case. [3.13] Auctions8—For auctions that are conducted with a reserve price, the call for bids by the auctioneer is akin to an invitation to treat. Each bid represents an offer, the offer being accepted when the auctioneer knocks the property down to the highest bidder. Auctions without a reserve are likely to be viewed the same way. Internet or ‘online auctions’ have become common over recent years. Where parties have accepted terms and conditions before participating in the

7

For more detail about these transactions, see ibid, section 3.4.1.

8

For more detail about these transactions, see ibid, section 3.4.2.

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auction, it is likely that a valid contract will have been entered into between the seller and the highest bidder. [3.14]

Smythe v Thomas [2007] NSWSC 844 New South Wales Supreme Court The owner of a Wirraway Australian Warbird aircraft (the defendant), a registered eBay user, listed the aircraft on eBay with a notation of a ‘minimum bid’ of $150,000. Another registered eBay user (the plaintiff) made a bid in accordance with eBay rules for $150,000. Both parties received a notification from eBay to the effect that bidder had ‘won’ the aircraft. Notwithstanding that both parties had agreed to eBay’s terms and conditions which required a seller to honour winning bids at or above the seller’s minimum bid, the owner of the aircraft denied any contractual obligation to sell on the basis that the owner had only contracted with eBay and not the party bidding for the aircraft. The bidder took action against the owner to specifically enforce the alleged contract. Rein AJ [22] The defendant accepts that both he and the plaintiff accepted, by clicking on an ‘accept’ button, the terms and conditions of eBay but the defendant’s argument is that there was no binding and enforceable agreement as between the plaintiff and the defendant. The consequence of the breaches by the defendant of the eBay terms and conditions, it was submitted by the defendant, was only that eBay could remove the defendant as a registered user which, I  was informed, has occurred. [The defendant’s argument included the following components:] (1) The only contracts in existence were between eBay and the plaintiff and eBay and the defendant. Those parallel contracts never crossed over into an agreement between the plaintiff and the defendant. (2) The placement of an advertisement for sale by the defendant on eBay was no different to the placement of an advertisement in the classified advertisement section of the Sydney Morning Herald, the Trading Post or the Wentworth Courier. It should be characterised as no more than that and what the plaintiff did was no more than make an invitation to treat … [25] The plaintiff … contends that what occurred in August 2006 was an auction with considerable similarities to a traditional auction. [After referring to decisions of tribunals in other jurisdictions, and scholarly literature on the nature of auctions, Rein AJ commented:] [35] The tribunals to which I have referred appear to have no difficulty in regarding online auctions as a species of auction, and with respect I think that approach is the correct one. In circumstances where both the buyer and seller agree to accept the terms and conditions of eBay I  see no difficulty in treating the parties as having accepted that the online auction will have features that are both similar and different to auctions conducted in other forums. A live auction may require registration of bidders, and may specify

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the means by which payment can be made eg ‘personal cheques not accepted’, or that bids of a certain type will be accepted eg ‘phone bids accepted’. The parties have agreed to allow eBay, or its computer, to automatically close the bidding at a fixed time and have accepted that eBay will have no personal liability to either buyer or seller. The automatic close of bidding at a fixed time and the generation of an eBay advice headed ‘won’ appear to have been accepted by the parties to an eBay auction as the equivalent of the fall of the hammer … [36] The online auction, whether conducted by eBay or by any other organisation, provides a means by which products of almost every description can be bought and sold, and utilises the exceptional breadth of the Internet to expand the horizons of commerce, perhaps just as the invention of the printing press in the 16th century permitted wider publication of items for sale than the town or village square. Two matters which commerce has always cherished, access and certainty, are achieved by the combination of Internet technology and acceptance by prospective buyers and sellers of the conditions for use of the particular site and its facilities. [37] I  do not accept the defendant’s contention that arising out of the registration and bidding process I have described, there were contracts only between eBay and the buyer and between eBay and the seller. It has been recognised even in relation to traditional auctions that existence of a contract between vendor and auctioneer can sit together with a contract between the vendor and purchaser (and between the auctioneer and purchaser) … The eBay terms and conditions created a framework for the auction in which the plaintiff and defendant were willing participants. … [39] In my view, the seller, by listing the Wirraway on eBay’s site with an effective disclosed reserve of $150,000 offered to sell the Wirraway to that bidder who: (a) bid within the specified time period; (b) made a bid of at least $150,000; (c) was the highest bidder of those who made bids in accordance with (a) and (b); and (d) did not qualify or seek to impose a qualification on his bid to which the seller had not previously indicated his willingness to consent. [After considering whether a term dealing with time for payment could be implied whether the agreement was a complete agreement and whether specific performance was an appropriate remedy, his Honour concluded] [77] It follows that in my view a binding contract was formed between the plaintiff and the defendant and that it should be specifically enforced. [3.15] Tendering9—Although it will turn on the particular facts, an advertisement inviting tenders is akin to an invitation to treat, the tenders submitted will constitute offers, and acceptance occurs when a tender is accepted (whether or not it is the most attractive tender from an objective perspective).

9

For more detail about these transactions, see ibid, section 3.4.3.

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[3.16] Standing offers10—A standing offer is an indication by one party of his or her willingness to provide goods or services over a specified period, for example an offer to provide quantities of fruit every month for twelve months. The offer is accepted for each month whenever the order for fruit is placed. The standing offer can be withdrawn at any time before the next order is placed. [3.17] Options11—An option arises if the offeror is given consideration by the offeree to keep the offer open for a specified period. If this occurs, the offeror is bound to keep the offer open for that period.

Communication of an offer [3.18] For an offer to be valid, it must be communicated to the offeree.12 Generally, the communication to the offeree must be by the offeror or someone authorised by the offeror. Where the offer is to the world at large as occurred in Carlill’s Case, however, it is likely that the offeror intends to be bound even if the offeree is advised of the offer by a third party.

Termination of an offer [3.19] An offer can only be accepted by an offeree while it is still valid. An offer will terminate in a variety of situations.

Withdrawal by the offeror13 [3.20] An offeror can withdraw an offer at any time before it is accepted. Actual communication of the withdrawal is required, although the withdrawal may be effective even if made by someone other than the offeror or someone authorised by the offeror. [3.21]

Dickinson v Dodds [1876] 2 ChD 463 English Court of Appeal In a document of 10 June, Dodds (the defendant) offered to sell his property to Dickinson (the plaintiff), the document stating that he would keep the offer open until 9.00am on 12 June. On 11 June, Dickinson was advised by Berry that the property had been sold to a third party, Allan. The offeror had not authorised Berry to advise Dickinson of the sale to Allan. Dickinson

10 For more detail about these transactions, see ibid, section 3.4.4. 11 For more detail about these transactions, see ibid, section 3.4.5. 12 For more detail about the need for an offer to be communicated, see ibid, section 3.5. 13 For more detail, see ibid, section 3.6.1.

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subsequently purported to accept the original offer, and sought specific performance of the alleged contract. James LJ [After referring to the document of the 10 June, continued] The document, though beginning ‘I hereby agree to sell,’ was nothing but an offer, and was only intended to be an offer, for the Plaintiff himself tells us that he required time to consider whether he would enter into an agreement or not. Unless both parties had then agreed there was no concluded agreement then made; it was in effect and substance only an offer to sell. The Plaintiff, being minded not to complete the bargain at that time, added this memorandum—’This offer to be left over until Friday, 9 o’clock am, 12th June, 1874.’ That shews it was only an offer. There was no consideration given for the undertaking or promise, to whatever extent it may be considered binding, to keep the property unsold until 9 o’clock on Friday morning; but apparently Dickinson was of opinion, and probably Dodds was of the same opinion, that he (Dodds) was bound by that promise, and could not in any way withdraw from it, or retract it, until 9 o’clock on Friday morning, and this probably explains a good deal of what afterwards took place. But it is clear settled law, on one of the clearest principles of law, that this promise, being a mere nudum pactum, was not binding, and that at any moment before a complete acceptance by Dickinson of the offer, Dodds was as free as Dickinson himself. Well, that being the state of things, it is said that the only mode in which Dodds could assert that freedom was by actually and distinctly saying to Dickinson, ‘Now I withdraw my offer.’ It appears to me that there is neither principle nor authority for the proposition that there must be an express and actual withdrawal of the offer, or what is called a retractation. It must, to constitute a contract, appear that the two minds were at one, at the same moment of time, that is, that there was an offer continuing up to the time of the acceptance. If there was not such a continuing offer, then the acceptance comes to nothing. Of course it may well be that the one man is bound in some way or other to let the other man know that his mind with regard to the offer has been changed; but in this case, beyond all question, the Plaintiff knew that Dodds was no longer minded to sell the property to him as plainly and clearly as if Dodds had told him in so many words, ‘I withdraw the offer.’ This is evident from the Plaintiff ’s own statements in the bill. The Plaintiff says in effect that, having heard and knowing that Dodds was no longer minded to sell to him, and that he was selling or had sold to some one else, thinking that he could not in point of law withdraw his offer, meaning to fix him to it, and endeavouring to bind him, ‘I went to the house where he was lodging, and saw his mother-in-law, and left with her an acceptance of the offer, knowing all the while that he had entirely changed his mind. I got an agent to watch for him at 7 o’clock the next morning, and I went to the train just before 9 o’clock, in order that I might catch him and give him my notice of acceptance just before 9 o’clock, and when that occurred he told my agent, and he told me, you are too late, and he then threw back the paper.’ It is to my mind quite clear that before there was any attempt at acceptance by the Plaintiff, he was perfectly well aware that Dodds had changed his mind, and that he had in fact agreed to sell the property to Allan. It is impossible, therefore, to say there was ever that existence of the same mind between the two parties which is essential in point of law to the making of an agreement. I am of opinion, therefore, that the Plaintiff has failed to prove that there was any

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binding contract between Dodds and himself. [Mellish and Baggallay LJ concurred with this judgment and found in favour of the defendant.]

Rejection by offeree14 [3.22] If the offeree rejects the offer, the offer is terminated. It will not then be open for the offeree to change his or her mind and accept the offer. To be an effective rejection, it must be communicated to the offeror.

Lapse of time15 [3.23] If the offeror has specified a date or time that the offer will lapse, once this date or time has passed, the offer is at an end and the offeree is unable to accept it to form an agreement. If no date or time is specified, the offer will lapse after a ‘reasonable’ time.

Failure of a condition in a conditional offer16 [3.24] Offers can be made which are expressly or impliedly subject to conditions.17 If the condition is not complied with by the offeree, the offer will cease.

Death of the offeror or offeree18 [3.25] Whether the offer is terminated upon the death of the offeror or offeree will depend on the circumstances of the case including the subject matter of the proposed bargain. For example, if the offer relates to personal services to be provided by the offeror, that offer will lapse on the offeror’s death. The same result may not occur if the contract is, for example, for the sale of property. Generally, an offer made to a person will lapse on the offeree’s death. Once again, however, the outcome may turn on the construction of the offer.

ACCEPTANCE [3.26] Acceptance occurs where the offeree communicates to the offeror agreement to the terms of the offer. The two requirements for a valid acceptance, agreement to the terms and communication to the offeror, are considered below.

14 For more detail, see ibid, section 3.6.2. 15 For more detail, see ibid, section 3.6.3. 16 For more detail, see ibid, section 3.6.4. 17 This is particularly common where parties are in a lease and certain conditions must be complied with for the lessee to exercise an option to renew the lease, as in Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd [1959] SR (NSW) 122. 18 For more detail, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 3.6.5.

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Offeree must accept terms of offer [3.27] The offeree must agree to all of the terms of the offer. If the offeree seeks to introduce new terms while purporting to accept the original offer, that will amount to a counter-offer which can be accepted or rejected by the offeror. Further, the acceptance must be unqualified to be effective. Finally, an inquiry, for example to clarify certain aspects of the offer, will not amount to a rejection of the offer and will not constitute an acceptance.

Offeree must have knowledge of, and act in reliance on, offer19 [3.28] Central to traditional contract theory is the notion of consensus ad idem. For the parties to be regarded as having entered an agreement, the offeror must have been making the offer and the offeree must have been agreeing to the terms of the offer at the one moment in time. [3.29]

Crown v Clarke (1927) 40 CLR 227 High Court of Australia On 21 May, a reward of £1000 was offered for information leading to the arrest and conviction of the person or persons who murdered two police officers. On 6 June, Clarke was arrested and charged in connection with one of the murders. Some days later, Clarke gave evidence that led to the arrest, charging and conviction of those responsible for murdering one of the police officers. Clarke was released from custody, and sought to recover the reward. Isaacs ACJ The information for which Clarke claims the reward was given by him when he was under arrest … on a charge of murder, and was given by him in circumstances which show that in giving the information he was not acting on or in pursuance of or in reliance upon or in return for the consideration contained in the proclamation, but exclusively in order to clear himself from a false charge of murder. In other words he was acting with reference to a specific criminal charge against himself, and not with reference to a general request by the community for information against other persons. It is true that without his information and evidence no conviction was probable, but it is also abundantly clear that he was not acting for the sake of justice or from any impulse of conscience or because he was asked to do so, but simply and solely on his own initiative, to secure his own safety from the hand of the law and altogether irrespective of the proclamation. He has, in my opinion, neither a legal nor a moral claim to the reward. The learned Chief Justice held that Clarke never accepted or intended to accept the offer in the proclamation, and, unless the mere giving of the information without such intention amounted in law to an acceptance of the offer or to performance of the condition, there was neither ‘acceptance’ nor ‘performance,’ and therefore there was no contract.

19 For more detail, see ibid, section 3.8.1.

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It is unquestionable … that to create a contractual obligation there must be both offer and acceptance. It is the union of these which constitutes the binding tie, the obligatio. The present type of case is no exception. It is not true to say that since such an offer calls for information of a certain description, then, provided only information of that description is in fact given, the informant is entitled to the reward. That is not true unless the word ‘given’ is interpreted as ‘given in exchange for the offer’—in other words, given in performance of the bargain which is contemplated by the offer and of which the offer is intended to form part. Performance in that case is the implied method of acceptance, and it simultaneously effects the double purpose of acceptance and performance. But acceptance is essential to contractual obligation, because without it there is no agreement, and in the absence of agreement, actual or imputed, there can be no contract. Lord Kinnear in Jackson v Broatch (1900) 37 SLR 707 at 714 said: ‘It is an excellent definition of a contract that it is an agreement which produces an obligation’ … Instances easily suggest themselves where precisely the same act done with reference to an offer would be performance of the condition, but done with reference to a totally distinct object would not be such a performance. An offer of £100 to any person who should swim a hundred yards in the harbour on the first day of the year, would be met by voluntarily performing the feat with reference to the offer, but would not in my opinion be satisfied by a person who was accidentally or maliciously thrown overboard on that date and swam the distance simply to save his life, without any thought of the offer. The offeror might or might not feel morally impelled to give the sum in such a case, but would be under no contractual obligation to do so. In Holmes on the Common Law the learned author, writing in 1881, says at pp 293, 294: ‘The root of the whole matter is the relation of reciprocal conventional inducement, each for the other, between consideration and promise.’ As to the reward cases, he says, with reference to something being done in ignorance of the offer:—‘In such a case the reward cannot be claimed, because the alleged consideration has not been furnished on the faith of the offer. The tendered promise has not induced the furnishing of the consideration.’ On the question of fact whether Clarke in making his statement of 10th June acted upon the offer in the proclamation, the learned Chief Justice, who saw and heard him give his testimony, answered that question in the negative. Reading the notes of the trial, which apparently are to some extent abbreviated, and reading also the statement itself, so far from finding anything which would lead me, with all the disadvantages of an appellate Court, to reverse that finding, I quite agree with it. [Higgins and Starke JJ gave consistent judgments.]

Person accepting must be offeree20 [3.30] An offer can only be accepted by the person to whom it is made. If A makes an offer to sell A’s car to B, the offer cannot be accepted by C. Whether a person falls within the class of persons entitled to accept the offer is a matter of construction of the terms of the offer.

20 For more detail, see ibid, section 3.8.2.

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A counter-offer is not acceptance21 [3.31] To constitute a valid acceptance, the offeree must agree to all of the terms of the offer. If the offeree indicates acceptance of the offer, but on the basis of different terms suggested by the offeree, this will not constitute acceptance. The offeree has made a counter-offer, which can then be accepted or rejected by the original offeror.

Hyde v Wrench (1840) 49 ER 132 Rolls Court A seller offered to sell his farm for £1000. The buyer replied that he would buy it for £950. The seller refused. The buyer later purported to accept the seller’s original offer to buy the farm for £1000. The buyer brought an action for specific performance of the contract to buy the farm for £1000. Lord Langdale Under the circumstances stated in this bill, I think there exists no valid binding contract between the parties for the purchase of the property. The Defendant offered to sell it for £1000, and if that had been at once unconditionally accepted, there would undoubtedly have been a perfect binding contract; instead of that, the Plaintiff made an offer of his own, to purchase the property for £950, and he thereby rejected the offer previously made by the Defendant. I think that it was not afterwards competent for him to revive the proposal of the Defendant, by tendering an acceptance of it; and that, therefore, there exists no obligation of any sort between the parties.

Acceptance must be unqualified22 [3.32] For acceptance to be effective, it must be unqualified. If the offeree did not intend to enter a concluded bargain but, for example, wanted the agreement to be ‘subject to contract’, that is unlikely to constitute an unqualified acceptance.

Mere inquiry does not constitute rejection of the offer23 [3.33] An inquiry seeking clarification regarding the terms of an offer will not constitute a rejection of the offer. While it may be an issue of degree, it is treated differently to a counteroffer which will terminate the offer.

21 For more detail, see ibid, section 3.8.3. 22 For more detail, see ibid, section 3.8.4. 23 For more detail, see ibid, section 3.8.5.

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Stephenson, Jaques, & Co v McLean (1880) 5 QBD 346 Queen’s Bench Division The defendant, based in London, wanted to sell a quantity of iron and wrote to the plaintiffs at Middlesborough asking whether they could make an offer for the iron. The parties corresponded further, and finally the defendant wrote to the plaintiffs fixing 40s per ton as the lowest price at which he could sell, and stated that he would hold the offer open till the following Monday. On the Monday morning at 9.42am, the plaintiffs telegraphed to the defendant: ‘Please wire whether you would accept forty for delivery over two months, or if not, longest limit you could give.’ The defendant did not respond to this telegram, and after its receipt on the same day, he sold the iron to another party and telegraphed the plaintiffs at 1.25pm that he had done so. Before the arrival of his telegram, the plaintiffs sent a telegram to the defendant at 1.34pm stating that they could buy on the original terms. The defendant refused to deliver the iron, and the plaintiffs brought an action against him for non-delivery of the iron. Lush J Two objections were relied on by the defendant: first, it was contended that the telegram sent by the plaintiffs on the Monday morning was a rejection of the defendant’s offer and a new proposal on the plaintiffs’ part, and that the defendant had therefore a right to regard it as putting an end to the original negotiation. Looking at the form of the telegram, the time when it was sent, and the state of the iron market, I cannot think this is its fair meaning. The plaintiff Stevenson said he meant it only as an inquiry, expecting an answer for his guidance, and this, I think, is the sense in which the defendant ought to have regarded it. It is apparent throughout the correspondence, that the plaintiffs did not contemplate buying the iron on speculation, but that their acceptance of the defendant’s offer depended on their finding some one to take the warrants [iron] off their hands. All parties knew that the market was in an unsettled state, and that no one could predict at the early hour when the telegram was sent how the prices would range during the day. It was reasonable that, under these circumstances, they should desire to know before business began whether they were to be at liberty in case of need to make any and what concession as to the time or times of delivery, which would be the time or times of payment, or whether the defendant was determined to adhere to the terms of his letter; and it was highly unreasonable that the plaintiffs should have intended to close the negotiation while it was uncertain whether they could find a buyer or not, having the whole of the business hours of the day to look for one. Then, again, the form of the telegram is one of inquiry. It is not ‘I offer forty for delivery over two months,’ which would have likened the case to Hyde v Wrench 3 Beav 334, where one party offered his estate for £1000, and the other answered by offering £950. Lord Langdale, in that case, held that after the £950 had been refused, the party offering it could not, by then agreeing to the original proposal, claim the estate, for the negotiation was at an end by the refusal of his counter proposal. Here there is no counter proposal. The words are, ‘Please wire whether you would accept forty for delivery over two months, or, if not, the longest limit you would give.’ There is nothing specific by way of offer or rejection, but a mere inquiry, which should have been answered and not treated as a rejection of the offer. This ground of objection therefore fails.

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[The second objection of the defendant was that a contract requires concurrence of the two minds when the offer is accepted; and if the offeror changes his or her mind at the time the offeree purports to accept the offer, the option of accepting it is gone. This objection was not accepted by the court and the plaintiff was entitled to regard the defendant’s offer as a continuing offer that was capable of acceptance.]

Acceptance must be communicated to offeror [3.34] The general rule is that an offeree must communicate acceptance of the offer to the offeror, and agreement is not complete until such communication is effected.24 However, this general rule will not apply in all cases, and there are special rules that can apply depending on the method of communicating the acceptance to the offeror.

Method of acceptance stipulated by offeror25 [3.35] The offeror may stipulate how acceptance should occur and, in such a case, the general rule that requires communication of the acceptance to the offeror may be modified. For example, if the offeror stipulates that the offeree can accept by performing the terms of the offer, the requirement for communicating acceptance is impliedly waived. [3.36]

Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 English Court of Appeal The facts of the case are summarised at [3.05]. Lindley LJ [after finding that the advertisement constituted a valid offer and that the performance of the conditions constituted acceptance of the offer, commented on the need to communicate the acceptance] But then it is said, ‘Supposing that the performance of the conditions is an acceptance of the offer, that acceptance ought to have been notified.’ Unquestionably, as a general proposition, when an offer is made, it is necessary in order to make a binding contract, not only that it should be accepted, but that the acceptance should be notified. But is that so in cases of this kind? I apprehend that they are an exception to that rule, or, if not an exception, they are open to the observation that the notification of the acceptance need not precede the performance. This offer is a continuing offer. It was never revoked, and if notice of acceptance is required—which I doubt very much, for I rather think the true view is that which was expressed and explained by Lord Blackburn in the case of Brogden v Metropolitan

24 Powell v Lee (1908) 99 LT 284; Soares v Simpson [1931] NZLR 1079. 25 For more detail, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 3.9.1.

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Ry Co 2 App Cas 666, 691—if notice of acceptance is required, the person who makes the offer gets the notice of acceptance contemporaneously with his notice of the performance of the condition. If he gets notice of the acceptance before his offer is revoked, that in principle is all you want. I, however, think that the true view, in a case of this kind, is that the person who makes the offer shews by his language and from the nature of the transaction that he does not expect and does not require notice of the acceptance apart from notice of the performance. Bowen LJ [also finding that the advertisement constituted a valid offer, commented on the plaintiff ’s purported acceptance] Then it was said that there was no notification of the acceptance of the contract. One cannot doubt that, as an ordinary rule of law, an acceptance of an offer made ought to be notified to the person who makes the offer, in order that the two minds may come together. Unless this is done the two minds may be apart, and there is not that consensus which is necessary according to the English law—I say nothing about the laws of other countries—to make a contract. But there is this clear gloss to be made upon that doctrine, that as notification of acceptance is required for the benefit of the person who makes the offer, the person who makes the offer may dispense with notice to himself if he thinks it desirable to do so, and I suppose there can be no doubt that where a person in an offer made by him to another person, expressly or impliedly intimates a particular mode of acceptance as sufficient to make the bargain binding, it is only necessary for the other person to whom such offer is made to follow the indicated method of acceptance; and if the person making the offer, expressly or impliedly intimates in his offer that it will be sufficient to act on the proposal without communicating acceptance of it to himself, performance of the condition is a sufficient acceptance without notification. That seems to me to be the principle which lies at the bottom of the acceptance cases, of which two instances are the well-known judgment of Mellish, LJ, in Harris’s Case Law Rep 7 Ch 587, and the very instructive judgment of Lord Blackburn in Brogden v Metropolitan Ry Co 2 App Cas 666, 691, in which he appears to me to take exactly the line I have indicated. Now, if that is the law, how are we to find out whether the person who makes the offer does intimate that notification of acceptance will not be necessary in order to constitute a binding bargain? In many cases you look to the offer itself. In many cases you extract from the character of the transaction that notification is not required, and in the advertisement cases it seems to me to follow as an inference to be drawn from the transaction itself that a person is not to notify his acceptance of the offer before he performs the condition, but that if he performs the condition notification is dispensed with. It seems to me that from the point of view of common sense no other idea could be entertained. If I advertise to the world that my dog is lost, and that anybody who brings the dog to a particular place will be paid some money, are all the police or other persons whose business it is to find lost dogs to be expected to sit down and write me a note saying that they have accepted my proposal? Why, of course, they at once look after the dog, and as soon as they find the dog they have performed the condition. The essence of the transaction is that the dog should be found, and it is not necessary under such circumstances, as it seems to me, that in order to make the contract binding there should be any notification of acceptance. It follows from the nature of the thing that the performance of the condition is sufficient acceptance without the notification of it, and a person who makes an offer in an

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advertisement of that kind makes an offer which must be read by the light of that common sense reflection. He does, therefore, in his offer impliedly indicate that he does not require notification of the acceptance of the offer. Smith LJ Then it was argued, that if the advertisement constituted an offer which might culminate in a contract if it was accepted, and its conditions performed, yet it was not accepted by the plaintiff in the manner contemplated, and that the offer contemplated was such that notice of the acceptance had to be given by the party using the carbolic ball to the defendants before user, so that the defendants might be at liberty to superintend the experiment. All I can say is, that there is no such clause in the advertisement, and that, in my judgment, no such clause can be read into it; and I entirely agree with what has fallen from my Brothers, that this is one of those cases in which a performance of the condition by using these smoke balls for two weeks three times a day is an acceptance of the offer.

Acceptance by instantaneous communication26 [3.37] Where the mode of acceptance is by ‘instantaneous communication’, the general rule is that the contract will be formed when acceptance of the offer is communicated to the offeror. The contract is formed when and where the offeror receives that communication. [3.38] Instantaneous communication exists where negotiations take place between parties in each other’s presence, by telephone, by telex messages, by facsimile and, it appears, communication by email.

Acceptance by post—‘postal acceptance rule’27 [3.39] The ‘postal acceptance rule’ is an exception to the general rule that a contract is formed only when the offeree’s acceptance is communicated to the offeror. The postal acceptance rule operates only where the post was contemplated by the parties as a possible way of communicating acceptance of the offer. If the rule operates, acceptance is effective, and a contract is formed once the letter is posted. It does not matter if the letter takes longer than usual to reach the offeror, or is completely lost in the post. The offeror bears this risk. Once the letter of acceptance is posted, it is also too late for the offeror to withdraw his or her offer.

Henthorn v Fraser [1892] 2 Ch 27 English Court of Appeal The plaintiff (buyer) lived at Birkenhead and visited the office of the defendant (seller—a land society in Liverpool) to negotiate the purchase of specific property. The defendant seller gave

26 For more detail, see ibid, section 3.9.2. 27 For more detail, see ibid, section 3.9.3.

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the plaintiff buyer an option to purchase the property for 14  days at £750. On the next day, between 12 and 1.00pm, the defendant posted a letter withdrawing the offer, but the letter did not reach the plaintiff ’s address until after 5.00pm on that day. On 3.50pm the same day, the plaintiff sent the seller an unconditional acceptance of the offer which was delivered after the office had closed but was opened by the defendant the next morning. The plaintiff brought an action for specific performance of the contract. Lord Herschell This is an action for the specific performance of a contract to sell to the Plaintiff certain house property situate in Flamank Street, Birkenhead. … If the acceptance by the Plaintiff of the Defendants’ offer is to be treated as complete at the time the letter containing it was posted, I  can entertain no doubt that the society’s attempted revocation of the offer was wholly ineffectual. I think that a person who has made an offer must be considered as continuously making it until he has brought to the knowledge of the person to whom it was made that it is withdrawn. This seems to me to be in accordance with the reasoning of the Court of King’s Bench in the case of Adams v Lindsell 1 B & Al 681, which was approved by the Lord Chancellor in Dunlop v Higgins 1 HLC 381, 399, and also with the opinion of Lord Justice Mellish in Harris’s Case Law Rep 7 Ch 587. The very point was decided in the case of Byrne v Van Tienhoven 5 CPD 344 by Lord Justice Lindley, and his decision was subsequently followed by Mr Justice Lush. The grounds upon which it has been held that the acceptance of an offer is complete when it is posted have, I  think, no application to the revocation or modification of an offer. These can be no more effectual than the offer itself, unless brought to the mind of the person to whom the offer is made. But it is contended on behalf of the Defendants that the acceptance was complete only when received by them and not on the letter being posted. It cannot, of course, be denied, after the decision in Dunlop v Higgins 1 HLC 381 in the House of Lords, that, where an offer has been made through the medium of the post, the contract is complete as soon as the acceptance of the offer is posted, but that decision is said to be inapplicable here, inasmuch as the letter containing the offer was not sent by post to Birkenhead, but handed to the Plaintiff in the Defendants’ office at Liverpool. The question therefore arises in what circumstances the acceptance of an offer is to be regarded as complete as soon as it is posted. In the case of the Household Fire and Carriage Accident Insurance Company v Grant 4 Ex D 216, Lord Justice Baggallay said [at 227]: ‘I think that the principle established in Dunlop v Higgins is limited in its application to cases in which by reason of general usage, or of the relations between the parties to any particular transactions, or of the terms in which the offer is made, the acceptance of such offer by a letter through the post is expressly or impliedly authorized.’ And in the same case Lord Justice Thesiger based his judgment 4 Ex D 218 on the defendant having made an application for shares under circumstances ‘from which it must be implied that he authorized the company, in the event of their allotting to him the shares applied for, to send the notice of allotment by post.’ The facts of that case were that the defendant had, in Swansea, where he resided, handed a letter of application to an agent of the company, their place of business being situate in London. It was from these circumstances that the Lords Justices implied an authority to the company to accept the defendant’s offer to take shares through the medium of the post. Applying the law thus laid down by the Court of Appeal, I think in the present case an authority to accept by post must be implied. Although the Plaintiff

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received the offer at the Defendants’ office in Liverpool, he resided in another town, and it must have been in contemplation that he would take the offer, which by its terms was to remain open for some days, with him to his place of residence, and those who made the offer must have known that it would be according to the ordinary usages of mankind that if he accepted it he should communicate his acceptance by means of the post. I  am not sure that I  should myself have regarded the doctrine that an acceptance is complete as soon as the letter containing it is posted as resting upon an implied authority by the person making the offer to the person receiving it to accept by those means. It strikes me as somewhat artificial to speak of the person to whom the offer is made as having the implied authority of the other party to send his acceptance by post. He needs no authority to transmit the acceptance through any particular channel; he may select what means he pleases, the Post Office no less than any other. The only effect of the supposed authority is to make the acceptance complete so soon as it is posted, and authority will obviously be implied only when the tribunal considers that it is a case in which this result ought to be reached. I should prefer to state the rule thus: Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted. It matters not in which way the proposition be stated, the present case is in either view within it. … For the reasons I have given, I think the judgment must be reversed and the usual decree for specific performance made. The Respondents must pay the costs of the appeal and of the action. [Lindley LJ concurred with Lord Herschell’s judgment, and Kay LJ delivered a consistent judgment.] [3.40] The postal rule will not operate if the parties intended that the offeror would not be bound until he or she received actual notification of acceptance.

Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd [1994] 1 VR 74 Supreme Court of Victoria On 5 September 1988, the solicitors for the purchaser of land (Nunin Holdings Pty Ltd) sent to the solicitors for the seller (Tullamarine Estates Pty Ltd) a counterpart contract of sale executed by the purchaser with a letter which stated that the contract was forwarded on the basis that it would be held by the solicitor on behalf of the purchaser pending receipt by the purchaser’s solicitor of an identical contract signed by the vendor company. The vendor’s solicitors subsequently (12 September) posted to the purchaser’s solicitors a counterpart contract of sale completed by the vendor. Before receipt by the purchaser’s solicitors of the vendor’s counterpart, the vendor’s solicitor telephoned the purchaser’s solicitor on 13 September and purported to withdraw acceptance of the purchaser’s offer. The purchaser sued the vendor for damages for breach of contract. [The preliminary point to be decided by the Court was whether the parties had entered into a contract for the sale of the land.]

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Hedigan J At the commencement of his submissions, counsel for the plaintiff described the short point of the case as being whether the contract was complete when the vendor’s solicitor put a signed counterpart of the contract of sale in the mail to the purchaser’s solicitor. He said that a second issue was whether or not a verbal retraction of such an acceptance by the defendant’s solicitor was effective to constitute revocation of the acceptance, if the mail contract of sale had not been received. … Essentially, the plaintiff claims that, having received from the solicitor for the vendor a contract of sale, it executed the contract of sale sent to it and sent it back to the vendor’s solicitor. It says the vendor’s solicitor then shortly thereafter posted to the purchaser’s solicitor an identical copy of the contract of sale executed by the vendor by posting it in the ordinary mail. It contends that the so-called postal acceptance rule applies and acceptance was complete upon the posting. The defendant claims in its defence that there was no concluded contract because the negotiations were conducted upon the basis that it was the intention of the parties that a binding agreement for the sale of the land would not come into existence until each party had actually received from the other by way of exchange of contracts an identical part of a contract in writing executed by the other party. It contends, and this is not a disputed fact, that subsequent to the posting by the vendor of the executed copy but before it was received by the purchaser’s solicitors, a conversation took place between the vendor’s solicitor and the plaintiff ’s solicitors which it is appropriate to construe as a withdrawal or revocation of the acceptance. … The so-called postal acceptance rule has had a long but by no means uneventful history. Its genesis is probably to be found in Adams v Lindsell (1818) 1 B and Ald 681; 106 ER 250 but it was not until Household Fire and Carriage Accident Insurance Co (Ltd) v Grant (1879) 4 Ex D 216 that the rule was itself finally accepted. It had, however, already been applied in Australia: Tooth v Fleming (1859) Legge 1152. Even in quite recent cases in the United States, the rule was still being called ‘the rule in Adams v Lindsell’. But once more firmly established (Henthorn v Fraser [1892] 2 Ch 27), the rule became an important exception to the central principle that acceptance of an offer was not effective until actually communicated to the offeror. Moreover, although the postal system of the late nineteenth century was by all accounts sufficiently reliable and prompt to justify such a gloss on the fundamental principle, the application of the exception was limited to cases in which by reason of general usage or the particular relations between the parties or the terms of the offer itself, the acceptance of an offer by posting was authorised. Further, the letter of acceptance had to be pre-paid and properly posted in order to attract the operation of the rule that, in the case in which use of the post was specified or contemplated, acceptance was complete upon posting. Notwithstanding that we live in the electronic age of telephones, telexes, facsimile transmissions, courier services and document exchange facilities, the use of the post, perhaps less reliable and speedy for all its modern equipment, is still commonplace. The rule has not been expanded but it has not been abandoned either. Nor must it be overlooked that the offeror may prescribe the method of acceptance. If that is done in clear terms then compliance with the method laid down is necessary to make the putative acceptance effective. Senior counsel for the plaintiff relied on a group of cases to support his argument that, once the contract executed by the vendor was posted to the purchaser’s solicitor, no revocation

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could be effective … It is not necessary, for reasons which I shall later develop, to analyse these cases. Each of them recognises the postal acceptance rule and in certain circumstances the ineffectiveness of after posting revocation. … Recent authority has been concerned with the more modern methods of virtually instantaneous communication, preferring to confine the postal acceptance rule strictly enough to its original sphere and, subject always to the parties’ intentions, applying the primary principle that acceptance must be actually communicated to be effective: Entores LD v Miles Far East Corp [1955] 2 QB 327; Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels Gesellschaft MbH [1983] 2 AC 34 (but see the criticism in the 2nd cumulative supplement to Greig and Davis at 60); Leach Nominees Pty Ltd v Walter Wright Pty Ltd [1986] WAR 244; Express Airways v Port Augusta Air Services [1980] Qd R 543. The courts, faced with the more mundane task of applying the law to the facts have, from time to time, clung to assumed intentions to avoid the operation of the rule where its application might produce absurdity:  see Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 15 98 CLR 93, per Dixon and Fullagar JJ, at 112 ff. But whatever the circumstances, it is fundamental to bear steadily in mind that the general rule is that a contract is not completed until acceptance of the offer is actually communicated to the offeror, and that a finding that a contract is completed by the posting of a letter of acceptance cannot be justified unless it is to be inferred that the offeror contemplated and intended that his offer might be accepted by the doing of that act:  Tallerman’s Case, at 111; Henthorn’s Case; Holwell Securities Ltd v Hughes [1974] 1 WLR 155, at 160 to 162. It seems to me that the critical document in the case is the letter of 5 September 1988 from the purchaser’s solicitors to the vendor’s solicitor. As I  have already said, on 16 June 1988, the vendor’s solicitors had sent a copy of the contract of sale to the purchaser’s solicitor. The accompanying letter stated that the vendor had already executed the vendor’s part, which the solicitors held. The significant paragraph in the letter of 5 September is: The contract is forwarded on the basis that it will be held by you on our behalf pending receipt by us of an identical contract signed by the vendor company.

Senior counsel for the plaintiff argued that the words ‘held by you on our behalf pending receipt by us of an identical contract’ impressed an escrow condition on an offer to buy constituted by the forwarding of the contract of sale executed by the purchaser. He contended that all that was addressed by that condition was the custody of the document pending receipt, and that it was not intended that, nor was the effect that, the operation of the ordinary principles of postal acceptance be affected. I am unable to accept this submission. It fails to give sufficient weight and meaning to the word ‘receipt by us of an identical contract’ in the relevant letter. Faced with this language,

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senior counsel for the plaintiff contended further that posting of the contract was tantamount to receipt. Clearly this is not correct, and confuses the operation of the law in the absence of a contrary intention with the intention itself. If the purchaser’s intention was that posting of the contract was sufficient acceptance, it clearly might have stated so. Silence as to the disposition of the vendor’s executed part might well have produced the consequence argued for. But the purchaser, through its solicitors, clearly addressed the circumstance in which the exchange would be completed, and described the time at which and the event on the happening of which its already executed part, held by the vendor, would coalesce with the vendors executed part, to produce a concluded agreement. That circumstance was receipt of the identical executed part, not its posting. It must not be overlooked that it is receipt of ‘an identical contract signed by the vendor company’ that is referred to. This was an outer suburban solicitor dealing with a large city firm. It is likely that the purchaser’s solicitor was exercising the prudence and care which his retainer demanded, and that he reserved with clarity his right to check that the terms of the contract sent to him were identical to the ones in the contract that his client had executed. The use of the phrase ‘receipt by us of the identical contract’ is stronger to my mind than ‘notice in writing addressed to me’, the phrase construed by Bowen CJ in Bressan v Squires as requiring actual notice to the grantor of the option of its exercise and stronger than simple ‘notice in writing to’, held in the Holwell Securities’ Case as being insufficient to displace the need for actual communication. The phrase in the letter of 5 September, to use the phrase of Russell LJ in the Holwell Securities’ Case, ‘points rather in the direction of actual communication’. The fact that the parties may have contemplated the use of the post cannot affect the construction of the requirement of the purchaser as to the communication of acceptance. There has in monographs, articles, and cases been discussion about the postal acceptance rule’s virtues and absurdities, for example, the opportunity to post but then revoke prior to receipt as a criticism and, in support of the rules’ utility, the want of certainty in the mind of the sender as to whether his acceptance has been received unless posting constitutes acceptance. Whatever its virtues and vices, if the requirements and mode of communication of acceptance have been made plain, the result does not alter. In my view, in this case, they were. … … I am of the opinion, already stated, that the correct construction of the letter of 5 September is that the purchaser clearly specified actual receipt by him or his agent of the vendor’s executed part as the means by which acceptance was to be effected. In those circumstances, the postal acceptance rule has no sphere of operation. Revocation or withdrawal of any acceptance took place before actual receipt. There is no dispute that if the contract was not concluded by the act of posting that there was a withdrawal or revocation of acceptance, constituted by the conversation previously described.

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Acceptance by electronic communication28 [3.41] When parties to a contract negotiate through email and acceptance of an offer occurs in this way, case law now suggests that email is to be regarded as instantaneous communication and the contract is therefore formed when and where the email of acceptance was received. [3.42] The electronic transactions legislation in all jurisdictions set out what is to be regarded as the time and place of receipt when a communication is sent electronically.

Victoria

Electronic Transactions (Victoria) Act 2000 (Vic) Section 13A Time of receipt (1) For the purposes of a law of this jurisdiction, unless otherwise agreed between the originator and the addressee of an electronic communication— (a) the time of receipt of the electronic communication is the time when the electronic communication becomes capable of being retrieved by the addressee at an electronic address designated by the addressee; or (b) the time of receipt of the electronic communication at another electronic address of the addressee is the time when both— (i)

the electronic communication has become capable of being retrieved by the addressee at that address; and

(ii)

the addressee has become aware that the electronic communication has been sent to that address.

(2) For the purposes of subsection (1), unless otherwise agreed between the originator and the addressee of the electronic communication, it is to be assumed that the electronic communication is capable of being retrieved by the addressee when it reaches the addressee’s electronic address. (3) Subsection (1)  applies even though the place where the information system supporting an electronic address is located may be different from the place where the electronic communication is taken to have been received under section 13B. Section 13B Place of dispatch and place of receipt (1) For the purposes of a law of this jurisdiction, unless otherwise agreed between the originator and the addressee of an electronic communication— (a) the electronic communication is taken to have been dispatched at the place where the originator has its place of business; and (b) the electronic communication is taken to have been received at the place where the addressee has its place of business.

28 For more detail, see ibid, section 3.9.4.

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(2) For the purposes of the application of subsection (1) to an electronic communication— (a) a party’s place of business is assumed to be the location indicated by that party, unless another party demonstrates that the party making the indication does not have a place of business at that location; and (b) if a party has not indicated a place of business and has only one place of business, it is to be assumed that that place is the party’s place of business; and (c) if a party has not indicated a place of business and has more than one place of business, the place of business is that which has the closest relationship to the underlying transaction, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the transaction; and (d) if a party has not indicated a place of business and has more than one place of business, but paragraph (c) does not apply—it is to be assumed that the party’s principal place of business is the party’s only place of business; and (e) if a party is a natural person and does not have a place of business—it is to be assumed that the party’s place of business is the place of the party’s habitual residence. (3) A location is not a place of business merely because that is (a) where equipment and technology supporting an information system used by a party are located; or (b) where the information system may be accessed by other parties. (4) The sole fact that a party makes use of a domain name or electronic mail address connected to a specific country does not create a presumption that its place of business is located in that country.

Other Australian jurisdictions [3.43] For the time of receipt, equivalent provisions exist in all other Australian States and Territories.29 [3.44] For place of receipt, equivalent provisions exist in all other Australian States and Territories.30 [3.45] When the electronic transactions legislation was originally enacted by the Commonwealth, states and territories, the major focus of the legislation was not to clarify the issue of contract formation when negotiating parties use electronic communication. The legislation has now been modified in all Australian States and Territories to provide expressly that the provisions set out above which pinpoint precisely when and where an electronic communication should be regarded as having been received, applies to the issue of contract formation. 29 Time of receipt: Electronic Transactions (Queensland) Act 2001 (Qld), s 24(1); Electronic Transactions Act 2000 (NSW), s 13A; Electronic Transactions Act 2011 (WA), s 14; Electronic Transactions Act 2000 (SA), s 13A; Electronic Transactions Act 2000 (Tas), s 11A; Electronic Transactions Act 2001 (ACT), s 13A; Electronic Transactions (Northern Territory) Act (NT), s 13A. 30 Electronic Transactions (Queensland) Act 2001 (Qld), s 25; Electronic Transactions Act 2000 (NSW), s 13B; Electronic Transactions Act 2011 (WA), s 15; Electronic Transactions Act 2000 (SA), s 13B; Electronic Transactions Act 2000 (Tas), s 11B; Electronic Transactions Act 2001 (ACT), s 13B; Electronic Transactions (Northern Territory) Act (NT), s 13B.

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Victoria

Electronic Transactions (Victoria) Act 2000 (Vic) Section 14E (1) Subject to subsection (2), the provisions of sections 7, 13, 13A and 13B apply to— (a) a transaction constituted by or relating to a contract; or (b) an electronic communication relating to the formation or performance of a contract—in the same way as they apply to a transaction or electronic communication referred to in those sections, and so apply as if the words ‘For the purposes of a law of this jurisdiction’ were omitted. (2) However, this Part (including subsection (1)) does not apply to or in relation to a contract to the extent that— (a) Part 2 would of its own force have the same effect as this Part if this Part applied; or (b) a law of another State or Territory (that is in substantially the same terms as Part  2) would of its own force have the same effect as this Part if this Part applied.

Other Australian jurisdictions [3.46] Equivalent provisions exist in all other Australian States and Territories.31

QUESTIONS FOR REFLECTION (1) When will a newspaper or other advertisement made to the public at large constitute an offer rather than an invitation to treat? (2) For an offer to be validly withdrawn, the withdrawal must be communicated to the offeree. Can this requirement be satisfied if the offeree is advised of the withdrawal by someone other than the offeror? What is the rationale for this position? (3) A binding contract is generally not formed until an offeree communicates acceptance to the offeror. In some cases, a contract will be formed in the absence of acceptance being communicated. In what circumstances will this occur? What is the rationale for waiving the requirement of communication of acceptance in such cases? (4) To be a valid acceptance, the offeree must act in reliance on the offer. What is meant by this? Explain the rationale behind the rule.

31 Electronic Transactions (Queensland) Act 2001 (Qld), s 26E; Electronic Transactions Act 2000 (NSW), s 14E; Electronic Transactions Act 2011 (WA), s 21; Electronic Transactions Act 2000 (SA), s 14E; Electronic Transactions Act 2000 (Tas), s 12E; Electronic Transactions Act 2001 (ACT), s 14E; Electronic Transactions (Northern Territory) Act (NT), s 14E.

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CHAPTER 4 CERTAINTY AND COMPLETENESS

INTRODUCTION [4.01] One of the requirements for a valid contract is that of certainty and completeness. A court will only enforce a contract if the terms of the agreement are formulated with sufficient certainty and agreement has been reached on all of the terms necessary to carry out the contract.1

AMBIGUITY AND UNCERTAINTY [4.02] In determining whether or not a particular clause is ambiguous or uncertain, the court is required to make an objective assessment about its enforceability.2 The subjective belief of one or both of the parties that the clause or the agreement is certain is not determinative. The objective assessment is made on a case by case basis with each assessment turning on the facts of the individual case before the court. [4.03]

Whitlock v Brew (1967) 118 CLR 445 High Court of Australia The parties entered into a contract for the sale of land. On part of the land, a petrol service station business was being conducted. The contract required the purchaser to grant a lease of a portion of the land sold ‘to the Shell Co of Australia Ltd upon terms that the said land leased as aforesaid be used by Shell or their sub-tenant or licensee for the sale of [Shell] products and upon such reasonable terms as commonly govern such a lease.’ The contract went on to provide for an arbitrator to resolve any disputes that arose in relation to the interpretation of the

1

See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 4.2.

2

Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130, 135.

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agreement. The majority of the High Court (Kitto, Taylor, Menzies and Owen JJ, McTiernan J dissenting) held that the clause was uncertain, as it did not prescribe the term of the lease or the rent and the provision for arbitration did not authorise the arbitrator to fix either the term of the lease or the rent. As the uncertain clause formed a pivotal part of the contract, it was not possible for the clause to be severed3 and the contract was held to be void for uncertainty. Kitto J The main problem in this case arises not from any uncertainty of language in the document headed ‘contract of sale’ but from the omission of the parties to reach a concluded agreement upon the matter to which special condition 5 is addressed. The clause contains a so-called covenant by the purchaser that immediately upon taking possession of the subject land he will grant a lease of a portion of the land to the Shell Co of Australia Ltd. The portion is defined as that which ‘is used’ (ie, at the date of the document) for the sale of petroleum, oils and greases and petroleum products of the Shell Co I  am prepared to assume that the vendor is right in saying, as he does, that this description is sufficient to enable the portion to be identified. As regards the term of the lease, it sufficiently appears, I think, that the commencing date is to be the date when the purchaser obtains possession. But upon no other topic does the document indicate what the provisions of the lease are to be. It does say that the lease is to be granted ‘upon such reasonable terms as commonly govern such a lease’, and that would have been enough if evidence had established that for such a lease an ascertainable set of reasonable terms are in common use. But this has not been established, and the result is that the document does not record a consensus ad idem as to the duration of the term, the rent, or anything else except the commencing date and the premises intended to be let. Provision is indeed made for arbitration in the event of any dispute between the parties ‘as to the interpretation or operation of this clause’, and I should have understood this as extending to any dispute as to what terms are reasonable and commonly govern such a lease, if in fact any such terms had existed. But it clearly would not authorize an arbitrator to force upon the purchaser such terms as he (the arbitrator) might think are reasonable and ought commonly to govern such a lease, for to do so would be to alter the contract. The problem to which I have referred as the main problem is whether the fact that special condition 5 is, for this reason, of no contractual effect carries the consequence that the whole document is in like case, or whether, on the other hand, the provisions of the document apart from special condition 5 constitute by themselves a concluded contract from which that condition is properly to be considered a separate and severable provision. The document contains a provision specifically entitling the purchaser to vacant possession of the property sold upon acceptance of title and upon payment of £56,000. That sum was by a later provision made payable within forty-five days from the date of the document, the purchaser’s liability to pay the balance of the purchase price, £109,000, being deferred for twenty years. Special condition 5, so far as it goes, is a direct qualification of the provision as to vacant possession, for what it sets itself to do is to saddle the purchaser’s taking of possession with an immediate obligation to grant a lease to the Shell Co. It is therefore clear on the face of the document that

3

In relation to the possibility of severance, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 4.4.3.

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the parties had no intention of agreeing upon a sale which would entitle the purchaser to receive vacant possession without having to grant any lease to the Shell Co; and it follows that to treat the ‘contract’ as binding though shorn of special condition 5 would be to turn the sale into a different sort of sale from that which the parties contemplated. Courts are of course anxious to hold parties to what they have agreed upon, but there can be no justification for holding them to something they have not agreed upon. In my opinion the decision of the Full Court of the Supreme Court that no concluded contract of sale was made between the parties is correct; and as it is agreed that if that be so the purchaser is entitled to recover the moneys he paid to the vendor under the supposed contract the Full Court’s order that judgment be entered for the purchaser on his claim should be affirmed. Taylor, Menzies and Owen JJ The first question to be considered is whether the contention that special condition 5 is uncertain should be upheld. The appellant asserts that it should not and that, in effect, that clause simply provides that in the event of there being no agreement as to the terms of the contemplated lease, including both the period during which it is to subsist and the rent to be paid, the parties shall enter into a lease in the form settled by an arbitrator. Of course, if this were so the basis for the contention that the clause is uncertain would disappear. But the language of the clause does not permit of this view. The lease is to be ‘upon such reasonable terms as commonly govern such a lease’ and in the event of a dispute ‘as to the interpretation or operation’ of the clause the dispute is to be referred to arbitration. We are firmly of opinion that the expression ‘upon such reasonable terms as govern such a lease’ is not, in the context in which it appears, apt to refer to either the period for which the contemplated lease is to subsist or to the rent to be payable thereunder. Nor do we think that the further expression ‘as to the interpretation or operation’ of this clause covers a dispute as to either of those matters. We, therefore, are of opinion that the clause is uncertain in that it neither specifies nor provides a means for the determination as between the parties of the period for which the contemplated lease shall be granted or the rent which shall be payable thereunder. It, therefore, becomes necessary to determine whether the condition is severable from the rest of the provisions of the contract or whether the whole contract falls. … Of course, cases may arise where a vague, uncertain or meaningless clause in a contract may simply be ignored. An elementary example of this is to be found in the last clause on p. 2 of the contract in this case. But special condition 5 does not fall into any such category; nor can it be said to be a clause inserted solely for the benefit of one of the parties and capable of being waived by him. It is, in a sense, definitive of the ultimate rights which it is contemplated the purchaser is to get under his contract. The clause provides that the respondent will immediately upon taking possession grant a lease the effect of which will be to deprive him of possession of part of the land in return for a promise to pay rent. Of course, the Shell Co is in no way obliged to take a lease but it is clear enough from the terms of the contract that it was contemplated that it would. The case is, perhaps, not as clear as the case where a contract for the sale of land is entered into with a reservation to the vendor of an unspecified part (Pearce v Watts (1875) LR 20 Eq 492). Nor are we concerned with the problem that would have arisen in the present case if there had been a conveyance from the appellant to the respondent (cf South Eastern Railway Co v Associated Portland Cement Manufacturers (1900) Ltd [1910] 1 Ch 12). The case more closely

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resembles Duggan v Barnes [1923] VLR 27, where A agreed to sell land to B for a stated price and B undertook to grant a lease to any person who should purchase A’s business. There the court had no difficulty in holding that B’s undertaking was a material and inseverable part of the consideration for A’s promises. In our view the same conclusion must be reached in this case and the fact that here it is the purchaser, and not the vendor, who is asserting the invalidity of the contract is of no consequence. In our opinion the appellant’s appeal should be dismissed. [McTiernan J dissented.] [4.04] Although there are many instances where clauses have been found to be void for uncertainty, increasingly courts appear willing to uphold an agreement entered into by the parties, particularly where the circumstances indicate that the parties intended to be bound by the agreement.4

INCOMPLETE AGREEMENTS [4.05] Parties must reach final agreement on the essential aspects of the contract before they will be regarded as having entered a contract. It is not enough for them to leave a matter to be agreed upon at a later stage. That would be an agreement to agree which is unenforceable. It is, however, sometimes difficult to assess whether the arrangement between the parties is an agreement to agree or an agreement to negotiate in the future which would be unenforceable, or an arrangement that amounts to an enforceable contract.5 The increasing use of ‘Heads of Agreement’ in a commercial context has highlighted this dilemma. [4.06] The traditional view is that if parties do not reach final agreement on essential terms, instead agreeing to finalise such matters at a later time, that contract is an agreement to agree. As such, it is incomplete and will not be enforced.6 If an agreement to negotiate is regarded as an agreement to agree, it too will be unenforceable and no action can be brought if one party withdraws from negotiations or does not negotiate in good faith.7 [4.07] Australia, England, and the United States have divergent approaches to the enforceability of agreements to negotiate. The House of Lords in England has adopted a conservative approach to the enforcement of such agreements. In Walford v Miles,8 the House of Lords held

4

See ibid, section 4.3.1.

5

If this kind of contract is regarded as enforceable, it might fall within the so-called fourth category of Masters v Cameron (1954) 91 CLR 353.

6

Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600, 604.

7

Professor McLauchlan in ‘Rethinking Agreements to Agree’ (1998) 18 New Zealand Universities Law Review 77 criticises this approach. If the parties intend to be bound by their agreement to agree on certain matters in the future, Professor McLauchlan believes such an agreement should be upheld. He argues that, for this reason, the time has come to rethink the established line of authorities relying on principles set out in May & Butcher v The King [1934] 2 KB 17. Compare also the legal status of a contractual obligation to mediate or conciliate which has been distinguished from a duty to negotiate in good faith: Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194, 209.

8

[1992] 2 WLR 174.

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a prospective seller of a photographic processing business not to be in breach of an agreement to negotiate by withdrawing from negotiations. In the opinion of Lord Ackner, the concept of a contractual obligation to negotiate was ‘inherently repugnant to the adversarial position of the parties when involved in negotiations’.9 [4.08] While the American courts have not taken a consistent approach on this issue, the case law reveals a greater preparedness to enforce agreements to negotiate. [4.09] The current Australian position seems to fall somewhere between the traditional English and the more flexible American approaches. The leading decision on this point is that of the New South Wales Court of Appeal in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd.10 The parties were involved in negotiations for a complex joint venture agreement for a coal mine. They executed a ‘Heads of Agreement’ document in which they agreed to ‘proceed in good faith to consult together upon the formulation of a more comprehensive and detailed Joint Venture Agreement’. Although, on the facts of the case, the Heads of Agreement document was held to be unenforceable, it was contemplated by Kirby P (with whom Waddell AJA was in general agreement) that in appropriate circumstances, an agreement to negotiate could be enforceable.11 In the course of his detailed judgment, Kirby P reviewed the legal position governing agreements to negotiate in England, the United States, and Australia. He concluded that if the parties provided good consideration and the terms of the agreement to negotiate were sufficiently certain, such agreements might be enforceable. One mechanism to make an agreement to negotiate more certain, it was suggested, would be to include a provision referring matters in dispute to a third party. [4.10] The persuasiveness of the statement of principle expressed by Kirby P in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd12 was accepted by the New South Wales Court of Appeal in United Group Rail Services Ltd v Rail Corporation New South Wales.13

9

Ibid at 181. See also Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297 at 301 per Lord Denning MR.

10 (1991) 24 NSWLR 1. 11 This result may be contrasted with the result in Jobern Pty Ltd v Breakfree Resorts (Victoria) Pty Ltd [2007] FCA 1066 where the Heads of Agreement was contractually binding but the express obligation to negotiate the terms of a long form contract and to conduct those negotiations in good faith was found to be uncertain. 12 (1991) 24 NSWLR 1. 13 (2009) 74 NSWLR 618.

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United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618 New South Wales Court of Appeal The parties entered into contracts for the design and building of new rolling stock for a rail network. The contracts contained dispute resolution clauses which required senior representatives of each party to meet and undertake ‘genuine and good faith negotiations’. If the matters in dispute were not resolved by negotiations, provision was made for mediation and arbitration. The trial judge found that the agreement to negotiate in good faith was valid and enforceable. On appeal, this finding was affirmed. Allsop P (with whom Ipp and Macfarlan JJA agreed) [56] Before turning to the terms of the clause in question, given the juristic debate that has taken place about agreements to negotiate in good faith, it is helpful to begin with some essential propositions founded on accepted authority and principle. First, an agreement to agree is incomplete, lacking essential terms: Booker Industries (at 604). (That is not a question of uncertainty or vagueness, but the absence of essential terms.) [57] Secondly, the task of the Court is to give effect to business contracts where there is a meaning capable of being ascribed to a word or phrase or term or contract, ambiguity not being vagueness: Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 436–437; New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154 at 167; Meehan v Jones (1982) 149 CLR 571 at 589; and Trawl Industries of Australia (at 332). (The commercial law should foster and support commercial practice, not fight it:  see Devlin J writing extracurially in P Devlin, ‘The Relation Between Commercial Law and Commercial Practice’ (1951) 14 Modern Law Review 249.) [58] Thirdly, good faith is not a concept foreign to the common law, the law merchant or businessmen and women. It has been an underlying concept in the law merchant for centuries: L E Trakman, The Law Merchant: The Evolution of Commercial Law (1983) Colorado, Fred B Rothman & Co at 1; W Mitchell, An Essay on the Early History of the Law Merchant (1904) Cambridge, Cambridge University Press at 102 and following. It is recognised as part of the law of performance of contracts in numerous sophisticated commercial jurisdictions:  for example Uniform Commercial Code § 1–201 and § 1–203 (1977); Wigand v Bachmann-Bechtel Brewing Co 118 NE 618 (1918) at 619; E A Farnsworth, Farnsworth on Contracts 3rd Ed (2004) NY, Aspen Publishers, Vol 1 at 391–417  § 3.26b; International Institute for the Unification of Private Law, UNIDROIT Principles of International Commercial Contracts 2004, Rome, Art 1.7  (www.unidroit.org [Ed 3 May  2010]); R Zimmerman and S Whittaker (Eds), Good Faith in European Contract Law (2000) Cambridge, Cambridge University Press. It has been recognised by this Court to be part of the law of performance of contracts: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 263–270; Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91; Burger King Corporation v Hungry Jack’s Pty Ltd (at 565 [141]–[187]); and Alcatel Australia Ltd v Scarcella (at 363–369). In Alcatel Australia, Sheller JA (with the express and unqualified agreement of Powell JA and Beazley JA) said the following (at 369):  ‘The decisions in Renard Constructions and

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Hughes Bros mean that in New South Wales a duty of good faith, both in performing obligations and exercising rights, may by implication be imposed upon parties as part of a contract. There is no reason why such a duty should not be implied as part of this lease.’ [59] There are other decisions of Australian courts and discussions by scholars recognising the obligation of good faith in a non-fiduciary context: see J W Carter and E Peden, ‘Good Faith in Australian Contract Law’ (2003) 19 Journal of Contract Law 155; Finn J writing extracurially in P D Finn, ‘Good Faith and Fair Dealing:  Australia’ (2005) 11 New Zealand Business Law Quarterly 378; H K Lucke, ‘Good Faith and Contractual Performance’ in P D Finn (Ed), Essays on Contract (1987) Sydney, Law Book Company p 155; GEC Marconi Systems v BHP Information Technology Pty Ltd (2003) 128 FCR 1 at 208 [915] and following; Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 at 191–193; Far Horizons Pty Ltd v McDonald’s Australia Ltd [2000] VSC 310; Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR ¶41–703 at 43,014 [34]–[35]; Elfic Ltd v Macks [2000] QSC 18 at [109]; Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (2005) Aust Contract Reports ¶90–213; Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236; (2000) 16 BCL 70; AMCI (IO) Pty Ltd v Aquila Steel Pty Ltd [2009] QSC 139. [60] It is fair to say that caution (in some cases a lack of enthusiasm) has been expressed by some, for example: Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436 at 445 [40], 452 [88] and 463 [155]; 186 ALR 289 at 301 [40], 312 [88] and 327 [155]; Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 at [183] and following; Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 at 91–98; NT Power Generation Pty Ltd v Power and Water Authority (2001) 184 ALR 481 at 574; (2001) ATPR ¶41–814 at 42,933; Asia Television Ltd v Yau’s Entertainment Pty Ltd (2000) 48 IPR 283; Central Exchange Ltd v Anaconda Nickel Ltd (2001) 24 WAR 382 at 391 [16]–[22]; on appeal Central Exchange Ltd v Anaconda Nickel Ltd (2002) 26 WAR 33 at 48 [45]–[55]; Wenzel v Australian Stock Exchange Ltd (2002) 125 FCR 570 at 586 [80]–[81]; Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228; and Jobern Pty Ltd v BreakFree Resorts (Victoria) Pty Ltd (2008) Aust Contract Reports ¶90–269. [61] Whilst this necessarily incomplete review of authorities reveals that the law in Australia is not settled as to the place of good faith in the law of contracts, this Court should work from the position that it has said on at least three occasions (not including Renard Constructions) that good faith, in some degree or to some extent, is part of the law of performance of contracts. It is unnecessary to go beyond this proposition to gain assistance in the construction of this particular clause of this contract. Many issues arise in respect of any implication (whether as a matter of fact or by law) of any term requiring performance of a contract, or the exercise of contractual rights, in good faith. Those issues need not be explored here in a case dealing with an express clause as part of a dispute resolution clause. [62] Whilst there is some doubt as to the extent of concurrence of Waddell AJA in Coal Cliff Collieries (see the use of the word ‘generally’), nevertheless the considered reasons of Kirby P with which Waddell AJA agreed (generally) conform to the general approach taken by the Court in Hughes Bros, Alcatel Australia and Burger King Corporation and by the Victorian Court of Appeal in Con Kallergis.

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[63] Further, in my view, Kirby P’s reasons are more persuasive than the competing authority. I say this with the utmost respect to those who have expressed a contrary view and recognising that the issue is one that has produced different expressions of view among great commercial judges on appeal: for example, Lord Wright, Lord Denning, Lord Diplock, Kirby P and Handley JA and among highly experienced commercial judges at first instance in this Court: Clarke J, Giles J, Einstein J and Hammerschlag J. [64] I turn to the major contrary appellate decisions. In relation to Courtney & Fairbairn, the reasoning of Lord Denning MR equated an agreement to negotiate with an agreement to agree. The latter is, of course, not enforceable:  Booker Industries (at 604), per Gibbs CJ, Murphy J and Wilson J, as Kirby P recognised in Coal Cliff Collieries. It does not follow, however, that an agreement to undertake negotiations in good faith fails for the same reason. An agreement to agree to another agreement may be incomplete if it lacks essential terms of the future bargain. An agreement to negotiate, if viewed as an agreement to behave in a particular way may be uncertain, but is not incomplete. The objection that no court could estimate the damages because no one could tell whether the negotiations ‘would be’ successful ignores the availability of damages for the loss of a bargained for valuable commercial opportunity: Chaplin v Hicks [1911] 2 KB 786; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 349 and following. The relevant question is whether the clause has certain content. [65] Nor, with respect, do I find the views of Lord Ackner in Walford v Miles persuasive. An obligation to undertake discussions about a subject in an honest and genuine attempt to reach an identified result is not incomplete. It may be referable to a standard concerned with conduct assessed by subjective standards, but that does not make the standard or compliance with the standard impossible of assessment. Honesty is such a standard:  cf Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 and Twinsectra Ltd v Yardley [2002] 2 AC 164. Whether it is capable of assessment depends on whether there is a standard of behaviour that is capable of having legal content. Asserting its uncertainty does not answer the question. The assertion that each party has an unfettered right to have regard to any of its own interests on any basis begs the question as to what constraint the party may have imposed on itself by freely entering into a given contract. If what is required by the voluntarily assumed constraint is that a party negotiate honestly and genuinely with a view to resolution of a dispute with fidelity to the bargain, there is no inherent inconsistency with negotiation, so constrained. To say, as Lord Ackner did, that a party is entitled not to continue with, or withdraw from, negotiations at any time and for any reason assumes that there is no relevant constraint on the negotiation or the manner of its conduct by the bargain that has been freely entered into. Here, the restraint is a requirement to meet and engage in genuine and good faith negotiations. For the reasons expressed below that expression has, in the context of this contract, legal content. [66] Of course, it must be that the certainty and content of any contract will depend on its specific terms and context. Sweeping generalised rules, however, are difficult to sustain and not of great assistance. [67] In the way I have expressed my understanding of them, I respectfully agree with the statements of principle by Kirby P in Coal Cliff Collieries. I do not consider that they should be construed (indeed, marginalised) in the way suggested by Tipping J in Wellington City Council.

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[68] In Coal Cliff Collieries, Handley JA said that any promise to negotiate in good faith is illusory because negotiations are entirely discretionary in their continuance, withdrawal from them and the offers, acceptances, concessions and trade-offs that are involved. This was one of the aspects of Lord Ackner’s views with which I have dealt. Handley JA referred to Beattie v Fine and Loftus v Roberts which were referred to and approved in Placer Development Ltd v The Commonwealth (at 356 and 360–361). Beattie was a case of an incomplete contract with ‘rental to be agreed by the lessor’. This gave one party a discretion to fix the consideration. Loftus v Roberts concerned an agreement to agree. Placer Development concerned consideration determined by one party. These cases are left untouched by the proposition that a negotiating process can be constrained by an obligation on a party to conduct itself in good faith. [69] It is unnecessary to express any opinion on the facts and the application of principle to the facts in Coal Cliff Collieries. Suffice it to say that despite the views of such an experienced commercial judge as Clarke J (the trial judge in Coal Cliff Collieries) that the clause did not lack certainty, there is force in the conclusions of Kirby P, given the open-ended nature of the operation of the obligation in that case; although, given the sophistication of the parties and their clearly expressed views, one could view many of the matters referred to by Kirby P as affecting breach or proof of breach, rather than legal content of the contractual obligation. It is also unnecessary to consider, in the abstract, a clause providing for good faith negotiations in bringing about a commercial agreement in the first instance. The concern in the present case is the express mutual promises of the parties to undertake genuine and good faith negotiations to resolve disputes arising from performance of a fixed body of contractual rights and obligations. The difference is of great importance. [70] What the phrase ‘good faith’ signifies in any particular context and contract will depend on that context and that contract. A number of things, however, can be said as to the place of good faith in the operation of the common law in Australia. The phrase does not, by its terms, necessarily import, or presumptively introduce, notions of fiduciary obligation familiar in equity or the law of trusts. Nor does it necessarily import any notion or requirement to act in the interests of the other party to the contract. The content and context here is a clearly worded dispute resolution clause of an engineering contract. It is to be anticipated at the time of entry into the contract that disputes and differences that may arise will be anchored to a finite body of rights and obligations capable of ascertainment and resolution by the chosen arbitral process (or, indeed, if the parties chose, by the Court). The negotiations (being the course of treaty or discussion) with a view to resolving the dispute will be anticipated not to be open-ended about a myriad of commercial interests to be bargained for from a self-interested perspective (as in Coal Cliff Collieries). Rather, they will be anticipated to involve or comprise a discussion of rights, entitlements and obligations said by the parties to arise from a finite and fixed legal framework about acts or omissions that will be said to have happened or not happened. The aim of the negotiations will be anticipated to be to resolve a dispute about an existing bargain and its performance. Honest and genuine differences of opinion may attend the parties’ views of their rights and obligations. Such things as difficulties of proof and uncertainty as to fact or law may perfectly legitimately strike the parties differently. That accepted, honest business people who approach a dispute about an existing contract will often be able to settle it. This requires an

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honest and genuine attempt to resolve differences by discussion and, if thought to be reasonable and appropriate, by compromise, in the context of showing a faithfulness and fidelity to the existing bargain. [71] The phrase ‘genuine and good faith’ in cl 35.11 is, as I have said, a composite phrase. It is a phrase concerning an obligation to behave in a particular way in the conduct of an essentially self-interested commercial activity:  the negotiation of a resolution of a commercial dispute. Given that context, the content of the phrase involves the notions of honesty and genuineness. Whilst the activity is of a self-interested character, the parties have not left its conduct unconstrained. They have promised to undertake negotiations in a genuine and good faith manner for a limited period (14 days). As a matter of language, the phrase ‘genuine and good faith’ in this context needs little explication:  it connotes an honest and genuine approach to the task. This task, rooted as it is in the existing bargain, carries with it an honest and genuine commitment to the bargain (fidelity to the bargain) and to the process of negotiation for the designated purpose. [72] The notion of fidelity to the bargain can be seen as founded, at least in part, on the requirement of a party to do all things necessary to enable the other party to have the benefit of the contract: Butt v McDonald (1896) 7 QLJ 68 at 70–71, approved in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607 and upon the recognition that contractual obligations do not set up a choice or election to perform or pay damages: cf United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 800 in the discussion of New York law and the effect of the Restatement of the Law:  Contracts (2d) (1981) St Paul Minn, American Law Institute Publishers, by McLelland J (as he then was). Contractual promises (supported by consideration) comprise legal rights to performance:  Ahmed Angullia Bin Hadjee Mohamed Salleh Angullia v Estate and Trust Agencies (1927) Ltd [1938] AC 624 at 634–635 and Coulls v Bagot’s Executor and Trustee Company Ltd (1967) 119 CLR 460 at 504. The encompassing of fidelity to the bargain within the concept of good faith, at least in the context at hand—the genuine and good faith negotiation of an existing dispute by reference to an existing contract—does no violence to the language used here by the parties. That the phrase ‘good faith’ contains the notion of fidelity (or faithfulness) to the bargain conforms with what other jurisdictions have seen as the core of the concept and with historical uses of the phrase: H K Lucke op cit at 161 and following. Most importantly, its strength lies in its closeness to the contractual jurisprudence of the common law (Secured Income Real Estate (Australia)) and the appreciation that the parties have expressly bound themselves to a good faith standard in seeking to resolve a dispute arising from an existing bargain about the resolution of which dispute they anticipate having different views. The parties have mutually agreed to bring an approach of genuineness and good faith to that process of seeking resolution of any such disagreement. That agreement carried with it, in ordinary language, a requirement to bring an honestly held and genuine belief about their mutual rights and obligations and about the controversy to the negotiations, and to negotiate by reference to such beliefs. [73] These are not empty obligations; nor do they represent empty rhetoric. An honest and genuine approach to settling a contractual dispute, giving fidelity to the existing bargain, does constrain a party. The constraint arises from the bargain the parties have willingly entered into. It

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requires the honest and genuine assessment of rights and obligations and it requires that a party negotiate by reference to such. A party, for instance, may well not be entitled to threaten a future breach of contract in order to bargain for a lower settlement sum than it genuinely recognises as due. That would not, in all likelihood, reflect a fidelity to the bargain. A party would not be entitled to pretend to negotiate, having decided not to settle what is recognised to be a good claim, in order to drive the other party into an expensive arbitration that it believes the other party cannot afford. If a party recognises, without qualification, that a claim or some material part of it is due, fidelity to the bargain may well require its payment. That, however, is only to say that a party should perform what it knows, without qualification, to be its obligations under a contract. Nothing in cl 35.11 prevents a party, not under such a clear appreciation of its position, from vindicating its position by self-interested discussion as long as it is proceeding by reference to an honest and genuine assessment of its rights and obligations. It is not appropriate to multiply examples. It is sufficient to say that the standard required by the notion of genuineness and good faith within a process of otherwise tactical and self-interested behaviour (negotiation) is rooted in the honest and genuine views of the parties about their existing bargain and the controversy that has arisen in connection with it within the limits of a clause such as cl 35.1. [74] With respect to those who assert to the contrary, a promise to negotiate (that is to treat and discuss) genuinely and in good faith with a view to resolving claims to entitlement by reference to a known body of rights and obligations, in a manner that respects the respective contractual rights of the parties, giving due allowance for honest and genuinely held views about those pre-existing rights is not vague, illusory or uncertain. It may be comprised of wide notions difficult to falsify. However, a business person, an arbitrator or a judge may well be able to identify some conduct (if it exists) which departs from the contractual norm that the parties have agreed, even if doubt may attend other conduct. If business people are prepared in the exercise of their commercial judgement to constrain themselves by reference to express words that are broad and general, but which have sensible and ascribable meaning, the task of the Court is to give effect to, and not to impede, such solemn express contractual provisions. It may well be that it will be difficult, in any given case, to conclude that a party has not undertaken an honest and genuine attempt to settle a dispute exhibiting a fidelity to the existing bargain. In other cases, however, such a conclusion might be blindingly obvious. Uncertainty of proof, however, does not mean that this is not a real obligation with real content. [75] With respect, to the extent that the judgments of Giles J in Hooper Bailie Associated v Nation Group Pty Ltd and Elizabeth Bay Developments and of Hammerschlag J in Laing O’Rourke v Transport Infrastructure [2007] NSWSC 723 are to the contrary of these conclusions, I respectfully cannot agree with them. [76] In Hooper Bailie Associated and Elizabeth Bay Developments, Giles J saw as crucial to his view that an obligation to negotiate in good faith was uncertain the ‘necessary tension between negotiation, in which a party is free to, and may be expected to, have regard to self-interest rather than the interests of the other party, and the maintenance of good faith’: see Hooper Bailie Associated (at 209) and Elizabeth Bay Developments (at 716). This was similar to the consideration that influenced Lord Ackner in Walford v Miles. I do not agree that the posited contradistinction exists, at least in a clause such as the present. First, the obligation to undertake genuine and

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good faith negotiations does not require any step to advance the interests of the other party. The process is the self-interested one of negotiation. Secondly, there is, however, a constraint on the negotiation, though this constraint is not one to advance the interest of the other party. Rather, it is a (voluntarily assumed) requirement to take self-interested steps in negotiation by reference to the genuine and honest conception of the pre-existing bargain, including the rights and obligations therefrom and of the facts said to comprise the controversy. Within that constraint of those genuinely and honestly held beliefs as to the bargain, the required behaviour is genuine and good faith negotiations with a view to settlement or compromise. [77] In Laing O’Rourke, Hammerschlag J followed Handley JA in Coal Cliff Collieries and Giles J in Elizabeth Bay Developments on the basis that they exhibited the correct legal approach. With respect, I disagree. Hammerschlag J said (at [50]): [50] It is not the tension between negotiation and good faith that is the lynch pin in the argument, it is the absence of an objective yardstick by which to measure the good faith or otherwise of a negotiating party’s stance. An appropriate (and indeed often effective) negotiating strategy may be a refusal to negotiate.

I disagree that there is no yardstick. The yardstick is honest and genuine negotiation, within the framework of fidelity to the bargain and the posited controversy. If, by ‘refusal to negotiate’, his Honour meant not undertaking negotiations, it is to be recognised that the parties, here, have agreed that they will ‘meet and undertake genuine and good faith negotiations’. How a party does that, and whether it has done it, will be a question of fact. It is not necessarily helpful to point to hypotheses outside a real factual example. Once one appreciates that the content of such a clause, in the framework of existing legal obligations, includes fidelity to the existing bargain, including the clause itself, the constraint that a party has taken on by the voluntary and willing entry into the contract is that it is free to pursue its own interests in negotiation, but by reference the honest and genuine appreciation of the rights and entitlements arising out of the relationship and touching the controversy. [78] This is a dispute resolution clause. To require in such a clause this degree of constraint on the positions of the parties reflects developments in dispute resolution generally. The recognition of the important public policy in the interests of the efficient use of public and private resources and the promotion of the private interests of members of the public and the commercial community in the efficient conduct of dispute resolution in litigation, mediation and arbitration in a fair, speedy and cost efficient manner attends all aspects of dispute resolution: cf ‘just, quick and cheap resolution of the real issues’: Civil Procedure Act 2005, s 56. Parties are expected to co-operate with each other in the isolation of real issues for litigation and to deal with each other in litigation in court in a manner requiring co-operation, clarity and disclosure: see, for example, Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243 at [160]– [165] and Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228 at [55]–[56]. As part of its procedure, the Court can order mediation: Civil Procedure Act, s 26. Section 27 of that Act states that it is the duty of each party to the proceedings that have been referred to mediation to participate ‘in good faith’ in the mediation. Costs sanctions can attend this duty: cf Capolingua v Phylum Pty Ltd (as Trustee for the Gennoe Family Trust) (1991) 5 WAR 137.

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[79] The contract here is, of course, not one governed by the Civil Procedure Act. It is, however, a modern contract with a sophisticated and detailed dispute resolution clause seeking to employ various tools to resolve disputes. The definition of ‘Law’ in cl 2.2 makes clear that the law of New South Wales (and, implicitly, the common law of Australia) is the proper law of the contract. One of the available tools of dispute resolution is the obligation to engage in negotiations in a manner reflective of modern dispute resolution approaches and techniques—to negotiate genuinely and in good faith, with a fidelity to the bargain and to the rights and obligations it has produced within the framework of the controversy. This is a reflection, or echo, of the duty, if the matter were to be litigated in court, to exercise a degree of co-operation to isolate issues for trial that are genuinely in dispute and to resolve them as speedily and efficiently as possible. [80] The public policy in promoting efficient dispute resolution, especially commercial dispute resolution, requires that, where possible, real and enforceable content be given to clauses such as cl 35.11 and cl 35.12 to encourage approaches by, and attitudes of, parties conducive to the resolution of disputes without expensive litigation, arbitral or curial. [81] The business people here chose words to describe the kind of negotiations they wanted to undertake, ‘genuine and good faith negotiations’, meaning here honest and genuine with a fidelity to the bargain. That should be enforced. In my view, subcl 35.11(c) was not uncertain and had identifiable content. [82] Nothing in these reasons goes beyond, in my view, the proper role of an intermediate appellate court. The reasons are an explication of the views of Kirby P and Waddell AJA in Coal Cliff Collieries delivered in 1992 and reflected in related contexts in later Court of Appeal judgments. [4.11] As noted previously, parties will not be regarded as having entered a contract unless they have reached final agreement on the essential aspects of the agreement. If the parties cannot finalise all essential aspects of their agreement, the parties may instead agree on a mechanism for determining contractual terms at a later date. One common, and effective, technique is to leave matters to be determined by a third party. This principle extends to allowing the third party to determine even essential contractual terms. More difficult issues arise where a contract purports to leave some matters to the discretion of one of the contracting parties. A contract that leaves essential matters for later determination by one of the contracting parties will be unenforceable. However, there is authority to suggest that a contract may be binding even if it leaves some matter to be determined by one of the contracting parties. [4.12]

Godecke v Kirwan (1973) 129 CLR 629 High Court of Australia The parties entered into an agreement relating to the sale of land. Clause 6 of the agreement provided that: ‘if required by the vendor, the [purchaser] shall execute a further agreement to

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be prepared … by [the vendor’s] appointed solicitors containing the foregoing and such other covenants and conditions as they may reasonably require.’ The vendor refused to complete the sale and claimed, on a number of grounds, that the contract was unenforceable. The High Court held that the contract was binding. Walsh J It is clearly established that a binding agreement may be made which leaves some important matter, eg the price, to be settled by the decision of a third party. I agree … that … there is no reason in principle for holding that there cannot be any binding contract if some matter is left to be determined by one of the contracting parties. In the present case the parties set out all the principal terms which were to govern the sale and purchase of the land and these included provisions which imposed by implication an obligation to execute a formal contract. There was also a promise by the purchaser to execute, if required to do so, a further agreement in accordance with cl 6. In my opinion, that clause should be construed as limited to permitting the insertion of covenants and conditions not inconsistent with those contained in the offer. It was limited also by the reference to the reasonableness of requiring the inclusion of the covenants and conditions. In my opinion, this does not mean that anything may be required which in the opinion of the solicitors is reasonable. It means that what is required must be reasonable in an objective sense, and in case of dispute this is a matter which the court can decide. Clause 6 does not mean that the purchaser is making an agreement to agree later upon additional provisions to govern the bargain. It means that he is agreeing presently to accept as part of the bargain such additional provisions, if any, as are required, provided that they satisfy the requirements of consistency with the other terms and of reasonableness to which I have referred. Gibbs J Clause 6 does not require that the additional terms should be the subject of agreement between the parties. The inclusion of additional terms depends on the unilateral requirement of the solicitors for the vendor, subject to the qualification that the requirement must be reasonable. It is well established that the parties to a contract may leave terms—even essential terms—to be determined by a third person: Foster v Wheeler (1888) 38 Ch D 130; May and Butcher Ltd v The King [1934] 2 KB 17 at p 21. In such a case the contract is not bad for uncertainty because if the third person settles the terms the contract will thereby be rendered certain. It is no objection that the power to determine the terms and conditions to be incorporated in the contract is left to the solicitors for one of the parties: Axelsen v O’Brien (1949) 80 CLR 219 (see also Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at pp 444–445, and Christison v Warren [1903] St R Qd 186). In Axelsen v O’Brien an agreement for the sale of land provided (inter alia) that the vendor should execute a nomination of trustees over the land to trustees appointed by the purchasers and should hand such nomination to the solicitors for the purchasers upon the purchasers paying £500 and upon the trustees executing a bill of mortgage securing payment of the balance of the purchase price. The agreement further provided:  ‘The bill of mortgage shall contain such other terms and conditions as shall be required by Corser Sheldon & Gordon of Maryborough, solicitors, not inconsistent with the above terms.’ It appears that that firm of solicitors, which consisted of one member only, was acting for the purchasers. It was contended that there was no complete and concluded contract because the further terms of the bill of mortgage remained to be arranged or determined. The Court rejected this contention. Latham

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CJ pointed out [at 225] that the terms of the bill of mortgage did not depend upon agreement between the parties because it was for the solicitor to settle the terms. The Court further held that the terms of the bill of mortgage were not an essential part of the contract, but merely a subsidiary means of carrying it into effect, and that the failure of the solicitor to settle the terms would not be a bar to specific performance—the Court in granting specific performance would settle the terms if the solicitor did not [at 225–226]. The same considerations seem to me to be applicable in the present case. The fact that cl. 6 left it to the solicitors for the vendor to decide what other covenants and conditions should be included in the ‘further agreement’ did not mean that it was necessary that the parties should agree as to further terms. The clause does not introduce any uncertainty into the agreement, or render it in any way incomplete and would present no obstacle to its specific performance. I should perhaps make it clear that it does not necessarily follow from what I have said that an agreement which left further terms to be settled by one of the parties, rather than by his solicitors, would be treated as a concluded contract. In May and Butcher Ltd v The King, Viscount Dunedin suggested that a sale of land which left the price to be settled by the buyer himself would be good. With great respect, it seems to me that there would be no binding contract in such a case, which would fall within the principle that ‘where words which by themselves constitute a promise are accompanied by words which show that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on which an action can be brought’:  Thorby v Goldberg (1964) 112 CLR 597 at p 605, citing Loftus v Roberts (1902) 18 TLR 532 at p 534, Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 at pp 359–361. It might be suggested that the same principle would not apply if the determination of the price were left to the seller, for then it would be the promisee, not the promisor, who was left with the discretion as to performance. However, in Beattie v Fine [1925] VLR 363, Cussen J drew no such distinction and held that an option for renewal ‘at a rental to be agreed upon by the lessor’ did not give rise to any contractual obligation. He based his decision on the principle of Loftus v Roberts, but the same conclusion might have been reached by holding that there can be no concluded bargain if a vital matter (such as price or rental) has been left to the determination of one of the parties (see also the dicta in Foster v Wheeler (1888) 38 Ch D 130 at pp 132–133). Perhaps it may be different where agreement has been reached on all essential terms but the determination of subsidiary matters has been left to one of the parties. In Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699 it was held by the Court of Appeal that an agreement for a lease which was to contain ‘such other covenants and conditions as shall be reasonably required’ by the lessor was sufficiently certain to be a concluded contract for a lease and was capable of specific performance. In Powell v Jones [1968] SASR 394, Bray CJ went further and upheld the validity of an agreement for a lease which was ‘to be in terms and to contain such special clauses as the landlord may require’. His Honour said [at 400] that ‘there is nothing in the Sweet & Maxwell Case to indicate that the Court of Appeal would have held the agreement to make the lease unenforceable if the word ‘reasonably’ had been omitted’. I am, with respect unable to agree with that observation, for it seems to me that the members of the Court of Appeal in Sweet & Maxwell Ltd v Universal News Services Ltd placed considerable reliance on the fact that

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the parties had imported the familiar and objective standard of reasonableness—see [1964] 2 QB at pp. 726, 733, 735. However, it is unnecessary to express any concluded opinion on these matters because, as I have said, in the present case the settlement of the further terms is left to the determination of persons who are not parties to the contract. [Mason J agreed with Walsh J.] [4.13] It is unfortunate that different views were expressed by the Justices of the High Court on the issue of whether a contract may be binding where further terms are left to one of the contracting parties to determine. Given the limited extent to which Walsh J (with whom Mason J agreed) suggested that power to insert further terms could be validly conferred on a contracting party, and the failure of Gibbs J to support such a proposition, serious doubts must be cast over a contract that leaves a matter to be decided later by a party to the contract. This is particularly the case where the matter is other than a subsidiary one.

‘SUBJECT TO CONTRACT’ [4.14] Following negotiations, parties may have reached agreement on all relevant terms, yet make their agreement ‘subject to contract’. In these circumstances it may be difficult to determine, before the formal contract is entered into, if the parties are contractually bound. The High Court in Masters v Cameron14 concluded that, in such circumstances, the case could fall into one of three categories. These three categories have since been supplemented by a fourth category.15 [4.15]

Masters v Cameron (1954) 91 CLR 353 High Court of Australia The parties agreed to the sale of a farm. The agreement was stated to be ‘subject to the preparation of a formal contract of sale which shall be acceptable to [the vendor’s] solicitors on the above terms and conditions’. The purchaser agreed to the purchase in these terms, paid a deposit to the vendor’s agent and, among other things, made some minor structural alterations to the property. The purchaser subsequently claimed that a binding contract had not been entered into. The High Court agreed, and held that a binding agreement had not been entered into. The parties had not intended to be bound until they signed a formal document. The payment of deposit to the seller was made on the basis that if a formal contract should be executed, that

14 (1954) 91 CLR 353. 15 See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 4.7.2.

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amount should be treated as a deposit and, if such an agreement were not entered into, should be returned to the purchaser. The Court (Dixon CJ, McTiernan and Kitto JJ) The first question in the appeal is whether … this document on its true construction constitutes a binding contract between the respondent and the appellants, or only a record of terms upon which the signatories were agreed as a basis for the negotiation of a contract. Plainly enough they were agreed that there should be a sale and purchase, and the parties, the property, the price, and the date for possession were all clearly settled between them. All the essentials of a contract are there; but whether there is a contract depends entirely upon the meaning and effect of the final sentence in that portion of the document which the appellant signed. Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. … Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own. … [Given the natural meaning of the words ‘subject to contract’] … it has been recognized throughout the cases on the topic that such words prima facie create an overriding condition, so that what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract. [The Court concluded that the context provided no basis for holding that the case fell outside the natural meaning of the words ‘subject to contract’ as conveyed by the third category. Accordingly, there was no binding contract for the sale and purchase of the property.]

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[4.16] As mentioned, the three categories identified by the High Court in Masters v Cameron16 have since been supplemented by a fourth category. Falling within this fourth category are circumstances where the parties are content to be bound immediately and exclusively by the terms that they have agreed upon while expecting to make a further contract in substitution for the first contract containing, by consent, additional terms. While not restricted to this situation, decided cases likely to fall within this category may involve parties who have signed a ‘Heads of Agreement’ document but intend this agreement to be replaced by a further contract at some stage in the future.

QUESTIONS FOR REFLECTION (1) Is it relevant that the parties to an agreement subjectively believe that their agreement is certain? (2) What could be viewed as a ‘subsidiary’ matter that may be able to be left to the determination of one of the contracting parties? (3) Given the natural meaning of the words ‘subject to contract’ is it likely that the majority of situations will fall within the third category identified in Masters v Cameron (1954) 91 CLR 353? (4) What is the distinction (if any) between the first and fourth categories of ‘subject to contract’?

16 (1954) 91 CLR 353.

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CHAPTER 5 INTENTION TO CREATE LEGAL RELATIONS

INTRODUCTION [5.01] One of the requirements for a valid contract is that the parties possess the requisite intention to create legal relations. In making a determination about the intention of the parties an objective test is adopted. In making this objective determination, the court may have regard to the following circumstances: •

the subject matter of the agreement;



the status of the parties to the agreement;



the parties’ relationship to one another (if any);



the language used by the parties;



the subsequent conduct of the parties; and



the context in which the agreement was made.1

[5.02] Traditionally, the courts placed particular emphasis on the last circumstance listed, the context in which the agreement was made. In the context of a domestic or social relationship a ‘presumption’ arose that the parties did not intend their agreement to have legal force.2 Conversely, an agreement struck in a commercial context was presumed to have legal force.3 However, the High Court has cast doubt on this traditional ‘presumptions’ based approach.

1

See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 5.2.

2

Ibid, section 5.3.

3

Ibid, section 5.4.

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MODERN APPROACH [5.03]

Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 High Court of Australia Ermogenous was an archbishop of the Greek Orthodox Church. Ermogenous made a claim against the Greek Orthodox Community of South Australia for unused annual and long service leave. The claim was resisted on the basis that no employee entitlements could arise as there was no intention to be legally bound. At first instance, the Industrial Magistrate found in favour of the archbishop on the basis that he was an employee under a contract of employment. This finding was upheld on appeals to both a single judge and subsequently to the Full Court of the Industrial Relations Court of South Australia. A further appeal to the Full Court of the Supreme Court of South Australia was allowed and Ermogenous’ claim was dismissed. Ermogenous then appealed to the High Court who allowed his appeal. Gaudron, McHugh, Hayne and Callinan JJ [24] ‘It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty.’ (Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 at 457, per Dixon CJ, Williams, Webb, Fullagar and Kitto JJ) To be a legally enforceable duty there must, of course, be identifiable parties to the arrangement, the terms of the arrangement must be certain, and, unless recorded as a deed, there must generally be real consideration for the agreement. Yet ‘[t]he circumstances may show that [the parties] did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts’ (South Australia v The Commonwealth (1962) 108 CLR 130 at 154, per Windeyer J) [25] Because the inquiry about this last aspect may take account of the subject matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances (South Australia v The Commonwealth at 154; Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 at 367, per Windeyer J), not only is there obvious difficulty in formulating rules intended to prescribe the kinds of cases in which an intention to create contractual relations should, or should not, be found to exist, it would be wrong to do so. Because the search for the ‘intention to create contractual relations’ requires an objective assessment of the state of affairs between the parties (Masters v Cameron (1954) 91 CLR 353 at 362, per Dixon CJ, McTiernan and Kitto JJ; ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548–549, per Gleeson CJ) (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules. Although the word ‘intention’ is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened (Codelfa

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Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 348–353, per Mason J; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436; 186 ALR 289). It is not a search for the uncommunicated subjective motives or intentions of the parties. [26] In this context of intention to create legal relations there is frequent reference to ‘presumptions’. It is said that it may be presumed that there are some ‘family arrangements’ which are not intended to give rise to legal obligations and it was said in this case that it should not be presumed that there was an intention to create legal relations because it was a matter concerning the engagement of a minister of religion. For our part, we doubt the utility of using the language of presumptions in this context. At best, the use of that language does no more than invite attention to identifying the party who bears the onus of proof. In this case, where issue was joined about the existence of a legally binding contract between the parties, there could be no doubt that it was for the appellant to demonstrate that there was such a contract. Reference to presumptions may serve only to distract attention from that more basic and important proposition. [27] More importantly, the use of the language of presumptions may lead, as it did in this case, to treating one proposition (that an intention to create legal relations is not to be presumed) as equivalent to another, different proposition (that generally, or usually, or it is to be presumed that, an arrangement about remuneration of a minister of religion will not give rise to legally enforceable obligations). References to ‘the usual non-contractual status of a priest or minister’ and factors which ‘generally militate against’ a finding of intention to create legal relations (cf Greek Orthodox (2000) 77 SASR 523 at 576 [207], per Bleby J) illustrate the point. The latter proposition may then be understood as suggesting, in some way, that proof to the contrary is to be seen as particularly difficult and yet offer no guidance at all about how it may be done. Especially is that so when the chief factor said to justify the proposition that an intention to create legal relations must be proved (the essentially spiritual role of a minister of religion) is then put forward as the principal reason not to find that intention in a particular case, and any other matters suggesting that there may be an intention to create legal relations are treated as dealing only with ‘collateral’ or ‘peripheral’ aspects of the relationship between the parties (Greek Orthodox (2000) 77 SASR 523 at 576 [207], per Bleby J). In practice, the latter proposition may rapidly ossify into a rule of law, that there cannot be a contract of employment of a minister of religion, distorting the proper application of basic principles of the law of contract. [In concluding, Gaudron, McHugh, Hayne and Callinan JJ did not accept that the Industrial Magistrate failed to consider the question of intention to create legal relations. Further, even if the Industrial Magistrate did make this error, the inference which the Full Court of the Supreme Court of South Australia drew about the absence of an intention to create legal relations was not open on the facts found at trial.] [In a separate judgment, Kirby J reached the same conclusion.] Kirby J [74] There is therefore no presumption that contracts between religious or associated bodies and ministers of religion, of their nature, are not intended to be legally enforceable. At least where the contracts concern proprietary and economic entitlements, of the kind which in this case Archbishop Ermogenous sought to enforce (and certainly where they are not intertwined with questions of religious doctrine that a court would not feel competent

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to resolve according to legal norms) there is no inhibition either of a legal or discretionary character that would prevent enforcement of such claims when they are otherwise proved to give rise to legal rights and duties. [76] Even people of a spiritual vocation normally need stable arrangements for the necessities of life. In a case where such an agreement is proved with an identifiable party and it is breached, the victim of the breach is not beyond the law’s protection. Australia is a secular polity. There is no general rule that the ‘spiritual character of the relationship’ concerned ‘militate[s] against a finding that the necessary intention [to enter] into contractual relations has been formed’ (Greek Orthodox (2000) 77 SASR 523 at 576 [207–9]). In concluding otherwise, the Supreme Court erred in law. Its error led to the erroneous conclusion that the contract upheld by the Industrial Magistrate had failed because the necessary intention to enter into a legal relationship had not been proved. [5.04] The decision of the High Court in Ermogenous v Greek Orthodox Community of SA Inc demonstrates the limitations of a presumption based approach when assessing intention to create legal relations. The correct approach is to look at all of the circumstances, including the context in which agreement was formed, and assess whether, from an objective perspective, the parties can be regarded as intending their agreement to have legal consequences.

GOVERNMENT ACTIVITIES [5.05] When examining the extent to which the law of contract is relevant in the context of contracts made with governments and government instrumentalities, two different types of activities should be identified. The first is where the government, or any of its instrumentalities, enters into commercial negotiations and agreements with another party. Where the transaction is in this commercial context, existence of legal intention will not usually be an issue.4 The second type of activity involves acts carried out or statements made by government officials in the course of administering government policy. Where the government activity relates to a policy initiative—for example, to provide assistance to a particular section of the community or to promote a specific activity or industry—a court may be less likely to find that the parties intended to enter contractual relations.5

CIRCUMSTANCES INDICATING ABSENCE OF INTENTION [5.06] If a party to an agreement defends a claim made on the basis that the party did not intend to enter legal relations, the court must make a determination on the issue of intention. As we have seen, the court looks at all of the surrounding circumstances to discern the parties’ intention. As

4

Ibid, section 5.5.1.

5

Ibid, section 5.5.2.

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well as the context in which the agreement was formed and the subject matter of the agreement, intention can also be gleaned through the language used by the parties. A number of phrases are commonly used with the intention that their use will prevent legal consequences from attaching. In relation to some of the more common phrases: •

an appropriately worded ‘honour clause’ is likely to prevent the agreement from having legal consequences;6



a payment obligation described as ‘ex gratia’ will not necessarily be devoid of legal obligation;7



a ‘letter of comfort’ may or may not give rise to a contractually binding promise depending on how the relevant document is construed and the circumstances in which it was offered;8



the use of terms such as ‘letter of intent’ and ‘understanding’ may indicate something short of an intention to enter a concluded contract depending on the circumstances in which they are used.9

QUESTIONS FOR REFLECTION (1) What relevance should be attached to decisions made under the traditional ‘presumptions’ based approach? (2) What is the difference (if any) between the terms ‘ex gratia’ and ‘without admission of liability’? (3) To avoid any doubt, how should an agreement be drafted to ensure that it will be accepted as creating legal relations between the parties?

6

Ibid, section 5.7.1

7

Ibid, section 5.7.3.

8

Ibid, section 5.7.4.

9

Ibid, section 5.7.6.

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CHAPTER 6 CONSIDERATION

INTRODUCTION [6.01] The concept of consideration is fundamental to the formation of a binding simple contract. A valid contract is formed only if the promisee provides legally recognised consideration for the promise. In legal terms, consideration may be considered as the price paid for the promise by way of an act or forbearance (or the promise thereof).

RULES GOVERNING CONSIDERATION [6.02] There are various well-established rules that assist in determining whether consideration has been provided for the purposes of contract formation.1 These rules may be summarised as follows: •

Consideration must move from the promisee. This rule is considered in further detail below.2



Consideration must be bargained for. This means that the action or forbearance from action of the promisee must be in reliance on the promisor’s promise. In addition, the act or forbearance must be done at the request of the promisor.



Consideration must be sufficient. To be valid consideration, the price paid by the promisee for the promisor’s promise must be something which is considered to be of value in the eyes of the law. Although consideration must be sufficient, consideration need not be adequate. When used in relation to consideration, adequacy is a reference to the commercial value of the consideration. By saying that consideration need not be adequate, it means that a court is not interested in ensuring that a promisee provides adequate commercial value for the promisor’s promise. Consistent with this approach, consideration will be valid even if it is nominal only.

1

See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, sections 6.3–6.5.

2

See [6.03]–[6.04].

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Consideration moving from the promisee will not be valid to support a promisor’s promise if that consideration is past. Consideration will be regarded as being past if it has already flowed from the promisee to the promisor. In applying this rule of consideration, a distinction is drawn between past consideration and executed consideration. To determine whether consideration is regarded as executed or past, the legal position must be examined at the time the relevant promise is made. If, at that time, the act, forbearance, or promise that is claimed to be consideration has already occurred or been given, the consideration is past, not executed. It will not be good consideration to support the promise.

CONSIDERATION MUST MOVE FROM THE PROMISEE [6.03] The first rule of consideration, as mentioned above, is that consideration must move from the promisee. Although consideration will generally move from the promisee to the promisor, it is also sufficient if consideration moves from the promisee to a third party at the direction of the promisor. The situation concerning joint promisees was considered by the High Court in the decision extracted below. [6.04]

Coulls v Bagot’s Executor and Trustee Company Ltd (1966) 119 CLR 460 High Court of Australia By an agreement in writing, Mr Coulls granted O’Neil Construction Pty Ltd (‘the company’) the sole right for a specified period to quarry and remove stone from land owned by Mr Coulls in exchange for royalties payable by the company. Under the terms of the agreement, the company was authorised to make all payments to Mr Coulls and his wife as joint tenants. The agreement was signed by Mr Coulls, a representative of the company and Mrs Coulls. After the death of Mr Coulls, the sole executor and trustee of his will, Bagot’s, sought a determination of whether the company should pay the royalties to Bagot’s, on behalf of Mr Coulls’ estate, or to Mrs Coulls. A majority of the High Court (McTiernan, Taylor and Owen JJ) held that the agreement operated as a contract between the company and Mr Coulls only such that the royalties were the entitlement of Bagot’s as the executors of Mr Coulls’ estate rather than Mrs Coulls. Both Barwick CJ and Windeyer J dissented finding that Mrs Coulls was a party to the contract. Significantly, for the rules of consideration, it was accepted by Barwick CJ, Taylor, Windeyer and Owen JJ (McTiernan J not expressing an opinion) that in the case of joint promisees, consideration need only flow from one of the joint promisees. Barwick CJ (dissenting) But as I construe this writing, we have here not a promise by A with B for consideration supplied by B to pay C. It was, in my opinion, a promise by A made to B and C for consideration to pay B and C. In such a case it cannot lie in the mouth of A, in my opinion, to question whether the consideration which he received for his promise

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moved from both B and C or, as between themselves, only from one of them. His promise is not a gratuitous promise as between himself and the promisees as on the view I take of the agreement it was a promise in respect of which there was privity between A on the one hand and B and C on the other. Such a promise, in my opinion, is clearly enforceable in the joint lifetime of B and C: But it is only enforceable if both B and C are parties to the action to enforce it. B, though he only supplied the consideration, could not sue alone. If C were unwilling to join in the action as plaintiff, B no doubt, after suitable tender of costs, could join C as a defendant. And A’s promise could be enforced. But the judgment would be for payment to B and C. If B would not join in an action to enforce A’s promise, I see no reason why C should not sue joining B as a defendant. Again, in my opinion, A’s promise would be enforced and a judgment in favour of B and C would result. In neither of these cases could A successfully deny either privity or consideration. Taylor and Owen JJ If, however, the correct conclusion is that the widow was a party to the contract it is, to our minds, clear that she is entitled to receive the royalties payable after her husband’s death notwithstanding that she, personally, gave no consideration for the company’s promise. We do not accept the contention advanced on behalf of the appellant that if one, only, of two joint promisees provides the consideration for a promisor’s promise the other promisee cannot, in any circumstances, sue to recover moneys payable according to the promise. Indeed it is apparent that in such circumstances at common law an action to recover must have been brought by both promisees and that it would fail if brought by one alone. Windeyer J (dissenting) Still, it was said, no consideration moved from her. But that, I consider, mistakes the nature of a contract made with two or more persons jointly. The promise is made to them collectively. It must, of course, be supported by consideration, but that does not mean by considerations furnished by them separately. It means a consideration given on behalf of them all, and therefore moving from all of them. In such a case the promise of the promisor is not gratuitous; and, as between him and the joint promisees, it matters not how they were able to provide the price of his promise to them. [6.05] The High Court’s decision in this instance makes it clear what the consideration requirements are in the case of joint promisees. However, it may often be difficult to determine whether or not two or more parties are joint promisees. This is well illustrated by the 3–2 split in the High Court on this particular issue.

CONSIDERATION: SPECIFIC EXAMPLES [6.06] Applying the well-established rules of consideration to particular fact situations can create challenges. It is therefore appropriate to examine the extent to which particular kinds of acts or promises can constitute valid consideration. These specific examples may be summarised as follows: •

Regarding moral consideration, it is possible to identify certain guiding principles. First, a promise made because of a sense of moral obligation to the promisee will not be sufficient consideration to support that promise. Second, a promise made because of the love and

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affection that the promisor and promisee have for each other, or that the promisor has for the promisee, is not legally recognised. However, beyond these principles, it is difficult to predict whether a court will regard consideration that encompasses notions of good, moral, or proper behaviour as valid, even where that behaviour or conduct is bargained for.3 •

Regarding the performance of existing duties, the starting point is again certain general propositions. As a general proposition, performance of pre-existing contractual duties cannot be consideration for a promise.4 There is an equivalent proposition that relates to performance of a public duty.5 However, both these propositions allow exceptions and the potential width of these exceptions renders the present state of the law somewhat uncertain in its operation.6 The specific example of performance of an existing contractual duty is considered in further detail below.7



A further specific example that raises the consideration issue is where a debt is partly paid in exchange for a promise. The general proposition is that if an amount of money is owing by a debtor to a creditor, and those parties enter into a subsequent agreement that the creditor will accept a lesser amount in full satisfaction of the amount owing, the later agreement will generally not be binding. It is not binding because the debtor has not provided consideration for the creditor’s promise to forgo the balance due. Therefore, even if the debtor acts on this agreement by paying the lesser sum agreed—and this sum is accepted by the creditor—the creditor will generally be able to sue the debtor for the balance due. The principle that the promise to pay part of a debt cannot constitute consideration for a creditor’s promise to forgo the balance is commonly referred to as the ‘rule in Pinnel’s Case’.8 However, it should be noted that there are a number of circumstances in which this rule will not operate.9 The rule itself has been the subject of judicial and academic criticism for some time.10



To encourage the settlement of legal action, a forbearance to sue or to refrain from exercising some legal right may constitute valid consideration, even if the plaintiff may have failed in the original claim. However, to constitute valid consideration, the plaintiff must be acting in good faith. The plaintiff must have an honest belief that the claim may be successful. In other words, the parties must be in a genuine dispute. Second, it has been suggested that the claim must not be vexatious or frivolous. Finally, consistent with the general rule governing consideration, the promise not to sue or to compromise the claim must be bargained for.11

3

See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 6.5.1.

4

Ibid, section 6.5.2(a).

5

Ibid, section 6.5.2(b).

6

Ibid, section 6.5.2.

7

See [6.07]–[6.13].

8

Pinnel’s Case (1602) 77 ER 237 being the decision usually cited as authority for this principle.

9

See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 6.5.3.

10 Ibid. 11 Ibid, section 6.5.4.

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As noted at [6.02], consideration will generally be ineffective to support a promise if, at the time the promise is given, the consideration has already been performed. However, there is an important exception to this rule. In certain circumstances, the provision of past services or bargained-for conduct may constitute valid consideration.12 The specific example of bargained-for conduct is considered in greater detail below.13

PERFORMANCE OF AN EXISTING CONTRACTUAL DUTY [6.07] As noted at [6.06], it is a long-standing legal principle that a promisee’s promise to perform an existing contractual duty owed to the promisor does not constitute good consideration for the promisor’s promise. [6.08]

Stilk v Myrick (1809) 170 ER 1168 High Court of Justice King’s Bench Division The plaintiff was a seaman who was employed as a crew member to work a ship from London to the Baltic and back. In the course of the voyage, two of the seamen deserted. Because the Captain was unable to replace these men, he entered an agreement with the rest of the crew to distribute the wages of the two deserters equally among them if they continued to work the ship back to London. They proceeded to do so, but the Captain refused to distribute the wages of the deserters. The plaintiff brought an action to claim his portion of the wages. The plaintiff was unsuccessful, the English court finding the agreement to share the wages void for want of consideration. As part of the original agreement, the crew had undertaken to do all that they could under all the emergencies of the voyage. The desertion of part of the crew was such an emergency. As the crew members were merely performing what they were originally bound to do under the existing contract, they did not provide consideration for the Captain’s promise Ellenborough LJ Here, I  say, the agreement is void for want of consideration. There was no consideration for the ulterior pay promised to the mariners who remained with the ship. Before they sailed from London they had undertaken to do all that they could under all the emergencies of the voyage. They had sold all their services till the voyage should be completed. If they had been at liberty to quit the vessel at Cronstadt, the case would have been quite different; or if the Captain had capriciously discharged the two men who were wanting, the others might not have been compellable to take the whole duty upon themselves, and their agreeing to do so might have been a sufficient consideration for the promise of an advance of wages. But the desertion of a part of the crew is to be considered an emergency of the voyage

12 Ibid, section 6.5.5. 13 See [6.14]–[6.16].

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as much as their death; and those who remain are bound by the terms of their original contract to exert themselves to the utmost to bring the ship in safety to her destined port. [6.09] There are exceptions to the traditional rule that performance of a pre-existing contractual obligation cannot constitute consideration. It has long been accepted that the Stilk v Myrick principle will not prevent enforcement of a subsequent agreement where the promisee promises to do something more than he or she originally contracted to do.14 In more recent times, there has been an attempt to redefine or reformulate the principle to accommodate commercial realities particularly in circumstances where a practical benefit can be seen to have been conferred. [6.10]

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 All ER 512 English Court of Appeal The defendant building contractors contracted to refurbish a block of twenty-seven flats. The carpentry work was subcontracted to the plaintiff for £20,000. After the plaintiff had performed less than half of the work and received interim payments amounting to £16,200, the plaintiff realised that he was in financial difficulties because he had underquoted for the work. The defendant was anxious for the plaintiff to complete the work within the time originally agreed, because the defendant would incur penalties under its head contract if the work was not completed on time. At the defendant’s instigation, the parties entered into a subsequent agreement under which the plaintiff undertook to complete the work on time in consideration for the defendant paying an additional £10,300. The plaintiff subsequently sued the defendant to recover the additional money. The English Court of Appeal found in favour of the plaintiff. The Court held that the benefit received by the defendant—avoiding a penalty under the main contract or having to engage another subcontractor—was sufficient consideration for the defendant’s promise to pay the additional £10,300. The agreement was enforceable even though the plaintiff promised to do no more than what he had originally contracted to do. In coming to its decision, the Court of Appeal carefully examined the issue of consideration. Glidewell LJ … the present state of the law on this subject can be expressed in the following proposition: (i) if A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B and (ii) at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain and (iii) B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time and (iv) as a result of giving his promise B obtains in practice a benefit, or obviates a disbenefit, and (v) B’s

14 Hartley v Ponsonby (1857) 119 ER 1471. See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 6.5.2.

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promise is not given as a result of economic duress or fraud on the part of A, then (vi) the benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding. As I have said, counsel for the defendants accepts that in the present case by promising to pay the extra £10,300 the defendants secured benefits. There is no finding, and no suggestion, that in this case the promise was given as a result of fraud or duress. If it be objected that the propositions above contravene the principle in Stilk v Myrick, I answer that in my view they do not: they refine and limit the application of that principle, but they leave the principle unscathed, eg where B secures no benefit by his promise. It is not in my view surprising that a principle enunciated in relation to the rigours of seafaring life during the Napoleonic wars should be subjected during the succeeding 180  years to a process of refinement and limitation in its application in the present day. It is therefore my opinion that on his findings of fact in the present case, the judge was entitled to hold, as he did, that the defendants’ promise to pay the extra £10,300 was supported by valuable consideration, and thus constituted an enforceable agreement. Russell LJ … while consideration remains a fundamental requirement before a contract not under seal can be enforced, the policy of the law in its search to do justice between the parties has developed considerably since the early nineteenth century when Stilk v Myrick (1809) 2 Camp 317, 170 ER 1168 was decided by Lord Ellenborough CJ. In the late twentieth century I do not believe that the rigid approach to the concept of consideration to be found in Stilk v Myrick is either necessary or desirable. Consideration there must still be but in my judgment the courts nowadays should be more ready to find its existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal and where the finding of consideration reflects the true intention of the parties. What was the true intention of the parties when they arrived at the agreement pleaded by the defendants in para 5 of the amended defence? The plaintiff had got into financial difficulties. The defendants, through their employee Mr Cottrell, recognised that the price that had been agreed originally with the plaintiff was less than what Mr Cottrell himself regarded as a reasonable price. There was a desire on Mr Cottrell’s part to retain the services of the plaintiff so that the work could be completed without the need to employ another subcontractor. There was further a need to replace what had hitherto been a haphazard method of payment by a more formalised scheme involving the payment of a specified sum on the completion of each flat. These were all advantages accruing to the defendants which can fairly be said to have been in consideration of their undertaking to pay the additional £10,300. True it was that the plaintiff did not undertake to do any work additional to that which he had originally undertaken to do but the terms on which he was to carry out the work were varied and, in my judgment, that variation was supported by consideration which a pragmatic approach to the true relationship between the parties readily demonstrates. For my part I wish to make it plain that I do not base my judgment on any reservation as to the correctness of the law long ago enunciated in Stilk v Myrick. A gratuitous promise, pure and simple, remains unenforceable unless given under seal. But where, as in this case, a party undertakes to make a payment because by so doing it will gain an advantage arising out of the continuing relationship with the promisee the new bargain will not fail for want of consideration.

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[Purchas LJ delivered a judgment in similar terms to Russell LJ noting, in terms of the more modern approach, that consideration existed where both parties derived benefits from a varied contractual arrangement. It was not necessary to also demonstrate that each of the parties suffered a detriment.] [6.11] The decision in Williams v Roffey Bros & Nicholls (Contractors) Ltd15 has since been followed in Australia by Santow J in Musumeci v Winadell Pty Ltd.16 [6.12]

Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 New South Wales Supreme Court, Equity Division The plaintiffs (the lessees) and the defendant (the lessor) had entered into a lease of premises in a shopping centre. Because the lessor had given a lease to a competitor of the plaintiff lessees, the lessees’ trade was affected and they were unable to remain viable while continuing to pay the full rent. The parties therefore entered into an agreement under which the lessees were permitted to pay only two-thirds of the rent originally specified. The plaintiff lessees sought a declaration to that effect. The Supreme Court found in favour of the plaintiff lessees on the basis that the original lease had been altered. Santow J held that there had been consideration for the lessor’s promise to decrease the rental:  the practical benefit of continuing with the lessees as viable tenants rather than having to find other tenants and suing the lessees for the rental shortfall. This was particularly the case as the lessees may have been entitled to plead a number of defences and cross-claims in any action brought by the lessor. Santow J Practical benefit or detriment as consideration? That leaves the second basis for putting the plaintiffs’ contention that consideration was in fact provided for the rent concession. That basis relies upon the decision of the Court of Appeal in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1. That case held that A’s promise to B to perform an existing duty owed to B may be consideration, notwithstanding the rule that a promise to perform an existing duty is not consideration. This rule is avoided only where the promisor in fact obtains in practice a benefit or obviates a ‘disbenefit’, from the promise or its performance, so enabling the promisee’s reciprocal promise to be enforced. This is despite such benefit (or avoidance of disbenefit) not being expressly promised. In that case, the principal contractor B agreed to pay a subcontractor A an additional sum over and above what was payable under the sub-contract in order to secure the benefit of more assured performance from A. Thus the benefits which the defendant B was said to have

15 [1990] 1 All ER 512. 16 (1994) 34 NSWLR 723.

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obtained by so securing the plaintiff A’s performance were twofold. First, there was a measure of protection against the risk that, as a result of the main contract to refurbish, B would be liable to pay liquidated damages if A failed to perform when that was a real risk and, secondly, avoidance of trouble and expense in finding a replacement for A. Essentially the plaintiffs in the present case have to overcome the difficulty that, if a formal binding forbearance to sue were not the consideration, then the plaintiffs might be said to be merely promising, as consideration, to perform a contractual duty already owed to the lessor and nothing more. If so, this could not be good consideration:  Stilk v Myrick (1809) 2 Camp 317; 170 ER 1168. This decision has not been overruled, though is possibly explicable today as denying enforcement to a promise exacted by duress. The duress was by threatening desertion and thus a breach of contract, so as to secure more advantageous terms to perform an existing contractual duty. There was, after all, a similar practical benefit to the shipowner (or the Captain) from performance by the sailors of their duty to complete the voyage (despite desertion by two of them) of the sort that would have satisfied the Williams v Roffey test. Thus, in Wigan v Edwards (at 594; 512) Mason J said: … The general rule is that a promise to perform an existing duty is no consideration, at least when the promise is made by a party to a pre-existing contract, when it is made to the promisee under that contract, and it is to do no more than the promisor is bound to do under that contract. The rule expresses the concept that the new promise, indistinguishable from the old, is an illusory consideration. And it gives no comfort to a party who by merely threatening a breach of contract seeks to secure an additional contractual benefit from the other party on the footing that the first party’s new promise of performance will provide sufficient consideration for that benefit.

That notion of illusory consideration is reinforced by the analogous proposition in the context of part payment of debts. This proposition pre-dates any doctrine of consideration and provides that part payment of a debt or the promise thereof, does not afford consideration: Pinnel’s Case (1602) 5 Co Rep 117a; 77 ER 237 (already accepted as early as 1455, Anon YB 33 Henry VI (47 pl 32). That proposition received the approval of the House of Lords in Foakes v Beer (1884) 9 App Cas 605 and has not been overruled. It is true that this dealt with the claimed extinction of a chose in action being the original debt rather than the reduction of a series of promised payments yet to accrue, as here. Yet the underlying rationale for the rule is the same for either situation. However, that strict rule in relation to debts was early subject to exception where a creditor accepted the promise of part payment by a third party in full settlement. This was held to be a good defence to a creditor’s action against the debtor for the balance:  see most recently Hirachand Punamchand v Temple [1911] 2 KB 330. Of course there is clearly a benefit to the recipient from the third party putting its credit behind the debtor—and a detriment to the third party in so doing. It has been suggested that this result should depend rather on a broader notion of practical benefit to the creditor where it exists, rather than on the distinction between third party promises

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and promises from the original debtor or original contracting party. So Lord Blackburn, doubting though not dissenting in Foakes v Beer (at 622): What principally weighs with me in thinking that Lord Coke [in Pinnel’s Case] made a mistake of fact is my conviction that all men of business, whether merchants or tradesmen, do every day recognise and act on the ground that prompt payment of a part of their demand may be more beneficial to them than it would be to insist on their rights and enforce payment of the whole. Even where the debtor is perfectly solvent, and sure to pay at last, this often is so. Where the credit of the debtor is doubtful it must be more so.

Re Selectmove Ltd (Court of Appeal of England, 21 December 1993, unreported) demonstrates the tension between the Williams v Roffey principle and the strict approach taken to concessions in relation to debts, when logic dictates that there should be no ultimate distinction in result. I quote from Peter Gibson LJ, who declined to be a bold spirit: Mr Nugee submitted that although Glidewell LJ [in Williams] in terms confines his remarks to a case where B is to do the work for or supply goods or services to A, the same principle must apply where B’s obligation is to pay A, and he referred to an article by Adams and Bromsword in (1990) 53 MLR 536 at 539 and 540 which suggests that Foakes v Beer might need reconsideration. I see the force of the argument, but the difficulty that I feel with it is that if the principle of the Williams case is to be extended to an obligation to make a payment, it would in effect leave the principle of Foakes v Beer without any application. When a creditor and a debtor who are at arm’s length reach agreement on the payment of the debt by instalments to accommodate the debtor, the creditor will no doubt always see a practical benefit in himself so doing. In the absence of authority there would be much to be said for the enforceability of such a contract. But that was a matter considered in Foakes v Beer yet held not to be good consideration in law. Foakes v Beer was not even referred to in Williams case, and it is in my judgment impossible consistently with the doctrine of precedent, for this court to extend the principle of the Williams case to any circumstances governed by the principle in Foakes v Beer. If that extension is to be made, it must be by the House of Lords or, perhaps even more appropriately, by Parliament after consideration.

In truth, there has been a continuing trend to side-step the artificial results of a strict doctrine of consideration. Consideration did not need to be adequate. The fact that the promisor is under an existing duty to A is no matter if the promise be repeated to B; Pao On v Lau Yiu Long [1980] AC 614 at 632. A deed dispenses with consideration altogether. And promissory and related equitable estoppels may be called in aid, when consideration is lacking but it would be unconscionable for a voluntary promisor to escape altogether. Though affording lesser protection than a contract for consideration, by reason of the likely inherent temporality of the suspension of the promisor’s rights, equity nonetheless provided a flexible remedy, moulded to the circumstances, under the general notion of unconscionability: see Carter and Harland, Contract Law in Australia, 2nd ed (1991) at 119–138. This has evoked the comment that the situations which give rise to estoppel should, at least in Australia, be dealt with under its more flexible doctrines and remedies than

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by an artificial extension of the doctrine of consideration: see Halyk ‘Consideration, Practical Benefits and Promissory Estoppel: Enforcement of Contract Modification in light of Williams v Roffey Brothers’ (1991) 55 Sask L Rev 393. I discuss this issue later in this judgment. The traditional definition of consideration in terms of bargain from the nineteenth century contract writers was ‘an act or forbearance of the one party, or the promise thereof, [being] the price for which the promise of the other is bought, and the promise thus given for value is enforceable’: Sir Frederick Pollock, Principles of Contract, 8th ed (1911), at 175. Thus a distinction had to be drawn between a benefit in fact or in practice, not bargained for or expressly promised, which could not itself be consideration but was the hoped for end-result of performance and a benefit in law which could afford consideration. The latter referred to what the parties expressly gave—or promised—in exchange at the moment of formation: see Brian Coote; ‘Consideration and Benefit in Fact and in Law’ (1990) 3 JCL 23 at 27. Glidewell LJ in Williams v Roffey (at 15–16) departed from this traditional approach, when allowing consequential practical benefits to suffice that were never explicitly the subject of the parties’ promised bargain. He did so in reasoning encapsulated in the following five elements leading to the conclusion in (vi): … The present state of the law on this subject can be expressed in the following proposition:

(i)

if A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and 

(ii)

at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or be able to, complete his side of the bargain; and

(iii)

B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time; and

(iv)

as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and

(v)

B’s promise is not given as a result of economic duress or fraud on the part of A; then,

(vi)

the benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding.

So far as element (iii) is concerned, conceptually it can make no difference whether B promises A an additional payment for A’s promise of performance or grants A the equivalent concession of promising a reduction in A’s payment obligations, where these pre-exist. To reflect this, it is suggested element (iii) should have added the words ‘or other concession (such as reducing A’s original obligation)’ immediately after ‘payment’. (In the discussion which follows I refer to A and B in the context of Glidewell LJ’s proposition.) In either case the question is whether such a payment is nonetheless made for an illusory consideration in that it buys merely a promise by the same party to perform its existing contractual obligation. But should Australian courts follow the English Court of Appeal, in taking a more pragmatic approach to the true relationship between the parties in accepting practical benefits as consideration? And, if so, subject to what qualifications? I deal with that basic issue below.

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Williams v Roffey—should it be followed in Australia? There are three reasons which might be put as to why a contract to perform an existing obligation should not be enforced. First, to protect the promisor from extortion, such as may result from threatening to breach a contract in order to exact a concession. Thus, for example, the two dollar unguaranteed corporate tenant in a falling market, whose directors threaten to walk away from a lease, unless rent concessions are conceded … … Posner J sets out incisively the policy issues as he saw them in United States v Stump Home Specialities Manufacturing, Incorporated 905F 2d 1117 (1990) at 1121–1122: The requirement of consideration has, however, a distinct function in the modification setting— although one it does not perform well—and that is to prevent coercive modifications. Since one of the main purposes of contracts and of contract law is to facilitate long-term commitments, there is often an interval in the life of a contract during which one party is at the mercy of the other. A may have ordered a machine from B that A wants to place in operation on a given date, specified in their contract; and in expectation of B’s complying with the contract, A may have made commitments to his customers that it would be costly to renege on. As the date of scheduled delivery approaches, B may be tempted to demand that A agree to renegotiate the contract price, knowing that A  will incur heavy expenses if B fails to deliver on time. A can always refuse to renegotiate, relying instead on his right to sue B for breach of contract if B fails to make delivery by the agreed date. But legal remedies are costly and uncertain, thereby opening the way to duress. Considerations of commercial reputation will deter taking advantage of an opportunity to exert duress on a contract partner in many cases, but not in all. For examples of duress in the contract— modification setting: see Austin Instrument, Inc v Loral Corp, 29 NY 2d 124, 324 NYS 2d 22, 272 NE 2d 533 (1971), and Alaska Packers’ Ass’n v Domenico, 117 F 99 (9th Cir 1902); and for general discussion see Selmer Co v Blakeslee-Midwest Co, 704 F 2d 924 (7th Cir 1983); Richards Construction Co v Air Conditioning Co of Hawaii, Inc, 318 F 2d 410, 413–414 (9th Cir 1963), and Farnsworth, supra, at 271–278. [7] The rule that modifications are unenforceable unless supported by consideration strengthens A’s position by reducing B’s incentive to seek a modification. But it strengthens it feebly, as we pointed out in Wisconsin Knife Works v National Metal Crafters, supra, 781 F 2d at 1285. The law does not require that consideration be adequate—that it be commensurate with what the party accepting it is giving up. Slight consideration, therefore, will suffice to make a contract or a contract modification enforceable. Wilson v Dexter, 135 Ind App 247, 251–252, 192 NE 2d 469, 472 (1963); Simpson, Handbook of the Law of Contracts 82, 87 and 88 (2d ed 1965); cf A & S Corp v Midwest Commerce Banking Co, supra, 525 NE 2d at 1293. And slight consideration is consistent with coercion. To surrender one’s contractual rights in exchange for a peppercorn is not functionally different from surrendering them for nothing. The sensible course would be to enforce contract modifications (at least if written) regardless of consideration and rely on the defence of duress to prevent abuse. Wisconsin Knife Works v National Metal Crafters, supra, 781 F 2d at 1286; UCC §2–209, official comment 2; Hillman, Contract Modification under the Restatement (Second) of Contracts, 67 Cornell L Rev 680 (1982). All coercive modifications would then be unenforceable, and there would be no

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need to worry about consideration, an inadequate safeguard against duress. But we need not decide whether the Indiana Supreme Court is prepared to take the bold step of abolishing the requirement of consideration in modification cases; there was consideration here.

I conclude that even if duress is not a fully developed doctrine, it is nonetheless a useful weapon. It, with fraud, is already introduced by element (v)  of Glidewell LJ’s formulation, precluding enforcement of a promise so induced. Logically though, one should expand that element also to exclude promises induced by undue influence or unconscionable conduct, at the least. … … Thus such a reformulation of element (v) might read as follows: (v) B’s promise is not given as a result of economic duress or fraud, or undue influence or unconscionable conduct on the part of A nor is it induced otherwise by unfair pressure on the part of A, having regard to the circumstances.

The second reason cited by Treitel (at 89) why the new promise should not be enforced, is that the promisee suffered no legal detriment in performing what was already due from him. Nor did the promisor receive any legal benefit in receiving what was already due to him. He answers that this way: … But this reasoning takes no account of the fact that the promise may in fact suffer a detriment: for example, the wages that a seaman could earn elsewhere may exceed those that he would earn under the original contract together with the damages that he would have to pay for breaking it. Conversely, the promisor may in fact benefit from the actual performance of what was legally due to him: in Stilk v Myrick the master got his ship home and this may well have been worth more to him than any damages that he could have recovered from the crew.

Indeed the very fact that a concession is extended by B, without extortion, supports an inference, though by no means conclusively, that consideration from A, in a real and practical sense, has moved that concession. The law is increasingly tending away from the artificial towards the substantive. Such a practical notion of consideration reflects that trend. It is a notorious fact, that concessions are made to avoid the necessity for enforcing a contract whose performance is in jeopardy. It would indeed be far more artificial to treat such concessional modification to the contract as moved by a consideration consisting of cancellation of the old contract in return for the new, an approach which the Court of Appeal in Williams v Roffey expressly and correctly disclaimed. That leads to the third possible reason for why such a promise should not be enforced. It is expressed in the proposition that a benefit which is merely the hoped-for end result of performance cannot constitute consideration:  Brian Coote. ‘If these matters are capable of being regarded as consideration the reality is that the existing duty rule no longer applies, for in every case these types of benefits will be present’; Carter and Harland, Contract Law in Australia (at 109). The authors of that text go further: ‘Indeed, it is because contracting parties regard such matters as benefits that the argument can be made that existing rule should be abolished.’ But that assumes the existing rule has not even residual utility and I do not accept that proposition. Thus, Williams v Roffey and subsequent cases such as Anangel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co Ltd (No. 2) [1990] 2 Lloyd’s LR 526 per Hirst J, have

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been at pains to treat Stilk’s Case as still good law, though only ‘where there is a wholly gratuitous promise’ (at 545). But it should be apparent that Stilk’s Case involved no less a practical benefit than was upheld as sufficient for consideration in Williams v Roffey. What then is a sufficient practical benefit to B, so as to take the situation beyond a wholly gratuitous promise by B? The answers lies in the proposition put by Treitel (at 90) quoted above. It is indeed inherent in the situation posed by Williams v Roffey itself (and indeed in Stilk’s Case itself, despite the decision). There the subcontractor A’s performance was worth more to B (the principal contractor) than likely damages, even taking into account the cost of any concession to obtain greater assurance of the performance. This suggests that should be an additional to element (iv) of Gildewell LJ’s formulation by adding this proviso at the end: ‘provided that A’s performance having regard to what has been so obtained is capable of being viewed by B as worth more to B than any likely remedy against A (allowing for any defences or cross-claims) taking into account the cost to B of any such payment or concession to obtain greater assurance of A’s performance’. Nor should the alternative and indeed original basis of consideration be ignored, namely detriment to A, the promisee for this purpose. It is of course long settled that detriment to the promisee suffices an consideration—indeed it better reflects the origins of contract in the action of assumpsit. Thus element (iv), as I  have expanded it, should be divided into two parts, the second as follows: (iv) (a) … or (b) As a result of giving his promise, A suffers in practice a detriment (or obviates a benefit), provided that A  is thereby foregoing the opportunity of not performing the original contract in circumstances where such non-performance, taking into account B’s likely remedy against A (and allowing for any defences or cross-claim) is being capable of being viewed by A as worth more to A than performing that contract, in the absence of B’s promised payment or concession to A.

To all this it might be said that such a relaxation of the doctrine of consideration, if adopted, will discourage concessions, since they would then too readily become legally binding throughout the term of the contract. But the answer to that is simply enough. The courts should be alert to distinguish promises intended by their terms to be no more than temporary, or truly ex gratia, concessions, for example if expressly limited to a period of difficult circumstances for performance by the other party, which may not be permanent. And ‘care must also be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances’:  per McHugh JA in Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117. … Accordingly, I  am satisfied to conclude that, subject to the earlier re-casting of the five elements of Glidewell LJ, Williams v Roffey should be followed in allowing a practical benefit or detriment to suffice as consideration. For convenience, I set out below the re-cast elements, changes indicated by italics. I  recognise that they will be further refined in light of experience. One particular issue is the extent to which a benefit or detriment, said to be ‘practical’, as distinct from explicitly bargained for, must nonetheless be consistent with, and

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not extraneous to, the bargaining process, as at least its intended result if not necessarily its moving force: The present state of the law on this subject can be expressed in the following proposition:

(i)

If A has entered into a contract with B to do work for, or to supply goods or services to, B in return for the payment by B, and

(ii)

At some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or be able to, complete his side of the bargain, and

(iii)

B thereupon promises A  an additional payment or other concession (such as reducing A’s original obligation) in return for A’s promise to perform this contractual obligation at the time, and

(iv)

(a) As a result of giving his promise B obtains in practice a benefit, or obviates a disbenefit provided that A’s performance, having regard to what has been so obtained, is capable of being viewed by B as worth more to B than any likely remedy against A (allowing for any defences or cross-claims), taking into account the cost to B of any such payment or concession to obtain greater assurance of A’s performance, or (b) as a result of giving his promise, A suffers a detriment (or obviates a benefit) provided that A is thereby foregoing the opportunity of not performing the original contract, in circumstances where such non-performance, taking into account B’s likely remedy against A (and allowing for any defences or cross-claims) is capable of being viewed by A as worth more to A than performing that contract, in the absence of B’s promised payment or concession to A.

(iv)

B’s promise is not given as a result of economic duress or fraud or undue influence or unconscionable conduct on the part of A nor is it induced as a result of unfair pressure on the part of A, having regard to the circumstances, then,

(v)

The benefit to B or the detriment to A is capable of being consideration for B’s promise, so that the promise will be legally binding.

Application of William v Roffey to present circumstances: Applying that reasoning to the present circumstances, the practical benefit that the lessor gained from the concession of lower future rental, was argued to be the enhanced capacity of the plaintiffs to stay in occupation, able to carry out their future reduced lease obligations, notwithstanding substantial newly introduced competition from the other tenant. What this practical benefit consists of therefore is enhanced capacity for the lessor to maintain a full shopping centre with another competing tenant, when the original tenant is no longer at so great a risk of defaulting and more likely to stay. That is a practical benefit, even though legally there be no inhibition on the lessor to introduce new competition. … It is apposite to cite the judgment in a Canadian case where rental was alleged to have been reduced because of the impact of World War I. In Western Transfer Co v Fry (1920) 55 DLR 291. The Chief Justice said (at 293), though by way of dicta (having found that the oral agreement to reduce rent was not made out): I am by no means satisfied that there was not consideration for this promise. It is true the defendants were liable to pay the rent reserved by the lease, but they were not bound to

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remain in the premises, and the plaintiffs might well have considered it worthwhile to keep in occupation a satisfied tenant especially one who would have cartage work for them to do from time to time rather than have their reputation injured … because the landlord refused to do what many people would consider only the fair thing.

While those factual circumstances were not on all fours with the facts here, nonetheless in a shopping centre it is well-known that vacant shops are not in the interests of the landlord whilst a reputation for fairness is. The landlord/owner benefits from uninterrupted, successful trade overall in that shopping centre, even if leases of themselves as here, do not confer on the lessor a share of the tenant’s profit. This is particularly when it comes to renewing leases, or when vacancies otherwise arise and the landlord wants to attract tenants. Thus I find that the particular practical benefit here, was that the lessor had greater assurance of the lessees staying in occupation and maintaining viability and capacity to perform by reason of their reduction in their rent, notwithstanding the introduction of a major, much larger competing tenant. The practical detriment to the lessees lay in risking their capacity to survive against a much stronger competitor, by staying in occupancy under their lease, rather than walking away at the cost of damages, if the lessees’ defences, including under the Contracts Review Act 1980, were unsuccessful. From the lessees’ actions, it is evident that without the rent concession, the latter course was viewed as more likely to be in the lessees’ interests than staying in occupation. … I am satisfied in the circumstances that the remaining elements set out earlier are made out, including element (v), (or more precisely, absence of any element of extortion in the sense there set out). The lessees’ reaction to the original introduction of a competing, powerful tenant, with the perceived capacity to wipe them out, was to threaten redress to legal remedies. In the circumstances that was not coercive, but a simply defensive, if fairly aggressive, reaction designed to elicit a constructive response. As to element (iv) which, in its proviso, is designed to eliminate ‘wholly’ gratuitous promises, there is evidence before me that the plaintiffs’ goodwill was at risk of destruction by the introduction of the much stronger competitor on a concessional basis, unless the rent reduction were forthcoming. That makes it a proper inference for me to draw that there was indeed a sufficient practical benefit, procured by maintaining the plaintiffs as viable tenants on the promise of reduced rental. This is compared to the evidently less attractive alternative of finding another tenant and suing for any rent shortfall, particularly where the lessees might plead a number of foreshadowed defences and cross-claims. [6.13] Notwithstanding the attractiveness of this line of authority, given the accommodation of commercial reality, there is considerable doubt whether these decisions should be accepted as merely redefining and reformulating the principle enunciated in Stilk v Myrick,17 or whether they have effectively departed from the ratio of that case.18 17 (1809) 170 ER 1168. 18 See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 6.255.

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BARGAINED-FOR CONDUCT ALREADY PERFORMED [6.14] As noted previously,19 the provision of past services or bargained-for conduct may constitute valid consideration. As early as 1615 in Lampleigh v Braithwaite20 it was recognised that the law needed to accommodate a situation where services were provided without discussion of payment, but where it was presumed by all parties that there would be payment for those services. In these circumstances, it was inferred that a certain sum was to be paid and the subsequent promise (made after the provision of the services in question) merely fixed the amount of the payment. The recognition of past services as consideration has developed as ‘the rule in Re Casey’s Patents’, another case in which services were performed and the subsequent promise for payment was held to be enforceable.21 This principle has since been expanded beyond services and now extends to a promise to act (or not act) in a particular way. [6.15]

Pau On v Lau Yiu Long [1979] 3 All ER 65 Privy Council The plaintiffs owned the capital of a private company. The private company owned a building that a public company wished to acquire. To effect this transaction, the plaintiffs sold their shares in the private company to the public company. In exchange, the plaintiffs received shares in the public company. The defendant, the majority shareholders in the public company, requested that the plaintiffs give the public company an undertaking not to sell 60 per cent of those shares for one year. This was to ensure that the market was not flooded with the shares in the public company, which could adversely affect the share price. To ensure that the plaintiffs would not be disadvantaged if the shares decreased in value, the defendant agreed to buy 60 per cent of the shares after the period had expired, at $2.50 a share. Subsequently, the plaintiffs realised that, should the second agreement be carried out, the plaintiffs would not benefit from any increase in the share price. Accordingly, the plaintiffs and defendant entered into an agreement to replace the previous agreement to purchase the shares at $2.50 each, under which the defendant agreed to indemnify the plaintiffs for any loss in respect of 60 per cent of their holding, which would occur if the market closed at the end of the period at less than $2.50 a share. The share prices dropped and the plaintiffs sought to rely on the contract of indemnity. The defendant refused to indemnify them on the basis that the plaintiffs did not give consideration for the promise to indemnify.

19 See [6.06]. 20 (1615) 80 ER 255. 21 In Re Casey’s Patents; Stewart v Casey [1892] 1 Ch 104.

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The Privy Council found in favour of the plaintiffs. In the circumstances of the case, the plaintiffs could be regarded as having provided consideration for the defendant’s indemnity. Consideration was the plaintiffs’ promise made to the public company under the first agreement not to sell the shares for a year. This promise was given at the defendant’s request. The parties understood at that time that the plaintiffs needed to be compensated for any drop in price that may take place during that period. The Court [Wilberforce, Dilhorne, Simon, Salmon and Scarman LLJ; Scarman LJ read the judgment of the Board] … The Board agrees with the submission of counsel for the plaintiffs that the consideration expressly stated in the written guarantee is sufficient in law to support the Laus’ promise of indemnity. An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisor’s request, the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit, and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance. All three features are present in this case. The promise given to Fu Chip under the main agreement not to sell the shares for a year was at Lau’s request. The parties understood at the time of the main agreement that the restriction on selling must be compensated for by the benefit of a guarantee against a drop in price: and such a guarantee would be legally enforceable. … Counsel’s submission for the plaintiffs is based on Lampleigh v Brathwaite. In that case the judges said (Hob 105 at 106): First … a meer voluntary curtesie will not have a consideration to uphold an assumpsit. But if that curtesie were moved by a suit or request of the party that gives the assumpsit, it will bind, for the promise, though it follows, yet it is not naked, but couples itself with the suit before, and the merits of the party procured by that suit, which is the difference.

The modern statement of the law is in the judgment of Bowen LJ in Re Casey’s Patents, Stewart v Casey ([1892] 1 Ch 104 at 115–116). Bowen LJ said: Even if it were true, some scientific students of law believe, that a past service cannot support a future promise, you must look at the document and see if the promise cannot receive a proper effect in some other way. Now, the fact of a past service raises an implication that at the time it was rendered it was to be paid for, and, if it was a service which was to be paid for, when you get in the subsequent document a promise to pay, that promise may be treated either as an admission which evidences or as a positive bargain which fixes the amount of the reasonable remuneration on the faith of which the service was originally rendered. So that here for past services there is ample justification for the promise to give the third share.

Conferring a benefit is, of course, an equivalent to payment … [6.16] As demonstrated, a promisee may be successful in seeking to enforce a promise made after the provision of services (or bargained-for conduct) if the promisee can demonstrate satisfaction of the three requirements prescribed by the Privy Council.

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QUESTIONS FOR REFLECTION (1) Consider whether a bargained-for promise to behave in a particular way can constitute consideration, even if that behaviour is of no commercial value, and of only personal value (from the promisor’s perspective). (2) Are there grounds to abolish the rule that past consideration is not valid consideration? (3) Does the rule in Pinnel’s Case (1602) 77 ER 237 reflect the expectations of reasonable people, or modern commercial realities? (4) Does there remain any scope for the continued operation of the rule in Stilk v Myrick (1809) 170 ER 1168?

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CHAPTER 7 EQUITABLE ESTOPPEL

INTRODUCTION [7.01] The doctrine of equitable estoppel was developed in Australia in response to the injustice that could follow from a person reneging on a promise that he or she has made. Common law requires a promise to be supported by consideration before it will be enforceable. However, where it would be unconscionable for a person to go back on his or her word, equitable estoppel may apply to prevent or ‘estop’ him or her from doing so. [7.02] The origins of modern equitable estoppel, so far as is relevant to contract law, lie in the 1947 decision of Denning J in Central London Property Trust Ltd v High Trees House Ltd.1 Denning J was careful in that case and later in Combe v Combe2 to limit ‘promissory estoppel’, as it was then known, to a defensive role: a ‘shield’ but not a ‘sword’. This meant that the doctrine was not a cause of action but could be used in defence when a plaintiff sought to sue contrary to a promise that he or she had made. Australian courts, however, have developed the concept further with their recognition of a broader doctrine of equitable estoppel and the remedy it may yield.

RECOGNITION OF EQUITABLE ESTOPPEL [7.03]

Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 High Court of Australia The owner of land entered into negotiations with Waltons. The owner was to demolish a building on his land and construct a new one to Waltons’ specifications, which Waltons would

1

[1947] KB 130.

2

[1951] 2 KB 215.

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then lease. Waltons made it clear to the owner that it was working to a tight timetable. The necessary documents were prepared, and Waltons’ solicitors wrote to the owner’s solicitors stating that they thought that Waltons’ approval would ‘be forthcoming’ and that they would let them know the next day if there were any amendments. Several days later, the owner’s solicitors had heard nothing further and submitted a document signed by the owner ‘by way of exchange’. The owner then proceeded to demolish the building. About a week later, Waltons underwent a restructuring that included a reconsideration of whether it wished to proceed with the transaction. It therefore instructed its solicitor to ‘go slow’, although it became aware that the demolition was proceeding. Two months later, it informed the owner that it did not wish to proceed. By that time, the building was about 40 per cent completed. At no time had there been an exchange of contracts necessary for the conclusion of a binding contract. Mason CJ and Wilson J [after referring to cases discussing different forms of estoppel including promissory estoppel, proprietary estoppel and estoppel by acquiescence] … One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has ‘played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it’: per Dixon J in Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 675; see also Thompson v Palmer (1933) 49 CLR 507 at 547. Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption … Because equitable estoppel has its basis in unconscionable conduct, rather than the making good of representations, the objection, grounded in Maddison v Alderson (1883) 8 App Cas 467, that promissory estoppel outflanks the doctrine of part performance loses much of its sting. Equitable estoppel is not a doctrine associated with part performance whose principal purpose is to overcome non-compliance with the formal requirements for the making of contracts. Equitable estoppel, though it may lead to the plaintiff acquiring an estate or interest in land, depends on considerations of a different kind from those on which part performance depends. Holding the representor to his representation is merely one way of doing justice between the parties … The foregoing review of the doctrine of promissory estoppel indicates that the doctrine extends to the enforcement of voluntary promises on the footing that a departure from the basic assumptions underlying the transaction between the parties must be unconscionable. As failure to fulfil a promise does not of itself amount to unconscionable conduct, mere reliance on an executory promise to do something, resulting in the promisee changing his position or suffering detriment, does not bring promissory estoppel into play. Something more would be required. Attorney-General (Hong Kong) v Humphreys Estate Ltd [1987] 1 AC 114 suggests that this may be found, if at all, in the creation or encouragement by the party estopped in the other party of an assumption that a contract will come into existence or a promise will be performed and that the other party relied on that assumption to his detriment to the knowledge of the first party. Humphreys Estate referred in terms to an assumption that the plaintiff would not exercise an existing legal right or liberty, the right or liberty to withdraw from the negotiations,

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but as a matter of substance such an assumption is indistinguishable from an assumption that a binding contract would eventuate … The application of these principles to the facts of the present case is not without difficulty. The parties were negotiating through their solicitors for an agreement for lease to be concluded by way of customary exchange. Humphreys Estate illustrates the difficulty of establishing an estoppel preventing parties from refusing to proceed with a transaction expressed to be ‘subject to contract’. And there is the problem identified in Texas Bank (Amalgamated Investment and Property Co v Texas Commerce International Bank [1982] QB 84) that a voluntary promise will not generally give rise to an estoppel because the promisee may reasonably be expected to appreciate that he cannot safely rely upon it. This problem is magnified in the present case where the parties were represented by their solicitors. All this may be conceded. But the crucial question remains: was the appellant entitled to stand by in silence when it must have known that the respondents were proceeding on the assumption that they had an agreement and that completion of the exchange was a formality? The mere exercise of its legal right not to exchange contracts could not be said to amount to unconscionable conduct on the part of the appellant. But there were two other factors present in the situation which require to be taken into consideration. The first was the element of urgency that pervaded the negotiation of the terms of the proposed lease … The second factor of importance is that the respondents executed the counterpart deed and it was forwarded to the appellant’s solicitor on 11 November. The assumption on which the respondents acted thereafter was that completion of the necessary exchange was a formality. … Brennan J The element which both attracts the jurisdiction of a court of equity and shapes the remedy to be given is unconscionable conduct on the part of the person bound by the equity, and the remedy required to satisfy an equity varies according to the circumstances of the case. As Robert Goff J said in Amalgamated Property Co v Texas Bank [1982] QB 84 at 103: ‘Of all doctrines, equitable estoppel is surely one of the most flexible.’ Sometimes it is necessary to decree that a party’s expectation be specifically fulfilled by the party bound by the equity; sometimes it is necessary to grant an injunction to restrain the exercise of legal rights either absolutely or on condition; sometimes it is necessary to give an equitable lien on property for the expenditure which a party has made on it: see Snell’s Principles of Equity, 28th ed (1982), p 562. However, in moulding its decree, the court, as a court of conscience, goes no further than is necessary to prevent unconscionable conduct. … The unconscionable conduct which it is the object of equity to prevent is the failure of a party, who has induced the adoption of the assumption or expectation and who knew or intended that it would be relied on, to fulfil the assumption or expectation or otherwise to avoid the detriment which that failure would occasion. The object of the equity is not to compel the party bound to fulfil the assumption or expectation; it is to avoid the detriment which, if the assumption or expectation goes unfulfilled, will be suffered by the party who has been induced to act or to abstain from acting thereon. If this object is kept steadily in mind, the concern that a general application of the principle of equitable estoppel would make non-contractual promises enforceable as contractual promises

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can be allayed. A non-contractual promise can give rise to an equitable estoppel only when the promisor induces the promisee to assume or expect that the promise is intended to affect their legal relations and he knows or intends that the promisee will act or abstain from acting in reliance on the promise, and when the promisee does so act or abstain from acting and the promisee would suffer detriment by his action or inaction if the promisor were not to fulfil the promise. When these elements are present, equitable estoppel almost wears the appearance of contract, for the action or inaction of the promisee looks like consideration for the promise on which, as the promisor knew or intended, the promisee would act or abstain from acting … But there are differences between a contract and an equity created by estoppel. A contractual obligation is created by the agreement of the parties; an equity created by estoppel may be imposed irrespective of any agreement by the party bound. A  contractual obligation must be supported by consideration; an equity created by estoppel need not be supported by what is, strictly speaking, consideration. The measure of a contractual obligation depends on the terms of the contract and the circumstances to which it applies; the measure of an equity created by estoppel varies according to what is necessary to prevent detriment resulting from unconscionable conduct … If the object of the principle were to make a promise binding in equity, the need to preserve the doctrine of consideration would require a limitation to be placed on the remedy. But there is a logical difficulty in limiting the principle so that it applies only to promises to suspend or extinguish existing rights. If a promise by A not to enforce an existing right against B is to confer an equitable right on B to compel fulfilment of the promise, why should B be denied the same protection in similar circumstances if the promise is intended to create in B a new legal right against A? There is no logical distinction to be drawn between a change in legal relationships effected by a promise which extinguishes a right and a change in legal relationships effected by a promise which creates one. Why should an equity of the kind to which Combe v Combe refers be regarded as a shield but not a sword? … If the object of the principle of equitable estoppel in its application to promises were regarded as their enforcement rather than the prevention of detriment flowing from reliance on promises, the courts would be constrained to limit the application of the principles of equitable estoppel in order to avoid the investing of a non-contractual promise with the legal effect of a contractual promise … But the better solution of the problem is reached by identifying the unconscionable conduct which gives rise to the equity as the leaving of another to suffer detriment occasioned by the conduct of the party against whom the equity is raised. Then the object of the principle can be seen to be the avoidance of that detriment and the satisfaction of the equity calls for the enforcement of a promise only as a means of avoiding the detriment and only to the extent necessary to achieve that object. So regarded, equitable estoppel does not elevate non-contractual promises to the level of contractual promises and the doctrine of consideration is not blown away by a side-wind. A person who knows or intends that the other should conduct his affairs on such an assumption or expectation has two options: to warn the other that he denies the correctness of the assumption or expectation when he knows that the other may suffer detriment by so conducting his affairs should the assumption or expectation go unfulfilled, or to act so as to avoid any detriment which the other may suffer in reliance on the assumption or expectation. It

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is unconscionable to refrain from making the denial and then to leave the other to bear whatever detriment is occasioned by non-fulfilment of the assumption or expectation. In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1)  the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3)  the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff ’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant’s property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff ’s reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs. [Mason CJ, Wilson and Brennan JJ therefore held that Waltons was estopped from retreating from its implied promise that it would complete the contract. Waltons was therefore to be treated as if it had executed and delivered a completed contract.] Deane J The unity, at law and in equity, of the general doctrine of estoppel by conduct was clearly established prior to the introduction of the Judicature Acts system. The general proposition that the doctrine of estoppel by conduct did not extend to a representation or assumption of future fact was developed, in the context of that accepted unity of doctrine, as applying indifferently both in equity and at law. There is no reason, in authority or in principle, for introducing into a fused system a dichotomy between equity and law in those cases where estoppel by conduct, under the nomenclature of promissory estoppel, is recognized as extending to at least some representations or assumptions about future fact. Nor, in a fused system where equitable and legal remedies are all generally available, is there any pragmatic reason why the application of the doctrine of estoppel by conduct to preclude departure, in some circumstances, from a representation or assumption of a future state of affairs should be seen as an exclusively equitable development. Finally, once it is recognized that the doctrine of estoppel is one of substantive law and equity, there is no reason why that doctrine cannot be applied as effectively in relation to a representation or assumption of a future state of affairs as to one of an existing state of affairs. [Deane J held that Waltons should be estopped from denying its implied promise to promise, or from the mistaken belief that a binding contract already existed which it had created by instructing its solicitor to retain its copy of the lease and deliberately remaining silent. Gaudron J held that the company’s imprudence in failing to inform the owner that exchange might not occur caused the owner to act on the assumption that an exchange had taken place, and it would be unjust and unfair to allow departure from that assumption. The company was therefore estopped

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from asserting any matter contrary to that assumption, that is from denying that exchange had taken place, and the rights and liabilities of the parties were to be determined on the basis that it had in fact taken place.] [7.04] Accordingly, a majority of the judges in Waltons v Maher (Mason CJ, Wilson and Brennan JJ) made it clear that equitable estoppel may operate in the absence of a pre-existing contractual relationship and may be a source of new rights. The touchstone for its application is unconscionable conduct and its objective is avoidance of detriment. In Waltons v Maher the relevant detriment was avoided by effectively fulfilling the assumption which it had induced. The manner in which detriment is to be prevented was further examined in subsequent cases.

RELEVANT REMEDY [7.05]

Commonwealth v Verwayen (1990) 170 CLR 394 High Court of Australia In 1964, the aircraft carrier HMAS Melbourne collided with the destroyer HMAS Voyager. Due to legal opinion at the time, which was based on certain obiter dicta in a High Court decision to the effect that it was public policy that a member of the armed forces could not recover damages for the negligence of another member of the armed forces in the course of duty, no action for compensation was commenced by the plaintiff, one of a number of survivors of the collision. That obiter was subsequently disapproved by the High Court in 1982 in a decision that broadened the ambit of the law of negligence in the context of the armed forces. Subsequently, several survivors, including the plaintiff in this case, took action against the Commonwealth. Over a prolonged period, the Commonwealth made public declarations that it would neither seek to rely on the statute of limitations nor plead that it owed no duty of care to members of the armed forces. Similar statements were made in correspondence between the solicitors acting for the parties. Nevertheless, in late 1985, the Commonwealth reconsidered its policy in relation to claims arising from the collision and began to plead that the claim was timebarred and that no duty was owed to the survivors. Verwayen argued that the Commonwealth was either estopped from relying on the defences or had waived those defences. Mason CJ … as a matter of principle and authority, equitable estoppel will permit a court to do what is required in order to avoid detriment to the party who has relied on the assumption induced by the party estopped, but no more. In appropriate cases, that will require that the party estopped be held to the assumption created, even if that means the effective enforcement of a voluntary promise. To that extent there is an overlap between equitable estoppel generally and estoppel by conduct in its traditional form.

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… it would confound principle and common sense to maintain that estoppel by conduct occupies a special field which has as its hallmark function the making good of assumptions. There is no longer any purpose to be served in recognizing an evidentiary form of estoppel operating in the same circumstances as the emergent rules of substantive estoppel. The result is that it should be accepted that there is but one doctrine of estoppel, which provides that a court of common law or equity may do what is required, but not more, to prevent a person who has relied upon an assumption as to a present, past or future state of affairs (including a legal state of affairs), which assumption the party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness. A central element of that doctrine is that there must be a proportionality between the remedy and the detriment which is its purpose to avoid. It would be wholly inequitable and unjust to insist upon a disproportionate making good of the relevant assumption. However, in the present case the respondent is able to point to more than the mere filing and serving of the defence by the Commonwealth. There were clear indications that a deliberate and considered decision had been made whereby the limitation defence and the defence of no duty of care would not be pleaded in any of the ensuing actions brought by survivors of the collision. Those indications apparently included express representations to some claimants followed by the assessment and award of damages on the footing that no defence was pleaded. In the respondent’s case, the Commonwealth had joined in making applications for an expedited hearing of the damages issue. In all the circumstances the proper conclusion to be drawn is that the respondent had been induced by the Commonwealth’s conduct to assume that the Commonwealth had made a decision not to plead the limitation defence or the Groves defence and that that decision would not be changed. The fact that the circumstances pointed to the existence of a definitive government policy which had been followed to the point of judgment on other occasions supports the conclusion that that assumption was a reasonable assumption for a person in the respondent’s position to make. The relevance of this conclusion is that there is no reason to doubt the respondent’s assertion that he made the assumption and continued his action against the Commonwealth in reliance on it. The element of detriment presents more difficulty. Of course the respondent would suffer detriment in reliance on the assumption if the Commonwealth were to depart from it, at least in the sense that he would fail in his action for damages. However, the question of detriment is not as simple as such an answer would suggest, and is closely related to the other elements of the claim of estoppel. When a person relies upon the correctness of an assumption which is subsequently denied by the party who has induced the making of the assumption, two distinct types of detriment may be caused. In a broad sense, there is the detriment which would result from the denial of the correctness of the assumption upon which the person has relied. In a narrower sense, there is the detriment which the person has suffered as a result of his reliance upon the correctness of the assumption … while detriment in the broader sense is required in order to found an estoppel (and it would be strange to grant relief if such detriment were absent), the law provides a remedy which will often be closer in scope to the detriment suffered in the narrower sense.

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It remains only to determine what relief is appropriate to satisfy the estoppel which the respondent has successfully raised in this case. When a court approaches the task of ascertaining the minimum relief necessary to ‘do justice’ between the parties, it is not correct to make an assessment of the moral rectitude of the actions of the parties in a manner divorced from a consideration of the legal consequences and attributes of those actions. Thus it must be borne in mind that a voluntary promise is generally not enforceable and that pleadings are susceptible of amendment. Brennan J The ordinary principles of equitable estoppel which might apply to a promise of this kind were discussed in Waltons Stores v Maher. The judgments of a majority of the Court in Waltons Stores v Maher held that equitable estoppel yields a remedy in order to prevent unconscionable conduct on the part of the party who, having made a promise to another who acts on it to his detriment, seeks to resile from the promise. The remedy is to effect what Scarman LJ called ‘the minimum equity to do justice’ in Crabb v Arun District Council [1976] Ch 179 at 198: see Waltons Stores v Maher at 404–405 per Mason CJ and Wilson J; at 419, 423, 427 per Brennan J. The remedy is not designed to enforce the promise although, in some situations (of which Waltons Stores v Maher affords an example), the minimum equity will not be satisfied by anything short of enforcing the promise. If this were a case where justice could not be done unless the Commonwealth were held to its promises, the equity would have to be satisfied by entry of an interlocutory judgment for the plaintiff and an order for the assessment of his damages. But that is not the minimum equity needed to avoid the relevant detriment. The relevant detriment in a case of equitable estoppel is detriment occasioned by reliance on a promise, that is, detriment occasioned by acting or abstaining from acting on the faith of a promise that is not fulfilled. The relevant detriment does not consist in a loss attributable merely to non-fulfilment of the promise … In the present case, it may be (as counsel for the plaintiff alleged) that the plaintiff ’s ill-health was exacerbated by the defendant’s amendment of its defence. That allegation was not considered by the learned trial judge who found that the only detriment suffered consisted in the incurring of costs. But it was not suggested that any exacerbation of the plaintiff ’s ill-health flowed from some act done or omission made by him in reliance on the defendant’s promise to admit or earlier admission of liability. Nor is the loss of the plaintiff ’s chance of success a detriment occasioned by any act done or omission made by the plaintiff in reliance on the defendant’s promise to admit or earlier admission of liability. Those ‘detriments’ flowed from the defendant’s failure to fulfil its promise, but not from any act done or omission made by the plaintiff in reliance on the making of the promise. They are not relevant detriments. The only relevant detriment which the plaintiff suffered, according to his pleadings and the argument of his counsel, was financial loss in continuing with the action until the defence was amended to deny negligence and to raise s 5(6) of the Limitation Act. In these circumstances, to hold the Commonwealth to its promise to admit liability in negligence would be to go beyond the minimum equity. [Brennan J was in favour of remitting the matter to the trial judge to determine the amount of detriment suffered by the plaintiff in continuing the action until such time as the new defences

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were pleaded, allowing the Commonwealth to plead the defences and thereafter dismissing the action.] Deane J The resolution of this case lies, in my view, in the application of the general doctrine of estoppel by conduct … For the reasons which I indicated in Waltons Stores … it appears to me that the courts of this country should recognize a general doctrine of estoppel by conduct which encompasses the various categories of ‘equitable estoppel’ and which operates throughout a fused system of law and equity … The doctrine of estoppel by conduct is founded upon good conscience. Its rationale is not that it is right and expedient to save persons from the consequences of their own mistake. It is that it is right and expedient to save them from being victimized by other people … There is clear support in the cases and learned writings for the view that, in this as in other fields, equitable relief must be moulded to do justice between the parties and to prevent a doctrine based on good conscience from being made an instrument of injustice or oppression. That being so, it should be accepted that the prima facie entitlement to relief based on the assumed state of affairs must, under a doctrine which is of general application in a system where equity prevails, be qualified if it appears that that relief would exceed what could be justified by the requirements of conscientious conduct and would be unjust to the estopped party. In some such cases, an appropriate qualification may be a requirement that the party relying upon the estoppel do equity (see, eg, Texas Bank [1982] QB 84 at 108–109). In other cases, the relief to which the party relying upon the estoppel would be entitled upon the assumed state of affairs will merely represent the outer limits within which the jurisdiction of a modern court to mould its relief to suit the circumstances of a particular case should be exercised in a manner which will do true justice between the parties (cf Hamilton v Geraghty (1901) 1 SR (NSW) Eq 81, at 87–88). In some such cases the appropriate order may be one which places the party entitled to the benefit of the estoppel ‘in the same position as [he or she was] before’ (cf Birmingham and District Land Co v London and North Western Railway Co (1888) 40 Ch D 268 at 286). In others, the appropriate order may be an order for compensatory damages. To acknowledge the fact that the relief appropriate to a case of estoppel by conduct may vary according to the circumstances is not to suggest that relief is to be framed on an unprincipled basis. Prima facie, the operation of an estoppel by conduct is to preclude departure from the assumed state of affairs. It is only where relief framed on the basis of that assumed state of affairs would be inequitably harsh, that some lesser form of relief should be awarded … If the Commonwealth were now allowed to depart from the assumed state of affairs, the detriment which Mr Verwayen would sustain could not be measured in terms merely of wasted legal costs. The past stress, anxiety, inconvenience and effort which were involved in the pursuit of the proceedings would be rendered futile. More important, Mr Verwayen would be subjected to the potentially devastating effects of a last-minute denial of an expectation of just compensation …

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[7.06] Ultimately, a four-judge majority dismissed the Commonwealth’s appeal, meaning that the New South Wales Court of Appeal decision in favour of the plaintiff Verwayen was upheld. However, the reasons of the judges in the majority differed. Deane J thought that there was a single estoppel by conduct which operated in law and equity which precluded departure from the assumed state of affairs unless such a remedy would be inequitably harsh (a concept he first started to develop in Waltons v Maher). Dawson J applied promissory estoppel as was recognised by the High Court prior to Waltons v Maher in Legione v Hateley (1983) 152 CLR 406. In his opinion Verwayen was using estoppel in a defensive fashion against the Commonwealth’s attempt to change its defence. Therefore the Commonwealth was precluded from departing from the assumption it had induced, that is that it would not plead the defences. Toohey and Gaudron JJ did not base their decisions on estoppel but instead held that the Commonwealth had irrevocably waived the defences and was therefore unable to now plead them. Nevertheless, Toohey J held that had he decided the case on the basis of equitable estoppel, he would not have enforced the promise not to plead the defences but instead would have only compensated Verwayen for his wasted costs. This is a view shared by members of the minority and, it would seem, Gaudron J. The remaining three judges also delivered dissimilar judgments. Mason CJ also thought there was a single doctrine of estoppel which operated both in common law and equity. However, unlike Deane J he held that the relevant remedy for such an estoppel was the ‘minimum necessary to do justice’. In this case the minimum relief was compensation for wasted costs. To hold the Commonwealth to its representations, thereby depriving it of defences which were available to it by statute or the general law, would be a disproportionate response to the detriment suffered by the respondent. Notwithstanding those statements, his Honour was of the view that the respondent had not shown he had acted in reliance on any representation by the Commonwealth that the defences would not be amended. The Commonwealth was free to plead the defences. Brennan J applied equitable estoppel as recognised by the majority in Waltons v Maher, for which the relevant remedy was the ‘minimum equity to do justice’. In this case the only detriment that Verwayen had shown was his wasted financial costs. He therefore would have allowed the appeal and permitted the Commonwealth to plead the defences. McHugh J also applied equitable estoppel, endorsing the six elements stated by Brennan J in Waltons v Maher. However, there had been no representation by the Commonwealth that the pleadings would not be amended and the defences pleaded. However, Verwayen had established an estoppel on the basis of the Commonwealth’s representations which had induced him to prolong his relationship with the Commonwealth as plaintiff and defendant. This detriment could be avoided by an order for compensation for his wasted costs. [7.07] Accordingly no clear themes emerged from Commonwealth v Verwayen. In so far as estoppel was concerned, two judges (Mason CJ and Deane J) thought there was a single doctrine of estoppel which operated in both common law and equity, but they disagreed on its character. Several judges (Mason CJ, and Brennan, Toohey, Gaudron, and McHugh JJ) thought that the relevant remedy for estoppel was the minimum equity to do justice; however, only two of these judges, Toohey and Gaudron JJ, were members of the majority and their statements were only

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made by way of obiter dictum. Accordingly, while five of the seven judges were of the same mind in relation to the remedy, under precedent doctrine this cannot be considered to be binding. Despite these differences a joint judgment of the High Court comprising Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ in Australian Securities Commission v Marlborough Gold Mines Ltd referred to ‘an equitable estoppel of the kind upheld in Verwayen’. [7.08] However, the quandary concerning the relevant remedy remained. This was subsequently addressed by the High Court in the following case.

Giumelli v Giumelli (1999) 196 CLR 101 High Court of Australia A married couple lived on an orchard, and conducted a business under a partnership. They later purchased a second property (the ‘Dwellingup property’). They were later joined in the partnership at various times by their three sons, Tony, Robert and Steven although Tony later left the partnership. Robert received no wages but was given pocket money and keep and was later credited with earnings in the partnership accounts. The parents promised Robert that they would give him an unidentified part of the second property to compensate him for working in the business without wages, for his efforts with others in the family in developing that property and, later, for the fact that costs were being borne by the partnership (the first promise). Subsequently Robert intended to get married and was told by his parents he could build a house on the property and that the house would be his (the second promise). After the marriage the parents promised Robert that the property would be subdivided to create a lot which would include the house which he had had built and an orchard if he stayed on the property and did not accept a job offer from his father-in-law (the third promise). He refused that job offer but his wife refused to live on the property and they eventually divorced. Robert continued to live and work on the property, planting a new orchard. He then decided to marry a woman of whom his parents disapproved. They told him to choose between the property and his proposed new wife. He chose to marry and moved out of the house. A transportable house on the property was later occupied by Steven and his family. Robert commenced proceedings against his parents and brothers seeking to wind up the partnership and seeking declarations that the partnership held a charge over the properties for the value of improvements and that the parents held the second property on trust to convey the promised lot to him. The trial judge Nicholson J held that Robert had established an estoppel based on the second promise, the relevant detriment being the expenditure of money and labour on the house without the acquisition of title to it. However, in relation to the third promise he did not think that Robert’s rejection of the job offer and return to work in the partnership constituted a detriment. The development of the new orchard was executed in the interests of the partnership of which Robert was a member. If the development improved the profitability of the partnership he stood to gain not to lose. It was therefore not a detriment in the required sense.

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Gleeson CJ, McHugh, Gummow and Callinan JJ [27] In this respect, we prefer the conclusions reached by Rowland J and Ipp J in the Full Court. Rowland J approached the matter on the footing that, even if it be conceded that Robert had not suffered an appreciable loss of income by remaining in the partnership, the detriment suffered by him was the loss of the property which he worked to improve, not to obtain immediate income from that exercise but to gain the proprietary interest. For that, Robert gave up the opportunity of a different career path. Ipp J pointed out that the reasoning of the primary judge placed no weight upon the circumstance that the partnership had no security of tenure and did not own the real estate. His Honour continued: Accordingly, had [Mr and Mrs Giumelli] not undertaken to transfer the [p]romised [l]ot to [Robert], he would not have remained in the partnership and worked on improving the new orchard. The work done on the Dwellingup property by [Robert], at the expense of the partnership (including [Robert’s] share), while benefiting [Mr and Mrs Giumelli] (by adding to the capital value of their property) only stood to benefit [Robert] if the partnership continued for a sufficiently long period, and if [Mr and Mrs Giumelli] honoured their promises to him. As the partnership terminated (through no fault on the part of [Robert]) before the new orchard became productive, [Robert] in fact received little, if any, benefit from developing the new orchard. It was because [Robert] had foreseen this very possibility, and was therefore reluctant to continue as a partner, that [Mr and Mrs Giumelli] had made their promises on which he relied.

[28] Nicholson J determined the appropriate measure of relief by reference to his findings as to the second promise. His Honour’s findings with respect to the third promise led to the dismissal of that aspect of the case from consideration. With respect to the second promise, the finding in favour of Robert as to the house but not the orchard led his Honour to conclude: In my opinion it is not appropriate that an order be made that title in the land on which the house is situated be vested in [Robert]. The difficulties of access and use are patent. This appears to me to be a case where it is arguable that [Robert’s] expectation can be met by a monetary payment determined in the light of the findings I have made. Subject to what may later be submitted, I consider that the money payment should be either the amount expended by [Robert] on the house or the present value of the house and land on which it is situate, whichever is the greater.

… [33] The Full Court differed from the primary judge with respect to the third promise. This extended to the promised lot. That being so, the consideration by the Full Court of the appropriate relief was not confined to the house and the land to which it was a fixture. The appellants challenge the width of the specific relief granted by the Full Court. In particular, they emphasise that an order for the creation and conveyance of the promised lot went beyond any ‘reversal’ of the detriment occasioned by the respondent in reliance upon the third promise. They submit that it was not open to the Full Court, in a case such as the present, to grant relief which went beyond the reversal of such detriment. In that regard, the appellants claim decisive support from the decision in Verwayen. However, in our view and consistently with the course

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of Australian authority since Verwayen, that decision is not authority for any such curtailment of the relief available in this case. Rather, there is much support in the judgments for a broader view of the present matter. [Their Honours referred to the differing bases for the judgments in Commonwealth v Verwayen and cited passages including Deane J’s statement that prima facie the operation of an estoppel by conduct is to preclude departure from the assumed state of affairs and that it is only where relief framed on the basis of that assumed state of affairs would be inequitably harsh, that some lesser form of relief should be awarded.] [48] The upshot is that the respondent is correct in his submissions that the reasoning in the judgments in Verwayen does not foreclose, as a matter of doctrine, the making in the present case of an order of the nature made by the Full Court … [50] When these matters are taken into account, it is apparent that the order made by the Full Court reflected what in Verwayen was described as the prima facie entitlement of Robert. However, qualification was necessary both to avoid injustice to others, particularly Steven and his family, and to avoid relief which went beyond what was required for conscientious conduct by Mr and Mrs Giumelli. The result points inexorably to relief expressed not in terms of acquisition of title to land but in a money sum. This would reflect, with respect to the third promise, the approach taken by Nicholson J when giving relief in respect of the second promise. [51] Whilst the holding of the Full Court with respect to the third promise should be upheld, the Full Court erred in the measure of relief which it granted in respect of the promised lot. This is a case for the fixing of a money sum to represent the value of the equitable claim of the respondent to the promised lot. It will be necessary for the matter to be remitted to a judge of the Supreme Court to take that step. The amount so ascertained, with interest, should be charged upon the whole of the Dwellingup property. There will be no requirement of a subdivision of the promised lot as part of the remedy. [Kirby J also preferred the approach taken in the Full Court in relation to the third promise. He stressed that in framing relief for Robert the court was obliged to consider among the circumstances of the case the matters which stood in the way of a simple order to convey to him the land envisaged by the ‘promised lot’. Unless allowance was made for the outstanding litigation concerning the partnership, the improvements effected upon the land by other members of the Giumelli family, and for the actual residence on the land by Steven and his family the order made would exceed the requirements of conscientious conduct on the part of the parents.] [7.09] Nevertheless, there are some cases that have suggested that Waltons v Maher did not unify all types of equitable estoppel and that a distinction remains between promissory estoppel and proprietary estoppel in the sense, at least, that the remedy for the former is the minimum equity to do justice while the remedy for the latter is prima facie to make good the assumption or expectation.3 A High Court decision is therefore required to finally decide whether Waltons v Maher

3

See, for example, Harrison v Harrison [2013] NSWCA 170.

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unified equitable estoppel in a manner in which the same remedy is applied to its manifestations as promissory and proprietary estoppel, and if that remedy is the prima facie entitlement applied in Giumelli v Giumelli and similar cases, which have considered equitable estoppel in the context of an assumption or expectation concerning the creation of an interest in property.

QUESTIONS FOR REFLECTION (1) Explain in your own words what is meant by equitable estoppel being both a shield and a sword. (2) Denning LJ in Combe v Combe [1951] 2 KB 215 at 220 cautioned that promissory estoppel could only be used defensively because ‘the doctrine of consideration is too firmly entrenched to be overthrown by a side-wind’. If equitable estoppel is capable of creating new rights based on a gratuitous promise how does it peacefully co-exist with consideration? (3) What are some differences between a contract and equitable estoppel? (4) What is the correct approach to determining the remedy yielded by equitable estoppel following Giumelli v Giumelli? Should it make a difference whether or not the assumption or expectation relates to property?

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8 9

Terms I: Establishing Contractual Terms 105 Terms II: Construction of Terms 130

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INTRODUCTION [8.01] Contractual terms may be either express or implied. Express contractual terms may be either written, oral or a combination of both. Implied contractual terms may arise on the basis of well-established common law principles, statutory impost or a combination of both.

INCORPORATING WRITTEN TERMS [8.02] In determining if written terms form part of a contractual relationship between the parties, the crucial issue for determination by the court is whether the parties can be regarded as having assented to the terms.1

INCORPORATION BY SIGNATURE [8.03] Where a document is signed by the contracting parties, both parties will generally be bound by all of the terms contained in the agreement.2 This general rule applies regardless of whether the document was read or the parties were aware of the existence of particular terms contained in the agreement.

1

See, for example, Olly v Marlborough Court Ltd [1949] 1 KB 532 at 549.

2

As to the operation of the general rule and the circumstances where the general rule is displaced, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 8.2.1.

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[8.04]

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 High Court of Australia Richard Thomson (Thomson) was a general medical wholesaler and distributed and marketed an influenza vaccine, Fluvirin, within Australia. Finemores operated a refrigerated storage facility and provided refrigerated transport.3 Refrigerated transport was required because the Fluvirin had to be stored between specified temperatures. The parties had a telephone discussion regarding the terms upon which Finemores would transport the Fluvirin for Thomson. Faxes were exchanged following this conversation. On 12 February, Finemores faxed a four page document to Thomson setting out terms under which they were prepared to transport the product. There was a space for signature by Thomson on the bottom of the fourth page. The fax indicated that Thomson would be required to apply for credit (which would enable Thomson to pay within fourteen days of delivery of the product). The terms were silent regarding any indemnity provided to Finemores or any exclusion from liability. On 17 February, a representative from Thomson, Mr Gardiner-Garden, went to Finemores and completed an ‘Application for Credit’. The last statement on the form stated: ‘Please read ‘Conditions of Contract’ (overleaf) prior to signing.’ Gardiner-Garden filled in and signed the Application for Credit. He gave evidence that he did not read the conditions before signing but that, if he had, he would not have signed. The conditions on the back included clause 6 that exempted Finemores from liability to Thomson, and clause 8 that indemnified Finemores against loss or liability to others. It appears that, on the same day, Gardiner-Garden also signed the Freight Rate Schedule. After the Fluvirin arrived in Australia on 18 February, Thomson asked Finemores to collect it from the airport. Later that month, Finemores (at Thomson’s request) transported some of the product to Brisbane. However, because of Finemore’s negligence, the Fluvirin was not stored at the appropriate temperature and had to be destroyed. Thomson brought an action for damages against Finemores. Both the trial judge and the New South Wales Court of Appeal found in favour of Thomson and held that Finemores could not rely on the conditions on the back of the Application for Credit on the basis that Finemores had not done what was reasonably sufficient to give due notice of the conditions on the back of the Application for Credit. However, the High Court disagreed. In the absence of any vitiating factors, where a person signs a document that is known to contain contractual terms, and to affect legal relations, the person will be bound by the terms. The mere fact that the document has been signed without being read does not impose an obligation on the other party to show that due notice was given of the contractual terms. Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ [45] It should not be overlooked that to sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a reasonable reader of the document. The

3

There were a number of other parties to this action, including another distributor within Australia. For simplicity, only the facts necessary to consider the legal point concerning incorporation of written terms are provided.

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representation is that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents … whatever they might be. That representation is even stronger where the signature appears below a perfectly legible written request to read the document before signing it. [46] The statements in the above authorities accord with the well-known principle stated by Scrutton LJ in L’Estrange v F Graucob Ltd [1934] 2 KB 394 that ‘[w]hen a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not’. [47] The importance which, for a very long time (see Whelpdale’s Case (1604) 5 Co Rep 119a [77 ER 239]; Holdsworth, A History of English Law, 2nd ed (1937), vol 8, pp 50–51), the common law has assigned to the act of signing is not limited to contractual documents. … Legal instruments of various kinds take their efficacy from signature or execution. Such instruments are often signed by people who have not read and understood all their terms, but who are nevertheless committed to those terms by the act of signature or execution. It is that commitment which enables third parties to assume the legal efficacy of the instrument. To undermine that assumption would cause serious mischief. [48] In most common law jurisdictions, and throughout Australia, legislation has been enacted in recent years to confer on courts a capacity to ameliorate in individual cases hardship caused by the strict application of legal principle to contractual relations. As a result, there is no reason to depart from principle, and every reason to adhere to it, in cases where such legislation does not apply, or is not invoked (Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 843, per Lord Wilberforce; at 851, per Lord Diplock; Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 507–508; Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 49 at 62 [24]). [50] An application of settled principle in the present case leads to the conclusion that the terms and conditions on the reverse of the Application for Credit formed part of the contract governing the storage and transportation of the goods. [51] The reasoning of the primary judge, accepted by the Court of Appeal, was based upon the proposition that, in order for those terms and conditions to be made part of the contract, it was necessary for Finemores to establish that it had done what was reasonably sufficient to give Richard Thomson notice of the terms and conditions (the major premise), and the further proposition that Finemores had not done what was reasonably sufficient to give Richard Thomson such notice (the minor premise). [52] It would be possible to dispose of the appeal by disagreeing with the minor premise. What more Finemores could have done to give Richard Thomson notice of the terms and conditions than requiring their representative to sign a document, and to place his signature immediately below a request that he read the conditions on the reverse side of the document before signing, is difficult to imagine. [53] Of wider importance, however, is the major premise. If correct, it involves a serious qualification to the general principle concerning the effect of signing a contract without reading it. The proposition appears to be that a person who signs a contractual document without reading it is bound by its terms only if the other party has done what is reasonably

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sufficient to give notice of those terms. If the proposition is limited to some terms and not others, it is not easy to see what the discrimen might be. [54] It appears from the reasoning of the primary judge and the Court of Appeal that the proposition was given a narrower focus, and was limited to exclusion clauses, or, perhaps, exclusion clauses which are regarded by a court as unusual and onerous. The present happens to be a case about exclusion clauses, but there is no apparent reason why the principle, if it exists, should apply only to them. Nor is the criterion by which a court might declare a contractual provision to be unusual or onerous always easy to identify. The origin of the proposition, clearly enough, is in the principles that apply to cases, such as ticket cases, in which one party has endeavoured to incorporate in a contract terms and conditions appearing in a notice or an unsigned document. When an attempt is made to introduce the concept of sufficient notice into the field of signed contracts, there is a danger of subverting fundamental principle based on sound legal policy. There are circumstances in which it is material to ask whether a person who has signed a document was given reasonable notice of what was in it. Cases where misrepresentation is alleged, or where mistake is claimed, provide examples. No one suggests that the fact that a document has been signed is for all purposes conclusive as to its legal effect. At the same time, where a person has signed a document, which is intended to affect legal relations, and there is no question of misrepresentation, duress, mistake, or any other vitiating element, the fact that the person has signed the document without reading it does not put the other party in the position of having to show that due notice was given of its terms. Furthermore, it may be asked, where would this leave a third party into whose hands the document might come? … [57] If there is a claim of misrepresentation, or non est factum, or if there is an issue as to whether a document was intended to affect legal relations or whether, on the other hand, it was tendered as a mere memorandum of a pre-existing contract, or a receipt, or if there is a claim for equitable or statutory relief, then even in the case of a signed document it may be material to know whether a person who has signed it was given sufficient notice of its contents. The general rule, which applies in the present case, is that where there is no suggested vitiating element, and no claim for equitable or statutory relief, a person who signs a document which is known by that person to contain contractual terms, and to affect legal relations, is bound by those terms, and it is immaterial that the person has not read the document. L’Estrange v Graucob explicitly rejected an attempt to import the principles relating to ticket cases into the area of signed contracts. … … [63] There may be cases where the circumstances in which a document is presented for signature, or the presence in it of unusual terms, could involve a misrepresentation. No such problem exists in the present case. There could also be circumstances in which one party would not reasonably understand another party’s signature to a document as a manifestation of intent to enter into legal relations, or of assent to its terms. Again, that is not this case. It was reasonable of Finemores to treat Mr Gardiner-Garden’s signature as a manifestation of assent to the conditions he had been invited to read before signing. [64] There was, in the reasoning of the Court of Appeal, some emphasis on the fact that the document signed by Mr Gardiner-Garden was an Application for Credit, and a suggestion that there is something surprising about such a document containing anything other than terms of

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payment. … … There was no evidence to support a finding that applications for credit in the transport industry do not normally contain general terms of contract. Such evidence as there was on the matter was to the effect that the terms in question were not abnormal. … … [67] In this case the printed conditions on the Application for Credit formed part of the contract of storage and transportation. [8.05] The judgment of the High Court makes it clear that a distinction needs to be drawn between the principles applicable in the case of signed contracts and those principles applicable where a party seeks to incorporate into a contract terms and conditions appearing in an unsigned document or a sign.

INCORPORATION BY NOTICE—UNSIGNED DOCUMENTS AND SIGNS [8.06] Where a party seeks to incorporate into a contract written terms appearing on an unsigned document (such as a ticket), the party will need to demonstrate satisfaction of the following two elements: •

reasonable steps were taken to give the class of person to which the recipient belonged, notice of the existence of the term; and



these reasonable steps were taken at or before the point of contract formation.4

Substantially similar legal requirements apply where a party seeks to incorporate into a contract written terms appearing on a sign.5

INCORPORATION BY NOTICE—WEBSITE [8.07] When determining if terms contained on a website form part of a contract, a court is likely to apply similar principles to those applicable when considering the incorporation of terms on an unsigned document or a sign. A party will only be bound by terms appearing on a website if he or she can be regarded as having assented to those terms. This will be the case if the party is considered to have signified assent by signing or the provider has taken reasonable steps to bring the terms to the attention of the consumer, and this occurred before, or upon, contract formation.6

4

See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 8.2.2.

5

Ibid, section 8.2.3.

6

Ibid, section 8.2.4.

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INCORPORATION BY REFERENCE [8.08] Sometimes a party may wish to incorporate a number of terms into a contract and, instead of listing them in the contract, incorporate them by reference to another document that sets out the terms in full.7 This practice, of incorporating contractual terms by reference, has been recognised at common law8 and also by dent of statutory provision.9

INCORPORATING ORAL TERMS [8.09] The negotiation stage of a contract will usually be characterised by some kind of verbal exchange between the parties. It will often be important to determine if these pre-contractual oral statements may operate as contractual terms. Only those statements which form part of the contract will enable an injured party to sue for breach of contract. In this regard, a precontractual oral statement may be characterised as: •

mere puff;10



a representation;



a contractual term; or



the subject matter of a collateral contract.11

While it may be relatively easy to determine if a pre-contractual statement falls within the realm of puffery, it is more difficult to determine whether the statement possesses the qualities necessary to be a contractual term or can only be regarded a representation, being a statement that influences entry into a contract without being intended to form part of the contract. In this regard, a statement will only be a contractual term if it is promissory in nature, meaning that the statement-maker warrants the truth of the statement. If the truth of the statement is not warranted (or guaranteed) by the statement-maker, the statement will be a representation only. The test of whether a statement is promissory in nature depends on the intentions of the parties, ascertained objectively.12 To assist in determining if the requisite intention is present, a court may have regard to a number of indicators that may provide helpful guidance about the intentions of the parties: •

words and conduct of the parties;



knowledge or expertise of the statement-maker;

7

Ibid, section 8.2.5.

8

Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165.

9

For legislation that facilitates standard terms becoming part of a mortgage by incorporation in this way, see, Land Title Act 1994 (Qld), s 170; Real Property Act 1900 (NSW), s 80A; Transfer of Land Act 1958 (Vic), s 91B; Real Property Act 1886 (SA), s 129A; Transfer of Land Act 1893 (WA), s 54; Land Titles Act 1980 (Tas), s 169D; Land Title Act 2000 (NT), s 169; Land Titles Act 1925 (ACT), s 92.

10 See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 8.3.1. 11 Ibid, section 8.3.3. 12 Oscar Chess Ltd v Williams [1957] 1 WLR 370, 375.

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statement-maker has control in relation to the information;



oral statement not reduced into writing; and



interval of time.13

111

By way of illustration, one of these indicators, the knowledge or expertise of the statementmaker, proved significant in the case extracted below. [8.10]

Oscar Chess Ltd v Williams [1957] 1 All ER 325 English Court of Appeal As part of a hire-purchase deal, the defendant traded in his Morris to the plaintiff car dealers. The car had been acquired by the defendant’s mother in 1954. In the course of negotiations, the defendant described the Morris as a 1948 model, and produced the registration book. The registration book indicated that it was first registered in 1948, and had subsequently changed owners five times. In fact, the Morris was a 1939 model, worth £115 less. The plaintiff sued to recover this amount as damages, claiming that the defendant’s oral statement was a term of the contract. The English Court of Appeal found in favour of the defendant. The defendant’s oral statement was not intended to be a term of the contract. The defendant was merely stating his belief, not making a contractual promise Denning LJ In saying that [the plaintiff] must prove a warranty, I  use the word ‘warranty’ in its ordinary English meaning to denote a binding promise. Everyone knows what a man means when he says, ‘I guarantee it’, or ‘I warrant it’, or ‘I give you my word on it’. He means that he binds himself to it. That is the meaning which it has borne in English law for three hundred years … It is sometimes supposed that the tribunal must look into the minds of the parties to see what they themselves intended. That is a mistake. Lord Moulton made it quite clear, in Heilbut, Symons & Co v Buckleton ([1913] AC at p 51), that ‘The intention of the parties can only be deduced from the totality of the evidence …’ The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice. And this, when the facts are not in dispute, is a question of law. It must have been obvious to both that the seller had himself no personal knowledge of the year when the car was made. He only became owner after a great number of changes. He must have been relying on the registration book. It is unlikely that such a person would warrant the year of manufacture. The most that he would do would be to state his belief, and then produce the registration book in verification of it. In these circumstances the intelligent

13 In relation to these indicators, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 8.3.2.

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bystander would, I suggest, say that the seller did not intend to bind himself so as to warrant that the car was a 1948 model. If the seller was asked to pledge himself to it, he would at once have said ‘I cannot do that. I have only the log-book to go by, the same as you’. It seems to me clear that the plaintiffs, the motor dealers who bought the car, relied on the year stated in the log-book. If they had wished to make sure of it, they could have checked it then and there, by taking the engine number and chassis number and writing to the makers. They did not do so at the time, but only eight months later. They are experts, and, as they did not make that check at the time, I do not think that they should now be allowed to recover against the innocent seller who produced to them all the evidence which he had, namely, the registration book. I agree that it is hard on the plaintiffs to have paid more than the car is worth, but it would be equally hard on the seller to make him pay the difference. [Hodson LJ delivered a judgment in similar terms to Denning LJ.] [Morris LJ dissented on the basis that the evidence pointed to the statement being an integral part of the contract that was made.] [8.11] It should be noted that the indicators are not determinative of whether the requisite intention for the statement to form part of the contract exists. Further, as illustrated by the dissenting judgment of Morris LJ in the case extracted above, their application in particular fact situations can prove problematic. [8.12] In certain cases, a pre-contractual oral statement may not be regarded as forming part of the main agreement, but instead forms the basis of a collateral contract. A collateral contract is one in which the consideration for the promisor’s promise is the promisee’s entry into the main contract. From the joint judgment of the High Court in JJ Savage & Sons Pty Ltd v Blakney,14 it appears that the following elements must be present before a statement will give rise to a collateral contract: •

a statement is made to induce entry into the contract;



the statement is relied upon; and



the statement relied upon was promissory in nature.

Applying these principles, the High Court held that the plaintiff had not proved the existence of a collateral contract and was not entitled to damages for an alleged breach.

14 (1970) 119 CLR 435.

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[8.13]

JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 High Court of Australia Prior to entering into a contract for the purchase of a motor boat, the seller sent a letter to the buyer making comments and recommendations about various engines he regarded as suitable for that boat. The buyer bought the motor boat with the recommended engine. When the engine did not run the boat as well as the seller had suggested, the buyer sued the seller for damages. The buyer claimed, among other things, that the promise made in the letter formed the basis of a collateral contract. The High Court held that a collateral contract did not exist. In relation to the information concerning the capacity of the engine, the High Court considered that the buyer could have done one of three things: •

required the attainment of a specified speed to be a condition of the contract;



made the seller promise that the boat could attain a specified speed; or



made his own judgment based on the seller’s opinion.

Barwick CJ, Kitto, Menzies, Owen and Walsh JJ The trial judge was of opinion that the statement in the appellant’s letter was an estimate only, expressed as an expectancy, and not an unequivocal promise of a future speed. The Full Court, after referring to a dictionary meaning of the word ‘estimate’, thought the expression ‘estimated speed 15 mph’ in the appellant’s letter should be construed as ‘approximate speed 15 mph’. In our opinion, this was an unwarranted substitution which stripped the words of the letter of their most significant meaning. The actual words used by the appellant in the letter should be considered. So far from being a promissory expression, ‘estimated speed 15 mph’ indicates, in our opinion, an expression of opinion as the result ‘of approximate calculation based on probability’ to use the dictionary equivalent of ‘estimate’ referred to by the Full Court. There is no need to resort to cases decided upon different facts and circumstances in order to determine the significance in this case of the actual words used by the respondent. The words in themselves tend, in our opinion, against the inference of a promise that the boat would in fact achieve the nominated speed. The Full Court seems to have thought it sufficient in order to establish a collateral warranty that without the statement as to the estimated speed the contract of purchase would never have been made. But that circumstance is, in our opinion, in itself insufficient to support the conclusion that a warranty was given. So much can be said of an innocent representation inducing a contract. The question is whether there was a promise by the appellant that the boat would in fact attain the stated speed if powered by the stipulated engine, the entry into the contract to purchase the boat providing the consideration to make the promise effective. The expression in De Lassalle v Guildford (1901) 2 KB 215, at p 222 that without the statement the contract in that case would not have been made does not, in our opinion, provide an alternative and independent ground on which a collateral warranty can be established. Such a fact is but a

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step in some circumstances towards the only conclusion which will support a collateral warranty, namely, that the statement so relied on was promissory and not merely representational. When the letter which we have quoted was written, the negotiations for the construction and delivery of the boat were incomplete. On receipt of the letter there were three courses open to the respondent. He could have required the attainment of the speed to be inserted in the specification as a condition of the contract; or he could have sought from the appellant a promise—however expressed, whether as an assurance, guarantee, promise or otherwise—that the boat would attain the speed as a prerequisite to his ordering the boat; or he could be content to form his own judgment as to the suitable power unit for the boat relying upon the opinion of the appellant of whose reputation and experience in the relevant field he had, as the trial judge found, a high regard. Only the second course would give rise to a collateral warranty. In our opinion, there is nothing in the evidence before the trial judge to support the view that the respondent took either the first or second of these courses: the only conclusion open upon that evidence was that the respondent took the third course; he accepted the appellant’s estimate of what the boat would do under the power of the 4/53 GM diesel as sufficient to found his (the respondent’s) own judgment as to the powering of the vessel. As he said ‘I prefer upon your advice the GM 4/53’. That the statement actually made by the appellant was intended to have some commercial significance upon a matter of importance to the respondent can be conceded; that the respondent was intended to act upon it, and that he did act upon it, is clearly made out. But those facts do not warrant the conclusion that the statement was itself promissory. In our opinion, so far from it being shown that the trial judge was wrong in refusing to draw the conclusion that the appellant made a promissory statement as to the attainable speed of the cruiser (which he did by deciding that there was no condition of the contract in the stated terms) we are satisfied that he took the only course permitted by the material before him. In our opinion, the appeal should be allowed. A collateral contract was also dismissed by the High Court in Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd.15

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26 High Court of Australia Two tenants had been granted leases for five years without an option to renew. The tenants had concerns as it was a condition of the leases that a major refurbishment of the premises be undertaken by the tenants. The landlord assured the tenants that they would be ‘looked after at renewal time.’ Notwithstanding this assurance, the landlord subsequently gave notice under the leases requiring the tenants to vacate the premises at the expiry of the leases. The tenants claimed that the assurance operated as a collateral contract between the landlord and 15 [2016] HCA 26.

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the tenants to the effect that the landlord had assured them that, if they entered the leases for a five-year term, the landlord would offer to renew the leases for a further five-year term. In a split 5-2 decision of the High Court (Gageler and Gordon JJ dissenting), the collateral contract claim was dismissed. French CJ, Kiefel and Bell JJ [24] On the appeal before Hargrave J, the tenants conceded that the question to which Gibbs CJ referred in Hospital Products was one of mixed fact and law. That is clearly correct. Whilst regard is had to the facts—what was said and done—questions as to what a representation objectively may be taken to convey, and whether it has the qualities which the law requires for it to amount to a binding contractual promise, are questions of law. [25]  In a passage in his speech in  Heilbut, Symons & Co v Buckleton, Lord Atkinson said that the existence or non-existence of the intention in the mind of the party who warrants the truth of a fact is a question for the jury. The question of fact to which his Lordship referred was one as to the subjective intention of a party, which is relevant in making out a fraudulent misrepresentation. Viscount Haldane LC, with whom Lord Atkinson concurred,  and Lord Moulton were clearly of the opinion that the question whether there was an intention to create a collateral contract was a question of law. [26] The tenants applied to this Court for special leave to cross-appeal on the ground that no question of law was involved in the question whether there was a collateral contract (or an estoppel) and therefore no appeal to the Supreme Court lay under s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic). That application was heard with argument on the appeal and was refused. In the course of argument, the tenants contended that any question respecting the construction of an oral contract is a question of fact and therefore questions as to the promissory nature of the statement made by Crown were only questions of fact for the VCAT. [27]  The tenants’ submissions in this regard proceeded upon a misapprehension of what the authorities they relied upon actually say. It is certainly the case that the question as to what was actually agreed between the parties, which is to say the terms of the consensus reached, is a question of fact. That is what is meant by the reference in those cases to the ‘construction’ of the contract. Questions as to the terms of any offer and any consensus reached, including the subject matter of any agreement, are questions of fact. But questions whether a statement has a quality which the law requires and whether, objectively, it could be said to be intended to be contractually binding are questions of law. [28]  The statement found to have been made by Crown’s representative, that the tenants would be ‘looked after at renewal time’, could not possibly have been understood to bind Crown to offer a further five-year lease. It did not have the quality of a contractual promise of any kind. Keane J [126] The tenants submitted that the focus of the courts below on Crown’s freedom to stipulate whatever terms it chose in the renewal notices paid insufficient regard to the promise to ‘look after’ the tenants at renewal time. It was said that the courts below incorrectly discerned a dichotomy between Crown’s freedom and the promise to ‘look after’ the tenants, concluding on that basis that the promise was not capable of bearing the meaning attributed to it by the Tribunal. The tenants’ contention should be rejected. Both the primary judge and the Court of Appeal were right to conclude that, on the findings of fact made by the Tribunal, the parties had not made an enforceable agreement for the offer or grant of further five-year leases.

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[127]  The formulation of the tenants’ case in their pleadings is instructive. There, it was asserted that the collateral contract obliged Crown to make an offer of a lease. But to say that the collateral contract was to make an offer of a lease, and no more, is distinctly not to identify a basis for the approach to the assessment of damages adopted by the Tribunal. No objective standard by which the terms of such an offer might be fixed was alleged or proved. That deficit in the tenants’ case could not be made good by the legally unorthodox approach adopted by the Tribunal, which gave the tenants the benefit of a contract that was never made between the parties. The Tribunal had no authority to force upon Crown such terms as might seem to the Tribunal to be reasonable. The Tribunal erred in law in its appreciation of the legal effect of the facts as to what actually passed between Mr Boesley and Mr Zampelis. [128] On one view, it might be said that the terms of the putative renewed leases were left to further agreement so that there is no binding agreement at all as to the renewal. The issue of rent could be expected to have loomed large; and no basis for resolving that issue had been agreed or was identifiable. Nor was there any basis for concluding that differences between the parties on the terms of the renewed leases were likely to have been resolved upon terms acceptable to the tenants, much less that Crown was obliged to reach agreement on that basis. And the tenants did not seek, or advance any basis for the recovery of, damages for the loss of the opportunity to receive an offer from Crown. [129] On another view, it might be said that the indication of a willingness to ‘look after’ Mr Zampelis at the end of the leases could reasonably be understood as an indication of an intention to reimburse the tenants for any enduring disadvantage enuring to the tenants as a result of the refurbishment. What that might involve could range from some form of monetary recompense to favourable consideration in relation to new opportunities. In the case advanced by the tenants, none of these possibilities was litigated. [130] To say either of these things, however, is merely to emphasise that because Crown was left legally free to act in its own interests in negotiating the terms of any further lease, and indeed free to stipulate for rent and other terms which might be unacceptable to the tenants, no agreement had been concluded. On either view of what might be involved in Crown’s ‘looking after’ the tenants at renewal time, the terms on which an agreement might be made could never be more than unresolvable speculation. Accordingly, even if the assurance that the tenants would be ‘looked after’ by Crown at the expiration of the leases had actually been incorporated as a term of the leases signed by the tenants, it would not have been sufficiently certain to be enforceable as a promise of the grant of further leases. [131] It has been noted that the Tribunal’s error was not an error of fact. Where the terms of an oral representation have been established as a fact, its construction is a question of law. Similarly, the question whether the communications which have taken place between the parties to an alleged contract are so vague or incomplete that the alleged contract is illusory is a question of law. By way of example, in Horton v Jones, the plaintiff in an action heard by judge and jury was non-suited, notwithstanding her evidence of a promise by the deceased to make a will and leave his ‘fortune’ to her in return for her promise to make a home and to give

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up everything to look after him for the rest of his life. It was held that, while the content of what passed between the plaintiff and the deceased was a matter of fact, the question whether it was ‘too vague or uncertain to afford a consideration for’ the deceased’s promise was a question, not of fact for the jury, but of law for the judge. [132] For these reasons, the primary judge and the Court of Appeal were right to conclude that the collateral contract for which the tenants contended was illusory. Nettle J [191] As has been noticed, VCAT decided the collateral contract claim on the basis of what it perceived to be the objective or reasonable meaning of the assurance that, if Mr Zampelis spent the money required to refurbish the premises to a high standard, he would be ‘looked after at renewal time’. VCAT found that a reasonable person in Mr Zampelis’ position would have understood that to be a promise that, if the tenants delivered the executed Leases and paid the costs of the fit out works, Crown would make an offer to grant a further term of five years on such terms and conditions as Crown might choose in its discretion. VCAT also held that the assurance was a sufficiently certain promise that, once accepted by the delivery of the executed Leases and payment of the fit out costs, it gave rise to a binding and enforceable collateral contract. [192]  The primary judge took the opposite view. His Honour held that VCAT had erred in law in reaching its conclusion by failing to take the following relevant considerations into account: (1) In October and November 2004, before the expiry of the previous leases, Mr Boesley wrote to Mr Zampelis to enquire about his intentions to enter new leases, and specifying terms on which Crown would allow a holding-over. (2) When, by email in reply dated 8 November 2004, Mr Zampelis’ personal assistant suggested that Crown had represented to Mr Zampelis that there would be a further term under the previous leases, Mr Boesley expressly denied any such representation by email dated 10 November 2004. (3) On 11 May 2005, when the time came to negotiate the terms of the Leases, Mr Boesley sent ‘comprehensive summaries of the terms and conditions of proposed new leases’ to the tenants, including the five-year term and major refurbishment clause. (4) On 29 June 2005, Mr Boesley informed Mr Zampelis by email that his concept proposals for refurbishment of the restaurants had been approved ‘in principle’, and sought confirmation from Mr Zampelis that he would accept the proposed terms under the Leases. (5) Mr  Zampelis replied by email to Mr  Boesley on 22  July 2005, confirming the tenants’ ‘acceptance of your offer unconditionally’. That offer was for two five-year leases, with no right of renewal, each commencing on 1 September 2005, under which major refurbishments were to be completed and trading was to commence by 1 December 2005. (6) By email dated 3 November 2005, Mr Zampelis’ personal assistant advised Mr Boesley that the Leases had been signed. (7) On 23 November 2005, Mr Boesley sent an email to the tenants demanding that the executed Leases be returned to Crown and threatening to lease the restaurants to other restaurateurs if this was not done.

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[193] The primary judge reasoned, and the Court of Appeal agreed, that those and other matters revealed a background of commercial negotiations between parties experienced in commercial leasing, in which important matters were documented, against which a reasonable person in Mr Zampelis’ position would have understood the assurance as being no more than ‘some vaguely encouraging words from Mr Boesley about the strength of the parties’ relationship and Crown’s willingness to see the restaurants prosper beyond the end of the five-year term’. [194] Before this Court, the tenants attacked the primary judge’s reasoning at a number of levels but principally on the basis that it was not correct that VCAT failed to have regard to the listed matters. It followed, it was said, that the judge was wrong in holding that VCAT erred in law and thus wrong in substituting his own view of the facts for VCAT’s findings. [195]  That argument should be rejected. VCAT did not have regard to at least some of the listed factors and did not give adequate consideration to any of them. Whether VCAT had regard to factors (1)  and (2)  is perhaps debatable. They are described in VCAT’s reasons as ‘features of these cases that would support a view that it is improbable that Crown made the alleged promise to renew for a further term’. But there is no analysis anywhere in the reasons of what, if anything, VCAT perceived to so much outweigh those factors that the assurance could objectively be discerned as a binding promise by Crown to offer a further term of five years. The position is even clearer in relation to factors (3), (4), (5), (6) and (7). None of them is described in the reasons as ‘features of these cases that would support a view that it is improbable that Crown made the alleged promise to renew for a further term’. Factor (3) is mentioned later in VCAT’s reasons, but only as an historical introduction to statements which Crown was alleged to have made and were found not to have been made. Factors (4) and (5) are also mentioned but only as part of the historical narrative. Factor (7), and implicitly factor (6), are mentioned, but without any consideration of their implication that Crown was not prepared to deal on a basis other than the terms of the executed Leases. [196] When proper regard is had to each of those factors, it is apparent that the primary judge and the Court of Appeal were correct in holding that a reasonable person in the position of Mr Zampelis could not have construed the assurance as a binding promise to offer a further term of five years. To adopt and adapt the words of Lord Wright in Scammell (G) and Nephew Ltd v Ouston (H C and J G), the parties did not ‘in intention nor even in appearance’ make or accept any promise about a renewal. Such, if any, understanding as they may have come to on the point was inchoate. They might have considered that there should be some form of renewal. But they never went on to make an agreement regarding renewal, by settling between them on what terms the renewal was to be. The furthest point they reached was an understanding that they would agree upon terms of renewal. The words which they used were not ‘the language of obligation or contract’. VCAT’s contrary finding was untenable.

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IMPLIED TERMS REFLECTING THE INTENTION OF THE PARTIES [8.14] In addition to terms expressly agreed upon by the parties, a contract may also include implied terms. Implied contractual terms may arise on the basis of well-established common law principles as well as by statutory impost. The eight grounds for implying terms can be divided into two broad categories. The first category is that of terms implied to reflect the presumed intention of the parties. These can be: •

a term implied to provide the contractual arrangement with business efficacy;



a term implied from a previous consistent course of dealings between the parties;



a term implied from custom or usage;



a term implied to complete the contract.

TERM IMPLIED ON THE BASIS OF BUSINESS EFFICACY [8.15] As mentioned, one of the terms implied to reflect the presumed intention of the parties is a term implied to provide the contractual arrangement with business efficacy. Implication will be allowed on this basis where, on the facts surrounding the particular contract, implication is necessary to allow the contract to be effectively carried out. At least in relation to formal contracts,16 the following elements must be satisfied before the court will imply a contractual term on this basis: •

the term must be reasonable and equitable;



the term must be necessary to give business efficacy to the contract, so that no term will be implied if that contract is effective without it;



the term must be so obvious that ‘it goes without saying’;



the term must be capable of clear expression; and



the term must not contradict any express term of the contract.17 The satisfaction of all five elements has often proven to be an insurmountable hurdle.

16 In relation to the relevance of the formality of the particular contract, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, sections 8.565–8.575. 17 The rules for implying a term on the basis of business efficacy were summarised by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 and approved by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337.

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[8.16]

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 High Court of Australia A construction company entered into a contract with the New South Wales State Rail Authority to carry out some excavation work to construct an underground railway. To complete the work within the time specified in the contract, the company intended to operate three eight-hour shifts per day, six days per week. Because of the disturbance created, the company was restrained from working between 10pm and 6am. The company claimed there was an implied term in the contract that if it was restrained from carrying out the work in the manner contemplated, the Rail Authority would indemnify it against the additional costs incurred. The High Court was not prepared to imply the term urged by the company. At the time of negotiation, both contracting parties were operating under the assumption that an injunction could not be granted to restrain the work proceeding in the manner contemplated. It was therefore impossible to suggest that a term allowing for additional payment to the company in such an event was one that went without saying. Mason J In this case the problem, as I see it, lies not so much in saying that the implication of a term is necessary to give business efficacy to the contract, as in concluding that the particular term to be implied is so obvious that ‘it goes without saying’ … there remains an insurmountable problem in saying that ‘it goes without saying’ that had the parties contemplated the possibility that their legal advice was incorrect and that an injunction might be granted to restrain noise or other nuisance, they would have settled upon the term implied by the Court of Appeal or that implied by the Arbitrator and by Ash J at first instance. I doubt whether the fiction of treating the parties as reasonable and fair makes the problem any the less difficult. This is not a case in which an obvious provision was overlooked by the parties and omitted from the contract. Rather it was a case in which the parties made a common assumption which masked the need to explore what provision should be made to cover the event which occurred. In ordinary circumstances negotiation about that matter might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution … My reluctance to imply a term is the stronger because the contract in this case was not a negotiated contract. The terms were determined by the Authority in advance and there is some force in the argument that the Authority looked to Codelfa to shoulder the responsibility for all risks not expressly provided for in the contract. It is a factor which in my view makes it very difficult to conclude that either of the terms sought to be implied is so obvious that it goes without saying. Brennan J The contract reveals no lacuna which must be filled to make it work. It works perfectly well. It is a case of a contractor who promised to complete work within a time which was too short having regard to the hours during which it was lawful to work and the speed at which the construction team was capable of working. It was not an express term of the contract that Codelfa would work three shifts a day and, having regard to the environment in which the works were to be performed, Codelfa could not lawfully have promised that it

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would do so. Codelfa’s promise to complete the works was a promise to do so lawfully. It was not an express term of the contract that Codelfa would not be restrained by injunction if it committed an actionable nuisance. The Commissioner could not have promised that the courts would not intervene if Codelfa committed an actionable nuisance. No doubt the Commissioner and Codelfa shared a mistaken belief that Codelfa would be able to work three shifts a day lawfully, or at least without liability to restraint by injunction, because they mistakenly believed that s 11 of the City and Suburban Electric Railways Act conferred an immunity upon Codelfa. That mistake could not give rise to an implied term. If, at the time when the parties were signing the contract, the officious bystander had asked what did they intend in the event of the issue of an injunction restraining work during the night shift, they would have replied: ‘We have thought of that. It cannot happen.’ They cannot be presumed to have agreed upon a term inconsistent with their common belief. Each of the terms which the Court of Appeal, Ash J and the Arbitrator respectively held to be implied would entitle Codelfa to additional reward for doing what the contract required to be done at the prices therein specified, or would relieve Codelfa of a liability for failing to complete the contract works within the time therein specified. The only provision for extending time is that contained in G.44(7), but Codelfa sought the implication of a term which would work an extension of time apart from G.44(7) or would affect the financial consequences of its failure in timely performance. Perhaps the divergence of opinion as to the form which an implied term should take points to error in the attempt to imply a term. At least it suggests that the term is not so obvious that ‘it goes without saying’. [In separate judgments, Stephen and Wilson JJ agreed with the approach of Mason J in relation to the implied term issue, with Aickin J reaching a similar conclusion.] [8.17] Although the High Court were unanimous in their view that the company should not succeed on their claim of an implied term, the majority (Brennan J not deciding the point) held that the contract was frustrated. In relation to this aspect of the High Court’s decision refer to [22.03]

Term implied from a previous consistent course of dealings between the parties [8.18] The weight of authority suggests that the test of whether a term can be implied into a contract on the basis of a previous consistent course of dealing is one based on reasonableness. In the circumstances of the case, is it reasonable to hold that the parties contracted on the basis of terms set out in previous contracts entered between the parties?18 For this test to be satisfied, the previous course of dealings must be considered. Relevant in this assessment are: •

the number of dealings between the parties; and



the consistency of dealings between the parties.

18 See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 8.5.2.

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Term implied from custom or usage [8.19] Within a particular trade or profession, contracting parties may regard themselves as being bound by certain terms even if those terms are not expressly agreed upon. Terms can form part of the contract because parties in the particular trade or profession always contract on the basis of those terms. Where terms are incorporated into a contract in this way, they are said to be implied on the basis of custom or usage.19 Implication on this basis was considered by the High Court in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd.20 In the course of its joint judgment, the High Court extracted from the relevant case law four propositions that are relevant to establish whether a term will be regarded as implied on the basis of custom or usage: •

The existence of a custom or usage that will justify the implication of a term into a contract is a question of fact.



There must be evidence that the custom relied on is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract.



A term will not be implied into a contract on the basis of custom where it is contrary to the express terms of the agreement.



A person may be bound by a custom notwithstanding the fact that he or she had no knowledge of it.

Term implied to complete agreement [8.20] In Chapter  4, the requirement for parties to reach agreement on all essential aspects of the contract was examined. Without such agreement, the contract will be incomplete and unenforceable. However, the judiciary attempts to uphold agreements if at all possible— particularly where it is clear from the conduct of the parties that they regard themselves as being bound by the contract. As a means of upholding agreements where not all of the terms have been finalised, in an appropriate case the courts may be prepared to imply a term.21

TERMS IMPLIED REGARDLESS OF INTENTION [8.21] The second category of implied terms are terms that are implied regardless of intention. These can be: •

a term implied as a legal incident of a particular class of contract;22



a term implied imposing on the parties a general duty to co-operate;23

19 Ibid, section 8.5.3. 20 (1985) 160 CLR 226. 21 See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 8.5.4. 22 Ibid, section 8.5.5.

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a term implying duties of good faith, fair dealing and reasonableness;24



a term implied by statute.25

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Term implying duties of good faith, fair dealing and reasonableness [8.22] As mentioned, one of the terms that may be implied regardless of the intention of the parties is a term implying duties of good faith, fair dealing and reasonableness. Since 1992 the courts have grappled with the role that good faith should play generally in the performance and enforcement of contractual rights. Of particular focus has been whether a duty to act in good faith should be implied into a particular class of contract or perhaps all contracts. Notwithstanding the time that has passed and the significant number of cases involving good faith claims, many of the issues surrounding the role of good faith in contract and its meaning as an implied term remain unresolved. The suggestion that notions of good faith, fair dealing, and reasonableness may be relevant to contractual performance as a general proposition was first suggested by Priestley JA in Renard Constructions (ME) Pty Ltd v Minister for Public Works.26 [8.23]

Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 New South Wales Court of Appeal The parties had entered into a construction contract under which the principal was given certain powers upon the contractor’s default. On default, the principal could call upon the contractor to show cause why the principal should not exercise its powers under the contract (for example, to exclude the contractor from the site and take over the work to be completed). One of the issues before the New South Wales Court of Appeal was whether there was an implied duty regarding how the principal should exercise its powers. Priestley JA held that the principal had to exercise its powers reasonably, and based this on a number of alternative grounds. First, his Honour considered that it was appropriate to imply a term that the principal act reasonably in exercising a discretion under the contract to give business efficacy to the transaction. Second, he noted that construction contracts of this kind were standard contracts and, as such, a term could be implied as a matter of law in all construction contracts of that type. Third, his Honour suggested that even if it were not possible

23 Ibid, section 8.5.6. 24 Ibid, section 8.5.7. 25 Ibid, section 8.5.8. 26 (1992) 26 NSWLR 234.

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to categorise construction contracts as a class of contracts, an obligation of reasonableness may be implied as a matter of law into the contract before the Court. As a separate and distinct issue unrelated to construction contracts, his Honour considered, in dicta, whether a duty that parties act in good faith in carrying out contractual obligations should be implied into contracts generally. His Honour suggested that the time may be ripe for the imposition of a duty of good faith and fair dealing in the performance of all contracts. While the duty to act in good faith was not the basis of his decision, his Honour dealt with this concept in considerable detail. After referring to the development of the doctrine particularly in United States and Canada, his Honour considered that the recognition of such a duty is in line with existing community standards. Priestley JA The kind of reasonableness I have been discussing seems to me to have much in common with the notions of good faith which are regarded in many of the civil law systems of Europe and in all States in the United States as necessarily implied in many kinds of contract. Although this implication has not yet been accepted to the same extent in Australia as part of judge-made Australian contract law, there are many indications that the time may be fast approaching when the idea, long recognised as implicit in many of the orthodox techniques of solving contractual disputes, will gain explicit recognition in the same way as it has in Europe and in the United States. The relevant factors in this area were elucidated last year by Steyn J in a lecture at Oxford University called ‘The Role of Good Faith and Fair Dealing in Contract Law’ (16 May 1991). Although he recognised in that address (with some regret I think) that the position in England was not the same, in this respect, as in the civil law and in the United States, and although he showed why the difference existed and could continue, he also pointed out a number of reasons why that situation might well change. The chief of these were:  (a) that the common law jurisdictions in the United States had in recent times moved decisively towards recognition of the good faith principle; (b) Australian and New Zealand jurisdictions seemed to him to be moving in the same direction; (c)  in English law itself it seemed to him that the doctrine of consideration had, in commercial cases, receded in importance; (d)  in England also the Law Commission was investigating whether the privity rule should be mentioned in its rigid form; (e) remarks made by Bingham LJ in the Court of Appeal Division Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 at 445 suggesting a fairness approach to the question whether a party should be held to be bound by contractual terms; (f) the ratification by a great many countries of the United Nations Convention on Contracts for the International Sale of Goods, art 7(1) of which requires regard to be had to the observance of good faith in international trade in the interpretation of the convention; (g) the probable impact of the EEC on English contract law from (as scheduled at the time of his lecture) December 1992; (h) instances where in regard to particular contracts, English Courts had implied good faith obligations; and (i) the passage of statutes such as the Unfair Contract Terms Act 1977 (UK), which empower courts to grant remedies to the affected party to an unreasonable contract. (In regard to this he pointed out the similarity between the concepts involved in the ideas of (i) good faith and fair dealing, and (ii) reasonableness.)

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… Similarly, there is a close association of ideas between the terms unreasonableness, lack of good faith, and unconscionability. Although they may not be always co-extensive in their connotations, partly as a result of the varying senses in which each expression is used in different contexts, there can be no doubt that in many of their uses there is a great deal of overlap in their content, particularly in the kind of situation being discussed in the present case. I now come back to mention the current significance in Australia of some of the factors identified by Steyn J as likely to be influential in making contract law in England more receptive to the idea that contracts generally will be subject to an implied obligation of good faith … The first in the above list drawn from his lecture is the position that has been reached in the United States. … … The importance of these developments in the United States for Australian purposes is the cumulative effect of the following: (i) they grew out of the same common law background as that of Australian law; (ii) under the stimulus first of academic systematisation of the accumulation of good faith cases and second the interaction of that with the Uniform Commercial Code, general contract law came quickly to recognise (or reinstate) the pervasive principle of the good faith obligation; (iii) despite the difficulties in precise statement of the obligation its use seems to have been generally accepted in a highly commercial country— throughout the period of the modern revival of the obligation the business of America has largely been business—and (iv) there has been little if anything to indicate that recognition of the obligation has caused any significant difficulty in the operation of contract law in the United States. When the broad similarity of economic and social conditions in Australia and the United States is taken into account the foregoing matters all seem to me to argue strongly for recognition in Australia of the obligation similar to that in the United States. … The final matter I wish to mention … is, the effect of certain statutes. This development is a very strong one in this country if the New South Wales experience is typical of all the States, as, broadly speaking, I believe it is. In New South Wales, since 1900 there has been an ever-growing number of statutes permitting Courts to remould particular kinds of contract in the interests of fairness. … Although each of these statutes dealt with carefully defined types of contract, in their totality they covered contractual situations affecting a great many people, so that, to repeat something I  have said elsewhere, ‘a very large area of everyday contract law is now directly affected by statutory unconscionability provisions carrying with them broad remedies’. (See ‘Unconscionability as a Restriction on the Exercise of Contractual Rights’ in Rights and Remedies for Breach of Contract ed J Carter (1986) 57 at 73, where much more detail is given than I have given here: see also ‘Contract—the Burgeoning Maelstrom’ in (1988) 1 Journal of Contract Law 15, at 19–21, 24, 28 and 30). As the words used in the sequence of statutes show, the ideas of unconscionability, unfairness and lack of good faith have a great deal in common. The result is that people generally, including judges and other lawyers, from all strands of the community, have grown used to the courts applying standards of fairness to contract which are wholly consistent with the existence in all contracts of a duty upon the parties of good faith and fair dealing in its performance. In my view this is in these days the expected standard, and anything less is contrary to prevailing community expectations.

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[The other Justices took different approaches. Handley JA agreed that the principal had to act reasonably, but this duty arose as a matter of construction of the contract. Meagher JA, on the other hand, did not accept that there was any basis upon which an obligation to act reasonably could be imposed on the contractor.] [8.24] There has been considerable support by the New South Wales Supreme Court and other Australian courts for Priestley J’s dicta and, in a number of cases, the Court has been prepared to imply a duty of good faith into a range of contracts.27 The duty to act in good faith has been held to exist both in performing obligations and enforcing rights. However, there continues to be uncertainty about a number of issues including the class of contracts into which an implication should be made, and the meaning to be attributed to the term. Despite an extensive examination of the law on good faith by the New South Wales Court of Appeal in two cases,28 it is still not entirely clear when a duty of good faith will be implied. [8.25]

Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 New South Wales Court of Appeal Vodafone Pacific Ltd (‘Vodafone’) was a service provider. Mobile Innovations Ltd (‘Mobile’) bought mobile telecommunication services from Vodafone and resold the services. Mobile’s customers were connected to the Vodafone network but were subscribers of Mobile. Mobile and Vodafone restructured their arrangements so that Mobile sold its customer base to Vodafone but, under an Agent Service Provider Agreement (‘the Agreement’), Mobile acted as Vodafone’s agent to acquire new subscribers. Mobile was also to provide management services to existing and new subscribers. Under the Agreement, Vodafone was to set target levels for subscriptions. A  dispute arose because Vodafone inserted a nil target level into the Agreement. (It became more lucrative for Vodafone to provide services on a pre-paid basis rather than a post-paid basis, which was the kind upon which the Agreement with Mobile was based.) The New South Wales Court of Appeal was ultimately content to assume, expressly without deciding, that there should be implied into the agreement an obligation to act in good faith and reasonably in exercising its powers, specifically the power of determining target levels. However, on the facts of the case, this assumed implied duty was held to have been negatived by the other clauses in the Agreement.

27 See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 8.5.7. 28 Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187; Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15.

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Giles JA (with whom Sheller and Ipp JJA agreed) [188] … effectively an implied term that Vodafone would act in good faith and reasonably in exercising its powers under the ASP Agreement was said to be implied by law. Thus it is necessary to ask whether the ASP Agreement is one of a class of contracts as a legal incident of which such a term is implied, including whether it is to be given that status for the first time, and if so whether the implication by law is precluded by expression of contrary intent. … [189] As I  have said, referring to Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 and Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187, an obligation of good faith and reasonableness in the performance of a contractual obligation or the exercise of a contractual power may be implied as a matter of law as a legal incident of a commercial contract. In Burger King Corporation v Hungry Jack’s Pty Ltd, however, the Court said only that courts had ‘for the most part proceeded on the assumption’ that there may be such an implication in a commercial contract (at [159]). It said that the contract there in question ‘does not fall into any of the traditional class of cases where terms have been implied as an incident of the contract’ (at [166]), and went on to consider by the test of what was reasonable and necessary whether the term should be implied at law as a new class of case (at [167–186]). This fell short of, indeed rejected, treating commercial contracts as a class of contracts carrying the implied term as a legal incident. [190] Applying a test of what is reasonable and necessary in order to decide whether for the first time a term should be implied in a particular class of contract, as was accepted in Burger King Corporation v Hungry Jack’s Pty Ltd at [167] founded on Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd and Byrne v Australian Airlines Ltd (1987) 10 NSWLR 468, has some overlap with implication of a term to give business efficacy to a contract. In Burger King Corporation v Hungry Jack’s Pty Ltd the overlap was rather marked, because the very contract was assessed as if for the task of ad hoc implication, and the focus was not on any particular class of contract. That meant that there was merger of whether the term should be implied by law and whether the implication by law was precluded by expression of contrary intent. [191] The ASP Agreement was no doubt a commercial contract. It was not suggested that it fell within some other class of contract already carrying the implied term as a legal incident or which it should now be found to have that status. I do not think the law has yet gone so far as to say that commercial contracts are a class of contracts carrying the implied terms as a legal incident, and the width and indeterminancy of the class of contracts would make it a large step. However, I am content to assume, expressly without deciding, that unless excluded by express provision or because inconsistent with the terms of the contract, Vodafone was under an implied obligation to act in good faith and reasonably in exercising its powers under the ASP Agreement, specifically the power of determining target levels in cl 18.4. Whether the assumption might be justified by commercial contracts already carrying the implied term or now being found to have that status does not matter. I consider that the present case can be decided by addressing whether the implication of the term as a matter of law, as to the power conferred by cl 18.4 of the ASP Agreement, is precluded by expression of a contrary intent. [Being the conclusion ultimately reached by Giles JA.]

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[8.26] Despite the apparent willingness of certain judges to accept (or assume) the implication of a term of good faith into ‘at least some commercial contracts’,29 there remains considerable judicial caution in adopting such an approach. [8.27]

Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 Victorian Court of Appeal Esso and Southern Pacific Petroleum (‘SPP’) formed a joint venture to exploit mineral tenements to produce shale oil. Relations between the parties were governed by a joint venture agreement. The agreement provided that each participant had the right to assign its interest to a Related Corporation (as defined) without the consent of the other participant. Esso brought these proceedings seeking to restrain SPP from assigning in interests in the joint venture to a company to be formed (‘SPV’) which would be a Related Corporation. Among other arguments, Esso contended that the linking of SPP and SPV as Related Corporations was for the sole purpose of denying Esso the power of vetoing the assignment of SPP’s interest in the joint venture and served to deprive Esso of the advantages of a continuing guarantee and the presence of the original participant in the joint venture. It was contended by Esso that this constituted a want of good faith. This contention was not accepted by Victorian Court of Appeal. Warren CJ [3] … These approaches [in relation to good faith], more aptly described as judicial reticence, regarding the application of the doctrine of good faith, may be construed as hesitation at the courts’ involvement in contractual performance. If a duty of good faith exists, it really means that there is a standard of contractual conduct that should be met. The difficulty is that the standard is nebulous. Therefore, the current reticence attending the application and recognition of a duty of good faith probably lies as much with the vagueness and imprecision inherent in defining commercial morality. The modern law of contract has developed on the premise of achieving certainty in commerce. If good faith is not readily capable of definition then that certainty is undermined … [4] Ultimately, the interests of certainty in contractual activity should be interfered with only when the relationship between the parties is unbalanced and one party is at a substantial disadvantage, or is particularly vulnerable in the prevailing context. Where commercial leviathans are contractually engaged, it is difficult to see that a duty of good faith will arise, leaving aside duties that might arise in a fiduciary relationship. If one party to a contract is more shrewd, more cunning and out-manoeuvres the other contracting party who did not suffer a disadvantage and who was not vulnerable, it is difficult to see why the latter should have greater protection than that provided by the law of contract.

29 To adopt the language employed by Dodds-Streeton J in ACI Operations Pty Ltd v Berri Ltd [2005] VSC 201, [172].

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[5] Such vulnerability did not arise in the present case. For the reasons stated by Buchanan JA, the appeal should be dismissed. Buchanan JA [22] Counsel for Esso submitted that SPP was bound to exercise good faith in assigning its interest in the joint venture agreement because ‘an additional term implied by law into commercial contracts is a term requiring the exercise of good faith in the performance of the contract’.(Overlook Management B V v Foxtel Management Pty Ltd [2002] NSWSC 17 at [62] per Barrett J) The argument appeared to run that as this was a commercial contract, an obligation of good faith attended the exercise of every right and power conferred by the contract, including the power of assignment contained in Art 24.01(a). [25] I am reluctant to conclude that commercial contracts are a class of contracts carrying an implied term of good faith as a legal incident (cf Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSW CA 15 at [191] per Giles JA), so that an obligation of good faith applies indiscriminately to all the rights and power conferred by a commercial contract. It may, however, be appropriate in a particular case to import such an obligation to protect a vulnerable party from exploitive conduct which subverts the original purpose for which the contract was made. Implication in this fashion is perhaps ad hoc implication meeting the tests laid down in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, rather than implication as a matter of law creating a legal incident of contracts of a certain type. … [27] In this case it is not necessary to determine whether a term requiring the exercise of good faith is to be implied in the agreement, for even if such an obligation was imposed upon SPP, in my opinion it was not breached. [Buchanan JA reached this conclusion on the basis that the transaction proposed was not unreasonable, capricious or in the pursuit of an ulterior purpose.] [Osborn AJA agreed with the reasons of Buchanan JA.] [8.28] The judicial caution illustrated by the Victorian Court of Appeal in this instance merely serves to illustrate the wide range of judicial views at lower court level on the issue of an implied term of good faith, fair dealing and reasonableness. To resolve the uncertainties that presently exist, it is to be hoped that a High Court decision is imminent.

QUESTIONS FOR REFLECTION (1) Would the average person consider the result in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 to be a fair one? (2) How should a website be configured to ensure that any terms contained on the website will be incorporated in a contract formed by the use of that website? (3) In determining whether a pre-contractual oral statement may constitute a contractual term or a mere representation, what weight should be given to the question of whether the oral statement is reduced to writing? (4) To what extent do the common law developments concerning an implied obligation of good faith in contractual performance and enforcement mirror legislative developments?

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INTRODUCTION [9.01] The proper construction of a contract has two aspects: determining the meaning of the terms and determining the significance of those terms.1 The first aspect is a question of interpretation, and the information that may properly be taken into account. The second involves issues including the classification of terms and the consequences of such classification.

INTERPRETING THE MEANING OF TERMS [9.02] The meaning of a contract is a matter of fact in the sense that it is a question depending on the words of the particular contract under consideration. A document is construed as a whole, rather than extracting provisions and attempting to construe them in isolation.2 When a court construes a contract, it attempts, as far as possible, to give effect to the bargain: the law is not the ‘destroyer of bargains’.3 Although the court’s purpose is to ascertain the intention of the parties, it adopts an objective approach that seeks to give effect to the meaning obtained from a reasonable third party’s viewpoint rather than the subjective or actual intentions of the parties.4 [9.03] Prima facie, where the contract has been wholly reduced into writing, the intention of the parties is to be gathered from the ‘four corners of the instrument’—the so-called ‘parol evidence rule’. In such cases parol (that is extrinsic) evidence cannot be taken into account to add to, vary, or contradict the language of the document.5 Nevertheless, when a court embarks upon a process of construing a document, it must ‘place itself in thought in the same factual matrix

1

Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60, 78.

2

See, for example, George v Cluning (1979) 28 ALR 57 (HC); Amalgamated Television Services Pty Ltd v Television Corporation Ltd (1969) 123 CLR 648.

3

Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, 512.

4

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 62; Taylor v Johnson (1983) 151 CLR 422, 429.

5

Gordon v MacGregor (1909) 8 CLR 316, 323.

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as that in which the parties were’.6 However, there have been differing views concerning the circumstances in which the court may validly take into account not only the words recorded in the document but also evidence of the surrounding circumstances in determining the parties’ intentions.7 [9.04]

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 High Court of Australia Codelfa entered into a contract with the State Rail Authority to perform excavation work for the construction of an underground railway. The work was required by the contract to be completed within a fixed period. The parties entered into the contract on the understanding that the work was to be carried out by three shifts for seven days a week. The work proved to be noisy; it disturbed nearby residents. As a consequence, the residents obtained an injunction restraining Codelfa from working more than two shifts a day for six days a week, not including Sundays. Codelfa argued inter alia that a term should be implied that if an injunction prevented it from working three shifts seven days a week an extension of the time for completion would be granted. Mason J The appellant’s case is that a term has to be implied in the contract to give it business efficacy, to make it workable. Consequently, there is no contest as to what constitutes the contract; rather the contest is as to its meaning and effect. … In the present case the New South Wales Court of Appeal placed much emphasis on the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 3 All ER 237 at 239–241, and in Reardon Smith Line v Hansen-Tangen [1976] 3 All ER 570 at 574–576. Their Honours, though acknowledging that his Lordship’s remarks were directed not to the implication of a term but to the application of the parol evidence rule, for in each of the two cases the issue was one of orthodox construction of a contract, thought that the remarks had significance for the implication of a term in a contract. With this I agree. But there is a question whether these two cases and other authorities support the Court of Appeal’s view that it is legitimate to take into account the common beliefs of the parties as developed and manifested during their antecedent negotiations. The broad purpose of the parol evidence rule is to exclude extrinsic evidence (except as to surrounding circumstances), including direct statements of intention (except in cases of latent ambiguity) and antecedent negotiations, to subtract from, add to, vary or contradict the language of a written instrument (Goss v Lord Nugent (1833) 5 B & Ad 58 at 64–65; 110 ER 713 at 716).

6

Reardon Smith Line v Yengvar Hansen-Tangen [1976] 1 WLR 989, 997.

7

Allen v Carbone (1975) 132 CLR 528 at 531; DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, 429.

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Although the traditional expositions of the rule did not in terms deny resort to extrinsic evidence for the purpose of interpreting the written instrument, it has often been regarded as prohibiting the use of extrinsic evidence for this purpose. No doubt this was due to the theory which came to prevail in English legal thinking in the first half of this century that the words of a contract are ordinarily to be given their plain and ordinary meaning. Recourse to extrinsic evidence is then superfluous. At best it confirms what has been definitely established by other means; at worst it tends ineffectively to modify what has been so established. On the other hand, it has frequently been acknowledged that there is more to the construction of the words of written instruments than merely assigning to them their plain and ordinary meaning—see, for example, the remarks of Knox CJ in Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 69. This has led to a recognition that evidence of surrounding circumstances is admissible in aid of the construction of a contract. So Lord Wilberforce in L Schuler AG v Wickman Machine Tool Sales Ltd (1974) AC 235, at p 261 was able to state the broad thrust of the rule in this way: The general rule is that extrinsic evidence is not admissible for the construction of a written contract; the parties’ intentions must be ascertained, on legal principles of construction, from the words they have used. It is one and the same principle which excludes evidence of statements, or actions, during negotiations, at the time of the contract, or subsequent to the contract, any of which to the lay mind might at first sight seem to be proper to receive.

His Lordship noted that evidence of surrounding circumstances is an exception to the rule, but he had no occasion to discuss its scope for there it was not, as it is here, a critical question. However, as Lord Wilberforce had earlier pointed out in his speech in Prenn, a speech in which four other members of the House of Lords concurred, the English rule forbidding recourse to extrinsic evidence is not as strict as some have thought. The issue in Prenn was whether the word ‘profits’ meant the separate profits of RTT, a company controlled by the appellant, or the consolidated profits of the group of companies consisting of RTT and its subsidiaries. It was held that, although evidence of prior negotiations and of the parties’ intentions, and a fortiori the intentions of one of the parties, ought not to be received, evidence restricted to the factual background known to the parties at or before the date of the contract, including evidence of the ‘genesis’ and objectively of the ‘aim’ of the transaction, was admissible. Considered in the light of this evidence ‘profits’ meant ‘consolidated profits’. Lord Wilberforce said (1971) 1 WLR, at pp 1383–1384; (1971) 3 All ER, at pp 239–241: The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations. There is no need to appeal here to any modern, antiliteral, tendencies, for Lord Blackburn’s well-known judgment in River Wear Commissioners v Adamson (1877) 2 App Cas 743, 763 provides ample warrant for a liberal approach. We must, as he said, inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object, appearing from those circumstances, which the person using them had in view. Moreover, at any rate since 1859 (Macdonald v Longbottom (1859) 1 E & E 977 (120 ER 1177))

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it has been clear enough that evidence of mutually known facts may be admitted to identify the meaning of a descriptive term.

His Lordship went on to assert that the well-known decision of Cardozo J in Utica City National Bank v Gunn (1918) 118 NE 607 ‘followed precisely the English line’ (1971) 1 WLR, at p 1384; (1971) 3 A11 ER, at p 240. There extrinsic evidence of the circumstances in which a guarantee was executed and of its object was received for the purpose of giving the words ‘loans and discounts’ the looser meaning of ‘renewals’. Lord Wilberforce quoted with evident approval the comment of Cardozo J (1918) 118 NE, at p 608 that surrounding circumstances may ‘stamp upon a contract a popular or looser meaning’ than the strict legal meaning, certainly when to adopt the latter would make the transaction futile. In Macdonald, it had been held that the defendant’s contract to buy ‘your wool’ included not only wool which the plaintiffs had on their own farms, but also wool which they had bought in from other farms, one of the plaintiffs having stated before the contract in a conversation with the defendant’s agent that he had wool from those two sources. This decision was followed in Bank of New Zealand v Simpson (1900) AC 182. Lord Davey (1900) AC, at pp 188–189 quoted with approval the remarks of Lord Campbell in Macdonald (1859) 1 E & E, at pp 983–984 (120 ER, at p 1179): I am of opinion that, when there is a contract for the sale of a specific subject-matter, oral evidence may be received, for the purpose of shewing what that subject-matter was, of every fact within the knowledge of the parties before and at the time of the contract.

Lord Campbell, after referring to the conversation relating to the sources of the plaintiffs’ wool continued: The two together constituted his wool; and, with the knowledge of these facts, the defendant contracts to buy ‘your wool.’ There cannot be the slightest objection to the admission of evidence of this previous conversation, which neither alters nor adds to the written contract, but merely enables us to ascertain what was the subject-matter referred to therein.

It is apparent that the principle on which the Judicial Committee acted in Simpson is that where words in a contract are susceptible of more than one meaning extrinsic evidence is admissible to show the facts which the negotiating parties had in their mind. Later, in Great Western Railway and Midland Railway v Bristol Corporation (1918) 87 LJ Ch 414, Lord Atkinson (1918) 87 LJ Ch, at pp 418–419 and Lord Shaw (1918) 87 LJ Ch, at pp 424–425 stated that evidence of surrounding circumstances was inadmissible except to resolve an ambiguity, that is, where the words are susceptible of more than one meaning, and that Lord Blackburn was dealing with just such a case in River Wear Commissioners. Their Lordships took the view that evidence of surrounding circumstances was not admissible to raise an ambiguity for in their opinion that would be to contradict or vary the words of the written document, the assumption being that in the overwhelming majority of cases the written words will have a fixed meaning. Lord Wrenbury (1918) 87 LJ Ch, at p 429 thought otherwise, stating that in every case of construction extrinsic evidence is receivable to raise and resolve an ambiguity.

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Lord Wilberforce in Prenn did not discuss these competing views, perhaps because the difference between them is more apparent than real. However, I  doubt whether English and United States use of extrinsic evidence for the purpose of interpretation is quite as uniform as his Lordship appeared to think. Lord Wilberforce returned to the same theme in Reardon Smith (1976) 1 WLR 989; (1976) 3 A11 ER 237. In a speech concurred in by a majority of the members of the House of Lords he acknowledged that it is legitimate ‘to have regard to … the surrounding circumstances’ (1976) 1 WLR, at p 995; (1976) 3 A11 ER, at p 574. He went on to say (1976) 1 WLR, at pp 995–996; (1976) 3 A11 ER, at p 574: In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

After discussing Utica, Prenn (1971) 1 WLR 1381; (1971) 3 A11 ER 237 and Wickman (1974) AC 235, his Lordship continued (1976) 1 WLR, at p 996; (1976) 3 A11 ER, at p 574: It is often said that, in order to be admissible in aid of construction, these extrinsic facts must be within the knowledge of both parties to the contract, but this requirement should not be stated in too narrow a sense. When one speaks of the intention of the parties to the contract, one is speaking objectively—the parties cannot themselves give direct evidence of what their intention was—and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties.

His Lordship thought that this approach was supported by the speeches in Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd (1933) 39 Com Cas 1 and Charrington & Co Ltd v Wooder (1914) AC 71, esp at pp 77, 80, 82. He expressed the conclusion to be drawn from them in this way (1976) 1 WLR, at p 997; (1976) 3 A11 ER, at p 575: … what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were. All of these opinions seem to me implicitly to recognise that, in the search for the relevant background, there may be facts which form part of the circumstances in which the parties contract in which one, or both, may take no particular interest, their minds being addressed to or concentrated on other facts so that if asked they would assert that they did not have these facts in the forefront of their mind, but that will not prevent those facts from forming part of an objective setting in which the contract is to be construed. (at 351)

In DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, at p 429, Stephen and Jacobs JJ and I, following Prenn, in a joint judgment said: A court may admit evidence of surrounding circumstances in the form of ‘mutually known facts’ ‘to identify the meaning of a descriptive term’ and it may admit evidence of the ‘genesis’

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and objectively the ‘aim’ of a transaction to show that the attribution of a strict legal meaning would ‘make the transaction futile’ …

And in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, at pp 605–606 in a judgment concurred in by other members of the Court I not only accepted and applied the statement in the majority judgment in BP Refinery (1977) 52 ALJR 20  of the conditions necessary to support the implication of a term, but I also accepted and applied Lord Wilberforce’s different treatment, for the purpose of construing a contract, of evidence of surrounding circumstances on the one hand and of the parties’ intentions on the other hand. Having considered the topic in more detail on this occasion I  see no reason to qualify what I then said. The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed. It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification. Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract. [Stephen J and Wilson J agreed with Mason J on this point. Aickin J did not discuss the issue. Brennan J (dissenting) held that reference may be made to extrinsic evidence of the circumstances in which the contract was made in order to construe the writing or to furnish evidence of, for example, a collateral contract or for rectification. However, it could not be used to imply a term not expressly included in the contract.]

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[9.05] By contrast, more recent statements in the House of Lords have indicated that reference to surrounding circumstances should not be restricted to cases where ambiguity was to be resolved. Instead, it is said that interpretation required determining the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were placed at the time of the contract.8 There is no ‘ambiguity gateway’ in the United Kingdom.9 While a later High Court case cautioned that Australian courts should continue to follow Codelfa until the point was finally reviewed,10 several appellant courts held that in light of more recent High Court cases at least in relation to commercial contracts surrounding circumstances should be taken into account even where there is no ambiguity in the contract.11 [9.06]

Franklins Pty Ltd v Metcash Trading Pty Ltd (2009) 76 NSWLR 603 New South Wales Court of Appeal Franklins was a supermarket retailer and Metcash was a warehouse operation. In the course of negotiating a contract for the supply by Metcash of products to be sold in Franklins’ supermarkets there were discussions concerning the prices Franklins would pay, including the allowances and discounts collected by Metcash from its suppliers. The concluded agreement included a definition of ‘wholesale price’ as meaning an amount ‘less all allowances and discounts (such as)’ and listed several examples. A  dispute arose in which Franklins claimed Metcash was overcharging for its goods. Franklins claimed that in calculating the wholesale price, Metcash was required to pass on to Franklins all allowances and discounts which Metcash collected. Metcash contended that only certain specified allowances and discounts were to be deducted, relying on statements made in the course of negotiations to the effect that there were several allowances and discounts that Franklins would be unable to collect. The trial judge held in favour of Franklins on the basis that, properly construed, the document required deduction of all allowances and deductions. He ordered that the contract be rectified.

8

See, for example, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912–13 per Lord Hoffman; Bank of Credit and Commerce International SA v Ali [2001] 2 WLR 735, 739 per Lord Bingham, 749 per Lord Hoffman.

9

See, for example, Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900; Arnold v Britton [2015] UKSC 36.

10 Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 186 ALR 289, 301. 11 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 (Fed Ct FC); Boreland v Docker (2007) Aust Contract R 90–256 (NSWCA); Elesanar Constructions Pty Ltd v State of Queensland [2007] QCA 208; Ryledar Pty Ltd t/as Volume Plus v Euphoric Pty Ltd (2007) 69 NSWLR 603; Synergy Protection Agency Pty Ltd v North Sydney Leagues’ Club Ltd [2009] NSWCA 140; Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382, 384 (NSWCA); Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603. See also Home Building Society Ltd v Pourzand [2005] WASCA 242 [32], [62]; Elesanar Constructions Pty Ltd v State of Queensland [2007] QCA 208; MBF Investments Pty Ltd v Nola [2011] VSCA 114.

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Allsop P [2] A  number of important propositions concerning the law of contract were canvassed in argument and are dealt with by Campbell JA:  the objective theory of contract; the circumstances in which and the extent to which surrounding circumstances can be examined in the process of construction and interpretation of a written contract; the approach to construction and interpretation of a commercial contract; and whether post-contractual conduct can be utilised in aid of the construction and interpretation of a written agreement. [3] Binding and authoritative decisions provide the answers for all these questions for an Australian intermediate appellate court. The objective theory of contract [4] There can be no doubt that until the High Court of Australia says otherwise the underpinning legal theory in the law concerning the formation, construction and interpretation of contracts is the so-called objective theory of contract: Taylor v Johnson (1983) 151 CLR 422 at 428–432 and especially at 429 where Mason ACJ, Murphy J and Deane J said that ‘the clear trend in decided cases and academic writings has been to leave the objective theory in command of the field’; Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105 [25] where Gaudron J, McHugh J, Hayne J and Callinan J stated clearly that contract formation was to be objectively assessed; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461 [22] where the Court (Gleeson CJ, Gummow J, Hayne J, Callinan J and Heydon J) made clear the objective task of ascertaining the meaning of documents; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at 483 [34] where the Court (Gleeson CJ, McHugh J, Kirby J, Hayne J and Callinan J) referred with approval to the expression of the matter by Gleeson CJ in the New South Wales Court of Appeal in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549 that the ‘general test of objectivity … is of pervasive influence in the law of contract’; and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40]–[46] where the Court (Gleeson CJ, Gummow J, Hayne J, Callinan J and Heydon J) reiterated the primacy of the objective theory in the determination of rights and liabilities in contract. [5] No further analysis of, or citation about, that basal proposition need therefore be undertaken. There may be residual debate about how the objective theory applies in particular cases: Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309. Later conduct and the construction and interpretation of written contracts [6] Much ink has been spilt over the last 30 years on this topic. It is intimately connected in analysis with the applicable underpinning theory of the determination of contractual rights and liabilities. If, as the above references make clear, the governing theoretical framework as to the determination of contractual rights and obligations is the objective theory, it is difficult to see how later conduct has a place in the ascertainment of the parties’ objectively assessed intentions. As the High Court made pellucid in Pacific Carriers v BNP Paribas (at 461 [22]), Equuscorp v Glengallan Investments (at 483 [34]) and Toll (FGCT) v Alphapharm (at 179 [40]), the construction of a written contract is to be determined by what a reasonable person in the parties’ position would have understood it to mean in the circumstances and context in question. How parties later acted, probative of what they themselves thought their obligations were, is difficult to reconcile with the objective paradigm …

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… [10] In Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at 582 [35], Gummow J, Hayne J and Kiefel J formed a majority of the Court and clearly and unequivocally stated ‘the general principle [is] that “it is not legitimate to use as an aid in the construction of [a] contract anything which the parties said or did after it was made” ’, citing James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603; and Administration of the Territory of Papua and New Guinea v Daera Guba (1973) 130 CLR 353 at 446. Heydon J (at 625 [163]) was to the same effect as a matter of principle; to the contrary, was Kirby J (at 606 [115]). … [12] By 1974, English law stood firmly against Watcham [Watcham v AttorneyGeneral of the East Africa Protectorate [1919] AC 533] and any general principle of contractual interpretation permitting later conduct to construe a written agreement to be taken from it: L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 252 (Lord Reid), 260 (Lord Morris of Borth-y-Gest), 261–262 (Lord Wilberforce), 265–270 (Lord Simon of Glaisdale) and 272 (Lord Kilbrandon). Lord Wilberforce called Watcham (at 261)  a precedent he had thought to be ‘nothing but the refuge of the desperate’. To the extent that prior to Agricultural and Rural Finance v Gardiner an absence of authoritative statement by the High Court to the contrary permitted that ‘refuge’ to be availed of (albeit supported by earlier High Court authority), that is no longer so. [13] This clearing of the ground in respect of contractual construction and interpretation leaves untouched the role, if the facts admit, of ‘later’ conduct in: (a) ascertaining whether there was a contract formed and when it was formed:  Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68 at 78; Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 668–669 and 672; and Australian Broadcasting Corporation v XIVth Commonwealth Games (at 547–548) and cases there cited; (b)  revealing probative evidence of antecedent surrounding circumstances; and (c)  revealing probative evidence of facts relevant to rectification, estoppel or any other legal, equitable or statutory rights or remedies that may impinge on an otherwise concluded, construed and interpreted contract. The lack of need for ambiguity before resort is had to legitimate surrounding circumstances [14] The state of the law in this respect is to be ascertained from a number of High Court cases: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 [11]; Pacific Carriers v BNP Paribas (at 461 [22]); Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530 at 559 [82]; Toll (FGCT) v Alphapharm (at 179 [40]) and International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] and 174 [53]. These cases are clear. The construction and interpretation of written contracts is to be undertaken by an examination of the text of the document in the context of the surrounding circumstances known to the parties, including the purpose and object of the transaction and by assessing how a reasonable person would have understood the language in that context. There is no place in that structure, so expressed, for a requirement to discern textual, or any other, ambiguity in the words of the document before any resort can be made to such evidence of surrounding circumstances. [15] As Campbell JA points out, the approach to construction of the documents in question by the High Court in Agricultural and Rural Finance v Gardiner (at 583 [38]) and in Park v Brothers

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[2005] HCA 73; (2005) 80 ALJR 317 at 325 [39]; 222 ALR 421 at 432 [39] did not involve any consideration of ambiguity. … [17] None of the above High Court decisions discussed what some have seen as the tension in Sir Anthony Mason’s reasons in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 between what was written at 348–351 and the expression of the ‘true rule’ (at 352). That what was said in Codelfa Construction (at 352) can be taken to conform with the apparent width of the principle expressed (at 348–351) can, if it arose for consideration, be taken from: (a) an acceptance of the views of Spigelman CJ expressed in South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478; (1999) 10 BPR 18,961 at 18,966 [35] and in Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235; (2008) Aust Contracts Reports ¶90–274 at 90,340 [7]–[13] (otherwise unaffected by the High Court decision) and extrajudicially in J J Spigelman, ‘From text to context: contemporary contractual interpretation’ (2007) 81 Australian Law Journal 322; (b) a recognition that the phrase used by Mason J in Codelfa Construction (at 352)  ‘if the language is ambiguous or susceptible of more than one meaning’ does not mean that the susceptibility of the language to more than one meaning must be assessed without reference to the surrounding circumstances or extrinsic material; (c) a recognition of the width of the guiding authorities that Mason J discussed (at 348–351), in particular Prenn v Simmonds [1971] 1 WLR 1381 at 1383–1384; [1971] 3 All ER 237 at 239– 240; Utica City National Bank v Gunn 118 NE 607 (1918); Reardon Smith Line Ltd v HansenTangen [1976] 1 WLR 989 at 995–997; [1976] 3 All ER 570 at 573–575 and D T R Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 429; and (d) a recognition of the width of the approach in England even in the 1920s: Lake v Simmons [1927] AC 487 at 509 per Viscount Sumner: ‘commercial contracts are to be interpreted with regard to the circumstances of commerce with which they deal, the language used by those who are parties to them, and the objects with which they are intended to secure’, cited by Gleeson CJ in McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589 [22] and International Air Transport Association v Ansett Australia Holdings (at 160 [8]). [18] In any event, whether or not aspects of the reasons of Mason J require, as a matter of theory, any exegesis, the High Court has clearly stated the position conformably with the cases referred to at [17(c)] above and discussed by Mason J in Codelfa Construction (at 348–351). This can be taken from the clarity of the expression of principle in the later High Court cases to which I have referred, as well as from the references in Pacific Carriers v BNP Paribas (at 461 [22]), Zhu (at 559 [82]) and International Air Transport Association v Ansett Australia Holdings (at 160 [8]) to Codelfa Construction (at 350 and 351, and not 352). The issue is therefore not one for resolution otherwise than by application of current High Court authority. The approach to the construction of commercial contracts [19] The essential character of the task of construction of commercial contracts can be seen in a number of authoritative decisions of the High Court, and of other courts authoritatively endorsed

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by the High Court. A commercial contract should be given a businesslike interpretation: McCann (at 589 [22]). Thus, the nature and extent of the commercial aims and purposes of the agreement or parts thereof are part of the essential background circumstances:  ‘the genesis of the transaction, the background, the context, the market in which the parties are operating’: Codelfa Construction (at 350)  quoting Reardon Smith Line (at 995–996; 573–575) cited by the Court in Zhu (at 559 [82]) and see Lake v Simmons (at 509) cited by Gleeson CJ in McCann (at 589 [22]) and International Air Transport Association v Ansett Australia Holdings (at 160 [8]). The need for a businesslike construction not only informs the nature and extent of the extrinsic material legitimately of assistance, but it also directs the approach to be taken to the ascription of meaning to the words used by the parties. The words should be given a construction so as ‘to avoid … [making] commercial nonsense or is shown to be commercially inconvenient’:  Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313–314 (Kirby P) cited by the Court in Zhu (at 559 [82]). This is not only a reflection of the place of the informing surrounding circumstances, it is also a requirement not to approach words in a business contract pedantically or in a manner prone to defeat the evident commercial purpose. They should be read ‘fairly and broadly, without [the court] being too astute or subtle in finding defects’: Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 at 514; [1932] All ER Rep 494 at 503 per Lord Wright cited in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109–110. Similar expressions of the correct approach eschewing detailed semantic and syntactical analysis to lead to a construction contrary to business commonsense can be seen in what Lord Diplock said in Miramar Maritime Corporation v Holborn Oil Trading Ltd [1984] AC 676 at 682 and Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201. As Gleeson CJ, Gummow J and Hayne J said in Maggbury (at 198 [43]) in the context of citing the relevant passage from Lord Diplock’s speech in Antaios Compania Naviera SA v Salen Rederierna AB, what is ‘business common sense’ is an objectively ascertained matter and thus referable to the evidence, and a matter about which there may be dispute. (It is not to be forgotten that shipping cases such as Miramar Maritime Corporation v Holborn Oil Trading Ltd and Antaios Compania Naviera SA v Salen Rederierna AB were dealt with by judges of great stature and experience in the context of markets and practices with which they were intimately familiar.) [20] It may be, as here, that there is a real contest about the appropriate commercial perspective to take from the surrounding circumstances. This may be a function of contested evidence and produce the need for findings of fact to be made in those contested areas. It may also be a reflection of the fact that the parties brought evidently different commercial aims and purposes to the bargain. In neither case is the evidence of the commercial aims and purposes thereby necessarily unhelpful. [21] In many cases, the reality of commercial life and bargaining can be seen to underpin and explain the objective theory. Sometimes, beyond platitudes and obvious commercial aims, negotiating parties may well be at pains not to expose what they want from the terms and operation of an agreement. To do so may damage their bargaining position. In such cases, as in many cases, the bargaining that takes place is over what words are acceptable and the commercial aims and objects of negotiation give a framework and context to understanding what the bargained-for words mean.

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[22] The requirement of giving a business meaning for a business contract is not a new principle. Lord Mansfield observed in 1761 in Hamilton v Mendes (1761) 2 Burr 1198 at 1214; 97 ER 787 at 795 in speaking of the notion of business sense: ‘The daily negotiations and property of merchants ought not to depend upon subtleties and niceties; but upon rules, easily learned and easily retained, because they are the dictates of common sense, drawn from the truth of the case.’ Lord Halsbury LC in Glynn v Margetson & Co [1893] AC 351 at 359 said ‘a business sense will be given to business documents’. I have already referred to Viscount Sumner in Lake v Simmons. [23] It goes without saying that these statements of approach do not provide licence for ‘judicial rewriting’ of the agreement: see Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 at [27] per Basten JA (with whom Giles JA and Tobias JA agreed). Nevertheless, the necessity to approach the construction and interpretation of commercial documents with these statements of principle in mind is real. The importance of these statements of principle in the approach to construction of commercial documents can be seen eloquently in Homburg Houtimport BV v Agrosin Private Ltd (The ‘Starsin’) [2004] 1 AC 715. Judges may disagree about the result in any particular case, but the principles are clear. The extent of the materials available as surrounding circumstances [24] The High Court authorities to which I have referred and in particular Pacific Carriers v BNP Paribas and Toll (FGCT) v Alphapharm, and the recognition of the significance of the objective theory assist in appreciating the scope of the evidence that is admissible. The evidence, to be admissible, must be relevant to a fact in issue, probative of the surrounding circumstances known to the parties or of the purpose or object of the transaction, including its genesis, background, context and market in which the parties are operating. What is impermissible is evidence, whether of negotiations, drafts or otherwise, which is probative of, or led so as to understand, the actual intentions of the parties. Such evidence might be legitimate, however, if directed to one of the legitimate aspects of surrounding circumstances. The distinction can be subtle in any particular case. … Campbell JA [240] The origin in recent decades of reliance on context as an aid to construction is the speech of Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237, agreed in by all other members of the House who sat on that appeal. His Lordship said (at 1383–1384; 239): ‘The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations.’ [241] Lord Wilberforce summarised his view in Prenn v Simmonds (at 1385; 241): evidence of negotiations, or of the parties’ intentions, and a fortiori of [one party’s] intentions, ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the ‘genesis’ and objectively the ‘aim’ of the transaction.



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[243] In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, Mason J (with whom Stephen J and Wilson J agreed on this issue) discussed the circumstances in which extrinsic evidence may be used to aid construction of a contract. His Honour’s account is in terms that might be read as containing, in different parts of his judgment, some internal tension. … [257] The source of the internal tension that might be read in the judgment of Mason J in Codelfa Construction is that he starts out by the approach of Lord Wilberforce in Prenn v Simmonds and Reardon Smith Line. Lord Wilberforce’s approach presupposes that, in carrying out the task of interpretation, the court already has before it those facts that enable it to place itself in thought in the same factual matrix as that in which the parties were—that is, the context. The task of construction is then the objective task of ascertaining what reasonable parties, placed in that situation, would be taken to mean by the words they used in their contract. Making a decision about whether the words are ambiguous—that is, that they might have meant something different if used by other parties, in a different factual context, or even that the words have more than one meaning when considered in isolation—is not part of the process. The role given to ambiguity in the statement by Mason J of the ‘true rule’ (at 352) is not consistent with Lord Wilberforce’s approach. [258] Another problem in understanding this judgment is that, when Mason J comes to state the ‘true rule’ (at 352) he states it in terms of when evidence of surrounding circumstances is admissible. The word ‘admissible’ is itself ambiguous, even when used in a legal context. It can refer to a rule of evidence, under which, if evidence is not admissible, it is neither received nor considered by the court. Alternatively, it can mean that evidence that is not ‘admissible’ is evidence that is not legitimately able to be used by a court in some particular reasoning process. The use by Mason J of the expression ‘will not be receivable’ in the third sentence of his statement of the ‘true rule’ (at 352) rather suggests that he had in mind admissibility as a rule of evidence. One would draw the same inference from the fact that he introduced his discussion of whether it was legitimate to take into account ‘the common beliefs of the parties as developed and manifested during their antecedent negotiations’ (at 347) by saying: ‘The broad purpose of the parol evidence rule is to exclude extrinsic evidence (except as to surrounding circumstances) including direct statements of intention (except in cases of latent ambiguity) and antecedent negotiations, to subtract from, add to, vary or contradict the language of a written instrument.’ [Citation omitted.] [259] He returned to mention the parol evidence rule in the second of the paragraphs I have quoted at 666 [256] above. [260] If it is correct that Mason J’s statement of the ‘true rule’ says what evidence may be received by the court at all, then, given that decisions about admissibility need to be made in the course of a trial, usually ex tempore and often before all the available evidence has been received and considered, the decision about whether the language is ambiguous might need to be made before the court has had the opportunity to place itself in thought in the same factual matrix as that in which the parties were.

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[261] If ‘admissible’ was not intended to refer to the laws of evidence, Mason J’s recognition that ‘there is more to the construction of the words of written instruments than merely assigning to them their plain and ordinary meaning’, his citation of Knox CJ in Life Insurance Co of Australia Ltd v Phillips (at 69), and his tentative view that perhaps the difference between the views of Lords Atkinson and Shaw, on the one hand, and Lord Wrenbury on the other in Great Western Railway and Midland Railway v Bristol Corporation was ‘more apparent than real’ suggests that he had a readiness to recognise ambiguity in language. His reference to ‘the theory which came to prevail in English legal thinking in the first half of [the twentieth] century that the words of a contract are ordinarily to be given their plain and ordinary meaning’ shows no sign of himself embracing that ‘theory’. That that ‘theory’ is inconsistent with the law expounded, after the first half of the twentieth century, in England in Prenn v Simmonds and Reardon Smith Line likewise suggests a readiness to recognise ambiguity in language. However, a readiness to recognise ambiguity in language might result in a lessening of the practical importance of the difference between what is inherent in the views of Lord Wilberforce, and what is inherent in Mason J’s statement of the ‘true rule’, but does not remove it completely. Developments in England [262] In England, any doubts as to whether, after Prenn v Simmonds and Reardon Smith Line, ambiguity was needed before surrounding circumstances could be looked at when interpreting a written contract were dispelled by the decision of the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912–913; [1998] 1 All ER 98 at 114–115. Lord Hoffmann (with whom Lords Goff of Chieveley, Hope of Craighead and Clyde agreed), in what has become a landmark restatement of the principles of contractual interpretation, stated five principles relevant to the construction of a written contract. He commenced his discussion by saying (at 912; 114): I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381, 1384–1386 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of ‘legal’ interpretation has been discarded.

[263] His Lordship then summarised five principles of contractual interpretation (at 912– 913; 114–115), the first of which was: ‘(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.’ [264] He elaborated further in the fourth and fifth principles (at 913; 115): (4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean.

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The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749. (5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201: if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.

[265] The approach to interpretation outlined in the first principle leaves no room for any requirement of a preliminary finding of ambiguity in the words of the document before the surrounding circumstances can be examined. … [269] It is notable that in Investors Compensation Scheme Ltd v West Bromwich Building Society, Lord Hoffmann did not purport to depart from any earlier principle, or lay down any new principles of contractual construction. Rather, the principles which he summarised were said to have come from the speeches of Lord Wilberforce in Prenn v Simmonds and Reardon Smith Line. Nevertheless, in England, Investors Compensation Scheme Ltd v West Bromwich Building Society has been said to have ‘made crystal clear that an ambiguity need not be established before the surrounding circumstances may be taken into account’: per Lord Steyn in Westminster City Council v National Asylum Support Service [2002] UKHL 38; [2002] 1 WLR 2956; [2002] 4 All ER 654 at [5]. This was recognised by Lord Hoffmann himself in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101 at 1119 [37]. … [273] In terms of new developments in the law relating to the interpretation of contracts in the United Kingdom, Investors Compensation Scheme Ltd v West Bromwich Building Society can be said to have decided two points. The first, as acknowledged by Lord Hoffmann in Chartbrook v Persimmon Homes (at 1119 [37]), was ‘that it was not necessary to find an ‘ambiguity’ before one could have any regard to background’ (which emerges from the first principle, and to a lesser extent the fourth and fifth), and the second, as explained in Bank of Credit and Commerce International SA v Ali [2001] 2 WLR 735 (at 269 [39]), was that the scope of the admissible background or surrounding circumstances included ‘anything which a reasonable man would have regarded as relevant’, and that ‘there is no conceptual limit to what can be regarded as background’. Maggbury Pty Ltd v Hafele Australia Pty Ltd [274] In Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 [11], Gleeson CJ, Gummow J and Hayne J (with whom Kirby J (at 205 [62]) and Callinan J (at 212 [89]) agreed

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generally on this point) adopted the first principle in Investors Compensation Scheme Ltd v West Bromwich Building Society, saying: ‘Interpretation of a written contract involves, as Lord Hoffmann has put it: ‘the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.’ [275] A footnote to that passage (fn 11) gives a citation to Investors Compensation Scheme Ltd v West Bromwich Building Society and then says: ‘See also the remarks of Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350–352, and of Lord Bingham of Cornhill in Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 at 259.’ [276] This apparent adoption of the first principle of Investors Compensation Scheme Ltd v West Bromwich Building Society would seem to carry with it the rejection of any need to find an ambiguity in the language of the contract before the surrounding circumstances could be looked to. This is confirmed by the citation from the speech of Lord Bingham of Cornhill in Bank of Credit and Commerce International SA v Ali (set out at 670 [270] above), which is to the same effect. It is notable that the reference to Codelfa Construction is not just to p 352 and the statement of the ‘true rule’, but to the wider discussion (commencing with the observations concerning the difference in view in Great Western Railway and Midland Railway v Bristol Corporation, set out at 664 [249] above), which includes the quotations from Reardon Smith Line (set out at 665 [251] and [252] above). Royal Botanic Gardens and Domain Trust v South Sydney City Council [277] In Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45, the High Court construed a provision for periodical increases in the rent payable under a 50-year lease of the underground stratum that is the site of the Domain parking station and footway in Sydney. The provision in question (at 51 [5]) was to the effect that the rent would be as determined by the lessors, the Trustees of the Royal Botanic Gardens, and that: (iv) in making any such determination the Trustees may have regard to additional costs and expenses which they may incur in regard to the surface of the Domain above or in the vicinity of the parking station and the footway and which arise out of the construction operation and maintenance of the parking station by the Lessee.

[278] The questions of interpretation concerned whether in deciding the rent the Trustees could have regard to any matters other than the ‘additional costs and expenses’, and precisely what those ‘additional costs and expenses’ were additional to. Gleeson CJ, Gaudron J, McHugh J, Gummow J and Hayne J decided (at 52 [9]) that, in not making clear these matters, the clause in question was ambiguous. It is, with respect, hard to see how the contrary could have been argued, even if one’s attention was confined solely to the language of the clause in dispute. Their Honours said (at 52 [9]–[10]): [9] The resolution of the ambiguity requires the application of settled principles of construction. [10] In Codelfa, Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities which indicated that, even in respect of agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances

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with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract (Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995–996; [1976] 3 All ER 570 at 574): ‘presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.’ Such statements exemplify the point made by Brennan J in his judgment in Codelfa (1982) 149 CLR 337 at 401: The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used. [Some citations omitted.]

[279] I observe that it was to the principle that Mason J adopted in Codelfa Construction (at 350) from Reardon Smith Line that their Honours turned for a statement of principle, not to his Honour’s statement of the ‘true rule’ (at 352). While the High Court in Royal Botanic Gardens and Domain Trust held that there was ambiguity in the lease there in question, that needed to be resolved by ‘settled principles of construction’, they did not say that it was only in circumstances of ambiguity that resort could be had to contextual matters as an aid to construction. [280] However, their Honours said (at 62 [39]): [39] Two further matters should be noticed. First, reference was made in argument to several decisions of the House of Lords, delivered since Codelfa but without reference to it. Particular reference was made to passages in the speeches of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912–913; [1998] 1 All ER 98 at 114–115 and of Lord Bingham of Cornhill and Lord Hoffmann in Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 at 259, 269; cf Melanesian Mission Trust Board v Australian Mutual Provident Society [1997] 1 NZLR 391 at 394–395; Yoshimoto v Canterbury Golf International Ltd [2001] 1 NZLR 523 at 542, in which the principles of contractual construction are discussed. It is unnecessary to determine whether their Lordships there took a broader view of the admissible ‘background’ than was taken in Codelfa or, if so, whether those views should be preferred to those of this Court. Until that determination is made by this Court, other Australian courts, if they discern any inconsistency with Codelfa, should continue to follow Codelfa: Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 403 [17].

[281] Their Honours do not there identify any particular part of Codelfa Construction as identifying ‘the admissible “background” ’ that Australian courts should follow unless instructed otherwise by the High Court. One open view is that they were referring to the principles that they themselves quoted at [10] of their judgment, but it cannot be said that the judgment in Royal Botanic Gardens and Domain Trust makes it clear that that view is correct. [282] However, it is fairly clear that the note of caution sounded by the High Court in Royal Botanic Gardens and Domain Trust (at [39]) was not against the first aspect of Investors Compensation Scheme Ltd v West Bromwich Building Society (confirmed in Bank of Credit and Commerce International SA v Ali and adopted by the High Court in Maggbury) which rejected a requirement of ambiguity before examining the surrounding circumstances at the time of the execution of the contract. Rather, it seems that the High Court is saying that if there is any

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conflict between Codelfa Construction and the second principle in Investors Compensation Scheme Ltd v West Bromwich Building Society (as explained in Bank of Credit and Commerce International SA v Ali), Codelfa Construction should be followed: see K Lewison, The Interpretation of Contracts, 4th ed (2007) London, Sweet & Maxwell at 13 [1.04]. [283] There is reference in the majority judgment in Royal Botanic Gardens and Domain Trust to the passage in Codelfa Construction (at 352) in two separate places. One is in par [9] in an account of the reasoning of Fitzgerald JA in the Court of Appeal. The other is in par [38], as authority for it being a reason against the implication of a term that ‘an implied term in the form favoured by the primary judge and urged by the appellant in this court would contradict the express terms of cl 4(b).’ Neither of those references expressly endorse Mason J’s statement in Codelfa Construction (at 352) that: ‘evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning.’ [284] In these circumstances, if one had perceived an internal tension in the reasoning of Mason J in Codelfa Construction, Royal Botanic Gardens and Domain Trust would not remove it. [285] A practical example of the sort of contextual matters that can be taken into account in construing a contract is given in Royal Botanic Gardens and Domain Trust (at [30]): [30] … the parties to the transaction were two public authorities, in one of which there had been vested land long dedicated for public recreation; the purpose of their transaction was the provision of a further public facility, in the form of the parking station and the footway, but without disturbing the availability of the surface for continued public recreation and without providing for the obtaining by one public authority of commercial profit at the expense of the other; it was the Lessee which was responsible for the substantial cost of construction of the new facility and the concern of the parties had been to protect the Lessor from financial disadvantage suffered from the transaction, namely additional expense which the Lessor would or might incur immediately or in the future.

High Court cases after Royal Botanic Gardens [286] However, later decisions of the High Court have given clear guidance concerning when and how surrounding circumstances may be used as an aid to construction of a contract. In so doing, the High Court has not considered whether there was indeed an internal tension in the judgment of Mason J in Codelfa Construction, nor have the judges stated in so many words that any part of Codelfa Construction is no longer to be followed. Rather, by restatement of principle, the Court has made irrelevant any future consideration of whether there was any internal tension in Mason J’s judgment in Codelfa Construction, or precisely how his Honour’s ‘true rule’ should be applied. [287] In the joint judgment of Gleeson CJ, Gummow J, Hayne J, Callinan J and Heydon J in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462 [22], their Honours said that the task of construction involved in that case was: [22] … to be determined by what a reasonable person in the position of [the contracting party suing on the contract] would have understood them to mean: Gissing v Gissing [1971]

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AC 886 at 906; Christopher Hill Ltd v Ashington Piggeries Ltd [1972] AC 441 at 502; ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540. That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to [the contracting parties], and the purpose and object of the transaction:  Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; [1998] 1 All ER 98. In Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 350 (see further Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436 at 445 [39]; 186 ALR 289 at 301), Mason J set out with evident approval the statement by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995–996; [1976] 3 All ER 570 at 574: In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

[288] The High Court’s statement of principle in Pacific Carriers v BNP Paribas was made using the names of the parties involved in that case, rather than the general expressions with which I have replaced those names in the square brackets in the above quote. However, the Court later made clear its intention to state the principle in general terms, by the joint judgment of Gleeson CJ, Gummow J, Hayne J, Callinan J and Heydon J in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40]: [40] … It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461–462 [22].

[289] A recent example of construction by reference to context appears in the joint judgment of Gummow J, Hayne J and Kiefel J in Agricultural and Rural Finance v Gardiner (2008) 238 CLR 570. The question arose concerning a loan agreement that required the borrower to make partial repayments of principal at certain stipulated times, to pay interest at certain stipulated times, and that gave the lender an option to accelerate the obligation to repay the principal ‘if the Borrower defaults in the due and punctual payment of interest . . . or any repayment instalment’. By a related indemnity agreement, an indemnifier agreed to indemnify the borrower against its liability under the loan agreement in certain circumstances, one of which was that the borrower had ‘punctually paid’ the interest and instalments of principal. In fact, the borrower had made some payments of interest and repayments of principal on dates later than the agreed dates, but the lender had accepted the payments and not exercised its option to accelerate repayment of the principal sum. In that context, the borrower argued, and the indemnifier denied, that the

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precondition for operation of the indemnity agreement had been satisfied. In holding that there had been no punctual payment, Gummow J, Hayne J and Kiefel J said (at 583 [38]): [38] Further, the loan agreements and the indemnity agreements must be construed in their commercial context. Each was an important constituent document in a publicly marketed investment scheme. It is not readily to be supposed that documents of that kind are to be given meanings other than the meaning ordinarily conveyed by the words used. As Spigelman CJ recorded (Gardiner v Agricultural and Rural Finance Pty Ltd [2008] Aust Contract Reports ¶90–274 (90,335) at [74]–[89]), the availability of the taxation advantages said to attach to investment in the scheme was seen by the promoters of the scheme and the Australian Taxation Office as depending upon such matters as whether those who invested were engaging in a commercial venture attended by risks of the kind ordinarily encountered in business and, in particular, whether the loans could be described as ‘non-recourse’. That being the position, there is even less reason to suppose that the liability of the Borrower to repay money lent should depend upon the unfettered discretion of the Lender. Yet in effect that is the construction urged by the Borrower. It is a construction that should be rejected.

Ambiguity plays no role in this reasoning. [290] Similarly, in Park v Brothers [2005] HCA 73; (2005) 80 ALJR 317; 222 ALR 421 at [39], a joint judgment of Gleeson CJ, Gummow J, Hayne J, Callinan J and Heydon J construed a contractual provision by reference to surrounding circumstances without first making a finding of ambiguity in the contractual provision. [291] In International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8], Gleeson CJ said: [8] In giving a commercial contract a businesslike interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589 [22]; Lake v Simmons [1927] AC 487 at 509 per Viscount Sumner. An appreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction, the background, and the market: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462 [22]; Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995–996; [1976] 3 All ER 570 at 574; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350. This is a case in which the Court’s general understanding of background and purpose is supplemented by specific information as to the genesis of the transaction. The Agreement has a history; and that history is part of the context in which the contract takes its meaning: Singh v The Commonwealth (2004) 222 CLR 322 at 331–338 [8]–[23]. Before considering that history, it is necessary to explain, by reference to the text, how the issue of construction arises.

Ambiguity plays no role in that reasoning either. [292] The joint judgment of Gummow J, Hayne J, Heydon J, Crennan J and Kiefel J in International Air Transport Association v Ansett Australia Holdings (at 174 [53]) reiterated the principle stated in Toll (FGCT) v Alphapharm (at 179 [40]): quoted at 674 [288] above. [Giles JA agreed with both the judgments of Allsop P and Campbell JA in relation to the approach to be taken when construing a commercial contract].

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[9.07] A  similar conclusion was reached in 2011 by the Victorian Court of Appeal in MBF Investments Pty Ltd v Nolan12 which observed that ‘There was, for many years, a lively debate as to when a court could have regard to the circumstances surrounding the making of a contract in the course of construing one of its terms. More recently, that debate appears to have been resolved.’ In reaching this conclusion the Court relied on the statements by the High Court in Pacific Carriers Ltd v BNP Paribas and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd cited in Franklins Pty Ltd v Metcash Trading Pty Ltd (but not Franklins Pty Ltd v Metcash Trading Pty Ltd itself) and the Full Federal Court in Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd13 and other New South Wales Court of Appeal decisions.14 [9.08] However, three judges of the High Court expressed their views of the current law in emphatic terms in an application for special leave to appeal in Western Export Services Inc v Jireh International Pty Ltd: Acceptance of the applicant’s submission, clearly would require reconsideration by this court of what was said in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352 by Mason J, with the concurrence of Stephen and Wilson JJ, to be the ‘true rule’ as to the admission of evidence of surrounding circumstances. Until this court embarks upon that exercise and disapproves or revises what was said in Codelfa, intermediate appellate courts are bound to follow that precedent. The same is true of primary judges, notwithstanding what may appear to have been said by intermediate appellate courts . . . The position of Codelfa, as a binding authority, was made clear in the joint reasons of five justices in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45 and it should not have been necessary to reiterate the point here … We do not read anything said in this court in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451;Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165;Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 and International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 as operating inconsistently with what was said by Mason J in the passage in Codelfa to which we have referred.15

While this led some appellant courts to continue to apply Mason J’s ‘true rule’16 statements in Electricity Generation Corporation v Woodside Energy Ltd,17 concerning the use of surrounding circumstances to interpret commercial contracts again led courts to conclude that the High

12 [2011] VSCA 114, [195]–[204]. 13 (2006) 156 FCR 1. 14 Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235. 15 Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604 [3] (per Gummow, Heydon and Bell JJ). 16 See for example Pepe v Platypus Asset Management Pty Ltd [2013] VSCA 38 [38], [25]; Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66 [107]. 17 (2014) 251 CLR 640.

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Court was moving away from an ‘ambiguity gateway’.18 However, while endeavouring to restate the basic principles of contract construction in cases in which the parties have agreed that the contract in question is ambiguous, the High Court has repeatedly reiterated that until it had the appropriate opportunity to consider the ‘true rule’, the rule should continue to be applied. [9.09]

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 High Court of Australia An agreement between Mount Bruce Mining (MBM), Hancock Prospecting Pty Ltd and Wright Prospecting Pty Ltd (together known as ‘Hanwright’) in 1970 provided that royalties were payable to Hanwright on ‘ore won by MBM from the MBM area’. The agreement incorporated by reference an earlier agreement made in 1962 which extended the obligation to pay royalties to ‘all persons or corporations deriving title through or under’ MBM. The issues were whether royalties were payable to Hanwright in respect of iron ore won from two areas known as ‘Eastern Range’ and ‘Channar’, which depended upon the proper construction of the phrase ‘MBM area’, and the proper construction of the phrase ‘persons or corporations deriving title through or under’ MBM. Both parties agreed that these two phrases were ambiguous. French CJ, Nettle and Gordon JJ [46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose (Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656 [35]; [2014] HCA 7). [47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean (Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656 [35]). That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract (Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656–657 [35]). [48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning (Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352. See also Sir Anthony Mason, ‘Opening Address’, (2009) 25 Journal of Contract Law 1 at 3).

18 See, for example, Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (2014) 48 WAR 261; Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633 [86]; Stratton Finance Pty Ltd v Webb (2014) 314 ALR 166 (FCFCA); Hawes v Dean [2014] NSWCA 380 [2].

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[49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’ (Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 657 [35], citing Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 350, in turn citing Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995–996; [1976] 3 All ER 570 at 574). It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals. [50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations (Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352; Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995–996; [1976] 3 All ER 570 at 574). [51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption ‘that the parties . . . intended to produce a commercial result’ (Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 657 [35], citing Re Golden Key Ltd [2009] EWCA Civ 636 at [28]). Put another way, a commercial contract should be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’ (Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 657 [35], citing Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 559 [82]; [2004] HCA 56). [52] These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 and Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640. We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd (2011) 86 ALJR 1; 282 ALR 604; [2011] HCA 45 … Kiefel and Keane JJ [108] That regard may be had to the mutual knowledge of the parties to an agreement in the process of construing it is evident from Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24. Mason J, with whom Stephen and Wilson JJ agreed, accepted that there may be a need to have regard to the circumstances surrounding a commercial contract in order to construe its terms or to imply a further term. In the passages preceding what his Honour described as the ‘true rule’ of construction ((1982) 149 CLR 337 at 351–352), his Honour identified ‘mutually known facts’ which may assist in understanding the meaning of a descriptive term or the ‘genesis’ or ‘aim’ of the transaction. His Honour had earlier referred ((1982) 149 CLR 337 at 348–349) to the

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judgment of Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381 at 1383–1384; [1971] 3 All ER 237 at 239, where it was said that: ‘[t]he time has long passed when agreements … were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations.’ [109] In a passage from DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 429; [1978] HCA 12 (referring to Prenn v Simmonds [1971] 1 WLR 1381 at 1384; [1971] 3 All ER 237 at 240), to which Mason J referred ((1982) 149 CLR 337 at 351), it was said that the object of the exercise was to show that ‘the attribution of a strict legal meaning would 'make the transaction futile’. [110] In Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656– 657 [35]; [2014] HCA 7, French CJ, Hayne, Crennan and Kiefel JJ explained that a commercial contract should be construed by reference to the surrounding circumstances known to the parties and the commercial purpose or objects to be secured by the contract in order to avoid a result that could not have been intended. [111] The ‘ambiguity’ which Mason J said may need to be resolved arises when the words are ‘susceptible of more than one meaning.’ (Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352). His Honour did not say how such an ambiguity might be identified. His Honour's reasons in Codelfa are directed to how an ambiguity might be resolved. [112] In reasons for the refusal of special leave to appeal given in Western Export Services Inc v Jireh International Pty Ltd (2011) 86 ALJR 1 at 2 [2]; 282 ALR 604 at 605; [2011] HCA 45, reference was made to a requirement that it is essential to identify ambiguity in the language of the contract before the court may have regard to the surrounding circumstances and the object of the transaction. There may be differences of views about whether this requirement arises from what was said in Codelfa. This is not the occasion to resolve that question. [113] It should, however, be observed that statements made in the course of reasons for refusing an application for special leave create no precedent and are binding on no one. An application for special leave is merely an application to commence proceedings in the Court (North Ganalanja Aboriginal Corporation v Queensland (1996) 185 CLR 595 at 643 per McHugh J; [1996] HCA 2). Until the grant of special leave there are no proceedings inter partes before the Court (Collins v The Queen (1975) 133 CLR 120 at 122; [1975] HCA 60). [114] The question whether an ambiguity in the meaning of terms in a commercial contract may be identified by reference to matters external to the contract does not arise in this case and the issue identified in Jireh has not been the subject of submissions before this Court. To the extent that there is any possible ambiguity as to the meaning of the words ‘deriving title through or under’, it arises from the terms of cl 24(iii) itself. [Bell and Gaegler JJ agreed with Kiefel and Keane JJ. It was held that by reference to the surrounding circumstances that the phrase ‘MBM area’ referred to the area defined by the then existing boundaries acquired by MBM from Hanwright in 1970 and ‘through or under’ was broader than formal succession, assignment or conveyance].

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[9.10] The ambiguity gateway also did not fall for consideration in subsequent High Court cases.19 In light of the comments of, for example, Kiefel and Keane JJ in the Mount Bruce Mining case, it would seem that an appropriate opportunity for the High Court to address ‘true rule’ may not arise until such time as a case comes before it that involves ambiguity that is only evident from the surrounding circumstances. [9.11] Apart from the debate concerning the circumstances in which there may be recourse to the surrounding circumstances, the impact of the parol evidence rule has been lessened by the recognition of several exceptions. Accordingly, extrinsic evidence may be taken into account when interpreting a contract where there is, for example, ambiguity in identifying the subject matter or parties, for the purposes of identifying the real consideration, to provide evidence of custom or trade usage or for the purposes of rectification.20

LEGAL EFFECT OF WORDS: TYPES OF TERMS [9.12] The legal effect of the words used depends upon the type of term. Contracts may contain many different types of terms. A  promissory term is one pursuant to which a party promises or undertakes to do or refrain from doing something, or that a state of affairs will or will not exist. If the promise is breached, the remedy for the innocent party depends upon whether the term is classified as a condition, warranty or intermediate term. This classification is objective determination of the parties’ intentions. [9.13]

Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 High Court of Australia A cartoonist was contracted by a newspaper to provide a weekly strip entitled Us Fellers featuring the character Ginger Meggs. The newspaper undertook that the strip would appear on the front page of the comic section of the Sunday edition. On three occasions, the strip appeared on the third page of the section. The cartoonist purported to terminate the contract for breach of condition. The Court (Dixon, Williams, Webb, Fullagar and Kitto JJ) The first question is whether the company’s undertaking to present the defendant’s drawings on the front page of the comic is a condition or essential term of the contract going to its very root, the breach of which would immediately entitle the defendant at his option to rescind21 the contract and sue for

19 Victoria v Tatts Group Ltd [2016] HCA 5; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12. 20 See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, sections 9.45–9.85. 21 ‘Rescind’ in the sense of ‘rescind de futuroe’, meaning ‘to terminate’.

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damages for the loss of the contract, or a mere warranty or non-essential and subsidiary term the breach of which would entitle the defendant to damages. Various tests have been advanced by the courts from time to time to determine what is a condition as opposed to a warranty. In Bettini v Gye (1876) 1 QBD 183 at 186 Blackburn J (as he then was) said that to determine this question the court must ascertain the intention of the parties to be collected from the instrument and the circumstances legally admissible with reference to which it is to be construed. Later in the same case his Lordship said (at 188) that in the absence of any express declaration by the parties, as in the present case, ‘we think that we are to look at the whole contract and applying the rule stated by Parke B to be acknowledged in Graves v Legg (1854) 9 Ex 709 at 716; 156 ER 304 at 307 to see whether the particular stipulation goes to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract by the plaintiff a thing different in substance from what the defendant has stipulated for; or whether it merely partially affects it and may be compensated for in damages’ … The test was succinctly stated by Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632. The decision was reversed on appeal (1938) 61 CLR 286, but his Honour’s statement of the law is not affected. He said (at 641–642): The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor.

At least it is clear that the obligation of the defendant to supply a weekly full-page drawing of ‘Us Fellers’ and the plaintiff ’s undertaking to present the drawing each week on the front page of the comic section are concurrent and correlative promises. And it would not seem open to doubt that the obligation of the defendant is a condition. He was not an ordinary employee of the plaintiff. He was employed as a comic artist and his true work was to produce this weekly drawing. It was for this production that his substantial weekly salary was principally payable. It was what he was really engaged to do. It would be strange if his obligation was a condition of the contract while the undertaking of the plaintiff was a subsidiary term the breach of which would only sound in damages. The undertaking is really a composite undertaking comprising three ingredients: (1) to present a full-page drawing; (2) to present it weekly; and (3) to present it on the front page of the comic section. It is impossible to attach different values to the defendant’s obligation and the plaintiff ’s undertaking. The plaintiff would not have employed the defendant unless it had been assured that the defendant would perform his promise, and the defendant would not have made the promise unless he was assured that his work would be published in a particular manner. Obviously it was of prime importance to the defendant that there should be continuity of publication so that his work should be kept continuously before the public, that his work should be published as a whole and not mutilated, and that it should be published on the most conspicuous page of the comic section. It is like a contract under which an actor is engaged to act in a theatre. It is not sufficient if the employer pays his salary. He must find work for him to do in the sort of part, principal or subsidiary, for which he is employed …

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The plaintiff committed three successive breaches of this condition and thereupon the defendant was certainly entitled to treat the contract as discharged. Such a failure of the plaintiff to perform the condition went to the root of the contract and gave the defendant as the injured party the right immediately to treat the contract as at an end. [9.14] At the time of the decision only classifications recognised were conditions and warranties, although to the extent that the test of essentiality propounded by Jordan CJ in the Luna Park case referred to a party not entering a contract unless assured of the substantial performance of a term it may be seen as anticipating a type of term capable of a variety of degrees of performances. This third category was finally recognised in 1962. [9.15]

Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 English Court of Appeal The vessel Hongkong Fir was chartered for a period of twenty-four months. The charter contained a promise that the vessel was ‘in every way fitted for ordinary cargo service’—in other words, that the shipowner promised that vessel was seaworthy. The charterers took delivery of the vessel in Liverpool and sailed it in ballast to Virginia, where it picked up a cargo of coal bound for Osaka, Japan. On delivery in Liverpool, the vessel’s machinery was in reasonably good condition; but due to its age it needed to be maintained by an experienced, competent, careful, and adequate engineering staff. However, when the vessel sailed, the chief engineer was inefficient and drunk, and the engine-room complement was insufficient. As a consequence, the machinery broke down on several occasions, and by the time the vessel reached Osaka it had been at sea for eight-and-a-half weeks, but had spent five weeks being repaired. On arrival in Osaka, it was found that a further fifteen weeks were required for the vessel to be repaired to a state of seaworthiness. The charterers claimed that the vessel’s unseaworthiness in terms of both the crew (which is regarded as an aspect of seaworthiness) and machinery entitled it to terminate the charterparty. Upjohn LJ It seems to me quite clear that the seaworthiness clause is not in general treated as a condition for breach of which the charterer is at once entitled to repudiate [terminate] … Why is this apparently basic and underlying condition of seaworthiness not, in fact, treated as a condition? It is for the simple reason that the seaworthiness clause is breached by the slightest failure to be fitted ‘in every way’ for service. Thus, to take examples from the judgments in some of the cases I have mentioned above, if a nail is missing from one of the timbers of a wooden vessel or if proper medical supplies or two anchors are not on board at the time of sailing, the owners are in breach of the seaworthiness stipulation. It is contrary to common sense to suppose that in such circumstances the parties contemplated that the charterer should at once be entitled to treat the contract as at an end for such trifling breaches …

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It is open to the parties to a contract to make it clear either expressly or by necessary implication that a particular stipulation is to be regarded as a condition which goes to the root of the contract, so that it is clear that the parties contemplate that any breach of it entitles the other party at once to treat the contract as at an end … In my judgment the remedies open to the innocent party for breach of a stipulation which is not a condition strictly so called, depend entirely upon the nature of the breach and its foreseeable consequences. Breaches of stipulation fall, naturally, into two classes. First there is the case where the owner by his conduct indicates that he considers himself no longer bound to perform his part of the contract; in that case, of course, the charterer may accept the repudiation and treat the contract as at an end. The second class of case is, of course, the more usual one and that is where, due to misfortune such as the perils of the sea, engine failures, incompetence of the crew and so on, the owner is unable to perform a particular stipulation precisely in accordance with the terms of the contract try he never so hard to remedy it. In that case the question to be answered is, does the breach of the stipulation go so much to the root of the contract that it makes further commercial performance of the contract impossible, or in other words is the whole contract frustrated? If yea, the innocent party may treat the contract as at an end. If nay, his claim sounds in damages only. If I have correctly stated the principles, then as the stipulation as to the seaworthiness is not a condition in the strict sense the question to be answered is, did the initial unseaworthiness as found by the judge, and from which there has been no appeal, go so much to the root of the contract that the charterers were then and there entitled to treat the charterparty as at an end? The only unseaworthiness alleged, serious though it was, was the insufficiency and incompetence of the crew, but that surely cannot be treated as going to the root of the contract for the parties must have contemplated that in such an event the crew could be changed and augmented … Diplock LJ Every synallagmatic contract contains in it the seeds of the problem: in what event will a party be relieved of his undertaking to do that which he has agreed to do but has not yet done? The contract may itself expressly define some of these events, as in the cancellation clause in a charterparty; but, human prescience being limited, it seldom does so exhaustively and often fails to do so at all. In some classes of contracts such as sale of goods, marine insurance, contracts of affreightment evidenced by bills of lading and those between parties to bills of exchange, Parliament has defined by statute some of the events not provided for expressly in individual contracts of that class; but where an event occurs the occurrence of which neither the parties nor Parliament have expressly stated will discharge one of the parties from further performance of his undertakings, it is for the court to determine whether the event has this effect or not. The test whether an event has this effect or not has been stated in a number of metaphors all of which I think amount to the same thing: does the occurrence of the event deprive the party who has further undertakings still to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings? … The fact that the emphasis in the earlier cases was upon the breach by one party to the contract of his contractual undertakings, for this was the commonest circumstance in which the question arose, tended to obscure the fact that it was really the event resulting from the breach

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which relieved the other party of further performance of his obligations; but the principle was applied early in the nineteenth century and without analysis to cases where the event relied upon was one brought about by a party to a contract before the time for performance of his undertakings arose but which would make it impossible to perform those obligations when the time to do so did arrive: for example, Short v Stone (1846) 8 QB 358; Ford v Tiley (1827) 6 B&C 325; Bowdell v Parsons (1808) 10 East 359 It was not, however, until Jackson v Union Marine Insurance Co Ltd (1874) LR 10 CP 125 that it was recognised that it was the happening of the event and not the fact that the event was the result of a breach by one party of his contractual obligations that relieved the other party from further performance of his obligations … Once it is appreciated that it is the event and not the fact that the event is a result of a breach of contract which relieves the party not in default of further performance of his obligations, two consequences follow. (1)  The test whether the event relied upon has this consequence is the same whether the event is the result of the other party’s breach of contract or not, as Devlin J pointed out in Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401 at 434. (2) The question whether an event which is the result of the other party’s breach of contract has this consequence cannot be answered by treating all contractual undertakings as falling into one of two separate categories: ‘conditions’ the breach of which gives rise to an event which relieves the party not in default of further performance of his obligations, and ‘warranties’ the breach of which does not give rise to such an event. Lawyers tend to speak of this classification as if it were comprehensive, partly for the historical reasons which I have already mentioned and partly because Parliament itself adopted it in the Sale of Goods Act, 1893, as respects a number of implied terms in contracts for the sale of goods and has in that Act used the expressions ‘condition’ and ‘warranty’ in that meaning. But it is by no means true of contractual undertakings in general at common law. No doubt there are many simple contractual undertakings, sometimes express but more often because of their very simplicity (‘It goes without saying’) to be implied, of which it can be predicated that every breach of such an undertaking must give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract. And such a stipulation, unless the parties have agreed that breach of it shall not entitle the non-defaulting party to treat the contract as repudiated, is a ‘condition.’ So too there may be other simple contractual undertakings of which it can be predicated that no breach can give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and such a stipulation, unless the parties have agreed that breach of it shall entitle the nondefaulting party to treat the contract as repudiated, is a ‘warranty.’ There are, however, many contractual undertakings of a more complex character which cannot be categorised as being ‘conditions’ or ‘warranties,’ if the late nineteenth-century meaning adopted in the Sale of Goods Act, 1893, and used by Bowen LJ in Bentsen v Taylor, Sons & Co [1893] 2 QB 274 at 280 be given to those terms. Of such undertakings all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless

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provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a ‘condition’ or a ‘warranty’ … The shipowners’ undertaking to tender a seaworthy ship has, as a result of numerous decisions as to what can amount to ‘unseaworthiness,’ become one of the most complex of contractual undertakings. It embraces obligations with respect to every part of the hull and machinery, stores and equipment and the crew itself. It can be broken by the presence of trivial defects easily and rapidly remediable as well as by defects which must inevitably result in a total loss of the vessel. Consequently the problem in this case is, in my view, neither solved nor soluble by debating whether the shipowner’s express or implied undertaking to tender a seaworthy ship is a ‘condition’ or a ‘warranty.’ It is like so many other contractual terms an undertaking one breach of which may give rise to an event which relieves the charterer of further performance of his undertakings if he so elects and another breach of which may not give rise to such an event but entitle him only to monetary compensation in the form of damages … What the judge had to do in the present case, as in any other case where one party to a contract relies upon a breach by the other party as giving him a right to elect to rescind the contract, and the contract itself makes no express provision as to this, was to look at the events which had occurred as a result of the breach at the time at which the charterers purported to rescind the charterparty and to decide whether the occurrence of those events deprived the charterers of substantially the whole benefit which it was the intention of the parties as expressed in the charterparty that the charterers should obtain from the further performance of their own contractual undertakings … The question which the judge had to ask himself was, as he rightly decided, whether or not at the date when the charterers purported to rescind the contract, namely, June 6, 1957, or when the shipowners purported to accept such rescission, namely August 8, 1957, the delay which had already occurred as a result of the incompetence of the engine-room staff, and the delay which was likely to occur in repairing the engines of the vessel and the conduct of the shipowners by that date in taking steps to remedy these two matters, were, when taken together, such as to deprive the charterers of substantially the whole benefit which it was the intention of the parties they should obtain from further use of the vessel under the charterparty. In my view, in his judgment—on which I would not seek to improve—the judge took into account and gave due weight to all the relevant considerations and arrived at the right answer for the right reasons. [Sellers LJ thought that the clause was a warranty and that damages were therefore the only remedy.] [9.16] An intermediate term may be thought of as one that may be foreseen as capable of a variety of breaches, some trivial, some serious.22 The concept was formally adopted by Australia

22 See also Bunge Corp New York v Tradax Export SA Panama [1981] 1 WLR 711, 726; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115, [49].

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in the 2007 case Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd,23 recognising that the ‘intermediate term’ classification added flexibility to contract law and allowed a just result where a breach of an inessential term had consequences which went to the root of the contract. In the course of doing so the Court stressed the central role of the test of essentiality, which would be satisfied only in cases where it was the parties’ intentions that a right to terminate would arise for a breach no matter how serious (or minor) the consequences. [9.17]

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 High Court of Australia An Aboriginal Land Council entered into a joint venture agreement with a company to develop certain land owned by the Land Council for residential purposes. The agreement provided that the company would act as development manager, seek funding, make monthly reports to a management committee and maintain proper books of account. The land was mortgaged to secure loans to finance the initial stages of the development. Subsequently an administrator was appointed to the Land Council and the mortgagee took possession of the land. The administrator alleged that the company breached several of its obligations and terminated the agreement. Gleeson CJ, Gummow, Heydon and Crennan JJ [43] Campbell J recorded that, in their arguments at trial, ‘both parties gave only passing attention to [the] taxonomies’ developed to classify the circumstances in which the common law recognises a right in one party to terminate a contract’. Nevertheless, having regard to the issues as they have developed from the reasons of Campbell J and the Court of Appeal, it is necessary to state certain legal principles relevant to the action taken by the administrator. [44] In its letter of termination, Koompahtoo claimed that the conduct of Sanpine amounted to repudiatory breach of contract. The term repudiation is used in different senses (Heyman v Darwins Ltd [1942] AC 356 at 378; Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625–626). First, it may refer to conduct which evinces an unwillingness or an inability to render substantial performance of the contract. This is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party’s obligations (Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 634 per Mason CJ). It may be termed renunciation (Heyman v Darwins Ltd [1942] AC 356 at 397). The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it (Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 at 659). (In this case, we are not concerned with the issues that arise where the alleged repudiation takes the form of asserting

23 (2007) 233 CLR 115, [53]–[54], [71].

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an erroneous interpretation of the contract. Nor are we concerned with questions of inability as distinct from unwillingness.) Second, it may refer to any breach of contract which justifies termination by the other party (See Carter, Breach of Contract, 2nd ed (1991) at 217). It will be necessary to return to the matter of classifying such breaches. Campbell J said this was the sense in which he would use the word ‘repudiation’ in his reasons. There may be cases where a failure to perform, even if not a breach of an essential term (as to which more will be said), manifests unwillingness or inability to perform in such circumstances that the other party is entitled to conclude that the contract will not be performed substantially according to its requirements (eg Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; (1938) 61 CLR 286 at 304–305; Associated Newspapers Ltd v Bancks [1951] HCA 24; (1951) 83 CLR 322). This overlapping between renunciation and failure of performance may appear conceptually untidy, but unwillingness or inability to perform a contract often is manifested most clearly by the conduct of a party when the time for performance arrives. In contractual renunciation, actions may speak louder than words. [45] In the past, some judges have used the word ‘repudiation’ to mean termination, applying it, not to the conduct of the party in default, but to the conduct of the party relying upon such default (eg Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; (1938) 61 CLR 286 at 305 per Latham CJ). It would be better if this were avoided. [46] Leaving to one side remedies of injunction to restrain breaches of contract, or specific performance to enforce contractual obligations, the ordinary remedy for breach of contract is an award of damages. Termination of a contract in response to breach, where permitted, may alter substantially the allocation of risk accepted by the parties. The consequences of termination for the parties may be affected by external circumstances such as market fluctuations (See Treitel, Remedies for Breach of Contract, (1988) at 350). At the same time, there are cases in which damages are not an adequate remedy, and it would be irrational and unjust to bind one party to an ongoing contractual relationship notwithstanding the other’s default. The appellants say that binding Koompahtoo to a long-term joint venture with Sanpine is such a case. This, however, is not a suit for the dissolution of a partnership, and it is the law of contract that is to be applied. [47] For present purposes, there are two relevant circumstances in which a breach of contract by one party may entitle the other to terminate. The first is where the obligation with which there has been failure to comply has been agreed by the contracting parties to be essential. Such an obligation is sometimes described as a condition. In Australian law, a well-known exposition was that of Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641–642 who, in comparing conditions and warranties, employed language reflected in many statutory provisions. The widespread statutory adoption of the distinction between conditions and warranties, or essential and inessential terms, is an established part of the background against which the common law has developed. The Chief Justice of New South Wales said [references omitted]: In considering the legal consequences flowing from a breach of contract, it is necessary to remember that (i)  the breach may extend to all or to some only of the promises of the defaulting party, (ii) the promises broken may be important or unimportant, (iii) the breach of any particular promise may be substantial or trivial, (iv) the breach may occur or be discovered

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(a) when the innocent party has not yet performed any or some of the promises on his part, or after he has performed them all, and (b) when the innocent party has received no performance from the defaulting party, or has received performance in whole or in part; and to remember also that the resultant rights of the innocent party and the nature of the remedies available to him may depend upon some or all of these matters. The nature of the promise broken is one of the most important of the matters. If it is a condition that is broken, ie, an essential promise, the innocent party, when he becomes aware of the breach, has ordinarily the right at his option either to treat himself as discharged from the contract and to recover damages for loss of the contract, or else to keep the contract on foot and recover damages for the particular breach. If it is a warranty that is broken, ie, a nonessential promise, only the latter alternative is available to the innocent party: in that case he cannot of course obtain damages for loss of the contract. The question whether a term in a contract is a condition or a warranty, ie, an essential or a non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor. If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight. If he contracted in reliance upon a substantial performance of the promise, any substantial breach will ordinarily justify a discharge. In some cases it is expressly provided that a particular promise is essential to the contract, eg, by a stipulation that it is the basis or of the essence of the contract; but in the absence of express provision the question is one of construction for the Court, when once the terms of contract have been ascertained. In general, Courts of common law have been more ready than Courts of Equity to regard promises as essential. This is in part due to the fact that Courts of common law are in the main concerned with ordinary commercial contracts in which it is common to find provisions which are intended to be strictly and literally performed. It is now provided by s 13 of the Conveyancing Act, 1919 (taken from the Judicature Act, 1873, 36 and 37 Victoria, Chap 66, s 25(7)) that stipulations in contracts, as to time or otherwise, which would not before the commencement of the Act have been deemed to be or to have become of the essence of such contracts in a Court of Equity shall receive in all Courts the same construction and effect as they would have heretofore received in such Court. This serves to make equitable liberality of construction supersede common law strictness, so far as is consistent with apparent intention, in fields where equity and common law overlap; but it does not affect the principle that effect must be given to the apparent intention of the parties as disclosed in the contract.

[48] What Jordan CJ said as to substantial performance, and substantial breach, is now to be read in the light of later developments in the law. What is of immediate significance is his reference to the question he was addressing as one of construction of the contract. It is the common intention of the parties, expressed in the language of their contract, understood in the

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context of the relationship established by that contract and (in a case such as the present) the commercial purpose it served, that determines whether a term is ‘essential’, so that any breach will justify termination. [49] The second relevant circumstance is where there has been a sufficiently serious breach of a non-essential term. In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, the English Court of Appeal was concerned with a stipulation as to seaworthiness in a charterparty. Breaches of such a stipulation could vary widely in importance. They could be trivial or serious. The Court of Appeal held that to the accepted distinction between ‘conditions’ and ‘warranties’, that is, between stipulations that were in their nature essential and others, there must be added a distinction, operative within the class of non-essential obligations, between breaches that are significantly serious to justify termination and other breaches. This was a recognition that, although as a matter of construction of a contract it may not be the case that any breach of a given term will entitle the other party to terminate, some breaches of such a term may do so. Diplock LJ said (at 69–70) that the question whether a breach by one party relieves the other of further performance of his obligations cannot always be answered by treating a contractual undertaking as either a ‘condition’ or a ‘warranty’. Of some stipulations ‘all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise’. [50] In this way Diplock LJ set the policy of the law favouring certainty of outcome through the classification of terms as conditions against that which encourages contractual performance and favours restriction of the right to terminate to cases where breach occasions serious prejudice. As it is put in the eleventh edition of Treitel (The Law of Contract, 11th ed (2003) at 797; see also 12th ed (2007) at 890): [T]he policy of leaning in favour of classifying stipulations as intermediate terms can be said to promote the interests of justice by preventing the injured party from rescinding on grounds that are technical or unmeritorious.

Perhaps the adoption of other taxonomies for contractual stipulations might achieve similar outcomes. However, Hongkong Fir was decided in 1961 and has long since passed into the mainstream law of contract as understood and practised in Australia (For example, in Shevill v Builders Licensing Board (1982) 149 CLR 620 at 626 Gibbs CJ assumed its correctness in a judgment with which Murphy and Brennan JJ agreed. In Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 31 Mason J assumed its correctness in a judgment with which Wilson, Deane and Dawson JJ concurred. Other cases in which it has been assumed to be correct include: Trans-Pacific Insurance Co (Australia) Ltd v Grand Union Insurance Co Ltd (1989) 18 NSWLR 675 at 702–703 per Giles J; Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527 at 532 per Davies J, 542 per Sheppard J, 553–554 per Burchett J; Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689 at 697 per Kirby P, 703 per Samuels JA, 717–718 per Waddell AJA; Bates v Omareef Pty Ltd unreported, Federal Court of Australia, 16 October 1997; Nelson v Bellamy (2000) 10 BPR 19,011 at 19,723 [81] per Simos J; Wallace-Smith v Thiess Infraco

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(Swanston) Pty Ltd (2005) 218 ALR 1 at 64–65 [299] per Allsop J. It has been applied in New Zealand: Holmes v Burgess [1975] 2 NZLR 311 at 318–320). [51] It may be true that this Court has yet to accept Hongkong Fir as an essential element in the grounds for decision in any particular case. However, in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 562, Mason ACJ, Wilson, Brennan and Dawson JJ referred to Hongkong Fir with evident approval and said that the concept of the intermediate and innominate term brings a greater flexibility to the law of contract. With that in mind, it was entirely appropriate for Campbell J to proceed with an analysis of the facts in which Hongkong Fir was applied (See Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 236 ALR 209 at 251– 252, 262–263). [52] The practical utility of a classification which includes intermediate terms, and the consequent greater flexibility of which the Court spoke in Ankar, appears from several consequences. First, the interests of justice are promoted by limiting rights to rescind to instances of serious and substantial breaches of contract. Secondly, a just outcome is facilitated in cases where the breach is of a term which is inessential. [53] As will appear later in these reasons, we rest our decision in the appeal not upon the ground of breach of an essential obligation, but upon application of the doctrine respecting intermediate terms. [54] We add that recognition that, at the time a contract is entered into, it may not be possible to say that any breach of a particular term will entitle the other party to terminate, but that some breaches of the term may be serious enough to have that consequence, was taken up in Ankar ((1987) 162 CLR 549 at 561–562). Breaches of this kind are sometimes described as ‘going to the root of the contract’, a conclusory description that takes account of the nature of the contract and the relationship it creates, the nature of the term, the kind and degree of the breach, and the consequences of the breach for the other party. Since the corollary of a conclusion that there is no right of termination is likely to be that the party not in default is left to rely upon a right to damages, the adequacy of damages as a remedy may be a material factor in deciding whether the breach goes to the root of the contract (Carter, Breach of Contract, 2nd ed (1991) at 199–200). [55] A  judgment that a breach of a term goes to the root of a contract, being, to use the language of Buckley LJ in Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361 at 380; [1971] 2 All ER 216 at 232, ‘such as to deprive the injured party of a substantial part of the benefit to which he is entitled under the contract’, rests primarily upon a construction of the contract. Buckley LJ attached importance to the consequences of the breach and the fairness of holding an injured party to the contract and leaving him to his remedy in damages. These, however, are matters to be considered after construing the agreement the parties have made. A judgment as to the seriousness of the breach, and the adequacy of damages as a remedy, is made after considering the benefit to which the injured party is entitled under the contract. …. [68] The approach of Campbell J was correct. The focus of attention should be the contract, and the nature and seriousness of the breaches. There being, at this stage, no concern with waiver, estoppel, variation or forbearance, the intention that is relevant is

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the common intention of the parties, at the time of the contract, as to the importance of the relevant terms and as to the consequences of failure to comply with those terms. This is a question of construction of the contract to be decided in the light of its commercial purpose and the business relationship it established. The contract established a joint venture for a land development project of considerable size and complexity, to be carried out over a number of years. Koompahtoo brought to the joint venture its land. Sanpine brought its management and financial expertise. Sanpine’s obligations as to dealing with joint venture funds (which were borrowed on the security of Koompahtoo’s land) and maintaining proper books and accounts were of importance, not only to working out the ultimate result of the joint venture when the land had been developed and sold, but also to enabling the parties (and a person such as the administrator) to know material facts, and to make decisions and judgments informed by that knowledge. The inability of Sanpine to inform the administrator, or even the trial judge, of the true financial position of the joint venture, and to produce informative joint venture accounts, exemplifies the point. It was not within the contemplation of the contract that it should have been necessary for Koompahtoo, at any time, to have engaged in extensive legal process in order to find out what had become of the money borrowed on the security of its land, or to assess the financial state of the joint venture. [69] Although Campbell J was prepared to make the contrary assumption, there is much to be said for the view that the obligation contained in the first sentence of cl 16.5(a) was essential. Sanpine was to ensure that proper Books (a defined term) were kept so as to permit the affairs of the joint venture to be duly assessed. ‘Books’ was defined, in cl 1.1, to mean the accounting, financial and other documents and records of the joint venture. The purpose of par (a), and, in particular, the first sentence, is emphasised by par (b) of cl 16.5, which entitled each venturer to inspect the books at any time and receive such information and explanations as that venturer might require. Enabling the affairs of the joint venture to be duly assessed involved assessment with reasonable facility and within a reasonable time. Campbell J held, and it was accepted in the Court of Appeal, that there was a breach of cl 16.5(a). Giles JA said, and Campbell J was willing to assume, that a breach of cl 16.5(a) could be trivial. The clause, however, contains more than one obligation. An obligation to keep books and records in accordance with generally accepted accounting standards might be contravened in an immaterial way, and one would not attribute to the parties a common intention that any breach of such an obligation would justify termination. What, however, of the first sentence of par (a)? On its true construction, it required Sanpine to ensure that it kept such books and accounts as would permit the affairs of the joint venture to be assessed with reasonable facility and within a reasonable time. It is difficult to resist a conclusion that such an obligation was essential. The ability to make an assessment of the affairs of the joint venture, at all times from the commencement of the Agreement, was vital. Koompahtoo was providing the land to be developed. It was subject to legislative control of the use that could be made lawfully of its assets. It was subject to regulatory scrutiny. Decisions as to borrowing upon the security of its land, and undertaking commitments for the future, required a capacity to assess, at any time, and from time to time, the affairs of the venture. [70] In one sense, the breaches of cl 16.5 may have been so obvious, and so numerous, as to distract attention from the consideration that, within cl 16.5(a), there was an obligation of

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basic importance. The clearest evidence of breach of that obligation was what occurred when Mr Lawler was appointed administrator. He was unable to assess the affairs of the joint venture. Plainly, Sanpine was unable to provide him (and was later unable to provide the trial judge) with proper joint venture books and accounts that would permit such assessment. It is no answer to say that, given sufficient time, and with sufficient effort, it might have been possible to reconstruct, from such records as had been kept within Sanpine, an approximation of accounts which would reveal the financial position of the joint venture. The purpose of cl 16.5 went beyond enabling approximate assessment of the financial position of the joint venture after a prolonged inquiry or litigation. However, we do not rest our decision upon the ground of breach of an essential obligation. [71] Even if one were to accept that all of the contractual obligations with which Sanpine failed to comply were inessential in that, on the true construction of the contract, not every breach would justify termination and that the obligations were intermediate terms in the sense earlier discussed, nevertheless, as Campbell J and Bryson JA held, the breaches of Sanpine were in a number of respects gross, and their consequences were serious. Once again, the experience of the administrator following his appointment, and the unsuccessful attempts at the hearing before Campbell J to explain the use of all the funds borrowed on the security of Koompahtoo’s land, demonstrate that the breaches found by Campbell J, and in particular the breaches of cl 16.5, went to the root of the contract. As a matter of construction of the contract, it ought to be accepted that breaches of that order deprived Koompahtoo of a substantial part of the benefit for which it contracted. Such breaches justified termination. On that ground, we would uphold the decision of the primary judge. [72] We would make one further observation. The corollary of the reasoning of the majority in the Court of Appeal is that Koompahtoo ought to be left to its remedy in damages. Nowhere was it explained how one would measure the damages suffered by a joint venturer in consequence of inability to assess the financial position of the joint venture. [9.18] Other terms only provide the mechanics of the contract. For example, a termination clause confers a contractual right to terminate the contract for breach of a specific term or of any terms. Such a term may stipulate a particular procedure to be followed in the event of breach. An agreed damages clause may represent a genuine pre-estimate of the loss that will result from a breach. A  condition precedent stipulates an event or events which must occur before the contract or a part of it comes into effect, while a condition subsequent stipulates an event or events which bring a contract to an end if they occur. Other terms may, for example, prescribe procedures for resolving disputes, restrain a party from engaging in certain trade, require a party to act in good faith or use best endeavours in performance, and prescribe the law of a particular jurisdiction as governing the contract. Some of these terms, such as the restraint of trade, good faith and best endeavours terms may take effect as promissory terms and therefore yield a remedy in the event of breach. [9.19] It is not uncommon for a party to insert an ‘exemption’ clause—also known as an ‘exclusion’, ‘exception’ or ‘limitation’ clause. Such terms seek to exclude or restrict a party’s liability in

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contract and/or on other grounds (such as in tort for negligence). Restrictions might involve, for example, limits on the time to commence any claim or on the amount of loss recoverable, or may prescribe a procedure to follow in order to make a valid claim. Notwithstanding the removal or limitation of rights that a party might otherwise have, it has been held that exemption clauses are to be read no differently from other terms of the contract. [9.20]

Darlington Futures Ltd v Delco Australia Ltd (1986) 161 CLR 500 High Court of Australia A written contract was entered into between a broker and a client for dealings on the commodities futures market. Clause 6 of the contract provided that the broker would ‘not be responsible for any loss arising in any way out of any trading activity undertaken on behalf of the client whether pursuant to this Agreement or not’. Clause 7 then purported to limit any liability on the part of the broker which had not been totally excluded to an amount of $100. The client suffered loss as a result of dealings made on the commodity futures market by the broker which bound the client but were undertaken without its client’s authorisation. The broker pleaded cls 6 and 7 in defence to an action to recover these losses. The Court (Mason, Wilson, Brennan, Deane and Dawson JJ) The question … is whether cl 6 protects the appellant from the consequences of what otherwise would be breaches of contract. [The appellant] relies on statements in recent decisions of the House of Lords to support the approach that exclusion clauses should be simply construed in accordance with their language and that they should not be subjected to a strained construction in order to reduce the ambit of their operation. These statements have been made in a series of cases beginning with Photo Production Ltd v Securicor Ltd [1980] AC 827 in which the House of Lords rejected the doctrine of fundamental breach previously adopted in Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361. In place of that doctrine their Lordships have stated that, although an ambiguous exclusion clause will be construed contra proferentem, such a clause is to be given its natural construction … Although these … decisions contain statements giving emphasis to the natural meaning of the words of exclusion and limitation clauses read as a whole, we do not understand the statements to deny the legitimacy, indeed the necessity, of construing the language of such a clause in the context of the entire contract of which it forms part. The formulation by the House of Lords of a new approach to the construction of exclusion and limitation clauses in place of the earlier approach based on the doctrine of fundamental breach24 explains why the emphasis

24 English courts in particular recognised a doctrine whereby a breach considered so serious—or fundamental— that it struck at the root of the contract, such as the carrier of goods deviating from the usual and reasonable route for carriage of goods, resulted in a loss of the protection of an exemption clause.

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in these statements is upon the language of the particular clauses rather than upon the context in which they appear … Be this as it may, this Court has in past decisions authoritatively stated the approach to be adopted in Australia to the construction of exclusion and limitation clauses, without relying on the doctrine of fundamental breach. [The Court then referred to statements made in Sydney Corporation v West (1965) 114 CLR 481, Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd (1966) 115 CLR 353 at 376 per Windeyer J; H & E Van Der Sterren v Cibernetics (Holdings) Pty Ltd (1970) 44 ALJR 157; and Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1978) 139 CLR 231]. These decisions clearly establish that the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity … The same principle applies to the construction of limitation clauses. As King CJ noted in his judgment in the Supreme Court, a limitation clause may be so severe in its operation as to make its effect virtually indistinguishable from that of an exclusion clause. And the principle, in the form in which we have expressed it, does no more than express the general approach to the interpretation of contracts and it is of sufficient generality to accommodate the different considerations that may arise in the interpretation of a wide variety of exclusion and limitation clauses in formal commercial contracts between business people where no question of the reasonableness or fairness of the clause arises. Turning now to cl 6 of the contract between the appellant and the respondent, the question is whether the relevant losses arose ‘in any way out of any trading activity undertaken on behalf of the Client whether pursuant to this agreement or not’. Read in context these words plainly refer to trading activity undertaken by the appellant for the respondent with the respondent’s authority, whether pursuant to the agreement or not. It can scarcely be supposed that the parties intended to exclude liability on the part of the appellant for losses arising from trading activity in which it presumed to engage on behalf of the respondent when the appellant had no authority so to do. The final question is whether the appellant is protected by cl 7(c) of the contract … The Full Court of the Supreme Court considered that cl 7(c) by its terms had no application to claims arising out of conduct which is outside the scope of the agreement and the relationship between the parties established by it. This, in our opinion, is to place a more restrictive interpretation on the clause than its language will naturally bear. In particular, it is expressed to comprehend claims arising out of or in connexion with the relationship established by the agreement. A claim in respect of an unauthorized transaction may nonetheless have a connexion, indeed a substantial connexion, with the relationship of broker and client established by the agreement. We are unable to discern any basis on which cl 7(c) can be construed so as not to apply to such a claim. The present case is one in which the respondent’s claim arises in connexion with the relationship of broker and client established by the contract between the parties, notwithstanding the finding that the relevant transactions were not authorized.

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[9.21] It has been held that the Canada Steamship rules for interpreting clauses that purport to exclude negligence25 are contrary to the Darlington Futures case.26 In particular, the third rule,27 which requires an exemption clause cast in wide terms to be limited to other available causes of action but not negligence, is seen as a ‘strained construction in order to reduce the ambit’ of the clause. It would seem that attempts to exclude negligence should now be interpreted no differently from other exemption clauses.28 [9.22] An exemption clause will only operate to exclude liability arising within the ‘four corners’ of the contract. A proferens will only escape or limit liability if he or she carried out the contract in the way that was contemplated by the contract. [9.23]

Council of The City of Sydney v West (1965) 114 CLR 481 High Court of Australia The plaintiff parked his car at a parking station owned and operated by the defendant council. The plaintiff was given a ticket containing a number of clauses. One of the clauses read: ‘The Council does not accept any responsibility for the loss or damage to any vehicle or for loss of or damage to any article or thing in or upon any vehicle or for any injury to any person however such loss, damage or injury may arise or be caused.’ A second clause read: ‘This ticket must be presented for time stamping and payment before taking delivery of the vehicle.’ In spite of this, the council delivered the vehicle to a thief who claimed to have lost his ticket and who tricked the council into issuing a substitute ticket. When the plaintiff sued for damages—claiming breach of an implied promise of safekeeping or alternatively a course of action in detinue—the council tried to rely on the exemption clause. Barwick CJ and Taylor J [after noting that the clause may not have formed part of the contract because reasonable steps were not taken to give notice of the clause] However, this is by the way for we do not think that the evidence adduced by the appellant at the trial showed that the loss was of a description which fell within the exempting clause … We find difficulties in the way of solving the problem in the manner in which it was solved by the Full Court [The Full Court held that there had been a ‘fundamental breach’ and

25 As to which, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, sections 9.270–9.300. 26 BI (Contracting) Pty Ltd v AW Baulderstone Holdings Pty Ltd [2007] NSWCA 173, [95]; Brambles Ltd v Wail (2002) 2 VR 169; State of NSW v Tempo Services Ltd [2004] NSWCA 4, [9]; and Goodman v Cospak International Pty Ltd [2004] NSWSC 704. 27 In essence, the first rule requires effect to be given to an express exclusion of ‘negligence’ (or a close synonym) and the second rule requires that in the absence of an express exclusion, it must be determined whether the words used are capable of covering the profens’ negligence. 28 See, for example, Glenmont Investments Pty Ltd v O’Loughlin (2000) 79 SASR 185 (FC).

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that as a consequence the Council was not entitled to rely upon the exemption clause]. We have some difficulty … in understanding precisely what is meant by the expression ‘fundamental [breach]’ … There is no doubt, of course, that in the case where a contract of bailment contains an exempting clause much as we have to consider the protection afforded by the clause will be lost if the goods the subject of the bailment are stored in a place or in a manner other than that authorized by the contract or if the bailee consumes or destroys them instead of storing them or if he sells them. But we would deny the application of such a clause in those circumstances simply upon the interpretation of the clause itself. Such a clause contemplates that loss or damage may occur by reason of negligence on the part of the warehouseman or his servants in carrying out the obligations created by the contract. But in our view it has no application to negligence in relation to acts done with respect to a bailor’s goods which are neither authorized nor permitted by the contract. For instance, if, in the present case, one of the attendants at the parking station had been allowed by the management to use the respondent’s car for his own purposes and, in the course of driving it, had caused damage to it by his negligent driving, the clause would afford no protection. Negligence in these circumstances would be right outside the purview of the clause. The same result would follow if an attendant had proceeded, without authority, to make adjustments or repairs to the respondent’s vehicle while it was in the parking station and had carried out such work negligently and thereby caused damage. To our minds the clause clearly appears as one which contemplates that, in the performance of the Council’s obligations under the contract of bailment, some loss or damage may be caused by reason of its servants’ negligence but it does not contemplate or provide an excuse for negligence on the part of the Council’s servants in doing something which it is neither authorized nor permitted to do by the terms of the contract … To our minds, therefore, the act of the attendant in permitting ‘Robinson’ to proceed after handing over the duplicate ticket which he had obtained constituted an unauthorized delivery of possession by him to ‘Robinson’ and not a mere act of negligence in relation to some act authorized by the contract of bailment … The fact that the attendant at the exit through which the car was driven was negligent is of no consequence in the case; the act of delivery was one which was neither authorized nor permitted by the contract and in our view the appellant was not entitled to be exonerated by the exempting clause. [Windeyer J agreed with Barwick CJ and Taylor J, but held that the Council as bailee had separate duties to exercise care for the car while in its possession and to return the car to the owner at the end of the bailment. However, the proper interpretation of the exemption clause was that it only exonerated the Council from liability for failure to exercise care, not for the consequences of misdelivery. Kitto J (with whom Menzies J agreed) dissented on the ground that the evidence showed that while a strict interpretation of the clause meant that it did not extend to a deliberate giving away of the vehicle, there was no suggestion of anything like that kind having occurred. Unquestionably there had been negligence but that was covered by the exemption clause.]

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QUESTIONS FOR REFLECTION (1) Do you think that Australia should follow the lead of the English courts and several Court of Appeal decisions such as Franklins Pty Ltd v Metcash Trading Ltd and allow extrinsic evidence of the surrounding circumstances to be admissible to assist the interpretation of contracts in all cases, rather than first requiring ambiguity as a threshold question? Is there any justification for allowing this rule but limiting it to commercial contracts? (2) In the Koompahtoo case the High Court approved of intermediate terms on the ground that it allowed a just result to be reached where the consequences of a breach of an inessential term go to the root of the contract. Does that mean that effectively there are now only two categories of promissory term in Australia: essential terms (conditions) and inessential terms (intermediate terms which depending on the consequences of the breach allow for termination and damages but in all others only damages)? Is there any place now for warranties?

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10 Capacity 175 11 Formalities 198 12 Privity 232

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INTRODUCTION [10.01] The law assumes that an adult who enters into a contract will have the capacity to do so and, in the absence of any vitiating factors, the contract so entered will be valid. However, in some cases, questions may arise about the ability of one of the parties to undertake contractual obligations. Particular care must be taken if a contracting party falls into one of the following categories:1 •

Minors;



Individuals possessing an intellectual or other disability affecting capacity (including those under the influence of drugs or alcohol);



Bankrupts;



Corporations and unincorporated associations; and



Governments and the Crown.

MINORS Common law [10.02] At common law, a contract that is entered into by a minor will fall into one of the following categories: •

a contract for necessary goods and services (necessaries) which is binding on the minor;



a contract of employment or apprenticeship which may be binding on the minor;



a contract that is binding on the minor unless the minor repudiates the contract on reaching majority;

1

In this chapter, cases and legislation dealing with minors, individuals with impaired capacity and the government and the crown are extracted. Materials relating to bankruptcy, corporations and unincorporated associations are not included as they are more appropriately dealt with in specialist cases and materials texts.

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a contract that is not binding on the minor unless the minor ratifies the contract on reaching majority.

Contracts for necessary goods and services2 [10.03] A contract for necessaries will be binding on both parties, and a minor who breaches the contract will be subject to the usual remedies. There is a two-tier test as to whether a contract will be one for ‘necessaries’. First, the goods or services must be capable of being a necessary. This is a question of law. Second, the goods or services must actually be a necessary in the circumstances of the case. This is a question of fact. [10.04]

Nash v Inman [1908] 2 KB 1 English Court of Appeal A tailor (the plaintiff) supplied clothes to a minor (the defendant) who was, at the time, an undergraduate student at Cambridge University. The clothes that were supplied included eleven fancy waistcoats. The tailor brought action against the minor to recover the cash price of the waistcoats. [The trial judge found in favour of the minor, and the tailor appealed against his decision.] Fletcher Moulton LJ An infant, like a lunatic, is incapable of making a contract of purchase in the strict sense of the words; but if a man satisfies the needs of the infant or lunatic by supplying to him necessaries, the law will imply an obligation to repay him for the services so rendered, and will enforce that obligation against the estate of the infant or lunatic. The consequence is that the basis of the action is hardly contract. Its real foundation is an obligation which the law imposes on the infant to make a fair payment in respect of needs satisfied. In other words the obligation arises re and not consensu. I  do not mean that this nicety of legal phraseology has been adhered to. The common and convenient phrase is that an infant is liable for goods sold and delivered provided that they are necessaries, and there is no objection to that phraseology so long as its true meaning is understood. But the treatment of such actions by the Courts of Common Law has been in accordance with that principle I have referred to. That the articles were necessaries had to be alleged and proved by the plaintiff as part of his case, and the sum he recovered was based on a quantum meruit. If he claimed anything beyond this he failed, and it did not help him that he could prove that the prices were agreed prices … [After referring to the relevant legislation that intended to codify the common law, he continued] Hence, if an action is brought by one who claims to enforce against an infant such an obligation, it is obvious that the plaintiff in order to prove his case must shew that the goods supplied come

2

For more detail about these kind of contracts, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 10.2.1.

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within this definition. … [I]n order to succeed in the action the plaintiff must shew that he has supplied necessaries. That is to say, the plaintiff has to shew, first, that the goods were suitable to the condition in life of the infant; and, secondly, that they were suitable to his actual requirements at the time—or, in other words, that the infant had not at the time an adequate supply from other sources … Passing on from general principles, let me take the facts of the present case. In my opinion they raise no point whatever as to the duty of the judge as contrasted with the duty of the jury arising from the peculiar character of the action. We have only to follow the lines of the law consistently administered by this Court for many more years than I can think of, an example of which as applied to the case of the supply of necessaries to an infant is given by the decision of the Court of Exchequer Chamber in the case of Ryder v Wombwell (1868) LR 4 Ex 32. Questions of law are for the judge; questions of fact are for the jury; but, as the Court there laid down, the particular question of fact in issue in such a case, like all other questions of fact, ought not to be left to the jury by the judge unless there is evidence upon which they could reasonably find in the affirmative. The issue in that case was whether certain articles were suitable to the condition in life of the defendant, the infant, and the Court of Exchequer Chamber thought that no jury could reasonably find that those articles were suitable to the condition of that defendant, and therefore they said that the judge—not by reason of any peculiar rule applicable to actions of this kind, but in the discharge of his regular duties in all cases of trial by a jury—ought not to have left the question to the jury because there was no evidence on which they could reasonably find for the plaintiff. We have before us a similar case, in which the issue is not only whether the articles in question were suitable to the defendant’s condition in life, but whether they were suitable to his actual requirements at the time of the sale and delivery; and how does the evidence stand? The evidence for the plaintiff shewed that one of his travellers, hearing that a freshman at Trinity College was spending money pretty liberally, called on him to get an order for clothes, and sold him within nine months goods which at cash prices came to over £120, including an extravagant number of waistcoats and other articles of clothing, and that is all that the plaintiff proved. The defendant’s father proved the infancy, and then proved that the defendant had an adequate supply of clothes, and stated what they were. That evidence was uncontradicted. Not only was it not contradicted by any other evidence, but there was no crossexamination tending to shake the credit of the witness, against whose character and means of knowledge nothing could be said. On that uncontradicted evidence the judge came to the conclusion, to use the language of the Court in Ryder v Wombwell, that there was no evidence on which the jury might properly find that these goods were necessary to the actual requirements of the infant at the time of sale and delivery, and therefore, in accordance with the duty of the judge in all cases of trial by jury, he withdrew the case from the jury and directed judgment to be entered for the defendant. In my opinion he was justified by the practice of the Court in so doing, and this appeal must be dismissed. [Cozens-Hardy MR and Buckley LJ wrote similar judgments and dismissed the appeal.]

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Contracts of employment and apprenticeship3 [10.05] Contracts of employment and apprenticeship will be binding on a minor provided the contract is for the minor’s benefit. When assessing whether the contract is for the overall benefit of the minor, the contract as a whole will be considered. [10.06]

De Francesco v Barnum (1890) 45 Ch D 430 Chancery Division The plaintiff, George Giuseppe de Francesco, and two infants entered into a contract under which the infants agreed to be bound as apprentices to the plaintiff for seven years. Under the contract, the infants were to be taught stage dancing and would receive payments for engagements. The contract also provided that the infants could not perform for anyone else, but did not oblige the plaintiff to provide them with engagements or require him to maintain the infants during the period of the apprenticeship, except by paying the infants for engagements. The infants undertook a professional engagement with Barnum. The plaintiff brought a number of actions including one against Barnum for damages for the malicious act of enticing the infants from their engagement with de Francesco, with the knowledge of that engagement. [The plaintiff also brought action against the infants seeking specific performance of the apprenticeship but this was unsuccessful at first instance and the judgment was not appealed on this ground.] Fry LJ With regard to the first Defendant, Mr Barnum, the case stands in this way. It is alleged that he has enticed away the apprentices of Signor De Francesco; that he has done so with the knowledge of their engagement with Signor De Francesco, and consequently that what he did was in law malicious; and that he would be liable in damages for the malicious act. To that his defence is this, that the indentures of apprenticeship which were entered into between the infants and Signor De Francesco were not valid and binding in law, and that that being so the whole structure of the case against him fails; and he further argued that he had not done anything which was malicious, and that there was no employment in fact of which they were deprived, or from which they were enticed away. He has further urged that there is no evidence of damage before me to justify my pronouncing a judgment against him for damages. The most important question in this case is the first of those propositions which has been urged at the Bar on Mr Barnum’s behalf. Is there or is there not in this case a valid contract between the infants and Signor De Francesco? Now, from a very early date it has been held that one exception as to the incapacity of an infant to bind himself relates to a contract for his good teaching or instruction whereby he may profit himself afterwards, to use Lord Coke’s language. There is another exception, which is based on the desirableness of infants employing

3

For more detail about these kind of contracts, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 10.2.1.

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themselves in labour; therefore, where you get a contract for labour and you have a remuneration of wages, that contract, I think, must be taken to be, prima facie, binding upon an infant. At any rate, it is plain that the contract by which an infant binds himself to learn an art or trade to his own future profit is, prima facie, valid and binding. But no doubt the law has grafted on that general principle certain well-known and defined exceptions. It has been held from the time of Lord Coke, that an infant cannot bind himself to be liable to a penalty; that the contract to impose a penalty on an infant is void. Again, it has been held that a contract by which an infant renders his vested interest subject to forfeiture is void against the infant; and again, I think it may be taken that, wherever you find extraordinary or unusual stipulations contained in a contract, either of apprenticeship or of service, there the Court at least must be on the watch lest the infant should be held to be bound by a contract which is not reasonable and which is not good in law and which is not maintainable. Now I approach this subject with the observation that it appears to me that the question is this, Is the contract for the benefit of the infant? Not, Is any one particular stipulation for the benefit of the infant? Because it is obvious that the contract of apprenticeship or the contract of labour must, like any other contract, contain some stipulations for the benefit of the one contracting party, and some for the benefit of the other. It is not because you can lay your hand on a particular stipulation which you may say is against the infant’s benefit, that therefore the whole contract is not for the benefit of the infant. The Court must look at the whole contract, having regard to the circumstances of the case, and determine, subject to any principles of law which may be ascertained by the cases, whether the contract is or is not beneficial. That appears to me to be in substance a question of fact. Now in the present case I must bear in mind that the two girls who were apprenticed in the year 1886 were at that time not ignorant of the art of dancing. It appears they had learnt something of it from their mother, who herself had been connected with the theatre, and also from friends who were familiar with the art of dancing. By this indenture, which I have already mentioned, dated December, 1886, the Defendant, Helen Maude Parnell, with the consent of her parent, put herself apprentice to Signor De Francesco, to learn from the 6th day of December, 1886, until the full end of the term of seven years from thence next following, during which term the apprentice should her master faithfully serve, and so forth, with the usual stipulations with regard to faithful service. There is the further stipulation that she shall not contract matrimony within the said term, and further that she shall not accept professional engagements unless with the full written permission of her master. Now, so far, the contract, with the exception of the stipulation about matrimony, seems to be of a usual description. But then we come to the clauses by which Signor De Francesco undertakes his duties towards the child. In the first place, he agrees that he will, with qualified assistants, instruct the apprentice in what are described as ‘the higher branches of the choreographic art,’ which I understand to be dancing, ‘for the term of seven years.’ Then he agrees to pay the apprentice ‘the following remuneration for all or any choreographic engagements of the said apprentice during the said term, namely, in London and suburbs, for the first three years, 9d per night, and 6d, for each matinee; and for the remainder of the said term, Is per night, and 6d for each matinee.’ Then, further, he shall have the right to engage the apprentice to performances in America or any foreign or colonial state, and shall pay

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to the apprentice, during the maintenance of such engagement abroad, the sum of 5s a week, and provide the apprentice with board and lodging during such last-mentioned engagement. It is obvious that that is a very unusual stipulation. There is no provision for remuneration of any sort or kind, except during the engagement. There are no wages to be paid to the girls except during the engagement. The matter, therefore, rests with Signor De Francesco as to how far those children shall take any wages at all. Nor can it be entirely put out of consideration that he has a right to send these apprentices for performances to any foreign state or foreign country, a power which, if exercised, would remove the infants, or probably would remove the infants from maternal care. Now perhaps it is right at this point that I should say that, so far as the evidence goes, I am satisfied that the establishment of Signor De Francesco is carried on in a thoroughly careful and respectable manner. It appears that whenever the girls go anywhere out of London they are placed under the care of matrons, whose duty it is to look after them, and that a similar care has been extended to them when there has been a performance at the Crystal Palace, and they had to take the journey between London and Sydenham. The mother, who was in the witness box, says explicitly, so far as regards the care whilst the children had been under Signor De Francesco’s management, she has no complaint to make whatever. I say that by way of parenthesis. At the same time it is obvious that the clause I have read places a very large power indeed in the hands of Signor De Francesco. The next provision is, that if there is not sufficient dancing the apprentice may be required to do utility business and receive certain remuneration. That would not seem unreasonable. Then it is provided: ‘The services of the apprentice shall be entirely at the disposal of Signor De Francesco, and the said apprentice shall not during the said term of seven years enter into any professional engagements without the permission in writing of the said Signor De Francesco.’ Be it observed there is no corresponding obligation on the part of Signor De Francesco. He requires the infant to enter into no engagements without his permission, but does not in any corresponding way bind himself to any extent to provide engagements or employment for the infant. Then comes the provision with regard to the apprentices receiving lessons, and a provision as to the rules and regulations of the theatre. They all seem reasonable; and then there is a provision which is praiseworthy, requiring the infant to conform to the Education Act, and then comes the 8th clause: ‘In case the said Giuseppe de Francesco shall at any time during the said 1890 term be of opinion (after a fair trial) that the said apprentice is unfit from any cause whatever (either physical or otherwise) to pursue the avocation of stage dancing, the said Signor De Francesco may put an end to these presents and every matter and thing herein contained by giving to the parents and the said apprentice notice in writing to that effect.’ Now, be it observed that that clause is provided to operate throughout the whole seven years. It might be put in force at any time, subject only to this, that it must be after a fair trial. But what is a fair trial? How long after the fair trial this notice may be given is not stipulated for in any manner whatsoever. We have therefore, to put it shortly, the contract under which the infant is placed, I might almost say absolutely, at the disposal of the teacher. The child may be required to undertake any engagements at any theatre in England, or any theatre in the United Kingdom, or anywhere else

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in the world. The child is to receive no remuneration, no maintenance except when employed; there is no correlative obligation on Signor De Francesco to find employment for the child; there is power in him to put an end to a child’s chances of success at any time after trial. Those are stipulations of an extraordinary and an unusual character, which throw, or appear to throw, an inordinate power into the hands of the master without any correlative obligation on the part of the master. I cannot, therefore, say that on the face of this instrument it appears to be one which the Court ought to hold to be for the benefit of the infant. Now, I will suppose myself sitting in Chambers administering the jurisdiction in this division of the Court over infants; and I ask myself whether I should approve of such a contract as that as being for the benefit of an infant ward of Court—assuming of course, in so doing, that the infant ward of Court was one whom it was desirable to apprentice to the art of a ballet-dancer. I cannot say that I should hold anything of the kind. It may be that evidence could be tendered which would shew me that no other form of contract is available, that the same contract prevails in every school, and that no person can hope to enter the profession of a ballet-dancer except by apprenticeship in these terms. That may be so. But no evidence of the sort has been tendered before me. I have undoubtedly this in favour of upholding it, that the school of the Plaintiff is said by Mrs Pamell to be a very excellent school, and, for anything I know, it may be the best in London, and, I have already said, Signor De Francesco is a person who is well able to, and does, protect the interest of the girls who are under his care. At the same time, this contract seems to me to place in his hands an inordinate power, which, except under the pressure of some evidence which has not been given, I cannot help being of opinion is not for the infants’ benefit. I hold, therefore, this instrument is one by which the infants are not bound; and consequently Mr Barnum, having only enticed them away from an employment or contract of a nature which is not binding upon them, no action can be maintained against Mr Barnum.

Contracts that are binding unless repudiated4 [10.07] At common law, contracts that are binding unless repudiated extend to contracts under which a minor acquires property of a permanent nature, or to which continuing obligations are attached. Examples include a contract for an interest in land, a contract for the purchase of shares, a contract for the purchase of the goodwill of a business, or a contract concerning the joining of a partnership. A minor may repudiate such contracts during minority, or within a reasonable time of attaining majority. A minor is not liable for any future obligations under a repudiated contract. However, liabilities that were accrued and became due prior to repudiation are enforceable against the minor. Recovery of money paid by a minor prior to repudiation is possible only if there has been a total failure of consideration.

4

For more detail about these kind of contracts, see ibid, section 10.2.2.

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[10.08]

Steinberg v Scala (Leeds) Ltd [1923] 2 Ch 452 Court of Appeal The plaintiff had entered into a contract for the purchase of certain company shares and had her name duly entered on the register. She did not attend any meeting of the defendant company and did not receive any dividend on the shares. Some two years after entering into the contract, the plaintiff wrote to the defendant company repudiating the contract and claiming the return of her money. The company refused to remove her name from the register and refused to repay her money. [The plaintiff won at first instance, and the company appealed to the Court of Appeal.] Lord Sterndale MR I think in this case the appeal must be allowed and judgment must be entered for the defendant company. … The action is brought for two objects: first, for rectification of the register of the defendant company by the removal therefrom of the plaintiff ’s name, as to which no question now arises because it is not opposed, and, secondly, for judgment for the recovery of money which the plaintiff has paid in order to become a shareholder in the company. The plaintiff is a young lady still an infant, and when still more an infant some year or two ago she paid £50 as a payment on application for shares in the defendant company and subsequently paid a further sum of £200 for calls after the shares had been allotted to her, so that she paid altogether £250 for shares in the defendant company. There was a question as to certain further calls being made and the plaintiff, who had found the £250 out of money given to her, I think by an uncle for the purpose of providing her with a dowry, could not find any more money, and then, awaking to the position that she had shares in a company on which there would be calls made and that she had not the money to meet them, she also awoke to the position that she was an infant and could rescind the contract, and she did so. There is no doubt that she was entitled to do so and to have the register rectified by the removal of her name therefrom. But then there came another question. She also wanted the £250 back, and, to a certain extent, I  think the argument for the respondent has rather proceeded upon the assumption that the question whether she can rescind and the question whether she can recover her money back are the same. They are two quite different questions, as is pointed out by Turner LJ in his judgment in Ex parte Taylor 8 D M & G 254, 257, 258. He there says: ‘It is clear that an infant cannot be absolutely bound by a contract entered into during his minority. He must have a right upon his attaining his majority to elect whether he will adopt the contract or not.’ Then he proceeds: ‘It is, however, a different question whether, if an infant pays money on the footing of a contract, he can afterwards recover it back. If an infant buys an article which is not a necessary, he cannot be compelled to pay for it, but if he does pay for it during his minority he cannot on attaining his majority recover the money back.’ That seems to me to be only stating in other words the principle which is laid down in a number of other cases that, although the contract may be rescinded the money paid cannot be recovered back unless there has been an

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entire failure of the consideration for which the money has been paid. Therefore it seems to me that the question to which we have to address ourselves is: Has there here been a total failure of the consideration for which the money was paid? Now the plaintiff has had the shares; I do not mean to say she had the certificates; she could have had them at any time if she had applied for them; she has had the shares allotted to her and there is evidence that they were of some value, that they had been dealt in at from 9s to 10s a share. Of course her shares were only half paid up and, therefore, if she had attempted to sell them she would only have obtained half of that amount, but that is quite a tangible and substantial sum. In those circumstances is it possible to say that there was a total failure of consideration? If the plaintiff were a person of full age suing to recover the money back on the ground, and the sole ground, that there had been a failure of consideration it seems to me it would have been impossible for her to succeed, because she would have got the very thing for which the money was paid and would have got a thing of tangible value. The argument for the respondent is I  think to this effect:  That it is necessary, in order to show that the consideration has not entirely failed, to prove that the plaintiff has not only had something which was worth value in the market and for which she could have obtained value, but that she has in fact received that value. It was admitted that if she had in this case sold the shares and received the £125 which would have been receivable according to one of the prices mentioned in evidence she could not have recovered the money back, but it is said that as she did not in fact do that and had only an opportunity of receiving that benefit, there has been a total failure of consideration. I  cannot see that. If she has obtained something which has money’s worth then she has received some consideration, that is, she has received the very thing for which she paid her money, and the fact that, although it has money’s worth, she has not turned that money’s worth into money, does not seem to me to prevent it being some valuable consideration for the money which she has paid. I cannot see any difference when you come to consider whether there has been consideration or not between the position of a person of full age and an infant. The question whether there has been consideration or not must, I think, be the same in the two cases. … … I  think, for the reasons I  have stated, that this appeal should be allowed and judgment should be entered for the defendant company with costs here and below. [Warrington and Younger LJJ wrote similar judgments and dismissed the appeal.]

Legislation [10.09] Legislation has been enacted in Victoria, South Australia and New South Wales which alters the common law obligations of minors who enter into contracts.5

5

For more detail about the impact of legislation, see ibid, section 10.2.6.

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Victoria [10.10] The Victorian legislation provides greater protection to a minor than exists under the common law. Section 49 largely reflects the common law by providing that the specified contracts (except contracts for the payment of necessaries) that are entered into by a minor are void. Section 50 provides protection that does not exist at common law by preventing an action being brought against a person where he or she, upon attaining majority, promises to pay a debt that was contracted while he or she was a minor. Section 51 provides some protection for a person who is the holder of an instrument that relates to the minor’s promise to repay, if that person has acted in good faith, for value, and without notice of the person’s minority. Contracts that do not fall within these provisions will continue to be governed by the common law. [10.11]

Supreme Court Act 1986 (Vic) Section 49 The following contracts entered into by a minor are void— (a) contracts for the repayment of money lent or to be lent; (b) contracts for payment for goods supplied or to be supplied, other than necessaries; (c) accounts stated.

Section 50 (1) No proceeding can be brought to charge a person— (a) on a promise made after full age to pay a debt contracted during minority; or (b) on a ratification made after full age of a promise or contract made during minority. (2) This section applies whether or not there was any new consideration for the promise or ratification.

Section 51 (1) If a minor who has contracted a loan (a contract for the repayment of which is void under this Division) agrees after full age to repay all or part of that loan, that agreement and any instrument relating to it is, subject to subsections (2) and (3), void against everyone. (2) A person who— (a) in good faith; and (b) for value; and (c) without notice— is the holder or assignee of an instrument referred to in subsection (1) may recover from the minor the amount secured by the instrument.

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(3) If a person referred to in subsection (2) recovers from the minor the amount secured by the instrument, the minor may recover that amount from the person to whom the minor gave the instrument. (4) For the purposes of this section any interest, commission or other payment in respect of a loan is to be taken to be a part of the loan.

South Australia [10.12] While aspects of this legislation reflect the common law (for example, s 4 which refers to the uneforceability of contracts unless ratified), there are some innovative aspects of the legislation. These include the ability of a court to approve a contract which will then become binding on the minor (s 6), and the ability of a court to appoint a person to transact business on behalf of the minor, thereby imposing enforceable liabilities against the minor (s 8). [10.13]

Minors Contracts (Miscellaneous Provisions) Act 1979 (SA) Section 4 Where a person has entered into a contract that is, by reason of his minority at the time of entering into the contract, unenforceable against him, the contract shall remain unenforceable against him unless it is ratified by him, in writing, on or after the day on which he attains his majority.

Section 5 (1) When a person (other than a minor) guarantees the performance by a minor of his obligations under a contract, the guarantee shall be enforceable against the guarantor to the same extent as if the minor had, before entering into the contract to which the guarantee relates, attained his majority. (2) This section does not operate to render a guarantee enforceable if it would, apart from this section, be unenforceable otherwise than by reason of the minority of the person whose obligations are guaranteed.

Section 6 (1) A contract with a minor shall have effect as if the minor had, before entering into the contract, attained his majority if, before the contract was entered into by the minor, its terms were approved by a court. (2) An application for the approval of a court in respect of the terms of a proposed contract may be made by— (a) the minor, or his parent or guardian; or (b) any other party to the proposed contract. (3) …

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Section 7 (1) Where— (a) a person has avoided a contract on the ground of his minority; and (b) before the avoidance of the contract, property passed thereunder to some other contracting party, a court may, on an application made by or on behalf of the minor, order restitution of that property. (2) An order under this section— (a) may be made on such terms and conditions as the court considers just; and (b) may be made notwithstanding that the minor has received some benefit under the contract, or that any other party to the contract has partly performed his obligations under the contract. (3) …

Section 8 (1) A court may— (a) on the application of a minor; or (b) on the application of a parent or guardian of a minor, appoint a person to transact any specified business, or business of a specified class, or to execute any documents, on behalf of the minor. (2) Where a person appointed to transact business on behalf of a minor under this section incurs any liabilities in the course of so doing those liabilities are enforceable against the minor. (3) …

New South Wales [10.14] The New South Wales legislation, Minors (Property and Contracts) Act 1970 (NSW), differs considerably from the Victorian and South Australian models. Overall, the New South Wales legislation has reduced the common law protection by making a number of specified transactions presumptively binding on the minor. The legislation also provides for the affirmation and repudiation of contracts entered into during a person’s minority in circumstances not contemplated by, and subject to restrictions not existing at, common law.6 Some of the relevant provisions from the NSW legislation are extracted below, but these provisions should be read in conjunction with the legislative scheme as a whole.

6

For a summary of the New South Wales legislation, see ibid, sections 10.115–10.135.

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[10.15]

Minors (Property and Contracts) Act 1970 (NSW) Section 19 Where a minor participates in a civil act and his or her participation is for his or her benefit at the time of his or her participation, the civil act is presumptively binding on the minor. [‘Civil act’ is defined in section 6 to include a contract.]

Section 20 (1) Where: (a) a minor makes a disposition of property for a consideration received or to be received by the minor, (b) the consideration is not manifestly inadequate at the time of the disposition, and (c) the minor receives the whole or any part of the consideration: the disposition is presumptively binding on the minor. (2) Where: (a) a disposition of property is made to a minor for a consideration given or to be given by the minor, and (b) the consideration is not manifestly excessive at the time of the disposition: the disposition is presumptively binding on the minor. (3) …

Section 23 An investment by a minor in: (a) any public funds or government stock or government securities of any State of Australia or of the Commonwealth, or (b) any debentures or securities guaranteed by the Government or by the Treasurer: is presumptively binding on the minor.

Section 24 Where a minor participates in a civil act and a person who is not a party to the civil act: (a) acquires property affected by the civil act or any estate or interest in property so affected for valuable consideration, or (b) acts, otherwise than as a volunteer and so as to alter his or her position, on the basis of the validity of the civil act: in either case without notice that the minor participant is at the time of his or her participation in the civil act a minor, the civil act is, in favour of that person and in favour of any person claiming under that person, presumptively binding on the minor participant.

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Section 26 (1) The Supreme Court, on application by a minor, may, by order: (a) grant to the minor capacity to participate in any civil act or in any description of civil acts or in all civil acts, and (b) rescind or vary an order under paragraph (a). (2) The Court may make an order under subsection (1) on such terms and conditions as the Court thinks fit. (3) The Court shall not make an order under this section unless it appears to the Court that the order is for the benefit of the minor. (4) A civil act in which a minor participates is, if authorised by a grant of capacity under this section, presumptively binding on the minor. (5) An order of rescission or variation under paragraph (b) of subsection (1) does not affect the validity of a civil act in which the minor has participated before the making of the order of rescission or variation.

Section 27 (1) A contract made by a minor or a disposition of property made by or to a minor pursuant to an approval under this section is presumptively binding on the minor. (2) The Local Court may, on application by a minor, by order approve a contract proposed to be made by a minor or a disposition of property proposed to be made by or to a minor. (3) (Repealed) (4) The Local Court may make an order under this section on such terms and conditions as the Court thinks fit. (5) The Local Court shall not make an order under this section unless it appears to the Court that: (a) the minor would not undertake obligations under the proposed contract or dispose of property under the proposed disposition of property to the value of $10,000 or upwards, and (b) the order is for the benefit of the minor. (6) …

Section 28 (1) Where a minor makes a disposition of property for consideration and a certificate in respect of the disposition is given in accordance with this section, the disposition is presumptively binding on the minor. (2) A certificate for the purposes of this section in respect of a disposition of property made by a minor for consideration must: (a) be given before, but not more than seven days before, the making of the disposition, and (b) be given:

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(i)

by a solicitor instructed and employed independently of any other party to the disposition, or

(ii)

by the NSW Trustee and Guardian, and

(c) state that the person giving the certificate is satisfied that: (i)

the minor understands the true purport and effect in law of the disposition, and

(ii)

the minor makes the disposition freely and voluntarily, and

(d) state that the person giving the certificate has received a written statement from an independent and appropriately qualified valuer or other financial adviser to the effect that the consideration for the disposition is not manifestly inadequate, and (e) have annexed to the certificate a copy of the written statement referred to in paragraph (d).

Section 29 (1) Where a disposition of property is made to a minor for consideration and a certificate in respect of the disposition is given in accordance with this section, the disposition is presumptively binding on the minor. (2) A certificate for the purposes of this section in respect of a disposition of property made to a minor for consideration must: (a) be given before, but not more than seven days before, the making of the disposition, and (b) be given: (i)

by a solicitor instructed and employed independently of any other party to the disposition, or

(ii)

by the NSW Trustee and Guardian, and

(c) state that the person giving the certificate is satisfied that: (i)

the minor understands the true purport and effect in law of the disposition, and

(ii)

the minor takes the disposition freely and voluntarily, and

(d) state that the person giving the certificate has received a written statement from an independent and appropriately qualified valuer or other financial adviser to the effect that the consideration for the disposition is not manifestly excessive, and (e) have annexed to the certificate a copy of the written statement referred to in paragraph (d). (3) …

Section 30 (1) Where a person participates in a civil act while the person is a minor, the civil act may be affirmed: (a) while the person remains a minor, on the person’s behalf by order of a court having jurisdiction under this section, (b) after the person attains the age of eighteen years, by the person, or (c) after the person’s death, by the person’s personal representative.

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(2) The court may affirm a civil act on behalf of a minor participant in the civil act under paragraph (a)  of subsection (1)  on application by the minor participant or by any other person interested in the civil act. (3) Subject to section 36, the court shall not affirm a civil act on behalf of a minor participant in the civil act under paragraph (a) of subsection (1) unless it appears to the court that the affirmation is for the benefit of the minor participant. (4) Where a civil act is affirmed pursuant to this section by or on behalf of a minor participant in the civil act, or by the personal representative of a deceased minor participant in the civil act, the civil act is presumptively binding on the minor participant. (5) An affirmation of a civil act under this section by a minor participant in the civil act or by the personal representative of a deceased minor participant in the civil act: (a) may be by words, written or spoken, or by conduct, and (b) need not be communicated to any person.

Section 31 (1) Where a minor has participated in a civil act, then, subject to sections 33 and 35 and subject to subsection (2), the minor participant may repudiate the civil act at any time during his or her minority or afterwards but before the minor attains the age of nineteen years. (2) A repudiation of a civil act by a minor participant in the civil act does not have effect if it appears that, at the time of the repudiation, the civil act is for the benefit of the minor participant.

Section 33 (1) Where a civil act is repudiated under section 31 or section 32: (a) the repudiation does not affect any person unless notice in accordance with subsection (2) is served on that person or on a person under whom that person claims, (b) the repudiation has effect against a person served with the notice and against a person claiming under the person served as if made on the date of service of the notice. (2) A notice of repudiation must be in writing and signed by the person making the repudiation or by the person’s agent. (3) …

Section 34 (1) Where a minor has participated in a civil act, then, subject to section 35 and subject to subsection (2), a court having jurisdiction under this section may, by order, repudiate the civil act on behalf of the minor participant at any time during his or her minority. (2) The court shall not repudiate a civil act on behalf of a minor participant if it appears to the court that the civil act is for the benefit of the minor participant. (3) Where the court repudiates a civil act on behalf of a minor participant, the court shall give such directions as it thinks fit for service of notice of the order of repudiation on persons interested in the civil act.

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Section 36 Where, on application to a court having jurisdiction under this section by a person interested in a civil act, it appears to the court that the civil act is not presumptively binding on a minor participant in the civil act in favour of the applicant, the court shall either affirm the civil act under section 30 or repudiate the civil act under section 34 on behalf of the minor participant.

Section 37 (1) Where a civil act is repudiated under any of sections 31, 32 and 34, a court having jurisdiction under this section may, on the application of any person interested in the civil act, make orders: (a) for the confirmation, wholly or in part, of the civil act or of anything done under the civil act, or (b) for the adjustment of rights arising out of the civil act or out of the repudiation or out of anything done under the civil act. (2) Without limiting the generality of paragraph (a) of subsection (1), where on an application under this section, it appears to the court that any party to the civil act was induced to participate in the civil act by a misrepresentation made by a minor participant in the civil act, being a fraudulent misrepresentation as to the age of the minor participant or as to any other matter affecting the capacity of the minor participant to participate in the civil act, the court may confirm the civil act and anything done under the civil act. (3) Where a civil act is presumptively binding in favour of any person, the court shall not make any order under this section adversely affecting the person’s rights except with the person’s consent. (4) Subject to subsection (3), and except so far as the court confirms the civil act or anything done under the civil act, the court shall make such orders as are authorised by this section and as the court thinks fit for the purpose of securing so far as practicable that: (a) each minor participant in the civil act makes just compensation for all property, services and other things derived by him or her by or under the civil act to the extent that the derivation of that property or of those services or things is for his or her benefit, (b) each other participant in the civil act makes just compensation for all property, services and other things derived by him or her by or under the civil act, and (c) subject to paragraphs (a) and (b), the parties to the civil act and those claiming under them are restored to their positions before the time of the civil act. (5) Any court having jurisdiction under this section may, for the purposes of this section, make orders: (a) for the delivery of goods, and (b) for the payment of money. (6) In addition to its jurisdiction under subsection (5), the Supreme Court may, for the purposes of this section, make orders for: (a) the making of any disposition of property, (b) sale or other realisation of property,

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(c) the disposal of the proceeds of sale or other realisation of property, (d) the creation of a charge on property in favour of any person, (e) the enforcement of a charge so created, (f) the appointment and regulation of the proceedings of a receiver of property, (g) the vesting of property in any person, and (h) the rescission or variation of any order of the Supreme Court under this section. (7) …

MENTAL INCAPACITY [10.16] At common law, the validity of a contract might be challenged if, at the time that the contract was entered into, the individual lacked the capacity to understand the nature of the transaction, and the other contracting party was aware of this fact.7 The incapacity may arise for a variety of reasons including intellectual impairment (for example, resulting from dementia), mental illness or acquired brain injury. The incapacity may also be temporary and result from drug use or intoxication. [10.17]

Gibbons v Wright (1954) 91 CLR 423 High Court of Australia Three women, Olinda and Ethel Gibbons (who were sisters) and Bessie Gibbons (sister-in-law of Olinda and Ethel), owned property as joint tenants. Before their death, Olinda and Ethel executed documents (both a mortgage and transfers) which had the effect of severing the joint tenancy. If the documents were valid, upon the death of the sisters, Bessie would have held only a one-third interest in the property as a tenant in common. If the documents were invalid, Bessie would have been entitled to the entire property as it would have passed to her by survivorship. Upon the death of the sisters, Bessie (the appellant) sought a declaration that the documents signed by the sisters were invalid for want of mental capacity at the time of their execution. Wright (the respondent) was the executor of the wills of Olinda and Ethel. Dixon CJ, Kitto and Taylor JJ The learned Chief Justice was clearly right in treating the validity of the instruments in suit as depending upon the possession by Ethel Rose Gibbons and Olinda Gibbons of a degree of understanding relative to the nature of that which they were doing. The law does not prescribe any fixed standard of sanity as requisite for the validity of all transactions. It requires, in relation to each particular matter or piece of business transacted, that

7

For more detail about these kinds of contracts, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 10.3.

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each party shall have such soundness of mind as to be capable of understanding the general nature of what he is doing by his participation … [T]he mental capacity required by the law in respect of any instrument is relative to the particular transaction which is being effected by means of the instrument, and may be described as the capacity to understand the nature of that transaction when it is explained. As Hodson LJ remarked in [Estate of Park (1954) P 112 at 136] ‘one cannot consider soundness of mind in the air, so to speak, but only in relation to the facts and the subject-matter of the particular case’. Ordinarily the nature of the transaction means in this connection the broad operation, the ‘general purport’ of the instrument; but in some cases it may mean the effect of a wider transaction which the instrument is a means of carrying out … In the present case, it was necessary, we think, that the two sisters should have been capable of understanding, if the matter had been explained to them, that by executing the mortgages and the memorandum of transfer they would be altering the character of their interests in the properties concerned, so that instead of the last survivor of the three joint tenants becoming entitled to the whole, each of them would be entitled to a one-third share which would pass to her estate if she still owned it at her death. This is apparently not what the learned Chief Justice put to the jury. [The High Court indicated concern about how the Chief Justice phrased the questions put to the jury on capacity, but went on to consider whether lack of capacity alone was sufficient to render the documents invalid.] But proof of this was not enough to entitle the appellant to succeed in the action if the result was that the instruments were merely voidable; for an instrument voidable by reason of the incapacity of a party, or by reason of any form of imposition upon a party, is valid unless and until it is avoided by that party or his representatives. It is clearly not open to other persons, such as one claiming adversely to the party, to elect against the validity of the instrument … Neither Ethel Rose Gibbons nor Olinda Gibbons purported in her lifetime to avoid the instruments severing the joint tenancy, and the respondent as their executor has always affirmed their validity. Consequently the appellant must fail unless the law is that a deed disposing of property is absolutely void if at the time of its execution the disponor was incapable of understanding what he was doing, in the sense we have mentioned. As to whether this is the law, there is a singular lack of modern authority. [After discussing the development of the law regarding the validity of acts done by a person of unsound mind, the High Court cited with approval Lopes LJ in Imperial Loan Co v Stone (1892) 1 QB 599 at 602–603] … the principle to be deduced from the cases [is] in these terms: ‘A contract made by a person of unsound mind is not voidable at that person’s option if the other party to the contract believed at the time he made the contract that the person with whom he was dealing was of sound mind. In order to avoid a fair contract on the ground of insanity, the mental incapacity of the one must be known to the other of the contracting parties. A defendant who seeks to avoid a contract on the ground of his insanity, must plead and prove, not merely his incapacity, but also the plaintiff ’s knowledge of that fact, and unless he proves these two things he cannot succeed’. Once the law had become committed to this view, it could not be maintained that problems concerning the contracts of persons of unsound mind could be solved by the simple formula: a

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contract requires the assent of both parties; a person of unsound mind is incapable of assenting; therefore no contract can come into existence between parties of whom one is of unsound mind. [Having considered the law in relation to a contract entered into by a person of unsound mind, the Court considered whether the position was the same with respect to a conveyance and concluded] … Upon the authorities as they now stand, it appears to us that we ought to regard it as settled law that an instrument of conveyance executed by a person incapable of understanding its effect, in the sense of its general purport, is not on that account void, though in the circumstances it may be voidable by the conveyor or his representatives. [The High Court held in favour of the respondent. Even if the appellant could prove that the sisters lacked capacity to complete the documents, neither they nor their representatives had taken action to set aside the documents.] [10.18] Legislation in all states and territories facilitate the appointment of a person, commonly known as an ‘administrator’, to manage the finances of a person who lacks capacity to deal with those finances.8 Generally, an appointment will be made if the relevant tribunal (board or panel) is of the view that there is a need for an appointment and, without the appointment, the needs of the person will not be adequately met.

Queensland [10.19]

Guardianship and Administration Act 2000 (Qld) Section 12 (1) The tribunal may, by order, appoint a guardian for a personal matter, or an administrator for a financial matter, for an adult if the tribunal is satisfied— (a) the adult has impaired capacity for the matter; and (b) there is a need for a decision in relation to the matter or the adult is likely to do something in relation to the matter that involves, or is likely to involve, unreasonable risk to the adult’s health, welfare or property; and (c) without an appointment— (i)

the adult’s needs will not be adequately met; or

(ii)

the adult’s interests will not be adequately protected.

(2) The appointment may be on terms considered appropriate by the tribunal. (3) The tribunal may make the order on its own initiative or on the application of the adult, the public guardian or an interested person. (4) …

8

For more detail about this kind of legislation, see ibid, section 10.187.

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Other Australian jurisdictions [10.20] Equivalent (or similar) provisions exist in all other jurisdictions.9

GOVERNMENTS AND THE CROWN [10.21] The government can contract in or through different entities: a government body with independent corporate status under a separate statute or under the Corporations Act; and the Crown, as represented by government.10 In relation to the latter, one point which has been the subject of litigation is the extent to which the Crown, as represented by government (either at Commonwealth, state and territory level) will be liable in damages if a subsequent government decides not to proceed with a contract.

New South Wales v Bardolph (1934) 52 CLR 455 High Court of Australia An officer of the New South Wales Premier’s Department entered into an advertising contract with a resident of South Australia for the weekly insertion in a newspaper of advertisements for the New South Wales Tourist Bureau. The contract was not expressly authorised by the legislature or by the executive, although monies had been appropriated by the government for government advertising. Shortly after making the contract, the government changed, and the new administration refused to use or pay for any further advertising space. Notwithstanding this, the plaintiff continued to insert the advertisements, and at the end of the period named in the contract, brought an action for recovery of the total unpaid amount. Dixon J The Government Tourist Bureau in New South Wales which is managed by an officer called a director, is a department of the public service under the control of the Chief Secretary, who is the responsible Minister. An incident of its work is continual advertising. Many other departments of Government in New South Wales have occasion to advertise. To deal with Government advertisements and publications concerning the various departments, an office has been established in the Premier’s Department. The officer is called the ‘editor of publications and superintendent of advertising,’ shortened to ‘superintendent of advertising.’ It is his duty to authenticate orders and contracts for all Government advertising. … In the action out of which this appeal arises, the plaintiff sues upon a contract made by the superintendent of advertising for the insertion of advertisements of the Tourist Bureau in a

9

Guardianship and Management of Property Act 1991 (ACT), s 8; Guardianship Act 1987 (NSW), s 25G; Guardianship of Adults Act (NT), s 11; Guardianship and Administration Act 1995 (Tas), s 51; Guardianship and Administration Act 1986 (Vic), s 46; Guardianship and Administration Act 1990 (WA), s 64; Guardianship and Administration Act 1993 (SA), s 35.

10 For more detail about contracting with governments and the Crown, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 10.6. See also NC Seddon, Government Contracts: Federal, State and Local, 5th edn, Federation Press, Sydney, 2013.

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newspaper called the Labor Weekly, of which the plaintiff is proprietor. … Each contract was made by the superintendent of advertising, under instruction from the Premier’s private secretary. Orders had been given by the permanent head of the Premier’s Department that instructions from the private secretary should be treated as coming from the Premier. The use of the newspaper for such advertisements was, it is said, a matter of Government policy. … Shortly after the making of the contract sued upon, a change of Government took place, and the new administration refused to use or pay for any further advertising space in the Labor Weekly. … The contention upon which the defence to the action depends is that, for two reasons, the facts I have stated are not enough to impose upon the Crown in right of New South Wales a contractual liability which is actionable. The first reason given is that at common law no authority resided in any of the servants of the Crown who made and authorised the agreement, and none was reposed by Statute to make on behalf of the Crown a contract of the nature of that put in suit. The second reason given is that no contract for the payment of money can expose the Crown to legal proceedings unless and until moneys to answer the payment have been appropriated by Parliament, or the contract has been sanctioned by legislative enactment, and that neither of these conditions has been satisfied. The action upon the contract has not been brought in the Courts of the State, but under s 58 of the Judiciary Act 1903–1933 in the original jurisdiction conferred by s 75 (iv) of the Constitution upon this court in matters between a State and a resident of another State. The plaintiff resides in South Australia. Under these provisions the Crown in right of the State is liable to be sued in contract and in tort. But, although judgment may be given in the suit as if between subject and subject, no execution may issue thereon against the State, but a certificate of the judgment issues upon receipt of which ‘the Treasurer … of the State … shall satisfy the judgment out of moneys legally available’—ss 64, 65 and 66 of the Judiciary Act. These provisions serve to measure the liability to which the Crown may be adjudged. It is not absolute, but to pay out of moneys made available under the law of the State. They ‘recognise the principle that the liabilities of the Crown in right of the States are subject to Parliamentary appropriation of funds’ (State of New South Wales v The Commonwealth of Australia No 1 (1992) 46 CLR 155 at p 177). The question, therefore, strictly is whether the State has incurred a liability to this judicial remedy. In considering whether the Crown was affected with responsibility for the agreement made on its behalf by the superintendent of advertising, that is whether, independently of Parliamentary provision of funds, it became the contract of the Crown, it is a matter of primary importance that the subject-matter of the contract, notwithstanding its commercial character, concerned a recognised and regular activity of Government in New South Wales. Not only has the conduct of a Tourist Bureau been long practised by the Executive, it has been recognised by Parliament in the appropriation of funds, and it has been proclaimed under Statute as an industrial undertaking. Again, it is a matter of no small importance that the contract was made by an officer appointed for the regular discharge of duties which included the making of contracts in reference to advertisements of the Tourist Bureau. His independent authority would probably be enough to support the contract, but the intervention of the Premier, in my opinion, puts beyond question the authority of the contract as a transaction of the Crown. In New South Wales the Premier is a Minister of the Crown known to the law. The Premiership itself is an office mentioned

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in the Constitution Act (cf ss 27 and 29 and Second Schedule). In his capacity of Premier he administers a department. It appears that in the division of work among various departments, the making of advertising contracts fell to an officer of his department, who, therefore, must act under his control and direction. But, independently of this consideration, as head of the Administration, he must be assumed to speak with the authority of the Government. It is not a tenable position that, because he did not act through the Chief Secretary as the Minister administering the Tourist Bureau, his instructions cannot in law amount to an authorisation on behalf of the Crown. Nor is it possible to treat the communication to the director of the Tourist Bureau, that the expenditure would not be debited to his account, as taking the contract out of the course of the authority residing in the Premier and his officer, the superintendent of advertising. The bona fides of the transaction not being in question, this can amount to no more than a proposal communicated by one servant of the Crown to another as to the fund which should provide for the burden, a matter which could not concern the plaintiff. No statutory power to make a contract in the ordinary course of administering a recognised part of the government of the State appears to me to be necessary in order that, if made by the appropriate servant of the Crown, it should become the contract of the Crown, and, subject to the provision of funds to answer it, binding upon the Crown. (See, per Blackburn, J, Thomas v The Queen (1874) LR 10 QB 31 at p 33; and per Rowlatt, J, Rederiaktiebolaget Amphitrite v The King (1921) 3 KB 500 at p 503.) I think that the contract sued upon is a contract of the Crown. [Dixon J proceeded to consider and reject the Crown’s second defence and held that the Crown could be liable under the contract even though, at the time of the suit, appropriation of monies had not yet been made by Parliament to answer the contract.] [Gavan Duffy CJ expressly agreed with the reasons given by Dixon J, and Rich, Starke and McTiernan JJ wrote consistent judgments.]

QUESTIONS FOR REFLECTION (1) At common law, what is the legal basis for requiring a minor to pay for necessary goods and services that have been provided to the minor? (2) Do you think that the common law provides adequate protection to minors who enter into contracts? Comment on the effect of legislative reform in Victoria, South Australia and New South Wales on contracts entered into by minors. (3) What level of understanding must an individual possess for a contract entered into by that person to be valid? (4) To what extent is the principle of ‘consensus’ that is generally essential for contract formation applicable where one of the parties lacks the intellectual capacity to understand the general purport of the document?

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INTRODUCTION [11.01] Most contracts do not have to be in writing to be enforceable. However, legislation exists in all Australian jurisdictions which require certain contracts to be in writing or to be evidenced in writing before they can be enforced. Two important contracts for which the requirement of writing generally still exists are contracts of guarantee and for the disposition of land. This requirement dates back to the enactment of the Statute of Frauds in the United Kingdom in 1677.

NATURE OF A GUARANTEE [11.02] A contract of guarantee is ‘a contract to answer for the debt, default or miscarriage of another who is to be primarily liable to the promisee’.1 [11.03] A number of transactions resemble contracts of guarantee, yet technically are not so regarded.2 The arrangements below do not constitute a contract of guarantee, and therefore do not need to comply with the statutory requirement of formality. (a) Contract of indemnity—In many ways, a contract of indemnity has the same effect as a contract of guarantee. The distinction between a guarantee and an indemnity is that under the latter, the surety undertakes primary liability. This means the surety may be liable notwithstanding that the principal transaction is unenforceable.

1

For more detail about the nature of a guarantee, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 11.2.1.

2

For more detail about transactions that are not guarantees, see ibid, section 11.2.2.

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Yeoman Credit Ltd v Latter [1961] 1 WLR 828 English Court of Appeal Yeoman Credit Ltd, a finance company, let a car on hire-purchase terms to Mr Latter, who was a minor at the time of contract. Because the hirer was a minor, a surety (the second defendant) was asked to sign a document headed ‘Hire-purchase indemnity and undertaking’. Pursuant to cl 1 of the document, the surety agreed with the finance company to ‘indemnify you against any loss arising from or arising out of the agreement and to pay to you the amount of such loss or demand and whether or not at the time of demand you shall have exercised all or any of your remedies in respect of the hirer or the chattels but so that upon payment in full by me of my liabilities hereunder I shall obtain such of your rights as you may at your discretion assign to me’. [Under English law, the principal transaction between Yeoman Credit Ltd and Mr Latter was void because Mr Latter was a minor at the time he entered the contract. As a result, on the default of Mr Latter, Yeoman Credit Ltd brought action against the surety. At first instance, the judge held that the surety was not liable because, as the principal hire-purchase transaction was void, so too was the guarantee. Yeoman Credit Ltd appealed against this decision, claiming that the document completed by the surety was an indemnity rather than a guarantee.] Holroyd Pearce LJ The document in question is headed and described as ‘Hirepurchase indemnity and undertaking’. It is clear from the wording of the document and the surrounding circumstances that it was intended to be something more than a mere guarantee. This tells in favour of its being in truth an indemnity. However, I agree with Mr. Laughton-Scott that we must have regard to its essential nature in order to decide whether or not it is really no more than a guarantee. Its ultimate object, of course, was to ensure that the plaintiffs received back with profit the money that they had laid out in the transaction; but that ultimate object is shared by guarantee and indemnity alike. It is the method by which that object is attained which decides the class to which the document belongs. One may sum up the effect of the document in question as this:  It protects the plaintiffs against any loss they may suffer since it assures to them the full sum of the hire-purchase price, plus any costs incurred by them in enforcing the hire-purchase agreement. Thus the rights of the second defendant (if called upon to pay) are different from the rights of subrogation under a guarantee, rights which would, in such a case as this, be useless. Moreover, whereas the plaintiffs’ rights against the hirer and the second defendant would, under a normal guarantee, be identical, the document in question gives to the plaintiffs wholly different rights from those which they have against the hirer under the hire-purchase agreement. In some circumstances the plaintiffs’ rights against the hirer may be higher than those against the second defendant, and in some circumstances lower. If, as happened in the present case, the plaintiffs seize the car on default and sell it for a good price, the hirer’s liability will be greater than that of the second defendant. Against the hirer the plaintiffs can claim under clause 7 of the hire-purchase agreement such sum as will make up the sums already paid by the hirer to half the purchase price as agreed compensation for depreciation; but they need not give any credit for the value or proceeds of the car which

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they have seized. Against the second defendant, however, they can claim the total hire-purchase price plus expenses of enforcement, but they must give credit for the whole proceeds of the car. Hence the substantial difference between the respective sums claimed in this action against the first and second defendants. This difference, is caused solely by the difference between the plaintiffs’ rights under the indemnity and the hire-purchase agreement. Further, the agreement does not provide that the second defendant shall make good the particular defaults of the hirer. If the hirer fails to pay the instalments, no recourse can be had to the second defendant for those instalments. None of the actual obligations of the hirer can, if he defaults, be enforced against the second defendant. Only if the totality of the transaction produces either a loss, or a profit less than that which the total hire-purchase price would have yielded can the second defendant be asked to pay. And, if he is asked to pay, the fact that the hirer has made no default is no defence. For it is irrelevant to the calculations on which the second defendant’s liability is based. And that liability may well arise from a lawful return of the car by the hirer coupled with a fall in the price of second-hand cars. The agreement is in truth (as clause 1 states) an indemnity against ‘any loss resulting from or arising out of the agreement,’ and not a surety against loss resulting from particular breaches of the agreement. All these considerations point strongly towards the agreement being what it claims to be, namely, an indemnity. The surrounding circumstances (so far as one can gather them in the absence of the evidence) also support that claim. The parties were, it would seem, all aware of the legal difficulty created by the hirer’s infancy. Hence the necessity for this special form, of indemnity. That circumstance, as well as the wording of the document, makes it improbable that the transaction was intended as a guarantee of particular obligations if, as appears, they were known not to be binding against the infant. These assumptions, however, may thereafter be shown by the evidence to be incorrect. In the leading case of Lakeman v Mountstephen (1874) LR 7 HL 17 the plaintiff, a contractor, was failing to do certain sewage work because he was not sure that the Board of Health would pay for it; and the defendant, who wanted the work to be done, said: ‘Mountstephen, go and do the work, and I will see you paid.’ The House held that these words did not constitute a promise to pay the debt of another, and that they were rightly left to the jury as evidence of a primary obligation on the defendant. Lord Selborne said at 24, 25: ‘There can be no suretyship unless there be a “principal debtor, who of course may be constituted in the course of the transaction by matters ex post facto, and need not be so at the time, but until there is a principal debtor there can be no suretyship. Nor can a man guarantee anybody else’s debt unless there is a debt of some other person to be guaranteed. The tendency, therefore, of any view of this contract which would place it in the position of a guarantee for a future liability to be undertaken by the local board, would be absolutely to defeat the whole purpose of the communication, which was to remove a difficulty then pressing upon the mind of the contractor, as to whether or not he had sufficient authority from anyone to go on with the work; and the answer was given in terms de praesenti for the express purpose of inducing him at once to go on.’ In the present case the agreement is more consistent with a primary obligation on the second defendant to secure the

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plaintiffs against loss if the transaction should turn out unremunerative rather than a secondary obligation to make good the particular defaults of the hirer. In Wauthier v Wilson (1912) 28 TLR 239 a father and infant son signed a joint and several promissory note, the father joining as guarantor. Pickford J had held that the debt against the infant was void, but that, nevertheless, a guarantor of it remained liable … The Court of Appeal 28 TLR 239 (without expressly disagreeing with the trial judge) preferred to take a different view. Farwell LJ said: ‘… if Mr Newbolt’s contention that this was a case of a guarantee were to prevail it would follow that these three parties deliberately sat down to enter into an arrangement under which money was to be advanced on a promissory note on which no one was liable at all, there being no one liable as principal and therefore no one liable as surety’. And later Farwell LJ said: ‘That seemed to him [the Lord Justice] to be the plain meaning of the transaction, on the assumption that the plaintiff knew that the son was under age; and it followed that, in his [his Lordship’s] opinion, the father acted as principal and incurred liability as principal.’ I would take a somewhat similar view of the transaction in the present case in the absence of any evidence to the contrary. The second defendant was in effect saying to the plaintiffs: ‘Go on with the transaction, and I will see you make your profit and suffer no loss.’ No doubt it was hoped that the hirer would fulfil his obligations, although not legally bound by them. But the second defendant was not purporting to guarantee or make good any particular obligation of the hirer. Under the terms of his agreement he had no liability to do so. His liability was to see that the plaintiffs made their intended profit even though the hirer lawfully, without any default, terminated the hiring. He was underwriting the profitable success of the transaction, he was not insuring against contractual breaches of it by the hirer. For those reasons, the agreement was not a contract of guarantee, but a contract of indemnity. [Harman LJ agreed with the conclusion reached by Holroyd Pearce LJ, but Davies LJ did not come to a conclusion on this point.] (b) Promise of guarantee made to the debtor—Instead of making a promise to the person to whom the principal obligor (the debtor) contracts, a surety may promise the principal obligor that the surety will pay his or her debt. As this promise is not made to the person with whom the principal obligor contracts, the contract is not one of guarantee. (c) Person agrees to take over the debt of another—Where a debtor and creditor have entered into a contract of loan, a third party may agree with the creditor to take over the debt of the debtor. Such an arrangement is not a contract of guarantee and therefore need not comply with the statutory requirement of formality. (d) Agreement that imposes no personal liability—Instead of undertaking personal liability under a contract of guarantee, a person may proffer his or her property as security to the promisee under the principal transaction.

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Harvey v Edwards, Dunlop & Co Ltd (1927) 39 CLR 302 High Court of Australia The plaintiff, Edwards, Dunlop & Co Ltd (‘Edwards’), was owed money by a third party. In consideration of Edwards not suing the third party, the defendant, Mr Harvey, agreed to pay the money by allowing the sale of his property in Scotland. To effect the sale, he forwarded to a solicitor in Scotland a power of attorney. Mr Harvey later refused to pay Edwards the money owed by the third party and was sued on his promise. Pursuant to section 228 of the Instruments Act 1915 (Vic), for a special promise to answer for the debt of another to be enforceable, there had to be a note or memorandum of that promise in writing. Higgins J (being the only Justice to consider whether or not the arrangement constituted a guarantee) But, in my opinion, the agreement in fact made—as found by the learned Judge of first instance, and not here impugned—was not a ‘special promise to answer for the debt default or miscarriages of another person’ within the statute. The contract, as found by the learned Judge (1927) VLR at p 45, was made between the plaintiff, the Inter-state Stationery Manufacturing Co Pty Ltd, and the defendant, ‘by which in consideration that the plaintiff would refrain from signing judgment against the “(Inter-State)” Company the defendant agreed to execute the power of attorney in the form approved, to send it to the attorney under power without unreasonable delay, and to instruct him to sell in such time and upon such terms as would allow him to pay principal and interest at 8 per cent to the plaintiff at its London office before the end of February 1926. A term was necessarily implied in this contract that the defendant had not done and would not do anything calculated to prevent or impede the sale taking place and the proceeds being applied in payment of the amount owing to the plaintiff in manner provided.’ Now, the Act requires a writing for an enforceable contract when there is a special promise to answer for the debt, default or miscarriage of another person. What does ‘answer for’ mean? It must mean to answer for personally—to impose on the promisor and his assets generally a liability for the debt. It cannot mean to impose a mere liability on a particular asset, as when B pledges his shares for the payment of A’s overdraft without undertaking any personal liability. In the present case the liability is imposed only on the proceeds of the sale of some property in Paisley. There is nothing to bind the defendant to pay out of his assets generally any deficiency, should those proceeds be insufficient for the debt. The defendant has not promised to answer for the debt of the company, although he may have promised that his Paisley property shall, in a popular sense, answer for that debt. The case cited by the Chief Justice (Macrory v Scott (1850) 5 Ex 907) seems to be very relevant. There, Parke B pointed out that an agreement to the effect that property already pledged as security for one debt should remain in pledge for another was not an agreement that required a writing under the Statute of Frauds. I know of no case in which the statute has been held to apply in which an action for assumpsit (or covenant) would not lie. (e) Letter of comfort—Instead of a guarantee, a third party may only be prepared to give the lender some assurance about the likelihood of the debtor meeting obligations under the

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principal contract. Such assurances are commonly referred to as letters of comfort. Whether a letter of comfort is binding as a contractual document—so that the third party may be called upon to pay pursuant to that letter—depends on the construction of the document, in particular the intention of the parties.

Statutory requirement of writing—guarantees [11.04] For a contract of guarantee to be enforceable, the relevant statutory provision requires either the promise to be in writing, or some ‘memorandum or note’ of the promise to be in writing. It must also be signed by the party to be charged or someone authorised by that person.

Queensland [11.05]

Property Law Act 1974 (Qld) Section 56 (1) No action may be brought upon any promise to guarantee any liability of another unless the promise upon which such action is brought, or some memorandum or note of the promise, is in writing, and signed by the party to be charged, or by some other person by the party lawfully authorised. (2) A promise, or memorandum or note of a promise, in writing shall not be treated as insufficient for the purpose of this section merely because the consideration for such promise does not appear in writing or by necessary inference from a written document.

Other Australian jurisdictions [11.06] Equivalent provisions exist in Victoria, Western Australia, Tasmania, the Australian Capital Territory and the Northern Territory,3 but not in New South Wales or South Australia.

NATURE OF LAND CONTRACT NEEDING WRITING [11.07] The requirement of formality applies to a contract for the sale of land or any interest in land as well as a contract for the ‘other disposition’ of land or any interest in land. ‘Disposition’ is a wide term; it will include such transactions as the mortgage of land, lease of land, and the

3

Instruments Act 1958 (Vic), s 126; Law Reform (Statute of Frauds) Act 1962 (WA), s 2; Mercantile Law Act 1935 (Tas), s 6; Mercantile Law Act 1962 (ACT), s 12; Law of Property Act 2000 (NT), s 58.

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declaration of a trust in relation to the land. It can also extend to a disposition of an interest in land involving a third party.

Powercell Pty Ltd v Cuzeno Pty Ltd [2004] NSWCA 51 New South Wales Court of Appeal The parties had entered into a joint venture in relation to land owned by Cuzeno Pty Ltd (‘Cuzeno’). They agreed that Powercell Pty Ltd (‘Powercell’) would construct a number of units on the property and, after construction, they would share in the proceeds of the sale of the units. Powercell sold a number of the units ‘off the plan’. The joint venture failed and was terminated on 19 July 1996. At the same time, the parties agreed (verbally) to enter into a new building contract and for Cuzeno to take over as vendor under the contracts of sale previously entered into by Powercell. Cuzeno failed to take over as seller, and Powercell was successfully sued by a number of the purchasers. Powercell brought action against Cuzeno claiming damages for breach of their verbal agreement. Giles JA [After dealing with a preliminary point, considered whether the arrangement between the parties was a contract which was required to be in writing under section 54A of the Conveyancing Act 1919 NSW.] Section 54A substantially re-enacted s 4 of the Statute of Frauds 29 Car II cap 3. The Statute of Frauds laid down formal requirements for a number of transactions, not only contracts for the sale of land. The purpose, as the title ‘A Statute for the Prevention of Frauds and Perjuries’ indicates, was guarding against fraud by insisting on a written record. It has often been observed that the requirement of a written record can itself become an instrument of fraud. Equity has devised the doctrine of part performance as a basis of equitable relief in the absence of a written record, but part performance does not excuse the absence of a written record in an action for damages for breach of contract (JC Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282; O’Rourke v Hoeven (1974) 1 NSWLR 622). Although criticised, the requirement of a written record for contracts for the sale of land has been retained. That must be because certainty in dealings with land is thought to be fostered by insistence on a written record. There was no relevant written record of the agreement made on the morning of 19 July 1996. The appellant submitted that the agreement was not a ‘contract for the sale or other disposition of land or any interest in land’, which for convenience can be shortened to a contract for the sale of land. The appellant first submitted that the agreement was not a contract for the sale of land because, so far as it was concerned with the units, there was no actual or contemplated sale as between the appellant as one party to the agreement and the respondent as the other party to the agreement. … The paradigm case within s 54A is where A agrees with B to sell A’s land to B. In the present case A (the respondent) agreed with B (the appellant) to sell A’s land to C (the purchasers).

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In my opinion, that is properly described as a contract for the sale of land. If A agrees with B to sell A’s land to B or B’s nominee, as is not uncommon, I do not doubt that the agreement is still within s 54A, and that it remains within s 54A when B nominates C. There is a contract for the sale of land, the obligation being to convey or transfer the land to C. Similarly if the obligation is directly expressed as an obligation to convey or transfer the land to C. Whatever the present purpose served by s 54A, it is equally applicable and fulfilled in all these cases. This is supported by the advice of the Privy Council in Dalgety & Co Ltd v Gray (1919) 26 CLR 249. In the High Court the majority held that the agreement was no more than an agreement to introduce a mortgagee (Gray v Dalgety & Co Ltd (1916) 21 CLR 509). In the Privy Council it was held that there was an agreement that the defendant would find a mortgagee of the plaintiff ’s land and the plaintiff would mortgage his land to the mortgagee. It was said (at 255) that this was ‘an agreement to create an interest in land … struck at by the Statute of Frauds …’. A (the plaintiff) agreed with B (the defendant) to dispose of an interest in A’s land to C (the mortgagee). See also Horsey v Graham (1869) LR 5 CP 9 (A agreed with B to cause C to assign leasehold premises to B: within the Statute); Boston v Boston (1904) 1 KB 124 (A agreed with B to pay B if B bought land from C: not within the Statute because B was not obliged to buy the land from C.) Stonham, Vendor and Purchaser states (at [47]) that ‘[t]he sale or disposition need not be from one party to the contract to the other party thereto’, and that ‘it is sufficient if, by the contract, one party becomes obliged to acquire or dispose of land or an interest in land’. Voumard, The Sale of Land, 5th ed, para 2100 prefers the view that the Statute applies where A agrees with B to acquire land from or sell land to C. In my opinion, that is correct. The appellant then submitted that the agreement was not a contract for the sale of land because, so far as the agreement was concerned with the units, it was not obliged to enter into a contract with a purchaser where the purchaser proved willing not to proceed with its contract. … The respondent’s obligation must be distinguished from performance of the obligation. Unless all the purchasers did not insist on proceeding with their contracts, the respondent would have to perform its obligation. Even if it turned out that all the purchasers did not insist, the respondent was under the obligation, although with the potential that the respondent would not have to give performance. In PMT Partners Pty Ltd (in liquidation) v Australian National Parks and Wildlife Service (1955) 184 CLR 301 the ordinary and natural meaning of an agreement to refer disputes to arbitration encompassed an agreement under which an election or some other event was necessary before performance by arbitrating was required of the parties (see in particular at 310; 323). In Dalgety & Co Ltd v Gray there was an agreement to create an interest in land although performance depended on the defendant first finding a mortgagee. Even if the respondent’s obligation was seen as an obligation to enter into contracts with the purchasers if they insisted on performance of their contracts with the appellant, as distinct from unless they did not insist, in my opinion there was a contract for the sale of land.

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The appellant finally submitted that the agreement was not a contract for the sale of land because, although it was concerned with the sale of the units, the sale of the units was but part of the agreement and the agreement as a whole was not to be characterised as a contract for the sale of land. The appellant argued, in substance, that the agreement was an agreement for unravelling the earlier joint venture arrangements, and dealt with termination of the contract for the sale of the half share and the building contract, with substitution of the new building contract, and with doing away with the unit sharing outcome under the original arrangements. So far as the agreement was concerned with the sale of the units, that was an accommodation of the consequential difficulty in which the appellant found itself, having sold the nine units ‘off the plan’, of the same kind as the adjustment by the respondent reimbursing the real estate agents’ commission paid by the appellant. It was an accommodation which was conditional, in the sense that the respondent was not obliged to sell units to purchasers who did not insist on performance of their contracts with the appellant. The appellant said that so far as the respondent agreed to take over the contracts with the purchasers it really did so by way of an indemnity against one of the consequences of unravelling the earlier joint venture arrangements. In Stonham, Vendor and Purchaser it is said— 46. If the contract relates to matters partly within and partly outside the provisions of the Statute, and the consideration for the promise is an entire one, the contract is unenforceable unless the Statute is complied with. But, where the consideration and promise relating to the part of the contract, which is within the section, can be severed from the consideration and promise relating to that part not within the section, so that the promises are severable, and really two separate contracts, one within the section and one outside the section, the latter can be enforced, though not evidenced in writing.

In Cheshire and Fifoot, The Law of Contract, 8th (Aust) ed at [16.47] it is said that if the promise is ‘implicated’ in the whole agreement then it cannot be severed, and Carter and Harland, Contract Law in Australia, 4th ed says at [519]— Where a contract contains several promises, some but not all of which are required to be evidenced by writing, the absence of a written note or memorandum renders the whole contract unenforceable unless the promises are severable … In other words, the plaintiff must show that the promise being enforced is not one required to be evidenced in writing, and that the form of the contract is such that the consideration for this promise is separate from the consideration supporting the unenforceable promises.

Severance does not assist the appellant, since it wishes to enforce the part of the contract within s 54A. The cases amply support that a contract partly within and partly outside s 54A is unenforceable in the absence of a written record. The Statute of Frauds or its various equivalents has been successfully pleaded, for example, as a defence to a claim under an agreement to pay arrears of rent and future rent when only the future rent was caught by the Statute (Thomas v Williams (1830) 10 B & C 664; 109 ER 597), to a claim under an agreement to sell bricks and plant in a brickyard and give up possession of the brickyard (Hodgson v Johnson

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(1858) EB & E 685; 120 ER 666) and to a claim under an agreement to sell the stock-in-trade, book debts and goodwill of a business and an interest in the premises in which it was carried on (Hawkesworth v Turner (1930) 46 TLR 389). In Horton v Jones (1935) 53 CLR 475 the deceased promised to make a will leaving his ‘fortune’ to the plaintiff. The fortune was an interest under his father’s will and an insurance policy. His father’s estate included investments on mortgage of real estate. It was held that the contract was unenforceable, including as to the entire interest under the will and the insurance policy. … In my opinion, the agreement was not outside the scope of s 54A. The agreement to take over the contracts with the purchasers was an essential part of the unravelling of the earlier joint venture arrangements. … There was an entire agreement of which the sale of land was part, and the agreement was within s 54A. [Meagher and Santow JJA agreed with the judgment of Giles JA]

Statutory requirement of writing—land contracts [11.08] For a contract for the disposition of an interest in land to be enforceable, the relevant statutory provision requires either the contract to be in writing, or some ‘memorandum or note’ of the contract to be in writing. It must also be signed by the party to be charged or someone authorised by that person.

Queensland [11.09]

Property Law Act 1974 (Qld) Section 59 No action may be brought upon any contract for the sale or other disposition of land or any interest in land unless the contract upon which such action is brought, or some memorandum or note of the contract, is in writing, and signed by the party to be charged, or by some person by the party lawfully authorised.

Other Australian jurisdictions [11.10] Equivalent provisions exist in the other Australian jurisdictions.4

4

Conveyancing Act 1919 (NSW), s 54A; Instruments Act 1958 (Vic), s 126; Law Reform (Statute of Frauds) Act 1962 (WA), s 2; Law of Property Act 1936 (SA), s 26; Conveyancing and Law of Property Act 1884 (Tas), s 36: Civil Law (Property) Act 2006 (ACT), s 204; Law of Property Act (NT), s 62.

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CONTENT OF WRITING—GENERAL [11.11] The contract or note or memorandum of the contract must be in writing to satisfy the various statutory provisions. The legislation does not set out the specific details in relation to the contract of guarantee or land contract that need to be in writing. The High Court in Harvey v Edwards, Dunlop & Co Ltd 5 held that the relevant document must contain ‘all the essential terms of the agreement … to be a sufficient memorandum’. [11.12] For a contract of guarantee,6 the ‘essential terms’ are: •

names of the parties, namely the lender, debtor and the guarantor; and



relevant terms of the guarantee, including the amount of debt being guaranteed.

The various statutes do not require that the consideration provided for the guarantee be included in the memorandum.7 [11.13] For a contract for the sale or other disposition of land,8 the ‘essential terms’ are: •

names of the parties;



description of the property;



consideration for the promise (such as the price in a contract for sale); and



any essential terms of the contract.

[11.14] The following High Court case considers what constitutes a sufficient note or memorandum in the context of an oral lease agreement. In particular, the High Court commented on the necessary description of property, the requirement to acknowledge the existence of an agreement and the meaning of signature.

Pirie v Saunders (1960) 104 CLR 149 High Court of Australia Pirie and Cripps, the appellants, were the owners of property being developed as shop premises, and Saunders, the respondent, entered into negotiations for the lease of those premises. A lease agreement was not signed, but Saunders claimed that an oral agreement had been made at the office of Cripps’ solicitor, and that the notes taken by Cripps’ solicitor during that meeting

5

(1927) 39 CLR 302, 307.

6

For more detail about the necessary contents for a guarantee, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 11.2.3.

7

Property Law Act 1974 (Qld), s 56(2); Instruments Act 1958 (Vic), s 129; Mercantile Law Amendment Act 1856 (UK), s 3 adopted in Western Australia by Imperial Acts Adopting Ordinance 1867 (WA); Mercantile Law Act 1935 (Tas), s 12; Mercantile Law Act 1962 (ACT), s 12; Law of Property Act (NT), s 58(2).

8

For more detail about the necessary contents for a land contract, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 11.3.2.

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constituted a sufficient note or memorandum of their agreement. Neither Cripps nor his solicitor signed the document. Saunders brought an action for damages for breach of the oral agreement. Dixon CJ, Fullagar, Kitto, Taylor and Menzies JJ [After deciding that they did not need to decide whether the oral discussions constituted a binding contract of lease] [t]he other question in the case, that is whether a sufficient note or memorandum had been proved, was answered by a majority of the Full Court in favour of the respondent. They were of the opinion that the fact that one of the appellants, acting both for himself and for the other appellant, gave certain instructions to their solicitor and ‘stood by’ whilst the instructions were written down by the solicitor ‘afforded evidence that he was impliedly recognizing the writing as an authentic record of the prior oral bargain with the plaintiff which the jury found to have been made, in which case the defendants’ names in the document could be regarded as ‘signatures’ within the meaning of the statute’… According to the evidence the appellant Cripps, acting for himself and for the first named appellant, called to see their solicitor, Mr. Hargraves, in order to give him instructions to prepare a draft lease for submission to the respondent’s solicitor. We are not given the details by oral evidence of what was then said but after having testified that he had received his first instructions from Cripps, Mr. Hargraves was asked whether he had made certain notes. Upon answering in the affirmative his notes were produced and tendered and admitted in evidence. The exhibit is in the following form: William Thompson Pirie, Ross Anthony Cripps, 489 King Georges Rd, B Hills. Prop: part of Lot B Princes Highway, Sylvania Heights. Tenant: Wilfred Saunders 27 Crystal Street, Sylvania Heights Solr: TGW Lees, 113 Pitt Street Terms: 5 years. 2 years option Rental: £5 10 0 per week Commencement—on completion of property Premium: £400 (wants cash) Use: Bakery shop—sells cakes and pastry Fixtures: Right to remove provided no damage No right to transfer without consent Special Conditions—Check as to Board of Health and septic tank

Thereafter Mr Hargraves prepared a draft lease, there were discussions by correspondence between the solicitors concerning the introduction of additional terms and finally a formal memorandum of lease was engrossed. But since the premises were not then completed this instrument did not purport to fix the commencing date of the term. Presumably this was left to be inserted after the premises had been completed but the instrument was prepared so that everything would be in readiness when it became possible to specify a commencing date. In these circumstances the Full Court, by majority, took the view that the solicitor’s notes of his instructions were capable of being regarded as a sufficient note or memorandum of an earlier concluded agreement. This view was based upon the so-called ‘authenticated signature

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fiction’ by which the majority meant ‘that if the name of the party to be charged (not being a signature in the ordinary sense of the word) is placed on the document said to constitute the written memorandum of the contract, it is to be treated as a signature for the purposes of the statute if such party expressly or impliedly indicates that he recognizes the writing as being an authenticated expression of the contract’. But since they considered that the jury should have been asked to determine as a question of fact whether what took place when Cripps gave instructions to Hargraves ‘amounted to an authentication’ of the appellants’ ‘signatures’ they directed that there should be a new trial. Possibly their Honours intended to limit the new trial to this issue but the formal order is in general terms. With respect to those members of the Full Court who thought otherwise we are of the opinion that their Honours’ decision pushes too far the principle applied in Leeman v Stocks [1951] Ch 941 and the earlier cases referred to in Neill v Hewens (1953) 89 CLR 1. The principle applied in those cases can, we think, have no application to any document which is not in some way or other recognizable as a note or memorandum of a concluded agreement. We do not mean by this that it is necessary that the written note must always appear to have been made after the making of the contract for it is clear that a written proposal or offer may by its subsequent acceptance become by the conduct of the parties recognizable as a sufficient note or memorandum of the resulting contract … But this is not such a case. Here there is an allegation of a prior concluded contract and the solicitor’s notes are said to constitute a note or memorandum of this contract. But they purport to be and are nothing more or less than a brief notation of his instructions for the preparation of a draft lease for submission to the respondent’s solicitor. Neither the existence of the document nor its contents are indicative of the existence of any binding contract. Perhaps, in other words, it may be said that the enumerated particulars do not appear as a note or memorandum of a subsisting contract as distinct from bare instructions for the preparation of a formal lease. Both the document and its contents are quite consistent with the hypothesis that the parties had not made any prior binding contract and that their rights and obligations were not to be effected until the execution of a memorandum of lease in the form which, after discussion, it should finally take. That being so it in no way recognizes the existence of any binding contract and cannot therefore be regarded as a note or memorandum of any such contract. … In these circumstances it is not of much consequence to enter upon a discussion concerning the view expressed by the majority of the Full Court that the appellant Cripps ‘stood by’ whilst Hargraves noted his instructions and that these circumstances ‘afforded evidence that he was impliedly recognizing the writing as an authentic record of the prior oral bargain with the plaintiff ’. But since there is nothing in the evidence to suggest that Cripps had any knowledge of what was written down, it seems clear that no inference adverse to the appellants can be based on the so-called ‘standing by’. Moreover even if Cripps can be said to have ‘stood by’ there is no room for the inference that he impliedly recognized the writing as an authentic record of any prior oral bargain. Indeed, both the character and contents of the document and the circumstances in which it was composed tell conclusively against any such inference. We should

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add also that the nature of the document was such as to render any inquiry concerning the solicitor’s authority to make it quite inappropriate. Finally, even if these objections are not properly founded, it will be seen upon examination that there are several reasons why the document could not be regarded as a sufficient note or memorandum. In the first place it does not specify the property which is to be leased beyond describing it as ‘part of Lot B, Princes Highway, Sylvania Heights’. This alone is, we should think, a fatal objection. Secondly, it is clear that the document does not contain all the terms of the proposed lease for it contemplates the formulation of special conditions after ascertainment of the requirements of the Board of Health. Again, the agreement for breach of which the respondent sought damages was an agreement in the terms alleged in the declaration and the lease the subject of the alleged agreement was to contain, in addition to the matters specified in the declaration, ‘all the usual and proper covenants’. But it is reasonably clear from the immediately following allegation in the declaration that ‘the said lease was prepared by the defendants’ solicitor and all covenants were agreed to by the plaintiff and the defendants’, and from succeeding allegations, that the substance of the respondent’s case was that there had been a breach of an agreement to grant a lease in the form which the final engrossment took. That being so it is clear that, even if the solicitor’s notes can be regarded as a note or memorandum of an agreement between the parties, it is quite insufficient to support the agreement sued upon.

Acknowledgement of agreement [11.15] The document being relied on must also indicate that the party to be charged has acknowledged that the agreement exists, although such agreement can be expressed or implied in the writing.9 The case law relating to contracts for the disposition of an interest in land indicates that the judiciary is lenient in interpreting what constitutes an acknowledgement of agreement.

Signed by party to be charged or agent [11.16] The document being relied upon must be signed by the party to be charged or his or her authorised agent.10 While this will be satisfied by the party signing the document, sometimes something less than that is sufficient. If the name of the party is on the document, and that party expressly or impliedly indicates that he or she recognises the writing as being an authenticated expression of the contract, that is likely to be sufficient to satisfy the statutory requirement. The affixation of a person’s name and its acceptance as a signature has been referred to as the ‘authenticated signature fiction’.

9

For more detail about this requirement, see ibid, sections 11.2.3 (guarantees) and 11.3.2 (land contracts).

10 For more detail about this requirement, see ibid, sections 11.2.4 (guarantees) and 11.3.3 (land contracts).

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Durrell v Evans (1862) 158 ER 848 Exchequer Chamber A sale of hops from the plaintiff to the defendant was negotiated by the plaintiff ’s agent (or ‘factor’), Mr Noakes. At the time of entry into the contract and in the presence of the plaintiff and defendant, the agent filled in a sales note in duplicate, with the intention of one copy being given to the defendant and one being retained by the plaintiff. When the agreement was concluded, the agent printed the defendant buyer’s name at the top of one copy of the sale note, and gave it to the defendant. The plaintiff seller’s name was printed on the top of the other copy. No document was ever signed by the defendant. The defendant failed to proceed with the transaction, and the plaintiff brought action against the defendant. Crompton J Then comes the question whether Noakes did make a binding contract, and whether this document is right in form. And here, again, what are the facts? Noakes drew out a note of the contract with the names of both buyer and seller upon it, but it contained nothing which could ordinarily be called a signature, for the defendant’s name was written at the head of the document; and, if this had been the first case on the subject, I should have doubted whether the placing a name at the top of a document could fairly be called a signature; but that is now past discussion, for the cases have decided that it does not signify where the name is placed, if it is put there by the party sought to be charged or some person deputed by him. It may be at the head, in the middle, at the end, or in any part of the document. In Schneider v Norris the putting the name on the note was the act of the party himself, and it is the same when it is the act of his agent. The present case, however, seems to me to range itself rather within that of Johnson v Dodgson, and the class of cases here cited. Parke, B, there said:  ‘I think this was a sufficient memorandum in writing. The [187] defendant’s name was contained in it in his own handwriting, and it was signed by the plaintiffs. The point is in effect decided by the cases of Saunderson v Jackson and Schneider v Norris. There the bills of parcels were held to be a sufficient memorandum in writing, it being proved that they were recognised by being handed over to the other party. That is amply sufficient to shew he meant it to be a memorandum of the contract between the parties.’ That seems to me identical with this case, assuming the agency to be proved. In that case the party never signed his name, meaning that it should be a signature within the Statute of Frauds, any more than, according to Mr Lush, the defendants did in this case, but it was held to be his signature, since he intended his name to be there. In Johnson v Dodgson Lord Abinger said: ’But when it is ascertained that he meant to be bound by it as a complete contract, the statute is satisfied, there being the note in writing shewing the terms of the contract, and recognised by him.’ That expressly applies to the present case. If the parties meant the writing to be a memorandum of their contract, it is binding on them. Here is a document on which the name ‘Messrs Evans and Co’ is written by a factor who was appointed to make a binding contract between the parties, and he makes a memorandum containing the names of the buyer and seller, and the terms of the contract. It is true that the words ‘Messrs Evans’ were not written by the defendant J Evans, but he saw the document with ‘Messrs Evans’ on it, and he requested that an

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alteration might be made, and thereby recognised it as a record of the contract. Therefore the case is not different in principle from Johnson v Dodgson, for, assuming there was evidence that Noakes was the party intended to make a binding contract on behalf of both buyer and seller, he would have authority to put the defendants’ signature. I do not agree with Mr Lush that the person signing must put the signature, intending to make a binding contract within the Statute of Frauds. When once it is established that he is a party deputed to make a binding contract, any signature by him is sufficient. If Noakes had formally signed one part of the memorandum with the name of ‘Evans & Co’ and the other with the name of ‘Durrell,’ he would have had authority to do so; and it is sufficient if the party signing is agent to make the signature, although there was no express idea at the time that it should be a signature within the Statute of Frauds. [Byles J, Blackburn J, Keating J and Mellor J also found for the plaintiff.]

JOINDER OF DOCUMENTS [11.17] The information that must be contained in the note or memorandum does not have to be contained in only one document.11 The doctrine of joinder allows other documents to be joined to the document that is signed by the party to be charged. To be joined, the document signed by the party to be charged must refer, either expressly or impliedly, to another document or to a transaction. Joinder has been recognised in situations where the document signed by the party to be charged: •

refers to another document;



is physically connected with another document;



is signed contemporaneously with another document; or



refers to a ‘transaction’.

[11.18] The issue of joinder came before the High Court in the context of the enforceability of a guarantee. In a joint judgment of the majority, it was stated that it was possible to join documents either by reference to another document or to some other transaction.

Harvey v Edwards, Dunlop & Co Ltd (1927) 39 CLR 302 High Court of Australia [The facts of this case were earlier rehearsed. In the joint judgment of Knox CJ, Gavan Duffy and Starke JJ, the plaintiff seeking to sue on the promise was referred to as the respondent, and the defendant as the appellant.]

11 For more detail about joinder and ways in which this can occur, see ibid, section 11.4.

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Knox CJ, Gavan Duffy J and Starke J On the opening of this appeal two questions only were suggested for argument:  (1) Whether the agreement was within the provisions of sec 228, and (2) If so, whether there was a sufficient note or memorandum of it to satisfy the requirements of the section … In the view which we take of the second question we find it unnecessary to consider whether the first was correctly decided in the Supreme Court. The Statute of Frauds requires (a) an agreement in writing or (b) a memorandum in writing of agreement. It is well settled that any document signed by the party to be charged or by some person authorized by him which contains all the essential terms of the agreement is a sufficient memorandum. It is also well settled that the memorandum ‘need not be contained in one document; it may be made out from several documents if they can be connected together.’ They may be connected by reference one to the other; but further, ‘if you can spell out of the document a reference in it to some other transaction, you are at liberty to give evidence as to what that other transaction is, and, if that other transaction contains all the terms in writing, then you get a sufficient memorandum within the statute by reading the two together’ (Stokes v Whicher (1920) 1 Ch 411 at 418). In the present case an agreement in fact is established. That agreement was arrived at in the course of conversations between the solicitors for the respondent and Messrs Crisp & Crisp, solicitors, who were acting on behalf of the appellant and with his authority, and was completed on 13th October. On 14th October the respondent’s solicitors wrote to the appellant’s solicitors a letter in the words following:—’Dear Sirs,—Edwards, Dunlop & Co v Inter-State Stationery Co Ltd—We write to confirm our telephone conversation of 13th inst. Our client is prepared to withhold the signing of judgment herein on the following terms:—1. Power of attorney as drawn by you to be sent to Scottish solicitors with instructions to sell in time to have money paid to our client’s London house by 28th February 1926. Interest to be at 8 per cent instead of 7 per cent as proposed. 2. Consent to sign judgment to be given by you on our undertaking not to use the same before 28th February 1926 unless the action of your client in Melbourne or anything in connection with the Scottish transaction justifies its use. Our client’s London solicitors to have liberty to inquire into the Scottish transaction and our client to act on their advice. 3. The above case to be adjourned from month to month pending settlement. We enclose your draft power of attorney as requested by you. Please let us have your consent to judgment. We will also require to see the documents duly signed before they are sent to Scotland.—Yours faithfully, Eggleston & Eggleston.’ We regard this letter as a confirmation in writing of the verbal contract already concluded on 13th October and not as an offer of new terms. On 4th November 1925 the appellant’s solicitors wrote to the respondent’s solicitors a letter in the words following:—’Dear Sirs,—Inter-State Stationery Co Ltd and Edwards, Dunlop & Co Ltd—We are forwarding herewith power of attorney duly executed by Mr Harvey. Kindly return same to us today as we are anxious it should catch the first mail to Scotland. We are preparing the consent to judgment and will let you have same together with the letter accepting terms of settlement as early as possible. The property in Scotland we understand has already been sold, so that there should not be any difficulty whatever about your clients being paid by due date.—Yours faithfully, Crisp & Crisp.’ On their face the letters of 14th October and 4th November refer to the same transaction, namely, a proceeding between Edwards, Dunlop & Co and the Inter-State Stationery Co Ltd. This connects the two letters together; and

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reference to the terms of the letters adds to this connection, for the later letter deals with the very matters spoken of in the earlier letter. Then a power of attorney is referred to, which, upon being examined, is found to authorize the attorney for the appellant to sell certain real property in Scotland and out of the proceeds of sale to pay to the London office of the respondent the sum of £489 0s 9d with interest from 1st March 1925 till payment. Some question arose as to the rate of interest set forth in the power of attorney, for on 5th November the respondent’s solicitors returned the power of attorney as requested by the letter of 4th November and stated that ‘the power of attorney meets with our approval except as to the rate of interest which you have undertaken to alter from 7 per cent to 8 per cent.’ The appellant’s solicitors acknowledged this letter on 7th November and stated that they had altered the rate of interest from 7 per cent to 8 per cent and had forwarded the power of attorney to Scotland. They repeated these statements in a letter of 9th November written in reply to a letter of respondent’s solicitors dated 6th November asking for formal notification of the alteration of the rate of interest and the despatch of the power of attorney. On 18th February 1926 appellant’s solicitors wrote to the respondent’s solicitors informing them that the instructions given under the power of attorney had reached the solicitors acting in Scotland, and that the property had been sold but that the money could not be handed over until receipt of a disposition executed by the appellant; and on 24th February they wrote that the disposition had been sent to the appellant’s solicitors in Scotland and that ‘the matter ought to be settled in London by the end of this month.’ All these letters expressly refer to the same transaction, namely, Edwards, Dunlop & Co Ltd and Inter-State Stationery Co Ltd, and are connected up as a correspondence by reference to preceding letters in the correspondence and by the subject matter dealt with. Finally on 23rd March 1926 the solicitors wrote enclosing consent to judgment under the seal of the company. In these letters, connected together in the manner indicated, the solicitors for the appellant acknowledge and recognize, in our opinion, an agreement between the parties and the terms of that agreement can be gathered from them. They contain all the terms of the agreement found by Dixon AJ, and so are sufficient to satisfy the requirements of the Statute of Frauds. [In separate judgments, Isaacs J doubted whether there was a sufficient memorandum, and Higgins J was of the view that there was not a sufficient memorandum.] [11.19] In this decision of the Privy Council, the Court explains how a reference to a transaction will permit oral evidence to be led of another document.

Fauzi Elias v George Sahely and Co (Barbados) Ltd [1983] 1 AC 646 Privy Council The parties orally agreed for the plaintiff to buy the defendant’s property. The plaintiff ’s solicitor wrote to the defendant’s solicitor confirming the details of the purchase and enclosing a cheque for the deposit. The defendant’s solicitor sent back a receipt in which he wrote that he had received the money as a deposit on the property ‘agreed to be sold’ by the defendant to the plaintiff. The defendant did not wish to proceed with the transaction. The plaintiff brought an

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action for specific performance of the oral agreement and relied on a combination of the receipt and the letter to satisfy the statutory requirement of writing. Lord Scarman (delivering the judgment of the Court) [After deciding that the parties had entered into an oral contract of sale, and that the defendant’s solicitor had authority to sign a document on the defendant’s behalf.] The critical question is, therefore, whether it is admissible to read the letter and the receipt together. If they are so read, they constitute a sufficient memorandum … The defendant’s counsel submits that it is not permissible to place the two documents side by side and so to construct a memorandum of the terms of the contract. He makes two points: first that the receipt neither expressly nor by necessary implication refers to the letter, and secondly that to constitute a sufficient memorandum the receipt must refer either to a written transaction or to a document which by acceptance becomes an integral part of the transaction. The first stage in the defendant’s argument is that the receipt itself does not contain the terms of the contract. It can be relied on only if it refers expressly or by necessary implication to another document which was, or to a transaction which is itself, in writing. The words of reference are ‘deposit on property at Swan Street, Bridgetown agreed to be sold.’ This is a reference, counsel submits, not to Mr Forde’s letter but to the oral agreement. And, even if it could be read with the aid of parol evidence as referring to the letter, parol evidence for that purpose is inadmissible: the reference to a written transaction or document must arise by necessary implication, if not expressly, from the terms of the receipt itself: and the receipt does not identify Mr Forde’s letter as the document to which it refers. To accept this submission would, in their Lordships’ view, be to take the law back to what it was in the middle of the 19th century when Peirce v Corf (1874) LR 9 QB 210 was decided … Therefore on the document itself there must be some reference from the one to the other, leaving nothing to be supplied by parol evidence … Counsel correctly observes that it is not possible to link the receipt with Mr Forde’s letter in the absence of parol evidence. If, therefore, the principle stated in Peirce v Corf remains good law, the submission succeeds. The law has, however, developed since Peirce v Corf. The watershed decision is Long v Millar (1879) 4 CPD 450. The plaintiff signed a document whereby he agreed to purchase three plots of land for £310 and to pay as a deposit and in part payment of the price the sum of £31. The defendant signed a receipt for the £31 as a deposit on the purchase of the three plots of land. The Court of Appeal allowed parol evidence to be given linking the agreement signed by the plaintiff with the receipt signed by the defendant. The linking word in the receipt was ‘purchase’: and oral evidence was allowed to identify the written document or transaction to which it referred. In Long v Millar, once the identification was made and the two documents placed side by side, there was an agreement of sale in writing, and not merely, as in the present case, a memorandum in writing of an oral contract. Counsel submits that this is the distinguishing feature of Long v Millar: but neither the language of the judges in that case nor the subsequent case law treats as important the distinction which counsel seeks to draw. In Long v Millar, both Bramwell LJ and Baggallay LJ stated the principle broadly, the latter saying, at p 455: the true principle is that there must exist a writing to which the document signed by the party to be charged can refer, but that this writing may be identified by verbal evidence. (Emphasis supplied).

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And Thesiger LJ, at p 456, found the explanation for the rule as being a particular application of the doctrine as to latent ambiguity. He added that to enable parol evidence to be given it must be clear that the words of the signed document will extend to the document sought to be identified. The next case of importance was the decision of Russell J in Stokes v Whicher [1920] 1 Ch 411. Mr Clauson, of counsel, argued in that case that, even if you do not get any reference, inferential or otherwise, in the signed document to the document which contains the terms of the parties’ oral contract, the authorities show that, if by placing the two documents side by side they can be seen to be part and parcel of one transaction, they can be read together. Russell J refused to hold that the law had gone so far. He analysed, at p 418, Long v Millar as deciding: if you can spell out of the document a reference in it to some other transaction, you are at liberty to give evidence as to what that other transaction is, and, if that other transaction contains all the terms in writing, then you get a sufficient memorandum within the statute by reading the two together.

In Timmins v Moreland Street Property Co Ltd [1958] Ch 110 the Court of Appeal accepted Russell J’s view of Long v Millar, but took the law a step further. Jenkins LJ, with whose judgment Romer and Sellers LJJ agreed, said, at p 130: it is still indispensably necessary, in order to justify the reading of documents together for this purpose, that there should be a document signed by the party to be charged, which, while not containing in itself all the necessary ingredients of the required memorandum, does contain some reference, express or implied, to some other document or transaction. Where any such reference can be spelt out of a document so signed, then parol evidence may be given to identify the other document referred to, or, as the case may be, to explain the other transaction, and to identify any document relating to it. If by this process a document is brought to light which contains in writing all the terms of the bargain so far as not contained in the document signed by the party to be charged, then the two documents can be read together …

Their Lordships accept this passage as a correct statement of the modern law. The first inquiry must, therefore, be whether the document signed by or on behalf of the person to be charged on the contract contains some reference to some other document or transaction. The receipt in this case clearly did refer to some other transaction, namely an agreement to sell the property in Swan Street. Parol evidence can, therefore, be given to explain the transaction, and to identify any document relating to it. Such evidence was led in the present case: it brought to light a document, namely Mr Forde’s letter of February 10, 1975, which does contain in writing all the terms of the bargain. It is a writing which evidences the transaction, though not itself the transaction. This distinction is, however, not material, whether the rule be as formulated in Long v Millar, or as in Timmins v Moreland Street Property Co Ltd. Moreover, it would be contrary to the intendment of the Statute of Frauds to limit the rule to cases in which the reference in the signed document must be to a writing intended to have contractual force. The Statute of Frauds is concerned to suppress not evidence but fraud. In seeking a sufficient memorandum it is not necessary to shoulder the further burden of searching for a written contract. Evidence in writing is what the statute requires. For, as Steadman v Steadman [1976] AC 536 emphasised, an oral

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contract for the sale of land is not void but only, in the absence of evidence in writing or part performance, unenforceable. If, therefore, a document signed by the party to be charged refers to a transaction of sale, parol evidence is admissible both to explain the reference and to identify any document relating to it. Once identified, the document may be placed alongside the signed document. If the two contain all the terms of a concluded contract, the statute is satisfied. Accordingly, their Lordships are of the opinion that Douglas CJ was right to admit the oral evidence of Mr Forde to explain the transaction to which the receipt referred and to identify as a document relating to it his letter of February 10, 1975. Their Lordships also agree with the Chief Justice that the letter contained all the terms of a concluded contract of sale of land. [11.20] A further issue that may arise is whether, for the purposes of joinder, it is possible for an earlier document, signed by the party to be charged, to contain an implied reference to a transaction evidenced by a later unsigned document. Joinder was not allowed on this basis in the following case.

Todrell Pty Ltd v Finch [2007] QSC 363; BC200710537 Queensland Supreme Court Owners of land ripe for development, Miss Finch and Mr Finch, were in negotiations to sell the land to two property developers. After a meeting with the first developer, Todrell Pty Ltd (Todrell), a company owned and controlled by Mr Romano, contractual terms were orally agreed. For stamp duty purposes, the transaction was to be structured as an option agreement. A deposit cheque was made out and given to the owners in return for a receipt. The owners then changed their minds and later signed a binding contract with the second developer. Given their change of mind, the owners refused to sign the formal contract documentation that had been signed by Todrell some 10 days after the oral agreement had been reached. It was common ground that the receipt issued to Todrell was not a sufficient memorandum to permit enforcement of the oral agreement as it did not adequately identify the parties, the price and one other essential term, being the provision of a personal guarantee by a director of the purchasing entity. However, the receipt did clearly acknowledge that the deposit was paid in the context of a land sale transaction. One of the issues for the Court was whether this reference impliedly permitted joinder to the formal contract documentation that had been submitted by the solicitor for the first developer which the owners refused to sign. There was no doubt that the later formal contract documentation contained all the terms as earlier orally agreed. Chesterman J [In considering whether the formal contract documentation could be joined to the receipt, Chesterman J reviewed the principle of joinder, and cited with approval the expression of the principle by Jenkins in Timmins v Moreland Street Property Co Ltd [1958] Ch 110 at 130 extracted in Fauzi Elias v George Sahely and Co (Barbados) Ltd above.] The receipt refers to another transaction. It describes the money, receipt of which is acknowledged, as a deposit in the context of a sale of land. The sale is ‘another transaction’. The authorities allow parol

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evidence ‘to explain the transaction’, or to identify any document relating to it. The evidence shows that there was a transaction between Todrell and the Finchs with respect to the land, though it was not a transaction of sale. The evidence identifies the option agreements sent … to [the solicitors for the owners’ agent] on 31 October 2006 and the guarantees sent on 6 November. There is, however, a problem. The documents which are identified by parol evidence did not exist when Miss Finch signed the receipt. She had not, of course, seen them and did not know what they contained. … [95] Counsel for Todrell submitted that the principle [of joinder] has been substantially relaxed and refers to that part of the judgment of Jenkins LJ in Timmins which I  quoted to support the argument that the option agreements and guarantees are documents which relate to the transaction agreed upon between Mr Romano and the Finchs, to which the receipt refers, so that the later documents can be identified by parol evidence and read together with the receipt for the purpose of satisfying s 59. [96] The submission cannot be accepted. Jenkins LJ was doing no more than expanding the expression of principle enunciated by Russell J in Stokes. He was not proposing a new, liberal, doctrine. This is clear from the judgment of Romer LJ who, without any apparent apprehension that he was saying anything different, said (133): (The) argument … was that although two separate documents can together constitute a memorandum for the purposes of s 40, the party to be charged must sign the second of the two; that is to say, if the defendant has signed a document, the plaintiff cannot rely on it in conjunction with a later document signed by himself. This in general must be true. A defendant cannot be bound by a document which he has not signed unless he has in effect incorporated it in the document which he has signed, in which case he would be regarded as having notionally signed both documents; but as he cannot be taken to have incorporated or signed a document which does not exist, the theory is inapplicable except where the defendant has signed the second of two documents on which the plaintiff relies as together constituting a memorandum.

… [103] … A reading of the judgments in Timmins shows that, with the exception in the case of contemporaneity, the document which is to be connected to, and read with, the signed document, to create a sufficient memorandum, must exist at the time of the signature so it can be a document capable of being referred to by the signed document. … The often quoted passage from the judgment of Jenkins LJ cannot be abstracted from its context. The basic principle is that where two or more documents are relied upon as together constituting a written memorandum the signed document must refer to another document in such a manner as to incorporate it, or them, so that they can be read together with the signed document. The point made by cases such as Stokes and Timmins is that the reference to another document need not be express. A  reference, express or implied, to a transaction rather than to a document will allow parol evidence to identify the other document. But once identified it must be connected in the sense just described so that the signature authenticates them. This principle has not been abrogated by the ‘modern cases’.

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ADEQUACY OF ELECTRONIC ‘WRITING’ AND ‘SIGNATURE’ [11.21] An important issue is whether electronic communication can satisfy the statutory requirements of formality. That is, can an electronic communication fulfil the statutory requirements for a ‘contract’ or ‘some memorandum or note of the contract’ be ‘in writing’ and ‘signed by the party to be charged’?

Writing [11.22] To date, there has been no serious objection to the view than an email in electronic form is ‘writing’ for the purposes of the formalities legislation.12 [11.23] The electronic transactions legislation that has been passed in all states and territories may also have a role to play in determining whether electronic communication can be regarded as ‘writing’ for the purpose of the formalities legislation.13

Victoria [11.24]

Electronic Transactions (Victoria) Act 2000 (Vic) Section 8 (1) If, by or under a law of this jurisdiction, a person is required to give information in writing, that requirement is taken to have been met if the person gives the information by means of an electronic communication, where— (a) at the time the information was given, it was reasonable to expect that the information would be readily accessible so as to be useable for subsequent reference; and (b) the person to whom the information is required to be given consents to the information being given by means of an electronic communication. (2) If, by or under a law of this jurisdiction, a person is permitted to give information in writing, the person may give the information by means of an electronic communication, where— (a) at the time the information was given, it was reasonable to expect that the information would be readily accessible so as to be useable for subsequent reference; and (b) the person to whom the information is permitted to be given consents to the information being given by means of an electronic communication.

12 For consideration of this issue and the relevant case law, see ibid, section 11.5.1. 13 Ibid.

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(3) This section does not affect the operation of any other law of this jurisdiction that makes provision for or in relation to requiring or permitting information to be given, in accordance with particular information technology requirements— (a) on a particular kind of data storage device; or (b) by means of a particular kind of electronic communication. (4) This section applies to a requirement or permission to give information, whether the expression ‘give’, ‘send’ or ‘serve’, or any other expression, is used. (5) For the purposes of this section, giving information includes, but is not limited to, the following— (a) making an application; (b) making or lodging a claim; (c) giving, sending or serving a notification; (d) lodging a return; (e) making a request; (f ) making a declaration; (g) lodging or issuing a certificate; (h) making, varying or cancelling an election; (i ) lodging an objection; ( j) giving a statement of reasons. [11.25] As can be seen, the first requirement for the operation of the section is that ‘a person is required to give information in writing.’ While the definition of ‘giving information’ is broad and non-exhaustive, none of the examples given suggest that the requirement to give information includes the creation of a ‘contract or memorandum’ as known under the formalities legislation. Secondly, the electronic transactions legislation will apply if a person is ‘required’ to give information in writing. This raises the question of whether the formalities legislation ‘requires’ information to be given in writing, or rather merely sets out consequences for not providing it in writing, namely unenforceability. Legislative clarification of this point has occurred in Victoria through the insertion of s 126(2) of the Instruments Act 1958 (Vic).

Victoria [11.26]

Instruments Act 1958 (Vic) Section 126 (1) An action must not be brought to charge a person upon a special promise to answer for the debt, default or miscarriage of another person or upon a contract for the sale or other disposition of an interest in land unless the agreement on which the action is brought, or a

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memorandum or note of the agreement, is in writing signed by the person to be charged or by a person lawfully authorised in writing by that person to sign such an agreement, memorandum or note. (2) It is declared that the requirements of subsection (1) may be met in accordance with the Electronic Transactions (Victoria) Act 2000 (Vic).

Other Australian jurisdictions [11.27] Equivalent provisions to s 8 of the Electronic Transactions (Victoria) Act 2000 (Vic) exist in the other Australian jurisdictions.14 However, the other jurisdictions do not contain an equivalent of s 126(2) of the Instruments Act 1958 (Vic).15

Signature [11.28] In most Australian cases to date, a typed name in an email has been accepted to be a signature for the purposes of the formalities legislation placing reliance on the authenticated signature fiction or in reliance upon the provisions of the electronic transactions legislation.16 [11.29] As mentioned, the electronic transactions legislation has played a role in determining whether an electronic signature can be regarded as a ‘signature’ for the purpose of the formalities legislation.17

Victoria [11.30]

Electronic Transactions (Victoria) Act 2000 (Vic) Section 9 (1) If, by or under a law of this jurisdiction, the signature of a person is required, that requirement is taken to have been met in relation to an electronic communication if— (a) a method is used to identify the person and to indicate the person’s intention in respect of the information communicated; and (b) the method used was either—

14 Electronic Transactions Act 2000 (NSW), s 8; Electronic Transactions (Queensland) Act 2001 (Qld), s 11; Electronic Transactions Act 2011 (WA), s 9; Electronic Transactions Act 2000 (SA), s 8; Electronic Transactions Act 2000 (Tas), s 6; Electronic Transactions (Northern Territory) Act (NT), s 8; Electronic Transactions Act 2001 (ACT), s 8. 15 Despite a lack of legislative clarification in the other jurisdictions, there is some guidance in the case law on this issue. For further detail, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 11.260. 16 For discussion of these matters, see ibid, section 11.5.2. 17 Ibid.

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(i)

as reliable as appropriate for the purpose for which the electronic communication was generated or communicated, in the light of all the circumstances, including any relevant agreement; or

(ii)

proven in fact to have fulfilled the functions described in paragraph (a), by itself or together with further evidence; and

(c) the person to whom the signature is required to be given consents to that requirement being met by way of the use of the method mentioned in paragraph (a). (2) This section does not affect the operation of any other law of this jurisdiction that makes provision for or in relation to requiring— (a) an electronic communication to contain an electronic signature (however described); or (b) an electronic communication to contain a unique identification in an electronic form; or (c) a particular method to be used in relation to an electronic communication to identify the originator of the communication and to indicate the originator’s intention in respect of the information communicated. (3) The reference in subsection (1) to a law that requires a signature includes a reference to a law that provides consequences for the absence of a signature.

Other Australian jurisdictions [11.31] Equivalent provisions exist in the other Australian jurisdictions.18

EFFECT OF STATUTORY NON-COMPLIANCE: COMMON LAW [11.32] The effect of failing to comply with the relevant statutory provision concerning formality is that ‘no action may be brought’ on the particular contract. At common law, the following consequences flow:19 •

The contract between the parties is unenforceable, and a party cannot bring an action for damages for breach of contract.



A contract which is unenforceable may still be valid, so that it will be effective to pass good title.



A deposit or other monies payable under the contract may be recoverable.



Other restitutionary claims may still be available.

18 For equivalent provisions in the other jurisdictions, see Electronic Transactions Act 2000 (NSW), s 9; Electronic Transactions (Queensland) Act 2001 (Qld), s 14; Electronic Transactions Act 2011 (WA), s 10; Electronic Transactions Act 2000 (SA), s 9; Electronic Transactions Act 2000 (Tas), s 7; Electronic Transactions (Northern Territory) Act (NT), s 9; Electronic Transactions Act 2001 (ACT), s 9. 19 For more detail, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 11.6.

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EFFECT OF STATUTORY NON-COMPLIANCE: EQUITY [11.33] Various equitable doctrines can alleviate the harsh common law consequences of noncompliance with the statutory requirement of writing, particularly in the context of contracts concerning land.20 The most common equitable doctrines which may provide a remedy to a party seeking to take action under an unenforceable contract are: •

doctrine of part-performance;



estoppel; and



constructive trust.

Doctrine of part-performance [11.34] If parties enter into an oral contract for the sale of land and, relying on that contract, one party does certain acts, the courts may be prepared to grant that person specific performance of the contract.21 To obtain such equitable relief, four conditions must be satisfied: •

acts are unequivocally referable to some such contract as that alleged;



acts are done in reliance on the agreement and with knowledge of the other party;



acts are done by the party seeking to enforce the contract; and



the oral contract must be otherwise enforceable.

[11.35]

Regent v Millett (1976) 133 CLR 679 High Court of Australia The parties entered into an oral contract for the buyers to purchase the sellers’ property. Under the terms of the agreement, the buyers were to enter possession and take over the sellers’ mortgage repayments. The sellers agreed to transfer the property to the buyers once the mortgage was paid off. Upon taking possession, the buyers effected substantial repairs to the premises. The sellers (appellants in the High Court) refused to complete the transfer and the buyers (respondents) sought specific performance of the contract. Gibbs J There is no suggestion that the agreement is evidenced by any note or memorandum in writing and the sole question now raised in the case is whether there was part performance. The acts of part performance on which the respondents relied were (1) the taking

20 For more detail, see ibid, section 11.7. 21 As this is an equitable doctrine, satisfying the elements of part-performance does not provide relief in the form of common law damages: Powercell Pty Ltd v Cuzeno Pty Ltd [2003] NSWSC 600, [29].

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of possession; (2) the effecting of repairs before December 1972; (3) the doing of the work on the renovations and additions in January 1973; (4) the making of the mortgage repayments … The principle upon which the doctrine of part performance rests was stated by Lord Cranworth, Lord Chancellor in Caton v Caton (1866) LR 1 Ch App 137 at 148 in words which appear to have a direct application to the present case. He said: … when one of two contracting parties has been induced, or allowed by the other, to alter his position on the faith of the contract, as for instance by taking possession of land, and expending money in building or other like acts, there it would be a fraud in the other party to set up the legal invalidity of the contract on the faith of which he induced, or allowed, the person contracting with him to act, and expend his money.

The books are full of cases in which it has been held that the entry into possession alone, or the taking of possession coupled with the expenditure of money by one party on the improvement of property, with the cognizance of the other party to the contract, may amount to part performance … The argument advanced on behalf of the appellants, when reduced to its essentials, depends upon two propositions. First, it was said that the acts relied on were not unequivocally referable to some such contract as that alleged by the respondents. Indeed, it was submitted that a narrower test should be adopted and that it was necessary to establish ‘such a performance as must necessarily imply the existence of the contract’—to use the words of Lord O’Hagan in Maddison v Alderson (1888) 8 App Cas 467 at 483. However, the test suggested by the Earl of Selborne LC in that case at 489, that the acts relied upon as part performance ‘must be unequivocally, and in their own nature, referable to some such agreement as that alleged’, has been consistently accepted as a correct statement of the law. It is enough that the acts are unequivocally and in their own nature referable to some contract of the general nature of that alleged (see McBride v Sandland (1918) 25 CLR 69 at 78). The second proposition submitted for the appellants was that the acts relied upon must have been done in part performance of the agreement alleged; in other words, the acts must have been done under the terms of that agreement and by force of that agreement. In support of this proposition particular reliance was placed on Cooney v Burns (1922) 30 CLR 216 at 231–232 and McBride v Sandland at 79. It may be said immediately that if the reasoning of their Lordships in the recent case of Steadman v Steadman [1976] AC 536 is accepted, the appellants’ arguments must fail. However, it is unnecessary for the present decision to consider the questions that are raised by that case. In the present case the giving and taking of possession by itself was sufficient part performance of the contract and it is therefore unnecessary to consider whether the other acts relied upon would also, either alone or together, amount to part performance. The change of possession of land has been described as ‘the act of part performance par excellence’—Williams: The Statute of Frauds, Section IV, p 256. Of course, it may be proved that the taking of possession was referable to some other authority than the contract alleged. That was the situation in McBride v Sandland. However, in the present case the circumstances under which possession was given indicate contract, to echo the words in McBride v Sandland and the possession was unequivocally

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referable to some such contract as that alleged. The taking of possession was pursuant to the contract. It is true that the contract did not require the respondents to take possession, but if it were necessary that the acts of part performance should have been done in compliance with a requirement of the contract, the utility of the equitable doctrine would be reduced to vanishing point, and many cases which have proceeded on the opposite view would have been wrongly decided. The Judicial Committee in White v Neaylon (1886) 11 App Cas 171 indeed appears to have held that the effecting of improvements on property which were neither required nor permitted by the contract may be acts of part performance; but however that may be, it is clear that if a vendor permits a purchaser to take possession to which a contract of sale entitles him, the giving and taking of that possession will amount to part performance notwithstanding that under the contract the purchaser was entitled rather than bound to take possession. For these reasons the Court below was, in my opinion, right in holding that there were sufficient acts of part performance and the appeal should be dismissed. [Stephen, Mason, Jacobs and Murphy JJ all agreed with the judgment of Gibbs J.]

Estoppel [11.36] In limited circumstances, the doctrine of estoppel may facilitate the enforcement of an oral contract concerning land.22 Before the doctrine will operate, the assumption or expectation created by the defendant must be something more than the verbal promise to dispose of an interest in land or promise to guarantee a debt. The defendant must do something else such as represent that the agreement will be enforceable even though the formal requirements of the legislation have not been complied with.

Powercell Pty Ltd v Cuzeno Pty Ltd [2004] NSWCA 51 New South Wales Court of Appeal [The facts of this case were earlier rehearsed.] Giles JA [after finding that the arrangement between the parties was a contract which was required to be in writing under section 54A of the Conveyancing Act 1919 (NSW), considered whether the respondent was estopped from relying on that provision] In its written submissions in chief the appellant described the estoppel as an equitable estoppel and invoked the summary by Brennan J in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 428–9— In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them

22 For further discussion on estoppel, see Chapter 7.

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and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2)  the defendant has induced the plaintiff to adopt that assumption or expectation; (3)  the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4)  the defendant knew or intended him to do so; (5)  the plaintiff ’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise …

In the appellant’s application of this passage, the particular legal relationship was that the respondent had agreed to take over the appellant’s contracts with the purchasers. It was said that the appellant had been induced by the respondent to assume that the relationship existed between them by the proposal for the changed arrangements, by the making of the July 1996 agreement and by partial performance of the July 1996 agreement with respect to, for example, the new building contract and the provision of back pages for the contracts. The appellant had acted on that assumption by agreeing to the new arrangements and so losing its ability to complete its contracts with the purchasers. If the respondent did not take over the contracts with the purchasers who insisted on performance, the appellant would suffer detriment. Thus, it was submitted, equity would come to the appellant’s aid because it would be unconscionable for the respondent to resile from the assumption it induced in the appellant and upon which the appellant relied and acted to its detriment. It was said that the minimum remedy to make good the appellant’s detrimental reliance was equitable compensation in the same amount as the damages which would have been awarded for breach of contract. It is necessary to recall the pleaded estoppel, an estoppel against reliance on s 54A … The appellant had an agreement that the respondent would take over the contracts with the purchasers. That was found in its favour. It did not need an estoppel to establish the existence of that legal relationship. No doubt it would suffer detriment if the respondent did not take over the contracts with the purchasers who insisted on performance, and but for s 54A it would have a remedy for that detriment by way of an action for damages. What the appellant needed was an estoppel preventing the respondent from relying on s 54A … In Actionstrength Ltd v International Glass Engineering In.Gl.En. SpA (2003) 2 AC 541 the guarantor said that its guarantee was unenforceable for lack of writing by force of s 4 of the Statute of Frauds, and the creditor replied that, having by its promise to guarantee encouraged the creditor to act to its detriment, the guarantor was estopped from relying on the Statute. It was held that the promise to guarantee was not enough for the estoppel, and that there must be something more by which the creditor was led to assume that the promise would be honoured. Lord Bingham said (at 547)— It is implicit in the assumed facts that Actionstrength believed itself to be the beneficiary of an effective guarantee. Its difficulty, in my view insuperable, arises with the second question. For in seeking to show inducement or encouragement, Actionstrength can rely on nothing beyond the oral agreement of St-Gobain which, in the absence of writing, is rendered unenforceable by section 4. There was no representation by St-Gobain that it would honour the agreement despite the absence of writing, or that it was not a contract of guarantee, or that it would confirm the

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agreement in writing. Nor did St-Gobain make any payment direct to Actionstrength which could arguably be relied on as affirming the oral agreement or inducing Actionstrength to go on supplying labour. If St-Gobain were held to be estopped in this case it is hard to see why any oral guarantor, where credit was extended to a debtor on the strength of a guarantee, would not be similarly estopped. The result would be to render nugatory a provision which, despite its age, Parliament has deliberately chosen to retain.

… Applied to the present case, the reasoning of their Lordships would require not just that the respondent had agreed to take over the appellant’s contracts with the purchasers, but that the respondent had done something more by which the appellant was led to assume that the respondent would honour that agreement. Perhaps the something more did not have to be as explicit as that the respondent would honour the agreement despite the absence of writing. The appellant’s primary submission was that it was unnecessary that there be anything more, with the estoppel founded only upon the legal relationship of an agreement to take over the contracts with the purchasers and reliance on the existence of that relationship. It submitted rather in passing that the assumption of that legal relationship ‘will inevitably carry with it, at least by implication, a representation or assumption that the agreement will have legal effect’. In my respectful opinion, the reasoning of their Lordships in Actionstrength Ltd v International Glass Engineering In.Gl.En. SpA is conclusive against the appellant. In some cases more than the unenforceable agreement has been found. In Collin v Holden it was acknowledged, citing from Waltons Stores (Interstate) Ltd v Maher at 406, that mere reliance on an executory promise did not bring promissory estoppel into play, but it was found that the defendant had so conducted himself as to represent to the plaintiff that their agreement was enforceable (see at 576–8). In The Commonwealth v Verwayen (1990) 170 CLR 394 the estoppel lay in the defendant holding out that it would not rely on the Statute of Limitations. In Agius v Sage [1999] VSC 100 it was found that the defendant’s conduct had caused the plaintiff to assume that documents would be executed to record what had been agreed (see at [81]–[84]). But the respondent relied on nothing more than the making of the July 1996 agreement. I do not accept that the making of the agreement of itself carried a representation or founds an assumption that the agreement would be performed. There was evidence that Mr Ward knew of the requirement of writing. Section 54A of the Conveyancing Act was part of the law of the land, and the making of the agreement was subject to any unenforceability under the law of the land. It could not without more be inequitable or unconscionable to rely on the law of the land, and agreement to take over the contracts with the purchasers did not of itself convey that the respondent would not rely on the law of the land so far as the law bore upon the validity or enforceability of the agreement. Again recalling the pleaded estoppel, it was not inequitable or unconscionable for the respondent to rely on s 54A unless the respondent led the appellant to believe that it would honour the agreement notwithstanding any invalidity or unenforceability under the law of the land, here unenforceability by virtue of s 54A, and in other respects the basis for equitable intervention was made out.

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Underlying the appellant’s argument … appears to have been that s 54A was outflanked because on principles of equitable estoppel there was an agreement to take over the contracts with the purchasers and an agreement so found was an independent source of legal rights enforceable through equitable relief … It may be accepted that an estoppel can be a source of rights. That was the case in Waltons Stores (Interstate) Ltd v Maher itself, and from Ramsden v Dyson (1865) LR 1 HL 129 onwards interests in land have often been held to have arisen on principles of estoppel. Where an interest in land has been held to have arisen absence of a written record has not precluded its enforcement. That has been because the assumption induced by the defendant is taken to have encompassed enforceable rights (see Waltons Stores (Interstate) Ltd v Maher at 432–3, 446, 464), which can not be said of the mere assumption that a contract exists when the law of land requires a written record for enforceability. It does not follow that where the source of the rights is contractual, the statutory imperative of s 54A can be overcome by creation of an alternative source of rights … As a matter of pleading, I do not think that the appellant’s argument is open to it. The appellant abandoned the pleaded case of an estoppel from denying the existence of a contract, and was left with an estoppel specifically directed at reliance on s 54A. It could not rely on an agreement found on principles of estoppel as an independent source of rights. Putting that aside, I do not think the argument is sound. Its fundamental flaw is that there was an agreement, binding in contract, that the respondent would take over the contracts with the purchasers. There was no need for an independent source of rights, and neither occasion nor warrant to improve the appellant’s position by creating rights alternatively sourced through principles of estoppel. To repeat, without more it was not inequitable or unconscionable for the respondent to rely on the law of the land. Equity has ameliorated the harshness of reliance on s 54A through the doctrine of part performance. The doctrine would be unnecessary if the plaintiff could always fall back on an estoppel founded on no more than the making of the contract in question. And if the plaintiff could always do that, s 54A would be rendered nugatory. … In my opinion the appeal should be dismissed. [Meagher and Santow JJA agreed with the judgment of Giles JA.]

VARIATION AND TERMINATION OF CONTRACT [11.37] A  contract required to be in writing to be enforceable can be terminated by oral agreement between the parties.23 However, for a variation to be effective, it must be in writing.

23 For more detail about the required formalities for varying or terminating a contract that must be in writing to be enforced, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 11.8.

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It can therefore be critical to determine whether a subsequent agreement between the parties constitutes a termination of one agreement and entering into a new agreement, or a variation of the original agreement. The test of whether the parties have terminated or varied the contract is that of intention of the parties. Although not in the context of a land contract or contract of guarantee, the distinction between termination and variation was considered by the High Court in the following case.

Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288 High Court of Australia The parties entered into an agreement under which Electronic Industries Ltd were to install and demonstrate television equipment in a David Jones Ltd store over a specified two-week period in July 1949. Because of industrial action that affected retail trade, David Jones Ltd asked for the demonstration period to be postponed. Electronic Industries Ltd agreed to this request. Subsequent attempts to reschedule a demonstration time failed, and David Jones Ltd advised Electronic Industries Ltd that it no longer wished to proceed with the demonstration. Electronic Transactions Ltd (the plaintiff) sued David Jones Ltd (the defendant) for breach of contract. Dixon CJ, McTiernan J, Webb, Kitto J and Taylor J … Of course if the parties did intend to keep the original agreement no longer on foot, to rescind it, that is the end of the matter. The defendant’s plea of exoneration and discharge would be made out and there is no more to be said. But it is certain that they did not intend to rescind the original contract and that they never did so. The plaintiff always meant to perform it and hold the defendant bound to it. Never for a moment did the plaintiff mean to exonerate the defendant from the contract. All it meant to do, and all it did do, was to accede to the defendant’s request for a postponement in order to oblige the defendant and consult the interests of the defendant. An inference may possibly be open that the parties impliedly made a preliminary mutual agreement to vary the contract by dropping the old date pending their agreement on a variation substituting a new. If it were so, for the reason already stated it would not matter. But it does not seem to be the true inference. The truth was that the plaintiff expressed its willingness to vary the contract by substituting a new agreed date, and awaited an answer to its proposal, forbearing in the meantime in pursuance of the defendant’s request to tender actual performance. In the situation which resulted both parties remained bound by the contract. The fact that there was no longer a fixed date for performance brought into application the principles which impose on parties, in all cases where the performance of their obligations requires co-operative acts, the duty of complying with the reasonable requests for performance made by the other … What it was reasonable for the plaintiff to demand was that within a specified time when the plaintiff ’s apparatus was not unreasonably committed elsewhere the defendant should name a time for the plaintiff to commence the fortnight’s exhibition or demonstration and should make available its store for a reasonable period in advance of the date for the plaintiff to install its equipment and make the necessary preparations … All that the plaintiff was bound to do was

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to take reasonable measures to obtain from the defendant a time when he might enter the store for the purpose of performing his part of the contract and no doubt there were more ways than one in which the plaintiff might have acted. By any appropriate demand the plaintiff was entitled to require the defendant to make its store available to the plaintiff to perform its obligation at some proper and reasonable time. It is hardly necessary to repeat the commonplace statement that what is reasonable depends on all the circumstances including the nature and purpose of the express stipulations. But there is no ground for the supposition that once the named date was allowed to go there could be no implications binding the parties to performance of the co-operative acts necessary to carry out the contract. Nothing could be more certain than that clear and definite contractual obligations undertaken by the parties were intended by them to continue in force notwithstanding that at the instance of one of them the specified day was allowed to pass. It would be absurd for the law to say that nevertheless they were discharged from their obligations. On the contrary the law supplies the means of ensuring the performance of the contract by making very simple and natural implications … When it is said that this is a different case because the parties made the fixing of a date the sine qua non of their obligations, it is enough to answer that at no time did they stipulate expressly or impliedly that unless they agreed upon a new date the contract should be at an end. The intention was that the contract should go on as a binding obligation notwithstanding that performance on the named date was pretermitted.

QUESTIONS FOR REFLECTION (1) What is meant by the ‘authenticated signature fiction’, and how is that concept relevant to the legislative requirement for certain documents to be in writing to be enforceable? (2) What is meant by the doctrine of joinder, and in what circumstances will it operate? In your answer, consider whether it is ever possible to join a document that is created after a document is signed by the party to be charged. (3) What is the legal difference between a contract that is void and one that is unenforceable? Explain by reference to the statutory requirements for certain contracts to be in writing to be enforceable. (4) In what circumstances will the giving and taking of possession alone be a sufficient act of partperformance in an oral contract for the sale of property?

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INTRODUCTION [12.01] The doctrine of privity of contract provides that only the parties to a contract are legally entitled to enforce it, or be bound by it. Thus, to take the second aspect first, where parties A and B enter into a contract, they cannot by their bargain impose a liability of third party C.  This stands to reason: injustice would inevitably result to C were it otherwise. By contrast, rather than prevent injustice to party C, the first aspect of the rule may cause C to suffer injustice. It dictates that where promisor A enters into an agreement with promisor B which provides that promisor A will confer a benefit on C, a third party to the contract, C is unable to claim the benefit of the promise despite that being the clear intention of parties A and B.1 This aspect is closely associated with the rules of consideration, in as much as it is sometimes suggested that an alternative explanation for why a person cannot enforce the benefit of a contract to which he or she is not a party is that the he or she cannot enforce a promise for which he or she has provided no consideration. This notion is reflected by the requirement that consideration must move from the promisee.2 Nonetheless, the better view is that privity is a distinct doctrine. [12.02] The potential for injustice has seen the privity rule severely criticised. The English Law Revisions Committee in 1937 recommended the abolition of the rule in its Sixth Interim Report (CMD 5449).3 Some jurisdictions adopted this recommendation, while other legislation has removed the rule in particular circumstances. At common law other means of avoiding the harsh results of the rule have been recognised.

1

Wilson v Darling Island Stevedoring and Lighterage Co Ltd (1956) 95 CLR 43.

2

Tweddle v Atkinson (1861) 1 B&S 393 at 397; 121 ER 762, 763–4.

3

See paragraph 48.

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STATUTORY ABROGATION OF PRIVITY [12.03] There is legislation in Australia which abolishes privity in specific situations, including general contracts of insurance, marine insurance, motor vehicle insurance, maritime contracts for the carriage of goods, bills of exchange and certain building contracts.4 However, only Western Australia, Queensland and the Northern Territory adopted the English Law Revisions Committee’s recommendation and passed generally-framed legislation enabling third parties to enforce terms in contracts which purport to confer benefits on them.

Western Australia [12.04]

Property Law Act 1969 (WA) Section 11 (1) A person may take an immediate or other interest in land or other property, or the benefit of any condition, right of entry, covenant or agreement over or respecting land or other property, although he is not named as a party to the conveyance or other instrument that relates to the land or property. (2) Except in the case of a conveyance or other instrument to which subsection (1)  applies, where a contract expressly in its terms purports to confer a benefit directly on a person who is not named as a party to the contract, the contract is, subject to subsection (3), enforceable by that person in his own name but— (a) all defences that would have been available to the defendant in an action or proceeding in a court of competent jurisdiction to enforce the contract had the plaintiff in the action or proceeding been named as a party to the contract, shall be so available; (b) each person named as a party to the contract shall be joined as a party to the action or proceeding; and (c) such defendant in the action or proceeding shall be entitled to enforce as against such plaintiff, all the obligations that in the terms of the contract are imposed on the plaintiff for the benefit of the defendant. (3) Unless the contract referred to in subsection (2) otherwise provides, the contract may be cancelled or modified by the mutual consent of the persons named as parties thereto at any time before the person referred to in that subsection has adopted it either expressly or by conduct.

4

See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, sections 12.3.3–12.3.5.

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[12.05] Section 11(3) introduces the notion of the third party ‘adopting’ the contract. Up until that time the contract remains solely the concern of the parties to it—they are free to cancel or modify its terms. The section does not further define ‘adoption’ nor does it stipulate any requirements for a valid adoption. It would seem, therefore, that an adoption may be by words or conduct, and need not be in writing.

Queensland and Northern Territory [12.06] By contrast, the Queensland provision is more detailed.

Property Law Act 1974 (Qld) Section 55 (1) A promisor who, for a valuable consideration moving from the promisee, promises to do or to refrain from doing an act or acts for the benefit of a beneficiary shall, upon acceptance by the beneficiary, be subject to a duty enforceable by the beneficiary to perform that promise. (2) Prior to acceptance the promisor and promisee may, without the consent of the beneficiary, vary or discharge the terms of the promise and any duty arising from it. (3) Upon acceptance— (a) the beneficiary shall be entitled in the beneficiary’s own name to such remedies and relief as may be just and convenient for the enforcement of the duty of the promisor, and relief by way of specific performance, injunction or otherwise shall not be refused solely on the ground that, as against the promisor, the beneficiary may be a volunteer; and (b) the beneficiary shall be bound by the promise and subject to a duty enforceable against the beneficiary in the beneficiary’s own name to do or refrain from doing such act or acts (if any) as may by the terms of the promise be required of the beneficiary; and (c) the promisor shall be entitled to such remedies and relief as may be just and convenient for the enforcement of the duty of the beneficiary; and (d) the terms of the promise and the duty of the promisor or the beneficiary may be varied or discharged with the consent of the promisor and the beneficiary. (4) Subject to subsection (1), any matter which would in proceedings not brought in reliance on this section render a promise void, voidable or unenforceable, whether wholly or in part, or which in proceedings (not brought in reliance on this section) to enforce a promissory duty arising from a promise is available by way of defence shall, in like manner and to the like extent, render void, voidable or unenforceable or be available by way of defence in proceedings for the enforcement of a duty to which this section gives effect. (5) … (6) In this section— acceptance means an assent by words or conduct communicated by or on behalf of the beneficiary to the promisor, or to some person authorised on the promisor’s behalf, in the

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manner (if any), and within the time, specified in the promise or, if no time is specified, within a reasonable time of the promise coming to the notice of the beneficiary. beneficiary means a person other than the promisor or promisee, and includes a person who, at the time of acceptance is identified and in existence, although that person may not have been identified or in existence at the time when the promise was given. promise means a promise— (a) which is or appears to be intended to be legally binding; and (b) which creates or appears to be intended to create a duty enforceable by a beneficiary; and includes a promise whether made by deed, or in writing, or, subject to this Act, orally, or partly in writing and partly orally. promisee means a person to whom a promise is made or given. promisor means a person by whom a promise is made or given. (3) Nothing in this section affects any right or remedy which exists or is available apart from this section. [12.07] Section 56 of the Law of Property Act 2000 (NT) is in almost identical terms, except that it is restricted to where the promise is in writing (s 6). [12.08] Section 55 (Queensland)/s 56 (Northern Territory) makes the third party’s right to enforce the benefit dependent upon him or her ‘accepting’ the promise. ‘Acceptance’ is defined in some detail in ss 6. Whereas prior to acceptance the parties to the contract are free to vary or discharge the promise (ss 2) following acceptance any variation or discharge can only be done with the consent of the promisor and beneficiary (ss 3). Subsection 6 also makes it clear that the promise must intend or appear to intend to create a duty enforceable by the beneficiary, and that the beneficiary must be identified and in existence at the time of acceptance even though he or she may not have been identified or existed at the time of the promise. Subsection 7 saves the common law. Consequently, if the requirements of the section, such as acceptance or identification of the beneficiary are not established, the beneficiary may still have recourse to the common law and seek a remedy by invoking one of the so-called ‘exceptions’.

SO-CALLED ‘EXCEPTIONS’ [12.09] There are no true ‘exceptions’ to the doctrine of privity. However, it has been recognised that the beneficiary may invoke other areas of law to obtain a remedy. Some of these are limited to particular circumstances, such as certain claims in tort for economic loss, some claims under the Australian Consumer Law, or where there has been assignment of the benefit under a contract.5 There are other ‘exceptions’, however, which are of more general application. However there is disagreement regarding how effective these ‘exceptions’ are as solutions to the injustice that may

5

See ibid, sections 12.4.5–12.4.7.

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result from the privity rule. This has led to some judges supporting a change in the common law to abolish the rule. [12.10]

Trident General Insurance Co Ltd v McNiece Bros Proprietary Ltd (1988) 165 CLR 107 High Court of Australia Blue Circle, a construction company, entered into a contract of insurance with Trident General Insurance with regard to a construction site. The policy defined the assured as Blue Circle, its subsidiaries and ‘all contractors and sub-contractors’. McNiece was Blue Circle’s principal contractor. It was held liable when sued by a crane driver for negligence for injuries he sustained on site. McNiece subsequently made a claim under the insurance policy between Trident and Blue Circle. Although there was a practice to pay out on such claims, Trident denied liability on the basis that McNiece was not a party to the insurance policy. At trial it was held that Blue Circle had contracted as agent for McNiece and that McNiece should therefore succeed. This was rejected on appeal to the New South Wales Court of Appeal. Nevertheless, that court also upheld McNiece’s claim on the ground that there should be an exception to the doctrine of privity in the case of claims under insurance contracts. Mason CJ and Wilson J This Court has hitherto accepted that a third party cannot sue upon a contract and that a stranger to the consideration cannot maintain an action at law upon it: see, eg, Wilson v Darling Island Stevedoring & Lighterage Co Ltd (1956) 95 CLR 43 at 56 … So far we have proceeded on the footing that there are two distinct common law rules … the weight of authority points to the existence of two distinct, albeit interrelated, principles. Thus, if A, B and C are parties to a contract and A promises B and C that he will pay C $1000 if B will erect a gate for him, C cannot compel A to carry out his promise, because, though a party to the contract, C is a stranger to the consideration: see Law Revision Committee (Eng.) Sixth Interim Report (Statute of Frauds and the Doctrine of Consideration) par 37, 1937 Cmd. 5449. Contrast par 41 of that Report and its discussion of the privity rule. For the purposes of the present case and contracts for the benefit of third parties, however, it is of little consequence whether the rules are in fact separate. These ‘fundamental’ traditional rules, where they survive, have been under siege throughout the common law world. In the United Kingdom the Law Revision Committee, which included many distinguished lawyers under the chairmanship of Lord Wright, recommended the abolition of the consideration rule and the privity rule in its Sixth Interim Report. The Committee described the consideration rule in its application to the example given in the last paragraph as lacking any reason in logic or public policy: par 37. The Committee stated that the English common law (an expression which, in the context of the Report in 1937, may be taken to include the Australian common law) was alone among modern systems of law in its insistence on the privity rule and observed that the United States had taken steps to mitigate the rigour of the rule. Even in England, the Committee noted, Parliament had found it necessary to create legislative

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exceptions: par 41. The Committee went on to make the point that the trust concept as applied to the promise for the benefit of the third party had not proved to be a satisfactory solution because there was uncertainty surrounding the approach of the courts to the recognition of a trust: par 44. Another criticism of the trust concept was that, once created, the trust was not revocable by the promisor or the promisee: par 47. … There is much substance in the criticisms directed at the traditional common law rules as questions debated in the cases reveal. First, there is the vexed question whether the promisee can recover substantial damages for breach by the promisor of his promise to confer a benefit on the third party. The orthodox view is that ordinarily the promisee is entitled to nominal damages only because non-performance by the promisor, though resulting in a loss of the third party benefit, causes no damage to the promise … Next, there is the question whether the contract to confer a benefit on the third party is capable of specific performance … As Lord Upjohn noted in Beswick v Beswick [1968] AC 58 at 102, ‘Equity will grant specific performance when damages are inadequate to meet the justice of the case’ (our emphasis) … There is no reason to doubt that the courts will grant specific performance of a contract of indemnity or insurance, even if it involves payment of a lump sum, at least where the payment is to be made to a third party, damages being an inadequate remedy. But, even if we assume the availability of specific performance at the suit of the promisee in a wide variety of situations, there are nonetheless situations, such as that in Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468, where specific performance is not a suitable remedy and damages are inadequate. In these situations the incapacity of the third party to sue means that the law gives less protection to the promisee and the third party than the promisor: see Collins, Law of Contract (1986), p 107. And, assuming the availability of specific performance, the third party is nonetheless dependent on the willingness of the promisee to exercise his rights, in the absence of a trust, an agency relationship or an enforceable agreement between the promisee and the third party. Then there is the trust of the contractual promise on which the appellant places particular reliance as a palliative of the difficulties generated by the common law principles. Despite the insistence in Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 at 79–80 and In re Schebsman [1944] Ch 83 at 104, on the need for a clear expression of intention to create a trust and the warning that such an intention cannot necessarily be inferred from general words, there are a number of authorities which justify the difficulty expressed by Fullagar J in understanding the reluctance of the courts sometimes to infer trusts … As we have seen, critics of the common law rules have pointed to the uncertainty surrounding the circumstances in which the courts will recognize a trust in contracts for the benefit of third parties as a reason for rejecting the trust concept as a sufficient answer to the difficulties caused by those rules: Corbin, ‘Contracts for the Benefit of Third Persons’, Law Quarterly Review, vol 46 (1930) 12, esp at 17. This apparent uncertainty should be resolved by stating that the courts will recognize the existence of a trust when it appears from the language of the parties, construed in its context, including the matrix of circumstances, that the parties so intended. We are speaking of express trusts, the existence of which depends on intention. In divining intention from the language

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which the parties have employed the courts may look to the nature of the transaction and the circumstances, including commercial necessity, in order to infer or impute intention: see Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 at 189. But, even if adherence to this approach produces greater consistency of outcome, there are still the cases where the third party has no remedy because there is no sufficient intention to create a trust. And there are other consequences which flow from recognizing the existence of a trust. It may circumscribe the freedom of action of the parties to the contract, especially the promisee, to a greater extent than the existence of a right to sue on the part of the third party. How can the promisee terminate the trust once it is created? Lest it be overlooked, we should mention that the creation of a third party trust rests on ascertaining the intention of the promisee, rather than on the intention of the contracting parties. And in the ultimate analysis it seems incongruous that we should be compelled to import the mechanism of a trust to ensure that a third party can enforce the contract if the intention of the contracting parties is that he should benefit from performance of the contract. A fortiori is that so if the intention common to the parties is that the third party should be able to sue the promisor. In order to justify the privity and consideration rules in the face of these problems, three practical policy considerations are sometimes invoked. First, they preclude the risk of double recovery from the promisor by the third party as well as the promisee. If the third party is permitted to sue the risk of double recovery arises from the possibility that the one party may seek specific performance after another has recovered damages. The risk is insignificant; joinder of all parties in the first action will make the resulting decision binding on all. The second point is that the privity requirement imposes an effective barrier to liability on the part of a contracting party to a vast range of potential plaintiffs. This may be significant in the case of government contracts intended to benefit a class of persons: see, eg Martinez v Socoma Companies Inc (1974) 521 P (2d) 841. But it is difficult to justify the existence of a rule by reference to one of its indirect results, if in other respects its operation is unsatisfactory. The third matter is more important. The recognition of an unqualified entitlement in a third party to sue on the contract would severely circumscribe the freedom of action of the parties, particularly the promisee. He may rescind or modify the contract with the assent of the promisor, arrive at a compromise or assign his contractual rights. He may even modify the contract so that he diverts to himself the benefit initially intended for the third party. Professor Corbin suggested that any entitlement in the third party to enforce the provision in his favour would necessarily exist at the expense of the rights, privileges and liberties that the contracting parties enjoy under the common law rules:  ‘Third Party Beneficiary Contracts in England’, University of Chicago Law Review, vol 35 (1968) 544, at 549. But this does not entirely follow. The entitlement of the third party to enforce the provision in his favour can be subordinated to the right of the contracting parties to rescind or modify the contract, in which event the third party would lose his rights except in so far as he relied on the promise to his detriment: cf. Restatement, s 311(3). To subordinate the third party’s entitlement in this way would accord with legal principle and with the protection of the interests of the parties to the contract. There is to our minds no compelling reason why the interests of the third party should be preferred, though we acknowledge that in Queensland the parties lose their right to rescind and modify the contract without the third

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party’s consent on the third party’s acceptance of it (Property Law Act 1974 (Q), ss 55(2), 55(3) (d)) and in Western Australia on the third party’s adoption of the contract (Property Law Act 1969 (WA), s 11(3): see Westralian Farmers Co-operative Ltd v Southern Meat Packers Ltd [1981] WAR 241 at 246, 251. The Queensland and Western Australian qualifications trace back to the recommendations of the English Law Revision Committee in 1937. Should it be a sufficient foundation for the existence of a third party entitlement to sue on the contract that there is a contractual intention to benefit a third party? Or, should an intention that the third party should be able to sue on the contract be required? Under s 48 of the Insurance Contracts Act 1984 (Cth) and in the United States an intention to benefit a third party alone is necessary and that seems to be the position in Western Australia. But in Queensland (Property Law Act 1974, ss 55(1), 55(6)(c)(ii)) and in New Zealand (Contracts (Privity) Act 1982, ss 4, 8) an intention that the third party should be able to sue is required. This requirement again seems to have its origin in the recommendations of the English Law Revision Committee. As the contracting parties are unlikely to turn their attention to the enforcement by the third party, the ascertainment of this intention may well be fraught with similar problems to those that have surrounded the trust concept. The variety of these responses to the problems arising from contracts to benefit a third party indicate the range of the policy choices to be made and that there is room for debate about them. A simple departure from the traditional rules would lead to third party enforceability of such a contract, subject to the preservation of a contracting party’s right to rescind or vary, in the absence of reliance by the third party to his detriment, and to the availability in an action by the third party of defences against a contracting party. The adoption of this course would represent less of a departure from the traditional exposition of the law than other legislative choices which have been made. Moreover, as we have seen, the traditional rules, which were adopted here as a consequence of their development in the United Kingdom, have been the subject of much criticism and of legislative erosion in the field of insurance contracts. Regardless of the layers of sediment which may have accumulated, we consider that it is the responsibility of this Court to reconsider in appropriate cases common law rules which operate unsatisfactorily and unjustly. The fact that there have been recent legislative developments in the relevant field is not a reason for continuing to insist on the application of an unjust rule as it stood before its alteration by the Insurance Contracts Act 1984 (Cth). In the ultimate analysis the limited question we have to decide is whether the old rules apply to a policy of insurance. The injustice which would flow from such a result arises not only from its failure to give effect to the expressed intention of the person who takes out the insurance but also from the common intention of the parties and the circumstance that others, aware of the existence of the policy, will order their affairs accordingly. We doubt that the doctrine of estoppel provides an adequate protection of the legitimate expectations of such persons and, even if it does, the rights of persons under a policy of insurance should not be made to depend on the vagaries of such an intricate doctrine. In the nature of things the likelihood of some degree of reliance on the part of the third party in the case of a benefit to be provided for him under an insurance policy is so tangible that the common law rule should be shaped with that likelihood in mind.

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This argument has even greater force when it is applied to an insurance against liabilities which is expressed to cover the insured and its sub-contractors. It stands to reason that many sub-contractors will assume that such an insurance is an effective indemnity in their favour and that they will refrain from making their own arrangements for insurance on that footing. That, it seems, is what happened in the present case. But why should the respondent’s rights depend entirely on its ability to make out a case of estoppel? In the circumstances, notwithstanding the caution with which the Court ordinarily will review earlier authorities and the operation of long-established principle, we conclude that the principled development of the law requires that it be recognized that McNiece was entitled to succeed in the action. For the foregoing reasons, we would dismiss the appeal. Brennan J If policies of liability insurance are to be recognized as an exception to the doctrine, what are the features which might make them so? Excluding the principles of agency, trust and estoppel from consideration, what makes a ‘non-party assured’ who has furnished no consideration for a policy of loss insurance different from any other third party mentioned in a contract between promisor and promisee as a party who is to have the benefit of a promise? The difference suggested by McHugh JA [in the Court of Appeal] was that commercial necessity, practice and widespread use, strengthened by analogy with modern statutes, established policies of loss insurance as exceptions to the doctrine of privity of contract. The fact that policies of loss insurance are frequently expressed to cover losses sustained by persons who are not parties to the contract and the fact that insurers ordinarily honour those contracts do not establish the kind of commercial practice that evokes the creation of a new principle of the common law. It may be that, where the voluntary acceptance of liability by an insurer does not account for the commercial practice and use of which his Honour spoke, those factors are to be accounted for by operation of the law of agency, trusts and estoppel. His Honour’s proposition that it is commercially necessary to admit an exception to the doctrine of privity would be more supportable if it were found that those principles when applied in conjunction with the doctrine leave the law powerless to prevent or remedy injustice. But it was impossible to demonstrate such a defect in this case where agency was negatived on the facts and no occasion arose to consider the application of the principles of trust and estoppel. Nor is the argument for a judicially created exception advanced by considering modern statutory provisions … s 48 of the Insurance Contracts Act 1984 (Cth) weakens rather than strengthens the proposition that a common law exception exists. That section creates in a person who is not a party to a contract of general insurance a statutory right to recover the amount of his loss directly from the insurer if he was specified or referred to in the contract as a person to whom the insurance cover was provided. But the Parliament did not make that provision retrospective, and it cannot be inferred that the Parliament contemplated that cases arising before the Act came into force (this case being one of them) would be governed by provisions of the common law identical with those in the Act … To hold that policies of liability insurance are an exception to the doctrine of privity, some criterion must be found to distinguish the exception from the general rule. I can find none. Indeed, if the doctrine of privity should be overthrown in its application to policies of liability insurance,

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no reason either of policy or logic is advanced for retaining the doctrine for application to other contracts … In 1861, Tweddle v Atkinson (1861) 1 B & S 393 [121 ER  762] was decided. The law was then settled that ‘no stranger to the consideration can take advantage of a contract, although made for his benefit’ per Wightman J at 398, 764. The rule emerged in consequence of the development of the action of assumpsit … In this case, unless the Court determines that the doctrine of privity be reopened and a new doctrine substituted, the appeal must be allowed. The Court of Appeal ought to have allowed the appeal to it. However, the doctrine of privity was directly challenged, at least to the extent of allowing an exception in the case of liability insurance where the third party is named in the policy. In my view, for reasons which will appear, to admit such an exception involves the overthrow of the doctrine. The true question for decision is, therefore, whether this Court should now decide to overrule the settled and fundamental doctrine of privity. It is submitted that the doctrine of privity sometimes produces unjust results and that this Court should re-examine it in the light of the criticisms the doctrine has attracted … Those criticisms tend to erode the acceptability of the doctrine and to facilitate the postulation of an exception. If it be asserted that the doctrine works injustice, an exception can be seen as a first step on a path leading to the heights of justice and therefore a step to be taken with judicial alacrity. If this case is to be decided not by reference to the law as it is but by reference to the law as it ought to be, it is useful to consider the alternative paths by which the heights of justice might be scaled: the path followed by our law for over a century or a new path of doctrine. According to the settled law, when A (a promisor) contractually promises B (a promisee) to confer a benefit on C, a third party who is not a party to the contract and who has given A no consideration for the promise, C acquires no right to sue A on the promise … A proposal that a contractual promise in favour of a third party should give rise to a common law right in C to sue A to enforce the promise goes further. The proposal postulates the capacity of the contracting parties to create rights as between the third party and the promisor. Moreover, it precludes application of the principles of trust to any case to which the proposed exception applies. If C’s right were held to grow out of a contractual promise by A to B, it is hard to see how B might be the trustee of the promise for C: C could hardly have a legal right to the performance of A’s promise while B retained the same legal right as trustee for C. The principles of trust would be irrelevant in such a case. Indeed, the proposal may postulate that B, though the promisee, loses the contractual right to performance of the promise by A, that right being conferred solely upon, or being transferred to, C And, if the proposal postulates a cause of action in C while leaving B’s cause of action intact, it would expose A to double liability. To postulate the creation of a legal right in C to enforce a third party promise against A is to postulate the creation of legal relationships between the three parties which the doctrines of our legal system are not presently able to define. If a third party promise is to confer on C a common law right enforceable against A, do A and B retain a capacity to defeat C’s right by varying or abrogating their contract or is C’s right indefeasible on the making of the contract? If C’s right becomes indefeasible, what makes it so? Does C become subject to any obligation under the contract? Does C’s right or obligation

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depend on C’s acceptance of it? Or does C’s acquisition of the right against A  automatically impose any associated obligation? Does B retain a right to enforce the promise against A? Can C and A vary the right without B’s consent? Does B have any right to contribution from C in respect of the consideration for the promise? If want of consideration moving from C to A is no bar to C’s cause of action, is consideration moving from B to A essential? Does C lose his right to enforce the promise if he does not comply with the contractual conditions binding on B? Is B under a common law duty to C to perform the contract? Can A raise against C any defence which would be effective against B, eg, a set-off ? Legal systems which recognize the effectiveness of a third party promise to create a right in a third party to sue (a jus quaesitum tertio) give different answers to these questions … A variety of solutions can be devised for these and other problems raised by admitting a third party’s right to sue. That is apparent from the diversity of statutory provisions which have been enacted in order to confer on C a statutory right enforceable directly against A Those provisions have become increasingly complex. The Property Law Act 1969 (WA), s 11 contains relatively simple provisions; the Property Law Act 1974 (Q), s 55 is more detailed; and the Contracts (Privity) Act 1982 (NZ) is yet more detailed and sophisticated. Their provisions are not uniform. For example, only Western Australia requires the intention to benefit the third party to be expressed in the contract. Queensland requires the third party to ‘accept’ the contract and upon acceptance, the beneficiary may become subject to a duty enforceable against him. New Zealand alone extends the provisions of its Act to immunities and limitations on liability. Each of the Acts provides for discharge or variation of the promise without the beneficiary’s consent in certain circumstances, but the prescribed circumstances are not the same in the respective Acts. It is vain to expect that the common law has a solution for the problems on which Parliaments assisted by Law Reform Commissions have differed … Of course, the problems to which a third party promise gives rise must be addressed by any developed legal system, and the rules to govern these problems may be tentative in the earlier stages of development. Fundamental rules—ie, rules which fix a reference point for the development of subsidiary rules—may take some time to be settled. Once settled, the subsidiary rules can be developed. So it was with the English legal system. The subsidiary rules which the courts have developed to solve the problems raised by a third party promise are sometimes described as exceptions to the doctrine of privity, but (as Lord Reid suggested) the apparent exceptions are in truth applications of other legal principles to the contractual relationship of promisor and promisee. Fullagar J observed in Wilson v Darling Island Stevedoring & Lighterage Co Ltd at 67: ‘I doubt if there was any true exception at common law to the rule laid down by Tweddle v Atkinson.’ The first so-called exception is found in the law of trusts. A  promisee may be or become a trustee of the promise for a third party:  Les Affreteurs Reunis Societe Anonyme v Leopold Walford (London) Ltd [1919] AC 801; Vandepitte v Preferred Accident Insurance Corporation of New York. Where the promisee is a trustee, the third party acquires only an equitable interest in the promise. The third party does not become a party to the contract: Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541. The contract binds only the promisor and promisee and the third party beneficiary cannot enforce the promise as if he were a party to the contract. The third party can enforce the promise indirectly

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in an action in which the promisee is joined as a defendant (Vandepitte at 79; Birmingham v Renfrew (1937) 57 CLR 666 at 686) the promisee being an essential party in an action against the promisor: Harmer v Armstrong [1934] Ch 65. A second so-called exception is found in the law of agency. If a putative promisee is merely an agent for a third party, the third party is the promisee and is privy to the contract:  Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1978) 139 CLR 231 (HC); (1980) 144 CLR 300 (PC); ITO Ltd v Miida Electronics Inc (1986) 28 DLR (4th) 641. The agency cases show that, unless the third party is in truth a promisee, he cannot take the benefit of the contract: see the discussion by McIntyre J of the cases relating to exemption clauses in ITO Ltd v Miida Electronics Inc at 663–669 … Neither the principles of trust nor the principles of agency are exceptions to the doctrine of privity. In their application to a third party promise, those principles proceed on the footing that the legal contractual right is vested solely in the promisee. There is no true exception to the doctrine of privity … If a third party were to complain of injustice on the ground that he has no right to cause the promisee to enforce a policy of loss insurance, the supposed injustice must arise because there is no relevant relationship between the third party and the promisee. Such a case can arise only if the third party is one (a) for whom the promisee is not an agent, fiduciary or trustee, (b) who has no relevant contractual relationship with the promisee, and (c) who has not been induced to assume or expect that the policy covers the risk of loss by the third party by any representation made by the promisor or the promisee in circumstances which would entitle the third party to claim the benefit of the policy by estoppel: see Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387. Whether an injustice is likely to arise in such a case may be doubted, especially in modern times when the courts no longer feel the reluctance to infer the existence of a trust which courts felt in earlier times: see Wilson v Darling Island Stevedoring & Lighterage Co Ltd at 67. Of course, the question whether a trust has been constituted is related to the question whether the promisee reserves the right to agree with the promisor to vary or abrogate the promise. Consideration of the rights reserved by a promisee against the promisor and of the nature of the obligation accepted by the promisor may indicate that a trust of the benefit of the promise has been constituted. There is no reason to think that a system of law under which a third party’s (equitable) right to sue depends on the existence of a trust is less likely to do justice than a system under which a jus quaesitum tertio is admitted. Indeed, it may be that the constitution of a trust as a criterion of a third party’s right to sue is capable of adjusting more nicely the rights of promisor, promisee and third party … This is not the occasion to spell out the developments in the law of trusts, estoppel and damages which are needed if the law is finally to scale the heights of justice. This case did not raise those questions. I have referred to them merely to state my view that the appropriate path of legal development lies in those areas, not in the admission of a third party’s right to sue. In this case, McNiece endeavours to turn aside from the familiar path of privity, trust, agency and estoppel. But there is no other path unless we retrace our steps back at least to 1861. That is a course we ought not follow. It is a course we cannot follow. In my opinion, the relief which the Court of Appeal granted to McNiece was misconceived and the appeal must be allowed.

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Deane J If the promisee contracts as agent for a disclosed or undisclosed principal, the principal will ordinarily himself be, for the purposes of the requirement of privity, a party to the contract. If the terms of a contract incorporate a promise to benefit a third party in the form of an offer which is susceptible of being accepted by the third party, that third party can, at least if the consideration provided to the offeror under the head contract can be treated as having been provided ( jointly or partly) by or on behalf of the third party … acquire direct contractual rights against the promisor by an appropriate acceptance of the offer. If, within the confines of the law of contract, a third party who would be benefited by the performance of a contractual promise is left without redress, other principles of law operate (unhindered by the rule of privity) upon or within the context of contractual rights and obligations to avoid injustice in particular categories of case. The point can be conveniently illustrated by reference to a contract of the type involved in the present case, namely, a policy of liability insurance which includes a stranger to the contract among the persons whom the insurer promises to indemnify. If the insurer under such a policy induces, by his conduct, the third party to act to his detriment on the assumption that he is effectively indemnified under the policy, the insurer will, in an appropriate case, be estopped from denying the enforceability of such indemnity. Even if, in such a case, the assumption induced by the insurer is, upon analysis, an assumption as to future fact (eg that the third party will, in the event of liability within the period of the policy, be effectively protected by the policy) the doctrine of estoppel by conduct would, in my view, be applicable to preclude the insurer from raising the requirement of privity of contract (or from denying enforceability or the existence of a trust of the promise) as a basis for a departure from that assumption as to future fact: (cf Waltons Stores (Interstate) Ltd v Maher at 452). Again, if the insurer under such a policy has received the moneys payable for the promised indemnity but has then refused to indemnify the third party on the ground that the third party was not a party to the contract of insurance, the circumstances could conceivably be such as to give rise to a cause of action by the third party against the insurer founded upon principles of unjust enrichment (cf Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 227, 256–257); Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at 673–674). The path by which relief would be granted in such a case might well involve some reassessment of the extent of curial powers, both statutory and inherent, to mould the relief appropriate to do justice in the circumstances of a particular case … In the course of his judgment in Wilson v Darling Island Stevedoring at 67 Fullagar J pointed to the fact that ‘equity could and did intervene in many cases’ involving circumstances in which the common law requirement of privity could operate unjustly ‘by treating the promisee as a trustee of a promise made for the benefit of a third party, and allowing the third party to enforce the promise, making the promisee-trustee, if necessary, a defendant in an action against the promisor’. His Honour went on to comment that it is ‘difficult to understand the reluctance which courts have sometimes shown to infer a trust in such cases’: see, for a helpful discussion of the main earlier decisions, J G Starke, ‘Contracts for the Benefit of Third Parties’ Pt IV, Australian Law Journal, vol. 22 (1948) 67, at 69. That comment of Fullagar J was, in my view, fully justified …

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Indeed, the ‘reluctance’ of courts to find a trust in such cases seems often to have been caused by a misunderstanding of the nature of equity’s requirement of an intention to create an express trust, or put differently, by a failure to appreciate the innate flexibility of the law of trusts … The requisite intention to create a trust of a contractual promise to benefit a third party can, however, be formed and carried into effect (either by the contract itself or some other act) by a promisee who would be bemused by the information that the chose in action constituted by the benefit of a contractual promise is property and uncomprehending of the distinction between law and equity … In the context of such a contractual promise, the requisite intention should be inferred if it clearly appears that it was the intention of the promisee that the third party should himself be entitled to insist upon performance of the promise and receipt of the benefit and if trust is, in the circumstances, the appropriate legal mechanism for giving effect to that intention. A fortiori, equity’s requirement of an intention to create a trust will be at least prima facie satisfied if the terms of the contract expressly or impliedly manifest that intention as the joint intention of both promisor and promisee. A trust can attach to the benefit of the whole contract or of the whole or part of some particular contractual obligation. In the case of a policy of liability insurance under which the insurer agrees to indemnify both a party to the contract and others, there is no reason in principle or in common sense why the party to the contract should not hold the benefit of the insurer’s promise to indemnify him on his own behalf and the benefit of the promise to indemnify others respectively upon trust for those others. Where the benefit of a contractual promise is held by the promisee as trustee for another, an action for enforcement of the promise or damages for its breach can be brought by the trustee. In such an action, the trustee can recover, on behalf of the beneficiary, the damages sustained by the beneficiary by reason of breach. If the trustee of the promise declines to institute such proceedings, the beneficiary can bring proceedings against the promisor in his own name, joining the trustee as defendant … The appropriate course is to give McNiece leave to join Blue Circle as a respondent to the proceedings in this Court and to stand the matter over to allow McNiece to file a notice of contention alleging the existence of a trust and to allow Trident, if it can, to place before this Court material showing that it has an arguable case, based on further evidence, that there are circumstances which have the effect of precluding or modifying the trust which the policy of insurance would otherwise have sufficed to create … If, as would seem likely, Blue Circle files a submitting appearance and Trident is unable to place such material before the Court, the appropriate order would then be for the appeal to be dismissed. If Blue Circle does not submit as a defendant or Trident does place such material before the Court, it will be necessary for orders to be made remitting the matter to the Court of Appeal to determine the appropriate procedure for finally disposing of the dispute between the parties. [Dawson J delivered a judgment that was similar to that of Brennan J and held that the appeal should be allowed.] Toohey J I do not accept that a non-party assured is, as the common law presently stands, able to sue. But equally I accept that the law which precludes him from doing so is based on shaky foundations and, in its widest form, lacks support both in logic or in jurisprudence. My

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concern is whether the law is so well entrenched that nothing short of legislative interference can fairly budge it. My conclusion is that the law is not so well entrenched as to be incapable of change … Although the use of trusts has been formally circumscribed by the requirement that ‘the intention to constitute the trust must be affirmatively proved’ (Vandepitte at 79–80; see also In re Schebsman at 104), there is no doubt that they have enjoyed some success as a means of avoiding the consequences of privity of contract. The cases noted in Halsbury’s Laws of England, 4th ed (1974), vol. 9, pars 339–341, and in Treitel, pp 485–490, bear witness to this. Nevertheless there is force in the comment in Cheshire & Fifoot’s Law of Contract, 5th Australian ed (1988), par [1535]: But, despite its promising appearance and the positive terms in which it has occasionally been acclaimed, the [trust] device has in practice proved a disappointing and unreliable instrument, employed and rejected on some occasions on no very obvious principle.

At common law apparent exceptions have been recognized in the fields of agency, assignment of choses in action, carriage of goods, commercial letters of credit, covenants concerning land, claims in tort and proprietary or possessory rights:  Halsbury, par 336. Jacobs’ Law of Trusts in Australia notes thirteen ‘common law modifications of the principles governing third party contracts’ (p 23) … Whether the expansion of the trust concept in this context is fairly described as a fiction is debatable. But when a rule of the common law harks back no further than the middle of the last century, when it has been the subject of constant criticism and when, in its widest form, it lacks a sound foundation in jurisprudence and logic and further, when that rule has been so affected by exceptions or qualifications, I see nothing inimical to principled development in this Court now declaring the law to be otherwise in the circumstances of the present case … The proposition which I consider this Court should now indorse may be formulated along these lines. When an insurer issues a liability insurance policy, identifying the assured in terms that evidence an intention on the part of both insurer and assured that the policy will indemnify as well those with whom the assured contracts for the purpose of the venture covered by the policy, and it is reasonable to expect that such a contractor may order its affairs by reference to the existence of the policy, the contractor may sue the insurer on the policy, notwithstanding that consideration may not have moved from the contractor to the insurer and notwithstanding that the contractor is not a party to the contract between the insurer and assured … The appeal should be dismissed. Gaudron J In Pavey & Matthews it was stated by Deane J at 256 (and accepted by Mason and Wilson JJ at 227)  that the basis of the obligation imposed by law to pay compensation for a benefit accepted under an unenforceable contract was preferably to be seen as lying in restitution. Deane J added (69): That is not to deny the importance of the concept of unjust enrichment in the law of this country. It constitutes a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the

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determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognize such an obligation in a new or developing category of case.

The obligation to make restitution and the concept of unjust enrichment are not limited to situations in which the parties stand in a contractual relationship, or would so stand but for some matter rendering the contract invalid or bringing the relationship to an end … Where the consideration is wholly executed in favour of a promisor under a contract made for the benefit of a third party a rule that the third party may not bring action to secure the benefit of the contract permits of the possibility that the promisor may be unjustly enriched to the extent that the promise is not fulfilled. Certainly that is so if the promisee is unable or unwilling to bring an action on the contract. It will also be the case if action by the promisee will result only in the award of nominal damages. True it is that the possibility of unjust enrichment does not exist in all cases, but, as Mason CJ and Wilson J demonstrate in their reasons for judgment, the right of action available to the promisee and the limited rights available to the third party by operation of trust or estoppel, fail to provide a universal guarantee that the contractual obligation will be fulfilled, or if not fulfilled, will attract legal consequences proportional to its non-fulfilment. In my view it should now be recognized that a promisor who has accepted agreed consideration for a promise to benefit a third party is unjustly enriched at the expense of the third party to the extent that the promise is unfulfilled and the non-fulfilment does not attract proportional legal consequences. Although exceptions to and qualifications of the rules of privity and consideration and the doctrines of trust and estoppel operate in certain circumstances to preclude any unjust enrichment, the exceptions, qualifications and doctrines should not be seen as reasons to impede the development of legal principle which will obviate all possibility of unjust enrichment. Rather, their existence should be seen as demonstrating the necessity for the recognition of such an obligation. The possibility of unjust enrichment is obviated by recognition that a promisor who has accepted agreed consideration for a promise to benefit a third party owes an obligation to the third party to fulfil that promise and that the third party has a corresponding right to bring action to secure the benefit of the promise … To recognize an obligation on the part of a promisor who has accepted agreed consideration for a promise to benefit a third party, is not to abrogate the doctrine of privity of contract. It is merely to confine it to the only area in which it can properly operate, viz the area of rights and obligations having their source in contract … On the basis that the appellant received the agreed consideration specified in the policy of insurance—a matter that has not been disputed—it came under an obligation to the respondent to fulfil its promise to indemnify it as provided in the policy. The respondent is entitled to maintain an action to enforce that obligation. Accordingly the appeal should be dismissed. [12.11] In the final result a four-judge majority held that McNiece should succeed. The majority was made up of three judges who were prepared to abolish privity, at least in the case of insurance contracts (Mason CJ and Wilson and Toohey JJ) and Gaudron J, who applied unjust

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enrichment as a means of evading the effects of the privity rule. Her Honour therefore joined Brennan, Deane and Dawson JJ in upholding the continued operation of the privity rule. [12.12] Not long after the facts occurred in Trident v McNiece but before it was appealed to the New South Wales Court of Appeal, the Commonwealth enacted the Insurance Contracts Act 1984 Cth), s 48. If the same facts occurred today a party in the position of McNiece would have a valid claim under that section.6 [12.13] A particular issue that has frequently arisen is whether a person who is not party to a contract may nevertheless rely upon an exemption from liability contained in that contract. The issue has arisen, in particular, in relation to the carriage of goods—whether by sea, land, or air. It is customary for the carrier of goods to insert into the relevant contract of carriage an exemption of liability for loss or damage to those goods. Such an exemption often purports to extend to cover third parties such as the carrier’s servants, agents, and independent contractors. This measure may be necessary to avoid the owner of goods bypassing the carrier’s exemption and instead seeking to make third parties liable. Of course, where the third parties are servants or agents, any liability might ultimately be sheeted home to the carrier on the grounds of vicarious liability. In the case of independent contractors, the carrier may wish to protect an ongoing relationship that may be threatened if the independent contractor is held liable for damage or loss. Prima facie, as held in cases such as Wilson v Darling Island Stevedoring and Lighterage Co Ltd,7 persons such as the carrier’s servants, agents, or independent contractors are not protected by such exemptions, despite the exemption purporting to extend protection to them, because they are not parties to the contract of carriage entered into between the carrier and the person shipping the goods. It has become customary for bills of lading that evidence the contract of sea carriage to include a so-called ‘Himalaya clause’ that extends the protection of immunities and exemptions contained in the contract to third parties such as the carrier’s servants, agents, and independent contractors by effectively constituting the carrier–promisee as agent for the stevedore–beneficiary to contract with respect to the promise by the cargo owner–promisor not to hold the stevedore liable for any loss or damage to the goods. [12.14]

New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (The Eurymedon) [1975] 1 AC 154 Privy Council A drilling machine was shipped under a bill of lading from England to New Zealand on the ship The Eurymedon. The defendant stevedore, the New Zealand Shipping Co Ltd, had for several

6

As in QBE Insurance (Australia) Ltd v Lumley General Insurance Ltd (2009) 24 VR 326.

7

(1956) 95 CLR 43.

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years carried out all stevedoring work in Wellington in respect of the ships owned by the carrier. On arrival in Wellington, the machine was damaged—allegedly as a result of the negligence of the stevedore. The consignee under the bill, AM Satterthwaite & Co Ltd, who had become the owner of the drill, commenced an action against the stevedore for the damage to the drill. Clause 11 of the bill of lading limited the liability of the carrier to £100 where, as here, there was no declaration of the nature and value of the goods in the bill and no extra freight had been paid or agreed upon. Further, the bill incorporated the Hague Rules as enacted by the Carriage of Goods by Sea Act 1924 (Cth), which meant that the carrier was discharged from all liability for damage to the drill unless suit was brought within one year after delivery. The action against the stevedore was brought nearly three years after the drill way damaged. The stevedore sought to take advantage of these exemptions by relying on clause 1 in the bill which stated: It is hereby expressly agreed that no servant or agent of the carrier (including every independent contractor from time to time employed by the carrier) shall in any circumstances whatsoever be under any liability whatsoever to the shipper, consignee or owner of the goods or to any holder of this bill of lading for any loss or damage or delay of whatsoever kind arising or resulting directly or indirectly from any act neglect or default on his part while acting in the course of or in connection with his employment and, without prejudice to the generality of the foregoing provisions in this clause, every exemption, limitation, condition and liberty herein contained and every right, exemption from liability, defence and immunity of whatsoever nature applicable to the carrier or to which the carrier is entitled hereunder shall also be available and shall extend to protect every such servant or agent of the carrier acting as aforesaid and for the purpose of all the foregoing provisions of this clause the carrier is or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all persons who are or might be his servants or agents from time to time (including independent contractors as aforesaid) and all such persons shall to this extent be or be deemed to be parties to the contract in or evidenced by this bill of lading.

Lord Wilberforce (delivering the judgment of the majority of the Judicial Committee) The question in the appeal is whether the stevedore can take the benefit of the time limitation provision. The starting point, in discussion of this question, is provided by the House of Lords decision in Midland Silicones Ltd v Scruttons Ltd [1962] AC 446. There is no need to question or even to qualify that case in so far as it affirms the general proposition that a contract between two parties cannot be sued on by a third person even though the contract is expressed to be for his benefit. Nor is it necessary to disagree with anything which was said to the same effect in the Australian case of Wilson v Darling Island Stevedoring and Lighterage Co Ltd (1956) 95 CLR 43. Each of these cases was dealing with a simple case of a contract the benefit of which was sought to be taken by a third person not a party to it, and the emphatic pronouncements in the speeches and judgments were directed to this situation. But Midland Silicones left open the case where one of the parties contracts as agent for the third person: in particular Lord Reid’s speech spelt out, in four propositions, the prerequisites for the validity of such an agency contract. There is of course nothing unique to this case in the conception of agency contracts: well known and common instances exist in the field of hire purchase, of bankers’ commercial credits and other transactions. Lord Reid said, at p. 474:

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I can see a possibility of success of the agency argument if (first) the bill of lading makes it clear that the stevedore is intended to be protected by the provisions in it which limit liability, (secondly) the bill of lading makes it clear that the carrier, in addition to contracting for these provisions on his own behalf, is also contracting as agent for the stevedore that these provisions should apply to the stevedore, (thirdly) the carrier has authority from the stevedore to do that, or perhaps later ratification by the stevedore would suffice, and (fourthly) that any difficulties about consideration moving from the stevedore were overcome. And then to affect the consignee it would be necessary to show that the provisions of the Bills of Lading Act 1855 apply.

The question in this appeal is whether the contract satisfies these propositions. Clause 1 of the bill of lading, whatever the defects in its drafting, is clear in its relevant terms. The carrier, on his own account, stipulates for certain exemptions and immunities: among these is that conferred by article III, rule 6, of the Hague Rules which discharges the carrier from all liability for loss or damage unless suit is brought within one year after delivery. In addition to these stipulations on his own account, the carrier as agent for, inter alios, independent contractors stipulates for the same exemptions. Much was made of the fact that the carrier also contracts as agent for numerous other persons; the relevance of this argument is not apparent. It cannot be disputed that among such independent contractors, for whom, as agent, the carrier contracted, is the appellant company which habitually acts as stevedore in New Zealand by arrangement with the carrier and which is, moreover, the parent company of the carrier. The carrier was, indisputably, authorised by the appellant to contract as its agent for the purposes of clause 1. All of this is quite straightforward and was accepted by all the judges in New Zealand. The only question was, and is, the fourth question presented by Lord Reid, namely that of consideration. It was on this point that the Court of Appeal differed from Beattie J, holding that it had not been shown that any consideration for the shipper’s promise as to exemption moved from the promisee, ie, the appellant company. If the choice, and the antithesis, is between a gratuitous promise, and a promise for consideration, as it must be in the absence of a tertium quid, there can be little doubt which, in commercial reality, this is. The whole contract is of a commercial character, involving service on one side, rates of payment on the other, and qualifying stipulations as to both. The relations of all parties to each other are commercial relations entered into for business reasons of ultimate profit. To describe one set of promises, in this context, as gratuitous, or nudum pactum, seems paradoxical and is prima facie implausible. It is only the precise analysis of this complex of relations into the classical offer and acceptance, with identifiable consideration, that seems to present difficulty, but this same difficulty exists in many situations of daily life, eg, sales at auction; supermarket purchases; boarding an omnibus; purchasing a train ticket; tenders for the supply of goods; offers of rewards; acceptance by post; warranties of authority by agents; manufacturers’ guarantees; gratuitous bailments; bankers’ commercial credits. These are all examples which show that English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration.

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In their Lordships’ opinion the present contract presents much less difficulty than many of those above referred to. It is one of carriage from Liverpool to Wellington. The carrier assumes an obligation to transport the goods and to discharge at the port of arrival. The goods are to be carried and discharged, so the transaction is inherently contractual. It is contemplated that a part of this contract, viz discharge, may be performed by independent contractors—viz the appellant. By clause 1 of the bill of lading the shipper agrees to exempt from liability the carrier, his servants and independent contractors in respect of the performance of this contract of carriage. Thus, if the carriage, including the discharge, is wholly carried out by the carrier, he is exempt. If part is carried out by him, and part by his servants, he and they are exempt. If part is carried out by him and part by an independent contractor, he and the independent contractor are exempt. The exemption is designed to cover the whole carriage from loading to discharge, by whomsoever it is performed: the performance attracts the exemption or immunity in favour of whoever the performer turns out to be. There is possibly more than one way of analysing this business transaction into the necessary components; that which their Lordships would accept is to say that the bill of lading brought into existence a bargain initially unilateral but capable of becoming mutual, between the shipper and the appellant, made through the carrier as agent. This became a full contract when the appellant performed services by discharging the goods. The performance of these services for the benefit of the shipper was the consideration for the agreement by the shipper that the appellant should have the benefit of the exemptions and limitations contained in the bill of lading. The conception of a ‘unilateral’ contract of this kind was recognised in Great Northern Railway Co v Witham (1873) LR 9 CP 16 and is well established. This way of regarding the matter is very close to if not identical to that accepted by Beattie J in the Supreme Court:  he analysed the transaction as one of an offer open to acceptance by action such as was found in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. But whether one describes the shipper´s promise to exempt as an offer to be accepted by performance or as a promise in exchange for an act seems in the present context to be a matter of semantics. The words of Bowen LJ in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, 268: ‘why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition?’ seem to bridge both conceptions: he certainly seems to draw no distinction between an offer which matures into a contract when accepted and a promise which matures into a contract after performance, and, though in some special contexts (such as in connection with the right to withdraw) some further refinement may be needed, either analysis may be equally valid. On the main point in the appeal, their Lordships are in substantial agreement with Beattie J. The following points require mention. 1. In their Lordships´ opinion, consideration may quite well be provided by the appellant, as suggested, even though (or if) it was already under an obligation to discharge to the carrier. (There is no direct evidence of the existence or nature of this obligation, but their Lordships are prepared to assume it.) An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains the benefit of a direct obligation which he can enforce. This proposition is illustrated and supported by Scotson v Pegg (1861) 6 H & N 295 which their Lordships consider to be good law …

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In the opinion of their Lordships, to give the appellant the benefit of the exemptions and limitations contained in the bill of lading is to give effect to the clear intentions of a commercial document, and can be given within existing principles. They see no reason to strain the law or the facts in order to defeat these intentions. It should not be overlooked that the effect of denying validity to the clause would be to encourage actions against servants, agents and independent contractors in order to get round exemptions (which are almost invariable and often compulsory) accepted by shippers against carriers, the existence, and presumed efficacy, of which is reflected in the rates of freight. They see no attraction in this consequence. [Viscount Dilhorne and Lord Simon dissented on the grounds that there was no contract directly concluded between the stevedore and the shipper and that in the circumstances Lord Reid’s conditions had not been satisfied]. [12.15] Lord Reid’s test has since been applied in the context of road carriage,8 as well as to exclude liability for personal injuries in another context.9

QUESTIONS FOR REFLECTION (1) What are the criticisms directed at the existing so-called ‘exceptions’ at common law as effective means of avoiding the injustice that may result from the privity rule? (2) What reasons are given for retention of the privity rule, despite the criticisms directed against it and calls for its abolition? (3) If you are in a jurisdiction other than Western Australia, Queensland or Northern Territory, do you think your jurisdiction should enact general legislation abolishing privity? If so, which of the provisions in those three jurisdictions provides the best model, or should a different model be adopted?

8

See for example Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165; Celthene Pty Ltd v WKJ Hauliers Pty Ltd [1981] 1 NSWLR 606; Life Savers (Australasia) Pty Ltd v Frigmobile Pty Ltd [1983] 1 NSWLR 431.

9

Dyck v Manitoba Snowmobile Association (1981) 5 WWR 97 upheld on appeal by the Manitoba Court of Appeal (1982) 136 DLR (3d) 11 and the Supreme Court of Canada [1985] SCR 589.

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13 14 15 16 17 18

Misrepresentation and Misleading or Deceptive Conduct 255 Mistake 318 Duress 339 Undue Influence 349 Unconscionable Conduct 361 Void and Illegal Contracts 391

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CHAPTER 13 MISREPRESENTATION AND MISLEADING OR DECEPTIVE CONDUCT INTRODUCTION [13.01] During the course of most contractual negotiations, the parties will frequently make oral statements concerning the proposed arrangement. These pre-contractual statements may eventually form part of the contract as a term, or may remain mere representations that were intended to induce a party to enter the contract. In the latter case, such representations will be actionable if they are misrepresentations or constitute misleading or deceptive conduct pursuant to the Australian Consumer Law. [13.02] The Trade Practices Act 1974 (Cth) and, since 1 January 2011, the Australian Consumer Law (ACL) as a law of the Commonwealth and a law of each state,1 will in certain circumstances usurp the common law concept of misrepresentation. Section 18 of the ACL2 prohibits a corporation or person from engaging in misleading or deceptive conduct in the course of trade or commerce. Since the commencement of the Trade Practices Act in 1974, s 52 (now s 18 of the ACL) has become increasingly significant as a tool for regulating the conduct of commercial entities and providing redress for misled parties in situations where the common law may not have recognised a valid right. The courts have interpreted s 52 (now s 18 of the ACL) as having wide application limited only by the wording of the section itself. In a significant number of cases, although the courts are in no way bound by the common law, the judges have drawn upon, and sought guidance from, the common law principle of misrepresentation3 in reaching a decision concerning misleading conduct. Therefore, it is appropriate to consider the principles underlying the common law first, and then to examine the operation of the statutory overlay now provided by the ACL.

1

The ACL was adopted by each state jurisdiction through application laws passed as amendments to the state fair trading legislation.

2

Section 18 of the ACL replaced s 52 of the Trade Practices Act 1974 (Cth) in the same terms.

3

Gates v City Mutual Life Assurance Society (1986) 160 CLR 1; Marks v GIO Australia Holdings Pty Ltd (1998) 158 ALR 333.

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ELEMENTS OF MISREPRESENTATION [13.03] The elements of misrepresentation are: (1) (2) (3) (4)

a false statement of past or existing fact; made by the representor to the representee; at or before the contract was entered into; and which induced, and was intended to induce, the contract.

False statement of past or present fact [13.04] A  misrepresentation is founded upon the existence of a false statement of past or present fact. The statement made by the representor must actually be false in fact. Whether a representation is false will be determined objectively.4 No claim will lie for a representation that is true. Whether a statement of past or present fact has been made is a question of fact. A statement of fact should be distinguished from other types of statements such as opinions, law, intention, promises, and puffs.

Fact distinguished from intention [13.05] A statement of intention will not amount to a representation of fact unless the person misrepresents the person’s present intention. For example, a person who represents that ‘in six months’ time I will repay the debt’ is making a statement about her or his intention—and also impliedly stating a present intention to repay the debt in the future. If the person does not presently hold that intention, the statement will be a fraudulent misrepresentation [13.06]

Edgington v Fitzmaurice [1881–85] All ER 856 English Court of Appeal The plaintiff, after receiving a prospectus from the directors of the Army and Navy Provisions (Market) Ltd, took up debenture bonds in the company. The prospectus provided that the object of issuing the debentures was first, to complete certain alterations to existing buildings owned by the company, and secondly, to purchase horses and vans to save transport costs. After taking up the debenture bonds, the plaintiff discovered that the monies were not used for the purposes stated in the prospectus, but were instead used to pay various debts of the company. The plaintiff commenced an action for misrepresentation, and succeeded. The defendant argued that the

4

See John McGrath Motors (Canberra) Pty Ltd v Applebee (1964) 110 CLR 656 where the High Court held that the representation a car was ‘new’ was false where the car, although only being sold for the first time, was 18 months old. See also TPC v Annand & Thompson Pty Ltd (1978) 19 ALR 730.

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statements in the prospectus were mere statements of future intention and not statements of presently existing fact. Therefore, the statements could not amount to misrepresentations. Cotton LJ It was argued that this was only the statement of an intention, and that the mere fact that an intention was not carried into effect could not make the defendants liable to the plaintiff. I agree that it was a statement of intention, but it is nevertheless a statement of fact; and if it could not be fairly said that the objects of the issue of the debentures were those which were stated in the prospectus, the defendants were stating a fact which was not true, and if they knew that it was not true, or made it recklessly not caring whether it was true or not, they would be liable. Bowen LJ A  mere suggestion of possible purposes to which a portion of the money might be applied would not have formed a basis for an action of deceit. There must be a mis-statement of an existing fact; but the state of a man’s mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man’s mind at a particular time is, but if it can be ascertained it is as much a fact as anything else. A  misrepresentation as to the state of a man’s mind is therefore a misstatement of fact. Having applied as careful consideration to the evidence as I could, I have reluctantly come to the conclusion that the true objects of the defendants in raising the money were not those stated in the circular. I will not go through the evidence, but, looking only to the cross-examination of the defendants, I am satisfied that the objects for which the loan was wanted were misstated by the defendants. I will not say knowingly, but so recklessly as to be fraudulent in the eye of the law.

Fact distinguished from opinion [13.07] Like a statement of intention an opinion will not be a misrepresentation unless the person does not hold the stated opinion. Where a representation is found to be an opinion it will not of itself be a statement of present fact, but it may convey an inherent representation that the person making the statement holds that opinion, or is aware of facts that justify that opinion.5 In Smith v Land and House Property Corporation,6 the seller of a property described the tenant as ‘a most desirable tenant’. While this was considered a statement of opinion, it was evidently not true, as the tenant was consistently late in paying the rent. The statement was held to be a misrepresentation. It is clear from the case law that where the maker of a statement is in exclusive possession of facts relevant to the opinion stated, the person is really stating that there are facts within his or her knowledge that make the opinion reasonable.7 If, based upon the facts known, a reasonable person in that position would not hold that opinion,8 or if the opinion is actually not held, a fraudulent misrepresentation will exist.

5

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 274 ALR 731.

6

(1885) 28 Ch D 7.

7

Smith v Land and House Property Corporation (1885) 28 Ch D 7; Brown v Raphael [1958] Ch 636.

8

Bissett v Wilkinson (1926) All ER 343.

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[13.08]

Bisset v Wilkinson (1926) All ER 343 Privy Council Prior to entering into a contract for the sale of a farming property to the defendant, the plaintiff represented that in his opinion, if the property was worked with a good six-horse team, it should carry 2000 head of sheep. It was common knowledge between the parties that the vendor had not at any time operated a sheep farm, and that the purchasers were not experienced in the operation of a sheep farm. After the purchasers went into occupation and commenced their farming operations, they found themselves in difficulties. The purchasers refused to pay the balance of the purchase monies to the vendor, who commenced an action for recovery of the monies. In defence of the vendor’s claim, the purchasers alleged that the pre-contractual statement made by the vendor was a misrepresentation. Lord Merrivale … when misrepresentation is the alleged ground of relief of the party who repudiates the contract, it is, of course, essential to ascertain whether that which is relied upon is a representation of a specific fact, or a statement of opinion, since an erroneous opinion stated by the party affirming the contract, though it may have been relied upon and have induced the contract on the part of the party who seeks rescission, gives no title to relief unless fraud is established. The application of this rule, however, is not always easy, as is illustrated in a good many reported cases, as well as in this. A representation of fact may be inherent in a statement of opinion and, at any rate, the existence of the opinion in the person stating it is a question of fact. … In Smith v Land and House Property Corporation (1884) 28 Ch D7, 15 there came in question a vendor’s description of the tenant of the property sold as ‘a most desirable tenant’—a statement of his opinion, as was argued on his behalf in an action to enforce the contract of sale. This description was held by the Court of Appeal to be a misrepresentation of fact, which, without proof of fraud, disentitled the vendor to specific performance of the contract of purchase. Bowen LJ said It is often fallaciously assumed that a statement of opinion cannot involve the statement of fact. In a case where the facts are equally well known to both parties, what one of them says to the other is frequently nothing but an expression of opinion. The statement of such opinion is in a sense a statement of fact, about the condition of the man’s own mind, but only of an irrelevant fact, for it is of no consequence what the opinion is. But if the facts are not equally well known to both sides, then a statement of opinion by one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion.

… In the present case, as in those cited, the material facts of the transaction, the knowledge of the parties respectively, and their relative positions, the words of representation used, and the actual condition of the subject-matter spoken of, are relevant to the two inquiries necessary to be made: What was the meaning of the representation? Was it true?

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In ascertaining what meaning was conveyed to the minds of the now respondents by the appellant’s statement as to the two thousand sheep, the most material fact to be remembered is that, as both parties were aware, the appellant had not and, so far as appears, no other person had at any time carried on sheep-farming upon the unit of land in question. That land as a distinct holding had never constituted a sheep farm. The two blocks comprised in it differed substantially in character. Hogan’s block was described by one of the respondents’ witnesses as ‘better land.’ ‘It might carry,’ he said, ‘one sheep or perhaps two or even three sheep to the acre.’ He estimated the carrying capacity of the land generally as little more than half a sheep to the acre. And Hogan’s land had been allowed to deteriorate during several years before the respondents purchased. As was said by Sim J: ‘In ordinary circumstances, any statement made by an owner who has been occupying his own farm as to its carrying capacity would be regarded as a statement of fact. … This, however, is not such a case. The defendants knew all about Hogan’s block and knew also what sheep the farm was carrying when they inspected it. In these circumstances … the defendants were not justified in regarding anything said by the plaintiff as to the carrying capacity as being anything more than an expression of his opinion on the subject.’ In this view of the matter their Lordships concur. Whether the appellant honestly and in fact held the opinion which he stated remained to be considered. This involved examination of the history and condition of the property. If a reasonable man with the appellant’s knowledge could not have come to the conclusion he stated, the description of that conclusion as an opinion would not necessarily protect him against rescission for misrepresentation. [The Court considered it to be material that both parties were aware that the vendor had not—and so far as appears, no other person had—at any time carried on sheep-farming upon the unit of land in question. The Court concluded that the statement did not amount to a misrepresentation.]

Silence [13.09] At common law misrepresentation requires an actual statement to be made by one party to another. Where a person creates a false impression in the mind of another person due to a failure to make a statement, the common law will not recognise that conduct as a misrepresentation except in certain circumstances. Mere silence will not give rise to a misrepresentation at common law unless a special relationship between the parties imposes an obligation to disclose. A positive act or representation is required before a misrepresentation will be found. The common law will provide a remedy for misrepresentation by silence in three broad categories of circumstances: half truths; statements that later become false and where there is a duty of disclosure (such as a fiduciary relationship). [13.10] The most common situation of silence as a misrepresentation is where there is a half-truth. This may be defined as a statement that, although it is literally true, creates a false

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impression in the mind of the representee because essential qualifying facts are not disclosed.9 Despite the fact that every word of the statement may be true, if something is left out that would have qualified it, a false statement will have been made.10 For example, if a real estate agent when selling a property represents that the property is fully let, but fails to inform the buyer that the tenant has served notice to quit, a misrepresentation has been made. The initial statement is made untrue by the failure to disclose all relevant information. [13.11]

Dimmock v Hallett (1866–67) LR 2 Ch App 21 English Court of Appeal A property advertised by sale by a mortgagee stated that it was ‘late in the occupation of Mr R Hickson at the rent of £290’. Hickson had occupied the farm, which contained a good deal of grass land, as yearly tenant, at £290, but Hickson only occupied the property for one year at that rent and then left. Since then the plaintiff had agreed to let the farm at £225; but the agreement had been rescinded before taking possession, and the evidence showed that the farm could not be let for £290. Turner LJ The next alleged misrepresentation is much more important. A farm called Bull Hassocks, containing 300 acres, or nearly a third of the property put up for sale, is described as ‘lately in the occupation of Mr R Hickson, at an annual rent of £290 15s. Now in hand.’ The facts are, that this farm had been let at a higher rent than £290 15s before Hickson became tenant. Hickson took the farm at Midsummer, 1863, at the rent of £290 15s. At Michaelmas, 1864, he left it, and there appears never to have been any actual tenancy between his leaving and the time of the sale. Mr Dimmock, however, being in possession, agreed with a Mr Nelson to let him Bull Hassocks Farm, and another farm called Creyke’s Hundreds, containing 115 acres, at 15s per acre, which would bring the rent of Bull Hassocks Farm to £225 at most. That agreement was not carried into effect, for Nelson desired to be relieved of the farm, and paid £20 to be off his bargain. Was it then fair and honest to describe the farm in the particulars as late in the occupation of Hickson at a rent of £290 15s, when Hickson had been out of possession nearly a year and a half, within which period there had been an agreement to let the farm at a rent less by £65 than that paid by him. Such a description amounts to a representation to the purchaser that he will come into possession of a farm which will let for £290 15s, whereas Mr Dimmock, who had agreed to let it for so much less, knew that nothing near that rent could be obtained for it. But the matter does not rest there, for even the representation that the farm had been let to Hickson at £290 15s was not correct. He had occupied it for a year and a quarter, paying only £1 for the first quarter; and this took place at a time of year when the occupation

9

See for example Tipperary Developments Pty Ltd v State of Western Australia (2009) 258 ALR 124, 161; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563.

10 Arkwright v Newbold (1881) 17 Ch D 301.

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must have been beneficial; for the farm contained about 150 acres of pasture, which Hickson thus held at a nominal rent from Midsummer to Michaelmas. I am of opinion, therefore, that the particulars contain representations which were untrue, and calculated materially to increase the apparent value of the property. The Court requires good faith in conditions of sale, and looks strictly at the statements contained in them. Again, Creyke’s Hundreds, containing 115 acres, is described as let to R Hickson, a yearly Lady Day tenant, at £130 per annum; and another farm, Misson Springs, containing 131 acres, is mentioned as let to Wigglesworth, a yearly Lady Day tenant, at £160 per annum. Now the sale took place on the 25th of January, 1866, and there is no reference made in the particulars to the fact that each of these tenants had given a notice to quit, which would expire at Lady Day. The purchaser, therefore, would be led to suppose, as to these farms, that he was purchasing with continuing tenancies at fixed rents, whereas he would, in fact, have to find tenants immediately after the completion of his purchase. I refer particularly to this, because as to some of the other farms it is stated in the particulars that the tenants had given notice to quit; so that the purchaser must have been led to believe that the tenants of Creyke’s Hundreds and Misson Springs were con- tinuing tenants. This again, as it seems to me, is a material misrepresentation. Cairns LJ … But as to Bull Hassocks Farm, why was it stated that this farm was late in the occupation of R Hickson, at a rent of £290 15s? Evidently this was put forward as a test of the value of the farm, and the particulars must be taken to say that it was a fair test. Is it a fair test? and can the vendor really have thought that it was so? As far as we can ascertain the facts, this farm was once occupied by a person named Robinson; there was an interval between Robinson and the next tenant Simpson; then another interval between Simpson and Hickson. Simpson paid more rent than Hickson; it was a falling property, and the vendor, if he gave any standard, was bound to give a fair one. Moreover, could it be said that Hickson did occupy at that rent? He held the farm from Midsummer, 1863, to the next Michaelmas, for £1; a farm containing 150 acres of pasture land, the occupation of which, for that quarter, was clearly valuable. He had the power of determining his tenancy at Michaelmas, 1864, which he exercised; so, in fact, he held, the land fifteen months for £291 15s. But the matter does not rest there. When Hickson gave up the farm, the Plaintiff sought to obtain a tenant, and made a verbal arrangement with Nelson to come in at a rent of £225. The Plaintiff, being a mortgagee in possession, was bound to obtain the best rent; it must, therefore, be taken that £225 was the best rent that could be obtained. He found that Nelson was not a man of capital, and he agreed, for a consideration, to rescind the arrangement; but this does not affect the question as to the rent. One of the Plaintiff ’s own witnesses can go no further than to say that he would give 16 shillings an acre for it. The statement as to the rent was calculated to mislead, and was not prepared with the good faith which is requisite in conditions of sale. I think that a misrepresentation of this nature affects the validity of the contract, and is not a matter for compensation, but entitles the Petitioner to be discharged.

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Reliance [13.12] For a misrepresentation to be actionable, the representee must rely upon the statement made by the representor. The onus of proving the representee relied upon the statement rests with the representee.11 The degree of reliance required was considered in Edgington v Fitzmaurice.12 The English Court of Appeal considered that it was not necessary for the plaintiff to show that the misrepresentation was the sole inducing factor, but it was necessary for the misrepresentation to be material to the decision to enter the contract. It did not matter that the plaintiff had entered into the contract as a result of the misrepresentation as well as the plaintiff ’s own mistake or motives. The fact was that the plaintiff was influenced by the misrepresentation to enter the contract. The High Court gave detailed consideration to the issue of reliance in Gould v Vaggelas.13 [13.13]

Gould v Vaggelas (1984) 157 CLR 215 High Court of Australia Mr and Mrs Gould agreed to buy a tourist resort from a group of companies represented by Mr Vaggelas. The Goulds agreed to the purchase on behalf of a company yet to be incorporated, Gould Holdings Pty Ltd. There was a mortgage back to the vendors and the Goulds were the guarantors of the mortgage. Gould Holdings eventually defaulted under the mortgage and the resort was sold by the mortgagee. There were insufficient funds to pay out the debt and the mortgagee claimed against the Goulds under the mortgage. The Goulds counterclaimed for damages for fraudulent misrepresentation. The Goulds succeeded in the Queensland Supreme Court. In the Full Court their damages were reduced. On appeal to the High Court the Goulds succeeded and the judgment of the trial judge restored. The High Court considered both the question of proof of causation and remoteness of damage. The extract concerns the former. Wilson J . a misrepresentation is no ground for relief unless it induces the representee to enter into the contract … [the trial judge] correctly elucidated the law in this regard … [and correctly stated the] applicable principles … as follows: (1) Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case. (2) If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation.

11 Gould v Vaggelas (1985) 157 CLR 215. 12 [1881–85] All ER 856. 13 (1985) 157 CLR 215, 236.

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(3) The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation. (4) The representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract. … The first question is, where does the ultimate burden lie? It may be that some of the cases dealing with the necessity to prove inducement do not distinguish expressly between an evidentiary onus and an ultimate onus and thus use language which can give rise to ambiguity. … However, decisions of this Court leave no room to doubt that the ultimate onus of proving inducement rests upon the party seeking relief in respect of the fraudulent misrepresentation. [His Honour stated the cases supporting this view and continued.] There is no reason to doubt the correctness of these statements. They accord with sound principle, namely, that a plaintiff carries the burden of establishing every element of his cause of action. At the same time, one can readily understand why it is in cases of deceit that a tribunal whose duty it is to find the facts may require a defendant to make some answer to the case that is put against him. Such cases are of a kind where in the general experience of mankind the facts speak for themselves. Where a plaintiff shows that a defendant has made false statements to him intending thereby to induce him to enter into a contract and those statements are of such a nature as would be likely to provide such inducement and the plaintiff did in fact enter into that contract and thereby suffered damage and nothing more appears, common sense would demand the conclusion that the false representations played at least some part in inducing the plaintiff to enter into the contract. However, it is open to the defendant to obstruct the drawing of that natural inference of fact by showing that there were other relevant circumstances. Examples commonly given of such circumstances are that the plaintiff not only actually knew the true facts but knew them to be the truth or that the plaintiff either by his words or conduct disavowed any reliance on the fraudulent representations. It is entirely accurate to speak of an onus resting on a defendant to draw attention to the presence of circumstances such as those I have described in order to show that the inference of the fact of inducement which would ordinarily be drawn from the fraudulent making of a false statement calculated to induce a person to enter into a contract followed by entry into that contract should not in all the circumstances be drawn. But it is no more than an evidentiary onus—an obligation to point to the existence of circumstances which tend to rebut the inference which would ordinarily be drawn from the primary facts. When all the facts are in, the fact-finding tribunal must determine whether or not it is satisfied on the balance of probabilities that the misrepresentations in question contributed to the plaintiff ’s entry into the contract. The onus to show that they did is a condition precedent to relief and rests at all times on the plaintiff. [Gibbs CJ, Murphy J and Brennan J agreed with the principles discussed by Wilson J.]

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TYPES OF MISREPRESENTATION [13.14] Three types of misrepresentation have been recognised by the general law: •

innocent misrepresentation;



fraudulent misrepresentation; and



negligent misrepresentation.

It is necessary to distinguish between the different types of misrepresentation as the available remedies differ. The primary remedy available for each type of misrepresentation is rescission of the contract at the election of the representee. Damages are also available for fraudulent and negligent misrepresentation, either in addition to rescission, or alone.

Innocent misrepresentation [13.15] An innocent misrepresentation occurs where the representor has been neither fraudulent nor negligent. There must be no evidence of fraud, as outlined in Derry v Peek,14 and the maker of the statement must not be under a duty of care to the other person.15 The onus will lie on the representee to allege and prove either fraud or negligence.16 The four elements of misrepresentation as outlined at [13.03] must be proved to establish an innocent misrepresentation. If an innocent misrepresentation is proved, the representee may, at her or his election, choose to rescind the contract. The election to rescind should be made within a reasonable time, and in the case of a sale of land or shares, must be exercised prior to completion of the contract.17 Damages are not available for an innocent misrepresentation.18

Fraudulent misrepresentation [13.16] A fraudulent misrepresentation will occur where all of the elements detailed at [13.03] are present, and the representor has acted fraudulently. As stated in Derry v Peek,19 a statement will be fraudulent where a false representation has been made: •

knowingly; or



without belief in its truth; or



recklessly, careless whether it be true or false

with the intention that it should be acted upon by another party who is thereby induced to act upon it. As indicated by the definition, the courts employ a subjective test in determining

14 (1889) 14 App Cases 337. 15 Refer to [13.18]. 16 Dorotea v Christos Doufas Nominees Pty Ltd [1991] 2 Qd R 91. 17 The limits on descision of the contract are discussed at sections 13.22–13.24. 18 Redgrave v Hurd (1881) 20 Ch D 1. 19 (1889) 14 AC 337. See also Tresize v National Australia Bank Ltd [2005] FCA 1095.

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whether a person has been fraudulent. This requires the presentation of evidence regarding the state of mind of the particular person.20 [13.17]

Derry v Peek (1889) 14 App Cas 337 House of Lords Peek purchased shares in a tramway company after relying on a prospectus issued by the directors of that company that stated that the company was entitled to use steam or mechanical power rather than horses to operate its trams. The Board of Trade refused consent for the company to use such power except on certain conditions. In the result the company was would up and Peek commenced proceeding seeking damages for fraudulent misrepresentation. The defendants argued that they had an honest by erroneous belief that they would get the appropriate consents from the Board of Trade. Lord Herschell plaintiff, alleges that the appellants made in a prospectus issued by them certain statements which were untrue, that they well knew that the facts were not as stated in the prospectus, and made the representations fraudulently, and with the view to induce the plaintiff to take shares in the company. … I  think there is here some confusion between that which is evidence of fraud, and that which constitutes it. A consideration of the grounds of belief is no doubt an important aid in ascertaining whether the belief was really entertained. A man’s mere assertion that he believed the statement he made to be true is not accepted as conclusive proof that he did so. There may be such an absence of reasonable ground for his belief as, in spite of his assertion, to carry conviction to the mind that he had not really the belief which he alleges. … A  man who forms his belief carelessly, or is unreasonably credulous, may be blameworthy when he makes a representation on which another is to act, but he is not, in my opinion, fraudulent in the sense in which that word was used in all the cases from Pasley v Freeman down to that with which I am now dealing. Even when the expression ‘fraud in law’ has been employed, there has always been present, and regarded as an essential element, that the deception was wilful either because the untrue statement was known to be untrue, or because belief in it was asserted without such belief existing. … … I proceed to state briefly the conclusions to which I have been led. I think the authorities establish the following propositions:  First, in order to sustain an action of deceit,

20 Derry v Peek (1889) 14 AC 337; John McGrath Motors (Canberra) Pty Ltd v Applebee (1964) 110 CLR 656; Ritter v Northside Enterprises Ltd (1975) 132 CLR 30; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 (the requirement of consciousness may be satisfied in the case of a corporate body by combining the conduct and knowledge of those sufficiently closely and relevantly connected with the corporation as to attribute responsibility to the corporation); followed in Australian Competition and Consumer Commission v Radio Rentals Ltd (2005) 146 FCR 292.

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there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false, has obviously no such honest belief. Thirdly, if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made. … In my opinion making a false statement through want of care falls far short of, and is a very different thing from, fraud, and the same may be said of a false representation honestly believed though on insufficient grounds. Indeed Cotton LJ himself indicated, in the words I have already quoted, that he should not call it fraud. But the whole current of authorities, with which I have so long detained your Lordships, shews to my mind conclusively that fraud is essential to found an action of deceit, and that it cannot be maintained where the acts proved cannot properly be so termed.

Negligent misrepresentation [13.18] Negligent misrepresentation requires proof of the elements (except for the requirement that the statement be one of fact) outlined at [13.03] in addition to the following: •

that the representor owed the representee a duty to take reasonable care that the statement made by the representor was true and reliable;



that the representor breached such duty; and



the false representation led to the representee’s suffering loss or damage.

[13.19] The existence of a duty to take reasonable care is what distinguishes this type of misrepresentation from innocent and fraudulent misrepresentation. A  duty of care will arise where there is a ‘special relationship’ between the parties. Where a special relationship is present, a negligent misrepresentation may occur where the representor is providing an opinion. It is not necessary for the statement to be one of fact—only that the representor is providing advice or information. The breach of a duty of care through the provision of false information will be enough to allow the representee to recover damages in negligence for any loss suffered. However, to obtain rescission of a contract, the representee must prove that the statement was made prior to entry into the contract, and that the representee relied on the statement when entering the contract. [13.20] A special relationship and, therefore, a duty of care arises where in the words of Barwick CJ in MLC Assurance v Evatt:21

21 (1968) 122 CLR 556, 572–573.

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whenever a person gives information or advice to another … upon a serious matter, [in] circumstances [where] the speaker realises … or ought to realise, that he is being trusted … to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable in the circumstances for the other party to act on that information [or] advice.

[13.21]

Shaddock & Associates v Parramatta City Council (1981) 150 CLR 225 High Court of Australia The plaintiffs, through their solicitors, made inquiry from the council as to the existence of a road widening proposal affecting the land the plaintiffs were contemplating purchasing. The advice/information received from the council was that such property was not affected. In fact the property was affected by a road widening scheme causing loss and damage to the plaintiffs. It was held that the council owed a duty of care to the plaintiffs and was liable for their losses. Gibbs CJ It would appear to accord with general principle that a person should be under no duty to take reasonable care that advice or information which he gives to another is correct, unless he knows, or ought to know, that the other relies on him to take such reasonable care and may act in reliance on the advice or information which he is given, and unless it would be reasonable for that other person so to rely and act. It would not be reasonable to act in reliance on advice or information given casually on some social or informal occasion or, generally speaking, unless the advice or information concerned ‘a business or professional transaction whose nature makes clear the gravity of the inquiry and the importance and influence attached to the answer’, to use the words of Lord Pearce in Hedley Byrne. Equally it would not be reasonable to rely upon advice or information given by another unless the person giving it either had some special skill which he undertook to apply for the assistance of another or was so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry. Further a person should not be liable for advice or information if he had effectually disclaimed any responsibility for it. These general principles—they are not hard and fast rules—were accepted by the majority of their Lordships in Hedley Byrne, although Lord Devlin expressed a rather different point of view. The same general principles are supported by the judgments of the members of this Court in Mutual Life & Citizens’ Assurance Co Ltd v Evatt. However, it was held by the majority of the Judicial Committee in Mutual Life & Citizens’ Assurance Co Ltd v Evatt that this duty of care is cast only on a person who carries on a business or profession which involves the giving of advice of a kind which calls for special skill and competence, or on a person who, although not carrying on such a business or profession generally, has let it be known that he claims to possess skill and competence in the subject matter of the particular inquiry comparable to those who do carry on the business or profession of advising on the subject matter and is prepared to exercise a similar skill and competence in giving the advice. …

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Lord Reid and Lord Morris of Borth-y-Gest, who dissented, took a broader view. They held that: ‘… when an inquirer consults a business man in the course of his business and makes it plain to him that he is seeking considered advice and intends to act on it in a particular way … his action in giving such advice’ … [gives rise to] … ‘a legal obligation to take such care as is reasonable in the whole circumstances.’ … On either view, the duty in my opinion can exist in relation to the giving of information as well as advice. This was the view of Barwick CJ in Mutual Life & Citizens’ Assurance Co Ltd v Evatt, who pointed out, that in many instances the distinction between the two is very slight and that on occasion information becomes inextricable from advice. … I respectfully agree with the opinion of Barwick CJ that there is no valid ground on which to distinguish between information and advice for the purposes of the rule in Hedley Byrne. … I  find it difficult to see why in principle the duty should be limited to persons whose business or profession includes giving the sort of advice or information sought and to persons claiming to have the same skill and competence as those carrying on such a business or profession, and why it should not extend to persons who, on a serious occasion, give considered advice or information concerning a business or professional transaction. However, in the present case it does not seem to me to be necessary to decide whether the view of the majority or that of the minority in Mutual Life & Citizens’ Assurance Co Ltd v Evatt should be accepted. In this branch of the law it seems desirable to follow the example already set by the House of Lords and the Judicial Committee, and to avoid attempting to lay down comprehensive rules but rather to proceed cautiously, step by step. It is unnecessary in my opinion to choose between the conflicting views in Mutual Life & Citizens’ Assurance Co Ltd v Evatt because even if the views of the majority of the Judicial Committee are accepted, it should in my opinion be concluded that the respondent owed a duty of care to the appellants in the present case. Their Lordships in Mutual Life & Citizens’ Assurance Co Ltd v Evatt spoke of a business of giving advice or information, but emphasized that their opinion, like all judicial reasoning, must be understood secundum subjectam materiam. They did not have in view, and did not discuss, the case of a public body which, for the convenience of the public, follows the practice of giving on request information of which it has become possessed in the course of its public duties. From the standpoint of principle there is no difference between a person who carries on the business of supplying information and a public body which in the exercise of its public functions follows the practice of supplying information which is available to it more readily than to other persons, whether or not it has a statutory duty to do so. In either case, the person giving the information to another whom he knows will rely upon it in circumstances in which it is reasonable for him to do so, is under a duty to exercise reasonable care that the information given is correct. A public body, by following the practice of supplying information upon which the recipients are likely to rely for serious purposes, lets it be known that it is willing to exercise reasonable skill and diligence in ensuring that the information supplied is accurate. [The other members of the High Court also agreed that the view of Barwick CJ in Mutual Life & Citizens’ Assurance Co Ltd v Evatt should be preferred and concluded that the council owed a duty of care which it breached.]

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RESCISSION [13.22] Rescission of the contract will only be granted if the parties can be returned substantially to their pre-contractual positions. As part of the order the court will declare that the contract is void. Neither party will be entitled to enforce obligations that previously existed under the contract, but damages may be recoverable for conduct, such as misrepresentation, that gives rise to a liability in tort for negligence or fraud. [13.23] There are a number of limits on the right of a party to obtain rescission of a contract: (1) Affirmation: Once a misrepresentation is discovered, a representee may elect either to affirm or to rescind the contract. If the representee elects to affirm, the right to rescind for that particular misrepresentation will be lost. Once an election is made it cannot be retracted.22 Any election to affirm must be made in clear and unequivocal terms to be effective. Whether affirmation of the contract has occurred may be ascertained from the words or conduct of the representee. (2) Lapse of time: The right to rescind must be exercised within a reasonable time of discovering the falsity of the statement, or the representee will risk affirming the contract by his or her conduct. (3) Third party rights:  Where a third party acquires an interest in property, the subject of the contract, a court will not be able to grant rescission—the primary reason being that the parties can no longer be placed in their original positions.23 The court will generally be unable to divest the interest of the third party and return the property to the original owner. (4) Contract is completely performed: This final limit on the right to rescind is referred to as ‘the rule in Seddon’s Case’ and applies only to innocent misrepresentation. The cases of Seddon v North Eastern Salt Company Ltd24 and Wilde v Gibson25 suggest that once a contract is executed (fully performed by the parties) the representee is unable to rescind the contract for innocent misrepresentation. The rule has been criticised by later cases and will generally only apply in the case of a sale of land. A buyer will lose their right to rescind for innocent misrepresentation after completion of the sale and registration.26 (5) Resititutio in integrum is impossible: The essence of rescission is that the parties should be returned to their original positions. This is referred to as restitutio in integrum. At common law, if precise restitutio in integrum was not possible, the court was unable to grant rescission to the representee. However, a more flexible approach may be adopted in equity, where rescission will be granted provided the parties can be substantially restored to their precontractual positions.27 Particularly in the case of fraudulent misrepresentation, a court of

22 Sargent v ASL Developments Ltd (1974) 131 CLR 634, 656 per Mason J. 23 McKenzie v McDonald [1927] VLR 134; Waters Motors Pty Ltd v Cratchley [1964] NSWR 1085. 24 [1905] 1 Ch 326. 25 (1848) 9 ER 897. 26 Refer to Montgomery v Continental Bags (NZ) Ltd [1972] NZLR 884 in relation to the operation of the merger principle in Torrens title. 27 Partial rescission is not usually allowed but note the decision of the High Court in Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102.

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equity may be willing to grant compensation or indemnification28 where this would more substantially restore the parties to their original positions, and may make whatever financial adjustment is appropriate to restore the parties to those positions. The right of rescission in equity is, however, subject to the usual equitable discretions.29 [13.24]

Alati v Kruger (1955) 94 CLR 216 High Court of Australia Kruger purchased a fruit business together with the goodwill, stock-in-trade and certain assets from Alati. After completion of the contract, Kruger discovered that Alati had made certain fraudulent misrepresentations about the average takings of the business. Kruger immediately began an action in the Supreme Court against Alati claiming rescission of the contract, return of the purchase money, and damages. During this time, Kruger continued to carry on the business, which declined and started to make a loss. Before judgment was given the business had closed down, and the landlords had re-entered the premises. Alati argued that rescission of the contract was no longer possible due to the closure of the business. Dixon CJ, Webb J, Kitto J and Taylor J … On the footing which must be accepted, that the contract had been induced by a fraudulent representation made by the appellant to the respondent, the latter had a choice of courses open to him. … [Their Honours considered options open to the plaintiff and after settling on the third option of rescission continued.] The validity of his rescission depended, therefore, only upon the question whether restitutio in integrum was possible in the circumstances as they existed at the commencement of the action. … If the case had to be decided according to the principles of the common law, it might have been argued that at the date when the respondent issued his writ he was not entitled to rescind the purchase, because he was not then in a position to return to the appellant in specie that which he had received under the contract, in the same plight as that in which he had received it … But it is necessary here to apply the doctrines of equity, and equity has always regarded as valid the disaffirmance of a contract induced by fraud even though precise restitutio in integrum is not possible, if the situation is such that, by the exercise of its powers, including

28 Brown v Smit (1924) 34 CLR 160; Spedley Securities Ltd (in liq) v Greater Pacific Investments Pty Ltd (in liq) (1993) 30 NSWLR 185; Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102; McAllister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR (NSW) 187 at 192. 29 Refer also to Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546, 565 where Lockhart J noted that while the court was more open to rescission in the case of fraudulent misrepresentation in that case before the Court: ‘the longer the time elapsed since the agreement, and the more substantial any deterioration in the intervening period as a result of the purchaser’s management of the business, the more difficult it will be to secure restitution in a manner which does ‘practical justice’ between the parties, in the phrase adopted by the majority in Alati v Kruger.’ Approved in Nadinic v Drinkwater [2017] NSWCA 114.

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the power to take accounts of profits and to direct inquiries as to allowances proper to be made for deterioration, it can do what is practically just between the parties, and by so doing restore them substantially to the status quo … It is not that equity asserts a power by its decree to avoid a contract which the defrauded party himself has no right to disaffirm, and to revest property the title to which the party cannot affect. Rescission for misrepresentation is always the act of the party himself … The function of a court in which proceedings for rescission are taken is to adjudicate upon the validity of a purported disaffirmance as an act avoiding the transaction ab initio, and, if it is valid, to give effect to it and make appropriate consequential orders … The difference between the legal and the equitable rules on the subject simply was that equity, having means which the common law lacked to ascertain and provide for the adjustments necessary to be made between the parties in cases where a simple handing back of property or repayment of money would not put them in as good a position as before they entered into their transaction, was able to see the possibility of restitutio in integrum, and therefore to concede the right of a defrauded party to rescind, in a much wider variety of cases than those which the common law could recognize as admitting of rescission. Of course, a rescission which the common law courts would not accept as valid cannot of its own force revest the legal title to property which had passed, but if a court of equity would treat it as effectual the equitable title to such property revests upon the rescission. In the present case, what changes affecting the possibility of restitution had occurred in the short period between 16th June when the respondent took possession of the business and 29th June when he issued the writ? He had had possession of the premises, and although that might have sufficed at common law to preclude rescission … it could hardly do so in equity, since a money payment could compensate for any difference there might be between the rental value of the premises and the rent paid by the respondent to the landlords. The title to the term created by the lease had been vested in the respondent by assignment, but that was subject to any right which he had to disaffirm the transaction. The title would revest in equity when he elected to rescind, and he was in a position to make a legal re-assignment with the landlords’ consent. He had taken over (as he said in evidence) about twenty pounds worth of stock, but while of course he could not restore that to the appellant in specie he could pay or allow for its value, and nothing more could in justice be required. The business itself had deteriorated but this would not matter, for, as the trial judge has found, it was not due to any fault on the respondent’s part, and even at common law the necessity to return property in its original condition was qualified so as to allow for incidents for which the buyer was not responsible, such as those to which the property was liable either from its inherent nature … or in the course of the exercise by the buyer of those rights over it which the contract gave … No other change had occurred. The case was therefore typical of the class of cases in which a defrauded purchaser is regarded by a court exercising equitable jurisdiction as entitled to rescind the purchase and obtain a decree, on proper terms, declaring and giving effect to the rescission as an avoidance of the transaction from the beginning. There remains, however, the question whether the respondent lost his right to such a decree by his conduct in discontinuing the business and leaving the premises before judgment was given in the action. The remedy is discretionary … and if the respondent had acted unconscientiously during the pendency of the action, as by causing the loss of a valuable leasehold and goodwill by discontinuing the business and abandoning the premises without giving the appellant a

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reasonable opportunity to take them back, no doubt the court might refuse relief. But nothing of that kind happened … … the respondent was under no duty to go on indefinitely, working for nothing and incurring losses, especially after the judge had announced findings of fact in his favour. … For these reasons the appeal must fail.

MISLEADING OR DECEPTIVE CONDUCT Overview [13.25] The most significant statutory reform of the common law of misrepresentation occurred with the enactment of the Trade Practices Act 1974 (Cth), s 52 and complimentary state Fair Trading Acts. Since its commencement, s 52 of the Trade Practices Act 1974 (Cth) has become an important part of the arsenal of commercial lawyers—even being referred to as an Exocet missile for commercial litigators.30 Following a review of consumer protection legislation in Australia by the Productivity Commission in 2008, significant changes were made to the consumer protection framework. On 1 January 2011, the Competition andConsumer Act 2010 (Cth) replaced the Trade Practices Act 1974 (Cth) and Schedule 2 of the Competition and Consumer Act 2010 (Cth) is the ACL. The ACL contains the consumer protection provisions of the former Trade Practices Act 1974 (Cth), including the former s 52, leaving the competition and enforcement provisions within the body of the Competition and Consumer Act 2010 (Cth). Each state and territory passed amendments to their relevant Fair Trading Act enacting the ACL (as contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth)) as a law of each state and territory.31 This provides a consistent legal framework Australia wide for the protection of consumers. [13.26] Section 18 of the ACL provides: A corporation shall not in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

The primary purpose of s 18 is to impose a norm or standard of conduct upon parties to commercial transactions. The ACL gives several significant advantages to a person claiming

30 W Pengilly, ‘Section 52 of the Trade Practices Act 1974: A Plaintiff ’s New Exocet?’ (1987) 15 ABLR 247. 31 NSW—Fair Trading Act 1987 (NSW) as amended by Fair Trading Amendment (Australian Consumer Law) Act 2010 (NSW); Vic—Fair Trading Act 1999 (Vic) as amended by Fair Trading Amendment (Australian Consumer Law) Act 2010 (Vic) and re-enacted in Australian Consumer Law and Fair Trading Act 2012 (Vic); Qld—Fair Trading Act 1989 (Qld) as amended by Fair Trading Amendment (Australian Consumer Law) Act 2010 (Qld); SA—Fair Trading Act 1987 (SA) as amended by Statutes Amendment and Repeal (Australian Consumer Law) Act 2010 (SA); WA—Fair Trading Act 2010 (WA); Tas—Australian Consumer Law (Tasmania) Act 2010 (Tas); NT—Consumer Affairs and Fair Trading Act 1990 (NT) as amended by the Consumer Affairs and Fair Trading (National Uniform Legislation) Act 2010 (NT); ACT—Fair Trading (Australian Consumer Law) Act 1992 (ACT) as amended by the Fair Trading Amendment (Australian Consumer Law) Act 2010 (ACT).

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damages or rescission for misleading conduct. First, the section catches unintentional conduct. Strict liability applies and there is no requirement for an intention to mislead under s 18. Consequently, a person who makes a false statement honestly, may still be guilty of misleading conduct. Secondly, s 18 is wider than the common law in its application to conduct. Misleading conduct may occur through words, actions, or silence. The potential application of s 18 to silence or non-disclosure is far greater than the limited instances already discussed under the common law. Thirdly, s 18 is not limited to consumer transactions.32

Elements [13.27] The elements of s 18 of the ACL are: (1) a person or corporation; (2) acting in trade or commerce; (3) engages in misleading or deceptive conduct.

Person or corporation Commonwealth law [13.28] The application of the ACL as a law of the Commonwealth is provided in the Competition and Consumer Act 2010 (Cth), Pt XI. This Part provides that as a law of the Commonwealth, the ACL applies to the conduct of corporations:  Competition and Consumer Act 2010, s 131. This means that as a law of the Commonwealth, s 18 of the ACL will, despite the reference to ‘person’ in the section, apply principally to corporations. Refer to the definition of corporation in Competition and Consumer Act 2010, s 4. The ACL as a law of the Commonwealth may apply to a natural person in the circumstances proscribed by Competition and Consumer Act 2010, s 6, which extends the operation of ACL, s 18 to persons who engage in misleading and deceptive conduct while in the course of or in relation to: (a) (b) (c) (d)

interstate or overseas trade or commerce; trade between the states or territories; supplying goods to the Commonwealth; and the use of postal telegraphic or telephonic services or a radio or television broadcast.33

32 Bevanere Pty Ltd v Lubidineuse (1985) 59 ALR 334; Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594. 33 See Snyman v Cooper (1990) 91 ALR 209 where the conduct complained of was constituted by a misleading advertisement appearing in the Yellow Pages. The court held that telephonic services as that phrase was used in the section was to be interpreted widely enough to include official directories published pursuant to the Telecommunications Act 1975 (Cth). In Green v Ford (1985) ATPR 40-603 the court found that an individual was in breach of the Trade Practices Act 1974 (Cth) in relation to magazines sent through the post. The conduct must also occur in trade and commerce: Dataflow Computer Services Pty Ltd v Goodman (1999) ATPR 41-730 (email) and Australian Competition and Consumer Commission v Hughes (2002) ATPR 41-863; [2002] FCA 270; LT King Pty Ltd (t/a Yarra Valley Financial Services) v Besser (2002) 172 FLR 140; Cairnsmore Holdings Pty Ltd v Bearsden Holdings Pty Ltd [2007] FCA 1822 (email).

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ACL as a law of a state or territory [13.29] The operation of the ACL as a law of each state or territory is governed by the relevant provisions in each state or territory Fair Trading Act. The ACL, as a law of each state or territory will apply to both corporations and persons engaged in misleading conduct in the course of trade or commerce. The persons or corporations must be within the jurisdiction or connected to the jurisdiction.34 This means that ACL, s 18 will apply to an individual seller of goods, services or land, resident in the jurisdiction, conducting business in the jurisdiction or selling land in the jurisdiction provided the seller is acting in trade or commerce.

Trade or commerce [13.30] ‘Trade or commerce’ is defined in s 2 of the ACL as meaning trade or commerce within Australia or between Australia and places outside Australia, and includes any business or professional activity (whether or not carried on for profit). The majority of corporations are incorporated for trading or financial purposes and therefore most conduct of a corporation may be regarded as ‘in relation to’ or ‘in connection with’ trade or commerce.35 However, in Concrete Constructions (NSW) Pty Ltd v Nelson,36 the phrase ‘in trade or commerce’ was restricted by a majority of the High Court to conduct of the corporation that was ‘towards persons … with whom it has or may have dealings in the course of those activities or transactions which of their nature bear a trading or commercial character’. Conduct such as misleading statements to employees or negligent driving by an employee while delivering materials were not considered to be ‘in’ trade or commerce but were incidental to trade or commerce.37 Likewise, misleading statements in an email about the conduct of a corporation have been held to be ‘in relation to’ trade or commerce but not ‘in’ trade or commerce.38 A distinction is drawn in the case law between conduct ‘in’ trade or commerce and conduct ‘in connection with’ trade or commerce. This is particularly the case where the statements are preparatory to a commercial activity.39

34 NSW—Fair Trading Act 1987 (NSW), s 32; Vic—Australian Consumer Law and Fair Trading Act 2012 (Vic), s 12; Qld—Fair Trading Act 1989 (Qld), s 20; SA—Fair Trading Act 1987 (SA), s 18; WA—Fair Trading Act 2010 (WA), s 11; Tas—Australian Consumer Law (Tasmania) Act 2010 (Tas), s 10; NT—Consumer Affairs and Fair Trading Act 1990 (NT), s 31; ACT—Fair Trading (Australian Consumer Law) Act 1992 (ACT), s 11. 35 Toben v Jones (2012) 298 ALR 203 at [40]; Fletcher v Nextra Australia Pty Ltd (2015) 229 FCR 153; Bevanere Pty Ltd v Lubidineuse (1985) 7 FCR 325; 59 ALR 334. 36 (1990) 169 CLR 594, 604. See also Fletcher v Nextra Australia Pty Ltd (2015) 229 FCR 153. 37 Ibid, at 602–603; see also, Firewatch Australia Pty Ltd v Country Fire Authority (1999) ATPR (Digest) 46-198. Compare that case with Barto v GPR Management Services Pty Ltd (1991) 33 FCR 389, where the Federal Court ruled that misleading statements made during negotiations with present or prospective employees regarding that person’s employment contract might be regarded as occurring in trade or commerce; NRMA Ltd v Yates (1999) ATPR 41-721, where a director as part of a re-election campaign made misleading TV and radio advertisements alleging mismanagement by the Board; the statements were held to be in trade and commerce due to the director’s intention to influence future trade and commerce of NRMA; Herbert v American Express Australia Limited [2017] NSWSC 367 at [104] (evidence by witnesses called by employer in proceedings in Fair Work Commission). 38 Dataflow Computer Services Pty Ltd v Goodman (1999) ATPR 41-730. 39 Robin Pty Ltd v Canberra International Airport Pty Ltd (1999) 179 ALR 449.

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[13.31]

Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 High Court of Australia Nelson was injured when he fell to the bottom of a shaft while working for Concrete Constructions on a building site. He alleged that the accident resulted from his reliance upon the assurances of Concrete’s foreman that a grate at the entry of the shaft was secured by bolts and that it was safe to remove the grate when, in fact, the grate was not secured. Nelson commenced a claim for misleading conduct. Mason CJ, Deane J, Dawson J and Gaudron J It is well established that the words ‘trade’ and ‘commerce’, when used in the context of s 51(i) of the Constitution, are not terms of art but are terms of common knowledge of the widest import. The same may be said of those words as used in s 52(1) of the Act. … Plainly enough, what is encompassed in the plenary grant of legislative power ‘with respect to … Trade and commerce’ in s 51(i) of the Constitution is not of assistance on the question of the effect of the word ‘in’ as part of the requirement that the conduct proscribed by s 52(1) of the Act be ‘in trade or commerce’. The phrase ‘in trade or commerce’ in s 52 has a restrictive operation. It qualifies the prohibition against engaging in conduct of the specified kind. As a matter of language, a prohibition against engaging in conduct ‘in trade or commerce’ can be construed as encompassing conduct in the course of the myriad of activities which are not, of their nature, of a trading or commercial character but which are undertaken in the course of, or as incidental to, the carrying on of an overall trading or commercial business. If the words ‘in trade or commerce’ in s 52 are construed in that sense, the provisions of the section would extend, for example, to a case where the misleading or deceptive conduct was a failure by a driver to give the correct handsignal when driving a truck in the course of a corporation’s haulage business. It would also extend to a case, such as the present, where the alleged misleading or deceptive conduct consisted of the giving of inaccurate information by one employee to another in the course of carrying on the building activities of a commercial builder. Alternatively, the reference to conduct ‘in trade or commerce’ in s 52 can be construed as referring only to conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character. So construed, to borrow and adapt words used by Dixon J in a different context in Bank of NSW v The Commonwealth, the words ‘in trade or commerce’ refer to ‘the central conception’ of trade or commerce and not to the ‘immense field of activities’ in which corporations may engage in the course of, or for the purposes of, carrying on some overall trading or commercial business. … Indeed, in the context of Pt V of the Act with its heading ‘Consumer Protection’, it is plain that s 52 was not intended to extend to all conduct, regardless of its nature, in which a corporation

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might engage in the course of, or for the purposes of, its overall trading or commercial business. … What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character. Such conduct includes, of course, promotional activities in relation to, or for the purposes of, the supply of goods or services to actual or potential consumers, be they identified persons or merely an unidentifiable section of the public. In some areas, the dividing line between what is and what is not conduct ‘in trade or commerce’ may be less clear and may require the identification of what imports a trading or commercial character to an activity which is not, without more, of that character. The point can be illustrated by reference to the examples mentioned above. The driving of a truck for the delivery of goods to a consumer and the construction of a building for another pursuant to a building contract are, no doubt, trade or commerce in so far as the relationship between supplier and actual or potential customer or between builder and building owner is concerned. That being so, to drive a truck with a competitor’s name upon it in order to mislead the customer or to conceal a defect in a building for the purpose of deceiving the building owner may well constitute misleading or deceptive conduct ‘in trade or commerce’ for the purposes of s 52. On the other hand, the mere driving of a truck or construction of a building is not, without more, trade or commerce and to engage in conduct in the course of those activities which is divorced from any relevant actual or potential trading or commercial relationship or dealing will not, of itself, constitute conduct ‘in trade or commerce’ for the purposes of that section. That being so, the giving of a misleading handsignal by the driver of one of its trucks is not, in the relevant sense, conduct by a corporation ‘in trade or commerce’. Nor, without more, is a misleading statement by one of a building company’s own employees to another employee in the course of their ordinary activities. The position might well be different if the misleading statement was made in the course of, or for the purposes of, some trading or commercial dealing between the corporation and the particular employee.

Misleading or deceptive conduct [13.32] Whether conduct is misleading or deceptive should be viewed from the perspective of the type or class of persons exposed to the conduct. There is no requirement for the person engaging in the misleading or deceptive conduct to do so intentionally—therefore, except in some circumstances, the perspective or view of the party engaging in the conduct will be irrelevant.40

40 The knowledge of a person engaging in the conduct will be relevant to a conclusion of whether he or she is a party involved in the contravention as defined in s 2 of the ACL. Whether the person engaging in the conduct acted recklessly or dishonestly will also be relevant where the conduct engaged in is characterised as an opinion, intention, or relates to some other future matter.

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It is only necessary for an applicant to prove that the conduct engaged in either misled or deceived them. Proof that a person has been misled requires evidence that they have been led astray in reliance on the action or conduct, or led into error, or caused to err.41 However, proof that a person has been deceived would require evidence that the party has been induced to believe a thing that is false and which the person practising the deceit knows or believes to be false.42 In determining whether conduct is misleading or deceptive regard must be had to the whole of the circumstances in which the conduct took place. Conduct in one context, having regard to the transaction, nature of the parties and terms of a contract, may be misleading while in a different context may not be misleading.43 An important first step will be to clearly identify the conduct to be characterised. As explained by French CJ in Campbell v Backoffice Investments Pty Ltd:44 If the conduct is said to consist of a statement made orally or in writing, the first question to be asked is what kind of statement was made. Was it a statement of historic or present fact made on the basis that its truth was known to its maker? Was it a statement of opinion? That is to say was it a statement of ‘judgment or belief of something as probable, though not certain or established’?

After identifying the conduct a court will then consider whether having regard to the circumstances that conduct was misleading. A  different approach is adopted by the courts depending on whether the conduct is to the general public or a particular individual.

Conduct directed to class of persons [13.33] Where it is alleged that a statement to a class of persons is misleading it will be necessary for the court to consider the effect of that statement on an ordinary or reasonable member of the class.45 A court should identify the relevant section of the public to whom the conduct is directed, who falls within that target audience and whether a member of the target

41 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83. To obtain damages the claimant will also have to show that the misleading conduct caused the loss or in the case of rescission that it caused the claimant to enter the contract. 42 Re London & Globe Financial Corporation Ltd [1903] 1 Ch 728, 732. 43 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191. 44 (2009) 238 CLR 304. 45 Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45, [106]; Approved in Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199. Previously it would have been borne in mind that the hypothetical member of the determined class of people at whom the conduct is aimed ‘may not be particularly intelligent or well informed, but perhaps somewhat less than average intelligence and background knowledge, but not a person who is quite unusually stupid’: McWilliams Wines Pty Ltd v McDonald’s System of Australia Pty Ltd (1980) 33 ALR 394; Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd (2006) ATPR 42-106; REA Group Ltd v Fairfax Media Ltd [2017] FCA 91.

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audience is likely to be misled or deceived by the conduct.46 A statement will be misleading if a representative member of the class is likely to be led into error by the statement or acts in reliance upon an erroneous assumption. In making this assessment a court will attribute certain characteristics to an ordinary and reasonable member of the class but will disregard erroneous assumptions that are extreme or fanciful.47 [13.34]

Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45 High Court of Australia Campomar was a Spanish company that manufactured and marketed cosmetics and toiletries outside of Australia for many years. In 1989, they obtained registration for the word ‘Nike’ for ‘perfume products of all kinds and essential oils’ (the first Campomar registration) in the Register of Trade Marks (the register) in Australia under the Trade Marks Act 1955 (Cth). In 1992 the first appellant applied for, and in 1994 obtained, registration for the word ‘Nike’ for ‘bleaching preparations and other substances for laundry use; cleaning, polishing, scouring and abrasive preparations; soaps’ (the second Campomar registration) in the register. Nike (which had manufactured and marketed sporting footwear and clothing outside of Australia for many years) obtained registration in 1975 for the word ‘Nike’ for ‘athletic shoes … and athletic uniforms’ in the register. Registrations were later obtained for the word ‘Nike’ for other classes of goods. Compomar starting distributing goods in Australia and Nike commenced an action claiming the marketing of ‘Nike Sports Fragrance’ by Campomar was likely to mislead or deceive consumers. Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ … It is in these cases of representations to the public, of which the first appeal is one, that there enter the ‘ordinary’ or ‘reasonable’ members of the class of prospective purchasers. Although a class of consumers may be expected to include a wide range of persons, in isolating the ‘ordinary’ or ‘reasonable’ members of that class, there is an objective attribution of certain characteristics. Thus, in Puxu, Gibbs CJ determined that the legislation did not impose burdens which operated for the benefit of persons ‘who fail[ed] to take reasonable care of their own interests’. In the same case, Mason J concluded that, while it was unlikely that an ordinary purchaser would notice the very slight differences in the appearance of the two items of furniture in question, nevertheless such a prospective purchaser reasonably could be expected to attempt to ascertain the brand name of the particular type of furniture on offer.101 Where the persons in question are not identified individuals to whom a particular misrepresentation has been made or from whom a relevant fact, circumstance or proposal was withheld, but are

46 REA Group Ltd v Fairfax Media Ltd [2017] FCA 91, [16]-[18]. See also Australian Competition and Consumer Commission v Valve Corporation (No 3) [2016] FCA 196, where Valve misled consumers about the applicability of statutory guarantees to the computer games provided by Valve. 47 Ibid, [106].

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members of a class to which the conduct in question was directed in a general sense, it is necessary to isolate by some criterion a representative member of that class. The inquiry thus is to be made with respect to this hypothetical individual why the misconception complained has arisen or is likely to arise if no injunctive relief be granted. In formulating this inquiry, the courts have had regard to what appears to be the outer limits of the purpose and scope of the statutory norm of conduct fixed by s 52.102 Thus, in Puxu, Gibbs CJ observed that conduct not intended to mislead or deceive and which was engaged in ‘honestly and reasonably’ might nevertheless contravene s 52.103 Having regard to these ‘heavy burdens’ which the statute created, his Honour concluded that, where the effect of conduct on a class of persons, such as consumers, was in issue, the section must be ‘regarded as contemplating the effect of the conduct on reasonable members of the class’.104 It is here that there arises a critical question on the case put for the appellants. It concerns the so-called ‘doctrine’ of ‘erroneous assumption’ said to be derived from, in particular, decisions of the Full Court of the Federal Court in McWilliam’s Wines Pty Ltd v McDonald’s System of Australia Pty Ltd,105 Taco Co of Australia Inc v Taco Bell Pty Ltd106 and Lego Australia Pty Ltd v Paul’s (Merchants) Pty Ltd. In their joint judgment in Taco Bell,107 Deane and Fitzgerald JJ emphasised that ‘no conduct can mislead or deceive unless the representee labours under some erroneous assumption’. Their Honours went on to observe:108 Such an assumption can range from the obvious, such as a simple assumption that an express representation is worthy of credence, through the predictable, such as the common assumption in a passing-off case that goods marketed under a trade name which corresponds to the wellknown trade name of goods of the same type have their origins in the manufacturer of the well-known goods, to the fanciful, such as an assumption that the mere fact that a person sells goods means that he is the manufacturer of them.

Their Honours added that, in determining the question whether conduct properly should be categorised as misleading or deceptive or as likely to mislead or deceive, the nature of the erroneous assumption which must be made before conduct could have that character ‘will be a relevant, and sometimes decisive, factor’.109 Their Honours rejected:110 [any] general proposition of law to the effect that intervention of an erroneous assumption between conduct and any misconception destroys a necessary chain of causation with the consequence that the conduct itself cannot properly be described as misleading or deceptive or as being likely to mislead or deceive.

Nevertheless, in an assessment of the reactions or likely reactions of the ‘ordinary’ or ‘reasonable’ members of the class of prospective purchasers of a mass-marketed product for general use, such as athletic sportswear or perfumery products, the court may well decline to regard as controlling the application of s 52 those assumptions by persons whose reactions are extreme or fanciful. For example, the evidence of one witness in the present case, a pharmacist, was that he assumed that ‘Australian brand name laws would have restricted anybody else from putting the Nike name on a product other than that endorsed by the [Nike sportswear company]’. Further, the assumption made by this witness extended to the marketing of pet food and toilet cleaner. Such assumptions were not only erroneous but extreme and fanciful. They would not be attributed to the ‘ordinary’ or ‘reasonable’ members of the classes of prospective purchasers of pet food and toilet cleaners. The initial question which must be determined is

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whether the misconceptions, or deceptions, alleged to arise or to be likely to arise are properly to be attributed to the ordinary or reasonable members of the classes of prospective purchasers. In Lego Australia Pty Ltd v Paul’s (Merchants) Pty Ltd, a decision delivered on the same day as that in Taco Bell, the Full Court undertook this task. Involved in this was the question whether the misconception complained of would be suffered by that hypothetical individual who would have been a member of that ordinary or reasonable class of purchasers of the respondent. The Full Court ‘viewed objectively’ evidence suggesting that in Australia the name ‘Lego’ was so well known as being applicable to the applicant’s Lego toys and was so little known as being applicable to any other products that members of the public would assume any product at all to which the name was applied was manufactured by the manufacturer of the toys. As Deane and Fitzgerald JJ emphasised:111 The fact that companies may and sometimes do expand the range of products which they produce cannot of itself warrant a conclusion that a particular company has done so.

Their Honours, however, were concerned that a ‘line ought to be drawn’ lest there be no products in respect of which ‘Lego’ could be used without fear of contravention of s 52 because, in all such cases, some members of the public would be under the misconception that those goods were manufactured by the maker of the ‘Lego’ toys.112 Their Honours thus decided in Taco Bell that the ‘question whether particular conduct causes confusion or wonderment cannot be substituted for the question whether the conduct answers the statutory description contained in s 52’.113 This reasoning should be accepted. In the present case, evidence was given of the marketing of the ‘Nike Sport Fragrance’ products in pharmacies. Sheppard J said:114 Some of the evidence establishes that this product was found displayed in pharmacies beside or underneath other sports fragrances, including a sports fragrance marketed under the name ‘Adidas’. Evidence establishes that the well known sporting organisation Adidas does either itself, or through other companies which it authorises, market a sports fragrance bearing its name.

Further, an examination of the affidavit and oral evidence of the witnesses shows that in the assumption they made as to the extension of ‘Nike’ sportswear business into a sports fragrance, they were aware of and influenced by the activities of the Adidas company in introducing a range of Adidas fragrance products. In those circumstances, looking at the matter objectively, there was nothing capricious or unreasonable or unpredictable in Sheppard J’s conclusion that the placing of the ‘Nike Sport Fragrance’ product in the same area of pharmacies with other sports fragrances was likely to mislead or deceive members of the public into thinking that the ‘Nike Sport Fragrance’ product was in some way promoted or distributed by Nike International itself or with its consent and approval. [13.35] In Samsung Electronics Australia Pty Ltd v LG Electronics Australia Pty Ltd48 the court considered the characteristics of the ordinary and reasonable class of consumers of televisions where a particular advertisement was alleged to be misleading. Rares J considered that:

48 [2011] FCA 664, [28]–[32].

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The ordinary reasonable viewer is a person who would not understand the advertisements to convey a strained, forced or utterly unreasonable interpretation. Such a viewer is a person of fair, average intelligence, who is not perverse, nor morbid nor suspicious of mind, nor avid for scandal nor similarly, likely to see the worst in things or the best in things. He or she does not live in an ivory tower but can and does read between the lines in light of that person’s general knowledge and experience of worldly affairs. Likewise, the mode or manner of publication is material in determining whether a particular representation is capable of being conveyed by a transient, albeit repeated, publication, such as these. The context in which the advertisements are published is also relevant. A  court must draw on its own experience of how ordinary reasonable people view television advertisements to determine what, ultimately, are the meanings they are likely to take away from that viewing.

[13.36] This statement is representative of the view expressed in other decisions which consider not only the reasonable person of the class, but also the impact of the medium in which the advertising appears. Transient advertisements on television or radio may be viewed differently to advertising in newspapers.49 The dominant message of the advertisement may be crucial to assessing whether it was misleading or deceptive. The Court must be mindful that many readers will read the advertisement fleetingly, will not closely study its constituent parts, and will only absorb its general thrust. The impression or thrust conveyed to a viewer, particularly the first impression, is critical in determining the representation conveyed rather than an analysis of the (sometimes) cleverly crafted constituent parts.50 Whether the advertising is misleading or deceptive. The attributes of the class such as age or sophistication may also impact on the standard of accuracy expected.51

Conduct directed at a particular person [13.37] Where the representation is made to identified persons, the assessment of whether the conduct is likely to mislead can proceed by reference to ‘what a reasonable person in the position of the representee, taking into account what they know, would make of the representor’s behaviour’.52 This will include a consideration of the nature of the parties to the transaction and

49 Australian Competition and Consumer Commission v Telstra Corporation Ltd (2004) 208 ALR 459; Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2011] FCA 1254, [38]; Australian Competition and Consumer Commission v Singtel Optus Pty Ltd [2010] FCA 1177, [5]; Australian Competition and Consumer Commission v Energy Watch Pty Ltd [2012] FCA 425; Madison Constructions Pty Ltd v Empire Building Group (ACT) Pty Ltd [2012] FCA 381. 50 Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1at 4 (Sheppard J); Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2011] FCA 1254 at [38], [43], [45]. 51 See for example MK Hutchence (Trading as INXS) v South Sea Bubble Co (1986) ATPR 40-667 (teenagers); Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd (2006) ATPR 42-106 (doctors). 52 Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199, [69], applying Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, [37], [50]. Approved in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304.

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their knowledge,53 the nature of the information, the character of the transactions, the contents of any disclaimer and the extent to which the alleged victims of the conduct through their obvious intelligence, shrewdness and self-reliance should have been able to protect their own position or the extent to which they had professional advice.54 This is illustrated by the decision in Downey v Carlson Hotels Asia Pacific Pty Ltd. [13.38]

Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 Queensland Court of Appeal Mr and Mrs Downey purchased a unit in a development by Valco Developments Pty Ltd. Valco prepared a brochure to market the development in which it made various representations about the potential of the investment with a guarantee of a net seven per cent per annum for five years. A disclaimer on the last page of the investment analysis stated that ‘Whilst the information inside this publication is believed to be true and correct, the figures and advice supplied are given as a guide only and no responsibility will be take for any errors and omissions.’ Carlson Hotels (previously Radisson Hotels) was to be the manager of the hotel suites and their name appeared thirty-one times on the brochure. They also lent their name to the building, which was known as the Radisson Suites. The represented investment return did not materialise. The Downeys sued both Valco and Carlson Hotels. Keane JA [69] … so far as the Downeys’ case is concerned because, as is apparent from the decisions of the High Court in Campomar Sociedad Limitada v Nike International Ltd and Butcher v Lachlan Elder Realty Pty Ltd it is only necessary to consider the response of ‘ordinary’ or ‘reasonable’ members of a class of persons to conduct that is alleged to be misleading or deceptive when that conduct is directed to the public at large. That approach has been held to be inappropriate in cases like the Downeys’ where: … monetary relief is sought by a plaintiff who alleges that a particular representation was made to identified persons, of whom the plaintiff was one.55

In such circumstance the proper approach has been held to involve an inquiry into what ‘a reasonable person in the position of the [representees], taking into account what they knew, would make of the [representor]’s behaviour’.56

53 In addition to the knowledge of the person to whom the conduct is directed, a court may also consider common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business: Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 270 ALR 204, 211. 54 Butcher v Lachlan Elder Realty Pty Ltd (2004) 212 ALR 357, 367, 368, applied in Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199. 55 Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60, [37]; (2004) 212 ALR 357, 366. 56 Ibid, [50]; (2004) 212 ALR 357, 370.

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[70] At this point, I  should observe that, in the light of the decisions of the High Court referred to in [69] above, so far as the respondents other than the Downeys are concerned, the absence of evidence of the circumstances of the sale process in which they were involved means that one must approach the issue as to what the advertising material conveyed to them on the footing that they are taken to be ordinary and reasonable readers of the material. [71] The appellant also seeks to contend that the Downeys did not enter into the contract to purchase the unit in reliance on the appellant’s conduct. The appellant submits that the evidence given by Mr and Mrs Downey should be taken to show that they acted unreasonably on the erroneous assumption that it was the appellant which was making the statements contained in the advertising material. In this regard, the appellant also makes the remarkable submission that the appellant could not ‘reasonably be understood by a reader of the brochure to be endorsing what was said in it.’ I describe that submission as remarkable because, as the appellant admitted, it did in fact endorse what was said in relation to its participation in, and its views of the prospects of, the Radisson Suites project. [72] In the first place, it should be made clear that the phrase ‘erroneous assumption’ is not a term of art. As Deane and Fitzgerald JJ observed in Taco Co of Australia Inc v Taco Bell Pty Ltd,57 in a passage quoted with apparent approval by the High Court in Campomar,58 the fact is that ‘no conduct can mislead or deceive unless the representee labours under some erroneous assumption’. The issue is, as the High Court explained in Campomar, whether the erroneous assumption is extreme and fanciful or is of a kind that may be attributed to an ordinary or reasonable member of the class of person at whom the allegedly misleading and deceptive conduct is directed.59 It is therefore necessary to determine the true nature of the erroneous assumption held by the Downeys and then to consider whether or not the holding of this assumption was reasonable. [73] In my opinion, the fact that Mr and Mrs Downey formed the erroneous impression that the appellant was solely responsible for the production of the advertising material means no more than that they formed an erroneous impression as to the identity of the person or persons who were responsible for putting the adverting material together. That impression was not what induced the Downeys to invest in the project. [74] The inducement lay in the appellant’s prominent appearance in the material, and the evident input of the appellant in its content, and what was conveyed in the appellant’s endorsement of the positive views put forward in the advertising material. It is that which was relied upon when the Downeys decided to invest. [75] The issue then is whether the Downeys’ response to the advertising material was reasonable in the circumstances in which they found themselves.60 In this regard, I would, with respect, adopt the words of Dowsett J (with whom Jacobson and Bennett JJ generally agreed) in

57 (1982) 42 ALR 177, 200. 58 [2000] HCA 12, [104]; (2000) 202 CLR 45, 85–86. 59 Campomar Sociedad Limitada v Nike International Ltd [2000] HCA 12, [105]; (2000) 202 CLR 45, 86–87. 60 Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60, [50]–[51]; (2004) 212 ALR 357, 370.

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National Exchange Pty Ltd v Australian Securities and Investments Commission,61 where his Honour stated that: While it is true that members of a class may differ in personal capacity and experience, that is usually the case whenever a test of reasonableness is applied. Such a test does not necessarily postulate only one reasonable response in the particular circumstances. Frequently, different persons, acting reasonably, will respond in different ways to the same objective circumstances. The test of reasonableness involves the recognition of the boundaries within which reasonable responses will fall, not the identification of a finite number of acceptable reasonable responses.

[76] The type of investment being promoted by the advertising material would obviously benefit from having the appellant involved in the project. The front page of Exhibit 3 carried nothing else but the statement ‘Because it’s Radisson and it is on Queen’. The general tenor of this statement, that the appellant had an intimate involvement with all aspects of the project and a positive view of its prospects, is to be found throughout the advertising material. [77] The appellant submits that a close reading of the advertising material would have dispelled any misconceptions and that the Downeys had the time and, it was submitted it was reasonable to assume, the inclination to undertake a detailed analysis of what was a substantial investment. Reliance is placed upon the terms of the disclaimers that were contained in the advertising material. This submission can only be dealt with in the context of the individual representations that were alleged to have been made. I  will consider those particular representations after making two further preliminary observations.

The appropriate level of analysis [78] One question that must be addressed before embarking on an examination of whether or not the particular representations found are, in truth, made out is what approach should be attributed to a reasonable reader in his or her perusal of the relevant material. In National Exchange Pty Ltd v Australian Securities and Investments Commission62 the Full Court of the Federal Court found, on the facts of the case, that it was reasonable for a mistaken view about the content of an offer to have been based on only a ‘general impression’ of a document containing an offer for the purchase of small parcels of shares. In Butcher v Lachlan Elder Realty Pty Ltd63 a majority of the High Court held that the importance and brevity of the information contained in the material given to a prospective purchaser of land about the property concerned meant that, particularly when the purchasing process was not being conducted with undue haste or in the absence of the opportunity to obtain independent advice, ‘reasonable purchasers would have read the whole document’.64

61 [2004] FCAFC 90 at [24]; (2004) 49 ACSR 369, 375–376. 62 National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90, [59], [65]; (2004) 49 ACSR 369, 382–383. 63 [2004] HCA 60; (2004) 212 ALR 357. 64 Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60, [50] and [76]; (2004) 212 ALR 357, 370, 376.

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[79] Here, the proposed investment was substantial and its success or failure would have significant consequences for the Downeys’ future financial security. As the appellant also points out, the Downeys’ had the material in their possession for three weeks before they decided to proceed with the purchase. Adopting the approach used in Butcher, I would accept the appellant’s submission that reasonable persons in the position of the Downeys could be expected to have read the whole of the advertising material rather than merely taking a ‘general impression’ of what the project involved. I note in passing that I do not wish to be taken as casting any doubt on the reasoning or the decision in National Exchange by reaching this conclusion. Acting on only a ‘general impression’ could be reasonable in the appropriate circumstances. Such an approach is not appropriate here, however, given the facts of this case.

Misleading conduct by silence [13.39] It is clear from the wide definition of conduct in s 2(2) of the ACL that silence or refraining from engaging in conduct that is, in all the circumstances, misleading will be caught by s 18. Unlike the restrictive principles of the common law regarding silence, the courts have adopted a general test for whether silence or failure to disclose is misleading or deceptive. It is clear that the existence of a corresponding common law duty of disclosure is not essential to a finding of misleading conduct by silence. [13.40] The initial test for determining whether silence was misleading conduct was the reasonable expectation test.65 The test is stated to be that having regard to all of the surrounding circumstances was there a ‘reasonable expectation’ on the part of the plaintiff that if some relevant fact existed it would have been disclosed by the respondent.66 In Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited67 the High Court distinguished between silence in isolation or mere silence and cases where silence is part of the factual matrix with other acts or omissions, referred to as ‘silence in context’. French CJ and Kiefel J in relation to silence in context expressed the view that silence was a circumstance to be considered with other relevant facts and common assumptions. Whether there was a reasonable expectation of disclosure was merely an aid to characterising non-disclosure as misleading conduct. Whether there is a reasonable expectation should be assessed objectively.68 An expectation of disclosure will generally arise if the respondent has knowledge of the undisclosed fact69 and is aware that a reasonable plaintiff would expect

65 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357, [20], [21]. 66 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; In light of the decision in Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, whether a reasonable expectation arises will depend on whether a reasonable person in the position of the claimant would have such an expectation. 67 (2010) 241 CLR 357 [20], [21]. 68 Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167, [209]; Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2015] NSWCA 94, [192]. 69 This is because of the definition of conduct which only includes silence or a failure to disclosure that is other than inadvertent.

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disclosure of the particular fact given the context of the transaction.70 Relevant contextual facts may include information that would usually be disclosed to a person in that particular type of commercial activity; common assumptions and practices established between the parties or prevailing in a particular profession,71 the relationship between the parties,72 the knowledge of the silent party,73 the experience and consequent expectation of the plaintiff,74 the nature of the information not disclosed,75 the object of remaining silent, and, finally, the reliance by the plaintiff on the silence in determining if a reasonable expectation of disclosure existed. [13.41] Of particular note is the debate about whether silence is only actionable as misleading conduct if the failure to disclose is deliberate. Conduct is defined in the ACL as including where a person has refrained from doing an act ‘otherwise than inadvertently’. One line of cases suggests that ‘while a failure to disclose may in fact mislead, it will not be actionable as misleading conduct unless this failure was intentional’.76 An opposing view expressed in several other cases is that primacy should be given to s 18 Australian Consumer Law, which does not require intention to mislead. The question should be whether the person was led into error by the silence.77

70 General Newspapers v Telstra Corporation (1993) 117 ALR 629. 71 Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357. 72 Refer to Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83; Great Australian Bite Pty Ltd v Menmel Pty Ltd (1996) ATPR 41-506; Metalcorp Recyclers Pty Ltd v Metal Manufactures Ltd (2004) ATPR (Digest) 46-243; [2003] NSWCA 213. 73 Semrani v Manoun [2001] NSWCA 337 at 63; Hai Quan Global Smash Repair v Ledabow Pty Ltd (2004) ATPR ¶42,025. 74 Refer to Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458, Commonwealth Bank of Australia v Mehta (1991) 23 NSW LR 84; Fraser v NRMA Holdings Ltd (1995) 127 ALR 543. 75 In Dawson v LNG Holdings [2008] NSWSC 137, White J considered that failure to disclose the director of a joint venture corporation was an undischarged bankrupt was a matter that investors would reasonable expect to be disclosed. It is also held in Hinton v Commissioner for Fair Trading, Office of Fair Trading (GD) [2007] NSWADTAP 17 that the fact the house was the site of a triple murder was a fact a reasonable buyer would expect to be disclosed. Some difficulties have arisen in the operation of s 52 with a party’s duty of confidentiality. Refer to Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950; Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 111 ALR 649; Warner v Elders Rural Finance Ltd (1992) 113 ALR 517; Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571. 76 Edgar v Farrow Mortgage Pty Ltd (in liq) (1992) ATPR (Digest) 46-096, Zaknic Pty Ltd v Svelte Corporation Pty Ltd (1996) ATPR (Digest) 46-159; Walker v Masillamani [2007] VSC 172; Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd (1998) 155 ALR 714; D’Souza v Wedgewood Rd Hallam No 1 Pty Ltd [2010] FCA 765 (honest and therefore inadvertent omission). 77 Cases advocating a broader view are: Johnson Tiles Pty Ltd v Esso Australia Ltd [1999] FCA 477; Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1; Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd [2011] WASCA 76 that the question of intention is more relevant to ‘mere silence’; Charles Lloyd Property Group Pty Ltd v Buchanan [2013] VSC 148 (mere silence).

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[13.42]

Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 High Court of Australia In 2000 Consolidated Timber Holdings Ltd engaged an insurance broker (Miller) to assist in applying for an insurance premium funding from BMW Australia Finance Ltd (BMW). The insurance policy for the loan sought was a cost of production policy which was not cancellable. Due to an administrative error, BMW sent Consolidated Timber a welcome letter stating that the loan had been approved following negotiations with Miller. Consolidated Timber sent Miller a copy of the welcome letter and then paid BMW the first payment due under the loan. However, the loan had not been approved by BMW through its normal investigation and approval procedures. BMW in trying to rectify the situation then requested information from Miller and, in response to that request, Miller sent BMW an insurance certificate outlining four properties and ‘properties insured’. In October 2000, BMW decided not to proceed with the loan and then refunded the instalment which had been paid by Consolidated Timber. After a short time, BMW entered discussions with Miller about renegotiating a loan with terms shorter than the first one. Miller sent BMW a number of documents which included an insurance policy with terms that differed significantly from the previously sent certificate. Miller did not provide any accompanying explanation about the contents of these documents or how they differed from the first loan. The second insurance policy was also not cancellable. This loan was approved by BMW in December 2000. In 2001 the client defaulted. BMW then alleged that Miller had engaged in misleading and deceptive conduct. Heydon, Crennan and Bell JJ : [79] BMW put its case in two ways. [80] The first was that Miller’s conduct in supplying the HIH certificate in response to BMW’s request for details of the insurance was misleading. This case depends upon finding that the HIH certificate misrepresented that the underlying policy was a cancellable property policy that was capable of providing security for the proposed loan. [81] The second, wider, way in which the claim of misleading conduct was put arises from Miller’s failure to inform BMW, in terms, that the policy for which funding was sought was not cancellable. This was characterised in the Court of Appeal as the ‘contextual silence’ case. It was rejected by the primary judge, but it is the basis upon which each of the members of the Court of Appeal concluded that Miller had engaged in misleading conduct. [82] BMW’s pleaded contextual silence case was that Miller knew or ought to have known that the policy was non-cancellable and that this was capable of giving its conduct in failing to disclose that fact the quality of being misleading. In this Court, it was not in issue that Miller knew at all material times that the policy underlying the HIH certificate was a non-cancellable cost of production policy. BMW’s pleaded case was that it had a reasonable expectation that

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Miller would not supply it with the HIH certificate in response to its request for details of the insurance without disclosing that the underlying policy was non-cancellable. This case does not depend upon acceptance of BMW’s primary case that the HIH certificate misrepresented that the underlying policy was a cancellable property policy. As indicated earlier, this second and wider case is the one upon which each of the members of the Court of Appeal found that Miller had engaged in misleading conduct. …

BMW’s second case: silence [88] Ashley JA upheld BMW’s second case. That case is based on the supply of an ‘ambiguous’ insurance certificate in circumstances in which Miller knew ‘that it was important to [BMW] that a policy which was to be funded was cancellable’ and Miller failed, between October and early December 2000, to inform BMW that the policy was non-cancellable. His Honour said that any misleading impression created by the HIH certificate had not been overcome by the later supply of the policy, since there was no evident connection between the two. The reasoning of Neave JA and Robson A-JA was to the same effect. … [91] Was Miller’s conduct in failing to inform BMW, in terms, that the policy to be funded was not cancellable, or that the policy in the bundle was the policy to be funded, misleading? That question requires close analysis of all of the circumstances of the transaction. The parties were commercially sophisticated. They were experienced in their respective fields. The transaction involved the assessment by BMW of an application to lend Miller’s client $3.975 million. The only document that Miller supplied in support of the application which appeared to relate to the policy to be funded did not disclose the nature of the risks insured. But it did put BMW on notice that the underlying policy may be an unusual one. BMW made no further inquiry. BMW’s failure to make reasonable inquiries would not automatically defeat its statutory claim for damages for misleading conduct. However, given the history of this transaction, it is a circumstance that is relevant to whether Miller’s conduct in failing to disclose its knowledge of the policy is correctly characterised as misleading. [92] At the time BMW requested details of the insurance, Miller knew that BMW had been in direct contact with Consolidated Timber. Miller had been informed that the Consolidated Timber’s loan application had been approved. Mr Reynolds agreed with the characterisation of BMW’s request for details of the insurance as involving ‘tidying up’ the paperwork. He agreed that it was a request for ‘some policy, a certification or some information, an invoice’ (101). BMW did not inform Miller that the application had not been investigated and that the welcome letter had been sent as the result, supposedly, of administrative error. [93] Miller knew that the cancellability of insurance was important to a premium lender’s determination of a loan application. That was not in issue. However, given that Consolidated Timber’s application had been approved by the lender, it is to be inferred that cancellability was not critical to the determination of this application. Mr Mitchell acknowledged, as inevitably he must have done, that where the broker understands that the lender (BMW) has approved the loan, as Miller did on 4 October 2000, it is to be inferred that ‘obviously up to a point the premium funder has been satisfied’.

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[94] In late October 2000, when Mr Jones of BMW spoke with Mr Merton, agent for Miller, and advised him that BMW would not be proceeding with the loan, he said nothing to put Miller on notice that BMW was under a misapprehension that the policy was cancellable. It will be recalled that when the negotiations for the loan were renewed, Mr Reynolds asked Mr Merton about the availability of directors’ guarantees to support the loan. It was not BMW’s practice to seek security when lending for cancellable policies. Mr Mitchell acknowledged that recourse to directors’ guarantees was a means adopted by premium lenders when funding non-cancellable policies. [95] The December 2000 loan application related to the same insurance as the earlier application which BMW had approved. It was for the same amount. There was nothing in the conduct of the parties between November 2000 (when Mr Merton contacted Mr Reynolds and negotiations were resumed) and 12 December 2000 (when the application was approved) to convey that cancellability was important to the determination of this later application. The request for directors’ guarantees suggested that it was not. There was no foundation for the conclusion that the known importance of cancellability gave rise to a reasonable expectation, in the circumstances of this transaction, that Miller would not supply the HIH certificate in response to BMW’s request without disclosing at that time or later that the policy was not cancellable. [96] The requirement of the provision of ‘full policy information’, contained in BMW’s quotation dated 8 December 2000, did not make Miller’s failure to advise BMW that the policy was not a cancellable property policy misleading. Miller had supplied BMW with a copy of the policy. BMW was an experienced premium lender. The policy was not a lengthy document. It was apparent that it did not insure the holders against loss or damage to property. It did not contain a cancellation clause. Miller’s failure to draw to BMW’s attention a circumstance that the document itself disclosed was not misleading or deceptive. [97] The finding that Miller engaged in misleading conduct cannot be sustained. [13.43] As the decision in Miller demonstrates, the reasonable expectation analysis is only relevant if a representation or statement that is true would be rendered untrue by the absence of qualifying information known to the representor. It will not be necessary to resort to the reasonable expectation test where the statement or representation of itself conveys the false representation that the statement is complete or where the undisclosed fact is the falsity of the representation.78 [13.44] The second identified situation is one of ‘silence in isolation’ or mere silence. It will rarely be the case that misleading conduct will occur in a situation of mere silence, as opposed to the situation of a half-truth (only part of the information given).79 The difficulty is that unless

78 Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357, 371, [23]. 79 It is suggested in a number of cases that there is no such thing as mere silence: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 1 per Black CJ; Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd [2011] WASCA 76. However, in Charles Lloyd Property Group Pty Ltd v Buchanan [2013] VSC 148, the court concluded the conduct was ‘mere silence’ although there was no liability due to the affirmation of the agreement by the buyer.

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the buyer in some way, usually by requesting information or asking a question, indicates to the seller there is an expectation of disclosure, the situation in which the surrounding circumstances will give rise to a reasonable expectation are rare. One case in which a reasonable expectation was found to arise out of the surrounding circumstances is Noor Al Houda Islamic College Pty Ltd v Bankstown Airport Ltd.80 The claimant was negotiating to lease an old airport site for the establishment of a new school. The lessor and their agent provided significant amounts of information to the claimant purporting to tell the buyer about all disadvantages and advantages of the site so that the claimant could make an informed decision. Having regard to the knowledge of the lessor that the property was to be used as a school, the court found that the lessor engaged in misleading conduct by failing to disclose the existence of contamination on the property. [13.45] Mere silence may also give rise to misleading conduct where a contracting party has a duty to disclose a particular fact to the other party, either at law or under statute,81 and this duty is not satisfied. This draws upon the recognition at common law that silence is an actionable misrepresentation where there is a duty of disclosure between the parties, such as fiduciary relationships or contracts of good faith. This means that if there is a statutory obligation of disclosure or the party has a duty at law to inform the other party that information previously given is inaccurate, then an obligation to correct or disclose arises. If the conduct of one party is such as to create an impression that a certain matter does exist, or that there is nothing unusual in the transaction, then disclosure may be necessary to ensure the conduct is not misleading.82

Misleading conduct about a future matter [13.46] Statements concerning future matters may include statements of intention, promises, and predictions. Predictions would normally only be misleading or deceptive if the person making the prediction either knew it to be false or made it with reckless disregard for whether it was true or false.83 The position is the same in relation to statements of intent84 or where the statement is one of present intention or ability rather than about a future event.85 At common law the onus is on the claimant to prove that the maker of the statement did not have reasonable grounds. The position under the ACL is affected by s 4.

80 (2005) 215 ALR 625. See also Charles Lloyd Property Group Pty Ltd v Buchanan [2013] VSC 148; Compare with Vitek v Estate Homes Pty Ltd [2010] NSWSC 237. 81 Turrisi Properties Pty Ltd v LJ & BJ Investments Pty Ltd [2010] QSC 3 (failure to disclose under s 421 of the Environment Protection Act 1994 (Qld) (now s 408 of the Environmental Protection Act 1994 (Qld)) found to be misleading. 82 See Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; Tenji v Henneberry & Associates Pty Ltd (2000) 172 ALR 679; Metalcorp Recyclers Pty Ltd v Metal Manufactures Ltd [2003] NSWCA 213; Hai Quan Global Smash Repair v Ledabow Pty Ltd (2004) ATPR ¶42,025; Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357, 371. 83 Thompson v Mastertouch TV Service Pty Ltd (No 1) (1977) 29 FLR 270; TN Lucas Pty Ltd v Centrepoint Freeholds Pty Ltd (1984) 1 FCR 110. 84 Cohen v Centrepoint Freeholds Pty Ltd (1982) 66 FLR 57. 85 Stack v Coast Securities No 9 Pty Ltd (1983) 46 ALR 451; Bill Acceptance Corp Ltd v GWA Ltd (1983) 50 ALR 242 at 247–250; Futuretronics International Pty Ltd v Gadzhis [1992] VR 209, 233–234.

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[13.47]

Australian Consumer Law Section 4: Misleading representations with respect to future matters (1) If: (a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and (b) the person does not have reasonable grounds for making the representation; the representation is taken, for the purposes of this Schedule, to be misleading.

(2) For the purposes of applying subsection (1)  in relation to a proceeding concerning a representation made with respect to a future matter by: (a) a party to the proceeding; or (b) any other person; the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.

(3) To avoid doubt, subsection (2) does not: (a) have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or (b) have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation. (4) Subsection (1) does not limit by implication the meaning of a reference in this Schedule to: (a) a misleading representation; or (b) a representation that is misleading in a material particular; or (c) conduct that is misleading or is likely or liable to mislead; and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation.

[13.48] The effect of s 4 of the ACL is that a representation as to a future matter will be deemed to be misleading if the maker of the statement does not adduce reasonable grounds for making of the statement. Section 4 is an evidentiary provision which assists in establishing that statements as to future matters are misleading. A  representor must adduce evidence that at the time of the statement facts existed that were objectively reasonable and supported the representation86

86 Sykes v Reserve Bank of Australia (1998) 88 FCR 511.

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if the representor is to avoid a finding that reasonable grounds are absent.87 If the representor does not adduce such evidence the statements are taken to be misleading.88 If evidence as to the existence of reasonable grounds is adduced, it is for the court to decide whether such evidence is sufficient to lead to the conclusion that reasonable grounds existed. The claimant still retains the onus of proving the statements or conduct is misleading and that the claimant relied upon the conduct.89 If the totality of the evidence establishes, on balance, that reasonable grounds for the making of the statement did exist, the deeming provision under s 4(2) will not apply. [13.49]

Bennett v Elysium Noosa Pty Ltd (in liq) [2012] FCA 211 Federal Court of Australia The case concerned a claim by the buyer of a house in the Elysium Noosa development for damages for misleading conduct. The claim was commenced after the settlement of the purchase. The buyer, Dr Bennett, claimed that representations were made by two marketing agents, Nick and Julieanne Burke (the Burkes), at the time of contract. The representations concerned access to amenities also to be constructed by the developer and, in particular, a community centre and related landscaping and streetscaping, which were to be completed in Stage 1 of the development. The Burkes were salesperson employed by PRD Nationwide (real estate agents), whose company was appointed by Elysium Noosa to market the development. Dr Bennett entered the contract in early 2005 upon the faith of these oral representations and after reading marketing material, and completed the contract in March 2008. The court found as a fact that an amended development approval was sought from the local authority in late 2004, which omitted mention of the plan for the community centre. The local authority confirmed in February 2008, just prior to completion in March 2008, that the development approval for the housing scheme did not include approval for the community facilities which had been promised to the buyer. Furthermore, the court found that as late as early 2008, just prior to completion, the developer had no firm plans to proceed with the construction of the community facilities. In September 2009, the developer was placed in receivership without any of the community facilities having been constructed. In 2010, the buyer issued proceedings for damages for misleading or deceptive conduct pursuant to what was then s 52 of the Trade

87 Australian Competition and Consumer Commission v Danoz Direct Pty Ltd [2003] FCA 881, [172]–[173]; Australian Competition and Consumer Commission v Oceana Commercial Pty Ltd [2003] FCA 1516. 88 The position was the same under the former s 51A Trade Practices Act 1974 (Cth): Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199, [126]–[129]; McGrath; re Pan Pharmaceuticals v Australian Naturalcare Products (2008) ATPR ¶42-213. 89 Refer to Carpet Fashion Pty Ltd v Forma Holdings Pty Ltd [2003] NSWSC 460; Bennett v Elysium Noosa Pty Ltd (in liq) [2012] FCA 211.

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Practices Act 1974 (now s 18 of the ACL) alleging that the lot purchased for $2.1 million was now valued at $900,000. Reeves J: [106] Section 51A provides: (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. (2) For the purposes of the application of subs (1)  in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation. (3) Subsection (1)  shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead. [107] It is to be noted that s 51A does not create an independent cause of action: see Ting v Blanche (1993) 118 ALR 543 at 552 per Hill J and Fubilan Catering Services Ltd v Compass Group (Australia) Pty Ltd [2007] FCA 1205 at [545]. Instead, it is an evidentiary provision which achieves a ‘limited extension of the scope of s 52’ of the TPA: see Fubilan at [545] and [547]. Since it is expressed to apply to ‘this Division’, which includes s 53A, I  consider it achieves the same extension to its scope. However, it should also be noted that s 51A only applies to representations, as distinct from conduct more broadly (see McGrath; re Pan Pharmaceuticals v Australian Naturalcare Products (2008) ATPR ¶42–213 at [147]). Further, while there will be little, if any, practical difference in this case, it only deems representations misleading, as distinct from deceptive (s 52), or false (s 53A). [108] Before turning to consider the operation of s 51A itself, it is appropriate to briefly consider the primary proscription contained in ss 52 and 53A of the TPA. …. Section 51A(2)—the deeming provision and the onus of proof [113] Returning then to s 51A, as noted above, Dr Bennett places reliance upon the deeming provision contained in s 51A(2). I have inferred that he has also pleaded that the Burkes did not have reasonable grounds to make the representations they did. On this aspect, Mr Douglas submitted that the respondents have not adduced evidence to the contrary to displace the deeming provision in s 51A(2). For their part, the respondents accept that s 51A may apply in the circumstances of this case, but they claim that if it does, they have adduced evidence to establish that, if the Burkes made the representations, there were reasonable grounds for them to do so. I should add that there does not appear to be any dispute that they can rely upon the evidence of persons other than those who made the alleged representations: see Cummings v Lewis (1993) 41 FCR 559 at 566. [114] The legislative history of s 51A and the way in which the deeming provision in s 51A(2) operates, particularly as it affects the legal and persuasive onus of proof, were exhaustively

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examined by Allsop J in McGrath at [165]–[194] (Emmett J agreeing at [6]). Following that examination, his Honour reached this conclusion about the operation of s 51A(2) (at [192]): If evidence is adduced by the representor that is said to be evidence to the contrary, it will be for the Court to determine whether it is to the contrary in the sense just discussed. If it is, the deeming provision will cease to operate. That was the view of Emmett J, as understood by Keane JA. That is my view.

[115] It is convenient to interpolate that Allsop J did go on to express the view that if his understanding of the decision of Keane JA (as he then was) was incorrect and instead his Honour’s view was that established authority was to the effect that s 51A(2) operated to reverse the legal and persuasive onus of proof, he would be forced to conclude that his Honour was plainly wrong. In that event, Allsop J concluded that the correct position was that s 51A(2) did not effect a reversal of the legal and persuasive onus of proof: see at [192]. [116] To understand the primary conclusion Allsop J reached, it is necessary to identify the view of Emmett J to which his Honour referred and the understanding of that view, as expressed by Keane JA. The former view—that of Emmett J—was expressed in Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276 at [46] as follows: Another question concerning the effect of s 51A(2) is whether the provision does no more than require a corporation to go into evidence. That is to say, it does not ultimately reverse the onus but simply provides that the deeming takes effect unless the corporation adduces some evidence to the contrary. Once such evidence is adduced, it is for the Court to make a judgment, on the balance of probabilities, having regard to all the evidence, as to whether the corporation had reasonable grounds for making the representation. If an applicant elects to adduce no evidence as to that question, then the only evidence before the Court would be that adduced by the corporation. Whether that is adequate to establish that the corporation had reasonable grounds for making the representations is a matter for the Court. However, once the corporation has adduced some evidence, there is no deeming arising from s 51A(2).

[117] The latter understanding—that of Keane JA—was expressed in Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 at [127]: … it seems to me that, understood correctly, Emmett J is only advancing the common sense proposition that, when a representor does adduce evidence attesting to reasonable grounds, it will be a matter for the court to determine if that evidence does establish reasonable grounds, and so there will be no automatic deeming as there would be if a representor did not adduce any evidence at all. If this is all that was meant by his Honour’s remarks then I would respectfully agree with them.

[118] Based on this understanding, Keane JA went on to draw the following conclusion (at [128]): It follows that I  do not read the reasons of Emmett J to go so far as to suggest that the burden shifts back to a representee once evidence has been adduced by the representor. The wording of s 51A(2) means that if the evidence adduced by a representor is not actually ‘to

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the contrary’, ie it does not tend to establish reasonable grounds for making the representation, then no evidence of the kind required by the section will have been adduced and there is no reason why the deeming provision contained in s 51(2) would not continue to operate. It would, of course, be a matter for the court to determine whether or not the evidence adduced was ‘to the contrary’.

[119] Mr Douglas submitted that I should take this approach when applying the s 51A(2) deeming provision in this case. It is debateable whether the decision of Allsop J on s 51A in McGrath was part of the ratio decidendi of that case, but, in any event, even if that decision is not strictly binding on me, having carefully read and considered it, I consider (with respect) the reasoning is cogent and the conclusion is correct. I therefore propose to follow it. [120] In this case the respondents have adduced quite extensive evidence directed to showing ‘to the contrary’ of the deeming provision in s 51A(2) that the Burkes had reasonable grounds to make the representations they did. That being so, I consider the automatic deeming provision in that subsection has been displaced. It is now a matter for me to assess under s 51A(1), on all the evidence, including the respondents’ evidence and any evidence called by Dr Bennett, whether I am satisfied, on the balance of probabilities, that the Burkes had reasonable grounds to make the representations they did. If I am so satisfied, then s 51A(1) will not apply and the representations will not be taken to be misleading under s 51 A. On the other hand, if I am not so satisfied, the representations they made will be taken to be misleading in terms of s 51A(1). In the event I am not persuaded either way, since s 51A does not effect any reversal of the real and persuasive onus, it seems to me Dr Bennett will fail to establish that particular representation is misleading under s 51A(1). This is so because, as the applicant, he still bears the underlying persuasive onus on that issue. [13.50] Section 4 of the ACL is drafted differently to s 51A of the Trade Practices Act 1974 (Cth) and aims to clarify a number of uncertainties about s 51A: •

the burden of proof under s 4 of the ACL is evidentiary in nature and does not place a legal burden on defendants to prove that representations were not misleading;90



satisfying the burden of proof under this section does not constitute a substantive defence for breach of any other section of the ACL.91 This is to reverse the effect of decisions that by implication provide for proof of reasonable ground to be a substantive defence to an allegation;92 and



section 4 of the ACL will operate in proceedings against accessories to contraventions as well as primary contraveners. An accessory will therefore bear the evidentiary onus of demonstrating reasonable grounds for their statements.93

90 ACL, s 4(3). 91 ACL, s 4(3). 92 Refer to Quinlivan v Australian Competition and Consumer Commission [2004] FCAFC 175 (5 July 2004), 14. 93 ACL, s 4(3).

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REMEDIES FOR A CONTRAVENTION OF S 18 [13.51] Where the misleading conduct takes the form of a representation that induced a contract, the aggrieved party would usually seek damages under s 236 of the ACL (previously s 82 of the Trade Practices Act 1974 (Cth)) or rescission under s 237 (previously s 87 of the Trade Practices Act 1974 (Cth)). Damages pursuant to s 236 may be sought as the principal remedy by the aggrieved party. Rescission may be sought as ancillary relief under s 237 or as principal relief independently of any claim for compensation. A claim for compensation pursuant to s 236 of the ACL will not succeed unless the applicant proves that actual loss or damage has occurred as a result of a contravention of s 18. This should be contrasted with a claim for rescission pursuant to s 237, which may succeed where no actual loss or damage has occurred, but loss is likely to occur in the future. The time limit for commencing an action under s 236 or s 237 is within six years of the cause of action accruing.94 The cause of action under s 236 accrues when loss is actually suffered95 and under s 237 at the time loss or damage is likely to be suffered.

DAMAGES [13.52] Damages may be awarded against the corporation or person that contravenes s 18 and any person involved in the contravention (see ‘definition’ in s 2 of the ACL). Section 236 provides a vehicle for recovering loss for multifarious forms of contravention of Chapters 2 or 3. The measure of damages under s 236 of the Australian Consumer Law will be the measure that does justice and equity in the circumstances.96 There is nothing in s 236 to suggest that the recoverable amount should be limited by reference to analogies with the common law principles of contract, tort or equitable remedies, although the courts will consider these references to be of ‘great assistance’97 and ‘represent an accumulation of valuable insight and experience which may well be useful in applying the Act’.98 Usually the measure of damages in tort for deceit will be considered an appropriate guide where a person enters a contract to buy property as a result of misleading conduct.99 The central requirement however in determining damages under Australian Consumer Law s 236 is to establish a causal connection between the loss claimed and

94 ACL, ss 236(2) and 237(3). 95 Refer to HTW Valuers (Central Queensland) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640. 96 Henville v Walker (2001) 206 CLR 459, [18]. 97 Ibid, [130]. 98 Ibid, [18]. Applied in Williams v Pisano [2015] NSWCA 177, [100]. 99 One rationale given for adopting the tortious measure is the similarity to a claim for misrepresentation and the indication in s 236 that only the loss suffered as a result of the conduct is recoverable: Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 28. This general presumption does not preclude damages being calculated in accordance with the contractual measure for misleading or deceptive conduct where appropriate: see Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd (1987) ATPR ¶40795; Munchies Management Pty Ltd v Belperio (1989) 84 ALR 700; Wardley Australia Ltd v Western Australia (1992) 175 CLR 514.

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the contravening conduct. Once a causal connection is established, the principles of tort and contract may be of assistance by way of analogy, but do not limit the discretion of the courts in determining fair compensation for the loss suffered. Compensation is recoverable from the person whose conduct gave rise to the loss or damage and from any person involved in the contravention.100 [13.53] In Gates v City Mutual Life Assurance Society Ltd,101 the High Court held that the question to be asked in the context of a misleading representation that induced a contract, is ‘how much worse off ’ is the plaintiff as a result of relying upon the representation and entering the contract. This is often referred to in the authorities as a ‘no transaction’ basis.102 When applying this measure the court assumes the claimant would not have entered into the transaction at all and consequently would not have suffered any of the loss. The plaintiff will generally be able to recover the amounts spent in reliance on the conduct and not the profit they expected to make in reliance on the conduct.103 However, in some circumstances trading losses may be recoverable as losses which flow from reliance on the misleading conduct.104 [13.54] Several decisions, such as Havyn v Webster105 and Murphy v Overton106 have attempted to summarise the principles applicable to a claim for damages. Henville v Walker is indicative of the High Court’s approach to the awarding of damages prior to the enactment of s 82(1B) of the Trade Practices Act 1974 (Cth), which is replicated in s 137B of the Competition and Consumer Act 2010 (Cth). [13.55]

Henville v Walker (2001) 206 CLR 459 High Court of Australia A real estate agent made several statements to a buyer, Henville, about the potential development of the property, the demand in the market for high-end townhouses, and the price

100 ACL s 2 defines ‘involved’: see [13.350]. 101 (1986) 160 CLR 1. 102 Suncoast Pastoral Company Pty Ltd v Coburg AG (No 2) Pty Ltd [2012] QSC 157. 103 This differs from damages in contract where the plaintiff is entitled to recover their lost expectation under the contract. However, the High Court in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 considered it was possible to obtain damages for a lost opportunity where the loss arises pursuant to former s 52 of the Trade Practices Act 1974 (Cth). Recovery is dependent upon proof that had the conduct not occurred the buyer would have taken advantage of another commercial opportunity. In essence, this is a claim for lost profit. For an example of an award of damages on this basis, see Pivil One Noms Pty Ltd v Second Butterfly Pty Ltd (1996) V Conv R ¶54-555. 104 See IBEB Pty Ltd v Duncan [2011] NSWCA 368, [51]–[60]—trading losses may be recoverable if they have not been taken into account in the award of damages for the loss of goodwill. 105 (2005) 12 BPR 22,837. 106 (2004) 216 CLR 388.

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at which a townhouse constructed on the land would sell. The conduct of the agent was found to be misleading. Henville also obtained a feasibility study from an architect that significantly underestimated the cost of the project. The combined effect of the agent’s representations and the feasibility study was to predict a profit from the project. If either the selling price or the estimate of the costs had been accurate, Henville would not have proceeded with the development. Henville claimed damages under s 82 of the Trade Practices Act 1974 (Cth) quantifying them as the cost of purchase and development less the sale price of the developed units, which was quantified as $319,846. Before the High Court, the issues were, first, whether all of the loss was caused by the misleading conduct of the agent and, second, how the loss should be quantified. After considering the issue of causation and deciding to follow the long-standing rule in Gould v Vaggelas107 (that the conduct need not be the sole inducement provided it was one of the inducing factors) the Court considered the issue of calculation of the loss. In relation to the appropriate measure of loss, McHugh, Hayne, and Gummow JJ were of the view that the most appropriate course was to identify the loss suffered by way of disadvantage by Henville as a consequence of altering his position. Hayne J [155] It is now not disputed that, by giving a wrong estimate of the likely selling price of the home units which the appellants were considering building, the respondents misled or deceived the appellants in contravention of Pt V of the Trade Practices Act 1974 (Cth) (the Act). (As the reasons of other members of the Court reveal, it is not necessary to distinguish between the corporate and the individual parties.) It is equally clear that, by making a wrong estimate of the likely costs of the development, the appellants miscalculated the probable financial outcome of their proceeding with it. Both of these events, the wrong estimate of price and the wrong estimate of costs, form part of, and played a role in, the history that lies behind the fact that the appellants lost more than $300,000 on the project. The question is to what extent, if any, did the appellants suffer loss ‘by’ (that is, caused by) the respondents’ misleading conduct? [156] If the traditional ‘but for’ test, the test of necessity, is applied to the history I  have described, neither the overestimation of the selling price, nor the underestimation of the costs, will be seen as the single cause of the whole of the loss that the appellants sustained. It cannot be said of either of these steps that, but for its occurrence, the appellants would not have sustained the amount of loss that they did suffer. Yet it can be said of each step that it was a necessary element of the set of circumstances that, together, were sufficient to bring about the loss that was sustained. Each played its part in the history of the events; each was a cause of what happened. Moreover, the two steps were concurrent causes of what happened. It cannot be said of either estimate that it was, in any sense, an intervening event. [157] The question which is presented in this case then becomes whether s 82(1) of the Act requires some limiting of the consequences for which the respondents are to be held liable. Is it enough for the appellants to demonstrate that the respondents’ contravention of the Act was a cause of the appellants’ suffering the loss they did? Does s 82 require only that the contravention played a

107 (1985) 157 CLR 215.

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role in the history of the events connecting the contravening conduct and the loss sustained? That is, is s 82 concerned only with establishing that the contravening conduct played a role in the history of the events that culminated in the loss sustained? Are there some limits to the recovery that is permitted, or are the respondents to be liable for all of the loss that the appellants sustained? [158] It is clear that s 82 requires that the contravening conduct have played a role in the history of the events and that the role required is one of causation. Section 82(1) of the Act speaks of ‘[a] person who suffers loss or damage by conduct of another person that was done in contravention’ (among other things) of Pt V of the Act being entitled to recover ‘the amount of the loss or damage’. That is, s 82 provides that a person may recover the amount of the loss or damage caused by the conduct in question, here a contravention of Pt V. [159] In the present case, the respondents’ contravention of the Act can be seen to have caused the appellants’ damage because the appellants relied on the respondents’ misleading or deceptive conduct in deciding to proceed with the project. The amount of the loss ultimately suffered by the appellants was, however, brought about by the combination of circumstances of which the respondents’ misleading and deceptive conduct was only one factor. The appellants’ mistaken estimate of costs was another. How is s 82(1) of the Act to operate in such a case? [160] First, it is necessary to identify the loss sustained by the appellants. The loss which the appellants suffered is a single sum. It is the amount by which their expenditures exceeded their receipts. Several different items must be taken into account in computing the amount expended and the amount received, but the loss is the single sum remaining after receipts are subtracted from expenditures. Further, the whole of that loss was brought about by the decision to proceed with the project, a decision which was, as I say, made in reliance upon the wrong estimates of both costs and likely receipts. (Other considerations may well intrude if, for example, the amount of the loss had been inflated by a decision to change the plans in the course of construction.) [161] Both the estimate of likely receipts and the estimate of likely expenditures were wrong. That does not mean, however, that, in this case, attention can be confined to one side of the profit and loss account in determining what loss and damage was caused by the respondents’ misleading and deceptive conduct. The question presented by the statute is what loss was suffered by the appellants that was caused by the relevant contravention? [162] The conclusion that the appellants suffered loss requires comparison between the position in which the appellants found themselves after the project was finished, and the position in which they would have been if, instead of relying on what they were told by the respondents, they had not undertaken the project. It does not invite attention to what would have been their position if an accurate estimate of selling price had been given by the respondents. Moreover, the conclusion that the appellants suffered loss neither requires nor permits consideration of some third or intermediate position in which the appellants undertook some project or transaction other than the one they did. It is, therefore, not relevant to consider what the loss might have been if costs had been estimated properly. [163] Secondly, seldom, if ever, will contravening conduct be the sole cause of a person suffering loss. Other factors will always be capable of identification as a cause of the person suffering loss. In a case like the present, the appellants’ relying on the respondents’ estimate of

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likely receipts can be seen to be a cause of their loss. What the Act directs attention to is whether the contravening conduct was a cause. It does not require, or permit, the attribution of some qualification such as ‘solely’ or ‘principally’ to the word ‘by’. [164] Thirdly, it is necessary to recognise that, on its face, the section permits recovery of the whole of the loss sustained by a person who demonstrates that a contravention of Pt V of the Act was a cause of that loss. Neither the words of s 82(1) nor anything in the intended scope and context of the Act suggest some narrower conclusion. [165] In particular, nothing in the text of s 82(1) (or any of the other provisions of the Act) suggests that the carelessness of the person who suffers loss or damage as the result of contravention of the Act should be taken into account in deciding what was the amount of loss or damage actually suffered. Nor is some such limitation to be derived from considering the intended purposes of the Act. The very simplicity of the language used in s 82(1) appears to confine attention to the limited question of the historical relevance of the contravening conduct to the loss or damage sustained. It does not provide a basis for concluding that notions of contributory fault are to be given a place in its operation. [166] There may be cases where some of the loss suffered by a person following—and I  use the word ‘following’ in a neutral sense—the conduct of another in contravention of the Act may not be loss suffered by that person by the contravening conduct. Had the appellants chosen, for wholly extraneous reasons, to change the design of the units, part way through their construction, in such a way as to waste some costs of construction already incurred, it might be said that the extra costs incurred were not caused by the respondents’ contravention. … For the moment, it is enough to say that it seems to me that such questions must find their answers within the Act rather than in analogies with common law. Thus, if notions of remoteness of damage or reasonableness are to find reflection in s 82(1) it seems probable that they may do so only through consideration of the causation question which the subsection poses. [According to McHugh, Hayne, and Gummow JJ, Henville was entitled to recover the actual loss suffered as a result of entering into the transaction and nothing in s 82 supported the conclusion that the damages should be reduced because the loss could have been avoided by the reasonable care of the applicant.]

Reduction of damages for failure to take reasonable care [13.56] The application of the ‘a cause’ approach in Henville v Walker108 is affected by s 137B of the Competition and Consumer Act 2010 (Cth).109 This section provides a court with the power to reduce the damages awarded where the failure of the claimant to take reasonable care has contributed to the loss. Section 137B allows a court to reduce the damages to be awarded under

108 (2001) 182 ALR 37, 61–68 (McHugh J). 109 There is no equivalent to Competition and Consumer Act 2010 (Cth), s 137B in the state or territory fair trading Acts or other state legislation. A claim for damages under ACL, s 236, as a law of a state or territory will not be subject to reduction for contributory negligence.

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s 236 of the ACL, for a contravention of s 18 where the claimant has failed to take reasonable care of their interests and this failure has contributed to their loss. The operation of the section is limited however to a situation where: (i) a claim for property damage or economic loss caused by a contravention of s 18 of the ACL; (ii) a claim for compensation must be made under s 236 of the ACL; (iii) the loss must be suffered partly as a result of the claimant’s failure to take reasonable care; and (iv) the wrongdoer did not intentionally or fraudulently cause the loss. [13.57]

Competition and Consumer Act 2010 (Cth) Section 137B 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. [13.58] The court will only reduce the compensation payable where the claimant’s failure to take reasonable care contributes to the loss. What will constitute a failure to take reasonable care is likely to vary depending upon the type of transaction.110 In the past, cases of contributory negligence have commonly occurred in claims by buyers against real estate agents. In the majority of these types of claims the failure by the buyer, if any, is usually in failing to protect their own interests by checking the representations of the real estate agent.111 Will such a failure

110 See D Gatehouse, ‘The Baffling Intruder: Section 82(1B) of the Trade Practices Act—Part 1’ (2007) 15 Trade Practices Law Journal 74. 111 See, for example, Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) 72 ALR 601; Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112.

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result in a reduction of compensation? If the principles applicable to contributory negligence are applied, the phrase ‘reasonable care’ denotes the use of an objective test in assessing the conduct of the claimant. Previous decisions under the Trade Practices Act 1974 (Cth) suggest that a court is likely to take a lenient approach and apply the objective test having regard to the attributes of the buyer.112 On this basis, inexperienced buyers may be viewed differently to buyers with experience who should know how to protect their interests.113 If the alleged failure to take reasonable care is the failure to check the veracity of the misleading representations, a court is unlikely to conclude a failure to take reasonable care by the applicant.114 There may also be a range of other situations in which an injured party may have failed to protect their interests, examples of which include: (i) failing to take usual precautions or undertake usual searches in a purchase or lending transaction, such as occurred in I&L Securities115 where the financial institution failed to check the financial standing of the borrower; (ii) failing to follow standard business and management practices by virtue of inexperience or incompetency after the purchase of a business induced by misleading conduct;116 and (iii) failing to maintain machinery in good condition in order to maintain its value for resale.117

Apportionment of loss between wrongdoers [13.59] The normal rule is that joint wrongdoers are jointly and severally liable for the loss suffered by the claimant. This means that the claimant is entitled to recover the whole of the loss from any of the wrongdoers. A wrongdoer who pays all of the damages awarded to a claimant may be able to recover a contribution from the other wrongdoers under a separate action. Under ss 87CB–87CI of the Competition and Consumer Act 2010 (Cth) a court can apportion liability between wrongdoers on the basis of proportionate liability. This means that once a judgment is given the liability of the parties is fixed to a particular proportion of the overall amount payable.118 Under this Part, a concurrent wrongdoer cannot be required to contribute to any damages recovered from another concurrent wrongdoer in respect of the apportionable claim or to indemnify such wrongdoer.119 112 For a recent examination of the principles of apportionment in common law claims and its application to the Civil Liability Act 2002 (NSW) see Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187. 113 Compare the approach of the court in Gardner Corporation Pty Ltd v Zed Bears Pty Ltd [2003] WASC 13 (inexperienced buyers) and the High Court in Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 (experienced investment buyers). 114 In Jainran Pty Ltd v Boyana [2008] NSWSC 468 Bryson AJ doubted the application of s 82(1B) of the Trade Practices Act 1974 (Cth) to this situation. See also Lovick & Son Developments Pty Ltd v Doppstadt Australia Pty Ltd [2012] NSWSC 529, [257]–[261]. 115 I & L Securities Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109. 116 For further examination of this area refer to S Christensen and A Stickley, ‘Will Apportionment of Responsibility for Misleading Conduct Erode the Consumer Protection Potency of the Trade Practices Act 1974 (Cth)?’ (2006) Australian Business Law Review 119; N Sneddon, ‘Shared Responsibility for Misleading Conduct’ (2004) 1 Civil Liability 29. 117 Lovick & Son Developments Pty Ltd v Doppstadt Australia Pty Ltd [2012] NSWSC 529, [245]–[252]. 118 Competition and Consumer Act 2010 (Cth), s 87CD. 119 ACL, s 87CF.

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[13.60] The proportionate liability provisions apply where: (1) there is a claim for economic loss or property damage under s 236 of the ACL; and (2) such loss or damage is caused by a contravention of s 18 of the ACL. A wrongdoer who has acted fraudulently or intentionally to cause the loss will be unable to obtain the benefit of the provisions and will be jointly and severally liable: ACL, s 87CC. The provisions also do not apply to a claim for compensation under ACL, s 237 or for a claimed contravention of sections other than s 18.120 [13.61] A wrongdoer will not be entitled to the benefit of the proportionate liability provisions for other claims such as a claim under ACL, s 30 or a claim for a remedy pursuant to s 237 of the Australian Consumer Law for a contravention of s 18.121 Although earlier decisions suggested a court may have a broad discretion under s 237 to apportion the liability of concurrent wrongdoers proportionately122 following the High Court decision in Selig v Wealthsure Pty Ltd123 that view is unlikely to be followed. [13.62]

Competition and Consumer Act 2010 (Cth) Sections 87CB–87CC 87CB Application of Part (1) This Part applies to a claim (an apportionable claim) if the claim is a claim for damages made under section 236 of the Australian Consumer Law for: (a) economic loss; or (b) damage to property; caused by conduct that was done in a contravention of section 18 of the Australian Consumer Law.

(2) For the purposes of this Part, there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind). (3) In this Part, a concurrent wrongdoer, in relation to a claim, is a person who is one of 2 or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim.

120 Bennett v Elysium Noosa Pty Ltd (in liq) [2012] FCA 211. 121 Selig v Wealthsure Pty Ltd (2015) 320 ALR 47, [29]–[30]; Williams v Pisano [2015] NSWCA 177; Bennett v Elysium Noosa Pty Ltd (2012) 202 FCR 72. 122 Khoury v Sidhu (No 2) [2010] FCA 1320, [91]. Greenwood J indicated it was arguable that such a discretion may exist. 123 (2015) 320 ALR 47.

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(4) For the purposes of this Part, apportionable claims are limited to those claims specified in subsection (1). (5) For the purposes of this Part, it does not matter that a concurrent wrongdoer is insolvent, is being wound up or has ceased to exist or died.

87CC Certain concurrent wrongdoers not to have benefit of apportionment (1) Nothing in this Part operates to exclude the liability of a concurrent wrongdoer (an excluded concurrent wrongdoer) in proceedings involving an apportionable claim if: (a) the concurrent wrongdoer intended to cause the economic loss or damage to property that is the subject of the claim; or (b) the concurrent wrongdoer fraudulently caused the economic loss or damage to property that is the subject of the claim. (2) The liability of an excluded concurrent wrongdoer is to be determined in accordance with the legal rules (if any) that (apart from this Part) are relevant. (3) The liability of any other concurrent wrongdoer who is not an excluded concurrent wrongdoer is to be determined in accordance with the provisions of this Part. [13.63] Generally a court will determine the apportionment of loss on the basis of: (a) the degree of departure from the standard of care of the reasonable man as regards the causative conduct of the putative concurrent wrongdoer and the defendants; and (b) relative importance of the acts of the putative wrongdoer and the defendants in causing the loss suffered.124

RESCISSION [13.64] In addition to the substantive remedy of damages, a claimant aggrieved by a contravention of s 18 of the ACL may also obtain a range of other remedies pursuant to s 237 of the ACL. Section 237 provides the court with discretion to make orders that compensate a person for loss or damage suffered or that is likely to be suffered as a result of a contravention of chapters 2, 3 or 4 of the ACL. In the context of misleading conduct, one of the most common remedies sought is rescission. There is no requirement for a claim to have been commenced for damages under s 236 of the ACL or other remedial provision for a contravention.125 Included within the orders listed in s 243 of the ACL (which can also be made under s 237) is the power of the court to make the contract void either abinitio or from a particular date. While this may resemble the equitable remedy of rescission it is clear that the Court’s discretion is not restricted by the

124 Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWCS 187, [60]; Lovick & Son Developments Pty Ltd v Doppstadt Australia Pty Ltd [2012] NSWSC 529, [257]–[261]; Makings Custodian Pty Ltd v CBRE (C) Pty Ltd [2017] QSC 80, [125].. 125 ACL, s 244.

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equitable principles for rescission.126 Gummow J in Marks v GIO Australia Holdings Ltd,127 stated ‘the principles regulating the administration of equitable remedies afford guidance for, but do not dictate, the exercise of the statutory discretion conferred by s 87 [s 237 of the ACL]’. For example, in Tenji v Henneberry & Associates Pty Ltd,128 the court considered the right of a buyer to terminate the contract for misleading statements concerning the viability of a service station. After discovering the misleading statements, the buyer remained in possession of the premises even after sending a notice indicating they had cancelled the contract. The court unanimously held that the fact the buyer remained in possession and did not undertake to account to the seller for the takings did not bar the granting of rescission under s 237. Therefore, while issues such as affirmation, restitutio in integrum, delay, adequacy of damages, and third party rights are relevant to the matrix of facts considered by the court, they will not be determinative of the position. The overriding question for the court will be whether an order for rescission is appropriate to compensate the applicant for loss sustained or likely to be sustained or serves some other purpose in doing justice between the parties.129 [13.65]

Tenji v Henneberry & Associates Pty Ltd (2000) 172 ALR 679 Full Federal Court of Australia French J [12] It may be observed generally of s 87 in its current form that it provides a variety of remedial orders which cover the large range of circumstances which may conceivably attach to contraventions of Pts IV, IVA, IVB and V of the Trade Practices Act. It has been described in the High Court as conferring a wide discretionary power on courts to make remedial orders in appropriate cases to ensure a fair result: Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 at 298; 131 ALR 363. The scope of the orders it authorises is not to be constrained because, in particular cases, they may resemble common law or equitable remedies: Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 510; 158 ALR 333 (McHugh, Hayne and Callinan JJ) and see also at CLR 505 (Gaudron J) and CLR 545–6 (Kirby J). Gummow J, at CLR 535; ALR 364, described the paragraphs of s 87(2) as creating ‘new remedies which have an affinity to the equitable remedies of rescission and rectification’. His Honour went on to observe that: The principles regulating the administration of equitable remedies afford guidance for, but do not dictate, the exercise of the statutory discretion conferred by s 87. Orders under provisions

126 Marks v GIO Australia Holdings (1998) 196 CLR 494, 535; Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388. 127 (1998) 196 CLR 494, 535. 128 (2000) 172 ALR 679. 129 See for example Bullabidgee Pty Ltd v McCleary [2010] NSWSC 145 where rescission was refused after the buyer claimed specific performance of the contract and ZX Group Pty Ltd v LPD Corporation Pty Ltd [2013] VSC 542 where rescission for misleading conduct was granted despite a potential affirmation

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of s 87(2) which vary the contracts or declare them void ab initio may be granted on terms. Such remedies, like their equitable analogues, are not directed to providing a measure of damage by way of monetary compensation [footnote omitted].

They are nevertheless, by virtue of s 87(1) conditioned upon loss (actual or potential) causally linked to a contravention. …  …

The claim for relief under s 87 [15] The amended application before the learned primary judge sought an order against Palermo Nominees in the following terms: … that the sale agreement dated 11 November 1996 for the sale of the land the subject of certificates of title Volume 1270 Folio 613 and Volume 1278 Folio 614 (the service station) be declared to be void ab initio, alternatively that its provisions not be enforced and an order that the second respondent do repay all moneys paid by the applicants thereunder.

[16] His Honour’s decision to refuse relief under s 87 appears to have been based on considerations set out at [77] and [78] of his judgment: [77] Although Messrs Tenji purported to rescind the transaction in March 1997, the notice of rescission was qualified in that if Palermo Nominees did not ‘accept’ rescission and retake possession of the property, Messrs Tenji would seek an order from the court to rescind the bargain either under the general law, or pursuant to s 87 of the Act. Although the solicitor’s letter in March 1997 referred to Messrs Tenji having no alternative but to act as caretakers if the matter was not resolved promptly, it appeared that after March 1997 Messrs Tenji retained possession of the property on their own account and did not undertake an obligation to account to Palermo Nominees from day-to-day thereafter, a result which would have followed actual rescission, leaving it to the court to adjudicate upon the validity of that act at law: see Alati v Kruger (1955) 94 CLR 216 at 223–4. Accordingly, the relief sought by Messrs Tenji in these proceedings was expressed in the alternative, namely, as a claim for an order under s 87 of the Act declaring the agreement for the sale of the property ‘void ab initio’ or an order for the payment of damages. [78] I am not satisfied that in all the circumstances of this case, an order under s 87 of the Act, having the effect of an order for rescission in equity, is appropriate. Although Messrs Tenji paid more for the property than it was worth, the overpayment was not a substantial sum, and that fact suggests that they may not have made a different decision had the misleading or deceptive conduct not occurred.

[17] His Honour characterised the claim for relief under s 87 as ‘having the effect of an order for rescission in equity’. Alati v Kruger was cited for the proposition that, in equitable rescission, the court adjudicates on the validity of the act of a party in disaffirming a contract. In the joint judgment in that case, at 224, it was said: The function of a court in which proceedings for rescission are taken is to adjudicate upon the validity of a purported disaffirmance …

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But Alati v Kruger was a case of pre-contractual fraudulent misrepresentation—concerning the takings of a business which was for sale. As was pointed out in Meagher, Gummow and Lehane, above, at para 2416: In the auxiliary and exclusive jurisdictions it is not clear whether rescission was in equity effected by an act of the party so that the court confirmed something already accomplished, or whether rescission was entirely by the decree of the court. The time at which the possibility of restitutio in integrum (if this were necessary) was to be assessed would depend upon the correct answer.

Inferentially from the approach taken by the High Court to the power to set aside a mortgagee sale for abuse of the power of sale in Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 the learned authors concluded: The plaintiff in the auxiliary and exclusive jurisdictions will be seeking not a declaration that he himself has already validly rescinded but a decree of the court taking effect from its date. This is a suit for rescission properly so called.

The effect of an order for avoidance of a contract under s 87 is to be equated only in a limited sense to that of an order for rescission in equity. For orders made under s 87(2)(a) declaring a contract void in whole or in part and ab initio or from a later date have their effect entirely by operation of the statute. The other element which is of importance in this case is the compensatory principle that informs the exercise of the power conferred by s 87. That principle derives from s 87(1) which conditions the power to make orders under the section upon the court considering that the orders concerned will compensate a party who has suffered or is likely to suffer loss by reason of a contravention in whole or in part for the loss or damage or will prevent or reduce the loss or damage. [18] His Honour observed that the Tenjis ‘may not have made a different decision had the misleading or deceptive conduct not occurred’. Expressed as a firm finding that might be a relevant consideration but even in equity it is not determinative of the availability of rescission. The equity of rescission in relation to a transaction procured by a breach of fiduciary duty will not be defeated by a finding that disclosure of the true position would not have led to a different decision: Maguire v Makaronis (1997) 188 CLR 449 at 465, 470–4; 144 ALR 729, the latter passage applying the reasoning of the Privy Council in Brickenden v London Loan and Savings Co [1934] 3 DLR 465. [19] Loss or potential loss causally linked to contravention conditions the exercise of the remedial powers under s 87 and their exercise must be directed to compensate for that loss. The same may be said, limited to actual loss, for the award of damages under s 82. The conditions for the exercise of power under s 87 having been satisfied and the compensatory outcome identified, the grant of such relief is discretionary as is the particular kind of order under s 87(2) that may be made. The exercise of that discretion and the choice of order may then be affected by other considerations. The making of an order under s 87(2)(a) declaring a contract to be void may be based upon a number of factors including those which would affect the grant of analogous relief in equity. But, while relevant, they are not determinative. The question whether there has been a disaffirmation or a commitment to the performance of the contract by the party suffering

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loss will generally be relevant. The question whether the party would have decided to continue with the purchase, even if aware of the true position, may also be relevant although, as has been pointed out, that does not determine the availability of equitable rescission. [20] Rescission in equity transcends compensation. Avoidance under s 87 must serve a compensatory purpose but may serve other purposes in doing justice between the parties. There are cases in which a party who enters a contract as a result of misleading or deceptive conduct may be compensated in a pecuniary sense by an award of monetary damages but is left nonetheless with a continuing burden of unforeseen risk, a transaction soured by the events that surrounded it and a property, once the repository of hope for the future that is now an albatross around its neck. Absent misleading or deceptive conduct, an informed commitment to the acquisition and all its difficulties and shortcomings is easier to bear than one into which a party has been misled as was found to be the case here. [21] His Honour did not make a finding that the Tenjis would have made the same decision had the misleading or deceptive conduct not occurred. He found no more than that there was a possibility. Factors critical therefore in the refusal of relief under s 87 as they appear from his Honour’s reasons were: (1) the qualified nature of the letter of purported rescission sent by the Tenjis’ solicitors on 27 March; (2) the small amount of the overpayment made as a result of the misleading and deceptive conduct. It was submitted for the Tenjis on appeal that some four months after taking possession and upon discovering the misleading conduct of the respondents, they gave notice of rescission and were then in a position to make restitution or substantial restitution, that is, to return the service station in the same condition as that in which they had received it and to account to Palermo Nominees for rent received. [22] As already observed the absence of a notice of rescission is not determinative of the availability of relief under s 87(2)(a). A positive affirmation of the contract coupled with a demand for compensation might well weigh heavily against the making of such an order, if only because the other party in such a case could be led to adopt a position or not alter its position on the assumption that there would be no claim for avoidance of the contract. But that is not this case. In my opinion, in any event, the letter of 27 March should not have been regarded as anything less than notice of a decision to set the contract aside, albeit it accepted the necessity for the Tenjis to ‘act as caretakers and make decisions affecting the future of the service station’. [23] The small quantum of the loss was a factor to which his Honour was entitled to have regard but in my opinion and for the reasons I  have already outlined, was not of itself determinative. Moreover it is apparent from the uncertainties concerning the valuations and the particular circumstances of the service station that the Tenjis, in continuing in ownership of the land assumed the risk of a greater loss than that quantified by his Honour. In my respectful opinion his Honour’s discretion miscarried because of the matters to which I have referred. The discretion having miscarried, it is open to the court on appeal to substitute its own view of the appropriate order to be made. 

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[24] The conditions for the exercise of the power under s 87(2)(a) are satisfied. The avoidance of the contract would, in my opinion, serve the purpose of compensating the Tenjis for their loss. It would also have the utility of relieving the Tenjis from a transaction in which though their economic loss was found not to be great, their hopes and expectations of the transaction could reasonably have been expected to be raised by the misrepresentations made to them.

Exclusion of misleading conduct Disclaimer usually ineffective [13.66] The effectiveness of an exclusion clause to nullify the effect of s 18 of the ACL has been viewed with scepticism by the courts. While contracting out of s 18 of the ACL is not specifically prohibited, it is clear that any attempt to do so will be met with resistance from the courts. There is a substantial body of authority against exclusionary and disclaimer clauses overriding the statutory prohibition on misleading conduct where, as a matter of fact, the loss or damage is caused by the contravention.130 In Campbell v Backoffice Investments Pty Ltd,131 Gummow, Hayne, Heydon and Kiefel JJ stated in relation to an ‘entire agreement clause’ and a provision denying that the purchaser relied on any warranty made by or on behalf of the vendor, that: of itself, neither the inclusion of an entire agreement clause in an agreement nor the inclusion of a provision expressly denying reliance upon pre-contractual representations will necessarily prevent the provision of misleading information before a contract was made constituting a contravention of the prohibition against misleading or deceptive conduct by which loss or damage was sustained. As pointed out earlier, by reference to the reasons of McHugh J in Butcher, whether conduct is misleading or deceptive is a question of fact to be decided by reference to all of the relevant circumstances, of which the terms of the contract are but one.

Disclaimer erasing misleading conduct [13.67] It has been recognised that a disclaimer may be effective if it has the effect of erasing whatever is misleading in the conduct. In other words, a disclaimer will be effective in the case of misleading conduct if, when considered with the whole of the facts, it indicates that the statements are no longer misleading.132 French CJ observed in Campbell v Backoffice Investments Pty Ltd 133 that a person accused of engaging in misleading or deceptive conduct may claim that its effects were negated by a contemporaneous disclaimer by that person, or a subsequent

130 Bowler v Hilda Pty Ltd (1998) 80 FCR 191, 207; IOOF Australia Trustees (NSW) Ltd v Tantipech (1998) 156 ALR 470; GIO Australia Holdings Ltd v Marks (1997) 70 FCR 559, 575; Burg Design Pty Ltd v Wolki (1999) 162 ALR 639; Leda Holdings Pty Ltd v Oraka Pty Ltd (1998) ATPR 41-601, 40,516; Carpet Fashion Pty Ltd v Forma Holdings Pty Ltd [2003] NSWSC 460. Compre Jewelsnloo Pty Ltd v Sengos [2016] NSWCA 309 (no reliance where buyer of a business agreed not to rely on figures in exchange for a reduction in the price). 131 (2009) 238 CLR 304. 132 Benlist Pty Ltd v Olivetti Australia Pty Ltd (1990) ATPR 41-043; Australian Competition and Consumer Commission v Oceana Commercial Pty Ltd [2003] FCA 1516; Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199, [83]. 133 (2009) 238 CLR 304.

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disclaimer of reliance by the person allegedly affected by the conduct. The contemporaneous disclaimer by the person engaged in the impugned conduct is likely to go to the characterisation of the conduct while the contractual disclaimer will likely only be effective if it breaks the chain of causation between the conduct and the entry into the contract. For example, in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd,134 a label attached to furniture prevented the conduct of selling furniture resembling another manufacturer from misleading the consumer about the identity of the manufacturer. [13.68] Successful reliance upon disclaimers is however rare and limited to where the conduct when viewed together with the disclaimers is not considered to be misleading. [13.69]

Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 Queensland Court of Appeal The facts of the case are summarised at [13.38]. Keane JA The effect of the disclaimers [80] An argument made by the appellant in relation to each particular representation in issue on appeal is that the disclaimers contained within the advertising material were sufficient to ensure that it was clear what was being represented and what was not. [81] In this regard, the appellant submitted that: (a) the brochure Exhibit 3 contained the following express disclaimers: (i)

under the heading ‘Radisson Suites Investment Analysis’: no liability will be accepted by [SCI] or any other firm in respect of any action taken as a result of using these figures;

(ii)

on the last page under the heading ‘Guaranteed Net Returns’: Whilst the information inside this publication is believed to be true and correct, the figures and advice supplied are given as a guide only and no responsibility will be taken for any errors or omissions. Savings, projections, pay out terms and benefits will vary according to interest fluctuations, market conditions and a client’s individual situation. Specialist taxation or investment advice should be sought.;

(b) the brochure Exhibit 4 contained the following express disclaimers: (i)

under the heading ‘Radisson Suites Investment Analysis’: … no liability will be accepted by [SCI] or any other firm in respect of any action taken using these figures.;

134 (1982) 140 CLR 191.

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on the first page the following appeared: ‘*Refer to Radisson disclaimer on page 4.’ On p 4, the following appeared: Guaranteed 7% per annum for 5  years* … Neither Radisson, its subsidiaries and any of its officers, or any local or overseas affiliates (including Radisson Inc and Carlson Companies) make any representation or give any warranty or guarantee as to the performance of Radisson Suites 570 Queen. Investors should make their own independent assessment as to the likely performance of the hotel/apartment complex, and should note that the predictions and calculations in the future trading performance rely upon a number and variety of anticipated outcomes which may vary significantly depending upon the actual future events and outcomes.;

(c) the advertisement Exhibit 5 contained the following express disclaimer: While the information [SCI] has supplied inside this publication is believed to be true and correct, the figures and advice are given as a guide only and no responsibility will be taken for any errors or omissions. Savings, projections, pay out terms and benefits will vary according to interest fluctuations, market conditions and a client’s individual financial situation. Specialist taxation or investment advice should be sought from an Accountant.

[82] Before going any further it is necessary to summarize the applicable legal principles. It is well established that: … exclusionary and disclaimer clauses cannot override the statutory prohibition against misleading and deceptive conduct or prevent the grant of appropriate statutory relief where loss or damage is, as a matter of fact, caused by a contravention of the statute. (Bowler v Hilda Pty Ltd (1998) 80 FCR 191 at 207)

[83] It has been recognised, however, that disclaimers can be effective ‘if the clause actually has the effect of erasing whatever is misleading in the conduct; (Benlist Pty Ltd v Olivetti Australia Pty Ltd (1990) ATPR 41-043 at 51,590), in other words, if the effect of the disclaimer is to make clear something that, if allowed to remain vague or ambiguous, could have led a person into error. Disclaimers had this effect in Butcher where it was held that the effect of reading an entire brochure, including the disclaimers, was to make it clear that the survey report included in the brochure had not been prepared by the producer of the brochure but was simply being passed on without any representations being made as to its truth or falsity. (Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60 at [50]–[51]; (2004) 212 ALR 357 at 370.) It is apparent that if a disclaimer is to function in this way it must be worded unambiguously, feature prominently and it must be communicated to the reader that the disclaimer is relevant to the information it is seeking to qualify. (Medical Benefits Fund of Australia Ltd v Cassidy [2003] FCAFC 289 at [35]–[38]; (2003) 135 FCR 1 at 17–18; Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60 at [54]–[55]; (2004) 212 ALR 357 at 370.) As Jacobson and Bennett JJ noted in National Exchange: Where the disparity between the primary statement and the true position is great it is necessary for the maker of the statement to draw the attention of the reader to the true position in the clearest possible way. (National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 49 ACSR 369 at 381.)

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[84] Because I consider that regard should be had to the entirety of the material provided to the Downeys, as opposed to the ‘general impression’ which that material might have created, I  will take the disclaimers contained in the material into account as information to which attention should have been paid. The appellant submits that the disclaimers were designed to make clear exactly what was being promised and what was not. The question to be considered in relation to each of the following representations is whether that is what would actually have been communicated to the careful reader. (Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60 at [49]; (2004) 212 ALR 357 at 369.) Once it is determined whether the disclaimers qualified the representations that were actually communicated, it is possible to decide whether or not what was actually communicated was misleading and deceptive. I  turn now to consider the representations which are disputed by the appellant. The representation that the appellant considered the investment a guaranteed success [85] Page 12 of Exhibit 3 proclaimed the ‘guaranteed success of such a centrally located and magnificently appointed complex as Radisson Suites, [which] has propelled Radisson’s decision to enter into a Hotel Management agreement to operate the $32  million development.’ The appellant submits that this part of Exhibit 3 was not expressing an opinion as to the likely success of an investment by way of the purchase of a unit off the plan, but was saying no more than that the operation of the hotel would be a guaranteed success. [86] In my opinion, this submission must be rejected. The passage in Exhibit 3 is speaking of an appreciation on the appellant’s part of the prospects of the proposed Radisson Suites development as a whole. That is because it is speaking of ‘the complex’, and of the appellant’s assessment of the prospects of the proposed hotel as a manifestation of the ‘guaranteed success’ of such a ‘complex as Radisson Suites’. In this statement the word ‘complex’ is synonymous with ‘Radisson Suites’. As is clear elsewhere in Exhibit 3, the title ‘Radisson Suites’ is meant to embrace both the hotel and residential apartment development. Page  6 of Exhibit 3 defines ‘Radisson Suites’ as a ‘four star international-standard hotel/apartment complex’ while on p 9 it is stated first that ‘Radisson Suites will offer four star international standard service at rates to suit the most price-aware travellers’ before it is stated that ‘Radisson Suites also makes it possible for you to maximise your rental income without high purchase costs …’. This usage is carried through into the other brochures. Page 1 of Exhibit 4 describes the project as ‘a four star international hotel/luxury apartment complex’. On p 1 of Exhibit 5 there are two separate descriptions of the project referring to ‘Radisson Suites 570 Queen, a … international standard apartment hotel’. There are similar references elsewhere in both Exhibit 4 and Exhibit 5. The use of the term ‘Radisson Suites’ in this manner makes it extremely difficult to interpret the representation made on p 12 of Exhibit 3 as anything other than a reference to the prospects of the Radisson Suites as an integrated whole. [87] It is not as though there is any reason to assume that both aspects of the development could not be successful. While it certainly can be said that the appellant’s particular interest was in the success of the hotel to be operated by it, that does not mean that, speaking objectively, the success of ‘the complex’ as a whole was irrelevant to the success of the hotel. Indeed, the

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contrary is more likely to be true. Whether or not that be the case, what is said on p 12 does not, in my view, draw any distinction between the appellant’s opinions as to the prospects of the hotel and those of the entire development. The reference to ‘such a … complex as Radisson Suites’ cannot be interpreted as referring only to the operation of the hotel. This means that the appellant’s other submissions that assume that the reference to the ‘complex’ must be read only as a reference to the hotel must also fail. [88] The disclaimers contained in the advertising material do not ‘erase what is misleading’ in the statement in Exhibit 3. Unlike the disclaimer contained in Exhibit 4, there is no statement contained in Exhibit 3 that the appellant should not be taken to have made any representation as to the performance of the project. There is also no statement in Exhibit 4, in the same terms as Exhibit 3, which talks about ‘guaranteed success’. The wider disclaimer in Exhibit 4 cannot be understood to apply to Exhibit 3 because of the express limitation contained at its commencement that it concerns ‘… the information in this publication …’. The unqualified representation that is made, therefore, on p 12 of Exhibit 3, is that the appellant considered that the entire project, including both the hotel and the property development, was a ‘guaranteed success’. [89] It is not to the point to say, as the appellant does, that many market factors, such as supply and demand and movements in interest rates, will bear upon the success of the investment so far as individual investors are concerned. The point made in the passage cited at [85] above is that the appellant, which because of its experience and expertise can be expected to have an appreciation of such matters and especially likely demand for the suites and vacancy rates, regards the complex as so attractive that it will be a success notwithstanding the obvious vagaries of the market place to which the appellant refers. Demand for the suites will meet the appellant’s immediate and direct interest in vacancy rates and ensure that the 570 QSM will receive funds from which to meet its guaranteed rental obligations to investors. The important passage in Exhibit 3 is not itself saying that the appellant guarantees the success of the investment, but that the appellant regards the success of the project as an integrated whole as assured. One aspect of that integrated whole was the hotel which the appellant would operate, another aspect was that element of the project concerned with the rental guarantee. The attractions of the complex, and consequent low vacancy rates, were essential to both. [90] Even if one could read the disclaimer in Exhibit 4 as extending to other publications so as to include this representation in Exhibit 3, the disclaimer in Exhibit 4 is not apt to ‘erase’ the suggestion that the success of the project as a whole was, in the appellant’s view, guaranteed. What the disclaimer in Exhibit 4 did was disclaim responsibility on the part of the appellant or its affiliates for the ongoing performance of the companies associated in the project. It did not disclaim the appellant’s view that the complex was a guaranteed success. The appellant’s position as conveyed by the entirety of the advertising material can be summed up as follows: We don’t promise that the project will succeed, but we ourselves regard it as a guaranteed success, which is why we are associating ourselves with the project.

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Disclaimer breaking the chain of causation [13.70] In Campbell v Backoffice Investments Pty Ltd,135 French CJ considered the likely effectiveness of a disclaimer aimed at breaking the chain of causation between conduct and loss: Where the impugned conduct comprises allegedly misleading pre-contractual representations, a contractual disclaimer of reliance will ordinarily be considered in relation to the question of causation. For if a person expressly declares in a contractual document that he or she did not rely upon pre-contractual representations, that declaration may, according to the circumstances, be evidence of non-reliance and of the want of a causal link between the impugned conduct and the loss or damage flowing from entry into the contract (79). In many cases, such a provision will not be taken to evidence a break in the causal link between misleading or deceptive conduct and loss (80). The person making the declaration may nevertheless be found to have been actuated by the misrepresentations into entering the contract. The question is not one of law, but of fact.136

[13.71] The effectiveness of a disclaimer in avoiding liability was considered by a majority of the High Court in Butcher v Lachlan Elder Realty Pty Ltd. 137 A majority of High Court concluded that a disclaimer in a real estate agent’s sales brochure acted as a qualification on the characterisation of the agent’s conduct. [13.72]

Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 High Court of Australia The agent engaged to sell a property on Sydney Harbour prepared a brochure which included a copy of a survey plan prepared by licensed surveyors. The brochure included the following disclaimer: All information contained herein is gathered from sources we believe to be reliable. However we cannot guarantee its accuracy and interested persons should rely on their own enquiries.

It turned out that the plan was inaccurate and conveyed a false impression in relation to the boundaries of the property. The majority of the High Court concluded that the brochure, when read as a whole, including the disclaimer, and taking into account the experience of the purchasers, the nature of the information and the expectations of the purchasers, the conduct of the agent was not misleading:

135 (2009) 238 CLR 304. 136 Ibid, 321. 137 (2004) 218 CLR 592.

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… it would have been plain to a reasonable purchaser that the agent was not the source of the information which was said to be misleading. The agent did not purport to do anything more than pass on information supplied by another or others. It both expressly and implicitly disclaimed any belief in the truth or falsity of that information.138

Gleeson CJ, Hayne and Heydon JJ It is now necessary to consider the two disclaimers, one on the front and one on the back. The courts below treated the one on the back as relating to the position of the agent. It may instead relate to the position of Williams Design Associates, on whose role the evidence is silent, save that it may be inferred that they played some role in producing the brochure. But it does not matter, for present purposes, whether both disclaimers relate to the agent or only one. If the disclaimers are examined from the point of view of what the agent was trying to do, the first at least establishes that it was trying not to make any representations about the accuracy of the information conveyed, save that it believed the sources of it to be reliable. If the disclaimers are examined from the point of view of a careful reader, they communicate the same message. In fact, Mr Butcher said that he did not notice either disclaimer when he received the brochure on or about 6 February 1997. Though he apparently studied the brochure, including the diagram, with sufficient care to pass on his impressions of it to Mr Gillmer and Mr Hindmarch, the evidence in the appeal papers does not suggest that he ever noticed them. There is no evidence in the appeal papers that Ms Radford noticed the disclaimers either. Yet, though the disclaimers were in small type, the brochure was a short document, there was very little written on it, and the disclaimers were there to be read. Only persons of very poor eyesight would find them illegible, and there is no evidence that the eyesight of Mr Butcher or Ms Radford was in any way defective. The Court of Appeal declined to ‘accord [the disclaimers] decisive significance’ (39), but they do have some significance. If the ‘conduct’ of the agent is what a reasonable person in the position of the purchasers, taking into account what they knew, would make of the agent’s behaviour, reasonable purchasers would have read the whole document, given its importance, its brevity, and their use of it as the source of instructions to professional advisers. There are circumstances in which the ‘conduct’ of an agent would depend on different tests. For example, those tests might turn on what purchasers actually made of the agent’s behaviour, whether they were acting reasonably or not, and they might also call for consideration of how the agent perceived the purchasers. Tests of that latter kind might be appropriate for plaintiffs of limited experience acting without professional advice in rushed circumstances. They are not appropriate in the present circumstances. Hence, in the circumstances, the brochure, read as a whole, simply meant: The diagram records what a particular surveyor found on a survey in 1980. We are not surveyors. We did not do the survey. We did not engage any surveyor to do the survey. We believe the vendor and the surveyor are reliable, but we cannot guarantee the accuracy of the information they have provided. Whatever you rely on, you must rely on your own enquiries.

138 Ibid, [51].

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Hence it would have been plain to a reasonable purchaser that the agent was not the source of the information which was said to be misleading. The agent did not purport to do anything more than pass on information supplied by another or others. It both expressly and implicitly disclaimed any belief in the truth or falsity of that information. It did no more than state a belief in the reliability of the sources. [13.73] In Butcher the disclaimer acted to avoid liability for the agent. This does not mean that a similar approach will work in all cases. The importance of assessing a disclaimer or qualification in light of the whole of the circumstances, including the nature of the information disclaimed and the experience of the claimant, is exemplified by the decision in Havyn Pty Ltd v Webster139 where the court distinguished the information sought to be disclaimed in Butcher v Lachlan Elder Realty Pty Ltd140 with the information in that case. In Butcher, the information related to title and boundaries of land, being information a surveyor would certify, and in Havyn the information concerned the area of flats in a building. In the latter case, it was information that could easily be measured by a person without the expertise of a surveyor and fell within the competence of a real estate agent.141 Thus, the nature and quality of the information being disclaimed and its obvious source were relevant ingredients into the decision-making mix in determining the legal effect of the disclaimer. The plan in Butcher,142 upon its face, would have appeared to any reader to have been professionally prepared by a qualified surveyor. In contrast, the Court found that it was ‘immediately apparent’, due to the presence of a ‘rough unit layout’ plan in the brochure, that the information concerning the area of flats in Havyn Pty Ltd v Webster143 had not been supplied to the agent but was the product of the agent’s own casual pacing out of the area. The disclaimer was effective in the former decision but not the latter where the agent had more obviously contributed all the material.

QUESTIONS FOR REFLECTION (1) Is it necessary for a misrepresentation to be the sole inducement for entry into the contract? Is the position the same under the ACL for a contravention of s 18? (2) When will silence amount to a misrepresentation at common law? How is the position different under the ACL? (3) In what circumstances will rescission for misrepresentation be refused? Do the same limitations prevent a court from giving an order for rescission under s 237 of the ACL?

139 (2005) 12 BPR 22,837. 140 (2004) 218 CLR 592. 141 (2005) 12 BPR 22,837, [88]–[91]. 142 (2004) 218 CLR 592. 143 (2005) 12 BPR 22,837, [91].

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(4) Section 137B of the Competition and Consumer Act 2010 (Cth) requires a court to reduce the damages awarded to a plaintiff if the plaintiff’s failure to take reasonable care contributed to their loss. In light of the High Court’s attitude to the reduction of damages due to a plaintiff’s conduct, what are the likely restrictions the courts may develop in the interpretation of s 137B? (5) Consider whether the result would have been the same in Butcher if the agent had been the source of the misleading survey.

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CHAPTER 14 MISTAKE

INTRODUCTION [14.01] A party may enter into a contract under a mistake about, for example, the nature of the subject matter of the contract, the nature or content of a term or the obligations or benefits contained in the contract. The effective of a mistake at the time of formation depends upon its type, that is whether it is a common mistake, mutual mistake or unilateral mistake. [14.02] Generally speaking, at common law an operative mistake will render the contract void, meaning that it is a nullity and incapable of passing title. By contrast in equity an operative mistake results in the contract being voidable, that is able to be rescinded by the innocent party. The contract remains on foot and is capable of passing title until such time as the innocent party seeks to rescind. Thus if an innocent third party acquires an interest in the subject matter of the contract for value, the right to rescind will be lost. The right will also be lost where the contract is affirmed, if restitutio in integrum is no longer possible or if there is unreasonable delay. Other potential remedies in equity include refusing an order for specific performance against the innocent party and rectification of the text of the contract if there has been an error in recording the parties’ bargain.

COMMON MISTAKE [14.03] A common mistake is a mistake which both parties make. The parties might be labouring under the common assumption that the subject matter of the contract is in existence when unknown to both it has perished or been destroyed (res extincta); that the vendor is the owner of property that already belongs to the buyer (res sua); or that other circumstances forming the basis of the contract continue to exist. However, there will be no remedy where the non-existence is due to the fault of one of the parties or there is a warranty that the state of affairs exists.1

1

McRae v Commonwealth Disposals Commission (1951) 84 CLR 377; Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328; Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 67.

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[14.04]

McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 High Court of Australia The Commonwealth Disposals Commission placed newspaper advertisements calling for tenders for the purchase of an oil tanker, described as ‘lying on Jourmaund Reef ’. The plaintiff ’s tender was accepted. After the plaintiffs had incurred expense in fitting out a salvage expedition, it was discovered that no oil tanker had ever existed—and indeed there was no place known as Jourmaund Reef. Dixon and Fullagar JJ If the view so far indicated be correct, as we believe it to be, it seems clear that the case of Couturier v Hastie (1852) 8 Ex 40; 155 ER 1250 does not compel one to say that the contract in the present case was void. But, even if the view that Couturier v Hastie was a case of a void contract be correct, we would still think that it could not govern the present case. Denning LJ indeed says in Solle v Butcher [1950] 1 KB 671 at 692—’Neither party can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew he was under a mistake. A fortiori if the other party did not know of the mistake, but shared it’. But, even if this be not wholly and strictly correct, yet at least it must be true to say that a party cannot rely on [common] mistake where the mistake consists of a belief which is, on the one hand, entertained by him without any reasonable ground, and, on the other hand, deliberately induced by him in the mind of the other party. It does not seem possible on the evidence to say that Bowser or Sheehan was guilty of fraud in the sense that either knew at the date of the contract that the Commission had no tanker to sell. And even at the later stage, after the receipt of the message from Misima, it is difficult to impute to them actual knowledge that there was no tanker at Jomard Entrance. The message should have conveyed to them the fact that the only vessel lying in the vicinity was almost certainly worthless, and ordinary commonsense and decency would have suggested that the contents of the message ought to be communicated to the plaintiffs. But the message referred to a ‘barge type tanker’, and it is quite possible that this description would fail to bring home to their minds that there was no tanker. A finding of actual knowledge that they had nothing to sell does not seem justified by the evidence, though it is difficult to credit them at the time of the publication of the advertisements with any honest affirmative belief that a tanker existed. The confusion as to locality in the description advertised is almost enough to exclude the inference of any such affirmative belief. But, even if they be credited with a real belief in the existence of a tanker, they were guilty of the grossest negligence. It is impossible to say that they had any reasonable ground for such a belief. Having no reasonable grounds for such a belief, they asserted by their advertisement to the world at large, and by their later specification of locality to the plaintiffs, that they had a tanker to sell. They must have known that any tenderer would rely implicitly on their assertion of the existence of a tanker, and they must have known that the plaintiffs would rely implicitly on their later assertion of the existence of a tanker in the latitude and longitude given. They took no steps to verify what

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they were asserting, and any ‘mistake’ that existed was induced by their own culpable conduct. In these circumstances it seems out of the question that they should be able to assert that no contract was concluded. It is not unfair or inaccurate to say that the only ‘mistake’ the plaintiffs made was that they believed what the Commission told them. The position so far, then, may be summed up as follows. It was not decided in Couturier v Hastie that the contract in that case was void. The question whether it was void or not did not arise. If it had arisen, as in an action by the purchaser for damages, it would have turned on the ulterior question whether the contract was subject to an implied condition precedent. Whatever might then have been held on the facts of Couturier v Hastie, it is impossible in this case to imply any such term. The terms of the contract and the surrounding circumstances clearly exclude any such implication. The buyers relied upon, and acted upon, the assertion of the seller that there was a tanker in existence. It is not a case in which the parties can be seen to have proceeded on the basis of a common assumption of fact so as to justify the conclusion that the correctness of the assumption was intended by both parties to be a condition precedent to the creation of contractual obligations. The officers of the Commission made an assumption, but the plaintiffs did not make an assumption in the same sense. They knew nothing except what the Commission had told them. If they had been asked, they would certainly not have said: ‘Of course, if there is no tanker, there is no contract’. They would have said: ‘We shall have to go and take possession of the tanker. We simply accept the Commission’s assurance that there is a tanker and the Commission’s promise to give us that tanker.’ The only proper construction of the contract is that it included a promise by the Commission that there was a tanker in the position specified. The Commission contracted that there was a tanker there. ‘The sale in this case of a ship implies a contract that the subject of the transfer did exist in the character of a ship.’ (Barr v Gibson (1838) 3 M&W 390 at 399–400; 150 ER 1196 at 1200–1201). If, on the other hand, the case of Couturier v Hastie and this case ought to be treated as cases raising a question of ‘mistake’, then the Commission cannot in this case rely on any mistake as avoiding the contract, because any mistake was induced by the serious fault of their own servants, who asserted the existence of a tanker recklessly and without any reasonable ground. There was a contract, and the Commission contracted that a tanker existed in the position specified. Since there was no such tanker, there has been a breach of contract, and the plaintiffs are entitled to damages for that breach. [14.05] Equity generally follows the law so that in the case of res extincta, res sua, or the foundation of the contract becoming impossible prior to the contract being formed, equity will also treat the contract as having no effect. Currently in Australia, the equitable response to common mistake goes further than the limited approach of the common law. In an appropriate case, equity may set aside the contract on such terms as it sees fit,2 rectify the contract, or refuse specific performance.

2

See, for example, Cochrane v Willis (1865) LR 1 Ca App 58.

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[14.06]

Solle v Butcher [1950] 1 KB 67 English Court of Appeal The plaintiff leased a flat from the defendant. Both parties had acted on the incorrect assumption that the flat, which had been so substantially reconstructed that it was virtually a new flat, was no longer governed by the Rent Restriction Acts and that the plaintiff was no longer a protected tenant. The mistake was only discovered after two years. The plaintiff sought a declaration that the rent was capped under the Acts, and sought to recover the excess in rent that he had paid. The defendant counterclaimed for rescission of the lease on the ground of common mistake. Denning LJ In this plight the landlord seeks to set aside the lease. He says with truth that it is unfair that the tenant should have the benefit of the lease for the outstanding five years of the term at £140 a year when the proper rent is £250 a year. If he cannot give a notice of increase now, can he not avoid the lease? The only ground on which he can avoid it is on the ground of mistake. It is quite plain that the parties were under a mistake. They thought that the flat was not tied down to a controlled rent, whereas in fact it was. In order to see whether the lease can be avoided for this mistake it is necessary to remember that mistake is of two kinds: first, mistake which renders the contract void, that is, a nullity from the beginning, which is the kind of mistake which was dealt with by the courts of common law, and, secondly, mistake which renders the contract not void, but voidable, that is, liable to be set aside on such terms as the court thinks fit, which is the kind of mistake which was dealt with by the Courts of Equity. Much of the difficulty which has attended this subject has arisen because, before the fusion of law and equity, the courts of common law, in order to do justice in the case in hand, extended this doctrine of mistake beyond its proper limits and held contracts to be void which were really only voidable, a process which was capable of being attended with much injustice to third persons who had bought goods or otherwise committed themselves on the faith that there was a contract. Since the fusion of law and equity there is no reason to continue this process, and it will be found that only those contracts are now held void where the mistake was such as to prevent the formation of any contract at all. Let me first consider mistakes which render a contract a nullity. All previous decisions on this subject must now be read in the light of Bell v Lever Bros Ltd. The correct interpretation of that case, to my mind, is that once a contract has been made, that is to say, once the parties, whatever their inmost states of mind, have to all outward appearances agreed with sufficient certainty in the same terms on the same subject-matter, then the contract is good unless and until it is set aside for breach of some condition expressed or implied in it, or for fraud, or on some equitable ground. Neither party can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew he was under a mistake. A fortiori if the other party did not know of the mistake, but shared it. The cases where goods have perished at the time of sale, or belong to the buyer, are not really contracts which are void for mistake, but are void by reason of an implied condition

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to that effect, and even cases like Smith v Hughes turn at law on whether there was a contractual condition or not … Let me next consider mistakes which render a contract voidable, that is, liable to be set aside on some equitable ground. While presupposing that a contract was good at law, or at any rate not void, the court of equity would often relieve a party from the consequences of his own mistake, so long as it could do so without injustice to third parties. The court had power to set aside the contract whenever it was of opinion that it was unconscientious for the other party to avail himself of the legal advantage which he had obtained: Torrance v Bolton. This branch of equity has shown a progressive development. It is now clear that a contract will be set aside if the mistake of the one party has been induced by a material misrepresentation of the other, even though it was not fraudulent or fundamental, or if one party, knowing that the other is mistaken about the terms of an offer, or the identity of the person by whom it is made, lets him remain under his delusion and conclude a contract on the mistaken terms instead of pointing out the mistake … A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault … [Denning LJ noted that the tenant was a surveyor who was employed by the landlord, not only to arrange finance for the purchase of the building and to negotiate with the rating authorities as to the new rateable values, but also to let the flats, who had advised the landlord what rents could be charged. There had therefore been a common misapprehension, which was fundamental and in no way due to any fault of the landlord. The lease was therefore set aside. Bucknill LJ also held that there had been a mistake and that the contract should be set aside. Jenkins LJ dissented on the basis that the parties had made a mistake of law, not fact, and he did not think a remedy should be granted for mistakes of law.] [14.07] Solle v Butcher has subsequently been approved by the High Court. This support, while somewhat guarded in Svanosio v McNamara3 was much stronger in Taylor v Johnson.4 However, the English Court of Appeal has now rejected Solle v Butcher on the basis that equity follows the common law, which according to the House of Lords in Bell v Lever Bros will only grant a remedy where a common mistake rendered the subject matter of the contract something essentially different from the subject the parties believed to exist. Any purported equitable jurisdiction to rescind would be not so much an attempt to mitigate the common law but rather tantamount to saying the line drawn by the common law was wrong.5

3

(1956) 96 CLR 186 at 196 per Dixon CJ and Fullagar J.

4

(1983) 151 CLR 422 at 431 per Mason ACJ, Murphy and Deane JJ.

5

Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The Great Peace) [2003] QB 679.

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[14.08]

Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The Great Peace) [2003] 1 QB 680 English Court of Appeal The Cape Providence was on a voyage from Brazil to China with a cargo of iron ore when she suffered serious structural damage in the South Indian Ocean. The owners of the Cape Providence engaged the defendant salvage company to render salvage services. The defendants used brokers to locate a tug but the nearest tug was going to take five or six days to reach the Cape Providence. Since there was serious concerns that in the meantime the vessel might sink with the loss of her crew, the defendants asked the brokers to find a merchant ship in the area which would be willing to escort and stand by the stricken ship so that the lives of those on board could be saved if the need arose. The brokers were told that the Great Peace was the closest of four vessels in the vicinity. In fact the merchant ship was 410 miles away, instead of 35 miles as first thought. This came to light two hours after the contract was signed. Upon identifying a much closer vessel, the defendants sought to rescind the contract on the basis of the common mistake that the merchant ship was the closest to the scene. Lord Phillips MR and May and Laws LJJ [1] In 1931 in Bell v Lever Bros Ltd [1932] AC 161 Lord Atkin made a speech which he must have anticipated would be treated as the definitive exposition of the rules of law governing the effect of mistake on contract. In 1949 in Solle v Butcher [1950] 1 KB 671 Denning LJ identified an equitable jurisdiction which permits the court to intervene where the parties have concluded an agreement that was binding in law under a common misapprehension of a fundamental nature as to the material facts or their respective rights. Over the last 50 years judges and jurists have wrestled with the problem of reconciling these two decisions and identifying with precision the principles that they lay down. [2] In the court below Toulson J used this case as a vehicle to review this difficult area of jurisprudence. He reached the bold conclusion that the view of the jurisdiction of the court expressed by Denning LJ in Solle v Butcher was ‘over-broad’, by which he meant wrong. Equity neither gave a party a right to rescind a contract on grounds of common mistake nor conferred on the court a discretion to set aside a contract on such grounds. … [32] … what we are here concerned with is an allegation of a common mistaken assumption of fact which renders the service that will be provided if the contract is performed in accordance with its terms something different from the performance that the parties contemplated. This is the type of mistake which fell to be considered in Bell v Lever Bros Ltd [1932] AC 161. We shall describe it as ‘common mistake’, although it is often alternatively described as ‘mutual mistake’. …

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[73] The avoidance of a contract on the ground of common mistake results from a rule of law under which, if it transpires that one or both of the parties have agreed to do something which it is impossible to perform, no obligation arises out of that agreement. [74] In considering whether performance of the contract is impossible, it is necessary to identify what it is that the parties agreed would be performed. This involves looking not only at the express terms, but at any implications that may arise out of the surrounding circumstances. In some cases it will be possible to identify details of the ‘contractual adventure’ which go beyond the terms that are expressly spelt out, in others it will not. [75] Just as the doctrine of frustration only applies if the contract contains no provision that covers the situation, the same should be true of common mistake. If, on true construction of the contract, a party warrants that the subject matter of the contract exists, or that it will be possible to perform the contract, there will be no scope to hold the contract void on the ground of common mistake. [76] If one applies the passage from the judgment of Lord Alverstone CJ in Blakeley v Muller & Co 19 TLR 186 … to a case of common mistake, it suggests that the following elements must be present if common mistake is to avoid a contract: (i) there must be a common assumption as to the existence of a state of affairs; (ii) there must be no warranty by either party that that state of affairs exists; (iii) the non-existence of the state of affairs must not be attributable to the fault of either party; (iv) the non-existence of the state of affairs must render performance of the contract impossible; (v) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible. [77] The second and third of these elements are well exemplified by the decision of the High Court of Australia in McRae v Commonwealth Disposals Commission (1951) 84 CLR 377. The Commission invited tenders for the purchase of ‘an oil tanker lying on Jourmaund Reef … said to contain oil’. The plaintiff tendered successfully for the purchase, fitted out a salvage expedition at great expense and proceeded to the reef. No tanker was to be found—it had never existed. The plaintiff claimed damages for breach of contract. The Commission argued that the contract was void because of a common mistake as to the existence of the tanker. [78] In the leading judgment Dixon and Fullagar JJ expressed doubt as to the existence of a doctrine of common mistake in contract. They considered that whether impossibility of performance discharged obligations, be the impossibility existing at the time of the contract or supervening thereafter, depended solely upon the construction of the contract. They went on, however, to consider the position if this were not correct. They observed that the common assumption that the tanker existed was one that was created by the Commission, without any reasonable grounds for believing that it was true. They held, at p 408: a party cannot rely on mutual mistake where the mistake consists of a belief which is, on the one hand, entertained by him without any reasonable ground, and, on the other hand, deliberately induced by him in the mind of the other party.

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[79] They held, at p 410, that, on its proper construction, the contract included a promise by the Commission that the tanker existed in the position specified. Alternatively, they held that if the doctrine of mistake fell to be applied then the Commission cannot in this case rely on any mistake as avoiding the contract, because any mistake was induced by the serious fault of their own servants, who asserted the existence of a tanker recklessly and without any reasonable ground.

[80] This seems, if we may say so, an entirely satisfactory conclusion and one that can be reconciled with the English doctrine of mistake. That doctrine fills a gap in the contract where it transpires that it is impossible of performance without the fault of either party and the parties have not, expressly or by implication, dealt with their rights and obligations in that eventuality. … [82] Thus, while we do not consider that the doctrine of common mistake can be satisfactorily explained by an implied term, an allegation that a contract is void for common mistake will often raise important issues of construction. Where it is possible to perform the letter of the contract, but it is alleged that there was a common mistake in relation to a fundamental assumption which renders performance of the essence of the obligation impossible, it will be necessary, by construing the contract in the light of all the material circumstances, to decide whether this is indeed the case. … [84] Once the court determines that unforeseen circumstances have, indeed, resulted in the contract being impossible of performance, it is next necessary to determine whether, on true construction of the contract, one or other party has undertaken responsibility for the subsistence of the assumed state of affairs. This is another way of asking whether one or other party has undertaken the risk that it may not prove possible to perform the contract, and the answer to this question may well be the same as the answer to the question of whether the impossibility of performance is attributable to the fault of one or other of the parties. [85] Circumstances where a contract is void as a result of common mistake are likely to be less common than instances of frustration. Supervening events which defeat the contractual adventure will frequently not be the responsibility of either party. Where, however, the parties agree that something shall be done which is impossible at the time of making the agreement, it is much more likely that, on true construction of the agreement, one or other will have undertaken responsibility for the mistaken state of affairs. This may well explain why cases where contracts have been found to be void in consequence of common mistake are few and far between. [86] Lord Atkin himself gave no examples of cases where a contract was rendered void because of a mistake as to quality which made ‘the thing without the quality essentially different from the thing as it was believed to be’. He gave a number of examples of mistakes which did not satisfy this test, which served to demonstrate just how narrow he considered the test to be. Indeed this is further demonstrated by the result reached on the facts of Bell v Lever Bros Ltd [1932] AC 161 itself. …

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[94] Our conclusions have marched in parallel with those of Toulson J. We admire the clarity with which he has set out his conclusions, which emphasise the importance of a careful analysis of the contract and of the rights and obligations created by it as an essential precursor to consideration of the effect of an alleged mistake. We agree with him that, on the facts of the present case, the issue in relation to common mistake turns on the question of whether the mistake as to the distance apart of the two vessels had the effect that the services that the Great Peace was in a position to provide were something essentially different from that to which the parties had agreed. We shall defer answering that question until we have considered whether principles of equity provide a second string to the defendants’ bow. [95] In Solle v Butcher [1950] 1 KB 671 Denning LJ held that a court has an equitable power to set aside a contract that is binding in law on the ground of common mistake. Subsequently, as Lord Denning MR, in Magee v Pennine Insurance Co Ltd [1969] 2 QB 507, 514 he said of Bell v Lever Bros Ltd [1932] AC 161: I do not propose today to go through the speeches in that case. They have given enough trouble to commentators already. I would say simply this: a common mistake, even on a most fundamental matter, does not make a contract void at law: but it makes it voidable in equity. I analysed the cases in Solle v Butcher [1950] 1 KB 671, and I would repeat what I said there, at p 693: ‘A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault.’

… [118] … the House of Lords in Bell v Lever Bros Ltd [1932] AC 161 considered that the intervention of equity, as demonstrated in Cooper v Phibbs LR 2 HL 149, took place in circumstances where the common law would have ruled the contract void for mistake. We do not find it conceivable that the House of Lords overlooked an equitable right in Lever Bros to rescind the agreement, notwithstanding that the agreement was not void for mistake at common law. The jurisprudence established no such right. Lord Atkin’s test for common mistake that avoided a contract, while narrow, broadly reflected the circumstances where equity had intervened to excuse performance of a contract assumed to be binding in law. … [126] Toulson J described this decision by Denning LJ as one which ‘sought to outflank Bell v Lever Bros Ltd [1932] AC 161’. We think that this was fair comment. It was not realistic to treat the House of Lords in Bell v Lever Bros Ltd as oblivious to principles of equity, nor to suggest that ‘if it had been considered on equitable grounds the result might have been different’. For the reasons that we have given, we do not consider that Cooper v Phibbs LR 2 HL 149 demonstrated or established an equitable jurisdiction to grant rescission for common mistake in circumstances that fell short of those in which the common law held a contract void. In so far as this was in doubt, the House of Lords in Bell v Lever Bros Ltd delimited the ambit of operation of Cooper v Phibbs by holding, rightly or wrongly, that on the facts of that case the

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agreement in question was void at law and by holding that, on the facts in Bell v Lever Bros Ltd, the mistake had not had the effect of rendering the contract void. … [131] If the result in Solle v Butcher [1950] 1 KB 671 extended beyond any previous decision the scope of the equitable jurisdiction to rescind a contract for common mistake, the terms of Denning LJ’s judgment left unclear the precise parameters of the jurisdiction. The mistake had to be ‘fundamental’, but how far did this extend beyond Lord Atkin’s test [1932] AC 161, 218 of a mistake ‘as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be’? The difficulty in answering this question was one of the factors that led Toulson J to conclude that there was no equitable jurisdiction to rescind on the ground of common mistake a contract that was valid in law. Was it open to him after half a century and is it open to this court to find that the equitable jurisdiction that Denning LJ identified in Solle v Butcher was a chimera? Principles of both equity and common law have been developed by the judges and that is not a process which ceased with the Judicature Act. Does the doctrine of precedent require, or even permit, this court to hold that the jurisdiction that Denning LJ purported to exercise in Solle v Butcher does not exist because that decision was in conflict with that of the House of Lords in Bell v Lever Bros Ltd? … [153] A number of cases, albeit a small number, in the course of the last 50 years have purported to follow Solle v Butcher [1950] 1 KB 671, yet none of them defines the test of mistake that gives rise to the equitable jurisdiction to rescind in a manner that distinguishes this from the test of a mistake that renders a contract void in law, as identified in Bell v Lever Bros Ltd [1932] AC 161. This is, perhaps, not surprising, for Denning LJ, the author of the test in Solle v Butcher, set Bell v Lever Bros Ltd at nought. It is possible to reconcile Solle v Butcher and Magee v Pennine Insurance Co Ltd [1969] 2 QB 507 with Bell v Lever Bros Ltd only by postulating that there are two categories of mistake, one that renders a contract void at law and one that renders it voidable in equity. Although later cases have proceeded on this basis, it is not possible to identify that proposition in the judgment of any of the three Lords Justices, Denning, Bucknill and Fenton Atkinson, who participated in the majority decisions in the former two cases. Nor, over 50 years, has it proved possible to define satisfactorily two different qualities of mistake, one operating in law and one in equity. [154] In Solle v Butcher Denning LJ identified the requirement of a common misapprehension that was ‘fundamental’, and that adjective has been used to describe the mistake in those cases which have followed Solle v Butcher. We do not find it possible to distinguish, by a process of definition, a mistake which is ‘fundamental’ from Lord Atkin’s mistake as to quality which ‘makes the thing [contracted for] essentially different from the thing [that] it was believed to be’: [1932] AC 161, 218. [155] A  common factor in Solle v Butcher and the cases which have followed it can be identified. The effect of the mistake has been to make the contract a particularly bad bargain for one of the parties. Is there a principle of equity which justifies the court in rescinding a contract where a common mistake has produced this result? …

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[156] [T]he premise of equity’s intrusion into the effects of the common law is that the common law rule in question is seen in the particular case to work injustice, and for some reason the common law cannot cure itself. But it is difficult to see how that can apply here. Cases of fraud and misrepresentation, and undue influence, are all catered for under other existing and uncontentious equitable rules. We are only concerned with the question whether relief might be given for common mistake in circumstances wider than those stipulated in Bell v Lever Bros Ltd [1932] AC 161. But that, surely, is a question as to where the common law should draw the line; not whether, given the common law rule, it needs to be mitigated by application of some other doctrine. The common law has drawn the line in Bell v Lever Bros Ltd. The effect of Solle v Butcher [1950] 1 KB 671 is not to supplement or mitigate the common law: it is to say that Bell v Lever Bros Ltd was wrongly decided. [157] Our conclusion is that it is impossible to reconcile Solle v Butcher with Bell v Lever Bros Ltd. The jurisdiction asserted in the former case has not developed. It has been a fertile source of academic debate, but in practice it has given rise to a handful of cases that have merely emphasised the confusion of this area of our jurisprudence. In paras 110 to 121 of his judgment, Toulson J has demonstrated the extent of that confusion. If coherence is to be restored to this area of our law, it can only be by declaring that there is no jurisdiction to grant rescission of a contract on the ground of common mistake where that contract is valid and enforceable on ordinary principles of contract law. … [160] We have been in some doubt as to whether this line of authority goes far enough to permit us to hold that Solle v Butcher [1950] 1 KB 671 is not good law. We are very conscious that we are not only scrutinising the reasoning of Lord Denning MR in Solle v Butcher and in Magee v Pennine Insurance Co Ltd [1969] 2 QB 507 but are also faced with a number of later decisions in which Lord Denning MR’s approach has been approved and followed. Further, a division of this court has made it clear in West Sussex Properties Ltd v Chichester District Council 28 June 2000 that they felt bound by Solle v Butcher. However, it is to be noticed that while junior counsel in the court below in the West Sussex Properties case had sought to challenge the correctness of Solle v Butcher, in the Court of Appeal leading counsel accepted that it was good law unless and until overturned by their Lordships’ House. In this case we have heard full argument, which has provided what we believe has been the first opportunity in this court for a full and mature consideration of the relation between Bell v Lever Bros Ltd [1932] AC 161 and Solle v Butcher. In the light of that consideration we can see no way that Solle v Butcher can stand with Bell v Lever Bros Ltd. In these circumstances we can see no option but so to hold. … [162] We revert to the question that we left unanswered at paragraph 94. It was unquestionably a common assumption of both parties when the contract was concluded that the two vessels were in sufficiently close proximity to enable the Great Peace to carry out the service that she was engaged to perform. Was the distance between the two vessels so great as to confound that assumption and to render the contractual adventure impossible of performance? If so, the defendants would have an arguable case that the contract was void under the principle in Bell v Lever Bros Ltd [1932] AC 161.

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[163] Toulson J addressed this issue, at para 56: Was the Great Peace so far away from the Cape Providence at the time of the contract as to defeat the contractual purpose—or in other words to turn it into something essentially different from that for which the parties bargained? This is a question of fact and degree, but in my view the answer is No. If it had been thought really necessary, the Cape Providence could have altered course so that both vessels were heading toward each other. At a closing speed of 19 knots, it would have taken them about 22 hours to meet. A telling point is the reaction of the defendants on learning the true positions of the vessels. They did not want to cancel the agreement until they knew if they could find a nearer vessel to assist. Evidently the defendants did not regard the contract as devoid of purpose, or they would have cancelled at once.

[164] Mr Reeder has attacked this paragraph on a number of grounds. He has submitted that the suggestion that the Cape Providence should have turned and steamed towards the Great Peace is unreal. We agree. The defendants were sending a tug from Singapore in an attempt to salve the Cape Providence. The Great Peace was engaged by the defendants to act as a stand by vessel to save human life, should this prove necessary, as an ancillary aspect of the salvage service. The suggestion that the Cape Providence should have turned and steamed away from the salvage tug which was on its way towards her in order to reduce the interval before the Great Peace was in attendance is unrealistic. [165] Next Mr Reeder submitted that it was not legitimate for the judge to have regard to the fact that the defendants did not want to cancel the agreement with the Great Peace until they knew whether they could get a nearer vessel to assist. We do not agree. This reaction was a telling indication that the fact that the vessels were considerably further apart than the defendants had believed did not mean that the services that the Great Peace was in a position to provide were essentially different from those which the parties had envisaged when the contract was concluded. The Great Peace would arrive in time to provide several days of escort service. The defendants would have wished the contract to be performed but for the adventitious arrival on the scene of a vessel prepared to perform the same services. The fact that the vessels were further apart than both parties had appreciated did not mean that it was impossible to perform the contractual adventure. [166] The parties entered into a binding contract for the hire of the Great Peace. That contract gave the defendants an express right to cancel the contract subject to the obligation to pay the ‘cancellation fee’ of five days’ hire. When they engaged the Nordfarer they cancelled the Great Peace. They became liable in consequence to pay the cancellation fee. There is no injustice in this result. [14.09] Great Peace Shipping has now been applied by a majority of the Queensland Court of Appeal in Australia Estates Pty Ltd v Cairns City Council.6 Atkinson J (with whom Jerrard JA

6

[2005] QCA 328 at [48], [64]. See also Donkin v Official Trustee in Bankruptcy [2003] QSC 401 at [52] per Chesterman J.

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agreed, McMurdo P declining to express a view) examined the High Court cases and decided that even if Taylor v Johnson was the ‘high water mark’ of Australian support for Solle v Butcher, Solle had nevertheless formulated a broader principle than Bell v Lever Bros Ltd, on which it purported to be based. Her Honour thought that that furnished good reason to now adopt the reasoning of Great Peace Shipping, which had overruled Solle v Butcher in England. This view has itself been criticised.7 Apart from anything else Australia Estates was itself a case of unilateral and not common mistake. It was therefore not an appropriate case to be examining Great Peace Shipping in the first place and therefore might not be a strong precedent.8 Nevertheless, Australian Stations has been followed in a Queensland case,9 but not in other cases, which have regarded it as contrary to the High Court’s approval of Solle v Butcher in Svanosio v McNamara and, in particular, Taylor v Johnson.10

MUTUAL MISTAKE [14.10] A mutual mistake occurs where both parties are mistaken, but each makes a different mistake. In effect, the parties are at cross purposes. At common law the question is whether any meaning may be objectively ascribed to the parties’ apparent agreement. If it is not possible for a reasonable third party to prefer one meaning over another, the mutual mistake will render the contract void.11 Where, on the other hand, objectively the parties’ agreement may bear a particular meaning, that will be the meaning imputed to it.12 Equity follows the common law in this regard as well.

UNILATERAL MISTAKE [14.11] A unilateral mistake occurs where only one of the parties is mistaken and the other party knows, or ought to know, of the mistake. Generally speaking, at common law there is no remedy. This is because objectively the contract will carry the meaning of the unmistaken party. By contrast, equity may grant a remedy where there is ‘sharp practice’.

7

See N Seddon, ‘Contract: Mistake Mistake’ (2006) 80 ALJ 92 at 95–6.

8

N Seddon, MP Ellinghaus, Cheshire and Fifoot’s Law of Contract, 9th edn, LexisNexis Butterworths, Sydney, 2007, 658.

9

Menegazzo v Pricewaterhousecoopers (a firm) [2016] QSC 94, [117],

10 See, for example, Hawcroft v Hawcroft General Trading Co Pty Ltd [2016] NSWSC 555, [53]; Rees v Rees [2016] VSC 452, [98]-[103]. 11 Raffles v Wichelhaus (1864) 2 H&C 906; 159 ER 375; Scriven Bros & Co v Hindley & Co [1913] 3 KB 564. 12 Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674.

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[14.12]

Taylor v Johnson (1983) 151 CLR 422 High Court of Australia Mrs Johnson granted an option to Taylor or his nominee to purchase two five-acre pieces of land for a total price of $15,000. Mrs Johnson subsequently refused to perform the contract on the basis that she believed the price had been $15,000 per acre. Mason ACJ, Murphy and Deane JJ The judgments of Blackburn and Hannen JJ in Smith v Hughes (1871) LR 6 QB 597 at 607, 609 provide support for the proposition that a contract is void if one party to the contract enters into it under a serious mistake as to the content or existence of a fundamental term and the other party has knowledge of that mistake. That approach accorded with what has been called the ‘subjective theory’ of the nature of the assent necessary to constitute a valid contract (but cf Holland, Elements of Jurisprudence, 12th ed (1916), pp 264–265). The ‘subjective theory’, it will be recalled, was advanced by, among others, Mr T Cyprian Williams in his Vendor and Purchaser, 4th ed (1936), p 748n (m), and is that the true consent of the parties is essential to a valid contract. The contrary view, namely that described as the ‘objective theory’, was asserted by, among others, Holmes J in The Common Law (1881), Lecture IX, and is that the law is concerned, not with the real intentions of the parties, but with the outward manifestations of those intentions. In practice, as between the contracting parties, there is little difference in the result of the application of the two competing theories since allied with any assertion of the ‘subjective theory’ is acceptance of one manifestation of the doctrine of estoppel which would ordinarily operate to preclude one who had so conducted himself that a reasonable man would believe that he was assenting to the terms of a proposed contract, from leading evidence as to what his real intentions were. As a matter of legal technique there is a significant difference between the two theories. This is best illustrated by setting out the consequences which flow from the application of each theory to a case in which a contract is successfully impeached on the ground of unilateral mistake. According to the subjective theory, there is no binding contract either at common law or in equity, equity following the common law in this respect. Of course in deciding whether the contract is void ab initio for the unilateral mistake, regard will be had to the doctrine of estoppel in order to determine whether effect should be given to the claim that there has been unilateral mistake. On the other hand, according to the objective theory, there is a contract which, in conformity which the common law, continues to be binding, unless and until it is avoided in accordance with equitable principles which take as their foundation a contract valid at common law but transform it so that it becomes voidable. The important distinction between the two approaches is that, according to the subjective theory, the contract is void ab initio, whereas according to the objective theory, it is voidable only.

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While the sounds of conflict have not been completely stilled, the clear trend in decided cases and academic writings has been to leave the objective theory in command of the field … [Their Honours referred to the joint judgments of Dixon and Fullagar JJ in McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 and Svanosio v McNamara (1956) 96 CLR 186] Nothing in [those joint judgments] would exclude [a mistake as to the existence or content of an actual term of the written contract] from their acceptance of the general proposition that neither party to a contract ‘can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake’. Whether that proposition should properly be accepted as applying in the case of an informal contract or in the case where there is a mistake as to the identity of the other party are questions which can be left to another day. It would seem that it does not apply in a case where the mistake is as to the nature of the contract … The particular proposition of law which we see as appropriate and adequate for disposing of the present appeal may be narrowly stated. It is that a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension. What we have said is sufficient to demonstrate the broad basis of support which the authorities provide for that proposition. Moreover, and perhaps more importantly, it is a principle which is best calculated to do justice between the parties to a contract in the situation which it contemplates. In such a situation it is unfair that the mistaken party should be held to the written contract by the other party whose lack of precise knowledge of the first party’s actual mistake proceeds from wilful ignorance because, knowing or having reason to know that there is some mistake or misapprehension, he engages deliberately in a course of conduct which is designed to inhibit discovery of it. Our comment can, for present purposes, be limited in its application to the case where the second party has not materially altered his position and the rights of strangers have not intervened. Applying the above-mentioned principle to the present case, it is apparent that the appeal must fail. It is now common ground between the parties that, at the time she signed both option and contract, Mrs Johnson mistakenly believed that the relevant document stipulated that the purchase price was $15,000 per acre whereas the stipulated purchase price was $15,000 in total. The stipulation as to price was plainly a fundamental term of the contract (see Webster v Cecil (1861) 30 Beav 62; 54 ER 812; Garrard v Frankel (1862) 30 Beav 445; 54 ER 961; Hartog v Colin & Shields [1939] 3 All ER 566). As we have already indicated, we are of the view that the proper inference to be drawn from the evidence is that, both at the time when Mrs Johnson executed the option and at the time when she executed the contract, Mr Taylor believed that she was under some serious mistake or misapprehension about either the terms (the price) or the subject matter (its value) of the relevant transaction. The avoidance of mention of the purchase price after the ‘idle curiosity’ conversation and the circumstances in which Mr Taylor procured the execution of the option, including his wrong statement that he did not have a copy of the

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option which he could make available to Mrs Johnson, lead, in our view, plainly to the inference that he deliberately set out to ensure that Mrs Johnson did not become aware that she was being induced to grant the option and, subsequently, to enter into the contract by some material mistake or misapprehension as to its terms or subject matter. [The majority therefore upheld Mrs Johnson’s claim to have the contract set aside. Dawson J dissented since he disagreed that it could be inferred from the evidence that Taylor believed that Mrs Johnson was under a serious misapprehension or mistake or that he had engaged in sharp practice. Instead his Honour thought that it had been a case of mutual mistake.] [14.13] The joint judgment ‘left to another day’ whether the proposition that neither party can rely on his or her own mistake as rendering the contract void at common law applied to informal contracts and cases of mistaken identity. It had no doubt that it did not apply to mistakes as to the nature of the document (non est factum).

MISTAKEN IDENTITY [14.14] The House of Lords in Cundy v Lindsay13 held that when a party is mistaken as to the identity of the other party to the contract the issue is essentially one of the proper construction of the offer. Where (1) at the time of the agreement between A and B, A regarded the identity of the other party to the contract as material; (2) A intended to contract not with B but with someone else (C); and (3) that intention was known, or ought to have been known, by B, then there is no consensus of minds and the contract will be held to be void.14 A consequence is that title cannot pass under the contract. Where the unmistaken party is a rogue, who on-sells the subject matter to an innocent third party, title remains with the mistaken party. [14.15] A  different position may apply when considering contracts made face-to-face. It has been held that in such a case there is a presumption that a valid contract has concluded with the person who is present. [14.16]

Lewis v Averay [1972] 1 QB 198 English Court of Appeal The plaintiff, Lewis, had an Austin Cooper car he wanted to sell. A rogue represented himself to be Richard Greene, the star of the television series Robin Hood. He showed the plaintiff a special

13 (1878) 3 App Cas 459. 14 Cf the approach adopted by Kitto and Windeyer JJ in dissent in Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177.

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pass to the Pinewood Studios in the name ‘Richard A  Green’, which bore an official-looking stamp. The plaintiff accepted a cheque filled out by the rogue signed ‘RA Green’, and allowed him to take his car before the cheque cleared. When the cheque was dishonoured, the plaintiff found that the rogue had resold the car to Averay, a bona fide purchaser. Lord Denning MR This case therefore raises the question:  What is the effect of a mistake by one party as to the identity of the other? It has sometimes been said that if a party makes a mistake as to the identity of the person with whom he is contracting there is no contract, or, if there is a contract, it is a nullity and void, so that no property can pass under it … It has been suggested that a mistake as to the identity of a person is one thing and a mistake as to his attributes is another. A mistake as to identity, it is said, avoids a contract: whereas a mistake as to attributes does not. But this is a distinction without a difference. A  man’s very name is one of his attributes. It is also a key to his identity. If then, he gives a false name, is it a mistake as to his identity? or a mistake as to his attributes? These fine distinctions do no good to the law. As I listened to the argument in this case, I felt it wrong that an innocent purchaser (who knew nothing of what passed between the seller and the rogue) should have his title depend on such refinements. After all, he has acted with complete circumspection and in entire good faith whereas it was the seller who let the rogue have the goods and thus enabled him to commit the fraud. I do not, therefore, accept the theory that a mistake as to identity renders a contract void. I think the true principle is that which underlies the decision of this court in King’s Norton Metal Co Ltd v Edridge Merrett & Co Ltd (1897) 14 TLR 98 and of Horridge J in Phillips v Brooks [1919] 2 KB 243, which has stood for these last 50 years. It is this: When two parties have come to a contract—or rather what appears, on the face of it, to be a contract—the fact that one party is mistaken as to the identity of the other does not mean that there is no contract, or that the contract is a nullity and void from the beginning. It only means that the contract is voidable, that is, liable to be set aside at the instance of the mistaken person, so long as he does so before third parties have in good faith acquired rights under it. Applied to the cases such as the present, this principle is in full accord with the presumption stated by Pearce LJ and also Devlin LJ in Ingram v Little [1961] 1 QB 31 at 61, 66. When a dealing is had between a seller like Mr Lewis and a person who is actually there present before him, then the presumption in law is that there is a contract, even though there is a fraudulent impersonation by the buyer representing himself as a different man than he is. There is a contract made with the very person there, who is present in person. It is liable no doubt to be avoided for fraud, but it is still a good contract under which title will pass unless and until it is avoided. In support of that presumption, Devlin LJ quoted, at p 66, not only the English case of Phillips v Brooks, but other cases in the United States where ‘the courts hold that if A appeared in person before B, impersonating C, an innocent purchaser from A gets the property in the goods against B.’ That seems to me to be right in principle in this country also. In this case Mr Lewis made a contract of sale with the very man, the rogue, who came to the flat. I say that he ‘made a contract’ because in this regard we do not look into his intentions, or into his mind to know what he was thinking or into the mind of the rogue. We look to the outward appearances. On the face of the dealing, Mr Lewis made a contract under which he sold the

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car to the rogue, delivered the car and the log-book to him, and took a cheque in return. The contract is evidenced by the receipts which were signed. It was, of course, induced by fraud. The rogue made false representations as to his identity. But it was still a contract, though voidable for fraud. It was a contract under which this property passed to the rogue, and in due course passed from the rogue to Mr Averay, before the contract was avoided. Though I very much regret that either of these good and reliable gentlemen should suffer, in my judgment it is Mr Lewis who should do so. [In separate judgments Phillimore and Megaw JJ also held that nothing in the circumstances, including merely perusing identification tended by the rogue, displaced the presumption of an intention to contract with the person who was physically present.] [14.17] The result in Lewis v Averay is in accordance with that in Phillips v Brooks,15 where a jeweller sold a ring to a rogue, and the fact that the jeweller looked up a directory to check the name and address provided by the rogue was held insufficient to displace the presumption. However, it seems inconsistent with Ingram v Little [1961] 1 QB 31 where the presumption was held to have been displaced where one of two elderly sisters who were selling a car slipped out to check a telephone directory at a local post office to verify the name and address supplied by the rogue. [14.18] In Shogun Finance Ltd v Hudson16 the House of Lords considered the case of a rogue who showed a car dealer a stolen driver’s licence as proof of identity. He then faxed a hirepurchase agreement to a finance company on which he forged the signature. He subsequently on-sold the car to an innocent third party. A 3–2 majority declined to extend the presumption beyond face-to-face dealings, or to reconsider Cundy v Lindsay and held that the contract with the rogue was void. The innocent third-party purchaser therefore did not acquire good title. The majority thought that the suggestion by Lord Denning MR that a mistaken identity should only make a contract voidable rather than void was ‘misplaced and wrong’.17 [14.19] Few Australian cases have considered the question of the effect of mistaken identity. The weight of this authority is in favour of a contract formed under mistake of identity being rendered void.18

Mistake as to the nature of the contract (‘non est factum’) [14.20] It is a long-standing principle that a party may plead non est factum (‘not my deed’) when he or she is mistaken about the nature of a document. If successful, the contract renders the contract void, and title cannot pass under it.

15 [1919] 2 KB 243. 16 [2004] 1 AC 919. 17 See, for example, Shogun Finance Ltd v Hudson [2004] 1 AC 919 at [47] per Lord Woodhouse. 18 Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177; Roache v Australian Mercantile Land and Finance Co Ltd [1965] NSWR 1015.

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[14.21]

Petelin v Cullen (1975) 132 CLR 355 High Court of Australia Petelin spoke little English and could read none. He granted an option to purchase land to Cullen. After the option had expired, Cullen’s agent wrote to Petelin requesting an extension and enclosing $50 in payment. Petelin signed the extension of the option in the belief that it was a receipt, having been told by the agent that he ‘must sign’ the document. Cullen later purported to exercise the option but Petelin refused to sell. Cullen then sought specific performance of a contract for the sale of the land founded upon the exercise of the option. Petelin pleaded non est factum to the claim that he had extended the option period. Barwick CJ, McTiernan, Gibbs, Stephen and Mason JJ The principle which underlies the extension of the plea to cases in which a defendant has actually signed the instrument on which he is sued has not proved easy of precise formulation. The problem is that the principle must accommodate two policy considerations which pull in opposite directions: first, the injustice of holding a person to a bargain to which he has not brought a consenting mind; and, secondly, the necessity of holding a person who signs a document to that document, more particularly so as to protect innocent persons who rely on that signature when there is no reason to doubt its validity. The importance which the law assigns to the act of signing and to the protection of innocent persons who rely upon a signature is readily discerned in the statement that the plea is one ‘which must necessarily be kept within narrow limits’ (Muskham Finance Ltd v Howard [1963] 1 QB 904 at 912) and in the qualifications attaching to the defence which are designed to achieve this objective. The class of persons who can avail themselves of the defence is limited. It is available to those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; it is also available to those who through no fault of their own are unable to have any understanding of the purport of a particular document. To make out the defence a defendant must show that he signed the document in the belief that it was radically different from what it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part. Finally, it is accepted that there is a heavy onus on a defendant who seeks to establish the defence. All this is made clear by the recent decision of the House of Lords in Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004 at 1019. Before the learned judge no reference was made to that decision. This omission may explain why his Honour did not deal with the element of carelessness. However this may be, the Court of Appeal overruled his decision on the ground that absence of carelessness was a necessary or material element in the making out of the defence and that on the facts the appellant was careless. It is now settled beyond any shadow of doubt that when we speak of negligence or carelessness in connexion with non est factum we are not referring to the tort of negligence but to

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a mere failure to take reasonable precautions in ascertaining the character of a document before signing it. The insistence that such precautions should be taken as a condition of making out the defence is of fundamental importance when the defence is asserted against an innocent person, whether a third party to the transaction or not, who relies on the document and the signature which it bears and who is unaware of the circumstances in which it came to be executed. It is otherwise when the defence is asserted against the other party to the transaction who is aware of the circumstances in which it came to be executed and who knows (because the document was signed on his representation) or has reason to suspect that it was executed under some misapprehension as to its character. In such a case the law must give effect to the policy which requires that a person should not be held to a bargain to which he has not brought a consenting mind for there is no conflicting or countervailing consideration to be accommodated—no innocent person has placed reliance on the signature without reason to doubt its validity. On this analysis the element of carelessness has no relevance for the present case. As the learned judge found, the appellant’s belief that the document was a receipt was inspired by the agent’s representation that the document acknowledged the payment of the sum of $50. It is scarcely to be conceived that the respondent was unaware of what his agent said and did; but even if he was not informed by the agent he must take responsibility for his action. Consequently as against the appellant, the respondent is not to be considered as an innocent person without knowledge or reason to doubt the validity of the appellant’s signature. There are other reasons why it would be inappropriate to treat the respondent as an innocent party. It became apparent to Mr Clements when the original option was negotiated that the appellant had little appreciation of English and no capacity to understand the option agreement. Indeed, Mr Clements advised him to consult a solicitor. The appellant’s difficulties in reading and understanding must have been present to Mr Clements’ mind when the extension was signed; yet he contended himself with a demand that the document be signed and omitted to give an explanation of its character. The matters to which we have referred would in any event support the independent conclusion that there was no carelessness on the part of the appellant. He could not read English; it was beyond his capacity to understand what the document provided. He was therefore faced with the choice of relying on what Mr Clements said or of incurring the expense and inconvenience of taking it to a solicitor for advice. Vis-a-vis Mr Clements and the respondent, he was justified in relying on what he was told by Mr Clements. After all, Mr Clements had previously advised him to consult a solicitor when that was necessary; on this occasion no such advice was given; nor did he give any indication that the document granted rights additional to those previously conferred. The other element in the defence which requires to be mentioned is the necessity that the appellant should show that he believed the document to be radically different from what it was in fact. Once it is accepted that the primary judge could properly find that the appellant believed it to be a receipt, this point of contention disappears from the case. The respondent urged that the evidence was so slight as not to overcome the ‘heavy’ onus which rested with the appellant. The existence of that onus unquestionably was present to the mind of the primary judge when

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he came to assess the credibility of the appellant. But once he accepted the appellant’s evidence the question of onus in our opinion was set at rest.

QUESTIONS FOR REFLECTION (1) It has been said that there is no true doctrine of mistake but instead there is a collection of various other contractual principles that apply in circumstances when one or both of the parties makes a mistake. What are those various other principles? (2) In light of the comments of the English Court of Appeal in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The Great Peace) [2003] QB 679 should the position of common mistake in equity in Australia be reconsidered? (3) In Ingram v Little [1961] 1 QB 31 Devlin LJ (dissenting) suggested that the appropriate response to a unilateral mistake as to identity would be to share the loss according to the degree of blameworthiness. By contrast, in Shogun Finance Ltd v Hudson [2004] 1 AC 919 at [19] Lord Nicholls (dissenting) said: The legal principle applicable in these cases cannot sensibly differ according to whether the transaction is negotiated face-to-face, or by letter, or by fax, or by email, or over the telephone or by video link or video telephone. Typically today a purchaser pays for goods with a credit or debit card. He produces the card in person in a shop or provides details of the card over the telephone or by email or by fax. When a credit or debit card is fraudulently misused in this way the essence of the transaction is the same in each case. It does not differ from one means of communication to the next. The essence of the transaction in each case is that the owner of the goods agrees to part with his goods on the basis of a fraudulent misrepresentation made by the other regarding his identity. Since the essence of the transaction is the same in each case, the law in its response should apply the same principle in each case, irrespective of the precise mode of communication of offer and acceptance.

His Lordship therefore thought that the presumption of a valid contract should apply in all cases. On the other hand Lord Walker thought that the presumption in face-to-face dealings should extend to oral contracts made over the telephone, where the parties are identified by hearing but not sight. Do you agree with any of these views? (4) In Lewis v Averay [1972] 1 QB 198 Lord Denning MR suggested that a unilateral mistake as to identity makes the contract voidable. However, the weight of authority, including the majority of the House of Lords in Shogun Finance Ltd v Hudson [2004] 1 AC 919, favours such a mistake rendering the contract void. What are the advantages and disadvantages of the two approaches? Which approach do you prefer?

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INTRODUCTION [15.01] The common law has long recognised that duress, in the form of a coercion of the plaintiff ’s will through illegitimate pressure or threats to the plaintiff ’s interests, renders a contract voidable.1 The concept has now expanded to include a doctrine of ‘economic duress’. In the process, the emphasis appears to have shifted away from the notion of coercion of the will of the plaintiff to the lack of legitimacy in the pressure or compulsion.2

TYPES OF DURESS [15.02] The traditional form of duress involves threats made against the person of the plaintiff or his or her loved ones. The threats need only be one of the reasons for entering into the contract. [15.03]

Barton v Armstrong [1973] 2 NSWLR 598 Privy Council Barton and Armstrong were two of four directors of a company. There had been antagonism between them for some time. Barton and the other two directors reached the conclusion that the company would be better served if Armstrong were excluded from its management. Armstrong initially refused to resign when approached to do so by Barton, but was voted out of various management positions he held. Finally, the parties agreed to a deed setting out the terms on

1

See the historical analysis undertaken by Jacobs JA in the New South Wales Court of Appeal in Barton v Armstrong [1973] 2 NSWLR 598, 606–610.

2

Crescendo Management Pty Ltd v Westpac Bank Corporation (1988) 19 NSWLR 40, 45–46 per McHugh JA; Dimskal Shipping Co SA v International Transport Workers’ Federation [1992] 2 AC 152, 166 per Lord Goff.

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which Barton would buy Armstrong out of the company and its interest in a large residential development. The trial judge found that Barton was at least partly motivated to sign the deed by Armstrong’s threats to have Barton murdered. Upon execution of the deed, Armstrong and his nominees resigned from the company, but the cash payment required denuded the company of most of its liquid assets. Barton sought to have the deed set aside for duress. The majority (Lord Cross of Chelsea, Lord Kilbrandon and Sir Garfield Barwick) The scope of common law duress was very limited and at a comparatively early date equity began to grant relief in cases where the disposition in question had been procured by the exercise of pressure which the Chancellor considered to be illegitimate, although it did not amount to common law duress. There was a parallel development in the field of dispositions induced by fraud. At common law the only remedy available to the man defrauded was an action for deceit, but equity, in the same period in which it was building up the doctrine of undue influence, came to entertain proceedings to set aside dispositions which had been obtained by fraud: see Holdsworth’s History of English Law, vol 8, pp. 328, 329. There is an obvious analogy between setting aside a disposition for duress or undue influence and setting it aside for fraud … Had Armstrong made a fraudulent misrepresentation to Barton for the purpose of inducing him to execute the deed of 17th January, 1967, the answer to the problem which has arisen would have been clear. If it were established that Barton did not allow the representation to affect his judgment then he could not make it a ground for relief, even though the representation was designed and known by Barton to be designed to affect his judgment. If on the other hand Barton relied on the misrepresentation, Armstrong could not have defeated his claim to relief by showing that there were other more weighty causes which contributed to his decision to execute the deed, for in this field the court does not allow an examination into the relative importance of contributory causes … Their Lordships think that the same rule should apply in cases of duress and that if Armstrong’s threats were ‘a’ reason for Barton’s executing the deed he is entitled to relief even though he might well have entered into the contract if Armstrong had uttered no threats to induce him to do so If Barton had to establish that he would not have made the agreement but for Armstrong’s threats then their Lordships would not dissent from the view that he had not made out his case. But no such onus lay on him. On the contrary it was for Armstrong to establish, if he could, that the threats which he was making and the unlawful pressure which he was exerting for the purpose of inducing Barton to sign the agreement and which Barton knew were being made and exerted for this purpose in fact contributed nothing to Barton’s decision to sign. The judge has found that, during the ten days or so before the documents were executed, Barton was in genuine fear that Armstrong was planning to have him killed, if the agreement was not signed. His state of mind was described by the judge as one of ‘very real mental torment’, and he believed that his fears would be at an end when once the documents were executed … It is true that, on the facts as their Lordships assume them to have been, Armstrong’s threats may have been unnecessary; but it would be unrealistic to hold that they played no part in making Barton decide to execute the documents. The proper inference to be drawn from the facts found is, their Lordships think, that, though it may be that Barton would have executed the documents even if Armstrong had made no threats and exerted no unlawful pressure to induce him to do so,

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the threats and unlawful pressure in fact contributed to his decision to sign the documents and to recommend their execution by [the company] and the other parties to them. [Lord Wilberforce and Lord Simon dissented on the basis that a second court of review should not review clear findings of fact.] [15.04] Conduct amounting to duress to personal property that is a reason for the plaintiff entering into a contract, may also enable the plaintiff to avoid the contract.3 [15.05] Likewise, a contract entered into under pressure to a party’s economic interests has been held to be voidable on the grounds of duress.4 This has been expressed in terms of pressure going ‘beyond what the law [is] prepared to countenance as being legitimate’.5 However, such a formula has been criticised as being uncertain and inviting judges to substitute their opinions concerning legitimacy of pressure for those of business people.6 [15.06] Such criticism has led to a new model for duress being proposed. This model seeks to locate economic duress in the context of the other grounds for relief which may be available. [15.07]

Australia and New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149 New South Wales Court of Appeal A bank provided finance to a family footwear business over some fourteen years. The business was successful for a time, and in addition to an overdraft facility borrowed further money to acquire an additional property to expand. The bank’s continued financial support was secured by a mortgage of the newly purchased property and a notional deposit of mortgages registered over the dwellings of the two Karam brothers and their spouses, being mortgages originally provided to secure home loans. However, in difficult economic times the business encountered financial difficulties. In return for continuing credit during this time of financial stress, the bank insisted that the Karams sign documentation including an acknowledgement that the mortgages over their homes ‘have been given by us to the Bank to secure to the Bank, and have always been intended to secure to the Bank, payment of all present, future, actual and contingent liabilities of the Company’. A  later cross-deed was executed to ‘supersede and replace’ the acknowledgement. The business failed with assets insufficient to meet its liabilities. The bank sought to recover the deficiency from the personal assets of the family. The Karams argued,

3

See, for example, Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298.

4

Universe Tankships Inc v International Transport Workers’ Federation [1983] 1 AC 366.

5

Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 46 per McHugh JA (with whom Samuels and Mahoney JJA concurred); see also Universe Tankships Inc v International Transport Workers’ Federation [1983] 1 AC 366 at 400 per Lord Scarman.

6

Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 106 per Kirby P (dissenting).

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inter alia, that the acknowledgement and cross-deed were obtained through economic duress. At trial, the judge found that the Karams had been subjected to ‘illegitimate pressure’ in respect of both documents. The Court (Beazley JA, Ipp JA and Basten JA) [49] At common law, the concept of physical duress rendered a contract void because the consent of the complaining party was not a true consent, but one given in circumstances where the will of that party was overborne. It would seem that the expansion of that concept in Universe Tankships Inc v International Transport Workers’ Federation [1983] 1 AC 366 (‘The Universe Sentinel’), to include economic duress, was intended to be an expansion by analogy and thus limited to circumstances where, in the words of Lord Scarman, the pressure must be such that its practical effect is ‘compulsion or the absence of choice’ … … [52] In Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 45–46, McHugh JA discussed the conceptual basis of the defence of economic duress, albeit in terms in which the other members of the Court (Samuels JA and Mahoney JA) did not join. His Honour suggested that the reference in Universe Tankships Inc (‘The Universe Sentinel’) to ‘compulsion of the will of the victim’, was ‘unfortunate’ … [53] McHugh JA also echoed the description of Lord Diplock … in relation to the limits of legitimate pressure (at 46): Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress.

[54] Two aspects of this passage were to cause difficulty. First, although the context was one in which his Honour was considering an extension of the common law doctrine of duress, the introduction of the criterion of ‘unconscionable conduct’ appeared to invoke equitable principles … Secondly, the reference to ‘overwhelming pressure’, in a context in which his Honour had rejected the need for the will to be overborne, was also apt to create uncertainty … [61] How the doctrine of economic duress fits with the equitable doctrines is unclear. The reference to ‘unlawful’ conduct, read in context of the earlier authorities, was originally a reference to unlawful detention of goods. Concepts of ‘illegitimate pressure’ and ‘unconscionable conduct’, if they do not refer to equitable principles, lack clear meaning, outside, possibly, concepts of illegitimate pressure in the field of industrial relations … [66] The vagueness inherent in the terms ‘economic duress’ and ‘illegitimate pressure’ can be avoided by treating the concept of ‘duress’ as limited to threatened or actual unlawful conduct. The threat or conduct in question need not be directed to the person or property of the victim, narrowly identified, but can be to the legitimate commercial and financial interests of the party. Secondly, if the conduct or threat is not unlawful, the resulting agreement may nevertheless be set aside where the weaker party establishes undue influence (actual or presumptive) or unconscionable conduct based on an unconscientious taking advantage of

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his or her special disability or special disadvantage, in the sense identified in Commercial Bank of Australia Ltd v Amadio. Thirdly, where the power to grant relief is engaged because of a contravention of a statutory provision such as s 51AA, s 51AB or s 51AC of the Trade Practices Act (Cth), the Court may be entitled to take into account a broader range of circumstances than those considered relevant under the general law. Pursuant to both provisions of the Trade Practices Act (Cth) and the Contracts Review Act, the relative strengths of the bargaining positions of the parties, and their ability to negotiate terms, will be relevant. However, it does not follow that because, for the purposes of s 9(2)(a) of the Contracts Review Act, there was a material inequality of bargaining power, a contract between such parties will necessarily be set aside. Most ‘contracts of adhesion’ will fall into that category, but most will be valid. [67] On the other hand, if the Court is satisfied that the provisions of the contract were not ‘reasonably necessary for the protection of the legitimate interests’ of the stronger party, a concept adopted by both the Trade Practices Act (Cth) and the Contracts Review Act, an important strand favouring intervention may have been established. The statutory adoption of the term ‘legitimate’ in relation to the commercial interests of one party, tends, if anything, to strengthen the argument against use of the generic term ‘illegitimate pressure’, so as to avoid confusion between the legitimacy of ‘pressure’ on the one hand and of commercial interests on the other. [68] Where the statutory definitions operate, there is no necessary condition prescribed, but merely a range of factors to be taken into account. These factors require the Court to look at the situation of each party, their relationship and the terms of the transaction. The fact that one party is in financial difficulties, of which the other party is aware, as in the present case, will be relevant, but not sufficient to establish unconscionable conduct on the part of the stronger party. Something more is required and may be sought in the terms of the particular transaction. However, even unusual terms will not necessarily demonstrate taking unconscientious advantage of the situation of the weaker party. The greater the financial risk, the greater the justification for increased security. [The Court held that since the perilous financial circumstances of the company were not the bank’s doing, there was no basis for saying that the bank subjected the Karams to pressure, in a legal sense. The bank was under no obligation to extend the credit facilities already granted, nor to do so without securing its own position. The Karams were very much aware of the choice they were being required to make, between preserving their homes and preserving the company. Further, prior to signing the subsequent cross-deed the Karams had received financial and legal advice, provided by persons with relevant expertise and having the relevant materials available to them. By the Bank’s concession they also had the time they required to consider the material. The securities were therefore valid and enforceable.] [15.08] An example of actual or threatened unlawful conduct directed at the legitimate commercial and financial interests of a party is a threat to break an existing contract with that party unless it is renegotiated.

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North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (The Atlantic Baron) [1979] 1 QB 705 Queen’s Bench Division The plaintiff owners engaged the defendant shipbuilding yard to build a tanker for a price fixed in US dollars. Payment was to be by way of instalments. After the first instalment was paid, the US dollar was devalued by 10 per cent. The shipbuilding yard then asked for the amount of all outstanding instalments to be increased by 10 per cent. Lengthy discussions followed in which it became clear that the shipbuilders would not agree to the original contract sum remaining as the price of the ship. Subsequently, the plaintiffs agreed to pay the increase but did so ‘without prejudice’ to their rights. This variation translated into a payment of about $3  million more than the contract price. The plaintiffs subsequently sought to recover this amount (among other reasons) because it was an involuntary payment. Mocatta J What I have, however, found more difficult is whether the Yard did not give some consideration for the extra 10 per cent on the contract price, on which they insisted, in the form of their agreement to increase pro tanto what was for short called in argument ‘the return letter of credit’ … I remain unconvinced, however, that by merely securing an increase in the instalments to be paid of 10 per cent the Yard automatically became obliged to increase the return letter of credit pro tanto and were therefore doing no more than undertaking in this respect to fulfil their existing contractual duty. I think that here they were undertaking an additional obligation or rendering themselves liable to an increased detriment. I  therefore conclude, though not without some doubt, that there was consideration for the new agreement … Having reached the conclusion that there was consideration for the agreement made on June 28 and 29, 1973, I must next consider whether even if that agreement, varying the terms of the original shipbuilding contract of April 10, 1972, was made under a threat to break that original contract and the various increased instalments were made consequently under the varied agreement, the increased sums can be recovered as money had and received. Mr Longmore submitted that they could be, provided they were involuntary payments and not made, albeit perhaps with some grumbling, to close the transaction. Certainly this is the well-established position if payments are made, for example, to avoid the wrongful seizure of goods where there is no prior agreement to make such payments. The best known English case to this effect is probably Maskell v Horner [1915] 3 KB 106, where the plaintiff had over many years paid illegal tolls on his goods offered for sale in the vicinity of Spitalfields Market. The plaintiff had paid under protest, though the process was so prolonged, that the protests became almost in the nature of jokes, though the plaintiff had in fact suffered seizures of his goods when he had not paid. Lord Reading CJ did not say that express words of protest were always necessary, though they might be useful evidence to negative voluntary payments; the circumstances taken as a whole must indicate that the payments were involuntary. Buckley LJ at p 124, regarded the making of a protest before paying to avoid the wrongful seizure of one’s goods as ‘a further factor,’ which went to show that the payment was not voluntary.

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Pickford LJ at p 126 likewise regarded the fact of protest as ‘some indication’ that the payer intended to resist the claim. There are a number of well-known examples in the books of English cases where the payments made have been involuntary by reason of some wrongful threatened action or inaction in relation to goods and have subsequently been recovered, but where the issue has not been complicated by the payments having been made under a contract. Some of these cases have concerned threats to seize, seizure or wrongful detention of goods, Maskell v Horner being the best known modern example of the former two categories and Astley v Reynolds (1731) 2 Str 915 a good example of the latter category, where a pawnbroker refused to release plate when the plaintiff tendered the money lent and, on demand, more than the legal rate of interest, since without this the pawnbroker would not release the plaintiff ’s plate. The plaintiff recovered the excess, as having paid it under compulsion and it was held no answer that an alternative remedy might lie in trover. Mr Longmore referred me to other cases decided in this country bordering upon what he called economic duress as distinct from duress to goods. Thus in Parker v Great Western Railway Co (1844) 7 Man & G 253, approved in Great Western Railway Co v Sutton (1869) LR 4 HL 226, it was held that the railway was not entitled to differentiate adversely between charges on goods made against one carrier or packer using the railway and others. Excess charges payable by such persons were recovered. In advising the House of Lords in the latter case, Willes J said, at p 249: … I have always understood that when a man pays more than he is bound to do by law for the performance of a duty which the law says is owed to him for nothing, or for less than he has paid, there is a compulsion or concussion in respect of which he is entitled to recover the excess by condictio indebiti, or action for money had and received. This is every day’s practice as to excess freight.

… I  was referred to a number of cases decided overseas … Perhaps their greatest importance, however, is the quotation … from the judgment of Isaacs J in Smith v William Charlick Ltd (1924) 34 CLR 38, 56 where he said: It is conceded that the only ground on which the promise to repay could be implied is ‘compulsion.’ The payment is said by the respondent not to have been ‘voluntary’ but ‘forced’ from it within the contemplation of the law … ‘Compulsion’ in relation to a payment of which refund is sought, and whether it is also variously called ‘coercion,’ ‘extortion’, ‘exaction’ or ‘force,’ includes every species of duress or conduct analogous to duress, actual or threatened, exerted by or on behalf of the payee and applied to the person or the property or any right of the person who pays … Such compulsion is a legal wrong, and the law provides a remedy by raising a fictional promise to repay.

… Before proceeding further it may be useful to summarise the conclusions I have so far reached. First, I do not take the view that the recovery of money paid under duress other than to the person is necessarily limited to duress to goods falling within one of the categories hitherto established by the English eases. I would respectfully follow and adopt the broad statement of

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principle laid down by Isaacs J cited earlier and frequently quoted and applied in the Australian cases. Secondly, from this it follows that the compulsion may take the form of ‘economic duress’ if the necessary facts are proved. A threat to break a contract may amount to such ‘economic duress.’ Thirdly, if there has been such a form of duress leading to a contract for consideration, I think that contract is a voidable one which can be avoided and the excess money paid under it recovered. I  think the facts found in this case do establish that the agreement to increase the price by 10 per cent. reached at the end of June 1973 was caused by what may be called ‘economic duress.’ The Yard were adamant in insisting on the increased price without having any legal justification for so doing and the owners realised that the Yard would not accept anything other than an unqualified agreement to the increase. The owners might have claimed damages in arbitration against the Yard with all the inherent unavoidable uncertainties of litigation, but in view of the position of the Yard vis-a-vis their relations with Shell it would be unreasonable to hold that this is the course they should have taken: see Astley v Reynolds (1731) 2 Str 915. The owners made a very reasonable offer of arbitration coupled with security for any award in the Yard’s favour that might be made, but this was refused. They then made their agreement, which can truly I think be said to have been made under compulsion, by the telex of June 28 without prejudice to their rights. I do not consider the Yard’s ignorance of the Shell charter material. It may well be that had they known of it they would have been even more exigent. If I  am right in the conclusion reached with some doubt earlier that there was consideration for the 10 per cent. Increase agreement reached at the end of June 1973, and it be right to regard this as having been reached under a kind of duress in the form of economic pressure, then what is said in Chitty on Contracts, 24th ed (1977), vol 1, para 442, p 207, to which both counsel referred me, is relevant, namely, that a contract entered into under duress is voidable and not void: … consequently a person who has entered into a contract under duress, may either affirm or avoid such contract after the duress has ceased; and if he has so voluntarily acted under it with a full knowledge of all the circumstances he may be held bound on the ground of ratification, or if, after escaping from the duress, he takes no steps to set aside the transaction, he may be found to have affirmed it.

On appeal in Ormes v Beadel, 2 De GF & J 333 and in Kerr J’s Case [1976] 1 Lloyd’s Rep 293 there was on the facts action held to amount to affirmation or acquiescence in the form of taking part in an arbitration pursuant to the impugned agreement. There is nothing comparable to such action here. On the other hand, the findings of fact in the special case present difficulties whether one is proceeding on the basis of a voidable agreement reached at the end of June 1973, or whether such agreement was void for want of consideration, and it were necessary in consequence to establish that the payments were made involuntarily and not with the intention of closing the transaction. I have already stated that no protest of any kind was made by the owners after their telex of June 28, 1973, before their claim in this arbitration on July 30, 1975, shortly after in July of that year the Atlantic Baroness, a sister ship of the Atlantic Baron, had been tendered, though,

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as I  understand it, she was not accepted and arbitration proceedings in regard to her are in consequence taking place. There was therefore a delay between November 27, 1974, when the Atlantic Baron was delivered and July 30, 1975, before the owners put forward their claim. The owners were, therefore, free from the duress on November 27, 1974, and took no action by way of protest or otherwise between their important telex of June 28, 1973, and their formal claim for the return of the excess 10 per cent paid of July 30, 1975, when they nominated their arbitrator. One cannot dismiss this delay as of no significance, though I  would not consider it conclusive by itself. I  do not attach any special importance to the lack of protest made at the time of the assignment, since the documents made no reference to the increased 10 per cent. However, by the time the Atlantic Baron was due for delivery in November 1974, market conditions had changed radically, as is found in paragraph 39 of the special case and the owners must have been aware of this. The special case finds in paragraph 40, as stated earlier, that the owners did not believe that if they made any protest in the protocol of delivery and acceptance that the Yard would have refused to deliver the vessel or the Atlantic Baroness and had no reason so to believe. Mr Longmore naturally stressed that in the rather carefully expressed findings in paragraphs 39 to 44 of the special case, there is no finding that if at the time of the final payments the owners had withheld payment of the additional 10 per cent the Yard would not have delivered the vessel. However, after careful consideration, I have come to the conclusion that the important points here are that since there was no danger at this time in registering a protest, the final payments were made without any qualification and were followed by a delay until July 31, 1975, before the owners put forward their claim, the correct inference to draw, taking an objective view of the facts, is that the action and inaction of the owners can only be regarded as an affirmation of the variation in June 1973 of the terms of the original contract by the agreement to pay the additional 10 per cent. In reaching this conclusion I have not, of course, overlooked the findings in paragraph 45 of the special case, but I do not think that an intention on the part of the owners not to affirm the agreement for the extra payments not indicated to the Yard can avail them in the view of their overt acts. As was said in Deacon v Transport Regulation Board [1958] VR 458, 460 in considering whether a payment was made voluntarily or not: ‘No secret mental reservation of the doer is material. The question is—what would his conduct indicate to a reasonable man as his mental state.’ I think this test is equally applicable to the decision this court has to make whether a voidable contract has been affirmed or not, and I have applied this test in reaching the conclusion I have just expressed. I think I should add very shortly that having considered the many authorities cited, even if I had come to a different conclusion on the issue about consideration, I would have come to the same decision adverse to the owners on the question whether the payments were made voluntarily in the sense of being made to close the transaction.

STATUTE [15.09] The Australian Consumer Law (ACL)—enacted as Schedule 2 of the Competition and Consumer Act 2010 (Cth) and also incorporated as part of the laws of the states and

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territories—prohibits certain forms of duress. For example, the ACL prohibits the use of physical force or undue harassment or coercion in connection with the supply or possible supply of goods or services or the payment for goods or services.7 These provisions, and those concerning unconscionable conduct, have replaced the provisions of the Trade Practices Act 1974 (Cth) discussed in Australian and New Zealand Banking Group v Karam. The ACL confers a wider range of remedies than the common law. Duress is also a factor that may be taken into account when deciding whether a contract is unjust under the Contracts Review Act 1980 (NSW).8

QUESTIONS FOR REFLECTION (1) What is the relationship between duress, undue influence and unconscionable conduct? (2) Do you think the formulation of duress in Australian and New Zealand Banking Group Ltd v Karam has sufficiently overcome the conceptual difficulties with economic duress?

7

ACL, s 50.

8

See [17.14].

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CHAPTER 16 UNDUE INFLUENCE

INTRODUCTION [16.01] ‘Undue influence’ involves one person who occupies a position of ascendancy or influence over another improperly using that position for the benefit of himself or herself or someone else, so that the acts of the person influenced cannot be said to be his or her voluntary acts.

CLASSES OF UNDUE INFLUENCE [16.02] The prevailing position in Australia is that there are three classes of case as described in Barclays Bank Plc v O’Brien.1 Category 1 cases are those where actual influence may be shown. In such a case, a party seeking to rely on a plea of actual undue influence must show that: •

one party to the transaction had the capacity to influence the other (the claimant or ‘trusting party’);



that influence was exercised so that what was done was the result of that influence rather than the will of the trusting party;



its exercise was undue to the extent that equity should intervene; and



its exercise brought about the transaction.2 In some cases, actual undue influence may amount to duress.3

[16.03] A  transaction may be set aside for undue influence exercised by a third party to a transaction, even where that third party gains no benefit from transaction.4

1

[1994] 1 AC 180 at 189.

2

Stivactas v Michaletos (No 2) (1993) Aust Contract Reports 90–031 at 89,663; Bank of Credit and Commerce International SA v Aboody [1989] 2 WLR 758, 782; Saintclaire & Saintclaire (2015) 54 Fam LR 351 (FC) at [12]–[19].

3

Barton v Armstrong [1973] 2 NSWLR 598.

4

Wills v Barron [1902] AC 271.

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[16.04]

Khan v Khan [2004] NSWSC 1189 New South Wales Supreme Court A son (Rizwan) and his mother (Mrs Sadiq) negotiated with a husband (Shikandar) and wife (Farisha) for the sale of a home. The husband and wife were allowed to go into possession while their own home was sold, for an agreed amount of rent. This amount was later adjusted when it was found that certain works were needed to complete the house. While in possession, a dispute arose about responsibility to pay for house and water rates. The mother thought that the husband and wife were being petty and no longer wished to sell the house to them. A meeting was arranged at her home attended by the parties, members of the mother’s family and the local mufti (all parties were Muslims), with a view to trying to convince her that she should sign. The son felt that they were honour-bound to sell. The mufti quoted various religious precepts about the significance of oral agreements and said words to the effect that if she took the sale figure that they had settled on, she would be ‘rewarded in the after life’. The mother signed the sale documents. Subsequently, she sought to avoid the contract on the basis of undue influence. Barrett J [17] The source of what Mrs Sadiq seeks to characterise as ‘undue influence’ in the sense understood by equity is said by her to be Mufti Naiem. He, of course, was not a party to the transaction. He attended the meeting at the request of Rizwan (not, as the particulars suggest, at the instigation of the plaintiffs) and with the consent of both Mrs Sadiq and the plaintiffs, Shikandar and Farisha. He did so, I  have no doubt, in a genuine attempt to assist resolution of difficulties affecting adherents of the Muslim religion by offering advice about the religious, spiritual or moral dimensions of the circumstances in which they found themselves, as well as the implications of precepts of Islamic law. No one contends that Mufti Naiem played the role of a religious arbitrator whose award could, as a matter of contract, be binding: compare Gingis v Mount Scopas Memorial College Ltd [1998] VSCA 49. But there was, in my view, a common expectation that he would inform the parties of their obligations according to Islamic requirements. And that, of course, is what he did. [18] It seems clear enough that the equitable principles concerning relief against undue influence upon which Mrs Sadiq relies are those stated as follows at paragraph 15–150 of the fourth edition (2002) of Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (by Meagher, Heydon and Leeming), under the heading ‘Third parties’: The equitable doctrine extends to cases where the party exerting the undue influence was not the direct recipient of the disponor’s property. It extends to set aside transactions involving third parties in the following capacities:  (a) where Y under the influence of X disposes of his property to Z; it does not appear necessary that the third party Z act in concert with X provided, presumably, he is not a purchaser from Y without notice of X’s influence …

[19] This poses, in the present case, the question whether Mrs Sadiq (Y) was relevantly under the influence of Mufti Naiem (X) when she agreed, by the memorandum of 30 September 2003,

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to sell to Shikandar and Farisha (Z). The relevant influence is not confined to one involving selfishness or any desire for personal advantage on the part of the person exerting it: see, for example, Bullock v Lloyds Bank Ltd [1995] 1 Ch 327 at p 323. I record at once my very clear finding that Mufti Naiem, in participating as he did, was not in any way whatsoever actuated by considerations of self-interest. His sole concern, as the Imam of the mosque, was the proper and legitimate one of providing spiritual guidance and counsel to all present at the meeting. [20] A  conventional ‘undue influence’ case was described by Mahoney JA in Stivactas v Michaeletos (No 2) [1994] ANZ Conv R 242 as follows: In such a case, the evidence is ordinarily directed to establishing three things: that the defendant had influence over the plaintiff; that he exercised that influence so that what was done was, to the relevant extent, the result of that influence rather than the will of the plaintiff; and that his position or otherwise the circumstances were such that the influence, and the exercise of it, were ‘undue’ to the extent that equity should intervene.

His Honour referred to Watkins v Coombes [1922] HCA 3; (1922) 30 CLR 180 at pp 193–4 and Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113 at p 119 and pp 134–6 in this connection. [21] In the kind of ‘third party’ case referred to in the extract I have quoted from the fourth edition of Meagher, Gummow and Lehane, the ingredients are somewhat different. The evidence must, in a case of that kind, show that the party designated X had influence over the party designated Y; that X exercised that influence so that what Y did was the result of the influence rather than Y’s will; and that the party designated Z unconscientiously derived a benefit from the conduct of Y knowing that that conduct was a result of the influence of X rather than Y’s will. If the position of Z is characterised by analogy with liability, it involves the kind of secondary liability based on knowing participation discussed in Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] UKPC 4; [1995] 2 AC 378. The third party recipient of benefit (Z), who knowingly takes with notice of the undue influence exerted upon the disponor (Y) by the person having ascendancy (X), takes unfair or unconscientious advantage of a situation in which a force against which equity will grant relief is known by him or her to be at work. … [30] The thing that makes the influence of spiritual advisers ‘undue’ and attracts equitable intervention was described by Lindley LJ in Allcard v Skinner (1887) LR 36 ChD 145 at p 183: But the influence of one mind over another is very subtle, and of all influences religious influence is the most dangerous and the most powerful, and to counteract it Courts of Equity have gone very far. They have not shrunk from setting aside gifts made to persons in a position to exercise undue influence over the donors, although that had been no proof of the actual exercise of such influence, and the Courts have done this on the avowed ground of the necessity of going this length in order to protect persons from the exercise of such influence under circumstances which render proof of it impossible.

[31] The relationship of spiritual adviser and follower is, of course, one of those in which undue influence is presumed. But in the present case there is no reliance on any presumption. The case was argued on the basis that actual undue influence had been brought to bear and it is that proposition that I must explore.

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[32] The central message impressed by Mufti Naiem upon those present on 30 September 2003 was that all were required by an Islamic precept equivalent to ‘my word is my bond’ to enter into and complete a contract at $490,000. That suited Shikandar and Farisha very well. It also confirmed Rizwan’s pre-existing belief that he was committed in honour. For Mrs Sadiq, however, it represented a religious instruction or, at the least, a religious exhortation to do something she was not legally obliged to do, did not wish to do and had actively resisted doing. … [35] Legally, it was Mrs Sadiq’s freewill choice whether to accept a commitment to sell to Shikandar and Farisha by signing an appropriate document. In the circumstances in which she was placed on 30 September 2003, the document in contemplation was a standard form conveyancing contract that had already been prepared. After Mufti Naiem had advised that ‘the deal has been done’, Mrs Sadiq did not immediately sign the previously prepared contract, even though she had been made aware that that was what religious duty required of her. She continued to negotiate. She nominated $510,000 because, she said, she thought Shikandar and Farisha could not possibly afford that price. This was a way of steering a middle course: she could appear to be acquiescing in the proposition that she must sell to Shikandar and Farisha while, at the same time, doing her best, within the bounds of credibility, to avoid doing so. The further negotiation between Rizwan and Shikandar followed. Mufti Naiem was still part of the assembled group. When Rizwan and Shikandar came in from outside and said that the price was to be $495,000, it was Mufti Naiem who, on Mrs Sadiq’s account, said, ‘You have to take $495,000 which is all they can afford and you will be rewarded in the after life’. Mufti Naiem’s own oral evidence is consistent with his having told her at that point that she must sign. There is, I think, some significance in the fact that Mufti Naiem witnessed the signatures of Rizwan and Mrs Sadiq on the memorandum. There was, in that way, a clear record that they signed in his presence. He adopted, or was given, a role in relation to the document that conformed to the authoritative role he had taken throughout the meeting. [36] Mufti Naiem said in evidence that he had told Mrs Sadiq that she should sign the contract after Rizwan and Shikandar had come back inside with an agreed price of $495,000. Mrs Sadiq said that she would probably have signed at $510,000 if, contrary to her expectations, Shikandar and Farisha had agreed to that price. Her precise answer to that question was, ‘Probably at that time there was the Mufti because he was closer to God’. According to Mrs Sadiq, Mufti Naiem also said to her that she if she sold at $495,000 she would be ‘rewarded in the after life’. It was her explicit evidence that she would not have signed anything ‘if it wasn’t for the Mufti’: If it wasn’t for the Mufti, because the Mufti came in and he started to say the words ‘lucky you are not in any other country, if you had been in a Moslem country it would be a different story’, and I got scared …

[37] Mrs Sadiq said of the Mufti, ‘We respect him. He is the man from the Mosque’. She described the Mufti’s words as ‘closer to God’. The force of the words of a mufti was confirmed by Farisha who said that if such a person says that a deal has been done, that is ‘an important thing’ and that such a pronouncement on the occasion impressed her. Mrs Sadiq, as a Muslim woman, regarded Mufti Naiem as a person of authority, particularly when it came to matters of

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Islamic law or duty. She regarded him, or his ruling, as capable of affecting her prospects so far as ‘the after life’ was concerned. He told her she was lucky she was not in a Muslim country, the inference being that she would be in trouble if she did not perform an oral agreement in such a country. These matters, as she said herself, made her ‘scared’. She went some way towards disobeying or defying Mufti Naiem’s initial ruling by re-opening the question of price after he had given that ruling. When the price was increased to $495,000, both her sons implored her to sign the contract and were supported by Mufti Naiem. There was no lawyer or other adviser there to reinforce what she knew in her head (that she had no legal obligation and could refuse to sell if she wished, without having to give any reason) and, in that way, to put into context the very strong emotional appeals that were being made to her sense of religious duty. … [39] It was submitted on behalf of the plaintiffs that Mrs Sadiq is an astute woman well able to look after her own interests and that there was no undue influence in fact. Having seen and heard her in the witness box explaining the relevant events, I am satisfied that she is astute and intelligent. She is the owner or part owner of several residential properties. She knows about their values, the mortgages to which they are subject and the general processes of conveyancing. I am also satisfied that she had developed a strong disapproval of what she regarded (rightly or wrongly) as the petty attitude of Shikandar, as evidenced by the matters involving the attempt to negotiate a $15,000 reduction in price, the reduced occupation fee and the $35, and that she had a strong desire not to sell the property to him. But those factors are not sufficient to outweigh what I consider to be the clear effects of undue influence. [40] As I have said, Mufti Naiem was in no sense a beneficiary of the undoubted influence he brought to bear upon Mrs Sadiq’s will. He was doing no more than advise all present on matters of religious duty. Shikandar and Farisha no doubt approved Mufti Naiem’s rulings. But they went further. It was Shikandar who was not content with Mrs Sadiq’s merely signing the form of contract. He realised that that document would have to go back to the solicitor so that an exchange of contracts and associated formalities could take place. It was for that reason that Shikandar asked that the memorandum be prepared and signed on the spot. He wanted to be sure that Mrs Sadiq, having succumbed to Mufti Naiem’s influence, did not escape from what he regarded as a concluded bargain. [41] This conduct of Shikandar (which I think should be imputed also to Farisha) is sufficient, to my mind, to make reliance by the plaintiffs upon the written memorandum unconscientious in a way that equity will not countenance. The case is one in which Mrs Sadiq, under the religious influence of Mufti Naiem, contracted to dispose of property to Shikandar and Farisha who had notice of that influence and the effect of it upon Mrs Sadiq’s will. They were present when Mufti Naiem told Mrs Sadiq where her religious duty lay. They have not attempted to show that they did not take advantage of Mrs Sadiq’s obedience to Mufti Naiem. Nor, on the evidence, could they do so. The bargain under which they received a benefit from Mrs Sadiq is therefore one which equity regards as unconscionable and will not allow to be enforced against Mrs Sadiq. Her defence of undue influence is made out, as regards the part of the plaintiffs’ case based on the enforceability of the memorandum of 30 September 2003 as a contract.

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[16.05] Category 2A cases involve relationships in which undue influence may be presumed. Category 2B cases are relationships which, while not of a kind normally regarded as giving rise to a presumption of undue influence, may on their own facts give rise to such a presumption. [16.06] Where a presumption of undue influence arises the party in ascendancy may rebut the presumption by proving that the trusting party: •

knew and understood what he or she was doing; and



was acting independently of any influence arising from the ascendancy.5

What must be shown to satisfy the court that the dependent or trusting party was freed from influence will differ from case to case, since influence grows out of relationships in different ways and to different degrees.6 However, relevant matters may include the trusting party’s age, standard of intelligence, character and experience.7 [16.07] Many of the cases that have considered the doctrine of undue influence have involved a gift being made by a donor in favour of a donee occupying a position of ascendancy or influence. However, the same principles apply equally to contracts deemed to have been entered into under undue influence. [16.08]

Johnson v Buttress (1936) 56 CLR 113 High Court of Australia A 67-year-old man who was wholly illiterate, and who was found by the trial judge to be of low intelligence and devoid of any capacity for, or experience in, business affairs, was habitually dependent on other persons for advice and assistance. After the death of his wife, the man transferred the land on which his house was built to the defendant, a blood relation of his wife, on the basis of his natural love and affection for her and the kindness she had shown his wife and himself from time to time. The transfer was signed in the office of the defendant’s solicitor, the old man not having any independent advice. After the man’s death, the administrator of his will sought to have the transfer set aside for undue influence. The trial judge held that a presumption of undue influence arose and accordingly set aside the transfer. Latham CJ The jurisdiction of a court of equity to set aside gifts inter vivos8 which have been procured by undue influence is exercised where undue influence is proved as a fact, or where, undue influence being presumed from the relations existing between the parties, the

5

Lancashire Loans Ltd v Black [1934] 1 KB 380, 409; West v Public Trustee [1942] SASR 109, 119; Inche Noriah v Shaik Allie Bin Omar [1929] AC 127, 135; Quek v Beggs (1990) 5 BPR 97–405, 11,765.

6

Johnson v Buttress (1936) 56 CLR 113.

7

Ibid, at 119.

8

A gift made while the donor is still living is sometimes described as a gift ‘inter vivos’.

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presumption has not been rebutted. Where certain special relations exist undue influence is presumed in the case of such gifts. These relations include those of parent and child, guardian and ward, trustee and cestui que trust,9 solicitor and client, physician and patient and cases of religious influence. The relations mentioned, however, do not constitute an exhaustive list of the cases in which undue influence will be presumed from personal relations. Wherever the relation between donor and donee is such that the latter is in a position to exercise dominion over the former by reason of the trust and confidence reposed in the latter, the presumption of undue influence is raised (Dent v Bennet (1839) 4 My & Cr 269; 41 ER 105; see also Smith v Kay (1859) 7 HLC 750; 11 ER 299). Where such a relation of what may be called, from one point of view, dominion, and from another point of view, dependence, exists, the age and condition of the donor are irrelevant so far as raising the presumption of undue influence is concerned. It must be affirmatively shown by the donee that the gift was (to use the words of Eldon LC in the leading case of Huguenin v Baseley (1807) 14 Ves 273; 33 ER 526) ‘the pure, voluntary, well-understood act of the mind’ of the donor. It may not be necessary in all cases to show that the donor received competent independent advice (Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 at 135 and Haskew v Equity Trustees, Executors and Agency Co Ltd (1919) 27 CLR 231); the law as to this matter is still a subject of discussion (Lancashire Loans Ltd v Black [1934] 1 KB 380 at 404, 420). But evidence that such advice has been given is one means, and the most obvious means, of helping to establish that the gift was the result of the free exercise of independent will; and the absence of such advice, even if not sufficient in itself to invalidate the transaction, would plainly be a most important factor in determining whether the gift was in fact the result of a free and genuine exercise of the will of the donor. In the case of an illiterate or weak-minded person it will be more difficult for the donee to discharge the prescribed onus of proof than in other cases. The burden will be still heavier upon the donee where the donor has given him all or practically all of his property (Price v Price (1852) 1 DeG M & G 308; 42 ER 571; Inche Noriah v Shaik Allie Bin Omar). [His Honour went on to hold that while it has not been affirmatively proved against the defendant that she exercised undue influence, she had not displaced the presumption of undue influence. Accordingly, he thought that the appeal should be dismissed]. Dixon J The basis of the equitable jurisdiction to set aside an alienation of property on the ground of undue influence is the prevention of an unconscientious use of any special capacity or opportunity that may exist or arise of affecting the alienor’s will or freedom of judgment in reference to such a matter. The source of power to practise such a domination may be found in no antecedent relation but in a particular situation, or in the deliberate contrivance of the party. If this be so, facts must be proved showing that the transaction was the outcome of such an actual influence over the mind of the alienor that it cannot be considered his free act. But the parties may antecedently stand in a relation that gives to one an authority or influence

9

A ‘cestui que trust’ is the beneficiary under the trust.

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over the other from the abuse of which it is proper that he should be protected. When they stand in such a relation, the party in the position of influence cannot maintain his beneficial title to property of substantial value made over to him by the other as a gift, unless he satisfies the court that he took no advantage of the donor, but that the gift was the independent and well-understood act of a man in a position to exercise a free judgment based on information as full as that of the donee. This burden is imposed upon one of the parties to certain well-known relations as soon as it appears that the relation existed and that he has obtained a substantial benefit from the other. A solicitor must thus justify the receipt of such a benefit from his client, a physician from his patient, a parent from his child, a guardian from his ward, and a man from the woman he has engaged to marry. The facts which must be proved in order to satisfy the court that the donor was freed from influence are, perhaps, not always the same in these different relationships, for the influence which grows out of them varies in kind and degree. But while in these and perhaps one or two other relationships their very nature imports influence, the doctrine which throws upon the recipient the burden of justifying the transaction is confined to no fixed category. It rests upon a principle. It applies whenever one party occupies or assumes towards another a position naturally involving an ascendancy or influence over that other, or a dependence or trust on his part. One occupying such a position falls under a duty in which fiduciary characteristics may be seen. It is his duty to use his position of influence in the interest of no one but the man who is governed by his judgment, gives him his dependence and entrusts him with his welfare. When he takes from that man a substantial gift of property, it is incumbent upon him to show that it cannot be ascribed to the inequality between them which must arise from his special position. He may be taken to possess a peculiar knowledge not only of the disposition itself but of the circumstances which should affect its validity; he has chosen to accept a benefit which may well proceed from an abuse of the authority conceded to him, or the confidence reposed in him; and the relations between him and the donor are so close as to make it difficult to disentangle the inducements which led to the transaction. These considerations combine with reasons of policy to supply a firm foundation for the presumption against a voluntary disposition in his favour. But, except in the well-recognized relations of influence, the circumstances relied upon to establish an antecedent relation between the parties of such a nature as to necessitate a justification of the transaction will be almost certain to cast upon it at least some measure of suspicion that active circumvention has been practised. This often will be so even when the case falls within the list of established relations of influence. Because of the presence of circumstances which might be regarded as presumptive proof of express influence, cases outside the list but nevertheless importing a special relationship of influence sometimes are treated as if they were not governed by the presumption but depended on an inference of fact … Adequacy of consideration becomes a material question. Instead of inquiring how the subordinate party came to confer a benefit, the court examines the propriety of what wears the appearance of a business dealing. These differences form an additional cause why cases which really illustrate the effect of a special relation of influence in raising a presumption of invalidity are often taken to decide that express influence which is undue should be inferred from the circumstances …

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The first and most important consideration affecting the question is the standard of intelligence, the equipment and character of Buttress. No doubt, once it is established that a relation of influence exists, the presumption arises independently of these matters. It has been said that it is an error to treat the subjects of capacity and of influence as if they were separate elements … But, in any case, in this peculiar case it is the man’s illiteracy, his ignorance of affairs, and his strangeness in disposition and manner that provide the foundation for the suggested relation. [His Honour then discussed the circumstances showing Buttress’ habitual dependency on the guidance and support of others. Mrs Johnson came to fill that role.] I think that when the circumstances of the case are considered, with the character and capacity of Buttress they lead to the conclusion that an antecedent relation of influence existed which throws upon Mrs Johnson the burden of justifying the transfer by showing that it was the result of the free exercise of the donor’s independent will. This, in my opinion, she has quite failed to do. Her appeal should, therefore, be dismissed. [Evatt J agreed with Dixon J. Starke J felt difficulty in agreeing with the trial judge’s view that the facts showed a relationship of trust and confidence between the deceased and the appellant which brought him within the ‘protected class’ in respect of which there is a presumption of undue influence. However, the age and capacity of the deceased, the improvident and unfair nature of the transaction, the want of proper advice, the retention of the rents of the property transferred, the various testamentary dispositions, and the other circumstances mentioned, were evidence from which the trial judge correctly inferred that the transfer was not the result of the free and deliberate judgment of the deceased, but the result of unfair and undue pressure on the part of the appellant. For that reason, he also thought that the appeal failed and ought to be dismissed. By contrast, McTiernan J held that while the evidence may not have shown an actual exercise of undue influence, a presumption of undue influence arose from the relationship of the parties. Further, the appellant had failed to satisfy the burden of showing the gift was obtained without any abuse of the relationship in which she stood to Buttress. The decree setting aside the gift was rightly made, and the appeal should be dismissed.] [16.09] The House of Lords, in Royal Bank of Scotland Plc v Etridge (No 2),10 took the opportunity to review and reformulate the law concerning undue influence in the United Kingdom. There the approach is to require the plaintiff to prove undue influence in all cases. He or she may be assisted by an evidential presumption which arises where (1) there is a relationship of trust and confidence and (2) the circumstances of the transaction are such that an explanation is required. An irrebutable presumption of trust and relationship arises in the case of fiduciary relationships and due to status of the parties in some cases. The size of the transaction and any disadvantage to the weaker party are circumstances requiring explanation.

10 [2002] 2 AC 773.

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UNDUE INFLUENCE AND THIRD PARTY SURETIES [16.10] The relationship of husband and wife has not been seen as automatically giving rise to a presumption of undue influence. However, Dixon J in Yerkey v Jones noted that it has ‘never been divested completed of what may be called equitable presumptions of an invalidating tendency.’11 Besides cases of actual undue influence he referred to cases where there is a failure to explain adequately and accurately a suretyship transaction which the husband seeks to have the wife enter for the immediate economic benefit not of the wife but of the husband, or the circumstances in which her liability may arise. [16.11] It has been held that the modern justification of this rule is not the subservience or inferior economic position of women, nor any assumed vulnerability to exploitation due to their emotional involvement. Instead, the rule is based on the trust and confidence that is common between marriage partners. [16.12]

Garcia v National Australia Bank (1998) 194 CLR 395 High Court of Australia A married woman and her husband executed a mortgage over their home, which secured all monies which they might owe a bank. The woman subsequently signed four guarantees related to loans made to businesses conducted by the husband. After the woman and her husband divorced she sought to have the guarantees set aside. Gaudron, McHugh, Gummow and Hayne JJ [31] The principles applied in Yerkey v Jones (1940) 63 CLR 649 do not depend upon the creditor having, at the time the guarantee is taken, notice of some unconscionable dealing between the husband as borrower and the wife as surety. Yerkey v Jones begins with the recognition that the surety is a volunteer: a person who obtained no financial benefit from the transaction, performance of the obligations of which she agreed to guarantee. It holds, in what we have called the first kind of case, that to enforce that voluntary transaction against her when in fact she did not bring a free will to its execution would be unconscionable. It holds further, in the second kind of case, that to enforce it against her if it later emerges that she did not understand the purport and effect of the transaction of suretyship would be unconscionable (even though she is a willing party to it) if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe that its purport and effect had been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it in the second kind of case is the combination of circumstances that:  (a) in fact the surety did not understand the purport and effect of the transaction; (b) the transaction was voluntary (in the sense that the surety obtained no gain from

11 (1940) 63 CLR 649, 675.

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the contract the performance of which was guaranteed); (c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet (d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her. [32] To hold, as Yerkey v Jones did, that in those circumstances the enforcement of the guarantee would be unconscionable represents no departure from accepted principle. Rather, it ‘conforms to the fundamental principle according to which equity acts, namely that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct’:  Legione v Hateley (1983) 152 CLR 406 at 444, per Mason and Deane JJ. [33] It will be seen that the analysis of the second kind of case identified in Yerkey v Jones is not one which depends upon any presumption of undue influence by the husband over the wife. As we have said, undue influence is dealt with separately and differently. Nor does the analysis depend upon identifying the husband as acting as agent for the creditor in procuring the wife’s agreement to the transaction cf Barclays Bank Plc v O’Brien [1994] 1 AC 180 at 194, per Lord Browne-Wilkinson. Rather, it depends upon the surety being a volunteer and mistaken about the purport and effect of the transaction, and the creditor being taken to have appreciated that because of the trust and confidence between surety and debtor the surety may well receive from the debtor no sufficient explanation of the transaction’s purport and effect. To enforce the transaction against a mistaken volunteer when the creditor, the party that seeks to take the benefit of the transaction, has not itself explained the transaction, and does not know that a third party has done so, would be unconscionable. Kirby J [66] Assuming that the plaintiff is entitled to rely on this presumption, why should this Court, in 1998, endorse a principle expressed to apply specifically to one class of citizens only, namely ‘married women’? For several reasons it should not. It should instead search for, and identify, a broader principle which is not confined to one group whose members have attributed to them particular needs and vulnerabilities which are certainly not confined to that group and which, in many cases, will not be present in members of that group. The classification is at once too narrow and too broad. Too narrow, for ‘[i]t is not based on and it inhibits a more developed understanding of the broad features of social inequality in Australia’. Too broad, for it ignores ‘the diversity of the experiences of women in Australia’: Australian Law Reform Commission, Equality Before the Law: Women’s Equality (ALRC 69, Pt II) (1994), p 249. It may have accommodated a perceived problem when Dixon J wrote his opinion in Yerkey in 1939. It is inappropriate to Australian circumstances today. It should not now receive the endorsement of this Court. [His Honour gave five reasons why, in his opinion, the rule should be rejected: (1) it was an historical anachronism, being based on equitable doctrine responding to the inability of married women to deal with property at common law. There has there been enormous social changes relevant to women, married women and domestic relationships more generally since 1939. Further, the rule is an anomaly when it is remembered that the presumption does not, as stated, protect other classes of sureties in arguably analogous positions such as a de facto spouse, an

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unmarried child in a position of dependence, a parent who is vulnerable to pressure from a child or a companion of either sex having a long-term domestic relationship with the borrower, the existence of which might easily have been discovered by acceptable questioning by the credit provider; (2)  the Court should reject discriminatory stereotypes such as that represented in a principle which accords to all married women a ‘special equity’ based on their supposed need for protection. All persons of full capacity, including married women, should ordinarily conform to commercial transactions which they enter unless statute or judicial law affords relief. Marriage, and being the female member to a marriage, is not a relevant reason for relief from legal obligations. Some additional or different basis is required if relief is to be afforded; (3) Marriage is not a suspect category—since no presumption of undue influence arises from the relationship of marriage, it is inconsistent to regard such a relationship as having an ‘invalidating tendency’ in other cases. Why should marriage make only a female partner more needful of protection from equity than an unmarried female partner? The opposite might often be the case. Also at this stage in the evolution of personal relationships in this country, rather than choose the fact of marriage and the sex of one party to it as an objective indication of vulnerability for legal purposes, it would seem more rational to look at all of the facts of the relationship between the surety and the borrower; (4) Economic arguments—today the majority of matrimonial homes are now in the joint names of both spouses. Such homes are a major source of security for finance for the business enterprises of one or other of the spouses. The rule may therefore render the home unacceptable as security to financial institutions. Further, the rule may provide an avenue for unscrupulous borrowers to escape their lawful obligations to their creditors, beyond the protection provided by statute; (5) Unacceptable discrimination—since 1939, Australian society and its legal systems have moved away from irrelevant discrimination, whether on the ground of sex, matrimonial status or otherwise and any ‘special equity’ should similarly avoid unprincipled discriminatory categories. Legal wives are not the only group which is now exposed to the emotional pressure of cohabitation.] [Callinan J thought the rule in Yerkey v Jones was too well established to be changed.]

QUESTIONS FOR REFLECTION (1) Do you see any difficulties associated with the three-way classification of undue influence in practice? (2) Should Australia follow the approach to undue influence that applies in England following Royal Bank of Scotland Plc v Etridge (No 2)?12 Why? (3) Do you agree that there should be a special rule for third party sureties? Should it be restricted to female sureties? Would it be more appropriate for this type of case to be dealt with like any case of undue influence or unconscionability?

12 [2002] 2 AC 773.

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INTRODUCTION [17.01] Equitable doctrines concerning unconscionable conduct have a strong influence upon modern Australian contract law. Unconscionability may be manifested in the form of, for example, the encouragement or inducement of detrimental reliance1 or sharp practice.2 It may also be seen in the form of the unfair or unconscientious taking advantage of someone who is at a special disadvantage. This latter form, known as ‘unconscionable conduct’ may give rise to a remedy in equity and/or under statute.

UNCONSCIONABLE CONDUCT IN EQUITY [17.02] Equity may grant relief for unconscionable conduct where: •

one party is in a position of special disadvantage; and



the other party knows or ought to know of that special disadvantage and takes unfair advantage of his or her position.

The doctrine prevents a party ‘taking surreptitious advantage of the weakness or necessity of another’.3

1

See Chapter 7: Equitable Estoppel.

2

See Chapter 14: Mistake.

3

Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392, [17], reiterating and confirming the formulation of Lord Hardwicke in Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125, 155–6; 28 ER 82, 100.

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[17.03]

Commercial Bank of Australia v Amadio (1983) 151 CLR 447 High Court of Australia Mr and Mrs Amadio were quite elderly and had a limited knowledge of written English. Their son, Vincenzo, was the managing director of a building company that had an overdraft account with a bank. Vincenzo met regularly with the bank’s manager, and it was clear to the manager from these meetings that the company was insolvent. Nevertheless, he agreed to assist Vincenzo in maintaining a facade of solvency by selectively dishonouring the company’s cheques. Finally, the bank was no longer prepared to carry the company. Accordingly, Vincenzo convinced his parents to sign a mortgage over their property as a guarantee for the company’s debt. The mortgage was executed at their home in the presence of the bank manager. Vincenzo had informed them that the guarantee would only be for six months, and have an upper limit of $50,000, when in fact there was no limit as to time or amount. The bank manager informed them that the guarantee was not limited to a six-month period, but otherwise they received no independent advice concerning the document. The company finally went into liquidation and the bank sought to recover an outstanding amount of $240,000 from Mr and Mrs Amadio. Mason J Historically, courts have exercised jurisdiction to set aside contracts and other dealings on a variety of equitable grounds. They include fraud, misrepresentation, breach of fiduciary duty, undue influence and unconscionable conduct. In one sense they all constitute species of unconscionable conduct on the part of a party who stands to receive a benefit under a transaction which, in the eye of equity, cannot be enforced because to do so would be inconsistent with equity and good conscience. But relief on the ground of ‘unconscionable conduct’ is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage, eg, a catching bargain with an expectant heir or an unfair contract made by taking advantage of a person who is seriously affected by intoxicating drink. Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position. There is no reason for thinking that the two remedies are mutually exclusive in the sense that only one of them is available in a particular situation to the exclusion of the other. Relief on the ground of unconscionable conduct will be granted when unconscientious advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will be granted when such advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interest.

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It goes almost without saying that it is impossible to describe definitively all the situations in which relief will be granted on the ground of unconscionable conduct. As Fullagar J said in Blomley v Ryan (1956) 99 CLR 362 at 405: The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-a-vis the other.

… It is not to be thought that relief will be granted only in the particular situations mentioned by their Honours. It is made plain enough, especially by Fullagar J, that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word ‘disadvantage’ by the adjective ‘special’ in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party … [His Honour held that the bank, through its manager, was aware or ought to have been aware of the Amadios’ poor command of English, advanced years and lack of business experience. It also had no reason to believe that they had had independent advice. The bank was therefore guilty of unconscionable conduct by entering into the transaction without disclosing such facts as may have enabled the Amadios to form a judgment for themselves and without ensuring that they obtained independent advice.] Deane J The jurisdiction of Courts of Equity to relieve against unconscionable dealing developed from the jurisdiction which the Court of Chancery assumed, at a very early period, to set aside transactions in which expectant heirs had dealt with their expectations without being adequately protected against the pressure put upon them by their poverty … The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or ‘unconscientious’ that he procure, or accept, the weaker party’s assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: ‘the burthen of shewing the fairness of the transaction is thrown on the person who seeks to obtain the benefit of the contract’ (see per Lord Hatherley, O’Rorke v Bolingbroke (1877) 2 App Cas 814 at 823; Fry v Lane (1888) 40 Ch D 312 at 322; Blomley v Ryan at 428–429).

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The equitable principles relating to relief against unconscionable dealing and the principles relating to undue influence are closely related. The two doctrines are, however, distinct. Undue influence, like common law duress, looks to the quality of the consent or assent of the weaker party (see Union Bank of Australia Ltd v Whitelaw [1906] VLR 711 at 720; Watkins v Combes (1922) 30 CLR180 at 193–194; Morrison v Coast Finance Ltd (1965) 55 DLR (2d) 710 at 713). Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so. The adverse circumstances which may constitute a special disability for the purposes of the principles relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible to being comprehensively catalogues. In Blomley v Ryan at 405, Fullagar J listed some examples of such disability: ‘poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary’. As Fullagar J remarked, the common characteristic of such adverse circumstances ‘seems to be that they have the effect of placing one party at a serious disadvantage vis-a-vis the other’. In most cases where equity courts have granted relief against unconscionable dealing, there has been an inadequacy of consideration moving from the stronger party. It is not, however, essential that that should be so (see Blomley v Ryan at 405; Harrison v National Bank of Australasia Ltd [1928] 23 Tas LR 1). Notwithstanding that adequate consideration may have moved from the stronger party, a transaction may be unfair, unreasonable and unjust from the view point of the party under the disability. An obvious instance of circumstances in which that may be so is the case where the benefit of the consideration does not move to the party under the disability but moves to some third party involved in the transaction. [Like Mason J, Deane J held that the Amadios had been shown to be under a special disability and that the bank had taken unconscientious advantage of them. Wilson J agreed with Deane J. Gibbs CJ held that the bank’s failure to disclose unusual features of the relationship between the bank and the son amounted to a misrepresentation which allowed the Amadios to have the deed set aside. Dawson J dissented since he did not believe that the Amadios’ advanced age necessarily meant that they were infirm, nor that the fact that English was not their first language meant they could not understand the transaction. He therefore did not agree that they were in a position of disadvantage.] [17.04] The list suggested by Fullagar J in Blomley v Ryan should not be regarded as being exhaustive of all the situations in which relief will be granted on the ground of unconscionable conduct.4

4

Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, 462 per Mason J; Blomley v Ryan (1956) 99 CLR 362, 405 per Fullagar J.

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[17.05]

Louth v Diprose (1992) 175 CLR 621 High Court of Australia The plaintiff became infatuated with the defendant. The defendant, on the other hand, was largely indifferent to the plaintiff but tolerated his attentions. She played upon his love for her by making suicide threats connected with her need for a house. Ultimately, despite his modest means, he gave her $58,000 for the purchase of a house for occupation by herself and her children from a former marriage. Subsequently, the plaintiff sought to recover the money. Deane J In 1985, the respondent, who is a solicitor, was in his early forties. After two unsuccessful marriages, he was living in rented accommodation in Adelaide with the three children of his first marriage. Putting to one side an old car, a Chipmunk aeroplane (worth less than $30,000) and a share in a house owned with other members of his family in Tasmania, his net assets totalled less than $100,000. The appellant, who had been married and divorced, was living in Adelaide with her two children in a rented house owned by her sister’s husband. She had few assets of her own and was living in straitened circumstances. The relationship between the respondent and the appellant went back to an initial relationship between them in Tasmania some years earlier. There was an extreme contrast between their respective attitudes to one another. For his part, the respondent was ‘utterly infatuated’ by the appellant. He was ‘completely in love’ with her. In contrast, the appellant had become ‘quite indifferent to’ the respondent. The motives for her continued association with him ‘were of a material nature’. His infatuation placed the respondent ‘in a position of emotional dependence upon the appellant and gave her a position of great influence on his actions and decisions’. The appellant’s sister and the sister’s husband, who owned the house which the appellant was renting, separated. The appellant ‘knew that ultimately she would have to go into a Housing Trust home to enable the house to be sold’. There was, however, no immediate pressure upon her to leave the house. At the time, the respondent’s main asset consisted of moneys lent on mortgage in a total amount of $91,000. The time for repayment of these moneys was about to fall due. The appellant ‘was aware in general terms that (the respondent) had only limited assets, that the mortgage moneys were his principal asset and that he had to work as an employee solicitor for a living. Moreover she was aware that he had three children who had natural claims upon his bounty.’ The appellant set out on a planned course of conduct aimed at persuading the respondent to provide the money necessary to enable her to purchase the house from her brother-in-law. She ‘deliberately manufactured’ a false ‘atmosphere of crisis in order to influence the (respondent) to provide the money (to purchase) the house’. She falsely told the respondent that she was required to leave the house. She said that, if forced to vacate the house, she would commit suicide. The respondent, who was aware that the appellant had cut her wrists on a previous occasion, believed her. By ‘a process of manipulation to which (the respondent) was utterly vulnerable by reason of his infatuation’, the appellant obtained from the respondent a gift

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of $59,206.55, being the purchase price of the house and associated conveyancing fees. The process of manipulation included refusal of ‘offers of assistance (by the respondent) short of full ownership of the house knowing that (the respondent’s) emotional dependence upon her was such as to lead inextricably to the gratification of her unexpressed wish to have him buy the house for her’. On the basis of his findings about the appellant’s purpose and conduct, the learned trial judge not surprisingly expressed the view that her conduct ‘smacked of fraud’. It has long been established that the jurisdiction of Courts of Equity to relieve against unconscionable dealing extends generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party to the transaction with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that special disability was sufficiently evident to the other party to make it prima facie unfair or ‘unconscionable’ that that other party procure, accept or retain the benefit of, the disadvantaged party’s assent to the impugned transaction in the circumstances in which he or she procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: ‘the burthen of shewing the fairness of the transaction is thrown on the person who seeks to obtain’ or retain the benefit of it. (See per Lord Hatherley, O’Rorke v Bolingbroke (1877) 2 App Cas 814, at p 823; Fry v Lane (1888) 40 Ch D 312, at p 322; Blomley v Ryan (1956) 99 CLR 362, at pp 428–429; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, at p 474.). The adverse circumstances which may constitute a special disability for the purposes of the principle relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible of being comprehensively catalogued. (See Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR, at p 474). In Blomley v Ryan ((1956) 99 CLR, at p 405), Fullagar J listed some examples of such special disability:  ‘poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary’. As Fullagar J remarked (ibid), the common characteristic of such adverse circumstances ‘seems to be that they have the effect of placing one party at a serious disadvantage vis-a-vis the other’. On the findings of the learned trial judge in the present case, the relationship between the respondent and the appellant at the time of the impugned gift was plainly such that the respondent was under a special disability in dealing with the appellant. That special disability arose not merely from the respondent’s infatuation. It extended to the extraordinary vulnerability of the respondent in the false ‘atmosphere of crisis’ in which he believed that the woman with whom he was ‘completely in love’ and upon whom he was emotionally dependent was facing eviction from her home and suicide unless he provided the money for the purchase of the house. The appellant was aware of that special disability. Indeed, to a significant extent, she had deliberately created it. She manipulated it to her advantage to influence the respondent to make the gift of the money to purchase the house. When asked for restitution she refused. From the respondent’s point of view, the whole transaction was plainly a most improvident one. In these circumstances, the learned trial judge’s conclusion that the appellant had been guilty of unconscionable conduct in procuring and retaining the gift of $59,206.55 was not only open to him. In the context of his Honour’s findings of fact, it was inevitable and plainly correct. On

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those findings, the case was not simply one in which the respondent had, under the influence of his love for, or infatuation with, the appellant, made an imprudent gift in her favour. The case was one in which the appellant deliberately used that love or infatuation and her own deceit to create a situation in which she could unconscientiously manipulate the respondent to part with a large proportion of his property. The intervention of equity is not merely to relieve the plaintiff from the consequences of his own foolishness. It is to prevent his victimisation ((46) See, eg, Allcard v Skinner (1887) 36 Ch D 145, at p 182; Nichols v Jessup (1986) 1 NZLR 226, at pp 227–229; The Commonwealth v Verwayen (1990) 170 CLR 394, at p 440). [Mason CJ delivered a similar judgment. Dawson, Gaudron and McHugh JJ, in a joint judgment, agreed with the reasons of Deane J on the point. Toohey J dissented on the ground that while he thought it was clear that respondent was emotionally involved with the appellant, she had not misrepresented or disguised her attitude to the relationship. He was well aware of all the circumstances and the consequences of his actions. His Honour held that it did not follow that he was emotionally dependent upon her in any relevant legal sense such as being placed in a special situation of disadvantage.] [17.06] It has also been suggested that a special disadvantage might exist not only in the traditional ‘constitutional disadvantage’ such as age or infirmity, but also in ‘situational disadvantage’ such as disadvantage arising out of an intersection of the legal and commercial circumstances in which the plaintiff may find himself or herself.5 However, simple disadvantage—such as an inferior bargaining position—will not suffice. Good conscience does not demand that a party to a contract negotiation should forfeit any advantage he or she enjoys, or should neglect his or her own interests.6 Commercial vulnerability, no matter how extreme, on its own does not amount to a ‘special disadvantage’.7 [17.07]

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 High Court of Australia The lessees of a fish-and-chip shop in a shopping centre became alarmed at some charges being levied under the terms of their lease. They therefore joined other tenants in legal proceedings against the owners of the shopping centre. Meanwhile, the lessees’ lease was due to expire. They were anxious to quickly sell their business. They made their wish known to the centre manager and indicated that it would help them to sell their business if they could negotiate a new term for

5

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2000] FCA 1376, [122] per French J.

6

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 197 ALR 153.

7

Australian Competition and Consumer Commission v Samton Holdings (2002) 189 ALR 76, 97 (Fed Ct FC).

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their lease that they could then assign to any purchaser. The shopping centre owners agreed to a new term but insisted on the inclusion in a proposed deed of assignment of a clause whereby the lessees agreed to discharge the owners from claims of overcharging and to discontinue the pending legal proceedings against the owners. Although they were advised by their solicitor not to sign the document, the lessees decided that they had little option but to sign. The Australian Competition and Consumer Commission brought proceedings under Pt VI of the Trade Practices Act 1974 (Cth) against the lessors, the agents and various persons associated with them, alleging that the lessors had engaged in conduct in contravention of s 51AA(1) and, in particular, that they had taken unconscientious advantage of a condition of special disadvantage of the lessees. [Section 51AA provided a remedy for unconscionable conduct in trade or commerce ‘within the meaning of the unwritten law from time to time’, which at least means cases caught by the principles in Commercial Bank of Australia v Amadio]. Gleeson CJ [8] In Blomley v Ryan (1956) 99 CLR 362 at 405, Fullagar J, after pointing out that the circumstances of disability or disadvantage that can be involved in unconscionable conduct are of great variety and are difficult to classify, gave, as examples, ‘poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary.’ The common characteristic of such circumstances is that they place one party at a serious disadvantage in dealing with the other. [9] In the present case, French J said that the lessees suffered from a ‘situational’ as distinct from a ‘constitutional’ disadvantage, in that it did not stem from any inherent infirmity or weakness or deficiency. That idea was developed somewhat in a joint judgment, to which French J was a party, in Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301 at 318, where it was said that, under the rubric of unconscionable conduct, equity will set aside a contract or disposition resulting from the knowing exploitation by one party of the special disadvantage of another, and then it was said: The special disadvantage may be constitutional, deriving from age, illness, poverty, inexperience or lack of education:  Commercial Bank of Australia Ltd v Amadio. Or it may be situational, deriving from particular features of a relationship between actors in the transaction such as the emotional dependence of one on the other: Louth v Diprose; Bridgewater v Leahy.

[10] While, with respect to those who think otherwise, I  would not assign the facts of Bridgewater v Leahy to such a category, the reference to emotional dependence of the kind illustrated by Louth v Diprose (1992) 175 CLR 621 as a form of special disadvantage described as ‘situational’ rather than ‘constitutional’ is understandable and acceptable, provided that such descriptions do not take on a life of their own, in substitution for the language of the statute, and the content of the law to which it refers. There is a risk that categories, adopted as a convenient method of exposition of an underlying principle, might be misunderstood, and come to supplant the principle. The stream of judicial exposition of principle cannot rise above the source; and there is nothing to suggest that French J intended that it should. A problem is that the words ‘situation’ and ‘disadvantage’ have ordinary meanings which, in combination, extend far beyond the bounds of the law referred to in s 51AA; and, it may be added, far beyond the bounds of what was explained to Parliament as the purpose of the section.

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[11] One thing is clear, and is illustrated by the decision in Samton Holdings itself. A person is not in a position of relevant disadvantage, constitutional, situational, or otherwise, simply because of inequality of bargaining power. Many, perhaps even most, contracts are made between parties of unequal bargaining power, and good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests. In Amadio, Mason J (1983) 151 CLR 447 at 462 said that the point of using the qualifying word ‘special’ before ‘disadvantage’ in this context is ‘to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests’. It was the inability of a party to judge his or her own best interests that was said by McTiernan J in Blomley v Ryan (1956) 99 CLR 362 at 392, and again by Deane J in Amadio (1983) 151 CLR 447 at 476–477, to be the essence of the relevant weakness. [12] The adjective ‘special’ was also used by Kitto J in Blomley v Ryan (1956) 99 CLR 362 at 415 when he referred to the ‘well-known head of equity’ invoked in that case. He said: It applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands.

Unconscientious exploitation of another’s inability, or diminished ability, to conserve his or her own interests is not to be confused with taking advantage of a superior bargaining position. There may be cases where both elements are involved, but, in such cases, it is the first, not the second, element that is of legal consequence. It is neither the purpose nor the effect of s 51AA to treat people generally, when they deal with others in a stronger position, as though they were all expectant heirs in the nineteenth century, dealing with a usurer:  cf Snell’s Equity, 30th ed (2000) at 621–622 … [15] In the present case, there was neither a special disadvantage on the part of the lessees, nor unconscientious conduct on the part of the lessors. All the people involved in the transaction were business people, concerned to advance or protect their own financial interests. The critical disadvantage from which the lessees suffered was that they had no legal entitlement to a renewal or extension of their lease; and they depended upon the lessors’ willingness to grant such an extension or renewal for their capacity to sell the goodwill of their business for a substantial price. They were thus compelled to approach the lessors, seeking their agreement to such an extension or renewal, against a background of current claims and litigation in which they were involved. They were at a distinct disadvantage, but there was nothing ‘special’ about it. They had two forms of financial interest at stake: their claims, and the sale of their business. The second was large; as things turned out, the first was shown to be relatively small. They had the benefit of legal advice. They made a rational decision, and took the course of preferring the second interest. They suffered from no lack of ability to judge or protect their financial interests. What they lacked was the commercial ability to pursue them both at the same time.

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[16] Good conscience did not require the lessors to permit the lessees to isolate the issue of the lease from the issue of the claims. It is an everyday occurrence in negotiations for settlement of legal disputes that, as a term of a settlement, one party will be required to abandon claims which may or may not be related to the principal matter in issue. French J spoke of the lessors using ‘[their] bargaining power to extract a concession [that was] commercially irrelevant to the terms and conditions of any proposed new lease.’ A number of observations may be made about that. Parties to commercial negotiations frequently use their bargaining power to ‘extract’ concessions from other parties. That is the stuff of ordinary commercial dealing. What is relevant to a commercial negotiation is whatever one party to the negotiation chooses to make relevant. And it is far from self-evident that when a landlord is considering a tenant’s request to renew a lease, the existence of disputes between the parties about the current lease is commercially irrelevant to a decision as to whether, and on what terms, the landlord will agree to the request. The reasoning of French J appears to involve a judgment that it was wrong for the lessors to relate the matter of the lessees’ claims to the matter of their request for a renewal of the lease. Why this is so was not explained. It formed a crucial part of the reasoning of French J and, in my view, cannot be sustained. [17] Reference was earlier made to counsel’s submission that there was here a disabling circumstance affecting the ability of the lessees to make a judgment in their own best interests. In truth, there was no lack of ability on their part to make a judgment about anything. Rather, there was a lack of ability to get their own way. That is a disability that affects people in many circumstances in commerce, and in life. It is not one against which the law ordinarily provides relief. [Gummow and Hayne JJ (in a joint judgment) and Callinan J delivered similar judgments in holding that commercial disadvantage did not constitute special disadvantage, and agreed that the appeal against the Full Court’s decision in favour of the lessor should be dismissed.] Kirby J [84] Essential to equitable relief under the principles of unconscionable dealing (as explained by this Court’s decisions in cases such as Blomley and Amadio) is a demonstration that the weaker party was subject to a disadvantage which was in some way ‘special’. In this Court, as in the Full Court, the finding of the primary judge that the Roberts were suffering from such a special disadvantage has been criticised. In my view, his Honour’s conclusion was open on the basis of the evidence that he accepted … [87] The primary judge held that the special disadvantage of the Roberts was of a ‘situational’ rather than ‘constitutional’ nature. It arose out of the ‘legal and commercial circumstances in which they found themselves’, rather than from some inherent weakness or infirmity on their part. That disadvantage, and the resulting effect on their ability properly to assess and evaluate their options and interests, ‘was not able to be mitigated by the fact of legal representation which they had available to them at all material times’. It was in light of the Roberts’ need to maintain the value of their business (in order to proceed with an imminent sale of that business) that the conduct of the owners and their insistence on the inclusion of a release clause was judged to be unconscionable. [88] It is true that the respondent owners of the shopping centre were not obliged to extend the Roberts’ lease in such a way as to protect their goodwill and thus afford the Roberts a sellable

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business. However, this fact masks the realities of the economic and litigious positions in which the Roberts and the owners respectively found themselves. I agree with the primary judge that, for the purposes of the section, generalisations about the relationship of landlord and tenant are not helpful. It is the particular circumstances of the relationship and conduct in question that need to be examined. In the present case the owners were already faced with a shopping centre that had a number of empty shops. They knew that the Roberts were good tenants and that their proposed assignee was an objectively acceptable, indeed desirable, tenant. Thus, it was in the interests of the owners and agents to extend the lease and facilitate the sale of the Roberts’ business. [89] The original litigation between the tenants and the owners was brought on behalf of a number of the tenants in the shopping centre due to their concern about alleged overcharging by the owners and their agents. That litigation would not disappear because of any dealings the owners had with the Roberts. The owners and their agents were also concerned about possible commercial damage to their business because of media attention to the subject matter of the dispute between the shopping centre and the tenants, including the Roberts. [90] In such circumstances, apart from the Roberts’ need to terminate their position as tenants and to sell their business immediately as a going concern, it would seem very unlikely that any difficulty would have been placed in the way of the extension of the lease and its assignment to the proposed new tenants. It is in this context that the imposition of the requirement to agree to a release of their legal rights must be evaluated by the standards of the Act. It was open to the primary judge to view the insistence on that requirement as an opportunistic attempt to take advantage of the special position in which the Roberts found themselves. Others have accepted that it involved striking a hard bargain: C G Berbatis Holdings Pty Ltd v Australian Competition and Consumer Commission (2001) 185 ALR 555 at 571. The point of difference is therefore whether, by enforcing such a bargain in the circumstances, the conduct of the owners was unconscionable as the primary judge concluded. The starting point of the analysis must be the appreciation of the fact that, without the Roberts’ need to renew the lease quickly, in order for them to proceed with the agreed sale, any proposal they made to that end would have been viewed as advantageous to the owners and likely to be accepted by them. [91] Two further points in the conclusions of the primary judge need to be noticed. First, the initial proceedings of the ACCC were brought not only on behalf of the Roberts but also for two other small business owners in the shopping centre (the Ternents and the Raitts). In the end, the primary judge restricted relief pursuant to s 51AA to the Roberts. He rejected the claims made in relation to the other tenants who were also subject to some disadvantage. The Ternents had a hardware business that was struggling. They were in arrears in their rent and were contemplating abandonment of the business altogether. They had no prospective purchaser. The owners, through their agents, attempted to persuade them to stay on at a reduced rent and indicated a preparedness to drop the release clause. The primary judge was not satisfied that the owners would have insisted on the inclusion of such a clause in any new lease to the Ternents. [92] The other tenants were the Raitts. Like the Roberts, they had a viable business. They too needed a renewal of the lease in order to maintain its goodwill and value. However, they were not in the peculiar position of the Roberts, and had no plan, or immediate need, to sell their business.

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The primary judge found that the Raitts lost their lease because they were outbid by another bidder, and not because they were unprepared to execute a release clause. While the Raitts may have been in an inferior bargaining position and suffered loss and inconvenience as a result of the need to relocate because their lease was not renewed, they were not ‘labouring under a serious disadvantage’. Therefore, their loss was held not to result from any unconscionable conduct on the part of the owners. [93] Secondly, the condition of the Roberts’ daughter is clearly a relevant factor in explaining the primary judge’s conclusions in respect of their claim under the Act. The owners, through their agent knew that the Roberts’ daughter had been ill and had contracted encephalitis. They knew that her condition was difficult and expensive to treat. They knew that her illness added great personal stress and emotional strain to the Roberts’ lives. [94] The primary judge specifically referred to the condition of the Roberts’ daughter and said that their ‘personal circumstances’ were ‘also’ relevant. I do not agree that he made ‘no clear finding’ about their situation … Read fairly and in the context of the wider factual setting, it indicates that the primary judge treated the Roberts’ family predicament as a factor contributing to the special features of their case. [95] In particular, the need for the Roberts to proceed at that point with the sale of their business was explained by their desire to have more time and also the money to devote to their daughter, given her medical condition. Although the illness concerned was not that of the tenants themselves, it was an illness that was bound to play a part in the Roberts’ decisions. It was part of the circumstances that placed them in a serious ‘situational’ disadvantage and inequality vis-a-vis the owners. The differentiation of the case of the Roberts from the other tenants, is thus explained, in large measure, by reference to the Roberts’ vulnerability caused by their need to sell their business because of their personal circumstances. It may be that, in the view of the primary judge, the Roberts would have been entitled to relief even in the absence of their personal situation including the condition of their daughter. However, it was unnecessary to go that far for the purpose of the present case. … [99] The elements of a party’s disadvantage and its ability to assess its interests and options before entering into a transaction are not purely abstract notions. The foregoing characterisation provides a proper reference point by which the question of the weaker party’s ability to make an appropriate judgment about its choices and the conservation of its own interests can be determined. It also explains three aspects of the equitable doctrine. First, the fact that the categories of ‘special disadvantage’ could never be stated exhaustively. Secondly, that the mere presence of disadvantage is not sufficient to obtain relief. And thirdly, following from these, that in characterising the conduct of the stronger party, the circumstances in which the contract was made are relevant to determine whether the assent to any aspect of the bargain was obtained somehow ‘in the dark’: Filmer v Gott (1774) 4 Brown 230 at 241 [1774] EngR 40; [2 ER 156 at 164. As Deane J observed in Amadio (1983) 151 CLR 447 at 474: Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so.

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[100] It follows that the ultimate issue for decision in this case on the question of unconscionability was whether procuring the Roberts’ assent to the impugned term involved an abuse, in the circumstances, of their disproportionately weak and vulnerable position, commercial, financial and personal. In answering that question, it was proper for the primary judge to have regard not only to the release clause, but also to the entire course that the negotiations had taken … [111] In Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 at 585, I said, by reference to the circumstances of that case: [C]ourts should be careful to conserve relief so that they do not, in commercial matters, substitute lawyerly conscience for the hard-headed decisions of business people.

[112] The circumstances there referred to were ‘the relationships of substantial, well-advised corporations in commercial transactions’: Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 at 586. I still hold that view: cf Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at 221. In enacting a prohibition against unconscionable conduct in s 51AA, the Parliament invoked the principle of unconscionability and applied it in the context of ‘trade and commerce’ without apparent differentiation. However, what is ‘unconscionable’ conduct of a corporation in its dealings with another corporation of roughly equal size—and especially a large trading corporation well able to be advised and look after its own interests—will be quite a different matter when compared to a context in which the complaining party is an individual trader of modest means and known circumstances of vulnerability, with restricted economic power and limited facilities to receive effective legal advice, dealing with an economically superior welladvised market player. [113] It is the serious or ‘gross inequality of bargaining power’ (Amadio (1983) 151 CLR 447 at 464 per Mason J) in the relationship between parties that refines and sharpens issues of conscience and the need to provide remedies, whether in equity or under provisions such as s 51AA of the Act. The special position of the Roberts enlivens the need to consider the complaint of unconscionability in the conduct of the respondents. Their position as small traders involved precisely the kinds of circumstances that the legislature had in mind when enacting s 51AA, given that consumers already had access to a broader prohibition of unconscionable conduct on the part of corporations: s 51AB. … [115] The primary judge concluded that of the tenants the Roberts, and they alone, fell within the category of persons who answered the description of suffering a ‘special’ disadvantage about which the cases on unconscionable conduct speak: see Amadio (1983) 151 CLR 447 at 461–463. This was not, therefore, an instance where the judge mistook a hard bargain for one resulting from an unconscionable misuse of economic superiority. It was not one in which he approached s 51AA in a way that exceeded its proper place in a legal system that normally holds people to their concluded bargains. The primary judge refined the several suggestions of unconscionable conduct—all in the context of relationships of unequal bargaining power. He reduced them, in the end, to the case of the Roberts. He regarded their case as relevantly ‘special’ …

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[117] It was therefore open to the primary judge to conclude as he did on the basis of the facts as he accepted them. No error of legal principle has been shown in his Honour’s approach in reaching his conclusions. This Court has no warrant to substitute a different conclusion. We should therefore affirm the primary judge’s judgment. [17.08] The principle is intended to provide relief for a claimant from the consequences of victimisation, not foolishness.8 Further, what is required is a ‘predatory state of mind’ on the part of the stronger party rather than mere inadvertence or indifference.9 [17.09]

Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 High Court of Australia The appellant was a problem gambler who, in the course of a fourteen-month period, gambled and lost $20.5 million playing baccarat at the respondent’s casino. The appellant was known to be a high stakes gambler and was lured by various enticements to gamble in the respondent’s casino, including the use of the casino’s private jet. The appellant was diagnosed as suffering from pathological gambling disorder and alleged that this constituted a special disadvantage which the casino had exploited. The Court (French CJ, Hayne, Crennan, Kiefel, Bell, Gageler and Keane JJ) [19] In proceeding to consider whether equitable intervention is warranted in this case, a number of points may be made at the outset. First, the principle which the appellant invokes is not engaged by the circumstance that a plaintiff's transaction with a defendant has resulted in loss to the plaintiff, even loss amounting to hardship. In Tanwar Enterprises Pty Ltd v Cauchi, (2003) 217 CLR 315 at 325 [26] Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ said that it is wrong ‘to speak of 'unconscionable conduct' [as suggesting] that sufficient foundation for the existence of the necessary 'equity' to interfere in relationships established by ... the law of contract, is supplied by an element of hardship or unfairness in the terms of the transaction in question, or in the manner of its performance.’ [20] Secondly, equitable intervention does not relieve a plaintiff from the consequences of improvident transactions conducted in the ordinary and undistinguished course of a lawful business. A plaintiff who voluntarily engages in risky business has never been able to call upon equitable principles to be redeemed from the coming home of risks inherent in the business. The plaintiff must be able to point to conduct on the part of the defendant, beyond the ordinary conduct of the business, which makes it just to require the defendant to restore the plaintiff to his or her previous position. …

8

Louth v Diprose (1992) 175 CLR 621, 628; Wu v Ling [2016] NSWCA 322, [11]–[12].

9

Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392, [161].

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The appellant's special disadvantages: pathological gambling [131] In light of the differences in the opinions of Dr Blaszczynski and Dr Allcock as to the extent of the appellant's ability to choose to refrain from, or to cease, gambling, it is evident that, when the primary judge expressed his acceptance of all the experts without adverting to these differences, he was referring only to the diagnosis of the appellant as a man who suffered from a ‘maladaptive pattern of gambling behaviour characterised by [a] failure to control the urge to gamble’. His Honour did not find that the appellant suffered from incapacity to control the urge to gamble; he may be taken to have accepted the evidence of Dr Allcock on this point: Abalos v Australian Postal Commission (1990) 171 CLR 167 at 178–179; Fox v Percy (2003) 214 CLR 118 at 127 [26] ... [132] It is also tolerably clear that, whether one is focused upon the ‘enticement case’ or the theory of exploitation of the appellant's ‘special disabilities’ advanced in this Court, the primary judge found that the appellant did not ‘present’ to Crown as a man incapable of making worthwhile decisions in his own interests so far as gambling with Crown was concerned. [133] Importantly, his Honour found that the appellant's ‘level of functioning in each of the personal, familial, financial, vocational and legal levels was ... unremarkable.’ Further, his Honour found that the appellant's ‘finances were, at least to outward appearances and perhaps in fact, in sound, perhaps excellent, shape.’ These findings are quite inconsistent with a view of the appellant as a person unable to make a responsible decision as to whether he could afford to indulge himself as a high roller, and should or should not do so, much less that Crown knew, or should have known, that he could not. [134] The findings of fact summarised above, understood in the light of the preference of the primary judge for the evidence of Dr Allcock, support the conclusion of Mandie JA, with whom Almond AJA agreed (Kakavas v Crown Melbourne Ltd [2012] VSCA 95 at [27]), that: His Honour's finding about the plaintiff's pathological gambling condition (taking it at its highest) did not necessitate a finding that the plaintiff was in a position of special disability when dealing with Crown or, more precisely, when entering his various gambling transactions (ie making his wagers).

[135] In the light of the primary judge's findings, we do not accept that the appellant's pathological interest in gambling was a special disadvantage which made him susceptible to exploitation by Crown. He was able to make rational decisions to refrain from gambling altogether had he chosen to do so. He was certainly able to choose to refrain from gambling with Crown.

The appellant's special disadvantages: the IEO [136] From 19 June 2002, the Gaming Legislation (Amendment) Act 2002 (Vic) effected amendments to the Casino Control Act 1991, the result of which was that any person subject to an ‘interstate exclusion order’ (as defined in s 3(1) of the Casino Control Act) became excluded from all casinos in Victoria (s 77(2)). Further, the amendment imposed a duty upon Crown to include the name of any person the subject of an IEO of which it is or was aware in a daily list of excluded persons to be provided to regulatory personnel (s 76).

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[137] The Gambling Regulation Act 2003 (Vic) was assented to on 16  December 2003. Section 12.1.2 of that Act inserted s 78B into the Casino Control Act. The new section, headed ‘Forfeiture of winnings’, took effect on 1 July 2004. It provided that all winnings paid or payable to a person the subject of an IEO are forfeited to the State of Victoria. [138] We do not accept that the IEO can itself be described as a special disability or disadvantage of the kind discussed in the authorities. To the extent that the existence of the IEO adversely affected the appellant in terms of his ability to retain his winnings, that cannot sensibly be described as a personal disability. Rather, it was a legal constraint upon the appellant imposed, as the primary judge found, by the Commissioner of Police in light of security concerns. [139] The effect of the IEO can sensibly be described as a special disadvantage only because the appellant was ignorant of its effect. There is no finding that Crown's employees adverted to the effect of the IEO when the appellant returned to Crown's casino in mid-2005. Furthermore, there is no finding, and indeed no evidence, that any of Crown's employees were aware that the appellant did not appreciate the effect of the IEO under the Casino Control Act.

Exploitation of the appellant's special disadvantages: Crown's knowledge [141] On the appellant's behalf it is said that when Crown initiated contact with the appellant in late 2004, it was sufficiently concerned about the appellant as a problem gambler to require him to undergo an assessment and to provide it with a report clearing him of any gambling problems. The appellant points to the finding by the primary judge that Crown ‘knew of a problem [and] might have acknowledged, if asked in 2004 whether the problem would resurface when Mr Kakavas returned to the Casino, that that was a possibility.’ Further, in that regard, Crown knew that he had a history of gambling problems for which he had been medically treated, and that he was, in 2004, gambling and losing millions of dollars in Las Vegas. It also knew that Mr Healey had declined to provide the appellant with a clearance, and that Ms Brooks' report stated that she was ‘unable to do an assessment of his suitability for re-admission’ to the casino. [142] None of these circumstances required the primary judge to find that Crown's employees came to an appreciation that the appellant was labouring under a special disability which adversely affected his capacity to make worthwhile decisions in his own interests as to whether or not to avail himself of Crown's gambling facilities. It needs to be borne in mind that there is no suggestion that Ms Brooks' report did not accurately reflect the view which the appellant wished to convey to Crown, viz, that he ‘had conquered his past demons’ and that he had a ‘relapse plan’ which he ‘would not hesitate to implement’. It is not possible to say that Crown's employees did not accept Ms Brooks' report at face value. [143] Nor is it possible to accept the attempt on the appellant's behalf to characterise the evidence given by Crown's employees in this regard as a cynical attempt to conceal their predatory attitude towards the appellant. To accept that view of their evidence would not be consistent with either the primary judge's findings of fact, or the appellant's disclaimer of any challenge to those findings. Further, one cannot accept the invitation on behalf of the appellant to infer that the concern of some of Crown's employees that the appellant should obtain a report from a psychologist concerning the appellant's suitability for re-admittance to its casino itself revealed an appreciation of his disability. The concern of Crown's employees is readily

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understood as self-protective prudence. Given the appellant's criminal past and his threats to sue Crown, it is readily understandable that some of Crown's employees would be astute to ensure that there should be an accurate record of the basis of the appellant's re-admittance to its casino. The primary judge was well placed to make a sound assessment of the character of the witnesses and the dynamics of the relationship between the appellant and Crown's employees. [144] It is pertinent to note here the observations by Dawson, Gaudron and McHugh JJ in Louth v Diprose (1992) 175 CLR 621 at 639-641 that proof of the interplay of a dominant and subordinate position in a personal relationship depends, ‘in large part, on inferences drawn from other facts and on an assessment of the character of each of the parties.’ Their Honours observed that findings by a trial judge (at 641), ‘which were substantially dependent on the trial judge's assessment of character and credit and which were reached having regard to the demeanour of the parties in the witness box ... are findings which, unless some error is to be discerned, an appeal court must respect.’ … [146] [The] assessment by the primary judge of how the appellant ‘presents’ must be accorded significant weight, given his Honour's finding that the appellant did not present to Crown as a man whose ability to make worthwhile decisions to conserve his own interests was adversely affected by his unusually strong interest in gambling. The appellant did not present as a target for victimisation by Crown, any more than the other high rollers feted by Crown at its casino while they chose to gamble there. Furthermore, and importantly in relation to the issue of constructive notice, the primary judge's assessment of the appellant as a man ‘who was a natural salesman and negotiator ... determined, eloquent and ready with a quick riposte ... robust and confident – perhaps too confident’ suggests a practical problem in now relying on notions of constructive knowledge to fix Crown with the full appreciation of the full nature and extent of the appellant's abnormality which might have been derived from active inquiry into the appellant's personality. The practical success of any such inquiry would depend in large measure on the willingness of the appellant to cooperate with those conducting the inquiry. Having regard to the primary judge's assessment of the appellant, there must be a question as to whether his cooperation would have been forthcoming. It is not necessary to resolve that question here, given that, as we will explain directly, the appellant's attempt to rely upon constructive notice must fail in point of principle. [147] As to the IEO, to the extent that the appellant was obliged by the Casino Control Act to forfeit his winnings by reason of the operation of the IEO, there is no finding that Crown's employees adverted to that circumstance, much less that they decided to exploit that circumstance: Crown paid the appellant his winnings. [148] As the primary judge found, Crown's officers ‘did not appreciate the significance’ of the IEO. On that basis, the IEO ‘did not form part of any unconscientious decision to welcome Mr Kakavas as a patron.’ That Crown's employees were inadvertent as to the consequences of the IEO, requiring the appellant to forfeit his winnings, may be said to reflect poorly on them, as the individuals responsible for ensuring that Crown complied with the Casino Control Act, but it does not suggest that they were seeking to victimise the appellant. On the primary judge's findings, they were as ignorant of the consequences of the IEO as he was.

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[After rejecting the appellant’s argument that the authorities established that the concept of constructive notice had been imported into the operation of the Amadio principle, the Court continued] [158] In Louth v Diprose (1992) 175 CLR 621 at 637 Deane J made it clear that the extent of the knowledge of the disability of the plaintiff which must be possessed by the defendant is an aspect of the question whether the plaintiff has been victimised by the defendant. In this regard, Deane J said that the special disability must be (at 637): sufficiently evident to the other party to make it prima facie unfair or 'unconscionable' that that other party procure, accept or retain the benefit of, the disadvantaged party's assent to the impugned transaction in the circumstances in which he or she procured or accepted it. …

[160] Even if, contrary to the findings of the primary judge, the appellant did suffer from a psychological impairment, the issue here is whether, in all the circumstances of the relationship between the appellant and Crown, it was sufficiently evident to Crown that the appellant was so beset by that difficulty that he was unable to make worthwhile decisions in his own interests while gambling at Crown's casino. On the findings of fact made by the primary judge as to the course of dealings between the parties, the appellant did not show that his gambling losses were the product of the exploitation of a disability, special to the appellant, which was evident to Crown. [161] Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind. Heedlessness of, or indifference to, the best interests of the other party is not sufficient for this purpose. The principle is not engaged by mere inadvertence, or even indifference, to the circumstances of the other party to an arm's length commercial transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation with which the principle is concerned. [17.10] The main remedy will be rescission of the contract, although partial rescission (rescission to the extent of the unconscionability) may be possible in some cases.10 As in other cases where a rescission is available, this remedy may be lost in some circumstances such as where the innocent party affirms the contract, restitutio in integrum is no longer available, or an innocent third party has acquired an interest in the subject matter for value. Remedy may also be denied where there is delay or lack of clean hands on the part of the innocent party.

STATUTE [17.11] There is legislation which deals with unconscionability in certain specific situations, such as consumer credit contracts and hire-purchase contracts. Other legislation addresses unconscionability in a more general way. Chief among these is the Australian Consumer

10 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.

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Law, (ACL) enacted as Schedule 2 of the Competition and Consumer Act 2010 (Cth) and also incorporated as part of the laws of the states and territories11and, in New South Wales, the Contracts Review Act 1980.

Australian Consumer Law [17.12]

Australian Consumer Law Section 20: Unconscionable conduct within the meaning of the unwritten law (1) A person must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law. (2) This section does not apply to conduct that is prohibited by section 21. This section replaces the former Trade Practices Act 1974 (Cth), s 51AA and cases that have interpreted that section will be relevant to the interpretation of s 20 of the ACL. [17.13] The precise meaning of ‘unconscionable conduct within the unwritten law’ is yet to be finally settled. The concept of unconscionability is arguably to be found at two levels in the unwritten law—a generic level which informs the fundamental principle according to which equity acts and a specific level at which the usage of ‘unconscionability’ is limited to particular categories of case.12 While the explanatory memorandum for the legislation enacting the section noted that it was intended to cover the type of circumstance addressed in the Amadio case and to provide access to the expansive remedies under the ACL, it has been held that the phrase ‘from time to time’ in s 20 might mean that the section cannot be so limited and arguably might catch other instances of unconscionable conduct such as equitable estoppel, sharp practice or harsh and oppressive exercise of rights relief from forfeiture.13 The High Court has left this point to another day to be resolved.14 [17.14] The Act also contains provisions addressing unconscionable conduct in the supply or acquisition of goods or services. The prohibition is contained in s 21 of the ACL and nonexhaustive lists of factors that may be taken into account are provided in s 22 of the ACL. This section replaces the former ss 51AB–51AC of the Trade Practices Act 1974 (Cth), and cases that have interpreted those sections may be relevant to the interpretation of ss 21–22 of the ACL.

11 Fair Trading (Australian Consumer Law) Act 1992 (ACT), s 7; Fair Trading Act 1987 (NSW), s 28; Consumer Affairs and Fair Trading Act 1990 (NT), s 27; Fair Trading Act 1989 (Qld), s 16; Fair Trading Act 1987 (SA), s 14; Australian Consumer Law (Tasmania) Act 2010 (Tas), s 6; Fair Trading Act 1999 (Vic), s 9; Fair Trading Act 2010 (WA), s 19. 12 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2000) 169 ALR 324 at 334 per French J. 13 Australian Competition and Consumer Commission v Samton Holdings (2002) 189 ALR 76, 93 (Fed Ct FC). 14 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 197 ALR 153.

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[17.15]

Australian Consumer Law Section 21: Unconscionable conduct in connection with goods or services (1) A person 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) This section does not apply to conduct that is engaged in only because the person engaging in the conduct: (a) institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or (b) refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition. (3) For the purpose of determining whether a person has contravened subsection (1): (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section. (4) It is the intention of the Parliament that: (a) this section is not limited by the unwritten law relating to unconscionable conduct; and (b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and (c) in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of: (i)

the terms of the contract; and

(ii)

the manner in which and the extent to which the contract is carried out;

and is not limited to consideration of the circumstances relating to formation of the contract.

Section 22: Matters the court may have regard to for the purposes of section 21 (1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 21 in connection with the supply or possible supply of goods or services to a person (the customer), the court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the customer; and

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(b) whether, as a result of conduct engaged in by the supplier, the customer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and (e) the amount for which, and the circumstances under which, the customer could have acquired identical or equivalent goods or services from a person other than the supplier; and (f) the extent to which the supplier’s conduct towards the customer was consistent with the supplier’s conduct in similar transactions between the supplier and other like customers; and (g) the requirements of any applicable industry code; and (h) the requirements of any other industry code, if the customer acted on the reasonable belief that the supplier would comply with that code; and (i) the extent to which the supplier unreasonably failed to disclose to the customer: (i)

any intended conduct of the supplier that might affect the interests of the customer; and

(ii)

any risks to the customer arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the customer); and

( j) if there is a contract between the supplier and the customer for the supply of the goods or services: (i)

the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and

(ii)

the terms and conditions of the contract; and

(iii)

the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and

(iv)

any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and

(k) without limiting paragraph ( j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the customer for the supply of the goods or services; and (l) the extent to which the supplier and the customer acted in good faith. (2) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the acquirer) has contravened section 21 in connection with the acquisition or possible acquisition of goods or services from a person (the supplier), the court may have regard to: (a) the relative strengths of the bargaining positions of the acquirer and the supplier; and

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(b) whether, as a result of conduct engaged in by the acquirer, the supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer; and (c) whether the supplier was able to understand any documents relating to the acquisition or possible acquisition of the goods or services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the supplier or a person acting on behalf of the supplier by the acquirer or a person acting on behalf of the acquirer in relation to the acquisition or possible acquisition of the goods or services; and (e) the amount for which, and the circumstances in which, the supplier could have supplied identical or equivalent goods or services to a person other than the acquirer; and (f) the extent to which the acquirer’s conduct towards the supplier was consistent with the acquirer’s conduct in similar transactions between the acquirer and other like suppliers; and (g) the requirements of any applicable industry code; and (h) the requirements of any other industry code, if the supplier acted on the reasonable belief that the acquirer would comply with that code; and (i) the extent to which the acquirer unreasonably failed to disclose to the supplier: (i)

any intended conduct of the acquirer that might affect the interests of the supplier; and

(ii)

any risks to the supplier arising from the acquirer’s intended conduct (being risks that the acquirer should have foreseen would not be apparent to the supplier); and

( j) if there is a contract between the acquirer and the supplier for the acquisition of the goods or services: (i)

the extent to which the acquirer was willing to negotiate the terms and conditions of the contract with the supplier; and

(ii)

the terms and conditions of the contract; and

(iii)

the conduct of the acquirer and the supplier in complying with the terms and conditions of the contract; and

(iv)

any conduct that the acquirer or the supplier engaged in, in connection with

(v)

their commercial relationship, after they entered into the contract; and

(k) without limiting paragraph (j), whether the acquirer has a contractual right to vary unilaterally a term or condition of a contract between the acquirer and the supplier for the acquisition of the goods or services; and (l) the extent to which the acquirer and the supplier acted in good faith. [17.16] ‘Unconscionable conduct’ is not defined in s 21 of the ACL. Unlike s 20, ‘unconscionable conduct’ under s 21 is not limited to the meaning within the unwritten law.15 The section requires 15 ACL, s 21(4)(a); see also Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253; Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491.

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an assessment of business behaviour (ie conduct in trade or commerce) to determine whether it warrants being characterised as unconscionable, in light of the values and norms recognised by the statute.16 Notions of justice, fairness, vulnerability, advantage and honesty are central.17 In Pacioco v ANZ Banking Group18 Allsop CJ described the evaluation process in the following terms: [296] It does not involve personal intuitive assertion. It is an evaluation which must be reasoned and enunciated by reference to the values and norms recognised by the text, structure and context of the legislation, and made against an assessment of all connected circumstances. The evaluation includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing; and the conduct of an equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment and exercise of power and discretion based thereon. [297] … It should be emphasised, however, that faithfulness or fidelity to a bargain freely and fairly made should be seen as a central aspect of legal policy and commercial law. It binds commerce; it engenders trust; it is a core element of decency in commerce; and it gives life and content to the other considerations that attend the qualifications to it that focus on whether the bargain was free or fair in its making or enforcement. [298] The normative standard of a business conscience referred to in the statute is permeated with accepted and acceptable community values:  Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 at [23]; Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [64] and Australian Securities and Investment Commission v National Exchange Pty Ltd [2005] FCAFC 226 ; 148 FCR 132 at 139–140, esp [30]. [304] In any given case, the conclusion as to what is, or is not, against conscience may be contestable. That is inevitable given that the standard is based on a broad expression of values and norms. Thus, any agonised search for definition, for distilled epitomes or for shorthands of broad social norms and general principles will lead to disappointment, to a sense of futility, and

16 Pacioco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50, [304] per Allsop CJ. 17 Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90, [41]. 18 [2015] FCAFC 50.

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to the likelihood of error. The evaluation is not a process of deductive reasoning predicated upon the presence or absence of fixed elements or fixed rules. It is an evaluation of business behaviour (conduct in trade or commerce) as to whether it warrants the characterisation of unconscionable, in the light of the values and norms recognised by the statute. [305] The task is not limited to finding ‘moral obloquy’; such may only divert the normative inquiry from that required by the statute, to another, not tied to the words of the statute. The clearest example of the lack of need for dishonesty, at least in Equity in unconscionable conduct (in the unwritten law), is the lack of criticism of the bank manager in Amadio by Deane J: 151 CLR at 478. See also Johnson v Smith [2010] NSWCA 306 at [5] and Aboody v Ryan [2012] NSWCA 395 at [65]. Such is not to deny that, in many cases of unconscionable conduct in Equity, a degree of moral criticism may attend the evaluation that the relevant conduct was unconscionable.19 [17.17] The remedies for breach of the sections are damages,20 an injunction,21 or ancillary remedies as the court deems appropriate.22 In appropriate case, there may be accessorial liability where it is found that a third party aided and abetted the breach of the sections.23

Contracts Review Act 1980 (NSW) [17.18] In New South Wales, unconscionable conduct is also dealt with by the Contracts Review Act 1980 (NSW). [17.19]

Contracts Review Act 1980 (NSW) Section 7: Principal relief (1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part,

19 This approach was not disturbed on appeal: Pacioco v Australia and New Zealand Banking Group Ltd (2016) 333 ALR 569, [292]–[294] per Keane J (with whom French CJ and Kiefel J agreed). See Commonwealth Bank of Australia v Kojic [2016] FCAFC 186, [55]. 20 ACL, s 236. 21 ACL, s 232. 22 ACL, ss 237, 243. These orders include an order for compensation. 23 Remedies are available not only against a person who contravenes the section but also those ‘involved’ in the contravention. ‘Involved’ is defined in the ACL, s 2(1) as including a person who aids and abets a contravention.

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(c) it may make an order varying, in whole or in part, any provision of the contract, (d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that: (i)

varies, or has the effect of varying, the provisions of the land instrument, or

(ii)

terminates or otherwise affects, or has the effect of terminating or otherwise

(iii)

affecting, the operation or effect of the land instrument.

(2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order. (3) The operation of this section is subject to the provisions of section 19.

Section 9: Matters to be considered by Court (1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract. (2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) whether or not: (i)

any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or

(ii)

any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented,

because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i)

the parties to the contract (other than a corporation), and

(ii)

any person who represented any of the parties to the contract,

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(g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, ( j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i)

by any other party to the contract,

(ii)

by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or

(iii)

by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract,

(k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract. (3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made. (4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made. (5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made. [17.20] The Act provides a wide power for courts exercising New South Wales jurisdiction to review contracts deemed to be unjust. The direction in s 9(1) is for a court to consider the public interest. One aspect of the public interest is keeping people to their freely entered bargains,24 while another is the advancement of the protection which the Act gets to those ‘not able fully to protect themselves and to those preyed upon by dishonesty, trickery and other forms of predation.’25 The list in s 9(2) is not intended to be exhaustive, although it is not unusual for a judge, when applying the section, to regard each factor in turn to see whether it is present in the circumstances of the case.26 The court must apply contemporary community standards when

24 Baltic Shipping Co v Dillon (1991) 22 NSWLR 1, 9. 25 Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, [269]–[270]. 26 See, for example, Melverton v Commonwealth Development Bank (1989) ASC 55-921 at 58,460; Broadlands International Finance Ltd v Sly (1997) ANZ Conv R 328.

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deciding whether a contract is unjust. These standards may change from time to time.27 The Act calls for an evaluative exercise that at its heart recognises the inadequacy of one party to protect her or his interests in the circumstances.28 [17.21] The operation of the Act is excluded from certain contracts—namely trade, business, or professional contracts (apart from those in farming operations)29—and to award conditions in contracts of employment.30 The Crown, a public or local authority, or a corporation cannot obtain relief under the Act.31 Despite these exclusions, courts have tended to take a wide approach to contracts that are subject to the provisions of the Act. [17.22]

West v AGC (Advances) Ltd (1986) 5 NSWLR 610 New South Wales Court of Appeal Mrs West borrowed money from AGC for a dual purpose: to discharge an existing mortgage on the home (which she was having trouble in paying off) and to lend money to her husband’s company. Mrs West was the only partner of a director who was prepared to risk her family home in this way. AGC could reasonably foresee that the company was at risk of being wound up but, unknown to AGC, the company was already insolvent, even with the loan from Mrs West. Mrs West received no independent legal advice and had no solicitor. She was advised against the transaction by her son and a barrister friend. Further, she knew that the wives of the other directors had refused to put their homes up as security. She was well aware that she was giving a mortgage, and that AGC could have recourse against the property in the event of default by the company. She also had some experience with business practice and concepts and was not (as McHugh JA commented) merely a suburban housewife or ordinary home owner. The company was subsequently wound up, and following her default on the loan, AGC sought to enforce the guarantee against her. Mrs West sought relief under the Contracts Review Act 1980 (NSW). McHugh JA Under s 7(1) a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. Thus a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision:  cf s 9(2)(d). In other cases the contract may not be unjust per se but may be unjust because in the circumstances the claimant did not have the capacity or opportunity to make an informed or real

27 Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41. 28 Provident Capital Ltd v Papa [2013] NSWCA 36, [7]. 29 See s 6(2). 30 See s 21. 31 See s 6(1).

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choice as to whether he should enter into the contract: cf s 9(2)(a), 9(2)(e), 9(2)(f), 9(2)(g), 9(2)(i), 9(2)( j). More often, it will be a combination of the operation of the contract and the manner in which it was made that renders the contract or one of its provisions unjust in the circumstances. Thus a contract may be unjust under the Act because its terms, consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust because of the unfairness of the methods used to make it. This is procedural injustice. Most unjust contracts will be the product of both procedural and substantive injustice. The definition of ‘unjust’ in s 4 is not exclusive. It is in my opinion a mistake to think that a contract or one of its terms is only unjust when it is unconscionable, harsh or oppressive. Contracts which fall within any of those categories will be ‘unjust’. But the latter expression is not limited to the so-called ‘tautological trinity’. The Contracts Review Act 1980 is revolutionary legislation whose evident purpose is to overcome the common law’s failure to provide a comprehensive doctrinal framework to deal with ‘unjust’ contracts. Very likely its provisions signal the end of much of classical contract theory in New South Wales. Any contract or contractual provision, not excluded from the operation of the Act and which the court considers is unjust in the circumstances existing at the time when it was made, may be the subject of relief under the Act. Moreover, the provisions of s 9(2) do not exhaustively indicate the criteria as to what can be taken into account in determining whether a contract or any of its provisions is unjust. The provisions of s 9(2) of the Act are concerned for the most part with matters of procedural injustice. But the court is entitled to have regard to all the circumstances of the case, subject to s 9(4), and the public interest. In an appropriate case gross disparity between the price of goods or services and their value may render the contract unjust in the circumstances even though none of the provisions of s 9(2) can be invoked by the applicant. Indeed, notions of unfairness and unreasonableness will, I  think, generally be present when a contract or any of its provisions is declared unjust. This will particularly be the case where procedural injustice is relied on. If a contract or one of its relevant provisions is neither unfair nor unreasonable so far as the applicant is concerned, it is difficult to see how the existence of inequality in bargaining power or lack of independent advice, for example, can render the contract or a provision of the contract unjust. It is important to bear in mind that it is the contract or its provisions which must be unjust. As Professor Lang has pointed out ‘it is not the transaction but the contract which must be initially examined’: Macquarie University Continuing Education Program, ‘Contracts Review Act 1980—in practice’ (22 May 1980)  at 32. The Contracts Review Act regulates contracts not investments. During the Second Reading debate the Minister, who introduced the Bill, quoted a statement of Professor Peden who said that the legislation was: … intended to confer on the courts a new and wide discretion to determine the existence and extent of harshness in a contract, and thereby develop a doctrine of unconscionability suitable to present and future business and community needs and standards (my emphasis): New South Wales Parliamentary Debates (1980) at 5858.

If a defendant has not been engaged in conduct depriving the claimant of a real or informed choice to enter into a contract and the terms of the contract are reasonable as between the

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parties, I do not see how that contract can be considered unjust simply because it was not in the interest of the claimant to make the contract or because she had no independent advice. The late Professor Peden who was largely responsible for the drafting of the Act has said that in accordance with his recommendation: ‘… the Act does not include the term ‘unfair’ since this might have been interpreted to include situations in which, although the contract favours one party, there has been no abuse of power or unfair conduct on his part’: Macquarie University Continuing Education Program, ‘Contracts Review Act 1980—in practice’ at 17.

This passage brings out the important point that, under this Act, a contract will not be unjust as against a party unless the contract or one of its provisions is the product of unfair conduct on his part either in the terms which he has imposed or in the means which he has employed to make the contract. In this respect it stands in marked contrast with the provisions of the Industrial Arbitration Act 1940, s 88F, which provides, inter alia, that the Industrial Commission may declare certain types of contract or arrangements void on the ground that they are ‘unfair’. In his Second Reading Speech the Minister pointed to the mischief which the Act was designed to remedy and the purpose which it sought to achieve. He said that the common law ‘has failed to develop a general doctrine for relief against unconscionable contracts’. He went on to say that it was ‘Parliament’s duty to provide legislative power and guidelines within which justice in the matter of unconscionable bargains can be achieved’:  New South Wales Parliamentary Debates (1980) at 5531. In the present case Mrs West relies on both the operation of the terms of the deed of loan and guarantee as well as the circumstances in which it was made as indicating that the deed was unjust … The Contracts Review Act 1980 is beneficial legislation. It must be interpreted liberally. But it operates within and not outside the domain of the law of contract, except for one form of ancillary relief available for the benefit of a person not a party to the contract. By executing the deed of loan and memorandum of mortgage, Mrs West agreed to repay the loan which she obtained from AGC. She did so … with a full appreciation of the consequences and against the advice of her son, a trained accountant. The deed and mortgage were ordinary commercial documents containing no unfair or unjust terms. AGC was guilty of no unfair conduct towards her. Mrs West’s predicament is a sad one. But it is the consequence of the financial failure of [her husband’s company]. The primary responsibility for her predicament lies with those who induced her to provide her house as security for the obtaining of a loan of money four-sevenths of which was to go to [the company]. But her refusal to accept prudent advice also played a considerable part in that predicament. If Quiche had succeeded, Mrs West would have gained nearly $30,000. Unfortunately, it failed. Messrs Young, Cranston and Kennedy whom his Honour has ordered should reimburse Mrs West for 65 per cent of her liability to AGC appear to be unable to meet their obligations. Moreover it also seems that her husband who was ordered to reimburse her for a further 20 per cent of that liability is without the means to do so. The result is that by reason of her contract Mrs West alone must repay the money which she borrowed from AGC.

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[Hope JA agreed with McHugh JA. Kirby P dissented on the ground that s 7 should not be hampered by reference to pre-existing law or this ‘beneficial’ legislation will be ineffective in providing remedies according to discretion. Here he thought the absence of independent legal or expert advice deprived this suburban housewife of the cautions that would certainly have been given to her concerning the risk to her residence in a transaction of manifest financial unwisdom. Accordingly the contract was unjust within the terms of the Act.] [17.23] It seems that a contract may be ‘unjust’ because its terms, consequences, or effects were unjust (substantive injustice) or because of the unfairness of the methods used to make it (procedural injustice). Many unjust contracts will be the product of both procedural and substantive injustice.

QUESTIONS FOR REFLECTION (1) Do you agree with the majority of the High Court in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 that commercial vulnerability does not constitute ‘special disadvantage’ for the purposes of Amadio-type claims? Do you prefer the analysis of the majority (as represented by Gleeson CJ here) or Kirby J of the situational disadvantage suffered by the Roberts in that case, and why? Would the approach of Kirby J have any implications for commercial dealings? (2) Should s 20 of the ACL be restricted to Amadio-type cases of unconscionable conduct? What would be the implications if it applied more broadly, such as to cases involving equitable estoppel? (3) Should all jurisdictions have a statute conferring a discretion to review a contract like that provided by the Contracts Review Act 1980 (NSW)? Is such a general statute required or is s 23 of the ACL concerning unfair terms in consumer contracts sufficient? Is there any good justification for the later provision being limited to consumer contracts? What impact do such provisions have on classical contract theory, including freedom of contract?

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INTRODUCTION [18.01] A contract may be rendered ‘illegal’ in two ways: it may be prohibited by statute, or it may be contrary to public policy at common law. However, not all contracts that contravene a statute or are contrary to public policy are properly described as illegal. These contracts may instead be referred to as being ‘void’.

VOID CONTRACTS [18.02] The category of contract that is regarded as void would seem to embrace contracts deemed by statute to be void as well as three categories of contract that are, at common law, contrary to public policy:  (1) contracts in restraint of trade; (2)  contracts containing clauses that attempt to oust the jurisdiction of the court; and (3) contracts prejudicial to the status of marriage. [18.03] Whether a contract is deemed void by statute is a question of statutory interpretation. For example, the Competition and Consumer Act 2010 (Cth) provides that clauses purporting to exclude, restrict, or modify the liability of a corporation imposed by Division 2 of Part V of the Act (that is the implication of terms such as an implied condition of merchantability and of fitness for purpose) are void. [18.04] A restraint of trade is a promise by one party, the ‘covenantor’, to give up a freedom that he or she would otherwise enjoy in relation to his or her trade, for the benefit of another party, the ‘covenantee’.1 For example, it is common for contracts for the sale of business to include a promise by the vendor to not establish a similar business within a certain distance of the business sold and/or within a certain time of the sale. Such a clause enables the purchaser to get what he or she has paid for and the vendor to get the best price possible. Similarly, often

1

Amoco Aust Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, 304–305, 313–314.

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an employment contract will include a promise by the employee to not do similar work, thereby protecting the employer’s interests such as clientele and trade secrets. [18.05] At common law, restraints of trade are regarded as prima face void. However, they may be justified if they are reasonable both as between the parties and from the perspective of the public interest. [18.06]

Nordenfelt v Maxim-Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 House of Lords Nordenfelt was a manufacturer of guns and ammunition. The business had clients from all around the world. Nordenfelt sold his business to a company in consideration of a payment of the equivalent of $1,000,000 and Nordenfelt being restrained from being involved in the munitions industry or any other business that might be carried on by the company for a period of twenty-five years. There was no geographical limit to the restraint. Lord Macnaghten The true view at the present time, I think, is this. The public have an interest in every person’s carrying on his trade freely; so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and, therefore, void. That is the general rule. But there are exceptions. Restraints of trade and interference with individual liberty of action, may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed, it is the only justification, if the restriction is reasonable—reasonable, that is, in reference to the interest of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public. That, I think, is the fair result of all the authorities … In the present case it was hardly disputed that the restraint was reasonable, having regard to the interests of the parties at the time when the transaction was entered into. It enabled Mr Nordenfelt to obtain the full value of what he had to sell; without it the purchasers could not have been protected in the possession of what they wished to buy. Was it reasonable in the interests of the public? It can hardly be injurious to the public, that is the British public, that a person is prevented from carrying on a trade in weapons of war abroad. But apart from that special feature in the present case, how can the public be injured by the transfer of a business from one hand to another? If a business is profitable there will be no lack of persons ready to carry it on. In this particular case the purchasers brought in fresh capital, and had at least the opportunity of retaining Mr Nordenfelt’s services. But then it was said there is another way in which the public may be injured. Mr Nordenfelt has ‘committed industrial suicide,’ and as he can no longer earn his living at the trade which he has made peculiarly his own, he may be brought to

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want and become a burden to the public. This seems to me to be very far fetched. Mr Nordenfelt received over [$1,000,000] for what he sold. He may have got rid of the money, I do not know how that is. But even so I would answer the argument in the words of Tindal CJ, in Rannie v Irvine (1844) 7 Man & G 969 at 976, 977; 135 ER 393): If the contract is a reasonable one at the time it is entered into, we are not bound to look out for improbable and extravagant contingencies in order to make it void.

[Lords Herschell LC, Watson, Ashbourne and Morris delivered similar judgments]. [18.07] Factors taken into account when determining whether the restraint goes no further than reasonably necessary to protect the covenantee’s interests include the scope of the restraint in terms area, duration and activities covered; the consideration for the restraint; the relative bargaining power of the parties; and the context of the contract. As noted in the Nordenfelt Case, this assessment is made at the time of the restraint. It was also noted that greater latitude is shown when judging the reasonableness of a covenant in a sale of a business than one in an employment contract.2 [18.08] Often a restraint held to be reasonable as between the parties will be regarded as reasonable in the public interest. Nevertheless, the two are separate questions, and there may be occasions when the interests of the public will require a restraint that is reasonable between the parties to be held void.3 [18.09] At common law, it is contrary to public policy to attempt to deny access to the courts by one or both parties. However, the parties to a contract are entitled to agree that any dispute arising between them may be settled by a particular person or body, or that final determination of fact may be made by a particular person or body, provided that recourse to the courts remains open for determination of questions of law.4 [18.10] Further, contractual provisions that are deemed prejudicial to the status of marriage are regarded as being contrary to public policy on the grounds that there should be no interference with the ‘consortium of matrimony’.5 Changing social norms may mean that this category of case has diminished relevance today.6

2

See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 18.2.2(a).

3

Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, 307 per Walsh J.

4

Lee v Showmen’s Guild of Great Britain [1952] 2 QB 329; Baker v Jones [1954] 1 WLR 1005.

5

Newcastle Diocese Trustees v Ebbeck (1960) 104 CLR 394, 415 per Windeyer J.

6

See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 18.2.2(c).

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ILLEGAL CONTRACTS [18.11] A  contract may be rendered illegal either by statute or as a matter of public policy at common law. Whenever the contract is deemed illegal the court applies the ex turpi causa non oritur actio doctrine—no cause of action arises out of the illegality. In other words, ‘no court will lend its aid to a man who founds his cause of action upon an immoral or illegal’7—the court will entertain no action based on the contract.

Illegality by statute [18.12] A contract may be rendered illegal by statute in one of three ways namely where: (a) the making of the agreement or the doing of an act essential to its formation is expressly prohibited absolutely or conditionally by the statute; (b) the making of the agreement is impliedly prohibited by statute. A particular case of an implied prohibition arises where the agreement is to do an act the doing of which is prohibited by the statute; (c) the agreement is not expressly or impliedly prohibited by a statute but is treated by the courts as unenforceable because it is a ‘contract associated with or in the furtherance of illegal purposes’.8 The question of whether a contract is prohibited by statute is one to be decided on the specific statute and the facts of the particular case. A prohibition may be of the formation of a type of contract or of the way a contract has been performed. [18.13] It is not often that a statute will expressly prohibit a contract. More commonly a court will be called upon to determine whether legislation impliedly prohibits the contract as it was formed or performed. The effect of the legislation must be derived from its language and its objective.9 Accordingly, there is not one single test for whether a contract as formed or performed is impliedly prohibited by a statute.10 Relevant factors will include the objective of the statute (such as whether it is intended to protect the public or merely raise revenue),11 the form of any sanction it provides for its breach12 and the effect of finding invalidity upon innocent members of the public.13

7

Holman v Johnson (1775) 1 Cowp 341 at 343; 98 ER 1120, 1121.

8

Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 [23]; cited with approval in Gnych v Polish Club Ltd (2015) 255 CLR 414 [35] per French CJ, Kiefel, Gageler, Keane and Nettle JJ. See also Nelson v Nelson (1995) 184 CLR 538, 551–2; Miller v Miller (2011) 242 CLR 446 [26] per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ.

9

St John’s Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267 at 287; Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 414; Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215, 244.

10 Tonkin v Cooma-Monaro Shire Council [2006] NSWCA 50. 11 Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215, 245 per Kirby J; Ambassador Refrigeration Pty Ltd v Trocadero Building and Investment Co Pty Ltd [1968] 1 NSWR 75; Whitsunday Shire Council v Laguna Australia Airport Pty Ltd [2007] QSC 84; cf Cope v Rowlands (1836) 2 M&W 149; 150 ER 707. 12 Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410, 429; Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215, 244 per Kirby J. 13 Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410; Bondlake Pty Ltd v Owners—Strata Plan No 60285 (2005) 62 NSWLR 158.

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[18.14]

Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 High Court of Australia The plaintiff lent the defendant a sum of money secured by a mortgage and several guarantees. When the defendant defaulted on the loan, the plaintiff sued the debtor and the guarantors. In their defence, the debtor and guarantors argued that the mortgage and guarantees were illegal, based on the Banking Act 1959 (Cth), s 8. This section prohibited a body corporate from carrying on any banking business in Australia unless it possessed a relevant authority. The section prescribed a penalty of $10,000 for each day during which a contravention continued. At the time of the transaction, the plaintiff was carrying on the business of banking without an authority. Gibbs ACJ There are four main ways in which the enforceability of a contract may be affected by a statutory provision which renders particular conduct unlawful: (1) The contract may be to do something which the statute forbids; (2) The contract may be one which the statute expressly or impliedly prohibits; (3) The contract, although lawful on its face, may be made in order to effect a purpose which the statute renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits. In the present case we are not concerned with the first of these possible situations. Clearly s 8 does not render it unlawful to borrow or lend money or to give and take a mortgage, supported by guarantees, to secure its repayment. The contract sued upon was therefore not to do anything which s 8 forbids. The principal question in the case is whether s 8, on its proper construction, prohibited the making or performance of the contract. As will be seen, if that question is answered in the negative, it will not be possible to say that the contract cannot be enforced on the ground that it was made in order to effect an unlawful purpose or was performed in an unlawful manner … The question whether a statute, on its proper construction, intends to vitiate a contract made in breach of its provisions, is one which must be determined in accordance with the ordinary principles that govern the construction of statutes. One consideration that has been regarded as important in a great many cases, of which Cope v Rowlands (1836) 2 M&W 149; 150 ER 707 is a notable example, is whether the object of the statute—or one of its objects—is the protection of the public. An antithesis is commonly suggested between an intention to protect the public and an intention simply to secure the revenue, and it is said that when the former intention appears the contract must be taken to be prohibited, whereas if the intention is only to protect the revenue the statute will not be construed as imposing a prohibition on contracts. The question whether the statute was passed for the protection of the public is one test of whether it was intended to vitiate a contract made in breach of its provisions, but … it is not the only test. It would be contrary to reason and principle to allow one circumstance to override all other considerations in the interpretation of a statute …

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There is no doubt that Pt II of the Banking Act, in which s 8 appears, was enacted partly at least for the protection of depositors, or that one object of s 8 is the protection of the public. Section 8 of course does not expressly prohibit the making or performance of contracts, but the argument advanced on behalf of the appellants was that the prohibition which it imposes on an unauthorized body corporate from carrying on any banking business extends to all activities which go to make up the business of banking, except such as are merely collateral or peripheral. It was said that a contract to lend money on mortgage supported by guarantee is central to the business of banking and that such a contract, when made by a body corporate unlawfully carrying on the business of banking, and in the course of that business, is prohibited by s 8 on its proper construction. However the receipt of money on deposit is equally central to the business of banking, and if the argument put on behalf of the appellants is correct, s 8 would invalidate not only those contracts by which a body corporate carrying on an unauthorized banking business agreed to lend money, but also all contracts pursuant to which it agreed to receive money from depositors. The result of accepting this argument might be that persons who had deposited money with such a body corporate would be unable to seek the assistance of the courts to recover it. Moreover, if a body corporate were unable to recover money that it had lent, it would be disabled from performing its own obligations, including those owed to its depositors. In those circumstances ‘the avoidance of the contract would cause grave inconvenience and injury to innocent members of the public without furthering the object of the statute’ (Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] 1 QB 74 at 390; Dalgety and New Zealand Loan Ltd v VC Imeson Pty Ltd (1963) 63 SR (NSW) 998 at 1004). Another relevant consideration is the fact that the penalty which s 8 imposes is a pecuniary sum for each day during which the contravention continues. It is immaterial whether, on any day, the body corporate makes one contract, or one hundred; the penalty is the same. This is an indication that the Parliament did not intend to prohibit each contract made in the course of the business, but only to penalize the carrying on of the business without authority … The language of s 8 indicates that it is directed, not at the making or performance of particular contracts, but at the carrying on of any banking business. In the course of carrying on such a business a body corporate may make and perform contracts, many, if not all, of which might be made equally by a bank or by a company which is not carrying on banking business. A  contract to lend money on mortgage is one example; a contract of employment is another. Although all of the contracts made by a body corporate in the course of carrying on a banking business are ex hypothesi things which it does in carrying on the business, that is, in doing what is unlawful, it is impossible to accept that the legislature intended to invalidate all such contracts with the result that contracts to pay its employees, or those who provided it with services, would be void. The appellants recognized this by making the submission to which I have already referred, that the effect of the section is that only those contracts are invalidated which are in their nature central to the business of banking. I have already said that even if that argument were accepted the effect of the section would still be gravely inconvenient. However there is not the slightest indication in the Act that the Parliament intended that the validity of contracts made by a body corporate carrying on business in breach of s 8 should

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depend on whether or not they were central to the business of banking. Such a test would in any event be vague and unsatisfactory. There have been many cases in which a statute which imposes a penalty on an unlicensed or unqualified person for acting in a particular capacity has been held to prohibit by implication all contracts express or implied made by such a person to act in that capacity … In those cases the unsuccessful plaintiff did the very thing which the statute forbade him to do unless he was authorized, for example, he acted as a broker (Cope v Rowlands), drew and prepared a conveyance (Taylor v The Crowland Gas and Coke Co (1854) 10 Ex 293; 156 ER 455), did electrical work (Kocotis v D’Angelo (1957) 13 DLR (2d) 69); or acted as a real estate agent (Commercial Life Assurance Co v Drever [1948] 2 DLR 241). Those cases are clearly distinguishable from the present, where in making and performing the contract the parties have not done or contracted to do anything which the Act expressly forbids … Having regard to the language of s 8, and to the matters to which I have referred, I conclude that s 8, on its proper construction, does not vitiate contracts made by a body corporate in the course of carrying on a banking business in breach of the section. This conclusion also disposes of the question whether the contract in the present case was unlawfully performed by the respondent and is for that reason unenforceable. Of course s 8 does not proscribe any particular mode of performance for contracts of this kind. It could only be said that the contract was performed in violation of s 8 if that section forbids a body corporate which is carrying on a banking business in contravention of the section to perform such a contract if made in the course of its unauthorized banking business. The reasons that I have given for holding that s 8 does not prohibit the making of contracts of this kind lead also to the conclusion that it does not prohibit their performance. As was pointed out in St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267, the test is the same whether the contract itself, or the manner of its performance, is said to be illegal. The performance of a contract may turn it into the sort of contract that is prohibited by the statute, and the test is whether the contract, as made or as performed, is a contract that is prohibited by the statute. Further it cannot be said that the contract was performed for any illegal purpose. There is of course no suggestion that the money was borrowed for an illegal purpose, and the fact that the contract was made in the course of the unlawful banking business does not mean that the contract was made in order that the unlawful purpose of carrying on a banking business without authority could be achieved or carried out. Once it is held that neither the making nor the performance of the contract was unlawful, the fact that the contract was made and performed in the course of the conduct of an unlawful business provides no ground for denying relief to the respondent. The illegality then is something merely casual or adventitious. [Mason J (with whom Aickin J agreed), Jacobs and Murphy JJ expressed similar views. Mason J (Aickin J agreeing) also expressed support for the view that once a statutory penalty has been provided for an offence the role of the common law in determining the legal consequences of commission of the offence is thereby diminished.] [18.15] The third category of case—contracts associated with or in furtherance of illegal purposes—recognises that there are cases where the breach of a norm of conduct stated

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expressly or implied in the text of a statute requires the conclusion that an obligation created that is contrary to that norm is not to be enforced by the courts.14 The refusal to enforce the contract arises not from express or implied legislative prohibition but from common law public policy.15 [18.16]

Equuscorp Pty Ltd v Haxton (2012) 286 ALR 12 High Court of Australia Members of the Johnson family began to develop a blueberry farming and tourist complex at Blueberry Hill, north of Sydney. They sought to attract investors by offering a series of schemes which included among the attractions the fact that the amounts invested would be deductible for income tax purposes. Each of the schemes involved investors paying money to a company of which members of the Johnson family were directors (’Growers’) to purchase an interest in the farm, whether by way of joint venture, leasehold or licence. The investor would then engage another company of which members of the Johnson family were directors (’Management’) to maintain and harvest the crop in return for paying an annual fee. These charges were pre-paid by the investor when entering the scheme. The produce, which was owned by the investor, would be sold at a guaranteed price for five years to a third company of which members of the Johnson family were directors (’Buyer’). The proceeds of the sale of the produce would then be shared between the investor and Growers. A particular feature of the schemes was that a fourth company of which members of the Johnson family were directors (’Rural’) offered finance to investors on very attracted terms. Rural would lend to the investors for five years the amount of maintenance and harvest charges to the pre-paid to Management and interest payable under the loan. That left as the only outlay required of the investors personally two relatively small capital repayments. The loan also provided that the guaranteed proceeds of the harvest sales over the first five years would be applied to repay the balance of the loan, including the pre-paid interest. The expected result of the schemes was that the investor, for a modest outlay, would receive a tax deduction to the full value of the loan and interest, the prospect of further farm income after five years and, ultimately, the capital value of the interest in the project. Subsequently, the Johnson group of companies secured a grant of loan facilities from Equuscorp, for which Equuscorp registered charges over the assets of the various companies. Despite these loan facilities the schemes collapsed. Equuscorp sought to, inter alia, recover the loan monies paid to the investors by Rural. It transpired that the schemes were contrary to s 170 of the Companies Code in each of the investors’ states, which prohibited a company from issuing to the public an

14 Nelson v Nelson (1995) 184 CLR 538, 611. 15 Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215, 227 per McHugh and Gummow JJ. See also Yango Pastoral Co v First Chicago Australia Ltd (1978) 139 CLR 410 429–30; Nelson v Nelson (1995) 184 CLR 538, 551–552, 593 and 611.

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offer for the subscription or purchase a prescribed interest in the absence of a prospectus, which was required to set out certain prescribed matters including extensive information about the role of an investment. Section 174 then provided a penalty of a fine and/or imprisonment for contravention of s 170. French CJ, Crennan and Kiefel JJ [21] Section 170(1) of the Code and associated provisions underpinned the finding by the primary judge that the loan agreements were unenforceable for illegality. Section 170(1) appeared in Div 6 of Pt IV of the Code at the time that the schemes were entered into and provided: A company or an agent of a company shall not issue to the public, offer to the public for subscription or purchase, or invite the public to subscribe for or purchase, any prescribed interest unless a statement in writing in relation to that prescribed interest has been registered by the Commission under Division 1.

The ‘statement’ was required to set out ‘prescribed matters’ including extensive information about the relevant investment. Section 174(1) provided, inter alia, that a person shall not contravene or fail to comply with a provision of s 170 and imposed a penalty of $20,000 or imprisonment for five years or both. Section 174(2) provided: A person is not relieved from any liability to any holder of a prescribed interest by reason of any contravention of, or failure to comply with, a provision of this Division.

It was not an offence against the Code to take up a prescribed interest which was issued or offered to the public or the subject of an invitation to the public in contravention of s 170(1). [22] Division 6 of Pt IV of the Code entitled ‘Prescribed interests’ (ss 164–177) was a descendant of s 10 of the Companies Act 1955 (Vic). Section 10 later became s 63 of the Companies Act 1958 (Vic). That section and associated provisions were reflected in Div 5 of Pt IV of the Uniform Companies Acts and the Seventh Schedule to those Acts. The immediate predecessor of s 170 of the Code was s 82 of the Uniform Companies Acts. Their policy was obvious enough. It was to protect members of the public by requiring prior disclosure of information relevant to their investment decisions:  Corporate Affairs Commission (SA) v Australian Central Credit Union [1985] HCA 64; (1985) 157 CLR 201 at 210 per Mason ACJ, Wilson, Deane and Dawson JJ; [1985] HCA 64; Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 at 402 per Kirby P, 421 per Mahoney JA. Provisions of that kind have a long lineage in corporate regulation: Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 at 421 per Mahoney JA. [23] The effect of the prescribed interest provisions on agreements associated with the issue of such interests in contravention of the Code was primarily a matter of statutory construction, but also involved the application of the common law. As appears from the joint judgment in this Court in Miller v Miller (2011) 242 CLR 446 at 458, and the decisions of this Court cited in that judgment, an agreement may be unenforceable for statutory illegality where: (i)

the making of the agreement or the doing of an act essential to its formation is expressly prohibited absolutely or conditionally by the statute: Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 423 per Mason J, Aickin J agreeing at 436; Nelson v Nelson (1995) 184 CLR 538 at 552 per Deane and Gummow JJ;

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(ii)

the making of the agreement is impliedly prohibited by statute: Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 423 per Mason J. A particular case of an implied prohibition arises where the agreement is to do an act the doing of which is prohibited by the statute: Nelson v Nelson (1995) 184 CLR 538 at 552 per Deane and Gummow JJ; 

(iii)

the agreement is not expressly or impliedly prohibited by a statute but is treated by the courts as unenforceable because it is a ‘contract associated with or in the furtherance of illegal purposes’: Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 432 per Jacobs J; Nelson v Nelson (1995) 184 CLR 538 at 552 per Deane and Gummow JJ.

In the third category of case, the court acts to uphold the policy of the law, which may make the agreement unenforceable. That policy does not impose the sanction of unenforceability on every agreement associated with or made in furtherance of illegal purposes. The court must discern from the scope and purpose of the relevant statute ‘whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable.’ Miller v Miller (2011) 242 CLR 446 at 459. As in the case when a plaintiff sues another for damages sustained in the course of or as a result of illegal conduct of the plaintiff, ‘the central policy consideration at stake is the coherence of the law.’ Miller v Miller (2011) 242 CLR 446 at 454. [24] The making of the loan agreements was not expressly prohibited by the Code. The primary judge did not discuss in his reasons whether their making was impliedly prohibited. There was evidently no submission before his Honour that the making of the loan agreements was prohibited as conduct by Rural making it liable as an accessory to primary contraventions of the Code. It appears that the primary judge held the loan agreements to be unenforceable as against the respondents on the common law ground that they were made in furtherance of an illegal purpose. The precise basis of their unenforceability was not further explored in the Court of Appeal. [25] In Nelson v Nelson (1995) 184 CLR 538 at 552 Deane and Gummow JJ observed, in relation to contracts associated with or in furtherance of illegal purposes, that: [t]he formulation of the appropriate public policy in this class of case may more readily accommodate equitable doctrines and remedies and restitutionary money claims than is possible where the making of the contract offends an express or implied statutory prohibition. [Footnote omitted.]

That observation involves the rejection of any inflexible or rigid rule excluding noncontractual claims in cases involving contracts unenforceable for illegality. In this case, the answer to the question whether it would have been open to Rural to pursue claims for money had and received under the loan agreements depends upon a number of factors but critically upon whether vindication of those claims would have frustrated or defeated, or have been inconsistent with, the statutory purpose of the provisions of the Code relating to the issue of prescribed interests. The requirement of coherence in this area of the law is not satisfied by the mere exclusion of an implied legislative intention to render unenforceable a contract made

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in furtherance of a contravening purpose. Unenforceability flows from the application of the common law informed, inter alia, by the scope and purpose of the relevant statute. [French CJ, Crennan and Kiefel JJ proceeded to discuss the basis of the claim in restitution for monies had and received16 before concluding as follows.] [45] Had a right to claim restitution for money had and received been available to Rural in this case, it would have been able to recover by such claims what the policy of the law denied it in respect of the loan agreements. Rural was not an arm’s length financier. It was part of the closely related group of companies that were involved in the promotion of the schemes. The loan agreements were an integral part of the schemes and in so far as they involved the issue of invitations and offers to investors to take up prescribed interests without the benefit of the protections required by the Code, furthered that illegal purpose. As in the Hurst case, while not essential to the investments, the loans made the investments more attractive. Recovery from the investors would have been recovery from persons whose protection was the object of the statutory scheme. The respondents were not in pari delicto with Rural. The failure of consideration invoked by Equuscorp was the product of Rural’s own conduct in offering the loan agreements in furtherance of an illegal purpose. This is a clear case in which the coherence of the law, and the avoidance of stultification of the statutory purpose by the common law, lead to the conclusion that Rural did not have a right to claim recovery of money advanced under the loan agreements as money had and received. There was therefore no right to claim such relief available for assignment to Equuscorp. In any event, for the reasons that follow, any such rights, if they had existed, would not have been assigned by the Deed. …. Gummow and Bell JJ [96] If a statute expressly forbids the doing of a particular act then the making of an agreement to do that act may be treated as impliedly prohibited by the statute. That was not the case with the loan agreements upon which [the investors] Mr Haxton, Mr Bassat and Cunningham’s were sued. However, that is not the end of the matter. What was said in the joint reasons in Miller v Miller (2011) 242 CLR 446 at 457–458 in the following passage is relevant here:  But in addition to, and distinct from, cases where a statute expressly or impliedly prohibits the making or performance of a contract, are cases ‘where the policy of the law renders contractual arrangements ineffective or void even in the absence of breach of a norm of conduct or other requirement expressed or necessarily implicit in the statutory text’: International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 179 per Gummow, Hayne, Heydon, Crennan and Kiefel JJ. In cases of the latter kind the refusal to enforce the contract has been held (Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215 at 227 per McHugh and Gummow JJ) to stem: not from express or implied legislative prohibition but from the policy of the law, commonly called public policy: Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 429–430, 432–433; Nelson v Nelson (1995) 184 CLR 538 at

16 See [25.26].

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551–552, 593, 611. Regard is to be had primarily to the scope and purpose of the statute to consider whether the legislative purpose will be fulfilled without regarding the contract as void and unenforceable:  Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 434.

Their Honours added (Miller v Miller (2011) 242 CLR 446 at 458–459): As McHugh J explained in Nelson v Nelson (1995) 184 CLR 538 at 611 to approach the doctrine of illegality in this way, in cases where the statute in question does not expressly or impliedly prohibit the contract or trust, or the doing of some particular act that is essential for carrying it out, recognises that the legal environment in which the doctrine now operates is much more regulated than once it was. Moreover, as McHugh J also pointed out ((1995) 184 CLR 538 at 611), Lord Mansfield’s statement in Holman v Johnson [1775] EngR 58; (1775) 1 Cowp 341 at 343 [98 ER 1120 at 1121]. that ‘[n]o Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act’, by its all-embracing generality, fails to take sufficient account of the different ways in which questions of illegality may arise. Hence the emphasis given in Nelson v Nelson (1995) 184 CLR 538 at 570, 616–618, and in both Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215 at 227 and International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 180 to the discernment, from the scope and purpose of the statute, of whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable. But implicit in, indeed at the very heart of, that process lies the recognition that there are cases where the breach of a norm of conduct stated expressly or implied in the statutory text requires the conclusion that an obligation otherwise created or recognised is not to be enforced by the courts.

… [97] Byrne J concluded that each of the investments, in respect of which the loan agreements now before this Court had been made, ‘breached s 170’ and added ((2007) 216 FLR 1 at 27): It was accepted by counsel for [Equuscorp] that such a conclusion would carry with it the consequence that the agreements for the acquisition of those interests were illegal and unenforceable against the investors. They conceded, further, that the investors might, at their option, terminate or rescind these agreements. Finally, it was accepted that, in their defences filed in 1999, each of the investors did in fact terminate the agreement.

His Honour then proceeded ((2007) 216 FLR 1 at 27–28): The remaining issue in this case is whether the illegality and its consequent impact upon the agreement made by the investors for the acquisition of the prescribed interests affect also the loan agreements. It is well established that, in this statute or others which have equivalent prohibitions, a contract entered into as a direct consequence of the prohibited activity is tainted and will not be enforced. This has led the courts to conclude that, in schemes such as the present, the unenforceability attaches not only to the agreements which make up the scheme, but also those which provide the finance for it, at least where the finance providers are implicated in the scheme. This is because the finance agreement was entered into as a direct consequence of the illegal act: Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 at 412–413

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per Kirby P, 443 per McHugh JA and because the financial transaction was an essential part of the scheme so that it cannot be seen sensibly to stand without the scheme: see, too, O’Brien v Melbank Corporation Ltd (1991) 7 ACSR 19 at 31–32 per Fullagar J, 48–49 per McGarvie J, 67 per O’Bryan J; Australian Breeders Co-operative Society Ltd v Jones [1997] FCA 1405; (1997) 150 ALR 488 at 535–538 per Wilcox and Lindgren JJ.

His Honour then concluded that each of the five investments with which these appeals are concerned ‘was entered into as a direct consequence of a breach of s 170’, and added [(2007) 216 FLR 1 at 28]: Nor is there any room for doubt that each of the loan agreements was entered into as part of the investment schemes. It would follow from this that the loan agreements were also unenforceable against the investors unless they can be seen as severable from the transaction. The relationship between [Rural] and Mr AJ Johnson, Mr FE Johnson, [Growers], [Management] and the Buyer is such that [Rural] cannot present itself as an innocent third party unconnected with the schemes.

[Gummow and Bell JJ continued to consider the claim by Equuscorp in restitution for monies had and received and held17 that allowing recovery on that basis would stultify the statutory policy evident in Div 6 of Pt IV of the Companies Code. They agreed with French CJ, Crennan and Kiefel JJ in their reasons in holding that in these circumstances Equuscorp, as successor to Rural, could not complain that the loss was left to lie where it had fallen. Heydon J dissented on the ground that there had been a total failure of consideration and that Equuscorp was entitled to recover the loan monies as a money had and received. His Honour thought that if the Code were to be construed as precluding recovery of the money advanced as money had and received, it would be extremely unjust in its operation and unjustly enrich the investors, who were willing participants in the unenforceable contracts whether they knew of the facts making them unenforceable or not. His Honour thought the onerous sanctions for breach of s 170, which included fines and imprisonment, was a statutory indication that the sanctions so imposed were sufficient to deal with the breach.]

Illegality at common law [18.17] Aside from contracts prohibited by statute, a contract may be illegal at common law on the ground that is contrary to public policy. In the past, courts have applied this principle in only a limited number of situations, namely contracts to commit a crime or tort; contracts promoting sexual immorality; contracts to defraud the revenue; contracts prejudicial to the administration of justice; contracts tending to corrupt public officials; and contracts prejudicial to national security or foreign relations.18

17 See [25.26]. 18 See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018, section 18.3.2(b).

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[18.18]

Wilkinson v Osborne (1915) 21 CLR 89 High Court of Australia The respondents, who were Members of the NSW Parliament, agreed with a land agent that they would use their influence to persuade the government to purchase a property belonging to the client of the appellant, who was a land agent. After the conclusion of the sale, the parliamentarians sued the agent for the promised fee. After they obtained judgment they issued a bankruptcy notice against the agent. Isaacs J What is the test of ‘public policy’ which a Judge is entitled and bound to apply to an agreement, the validity of which is impeached on that ground? It is not easy to collect or to reconcile all the observations on the subject of ‘public policy.’ But the judgment of Lord Halsbury LC in Janson v Driefontein Consolidated Mines Ltd [1902] AC 484 at 490 makes it clear that a Court has not a roving commission to declare contracts bad as being against public policy according to its own conception of what is expedient for or would be beneficial or conducive to the welfare of the State. A Court, says the Lord Chancellor, cannot invent a new head of public policy, and he enumerates some instances of undoubtedly unlawful things. Then says the learned Lord:  ‘It is because these things have been either enacted or assumed to be by the common law unlawful, and not because a Judge or Court have a right to declare that such and such things are in his or their view contrary to public policy. Of course, in the application of the principles here insisted on, it is inevitable that the particular case must be decided by a Judge; he must find the facts, and he must decide whether the facts so found do or do not come within the principles which I have endeavoured to describe—that is, a principle of public policy, recognized by the law, which the suggested contract is infringing, or is supposed to infringe.’ He quotes with approval the words of Parke B in Egerton v Brownlow [1853] EngR 885; 4 HLC 1 at 123 to the same effect. And this confirms my own reading of that case, that the House did not necessarily reject all the fundamental principles enunciated by the majority of the Judges. In Janson’s Case [1902] AC 484 at 504–505 Lord Robertson adopts the same reasoning, and the general tenor of the judgments of Lord Macnaghten and Lord Lindley is confirmatory of the same view. In my opinion the ‘public policy’ which a Court is entitled to apply as a test of validity to a contract is in relation to some definite and governing principle which the community as a whole has already adopted either formally by law or tacitly by its general course of corporate life, and which the Courts of the country can therefore recognize and enforce. The Court is not a legislator: it cannot initiate the principle; it can only state or formulate it if it already exists. The rule of law as to contracts against public policy is constant—namely, that every bargain contrary to such a social governing principle is regarded as prejudicial to the State, or, in other

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words, contrary to ‘public policy’ or, as it is sometimes called, ‘policy of the law,’ and the State by its tribunals refuses to enforce it. But, as was said by the Judicial Committee in Evanturel v Evanturel (1874) LR 6 PC 1 at 29, ‘the determination of what is contrary to the so-called “policy of the law” necessarily varies from time to time. Many transactions are upheld now by our own Courts which a former generation would have avoided as contrary to the supposed policy of the law. The rule remains, but its application varies with the principles which for the time being guide public opinion.’ So in the Nordenfelt v Maxim-Nordenfelt Guns and Ammunition Co [1894] AC 535 the observations of Lord Watson (at 553–554) and Lord Macnaghten (at 565) run upon the same lines. But the point to bear in mind is that the principle which is to be the standard of legality must at the time be one which is of general recognition in the community as one essential to its corporate welfare. Some are not the subject of actual law—such as sexual morality and the promotion of marriage. Others are recognized as fundamental principles of the common law—as the protection of the public revenue, the administration of justice, the freedom and inherent duty of the Legislature and Executive. Others, again, arise by Statute directly or indirectly, for whatever a Statute enacts is beyond all question, to that extent, the policy of the country. Whatever tends to defeat an enactment is necessarily against public policy. I apprehend, therefore, the duty of this Court is confined to inquiring whether there is at the present moment any governing principle existing in New South Wales, whether as a recognized essential part of the corporate life of the community or as part of the common or Statute law of the State, which is infringed by the bargain between the appellant and the respondents by reason of its express terms or the tendency of its operation. The Courts must, to quote Lord Watson’s words in the Nordenfelt Case [1894] AC 535 at 554, ‘ascertain, with as near an approach to accuracy as circumstances permit, what is the rule of policy for the then present time. When that rule has been ascertained, it becomes their duty to refuse to give effect to a private contract which violates the rule and would, if judicially enforced, prove injurious to the community.’ The Courts refuse to give effect to such a bargain, not for the sake of the defendant, not to protect any interest of his—indeed, they do not fail to notice that his failure to abide by his agreement sometimes adds dishonesty to illegality—but they refuse to enforce the bargain for the sake of the community, who would be prejudiced if such a bargain were countenanced. The existence and nature of the principle or rule here rests upon the effect of the law of the State Constitution read by the light of the doctrine of responsible government, and the further specific effect of the closer settlement legislation. As to the first, the duty of a member of the Legislature is unquestionable. As Lord Lyndhurst said in Egerton v Brownlow [1853] EngR 885; 4 HLC 1 at 161: ‘In the framing of laws it is his duty to act according to the deliberate result of his judgment and conscience, uninfluenced, as far as possible, by other considerations, and least of all by those of a pecuniary nature.’ And I may add that the same obligation exists in relation to his duty in watching on behalf of the public all the acts of the Executive. Without that, responsible government would be but a name.

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… Men who place themselves in the position of forcing through the zone of ministerial approbation a project that awakens such resistance as the evidence discloses, must have been very ardent advocates of its adoption. Paid advocacy of that kind by a member of the Legislature having the duty of supervision and a possible veto is a position in which he allows his interest to conflict with his duty, and, therefore, is a position which the law will not allow. To get back into the atmosphere of impartial criticism was impossible. They had embarrassed their public action; they had for private gain compromised their future determination of the propriety of the purchase; they had placed themselves in a position where, even if their own bargain in strict terms stopped with the primary acceptance of the purchase by the Executive, still the respondents’ Parliamentary opposition to a motion of approval would have looked uncommonly like ingratitude to Wilkinson on one side, and misleading the Government on the other. And this would be enough to invalidate the contract, because to some extent at least interest would have conflicted with duty, and the law does not measure the extent of such conflict. As Lord Shaw observed in the Thames and Mersey Marine Insurance Co Case [1911] AC 529 at 544: ’The law does not attempt the task; the penalty against such a conflict between interest and duty is the invalidation of the bargain.’ … But on the facts of this case I entertain no doubt that the respondents were bargaining with Wilkinson to use the weight and influence they possessed by virtue of their positions as members of Parliament. How they came to be selected, the nature of the work they performed, the manner in which they performed it, all point unmistakably to the conclusion that it was not their business experience or ability that was wanted by Wilkinson or utilized by them, but their opportunities and ability of influencing the Executive to advance the business proposal that hung fire. It would be disastrous to the community to permit this to be recognized as a legitimate subject of traffic; it would encourage those who are appointed to be sentinels of the public welfare to become—if I may borrow a phrase from another case—the ‘sappers and miners’ of the Constitution. And this Court would be doing less than its own duty if it hesitated to denounce such traffic in the most positive terms. [Griffith CJ delivered a judgment that also found the agreement void as against public policy. Gavan Duffy J agreed with both judgments.] Isaacs J indicated that the categories recognised by the law were regarded as exhaustive, though not immutable. However, modern courts may be prepared to take a more flexible approach to finding illegality.19

19 Ibid.

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Effects of illegality [18.19] The traditional approach is that where a contract is illegal, ex turpi causa non oritur actio (‘no cause of action arises out of the base cause [the illegality]’)20 Thus, no action is available in the event of a breach of contract. For example, damages cannot be recovered, the contract cannot be terminated, and amounts due under the contract or money or property transferred under the contract cannot be recovered. However, exceptions have been recognised where a claimant is not in pari delicto, that is not equally at fault, with the other party. Even if one of those exceptions does not apply, modern courts may be prepared to take a more flexible approach to the consequences of illegality. [18.20]

Fitzgerald v FJ Leonhardt Pty Ltd (1977) 189 CLR 215 High Court of Australia An owner of land entered into a contract with a driller who was licensed under the Water Act 1992 (NT) to drill a minimum of three bores. In all, seven bores were drilled, but only three were productive. A  dispute arose concerning the amount owing under the contract and the driller sued the owner. In transpired that at the time four of the bores were drilled they were unauthorised under the Act because the owner had inadvertently failed to obtain necessary bore construction permits under s 57 of the Act. The owner therefore claimed that the contract was illegal and that he therefore was not liable. McHugh and Gummow JJ The contract as framed did not call for the commission of any illegality. Nor did the statute prohibit some particular act that was essential for carrying out the contract. Performance of the work would have answered the requirements of the contract if the owner had obtained licences under s 57. In Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] 1 QB 374 at 391, Devlin LJ said: It is a familiar principle of law that if a contract can be performed in one of two ways, that is, legally or illegally, it is not an illegal contract, though it may be unenforceable at the suit of a party who chooses to perform it illegally. That statement of the law is meaningful if the contract is one which is by its terms open to two modes of performance; otherwise it is meaningless.

In the present case, it was possible for the contract to be performed without contravening the Act. In so far as the contract was performed in contravention of the legislation, the contravention was the consequence of failure by the owner to observe requirements imposed upon him. There was no failure by the driller to observe requirements placed upon it by the Act …

20 Holman v Johnson (1775) 1 Cowp 341, 343; 98 ER 1120, 1121.

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The action by the driller to recover moneys owing to it by the owner was not an action by a party to a contract who had chosen to perform it illegally. The penalty imposed by s 56(1) was directed at a party in the position of the owner rather than the driller … The question then becomes whether, as a matter of public policy, the court should decline to enforce the contract because of its association with the illegal activity of the owner in, if not causing, then at least suffering or permitting the construction and drilling of bores, within the meaning of s 56(1), without the grant to the owner of permits pursuant to s 57. The refusal of the courts in such a case to regard the contract as enforceable stems not from express or implied legislative prohibition but from the policy of the law, commonly called public policy. Regard is to be had primarily to the scope and purpose of the statute to consider whether the legislative purpose will be fulfilled without regarding the contract as void and unenforceable. Section 56 prescribes a penalty. In such a case, the role of the common law in determining the legal consequences of commission of the offence may thereby be diminished because the purpose of the statute is sufficiently served by the penalty. Here, the imposition of an additional sanction, namely inability of the driller to recover moneys otherwise owing by the owner, would be an inappropriate adjunct to the scheme for which the Act provides. The contrary decision would cause prejudice to an innocent party without furthering the objects of the legislation … In Nelson v Nelson (1995) 184 CLR 538 at 604–605, McHugh J referred to the dictum of Lord Mansfield in Holman v Johnson (1775) 1 Cowp 341 at 343; 98 ER 1120 at 1121 that no court would lend its aid to a plaintiff founding the cause of action upon an immoral or illegal act. In Holman v Johnson itself, the actual holding was that the contract in question was insufficiently associated with or in furtherance of the illegal purpose of the defendant in buying tea to be smuggled into England without payment of customs duties. McHugh J identified authorities subsequent to Holman v Johnson which were to be seen as providing four exceptions or qualifications whereby relief was granted despite the presence of illegality. Three of these, those concerned with ignorance or mistake on the part of the claimant; the character of the statutory scheme as one for the benefit of a class of which the claimant is a member; and fraud, oppression or undue influence by the defendant, have been treated as instances of a broader principle. This is said to be that, notwithstanding the illegality, relief may still be available to the plaintiff if the plaintiff not be in equal fault with the defendant, that is to say not in pari delicto. However, in the light of the approach taken in Nelson v Nelson to comparable questions arising with respect to trusts, the issues of contract law in this case should not be approached by considering any general in pari delicto doctrine. The preferable course, in cases of contract alike to those involving trusts, is as follows. A case may come within one of the accepted exceptions or qualifications to Holman v Johnson. As indicated above, these are set forth, with examples from authority, in the following passage from the judgment of McHugh J in Nelson v Nelson (at 604–605): First, the courts will not refuse relief where the claimant was ignorant or mistaken as to the factual circumstances which render an agreement or arrangement illegal. Second, the courts will not refuse relief where the statutory scheme rendering a contract or arrangement illegal was enacted for the benefit of a class of which the claimant is a member. Third, the courts will not refuse relief where an illegal agreement was induced by the defendant’s fraud, oppression

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or undue influence. Fourth, the courts will not refuse relief where the illegal purpose has not been carried into effect.

Even if the case does not come within one of those exceptions, the courts should not refuse to enforce contractual rights arising under a contract, merely because the contract is associated with or in furtherance of an illegal purpose, where the contract was not made in breach of a statutory prohibition upon its formation or upon the doing of a particular act essential to the performance of the contract or otherwise making unlawful the manner in which the contract is performed. Rather, the policy of the law should accord with the principles set out by McHugh J in Nelson v Nelson. His Honour said (at 613): Accordingly, in my opinion, even if a case does not come within one of the four exceptions to the Holman dictum to which I have referred, courts should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with an unlawful purpose unless: (a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or (b)(i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct; (ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect its objects or policies; and (iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statute or the frustration of its policies.

As we have indicated, if the present case be approached in that way, the result is that the defence of illegality correctly failed and there was no bar to the full recovery by the driller of the amount claimed … Kirby J The following principles may be derived from past authority to assist in the resolution of the application of the Act to the contract in question here and its performance: (1) The first task of a court is to ascertain the meaning and application of the law which is said to give rise to the illegality affecting the contract. The law in question may be a rule of the common law but nowadays it is much more likely to be a provision of legislation. The substantial growth of legislative provisions affecting all aspects of the society in which contracts are made presents a legal environment quite different from that in which the doctrine of illegality was originally expressed … The first function of the court, where a breach of a legislative provision is alleged, is to examine the legislation so as to derive from it a conclusion as to whether a relevant breach is established and, if so, what consequences flow either from the express provisions of the legislation or from implications that may be imputed to the legislators. Little, if any, assistance will be derived for the ultimate task of a court from examination of the terms of other statutes or judicial classifications of them or by reference to their meaning as found. (2) Occasionally, the legislation in question will expressly provide for the consequence of illegality upon contracts made or performed in breach of its terms. In such a case the entire contract may, depending on the terms of the statute, be void and its performance unlawful as contrary to the express will of Parliament. The duty of a court in such a case is clear. No question of the good faith of the parties or their knowledge or intention is involved. Public policy is not, as such, raised, unless it be the general public policy that the courts

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should uphold the law of the land. What is presented is a pure question of the interpretation and enforcement of the legislation. This is a familiar task performed by courts with the usual tools of statutory construction. (3) Ordinarily, legislation does not expressly deal with the consequences of conduct in breach of its terms upon a contract which has been fulfilled in some way in breach of a provision of the law. In such a case, where the law in question is (as it typically is) a statutory provision, it is necessary to ask whether the legislation impliedly prohibits such conduct and renders it illegal. Some judges have suggested that courts today are less willing than in the past to derive an implication of illegality from a legislative provision where Parliament has held back from expressly enacting it. Certainly, there are plenty of judicial dicta to suggest that courts will be slow to imply, where the applicable legislation is silent, a prohibition which interferes with the rights and remedies given to parties by the ordinary law of contract. This reluctance probably grows out of a recognition of the multitude of legislative provisions, important and unimportant, which may nowadays indirectly impinge upon the contractual relations of parties and, if enforced with full rigour, cause harsh and unwarranted deprivation of rights. In part, this reluctance may be no more than a species of the general rule of statutory construction that legislation will not be interpreted to deprive parties of basic rights at common law without a clear expression of the legislative will to do so … The duty of courts remains, where legislation is involved, to give meaning to the imputed purpose of Parliament as found in the words used. It would be artificial to expel implications from the task of legislative construction where they remain an established feature of the interpretation and application of legislation generally. (4) One principle, however, which tends to reinforce the reluctance of courts to imply a prohibition on a contract, the formation or performance of which involves some breach of the law, is the conclusion which will often be derived from the express terms of the legislation itself. Thus, if the legislation provides in a detailed way for sanctions and remedies for breach of its terms, courts will require good reason to add to those express provisions additional civil penalties, such as the deprivation of contractual rights, which Parliament has not chosen to enact. Were it otherwise, the parties would be subject to the penalties (in the present case criminal) expressly provided by the legislation and still more (civil) by the deprivation of their property (contractual) rights. In a given case, such lost rights might be enormous, supplementing in a wholly arbitrary way, the defined penalties for which the legislature has expressly provided. (5) A distinction may be drawn between cases where there is nothing illegal in the formation of the contract or necessarily illegal in its performance and those cases where (as here) the performance has in fact involved a breach of the law. The case of a contract which, although lawful according to its own terms, may be performed in a manner which the statute prohibits, was one of the four categories suggested by Gibbs ACJ in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 413 to illustrate the ways in which the enforceability of a contract may be affected by a statutory provision rendering particular conduct unlawful … In such a case, it is not the contract as formed which is illegal. But the performance of the contract may be illegal if it is clear that the law in question prescribes

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that the contract must be performed in one way and one way only and that requirement has been breached. To ascertain whether such a breach has occurred it has been said that the illegality must affect the very core or essence of the contract. The fact that a statute was passed for the protection of the public is one test of whether it was intended to avoid a contract formed, or to be performed, in breach of its provisions. However, that is not the only test because the effect of the legislation is to be derived from its language in the ordinary way … It is important to keep the interpretation and public policy questions separate. Logically, the interpretation question arises first. This is because if, as a matter of interpretation, the contract is illegal as formed, or as performed, it is void as to those parts affected by the illegality. The secondary question of unenforceability for public policy reasons does not then arise. The contract is unenforceable but that is because it is void in law. The questions therefore to be asked are whether the Act invoked to taint the contract with illegality expressly prohibits the contract as formed or because of the way it was performed? If not, the subordinate question is whether the Act, by necessary inference, prohibits the contract as formed or because of the way it was performed? These are the construction questions. Only if the answers to those questions are in the negative does the further question arise whether, as a matter of public policy, the Court will allow the plaintiff to invoke its process to enforce the contract. Even if, as here, it is accepted that there was nothing illegal in the contract as formed, it remains for a court to consider whether, as performed, the contract is so in breach of a legislative provision as, by implication, to attract the operation of the Act, rendering the contract as performed to that extent unlawful and therefore void. Obviously, the issues posed by this question overlap with those relevant to the resolution of the question whether the contract is unenforceable on public policy grounds. But the two questions are not the same. Part of the confusion which has attended many of the authorities in these cases derives from a failure to make clear the distinction between the two issues. … There is no express provision in [the Act] relating to contracts. The Act, in terms, imposes a range of penalties for breaches of its provisions. Specific criminal penalties are imposed for breach of s 56(1). But those penalties, and the scheme of the Act, appear to exhaust the legislative purpose to uphold the requirements of obtaining pre-drilling authority. The necessity to add a sanction depriving parties of their contractual rights otherwise existing by law is not at all clear. This is not a case where it is essential to imply such a consequence into the Act in order to avoid frustration of its operation or the appearance of a court’s condonation or assistance to a party in achieving a breach of statute. Here, as the facts found show, both parties were innocent of any deliberate breach of the Act. The duty to secure the requisite permits lay upon the [owner]. The permits obtained conformed to the then (erroneous) understanding of the requirements of the Act. This was that only bore construction permits were required, that they could be issued retrospectively and that they were necessary only for successful bores drilled, not for ‘duds’. In these circumstances the proper classification of the illegality in question was that it was incidentally committed in the course of the performance of the contract. It was neither the express purpose of the legislature nor the implied effect of the Act that such an incidental

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violation as occurred here should deprive the [driller] of all remedies under its contract with the [owner]. If, as has been decided, there was a breach of s 56(1) by the [driller], it was one sounding in a penalty under that provision, and possibly action upon its drilling licence (eg, ss 50, 51). The additional sanction urged by the [owner] ought not to be implied into the Act … This leaves the separate question of whether, as a matter of public policy, a court should refuse a person in the position of the [driller] the aid of its process so as to enforce a contract in circumstances where, as performed, illegality has been demonstrated. The rule permitting a court to refuse its assistance to enforce a contract where to do so would be contrary to public policy is an ancient one. It was given expression by Lord Mansfield in Holman v Johnson (1775) 1 Cowp 341 at 343; 98 ER 1120 at 1121 in these terms: The principle of public policy is this … No Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act …

The fundamental rationale for withholding relief is one essentially of the court’s self-regard. It will not (unless required to) lend its authority and assistance to a party seeking to invoke its process in connection with illegal or otherwise seriously reprehensible conduct … Now, it was said long ago, and has been repeated often since, that public policy ‘is a very unruly horse’. Whereas it affords a measure of discretion to the courts to lend, or deny, their authority according to notions of the propriety, or otherwise, of enforcing a contract said to be affected by illegality or reprehensibility, the principle is scarcely conducive to certainty and consistency. Clearly, these are desirable objectives so far as the law of contract is concerned. Although some older authority suggests the classification of cases of public policy in closed categories to which courts will always deny relief, more recent decisions support a principle of greater flexibility. Thus, it has been said that public policy is not to be viewed as a ‘blunt, inflexible instrument’ … It would be absurd if a trivial breach of a statutory provision constituting illegality, connected in some way with a contract or contracting parties, could be held to justify the total withdrawal of the facilities of the courts. It would be doubly absurd if the courts closed their doors to a party seeking to enforce its contractual rights without having regard to the degree of that party’s transgression, the deliberateness or otherwise of its breach of the law and its state of mind generally relevant to the illegality. Similarly, it would be absurd if a court were permitted, or required, to consider the refusal of relief without careful regard to the relationship between the prohibited conduct and the impugned contract. Thus, different considerations may exist where the contractual rights being enforced arise directly from the illegality, as distinct from those which arise only incidentally or peripherally. It is one thing for courts to respond with understandable disfavour and reluctance to attempts to involve them and their processes in an inappropriate and unseemly way effectively in the advancement of illegality and wrong-doing. It is another to invoke a broad rule of so-called ‘public policy’ which slams the doors of the court in the face of a person whose illegality may be minor, technical, innocent, lacking in seriousness and wholly incidental or peripheral to a contract which that person is seeking to enforce.

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Considerations such as these led McHugh J in Nelson v Nelson to explore the ways in which a broad judicial discretion to withhold relief, the grant of which would affront ‘the public conscience’, could be given greater certainty of content. His Honour suggested that such a sanction would have to be proportionate to the seriousness of the illegality involved and not disproportionate to the seriousness of the breach (at 612–613). It would have to further the purpose of the statute and not impose a sanction for unlawful conduct beyond that which Parliament has expressly condoned (at 613) … If the criteria mentioned by McHugh J in Nelson are applied, it has already been held that the Act did not disclose an intention that the [driller’s] rights should be unenforceable in all circumstances. To refuse to enforce those rights would be disproportionate to the seriousness of the unlawful conduct in question. This is, in part, because the duty to obtain the necessary permit rested on the [owner]. According to the then administration of the Act, both the [owner] and the [driller] (and the authorities) thought they had done all that was required. It would be disproportionate to the [driller’s] unlawful conduct to deprive it almost entirely of recovery under the contract, although there was nothing illegal in the contract itself and the performance by the [driller] would have been lawful if the [owner] had secured the requisite permits. Against the background of the mistaken understanding about the meaning and operation of the Act, the imposition of such a sanction is not necessary to protect the objects or policies of the Act. Other sanctions exist to uphold those ends. The Act being silent on contracts, it is a preferable construction of its terms that, at least in circumstances such as the present, the parties should be able to enforce their legal rights in courts of law and should not be deprived of those rights under the rubric of unenforceability for public policy reasons any more than on the basis of the application to the contract of the suggested construction of the Act. The position would be quite different if what had been involved had been a specific agreement between the parties deliberately to breach the Act (eg by the use of unlicensed and neglectful drillers or the deliberate refusal to obtain any permit) or to perform the contract in a way clearly damaging to the scarce resource of ground water in the Territory. In such a case, even if the Act did not expressly or impliedly render the contract illegal and void, whether as formed or performed, there would be a strong argument to support the proposition that, on public policy grounds, the Court might refuse relief. To grant relief, in such circumstances, could affront the ‘public conscience’. In such a case, to involve a court in the enforcement of the rights of the parties could be to involve it in upholding a seriously anti-social act which was illegal or at least gravely reprehensible. But that is not this case. On the contrary, were the Court to withhold relief to the [driller], it would result in a windfall gain to the [owner] which was unmerited and itself would be an affront to the public conscience. The [owner], a property developer, would have gained three successful water bores for a pittance. The [driller] would have been denied recovery precisely on the basis of the failure of the [owner] (whose duty it was) to obtain in advance the requisite permits. I do not accept that the rule of public policy, invoked by the [owner], is as inflexible and harsh as to produce such an offensive result …

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[Dawson and Toohey JJ delivered a judgment similar to that of McHugh and Gummow JJ. They held that the fourth category referred to by Gibbs ACJ in Yango did not apply whereas here the plaintiff is not required to rely upon any illegality in order to establish a cause of action for the recovery of the money due under the contract. While persons who deliberately set out to break the law cannot expect to be aided by a court, it is a different matter when the law is unwittingly broken. In this case, the illegality was on the part of the owner, not the driller, and the evidence did not disclose that the driller was implicated in that illegality.] [18.21] For some time a means of evading the in pari delicto rule was for the plaintiff to base his or her claim for the return of money paid or property transferred under the contract on some ground other than the illegal contract (such as ownership per se or a collateral contract). This rule is based on the English Court of Appeal decision in Bowmakers Ltd v Barnet Instruments Ltd,21 but may no longer be necessary if McHugh J’s more flexible approach in Nelson v Nelson is taken to the granting of relief.

SEVERANCE Common law [18.22] Where a contractual provision is regarded as being void or illegal, it may be possible to sever it to allow the remaining part of the contract to be enforced. An illegal provision may be severed,22 although the court may take into account the nature of the illegality as a factor when deciding whether severance is appropriate.23 Severance is more readily applied to restraints of trade and attempts to oust the jurisdiction of the court. [18.23] Severance must be achieved by taking out the objectionable parts, but must not require the court to rewrite the contract (‘the blue pencil test’)24 and severance may change the extent only but not the kind of the contract.25 [18.24] Severance may take one of a number of forms. The first form is severance of an offending part of a provision where the covenant is divisible, that is where the covenant is not really a single covenant but in effect a combination of several distinct covenants.26

21 [1945] KB 65. 22 Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391. 23 McFarlane v Daniell (1938) SR (NSW) 337, 346 (difficult to imagine severance of promise to assassinate someone); Electric Acceptance Pty Ltd v Doug Thorley Caravans (Aust) Pty Ltd [1981] VR 799, 818 (severance permitted where offence not of heinous character). 24 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, 295. 25 McFarlane v Daniell (1938) 38 SR (NSW) 337, 345. 26 Attwood v Lamont [1920] 3 KB 571, 593.

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[18.25]

Attwood v Lamont [1920] 3 KB 571 English Court of Appeal The plaintiff owned a general outfitter’s business, which was conducted as a store comprising various departments. The defendant was the head of the tailoring department. The plaintiff obtained a covenant from the defendant that if the defendant left the employment, he would not engage in ‘the trade or business of a tailor, dressmaker, general draper, milliner, hatter, haberdasher, gentlemen’s ladies’ or childrens’ outfitter’ within sixty kilometres of the town. The plaintiff argued that the covenant could be severed by excising the references to the various activities other than that of tailor, in order to be able to enforce the restraint against the defendant. The trial judge held that the covenant was not severable and was wider than was reasonably necessary for the protection of the plaintiff ’s business, and gave judgment for the defendant. On appeal, the Divisional Court agreed that the covenant was void but could be severable. Lord Sterndale MR A contract can be severed if the severed parts are independent of one another, and can be severed without the severance affecting the meaning of the part remaining. This has been sometimes expressed, as in the present case by the Divisional Court, that the severance can be effected when the part severed can be removed by running a blue pencil through it. This is a figurative way of expressing the principle, and like most figurative expressions may quite possibly lead to misunderstanding … It remains … to consider whether the covenant in this agreement can be considered as though it contained a number of several covenants each relating to a separate trade. I think it clear that if the severance of a part of the agreement gives it a meaning and object different in kind and not only in extent, the different parts of it cannot be said to be independent … This agreement was part of a scheme by which every head of a department was to be restrained from competition with the plaintiff, even in the business of departments with which he had no connection and with the customers of which he was never brought into contact. If this be the true meaning of the agreement, it was, as it is described, an agreement not to trade in opposition, and not an agreement to restrain the unfair use of secrets or knowledge of customers acquired by the servants in the employers’ service. To effect this object the retention of the restraint regarding the business of all the departments is necessary, and I think that to strike out references to all but the tailoring department is not merely to remove one of several covenants each directed to the legitimate object of preventing unfair competition, but to alter entirely the scope and intention of the agreement … This agreement should not be severed. If this be right, the agreement is invalid, for, as it stands, it is far too wide, and it is unnecessary to consider whether, if severed, it could be upheld. Lord Younger LJ It was apparently strongly urged in the Divisional Court that the covenant was valid as it stands. The learned judges there held that extending to business with which the defendant had had no connection when in the plaintiff ’s employment it was manifestly too wide, and they so held.

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But the learned judges held also that they were entitled to sever the covenant by limiting it to the business of a tailor, and this they did. Now I agree with the Master of the Rolls that this was not a case in which upon any principle this severance was permissible. The learned judges of the Divisional Court, I think, took the view that such severance always was permissible when it could be effectively accomplished by the action of a blue pencil. I do not agree. The doctrine of severance had not, I think, gone further than to make it permissible in a case where the contract contains what is not really a single covenant, but is in effect a combination of several distinct covenants. In that case, and where the severance can be carried out without the addition or alteration of a word, it is permissible. But in that case only. Here, I think, there is in truth but one covenant for the protection of the plaintiff ’s entire business, and not several covenants for the protection of his several businesses. The plaintiff is, on the evidence, not carrying on several businesses, but one business; and, in my opinion, this covenant must stand or fall in its unaltered form. But, further, I am of opinion that, even if this were not so, this case is not one in which any severance, even if otherwise technically permissible, ought to be made. [Lord Atkin LJ agreed with Lord Younger LJ.] [18.26] Secondly, where an offending provision is not divisible, the provision itself may be severed from the remainder of the contract if it is not the whole or a substantial part of the consideration promised by one of the parties and it was the intention of the parties that the contract was able to take effect notwithstanding the excision of the particular term.27 [18.27]

Goodinson v Goodinson [1954] 2 All ER 255 English Court of Appeal A husband and wife entered an agreement which provided in cl 1 that the husband should pay to the wife a weekly sum of support and maintenance of herself and of their child. Under cl 5 of the agreement, the wife promised not to commence or prosecute any matrimonial proceedings against the husband as long as the husband punctually made the payments but upon the failure of the husband to make the said payments was at liberty to pursue a remedy. Clause 3 provided that at of the weekly payments the wife would maintain herself and child and indemnify the husband against all debts incurred by her and by cl 4 the wife was to have custody in control of the child until the age of sixteen years. The husband fell into arrears of maintenance and the wife sued for breach of cl 1. He claimed that cl 5 was void at common law as against public policy in that it sought to oust the jurisdiction of the court and that as a consequence the whole agreement was also void.

27 Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432.

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Somerville LJ In Bennett v Bennett [1952] 1 All ER 413 it was pointed out that there are two kinds of illegality of differing effect. The first is where the illegality is criminal or contra bonos mores, and in those cases, which I will not attempt to enumerate or further classify, such a provision, if an ingredient in a contract, will invalidate the whole although it may contain many other provisions. There is a second kind of illegality which has no such taint, and the other terms in the contract stand if the illegal portion can be severed, the illegal portion being a provision which the court on grounds of public policy will not enforce. The simplest and most common example of the latter class of illegality is a contract for the sale of a business which contains a provision restricting the vendor from competing in or engaging in trade for a certain period or within a certain area. There are many cases in the books where, without in any way impugning the contract of sale, some provision restricting competition has been regarded as in restraint of trade and contrary to public policy. There are also many cases where not only the main contract of sale but part of the clause restricting competition also has been allowed to stand … Of course, if one is dealing with a clause of this kind in a separation deed, it may be plain that the separation is an important ingredient which remains notwithstanding the disregard of an undertaking not to sue quoad the quantum of maintenance. But in the present case it is not a separation agreement. It is sought on behalf of the husband to invoke the principle that, if the only consideration moving from one side is a covenant which the law holds to be unenforceable, then there is nothing to support the undertaking on the other side in respect of which the unenforceable covenant purported to be a consideration. Reliance is placed on the application of that principle in Bennett v Bennett. That was a special case in somewhat unusual circumstances, and, so far as this part of it is concerned, it turns on the actual provisions of the agreement and equally on the circumstances in which, and the time at which, the agreement was entered into. The wife in that case had instituted divorce proceedings and there was on the file a petition for maintenance; the jurisdiction of the court was being invoked. The purpose of the agreement was to settle that matter without either the sanction or approval of the court, and for that purpose, of course, it was the primary consideration on the part of the wife that she should withdraw and delete from her petition her claim for maintenance. The special circumstances, I think, are emphasised by an observation of mine when I said ([1952] 1 All ER 419): … any application to delete, amend, or dismiss a claim for maintenance on the ground that the husband had made provision should be left to be dealt with by the judge at the hearing, and, if made to a registrar before the hearing, should be adjourned.

It was in those circumstances, and having regard to the terms of the agreement in that case, that we held that the unenforceable agreement was the main, although not the sole, consideration for the husband’s agreement as to quantum. Here, I think, there is ample consideration to support this agreement apart from the covenant not to sue and to enable it to be enforced as against the husband in the way in which the wife seeks to do in these proceedings. First of all, cl 3 under which she agreed to support and maintain herself and the child and

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indemnify the husband against all debts to be incurred by her and against all liability whatsoever in respect of the said child and will not in any way at any time hereafter pledge the husband’s credit

is, of course, co-extensive with the sum to be paid, subject to the time for which the agreement will subsist. Speaking for myself, although I think the point was not taken below, I should have thought the undertaking by the wife to have the custody and control of the child and bring it up until it was sixteen years old in the terms of cl 4 was also a consideration. Then, when one comes to the matter which is more directly related to cl 5, it is this. This is an agreement by the wife as to these sums as at that date and in the circumstances then existing. If she had chosen to take proceedings, say, in the following month, it would not have been a complete shield, but it would have been of great importance, as the passages to which I have referred point out, on the husband’s side in asking the court to reject her application. It would have been the strongest possible evidence unless relevant circumstances had changed. For these reasons, therefore, I think there is ample consideration to support this agreement … [Birkett and Romer LJJ agreed with Somerville LJ.] [18.28] Finally, severance of a dealing within a larger enterprise may be allowed unless the two or more contracts are so closely connected that the court regards them as being in effect a single commercial transaction.28

Statute [18.29] At common law, severance is an ‘all or nothing’ proposition: the court is not able to read down an objectionable promise, such as an unreasonable restraint of trade, and enforce it as far as is reasonable. This position has now been modified by statute in New South Wales, at least in relation to restraints of trade. The common law rules also do not apply to provisions that are void under the Competition and Consumer Act 2010 (Cth). [18.30]

Restraints of Trade Act 1976 (NSW) Section 4: Extent to which restraint of trade valid (1) A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not. (2) Subsection (1) does not affect the invalidity of a restraint of trade by reason of any matter other than public policy.

28 Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (No 2) [1975] AC 561.

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(3) Where, on application by a person subject to the restraint, it appears to the Supreme Court that a restraint of trade is, as regards its application to the applicant, against public policy to any extent by reason of, or partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the restraint a reasonable restraint, the Court, having regard to the circumstances in which the restraint was created, may, on such terms as the Court thinks fit, order that the restraint be, as regards its application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit and any such order shall, notwithstanding subsection (1), have effect on and from such date (not being a date earlier than the date on which the order was made) as is specified in the order. (4) Where, under the rules of an association, a person who is a member of the association is subject to a restraint of trade, the association shall, for the purposes of subsection (3), be deemed to have created or joined in creating the restraint. (5) An order under subsection (3)  does not affect any right (including any right to damages) accrued before the date the order takes effect. [18.31] The section does not allow a court to remake the contract or the covenant,29 but rather allows a court to read down an unreasonable restraint and enforce it so far as it is valid irrespective of whether or not the covenant is divisible in nature.30 The statute makes it unnecessary to use artificial drafting techniques such as ladder or step clauses which express restraints in cascading, severable provisions.31 Unlike the common law requirement to construe the validity of a restraint clause at the time of the agreement, the section allows the position to be determined by reference to the circumstances at the time the benefit of the restraint is sought (and the burden is to be imposed), thereby allowing a contemporaneous assessment of the question of reasonableness.32 The proviso in ss (3) means, in effect, that the section cannot be called upon where there has been no attempt to make a reasonable restraint in the first place. The onus in this case is on the applicant to show there was a manifest failure to attempt to make a reasonable restraint.33

29 Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564 (NSWCA); Rouen v Ryan [2001] NSWCA 230. 30 See, for example, KA & C Smith Pty Ltd v Ward (1999) ATPR 41-717. 31 HRX Holdings Pty Ltd v Pearson [2012] FCA 161, [8]. 32 Ibid, [42]. 33 Orton v Melman [1981] 1 NSWLR 583; Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111.

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[18.32]

Competition and Consumer Act 2010 (Cth) Section 4L: Severability If the making of a contract after the commencement of this section contravenes this Act by reason of the inclusion of a particular provision in the contract, then, subject to any order made under section 51ADB or 87, nothing in this Act affects the validity or enforceability of the contract otherwise than in relation to that provision in so far as that provision is severable. [18.33] The section requires rather than permits the severance of offending provisions. The phrase ‘in so far as’ marks the limit of invalidity of the offending provision. In that connection, it was further pointed out that the Act contains its own detailed scheme dealing with the consequences of contravention.34 Accordingly, in cases where a provision is void under the Act, there is no need to first determine whether severance is possible under the common law rules.

QUESTIONS FOR REFLECTION (1) McHugh J’s more flexible approach (first stated in Nelson v Nelson) refers to illegality by statute (which was the situation considered both in that case and in the later Fitzgerald v Leonhardt). Is there any reason why the more flexible approach should not also be applied to a contract which is illegal at common law for being contrary to public policy? (2) What are the similarities and differences in the approaches to severance pursuant to the Restraints of Trade Act 1976 (NSW), s 4 and the Competition and Consumer Act 2010 (Cth), s 4L? How do they differ from the common law? Which do you think is the best approach to determining the validity of restraints?

34 SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516.

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19 20 21 22

Discharge by Performance 423 Discharge by Termination 442 Discharge by Agreement 496 Discharge by Frustration 510

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INTRODUCTION [19.01] Performance of a contract according to its terms is one of the ways a party will be discharged from further performance of a contract. In order to discharge a party from his or her obligations under a contract, performance must be exact, except for insignificant defects in performance. What constitutes exact performance of any particular contract can only be determined after careful consideration of the contract’s terms. Some contracts may require all of the particular party’s obligations to be performed exactly, without defect; others may allow for discharge of the parties’ obligations after only their substantial performance.1 [19.02] A party who performs a contract exactly according to its terms will be discharged from further performance and entitled to recover the contract price as a debt. Where the contract was not performed exactly the contract price was not payable and if the failure was substantial or significant the innocent party may be entitled to terminate and seek damages.2 Due to the harsh and unfair nature of this rule courts have recognised that a party who does not render exact performance but substantially performs the contract will also be entitled to payment of the contract price, less a deduction for the defects in performance. Whether recovery of the contract price on the basis of substantial performance is available will depend in the first instance on the nature of the obligations under the contract and secondly on whether the contract is divisible or lump sum.

TYPES OF OBLIGATIONS [19.03] An obligation to perform a contract may be broadly classified as either dependent or independent. This classification is relevant to the question of performance and a claim for the

1

For example, in Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286, 304, the Court considered that the obligation to display signs on trams for eight hours a day was satisfied by the display of signs for substantially eight hours a day.

2

Termination for breach of contract is considered in Chapter 20. Damages for breach of contract are considered in Chapter 23.

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contract price because, if the obligation to pay the contract price is independent, there will be no requirement for the other party to perform his or her obligations prior to a claim for the contract price. On the other hand, if the obligation to pay the contract price is dependent, the other party will have to perform his or her obligations before an obligation to pay the price arises.3 Whether an obligation is dependent or independent depends upon a construction of the contract.4 A third category of dependent and concurrent obligations are obligations which depend on each other for performance and must take place concurrently. While the obligations under a contract for the sale of land or goods are described as dependent, it should be noted that performance of those obligations will usually take place concurrently. A purchaser of land will pay the purchase price in exchange for, and at the same time as, the vendor delivers title and possession of the property to the purchaser. Concurrent performance of a dependent obligation adds another layer of complexity when considering termination of a contract for breach, but has little impact upon a claim for recovery of the contract price.5

Independent obligations [19.04] An independent obligation is where one person must perform, regardless of whether the other does so. One modern example is where a contract for the sale of goods provides for payment on a certain day, irrespective of whether the goods are delivered by that time.6 Where the obligations are independent, either party may call upon the other to perform without having first performed his or her obligations. This may result in one party being obliged to pay the contract price without receiving goods or services in return.7

Dependent obligations [19.05] Most obligations in modern contracts for the sale of goods, land, or employment are dependent. A dependent obligation is one where performance of the obligation is dependent upon performance of the contract by another party to the agreement.8 For example, a buyer is not required to pay for goods until the seller delivers the goods in accordance with the contract

3

See, for example, Automatic Fire Sprinklers v Watson (1946) 72 CLR 435.

4

Burton v Palmer [1980] 2 NSWLR 878 at 895; Aalders v PA Putney Finance Australia Pty Ltd [2011] NSWSC 756 at [57]; Hillam v Iacullo (2015) 90 NSWLR 422.

5

Refer to Chapter 20.

6

Section 50(2) Sale of Goods Act 1896 (Qld); Sale of Goods Act 1954 (ACT), s 52(2); Sale of Goods Act 1923 (NSW), s 51(2); Sale of Goods Act 1972 (NT), s 51(2); Sale of Goods Act 1895 (SA), s 48(2); Sale of Goods Act 1896 (Tas), s 53(2); Goods Act 1958 (Vic), s 55(2); Sale of Goods Act 1895 (WA), s 48(2).

7

The exception is based upon the decision in Dunlop v Grote (1854) 2 Car & D 153; 175 ER 64 and has been discussed but not applied in Martin v Hogan (1917) 24 CLR 234; Colley v Overseas Exporters [1921] 3 KB 302; Sandford v Dairy Supplies Ltd [1941] NZLR 141; Howes Bros v Queensland Milling Co (1897) 8 QLJ 83; Minister for Supply and Development v Servicemen’s Co-operative Joinery Manufacturers Ltd (1951) 82 CLR 621; Style Finnish (Qld) Pty Ltd v Abloy Security Pty Ltd [1994] 2 Qd R 203; Consolidated Rutile Ltd v China Weal Pty Ltd [1998] QSC 170; Ledger v Cleveland Nominees Pty Ltd [2001] WASCA 269.

8

Segboer v AJ Richardson Properties Pty Ltd (2012) 16 BPR 31,235 at [82].

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and they are accepted by the buyer.9 Only once the goods are delivered and accepted is the purchaser obliged to pay the contract price. If the goods or services are not provided, the obligation to pay the price does not arise.10 [19.06]

Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 High Court of Australia The case concerned the effect of a wrongful dismissal upon a contract of employment and the rights, remedies and obligations of a servant wrongfully dismissed. The case is complicated by the application of wartime legislation relating to the termination of protected undertakings. However, the principles stated by Dixon J clearly set out the law in relation to dependent obligations. Dixon J In certain forms of executory contract where the promise of one party is to pay the other money in consideration of his transferring property, of his doing work, of his serving the former as his master, and, perhaps, of his providing other tangible things or definite services, the money to be paid is regarded as the price of or reward for the property or service when and so often as the transfer of the one or the performance of the other affords an executed consideration. In these contracts the promise to pay the price or reward is not construed as a simple obligation to pay a sum or sums at a future date supported solely by a consideration consisting in the corresponding promise to transfer the property, do the work, serve, or provide the things or services by the other party, so that a mere readiness and willingness on the one side of the latter to perform his part is enough to entitle him to the payments, notwithstanding that, whether owing to the fault of the former, or without fault on either side, the property is not transferred, the work is not done, the relation of master and servant ceases, or the things or services are not provided. The most familiar example is that of the sale of goods. There the common understanding of an agreement to sell is that it is the goods and not the promises to deliver that are to be paid for. The result is that, if the seller tenders goods in accordance with his contract but the buyer rejects them in breach of his contract, the seller cannot sue for the price; his remedy is for unliquidated damages for non-acceptance: Cp Plaimar Ltd v Waters Trading Co Ltd (1945) 72 CLR 304, 318. It is nothing to the point that the seller remains ready and willing to deliver the goods and refuses to treat the rejection as discharging the contract but, on the contrary, ‘keeps it open.’ Even so the price is not payable, for the reason that it is for the goods that the price is to be paid

9

See also Sale of Goods Act 1896 (Qld), s 51(2); Sale of Goods Act 1954 (ACT), s 52(2); Sale of Goods Act 1923 (NSW), s 51(2); Sale of Goods Act 1972 (NT), s 51(2); Sale of Goods Act 1895 (SA), s 48(2); Sale of Goods Act 1896 (Tas), s 53(2); Goods Act 1958 (Vic), s 55(2); Sale of Goods Act 1895 (WA), s 48(2).

10 Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 464–465 per Dixon J; Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 427–8; 131 ALR 422, 431–3.

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and until they are accepted there is no indebtedness. It is, of course, open to contracting parties to make what agreement they like about the matter. They may, if they choose, contract for payment of a sum certain at a time certain and make it clear that the payment is independent of the transfer of the goods. But that is not how an agreement to sell is ordinarily understood. The point is well brought out by the differences of opinion which have arisen concerning contracts for the sale of land. At one time there was a tendency to say that instalments of purchase money could not be recovered by a common law action because the purchase price was payable for the land, not for the promise to convey, and was, therefore, not recoverable except upon conveyance … That is to say the construction given to the promise of the purchaser of land was like that given to the promise of the buyer of goods. The result would have been that a vendor of land could sue at law only for damages for loss of the sale. But more lately instalment contracts for the purchase of land have been treated as importing an obligation on the part of the purchaser to pay sums certain on fixed dates in exchange for a promise to convey and at the risk that, for some unforeseen reason, a conveyance may never be obtained. A discussion concerning these rival views of the character of the contract for the sale of land on terms and concerning the authorities in which they appear will be found in Reynolds v Fury (1921) VLR 14. One view of the payment in advance of the price, whether for land or for goods, is that, even where it is stipulated for independently of the actual transfer of the property, it can amount to no more than the provision of a sum in the hands of the vendor to be applied by him in satisfaction of the debt arising from the transfer of the property in the goods or the land when it is accomplished. That is to say that, at most, it is a payment of a debt in advance, a debt that can only arise from the execution of the consideration. Up till then it is a promise to pay money which if fulfilled or enforced, results in a provisional payment defeasible by the subsequent failure, for any cause, of the real consideration. It is a payment made in advance to await application in discharge of an indebtedness which arises immediately the consideration is executed … A contract for the establishment of the relation of master and servant falls into the same general category of agreements to pay in respect of the consideration when and so often as it is executed, and is, therefore, commonly understood as involving no liability for wages or salary unless earned by service, even though the failure to serve is a consequence of the master’s wrongful act. It is, of course, possible for the parties to make a contract for the payment of periodical sums by the master to the servant independently of his service. Indeed that is, in effect, what the Duke of Westminster persuaded the majority of the House of Lords he had done in Inland Revenue Commissioners v Duke of Westminster (1936) AC 1. But, to say the least, it is not usual. The common understanding of a contract of employment at wages or salary periodically payable is that it is the service that earns the remuneration and even a wrongful discharge from the service means that wages or salary cannot be earned however ready and willing the employee may be to serve and however much he stand by his contract and decline to treat it as discharged by breach … His only remedy is in unliquidated damages for wrongful dismissal. By keeping his contract open, he may be able to resume his service without a new contract, if his employer is induced

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to retract the discharge. A  good illustration of the situation is given by the facts and decision of the otherwise not very notable case of Barnsley v Taylor (1867) 37 LJ QB 39. There the employee under a contract for a term was dismissed without sufficient justification. He proffered his services, and in the County Court sued for and recovered wages for the period he was excluded from his employment. He was then taken back by his employer but again dismissed without just cause. Again he sued, this time for wrongful dismissal. But he was met by the fact that in his former action he had recovered judgment; and, it was said, since wages under the contract could not be recovered for a period in which there was no service, he must be considered to have recovered damages for wrongful dismissal. Ergo, the old contract had been discharged by breach, judgment had been recovered for the breach and when he went back to the employment it must have been under a new contract of service. Non constat that it was not a service at will. At all events, there was no evidence of a contract for a term and the second action, therefore, failed. Some difficulty has been felt in saying what is the service which carries wages. The wages are incident to the subsisting relationship of master and servant. A master who sends his servant upon a holiday upon full pay can be sued for wages under the contract, although not on a common count for work and labour done. They also serve who only stand and wait. Difficulties, too, arise from the fact that a refusal to work on the part of a servant, who neither leaves his master’s service nor is discharged, may disentitle him to wages for the period of the refusal. That is for non-fulfilment of the conditions by which wages are earned. But, broadly speaking, it is enough to say that wages are for the service reasonably demanded under a subsisting relationship of master and servant. That relationship may be ended by the servant forsaking the master or the master discharging the servant, although the act of the one or of the other amounts to a breach of contract. In the present case the question for decision is, in substance, whether the general manager of two companies which, without justification, purported to dismiss him from that position can recover wages for a period in which he continued to proffer his service, or must be content with unliquidated damages. The contract of employment consists in a document under the seals of the companies and possibly that of the employee, containing special terms. But, in my opinion, the terms include no provision which could take the employment out of the category I have discussed. That is to say, there is nothing in the agreement which makes the payment of salary independent of actual service, or which would operate to give the employee a title to salary, notwithstanding that he had been discharged from the service of the companies, however wrongfully.

Dependent and concurrent obligations [19.07] While the obligations under a contract for the sale of land or goods are described as dependent, it should be noted that performance of those obligations will usually take place concurrently. A purchaser of land will pay the purchase price in exchange for, and at the same time as, the vendor delivers title and possession of the property to the purchaser. Concurrent performance of a dependent obligation adds another layer of complexity when considering

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termination of a contract for breach,11 but has little impact upon a claim for recovery of the contract price. In reality, there will be little opportunity for substantial performance where the obligations are both dependent and concurrent. As the obligations to be performed at the same time are usually obligations concerning title, delivery, and payment, generally any failure to perform will not be considered to be of a minor nature.

RECOVERING THE CONTRACT PRICE [19.08] As a general proposition, a party who has not performed a contract exactly is not entitled to payment of the contract price. This proposition is premised on the obligations under the contract being dependent.12 In other words, if the party performing the work or providing the goods does not comply with the terms of the contract, the dependent obligation to pay the contract price will not arise. The application of this principle may vary, depending upon a construction of the contract entered into between the parties and the type of performance rendered. Despite the fact that some contracts may appear on their face to indicate that no part of the contract price should be paid unless total performance is rendered, the courts have recognised that this causes undue hardship in most cases. Courts will usually prefer a construction of the contract that avoids such a drastic result unless that is the clear intention of the contract. Denning LJ gave the first indication of such an approach in Hoenig v Isaacs:13 ‘When a contract provides for a specific sum to be paid on completion of specified work, the courts lean against a construction of the contract which would deprive the contractor of any payment at all simply because there are some defects or omissions.’14 [19.09] On this basis it is suggested that an appropriate framework in which to determine if the contract price is recoverable requires consideration of the following: (1) Is the contract divisible?15 (a)

If it is not divisible, what is the nature of the parties’ obligations under the contract? Does the contract according to its terms require exact or substantial performance?

(b)

If the contract is divisible, what is the nature of the parties’ obligations in respect of each divisible part of the contract? (2) After establishing the nature of the obligation, was the performance rendered sufficiently in accordance with the contract (was it in fact entire or substantial) so as to entitle that party to payment of the contract price either for the whole of the contract or for the relevant divisible parts?16 (3) If the contract price is not recoverable is other compensation available?

11 Refer to [20.41]–[20.43]. 12 See [19.05]. If the obligations were independent, the contract price would be recoverable despite the defective performance. 13 [1952] 2 All ER 176. 14 Ibid, 180. 15 See [19.10]. 16 See [19.16]–[19.22]. See for example Re Scahill & Co Pty Ltd [2016] NSWSC 566

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DIVISIBLE CONTRACT [19.10] The description ‘divisible or severable contract’ is most appropriately given to a contract in which the consideration and the payment for it are apportioned or are capable of apportionment according to the work to be done. [19.11]

Steele v Tardiani (1946) 72 CLR 386 High Court of Australia The defendant employed the plaintiffs to cut firewood into certain lengths and diameters. The defendant alleged that the plaintiffs were in breach of contract because the wood was not cut into the correct lengths. The defendant continued to take possession of all wood cut by the plaintiff and sell it. Dixon J Taking, therefore, the defendant’s contract to have been to pay so much per ton for firewood cut to a length of about six feet and to a width or diameter of about six inches, it is clear that, for the greater part of the wood they cut, the plaintiffs failed to split the wood to the required width. Upon what basis then can they recover remuneration in respect of work incompletely performed? It is true that they were not employed to do a single piece of work under one entire contract so that, until the whole had been substantially performed, they would obtain no right to any payment. In that sense, it is not like the contract to build two houses for a single lump sum made by the unsuccessful plaintiff in Sumpter v Hedges [(1898) 1 QB 673]. The contract made by the three released Italians in the present case is infinitely divisible. For I assume that the amount per ton fixed, whether six shillings or eight shillings, is but a rate of remuneration to be applied to the actual firewood cut according to the requirements of the contract, even to hundredweights and quarters. I should not think that to-day a contract to produce paper at a rate per quire would be treated as giving no remuneration for part of a quire, as it was in the seventeenth century in Needler v Guest (1647) Aleyn 9 [82 ER 886]. Moreover, it would seem that the plaintiffs were employed under a contract of service and one continuing until terminated by either side: See Sadler v Henlock (1855) 4 El & Bl 570 [119 ER 209] and Blake v Thirst (1863) 2 H & C 20 [159 ER 9] and contrast Queensland Stations Pty Ltd v Commissioner of Taxation (1945) 70 CLR 539. But it can hardly be denied that the consideration which the employees were to give for the remuneration is firewood cut according to contract and, so to speak, only those billets or sticks can be counted which qualify by substantial or reasonable compliance with the specifications. In this sense the terms of remuneration are ‘entire’, or, in other words, each divisible application of the contract is entire and is only satisfied by performance, not partial, but substantially complete. For such a case falls within the general proposition stated in EV Williams’ Notes to Saunders, 6th ed (1845), vol I.: Pordage v Cole (1669) 1 Wms Saund 319l, at pp 320 d and e:

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Where the consideration for the payment of money is entire and indivisible, as where the benefit expected by the defendant under the agreement is to result from the enjoyment of every part of the consideration jointly, so that the money payable is neither apportioned by the contract, nor capable of being apportioned by a jury, no action is maintainable, if any part of the consideration has failed; for, being entire, by failing partially, it fails altogether.

[19.12] Whether a contract is divisible or not may affect a court’s ultimate decision about the payment of the contract price. A  contract that is not divisible will usually provide for a specific sum of money to be paid in exchange for the performance of certain work. In that case, the court would consider the whole of the performing party’s obligations under the contract and whether the performance that was rendered satisfied the requirements of the contract as a whole. Where a contract is divisible, the court will consider each divisible part of the contract separately, as though they were separate agreements. Instead of considering all of the party’s obligations of performance under the contract, the court will only consider the obligations relating to the particular divisible part of the contract.

ENTIRE OBLIGATIONS [19.13] In each case the question whether a contract or an obligation is entire or is, in contrast, divisible, is a question of construction of the contract as a whole. An obligation is usually considered to be entire if ‘the consideration for the payment of money or for the rendering of some other counter-performance is entire and indivisible’.17 Essential features of such an obligation are: (1) complete performance is a condition precedent to payment of the contract price;18 (2) the benefit expected by the defendant is to result from the enjoyment of every part of the work jointly; and (3) the consideration is neither apportioned by the contract nor capable of apportionment. [19.14] The mere fact the contract provides for the contract price to be payable in a lump sum or ‘payable on completion’19 is not enough for the obligation to be entire. The contract must indicate that complete performance of the obligation to provide services or goods is a condition precedent to payment.20 A  simple example is a contract for the making and sale of a pair of shoes. The shoemaker could not give the customer one shoe and expect the contract price. It would be clear from the contract that full and complete performance—provision of a pair of

17 Baltic Shipping Co v Dillon (1993) 176 CLR 344, 350. See also Phillips v Ellinson Brothers Pty Ltd (1941) 65 CLR 221, 233–234 per Starke J and Consolidated Rock Services Pty Ltd v Carr Civil Contracting Pty Ltd [2014] WASC 215. 18 Approved in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, 164–165  (Finn J) and considered in ACN 002 804 702 (Formerly Brooks Building) v McDonald [2009] NSWSC 610. 19 As was the case in Hoenig v Isaacs [1952] 2 All ER 176, where the obligation to pay the price arose in exchange for substantial performance of the contract. 20 Purcell v Bacon (1914) 19 CLR 241; Phillips v Ellinson Brothers Pty Ltd (1941) 65 CLR 221; Baltic Shipping Co v Dillon (1992) 176 CLR 344; Tan Hung Nguyen v Luxury Design Homes Pty Ltd (2005) 21 BCL 46; [2004] NSWCA 178.

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shoes—would be required prior to payment of the price. An example of a contract where the contract price was only payable for exact performance is Cutter v Powell.21 [19.15]

Cutter v Powell (1795) 6 TR 320; 101 ER 573 Court of Kings Bench A seaman agreed to work on a ship making a voyage from Jamaica to Liverpool. The defendant agreed to pay him 30 guineas upon his arrival in England, provided he continued to do his duty on board for the period of the voyage. The voyage took two months, but Cutter died six weeks into the voyage. Cutter’s administratrix commenced an action for the contract price or a quantum meruit. Lord Kenyon CJ Here the defendant expressly promised to pay the intestate 30 guineas provided he proceeded, continued and did his duty as second mate in the ship from Jamaica to Liverpool, and the accompanying circumstances disclosed in the case are that the common rate of wages is 4 pounds per month when the party is paid in proportion to the time he serves, and that this voyage is generally performed in two months. Therefore, if there had been no contract between these parties, all that the intestate could have recovered on a quantum meruit for the voyage would have been 8 pounds, whereas here the defendant contracted to pay 30 guineas provided the mate continued to do his duty as mate during the whole voyage, in which case the latter would have received nearly four times as much as if he were paid for the number of months he served. He stipulated to receive the larger sum if the whole duty were performed, and nothing unless the whole of that duty were performed. It was a kind of insurance. On this particular contract, my opinion is formed at present. At the same time I must say that, if we were assured that these notes are in universal use and that the commercial world have received and acted on them in a different sense, I should give up my own opinion. Ashurst J We cannot collect that there is any custom prevailing among merchants on these contracts, and, therefore, we have nothing to guide us but the terms of the contract itself. This is a written contract, and it speaks for itself. As it is entire and, as the defendant’s promise depends on a condition precedent to be performed by the other party, the condition must be performed before the other party is entitled to receive anything under it. It has been argued, however, that the plaintiff may now recover on a quantum recruit, but she has no right to desert the agreement for wherever there is an express contract the parties must be guided by it, and one party cannot relinquish or abide by it as it may suit his advantage. Here the intestate was by the terms of his contract to perform a given duty before he could call on the defendant to pay him anything; it was a condition precedent, without performing which the defendant is not liable. That seems to me to conclude the question. The intestate did not perform the contract on

21 (1795) 6 TR 320; 101 ER 573. See also Oliver v Lakeside Property Trust Pty Ltd [2005] NSWSC 1040; Najask Pty Ltd v Stow [2016] NSWSC 1511

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his part; he was not indeed to blame for not doing it; but still as this was a condition precedent, and as he did not perform it, his representative is not entitled to recover.

OBLIGATIONS REQUIRING SUBSTANTIAL PERFORMANCE [19.16] Where the contract does not clearly and expressly provide that exact performance is a condition precedent to payment of the contract price, ‘the courts will lean against a construction which would deprive the party of any payment’22 simply because of defects. The authorities accept that a party who substantially performs should be entitled to recover the contract price. [19.17]

Hoenig v Isaacs [1952] 2 All ER 176 English Court of Appeal The plaintiff agreed to decorate and furnish the defendant’s flat for the sum of £750, the terms of payment being ‘net cash, as the work proceeds and balance on completion’. The defendant paid £400 as progress payments. When the work was finished, it was found that the door of a wardrobe required replacing and a bookshelf that was too short would have to be remade, requiring consequential alterations to a bookcase. The defendant had occupied the flat and used the furniture but was refusing to pay the balance. The cost of the remedial work was £5518s 2d. The question for the Court of Appeal was whether the plaintiff had substantially performed the contract and was therefore entitled to payment, less an amount for the rectification work. Somervell LJ Counsel for the defendant submits that the decision of the official referee is wrong in law. He submits that this is an entire contract which, on the findings of fact, has not been performed. On the well-known principle applied to the facts of that case in Cutter v Powell he submitted that the plaintiff cannot, therefore, recover on his contract …  In Cutter v Powell the condition for the promissory note sued on was that the sailor should proceed to continue and do his duty as second mate in the ship from Jamaica to the port of Liverpool. The sailor died before the ship reached Liverpool and it was held his estate could not recover either on the contract or on a quantum meruit. It clearly decided that his continuing as mate during the whole voyage was a condition precedent to payment. It did not decide that if he had completed the main purpose of the contract, namely, serving as mate for the whole voyage, the defendant could have repudiated his liability by establishing that in the course of the voyage the sailor had, possibly through inadvertence, failed on some occasion in his duty

22 Hoenig v Isaacs [1952] 2 All ER 176, 180.

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as mate whereby some damage had been caused. In these circumstances, the court might have applied the principle applied to ordinary contracts for freight. The shipowner can normally recover nothing unless the goods are carried to their agreed destination. On the other hand, if this is done, his claim is not defeated by the fact that some damage has been done to the goods in transit which has resulted from a breach of the contract. The owner of the goods has his remedy by cross-action: Dakin v Oxley. The damage might, of course, be so great as to raise the question whether what was agreed to be carried had substantially arrived (ibid). Sinclair v Bowles is often cited as an illustration of the Cutter v Powell principle. The plaintiff had undertaken to repair chandeliers and make them ‘complete’ or ‘perfect’. This he, quite plainly on the evidence and findings of the jury, failed to do. It may, perhaps, be regarded as a case where, on the construction of the contract, having regard to the subject-matter, there was no scope for terms collateral to the main purpose. The principle that fulfilment of every term is not necessarily a condition precedent in a contract for a lump sum is usually traced back to a short judgment of Lord Mansfield CJ in Boone v Eyre—the sale of the plantation with its salves. Lord Mansfield said (1 Hy Bl 273): … where mutual covenants go to the whole of the consideration on both sides, they are mutual conditions, the one precedent to the other. But where they go only to a part, where a breach may be paid for in damages, there the defendant has a remedy on his covenant, and shall not plead it as a condition precedent.

One is very familiar with the application of this principle in the law relating to the sale of goods. Quoad stipulations which are conditions, the Cutter v Powell principle is applicable. If they are not all performed the other party can repudiate, but there will not have been, as there was in Cutter v Powell, a partial performance. But there may be other terms, collateral to the main purpose, the breach of which in English law gives rise to a claim for damages, but not to a right to reject the goods and treat the contract as repudiated: see definition of warranty, Sale of Goods Act, 1893, s 62(1). In a contract to erect buildings on the defendant’s land for a lump sum, the builder can recover nothing on the contract if he stops before the work is completed in the ordinary sense— in other words, abandons the contract. He is also usually in a difficulty in recovering on a quantum meruit because no new contract can be inferred from the mere fact that the defendant remains in possession of his land: Sumpter v Hedges. In Appleby v Myers while the work was in progress the premises and the work so far done on them were destroyed by fire and the court held both parties excused. At the end of his judgment Blackburn J after referring to Cutter v Powell, Sinclair v Bowles, and that line of cases, said (LR 2 CP 661): … the plaintiffs, having contracted to do an entire work for a specific sum, can recover nothing unless the work be done …

In H Dakin & Co Ltd v Lee Lord Cozens-Hardy MR I think, had this principle in mind when he said ([1916] 1 KB 578): The work was finished—and when I say this I do not wish to prejudice matters, but I cannot think of a better word to use at the moment.

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The question here is whether in a contract for work and labour for a lump sum payable on completion the defendant can repudiate liability under the contract on the ground that the work though ‘finished’ or ‘done’ is in some respects not in accordance with the contract … The learned official referee regarded H Dakin & Co Ltd v Lee as laying down that the price must be paid subject to set-off or counterclaim if there was a substantial compliance with the contract. I think on the facts of this case where the work was finished in the ordinary sense, though in part defective, this is right … The buyer cannot reject if he proves only the breach of a term collateral to the main purpose. Denning LJ This case raises the familiar question:  Was entire performance a condition precedent to payment? That depends on the true construction of the contract … The question of law that was debated before us was whether the plaintiff was entitled in this action to sue for the £350 balance of the contract price as he had done. The defendant said that he was only entitled to sue on a quantum meruit. The defendant was anxious to insist on a quantum meruit, because he said that the contract price was unreasonably high. He wished, therefore, to reject that price altogether and simply to pay a reasonable price for all the work that was done. This would obviously mean an inquiry into the value of every item, including all the many items which were in compliance with the contract as well as the three which fell short of it. That is what the defendant wanted. The plaintiff resisted this course and refused to claim on a quantum meruit. He said that he was entitled to the balance of £350 less a deduction for the defects. In determining this issue the first question is whether, on the true construction of the contract, entire performance was a condition precedent to payment. It was a lump sum contract, but that does not mean that entire performance was a condition precedent to payment. When a contract provides for a specific sum to be paid on completion of specified work, the courts lean against a construction of the contract which would deprive the contractor of any payment at all simply because there are some defects or omissions. The promise to complete the work is, therefore, construed as a term of the contract, but not as a condition. It is not every breach of that term which absolves the employer from his promise to pay the price, but only a breach which goes to the root of the contract, such as an abandonment of the work when it is only half done. Unless the breach does go to the root of the matter, the employer cannot resist payment of the price. He must pay it and bring a cross-claim for the defects and omissions, or, alternatively, set them up in diminution of the price. The measure is the amount which the work is worth less by reason of the defects and omissions, and is usually calculated by the cost of making them good: see Mondel v Steel; H Dakin & Co Ltd v Lee, and the notes to Cutter v Powell in Smith’s Leading Cases, 13th ed vol 2, pp 19–21. It is, of course, always open to the parties by express words to make entire performance a condition precedent. A familiar instance is when the contract provides for progress payments to be made as the work proceeds, but for retention money to be held until completion. Then entire performance is usually a condition precedent to payment of the retention money, but not, of course, to the progress payments. The contractor is entitled to payment pro rata as the work proceeds, less a deduction for retention money. But he is not entitled to the retention money until the work is entirely finished, without defects or omissions. In the present case the contract provided for ‘net cash, as the work proceeds; and

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balance on completion.’ If the balance could be regarded as retention money, then it might well be that the contractor ought to have done all the work correctly, without defects or omissions, in order to be entitled to the balance. But I do not think the balance should be regarded as retention money. Retention money is usually only ten per cent, or fifteen per cent, whereas this balance was more than fifty per cent I think this contract should be regarded as an ordinary lump sum contract. It was substantially performed. The contractor is entitled, therefore, to the contract price, less a deduction for the defects. Even if entire performance was a condition precedent, nevertheless the result would be the same, because I think the condition was waived. It is always open to a party to waive a condition which is inserted for his benefit. What amounts to a waiver depends on the circumstances. If this was an entire contract, then, when the plaintiff tendered the work to the defendant as being a fulfilment of the contract, the defendant could have refused to accept it until the defects were made good, in which case he would not have been liable for the balance of the price until they were made good. But he did not refuse to accept the work. On the contrary, he entered into possession of the flat and used the furniture as his own, including the defective items. That was a clear waiver of the condition precedent. Just as in a sale of goods the buyer who accepts the goods can no longer treat a breach of condition as giving a right to reject but only a right to damages, so also in a contract for work and labour an employer who takes the benefit of the work can no longer treat entire performance as a condition precedent, but only as a term giving rise to damages. The case becomes then an ordinary lump sum contract governed by the principles laid down in Mondel v Steel and H Dakin & Co Ltd v Lee. The employer must, therefore, pay the contract price subject to a deduction for defects or omissions. I would point out that in these cases the question of quantum meruit only arises when there is a breach or failure of performance which goes to the very root of the matter. On any lump sum contract, if the work is not substantially performed and there has been a failure of performance which goes to the root of it, as, for instance, when the work has only been half done, or is entirely different in kind from that contracted for, then no action will lie for the lump sum. The contractor can then only succeed in getting paid for what he has done if it was the employer’s fault that the work was incomplete, or there is something to justify the conclusion that the parties have entered into a fresh contract, or the failure of performance is due to impossibility or frustration:  see Appleby v Myers (LR 2 CP 660); Sumpter v Hedges; and s 1(3) of the Law Reform (Frustrated Contracts) Act, 1943. In such cases the contractor can recover in an action for restitution such sum as he deserves, or in the words of the Act, ‘such sum … as the court considers just.’ Those cases do not, however, apply in the present case, because in this case the work has been substantially performed. In my opinion, the official referee was right and this appeal should be dismissed. Since Denning LJ’s decision in Hoenig v Isaacs23 the courts have adopted the approach of interpreting the contract as a whole, with no presumption of either entire obligations or substantial performance. The general view is that the courts will give effect to the clear words of

23 [1952] 2 All ER 176.

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the contract as a whole in determining the nature of the obligations.24 Once it is accepted that recovery for substantial performance is available, the primary question will be whether in fact the party has substantially performed his or her obligations.

ESTABLISHING SUBSTANTIAL PERFORMANCE [19.18] Whether the performance is substantial will be a question of degree to be determined by the court after consideration of all the relevant facts. The court will take into account: •

the nature of the defect; and



the cost of rectifying the defect compared to the contract price.

[19.19] Where the nature of the defect is serious and the cost of rectification is high by comparison with the contract price, a court will conclude that the party has not substantially performed his or her obligations. The contrary will be the case where the defect is minor and the cost small. The difficult question is at what point a court will no longer consider a party’s performance to be substantial. This may be answered by the general question ‘how significant is the breach and did the owner receive substantially the whole of the benefit which the contract was intended to provide’? This places the issue directly within general contractual principles.25 [19.20]

Bolton v Mahadeva [1972] 1 WLR 1009 English Court of Appeal The plaintiff agreed to install a water heating system for £560. The water heater had been installed but, when in operation, fumes were given out into some of the living rooms and in addition, due to insufficient radiators and insulation, the system did not work properly. The plaintiff claimed payment of the contract price. Cairn LJ The main question in the case is whether the defects in workmanship found by the judge to be such as to cost £174 to repair—ie between one-third and one-quarter of the contract price—were of such a character and amount that the plaintiff could not be said to have substantially performed his contract.

24 For recent examples of the approach to interpretation refer to Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2010] NSWSC 1073 and ACN 002 804 702 (Formerly Brooks Building) v McDonald [2009] NSWSC 610. 25 ACN 002 804 702 (Formerly Brooks Building) v McDonald [2009] NSWSC 610 (despite the inability of the builder to rectify the defects in alignment of the building, the Court considered that the owner received substantially what was bargained for). In contrast in Simpson Steel Structures v Spencer [1964] WAR 101 it was held that there had not been substantial performance of a contract to build a farm shed where the floor was not built with the required load capacity and used sub-standard materials.

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In considering whether there was substantial performance I am of opinion that it is relevant to take into account both the nature of the defects and the proportion between the cost of rectifying them and the contract price. It would be wrong to say that the contractor is only entitled to payment if the defects are so trifling as to be covered by the de minimis rule. The main matters that were complained of in this case were that, when the heating system was put on, fumes were given out which made some of the living rooms (to put it at the lowest) extremely uncomfortable and inconvenient to use; secondly, that by reason of there being insufficient radiators and insufficient insulation, the heating obtained by the central heating system was far below what it should have been. There was conflicting evidence about those matters. The judge came to the conclusion that, because of a defective flue, there were fumes which affected the condition of the air in the living rooms, and he further held that the amount of heat given out was such that, on the average, the house was less warm than it should have been with the heating system on, to the extent of 10 per cent. But, while that was the average over the house as a whole, the deficiency in warmth varied very much as between one room and another. The figures that were given in evidence and, insofar as we heard, were not contradicted, were such as to indicate that in some rooms the heat was less than it should have been by something between 26 and 30 per cent. The learned judge, having made those findings, came to the conclusion that the defects were not sufficient in degree to enable him to hold that there was not substantial performance of the contract. He expressed that conclusion in these terms: The defendant’s main complaints against the plaintiff—that is, the style of radiators, fumes from the boiler flue, and inadequacy of heat provided by the system—neither by themselves nor in combination amount to a sufficiently important part of the plaintiff ’s obligation to prevent there being substantial performance.

Now, certainly it appears to me that the nature and amount of the defects in this case were far different from those which the court had to consider in H Dakin & Co Ltd v Lee and Hoening v Isaacs. For my part, I find it impossible to say that the judge was right in reaching the conclusion that in those circumstances the contract had been substantially performed. The contract was a contract to install a central heating system. If a central heating system when installed is such that it does not heat the house adequately and is such, further, that fumes are given out, so as to make living rooms uncomfortable, and if the putting right of those defects is not something which can be done by some slight amendment of the system, then I think that the contract is not substantially performed. The actual amounts of expenditure which the judge assessed as being necessary to cure those particular defects were £40 in each case. Taking those matters into account and the other matters making up the total of £174, I have reached the conclusion that the judge was wrong in saying that this contract had been substantially completed; and, on my view of the law, it follows that the plaintiff was not entitled to recover under that contract.

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[19.21]

ACN 002 804 702 (Formerly Brooks Building) v McDonald [2009] NSWSC 610 Supreme Court New South Wales The case concerned the interpretation of a settlement agreement concerning a building dispute. The court considered whether the plaintiff had to perform the terms of settlement completely and exactly, or whether it was sufficient if they substantially performed the agreement, leaving it to the defendant to seek damages for any breach of the terms, or equitable compensation as a condition of specific performance, if there were defects or omissions in the work done (no such claim for damages or compensation was made by the defendant); and whether the plaintiffs did substantially perform their obligations under the terms of settlement. White J [110] Whether a building contract has been substantially performed is a question of fact and degree (Zamperoni Decorators Pty Ltd v Lo Presti [1983] VR 338 at 340–342 and cases there cited). It is relevant to ask what work would need to be done to bring about complete performance; what would be the cost of that work; and what would be the value of that work as a proportion of the contract price? But that is not the only enquiry. It is also relevant to ask how significant is the breach and did the owner receive substantially the whole of the benefit which the contract was intended to provide? Thus, in Simpson Steel Structures v Spencer [1964] WAR 101 it was held that there had not been substantial performance of a contract to build a farm shed where the floor was not built with the required load capacity and used sub-standard materials. In Bolton v Mahadeva [1972] 1 WLR 1009 a contract to supply and install a heating system was not substantially performed where the system failed to heat the house adequately, and emitted fumes which made living conditions unpleasant. [111] In this case, the shed’s out-of-plumbness cannot be corrected at modest or reasonable cost. Mr Sherson’s evidence was that it would be impossible to carry out any further realignment of the shed unless the entire shed were disassembled, the existing slab demolished, a new slab laid, and the entire building rebuilt. It does not follow that the plaintiffs did not substantially perform their obligations under cl 8(a). I infer that the other defects could be readily fixed at a modest cost. Mr McDonald has received substantially the whole of the benefit the contract was to provide. Although the shed is out-of-plumb this does not affect its ability to withstand the specified wind loads. Nor does the evidence suggest that this otherwise affects the shed’s structural integrity, nor its usefulness, save for a scraping door. Any loss of amenity from the scraping door would be readily compensable. The work of re-screwing the sheeting and tightening the bracing could readily be carried out. The bracing not installed and the failure to repair the ridge joint is not shown to have caused any detriment to the plaintiff. [112] In my view, the plaintiffs substantially performed the works required by cl 8(a). Moreover, as the cases referred to in para [99] demonstrate, specific performance can be given with compensation, even where strict performance is impossible. [113] For these reasons I conclude that, subject to the question of compensation and the defence of unclean hands, the plaintiffs are entitled to an order for specific enforcement of

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the defendant’s promise to consent to the filing of the consent order for the setting aside of the judgment.

PARTIAL PERFORMANCE AND BREACH [19.22] If the contract is not exactly or substantially performed the performance is referred to as partial. A court will not allow a claim for recovery of the contract price (or the proportion related to a divisible part of the contract) where the claiming party has only partially performed his or her obligations under the contract (or a divisible part of the contract). Examples of part performance may be where: •

the work is of no value to the defendant;



the work is entirely different from that provided for by the contract; or



the conduct of the plaintiff constitutes a repudiation or abandonment of the contract. A court may allow a claim in restitution for the reasonable value of the work performed.26

[19.23]

Connor v Stainton (1924) 27 WALR 72 Supreme Court of Western Australia The agreement between the parties required the plaintiff to build a fence with the posts 12 feet apart. The plaintiff instead constructed the fence with the posts at distances varying from 12 feet to 18 feet apart. The plaintiff claimed payment of the contract price on the ground that with the aid of droppers, the fence could be made as effective as that specified by the contract. The local magistrate granted the plaintiff ’s claim but deducted damages for the defects. The defendant appealed. The Court held that since this procedure would cost half as much again as the contract price, it could not be said that there had been substantial performance. In the circumstances, the plaintiff was entitled to nothing. Where the work provided under a contract was of an entirely different character from that agreed, it was not open to the plaintiff to say he or she had done something different, but really as good. McMillan CJ But it seems to me the question is not whether the fence is useless, but whether there has been a substantial compliance with the contract. The law is set out in the cases summarised in Halsbury, vol 3, p 186:—A contract to complete a whole work as such involves an obligation to do everything that is necessary for the completion of the whole work as described. The omission of anything indispensably necessary will make the work incomplete

26 See Chapter 24.

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so as to render the price not payable, and the builder or contractor liable in damages for noncompletion.’ And on the following page:  ‘An allegation that the building owner has received something as good as what he bargained for will not enable a builder to recover the contract price, in the case of an entire contract, in which completion is a condition precedent to the right to payment, except in the case of acceptance by the employer, waiver, or evidence of a new contract to pay for the work actually performed. It would seem, however, that the rule in the case of building contracts is similar to that in the case of specific performance, which is, that such non-essential and trivial defects on the side of one party as can be compensated for will not excuse the other party to the contract. In every case it must be a matter of degree; thus the omission of a lock on a door in a large mansion, or the omission to put some zinc on the flat roof of an annexe, might not amount to non-completion, while omission to put down the floors in a house certainly would do so. The question of completion, being one of fact, is for the jury, and if the jury find that the contract has in fact been performed, the contractor would be entitled to recover the contract price, subject to deduction for the reasonable cost of making the work perfect.’ In a later case, Dakin and Co. Limited v. Lee (a), a builder was held entitled to recover quantum meruit where he had done what he had contracted to do, but part of it was insufficiently and badly done. It seems to me in the present case it cannot be said, in view of the amount allowed by the magistrate in respect of non-completion, that there has been a substantial compliance with the contract. But the case is stronger in favour of the defendant, because it seems to be clear that, even after the completion in the way suggested by the magistrate, the fence would be of an entirely different character from that which the plaintiff had contracted to erect; and it is not open to one who has undertaken to perform work of a certain kind to say that he has done something which is of a different nature, but which is really as good and as satisfactory as that which he had undertaken to do. A  person who has agreed to accept is entitled to have that which is contracted to be done, and in this case it is quite clear that no fence of the character contemplated could be erected without pulling down the work that has been done and starting afresh. It appears that in the court below reliance was placed on a case decided by the Full Court, Williamson v Murdoch. I delivered the judgment in that case, and it lays down no new law. We came to the conclusion there that there had been a substantial compliance with the contract. All that remained to be done was the removal of certain stumps and blackboys; and, further than that, we came to the conclusion that the defendant himself had recognised he was under an obligation to pay for work which had been done, and the only dispute between them was as to the amount. In these circumstances it appears to me that the magistrate was wrong, that the plaintiff did not carry out his contract, and is not entitled to any payment. This appeal must, therefore, be allowed.

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QUANTUM MERUIT AS ALTERNATIVE TO CONTRACT PRICE [19.24] Quantum meruit is an action for the reasonable value of services performed. A claim for quantum meruit is usually sought where there is no contract—or no effective contract—between the parties.27 A claim will be refused if there is a subsisting contract which governs the rights of the parties.28 This means that if the services were performed pursuant to a contract, a quantum meruit is only potentially available if the contract has been terminated, rescinded, frustrated, or is unenforceable or void.29 Claims for quantum meruit are examined further in Chapter 24.

QUESTIONS FOR REFLECTION (1) Should the doctrine of entire contracts continue to be applied in modern contract relationships? (2) Does the doctrine of substantial performance apply to entire contracts? (3) Is there any significance in the different approaches of Sommervell LJ and Denning LJ in Hoenig v Isaacs [1952] 2 All ER 1? (4) Is there any injustice in the rule that a party who partially performs and is in breach is not entitled to claim any part of the contract price?

27 See Rover International Ltd v Cannon Film Sales Ltd [1989] 1 WLR 912 (void contract); Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 (unenforceable contract); Lodder v Slowery [1904] AC 442 (terminated contract). 28 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251, 275; Timis v Mina [1999] NSWCA 140 [54]; Coshott v Lenin [2007] NSWCA 153; Perum Building & Construction Pty Ltd v Tallenford Pty Ltd [2007] WASCA 245; Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635. Refer further to the case example at [24.105]. 29 Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435; Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221. See [24.160].

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INTRODUCTION [20.01] A  contract may be discharged unilaterally by one of the parties for the breach by the other. Discharge of the contract in this way allows the terminating party, in addition to claiming damages for breach, to be freed from his or her obligations under the contract. The right to terminate a contract may be conferred expressly by the contract or by the common law. According to the common law a contract may be terminated, unless the parties have agreed otherwise, where one party to the contract: •

fails to perform an essential term of the contract;



commits a serious breach of an intermediate term; or



evinces an unwillingness or inability to continue with the contract, constituting a repudiation or anticipatory breach of the contract.

[20.02] Where the party seeking to terminate the contract proves the existence of a breach or repudiation of the contract,1 that party may elect, subject to certain limits,2 to terminate the contract. Termination of the contract will discharge the parties from their future obligations under the contract, but obligations that have accrued under the contract may still be enforceable after termination.3 [20.03] Contracting parties may also agree to include contractual rights of termination within the contract. These clauses fall within two broad categories. In the first category are terms of the contract that allow one or both parties to terminate if there is a particular type of breach or an event of default. These clauses are diverse but usually will contain a trigger event for the right to terminate. This may be a breach of a term or terms, an event of default (such as insolvency) or for no reason (called termination for convenience). In some cases, a procedure for termination may be a precondition to exercising the right to terminate. Consequences of contractual

1

The onus of proving the existence of breach or repudiation lies on the party seeking to terminate the contract: Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701, 729; Hobbs v Persham Transport Co Pty Ltd (1971) 124 CLR 220, 230; Minchillo v Ford Motor Co of Australia Ltd [1995] 2 VR 594, 616.

2

Refer to [20.40]–[20.48] for the common limits or restrictions on termination for breach or repudiate.

3

The effect of termination on the contract and on the obligations of the parties is considered at [20.49]–[20.52].

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termination may be included in the term but is not essential. Secondly, a term of the contract may make performance of the contract ‘subject to’ an event occurring (contingent condition). If the event does not occur one or both parties may be entitled to end the contract within a particular time period. In the first category, exercising the contractual right of termination has the same legal effect as termination at common law. In the second category, ‘terminating’ the contract for the failure of the contingent condition has the same legal effect as rescission. In other words, the parties are returned to their position prior to contract. Contractual rights to terminate are beyond the scope of this text.4

COMMON LAW RIGHT OF TERMINATION [20.04] At common law a right to terminate for the failure of a contracting party to perform arises if another party has: a. failed to perform an essential term; b. failed to perform an intermediate term resulting in a serious breach of the contract; or c. indicated by words or conduct that the party is no longer willing or able to perform the contract substantially according to its terms. The different types of terms, including essential terms and intermediate terms were discussed in Chapter 9. In this Chapter, the effect of each type of term in the context of breach and termination is briefly revised.

BREACH OF ESSENTIAL TERM OR INTERMEDIATE TERM [20.05] The test for identifying an essential or intermediate term was discussed in Chapter 9. Any breach of an essential term will allow the innocent party to terminate the contract even though the loss to the innocent party may be small or the detriment to the other party large. It is important to note that the breach of an essential term does not cause the contract to automatically terminate. The innocent party will need to elect to terminate the contract.5 The right to terminate is not conditional upon the innocent party suffering a loss, but if the loss is insignificant the classification of the term as essential may be called into question. [20.06] An intermediate term is a term that may give rise to a variety of breaches, some trivial and some serious.6 Whether a breach of an intermediate term will entitle the innocent party

4

For a detailed examination of contractual rights to terminate, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, Oxford University Press, Melbourne, 2018.

5

Election to terminate is discussed at [20.36]–[20.39].

6

Examples of intermediate terms include a seaworthiness provision in a charterparty: Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26; or a clause requiring employees to exercise proper care in carrying out their duties; or an obligation in a joint venture agreement to keep books and records in accordance with generally accepted accounting standards: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115; the allocation of regular customers to a franchisee under a franchise agreement: VIP Home Services (NSW) Pty Ltd v Swan [2011] SASC 110.

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to terminate the contract, depends on the seriousness of the breach and the consequences, both actual and foreseeable.7 If the consequences of the breach deprive the innocent party of substantially the whole of the benefit of the contract, termination will be possible.8 Breach of an intermediate term does not bring the contract to an end automatically. The innocent party will need to elect to terminate.

REPUDIATION [20.07] Repudiation occurs where one party by words or conduct renounces his or her obligations under a contractor evinces an intention no longer to be bound by the contract, or shows an intention to fulfil the contract only in a manner substantially inconsistent with his or her obligations, and not in any other way.9 It is important to note that the test of whether a party’s conduct amounts to repudiation is objective and secondly, that repudiation or renunciation is underpinned by the notion that parties should be ready, willing, and able to perform their contractual obligations at the relevant time. A party who is not ready, willing, and able to perform the contract at the appointed time may be indicating an intention no longer to be bound by the contract. Repudiation may also occur prior to the time for performance, and is then referred to as ‘anticipatory breach’. [20.08] Repudiation does not automatically bring a contract to an end. As with breach of contract, the promisee must elect to terminate the contract.10 In the context of repudiation, the word ‘acceptance’ is used to describe the decision to elect to terminate for repudiation.11 Until the repudiation is accepted the contract will continue on foot and binds both parties.12 Acceptance of repudiation is necessary to trigger a right to damages.13 A promisee may elect to accept a repudiation and terminate only if the promisor’s absence of readiness and willingness to perform the contract extends to all of the promisor’s obligations, or it indicates the promisor will be in breach entitling the promisee to terminate. In other words, the absence of readiness and willingness to perform the contract must be either to the whole of the contract or a fundamental obligation under it.14 Repudiation can occur either at the time for performance (actual breach) or prior to that time (anticipatory breach).

7

Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26; Direct Acceptance Finance Ltd v Cumberland Furnishing Pty Ltd [1965] NSWR 1504, 1511; applied in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115.

8

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115, 140.

9

Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625–626; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115, 131–132.

10 The principles of election are examined at [20.36]–[20.39]. 11 Scarcella v Linknarf Management Services Pty Ltd (in liq) [2004] NSWSC 1168. 12 Foran v Wight (1989) 168 CLR 385. 13 See [23.26]. 14 For example Hochster v De la Tour (1853) 2 E&B 678; 118 ER 922 and Federal Commerce and Navigation Co Ltd v Molena Alpha Inc [1979] AC 757, 779, 783, 785.

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Anticipatory breach [20.09] Anticipatory breach is a form of repudiation. It occurs where a party, prior to the time for performance under the contract, evinces an intention no longer to be bound to the contract according to its terms. A promisee may terminate for an anticipatory breach immediately, even if the time for performance has not arrived. The only proviso is that the breach must be of a sufficiently serious nature so that if it had occurred at the time for performance the promisee would have been entitled to terminate the contract. [20.10] The promisee may also wait until the time for performance and accept the failure to perform as an actual repudiation of the contract or a breach of an essential term. If the promisee elects to wait until the time for performance before terminating they should be aware of an important limitation. Consistently with the fact that anticipatory breach is a form of repudiation, the breach must be accepted before it may be acted upon. This means if the innocent party does not elect to terminate the contract prior to the time for performance, the contract will continue on foot, for the benefit of both parties. [20.11]

Foran v Wight (1989) 168 CLR 385 High Court of Australia The parties had entered into a contract for the sale of land. A special condition required the vendors to obtain the registration of a right of way prior to completion. The date for completion was 22 June and time was of the essence. On 20 June, the vendors told the purchasers they would not be able to complete the contract, as the right of way could not be registered by 22 June. Neither party attempted to settle on 22 June, and the purchasers purported to terminate the contract by notice on 24 June. The purchasers claimed a declaration that the contract was validly terminated and the deposit should be repaid. The vendors claimed that the purchasers could not terminate the contract as they were not ready willing and able to perform. The first issue addressed by each of the judges was whether the vendor’s statement of 20 June amounted to an anticipatory breach of contract. Mason CJ The starting point of our consideration of the principal question agitated by the vendors lies in the concurrent findings of fact made by the courts below. The inevitable consequence of Needham J’s finding that the vendors’ solicitor stated on 20 June that they would not settle on 22 June was that the vendors thereby committed an anticipatory breach of an essential term of the contract. The breach was then anticipatory because it amounted to a refusal by the vendors to perform an essential term of the contract before the time for performance had arrived. The breach was a repudiation which entitled the purchasers at their election to treat the contract as at an end, subject to the court’s power to grant relief in respect of any termination which happens to be unconscionable or inequitable (see Legione v

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Hateley; Stern v McArthur; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd, or to keep it on foot (see Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd). It was not necessary for the purchasers to show that the breach of the essential term was also a fundamental breach in the sense in which that expression was explained by Lord Diplock in Afovos Shipping Co v Pagnan, before they acquired a right to terminate the contract. However, if it were necessary to consider the question, I would regard the anticipatory breach as fundamental. The law has traditionally treated completion on the date fixed for completion, where time is of the essence, as being a matter of vital importance to the parties. And the vendors’ solicitor gave no indication that the delay in registration of the right of way would be negligible. But the purchasers did not terminate for anticipatory breach. The notice of rescission made no mention of the statement made by the vendors’ solicitor on 20 June that the vendors would be unable to complete on the due date. Instead the notice referred to the failure to register the right of way and to provide a good selling title and to complete in accordance with the requirements of the contract. More importantly, if the purchasers wished to terminate for anticipatory breach they should have done so ‘while the period specified by the contract for performance is unexpired’, to use the words of Kitto J in Peter Turnbull. It follows that the purchasers terminated for actual breach, that is, for the vendors’ failure to complete on the day fixed for completion. It matters not that the actual breach occurred shortly after the anticipatory breach and that the notice was given only four days after 20 June. The fact is that the purchasers allowed the time for performance to pass without electing to terminate and of necessity they relied on the actual breach, that breach being the natural consequence of the antecedent anticipatory breach. A failure by the innocent party to treat an anticipatory breach of an essential term as a repudiation and to terminate the contract has the effect of leaving the contract on foot, in which event it remains in force for the benefit of both parties, just as it would if the anticipatory breach had never occurred, subject to a qualification to which I shall refer in a moment. The parties then remain bound by the contract and the repudiating party may rely on any supervening circumstance which justifies his non-performance of the contract when the time for performance arrives: Bowes v Chaleyer; Peter Turnbull. The qualification is that, if the repudiating party by his refusal to perform or other conduct intimates to the innocent party that he need not perform an obligation which is a condition precedent to the performance by the repudiating party of his obligation, and does not retract that intimation in time to give the innocent party an opportunity to perform his obligation, that party may be excused from actual performance of the condition precedent. The repudiating party then waives complete performance of the condition precedent and his conditional promise becomes unconditional. The term ‘waiver’ is generally used where one party by words or conduct relieves the other party from timely fulfilment of a condition or performance of a promise, time being of the essence of the contract: Peter Turnbull. The precise nature and extent of this qualification is critical to the outcome of the present case. Brennan J The first question for determination is whether the contract was subsisting on 22 June despite the intimation by the vendors’ solicitor on 20 June that the vendors could not complete on 22 June. It is clear that the vendors’ solicitor did not wish the sale to go off; he sought no more than a postponement of the day for completion in order that he could procure the registration of the easement over the land before conveyance. The vendors did not offer to

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complete on 22 June; the vendors’ solicitor had intimated that they were unready to complete on the day fixed for completion. As the parties had made completion on the day fixed an essential term of the contract, the intimation that the vendors were not ready to complete on 22 June was capable of amounting to a repudiation which would confer on the purchasers a right to rescind. When a promise is an essential term of a contract, an announcement by the promisor before the time for performance arrives that he will not perform the promise is an anticipatory breach amounting to a repudiation of the contract conferring on the promisee a right to rescind the contract … It is unnecessary, in my opinion, that an anticipatory breach be classified as ‘fundamental’ in any other respect in order to amount to a repudiation: but cf per Lord Diplock in Afovos Shipping Co v Pagnan. However, a repudiation by anticipatory breach does not affect the subsistence of a contract unless the promisee elects to rescind … Absent an election by the promisee to rescind, both parties remain bound by the contract, and the promisor may take advantage of any supervening circumstance which justifies him in refusing to perform when the time for performance arrives … The purchasers did not elect to rescind for repudiation by anticipatory breach and the contract was subsisting on 22 June, the day fixed for completion. The purchasers elected to rescind for an actual breach by the vendors in failing to complete on 22 June. The question is whether the failure by the vendors to complete on that day was a breach of contract. Dawson J The term of the contract requiring completion on or before 22 June 1983 was, by express provision, an essential term. Clearly enough, by indicating on 20 June 1983 that they would not be complying with it, the vendors were in anticipatory breach of the contract and had thereby repudiated it. In Afovos Shipping Co v Pagnan, Lord Diplock suggested that anticipatory breach of a contract by one party occurs only where ‘the threatened nonperformance would have the effect of depriving [the] other party of substantially the whole benefit which it was the intention of the parties that he should obtain from the primary obligations of the parties under the contract then remaining unperformed … The non-performance threatened must itself satisfy the criteria of a fundamental breach.’ Perhaps Lord Diplock was intending to suggest that an anticipatory breach of an essential (or fundamental) term need not necessarily amount to repudiation. On the other hand, perhaps he was recognizing that an anticipatory breach must be fundamental before it can amount to repudiation, whether it is fundamental because it is the breach of an essential term or for some other reason. An essential term is a term which the parties have agreed, or which the law says, goes to the root of the contract … In Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd, Brennan J thought that anticipatory breach may amount to repudiation whether it is of an essential term or otherwise goes to the root of the contract. I see no reason to doubt that view … Repudiation by way of anticipatory breach by a party to a contract does not put an end to the contract unless the other party accepts the repudiation and rescinds the contract. Although he may do so, the other party does not have to accept the repudiation. He may continue to treat the contract as on foot and hold the party guilty of repudiation to the performance of his obligations. If those obligations remain unperformed when the time for performance arrives, the anticipatory breach will be converted into an actual breach. If the other party keeps the contract alive, he does so not only for his own benefit but also for the benefit of the party guilty

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of repudiation. The latter may, upon giving reasonable notice, withdraw his repudiation and complete the contract and, subject to a qualification with which I shall deal, the other party remains bound by the contract, enabling the repudiating party to take advantage of any breach by the other party or any supervening event which would discharge him from liability. If the other party elects to rescind, the rescission is, of course, not ab initio. He is entitled to maintain an action for damages for the anticipatory breach, the damages being calculated by reference to the loss which he would suffer by the breach becoming actual, subject to any opportunity to mitigate his loss in the meantime … It is, I think, clear that the anticipatory breach of a contract amounting to repudiation cannot, if the repudiation is not accepted, continue beyond the time for performance. At that point, the failure to perform becomes an actual and not an anticipatory breach and the remedies available are for actual, rather than anticipatory, breach. [Footnotes removed.] [20.12] A majority of the High Court agreed that the sellers’ statement on 20 June expressing an inability to perform was an anticipatory breach of contract which entitled the buyer to terminate the contract prior to the time for performance. The buyer did not exercise a right to terminate for the anticipatory breach. Therefore, the contract remained on foot for the benefit of both parties. The buyer ultimately terminated for the failure of the seller to perform on the date of settlement, which was an actual breach.

Examples of repudiation [20.13] Whether the conduct of a contracting party will amount to repudiation is a question of fact. Proof of repudiation will fall into two broad categories: •

repudiation by words or conduct; and



repudiation through inability to perform.15

Refusal to perform [20.14] A refusal to perform the contract may be express or implied. An express declaration that the party will not perform any of the obligations under the contract clearly amounts to repudiation. A repudiation may also occur where the party refuses to perform a fundamental aspect of the contract. For example, a statement by a buyer of land on the date for completion that the buyer ‘will not perform’ the contract ‘under any circumstances’ is a clear repudiation of the contract by express words.16 A refusal to perform may also be implied from a party’s words or conduct.

15 See [20.20]–[20.21]. 16 Galafassi v Kelly (2014)87 NSWLR 119.

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[20.15]

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 High Court of Australia The lessee executed a lease of premises and paid the stamp duty to the lessor, with authority for the lessor to complete the lease and lodge it for registration. In a nine-month period, the lessee made several requests for a copy of the completed and registered lease. After nine months had elapsed and the lease was still not registered, the lessee sent a demand requesting a copy of the registered lease within fourteen days. The lessor did not deliver the lease, and the lessee purported to terminate the agreement. In deciding whether the lessor had repudiated its obligation to register the lease, the Court drew a distinction between an intention to carry out a contract only if and when it suited the party to do so, and an intention to carry out a contract as and when it suited the party. In the first case, it is easy to draw the inference that the party no longer intends to be bound by the contract because the party does not intend to carry out the contract at all if it does not suit him or her. In the second instance, it will depend on the circumstances of the case, because the party intends to perform the contract but only as and when it suits him or her. Due to the substantial delay in performance that occurred in the case, the Court held that the lessor had repudiated the contract. The clear intention only to perform the contract in a manner substantially inconsistent with its obligations was evidenced by the protracted delay in registering the lease. Brennan J Repudiation is not ascertained by an inquiry into the subjective state of mind of the party in default; it is to be found in the conduct, whether verbal or other, of the party in default which conveys to the other party the defaulting party’s inability to perform the contract or promise or his intention not to perform it or to fulfil it only in a manner substantially inconsistent with his obligations and not in any other way. In Freeth v Burr, Lord Coleridge CJ spoke of acts or conduct which ‘do or do not amount to an intimation of an intention to abandon and altogether to refuse performance of the contract’ or of acts and conduct which ‘evince an intention no longer to be bound by the contract’. This was followed by the Earl of Selborne LC in Mersey Steel and Iron Co v Naylor, Benzon & Co: I am content to take the rule as stated by Lord Coleridge in Freeth v Burr, which is in substance, as I understand it, that you must look at the actual circumstances of the case in order to see whether the one party to the contract is relieved from its future performance by the conduct of the other; you must examine what that conduct is, so as to see whether it amounts to a renunciation, to an absolute refusal to perform the contract, such as would amount to a rescission if he had the power to rescind, and whether the other party may accept it as a reason for not performing his part.

And in Carswell v Collard, Lord Herschell LC stated the question precisely: Of course, the question was not what actually influenced the defender, but what effect the conduct of the pursuer would be reasonably calculated to have upon a reasonable person.

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Forslind v Bechely-Crundall is in accord with this view, though Lord Shaw of Dunfermline may be thought to go beyond Lord Herschell’s test in emphasizing the effect of the defaulting party’s conduct on the mind of the innocent party. The question whether an inference of repudiation should be drawn merely from continued failure to perform requires an evaluation of the delay from the standpoint of the innocent party. Would a reasonable person in the shoes of the innocent party clearly infer that the other party would not be bound by the contract or would fulfil it only in a manner substantially inconsistent with that party’s obligations and in no other way? Different minds may easily arrive at different answers. If one looks merely at Capalaba’s conduct in the circumstances known to Laurinda when the letter of 21 August 1986 was written, Capalaba’s failure to register the lease did not amount to repudiation. The shortness of the time for registration limited by that letter and the absence of an intimation in the letter that that time would be regarded as of the essence deprive the letter of 21 August of the effect which a valid notice to complete would have had. Looking solely at Capalaba’s delay in registering the lease, the position was analogous to that which Dixon J found to exist in Dimond v Moore where, in a dissent which turned on the facts, he said: But if they wished to rely upon the lessor’s failure to perform her contract within a period of time as distinguished from some refusal by her to observe the obligations imposed upon her, it was necessary for the lessee to name some time by which performance was demanded, and in doing so to fix a period sufficient to enable her solicitors to receive her instructions.

I would not infer repudiation merely from non-registration within the time limited by the letter.’ However, I am unable to agree with the Full Court who, accepting that the notice was ineffectual, held that ‘until an effectual notice was given the delay continued but that alone was insufficient to make evident any intention on the part of [Capalaba] that it would not be bound by the contract’. Repudiation may be established without proof of an effective notice to complete. The absence of an effective notice means that the other evidence must be examined to determine whether a clear inference of repudiation should be drawn, but it does not preclude the drawing of that inference. If the evidence showed no more than fourteen days of continued non-registration of the lease after 21 August 1986, I would not draw the inference of repudiation. But the letter of 21 August was followed by Capalaba’s solicitors’ letter of 3 September 1986. After assurances that the lease had been executed and the costs of stamping and registration had been paid, advice was given in March 1986 that the lessee’s stamped parts of the lease would be provided as soon as the lease was available after its return from Melbourne expected ‘in the not too distant future’, but there was no further communication from Capalaba or its solicitors. Then, stimulated by Laurinda’s letter of 21 August 1986, Capalaba’s solicitors, on the eve of the expiration of the time limited, advise merely that they have referred the letter to their client ‘for its response’, undertaking to advise their ‘client’s instructions’. The long and unexplained delay from March to September 1986 ending with a letter stating that the solicitors required further instructions with respect to completing what had been promised over five months earlier is sufficient foundation for the drawing of an inference of repudiation. It is the inference which Laurinda drew and, although it cannot be said that no other reasonable inference is open, it is a reasonable inference

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which can be clearly drawn. I have vacillated in arriving at this conclusion but, having arrived at it, I would allow the appeal and restore the judgment of Connolly J. Deane and Dawson JJ The question which must now be answered is whether the lessor’s conduct up to and including the letter of 3 September 1986 was such as to constitute repudiation of the contract. Lord Wright’s oft-quoted admonition that ‘repudiation of a contract is a serious matter, not to be lightly found or inferred’ (Ross T Smyth & Co Ltd v T D Bailey, Son & Co) is, no doubt, a wise one. It should not, however, be allowed to cloud the fact that an allegation of repudiation of contract in a civil case does not involve an assertion that the alleged repudiator subjectively intended to repudiate his obligations. Thus, it is of little assistance in the present case to identify reasons why the lessor was unlikely to have subjectively desired to repudiate its agreement to grant a lease. An issue of repudiation turns upon objective acts and omissions and not upon uncommunicated intention. The question is what effect the lessor’s conduct ‘would be reasonably calculated to have upon a reasonable person’ (per Lord Herschell LC, Carswell v Collard; Forslind v Bechely-Crundall). It suffices that, viewed objectively, the conduct of the relevant party has been such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it. In the present case, the alleged repudiation by the lessor was of the fundamental obligation to produce a lease of the subject premises in registrable form. Clearly, there was unreasonable delay on the part of the lessor in the performance of that obligation. That delay was deliberate and was for the lessor’s own commercial purposes. Its significance, from the viewpoint of a reasonable person in the position of the lessee, was heightened by an absence of explanation in the face of the lessee’s requests and complaints and by the dishonouring of assurances given as to future conduct. Indeed, even the assurance that the lease had been executed by the lessor was misleading since it now appears that no completed form of lease had even been brought into existence. The letter of 21 August 1986 from the lessee’s solicitors served to bring matters to a head. The totally unresponsive reply of 3 September 1986 seems to us to have taken the matter to a stage where the combined effect of dishonoured assurances, continued failure to produce a lease in registrable form and continued refusal properly to address the lessee’s legitimate requirements and complaints was, to adapt words used by Fullagar J in Carr v JA Berriman Pty Ltd, such that a reasonable man could hardly draw any other inference than that the lessor was not prepared to take its primary obligation under the contract seriously. It is not necessary for repudiation of a contract that the repudiator make plain that he will never perform his contractual obligations at all. What Lord Dunedin described (Forslind) as the assumption of ‘a shilly-shallying attitude in regard to the contract’ and what Lord Shaw of Dunfermline called ‘procrastination … persistently practised’ can, in some circumstances, reach the stage of repudiation even though accompanied by assurances of ultimate performance at some future time. In that regard, the law was correctly stated by Lord Shaw in the following extract from his judgment in Forslind which is directly in point to the circumstances of the present case:

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If, in short, A, a party to a contract, acts in such a fashion of ignoring or not complying with his obligations under it, B, the other party, is entitled to say: ‘My rights under this contract are being completely ignored and my interests may suffer by non-performance by A  of his obligations, and that to such a fundamental and essential extent that I declare he is treating me as if no contract existed which bound him.’ … In business over and over again it occurs—as, in my opinion, it occurred in the present case—that procrastination is so persistently practised as to make a most serious inroad into the rights of the other party to a contract. There must be a stage when the person suffering from that is entitled to say: ‘This must be brought to an end. My efforts have been unavailing, and I declare that you have broken your contract relations with me.’ Lord Shaw went on to point out that ‘the question whether the stage has been reached when procrastination or non-performance’ constitutes repudiation is essentially one of fact. That question will, as has been said, only be properly answered in the affirmative when procrastination or non-performance has marked the stage of conveying to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it. It was, in our view, correctly resolved by the learned trial judge in the lessee’s favour in the present case when he held that the lessor’s conduct constituted repudiation of the contract which entitled the lessee to terminate it. It follows that we would allow the appeal, set aside the orders of the Full Court of the Supreme Court and restore the orders made by the learned primary judge. The respondent should pay the costs of the appeals to the Full Court of the Supreme Court and to this Court. [Footnotes removed.]

Erroneous interpretation [20.16] If a party acts on an erroneous construction and breaches one or more terms of the contract or evinces an intention not to perform except in accordance with the erroneous interpretation, the party may have repudiated his or her obligations. Whether a repudiation has occurred is a question of fact that requires consideration of all the circumstances, including the conduct of the party claiming to have accepted the repudiation.17 Whether reliance on an erroneous interpretation is repudiation should be determined objectively from their conduct and not by reference to their subjective intention.18

17 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115, [60]; R&A Cab Co Pty Ltd v Kotzman [2008] VSCA 68, [48]. 18 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, 647; Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] WLR 277; Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1979] AC 757; Sopov and Walker v Kane Constructions Pty Ltd (2007) 20 VR 127 (the court summarises the circumstances in which repudiation may be implied); Duffy Bros Fruit Market (Campbelltown) Pty Ltd v Gumland Property Holdings Pty Ltd (2007) 13 BPR 24,321; Civoken Pty Ltd v Madden Grove Developments Pty Ltd [2006] VSC 283.

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[20.17]

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 High Court of Australia The vendor agreed to sell to the purchaser nine land subdivisions, which were set out on a plan annexed to the contract. A term of the contract provided that a plan of subdivision as annexed had been lodged with the local authority. In fact, a plan different from the one in the contract had been lodged. Once the plan was lodged, the vendor required settlement in accordance with the contract. The purchaser purported to terminate because the plan lodged was not the one in the contract. The vendor argued that the purchaser’s termination constituted a wrongful termination of the contract. In reliance upon the wrongful termination, the vendor purported to terminate the contract and claim the deposit. The High Court first examined the contract and decided that clause 4 of the contract contemplated the lodgement of a plan substantially the same as the one attached to the contract. On this view, the vendor was in breach of the contract. After concluding that the requirement to lodge the plan with all due dispatch was not essential, the High Court turned to the question of repudiation. Stephen J, Mason J and Jacobs J Quite apart from this aspect of the matter the respondents’ case as pleaded in pars 5, 5A and 6 of its amended statement of claim was not one of rescission for actual breach of essential term, but one of rescission for repudiation and renunciation for so-called ‘anticipatory breach’. Their case is accordingly to be considered on that footing. The relevant question therefore is whether the events which we have recounted evidence an intention on the part of the appellant to repudiate or renounce the contract or more precisely whether such an intention is to be inferred from those events. For the respondents it was submitted that such an intention should be inferred from the appellant’s continued adherence to an incorrect interpretation of the contract. It was urged that the appellant, because it was acting on an erroneous view, was not willing to perform the contract according to its terms. No doubt there are cases in which a party, by insisting on an incorrect interpretation of a contract, evinces an intention that he will not perform the contract according to its terms. But there are other cases in which a party, though asserting a wrong view of a contract because he believes it to be correct, is willing to perform the contract according to its tenor. He may be willing to recognize his heresy once the true doctrine is enunciated or he may be willing to accept an authoritative exposition of the correct interpretation. In either event an intention to repudiate the contract could not be attributed to him. As Pearson LJ observed in Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699, at p 734: In the last resort, if the parties cannot agree, the true construction will have to be determined by the court. A party should not too readily be found to have refused to perform the agreement by contentious observations in the course of discussions or arguments …

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In this case the appellant acted on its view of the contract without realizing that the respondents were insisting upon a different view until such time as they purported to rescind. It was not a case in which any attempt was made to persuade the appellant of the error of its ways or indeed to give it any opportunity to reconsider its position in the light of an assertion of the correct interpretation. There is therefore no basis on which one can infer that the appellant was persisting in its interpretation willy nilly in the face of a clear enunciation of the true agreement. Mr Meagher for the respondents valiantly submitted that the appellant did not bona fide believe that the contract was to be interpreted as authorizing the two-stage subdivision which it implemented. Indeed, he suggested that the interpretation was so irrational and ill-founded as to compel the inference that the appellant did not bona fide believe in it. We cannot accept that this is so—after all, the primary judge, mistaken though he was, thought that this was the correct view of the contract. In any event, on the evidence this Court would not be justified in finding that the appellant acted otherwise than in accordance with a bona fide belief as to the correctness of the interpretation which it sought to place upon the contract. Consequently it is a case of a bona fide dispute as to the true construction of a contract expressed in terms which are by no means clear … In these circumstances the Court is not justified in drawing an inference that the appellant intended not to perform the contract according to its terms or that it repudiated the contract. That being so, the respondents were not entitled to rescind the contract for ‘anticipatory breach’ as they purported to do by their notice of 19th July 1974. But the question remains whether the appellant was entitled to rely on this ineffective rescission of the contract by the respondents as itself a repudiation of the contract and thereupon to rescind as it purported to do by its letter of 25th July 1974. This is the question raised by the cross-action. In our opinion the appellant could not rely on the respondents’ purported rescission as a repudiation. The respondents purported to rescind only upon the basis that the appellant would not complete the contract as correctly interpreted. They were in error in regarding themselves as entitled to rescind at the stage when they purported to do so but they were not in error in their interpretation of the contract. The actions of the parties must now be considered in the light of the true interpretation of the contract. The purported rescission of 19th July did not evince an intention not to proceed with the contract correctly interpreted; it did no more than evince an intention not to proceed with the contract on the basis of the incorrect interpretation then being advanced by the appellant. That cannot be regarded as a repudiation which would entitle the appellant to rescind when it was itself the party in error. A party in order to be entitled to rescind for anticipatory breach must at the time of rescission himself be willing to perform the contract on its proper interpretation. Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach, and indeed could profit from his misinterpretation of the contract, as the appellant seeks to do in this case when it claims forfeiture of the deposit and damages. By insisting on its incorrect interpretation of the contract to the point of claiming to rescind because the respondents were relying on the different but correction interpretation, the appellant by that stage showed that ‘definitive resolve or decision against doing in the future what the contract’ [required] which is referred to by Dixon CJ in Rawson v Hobbs (1961) 107 CLR 466, at p 481. Whether or not the respondents could by then have rescinded certainly the appellant could not do so.

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[20.18] In DTR Nominees the High Court distinguished two situations: •

first, where in the face of adverse comment a party persists in maintaining that it will only perform an essential obligation in accordance with an untenable construction;19 and



second, where the party although asserting an incorrect interpretation of a contractual provision is willing to perform the contract according to its tenor.20

[20.19] The first situation will usually give rise to repudiatory conduct, but where a party honestly maintains an interpretation but indicates a willingness to perform the contract according to its proper terms the conduct is unlikely to be repudiatory. In DTR Nominees, the Court considered that the vendor’s conduct fell within the second category. The purchaser had not advised the vendor of their error, nor given the vendor any opportunity to rectify the position. There was no factual basis upon which the court could infer that the vendor was persisting in its interpretation in the face of a clear enunciation to the contrary. It was possible that the vendor, if apprised of the mistake, would have performed the contract according to its terms.21

Inability to perform [20.20] Repudiation will occur not only where a party is unwilling to perform but also where the party is unable either expressly or impliedly to perform the contract. An express declaration of inability is clearly repudiation:  See for example Foran v Wight.22 Where implied inability is alleged, the plaintiff must prove that the defendant is wholly and finally disabled from performing the contract23 or there is a substantial incapacity to perform24 on the date for performance.

19 See for example Rona v Shimden Pty Ltd [2005] NSWSC 818; Factory 5 Pty Ltd (in liq) (ACN 112 313 238) v Victoria (2010) 276 ALR 523; Satellite Estate Pty Ltd v Jaquet (1968) 71 SR (NSW) 126, 149. 20 See for example Perpetual Trustee Company Ltd v Meriton Property Management Pty Ltd [2006] NSWCA 75; Velik v Steingold [2013] NSWCA 303. 21 This case was followed in Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd Trading as ‘Uncle Bens of Australia’ (1992) 27 NSWLR 326; Till v National Mutual Association of Australasia Ltd [2004] ACTCA 26; Highmist Pty Ltd v Tricare Ltd [2005] QCA 357; Velik v Steingold [2013] NSWCA 303. Vaswani v Italian Motors (Sales and Service) Ltd [1996] 1 WLR 270 the fact the party acted in accordance with legal advice will not excuse repudiatory conduct. 22 (1989) 168 CLR 385. Refer also to K&K Real Estate Pty Ltd v Adellos Pty Ltd (2010) 15 BPR 28,679 where the buyer expressed, stated in correspondence, an inability to perform the contract on time; Mullins v Kelly-Corbett [2010] QCA 354 consistent statements by buyer that unable to settle on the due date. 23 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245, 262, 280. 24 Rawson v Hobbs (1961) 107 CLR 466, 481; Elders Ltd v Incitec Pivot Ltd [2006] SASC 99; Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198 (inference drawn from terms of correspondence).

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[20.21]

Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198 New South Wales Court of Appeal Almond Investors Ltd (the appellant), agreed to purchase 90,000 one-year-old almond trees from Kualitree (the respondent). The agreement was contained in a letter from the appellant to the respondent of 30 October 2006, confirming earlier discussions. The letter made it clear that the appellant required: •

delivery of the trees for planting commencing 1st June 2007; and



trees at a minimum height of 0.9 metres.

The appellant agreed to pay 25% of the purchase price after inspection and a further 25% after first bud strike, followed by 50% on delivery. The first two 25% instalments were approximately $363,000 in total and were paid by the appellant as agreed. The respondent delivered about one-third of the trees and some were rejected on quality grounds. The value of this delivery, $96,296.20, was invoiced, but in breach of the agreement the appellant did not pay. After this delivery of trees, it became apparent that the respondent would not be able to deliver the agreed 90,000 one-year-old trees of a height of 0.9 metres by the agreed time in 2007. This was made clear in an email to the appellant which stated that the remainder of the order would be made up with a combination of 0.6-metres plantings backed up by 25,000 new plantings in 2007. Shortly after, the appellant purported to terminate the agreement on the basis the respondent could not perform the agreement. Bathhurst CJ [53] In my opinion, the contract required the respondents to have available for delivery for planting commencing 1 June 2007 90,000 trees of the species specified in the email of 30 October which had reached by that time a height of at least 0.9 metres. Although the height requirement is expressed as an expectation the respondents conceded, in my opinion correctly, that this requirement was a contractual term. [54] That that is the correct construction appears from the following matters: (a) The order was for 90,000 one-year-old trees. (b) Payment of the deposit of 25 percent of the purchase price was conditional upon satisfactory inspection of those trees. (c) It was those trees which were the subject of the contractual requirement: ‘delivery of the trees is to be for planting commencing 1 June 2007’. (d) The requirement that the trees be of 0.9 metres height was a requirement in respect to the trees which the appellant was entitled to call for delivery for planting commencing 1 June 2007, that is the 90,000 trees. (e) The payment of an additional $1 per tree carried over for planting in June 2008 related, in my opinion, to trees which had met the specification of 0.9 metres height by June 2007 but which the appellant had elected to remain in the nursery for another year. As the appellant

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submitted, this accorded with the ordinary meaning of the expression ‘carried over’ as well as with the industry meaning understood by both parties. (f) The respondents conceded that their contention, namely that the trees only had to be 0.9 metres in height at the time of delivery whether that occurred in 2007 or 2008, was somewhat illogical. Whether it can be described as illogical or not, it ignores the fact that the appellant was entitled to 90,000 one-year-old trees of the specified height for planting commencing June 2007. If the appellant elected the option to carry over it paid extra. There is nothing in the contract to suggest that if the appellant elected not to take the trees which it had inspected the respondent would be entitled to deliver trees which were one-year old by June 2007 but which had not reached the requisite height, provided they did so by 30 June 2008. Further, it is quite unclear on this construction whether or not the appellant was to pay $7.40 for such trees which it would have been entitled to reject in June or the carried over price of $8.40. In addition, this construction ignores the fact known to both parties that trees which had not reached 0.9 metres after one year were more susceptible to damage and death. [55] In those circumstances, in my opinion, the construction contended for by the respondents should be rejected. [56] It was common ground between the parties that the obligation to deliver the balance of the trees not delivered in June 2007 could not be satisfied by the delivery of trees which were only one-year old in June 2008. [57] In those circumstances it is my opinion that the trial judge erred in concluding that the only contractual requirement was that the trees be 0.9 metres in height on the delivery date irrespective whether that date was June 2007 or June 2008. [58] It is in that context that the appellant makes its claim that the respondents’ email of 17 August 2007 constituted a renunciation of the contract, and it is in that context that the claim requires consideration. [59] As I  indicated earlier the respondents contended that no reliance had been placed on the 17 August 2007 email as constituting a renunciation of the contract in the court below. Senior counsel for the respondents pointed to the fact that what was relied upon in the amended defence and cross-claim as constituting a renunciation were the emails forwarded by Mr Warner to the appellant on 13 and 14 August 2007 and that no reliance had been placed on the email of 17 August 2007 at the trial. Whilst this is correct, the respondents were unable to point to any particular prejudice they suffered by permitting the point to be raised at this stage and, in particular, acknowledged that no further evidence would have been led had the point been raised. [60] In these circumstances it is my opinion that the appellant should be permitted to raise the issue on the appeal: Suttor v Gundowda Pty Ltd (1950) 81 CLR 418. [61] I am fortified in this view by the fact that the email of 17 August 2007 is relied upon not only in support of the proposition that the respondents were unwilling to perform the contract according to its terms but that they were unable to do so. The latter matter was plainly in issue, as evidenced by the submissions of the appellant in the court below and from the judgment of the learned primary judge (at [30]). [62] For the conduct of a party to constitute a renunciation of its contractual obligations it must be shown that that party is either unwilling or unable to perform its contractual obligations,

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that is, evincing an intention no longer to be bound by the contract or stating that it intended to fulfil the contract only in a manner substantially inconsistent with its obligations and in no other way:  Shevill v The Builders’ Licensing Board [1982] HCA 47; (1982) 149 CLR 620 at 625–626; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 at 634, 647–648, 658; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 at [44]; Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 423. So far as inability to perform is concerned what needs to be shown is that the party in question has become wholly and finally disabled from performing the essential terms of the contract altogether: Rawson v Hobbs [1961] HCA 72; (1961) 107 CLR 466 at 481. [63] The respondents’ email of 17 August 2007 was written in the context of the respondents having received emails from the appellant on 13 August 2007 and 17 August 2007 asserting what I have found to be the correct construction of the respondents’ obligations. The respondents’ email of 17 August 2007 wrongly asserted that the contract only required trees reaching 0.9 metres in height by June 2008, but more importantly, stated that they only had 45,000 one-yearold trees some of which may well be below specification and, at least inferentially, the balance of the order (some 22,000 trees) would be fulfilled by trees which were one-year old as at June 2008, the seedlings being planted in 2007. That this is the only inference that can be drawn is demonstrated by the respondents’ earlier email of 13 August 2007 which stated that the order would be backed up by ‘25,000 new plantings in 07’. [64] In these circumstances, it is my opinion that the respondents’ email of 17 August 2007, combined with the surrounding correspondence, indicated that the respondents were both unable and unwilling to perform their obligations under the contract in accordance with its terms. It follows, subject to what I  have written below, that the appellant was entitled to terminate the contract on 31 August 2007.

TERMINATION FOR DELAY [20.22] Obligations in contracts are usually required to be performed within specified time limits. Time may be expressed in a contract as a date or a period of days, weeks or months. The consequence of failing to perform on time depends upon the nature and construction of the contract and whether the time provision is essential. The question of whether time is of the essence is complicated by the development of different rules at common law as compared to equity and the application of those rules to different contracts. [20.23] A contractual obligation will usually have a substantive and a temporal aspect. A time limit will act to qualify performance of an obligation, exercise of a power or further performance of a contract. The contract may specify a specific time for performance of an obligation, or if no time is specified the law will imply a reasonable time for performance. The dual nature of a contractual obligation may mean that it is an essential term of the bargain, but performance strictly on time is not essential. Ultimately, whether time is of the essence of the contract or performance of a particular obligation is a question of construction of the contract as a whole, but informed by the rules about time provisions at common law and in equity.

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[20.24] The interaction of essential terms of the contract and essential time provisions was explained by Brennan J in Laurinda v Capalaba Park Shopping Centre. [20.25]

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 High Court of Australia The facts of the case are summarised at [20.15]. Brennan J A  right in one party to rescind a contract will arise when the other party repudiates a contract generally, but it may also arise when the other party repudiates a term of the contract. A right to rescind depends on the importance of the term repudiated. Here, the subject of the agreement was the granting of a legal lease for a term of six years. The implied promise by Capalaba to procure registration of an appropriate instrument was thus at the heart of the agreement. It was a promise of such importance to the promisee that it would not have entered into the contract unless it had been assured of substantial performance and this ought to have been apparent to the promisor. It answered the criterion of an essential promise in the sense that an outright repudiation of the promise would have entitled Laurinda to rescind. The criterion of an essential promise which I have stated in terms relevant to the present case is derived from the criterion expressed by Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd and frequently adopted in this Court, most recently in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd, but I have modified it by using the term ‘substantial performance’ rather than the usual formula of ‘a strict or a substantial performance’. The modification is necessary when, no day for performance being stipulated and the subject matter of the promise not being such as to require strictly timeous performance, time is not of the essence of the promise either in law or in equity: Canning v Temby; Louinder v Leis. When time is not of the essence, the promisee must have been willing to enter into the contract without an assurance that the promise would be performed strictly, albeit with an assurance that the promise would be performed substantially. Thus, Laurinda would not have been entitled either at law or in equity to rescind the contract as soon as a reasonable time for procuring registration had elapsed. As Griffith CJ said in Canning v Temby: In one sense, of course, time is always of the essence of a contract to be performed within a reasonable time. But that is not the sense in which the term ‘of the essence’ is used.

Where an essential term—in the sense defined—is to be performed within a reasonable time, there being no stipulated day for performance, and that time passes without performance, the innocent party does not acquire a right to rescind unless the defaulting party repudiates or has repudiated his obligation to perform. Barwick CJ and Jacobs J observed in Neeta (Epping) Pty Ltd v Phillips:

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Contracts for the sale of land, creating as they do equitable interests in the land, do not easily go off except pursuant to an express condition of the contract or pursuant to an express repudiation or a repudiation clearly to be inferred.

The same observation may be applied to agreements for lease. More than a mere failure in timeous performance is necessary to warrant an inference of repudiation, but delay may be so serious as to amount to a refusal to perform and in such a case an innocent party has a right to rescind: see De Soysa v De Pless Pol; Holland v Wiltshire. The difference between a contract which contains a stipulated day for performance of an essential term and a contract which, expressly or impliedly, requires performance within a reasonable time is important when the question is whether, on failure to perform within the time limited by the contract, the innocent party is entitled to rescind. In the former case, a right to rescind arises at law when the stipulated day passes; in the latter, that right does not necessarily arise when the reasonable time expires but only when repudiation is clearly to be inferred from the circumstances in which the delay occurs. Delay will amount to repudiation if the defaulting party ‘evinces an intention no longer to be bound by the contract … or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way’: Shevill v Builders Licensing Board; Progressive Mailing House Pty Ltd v Tabali Pty Ltd. If the inference to be drawn from the circumstances is that the defaulting party intends to perform an essential promise after some minor delay, repudiation cannot be inferred; but if the inference is that the defaulting party intends so to delay performance that the promisee will be substantially deprived of the benefit of the promise, repudiation can be inferred. The inference is not lightly drawn: Progressive Mailing House Pty Ltd v Tabali Pty Ltd. [Footnotes removed.] [20.26] Whether a time stipulation is essential or inessential has consequences for the failure to perform the substantive obligation. Where the time stipulation is essential a failure to perform the substantive obligation (whether essential or inessential) on time will be a breach of an essential term.25 In contrast, if performance on time is not essential, no right to terminate will arise even if the substantial obligation is an essential obligation. In this case, the innocent party is only able to terminate if the defaulting party fails to perform after a notice to complete, making time of the essence, is given by the innocent party. Importantly, a time stipulation cannot be an intermediate term. There are no degrees of performance of a time stipulation, a party is either on time or late.26

WHEN IS TIME ESSENTIAL? [20.27] The common law and equity differ in the treatment of time provisions in contracts. At common law, a date specified in a contract will generally be considered essential, unless

25 Although the fact that the term is in substance, an inessential term may impact on whether performance on time is essential. 26 Bunge Corporation New York v Tradax Export SA Panama [1981] 1 WLR 711(CA).

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the contrary intention is indicated in the contract. The courts will apply the usual rules of construction to determine if the parties intend time to be of the essence.27 In equity, a contrary approach is taken: time is not considered to be of the essence unless it is expressly stated to be of the essence in the contract, or where ‘there was something in the nature of the property or the surrounding circumstances which would render it inequitable to treat it as a non-essential term’.28 The conflict in the rules is resolved by legislation in each Australian State which provide for the rules of equity to prevail.29 [20.28] Time for performance under a contract will generally be essential in the following situations: 1. If the contract states ‘time is of the essence of this agreement’, the time for performance of obligations will be essential according to both the principles of common law and in equity.30 2. Where there is something in the nature of the property or the surrounding circumstances that indicate a time stipulation should be essential,31 it will be essential at common law and in equity. For example, if the subject matter of the contract is perishable or the value is time sensitive, dates in the contract may be viewed as essential. 3. Specific dates for performance in commercial contracts will generally be treated as essential where they relate to substantive obligations under the contract.32 These are usually obligations such as the time for delivery of goods, time for acceptance, and the time for shipment. However, this is not an absolute rule, and it relies to a certain extent on the court’s being able to draw such an implication from a construction of the contract.33 4. In contrast specific dates in land contracts, in particular the date for settlement, will be construed in accordance with the rules of equity unless time is expressly stated to be of the essence of the contract, or time is impliedly of the essence due to the subject matter or surrounding circumstances. The mere stipulation of a date without more is insufficient.34

27 See Craig Hargraves Investments Pty Ltd (ACN 008 185 117) v Australian Business Insurance Advisors Pty Ltd (ACN 081 402 379) [2011] SASCFC 159 for an example of the application of those principles to determine if time was of the essence of a commercial contract. 28 Stickney v Keeble [1915] AC 386. See also Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286, 298–9. 29 Property Law Act 1974 (Qld), s 62; Conveyancing Act 1919 (NSW), s 13; Property Law Act 1958 (Vic), s 41; Law of Property Act 1936 (SA), s 16; Property Law Act 1969, s 21 (WA); Civil Law (Property) Act 2006, s 501 (ACT); Law of Property Act 2000, s 65 (NT). 30 Stickney v Keeble [1915] AC 386,416. Also Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286, 298–299; see also Louinder v Leis (1982) 149 CLR 509. 31 Stickney v Keeble [1915] AC 386; Canning v Temby (1905) 3 CLR 419. 32 Bunge Corp New York v Tradax Export SA Panama [1981] 1 WLR 711, 720. A failure to provide a time for performance will indicate that performance on time is not essential: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, 430–1; Louinder v Leis (1982) 149 CLR 509; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; National Engineering Pty Ltd v Chilco Enterprises Pty Ltd [2001] NSWCA 291. 33 See for example Craig Hargraves Investments Pty Ltd (ACN 008 185 117) v Australian Business Insurance Advisors Pty Ltd (ACN 081 402 379) [2011] SASCFC 159 (sale of business and assets—time for reconciliation of accounts considered essential). 34 See Wacal Investments Pty Ltd v Hurley [1992] 1 Qd R 455,456; Carpentaria Investments Pty Ltd v Airs [1972] Qd R 436,448 (FC) (although time was not expressly of the essence, because of the nature of the property, a grazing lease and livestock, time limits expressed in the contract were treated as essential).

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5. The date for payment of a deposit and a date for fulfilment of a contingent condition are usually, because of their nature, construed as essential. The requirement to pay a deposit will usually be considered an essential term even though payment at a particular time may not be expressed as essential. This is due to the nature of a deposit as a bond for performance of the agreement.35 In the case of contingent conditions, time will be of the essence of a date specified for fulfilment of the condition. This means that once the date for fulfilment passes and the contingency does not occur, either party may terminate without giving a notice to complete.36 6. A time stipulation is incapable of being an intermediate term.37 [20.29] The consequences of terminating a contract for a failure to perform on time are the same as terminating for breach of any other essential term.

Termination where time not essential [20.30] Where time is not of the essence of the contract a failure to perform on time does not immediately give rise to a right to terminate. Unlike other non-essential terms, the contract may, however, be terminated for the breach of a time provision, after a notice requiring performance within a reasonable time is served and the defaulting party fails to perform. This notice is referred to as a notice to complete. The primary purpose of a notice to complete is to fix a new date for performance and making time for performance essential. A party who fails to comply with the notice will be considered to have repudiated the contract through unreasonable delay. The only exception to the requirement for a notice is where the conduct of the defaulting party, including the delay in performance, constitutes a repudiation of the contract.38

When to give a notice to complete [20.31] A notice to complete may be given where time for performance is an inessential term and: •

A date for performance is stated in the contract: A notice to complete may be served immediately, once the date for performance has passed, requiring performance of the contract within a reasonable time.39 If the contract is not completed in accordance with the notice, an unreasonable delay will be considered to have occurred.



No date for performance is stated in the contract: Where no date for performance of an obligation is stated, it will be implied that performance of the contract should occur within a reasonable time.40 A notice may be served after the party has failed to perform within a reasonable time.

35 Brien v Dwyer (1978) 141 CLR 378; Millichamp v Jones [1982] 1 WLR 1422. 36 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; Meares Nominees Pty Ltd v Permanent Custodians Ltd [2009] NSWCA 235, [26]. 37 Bunge Corp New York v Tradax Export SA Panama [1981] 1 WLR 711; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, 562. 38 See Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, where although the notice was not valid the plaintiff was able to terminate the contract based upon the repudiation of the defendant. 39 Louinder v Leis (1982) 149 CLR 509; applied in Greydae Pty Ltd v Malilane Pty Ltd [2003] VSCA 27. 40 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537.

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This establishes a breach of the contract. What will be a reasonable time is a question of fact and will change from case to case. The purpose of the notice in this context is to set a reasonable time for performance—after which, if performance does not occur, the court will infer repudiation of the contract.41 [20.32]

Louinder v Leis (1982) 149 CLR 509 High Court of Australia The parties entered a contract for the sale of land dated 1 November 1979, which was in the usual form used in New South Wales and did not fix a time for completion. However, it provided (by cl 4) that within 28 days from the delivery of the vendor’s statement of title the purchaser should tender to the vendor for execution the appropriate assurance of the property. Requisitions on title were answered on 23 November 1979. In November, the parties agreed in a discussion that settlement should take place in January. On 13 February 1980, when a transfer had still not been delivered by the purchaser to the vendor for execution, the vendor gave the purchaser a notice to complete the purchase within 21 days, and if the purchaser failed so to complete the vendor would treat the contract as at an end. The purchaser did not comply with the notice. When the purchaser sought to complete on 14 April 1980, the vendor refused, claiming to have terminated the contract. The purchaser sued for specific performance of the contract. The trial judge found that there had been no gross or improper delay by the purchaser when the notice to complete was given, and granted the purchaser specific performance. On appeal, the vendor was refused permission to rely on the failure of the purchaser to tender a transfer. The High Court held that the purchaser had not been guilty of unreasonable delay when the vendor gave the notice to complete, and the vendor was accordingly not entitled to give the notice, with the result that the contract had not been terminated by the vendor, and the purchaser was entitled to specific performance Mason J The principal issue in the appeal is: in what circumstance is a party to a contract for the sale of land entitled to give notice to complete making time the essence of the contract? The appellant’s prospects of success in the appeal depended very largely, if not entirely, on his obtaining leave to amend his notice of appeal. His failure on that issue almost inevitably means that he must fail on the appeal itself. But as the question sought to be raised is of particular importance in New South Wales, where it has been common practice to enter into contracts which do not fix a date for completion, we should deal with it. At the outset we need to keep in mind (a) the difference between a contract which does not fix a time for completion and one which does, though not making time of the essence; and (b) the difference between breach of an obligation to complete the contract on a stipulated date or within a reasonable time, as the

41 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, 645.

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case may be, and a breach of some other obligation imposed by the contract, for example cl. 4 of the instant contract. The entitlement to give notice having the effect of making time of the essence varies in these situations. A discussion of the topic necessarily demands some mention of the difference in attitude of the common law and equity to time stipulations in contracts. The date for completion is a term of the contract, breach of which would at common law entitle the innocent party to determine the contract and recover damages. If, however, the parties did not make time of the essence of the contract, equity would order specific performance, unless to do so would be unjust, and would prevent the innocent party from enforcing his common law rights (Canning v Temby). By reason of the approach taken by equity a practice developed whereby an innocent party, after default by the other party, gave notice requiring completion of the contract within a reasonable specified time, thereby seeking to establish, if the notice was not complied with, that there had been such delay as to disentitle the party at fault from specific performance and to justify rescission of the contract. This practice, in its application to an open contract, was indorsed in Green v Sevin. The contract in Green v Sevin was an open contract. Under such a contract, Fry J pointed out, the purchaser was entitled to a reasonable time for performing his contract. His Lordship denied that one party had a right to limit the time for the doing of an act, independently of delay on the part of the other party, saying: It appears to me that he had no right so to do, unless there had been such delay on the part of the other contracting party as to render it fair that, if steps were not immediately taken to complete, the person giving the notice should be relieved from his contract.

Fry J accepted that one party cannot remake the contract by unilaterally making time of the essence when consensually it is not so and went on to say: There must have been such improper conduct on the part of the other as to justify the rescission of the contract sub modo, that is, if a reasonable notice be not complied with.

There is, I think, nothing in the judgment or in the earlier authorities which it examines to support the view that his Lordship was asserting that in the case of a contract fixing a date for completion unreasonable delay justifying rescission, rather than mere delay in completing on the stipulated date, was an essential qualification of the innocent party’s right to give a notice. Until Smith v Hamilton there seems to have been no judicial authority for the proposition that an innocent party could not give a notice to complete a contract specifying a date for completion, time not being of the essence, unless the other party was guilty of unreasonable delay, as distinct from mere failure to complete on the date fixed. Certainly some of the text writers suggested that the principle stated in Green v Sevin applied to contracts of this kind (see, for example, Williams on Vendor and Purchaser, 4th ed (1936), pp. 54, 58, 990–991; cf Walford, Contracts and Conditions of Sale of Land, 2nd ed (1957), p. 315), but these suggestions lacked judicial support. However, in relation to contracts fixing a date for completion, time not being of the essence, there was authority for the proposition that ‘even when time was not originally of the essence of the contract it may be made so by a later notice, either before or after the day named in the

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contract, requiring completion by a particular day, if the time allowed is reasonable … ’. So said Talbot J speaking for himself and Humphreys J in Bernard v Williams (citing Benson v Lamb; Parkin v Thorold; Crawford v Toogood). Of these three cases only Parkin v Thorold, a decision of Lord Romilly MR, provides support for the proposition. Some support is to be found in the judgment of Malins VC in McMurray v Spicer, where the Vice-Chancellor said:  ‘ … I  entirely accede to the doctrine laid down in Parkin v Thorold … which is, that time not being of the essence of the contract originally, either of the parties may be subsequent notice make it so. There was no time fixed here, and the parties were at liberty at any period to make time of the essence of the contract’. But this approach has not been adopted in the later cases, the correct view being that stated by Fry J that one party cannot remake the contract by unilaterally making time of the essence in the absence of delay or default by the other party. In Smith v Hamilton the principle stated by Fry J in Green v Sevin was applied to a contract which fixed a date for completion, time not being of the essence. Harman J held that the effect of the contract was that completion was to take place on the date stipulated ‘or within a reasonable time thereafter’ and that the innocent party could not by notice ‘make time of the essence’ or rescind after the date fixed for completion and before a reasonable time had elapsed, the other party having indicated that her delay was temporary only. Harman J quoted the comment in the judgment of the Privy Council in Jamshed Khodaram Irani v Burjorji Dhunjibha where Lord Haldane, with reference to time stipulations in contracts, said: But equity would not assist where there had been undue delay on the part of one party to the contract and the other had given him reasonable notice that he must complete within a definite time.

The principle was again applied to a contract which fixed a date for completion, time not being of the essence, in In re Barr’s Contract; Moorwell Buildings Ltd v Barr, where Danckwerts J said: ‘ … at the time when the vendor purports to make time of the essence, the purchaser must be guilty of such default as to entitle the vendor to rescind the contract subject to its being done by a reasonable notice.’ Smith v Hamilton was generally accepted in New South Wales as correctly stating the law (Moss, Sale of Land in New South Wales, 5th ed (1973), pp. 408–409; Stonham, Law of Vendor and Purchaser (1964), pp. 744–745). It seems not to have been confirmed by judicial decision until Falconer v Wilson, although it was mentioned without disapproval by Hardie AJA in Morgan v Beeby, where the contract evidently did not fix a time for completion, but did fix a time for delivery of the transfer, the purchaser being out of time. Smith v Hamilton was likewise accepted in New Zealand (Woods v Tomlinson; Baker v McLaughlin; Bow v McGrath Builders Ltd; and Thomas v Monaghan). In Falconer v Wilson Mahoney J rejected the view that to enable a party to give notice it was necessary that (a) the recipient had been guilty of such default as would have entitled the first party to rescind at common law and (b)  the recipient had been guilty of unreasonable delay or default. His Honour held that (b) alone was necessary to justify the giving of a notice. His Honour’s acceptance of Smith v Hamilton shows that he was not saying that any breach of any term of a contract would justify the giving of notice. He said:

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A term in a contract may be such that from the inception of the contract a breach of it would not give rise to a right of rescission; or it may be such that, although initially an essential term, the parties, by allowing the stipulated time to pass or otherwise, have reduced the term to one, a breach of which will not warrant recission…. In my opinion, in each of these cases, a party may, by giving a proper notice making time of the essence, bring into being a right of recission.

In each case it would be the default involved in non-compliance with the requirement of a reasonable notice that justifies the recission, though the default existing at the time the notice was given was insufficient to justify it. A more liberal approach was taken by Barwick CJ and Jacobs J in their joint judgment in Neeta (Epping) Pty Ltd v Phillips, when they said: In cases where the contract contains a stipulation as to time but that stipulation is not an essential term then before a notice can be given fixing a time for performance, not only must one party be in breach or guilty of unreasonable delay, but also the party giving the notice must himself be free of default by way of breach or antecedent relevant delay. Only then may a notice be given fixing a day a reasonable time ahead for performance and making that time of the essence of the contract.

The reference to ‘breach’ or ‘unreasonable delay’ is explained by the circumstance that the passage is directed to stipulations as to time generally, viz those which stipulate a date and those which call for performance within a reasonable time. The reference to ‘breach’ applies to the former, ‘unreasonable delay’ to the latter, and to the former where there has been a waiver of the breach or the innocent party is disentitled to rely on it. Their Honours pointed out that in relation to the giving of notice three questions arise: (1) Was the other party ‘in breach of any term of the contract or guilty of unreasonable delay?’ (2) Was the innocent party in ‘breach of any term of the contract or guilty of any antecedent relevant delay?’ (3)  Was the time fixed reasonable in all the circumstances? What did their Honours intend by their expression ‘in breach of any term of the contract’? Did they have in mind ‘a mere breach of contract’ or ‘a serious breach of contract’? Since Neeta (Epping) this question has been much debated. To me it seems that their Honours meant what they said and that they had in mind a breach of contract, whether serious or slight. This is the view which Wootten J in Winchcombe Carson Trustee Co Ltd v Ball-Rand Pty Ltd took of the remarks made in Neeta (Epping). His Honour followed the view expressed by Barwick CJ and Jacobs J and declined to follow Smith v Hamilton distinguishing Green v Sevin on the ground that it related to an open contract. After an illuminating review of the authorities his Honour concluded that Smith v Hamilton did not correctly state the law and that the principle expressed in Neeta (Epping) provided a more ‘certain framework for the conduct of conveyancing business than the law as stated’ in the text books. In my view Barwick CJ and Jacobs J were right in saying that a mere failure to comply with a non-essential stipulation as to time justifies the giving of a notice having the effect of making time the essence of performance of that stipulation, even though the failure to comply does not involve an unreasonable delay. The non-essential stipulation as to time is a term of the contract

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enforceable by an action for damages and it is the breach of this term that justifies the giving of the notice. By virtue of s 13 of the Conveyancing Act 1919 (NSW) stipulations in contracts as to time which would not have been of the essence of such contracts in a court of equity ‘shall receive in all courts the same construction and effect as they would have heretofore received in such court’. There has been an element of uncertainty affecting the operation of s 13 arising from the longstanding controversy as to the true principle underlying equity’s attitude to time stipulations. In Seton v Slade Lord Eldon offered two alternative explanations. The first is that equity construes the contract differently by treating the time stipulation as formal only so that it is satisfied by compliance within a reasonable time. The second is that equity exercises a jurisdiction similar to relief against forfeitures and penalties, construing the contract as it would be construed at common law, but restraining the parties from an unconscionable exercise of their legal rights. The true position is that equity and common law differed not so much in the construction of the contract as in the consequences which they assigned to a breach of it. As Lord Cairns LJ said in Tilley v Thomas: ‘The legal construction of the contract … is, and must be, in equity the same as in a Court of law.’ See also Rolt LJ. To the same effect are the speeches of Lord Atkinson and Lord Parker of Waddington in Stickney v Keeble, Lord Parker pointing out ‘that it was only for the purposes of granting specific performance that equity in this class of case interfered with the remedy at law’. Equity departed from the common law in insisting that a breach of a stipulation as to time only entitled the innocent party to rescind where time was of the essence of the contract. It was otherwise at common law. Consequently equity would intervene in appropriate cases to prevent the innocent party from enforcing his common law right to rescind and to assert her own rule. It follows that in such cases the operation of s 13 converts the character of a time stipulation from essential to non-essential; it does not otherwise alter its terms or its construction. Thus the time stipulation is not read as if it called for performance by the stipulated date or ‘within a reasonable time’ or ‘within a reasonable time thereafter’. In this respect I agree with the recent decision of the House of Lords in Raineri v Miles and that of the New South Wales Court of Appeal in McNally v Waitzer. I reject the view of Harman J in Smith v Hamilton and the earlier comment of Maugham J in In re Sandwell Park Colliery Co; Field v The Company, that ‘a clause fixing the date for completion is equivalent to a clause stating that completion shall be on that date or within a reasonable time thereafter’, notwithstanding subsequent indications of support for the view to be found in Babacomp Ltd v Rightside Properties Ltd; Rightside Properties Ltd v Gray; Woods v Mackenzie Hill Ltd; cf. Phillips v Lamdin. It has been suggested by CT Emery in ‘The Date Fixed for Completion …’ in Conveyancer and Property Lawyer, vol. 42 (1978), p. 144, esp at pp. 152–153, that Maugham J’s comment reflects the thinking embedded in the speech of Lord Parmoor in Stickney v Keeble. Indeed, the transfer of the principle in Green v Sevin to contracts fixing a non-essential date for completion is more readily understood if the difference between the attitude of equity and common law was more marked than I have suggested, equity treating the stipulation as if it provided for completion on the date mentioned or within a reasonable time thereafter. In that event failure to complete on the date mentioned would not be a breach of contract; no breach would arise until the expiry of a reasonable time.

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Lord Diplock and Lord Simon of Glaisdale in United Scientific Holdings Ltd v Burnley Borough Council examined the legislative ancestors and relatives of s 13 and the observations of Lord Parker of Waddington in Stickney v Keeble. Referring to the approach of the Court of Chancery Lord Diplock said:  Once the time had elapsed that was specified for the performance of an act in a stipulation as to time which was not of the essence of the contract, the party entitled to performance could give to the other party notice calling for performance within a specified period: and provided that the period was considered by the court to be reasonable, the notice had the effect of making it of the essence of the contract that performance should take place within that period.

Lord Simon expressed the matter rather differently. He said: In equity, and now in the fused system, performance had or has, in the absence of time being made of the essence, to be within a reasonable time. What is reasonable time is a question of fact to be determined in the light of all the circumstances. After the lapse of a reasonable time the promisee could and can give notice fixing a time for performance. This must itself be reasonable, notwithstanding that ex hypothesi a reasonable time for performance has already elapsed in the view of the promisee. The notice operates as evidence that the promisee considers that a reasonable time for performance has elapsed by the date of the notice and as evidence of the date by which the promisee now considers it reasonable for the contractual obligation to be performed.

Earlier his Lordship indicated that breach of a non-essential term gives rise to a right to damages. For reasons already given I regard Lord Diplock’s statement as correct. It accords with Neeta (Epping) and Raineri v Miles. Accordingly, delay beyond the stipulated date will give rise to a liability in damages. But because equity treats the time stipulation as non-essential, mere breach of it does not justify rescission by the innocent party and will not bar specific performance at the suit of the party in default. Unreasonable delay in complying with the stipulation in substance amounting to a repudiation is essential to justify rescission. It is to this end that, following breach, the innocent party gives notice fixing a reasonable time for performance of the relevant contractual obligation. The result of non-compliance with the notice is that the party in default is guilty of unreasonable delay in complying with a non-essential time stipulation. The unreasonable delay amounts to a repudiation and this justifies rescission. If the Smith v Hamilton view were to prevail and unreasonable delay were required to precede the giving of a notice one is then driven to ask ‘What is the point of insisting on the giving of a notice which itself is required to fix a reasonable time for performance?’ The consequence would be to defer the innocent party’s right to rescind until such time as the other party has delayed for two periods, each one of which constitutes an unreasonable delay. This solution to the problem unnecessarily protects the party at fault at the expense of the innocent party. The Neeta (Epping) solution is more just; it enables one party to initiate the action once the other party is in breach. And it provides a little more certainty in determining when a notice may be given.

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This solution is not unfair to the party who is guilty of a mere breach of contract. He is entitled to a notice which fixes a reasonable time in all the circumstances and those circumstances will include the fact that he has not been guilty of a serious breach of contract or of unreasonable or gross delay. There is nothing in all this to deny the correctness of the Green v Sevin principle in its application to open contracts. There the existence of unreasonable delay, this being the relevant breach of contract, is an essential qualification for the giving of a notice. In this case because the notice itself must allow a reasonable time for completion, the party at fault, having been guilty of unreasonable delay, is entitled to a further period, being a reasonable time for completion. Because the initial period of delay is no more than a breach of a non-essential time stipulation, without more it cannot found an inference of repudiation. One question which the joint judgment in Neeta (Epping) leaves unresolved is whether a notice to complete the contract can be given when the relevant breach of contract justifying the giving of a notice is not a breach of an obligation to complete but a breach of another term of the contract. In principle breach of a non-essential term justifies the giving of a notice fixing a reasonable time for the performance of that term. Generally speaking it does not entitle the innocent party to give notice fixing a time for completion of the contract. There are of course exceptions to this rule. Sometimes a contract will contain a condition which requires to be performed on or before the date for completion. Unreasonable delay or default in complying with the condition may then amount to delay or default in completion justifying the giving of a notice to complete. At other times the delay or default in complying with a particular provision may be so inordinate as to justify the innocent party in fixing a reasonable time for completion, as, for example, when non-compliance with the particular provision has the practical effect of making it impossible to complete within the time stipulated or contemplated by the contract. It was such a situation that Barwick CJ and Jacobs J had in mind in Neeta (Epping) when, speaking of the purchaser’s failure to send to the vendor a transfer within twenty-eight days of the giving of particulars of title, they said: Not only was this a breach but it involved a long delay which cannot be explained by the course of events at the office of the Commissioner of Stamp Duties. If it stood alone it would entitle the vendor to give a notice to complete.

In re Stone and Saville’s Contract was another example of such a situation. See the discussion in the judgment of Upjohn LJ (with whom Diplock LJ concurred). See also Hunt v Wilson, per Cooke J.  Thus, the general rule that a breach of a non-essential term entitles the innocent party to give a notice having the effect of making time of the essence in respect of that term is qualified so as to permit the giving of a notice having the effect of making time of the essence of the contract in respect of completion when the breach of the particular stipulation amounts to a breach of the obligation to complete or has the practical effect of making it impossible to complete the contract within the time stipulated or contemplated by the contract. One final point should be mentioned. In Carr v JA Berriman Pty Ltd, Fullagar J (with whose judgment all the other members of the Court concurred) said:

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If either (a) time is not originally of the essence, or (b) time being originally of the essence, the right to rescind for non-performance on the day is lost by election, the promisee can, generally speaking, only rescind after he has given a notice requiring performance within a specified reasonable time and after non-compliance with that notice: see, eg, Taylor v Brown; Stickney v Keeble; Panoutsos v Raymond Hadley Corporation of New York.

This passage was referred to with evident approval by Gibbs J (with whom Jacobs J agreed) in Balog v Crestani. Mahoney JA in his judgment in Perri v Coolangatta Investments Pty Ltd expressed the view that the proposition enunciated by Fullagar J is not one of universal application for the reason that rescission for breach of a non-essential term is only justified when the breach amounts to a repudiation of the contract or a fundamental breach. It is apparent from the language used by Fullagar J that he was not intending to express a proposition of universal application. Certainly, as Mahoney JA recognized, what his Honour said applies to the completion of a contract for the sale of land. And there is no reason to think that it does not apply to provisions in a contract for the sale of land that are to be fulfilled within a reasonable time when those provisions constitute an essential step in the process of completion of the contract. In the event the appeal fails. There was no foundation for the vendors giving a notice to complete on 8 February 1980 as the contract did not fix a time for completion. The existence of unreasonable delay on the part of the purchaser was an essential qualification for the giving of a notice. The findings of fact made by the primary judge negated the existence of such delay. I would dismiss the appeal. [Footnotes removed.]

Contents of a valid notice [20.33] A notice to complete is not required to be in any particular form, but should contain all of the following: •

What the promisor must do to perform the contract.42 The notice should clearly specify what steps the defaulting party should take including the payment of money, and the time and place for payment. For example, a notice given by a seller of land to the buyer should state the amount of the balance purchase monies that should be tendered and the place for tender.



A requirement for the performance to occur on a date that is a reasonable time. What is a reasonable time in all the circumstances depends upon the nature of the obligations under the contract.43 The court will consider the nature of the transaction, the remaining actions a party is required to undertake to perform the contract, and how long the party has already been given to complete. No one formula can be laid down but, in some cases, there are rules of thumb. For example, in a contract for the sale of land, strong circumstances will generally

42 Falconer v Wilson [1973] 2 NSWLR 131. 43 Carr v Berriman (1953) 89 CLR 327,348–349 (Fullagar J); Crawford v Toogood (1879) 13 Ch D 153, 158 per Fry J; cf Charles Rickards Ltd v Oppenheim [1950] 1 KB 616, 624; O’Connor v Slattery [1981] 2 NSWLR 447, 452.

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be required to justify the giving of a notice to complete which allows less than 14 days for completion.44 •

That if the requirement is not met within that specified period, the party giving the notice may treat the contract as at an end or take steps to enforce it. 45 The notice should clearly indicate to the other party, that time is of the essence of the notice and in the event of noncompliance, the notifying party will be entitled, or will regard itself as entitled, to terminate the contract. The notice does not need not contain a self-executing election to terminate if the time specified is not observed by it must clearly indicate an entitlement to terminate. A statement such as ‘our clients reserve their rights in respect of your client’s default’ will not be sufficient.46

[20.34] A notice that fails to comply with all of these requirements will be invalid.47 In that case, the innocent party must either serve another notice or prove repudiation by the defaulting party, to terminate the contract. [20.35]

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd48 (1989) 166 CLR 623 High Court of Australia The facts of the case are summarised at [21.15]. Deane and Dawson JJ The dispute between lessor and lessee about the form and contents of the letter is now confined to the significance of the failure of the letter to state that the lessee would, in the event of non-compliance, treat the contract as at an end and to the question whether the period of time which the notice allowed for compliance was, in all the circumstances, adequate … At first instance in the Supreme Court of Queensland, Connolly J regarded himself as constrained by authority to hold that the failure of the letter of 21 August to make clear that the lessee would, in the event of non-compliance, treat the agreement as being at an end prevented it from being effective to make time of the essence. The Full Court indicated agreement with his Honour’s conclusion in that regard. While there are statements in the cases which lend considerable support for that view (see, eg, Fry J’s reference to ‘rescission … sub modo’ in Green

44 Sindel v Georgiou (1984) 154 CLR 661, 670; Ng v Chong (2005) NSW ConvR ¶56-130; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; Tuedwell Pty Ltd v JC Craig Constructions Pty Ltd [2003] NSWSC 450. 45 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623. A notice may also note that the contract will be enforced: Wilde v Anstee (1999) 48 NSWLR 387, 405. 46 Ibid, 654. 47 Cf Aprilia Pty Ltd v Hawkins [2003] QCA 206 where notice to complete, invalid in form but accepted by the buyer, was effective to remake time of the essence. 48 Ibid.

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v Sevin; Ajit v Sammy; Lenneberg v McGirr; and the cases referred to by Gibbs J in Balog v Crestani but cf., eg, per Lord Langdale MR in Taylor v Brown and in King v Wilson and per Romilly MR in Pegg v Wisden), the overall weight of actual decisions to that effect is less clear (see Balog v Crestani, and the discussion and cases mentioned in Butt, ‘The Modern Law of Notices to Complete’, Australian Law Journal, vol. 59 (1985) 260, at pp 270–272). Certainly, there is no decision of this Court that a notice is ineffective to make time of the essence of the contract unless it states that the party giving it will treat the contract as at an end if the notice is not complied with. While law and equity stood apart and unqualified by statutory provisions about the effect of contractual stipulations as to time, the lessor’s breach of an implied term requiring that it discharge a fundamental obligation within a reasonable time would have entitled the lessee to terminate the contract at law. That right at law was, however, a barren one since equity would intervene, at the suit of the party in default, to grant relief against the loss of the contract by ordering specific performance or, in some cases, by restraining proceedings at law. In that sense and speaking generally, it could be said that express or implied contractual stipulations about the time for the completion of a contract or the performance of a fundamental term were of the essence of the contract at law but were not of the essence in equity unless there was an express or implied contractual provision to that effect. If, however, the innocent party gave an appropriate notice to the party in default requiring completion or performance within a reasonable time fixed by the notice, equity would not, in the event of continued default after the expiry of that further time, intervene to preclude the effective exercise of the common law right to terminate. The continued default in the face of the notice disentitled the party in breach to such equitable relief because it would not be inequitable for the innocent party to terminate the contract after due warning had been given of the consequence of continued default. In a real sense, the effect of the notice was to make the reasonable time which it fixed for performance of the essence in equity as well as at law and it has traditionally been so described (see, eg, King v Wilson; Pegg v Wisden; Stickney v Keeble; Neeta (Epping) Pty Ltd v Phillips; Balog v Crestani). As Brennan J commented in Louinder v Leis: A notice to complete is thus a step in securing the lifting of the equitable restraint upon the legal right to rescind. A notice to complete is sometimes said to make time of the essence. That is a convenient description of its effect, though it may be misunderstood. A valid notice makes time of the essence in that a consequence of non-completion within the time specified by the notice is to enable rescission by the promisee to be given effect in equity as well as in law, equity taking the day specified in the notice to be the essential time for completion…. But a notice to complete does not make the time fixed by the contract of the essence; it makes the time fixed by the notice of the essence … With the fusion of law and equity and the prevalence of rules of equity as to contractual stipulations about time (see, eg, Property Law Act 1974 (Q), s 62) it is ordinarily unnecessary to describe the effect of a valid notice to complete otherwise than in the traditional terminology of making time of the essence. Nevertheless, in identifying the requirements of a valid notice to complete or perform, it may be important to bear in mind that the purpose and operation of such a notice must be explained by reference to equitable doctrine and that the rules regulating

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the requirements of such a notice reflect the traditional equitable notions of fairness and good conscience. It is so in the present case.  The innocent party who makes time of the essence of a contract by an effective notice to complete within a nominated time is bound by the notice in the sense that the time nominated for completion becomes of the essence for him as well as for the defaulting party:  see, eg, Quadrangle Development and Construction Co Ltd v Jenner; Balog v Crestani. If—where completion involves action on his part—the innocent party himself fails to complete within that time, the other party will be able to take account of the then existing circumstances in determining whether to rescind the contract or to institute proceedings for its enforcement. The party giving the notice enjoys the like advantage since he may waive his right to terminate the contract for non-compliance with the requirements of the notice and bring proceedings for specific enforcement of the contract. This mutuality of the respective positions of the parties accords with equitable principle and the interdependent character of the contractual obligations involved. That being so, it would be anomalous if equity were to require that a notice to complete should unequivocally state that the party giving it will, in the stipulated circumstances, treat the contract as at an end in a context where it is unnecessary that he have any such unequivocal intention at the time of giving the notice and where, even if he had such an unequivocal intention at that time, he might subsequently waive the right to treat the contract as at an end and bring proceedings for its enforcement. Moreover, it is somewhat difficult to see why, as a matter of bare principle, a notice fixing a time for completion or performance does not, in the absence of other grounds for termination, constitute a repudiation of the contract if it unequivocally states that the party giving the notice will, on the expiry of what is subsequently held to be an unreasonably short period, act on the basis that the contract is at an end. True it is that these difficulties will be avoided or overcome if such an unequivocal statement in a notice to complete or perform is read as not meaning what it says but as being subject to an implied qualification that the party giving the notice will not treat the contract as at an end at all unless he both desires and is entitled to rescind at the expiry of the time which the notice fixes (cf Woodar Investment Development Ltd v Wimpey Construction UK Ltd). However, such distortion of the ordinary meaning of words serves only to illustrate the undesirability and potentially misleading consequences of a requirement that a notice to complete contain such an unequivocal statement. The notions of fairness and good conscience which inspire the traditional doctrines of equity point strongly against any such inflexible requirement. It is important that courts tread warily in disturbing current perceptions about the effect of conveyancing precedent or practice. Notwithstanding that need for caution, the weight of past authority is debatable and clearly inadequate to justify this Court in insisting upon a requirement that a notice to complete must unequivocally state that, in the event of non-compliance, the party giving the notice will treat the contract as at an end. That is not, of course, to suggest that a notice will be effective to make time of the essence of a contract with the consequence that the party giving the notice will be entitled to rescind in the event of non-compliance if it is inadequate to convey to a reasonable person in the position of the recipient that that is its purport and effect. The whole point of equity’s intervention in relation to stipulations as to time was that, in the absence of express or implied contractual provision to the contrary, it

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regarded it as inequitable or unconscionable for a party to a contract to rescind for breach of a time stipulation without having given reasonable warning to the party in default. It seems to us, however, that, in modern circumstances, a notice will be adequate to convey such a warning if, but only if, it conveys either that the time fixed for performance is made of the essence of the contract or that the party giving the notice will, in the event of non-compliance, be entitled (or regard himself as entitled) to rescind. A notice, particularly one between solicitors, can convey those matters by implication. The letter of 21 August 1986 from the lessee’s solicitors contained no mention of termination of the contract. Nor did it state that time was being made of the essence or that the lessee would, in the event of non-compliance, be, or regard itself as being, entitled to rescind. After referring to the lessor’s unexplained and lengthy past delay and the importance to the lessee that a lease be registered ‘immediately’ to safeguard its ‘rights of tenure’, the letter merely stated that ‘it appears reasonable that our clients require your client to complete registration within fourteen days from the date hereof ’ and that ‘[i]f the registration is not completed within that time then our clients naturally reserve their rights in respect of your client’s default’. We have found the question whether those statements, in a letter between solicitors, were adequate to make time of the essence of the contract a difficult one. It may be that, in some circumstances, a requirement of completion within a nominated time and a reservation of ‘rights in respect of … default’ would be adequate to convey that time was being made of the essence of the contract or that the person giving the notice would regard himself as entitled to rescind in the event of non-compliance. On balance, however, it appears to us that they were inadequate to convey either of those matters in the circumstances of the present case. It follows that the letter was ineffective to make time of the essence of the contract. It is strictly unnecessary that we consider the question whether the letter of 21 August 1986 was ineffective to make time of the essence for the further reason that it failed to allow a reasonable time for the procuring of registration (and, necessarily, stamping) of the lease. We have, however, formed a firm view on that question and it would seem appropriate that we express it. We agree with the Chief Justice that the evidence in the present case failed to establish that the effective period of thirteen days allowed by the notice as the time in which the lessor was required ‘to complete registration’ was, in the circumstances, such a reasonable time. We would add that that period would, in our view, have been a reasonable one in the circumstances of the present case if all that the notice had required had been the production of an executed lease in registrable form. [Footnotes removed.]

ELECTION TO TERMINATE [20.36] A contract will not automatically terminate due to the breach or repudiation by one of the parties. Contractual provisions that purport to render a contract automatically void or at an end upon the happening of an event are rarely given effect by courts. This form of drafting is common for contingent conditions which may provide that if a specified event does not occur the contract will be ‘void’ or ‘cancelled’ or ‘at an end’. Australian courts will generally construe

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such a provision as giving the party whose default did not cause the non-fulfilment of the condition the right to elect to terminate.49 [20.37] The principles of election apply equally to common law and contractual rights of termination. The innocent party has a choice. The innocent party may either elect to: •

accept the repudiation or breach of contract and terminate the contract; or



affirm the contract.

There is no requirement that the right be exercised immediately, except in the case of an anticipatory breach where the right will transform at the time for performance into a right to terminate for actual breach, if the other party continues to refuse to perform. The question may be kept open as long as the innocent party does not affirm the contract or prejudice the other party by the delay. [20.38] A valid election will occur if there are words or conduct consistent only with the exercise of one of two sets of rights and inconsistent with the exercise of the other by a party with the requisite knowledge and the time for making the election has arisen.50 [20.39]

Sargent v ASL Developments Ltd (1974) 131 CLR 634 High Court of Australia A clause in a contract for the sale of land provided that should it be established prior to completion that at the date of the contract the property was affected by any planning scheme otherwise than as stated in a specified schedule to the contract or by any existing proposals for realignment widening or siting of a road by any competent authority otherwise than as disclosed in the schedule, either party should be entitled to rescind the contract by notice in writing to the other. At all material times, the land was affected by planning schemes. At the date of the contract the vendors or their solicitors knew that the land was so affected. After the date of the contract, the vendors received from the purchasers payments of interest, instalments of principal and increased rates, and they joined with the purchasers in taking steps to bring the land under the operation of the Real Property Act 1900 (NSW).

49 In Gange v Sullivan (1966) 116 CLR 418, 441 the High Court opined that the approach in Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 cannot be anything more than a ‘disposition’ to a particular construction because ‘the effect of a condition must in every case depend upon the language in which it is expressed and a decision upon the meaning of one condition cannot determine the meaning of a different condition’. 50 Sargent v ASL Developments Ltd (1974) 131 CLR 634, 655–656, 646; Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570, 588; Ace Property Holdings Pty Ltd v Australian Postal Corporation [2010] QCA 55, [147]–[152]; Champtaloup v Thomas [1976] 2 NSWLR 264, 269; GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, 89–92; Commonwealth v Verwayen (1990) 170 CLR 394, 427 per Brennan J; Mirvac Queensland Pty Ltd v Beioley [2010] QSC 113; Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd (2005) 218 ALR 1, [85]–[86].

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The relevant question for the High Court was whether the vendor through their conduct had elected to affirm the contract despite the contractual right to rescind. Mason J It will make for greater certainty, therefore, if the present cases are regarded as cases of election. A  person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, i.e. when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract. It matters not whether the right to terminate the contract is conferred by the contract or arises at common law for fundamental breach—in each instance the alternative right to insist on performance creates a right of election. Essential to the making of an election is communication to the party affected by words or conduct of the choice thereby made and it is accepted that once an election is made it cannot be retracted … No doubt this rule has been adopted in the interests of certainty and because it has been thought to be fair as between the parties that the person affected is entitled to know where he stands and that the person electing should not have the opportunity of changing his election and subjecting his adversary to different obligations. A person confronted with a choice between the exercise of alternative and inconsistent rights is not bound to elect at once. He may keep the question open, so long as he does not affirm the contract or continuance of the estate and so long as the delay does not cause prejudice to the other side. An election takes place when the conduct of the party is such that it would be justifiable only if an election had been made one way or the other … So, words or conduct which do not constitute the exercise of a right conferred by or under a contract and merely involve a recognition of the contract may not amount to an election to affirm the contract. The central problem in these cases lies in ascertaining what in the eye of the law are the elements essential to the making of a binding election, in particular whether knowledge of the existence of the alternative right is a prerequisite in the party against whom election is alleged. The question is complicated because in some instances election may take place as a matter of conscious choice with knowledge of the existence of the alternative right and in other cases it may occur when the law attributes the character of an election to the conduct of a party. Lord Blackburn said in Kandall v Hamilton (1879) 4 App Cas 504, at p. 542, ‘there cannot be election until there is knowledge of the right to elect’. [Mason J considered the circumstances in which this rule, as stated, was applied and then continued.] In Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC, at pp. 860, 873, 878–879, 883–885 conflicting opinions were expressed as to the necessity for the existence of knowledge of the right to object that there had been a non-compliance with the statute in a case which was not so much a case of election as a suggested case of waiver of a defence. Whether in other situations it is the general rule that a person may be held to have elected with knowledge of the facts giving rise to the existence of the alternative right, though unaware of the existence of that right, has been the subject of controversy.

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… On the other hand, in Coastal Estates Pty Ltd v Melevende [1965] VR, at p 435; Herring CJ drew a distinction between termination of a contract pursuant to a power thereby conferred and rescission for fraudulent misrepresentation. In the latter, but not in the former case, knowledge of the right, as well as of the facts, was in his opinion essential to the making of a binding election. In the same case, Sholl and Adam JJ expressed the view that knowledge of the alternative right was essential to the making of a binding election in the absence of acts amounting to an estoppel 105. For my part this proposition correctly states the law in its application to contracts as well as interests in property. If a party to a contract, aware of a breach going to the root of the contract, or of other circumstances entitling him to terminate the contract, though unaware of the existence of the right to terminate the contract, exercises rights under the contract, he must be held to have made a binding election to affirm. Such conduct is justifiable only on the footing that an election has been made to affirm the contract; the conduct is adverse to the other party and may therefore be considered unequivocal in its effect. The justification for imputing to the affirming party a binding election in these circumstances, though he be unaware of his alternative right, is that, having a knowledge of the facts sufficient to alert him to the possibility of the existence of his alternative right, he has acted adversely to the other party and that, by so doing, he has induced the other party to believe that performance of the contract is insisted upon. It is with these considerations in mind that the law attributes to the party the making of a choice, though he be ignorant of his alternative right. For reasons stated earlier the affirming party cannot be permitted to change his position once he has elected. … Whether the knowledge of a solicitor is to be attributed to his client arises in the Turnbulls’ case. As against a third party the law imputes to a principal knowledge gained by his agent in the course of, and which is material to, a transaction in which the agent is employed on behalf of the principal, under such circumstances that it is the duty of the agent to communicate it to the principal. In the words of James LJ in Vane v Vane (1873) 8 Ch App 383, at p. 399, ‘the actual knowledge of the agent through whom an estate is acquired is … equivalent to the actual personal knowledge of the principal’. In my view this principle applies to information acquired by a solicitor in the course of acting for his client in a conveyancing matter … The solicitor is to be regarded as the alter ego of the client and the rights of the other party to the contract cannot be made to depend upon the diligence or lack of diligence exhibited by the solicitor in his dealings with his client. Consequently, as the information as to zoning which Mr Sweeting acquired was within the ambit of his authority from the Turnbulls and as he was under a duty to communicate it to the Turnbulls once he received it, his knowledge is to be imputed to them. Once this question is disposed of, the issue of election must be resolved adversely to the appellants. Their actions over a period of two and one half years in receiving the payment of interest and, in the case of the Turnbulls, instalments due under the contract and in calling on the respondent to pay rates were unequivocal actions, adverse to the respondent, justifiable only on the basis that the contracts were continuing on foot. At the time when these acts took place the Sargents had actual knowledge, and the Turnbulls had imputed knowledge, of the facts giving rise to a right of rescission.

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The payment of interest, instalments of the purchase price and rates constituted a detriment suffered by the respondent which would in any event bring into play the doctrine of estoppel and provide an additional reason why in the circumstances of this case it was proper to conclude that the appellants made a binding election to affirm, though personally unaware of the existence of the right of rescission when the election was made.

RESTRICTIONS ON TERMINATION [20.40] There are a number of restrictions that a terminating party should consider before exercising a right to terminate at law or under the contract. First a party may be prevented from electing to affirm because continued performance requires the co-operation of the other party. For example, in employment contracts, the employee is unable to perform unless the employer cooperates and allows the employee to continue working. An employee banned from entering the workplace may have no practical option but to accept the employer’s conduct as repudiation and terminate.51

Ready willing and able [20.41] The second restriction is where the defaulting party has breached a dependent and concurrent obligation,52 the innocent party will be unable to terminate the contract, under either the general law or a contractual termination clause,53 unless he or she is ready, willing and able to perform his or her own obligations at the time for performance. In the context of a contract for the sale of land, this would mean that a purchaser of land is unable to terminate for a failure by the vendor to complete if the purchaser does not have sufficient funds and also could not complete the contract.54 [20.42] The terminating party will usually be required to demonstrate he or she is ready, willing and able, by tendering performance of the contract at the time specified in the contract. A party who does not tender performance of the contract at the time for performance will not be ready,

51 The court is unlikely to grant specific performance of an employment contract. 52 See [19.07] and see Peter Turnbull and Co Pty Ltd v Mundus Trading Co (Australia) Pty Ltd (1954) 90 CLR 23; Foran v Wight (1989) 168 CLR 385, 417–429; Chandos Developments Pty Ltd v Mulkearns (2008) 13 BPR 25,321. The requirement to be ready willing and able does not apply when exercising a contractual right of termination under a contingent condition, as the obligation is not dependent and concurrent: See Kelly v Desnoe [1985] 2 Qd R 477, 497. 53 Refer to Jeppesons Road Pty Ltd v Di Domenico [2005] QSC 066 (seller purported to terminate under termination clause and court considered if seller ready willing and able). Similarly, in Western Australia, recognition in SAS Forrestdale 2 Ltd v Claycorp Investments Pty Ltd [2010] WASC 114 that requirement of ready willing and able applies to contractual right to terminate for failure of dependent and concurrent obligation unless otherwise specified. 54 See Foran v Wight (1989) 168 CLR 385; Rona v Shimden Pty Ltd [2005] NSWSC 818; Jeppesons Road Pty Ltd v Di Domenico [2005] QCA 391 where the vendor was not ready, willing, and able because it did not tender notices to the tenants as required by the contract; Savoy Investments (Qld) Pty Ltd v Global Nominees Pty Ltd [2008] QCA 282.

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willing and able to perform.55 However, a party may be excused from tendering performance if the other party intimates, before the time for performance, that performance of the obligation will be futile or useless, and the innocent party acts on this intimation.56 An intimation of nonperformance by one party may occur expressly by words or impliedly by conduct and does not need to constitute an anticipatory breach for the innocent party to rely upon it.57 Where a seller relies upon an intimation by the buyer that he or she is unable or unwilling to settle, the buyer is unable to allege the seller was not ready willing and able unless the seller is provided with a further reasonable time in which to perform.58 Even if the seller does not tender, the seller will, in the case of an anticipatory breach by the buyer, be entitled to terminate the contract for the buyer’s failure to settle, if the seller is able to demonstrate, at a minimum, that at the time of the anticipatory breach he or she was ready willing and able to perform.59 [20.43]

Foran v Wight (1989) 168 CLR 385 High Court of Australia As discussed above the purchasers under a contract for the sale of land did not act immediately to terminate for the anticipatory breach of the vendors. The High Court considered the impact of the vendor’s anticipatory breach on the purchaser’s decision to wait for settlement and the time at which the purchaser was required to show they were ready willing and able to perform— on the date of the intimation or on the date of settlement. Brennan J The obligation of a vendor to deliver a conveyance and the obligation of a purchaser to pay the price on completion are mutually dependent and concurrent obligations in the absence of any contrary stipulation; each obligation is to be performed in exchange for the other … Where the respective obligations of parties to a contract are mutually dependent and concurrent, the primary rule is that neither party who fails to perform his obligation when the time for performance arrives can rescind for the other party’s failure at that time to perform his obligation. Each party’s obligation is conditional on performance by the other; neither can complain of non-performance by the other when the condition governing the other’s obligation

55 See for example Jeppesons Road Pty Ltd v Di Domenico [2005] QCA 391. 56 For an example of the operation of this principle, see Peter Turnbull and Co Pty Ltd v Mundus Trading Co (Australia) Pty Ltd (1954) 90 CLR 235; Mahoney v Lindsay (1980) 55 ALJR 118; Foran v Wight (1989) 168 CLR 385, 417–429; K&K Real Estate Pty Ltd v Adellos Pty Ltd (2010) 15 BPR 28,679(CA); Amaya v Estate Property Holdings (2010) 14 BPR 27,243. 57 A seller may be entitled to draw an inference that performance will be futile from the failure by the buyer to undertake the usual conveyancing preliminaries to settlement (K&K Real Estate Pty Ltd v Adellos Pty Ltd (2010) 15 BPR 28,679) or to respond to a notice to complete (Amaya v Estate Property Holdings (2010) 14 BPR 27,243). 58 See for example Mullins v Kelly-Corbett [2010] QCA 354, where the seller relied upon the buyer’s intimation and cancelled the removal of chattels from the property and K&K Real Estate Pty Ltd v Adellos Pty Ltd (2010) 15 BPR 28,679(CA). 59 See Foran v Wight (1989) 168 CLR 385, 427 per Brennan J.

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goes unfulfilled. But if one party intimates to the other that it is useless for the other to fulfil his obligation and the other acts on the intimation, the party to whom the intimation is given is dispensed from a nugatory tender of performance … … A’s refusal to perform is an intimation to B that a tender of performance by B will be nugatory. (I shall hereafter follow the terminology of ‘A’ and ‘B’—’A’ to refer to a party who has declared that he will not perform his obligation under a contract containing mutually dependent and concurrent conditions; ‘B’ to refer to the party to whom the intimation is given and who in reliance thereon omits to tender performance of his obligation.) Where A refuses to complete and thereby intimates to B that he need not trouble to fulfil a concurrent condition on which A’s obligation to complete is dependent, B may be entitled to sue for A’s actual breach though B elected not to terminate the contract before the time for completion arrived. Kitto J said in Peter Turnbull: What does it matter for the purposes of that action that the refusal was not treated as ending the contract and as founding an action for anticipatory breach? The damages claimed are not for loss of the contract by premature termination, but for loss of the benefit which performance of the contract in accordance with its terms by both parties would by now have produced to B but for the fault of A. It is a cause of action which the facts I have assumed make out, unless the non-fulfilment of the condition is an answer to it; and as to that the inescapable fact is that A’s refusal was a continuing intimation that the condition need not be observed, and it did not become any the less an intimation to that effect because B chose not to determine the contract before its time. The intimation having continued until the time came when A would certainly have been in default if the condition had been fulfilled, the law, as I understand it, treats A’s obligation as absolute, and holds B entitled to damages for not having got what A promised he should have in the event of the condition being fulfilled. (Emphasis added).

Following Peter Turnbull, this Court held in Mahoney v Lindsay that a purchaser is not in breach of his obligation to complete on the day fixed for completion if he abstains from tendering the price on that day because of an intimation by a vendor that it is useless to do so since the vendor does not intend then to perform his part of the contract. The reference by Dixon CJ in Peter Turnbull to one party’s ‘requesting’ of the other party not to perform a condition suggests that the dispensing of the other party from his obligation is effected by acceptance of the request. A  consensual variation of the contract may be the inference to be drawn in some cases but, more frequently, the facts will show no more than that the party to whom the intimation is given abstains from tendering performance in reliance on the intimation that he need not trouble to perform and that it will be useless for him to do so. It would be inequitable for A, having induced B to abstain from tendering performance, to assert that B’s failure to tender performance when the time for completion arrives is a breach of contract by B or constitutes a failure to fulfil a condition on which A’s obligation depends. The basis on which a party is dispensed from tendering performance is that an equity is raised against the party giving the intimation which is satisfied by treating him as though he had prevented the innocent party from tendering performance: see Waltons Stores (Interstate) Ltd v Maher. Such an equity enures for

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the benefit of the party who has acted on the intimation, but it does not impair the contractual obligation of the party giving the intimation. A purchaser who is thus dispensed from his obligation to pay the price at the time stipulated for completion is not thereby discharged from his obligation to pay the price at some later time. A stipulation for completion on a fixed day creates both a substantive and a temporal obligation; an obligation to complete and an obligation to do so on the fixed day. A purchaser who acts on an intimation from the vendor that the vendor will complete but not on the fixed day is dispensed from his temporal obligation, so that his omission to tender the price on that day is no breach; but, unless the contract is terminated, his obligation to pay the price remains after the day fixed for completion is past. When a promisor’s intimation of non-performance relates only to the temporal aspect of the promise and the promisee either cannot rescind or elects not to rescind on account of that intimation, the promisee is not forever released from the substantive obligation; he is dispensed from performance only until the promisor gives him reasonable notice that the promisor has performed or is ready, willing and able to perform his obligation. (If it were otherwise, it would be pointless for a party who has once been in default in the timeous performance of his obligation under a contract which continues to bind both parties to give to the other a notice to complete.) When no time is fixed for performance of mutually dependent and concurrent obligations and B abstains from tendering performance in reliance on A’s intimation that he will not perform the contract, B must give A a notice to perform before A will commit an actual breach—as distinct from an anticipatory breach—of the contract: Carr v JA Berriman Pty Ltd. (I leave aside cases of delay so gross as to amount to repudiation: see Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd.) But it is otherwise when the time for performance is fixed by the contract. In such a case, A’s temporal obligation is breached by nonperformance at the stipulated time. I would hold, in accordance with Peter Turnbull and Mahoney v Lindsay, that an intimation of non-performance of an essential term of a contract amounts to repudiation and dispenses a party who acts upon it from performance of his dependent obligation though he does not rescind the contract. Therefore, I am unable, with respect, to agree with Lord Ackner’s rejection of what his Lordship described as a ‘third choice’ in Fercometal SARL v Mediterranean Shipping Co SA: When A wrongfully repudiates his contractual obligations in anticipation of the time for their performance, he presents the innocent party B with two choices. He may either affirm the contract by treating it as still in force or he may treat it as finally and conclusively discharged. There is no third choice, as a sort of via media, to affirm the contract and yet to be absolved from tendering further performance unless and until A gives reasonable notice that he is once again able and willing to perform. Such a choice would negate the contract being kept alive for the benefit of both parties and would deny the party who unsuccessfully sought to rescind, the right to take advantage of any supervening circumstance which would justify him in declining to complete.

The proposition that, if repudiation by anticipatory breach is not accepted, the contract subsists is undoubted; but it does not follow that an intimation by one party that tender of performance by the other will be nugatory cannot, if acted on, dispense the other from his

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obligation of performance under the contract by raising an equitable estoppel. It may be that Lord Ackner acknowledges some role for estoppel in this context for he said: it is always open to [B], who has refused to accept [A’s] repudiation of the contract, and thereby kept the contract alive, to contend that in relation to a particular right or obligation under the contract, [A] is estopped from contending that he, [A], is entitled to exercise that right or that he, [B], has remained bound by that obligation. If [A] represents to [B] that he no longer intends to exercise that right or requires that obligation to be fulfilled by [B] and [B] acts upon that representation, then clearly [A] cannot be heard thereafter to say that he is entitled to exercise that right or that [B] is in breach of contract by not fulfilling that obligation.

In my view, an equity created by estoppel arising from an intimation by A that he does not intend to perform which conveys to B that performance by him would be nugatory absolves B ‘from tendering further performance unless and until A gives reasonable notice that he is once again able and willing to perform’.

Ready and willing to perform The governing principle, stated by Kitto J in Peter Turnbull, holds that the party giving the intimation (A) is liable in damages for actual breach subject to the qualification that ‘B is ready and willing to perform the contract in all respects on his part’. If this be a valid qualification upon B’s right to a remedy for A’s actual failure to perform his obligation when the time for performance arrives, then, in a case where B is not ready and willing, A’s failure to perform cannot be a breach of contract. If A’s failure to perform where B is not ready and willing were a breach of contract, the qualification would raise logical and practical difficulties. Logically, it would be difficult to see why, given A’s breach, B would not be entitled to the remedy to which a party not in breach is entitled under the general law of contract. Practically, if A  were in breach of an essential term but B did not have the right to rescind, there would be no means by which either party might unilaterally terminate the contract. In that event, if B, who had not repudiated the contract, had parted with money or property pursuant to the contract, he would be left to bear the loss: B could not rescind for A’s breach while A could point to no breach by B to support rescission. The contract would continue to subsist unless and until termination by express agreement or ultimate abandonment: Summers v The Commonwealth; DTR Nominees Pty Ltd v Mona Homes Pty Ltd. In truth, the qualification of B’s readiness and willingness relates to the character of A’s failure to perform his contractual obligation: is A’s failure a breach or not? We are concerned here not with an anticipatory breach by A but with what B asserts to be A’s actual breach. Where there are mutually dependent and concurrent obligations, an intimation by one party that he does not intend to perform or that he will be unable to perform when the time for performance arrives does not necessarily mean that that party is the only party at fault. The other party may be the party at fault or both may be at fault. The other party may have announced that he does not intend to perform or that he will be unable to perform when the time for performance arrives and that announcement itself constitutes an anticipatory breach (Frost v Knight) which justifies the giving of notice of rescission by the first party. Or the other party may already be disposed not to perform but he makes no announcement of his disposition

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(and thus avoids committing a breach) or he may already be unable to perform when the time for performance arrives and that disposition or incapacity would prevent the fulfilment of the condition on which the first party’s obligation depends: see Stickney v Keeble. The qualification of readiness and willingness ensures that the party who gives an intimation of non-completion is not visited with liability for actual breach of contract merely because he had given an intimation of non-performance when the intimation amounts to notice of rescission for the other party’s repudiation or when he would not have been obliged to perform in any event. There are two situations in which the qualification applies:  rescission of an executory contract before the time for performance arrives and dispensation from performance of an obligation on which an obligation of the opposite party depends. A party to an executory contract is entitled to rescind not only if the other party announces his intention not to perform his essential obligations but also if the other party is incapable of performing his essential obligations under the contract: see British and Beningtons Ltd v NW Cachar Tea Co; Universal Cargo Carriers Corporation v Citati; Trade Inc v Iino Ltd. It is not necessary to consider whether such an incapacity is a breach: see Rawson v Hobbs. It is sufficient to identify such incapacity as a repudiation which entitles the opposite party to rescind. By giving notice of rescission on the ground of anticipatory breach of an essential term or on the ground of incapacity, the first party may procure his release from his executory obligations (Ogle v Comboyuro Investments Pty Ltd) provided that, until he gives notice, he was ready and willing to perform them. Moreover, he can justify rescission by reference to an announced repudiation or incapacity which he discovers after rescinding provided the repudiation occurred before or the incapacity existed when the notice to rescind was given: Shepherd v Felt and Textiles of Australia Ltd. That principle was affirmed by Lord Sumner’s speech in British and Beningtons Ltd. In that case, the buyers of three consignments of tea wrongly repudiated the sale, and the question arose whether the buyers were liable in full for damages for non-acceptance if the sellers were not then ready, willing and able to deliver in accordance with the contract. In the result, it was found that the sellers would have been ready, willing and able to deliver in accordance with the contract but the relevant passage from Lord Sumner’s speech is this: … I do not see how the fact, that the buyers have wrongly said ‘we treat this contract as being at an end, owing to your unreasonable delay in the performance of it’ obliges them, when that reason fails, to pay in full, if, at the very time of this repudiation, the sellers had become wholly and finally disabled from performing essential terms of the contract altogether.

Where a party claims to be entitled to rescind an executory contract on account of the other party’s repudiation (whether by way of anticipatory breach or incapacity), the first party must show not only the other’s repudiation but his own readiness and willingness up to the time of rescission to perform his essential obligations under the contract: Rawson v Hobbs. Readiness or willingness imports capacity to perform as well as disposition to perform: De Medina v Norman. Since a party’s right to rescind an executory contract for the other party’s repudiation is limited to cases where the first party is ready and willing to perform, neither party is treated as without fault where both would be at fault were the contract to continue until the time for performance arrives. In Cort v Ambergate Rly Co Lord Campbell pointed out that that is the effect of requiring the party rescinding to be ready and willing to perform:

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In common sense the meaning of such an averment of readiness and willingness must be that the non-completion of the contract was not the fault of the plaintiffs, and that they were disposed and able to complete it if it had not been renounced by the defendants.

Readiness and willingness is ascertained at the time of rescission and on the assumption that the other party was then ready and willing to perform. In Psaltis v Schultz Dixon J said: To be ready and willing to perform a contract a party must not only be disposed to do the act promised but also have the capacity to do it. But the tenor of the promise will show when and how the act is to be performed and it is to that time and mode of performance that the capacity and disposition to fulfil the promise are to be directed. It is enough that he is not presently incapacitated from future performance and is not indisposed to do, when the time comes, what the contract requires. (Emphasis added.)

In Rawson v Hobbs Dixon CJ expressed a caution against lightly finding a party not to be ready and willing: One must be very careful to see that nothing but a substantial incapacity or definitive resolve or decision against doing in the future what the contract requires is counted as an absence of readiness and willingness. On the other hand it is absurd to treat one party as tied to the performance of an executory contract although the other has neither the means nor intention of performing his part when his turn comes, simply because his incapacity to do so is not necessarily final or logically complete.

To speak of an incapacity which is ‘substantial’ and of a resolve or decision which is ‘definitive’ is to import a test of degree. A test of degree inevitably gives rise to differences in the evaluation of facts and produces some uncertainty in the resolution of concrete cases. Yet, in the great variety of circumstances to which the test might be applied, it is impossible to posit terms of greater precision. Lord Sumner’s phrase—’wholly and finally disabled’—is too demanding a test of incapacity to accord with reasonable commercial practice but it is indicative of the range which the test of substantiality connotes. The test of incapacity, either as a ground of rescission or as an element in readiness and willingness, is an exacting test though it must be expressed as a matter of degree. Where an executory contract creates mutually dependent and concurrent obligations, the dispensing of one party from performance of his obligation by reason of the other’s intimation of non-performance produces a situation analogous to that produced by rescission for repudiation. A party who gives the intimation (like the party who repudiates) exposes himself to liability for breach though the party who is dispensed (like the party who rescinds) does not have to perform. If a need to identify the party at fault imposes a requirement of readiness and willingness on the party who seeks to rescind, it imposes a like requirement on the party who seeks relief on the footing that he has been dispensed. In Forrestt and Son Ltd v Aramayo Lord Halsbury LC said: The sole point which I intend to decide upon this appeal is that whenever there are concurrent obligations the party who seeks to recover against the other must show that he has always been ready and willing to perform the obligation upon him.

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When a party gives an intimation of non-performance to another and the other acts upon it, the other is dispensed from performing his obligation but if the other would not have completed his obligation in any event, liability for breach cannot be visited on the party who gave the intimation. And so, before the dispensation of the other party is treated as the equivalent of performance so as to satisfy the condition on which the obligation of the first party depends, the other party must himself have been ready and willing to perform. In Cohen & Co v Ockerby & Co Ltd Isaacs J said: In my opinion Byrne v Van Tienhoven goes to show that a party so absolved [that is, from a nugatory tender of performance], though he may defend an action against him, by merely showing he was so absolved, yet, if he sues the other party whose refusal he relies on, he must show he was ready and willing to perform his part, had he not been absolved from actual performance. ‘Readiness and willingness’ is in that case a condition precedent.

Of course, it is possible that a party who is not disposed to perform or capable of performing in any event may not be dispensed from his obligation by receipt of an intimation of nonperformance: he may not have acted in reliance on the intimation at all. But, whether or not he placed some reliance on the intimation in abstaining from performance of his own obligation, a disposition not to perform or an incapacity to perform when the intimation was given denies the character of breach to a failure to perform by the party giving the intimation. Where a contract continues to subsist after A  gives an intimation of non-performance, B continues to be bound except to the extent that he is dispensed by acting in reliance on A’s intimation. If A  has recanted his intimation and B is ready and willing to perform when the time for performance arrives, B is bound to complete. But where A has not recanted or where B is not ready and willing because he has relied (at least to some extent) on A’s intimation, B is dispensed from being ready and willing at the time for performance. Where B is so dispensed and B was ready and willing to perform when the intimation was given, A’s failure to perform is a breach of contract. B’s readiness and willingness, so far as it is an element in B’s cause of action against A, corresponds with the readiness and willingness of a party who is entitled to rescind for repudiation or incapacity. It is readiness and willingness up to the time when the intimation is given and it relates to B’s then disposition and capacity to perform his obligation when the time for performance arrives. The caution which Dixon CJ expressed in Rawson v Hobbs against finding an absence of readiness and willingness too lightly must be observed. Unless B is ready and willing in this sense, A’s failure to perform his obligation when the time for performance arrives is no breach of contract. In the light of this discussion, I would state the relevant principles thus: if an executory contract creates obligations which are mutually dependent and concurrent and, before the time for performance of the obligations arrives, one party, A, gives the other party, B, an intimation that it will be useless for B to tender performance and B abstains from performing his obligation in reliance on A’s intimation, B is dispensed from performing his obligation and A’s obligation is absolute provided that B had not repudiated the contract and he was ready and willing to perform his obligation up to the time when the intimation was given. It is immaterial that A’s intimation amounts to a repudiation of the contract unless B terminates

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the contract by accepting the repudiation. If, at the time when the intimation was given, B was substantially incapable of future performance of his obligation or had already definitively resolved or decided not to perform it, B was not ready and willing. If B was not then ready and willing, A’s failure to perform his obligation when the time for performance arrives is no breach of contract. [Footnotes removed.] [20.44] Dawson J agreed with the principles stated by Brennan J and also applied the principles of estoppel similar to Deane J.  Deane J relied upon the doctrine of estoppel to grant termination and return of the deposit. The continuing repudiation conveyed to the purchasers that performance of their concurrent obligations would be useless. The purchasers relied upon that intimation, and ceased efforts to obtain finance. This resulted in them being unable to complete at the time for performance. Unless the vendor provided sufficient notice of a change in the state of affairs, it was unnecessary for the purchasers to tender performance on the date for completion. His Honour also expressed the view that a party should not have to incur the expense of performance as a precondition to termination for repudiation in all cases. To this extent, his Honour agreed with the statements by Brennan J. Mason CJ dissented.

Terminating party not in breach of contract [20.45] The third restriction, separate to the question of whether a terminating party is required to be ready willing and able, is the question of whether a party in breach of a contract is entitle to rely on the breach of the other party and terminate. Based upon the principle that a contracting party should not be able to take advantage of his or her own wrong to bring a contract to an end, 60 a party who is in breach of a contract may only elect to terminate for the other party’s breach, if the terminating party has not repudiated the contract or caused the other party to be in breach. This means termination for breach is not prevented where the terminating party has breached a non-essential term, an essential but independent term of the contract,61 or a nonpromissory term62 and there is no causal relationship between his or her breach and the default of the other party.63

60 Alghussein Establishment v Eton College [1988] 1 WLR 587, 594; TCN Channel Nine Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130; Quinn Villages Pty Ltd v Mulherin [2006] QCA 433. 61 Trading Corporation of India Ltd v Golodetz cf Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (1992) 11 WAR 40; Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198. 62 See for example Kelly v Desnoe [1985] 2 Qd R 477; Lantry v Tomule Pty Ltd [2007] NSWSC 81. 63 Nina’s Bistro Bar Ltd (formerly Mytcoona Pty Ltd) v MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613, 620 and 632; Road Show Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (Formerly CEL Home Video Pty Ltd) (1997) 42 NSWLR 462, 479–80; Hilary Ignatius

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[20.46]

Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198 New South Wales Court of Appeal The facts of the case are summarised at [20.21]. Bathurst CJ [65] The respondents, however, contended that the appellant’s failure to pay the invoice of 21 July 2007 prevented it terminating for anticipatory breach. [66] The contractual obligation said to have been breached was the obligation to pay the amount due for the trees delivered in June 2007 and the subject of the invoice of 21 July 2007. [67] It does not seem to me that the provision in the agreement providing for payment of 50 percent of the amount due in respect of trees supplied ‘on delivery’ was an essential term, any breach of which would entitle the respondents to terminate the agreement. It does not seem to me that objectively speaking the respondents would not have entered into the agreement unless they could have been assured of strict compliance with that term. There was no fixed date for delivery, a significant deposit had been paid and it was envisaged that some trees would be carried over and not paid for until June 2008. Taking these factors into account it does not seem to me that the time for payment constituted an essential stipulation. [68] Nor do I  think the failure to pay the amount sought in the invoice of 21 July 2007 was a sufficiently serious breach of a non-essential term to justify termination by the respondents: Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 69–70; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549 at 562; Koompahtoo Aboriginal Land Council v Sanpine Pty Ltd supra at [49]–[52]. Failure to pay took place in the context of negotiations surrounding the future performance of the agreement and in the context where the respondents had indicated they would perform their obligations only in a manner inconsistent with the terms of the contract. Further, it must be remembered that the respondents had already received payment substantially in excess of the amount due for the trees actually delivered. [69] In these circumstances, the issue which arises is whether the breach by the appellant of the non-essential term disentitled it to terminate the respondents’ anticipatory breach or renunciation. [70] In Roadshow Entertainment Pty Ltd v (ACN 053006269)  Pty Ltd (Receiver & Manager Appointed) (1997) 42 NSWLR 462 a video supply company entered into an exclusive distribution arrangement. Following the appointment of a receiver to the supply company the distribution company began to withhold monthly distribution fees against accruing liability for a guaranteed distribution fee. The supply company ultimately sold its business. The Court of Appeal held that this constituted a repudiation of the agreement and that the failure by the distribution company to pay distribution fees assuming it amounted to a breach of a non-essential term did not disentitle the distribution company from terminating the agreement. The Court set out the principles as follows (at 479–480) [citations omitted]:

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As a general rule, a party in breach of a non-essential term is not prevented from rescinding for a fundamental breach or repudiation by the other party. The question is whether there is an exception or qualification to this general rule which prevented Roadshow from rescinding. Such an exception or qualification might exist if there were a causal relationship between the breaches of non-essential terms by the party attempting to rescind, and the fundamental breach relied upon.

And at 481 [citations omitted]: A party in breach of non-essential terms who has not repudiated may rescind for fundamental breach. A party in breach of an essential but independent term may also rescind for fundamental breach. Roadshow, we consider, was not, by reason of its conduct, unable to terminate on the ground of CEL/Vision’s repudiation.

[71] In Sharjade Pty Ltd v The Commonwealth [2009] NSWCA 373; (2009) 15 BPR 28,443 Sackville AJA, with whom Young JA agreed, adopted the same approach. After citing the passage from Roadshow Entertainment referred to above, Sackville AJA stated the principle in these terms: [170] Although making the general observations quoted at [9] above, the Court did not consider it necessary to undertake a comprehensive analysis of the effect of a breach on a party’s right to terminate. In their Honours’ view, this was not a case where the party attempting to terminate was in breach of a condition or had otherwise repudiated the contract (at 479). Timely payment by the distributor was not a condition precedent to be performed before the supplier became bound to perform the obligations that had been repudiated by the receivers’ sale and was independent of those obligations. The court applied the general principle (at 479–480) that: A party in breach of a non-essential term is not prevented from rescinding for a fundamental breach or repudiation by the other party. [171] The court in Roadshow Entertainment accepted that this principle might not apply if there is a causal relationship between the breach of a non-essential term by the terminating party and the fundamental breach relied on by that party. However, in Roadshow Entertainment itself, there was no such relationship between the distributor’s non-essential breach and the supplier’s essential breach. Thus the distributor was not prevented, by reason of its own conduct, from terminating the distribution agreement. [172] Roadshow Entertainment was followed by the Queensland Court of Appeal in Lee v Surfers Paradise Beach Resort Pty Ltd [2008] 2 Qd R 249; [2008] QCA 29; BC200800913. In Emhill Pty Ltd v Bonsoc Pty Ltd (No 2) [2007] VSCA 108; BC200704116 at [68] the Victorian Court of Appeal (Warren CJ, with whom Buchanan and Ashley JJA agreed) accepted the proposition stated in Cheshire and Fifoot’s Law of Contract, 8th ed, 2002, at 943, that: A party who is in breach may nevertheless have the right to terminate, so long as the breach is not repudiatory or of an essential term such as to deprive the other party of the substantial benefit of the contract.

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See also Idameneo (No 123) Pty Ltd v Ticco Pty Ltd [2004] NSWCA 329; BC200406211 at [97], per Santow JA, with whom Mason P and Hodgson JA agreed.

[72] The issue has most recently been considered by this Court in The Craftsmen Restoration & Renovations Pty Ltd v Boland [2011] NSWCA 147. That case (an appeal from the Consumer Trader & Tenancy Tribunal) involved the question of whether the respondents had validly terminated a building contract with the appellant builder. It was held by the Court of Appeal that they had not done so and the matter was remitted to the Tribunal for the purpose of considering whether the purported termination by the respondents involved a repudiation of the contract and if so whether the appellant was entitled to accept it. In that context Basten JA, with whom Allsop P and Sackville AJA agreed, stated the position as follows (at [51]): There is a second question which may arise, namely the entitlement of the respondent to accept the repudiatory conduct of the owners, assuming that element is made out. It does not seem to be in dispute that part of the building work was defective and that, accordingly, the builder was in breach of its contractual obligations. Whether that would prevent the builder accepting repudiatory conduct of the owners may be doubtful, but it cannot be said that only one answer is available. In Sharjade Pty Ltd v The Commonwealth [2009] NSWCA 373 at [166] Sackville AJA (with whom Young JA agreed) relied upon a passage from the judgment of Kerr LJ in State Trading Corporation of India Ltd v Golodetz Ltd [1989] 2 Lloyds Rep 279 at 286, to which reference had been made, with apparent approval, by this Court in Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (1997) 42 NSWLR 462 at 481 (Gleeson CJ, Handley JA and Brownie AJA). The passage from Golodetz read as follows: The fact that in the present case both parties committed breaches before one of them elected to treat the contract as repudiated appears to me to make no difference whatever; nor the fact that (assumedly) both had been breaches of conditions. If A is entitled to treat B as having wrongfully repudiated the contract between them and does so, then it does not avail B to point to A’s past breaches of contract, whatever their nature. A  breach by A  would only assist B if it was still continuing when A purported to treat B as having repudiated the contract and if the effect of A’s subsisting breach was such as to preclude A from claiming that B had committed a repudiatory breach. In other words, B would have to show that A, being in breach of an obligation in the nature of a condition precedent, was therefore not entitled to rely on B’s breach as a repudiation.

[73] These authorities establish my opinion that in the case of an actual breach entitling the other contractual party to terminate the right to terminate would not be lost merely because the other party was in breach of a non-essential term. However, in the present case the appellant relied expressly on anticipatory breach. The question is whether the same principles apply. [74] In DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423, Stephen, Mason and Jacobs JJ observed (at 433): A party in order to be entitled to rescind for anticipatory breach must at the time of the rescission himself be willing to perform the contract on its proper interpretation. Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach …

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[75] This passage was cited with approval by Mason CJ in Foran v Wight supra at 407 and by Dawson J (at 456) although Dawson J acknowledged a contrary view. Deane J disagreed. He stated the position as follows (at 437): I do not accept the proposition that a party must incur the expense necessary to put himself in a position where he can positively demonstrate actual or potential readiness or willingness to perform a contract before he can accept the repudiation of the other party and thereby rescind. In my view, that proposition is unjustified by principle or commonsense. Absence of actual or potential readiness or willingness to perform a contract will prima facie preclude a successful action against the other party for specific enforcement of the contract or for the recovery of damages for its breach. It does not, of itself, preclude rescission of the contract by acceptance of the other party’s repudiation. Were it otherwise, the law would require the useless and futile expenditure by an innocent party of whatever time, effort or money was necessary to place himself in a position where he could positively demonstrate actual or potential ability to perform a contract in order to be able to bring it to an end on the ground that it already had been repudiated by the other party.

[76] In Sharjade Pty Ltd v The Commonwealth supra Hodgson JA at [50]–[69] expressed his preference for the views expressed by Deane J. His Honour expressed a similar view in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [162]. [77] It is important in my opinion to observe that the passage from the judgment of Stephen, Mason and Jacobs JJ in DTR Nominees did not say that a party in breach of a non-essential term was not entitled to terminate for anticipatory breach. Rather they stated the party must have been willing to perform the contract according to its proper interpretation. It is not inconsistent with such willingness that there is a failure to perform a non-essential term when the other contracting party is either incapable or refusing to perform the contract according to its terms. [78] It would be anomalous that a party willing to perform its obligations on a proper construction of the contract will be precluded from rescinding for anticipatory breach unless it fulfilled an outstanding non-essential obligation (and run the risk of having been said to have affirmed the contract). In the present case it would involve paying the monies as the subject of the invoice and then immediately seeking their recovery by way of damages. It should be noted that in this case there was no claim of equitable set-off as considered in Roadshow Entertainment. [79] Approached in this way there is no need to consider whether the views expressed by Deane J in Foran v Wight supra or those of Stephen, Mason and Jacobs JJ in DTR Nominees supra represent the correct view, to the extent of any inconsistency. [80] The failure to pay the monies the subject of the invoice arose in the context where, at least initially, the parties were seeking to negotiate a compromise agreement and subsequently where the respondents were asserting an incorrect construction of the contract and where it became apparent they were incapable of performing the contract according to its terms. There is nothing to suggest that, had the respondents been able to perform their obligations in accordance with the contractual terms and willing to do so, the appellant would not have been willing to pay for the trees delivered and the balance of the specified trees when the time arose.

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[81] In these circumstances, it is my opinion that the non-payment by the appellant of the amount the subject of the 21 July 2007 invoice did not preclude the appellant from terminating the agreement.

CONTRACTUAL AND STATUTORY RESTRICTIONS [20.47] A party’s right to terminate a contract immediately for repudiation or breach may be restricted by the terms of the contract or legislation. Termination clauses, particularly those that allow termination for breach of any term, commonly include preconditions to termination ranging from allowing further time to perform, notices to remedy breach or show cause requirements. In the absence of a contractual requirement to provide the defaulting party with the opportunity to rectify the breach or show cause, the terminating party may exercise the right immediately upon a default or other trigger specified in the clause. 64 [20.48] If the right to terminate arises under a statute any notice requirements required by the statute should be satisfied to ensure a valid termination. For example, a lease cannot be terminated for breach of a term of the lease unless notice to remedy the breach is first given to the lessee.65 Similarly a number of other statutes require notices to terminate certain contracts for the sale of real property to either provide a period to remedy the breach or for the notice to be given within a particular period of time.66

EFFECT OF DISCHARGE OF CONTRACT [20.49] After termination for breach or repudiation, all parties are relieved of their obligations under the contract from the time of termination. For example, if a contract for the sale of land is discharged after the time for performance by the vendor, the obligation of the purchaser to pay the contract price will be discharged. The vendor will not be able to require payment of the balance of the contract price after termination.67 Accrued obligations and rights are however, enforceable, but monies paid conditional on performance are generally recoverable by the party who paid them, unless the contract provides otherwise.

64 The only other exception is where a statute requires a notice to remedy breach. See, for example, ss 124 and 72 Property Law Act 1974 (Qld); s 129 Conveyancing Act 1919 (NSW); s 146 Property Law Act 1958 (Vic); s 81 Property Law Act 1969 (WA); ss 137 and 69 Law of Property Act 2000 (NT). 65 Conveyancing Act 1919 (NSW), s 129(2); Property Law Act 1974 (Qld), s 124; Landlord and Tenant Act 1936 (SA), s 11; Conveyancing and Law of Property Act 1884 (Tas), s 15(2); Property Law Act 1958 (Vic), s 146(2); Property Law Act 1969 (WA), s 81(2); Forfeiture of Leases Act 1901 (NSW), ss 1, 4; Law of Property Act 2000 (NT), s 137. See Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268. 66 Property Law Act 1974 (Qld), s 72 (instalment contracts); Body Corporate and Community Management Act 1997 (Qld), s 214, s 224 (sale of community title lot), Property Agents and Motor Dealers Act 2001 (Qld), s 370 (residential contracts to be terminated within 90 days). 67 Damages will be payable for the failure to perform.

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[20.50] The recovery of instalments of purchase price is treated differently to a deposit. Instalments of price are recoverable either because there is a total failure of consideration or because the plaintiff is entitled to relief against forfeiture in equity. Instalments are recoverable on the basis of total failure of consideration if the contract has no forfeiture provision68 and the contract does not provide that the payments may be retained.69 [20.51] A deposit on the other hand is a performance of the contract.70 Therefore, if the party who paid the deposit fails to perform the contract, the other party will be entitled to retain the deposit because of the failure to perform. The payer will not be entitled to the return of the deposit on the basis of a total failure of consideration or in equity. [20.52]

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 High Court of Australia In 1925, Johnson contracted to sell land to Besley under an instalment contract due for completion in 1931. Prior to settlement, Besley on-sold the land to Rye Grazing Co (Rye) under an instalment contract. This contract required the payment of a deposit and three instalments and then the balance at settlement. McDonald and Holdsworth were guarantors under the contract between Besley and Rye. Rye paid the deposit and first two instalments. Besley assigned the contract to Dennys Lascelles Ltd (Dennys) Dennys allowed Rye to postpone the third instalment provided it was guaranteed by McDonald. The instalment was not paid and Besley defaulted under the first contract, causing both contracts to be terminated. Dennys sued McDonald under the guarantee for the instalment. The issue considered by the High Court was whether Dennys was entitled to sue for the third instalment after termination. Dixon J The defence relied upon by the guarantors is that the liability of the purchasers under the second contract to pay the instalment of purchase money was discharged or determined upon the failure of the contract and that, as their guarantee was secondary or accessory to this principal liability, the obligation incurred under it was likewise discharged or determined. It is apparent from its statement that two questions arise upon this defence, which are separate. The first question raised by it is whether the collapse or failure of the second contract did entirely relieve the purchasers from paying the instalment of £1000. If the purchasers’ obligation to pay the instalment was discharged, the second question arises, namely, whether thereupon the defendants ceased to be liable under their guarantee.

68 Total failure of consideration is examined in detail in Chapter 24. 69 See, for example, Sport Developments Pty Ltd v Del Fabbro [2009] QCA 64. 70 Brien v Dwyer (1978) 141 CLR 378.

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… It thus appears necessary to consider with some degree of exactness what are the material rights and obligations of vendor and purchaser with respect to instalments. It must be borne in mind that the instalment in dispute was overdue when the contract came to an end. According to the terms of the contract, it was originally due and payable on 24th January 1930. Was it then recoverable as a sum certain in money? Convincing reasons for an affirmative answer have been given in Victoria and in New Zealand. Sir John Salmond has stated the principles determining this conclusion:— … The general rule, however, that in an executory contract for the sale of land the vendor cannot sue for the price is excluded whenever a contrary intention is shown by the express terms of the contract. And it seems established by authority that a contrary intention is sufficiently shown in all cases in which by the express terms of the contract the purchase money or any part thereof is made payable on a fixed day, not being the agreed day for the completion of the contract by conveyance. In all such cases the purchase money or such part thereof becomes, on the day so fixed for its payment, a debt immediately recoverable by the vendor irrespective of the question whether a conveyance has been executed and notwithstanding the fact that the purchaser may have repudiated his contract. Notwithstanding such repudiation the vendor is not bound to sue for damages or specific performance, but may recover the agreed purchase money …

From this it follows that after 24th January 1930, subject to the vendors’ agreement to forbear between a date about 18th March 1930, when the conditions stipulated for their forbearance were complied with, and 24th January 1931, the instalment might have been recovered from the sub-purchasers as a liquidated demand. Did the subsequent discharge of the second contract relieve the sub-purchasers of this liability? When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach … It does not, however, necessarily follow from these principles that when, under an executory contract for the sale of property, the price or part of it is paid or payable in advance, the seller may both retain what he has received, or recover overdue instalments, and at the same time treat himself as relieved from the obligation of transferring the property to the buyer. When a contract stipulates for payment of part of the purchase money in advance, the purchaser relying only on the vendor’s promise to give him a conveyance, the vendor is entitled to enforce payment before the time has arrived for conveying the land; yet his title to retain the money has been considered not to be absolute but conditional upon the

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subsequent completion of the contract … In Laird v Pim (1841) 7 M & W, at p. 478; 151 ER, at p. 854, Parke B says: ‘It is clear he cannot have the land and its value too’; the case, however, was one in which conveyance and payment were contemporaneous conditions … It is now beyond question that instalments already paid may be recovered by a defaulting purchaser when the vendor elects to discharge the contract (Mayson v Clouet (1924) AC 980). Although the parties might by express agreement give the vendor an absolute right at law to retain the instalments in the event of the contract going off, yet in equity such a contract is considered to involve a forfeiture from which the purchaser is entitled to be relieved … But, where there is no express agreement excluding the implication made at law, by which the instalments become repayable upon the discharge of the obligation to convey and the purchaser has a legal right to the return of the purchase money already paid which makes it needless to resort to equity and submit to equity as a condition of obtaining relief, the vendor appears to be unable to deduct from the amount of the instalments the amount of his loss occasioned by the purchaser’s abandonment of the contract. A  vendor may, of course, counterclaim for damages in the action in which the purchaser seeks to recover the instalments. In the present case, the contract of resale contains no provision for the retention or forfeiture of the instalments. If, therefore, the instalment originally due on 24th January 1930 had been paid by the purchasers to the vendors, they would, in my opinion, have been entitled to recover it from the vendors. The right so to recover it is legal and not equitable. It arises out of the nature of the contract itself. This would be so even if the second contract was rescinded by the vendors upon the purchasers’ default. If in the present case the purchasers’ claim to rescind this contract were justified, an instalment already paid would have been recoverable as on an ordinary failure of consideration. But, if the difference be material, I am disposed to think that the purchasers’ claim to rescind was not, in the circumstances, well founded and that the second contract should be treated as discharged by the vendors’ acceptance of the repudiation by the purchasers involved in their attempt to rescind. It appears to me inevitably to follow from the principles upon which instalments paid are recoverable that an unpaid overdue instalment ceases to be payable by the purchasers when the contract is discharged. The fact that the contract was assigned does not increase or vary the purchasers’ liabilities under it, and, accordingly, I think that the purchasers upon the sub-sale ceased to be liable for the instalment guaranteed. [Dixon J further held that as the primary liability to pay was discharged, the liability of the guarantors was also discharged.]

QUESTIONS FOR REFLECTION (1) In DTR Nominees Pty Ltd v Mona Homes Pty Ltd, the High Court distinguished between two different circumstances involving termination on the basis of an erroneous interpretation. Explain the two different situations with examples. (2) In Sargent v ASL Developments Pty Ltd, Mason J and Stephen J drew a distinction between unequivocal conduct evidencing election and equivocal conduct. What was that distinction? (3) In Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd, Brennan J considers when an inference of repudiation can be drawn from a party’s conduct. Identify other circumstances in which you think an inference may arise.

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(4) In Foran v Wight, the High Court considers whether a party who relies upon the intimation of another party of an inability to perform is denied the right to terminate because they did not tender performance at the nominated time. Consider the judgments of Brennan J and Dawson J and formulate in your own words the exception to the rule that a party must prove they are ready, willing and able to terminate at the time of exercising a right of termination for breach. (5) McDonald v Dennys Lascelles Ltd highlights the difference between the recovery of a deposit following termination for breach and the recovery of other payments under the contract. Explain the differences in recovery and the legal basis for that recovery. Draw a diagram to reflect your understanding.

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INTRODUCTION [21.01] The discharge of a contract by performance, breach, or frustration is considered in Chapters 19, 20, and 22. The final circumstance in which a contract may be discharged and the parties freed from their obligations is by agreement between the parties (contractual discharge) or conduct that implies an extinguishment of the contract (non-contractual discharge). Contractual discharge may include the creation of a new contract in substitution for the original contract, usually with additional parties to the agreement, which is referred to as a novation, or the agreement may be discharged as part of resolving a dispute, which is referred to as a compromise or accord and satisfaction. Non-contractual discharge may occur where the parties act in a way that implies their mutual obligations are discharged and the contract abandoned. The second type of contractual discharge and non-contractual discharge is the subject of this chapter.

Variation distinguished from discharge [21.02] There are a number of significant differences in the legal effect of a discharge compared to a variation. First, a discharge will bring the contract to an end but a variation will leave the original contract on foot, but modify some particulars.1 Second, a variation requires consideration and must comply with formalities requirements if the original contract was required to be in writing.2 For these reasons it is important for contracting parties to consider whether their agreement constitutes a variation of the existing contract or if the amendments are so significant that the parties are actually agreeing to discharge the previous agreement.3 Whether the agreement between the parties is a discharge or variation, or some combination thereof, depends upon the intention of the parties as ascertained from a construction of the

1

Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Ltd (2000) 172 ALR 346; applied in Midland Brick Co Pty Ltd v Welsh [2006] WASC 122.

2

Refer to [21.55].

3

Concut Pty Ltd v Worrell (2000) 176 ALR 693.

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contract having regard to the degree of change effected by the purported variation agreement.4 A purported variation of the contract may alter so many particulars of a contract that a court will infer that the parties intended to discharge the existing contract and substitute it with the ‘varied’ contract.5 The ultimate determination of the court will not affect the enforceability of the agreement unless it is of a type required to be in writing. [21.03]

Morris v Baron & Co [1918] AC 1 House of Lords Morris agreed to sell goods to Barron. He delivered only part of the goods, valued at £888 4s, and six months later began proceedings to recover this sum. The company counterclaimed for £934 as the damages for non-delivery of the whole of the goods. Prior to trial, the parties compromised the dispute. They made an oral contract under which the action was to be withdrawn. The company was granted another three months to pay the sum due under the contract, and it was to have the option either to accept or to refuse the undelivered goods. The company was allowed £30 to meet the expenses incurred owing to the failure of Morris to make complete delivery. Ten months later, the monies were still unpaid; Morris brought a second action to recover the outstanding sum. The company admitted liability, but again counterclaimed for damages in respect of the undelivered goods. The action failed. Lord Finlay LC The present is not a case in which there has been a mere attempt to vary the written contract by parol, the situation of the parties being otherwise unchanged … The evidence in the present case points to the conclusion that the parties intended not merely to vary the original contract but to set it aside and substitute another for it, giving a mere option to take delivery of the parcel undelivered. This is the effect of the language of the memorandum of April 22, 1915, and it was on this assumption that all the subsequent dealings and correspondence of the parties proceeded. It is true that neither party adhered to its terms. … But neither party ever referred to the original contract as governing their rights; on the contrary, they treated it as at an end. Is the law such as to prevent effect being given to the intention of the parties to treat the original contract as rescinded? … The non-enforceability of the new agreement would no doubt be a very material fact in arriving at a conclusion upon the question whether the new agreement without performance

4

See Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1956) 98 CLR 93, 112, 122–6, 135, 144. See also Electronic Industries Ltd v David Jones Pty Ltd (1954) 91 CLR 288; Federal Commission of Taxation v Sara Lee Household & Body Care (Aust) Pty Ltd (2000) 172 ALR 346; Concut Pty Ltd v Worrell (2000) 176 ALR 693; Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd (2005) 218 ALR 1; Martech International Pty Ltd v Energy World Corporation Ltd [2007] FCAFC 35.

5

British & Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48, 62.

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was taken in accord and satisfaction of the old, but it seems to me to be immaterial when once this has been established in point of fact. In the present case the parties, in my opinion, took the new agreement such as it was with the other terms of settlement in accord and satisfaction of the original agreement, and there is nothing in law to prevent them from doing so. The respondents, therefore, must stand or fall by the agreement of April 22. It was upon that agreement that the case was brought before Bailhache J, and the learned judge held that the respondents could not recover upon it because they not only failed to pay the £888 4s at the expiration of the extended credit given by that agreement, but throughout insisted that they would not pay until the further goods had been delivered under the option. Viscount Haldane Now the important point here is to see, not merely what Noble v Ward decided, but what it did not decide. I think that it did not decide, as the Court of Appeal appear to have supposed, that an agreement which complied with the statute could not have an end put to it by a subsequent parol agreement. The action had been brought on a valid written contract for the sale of goods of more than £10 in value, to be delivered at certain times. The times of delivery under this agreement were sought to be treated as varied by a parol agreement. The question was whether what had happened was that the old contract was gone. It was held that, on the facts, there was no giving up of the old contract independently of the effect of such variations as had been attempted to be imported by the new one. There had been a still earlier written contract than that sought to be varied, apparently a formal document, and it was treated as effectively cancelled by the language of the very parol contract which was held inoperative to merely vary the terms of the formal contract which followed the first. What was really decided was that while the parties might have entered into a parol contract to rescind simpliciter the second, just as they had so rescinded the first, they had not done so. As to the second, they had simply made a new parol contract which sought to vary the mode of carrying the second one into effect. In one sense, no doubt, the intention was to rescind, for the novation attempted to be effected by the final parol contract would, if valid, have established a new contract containing as an entirety the old terms together with and as modified by the new terms incorporated. But this could only have amounted to a partial rescission, or, in other words, a mere variation; and, as Willes J pointed out in the Exchequer Chamber, the question whether there had taken place an independent and complete rescission, if it had been really raised, must under the circumstances have formed a separate question for the jury, a question which in fact was not put. What was therefore decided was merely that where parties enter into an invalid contract, which purports to vary, and only to that extent to supersede or rescind, an earlier written contract, the later one does not operate validly. It was not decided by Noble v Ward that the Statute of Frauds prevents a parol agreement, if it plainly purports to do so, from rescinding in its entirety a previous written contract. Even although itself incapable of being sued on, a parol contract may have that effect. The question is whether there is an intention in any event to rescind, independent of any further intention which may exist to substitute a second contract. I think that Noble v Ward affirms what seems to result from principle, that in such a case the agreement to rescind must receive effect.

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Even if Noble v Ward (1)  can be taken as a decision confined to the 17th section, which I  think it ought not to be, the authorities in equity to which I  have referred established the principle clearly as regards the 4th section of the Statute of Frauds and of the Sale of Goods Act. No doubt it is not to be found in the expressed words of the sections. But if the construction placed by the Courts on such words is not accepted injustice will result. For it would then be in the power of a defendant to insist that the contract to be sued on by the plaintiff must be the entire new contract comprising the old one with the parol variations, and then to defeat the plaintiff by setting up the statute. The Courts, in order to avoid this result, have read the language as implying that the original formal contract is not, in any question of evidence in proceedings, to be treated as varied by a subsequent contract which is informal, and therefore of imperfect obligation. But this reason obviously does not apply to a complete rescission by parol, which does not seek to set up a new contract to be sued on, but merely terminates existing relations. Accordingly while a parol variation of a contract required to be in writing cannot be given in evidence, the very authorities which lay down this principle also lay down not less clearly that parol evidence is admissible to prove a total abandonment or rescission. Now there is no reason why this should not be done through the instrumentality of a new agreement which does not comply with the statutory formalities, just as readily as by any other mode of mutual assent by parol. What is, of course, essential is that there should have been made manifest the intention in any event of a complete extinction of the first and formal contract, and not merely the desire of an alteration, however sweeping, in terms which still leave it subsisting. But the difficulty does not end here. If the Divisional Court were right, an agreement which is not in writing, and if it stood by itself would not be required to be so by the statute, can vary the terms of an antecedent agreement put into writing so as to comply with requirements imposed by the statute. This appears to me, for reasons which I have already stated, to be at variance with both principle and authority, and I cannot assent to the proposition. Now the Court of Appeal in the present case adopted the views of H L (E) Shearman J and Sankey J as expressed in the passages I have cited from their judgments, and I am therefore compelled to differ from the opinion they have expressed as a statement of the law upon the subject. My Lords, I have come to the conclusion that what happened in April 1915, as evidenced by the letter of April 22, amounted to a complete rescission and abandonment of the old agreement of September 24, 1914, and the substitution of a completely new and self-contained agreement. The letter purports to set out the result of a conversation between the representatives of the appellant and the respondents which took place just before it, and it is of course the only admissible evidence of the terms then arranged. The proceedings in the old action are to be withdrawn and the sum of 30L is to be allowed to the respondents to meet expenses incurred through not being able to fulfil orders, because, no doubt, of the asserted breach of contract by the appellant. [21.04] The House of Lords unanimously held that the contract could be rescinded by an oral agreement even though the original contract was required to be in writing. As the compromise agreement was not itself in writing neither party was able to enforce the agreement. The parties were therefore left effectively with no contract governing their relationship.

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[21.05] The distinction between discharge and variation becomes relevant when a dispute arises about which contract in a series of agreements is binding6 whether the agreement varying the parties’ obligations is required to be in writing to be enforceable, and at what time and place the contract was formed.7

REQUIREMENTS OF WRITING Discharge [21.06] An oral agreement to discharge a contract will be enforceable provided the usual requirements of a contract (offer, acceptance,8 consideration and a clear intention to bring the parties’ obligations to an end)9 are met. Even if the original contract was required to be in writing, it may be totally rescinded or discharged by an oral agreement. Although a subsequent oral agreement will be effective to discharge the original contract, any agreement to enter a new contract, may require writing if the agreement is of a type that required writing to be enforceable. An example is provided by the decision in Morris v Baron & Co (1918) AC 1 outlined at [21.03]. It should be noted however that a subsequent oral agreement that is void at law will be ineffective to discharge or vary a prior agreement.10

Variation [21.07] In contrast, an oral variation of a contract will not be effective if the original contract is of a type required by legislation to be in writing.11 Therefore, if the variation is not in writing it will not be effective to vary the original contract, which will remain unaffected. Nevertheless, where the oral agreement purports to discharge the original contract and substitute a new contract, the original contract will be discharged, but the new contract will be unenforceable. [21.08] The difference in approach to discharge and variation results from the interpretation of the relevant Statute of Frauds legislation in each state. For example, s 59 of the Property Law Act 1974 (Qld) provides that a contract for the ‘sale or other disposition’ of an interest in land is only enforceable if in writing.12 The question will be whether the agreement entered into is within the meaning of sale or disposition. The meaning of ‘sale’ is generally restricted to its common

6

Hillam v Iacullo (2015) 90 NSWLR 422.

7

Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1956) 98 CLR 93.

8

See, for example, BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 52 ALJR 20.

9

Fitzgerald v Masters (1956) 95 CLR 420; Tekmat Pty Ltd v Dosto Pty Ltd (1990) 102 FLR 240; Cook v Chase Blanks Pty Ltd [1968] 3 NSWR 356; McDermott v Black (1940) 63 CLR 161.

10 Coghlan v Pyoanee Pty Ltd [2003] 2 Qd R 636. 11 See Chapter 11 in relation to the types of contracts required to be in writing. The most common are contracts for the sale or disposition of an interest in land. 12 See [11.09] for further discussion.

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law meaning of the ‘exchange of an interest in land for money or monies worth’. Disposition however will be wider and is defined in the Property Law Act 1974 (Qld) to include a conveyance, vesting instrument, declaration of trust, disclaimer, release and every other assurance of property by an instrument except a will …

[21.09] Care should be taken when considering the application of the statute to agreements that purport to release an interest in land, which may amount to a disposition of an interest and therefore be required to be in writing. The extended definition of ‘disposition’ has resulted in the application of the statute to: (i) (ii) (iii)

An agreement by two parties that land should be transferred by one of the parties to a third party;13 The release or relinquishment of an interest in land, such as the surrender of a lease or easement;14 The relinquishment of an interest as beneficiary of a trust.15

[21.10] The requirement for writing does not apply to the dispensation or waiver of a mode of performance.16 For example, an agreement to extend the time for performance under a land transaction will usually be considered a forebearance or indulgence related to the mode of performance, not a variation. A  mere extension of time does not have to be in writing to be enforceable. The distinction between a variation and waiver of the mode of performance is often difficult to judge, and some courts have made artificial distinctions to avoid injustice.17 In any event, in the majority of cases where a party is relying upon forbearance in relation to the mode of performance, the issue of estoppel will arise. A claim based on estoppel does not require written evidence to succeed, provided there is sufficient oral evidence.18

NOVATION [21.11] A novation occurs where one contract is substituted for another contract either between the same parties or between different parties.19 The two elements of a novation are first the discharge of the original contract by agreement between the original parties and secondly, the entering into of a substituted contract usually between one of the original parties and a third party. Importantly, the second contract must be entered into in substitution for the first with the

13 Powercell Pty Ltd v Cuzeno Pty Ltd (2004) 11 BPR 21,429. 14 Tasita Pty Ltd v Papua New Guinea (1991) 34 NSWLR 691. 15 PT Ltd v Maradona Pty Ltd (No 2) (1992) 27 NSWLR 241. 16 Phillips v Ellinson Bros Pty Ltd (1941) 65 CLR 221. 17 Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570. 18 See the detailed commentary on estoppel in Chapter 7. 19 See Olsson v Dyson (1969) 120 CLR 365; Leveraged Equities Ltd v Goodridge (2011) 274 ALR 655; ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue (2012) 286 ALR 1; Hillam v Iacullo (2015) 90 NSWLR 422.

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actual or implied consent of all parties to the original contract and new contract for a novation to occur. For example, A and B are parties to a contract whereby B is obliged to deliver goods to A on a monthly basis. A, B and C agree to discharge B from the contract and for C to enter into a new agreement to deliver the goods to A. The consequence is that A and B are no longer in privity of contract and A and C are bound to perform the substituted agreement.20 [21.12] A novation may also be found where the agreement to discharge the original contract is implied from the terms of the agreement between the parties. [21.13]

ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue [2012] HCA 6 High Court of Australia Oakland Glen Pty Ltd (Oakland) entered into a contract with Permanent Trustee Company Ltd (PTC) to sell a portion of freehold land in November 2003 (2003 contract). In June 2008 Oakland, PTC and ALH Group Property Holdings Pty Ltd (ALH) entered into a ‘Deed of Consent and Assignment’ (Deed of Consent) under which PTC agreed to assign its rights under the 2003 contract to ALH; Oakland consented to the assignment; ALH promised Oakland that it would perform PTC’s obligations under the 2003 contract; and Oakland released and discharged PTC from all liability under the 2003 contract. In September 2008, Oakland and ALH agreed to ‘terminate the 2003 contract’ by a Deed of Termination. The question in the case was whether stamp duty was payable on the Deed of Consent. If the Deed of Consent was at law a novation, then the 2003 contract was discharged in June 2008 and a new contract, in accordance with the Deed of Consent was entered into. The difficulty for the parties was that the Deed of Termination referred to the cancellation of the 2003 contract and not the Deed of Consent. The primary issue considered by the High Court was whether the Deed of Consent operated in substance as a novation of the 2003 contract. French CJ, Crennan, Kiefel and Bell JJ The transaction between Oakland, Trust and ALH, recorded in the Deed of Consent, must amount to an agreement for the sale or transfer of the land and improvements the subject of the 2003 contract from Oakland to ALH, and not from Oakland to Trust, in order to come within the terms of s 8(1)(b)(i). As will be explained, for there to be a new contract of sale between Oakland and ALH, the Deed of Consent must have effected a discharge of the 2003 contract. It was to these issues that ALH’s solicitors’ letter of 19 September 2008 was addressed. In that letter, ALH’s solicitors argued that, despite the terminology used in the Deed of Consent (a reference no doubt to the use of the word ‘assignment’ in the title and in the

20 For an example of consent in anticipation of a future novation, refer to Leveraged Equities Ltd v Goodridge (2011) 274 ALR 655.

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terms relating to the transfer of Trust’s rights under the 2003 contract to ALH), the effect of the document, read as a whole, was to effect a ‘novation of all of the rights and obligations and benefits of the purchaser under [the 2003 contract] from [Trust] to ALH.’ A novation, in its simplest sense, refers to a circumstance where a new contract takes the place of the old. It is not correct to describe novation as involving the succession of a third party to the rights of the purchaser under the original contract. Under the common law such a description comes closer to the effect of a transfer of rights by way of assignment. Nor is it correct to describe a third party undertaking the obligations of the purchaser under the original contract as a novation. The effect of a novation is upon the obligations of both parties to the original, executory, contract. The enquiry in determining whether there has been a novation is whether it has been agreed that a new contract is to be substituted for the old and the obligations of the parties under the old agreement are to be discharged. If the obligations of Oakland or of Trust under the 2003 contract remained after the execution of the Deed of Consent, it could not be said that the 2003 contract had been discharged, or rescinded, as is essential to a novation. In such a circumstance a new contract could not have come into effect between Oakland and ALH. This was the conclusion the Court of Appeal reached in this case. In a letter dated 7 April 2009 notifying ALH’s solicitors of the disallowance of ALH’s objection to the assessment of duty on the Deed of Consent, the Chief Commissioner appears to have assumed, contrary to earlier expressed views, that the Deed of Consent effected a novation of the 2003 contract. This does not assume any significance. The issue to which disallowance was addressed was the efficacy of the Deed of Termination. As has been explained, that issue is no longer current. ALH’s solicitors were right to assert that conclusions about the agreement between Oakland, Trust and ALH could only be reached by having regard to the terms of the Deed of Consent read as a whole. The legal nature and effect of the agreement is to be determined by the construction of its terms, including those terms which may be implied in order to give effect to the intention of the parties evident from the Deed of Consent. It is not without significance to the distinction between assignment and novation, to which reference will later be made, that each of the parties to the 2003 contract, Oakland as well as Trust, are parties to the Deed of Consent, along with ALH. The recitals to the Deed of Consent referred to the 2003 contract and identified the property the subject of it. Recital C stated that Oakland ‘has agreed to consent’ to Trust ‘assigning its rights and obligations’ under the 2003 contract to ALH on the terms contained in the Deed of Consent. One of the conditions precedent to ‘Completion of the Assignment’, contained in cl 2 of the Deed of Consent, concerned a loan, by way of the advance of the balance of the purchase monies ($5,747,949.90) which had been made by Trust to Oakland under a term of the 2003 contract. By cl 2(b) of the Deed of Consent, Oakland undertook to repay those monies to Trust, together with interest, on the date of the Deed. Subject to the satisfaction of that and certain other conditions precedent not presently relevant, by cl 3.1 of the Deed of Consent, Trust ‘assigns to [ALH] all of [Trust’s] rights and entitlements under and in relation to [the 2003 contract]’ in consideration of ALH: (a)

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reimbursing Trust for the deposit monies ($638,661.10) paid to Oakland under the 2003 contract; and (b) paying Trust ‘the balance of the consideration’ for the Deed of Consent ($2,063,389). By cl 3.3, Oakland ‘consents to the assignment by [Trust] of all its rights and entitlements under and in relation to [the 2003 contract] to [ALH].’ Following assignment, Trust is to deliver the original 2003 contract to ALH (cl 3.4). Further provision is made in the Deed of Consent respecting the obligations of Trust and the undertaking of those obligations by ALH, by cll 4 and 6.  These provisions assume particular importance to an understanding of the extent of the agreement reached between the parties by the Deed of Consent. Clause 4.1 concerns ALH’s covenants with Oakland. It is in these terms: [ALH] covenants with Oakland that: (a) it has read and is aware of and specifically acknowledges the provisions of [the 2003 contract]; and (b) as from the Date of Assignment, [ALH] shall perform and observe all obligations of the Purchaser [Trust] under [the 2003 contract].

By cl 4.2, ALH covenants with Trust that it, ALH, will perform and observe all the obligations of Trust as purchaser under the 2003 contract. ALH also agrees (by cl 5) to indemnify Trust with respect to all liability arising out of any default or delay on the part of ALH ‘in the performance of the Purchaser’s [Trust’s] obligations contained or implied under [the 2003 contract].’ Oakland and ALH then agree to release and discharge Trust from its obligations under the 2003 contract. Clause 6 provides: Oakland and [ALH] release and discharge [Trust] from: (a) all claims, actions, demands and proceedings which Oakland or [ALH] may have or claim to have or but for this release might have had against [Trust] arising out of or in connection with the [subject land] and [the 2003 contract]; and (b) all liability of [Trust] arising out of the [subject land] and [the 2003 contract], with effect from the Date of Assignment.

Trust also expressed its consent to the termination of the 2003 contract and related agreements (cl 8.3), relevantly in so far as they concerned Oakland’s duties under the 2003 contract with respect to the sale of the balance of the land to the developer. … Handley AJA accepted that the Deed of Consent was not a mere assignment of Trust’s benefits under the 2003 contract to ALH. His Honour recognised that ALH, by the terms of the Deed of Consent, assumed the obligations of Trust under the 2003 contract. His Honour concluded that the Deed was a ‘hybrid tripartite contract’, but not one by which a novation was effected (at least not a novation of anything more than ALH’s ‘concurrent and mutually dependent’ obligation to pay the purchase price). His Honour was clearly correct to hold that the Deed of Consent contained more than a mere assignment of Trust’s right to ALH. A telling factor in that regard was that Oakland,

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the vendor under the 2003 contract, was a party to the Deed of Consent. More importantly, it was thereby placed in a position to, and did, assent to the transfer of obligations from Trust to ALH and the release of Trust from its liabilities under the 2003 contract. In Olsson v Dyson, Windeyer J observed that, in the past, a novation of contract had been used as a method of circumventing the common law rule that debts were not freely assignable. His Honour explained the distinction between assignment and novation in these terms: The ultimate distinction, in juristic analysis, between a transfer of a debt by assignment and by novation is simple enough. Novation is the making of a new contract between a creditor and his debtor in consideration of the extinguishment of the obligations of the old contract: if the new contract is to be fully effective to give enforceable rights or obligations to a third person he, the third person, must be a party to the novated contract. The assignment of a debt, on the other hand, is not a transaction between the creditor and the debtor. It is a transaction between the creditor and the assignee to which the assent of the debtor is not needed.

Handley AJA was also correct to identify the rescission of the existing 2003 contract as essential to its novation. ‘Novation’ is a term derived from the civil law, Lord Selborne LC observed in Scarf v Jardine, and therefore from Roman law. The term is applied to two classes of case:  where the parties to a contract make a new contract, with new obligations, impliedly rescinding an existing contract; and, more commonly, to tripartite agreements, where ‘the obligation of a third person is by express agreement accepted by one party to an existing contract with the consent of such third person and of the other party to the contract, in lieu of the obligation of such other party, who, by the new contract, is released from his obligation under the original contract’. Lord Selborne LC in Scarf v Jardine described a novation as operating where: there being a contract in existence, some new contract is substituted for it, either between the same parties (for that might be) or between different parties; the consideration mutually being the discharge of the old contract.

It has been observed that, in cases involving the substitution of one debtor for another, some legal systems permit a succession to an obligation which remains, which is to say the obligation of the original debtor. But this is not the approach taken by English law, which has developed by reference to Roman law principles and looks to the creation of a new agreement. Handley AJA directed attention to the absence of an express term in the Deed of Consent effecting rescission of the 2003 contract. The logic of his Honour’s reasons linked that absence to the continuance of Oakland’s obligation as vendor, under the 2003 contract, to convey the property to Trust. A problem for early Roman law, Windeyer J explained in Olsson v Dyson, was whether extinguishment of an existing obligation could be implied. Justinian, his Honour noted, met the difficulty by providing that a stipulation could not operate as a novation unless the parties, in making the new contract, expressly declared that they extinguished the prior obligation. However, as his Honour observed, the common law allows a tacit agreement to extinguish the obligations under the existing contract. So much also appears from the following statement of Dixon J in Vickery v Woods:

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Rescission and novation ultimately depend on intention, and here none existed in fact and nothing was done from which such an intention must necessarily be implied.

Intention may be inferred from conduct, as is sometimes the case where dissolutions of partnership are concerned. It will not be necessary to resort to conduct in this case. An intention on the part of Oakland, Trust and ALH to release and discharge the obligations of both Oakland and Trust under the 2003 contract and thereby effect a rescission of it is apparent from the terms of the Deed of Consent. As Handley AJA observed, by the terms of the Deed of Consent, ALH promised that it would undertake Trust’s obligations as purchaser under the 2003 contract. The promise was directed to both Trust and Oakland, and Oakland may be taken to have agreed to ALH’s so promising. The release and discharge given by Oakland to Trust under cl 6 amounted to a renunciation of Oakland’s right to call upon Trust for performance as purchaser under the 2003 contract or to sue Trust for specific performance of that contract or for damages for its breach. There can be no doubt that it was intended that all of Trust’s obligations under the 2003 contract be discharged. Moreover, Trust was permitted, pursuant to the Deed of Consent, not only to extricate itself from further obligations under the 2003 contract, but also to be restored to its pre-contractual position, by the repayment of monies advanced by it to Oakland and the reimbursement of deposit monies by ALH. Against this background, it could not be said to have been intended that Oakland’s obligations as vendor continued to have their source in the 2003 contract. Oakland had agreed to the release and discharge of Trust and accepted ALH as purchaser. To suggest that it may nevertheless be obliged to convey in accordance with the 2003 contract raises the questions: to whom was it now to convey the property and who was obliged to tender the balance purchase monies to it? The answer to each question, provided by the Deed of Consent, is: ALH. It is unrealistic to suggest that it was intended that Oakland accept ALH’s promise of performance as purchaser and release Trust from its obligations under the 2003 contract but that it was not to be obliged to convey to ALH upon tender of the balance of the purchase price. It is necessarily to be implied that Oakland would convey the land and improvements the subject of the 2003 contract to ALH upon its tender. Oakland’s prior obligation to convey to Trust may be regarded as extinguished by reason of the later implied obligation to convey to ALH, which is inconsistent with the continuance of the former obligation. Handley AJA, in expressing the view that Oakland’s obligations remained sourced in the 2003 contract, made mention of ALH itself paying no further deposit monies to Oakland and the fact that the deposit paid by Trust under the 2003 contract remained in Oakland’s hands for the benefit of ALH. Given that ALH reimbursed Trust for the deposit monies, to the knowledge of Oakland, there can be little doubt that Oakland held those monies for ALH, as upon trust. Since ALH undertook all the obligations of purchaser under the terms of the 2003 contract, it may be taken as having been intended that the monies be dealt with as deposit

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monies. We do not understand his Honour to suggest that any larger question arose concerning consideration provided for the new contract. As the passage from Scarf v Jardine quoted above confirms, the law accepts that mutual consideration for a novation is provided by the discharge of the old contract (and what follows from it). The Deed of Consent, properly construed, contained the elements necessary for the discharge of the 2003 contract and the substitution of a new contract.

Conclusion and orders A new agreement came into existence between Oakland and ALH upon the execution of the Deed of Consent. That agreement was for the sale and transfer of the property the subject of the 2003 contract on the terms and conditions therein contained. The agreement so made was cancelled by the Deed of Termination. Section 50(2) of the Duties Act applies. The Commissioner is liable to refund the duty paid to it by ALH. [Footnotes removed.] [21.14] A  novation should otherwise comply with the usual requirements of a contract. In particular consideration is required for the release of the original party from the agreement. In the example above, A has provided good consideration by giving up their rights against B to performance of the contract. What consideration has B provided? This could be provided by the payment of money or by B procuring C to perform the contract.

ABANDONMENT [21.15] The main type of non-contractual discharge is abandonment. The parties’ conduct when objectively viewed may indicate that they are in fact treating the contract as discharged even though there is no express agreement.21 Abandonment will usually be found where both parties evince an intention that a contract should not be performed or that each party should no longer be bound22 or where an inordinate length of time has been allowed to pass, during which neither party has attempted to perform or called on the other to perform. The court will ascertain the objective intention of the parties by reference to their conduct, and the mere fact that a length of time has elapsed will not be conclusive. The inactivity must produce the inference that one party does not wish to proceed with the contract and the other has consented to that situation.

21 Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd (2014) 45 VR 79. 22 Protector Glass Industries Pty Ltd v Southern Cross Autoglass Pty Ltd (2015) 18 BPR 35,51,1 [95]–[99].

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[21.16]

Fitzgerald v Masters (1956) 95 CLR 420 High Court of Australia Fitzgerald sold to Masters a half-interest in his farm in 1927. The balance of the price was to be paid over a period of years, during which the farm was to be worked in partnership. In 1932, Masters left the farm after more than half the price had been paid, and further payments had been offered. Before he left, Masters had the contract of sale stamped and registered but he took no further steps in relation to it until 1948. Masters commenced an action in 1953—two years after Fitzgerald’s death. The issue for the court was whether the agreement had been abandoned due to the inordinate length of time that had been allowed to elapse, during which neither party attempted to perform. Dixon CJ and Fullagar J Is abandonment, then, to be inferred from the long silence and inactivity that followed? In considering this question, we think that the period to be regarded is a period of about sixteen years—from 1932 to 1948. For, although the respondent’s solicitors, when they wrote to the deceased in 1948, made no reference to the contract of sale, we agree with McLelland J that their letter should be regarded as an intimation that the respondent intended to assert his rights, whatever they might be. There can be no doubt that, where what has been called an ‘inordinate’ length of time has been allowed to elapse, during which neither party has attempted to perform, or called upon the other to perform, a contract made between them, it may be inferred that the contract has been abandoned. … What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contract on both sides that (in the words of Rowlatt J) ‘the matter is off altogether’. It is impossible, in our opinion, to infer a discharge of the contract in the present case. In each of the cases cited above the contract was an executory contract, under which neither party had acquired any proprietary right or interest. The position was simply that each party had promised to do something, and for a long period no act was done in performance of the contract, and no step was taken to require any act to be done in performance of the contract. Here the contract had been partly performed by the respondent. Before he left the property, he had paid more than half of the purchase price, and he had an equitable interest in the land. He had registered his contract. It is impossible to suppose, nor can the deceased have supposed, that he ever intended simply to allow the deceased to keep both the money and the land, and no suggestion that the money should be repaid to him was ever made. As Taylor J observed during argument, if he had at any time regarded the contract as at an end, the first thing one would have expected him to do was to demand repayment of his money. The truth is, we think, that the equitable interest in the land, which the respondent had acquired, could not be lost or destroyed by mere inaction on his part. It could only be lost or destroyed by release or express agreement on his part, or if the deceased lawfully rescinded the contract. Any release or agreement could be expected to provide for adjustments taking into account the part of the

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price already paid, and, in the event of rescission by the deceased, the rules of law and equity would take care of the position. [21.17] McTiernan J, Webb and Taylor J reached the same conclusion in relation to the issue of abandonment. The court therefore held that the parties had not abandoned the contract. The continued existence of the plaintiff ’s equitable interest in the property, the fact that more than half of the price had been paid, and the registration of the contract, indicated that despite the passing of time an intention to abandon the contract could not be found on the facts. [21.18] An abandonment will usually release the parties as to the future. Where a contract has been partly performed, a court will not lightly conclude that the parties intended to abandon accrued rights without a clear indication to the contrary. In the absence of a clear agreement or objective evidence it will usually be inferred that the abandonment of a contract operates prospectively without prejudice to accrued entitlements.23

QUESTIONS FOR REFLECTION (1) Compare the approach of the High Court in Fitzgerald v Masters (1956) 95 CLR 420 and Summers v Commonwealth of Australia (1918) 25 CLR 144 to the question of abandonment. What were the factors in Summers that lead the court to conclude it was abandoned? (2) Explain by reference to examples the difference between a variation and discharge of a contract.

23 Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liq) (1936) 54 CLR 361 at 369 per Latham CJ; Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd (2014) 45 VR 79.

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INTRODUCTION [22.01] In some circumstances, an event may occur after a contract has been formed that renders performance different in substance from what was originally undertaken. In such a case, the contract is said to have been discharged by frustration, and the parties are released from further obligations under the contract.

TEST FOR FRUSTRATION [22.02] The general test of frustration is that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.1 This test takes into account (1) the terms of the contract and (2) the effect of the supervening event. [22.03]

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 High Court of Australia Codelfa entered into a contract with the State Rail Authority to perform excavation work for the construction of an underground railway. The work was required by the contract to be completed within a fixed period. The parties entered into the contract on the understanding that the work was to be carried out by three shifts for seven days a week. The work proved to be noisy; it

1

Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696, 729; Brisbane City Council v Group Projects Pty Ltd (1979) 149 CLR 143, 159–163; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 357, 380, 408.

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disturbed nearby residents. As a consequence, the residents obtained an injunction restraining Codelfa from working more than two shifts a day for six days a week, not including Sundays. As an alternative to a claim that there was an implied term that the State Rail Authority would indemnify Codelfa against additional costs incurred, Codelfa argued that the excavation contract had been frustrated by the grant of the injunction. Mason J In Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143 at pp 159–163, Stephen J discussed the authorities … I agree with Stephen J’s acceptance of the approach adopted by Lord Reid and Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696. Lord Reid said that the task of the court is to determine ‘on the true construction of the terms which are in the contract read in light of the nature of the contract and of the relevant surrounding circumstances’, ‘whether the contract which they did make is … wide enough to apply to the new situation: if it is not, then it is at an end’ (at 720–721). Later he described frustration as ‘the termination of the contract by operation of law on the emergence of a fundamentally different situation’ (at 723). Lord Radcliffe (at 729) said: … frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract … It was not this that I promised to do.

His Lordship, noting that special importance attaches to an unexpected event, observed There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.

It is implicit, if not explicit, in the judgment of Stephen J, as in the speeches of Lord Reid and Lord Radcliffe in Davis Contractors, that to express a preference for this view of frustration as against the theory of the implied condition and other suggested bases is not to cast doubt on the authority of earlier decisions. This is of critical importance because the earlier cases provide many illustrations of the proposition that a contract will be frustrated when the parties enter into it on the common assumption that some particular thing or state of affairs essential to its performance will continue to exist or be available, neither party undertaking responsibility in that regard, and that common assumption proves to be mistaken—see, for example, FA Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397 (charter party of a vessel requisitioned in time of war); Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265 (trading agreement between timber merchants affected by prohibition under legislative authority of continued trading in time of war) … The critical issue then is whether the situation resulting from the grant of the injunction is fundamentally different from the situation contemplated by the contract on its true construction in the light of the surrounding circumstances. The contract itself did not require that the work be carried out on a three shift continuous basis six days a week without restriction as to Sundays. But it required completion of the works within 130 weeks. And Codelfa with its tender had submitted a construction programme which involved a three shift continuous basis six days a week. By cl S6 of the specifications Codelfa was required to submit a revised

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programme of work to the Engineer for his determination within thirty calendar days of the issue of a notice to proceed under the contract. This Codelfa did. Again it made provision for the method of operation already mentioned … I come back then to the question whether the performance of the contract in the new situation was fundamentally different from performance in the situation contemplated by the contract. The answer must, I think, be in the affirmative. Paragraphs 14, 15, 16, 18 and 19 of the Arbitrator’s award go a long way towards establishing this answer. The finding contained in par. 16 proceeds on the footing that the contract work could not be carried out as contemplated by the contract once injunctions were granted, the effect of which was to prohibit the continuous three shift a day operation six days a week. Performance by means of a two shift operation, necessitated by the grant of the injunctions, was fundamentally different from that contemplated by the contract. There is, of course, no inconsistency between the conclusion that a term cannot be implied and the conclusion that events have occurred which have brought about a frustration of the contract. I find it impossible to imply a term because I am not satisfied that in the circumstances of this case the term sought to be implied was one which parties in that situation would necessarily have agreed upon as an appropriate provision to cover the eventuality which has arisen. On the other hand I find it much easier to come to the conclusion that the performance of the contract in the events which have occurred is radically different from performance of the contract in the circumstances which it, construed in the light of surrounding circumstances, contemplated. [His Honour held that the ultimate decision of whether this contract had been frustrated depended upon the final findings of fact by the arbitrator to whom the dispute was originally referred, although his Honour ‘[did not] think that it will cause him much difficulty’. Aickin J delivered a similar judgment. Both Stephen and Wilson JJ agreed with the judgments of Mason and Aickin JJ. Brennan J did not decide the point.] [22.04] Whether the general test of frustration has been satisfied is a question of fact. It is therefore not possible to list exhaustively the circumstances in which a contract may be frustrated. Common instances include destruction of the subject matter of the contract, death or incapacitation of a party, failure of the basis of the contract, the contemplated method of performance becoming no longer possible, excessive delay in performance and supervening illegality.2 However, generally speaking the mere fact that the contract has become more onerous or expensive to perform will not suffice.3

2

See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, 2018, section 22.2.2.

3

Ibid, section 22.25.

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[22.05]

Ocean Tramp Tankers Corporation v V/O Sovfracht (The Eugenia) [1964] 2 QB 226 English Court of Appeal The Eugenia was chartered for a voyage from Genoa, Italy, to India. The customary route for such a voyage was via the Suez Canal. No time was fixed for completion of the voyage, hire being paid according to the time taken to complete the voyage. The charterparty contained a clause (‘the war clause’) which stated that the vessel was not, unless with consent of the owner, to be ordered by charterer to any place that was dangerous as a result of any actual or threatened war, hostilities or warlike actions. Following a breakdown in diplomatic relations, the Egyptian government closed the Suez Canal. By the time the vessel reached Port Said, Egyptian antiaircraft guns were in action against reconnaissance aircraft. Nevertheless the charterers ordered the vessel to proceed through the canal. Soon after, English and French aircraft began bombing Egyptian targets and the Egyptian government closed the canal, trapping the Eugenia. Several months later, after a ceasefire, a passage was cleared northwards. By that time the charterers claimed the charterparty had been frustrated. The owners denied that it had been frustrated and treated the charterers’ conduct as a repudiation. Lord Denning MR The … question is whether the charterparty was frustrated by what took place. The arbitrator has held it was not. The judge has held that it was. Which is right? One thing that is obvious is that the charterers cannot rely on the fact that the Eugenia was trapped in the canal; for that was their own fault. They were in breach of the war clause in entering it. They cannot rely on a self-induced frustration, see Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524. But they seek to rely on the fact that the canal itself was blocked. They assert that even if the Eugenia had never gone into the canal, but had stayed outside (in which case she would not have been in breach of the war clause), nevertheless she would still have had to go round by the Cape. And that, they say, brings about a frustration, for it makes the venture fundamentally different from what they contracted for. The judge has accepted this view. He has held that on November 16, 1956, the charterparty was frustrated. The reason for taking November 16, 1956, was this: before November 16, 1956, mercantile men (even if she had stayed outside) would not have formed any conclusion as to whether the obstructions in the canal were other than temporary. There was insufficient information available to form a judgment. On November 16, 1956, mercantile men would conclude that the blockage of the southern end would last till March or April, 1957; so that by that time it would be clear that the only thing to do (if the ship had never entered the canal) would be to go round the Cape. The judge said: ‘I hold that the adventure, involving a voyage round the Cape, is basically or fundamentally different from the adventure involving a voyage via the Suez Canal.’ … I must confess that I  find it difficult to apply the doctrine of frustration to a hypothetical situation, that is, to treat this vessel as if she had never entered the canal and then ask whether the charter was frustrated. The doctrine should be applied to the facts as they really are. But

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I will swallow this difficulty and ask myself what would be the position if the vessel had never entered the canal but stayed at Port Said. Would the contract be frustrated? This means that once again we have had to consider the authorities on this vexed topic of frustration. But I think the position is now reasonably clear. It is simply this: if it should happen, in the course of carrying out a contract, that a fundamentally different situation arises for which the parties made no provision—so much so that it would not be just in the new situation to hold them bound to its terms—then the contract is at an end. It was originally said that the doctrine of frustration was based on an implied term. In short, that the parties, if they had foreseen the new situation, would have said to one another: ‘If that happens, of course, it is all over between us.’ But the theory of an implied term has now been discarded by everyone, or nearly everyone, for the simple reason that it does not represent the truth. The parties would not have said: ‘It is all over between us.’ They would have differed about what was to happen. Each would have sought to insert reservations or qualifications of one kind or another. Take this very case. The parties realised that the canal might become impassable. They tried to agree on a clause to provide for the contingency. But they failed to agree. So there is no room for an implied term. It has frequently been said that the doctrine of frustration only applies when the new situation is ‘unforeseen’ or ‘unexpected’ or ‘uncontemplated,’ as if that were an essential feature. But it is not so. The only thing that is essential is that the parties should have made no provision for it in their contract. The only relevance of it being ‘unforeseen’ is this: If the parties did not foresee anything of the kind happening, you can readily infer they have made no provision for it: whereas, if they did foresee it, you would expect them to make provision for it. But cases have occurred where the parties have foreseen the danger ahead, and yet made no provision for it in the contract. Such was the case in the Spanish Civil War when a ship was let on charter to the republican government. The purpose was to evacuate refugees. The parties foresaw that she might be seized by the nationalists. But they made no provision for it in their contract. Yet, when she was seized, the contract was frustrated, see W J Tatem Ltd v Gamboa. [1939] 1 KB 132. So here the parties foresaw that the canal might become impassable: it was the very thing they feared. But they made no provision for it. So there is room for the doctrine to apply if it be a proper case for it. We are thus left with the simple test that a situation must arise which renders performance of the contract ‘a thing radically different from that which was undertaken by the contract,’ see Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696, 729 by Lord Radcliffe. To see if the doctrine applies, you have first to construe the contract and see whether the parties have themselves provided for the situation that has arisen. If they have provided for it, the contract must govern. There is no frustration. If they have not provided for it, then you have to compare the new situation with the situation for which they did provide. Then you must see how different it is. The fact that it has become more onerous or more expensive for one party than he thought is not sufficient to bring about a frustration. It must be more than merely more onerous or more expensive. It must be positively unjust to hold the parties bound. It is often difficult to draw the line. But it must be done. And it is for the courts to do it as a matter

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of law: see Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93, 116, 119 by Lord Simonds and by Lord Reid. Applying these principles to this case, I have come to the conclusion that the blockage of the canal did not bring about a ‘fundamentally different situation’ such as to frustrate the venture. My reasons are these: (1) The venture was the whole trip from delivery at Genoa, out to the Black Sea, there load cargo, thence to India, unload cargo, and redelivery. The time for this vessel from Odessa to Vizagapatam via the Suez Canal would be 26 days, and via the Cape, 56 days. But that is not the right comparison. You have to take the whole venture from delivery at Genoa to redelivery at Madras. We were told that the time for the whole venture via the Suez Canal would be 108 days and via the Cape 138 days. The difference over the whole voyage is not so radical as to produce a frustration. (2) The cargo was iron and steel goods which would not be adversely affected by the longer voyage, and there was no special reason for early arrival. The vessel and crew were at all times fit and sufficient to proceed via the Cape. (3) The cargo was loaded on board at the time of the blockage of the canal. If the contract was frustrated, it would mean, I suppose, that the ship could throw up the charter and unload the cargo wherever she was, without any breach of contract. (4) The voyage round the Cape made no great difference except that it took a good deal longer and was more expensive for the charterers than a voyage through the canal. [Donovan LJ delivered a similar judgment and Danckwerts LJ concurred with both judgments.] [22.06] Differing views have been expressed concerning the extent to which the doctrine of frustration applies to contracts concerning land. This is because a contract concerning land may confer a proprietary interest in the land that may not be affected by any discharge of the contract.4 However, it has been accepted by judges both in Australia and England that in an appropriate case a contract concerning land, such as a sale contract or lease, may be frustrated. [22.07]

National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 House of Lords A warehouse was leased for a period of ten years. After five years, the only vehicular access to the warehouse was closed by the local authority due to the dangerous condition of an abandoned building nearby. The closure rendered the warehouse useless. At the time, the interruption was likely to last for about twenty months until such time that the abandoned building was demolished.

4

Halloran v Firth (1926) 26 SR (NSW) 183, 187 (NSW) FC, adopted on appeal sub nom Firth v Halloran (1926) 38 CLR 261, 268 per Knox CJ and Gavan Duffy J.

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Lord Simon Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance. Whether the doctrine can apply to a lease is of more than academic interest, considerable though that is. In the Cricklewood Property case [Cricklewood Property and Investment Trust Ltd v Leighton’s Investment Trust Ltd] [1945] AC 221, 229 Viscount Simon LC, who favoured the extension of the doctrine to leaseholds, nevertheless considered it likely to be limited to cases where ‘some vast convulsion of nature swallowed up the property altogether, or buried it in the depths of the sea.’ But I think this puts the matter too catastrophically, even in the case of a long lease. There are several places on the coast of England where sea erosion has undermined a cliff causing property on the top of the cliff to be totally lost for occupation: obviously occupation of a dwelling house is something significantly different in nature from its aqualung contemplation after it has suffered a sea change. And in the case of a short lease something other than such natural disaster—the sort of occurrence, for example, that has been held to be the frustrating event in a charterparty—might in practice have a similar effect on parties to a lease. Take the case of a demise-chartered oil tanker lying alongside an oil storage tank leased for a similar term, and an explosion destroying both together. The question is entirely open in your Lordships’ House, as was recognised in the Cricklewood Property case. In my view a lease is not inherently unsusceptible to the application of the doctrine of frustration. In the first place, the doctrine has been developed by the law as an expedient to escape from injustice where such would result from enforcement of a contract in its literal terms after a significant change in circumstances. As Lord Sumner said, giving the opinion of a strong Privy Council in Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497, 510: ‘It is really a device, by which the rules as to absolute contracts are reconciled with a special exception which justice demands.’ Justice might make a similar demand as to the absolute terms of a lease. Secondly, in the words of Lord Wright in the Cricklewood Property case, at p 241:  ‘… the doctrine of frustration is modern and flexible and is not subject to being constricted by an arbitrary formula.’ It is therefore on the face of it apt to vindicate justice wherever owing to relevant supervening circumstances the enforcement of any contractual arrangement in its literal terms would produce injustice. Thirdly, the law should if possible be founded on comprehensive principles: compartmentalism, particularly if producing anomaly, leads to the injustice of different results in fundamentally analogous circumstances. To deny the extension of the doctrine of frustration to leaseholds produces a number of undesirable anomalies. It is true that theoretically it would create an anomalous distinction between the conveyance of a freehold interest and of a leasehold of, say,

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999 years. But it would be only in exceptional circumstances that a lease for as long as 999 years would in fact be susceptible of frustration. … Fourthly, a number of theories have been advanced to clothe the doctrine of frustration in juristic respectability, the two most in favour being the ‘implied term theory’ (which was potent in the development of the doctrine and which still provides a satisfactory explanation of many cases) and the ‘theory of a radical change in obligation’ or ‘construction theory’ (which appears to be the one most generally accepted today) … Of all the theories put forward the only one, I think, incompatible with the application of the doctrine to a lease is that which explains it as based on a total failure of consideration. Though such may be a feature of some cases of frustration, it is plainly inadequate as an exhaustive explanation:  there are many cases of frustration where the contract has been partly executed. … Fifthly, a lease may be prematurely determined in a considerable variety of circumstances. Perhaps forfeiture by denial of title is the most relevant (though now largely of historical interest), since it depended on a rule of law extraneous to any term of the lease or to agreement of the parties whereby the lease was prematurely discharged. I can see no reason why a rule of law should not similarly declare that a lease is automatically discharged on the happening of a frustrating event. Sixthly, it seems that authorities in some other common law jurisdictions have felt no inherent difficulty in applying the doctrine of frustration to a lease … I can for myself see nothing about the fact of creation of an estate or interest in land which repels the doctrine of frustration. It cannot be that land, being relatively indestructible, is different from other subject matter of agreement: that would perhaps make a lease so much the less likely to be frustrated in fact, but would not constitute inherent repugnance to the doctrine. In any case, we are concerned with legal interests in the land rather than the land itself. It cannot be because a lease operates in rem: so, for example, does a contract for seamen’s wages, since that gives rise to a maritime lien, yet can presumably like other contracts for personal services be frustrated by ill health or death. Moreover, the criterion of operation in rem hardly matches counsel’s first submission on agreements for a lease, which operate in personam. It cannot be because, once vested, a lease cannot be divested except by agreement of the parties. That would be to beg the question: if frustration applies, it can be so divested. Moreover, as I have tried to demonstrate, quite apart from frustration it can be so divested by operation of law in the doctrine of denial of title. And, as my noble and learned friend, Lord Wilberforce, has pointed out, there is nothing illogical in implying a term in a lease that it shall be discharged on the occurrence of a frustrating event. Nor, finally, is it realistic to argue that on execution of the lease the lessee got all that he bargained for. The reality is that this lessee, for example, bargained, not for a term of years, but for the use of a warehouse owned by the lessor—just as a demise charterer bargains for the use of the ship. …

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PART 6 DISCHARGE OF THE CONTRACT

The appellants were undoubtedly put to considerable expense and inconvenience. But that is not enough. Whenever the performance of a contract is interrupted by a supervening event, the initial judgment is quantitative—what relation does the likely period of interruption bear to the outstanding period for performance? But this must ultimately be translated into qualitative terms:  in the light of the quantitative computation and of all other relevant factors (from which I  would not entirely exclude executed performance) would outstanding performance in accordance with the literal terms of the contract differ so significantly from what the parties reasonably contemplated at the time of execution that it would be unjust to insist on compliance with those literal terms? In the instant case, at the most favourable to the appellants’ contention, they could, at the time when the road was closed, look forward to pristine enjoyment of the warehouse for about two thirds of the remaining currency of the lease. The interruption would be only one sixth of the total term. Judging by the drastic increase in rent under the rent review clause (more than doubled), it seems likely that the appellants’ occupation towards the end of the first quinquennium must have been on terms very favourable to them. The parties can hardly have contemplated that the expressly-provided-for fire risk was the only possible source of interruption of the business of the warehouse—some possible interruption from some cause or other cannot have been beyond the reasonable contemplation of the parties. Weighing all the relevant factors, I  do not think that the appellants have demonstrated a triable issue that the closure of the road so significantly changed the nature of the outstanding rights and obligations under the lease from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations. [Lords Hailsham, Wilberforce and Roskill delivered similar judgments recognising that the doctrine of frustration could apply to a lease in an appropriate case but that in this case the appellants had not shown a triable issue because the length of the interruption (less than two years of a 10-year lease, with three years remaining after the interruption) did not approach the gravity required. Lord Russell expressed a contrary opinion, maintaining that the doctrine of frustration did not apply to leases.]

LIMITS ON FRUSTRATION [22.08] In some cases the supervening event may have rendered performance radically different from what was originally undertaken, but the contract will nevertheless remain on foot.

Express contractual provision [22.09] The doctrine of frustration will not apply where there is an express contractual provision covering the event which supervenes.

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519

[22.10]

Claude Neon Ltd v Hardie [1970] Qd R 93 Full Court of Supreme Court of Queensland The defendant agreed to hire from the plaintiff an illuminated sign to be installed on the premises of the defendant. The agreement included a sub-clause (f) empowering the plaintiff in certain events to declare the unpaid balance of the rental to be forthwith due and payable. One of the events referred to in the clause was the interest of the lessee in the premises being ‘extinguished or transferred’. About twenty-one months into the sixty-month agreement, the premises were resumed by the government. The plaintiff gave notice pursuant to sub-clause (f) declaring the balance of the rent to be due and payable. The defendant argued that the contract had been discharged by frustration. Lucas J The argument for the plaintiff is that the event of resumption was specifically catered for by the provisions of clause (f) of the conditions annexed to the agreement, and that since that is so the fact of the resumption does not have the consequence that frustration of the contract has taken place. The provisions of clause (f) so far as they are material are as follows: The lessee (whether a person firm or company) shall be deemed to have made default under this Agreement …

and then are set out nine events in which the lessee is to be deemed to have made default. The event which is specified in the clause, and which is relied upon by the plaintiff as applying to the fact of resumption of the premises is: ‘or if his interest’, that is the interest of the lessee, ‘in the premises be extinguished or transferred’. Upon the happening of any of the events specified in clause (f), that clause provides that the lessor may by notice in writing to the lessee declare the unpaid balance of the rental to be forthwith due and payable, and the lessee agreed to pay the balance in such a contingency. The lessor was also empowered by the clause to take different action, and he could determine the agreement and recover from the lessee any damage which might have been suffered by him. … The argument for the defendant answers this proposition by asserting that, properly construed, all the events which have the consequence I have described and which are set out in condition (f) should be taken to refer to voluntary acts on the part of the lessee. If this is correct, it follows that there is no provision in clause (f) which deals with the event that supervened, that is the resumption of the property under the Act … and it is then necessary to inquire whether that event was such as to frustrate the contract. In my opinion, however, clause (f) should not be construed in a limited manner contended for by the defendant, since I am unable to gather from the quite general language used in the particular part of the clause under consideration that there was any intention on the part of the parties that it should be so construed …

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PART 6 DISCHARGE OF THE CONTRACT

[T]he resumption of the property by notice dated March 11, 1967 was an event which came within the provisions of clause (f), and was an event therefore which gave the lessor the right to act as he did act in giving the notice of April 26, and that notice in the circumstances was, in my opinion, effective to render payable at once the balance of rental due under the agreement which is agreed as having been at that date $684. [Wanstall CJ agreed with Lucas J. WB Campbell J delivered a short judgment which also agreed with Lucas J and which held that the contract had not been discharged by the doctrine of frustration because the eventuality of lessee’s interest in the premises being brought to an end by the compulsory acquisition of the premises was covered in the clear and unambiguous words used in the material part of clause (f).]

Supervening event foreseeable [22.11] Even in the absence of an express provision of the contract, where the parties concluded the contract in circumstances in which the supervening event was foreseeable as a real or serious possibility, the contract will not be frustrated.5 Instead the parties will be taken to have assumed the risk of the supervening event occurring. [22.12]

oOH! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255 Victorian Court of Appeal In 2005, the defendant licensed the rooftop of a building in the Melbourne central business district (CBD) for the purposes of operating an advertising billboard. In 2007, an office tower was built on land that had the effect of partially obstructing the visibility of the sign to motor traffic entering the CBD. As a result, the defendant’s revenues from the billboard declined by over 85%. The defendant purported to exercise a right under the agreement to terminate the license if the site became unsuitable for the permitted use. The building owner treated the defendant’s notice as a repudiation, which it accepted and sued for damages. Apart from relying on the termination clause in the license, the defendant in the alternative argued that the construction of the office tower frustrated the license agreement. Nettle JA [72]  A number of the single instance decisions to which Stephen  J referred in Brisbane City Council v Group Projects Proprietary Limited (1979) 145 CLR 143 were

5

See, for example, Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32, 40 per Lord Simon LC; Tamplin (FA) Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397, 426 per Lord Parker; Bank Line Ltd v Arthur Capel & Co [1919] AC 435, 459 per Lord Sumner; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 359 per Mason J, 381 per Aickin J.

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concerned with application of the doctrine of frustration in circumstances where a supervening event was foreseeable or foreseen at the time of entry into the contract. As Lord Wright said in Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524 at 529 where a supervening event is not only foreseeable but actually foreseen at the time of entry into a contract, it is more difficult to conceive of the parties as having entered into the contract on the basis of a common understanding that the event could not occur during the life of the contract. Where, however, a supervening event, although foreseeable, was not foreseen at the time of entry into the contract, the fact that it was foreseeable may not be of much significance unless the degree of foreseeability is particularly high. [73] Consequently, as later cases demonstrate, it is important to be precise about the nature and degree of foresight. So far as foreseen events are concerned, the parties to a contract may have foreseen an event but not foreseen the nature or extent of it. In Edwinton Commercial Corporation & Anor v Tsavliris Russ (Worldwide Salvage & Towage Ltd (The ‘Sea Angel’) [2007] 2 Lloyd’s Rep 517, Rix LJ gave as an example, based on Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) (HL) [1982] AC 724, a case where the possibility of an industrial strike was foreseen, and actually provided for in the contract, but lasted so long as to go beyond the risk assumed under the contract. It was held to have frustrated the contract. Seddon and Ellinghaus, Cheshire and Fifoot’s Law of Contract 9th ed at [19.12] suggests that in some cases it may also appear that, ‘Failure to provide expressly for an event that was foreseen [is] due to … a deliberate decision to leave matters to be sorted out by the parties, or by the law’. [74]  In the case of foreseeable but unforeseen events, the nature and extent of foreseeability is critical. Since most events are foreseeable in one sense or another, the parties to a contract will not ordinarily be taken to have assumed the risk of an event occurring during the life of the contract unless the degree of foreseeability of that event is very substantial. Hence, as the position is summarised in Chitty on Contracts 30th ed at [23-060]: Much turns on the extent to which the event was foreseeable. The issue which the court must consider is whether or not one or other party has assumed the risk of the occurrence of the event. The degree of foreseeability required to exclude the doctrine of frustration is … a high one: ‘foreseeability’ will support the inference of risk-assumption only where the supervening event is one which any person of ordinary intelligence would regard as likely to occur or … ‘one which the parties could reasonably be thought to have foreseen as a real possibility’ …

[80] In face of that evidence, it seems to me that it was plainly foreseeable at the time of entry into the licence agreement in 2005 that the line of sight from the King Street Bridge northbound carriageways to the sign was at risk of being partially or completely obstructed during the course of the licence agreement. At least, it presents as something which a person of ordinary intelligence would regard as likely to occur or something ‘which the parties could reasonably be thought to have foreseen as a real possibility’. That being so, the fact that the appellant did not seek the inclusion of a reduction-in-visibility clause … tends to support an inference that the appellant assumed the risk of line of sight obstruction. [Redlich and Weinberg JJA agreed with Nettle JA].

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522 PART 6 DISCHARGE OF THE CONTRACT

SUPERVENING EVENT SELF-INDUCED [22.13] A contract will also not be frustrated when the supervening event was self-induced by one of the parties.6 [22.14]

Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524 Privy Council The appellants chartered five trawlers, including a trawler called the St Cuthbert, that were fitted with otter trawling gear. The government passed legislation that made fishing using an otter trawl dependent upon the holding of a licence from the Minister. The charterers applied for five licences. However, they were only granted three, which they had elected to apply to trawlers other than the St Cuthbert. The charterers then sought to rely on the failure of the Minister to license the St Cuthbert as having frustrated the contract with the owners. The owners commenced proceedings claiming the hire due under the charterparty. Lord Wright (delivering the judgment of the Judicial Committee) The main defence was that through no fault, act or omission on the part of the appellants, the charterparty contract became impossible of performance on and after April 30, 1933, and thereupon the appellants were wholly relieved and discharged from the contract, including all obligations to pay the monthly hire which was stipulated. [T]he case [can] be properly decided on the simple conclusion that it was the act and election of the appellants which prevented the St Cuthbert from being licensed for fishing with an otter trawl. It is clear that the appellants were free to select any three of the five trawlers they were operating and could, had they willed, have selected the St Cuthbert as one, in which event a licence would have been granted to her. It is immaterial to speculate why they preferred to put forward for licences the three trawlers which they actually selected. Nor is it material, as between the appellants and the respondents, that the appellants were operating other trawlers to three of which they gave the preference. What matters is that they could have got a licence for the St Cuthbert if they had so minded. If the case be figured as one in which the St Cuthbert was removed from the category of privileged trawlers, it was by the appellants’ hand that she was so removed, because it was their hand that guided the hand of the Minister in placing the licences where he did and thereby excluding the St Cuthbert. The essence of ‘frustration’ is that it should not be due to the act or election of the party. There does not appear to be any authority which has been decided directly on this point. There is, however, a reference to the question in the speech of Lord Sumner in Bank Line, Ltd v Arthur Capel & Co [1919] AC 435, 452 What he says is: ‘One matter I mention only to get rid of it. When the shipowners were first applied to by the

6

Ibid, section 22.3.

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Admiralty for a ship they named three, of which the Quito was one and intimated that she was the one they preferred to give up. I think it is now well settled that the principle of frustration of an adventure assumes that the frustration arises without blame or fault on either side. Reliance cannot be placed on a self-induced frustration; indeed, such conduct might give the other party the option to treat the contract as repudiated. Nothing, however, was made of this in the courts below, and I will not now pursue it.’ … However, the point does directly arise in the facts now before the Board, and their Lordships are of opinion that the loss of the St Cuthbert’s licence can correctly be described, quoad the appellants, as ‘a self-induced frustration.’ Lord Sumner in Hirji Mulji v Cheong Yue Steamship Co [1926] AC 497, 507 quotes from Lord Blackburn in Dahl v Nelson, Donkin & Co (1881) 6 App Cas 38, 53, who refers to a ‘frustration’ as being a matter ‘caused by something for which neither party was responsible’: and again [1926] AC 497, 508 he quotes Brett J’s words, which postulate as one of the conditions of frustration that it should be ‘without any default of either party.’ It would be easy, but is not necessary, to multiply quotations to the same effect. If either of these tests is applied to this case, it cannot in their Lordships’ judgment be predicated that what is here claimed to be a frustration, that is, by reason of the withholding of the licence, was a matter for which the appellants were not responsible or which happened without any default on their part. In truth, it happened in consequence of their election. If it be assumed that the performance of the contract was dependent on a licence being granted, it was that election which prevented performance, and on that assumption it was the appellants’ own default which frustrated the adventure: the appellants cannot rely on their own default to excuse them from liability under the contract.

EFFECT OF FRUSTRATION Common law [22.15] At common law, frustration automatically discharges the contract.7 As at the time of the frustration, future rights and liabilities are discharged. Further, rights and liabilities that have already accrued prior to the frustrating event will be discharged if there would be a total failure of consideration. However, rights and liabilities that have accrued unconditionally prior to the frustrating event—including accrued rights to sue for damages for prior breach of contract8— remain unaffected by the discharge.

7

Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497, 509; Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169, 203.

8

Cf MacDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, 477 per Dixon J (this is a case of termination for breach but the same principle applies equally to frustration).

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PART 6 DISCHARGE OF THE CONTRACT

[22.16]

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 House of Lords A contract was entered into for the manufacture and delivery of certain machinery by an English firm for and to a Polish firm in Gdynia. The contract price was £4800, of which £1600 was payable on signing the contract. The Polish firm paid £1000 of that sum. The contract was frustrated when Poland was invaded by Germany at the start of the Second World War. The Polish firm subsequently sought to recover the £1000 it had paid under the contract. Viscount Simon LC Before passing to the main question involved in the appeal, I must mention another contention of the appellants which was based on cl 7 of the conditions of sale attached to the contract. This clause contained the provision that ‘should dispatch be hindered or delayed by … any cause beyond our reasonable control including … war … a reasonable extension of time shall be granted.’ The appellants argued that there could be no frustration by reason of the war which broke out during the currency of the contract because this contingency was expressly provided for in cl 7 … I entirely agree with the Court of Appeal that in the circumstances of the present case this is a bad point. The ambit of the express condition is limited to delay in respect of which ‘a reasonable extension of time’ might be granted. … The principle is that where supervening events, not due to the default of either party, render the performance of a contract indefinitely impossible, and there is no undertaking to be bound in any event, frustration ensues, even though the parties may have expressly provided for the case of a limited interruption … [His Lordship noted that the trial judge held that having regard to the principle laid down by Collins MR in Chandler v Webster [1904] 1 KB 493 the claim failed.] This alleged principle is to the effect that where a contract has been frustrated by such a supervening event as releases from further performance, ‘the loss lies where it falls,’ with the result that sums paid or rights accrued before that event are not to be surrendered, but all obligations falling due for performance after that event are discharged … If we are to approach this problem anew, it must be premised that the first matter to be considered is always the terms of the particular contract. If, for example, the contract is ‘divisible’ in the sense that a sum is to be paid over in respect of completion of a defined portion of the work, it may well be that the sum is not returnable if completion of the whole work is frustrated. If the contract itself on its true construction stipulates for a particular result which is to follow in regard to money already paid, should frustration afterwards occur, this governs the matter … The claim of a party, who has paid money under a contract, to get the money back, on the ground that the consideration for which he paid it has totally failed, is not based on any provision contained in the contract, but arises because, in the circumstances that have happened, the law gives a remedy in quasi-contract to the party who has not got that for which he bargained. It is a claim to recover money to which the defendant has no further right because in the circumstances that have happened the money must be regarded as received to

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the plaintiff ’s use. It is true that the effect of frustration is that, while the contract can no further be performed, ‘it remains a perfectly good contract up to that point, and everything previously done in pursuance of it must be treated as rightly done,’ but it by no means follows that the situation existing at the moment of frustration is one which leaves the party that has paid money and has not received the stipulated consideration without any remedy. To claim the return of money paid on the ground of total failure of consideration is not to vary the terms of the contract in any way. The claim arises not because the right to be repaid is one of the stipulated conditions of the contract, but because, in the circumstances that have happened, the law gives the remedy … There is, no doubt, a distinction between cases in which a contract is ‘wiped out altogether,’ eg, because it is void as being illegal from the start or as being due to fraud which the innocent party has elected to treat as avoiding the contract, and cases in which intervening impossibility ‘only releases the parties from further performance of the contract.’ But does the distinction between these two classes of case justify the deduction of Collins MR that ‘the doctrine of failure of consideration does not apply’ where the contract remains a perfectly good contract up to the date of frustration? This conclusion seems to be derived from the view that, if the contract remains good and valid up to the moment of frustration, money which has already been paid under it cannot be regarded as having been paid for a consideration which has wholly failed. The party that has paid the money has had the advantage, whatever it may be worth, of the promise of the other party. That is true, but it is necessary to draw a distinction. In English law, an enforceable contract may be formed by an exchange of a promise for a promise, or by the exchange of a promise for an act—I am excluding contracts under seal—and thus, in the law relating to the formation of contract, the promise to do a thing may often be the consideration, but when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise. The money was paid to secure performance and, if performance fails the inducement which brought about the payment is not fulfilled. If this were not so, there could never be any recovery of money, for failure of consideration, by the payer of the money in return for a promise of future performance, yet there are endless examples which show that money can be recovered, as for a complete failure of consideration, in cases where the promise was given but could not be fulfilled … The conclusion is that the rule in Chandler v Webster is wrong, and that the appellants can recover their £1000. While this result obviates the harshness with which the previous view in some instances treated the party who had made a prepayment, it cannot be regarded as dealing fairly between the parties in all cases, and must sometimes have the result of leaving the recipient who has to return the money at a grave disadvantage. He may have incurred expenses in connexion with the partial carrying out of the contract which are equivalent, or more than equivalent, to the money which he prudently stipulated should be pre-paid, but which he now has to return for reasons which are no fault of his. He may have to repay the money, though he has executed almost the whole of the contractual work, which will be left on his hands. These results follow from the fact that the English common law does not undertake to apportion a pre-paid

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sum in such circumstances … It must be for the legislature to decide whether provision should be made for an equitable apportionment of pre-paid moneys which have to be returned by the recipient in view of the frustration of the contract in respect of which they were paid. Lord Wright My Lords, the claim in the action was to recover a prepayment of £1000 made on account of the price under a contract which had been frustrated. The claim was for money paid for a consideration which had failed. It is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep. Such remedies in English law are generically different from remedies in contract or in tort, and are now recognized to fall within a third category of the common law which has been called quasi-contract or restitution … The defendant has the plaintiff ’s money. There was no intention to enrich him in the events which happened. No doubt, when money is paid under a contract it can only be claimed back as for failure of consideration where the contract is terminated as to the future. Characteristic instances are where it is dissolved by frustration or impossibility or by the contract becoming abortive for any reason not involving fault on the part of the plaintiff where the consideration, if entire, has entirely failed, or where, if it is severable, it has entirely failed as to the severable residue … The claim for repayment is not based on the contract which is dissolved on the frustration but on the fact that the defendant has received the money and has on the events which have supervened no right to keep it. The same event which automatically renders performance of the consideration for the payment impossible, not only terminates the contract as to the future, but terminates the right of the payee to retain the money which he has received only on the terms of the contract performance … [T]he contract is [not] wiped out, or avoided ab initio. The right in such a case to claim repayment of money paid in advance must in principle, in my judgment, attach at the moment of dissolution. The payment was originally conditional. The condition of retaining it is eventual performance. Accordingly, when that condition fails, the right to retain the money must simultaneously fail. It is not like a claim for damages for breach of the contract which would generally differ in measure and amount, nor is it a claim under the contract. It is in theory and is expressed to be a claim to recover money, received to the use of the plaintiff … The irrecoverable nature of the payment is there determined by custom or law, unless the contract provides for the contrary. In other cases likewise a particular contract may effectively make a prepayment irrecoverable. In the present case the payment is not made irrecoverable by any custom or rule of law, or by any express or implied terms of the contract. It was paid on account of the price. It was not paid out-and-out for the signing of the contract. When the sellers were disabled to perform the contract by the shipment to Gdynia becoming illegal, the ordinary rules of law and the authorities to which I have referred show that the sum of £1000. paid in advance of the price was recoverable by the appellants in the present action. [In separate judgments Lords Atkin, Russell, Macmillan, Roche and Porter agreed that Chandler v Webster had been wrongly decided, that there had been a total failure of consideration and that the appellants were entitled to recover the payment.]

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[22.17] Fibrosa has subsequently been accepted as correctly reflecting the law in Australia.9 [22.18] In Fibrosa Viscount Simon LC indicated that the ‘loss lies where it falls’ may result in injustice. However, he continued that it ‘must be for the legislature to decide whether provision should be made for an equitable apportionment of pre-paid moneys which have to be returned by the recipient.’10 Three Australian states have taken up the challenge of legislating to produce a more equitable outcome following frustration than that provided by the common law. However, all three jurisdictions exclude contracts for the carriage of goods by sea, charterparties (other than time or demise charterparties), and contracts of insurance from the operation of their Acts.11

Statute [22.19] New South Wales has adopted a complex accounting method for calculation. However, this method may be disregarded in a particular case where its application ‘would be excessively difficult or expensive’, in which case a court may make such adjustments in money or otherwise as it considers proper. [22.20]

Frustrated Contracts Act 1978 (NSW) Section 7: Promise not performed (1) Where a promise under a frustrated contract was due to be, but was not, performed before the time of frustration, the promise is discharged except to the extent necessary to support a claim for damages for breach of the promise before the time of frustration. (2) Subsection (1) does not affect a promise due for performance before frustration which would not have been discharged by the frustration if it had been due for performance after the time of frustration.

Section 8: Damages assessed after frustration Where a contract is frustrated and a liability for damages for breach of the contract has accrued before the time of frustration, regard shall be had, in assessing those damages after that time, to the fact that the contract has been frustrated.

9

Baltic Shipping Co v Dillon (1993) 176 CLR 344.

10 [1943] AC 32, 49. 11 Frustrated Contracts Act 1978 (NSW), s 6; Frustrated Contracts Act 1959 (Vic); Frustrated Contracts Act 1988 (SA).

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Section 9 … Section 10: Adjustment where whole performance received Where a contract is frustrated and the whole of the performance to be given by a party under the contract has been received before the time of frustration, the performing party shall be paid by the other party to the contract an amount equal to the value of the agreed return for the performance.

Section 11: Adjustment where part performance only received (1) In this section: attributable cost, in relation to performance received under a frustrated contract, means: (a) where there is no incidental gain to the performing party, and except as provided by paragraph (c)—an amount equal to the reasonable cost of the performance, (b) where there is an incidental gain to the performing party, and except as provided by paragraph (c)—such part of the reasonable cost of the performance as is equal to an amount calculated by deducting from the reasonable cost of the performance the value of that incidental gain, or (c) where the amount referred to in paragraph (a) or (b) exceeds the proportionate allowance for the performance—such part of the reasonable cost of the performance as is equal in amount to that proportionate allowance. ‘attributable value’, in relation to performance received under a frustrated contract, means an amount equal to the value of the proportionate allowance for that performance reduced by the lost value of that performance. ‘incidental gain’, in relation to a party to a contract who suffers a detriment referred to in the definition of ‘reasonable cost’, means any property or improvement to property acquired or derived by that party as a consequence of doing or suffering the acts or things that caused that party to suffer the detriment, except to the extent that the property or improvement so acquired or derived is comprised in any performance given by that party under the contract or is expended or disposed of in giving any such performance. ‘lost value’, in relation to performance received under a frustrated contract, is a reference to the amount (if any) by which the value of that performance was reduced by reason of the frustration of the contract, that value being assessed as at the time immediately before the frustration of the contract and on the basis that the contract would not be frustrated. ‘proportionate allowance’, in relation to performance received under a frustrated contract, means such part of the value of the agreed return for complete performance of the contract by the performing party as is appropriate to be charged to the other party for the performance received, having regard to the extent to which the performance received is less than the whole of the performance contracted to be given by the performing party. ‘reasonable cost’, in relation to performance received under a frustrated contract, is an amount that would be fair compensation to the performing party for any detriment suffered by that party in reasonably paying money, doing work or doing or suffering any other act or thing to

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the extent to which the detriment was suffered for the purpose of giving the performance so received. (2) Where a contract is frustrated and part, but not the whole, of the performance to be given by a party under the contract has been received before the time of frustration, the performing party shall be paid by the other party to the contract: (a) an amount equal to the attributable value of the performance, except where the attributable cost of the performance exceeds its attributable value, or (b) where the attributable cost of the performance exceeds its attributable value—an amount equal to the sum of: (i)

the attributable value of the performance, and

(ii)

one-half of the amount by which the attributable cost of the performance exceeds its attributable value.

Section 12: Return of money paid Where a contract is frustrated and a party to the contract has paid money to another person (whether or not a party to the contract) as, or as part of, an agreed return for performance of the contract by another party (whether or not that other party is the person to whom the payment was made and whether or not there has been any such performance) that other party shall pay the same amount of money to the party who made the payment.

Section 13: Adjustment of certain losses and gains (1) Where a contract is frustrated and, by reasonably paying money, doing work or doing or suffering any other act or thing for the purpose of giving performance under the contract (not being performance which has been received) the performing party has suffered a detriment, the performing party shall be paid by the other party to the contract an amount equal to one-half of the amount that would be fair compensation for the detriment suffered. (2) Where a performing party referred to in subsection (1)  has, as a consequence of doing or suffering the acts or things that caused that party to suffer the detriment so referred to, acquired or derived any property or improvement to property, the performing party shall pay to the other party so referred to one-half of the value of the property or improvement so acquired or derived.

Section 14 … Section 15 Adjustment by court (1) Where the court is satisfied that the terms of a frustrated contract or the events which have occurred are such that, in respect of the contract: (a) [ss 10–13] are manifestly inadequate or inappropriate, (b) application of [ss 10–13] would cause manifest injustice, or (c) application of [ss 10–13] would be excessively difficult or expensive,

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the court may, by order, exclude the contract from the operation of Divisions 1 and 2 and, subject to subsection (8), may, by order, substitute such adjustments in money or otherwise as it considers proper.

(2) Orders which the court may make under subsection (1) include: (a) orders for the payment of interest, and (b) orders as to the time when money shall be paid. (3) In addition to its jurisdiction under subsections (1) and (2), the Supreme Court or the District Court may, for the purposes of this section, make orders for: (a) the making of any disposition of property, (b) the sale or other realisation of property, (c) the disposal of the proceeds of sale or other realisation of property, (d) the creation of a charge on property in favour of any person, (e) the enforcement of a charge so created, (f ) the appointment and regulation of the proceedings of a receiver of property, and (g) the vesting of property in any person. [22.21] Section 9 defines ‘performance’ in s 10 as not referring to payment of money. Section 10 therefore seeks to strike a balance where there has been a non-monetary benefit conferred prior to the frustrating event. Section 12 requires repayment of any money paid prior to the frustrating event. Unlike the common law there is no need to show a total failure of consideration. Section 13 then attempts to share any loss or gain equally between the parties. Section 15 confers upon the court the power to make the appropriate determination. [22.22] Victoria adopts a less complex approach by allowing the court to determine a just result. Under the statute the ‘time of discharge’ is defined as ‘the time at which the contract becomes impossible of performance or is otherwise frustrated or where a contract is avoided by the operation of section twelve of the Goods Act 1958’.12

Frustrated Contracts Act 1959 (Vic) Section 3: Adjustment of rights and liabilities of parties to frustrated contracts (1) Where a contract becomes impossible of performance or is otherwise frustrated or where a contract is avoided by the operation of section twelve of the Goods Act 1958 and the parties thereto are for that reason discharged from the further performance of the contract, the following provisions in this section shall, subject to the provisions of section four of this Act, have effect in relation thereto.

12 Frustrated Contracts Act 1959 (Vic), s 2.

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(2) All sums paid or payable to any party in pursuance of the contract before the time of discharge shall, in the case of sums so paid, be recoverable and in the case of sums so payable 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 of the case, allow him to retain or (as the case may be) recover the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so incurred.

(3) Where any party to the contract has by reason of anything done by any other party there to in or for the purpose of the performance of the contract obtained a valuable benefit (other than a payment of money to which subsection (2) of this section applies) before the time of discharge, there shall be recoverable from him by the said other party such sum (if any) not exceeding the value of the said benefit to the party obtaining it as the court considers just having regard to all the circumstances of the case and in particular— (a) the amount of any expenses incurred before the time of discharge by the benefited party in or for the purpose of the performance of the contract, including any sums paid or payable by him to any other party in pursuance of the contract and retained or recoverable by that party under subsection (2) of this section; and (b) the effect, in relation to the said benefit, of the circumstances giving rise to the frustration or avoidance of the contract. (4) In estimating for the purposes of the foregoing provisions of this section the amount of any expenses incurred by any party to the contract the court may, without prejudice to the generality of the said provisions, include such sum as appears to be reasonable in respect of overhead expenses and in respect of any work or services performed personally by the said party. (5) In considering whether any sum ought to be retained or recovered under the foregoing provisions of this section by any party to the contract the court shall not take into account any sums which have by reason of the circumstances giving rise to the frustration or avoidance of the contract become payable to that party under any contract of insurance unless there was an obligation to insure imposed by an express term of the frustrated or avoided contract or by or under any enactment. (6) Where any party has assumed obligations under the contract in consideration of the conferring of a benefit by any other party to the contract upon any other person whether a party to the contract or not, the court may if in all the circumstances of the case it considers it just to do so treat for the purposes of subsection (3) of this section any benefit so conferred as a benefit obtained by the party who has assumed the obligations as aforesaid. [22.23] The South Australian legislation seeks to ensure that no party is unfairly advantaged or disadvantaged by identifying factors to be taken into account when making an adjustment

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between the parties. Nevertheless, the court has power to make an adjustment on a more equitable basis, if it believes there is one.

Frustrated Contracts Act 1988 (SA) Section 6: Effect of frustration on contractual obligations (1) Subject to subsection (2), the frustration of a contract discharges the parties from all contractual obligations (including obligations that should have been, but were not, performed before the date of frustration). (2) The frustration of a contract does not affect— (a) an obligation that is, according to the proper construction of the contract, to survive frustration; or (b) a right of action, that arose before frustration, for damages for breach of contract (but, in the assessment of any such damages, the fact that the contract has been frustrated and any consequential adjustment, or right to an adjustment, under this Act will be taken into account).

Section 7: Adjustment of losses on frustration of contract (1) Where a contract is frustrated, there will be an adjustment between the parties so that no party is unfairly advantaged or disadvantaged in consequence of the frustration. (2) Subject to this section, for the purposes of the adjustment referred to in subsection (1)— (a) the value of contractual benefits received up to the date of frustration by each party to the contract will be assessed as at the date of frustration and those values aggregated; (b) the value of the contractual performance, up to the date of frustration, of each party to the contract will be calculated and those values aggregated; (c) the aggregate amount arrived at under paragraph (b)  will be subtracted from the aggregate amount arrived at under paragraph (a), and the remainder notionally divided between the parties in equal shares; (d) an adjustment will be made between the parties so that there is an equalisation of the contractual return of each at the figure attributed under paragraph (c). (3) Where the contractual performance of a party to a contract is referable to a number of separate contracts, the value of that contractual performance will, for the purposes of this section, be apportioned between the various contracts in such proportions as may be just. (4) Where, in the opinion of a court, there is, in the circumstances of a particular case, a more equitable basis for making the adjustment referred to in subsection (1) than the one set out in subsection (2), the court may make an adjustment on that basis rather than on the basis of subsection (2). (5) For the purpose of giving effect to an adjustment under this section, a court may make orders for— (a) the payment of money (including interest);

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(b) the disposition, sale or realisation of property; (c) the creation of a charge on property; (d) the appointment and powers of a receiver; (e) any incidental or ancillary matter. (6) Where— (a) a party to a contract purportedly performs a contractual obligation, or an act preparatory to the performance of a contractual obligation, after frustration of the contract; but (b) the party did not know, and could not reasonably be expected to have known, that the contract had been frustrated, the value of the performance (and of any consequent contractual benefits) will be brought into account for the purposes of an adjustment under this section as if it had occurred before frustration of the contract.

(7) Where two or more persons are jointly parties to a contract in the same capacity, those parties will be grouped together and treated as a single party to the contract for the purposes of this section.

QUESTIONS FOR REFLECTION (1) In what kinds of situations might a ‘loss lies where it falls’ rule cause injustice? (2) If the courts acknowledge that the ‘loss lies where it falls’ rule at common law may cause injustice to a party, why do you think the courts continue to apply it rather than something fairer? (3) If it is accepted that the common law ‘loss lies where it falls’ rule may result in injustice, which of the statutes in New South Wales, Victoria and South Australia do you think is best at addressing the adjustment that may be needed to do justice between the parties after a frustrating event?

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PART 7 REMEDIES

23 Damages 537 24 Restitution 585 25 Equitable Remedies 624

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INTRODUCTION [23.01] At common law, a breach of contract or repudiation entitles the innocent party who has suffered loss to claim that loss from the party in breach. Termination of the contract is not required prior to claiming damages except in the case of anticipatory breach and repudiation, where acceptance of the repudiation by terminating the contract is a precondition to damages. [23.02] The primary objective of damages in contract is to compensate a party for the actual loss suffered as a result of the other party’s failure to perform the contract.1 Consequently, the High Court affirmed in Clark v Macourt2 that the ruling principle for damages in contract is to put the innocent party in the position they would be in if the contract had been performed.3 This may be contrasted with the objective of damages in tort which is to put the plaintiff in the position they would be in if the tort had not been committed.4 An actual loss must be proven by the plaintiff.5 If no loss is suffered, only nominal damages are recoverable.6 Nominal damages may range from $1.00 to $100, and are awarded to a plaintiff in recognition of the breach of contract.7 Damages will not be used to punish the contract breaker.8

1

Hungerfords v Walker (1989) 63 ALJR 210, 215.

2

(2013) 253 CLR 1 See also Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at 286 [13].

3

This applies the longstanding principle in Robinson v Harman (1848) 1 Ex 850; 154 ER 363.

4

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, 11–12; Gould v Vaggelas (1985) 157 CLR 215, 264–5; See also [13.260]–[13.295].

5

Goldburg v Shell Oil Co of Aust (1990) 95 ALR 711.

6

Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64.

7

Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286.

8

Addis v Gramophone Co Ltd [1909] AC 488; Butler v Fairclough (1917) 23 CLR 78, 89; Whitfeld v De Lauret & Co Ltd (1920) 29 CLR 71, 80.

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[23.03]

Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 High Court of Australia The Commonwealth contracted with Amann Aviation for the provision of aerial surveillance in Australia’s northern coastline in March 1987. Performance was to commence in September 1987 and to continue for three years. During the six-month period prior to commencement of the agreement, Amann set about acquiring and fitting out specially equipped aircraft. Delays occurred and Amann did not have all its aircraft ready to perform its contractual obligations by September. The Commonwealth gave notice that it regarded the contract as terminated for Amann’s breach. Amann treated this notice as a wrongful repudiation by the Commonwealth and elected to terminate the contract and sue for damages. Amman succeeded in claiming that the Commonwealth was in breach. A majority of the High Court accepted that the starting point in relation to the recovery of damages is as set out in Robinson v Harman (1848) 1 Ex 850; 154 ER 363, that is, the object of damages is to put the party in the position it would have been in had the contract been completed. This was normally achieved by awarding damages calculated on the basis of expectation loss. Mason CJ and Dawson J The award of damages for breach of contract protects a plaintiff ’s expectation of receiving the defendant’s performance. That expectation arises out of or is created by the contract. Hence, damages for breach of contract are often described as ‘expectation damages’. The onus of proving damages sustained lies on a plaintiff and the amount of damages awarded will be commensurate with the plaintiff ’s expectation, objectively determined, rather than subjectively ascertained. That is to say, a plaintiff must prove, on the balance of probabilities, that his or her expectation of a certain outcome, as a result of performance of the contract, had a likelihood of attainment rather than being mere expectation. In the ordinary course of commercial dealings, a party supplying goods or rendering services will enter into a contract with a view to securing a profit, that is to say, that party will expect a certain margin of gain to be achieved in addition to the recouping of any expenses reasonably incurred by it in the discharge of its contractual obligations. It is for this reason that expectation damages are often described as damages for loss of profits. Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses. This second amount is the net profit. The expression ‘damages for loss of profits’ should not be understood as carrying with it the implication that no damages are recoverable either in the case of a contract in which no net profit would have been generated or in the case of a contract in which the amount of profit cannot be demonstrated. It would be an invitation to the repudiation of contractual obligations if the law were to deny to an innocent plaintiff the right to recoupment by an award of damages of expenditure justifiably incurred for the purpose of discharging contractual obligations simply on the ground that the contract breached would not have been or could not be shown to have

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been profitable. If the performance of a contract would have resulted in a plaintiff, while not making a profit, nevertheless recovering costs incurred in the course of performing contractual obligations, then that plaintiff is entitled to recover damages in an amount equal to those costs in accordance with Robinson v Harman, as those costs would have been recovered had the contract been fully performed. Similarly, where it is not possible for a plaintiff to demonstrate whether or to what extent the performance of a contract would have resulted in a profit for the plaintiff, it will be open to a plaintiff to seek to recoup expenses incurred, damages in such a case being described as reliance damages or damages for wasted expenditure. The corollary of the principle in Robinson v Harman is that a plaintiff is not entitled, by the award of damages upon breach, to be placed in a superior position to that which he or she would have been in had the contract been performed. Thus, if a plaintiff ’s expenditure would not have been fully recouped had the contract been performed, then full compensation for the wasted expenditure would not be awarded. A plaintiff is only entitled to damages for an amount equivalent to that which would have been earned had the contract been fully performed. In this way, the award of damages assessed by reference to a plaintiff ’s expenditure is in complete conformity with the principle that an award of damages for breach of contract should place a plaintiff in the same position as if the contract had been performed. In Anglia Television Ltd v Reed Lord Denning MR considered that a plaintiff could claim expenditure thrown away when he has not suffered any loss of profits or if he cannot prove what his profits would have been. Subsequently, in CCC Films Ltd v Impact Quadrant Films Ltd, Hutchison J said that ‘a plaintiff may always frame his claim in the alternative way if he chooses’… We do not regard the language of election or the notion that alternative ways are open to a plaintiff in which to frame a claim for relief as appropriate in a discussion of the measure of damages for breach of contract. In truth, as has been seen, damages for loss of profits and damages for expenditure reasonably incurred are simply two manifestations of the general principle enunciated in Robinson v Harman. … Naturally, the categories of case in which a plaintiff is likely to make a claim for the recovery of expenditure incurred are those in which the plaintiff has not suffered a loss of profits and those in which it is impossible to assess what would have been the outcome had the contract been performed or those in which that outcome is otherwise uncertain. So much is acknowledged by Lord Denning in the passage from Anglia Television already cited. The manner in which a plaintiff frames his or her claim for damages will be dictated not so much by a choice of alternatives giving rise to an election but simply according to whether the contract, if fully performed, would have been and could be shown to have been profitable (even if the actual amount of profit is not readily ascertainable). If this can be demonstrated, a plaintiff ’s expectation of a profit, objectively made out, will be protected by the award of damages. Otherwise, subject to it being demonstrated that a plaintiff would not even have recovered any or all of his or her reasonable expenses, a plaintiff ’s objectively determined expectation of recoupment of expenses incurred will be protected by the award of damages.

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An award of damages for expenditure reasonably incurred under a contract in which no net profit would have been realized, while placing the plaintiff in the position he or she would have been in had the contract been fully performed, also restores the plaintiff to the position he or she would have been in had the contract not been entered into. In this particular situation it will be noted that there is a coincidence, but no more than a coincidence, between the measure of damages recoverable both in contract and in tort. It should be observed that, in a case where it is not possible to predict what position a plaintiff would have been in had the contract been fully performed, as was the case in both McRae and Anglia Television, it is not possible as a matter of strict logic to assess damages in accordance with the principle in Robinson v Harman. But the law considers the just result in such a case is to allow a plaintiff to recover such expenditure as is reasonably incurred in reliance on the defendant’s promise. In this case, the law assumes that a plaintiff would at least have recovered his or her expenditure had the contract been fully performed. … Onus of proof Why the law appears to assume that a plaintiff would at least have recovered reasonable expenses incurred in the case both of contracts not resulting in a net profit and of contracts in which a plaintiff maintains that it is not possible to determine what position the plaintiff would have been in had the contract been fully performed, and why the law puts the burden of displacing this assumption on a defendant are questions to which we now turn. In other jurisdictions there is strong authority to the effect that, where a plaintiff claims damages for expenditure reasonably incurred, it is prima facie sufficient for that plaintiff to prove his or her expenditure and that it was reasonably incurred. The onus then shifts to the party in breach of contract to establish that such expenditure would not have been recouped even if the contract had been fully performed. If this onus is not discharged, a plaintiff ’s entitlement to reliance damages remains intact. … The placing of the onus of proof on a defendant in the manner described amounts to the erection of a presumption that a party would not enter into a contract in which its costs were not recoverable. Cases such as Bowlay Logging Ltd illustrate that such a presumption is not irrebuttable but, until that presumption is rebutted, a plaintiff may rely on it to recover his or her reasonable expenses both in the case of a contract which would not have been profitable and in the case of a contract where the outcome of the contract, if it had been fully performed, cannot be demonstrated, whether at all or with any certainty. This last type of contract, of which McRae and Anglia Television have been cited as examples, is to be distinguished from a purely aleatory contract where … damages are awarded for loss of a chance and the burden of establishing the existence and loss of this chance as a result of the defendant’s breach lies on a plaintiff although, as has already been observed, mere difficulty of estimation does not relieve a court or jury, in appropriate cases, of the task and responsibility of placing a value on the chance lost. [Brennan J and Deane J agreed in substance with the reasoning of Mason CJ and Dawson J holding that damages for wasted expenditure could be recovered in this case.]

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LIMITS ON RECOVERY OF DAMAGES [23.04] Not all loss arising from a breach of contract will be recoverable. Various limits have been imposed on the recovery of loss for a breach of contract. These limits are: (1) causation: only the loss caused by the breach is recoverable; (2) remoteness: the damage must not be too remote; (3) mitigation: the party who has suffered loss must act reasonably to mitigate the loss.

Causation [23.05] Whether the loss is caused by the breach is a question of fact. The traditional test for establishing causation is the ‘but for’ test. That is, would the loss have occurred ‘but for’ the breach of contract? Pursuant to this test, it is not necessary for the defendant’s conduct to be the sole contributing factor of the loss, provided it is a cause of the loss.9 Usually the factual link is clear. In the case of multiple causes, the ‘but for’ test is not appropriate and the question for the court is usually whether ‘as a matter of commonsense’ the relevant act or omission was a cause of the loss. [23.06]

Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310 New South Wales Court of Appeal A firm of auditors (Alexander) breached their contract of employment with the plaintiff (Cambridge). The auditors supplied certificates which failed to make provision for the plaintiff ’s poor financial position and this caused the ratio of debentures to shareholders funds, set in the plaintiff ’s trust deed, to be exceeded. A receiver was not appointed for three years and the plaintiff was claiming the losses incurred for those years from the auditors on the basis that if the breach of contract had not occurred the company would have been wound up at that time. The Court of Appeal in New South Wales held that there was no causal connection between the loss and the breach of contract. The test used by the court was whether the defendant’s breach contributed to the loss of the plaintiff. McHugh JA Causation:  To sustain its verdict against the auditors, Cambridge must show that ‘the loss suffered resulted from the breach’ of the audit contract:  Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516 at 523 per Barwick CJ, McTiernan and Menzies JJ. That is, Cambridge must prove a causal connection between the issue by the auditors of their erroneous certificates in 1971 and the loss of $145,000,000 which represents

9

Norton Australia Pty Ltd v Streets Ice Cream Pty Ltd (1968) 120 CLR 635; Barnes v Hay (1988) 12 NSWLR 337; Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310.

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the difference in the financial position of Cambridge on the basis of a hypothetical receivership in 1971 and the actual receivership in 1974. Cambridge contended that, ‘but for’ the breach of duty by the auditors in erroneously certifying the accounts and issuing the certificates in 1971, it would not have traded after September 1971 except to realise its assets in an orderly way. Thus it would not have made the additional losses which occurred as the result of trading in the period 1971–1974. A causal connection between the breach of contract and the loss of $145,000,000 was therefore established. Counsel for the auditors retorted that on this Adam-and-Eve approach to causation the act of the Registrar of Companies in incorporating Cambridge ought to be regarded as the cause of its loss. He submitted that the real and efficient cause of Cambridge’s loss had to be ascertained and that it was not the auditors’ breach of contract. These competing contentions make it necessary to examine the nature of causation for legal purposes. In Thom (or Simpson) v Sinclair [1917] AC 127 at 135, Viscount Haldane declared that in ‘strict logic the cause [of an event] cannot be pronounced to be less than the sum of the entire conditions’. This was in effect an adoption of John Stuart Mill’s theory that the cause of an event was the sum of the conditions which were jointly sufficient to produce it. Among philosophers, Mill’s definition has not escaped criticism:  see National Insurance Co of New Zealand Ltd v Espagne (1961) 105 CLR 569 at 591. Nor is it in accord with ordinary habits of thought and speech. As Viscount Haldane went on to say in Thom (or Simpson) v Sinclair (at 135): … in ordinary speech and practice we select someone or more out of what is an infinite number of conditions to be treated as the cause. From the practical standpoint of the man in the street the cause of the setting the house on fire was the striking of a match, while from that of the man of science it was the presence of all the conditions which enabled potential to be converted into kinetic energy.

The common law has followed the ordinary man’s notion of causation instead of the theories espoused by philosophers and scientists: Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350 at 361, 362, 371; Fitzgerald v Penn (1954) 91 CLR 268 at 277. Windeyer J has said that this has created ‘a deep fission between law and logic’: National Insurance Co of New Zealand Ltd v Espagne (at 593). His Honour asked rhetorically:  ‘How can one factor be logically more efficacious than another in producing a result for which both must exist?’ But as Windeyer J himself acknowledged the answer of the common law is that it is only concerned to determine whether a particular act or omission is so connected with a particular result that legal responsibility should attach to it. The object of the common law theory of causation is not the same as the object of a philosophical or scientific inquiry into causation. Since the act or omission of a person will only be one of the set of conditions or relations necessary and sufficient to produce the result to which legal liability attaches, a choice has been forced upon the law. It must either abandon causation as a requirement of legal liability or be content to declare that, depending on the circumstances, responsibility for only one of the set of conditions or relations necessary and sufficient to produce a result is enough to attract liability. It has preferred the latter alternative. Hence in the law of contract, it is sufficient that the breach ‘causally contributed’ to the loss: Norton Australia Pty Ltd v Streets Ice Cream Pty Ltd (1968) 120

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CLR 635 at 643. However, whether or not a particular act or omission attracts legal liability ultimately depends on policy and not logic. Thus the common law is concerned with whether on a particular occasion a particular act or omission contributed to the occurrence of a particular event (causation) and, if so, with whether responsibility should attach to that act or omission (remoteness). In principle, therefore, there is no reason why the legal theory of causation should be concerned with any question other than whether a particular act or condition was one of the conditions or relations necessary to complete the set of conditions which represent the total cause. This is the basis of the ‘but for’ test of causation which is championed by many legal writers and applied in practice by courts and juries. It accords with ordinary habits of thought and speech. People attribute as a cause any condition or relation known to them ‘but for’ which the result would not have occurred. Those who favour the ‘but for’ test as the exclusive test of legal causation urge that a person should be liable for all the consequences of his conduct as long as they are within the scope of reasonable foresight, if the issue is in tort, and within the reasonable contemplation of the parties if the issue is in contract. … In the present appeal the parties do not dispute that, even if a causal connection between breach and loss exists, liability depends ultimately on legal policy and not logical theories of causation. But they differ as to when policy as opposed to causation-in-fact operates. Cambridge contended that the issue of causation is concluded once it is found that the auditors’ breach was causally connected with the loss and that this was to be determined by applying the ‘but for’ test. It asserted that the question of policy was subsumed under the test of remoteness of damages: Was the loss suffered of the kind which the parties contemplated as a serious possibility when making the audit contract? If it was, and there was a causal connection on the ‘but for’ test, the auditors’ breach gave rise to legal liability. The auditors submitted that between the ‘but for’ test and the rules relating to remoteness of damage was a test of legal causation: Was the breach of contract the legal cause of the damage which Cambridge suffered? Legal cause was to be determined by asking whether the breach was the dominant or real and efficient cause of the damage. However, I am of the opinion that, leaving aside the question of the intervention of a new act—the novus actus interveniens, the issue of causation is to be resolved in general by simply applying the ‘but for’ test in a practical commonsense way. I say in general because in the case of damage caused by the simultaneous operation of two separate and independent events each of which alone was sufficient to cause the damage, the ‘but for’ test is plainly inadequate. And there may be other cases where the rationale of the ‘but for’ rule may require a more elaborate formulation to be applied to the facts of those cases. Rules relating to causation and remoteness are to be liberally construed and not applied so rigidly as to cause injustice. … The ultimate question is always whether the breach ‘causally contributed’ to the damage. In Nader v Urban Transit Authority of New South Wales (1985) 2 NSWLR 501, a case of tort, I applied (at 531) the ‘but for’ test as the exclusive test of causation and held that there was a causal connection between the defendant’s negligence and a rare psychiatric condition from which the defendant suffered. Samuels JA (at 503) agreed generally with my reasons. Mahoney JA dissented. …

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The auditors denied that the majority in Nader applied the ‘but for’ test. They submitted that the reference in my judgment (at 530, 531) to the need for proof that the breach ‘materially contributed’ to the damage showed that the ‘but for’ test was not used as the exclusive test of causation. However, there is no conflict between the use of the ‘but for’ test and the requirement that breach must ‘materially contribute’ to the damage. A material contribution to damage exists when the contribution is not de minimis. Thus a breach materially contributes to the damage although its responsibility for the damage is only 10 per centum … Accordingly, there is no conflict between the ‘material contribution’ requirement and the application of the ‘but for’ test in a practical, commonsense manner as the exclusive test of causation. So far as the law of tort is concerned, the ‘but for’ test must be taken in this Court to be the leading and, in all but exceptional cases, the exclusive test of causation. And I can see no reason why the same test should not be applied in contract. Once causation-in-fact is established, the only question is whether the damage is so remote from the breach that the defendant should not be held responsible for it. Any question of a novus actus interveniens is to be considered in the policy area of ‘remoteness of damage’. Accordingly, to establish a causal connection between a breach of contract and the damage which the plaintiff has suffered, he needs only to show that the breach was a cause of the loss. This is to be decided by the application of commonsense principles. In general, the application of the ‘but for’ test will be sufficient to prove the necessary causal connection. But that test is only a guide. The ultimate question is whether, as a matter of commonsense, the relevant act or omission was a cause. [McHugh JA (as he then was) concluded first that the continued existence of the company did not cause the loss and second, if that was incorrect, the economic change brought on by government policy was so potent as to overwhelm the original breach of contract and break the chain of causation. Glass JA agreed with the reasoning of McHugh JA in relation to causation but dissented. Mahoney JA disagreed on the principle of causation but agreed with the conclusions of McHugh JA.]

REMOTENESS [23.07] The law will place a limit on the amount and the time over which losses are recoverable. Remoteness operates as a policy factor in the court’s decision. The test for deciding whether damage is too remote in contract was formulated in the case of Hadley v Baxendale.10 The rule is that damage will not be too remote if the damage can reasonably be considered to: •

arise naturally according to the usual course of things from the breach; or



be such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as a probable result of the breach.

10 (1854) 9 Exch 341 at 354; 156 ER 145 at 151.

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First limb of Hadley v Baxendale [23.08] According to the first limb of the rule in Hadley v Baxendale, damage that arises ‘naturally ... according to the usual course of things’ as the probable result of a breach will be recoverable.11 Since Hadley v Baxendale,12 the courts have grappled with how best to explain this principle of remoteness. In Hadley v Baxendale13 itself, Alderson B, in applying the principle, considered the loss under the first limb would be loss flowing ‘naturally from the breach of [the] contract in the great multitude of such cases occurring under ordinary circumstances’.14 In Koufos v Czarnikow Ltd,15 Lord Reid considered this to mean that parties to a contract will have within their contemplation ‘a result which will happen in the great majority of cases’,16 or a result ‘not unlikely to occur’.17 The consequence of this approach is that a result that may be foreseeable as a substantial possibility in only a minority of cases will not fairly be considered as normally within the contemplation of the two reasonable parties to a contract. All members of the court in Koufos v Czarnikow Ltd18 were clearly of the view that a test of reasonable foreseeability should remain within the domain of tort law, and should not be applied to recovery of loss in contract.19 This separate approach to remoteness in contract and tort has been followed in Australia.20

Second limb of Hadley v Baxendale [23.09] The second limb of the rule in Hadley v Baxendale provides for the party to a contract to be liable for loss arising as a reasonable and natural course from special circumstances of which the party is aware at the time of entry into the contract. This limb will only be considered by the court where the defendant is possessed of special knowledge at the time of entry into the contract. The basis of this rule is said to be that the defendant with actual knowledge of special circumstances is undertaking to bear a greater loss as a result of the particular facts.21 In addition to actual knowledge of the special circumstances, it is necessary either:

11 Hadley v Baxendale (1854) 156 ER 145, 151. 12 (1854) 9 Exch 341; 156 ER 145. 13 Ibid. 14 Ibid, 151. 15 [1969] 1 AC 350, 388, 406, 410–411, 415, 425. 16 Ibid, 384. 17 Ibid, 388. Refer also to the other formulations of ‘not unlikely to result’ per Lord Morris of Borth-y-gest; ‘liable to result’ per Lord Hodson. The court in Monarch Steamship Co Ltd v Karlshamns Oljefabriker [1949] AC 196 also referred to ‘a serious possibility’ and ‘real danger’ per Lord du Parcq; and ‘grave risk’ per Lord Morton of Henryton. 18 [1969] 1 AC 350. 19 Ibid, 386, 406, 410–411. For an example of the effect of the different rules of remoteness in tort and contract see Cadoks Pty Ltd v Wallace Westley & Vigar Pty Ltd (2000) 2 VR 569. 20 Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653, 667; Baltic Shipping Co v Dillon (1993) 176 CLR 334, 368–369; Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, 116 per Deane J ‘the gradual assimilation of the tests ‘within the contemplation of the parties’ (contract) and reasonable foreseeability (in tort)’. 21 Koufos v Czarnikow Ltd [1969] 1 AC 350; Robophone Finance Facilities Ltd v Blank [1966] 1 WLR 1428, 1448; GEC Marconi Systems v BHP Information Technology (2003) 128 FCR 1, 211–212; Kay v National Australia Bank Ltd [2010] NSWSC 1116.

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for the defendant to acquire this knowledge from the plaintiff;22 or



for the plaintiff to know the defendant is possessed of the knowledge at the time the contract is entered into;

so that the inference could be drawn that the defendant impliedly undertook to bear any special loss relating to those special circumstances.23 However, as with the first limb, only a loss that is likely to occur in a majority of cases will not be too remote. Where the loss arising from the special facts is likely to occur in only a minority of cases, it may not be a probable result of the breach, even though it is reasonably foreseeable. [23.10] The difference between loss within the reasonable contemplation of the parties at the time of entry into the contract and loss within the second limb of the rule is clearly demonstrated by Victoria Laundry (Windsor) Ltd v Newman Industries Ltd.24 [23.11]

Victoria Laundry (Windor) Ltd v Newman Industries Ltd [1949] 2 KB 528 Kings Bench Division The plaintiff had purchased from the defendant a boiler, which it proposed to use in its dyeing and dry-cleaning business. The defendant caused damage to the machinery when moving it and the plaintiff refused to take it until it was fixed. The defendant delayed for some five months in delivery. The defendants were aware of the nature of the plaintiff ’s business and had been informed by letter that the plaintiff intended to put the boiler to use in the shortest possible space of time. The plaintiff claimed damages for breach of contract. The damages included an amount for loss of general business and the loss of certain lucrative dyeing contract. Asquith LJ … The short point is whether, in addition to the £110, awarded, the plaintiffs were entitled to claim in respect of loss of profits which they say they would have made if the boiler had been delivered punctually. Seeing that the issue is as to the measure of recoverable damage and the application of the rules in Hadley v Baxendale … it is important to inquire what information the defendants possessed at the time when the contract was made, as to such matters as the time at which, and the purpose for which, the plaintiffs required the boiler. The defendants knew before, and at the time of the contract, that the plaintiffs were laundrymen and dyers, and required the boiler for purposes of their business as such. They also knew that the plaintiffs wanted the boiler for immediate use.

22 See Panalpina International Transport Ltd v Densil Underwear Ltd [1981] 1 Lloyds Rep 187 where the defendants were made aware of the special circumstances in the course of negotiations. 23 Castle Constructions Pty Ltd v Fekala Pty Ltd [2006] NSWCA 133; Seven Seas Properties Ltd v Al-Essa (No 2) [1993] 1 WLR 1083; Robophone Finance Facilities Ltd v Blank [1966] 1 WLR 1428 per Diplock LJ, 1447–1448; adopted in Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd [2006] NSWCA 334. 24 [1942] 2 KB 528.

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The defendants knew the plaintiffs needed the boiler as soon as the delays should be overcome, and they knew by the beginning of June that such delays had by then in fact been overcome. The defendants did not know at the material time the precise role for which the boiler was cast in the plaintiffs’ economy, eg whether (as the fact was) it was to function in substitution for an existing boiler of inferior capacity, or in replacement of an existing boiler of equal capacity, or as an extra unit to be operated side by side with and in addition to any existing boiler. It has indeed been argued strenuously that, for all they knew, it might have been wanted as a ‘spare’ or ‘stand- by,’ provided in advance to replace an existing boiler when, perhaps some time hence, the latter should wear out; but such an intention to reserve it for future use seems quite inconsistent with the intention expressed in the letter of April 26, to ‘put it into use in the shortest possible space’ of time. In this connexion, certain admissions made in the course of the hearing are of vital importance. The defendants formally admitted what in their defence they had originally traversed, namely, the facts alleged in para 2 of the statement of claim. That paragraph reads as follows: ‘At the date “of the contract hereinafter mentioned the defendants well” knew as the fact was that the “plaintiffs were launderers and” dyers carrying on business at Windsor and required the “said boiler for use in their said business and the said contract” was made upon the basis that the said boiler was required “for the said purpose”.’ On June 5 the plaintiffs, having heard that the boiler was ready, sent a lorry to Harpenden to take delivery. Mr. Lennard, a director of the plaintiff company, preceded the lorry in a car. He discovered on arrival that four days earlier the contractors employed by the defendants to dismantle the boiler had allowed it to fall on its side, sustaining injuries. Mr. Lennard declined to take delivery of the damaged boiler in its existing condition and insisted that the damage must be made good. He was, we think, justified in this attitude, since no similar article could be bought in the market. After a long wrangle, the defendants agreed to perform the necessary repairs and, after further delay through the difficulty of finding a contractor who was free and able to perform them, completed the repairs by October 28. Delivery was taken by the plaintiffs on November 8 and the boiler was erected and working by early December. The plaintiffs claim, as part—the disputed part—of the damages, loss of the profits they would have earned if the machine had been delivered in early June instead of November. Evidence was led for the plaintiffs with the object of establishing that if the boiler had been punctually delivered, then, during the twenty-odd weeks between then and the time of actual delivery, (1) they could have taken on a very large number of new customers in the course of their laundry business, the demand for laundry services at that time being insatiable—they did in fact take on extra staff in the expectation of its delivery—and (2) that they could and would have accepted a number of highly lucrative dyeing contracts for the Ministry of Supply. In the statement of claim, para 10, the loss of profits under the first of these heads was quantified at £16 a week and under the second at £262 a week. … The ground of the learned judge’s decision, which we consider more fully later, may be summarized as follows:  He took the view that the loss of profit claimed was due to special circumstances and therefore recoverable, if at all, only under the second rule in Hadley v Baxendale and not recoverable in this case because such special circumstances were not at the

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time of the contract communicated to the defendants. He also attached much significance to the fact that the object supplied was not a self-sufficient profit-making article, but part of a larger profit-making whole, and cited in this connexion the cases of Portman v Middleton (1) and British Columbia Sawmills v Nettleship (2). Before commenting on the learned judge’s reasoning, we must refer to some of the authorities. [His Lordship considered the relevant authorities and continued.] What propositions applicable to the present case emerge from the authorities as a whole, including those analysed above? We think they include the following: (1) It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights had been observed … This purpose, if relentlessly pursued, would provide him with a complete indemnity for all loss de facto resulting from a particular breach, however improbable, however unpredictable. This, in contract at least, is recognized as too harsh a rule. Hence, (2) In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably forseeable as liable to result from the breach. (3) What was at that time reasonably so foreseeable depends on the knowledge then possessed by the parties or, at all events, by the party who later commits the breach. (4) For this purpose, knowledge ‘possessed’ is of two kinds; one imputed, the other actual. Everyone, as a reasonable person, is taken to know the ‘ordinary course of things’ and consequently what loss is liable to result from a breach of contract in that ordinary course. This is the subject matter of the ‘first rule’ in Hadley v Baxendale … But to this knowledge, which a contract-breaker is assumed to possess whether he actually possesses it or not, there may have to be added in a particular case knowledge which he actually possesses, of special circumstances outside the ‘ordinary course of things,’ of such a kind that a breach in those special circumstances would be liable to cause more loss. Such a case attracts the operation of the ‘second rule’ so as to make additional loss also recoverable.  (5) In order to make the contract-breaker liable under either rule it is not necessary that he should actually have asked himself what loss is liable to result from a breach. As has often been pointed out, parties at the time of contracting contemplate not the breach of the contract, but its performance. It suffices that, if he had considered the question, he would as a reasonable man have concluded that the loss in question was liable to result … (6) Nor, finally, to make a particular loss recoverable, need it be proved that upon a given state of knowledge the defendant could, as a reasonable man, foresee that a breach must necessarily result in that loss. It is enough if he could foresee it was likely so to result. It is indeed enough, to borrow from the language of Lord du Parcq in the same case, at page 158, if the loss (or some factor without which it would not have occurred) is a ‘serious possibility’ or a ‘real danger.’ For short, we have used the word ‘liable’ to result. Possibly the colloquialism ‘on the cards’ indicates the shade of meaning with some approach to accuracy. If these, indeed, are the principles applicable, what is the effect of their application to the facts of this case? We have, at the beginning of this judgment, summarized the main relevant

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facts. The defendants were an engineering company supplying a boiler to a laundry. We reject the submission for the defendants that an engineering company knows no more than the plain man about boilers or the purposes to which they are commonly put by different classes of purchasers, including laundries. The defendant company were not, it is true, manufacturers of this boiler or dealers in boilers, but they gave a highly technical and comprehensive description of this boiler to the plaintiffs by letter of January 19, 1946, and offered both to dismantle the boiler at Harpenden and to re-erect it on the plaintiffs’ premises. Of the uses or purposes to which boilers are put, they would clearly know more than the uninstructed layman. Again, they knew they were supplying the boiler to a company carrying on the business of laundrymen and dyers, for use in that business. The obvious use of a boiler, in such a business, is surely to boil water for the purpose of washing or dyeing. A laundry might conceivably buy a boiler for some other purpose; for instance, to work radiators or warm bath water for the comfort of its employees’ or directors, or to use for research, or to exhibit in a museum. All these purposes are possible, but the first is the obvious purpose which, in the case of a laundry, leaps to the average eye. If the purpose then be to wash or dye, why does the company want to wash or dye, unless for purposes of business advantage, in which term we, for the purposes of the rest of this judgment, include maintenance or increase of profit, or reduction of loss? (We shall speak henceforward not of loss of profit, but of ‘loss of business.’) No commercial concern commonly purchases for the purposes of its business a very large and expensive structure like this—a boiler 19 feet high and costing over £2000—with any other motive, and no supplier, let alone an engineering company, which has promised delivery of such an article by a particular date, with knowledge that it was to be put into use immediately on delivery, can reasonably contend that it could not foresee that loss of business (in the sense indicated above) would be liable to result to the purchaser from a long delay in the delivery thereof. The suggestion that, for all the supplier knew, the boiler might have been needed simply as a ‘standby,’ to be used in a possibly distant future, is gratuitous and was plainly negatived by the terms of the letter of April 26, 1946. Since we are differing from a carefully reasoned judgment, we think it due to the learned judge to indicate the grounds of our dissent. … The answer to this reasoning has largely been anticipated in what has been said above, but we would wish to add:  First, that the learned judge appears to infer that because certain ‘special circumstances’ were, in his view, not ‘drawn to the notice of ’ the defendants and therefore, in his view, the operation of the ‘second rule’ was excluded, ergo nothing in respect of loss of business can be recovered under the ‘first rule.’ This inference is, in our view, no more justified in the present case than it was in the case of Cory v Thames Ironworks Company … Secondly, that while it is not wholly clear what were the ‘special circumstances’ on the noncommunication of which the learned judge relied, it would seem that they were, or included, the following:— (a) the ‘circumstance’ that delay in delivering the boiler was going to lead ‘necessarily’ to loss of profits. But the true criterion is surely not what was bound ‘necessarily’ to result, but what was likely or liable to do so, and we think that it was amply conveyed to the defendants by what was communicated to them (plus what was patent without express communication) that delay in delivery was likely to lead to ‘loss of business’;

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(b) the ‘circumstance’ that the plaintiffs needed the boiler ‘to extend their business.’ It was surely not necessary for the defendants to be specifically informed of this, as a precondition of being liable for loss of business. Reasonable, persons in the shoes of the defendants must be taken to foresee without any express intimation, that a laundry which, at a time when there was a famine of laundry facilities, was paying £2000 odd for plant and intended at such a time to put such plant ‘into use’ immediately, would be likely to suffer in pocket from five months’ delay in delivery of the plant in question, whether they intended by means of it to extend their business, or merely to maintain it, or to reduce a loss; (c) the ‘circumstance’ that the plaintiffs had the assured expectation of special contracts, which they could only fulfil by securing punctual delivery of the boiler. Here, no doubt, the learned judge had in mind the particularly lucrative dyeing contracts to which the plaintiffs looked forward and which they mention in para 10 of the statement of claim. We agree that in order that the plaintiffs should recover specifically and as such the profits expected on these contracts, the defendants would have had to know, at the time of their agreement with the plaintiffs, of the prospect and terms of such contracts. We also agree that they did not in fact know these things. It does not, however, follow that the plaintiffs are precluded from recovering some general (and perhaps conjectural) sum for loss of business in respect of dyeing contracts to be reasonably expected, any more than in respect of laundering contracts to be reasonably expected. We are therefore of opinion that the appeal should be allowed and the issue referred to an official referee as to what damage, if any, is recoverable in addition to the £110 awarded by the learned trial judge. The official referee would assess those damages in consonance with the findings in this judgment as to what the defendants knew or must be taken to have known at the material time, either party to be at liberty to call evidence as to the quantum of the damage in dispute.

MITIGATION [23.12] The right of a plaintiff to recover all loss naturally flowing from the breach is qualified by the principle that a plaintiff is unable to claim for any damage flowing from a breach of contract that is a result of the plaintiff acting unreasonably so as to increase the loss.25 The principle of mitigation ‘bars an aggrieved party from profiting or behaving unreasonably at the expense of the defaulting party, and encapsulates complex interplaying notions of responsibility and fairness’.26 Mitigation acts as a negative duty upon the plaintiff. There is no positive obligation to take reasonable steps to reduce the loss suffered, provided the action or lack of action taken is

25 British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673, 689. The principle does not apply to a claim for debt or liquidated damages: White and Carter (Councils) Ltd v McGregor [1962] AC 413. 26 Asia Star [2010] 2 Lloyd’s Rep 121, [32].

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reasonable in all the circumstances. There is no requirement to take unreasonable steps or risks to reduce the liability of the defendant. [23.13] Unlike the principles of causation and remoteness, the onus of proving the plaintiff acted unreasonably is on the defendant.27 A defendant will need to show more than the fact the plaintiff could have taken an alternative course of action if it was reasonable for the plaintiff to do what they did.28 The defendant is required to raise the issue of mitigation within their defence. If the issue is not raised, the court will assume the plaintiff has taken all reasonable steps to mitigate their loss. [23.14]

Payzu Ltd v Saunders [1919] 2 KB 581 English Court of Appeal A contract for the sale of goods by the defendant to the plaintiffs provided that payment for the goods delivered should be made for each instalment within one month of delivery less 2½ per cent discount. The plaintiffs failed to make punctual payment for the first instalment. The defendant erroneously treated the plaintiff ’s failure to pay as a repudiation and refused to deliver any more of the goods under the contract, but offered to deliver the goods at the contract price if the plaintiffs would agree to pay cash at the time of the orders. The plaintiffs did not accept this offer. The market price of the goods increased, causing the plaintiff loss. The plaintiff brought an action against the defendant for breach of contract, claiming as damages the difference between the market price and the contract price. The trial judge held that the plaintiffs did not repudiate the contract but that they should have accepted the defendants offer in mitigation of their loss. The Court of Appeal dismissed the appeal. Bankes LJ At the trial of this case the defendant, the present respondent, raised two points: first, that she had committed no breach of the contract of sale, and secondly that, if there was a breach, yet she had offered and was always ready and willing to supply the pieces of silk, the subject of the contract, at the contract price for cash; that it was unreasonable on the part of the appellants not to accept that offer, and that therefore they cannot claim damages beyond what they would have lost by paying cash with each order instead of having a month’s credit and a discount of 2½ per cent. We must take it that this was the offer made by the respondent. The case was fought and the learned judge has given judgment upon that footing. It is true that the correspondence suggests that the respondent was at one time claiming an increased

27 TC Industrial Plant Pty Ltd v Robert’s Queensland Pty Ltd (1963) 37 ALJR 289 at 292; Watts v Rake (1960) 108 CLR 158, 159; Fazlic v Milingimbi Community Inc (1982) 150 CLR 345. 28 Kelly v Galafassi (2013) 17 BPR 32,123; Karacominakis v Big County Developments Pty Ltd (2000) 10 BPR 18,235.

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price. But in this Court it must be taken that the offer was to supply the contract goods at the contract price except that payment was to be by cash instead of being on credit. In these circumstances the only question is whether the appellants can establish that as matter of law they were not bound to consider any offer made by the respondent because of the attitude she had taken up. Upon this point McCardie J referred to British Westinghouse Electric and Manufacturing Co v Underground Electric Railways Co of London, where Lord Haldane LC said: ‘The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach, but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps.’ In the words of James LJ in Dunkirk Colliery Co v Lever: ‘What the plaintiffs are entitled to is the full amount of the damage which they have really sustained by a breach of the contract. The person who has broken the contract not being exposed to additional cost by reason of the plaintiffs not doing what they ought to have done as reasonable men, and the plaintiffs not being under any obligation to do anything otherwise than in the ordinary course of business.’ It is plain that the question what is reasonable for a person to do in mitigation of his damages cannot be a question of law but must be one of fact in the circumstances of each particular case. There may be cases where as matter of fact it would be unreasonable to expect a plaintiff to consider any offer made in view of the treatment he has received from the defendant. If he had been rendering personal services and had been dismissed after being accused in presence of others of being a thief, and if after that his employer had offered to take him back into his service, most persons would think he was justified in refusing the offer, and that it would be unreasonable to ask him in this way to mitigate the damages in an action of wrongful dismissal. But that is not to state a principle of law, but a conclusion of fact to be arrived at on a consideration of all the circumstances of the case. Mr Matthews complained that the respondent had treated his clients so badly that it would be unreasonable to expect them to listen to any proposition she might make. I do not agree. In my view each party was ready to accuse the other of conduct unworthy of a high commercial reputation, and there was nothing to justify the appellants in refusing to consider the respondent’s offer. I think the learned judge came to a proper conclusion on the facts, and that the appeal must be dismissed. Scrutton LJ I  am of the same opinion. Whether it be more correct to say that a plaintiff must minimize his damages, or to say that he can recover no more than he would have suffered if he had acted reasonably, because any further damages do not reasonably follow from the defendant’s breach, the result is the same. The plaintiff must take ‘all reasonable steps to mitigate the loss consequent on the breach,’ and this principle ‘debars him from claiming any part of the damage which is due to his neglect to take such steps’: British Westinghouse Electric and Manufacturing Co v Underground Electric Railways Co of London, per Lord Haldane LC. Mr Matthews has contended that in considering what steps should be taken to mitigate the damage all contractual relations with the party in default must be excluded. That is contrary to my experience. In certain cases of personal service it may be unreasonable to expect a plaintiff to consider an offer from the other party who has grossly injured him; but in commercial contracts

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it is generally reasonable to accept an offer from the party in default. However, it is always a question of fact. About the law there is no difficulty. [Eve J agreed.]

ASSESSMENT OF LOSS AND HEADS OF DAMAGE [23.15] The general measure of the loss recoverable will be in accordance with the principle in Robinson v Harman29 that the plaintiff will be awarded damages to put the plaintiff in the position they would have been in had the contract been performed. In other words, the plaintiff will be awarded damages commensurate with the loss of expectation or profits from the contract. Where the contract involves the sale of goods or land, the general measure of the lost expectation will be the difference between the contract price and the market value of the goods or land on the date of breach. In other cases, where the breach of contract has prevented the opportunity to earn the expectation or profit from arising, the court will need to estimate the value of the potential expectancy.30 In either situation, the fact that damages may be difficult to estimate is not a bar to recovery.31 [23.16] Damages are usually assessed at the date of breach, except in the case of anticipatory breach where it is assessed on the due date for performance. This is not an absolute rule and the date for assessment may be altered by the court to ensure the plaintiff receives the amount of damages that most fairly compensates them for their loss.32 [23.17] Damages are assessed on a once and for all basis in light of the events that occurred up to the date of breach. Subsequent changes in value due to later events will not be taken into account. Only the net loss will be recoverable and the court will endeavour to ensure that the measure of damages accurately reflects the restoration of the plaintiff to the position they would have been in had the defendants performed the contract.33 Usually this will require the court to assess the value of what the plaintiff has lost as a result of the breach. This will include taking into account the residual value of any asset in the hands of the plaintiff at the time of the breach and any saved expenses. These benefits may arise because the contract has been prematurely terminated, or due to the acts of the plaintiff in mitigation of the loss. The plaintiff should not be placed in a better position as a result of the breach.

29 (1848) 1 Ex 850. 30 Tszyu v Fightvision Pty Ltd [1999] NSWCA 323. See also Clark v Macourt (2013) 253 CLR 1 where the court awarded the cost of the plaintiff acquiring the promised goods from another supplier. 31 Fink v Fink (1946) 74 CLR 127, 143, McRae v Commonwealth Disposals Commission (1951) 84 CLR 377; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. 32 Johnson v Perez (1988) 166 CLR 351, 355–356; Johnson v Agnew [1980] AC 367; Gagner Pty Ltd (t/a Indochine Cafe) v Canturi Corporation Pty Ltd (2009) 262 ALR 691; Chand v Commonwealth Bank of Australia [2015] NSWCA 18.1 33 Kirkby v Coote [2006] QCA 61, [59].

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[23.18] There are a number of recognised heads of damage commonly awarded by a court as part of the expectation loss of the plaintiff. These include damages for loss of opportunity, damages for defective building work and damages for mental distress. It is important to bear in mind that no matter what description is given to the type of loss suffered, it is clear that ‘the expressions expectation damages, damages for loss of profits, reliance damages and damages for wasted expenditure are simply manifestations of the central principles enunciated in Robinson v Harman rather than discrete and truly alternative measures of damages which a party not in breach may elect to claim’.34

Loss of opportunity [23.19] Damages for the loss of an opportunity or chance caused by a breach of contract are recoverable. This may include the loss of an opportunity to enter a new lease, acquire a property, renew an interest in a property, or enter a further contract.35 Prior to the assessment of the value of the lost opportunity the court will need to be satisfied that the breach actually caused the loss of the opportunity to the claimant. This will need to be proved on the balance of probabilities.36 Once causation is established, the court can assess the value of the lost chance having regard to the probability or possibility of it occurring. [23.20]

Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 High Court of Australia Mason CJ and Dawson J  … The prospect of renewal of the contract and discharge of the onus In seeking to discharge this onus, the Commonwealth submits that it is irrelevant, when considering the position Amann would have been in had the contract been fully performed, to have regard to the value of Amann’s prospects of renewal of the contract. This is because, so the argument runs, the Commonwealth was under no legal obligation to renew the contract. According to the argument, a defendant is not liable for that which he or she has not promised to do; a plaintiff is not entitled to recover compensation for the non-realization of his or her expectation that the defendant would provide him or her with a benefit when the defendant has

34 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 82. See also Clark v Macourt (2013) 253 CLR 1. 35 Whether the principle in Commonwealth v Amann Aviation Pty Ltd is applicable to employment contracts is unclear. The NSW Supreme Court considers it is not applicable: Murray Irrigation Ltd v Balsdon (2006) 67 NSWLR 73; New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68. Compare the view of the Federal Court in Martin v Tasmania Development and Resources [1999] FCA 593; 89 IR 98, [97]–[101]; on appeal, Tasmania Development and Resources v Martin [2000] FCA 414; 97 IR 66, [35]–[39]; and Walker v Citigroup Global Markets Australia Pty Ltd (formerly known as Salomon Smith Barney Australia Securities Pty Ltd) [2006] FCAFC 101; 233 ALR 687. 36 See for example Heenan v Di Sisto [2008] NSWCA 25.

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not assumed a legal obligation to do so. A variation of this argument is that to take into account loss arising from deprivation of the prospects of renewal is to take into account a loss arising from non-performance of an act which the Commonwealth was under no legal obligation to perform. Damages for the loss of a chance or an opportunity to secure a benefit may be awarded but, argues the Commonwealth, only in those cases in which there is a legal obligation to provide a chance or an opportunity of obtaining that benefit. However, the rule that the defendant is not liable in damages for not doing that which he or she has not promised to do is necessarily subject to the rule in Hadley v Baxendale. … … It is now accepted that this is the statement of a single principle and that its application may depend on the degree of relevant knowledge possessed by the defendant in the particular case. However, in the present case, the application of the rule in Hadley v Baxendale turns not on the degree of knowledge possessed by the defendant but on what may reasonably be supposed to have been in the contemplation of the parties as the probable result of the breach. If it be right to suppose that the loss of the prospect of securing a renewal of the contract was within the contemplation of the parties as a probable result of the breach, then … Amann is entitled to compensation which takes into account the value of the loss of the prospect of securing a renewal of the contract. What was in the contemplation of the parties depends upon a consideration of the terms of the contract in the light of the matrix of circumstances in which it was made. … The prospect of renewal was a distinct commercial benefit, inevitably contemplated by the parties as enuring to the advantage of Amann on, and by reason of, its performance of the contract. It was not an advantage which would accrue to Amann independently of performance of the contract or incidentally. The corollary is that the parties necessarily contemplated the loss of that prospect as the probable result of a repudiation or fundamental breach of the contract on the part of the Commonwealth. The Commonwealth also submits that the Full Court of the Federal Court was wrong in taking into account the prospect of renewal of the contract because to do so infringed the rule that, where there are two or more ways in which a defendant might perform the contract, the court, in assessing damages, adopts the mode of performance which is most beneficial to the defendant. That rule, which is a manifestation of the principle that damages will not be awarded for not doing that which there is no legal obligation to do, is well supported by authority. … Where compensation is sought in respect of the deprivation of a possible benefit which is dependent upon the unrestricted volition of another it may be impossible to say that any assessable loss results from the breach. However, this statement must be understood in the light of the principle that the mere existence of a contractual right in a party to terminate does not operate automatically to restrict the damages that can be awarded. The court does not reach a conclusion by reference to an improbable factual hypothesis. The court must have regard to the facts and evaluate the possible exercise of the right in all the relevant circumstances of the case. Moreover, in determining what is or would be beneficial for the defendant, the court does

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not confine its attention to the relationship between the plaintiff and the defendant; it would be wrong to reduce the defendant’s legal obligations to the plaintiff on the footing that he or she would incur greater loss in other respects. If we make the assumption that the contract would have proceeded to completion … it would be wrong, in the circumstances of the case, to conclude that the Commonwealth would have refused to renew the contract simply because that outcome would reduce the Commonwealth’s liability in damages to Amann in the light of the events as they have actually fallen out. In assessing damages, the Court is necessarily engaged in a hypothetical exercise, that is, ascertaining how the contract would have turned out had it not been brought to an end by Amann’s acceptance of the Commonwealth’s wrongful repudiation. On the assumption that the contract would have proceeded to completion, it would have been to the Commonwealth’s advantage to have agreed to a renewal, rather than to have negotiated a fresh contract with a third party who would have been in the position of starting from scratch and thus have sought and insisted upon large financial rewards in order to compensate for heavy initial expenditure of the kind incurred by Amann. Accordingly, there would have been a strong prospect of renewal. … It follows that we consider that the Full Court was correct in taking into account the prospect of renewal of the contract as a factor relevant to the assessment of damages. The consequence of this conclusion, in view of the onus cast upon the Commonwealth as the party in breach, is that the Commonwealth must demonstrate that the value to Amann of the prospect of renewal of the contract when combined with those expenses that would have been recovered by way of gross receipts was less than the total expenses to be incurred by Amann in the performance of its contractual obligations. If the Commonwealth was able to demonstrate that this would have been the result, had the contract been fully performed, then, in conformity with Robinson v Harman, Amann would not be entitled to all of its expenditure incurred in reliance on the Commonwealth’s promise to perform and wasted as a result of the Commonwealth’s breach. The Commonwealth was unable, however, to demonstrate this and so discharge the onus. Accordingly, the presumption that Amann would not have entered into a contract in which it would not recover the value of its expenditure incurred remains undisturbed. Discount in the quantum of damages by reference to the prospect of termination of the contract pursuant to cl 2.24 … The Commonwealth argues that the amount of damages awarded should have been discounted in accordance with the prospect of valid termination by the Commonwealth and that, in assessing this prospect, it should be presumed that the Commonwealth would have acted so as to minimise its liability in conformity with the Mihalis Angelos. [Mason CJ and Dawson J considered the argument put by the court in reliance upon clause 2.24 and the estimate of the Full Court of a 20 per cent changes of cancellation and concluded that no reduction in the amount of damages should be made. Brennan J agreed with this result. Deane J considered that the damages should have been discounted by 20 per cent to account for this possibility.]

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Rectification of defective work [23.21] In the context of defective building work, there are two competing measures of damage that will meet the objective of contract damages to place the plaintiff in the same position as they would have been had the contract been performed. The two measures are the cost of rectification of the defect and the loss in value of the property. [23.22] The High Court in Bellgrove v Eldridge37 held that in having regard to the principles in Hadley v Baxendale:38 [T]he measure of the damages recoverable by the building owner for the breach of a building contract is ... the difference between the contract price of the work or building contracted for and the cost of making the work or building conform to the contract ... [T]he qualification, however, to which this rule is subject is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt.39

Accordingly, whether damages for rectification of building work will be awarded depends on whether the rectification work is considered to be ‘necessary’ and ‘reasonable’. If the work is not necessary and reasonable, damages on the basis of diminution in value will be given [23.23]

Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 High Court of Australia The High Court considered a claim for damages by a landlord arising from the breach of a covenant against the making of improvements to the premises without consent. The fiveyear lease contained an express covenant forbidding the tenant from altering the premises without approval of the landlord. In ‘contumelious disregard’ of the landlord’s rights the tenant deliberately destroyed part of a foyer which had been expensively constructed not six months earlier, and rebuilt it to its own specifications. There was no question about the fact of the breach. The sole issue for the court concerned the measure of damages. The trial judge held that there had been a breach of covenant, but awarded damages in the sum of $34,820, being the difference between the value of the property with the old foyer, and the value of the property with the new foyer constructed by the tenant. On appeal, the Full Court of the Federal Court of Australia had increased the judgment sum to $1.38 million, made up of $580,000 to reflect

37 (1954) 90 CLR 613. 38 (1854) 9 Exch 341; 156 ER 145. 39 (1954) 90 CLR 613, 617–618. Approved by the High Court in Tabcourt Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272. See also East Ham Corporation v Bernard Sunley & Sons Ltd [1966] AC 406; applied in McKay v Hudson [2001] WASCA 387; Fenridge Pty Ltd v Retirement Care Australia [2013] VSC 464, [352]; United Petroleum Pty Ltd v Bonnie View Petroleum Pty Ltd (In Liq) [2017] VSC 185.

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the cost of restoring the foyer to its original condition, and $800,000 for loss of rent while the restoration work was taking place. The High Court upheld the decision of the Full Court. French CJ, Gummow, Heydon, Crennan and Kiefel JJ  The role of cl 2.13 At trial, the Landlord’s only claim for damages for breach of contract was based on an alleged breach of cl 2.13. Accordingly, damages are to be assessed on that basis. Clause 2.13 is an express negative covenant. It serves a function of considerable practical utility in relation to the Landlord’s capacity to protect its legitimate interest in preserving the physical character of the premises leased. That function is: provided the Landlord learned of a threat to make a substantial alteration to the premises without its written consent, a speedy application could be made for an interlocutory negative injunction, an appeal could be made to the modern understanding of the principles classically stated by Lord Cairns LC in Doherty v Allman, and the status quo could readily be preserved. The clandestine conduct of the Tenant made it impossible for the Landlord to apply for an interlocutory negative injunction, but that does not detract from that aspect of cl 2.13 in assessing damages for its breach. Underlying the Tenant’s submission that the appropriate measure of damages was the diminution in value of the reversion was an assumption that anyone who enters into a contract is at complete liberty to break it provided damages adequate to compensate the innocent party are paid. It is an assumption which at least one distinguished mind has shared. It has been dignified as ‘the doctrine of efficient breach’. It led, in the Landlord’s submission, to an attempt ‘arrogantly [to] impose a form of ‘economic rationalism’’ on the unwilling Landlord. The assumption underlying the Tenant’s submission takes no account of the existence of equitable remedies, like decrees of specific performance and injunction, which ensure or encourage the performance of contracts rather than the payment of damages for breach. It is an assumption which underrates the extent to which those remedies are available. However, even if the assumption were correct it would not assist the Tenant. The Tenant’s submission misunderstands the common law in relation to damages for breach of contract. The ‘ruling principle’, confirmed in this Court on numerous occasions, with respect to damages at common law for breach of contract is that stated by Parke B in Robinson v Harman: The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.

Oliver J was correct to say in Radford v De Froberville that the words ‘the same situation, with respect to damages, as if the contract had been performed’ do not mean ‘as good a financial position as if the contract had been performed’ (emphasis added). In some circumstances putting the innocent party into ‘the same situation … as if the contract had been performed’ will coincide with placing the party into the same financial situation. Thus, in the case of the supply of defective goods, the prima facie measure of damages is the difference in value between the contract goods and the goods supplied. But as Staughton LJ explained in Ruxley Electronics Ltd v Forsyth such a measure of damages seeks only to reflect the financial consequences of a notional transaction whereby the buyer sells the defective goods on the market and purchases

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the contract goods. The buyer is thus placed in the ‘same situation … as if the contract had been performed’, with the loss being the difference in market value. However, in cases where the contract is not for the sale of marketable commodities, selling the defective item and purchasing an item corresponding with the contract is not possible. In such cases, diminution in value damages will not restore the innocent party to the ‘same situation … as if the contract had been performed’.  In circumstances like the present, where the relevant covenant is in the form of cl 2.13, it is not the case that, in Oliver J’s words (66): the disappointment of the plaintiff ’s hopes and expectations from the contract becomes a relevant consideration only so far as it is measurable either by some deterioration of the plaintiff ’s financial situation or by some failure to obtain an amelioration of his financial situation.

To reason otherwise is to undermine a fundamental postulate inherent in cl 2.13. Similar thinking underlies a statement made by Dixon CJ, Webb and Taylor JJ in Bellgrove v Eldridge. A builder who had built a house which, in breach of contract, contained defective concrete and mortar, contended that the measure of damages was limited to diminution in value and did not extend to costs of rectification. Their Honours said: In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her. This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract; her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building on her land which is substantially in accordance with the contract.

So here, the Landlord was contractually entitled to the preservation of the premises without alterations not consented to; its measure of damages is the loss sustained by the failure of the Tenant to perform that obligation; and that loss is the cost of restoring the premises to the condition in which they would have been if the obligation had not been breached. The Tenant relied heavily on findings by the trial judge that the Landlord had erected and leased the building for commercial purposes and that it was an investment property. The Tenant contended that the Landlord had never run a case that it valued the foyer for its aesthetic qualities as distinct from its having ‘pulling power’ as a ‘leasing tool’, and it relied on the trial judge’s implicit finding, based on the resolution of conflicting expert evidence, that the old foyer was no more effective as a leasing tool than the new foyer. The answer to these submissions was put thus by Oliver J in Radford v De Froberville: Now, it may be that, viewed objectively, it is not to the plaintiff ’s financial advantage to be supplied with the article or service which he has stipulated. It may be that another person might say that what the plaintiff has stipulated for will not serve his commercial interests so well as some other scheme or course of action. And that may be quite right. But that, surely, must be for the plaintiff to judge. Pacta sunt servanda. If he contracts for the supply of that

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which he thinks serves his interests—be they commercial, aesthetic or merely eccentric— then if that which is contracted for is not supplied by the other contracting party I do not see why, in principle, he should not be compensated by being provided with the cost of supplying it through someone else or in a different way, subject to the proviso, of course, that he is seeking compensation for a genuine loss and not merely using a technical breach to secure an uncovenanted profit.

In Ruxley Electronics & Construction Ltd v Forsyth the latter half of the passage was quoted with approval by Lord Jauncey of Tullichettle, and the passage was referred to with approval by Lord Mustill. The Tenant stressed that in Bellgrove v Eldridge this Court pointed out that there was a qualification to the rule it stated in regard to damages recoverable by a building owner for the breach of a building contract. ‘The qualification … is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt’. The example which the Court gave of unreasonableness was the following: No one would doubt that where pursuant to a building contract calling for the erection of a house with cement rendered external walls of second-hand bricks, the builder has constructed the walls of new bricks of first quality the owner would not be entitled to the cost of demolishing the walls and re-erecting them in second-hand bricks.

That tends to indicate that the test of ‘unreasonableness’ is only to be satisfied by fairly exceptional circumstances. The example given by the Court aligns closely with what Oliver J said in Radford v De Froberville, that is, that the diminution in value measure of damages will only apply where the innocent party is ‘merely using a technical breach to secure an uncovenanted profit’. It is also important to note that the ‘reasonableness’ exception was not found to exist in Bellgrove v Eldridge. Nothing in the reasoning in that case suggested that where the reasoning is applied to the present circumstances, the course which the Landlord proposed is unnecessary or unreasonable. As part of the same submission, the Tenant relied on Ruxley Electronics & Construction Ltd v Forsyth. The House of Lords there held in a building case that where the expenditure necessary to rectify the defect in the building was out of all proportion to the benefit to be obtained the appropriate measure of damages was not the cost of reinstatement but the diminution in the value of the work occasioned by the breach, even if that would result in a nominal award. The House rejected a claim for £21,560 damages for reconstructing a swimming pool that was 1 ft 6 inches too shallow. The House saw the following matters as indicating that the cost of reconstruction was not recoverable: The trial judge made the following findings which are relevant to this appeal: (1) the pool as constructed was perfectly safe to dive into; (2) there was no evidence that the shortfall in depth had decreased the value of the pool; (3) the only practicable method of achieving a pool of the required depth would be to demolish the existing pool and reconstruct a new one at a cost of £21,560; (4) he was not satisfied that the respondent intended to build a new pool at such a cost; (5) in addition such cost would be wholly disproportionate to the disadvantage of having a pool of a depth of only 6 ft as opposed to 7 ft 6 inches and it would therefore be unreasonable

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to carry out the works; and (6) that the respondent was entitled to damages for loss of amenity in the sum of £2500.

Their Lordships quoted and referred to various passages in Bellgrove v Eldridge and Radford v De Froberville without dissent. Although they reversed the Court of Appeal, in which the leading judgment, that of Staughton LJ, quoted various passages from Radford v De Froberville, they did not disagree with what those cases said as a matter of principle, and seemed to consider that their decision was consistent with the principles stated by Oliver J.  The result at which their Lordships arrived is on one view inconsistent with those principles, but for present purposes it is sufficient to say that the facts of Ruxley Electronics & Construction Ltd v Forsyth, which their Lordships evidently saw as quite exceptional, are plainly distinguishable from those of the present appeal. Further, the Landlord correctly submitted that the Tenant’s submission misconstrued what this Court said in Bellgrove v Eldridge. The ‘qualification’ referred to in the passage quoted above that the ‘work undertaken be necessary to produce conformity’ meant, in that case, apt to conform with the plans and specifications which had not been conformed with. Applied to this case, the expression ‘necessary to produce conformity’ means ‘apt to bring about conformity between the foyer as it would become after the damages had been spent in rebuilding it and the foyer as it was at the start of the lease’. And the Landlord also correctly submitted that the requirement of reasonableness did not mean that any excess over the amount recoverable on a diminution in value was unreasonable. The Tenant’s submissions rested on a loose principle of ‘reasonableness’ which would radically undercut the bargain which the innocent party had contracted for and make it very difficult to determine in any particular case on what basis damages would be assessed. That principle should not be accepted. If the benefit of the covenant in cl 2.13 were to be secured to the Landlord, it is necessary that reinstatement damages be paid, and it is not unreasonable for the Landlord to insist on their payment. For these reasons the orders of the Full Court are upheld. It is thus not necessary either to set out, or to consider the merits of, the Tenant’s complaints, because those complaints do not touch upon the validity of these reasons. It is desirable, however, to note briefly three matters which arose in argument.

Mental distress [23.24] The general principle is that damages for injured feelings, disappointment, and mental distress are not available in contract.40 The strictness of this general principle has been eroded by the creation of several exceptions to the point where it must be questioned whether mental distress should continue to be treated differently from other heads of damage in contract.41 Damages for injured feelings or mental distress are recoverable:

40 Addis v Gramophone Co Ltd [1909] AC 488. This should be contrasted with the position in torts where mental distress is regularly recoverable. 41 See Mason CJ in Baltic Shipping Co v Dillon (1993) 176 CLR 344, 365.

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where the breach of contract has caused personal injury to the plaintiff;42



where the plaintiff has suffered actual physical discomfort and inconvenience and the mental suffering is directly related to that inconvenience;43 and



where an object of the contract is the provision of pleasure and enjoyment or freedom from mental distress.44

[23.25]

Baltic Shipping v Dillon (1993) 176 CLR 342 High Court of Australia Mrs Dillon was a passenger on the cruise ship Mikhail Lermontov, which sank on a trip from New Zealand to Australia. Mrs Dillon had booked a fourteen-day cruise; the ship sank nine days after the cruise began. The two questions before the High Court were whether Mrs Dillon was entitled to the repayment of the fare in restitution, and whether she was entitled to damages for the disappointment and distress at the loss of the holiday. In relation to the issue of disappointment and distress, the High Court unanimously favoured the retention of the general rule that damages for anxiety, disappointment, and distress are not recoverable in actions for breach of contract, but allowed recovery because the object of the contract was to provide enjoyment, relaxation, or freedom from molestation. Mason CJ … in Hamlin v Great Northern Rly Co, where the plaintiff recovered pecuniary loss and nominal damages but was refused damages for distress arising from the defendant’s failure to carry him by train to Hull in breach of contract resulting in his being delayed for days and missing appointments with customers, Pollock CB said: [G]enerally in actions upon contracts no damages can be given which cannot be stated specifically, and … the plaintiff is entitled to recover whatever damages naturally result from the breach of contract, but not damages for the disappointment of mind occasioned by the breach of contract. (Emphasis added.) 

In Hobbs v London & South Western Rly Co, Mellor J reiterated this approach … Subsequently, in Addis v Gramophone Co Ltd, the House of Lords held that the plaintiff could not recover in an action for damages for breach of contract in respect of his injured feelings and

42 Godley v Perry, Burton & Sons [1960] 1 WLR 9, 13; Mount Isa Mines Ltd v Pusey (1970) 125 CLR 383. This would include psychiatric injury due to breach of contract: Gogay v Hertfordshire County Council [2000] IRLR 703. 43 Hobbs v London & South Western Rly Co (1875) LR 10 QB 111; Fawzi El-Saiedy v New South Wales Land & Housing Corporation [2011] NSWSC 820 (failure to remove asbestos from residential tenancy caused physical inconvenience). 44 Heywood v Wellers [1976] QB 446 (vexation from solicitor’s negligence); Jarvis v Swans Tours Ltd [1973] QB 233; Jackson v Horizon Holidays Ltd [1975] 1 WLR 146 (breach of contract for holiday); Rose v Boxing NSW Inc [2007] NSWSC 20 (expulsion from an amateur boxing club).

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loss of employment prospects arising from the harsh and humiliating manner of his dismissal. … The only consideration of the principle in this Court is the approval by Dixon and McTiernan JJ in Fink v Fink of the statement of Pollock CB in Hamlin v Great Northern Rly Co set out above. The general rule that damages for anxiety, disappointment and distress are not recoverable in actions for breach of contract is, in any event, subject to exceptions to which I shall refer shortly. The scope of the exceptions has been expanded by judicial decision in recent years, so much so that the authority of the general rule is now somewhat uncertain. The conceptual and policy foundations of the general rule are by no means clear. It seems to rest on the view that damages for breach of contract are in essence compensatory and that they are confined to the award of that sum of money which will put the injured party in the financial position the party would have been in had the breach of contract not taken place. On that approach, anxiety and injured feelings do not, generally speaking, form part of the plaintiff ’s compensable loss which flows from a breach of contract. At bottom, this approach to the problem is based on a policy of excluding the recovery of compensation for injured feelings in cases of breach of contract or confining recovery to cases of a limited class or classes, viz, those where physical inconvenience is caused by the breach of contract. This policy is based on an apprehension that the recovery of compensation for injured feelings will lead to inflated awards of damages in commercial contract cases, if not contract cases generally. Treitel suggests that this approach is sensible because ‘anxiety is an almost inevitable concomitant of expectations based on promises, so that a contracting party must be deemed to take the risk of it’. But one might ask why the injured party should be deemed to take the risk of damage of a particular kind when the fundamental principle on which damages are awarded at common law is that the injured party is to be restored to the position (not merely the financial position) in which the party would have been had the actionable wrong not taken place. Add to that the fact that anxiety and injured feelings are recognized as heads of compensable damage, at least outside the realm of the law of contract. Add as well the circumstance that the general rule has been undermined by the exceptions which have been engrafted upon it. We are then left with a rule which rests on flimsy policy foundations and conceptually is at odds with the fundamental principle governing the recovery of damages, the more so now that the approaches in tort and contract are converging. It is convenient now to take stock of the exceptions to the general rule. First, damages for injured feelings were recoverable in the action for damages for breach of promise of marriage. Secondly, it is beyond question that a plaintiff can recover damages for pain and suffering, including mental suffering and anxiety, where the defendant’s breach of contract causes physical injury to the plaintiff. Thirdly, there are cases in which damages for breach of contract have included compensation for the physical inconvenience suffered by the plaintiff in certain circumstances. They include the physical inconvenience suffered by a plaintiff when the defendant’s train did not carry him to the stipulated destination and that suffered by a plaintiff who purchased property with defects not revealed in the surveyor’s report upon which the plaintiff relied. Fourthly, courts have included compensation for an element of subjective mental

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suffering where the plaintiff has sustained physical inconvenience as a result of the defendant’s breach of contract and the mental suffering is directly related to that physical inconvenience. Finally, there are other cases in which the plaintiff has recovered damages for distress, vexation and frustration where the very object of the contract has been to provide pleasure, relaxation or freedom from molestation. So, in Heywood v Wellers, where the plaintiff instructed a solicitor to obtain an injunction to protect the client from molestation and the solicitor negligently failed to do so, the client recovered damages for the mental distress she suffered in consequence of being molested. The contract between the client and the solicitor had as its object the protection of the client from molestation of the kind which occurred. Likewise, plaintiffs have recovered damages for disappointment and distress caused by the breach of a contract to provide a stipulated holiday, entertainment or enjoyment, the object of the contract being to provide pleasure or relaxation. The approach which has been taken in the more recent English decisions, particularly those decisions which vindicate the last three of the exceptions set forth above, is based on the rule in Hadley v Baxendale. Thus, in Cox v Philips Industries Ltd, Lawson J concluded that there was: ‘no reason in principle why, if a situation arises which within the contemplation of the parties would have given rise to vexation, distress and general disappointment and frustration, the person who is injured by a contractual breach should not be compensated in damages for that breach.’ On other occasions reference has been made to the concept of reasonable foreseeability which is the test for remoteness of damage. However, the remoteness test does not provide a satisfactory explanation for the approach now adopted in England. If that test be the sole determinant for the recovery of damages for disappointment and distress, such damages would generally be recoverable so long as they were not too removed; their availability would not be relegated to an exception to a general rule denying recovery. Furthermore, it is clear that in England emphasis is given in the cases to the limited circumstances in which such damages are awarded for breach of contract. Thus, in Watts v Morrow, Bingham LJ denied that the general exclusionary rule was founded on the assumption that the plaintiff ’s feelings are not foreseeable and asserted that it was founded on considerations of policy. He went on carefully and convincingly to delineate the circumstances in which damages could be awarded, observing: But the rule is not absolute. Where the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured instead. If the law did not cater for this exceptional category of case it would be defective. A contract to survey the condition of a house for a prospective purchaser does not, however, fall within this exceptional category. In cases not falling within this exceptional category, damages are in my view recoverable for physical inconvenience and discomfort caused by the breach and mental suffering directly related to that inconvenience and discomfort.

The rule in Hadley v Baxendale presents a somewhat narrower test than that posed by the concept of foreseeability and therefore avoids some of the criticisms to which that concept is exposed. …

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In C Czarnikow Ltd v Koufos, the House of Lords held that damage in the reasonable contemplation of the parties must be ‘a serious possibility’, ‘a real danger’, ‘liable to result’ or ‘not unlikely’ to occur. In Wenham v Ella, Gibbs J found it unnecessary to decide which of these expressions conveyed most precisely the desired shade of meaning but stated that a person suing for breach of contract did not need to establish that the loss was ‘a near certainty or an odds-on probability’. … as a matter of ordinary experience, it is evident that, while the innocent party to a contract will generally be disappointed if the defendant does not perform the contract, the innocent party’s disappointment and distress are seldom so significant as to attract an award of damages on that score. For that reason, if for no other, it is preferable to adopt the rule that damages for disappointment and distress are not recoverable unless they proceed from physical inconvenience caused by the breach or unless the contract is one the object of which is to provide enjoyment, relaxation or freedom from molestation. In cases falling within the last-mentioned category, the damages flow directly from the breach of contract, the promise being to provide enjoyment, relaxation or freedom from molestation. In these situations the court is not driven to invoke notions such as ‘reasonably foreseeable’ or ‘within the reasonable contemplation of the parties’ because the breach results in a failure to provide the promised benefits. In my view, this approach to the problem is to be preferred to the artificial expedient of saying that damages of the kind under consideration will be awarded for breaches of non-commercial contracts but not for breaches of commercial contracts. That expedient requires a distinction to be drawn between commercial and non-commercial contracts; that distinction is by no means easy to draw and, in any event, it is not a distinction which should necessarily be decisive in determining whether such damages are available or not. In the present case, the contract, which was for what in essence was a ‘pleasure cruise’, must be characterized as a contract the object of which was to provide for enjoyment and relaxation. It follows that the respondent was entitled to an award of damages for disappointment and distress and physical inconvenience flowing from that breach of contract. Indeed, an award for disappointment and distress consequential upon physical inconvenience was justified on that account alone. [Dean, Dawson, Toohey and Gaudron JJ agreed with the law as stated by Mason CJ and concluded the case fell within the third exception. McHugh J while expressing a desire for the current principles to be more broadly stated agreed that in the context of this case the prior decisions should be followed and Mrs Dillon was entitled to damages under the third exception.]

RESTRICTIONS ON RECOVERY OF DAMAGES Termination [23.26] There is no general requirement for a plaintiff to terminate a contract prior to making a claim for damages45 subject to two exceptions:

45 Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286.

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Anticipatory breach: An anticipatory breach of contract will not be a breach until the innocent party accepts the conduct as repudiation of the contract and terminates. Consequently, until the contract is terminated, no cause of action for damages will arise.46



A claim for loss of bargain damages: Loss of bargain damages compensate a plaintiff for the loss of the contract. As the object of such damages is to compensate for the loss of the bargain, it is only once the agreement is at an end permanently that the plaintiff can be said to have lost the benefit of the bargain.47

Ready willing and able to perform [23.27] A plaintiff seeking damages for breach of contract will need to prove they were ready, willing, and able to perform where the obligation that is breached is a dependent and concurrent obligation.48 This situation will arise in contracts for the sale of land and contracts for the sale of goods where the party in breach has failed to tender performance of their settlement obligations. A  party’s entitlement to damages for the other party’s failure to complete, depends on two questions: •

whether the party was, at the time of the refusal to complete, substantially capable of completing the contract; and



whether it is likely that the party actually would have completed the contract.

If the purchaser is claiming damages, this means proving the purchaser was capable of paying the purchase price. If the vendor is claiming damages, it means proving the vendor was able to hand over the title to the property or goods. [23.28]

Foran v Wight (1989) 168 CLR 385 High Court of Australia The parties had entered into a contract for the sale of land. A special condition required the vendors to obtain the registration of a right of way prior to completion. The date for completion was 22 June and time was of the essence. On 20 June, the vendors told the purchasers they would not be able to complete the contract, as the right of way could not be registered by 22 June. Neither party attempted to settle on 22 June, and the purchasers purported to terminate the contract by notice on 24 June. The purchasers claimed a declaration that the contract was validly terminated and the deposit should be repaid. The vendors claimed that the purchasers could not terminate the contract as they were not ready willing and able to perform. The first

46 Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444. 47 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, 31; Photo Productions Ltd v Securicor Ltd [1980] AC 827; Sunbird Plaza Ltd v Maloney (1988) 166 CLR 245. 48 Foran v Wight (1989) 168 CLR 385.

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issue addressed by each of the judges was whether the vendor’s statement of 20 June amounted to an anticipatory breach of contract. Brennan J  Damages and rescission A breach by A  of an essential term of the contract entitles B to rescind the contract and to recover damages for the loss of the benefit to which, had the contract been performed, he would have been entitled. Whether the breach be anticipatory or actual, it is necessary to form an estimate of what would have happened had the contract been performed in comparison with what has happened, the contract being broken: see Hochster v De la Tour. Where B, being otherwise ready and willing to perform his part of mutually dependent and concurrent obligations, acts on A’s intimation of non-performance and does not tender performance of his own obligation, he is entitled to damages for A’s non-performance. In assessing the damages, it is necessary to form an estimate of the benefit to which B would have been entitled had A performed his contractual obligation. Where, as in this case, a purchaser who has made no announcement that he will not complete and who is attempting to raise finance in order to complete when the vendor intimates that he will not complete on the stipulated day, the purchaser’s entitlement to damages for the vendor’s failure to complete on that day depends on two related but distinct questions: first, whether the purchaser was at the time of the intimation substantially incapable of raising the finance and, second, whether it is more likely than not that the purchaser would have succeeded in raising the finance. A reasonable prospect of a purchaser’s raising finance (the converse of ‘substantial incapacity’) suffices to show that the purchaser was ready and willing at the time of the intimation, but it does not establish that the purchaser would have been ready and willing to complete when the time for completion arrived and would have become entitled to the benefit of the completed contract. The onus is on the purchaser to establish his damages on the balance of probabilities. The readiness and willingness which must be shown by a purchaser in proof of his damages for the vendor’s breach in failing to complete at the stipulated time is readiness and willingness to pay the price at that time: Hensley v Reschke. There, Isaacs and Rich JJ pointed out that: ‘it must never be forgotten that readiness and willingness in this sense means readiness and willingness in the event of the vendor being able to carry out the contract as the purchaser insists by his action it should have been carried out, and claims damages on that basis.’ The distinction between readiness and willingness up to the time of an intimation of non-performance and readiness and willingness when the time for performance arrives is not drawn by Isaacs J in Cohen & Co. There he cited Hensley v Reschke although the latter case is concerned not with the elements of a cause of action for breach but with proof of damage. Readiness and willingness to pay the price when the time for completion arrives is a condition precedent to the recovery of substantial damages, but proof of that kind of readiness and willingness is not essential to establish that a vendor who has given an intimation of non-performance and who fails to perform is in breach. The problem of assessing damages does not arise in this case, where the purchasers have purported to rescind for the vendors’ breach and seek merely to recover the deposit. The finding, albeit obiter, of Needham J that the purchasers had not discharged the onus of proving readiness to complete seems to relate to the likelihood of the purchasers’ having in hand on 22 June the

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finance needed to settle. That question does not fall for determination. Had the purchasers sought to recover substantial damages from the vendors for the vendors’ failure to complete on 22 June, the purchasers’ inability to prove on the balance of probabilities that they would have been able to pay the price on that day would have been fatal to the claim. But the purchasers abandoned a claim for damages for the vendors’ breach. [Footnotes omitted.]

LIQUIDATED DAMAGES AND PENALTIES [23.29] As a substitute for damages at common law, parties to a contract may stipulate an amount payable in the event of breach of contract or the occurrence of an event of default. This will commonly be referred to as liquidated damages or agreed damages. The advantage of an agreed damages clause is that the plaintiff does not have to prove the loss suffered, and is entitled to the sum stated in the clause. If the sum stipulated as payable on breach is a genuine pre-estimate of the loss, it will be accepted as the amount payable without proof of the actual loss. However, if the amount stipulated is extravagant or unconscionable and all out of proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. A penalty will not be enforced by the courts. Whether a clause is a penalty involves a consideration of two broad questions: (1) Is the clause of a type to which the rule concerning penalties applies? (2) Is the clause classified as a genuine pre-estimate of loss or a penalty?

Application of the doctrine of penalties [23.30] Until the decision in Andrews v Australia and New Zealand Banking Group Limited,49 the general rule was that the doctrine of penalties applied where the contract provided for the payment of a sum of money or monies worth in the event of breach of the contract by a party.50 In Andrews v Australia and New Zealand Banking Group Limited,51 the High Court broadened the circumstances in which the doctrine applied by concluding that equitable relief against penalties was not subsumed into the common law rules and that the rule is not limited to cases arising out of a breach of contract. The High Court endorsed a broader statement of the formulation of the doctrine of penalties founded in equity: In general terms, a stipulation prima facie imposes a penalty on a party (‘the first party’) if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit of the second party. In that

49 (2012) 247 CLR 205. 50 Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656. 51 (2012) 247 CLR 205.

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sense, the collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation.52

[23.31] The High Court make a number of points in elaboration of the principle: (i) The primary stipulation may be the occurrence or non-occurrence of an event which need not be the payment of money. This is expressed broadly and may mean the doctrine applies not only where there is a failure to pay money, but also to other types of obligations or contingent conditions. (ii) The penalty imposed by the secondary stipulation need not be the payment of money, but is described as an ‘additional detriment’. Potentially this extends the doctrine to a contractual right to forfeit money or property, rights of termination, and obligations to indemnify. (iii) If compensation can be made to the second party for the prejudice suffered, the collateral stipulation and the penalty are enforced to the extent of that compensation. This is inconsistent with the previous position of the clause being void or unenforceable and advocates partial enforcement. [23.32] Despite the breadth of the principle a number of limits on the application of the doctrine were also proposed by the High Court: (i) The penalties doctrine is not ‘engaged’ if the ‘prejudice or damage to the interests of the second party by the failure of the stipulation is insusceptible of evaluation and assessment in money terms’.53 (ii) A provision will not be a penalty if there is an identifiable reciprocal benefit. (iii) The doctrine does not apply if the sum of money is payable because the promisor exercised an option in performance. [23.33] Liquidated damages clauses are by their nature, usually drafted on the basis that a sum of money is payable by one party to the other following a breach of contract, event of default or termination of the contract. There is no question that the formulation of the doctrine by the High Court in Andrews applies to such clauses. The doctrine of penalties is, therefore, a fundamental consideration for the drafter of a liquidated damages clause. Even though it may be difficult to avoid the application of the doctrine through drafting, there is still scope through appropriate drafting to minimise the likelihood a court will find the clause is actually a penalty. The application of the doctrine to the construction of liquidated damages clauses is considered below.54

52 (2012) 247 CLR 205, [10]. 53 Ibid, [11]. 54 Refer to [23.35].

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[23.34]

Andrews v Australia and New Zealand Banking Group Ltd High Court of Australia [2012] HCA 30 This case concerned a claim by customers of the Australian and New Zealand Banking Group Ltd (ANZ Bank) that dishonour fees, over-limits fees and late payment fees were penalties. French CJ, Gummow, Crennan, Kiefel and Bell JJ. ... The penalty doctrine [9] Mason and Deane JJ observed in Legione v Hateley that, as the term suggests, a penalty is in the nature of a punishment for non-observance of a contractual stipulation and consists, upon breach, of the imposition of an additional or different liability. [10] In general terms, a stipulation prima facie imposes a penalty on a party (‘the first party’) if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit of the second party. In that sense, the collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation. If compensation can be made to the second party for the prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are enforced only to the extent of that compensation. The first party is relieved to that degree from liability to satisfy the collateral stipulation. [11] It has been established at least since the decision of Lord Macclesfield in Peachy v Duke of Somerset that the penalty doctrine is not engaged if the prejudice or damage to the interests of the second party by the failure of the primary stipulation is insusceptible of evaluation and assessment in money terms. It is the availability of compensation which generates the ‘equity’ upon which the court intervenes; without it, the parties are left to their legal rights and obligations. The point is illustrated by Waterside Workers’ Federation of Australia v Stewart. A bond was given by the appellant in the sum of £500 on condition that it pay £50 if and so often as its members in combination should go on strike. Isaacs and Rich JJ emphasised that, whilst refusal to work almost inevitably would cause loss to employers, ‘no one can ever tell how much loss is sustained by not doing business’ and on the principle stated by Lord Macclesfield no relief was to be given against payment of the £50. [12] It should be noted that the primary stipulation may be the occurrence or non-occurrence of an event which need not be the payment of money. Further, the penalty imposed upon the first party upon failure of the primary stipulation need not be a requirement to pay to the second party a sum of money. [13] In Jobson v Johnson Dillon LJ and Nicholls LJ explained that there is no distinction in principle here between a stipulation upon default for the transfer (or the use) of property and a payment of money; such a distinction would elevate form over substance. In that case, cl 6(b)

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of a share sale contract provided that upon default in payment of an instalment of the purchase price the purchaser was obliged to retransfer the shares to the vendors upon payment of a stipulated sum to the purchaser. The Court of Appeal held that cl 6(b) had the characteristics of a penalty clause. It ordered that either the shares be sold by the purchaser and the amount of the unpaid instalments be paid to the assignee of the vendors; or the current value of the shares, the aggregate of the unpaid instalments and amounts charged on the shares be ascertained and, if this was less than the sum presently due from the vendors under cl 6(b), effect be given to cl 6(b). [14] It will already be apparent that an understanding of the penalty doctrine requires more than a brief backward glance. In his reasons in Austin v United Dominions Corporation Ltd, after referring to the common law and statutory developments which had occurred by the first half of the 18th century, and noting that the equitable origin of the penalty doctrine was accepted throughout the 18th century, Priestley JA continued: In the latter part of the eighteenth century and through much of the nineteenth century the courts showed restlessness with their longstanding duty to relieve against penalties. This has been attributed to the fact that during this period the principle of freedom of contract reached its zenith:  see Atiyah, The Rise and Fall of Freedom of Contract. Whatever the reason, during the nineteenth century the way in which the law concerning penalties originated and the way in which that law became incorporated in the common law were to some extent lost sight of. At the same time the operation of that law was clarified by the recognition of the distinction between a penalty and a genuine pre-estimate of liquidated damages.

[15] The formulation of that distinction between a penalty and a pre-estimate of liquidated damages which was made by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd has been described as a product of centuries of equity jurisprudence. It was recently applied by this court in Ringrow Pty Ltd v BP Australia Pty Ltd. But the present dispute requires attention at an anterior stage of analysis, namely identification of those criteria by which the penalty doctrine is engaged. The course of the Federal Court litigation ..... [21] The primary judge found that the late payment fee was payable upon breach of contract and therefore was capable of characterisation as a penalty. The ANZ has not sought to appeal against that finding. [22] However, in respect of the honour, dishonour, non-payment and over limit fees the primary judge held that these were not charged by the ANZ upon breach of contract by the customer, nor was the occurrence of the event upon which the fees were charged (overdrawing the account or credit limit or attempting to do so) an event which the customer had an obligation or responsibility to avoid. Having thus answered in the negative each of the alternative questions, the primary judge held it was unnecessary to answer the question whether these fees were capable of characterisation as a penalty. The Interstar decision [29] In reaching her conclusion respecting the scope of the penalty doctrine, the primary judge, with respect quite properly, followed what had been decided by the New South Wales Court

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of Appeal in Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd. In that case the Court of Appeal held that the primary judge (Brereton J) had erred in denying that the doctrine had ceased to be one of equity and now was wholly legal in nature and in concluding that the doctrine was not limited to the failure of stipulations which were breaches of contract. [30] The appellants in Interstar were finance companies and the respondents conducted the business of ‘mortgage originators’. Upon the happening of any one of a range of events, the appellants were empowered to terminate agreements, under which they made to the respondents payments described as commissions. Not all of these events were breaches of those agreements by the respondents and not all were acts or omissions over which the respondents had control. The respondents successfully contended at first instance that the event giving rise to the penalty, as the act or event upon which liability was conditioned, could be the termination of the agreements even if the ground for termination was not breach thereof. Brereton J held that the termination clause was a penalty provision and wholly void, and that the respondents were entitled to continued receipt of the commissions. The Court of Appeal held that the agreements conferred no accrued rights upon the respondents, so that upon termination there was no forfeiture of accrued property for the collateral purpose of encouraging compliance with the contract and no engagement of the penalty doctrine; further, the character of the provisions was to define entitlement to the commissions. [31] These holdings would have been sufficient for the Court of Appeal to dispose of the case. However, the court went on, with reference to observations of Mason and Wilson JJ in AMEV-UDC Finance Ltd v Austin (AMEV-UDC), to state that ‘[t]he modern rule against penalties is a rule of law, not equity’. The Court of Appeal also, with particular reference to the speech of Lord Roskill in Exports Credits Guarantee Dept v Universal Oil Products Co (ECGD), said that the limits of the doctrine of penalties arise ‘from the consequences of breach of contract’ and so reflect ‘the public policy of keeping commercial parties to their bargains’. [32] The applicants seek in this court to challenge these statements in Interstar. For the reasons which follow that challenge should succeed. Bonds, contracts and the meanings of ‘condition’ [33] Before proceeding further with the challenge which the applicants seek to make to Interstar, something first should be said about the nature of the bond because it was here that equity first intervened. This, in turn, involves consideration of the use of the term ‘condition’ in the relevant legal discourse. Like the term ‘rescission’, the term ‘condition’ has several distinct meanings and applications. This must clearly be kept in mind to avoid engendering confusion of legal principle. [34] Unlike a simple contract containing an exchange of promises, which are classified as conditions or warranties, a bond is an instrument under seal, usually a deed poll, whereby the obligor is bound to the obligee. The ordinary form of bond in use in modern times is not merely for a certain money payment, but is accompanied by a condition in the nature of a defeasance, the performance or occurrence of which discharges the bond. [35] One meaning of ‘condition’ is an important, vital, or material promise, the breach of which will repudiate a contract; the term ‘breach of contract’ is used in contrast to ‘breach of warranty’. But as Professor Stoljar pointed out in his article ‘The Contractual Concept of Condition’, while the obligation under a bond may be said to be conditioned upon the occurrence

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of a particular event, it is important to note that the term ‘condition’ is not used here in the sense just described with respect to breaches of contract. [36] The distinction is drawn as follows in Williston, A Treatise on the Law of Contracts: The common early form of contractual obligation was a bond upon condition, so that in the early books the word ‘obligation’ without more is used to designate such a bond. The purpose of the bond obviously was, and still is, to secure performance of the condition, but instead of attempting to secure this result by exacting a promise from the obligor to perform the condition, there is an acknowledgment of indebtedness—in effect a promise to pay a sum of money if the condition is not performed.

[37] In these reasons the term ‘stipulation’ has been used when describing the penalty doctrine. This reflects the origin of the penal obligation or condition, as known today, in the stipulations (stipulatio) in Roman law at a period where stipulations for the payment of money were alone valid. The practical method at that period of stipulating for the performance of a collateral act was to make the payment of a money sum conditional on the non-performance of the desired act; that sum might be recovered in full even if it exceeded the value of the stipulated act or forbearance. ... [45] Enough has been said to show that (a) the first field for the operation of the equitable doctrine concerned the enforcement of bonds, (b)  with respect to bonds, the expressions ‘obligation’ and ‘condition’ are not employed in the same or corresponding sense as appears in dealing with the breach of contractual promises, and (c) it does not follow, as the ANZ would have it, that in a simple contract the only stipulations which engage the penalty doctrine must be those which are contractual promises broken by the promisor. Limited scope of the penalty doctrine? [46] Thus, while the ANZ maintains that the penalty doctrine has the limited scope, respecting breaches of contract, which in Interstar the Court of Appeal identified with ECGD, this limitation should not be accepted. [47] What was in issue in ECGD was a defence to an action upon an indemnity given to a guarantor which was a government body to hold the guarantor harmless by reimbursement of moneys it paid to answer calls on the guarantee. The circumstance, as was the case in ECGD, that this might turn out to have been a commercially improvident arrangement for the indemnifier would not attract the intervention of equity when the indemnity was called upon by the guarantor. The liability of the indemnifier would mirror the loss incurred by the guarantor. It was in that particular situation that Lord Roskill said in ECGD: [P]erhaps the main purpose, of the law relating to penalty clauses is to prevent a plaintiff recovering a sum of money in respect of a breach of contract committed by a defendant which bears little or no relationship to the loss actually suffered by the plaintiff as a result of the breach by the defendant.

[48] In AMEV-UDC Gibbs CJ emphasised that this court was not required to consider the proposition, said to be derived from ECGD, that no clause which provided for the payment of

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money on the happening of a specified event other than a breach of a contractual duty owed by the contemplated payor to the contemplated payee could ever be a penalty. [49] Brereton J in Interstar rejected the submission that liability to pay, forfeit or suffer the retention of money or property which engages the penalty doctrine may never be triggered by the failure in occurrence of an event which is stipulated in a prior agreement between the parties but is not itself the subject of a contractual promise between them. Brereton J pointed to the regard paid by equity to substance rather than merely to form and referred to the grant of relief in the case of penal bonds for non-performance of a condition which was not the subject of any contractual promise. These are significant considerations. They are not displaced by fixing solely upon a breach of contract by the party seeking relief from an alleged penalty. [50] In Interstar the Court of Appeal misunderstood the scope of the penalty doctrine. The question whether in a given case the operation of a stipulation which is not a contractual promise may attract the penalty doctrine is not foreclosed by the rejection in the Court of Appeal of what had been said by Brereton J at first instance. AMEV-UDC in the High Court ... [67] The upshot is that at first instance in Interstar, Brereton J properly understood the significance of what had been said by Mason and Wilson JJ, when he concluded: [T]heir Honours’ judgment does not decide that relief against a penalty is available only when it is conditioned upon a breach of contract; to the contrary, it suggests that relief may be granted in cases of penalties for non-performance of a condition, although there is no express contractual promise to perform the condition  — apparently on the basis that despite the absence of such an express promise, a penalty conditioned on failure of a condition is for these purposes in substance equivalent to a promise that the condition will be satisfied.

[68] A further statement by Mason and Wilson JJ in AMEV-UDC, that it was the effect of the Judicature system which led: to the conclusion that the equitable jurisdiction to relieve against penalties withered on the vine for the simple reason that, except perhaps in very unusual circumstances, it offered no prospect of relief which was not ordinarily available in proceedings to recover a stipulated sum or, alternatively, damages, overlooks the proposition that the only relevant effect of the Judicature system, as explained above, was upon the procedures in the unified court system not upon substantive doctrine. Thereafter, in whatever court the action was brought in respect of a penalty, a money remedy, declaratory and injunctive relief and the taking of an account were available in that one action.

Conclusion [78] The upshot is that the restrictions upon the penalty doctrine urged by the Court of Appeal in Interstar should not be accepted. The primary judge erred in concluding, in effect, that in the absence of contractual breach or an obligation or responsibility on the customer to avoid the occurrence of an event upon which the relevant fees were charged, no question arose as to whether the fees were capable of characterisation as penalties.

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[79] Indeed, a further issue appears to have been presented by her Honour’s findings set out above. This may be stated as being whether the requirement to pay the fees in question was not enjoyed by the ANZ as security for performance by the customer of its other obligations to the ANZ, or whether the fees were charged by the ANZ, as specified in pre-existing arrangements with the customer, and ANZ, respectively, for the further accommodation provided to the customer by its authorising payments upon instructions by the customer upon which the ANZ otherwise was not obliged to act, or upon refusal of that accommodation. [80] The operative distinction would be that upon which the majority of the New South Wales Court of Appeal (Jacobs JA and Holmes JA) decided Metro-Goldwyn-Mayer Pty Ltd v Greenham. Their Honours contrasted a stipulation attracting the penalty doctrine and one giving rise consensually to an additional obligation. This distinction had been identified long before, by Lord St Leonards in French v Macale, as follows: [I]t appears, that the question for the Court to ascertain is, whether the party is restricted by covenant from doing the particular act, although if he do it a payment is reserved; or whether according to the true construction of the contract, its meaning is, that the one party shall have a right to do the act, on payment of what is agreed upon as an equivalent. If a man let meadow land for two guineas an acre, and the contract is, that if the tenant choose to employ it in tillage, he may do so, paying an additional rent of two guineas an acre, no doubt this is a perfectly good and unobjectionable contract; the breaking up the land is not inconsistent with the contract, which provides, that in case the act is done the landlord is to receive an increased rent. (emphasis added)

Penalty or genuine pre-estimate [23.35] If the doctrine of penalties applies it is necessary to construe the terms of the contract at the time the contract was made55 to determine whether in substance the clause is a penalty. According to a majority of the High Court in Paciocco v Australia and New Zealand Banking Group,56 the relevant test is whether the amount payable is out of all proportion to the interest of the innocent party in performance of the contact. Application of this test requires a consideration of the interests of the innocent party having regard to the terms of the contract. This assessment should be undertaken as at the time the contract was made.57 When construing

55 Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Company Ltd [1915] AC 79, 87. 56 (2016) 333 ALR 569, [57], [270], [320]. See also Adopted by the High Court in Esanda Finance Corporation Ltd v Plessnig (1989) 63 ALJR 238; Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 222 ALR 306; Beil v Mansell (No 2) [2006] 2 QdR 499 (an increase of interest rate from 16 per cent to 25 per cent upon breach was a penalty); State of Tasmania v Leighton Contractors Pty Ltd [2005] TASSC 133 (agreed damages of $8000 per day for failure to complete a large infrastructure project was not a penalty); Riggall v Thompson [2010] QCA 144 (contractual damages more than common law damages found to be a penalty); Birdanco Nominees Pty Ltd v Money [2012] VSCA 64 (damages based on loss of goodwill after breach of restraint of trade not a penalty); Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) [2012] WASCA 53 (payment of $13 846 per week after breach of a construction contract was a penalty).See also EV Lanyon, ‘Equity and the Doctrine of Penalties’ (1996) 9 JCL 234, for detailed discussion on the application of this test at common law and in equity. 57 Dunlop Pneumatic Tyre Co Limited v New Garage & Motor Company Limited [1915] AC 79, 87.

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the clause, the court will look to its substance—not to the classifications given by the parties. The fact the parties have described the amount payable as agreed damages will not prevent the clause from being a penalty. [23.36] In Paciocco the High Court aligned more closely with the UK Supreme Court in Cavendish Square Holding BV v Makdessi58 (Cavendish). [23.37]

Paciocco v Australia and New Zealand Banking Group Ltd (2016) 333 ALR 569 High Court The High Court considered whether a fixed late payment fee provision in consumer and business credit card accounts provided by ANZ was a penalty. Credit card customers were required to pay a minimum amount of the monthly balance by a certain date. If they did not do so they would be charged a fixed fee of either $20 or $35 (in addition to interest). There was no suggestion that these amounts were any sort of pre-estimate of loss due directly to the customer’s default. The Federal Court found the amounts were penalties, the Full Federal Court allowed the banks appeal admitting evidence of loss other than financial loss and the High Court agreed with the Full Court dismissing the appeal. Keifel J  What is a penalty? [16] In Dunlop, Lord Dunedin described the ‘essence’ of a penalty as ‘a payment of money stipulated as in terrorem of the offending party’. By way of comparison, the essence of liquidated damages is ‘a genuine covenanted pre-estimate of damage’ by the parties. Lord Dunedin’s speech in Dunlop has been described as containing a ‘potpourri of old learning and new’ and in the former respect to reflect ‘centuries of equity jurisprudence’. His Lordship’s description of the essence of a penalty would fall into this category. The contrasting concept of liquidated damages for breach of contract belongs to a later period. [17] It has been suggested that the reference to a penalty terrorising persons may not be especially helpful, for penalties may be readily agreed to ‘by parties who are not in the least terrorised by the prospect of having to pay them and yet are … entitled to claim the protection of the court’. The Late Payment Fee charged by the ANZ would not appear to have caused Mr Paciocco undue concern, as he would regularly pay the minimum Monthly Payment late and incur the fee, of which he was fully aware. However, the point to be made is that threats and punishment were regarded as the essential characteristics of a penalty. A sum stipulated to be paid on default, which amounted to a threat to the person obliged to pay it if the principal obligation was not performed, bore the character of a penalty, as did a sum stipulated to be paid which could not be accounted for other than as a punishment for default.

58 [2016] AC 1172.

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[18] The distinction drawn in Andrews, between the primary stipulation and the penalty which is collateral to it, directs attention to penal bonds, which were largely used historically to bind persons to the performance of an obligation. Professor Simpson gives47 the example of a simple common money bond, where A loans B £100. B would execute a bond for a larger sum, which was normally twice the sum lent, thus binding himself to pay £200 on a fixed day. The bond would be subject to a condition of defeasance, which provides that if B pays £100 before the due date, the bond will be void. A similar method was employed for conveying property. [19] The penal bond with conditional defeasance was the principal device for framing substantial contracts in the later medieval and early modern periods. It was adaptable to different transactions and provided certainty. It was the bond that created the debt; it did not just evidence the debt. Thus, it allowed for an action in debt to be brought upon the bond, rather than upon the covenant or agreement it secured. There were limited defences which could be raised in the action (namely, that the condition had been performed, the condition had been substantially performed or the condition was impossible to perform). But penal bonds could operate harshly because of the amount usually required to be paid on default and because any act of default meant the moneys were payable. [20] Nevertheless, the law enforced penal bonds strictly, because it regarded their function as compensatory. A creditor could legitimately contract for compensation for loss suffered through the debtor’s failure to pay on time. It was on this basis that the law distinguished between such transactions and transactions containing usurious terms (which were payment for the use of money and therefore illegal). It was also considered that a debtor could prevent paying a penalty by paying promptly. [21] Equity also viewed the purpose of penal bonds as compensatory and this was the basis for its intervention. Equity looked to what condition the bond was security for and allowed the obligee compensation for the loss flowing fromfailure of the condition (usually limited to principal, interest and costs). The purpose of a bond was only to secure the interest of the obligee in the promise or undertaking to be performed. Where compensation was possible for default, the exaction of a penalty was deemed inequitable. The aim of the equity courts was to compensate in the event of default, not to punish. It follows that they would not tolerate individuals exacting punishment. [22] This early understanding of what constituted a penalty finds expression today in the definition given by Mason and Deane JJ in Legione v Hateley: A penalty, as its name suggests, is in the nature of a punishment for non-observance of a contractual stipulation; it consists of the imposition of an additional or different liability upon breach of the contractual stipulation.

This definition was referred to with approval in Andrews and, more recently, by the United Kingdom Supreme Court in Cavendish Square Holding BV v Makdessi (albeit in a more qualified sense), where arguments that the penalty doctrine should be abolished or restricted were rejected. As Lord Neuberger of Abbotsbury and Lord Sumption observed, the innocent party may have interests in the enforcement of the primary obligation but can have no proper interest in simply punishing the defaulter.

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[23] The consequence of compensation forming the basis of equitable intervention was that where compensation was not possible, or damages could not be assessed, relief could not be given by equity. Compensation might not be possible because the condition on which the bond was made was in respect of an interest not measurable in damages. As explained in Andrews, it is the availability of compensation which generated the ‘equity’ upon which the court intervened; without it, the parties were left to their legal rights and obligations. [24] The primary factor in the decline of the conditional penal bond and the rise of the modern law of penalties has been said to be the practice of the Court of Chancery in relieving against forfeiture. By the time cases such as Dunlop came to be decided, the conditional penal bond may not have been much in use,although it was not wholly obsolete when Professor Simpson was writing and is not today. Examples referred to in Andrews are irrevocable letters of credit and ‘performance bonds’ which are used in the construction industry. [25] While Dunlop does not contain any such discussion of the origins and purposes of the penalty doctrine (as canvassed above), much of what is said in Dunlop is better understood by reference to them. Relevant aspects of Dunlop [26] The aspect of Dunlop which assumes particular importance in this case is the recognition that a sum stipulated for payment on default may be intended to protect an interest that is different from, and greater than, an interest in compensation for loss caused directly by the breach of contract. This is most evident from the speech of Lord Atkinson. It has already been observed that equity recognised that there may be injury to interests for which compensation cannot be made and to which the doctrine of penalties cannot be applied to provide relief. That will usually be because of the nature of the interest protected by the provision for payment on default. [27] In Ringrow Pty Ltd v BP Australia Pty Ltd (No S291/2005), it was said that Dunlop continues to express the law to be applied with respect to penalties in Australia. As the primary judge in these proceedings observed, the principles in Dunlop were not affected by the decision of this Court in Andrews. But this does not mean that those principles are confined, or that they are limited, to the ‘tests’ propounded by Lord Dunedin, or that what was said in Dunlop does not require further explication. [28] In Ringrow the Court was concerned with an argument which focused upon Lord Dunedin’s speech in Dunlop and the ‘tests’ which were offered to assist in the determination of whether a sum stipulated to be paid on default is, or is not, a penalty. In comparison, in Andrews reference was made to Dunlop, not to Lord Dunedin’s ‘tests’, but rather to Lord Atkinson’s identification of the interests which were sought to be protected by the provision stipulating for payment of moneys on breach and which accounted for that provision not being a penalty. It was said that ‘the critical issue, determined in favour of the appellant [Dunlop], was whether the sum agreed was commensurate with the interest protected by the bargain.’ [29] The fact that the decision in Dunlop itself, and Lord Atkinson’s reasons with respect to it, assume importance in this case does not deny the significance of the requirement stated by Lord Dunedin, that the sum stipulated be ‘extravagant and unconscionable’ before it can be characterised as a penalty. As explained below, it is these words that, by their extreme nature,

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identify the penal character of a penalty. The question which may be identified as arising from this aspect of the decision in Dunlop, which is appropriate to a case of this kind, is whether a provision for the payment of a sum of money on default is out of all proportion to the interests of the party which it is the purpose of the provision to protect. This interest may be of a business or financial nature. ….

[41] What Lord Dunedin was pointing to is damage of a kind which is different from that for which liquidated damages could be assessed. It will be different because the interests of the party which are intended to be protected by the provision in question extend beyond an interest in the recovery of compensation for loss caused by the obligation. This was the situation in Dunlop. Interests: Clydebank, Dunlop and Cavendish [42] The agreement in Dunlop was headed ‘Price Maintenance Agreement’ and contained provisions for resale price maintenance, which was clearly not then a prohibited practice. It bound the respondents, as dealers in goods manufactured by Dunlop, inter alia, not to sell or offer the goods at less than Dunlop’s list price and to pay £5 for each item sold at less than that price. [43] It followed from these terms that the sale of even one tyre, cover or tube at less than the listed price would attract the sum stipulated to be paid. An argument, reminiscent of one raised in this case concerning the Late Payment Fee, that Dunlop could not possibly lose that sum on the occasion of each sale, was rejected. The argument, Lord Atkinson observed, missed the point about the purpose of the agreement and the nature of the possible injury to Dunlop’s trade. [44] Dunlop’s object in making the agreement, Lord Atkinson said, was to prevent disorganisation of its trading system. His Lordship said: [Dunlop] had an obvious interest to prevent this undercutting, and on the evidence it would appear to me impossible to say that that interest was incommensurate with the sum agreed to be paid.

[45] In Clydebank, having observed that agreements for the payment of sums on default operate as ‘instruments of restraint’, Lord Robertson identified, similarly to Lord Atkinson in Dunlop, the relevant question as: Had the respondents no interest to protect by that clause, or was that interest palpably incommensurate with the sums agreed on?

[46] In Clydebank, the contract between the appellant shipbuilders and the Spanish government for the building of torpedo boats contained a clause providing for a ‘penalty for later delivery … at the rate of £500 per week for each vessel’. The fact that the sum was called a penalty was not, of course, conclusive. In holding that the stipulated sum was not a penalty, it was acknowledged that the interests of the Spanish government in having the vessels delivered on time were complex and that how those interests would sound in damages was extremely difficult to prove.

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[47] In Cavendish, non-competition provisions, in an agreement for the sale of a controlling interest in a business, which had the effect that, upon breach, the seller would not be entitled to any further payments of the purchase price were held not to be penalties. The provisions were seen as protective of the interests of the purchaser in the goodwill of the business, such goodwill being critical to the value of the business. [48] It was of some importance in Dunlop and Clydebank that the nature of the innocent party’s interests, which would be injured by breach, was such that it would be difficult to estimate and to prove damage. This difficulty of proof, and the uncertainty of the loss which could arise, made it reasonable for the parties to agree beforehand what the figure for damages should be in order to avoid the problem. In Cavendish it was observed that there is good reason to leave the assessment of the value of a complex interest as a matter of negotiation between the parties, especially since the court may not be in a position to value the interest itself. For present purposes it is perhaps more relevant to observe that difficulties of this kind may render problematic proof that a sum stipulated is a penalty. [49] It was not suggested in either Clydebank or Dunlop that the damage to the Spanish government’s or to Dunlop’s interests was impossible to estimate; rather, it appears that the damage was capable of estimation, albeit with little precision. It might be thought that the damage to the interests identified in Clydebank in particular might have qualified as impossible to prove, but the Earl of Halsbury LC went only so far as to say that it would be ‘extremely complex, difficult, and expensive’ to do so. And in Dunlop, the estimation was referred to as ‘almost an impossibility’. It will be recalled that equity’s jurisdiction was considered not to extend to a case when compensation was not thought to be possible, as is the case when damages could not be assessed. In these circumstances the parties would be left to their bargain. [50] What was said in Dunlop, and in Clydebank, about it being reasonable, in cases of difficulty in the estimation of possible loss, to leave the parties to contract for themselves for a sum to be paid on default might be thought to come close to an acceptance that they be left to their bargain. However, this would overlook the fact that the courts in those cases went on to determine whether the figure arrived at was a penalty and that they did so by considering whether it was unconscionable or extravagant in amount. A sum out of all proportion to the interests protected [51] Lord Dunedin said in Dunlop that there may be no reason to suspect that the figure agreed by the parties, in the case where loss is difficult to estimate, is ‘a penalty to be held in terrorem’, ‘provided that figure is not extravagant’. Lord Atkinson and Lord Parmoor also held that the figure in question was not extravagant, unconscionable or extortionate. [52] The process to be undertaken in order to determine whether an amount is unconscionable or extravagant was not further explained in Dunlop and Clydebank. The figure agreed to be paid cannot be compared with a sum certain, as is the case with Lord Dunedin’s first ‘test’. It can only be gauged against the identified interests of the party in whose favour the stipulation is made. It may be inferred from Dunlop and Clydebank that the interests in question were regarded as substantial and the possibility of damage to them real. The sum agreed to be paid in those cases was not incommensurate with the relevant interests.

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[53] In Clydebank, the Earl of Halsbury LC did not consider that a rule could be laid down as to when a stipulation could be said to be extravagant or unconscionable and that much would depend upon the circumstances of each case. However, it is to be inferred from the adjectives chosen that not every sum in excess of what might be strictly compensatory will amount to a penalty. This is confirmed by the example, admittedly extreme, which his Lordship then gave of an agreement to build a house for £50 but ‘to pay a million of money as a penalty’ if the house was not built. This suggests that a person contending that a sum is a penalty will be facing a high hurdle. Lord Hodge was later to observe in Cavendish that the criterion of exorbitant or unconscionable should prevent the enforcement of only egregious contractual provisions. [54] In Ringrow, it was held that a sum which was merely disproportionate to the loss suffered would not qualify as penal. It was explained that exceptions from freedom of contract ‘require good reason to attract judicial intervention to set aside the bargains upon which parties of full capacity have agreed’, which is why the law on penalties is expressed as an exceptional rule and in exceptional language. The Court went on: It explains why the propounded penalty must be judged ‘extravagant and unconscionable in amount’. It is not enough that it should be lacking in proportion. It must be ‘out of all proportion’.

In Cavendish, Lord Neuberger and Lord Sumption said that the true test is whether the provision is a secondary obligation which imposes a detriment on the party in breach ‘out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.’ [55] Australian and United Kingdom law are not alone in maintaining a standard to be applied to a requirement to pay money, or some other detriment, which is imposed in the event of default. In many other western legal systems something like the penalty doctrine exists. In Andrews, reference was made to s 343 of the German Civil Code, which provides that a ‘disproportionately high’ penalty may be reduced by a court after taking into account ‘every legitimate interest’ of the party for whose benefit the stipulated sum is made. Such interests are not limited to that party’s economic interests. In Cavendish, Lord Hodge referred to provisions in other modern civil codes and international instruments which use tests such as whether the sum stipulated is ‘manifestly excessive’ or ‘substantially disproportionate’ in order to modify or restrict contractual penalties. [56] It has earlier been observed that the nature of an interest and of the injury to it may make for difficulties of proof that the sum stipulated is a penalty. In Clydebank, Lord Robertson acknowledged that the problem was not one for the Spanish government: But, in truth, the only apparent difficulty in the present case arises from the magnitude and complexity of the interests involved and of the vicissitudes affecting them, and as the question is whether this stipulation of £500 a week is unconscionable or exorbitant, these considerations can hardly be considered a formidable difficulty in the way of the respondents.

The late payment fee: A penalty? [57] The ANZ’s interests in this case are not as diffuse as those considered in Dunlop, Clydebank and Cavendish. The ANZ did not suggest that the injury to its interests was not capable of some

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kind of estimation in money’s worth. In the hearing before the primary judge it abandoned the claim, made in its defence, that the costs occasioned to it by late payments were impossible to calculate and argued instead that they were very difficult to calculate. On this appeal the appellants accepted that, being realistic, the law should allow a ‘measure of latitude’ where pre-estimation of loss is difficult. Certainly there needs to be some recognition of the difficulties attending any such exercise and that there may, in some cases, be differences in approach to the proper methodology to be employed. But it also needs to be borne in mind that this task is not one which calls for precision. The conclusion to be reached, after all, is whether the sum is ‘out of all proportion’ to the interests said to be damaged in the event of default. [58] It is important at this point to identify the ANZ’s interests. The ANZ had an interest in receiving timeous repayment of the credit that it extended to its customers, including the appellants. As explained below, late payment impacted the ANZ’s interests in three relevant respects: through operational costs, loss provisioning and increases in regulatory capital costs. [59] Evidence of the costs to the ANZ by reason of the late payments was given by Mr Regan for the appellants and by Mr Inglis for the ANZ. Their approaches were fundamentally different because of the instructions they had been given. As the primary judge observed, Mr Regan was instructed to identify the amounts necessary to restore the ANZ to the position it would have been in had the late payments not been made. In contrast, Mr Inglis was instructed to consider the maximum amount of costs that the ANZ could conceivably have incurred as a result of a late payment. As a consequence Mr  Regan calculated only the costs to the ANZ of ensuring that the late payments were made (‘operational costs’), such as those costs incurred by the use of staff contacting Mr Paciocco and other administration costs. Mr Inglis calculated those costs and came to a higher figure than Mr Regan, but he also calculated other impacts on, or costs to, the ANZ’s financial interests which were referred to in the proceedings below as ‘Increase in loss provisions’ and ‘Increase in the cost of regulatory capital’. [60] As to the first category of costs, as the primary judge explained, the ANZ is required to estimate the impairments to its financial assets in order that its financial statements reflect a fair value of what is likely to be collected from what is outstanding. It is required to make provision in its accounts for what it may not recover, albeit that the potential loss is expressed as a current cost. [61] The primary judge does not appear to have cavilled with the opinion of Mr Inglis — that the reduction in the value of a customer’s loan, as recorded in the accounts, was an accepted category of loss. However, her Honour held that the difficulty was that a provision of this kind is merely an accounting entry. At the time it is made it cannot be known whether all the cardholders recorded will default. In the case of Mr Paciocco he did not fall into this category because in fact he did not default; he merely paid late. [62] This reasoning is consistent with the primary judge’s overall approach, which was to limit the ANZ’s ‘costs’ to actual damage incurred. However, this overlooks that the estimation is to be made at the time the Late Payment Fee is agreed upon; and it does not acknowledge that an effect upon the ANZ’s interests may include the provision that it has to make concerning its overall position.

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583

[63] As to the second category of costs, the ANZ is also required to hold regulatory capital to cover unexpected losses, a buffer of a kind. An increase in the risk of default increases the amount of regulatory capital which is required to be held. [64] The primary judge accepted that regulatory capital has a cost to the ANZ, by way of the loss of additional return it could otherwise make on the amount held as regulatory capital. But her Honour did not accept that it should be taken into account in calculating loss or damage as a result of late payment. [65] It was her Honour’s view that loss provisions and regulatory capital costs are part of the costs of running a bank in Australia. Banks may, and do, seek damages for default, but they are limited to the sums outstanding, enforcement costs and interest. However, as has been explained, the question is not what the ANZ could recover in an action for breach of contract, but rather whether the costs to it and the effects upon its financial interests by default may be taken into account in assessing whether the Late Payment Fees are penalties. [66] The primary judge accepted and applied Mr Regan’s evidence. Her Honour considered that the main difficulty with Mr  Inglis’ evidence was that he did not calculate actual loss or damage, but rather engaged in a broad-ranging exercise of identifying ‘costs’ that might be affected by late payment, in a more theoretical, accounting, sense. In her Honour’s view this did not assist in answering the question which she had earlier identified: to what extent (if any) did the amount stipulated to be paid exceed the quantum of the relevant loss or damage which can be proved to have been sustained by the breach. But of course framing the question in this way takes no account of the ANZ’s other interests which were said to be addressed by the Late Payment Fees and which extend beyond the recovery of compensation for loss. [67] The primary judge accepted that whilst the actual losses suffered by the ANZ by reason of the late payments could not be precisely determined, they were probably no more than $3.00 for each event of late payment (based on Mr  Regan’s evidence) and in any event much less than the $20.00 or $35.00 charged as a Late Payment Fee. They were therefore extravagant and unconscionable. [68] Mr  Inglis’ evidence identified the costs to which the ANZ would be subject in the event of a late payment as a range which exceeded the amounts of the Late Payment Fee. His calculations were criticised as overly generous. It is not necessary to resolve any such controversy. The effect of Mr Inglis’ evidence was to identify potential costs to the ANZ, from late payments, which reflect injuries to its financial position. They were real because they had to be taken into account by the ANZ. The evidence called for the appellants did not address damage of this kind. It cannot therefore be concluded that the sums of $20 and $35.00 were out of all proportion to the interests so identified.

Effect of clause being a penalty [23.38] A  clause construed as a penalty will be void and unenforceable by either party. Nevertheless, the plaintiff will be able to recover damages in the usual way by proving that loss has been suffered as a result of the breach. In Andrews, the High Court stated inconsistently with previous authority, that in equity a penalty clause is not void, but that it should be enforced

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to the extent necessary to obtain ‘compensation’ for loss actually sustained. This was not fully explained, but the High Court appears to advocate partial enforcement of the provision where the clause is a penalty in equity on the basis the damage to the party’s interest is susceptible of evaluation and assessment in money terms. If the loss is not capable of assessment in money terms this may indicate that the term is not a penalty and equity should not intervene.

QUESTIONS FOR REFLECTION (1) In what circumstances are damages for reliance loss recoverable in the alternative to expectation loss? When is both reliance and expectation loss recoverable? (2) In Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, Deane J disagreed with Mason CJ and Dawson J in relation to the reduction of damages on the basis the renewal of the contract had a 20 per cent chance of not occurring. Why did his Honour disagree? (3) In Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 the court considers that the second limb of Hadley v Baxendale (1854) 9 Exch 341 at 354; 156 ER 145 at 151 is concerned with recovery for unusual expenses of which the defendant is aware at the time of contract. How does this apply in practice? Read Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd [2006] NSWCA 334 and extract the relevant principles. (4) Baltic Shipping v Dillon (1993) 176 CLR 342 supports the view that damages for injured feelings, disappointment and the like are available in three circumstances. What are the circumstances? Have the courts in the United Kingdom developed these principles further? (5) What is the impact on the doctrine of penalties arising from the High Court decisions in Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 and Paciocco v Australia and New Zealand Banking Group Ltd (2016) 333 ALR 569? How does the application of the doctrine in Australia differ to the approach in the United Kingdom?

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CHAPTER 24 RESTITUTION

INTRODUCTION [24.01] Claims for restitution are not limited to parties in a contractual relationship. A restitutionary claim is one in which the plaintiff seeks to claim a benefit (or its money worth) provided to the defendant where it would be unjust for the benefit to be retained. This should be distinguished from a claim for damages in contract, where the object is to recover the loss sustained by reason of another party’s default. As the law of restitution applies in so many varied situations, the discussion of restitution in this chapter is limited to the restitutionary claims most usually sought by contracting parties. The emphasis in this chapter is on claims for: •

recovery of monies paid pursuant to or in anticipation of a contract; and



recovery of compensation for the reasonable value of services provided to another party.1

[24.02] Claims in restitution were originally referred to as claims in quasi-contract and were based on a fictional implied promise to pay. Since the decision in Pavey & Matthews Pty Ltd v Paul2, the prevailing view is that unjust enrichment provides a unifying concept to explain why the law allows recovery of a benefit in a variety of disparate categories. [24.03]

Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 High Court of Australia Pavey & Matthews Pty Ltd (the builder), was the holder of a licence under the Builders Licensing Act 1971 (NSW). They were engaged to carry out ‘building work’ within the meaning of s 45 of the Act by Ellen Elizabeth Paul (Paul). There was no written contract for the carrying out

1

Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221. See [24.27]–[24.32] in relation to claims under a partly performed contract.

2

(1987) 162 CLR 221.

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of the work. The work was carried out pursuant to an oral contract between the builder and Paul to the effect that the builder would do the work requested and that Paul would pay a reasonable remuneration for that work, calculated by reference to prevailing rates of payment in the building industry. After the work had been completed and Paul had accepted the work, the builder instituted proceedings in the Supreme Court of New South Wales for the balance owing of $26,945.50. The claim was for money payable as on a quantum meruit. Paul pleaded that the contract pursuant to which the work was done was a building contract which was not enforceable by the builder by reason of s 45. Deane J’s judgment provides the seminal discussion of the nature of restitution in Australian law. Deane J [His Honour first gave consideration to a number of authorities concerning claims for quantum meruit and the need for an implied promise to pay.] … The third criticism of the explanation advanced by Lord Denning in his Law Quarterly Review articles is a more fundamental one and is made with the benefit of the hindsight flowing from subsequent elucidation of the law for which Lord Denning is entitled to no small part of the credit. It is that adverted to by Sir Robert (now Lord) Goff and Professor Jones in their landmark work The Law of Restitution, 2nd ed (1978), pp 320–321, namely, that the basis of the obligation to make payment for an executed consideration given and received under an unenforceable contract should now be accepted as lying in restitution or unjust enrichment. … In such a case, the underlying obligation or debt for the work done, goods supplied, or services rendered does not arise from a genuine agreement at all. It is an obligation or debt imposed by operation of law which ‘arises from the defendant having taken the benefit of the work done, goods supplied, or services rendered …’ (per Starke J, Phillips v Ellinson Bros. Pty Ltd (1941) 65 CLR, at 235) and which can be enforced ‘as if it had a contractual origin’ (emphasis added) … It is not necessary to pursue here the question whether, now that the common law is released from the controls of the old forms of action, there is a continuing need for or utility in the traditional approach that any claim which would in previous times have been asserted by a common indebitatus count must be seen as lying either in contract or quasi-contract … It suffices to say that, even accepting that traditional approach, it is clear that the old common indebitatus count could be utilised to accommodate what should be seen as two distinct categories of claim: one to recover a debt arising under a genuine contract, whether express or implied; the other to recover a debt owing in circumstances where the law itself imposed or imputed an obligation or promise to make compensation for a benefit accepted. In the first category of case, the action was brought upon the genuine agreement regardless of whether it took the form of a special or a common count. It follows from what has been said above that the cases in which a claimant has been held entitled to recover in respect of an executed consideration under an agreement upon which the Statute of Frauds precluded the bringing of an action should be seen as falling within the second and not the first category. In that second category of case, the tendency of common lawyers to speak in terms of implied contract rather than in terms of an obligation imposed by law … should be recognized as but a reflection of the influence of discarded fictions, buried forms of action and the conventional conviction that, if a common law claim could not properly be framed in tort, it must necessarily be dressed in the language of contract. That tendency should not be allowed to conceal the fact that, in that category of case, the action was not based upon a

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genuine agreement at all. Indeed, if there was a valid and enforceable agreement governing the claimant’s right to compensation, there would be neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration. The quasicontractual obligation to pay fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or unenforceable. In such a case, it is the very fact that there is no genuine agreement or that the genuine agreement is frustrated, avoided or unenforceable that provides the occasion for (and part of the circumstances giving rise to) the imposition by the law of the obligation to make restitution. To identify the basis of such actions as restitution and not genuine agreement is not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate. The circumstances in which the common law imposes an enforceable obligation to pay compensation for a benefit accepted under an unenforceable agreement have been explored in the reported cases and in learned writings and are unlikely to be greatly affected by the perception that the basis of such an obligation, when the common law imposes it, is preferably seen as lying in restitution rather than in the implication of a genuine agreement where in fact the unenforceable agreement left no room for one. That is not to deny the importance of the concept of unjust enrichment in the law of this country. It constitutes a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognize such an obligation in a new or developing category of case …

RESTITUTION BETWEEN CONTRACTING PARTIES Termination of contract [24.04] An action for restitution will operate outside of the contractual relationship of the parties; it is closely linked to considerations of justice and equity rather than compensation for loss or damage suffered. Restitution is relevant to the rights of parties to a contract to recover benefits conferred pursuant to void and unenforceable contracts and contracts that are discharged for breach. Importantly an action for restitution is generally not available while an enforceable contract is on foot between the parties.3 The rationale for this reasoning, particularly in the case of a claim for quantum meruit, is that where there is a subsisting agreement between the parties governing the parties’ rights there is no ‘occasion or legal justification for the law to superimpose

3

Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251; Trimis v Mina [1999] NSWCA 140, [54]; GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, [655]; Perum Building & Construction Pty Ltd v Tallenford Pty Ltd [2007] WASCA 245; Intertransport International Private Ltd v Donaldson [2005] VSCA 303; Grantham and Rickett, ‘On the Subsidiarity of Unjust Enrichment’ (2001) 117 LQR 273.

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or impute an obligation or promise to pay a reasonable remuneration’4 which would undermine the contractual allocation of risk.5 [24.05] An example is provided by the facts of Lumbers v W Cook Builders Pty Ltd (in liq)6 where the High Court clearly decided that termination of a contract entitles the parties to restitution of benefits conferred under a contract, where the basis for conferring the benefits has failed, but termination does not, without more, remove the allocation of risk between the parties. The Court could find no reason in that case why the termination of the contract between A and B should entitle C, a third party to the contract, to claim restitution from A.7

Alternative claims [24.06] Where a contract has been breached, the plaintiff (who is not in default) may bring alternative claims in contract or restitution, but is only entitled to a remedy pursuant to one. In Baltic Shipping Co v Dillon,8 Deane and Dawson JJ concluded that a claim in restitution for return of the purchase price would not succeed if damages were awarded because: the promisee, having received full compensation for non-performance of the promise, is not entitled to a refund of the price upon payment of which the performance of the promise was conditioned. Were it otherwise, the promisee ‘would have the equivalent’ of performance of the contractual promise ‘without having borne the expense’ which he or she had agreed to pay for it.9

A claimant will be required to make an election between damages and restitution at the time of judgment.10

UNJUST ENRICHMENT [24.07] Unjust enrichment provides a taxonomic basis for explaining a group of situations in which a plaintiff can claim restitution of the value of a benefit (money or services) provided to another party as well as to support, through legal reasoning, the emergence of new circumstance in which the law should grant restitution. Generally in deciding whether the law should allow recovery of the benefit, a court will consider four questions: (1) the defendant has been enriched by the receipt of a benefit; (2) the benefit has been obtained at the expense of the plaintiff; and

4

Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 22, 256.

5

Coshott v Lenin [2007] NSWCA 153, [10].

6

(2008) 232 CLR 635.

7

See also Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 All ER 470, 475 where Lord Goff stated that ‘serious difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract.’

8

(1993) 67 ALJR 228.

9

Ibid, 248.

10 The existence of such an election was doubted in Kane Constructions Pty Ltd v Sopov [2005] VSC 492.

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(3) it would be unjust to allow the defendant to retain the benefit. (4) can the defendant establish some defence or other recognised basis for declining relief ?11

RECOVERY OF MONEY PAID [24.08] A claim for monies had and received is one of the old forms of action in indebitatus assumpsit. Since the decision in Moses v Macferlan,12 it has been recognised that recovery of money paid was ‘available in any case in which money had been paid in circumstances where it was unjust for the defendant to retain it’.13 Within the broad taxonomic category of unjust enrichment the most common situation in which a claim for monies had and received is available is where there is a total failure of consideration for the payment14 or money is paid under a mistake. [24.09] Generally a plaintiff seeking to recover money paid to another person will have little difficulty in proving the money was a benefit paid at their expense.15

FAILURE OF CONSIDERATION [24.10] A  failure of consideration is one of the factors that makes retention of a benefit unjust and will be relied upon in most claims for money had and received. The concept of ‘consideration’ has a specific meaning in the context of unjust enrichment that differs from its meaning in contract. Failure of consideration is concerned with the failure of the ‘basis’ or the ‘condition’ upon which a benefit was conferred upon another party.16 Situations in which consideration for a payment may fail include where payment was for a purpose that has failed17 or for a contract that fails to materialise18 or where the contract is later found to be unenforceable or illegal.19

11 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, 256–7; Australian and New Zealand Banking Group Ltd v Westpac Banking Corp (1988) 164 CLR 662, 673; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 379; Spangaro v Corporate Investment Australia Funds Management Ltd (2003) 47 ACSR 285, 300–1; Equuscorp Pty Ltd v Haxton (2011) 246 CLR 498. 12 (1760) 2 Burr 1005; 97 ER 676. 13 Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498, 516 [30]. 14 Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; Spangaro v Corporate Investment Australia Funds Management Ltd (2003) 47 ACSR 285, 302. 15 BP Exploration Co (Libya) Ltd v Hunt No 2 [1979] 1 WLR 783, 799. 16 See Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd (No 3) [2014] WASC 162; Baltic Shipping Co v Dillon (1993) 176 CLR 344, 389; P Birks, An Introduction to the Law of Restitution, rev edn, Clarendon Press, 1989, 223. 17 This may arise where a deposit is paid for the purchase of land which is terminated for failure of a contingent condition or where a contract provides the payment is for a particular purpose, such as a cruise which is not completed: Baltic Shipping Co v Dillon (1993) 176 CLR 344. 18 Nu Line Construction Group Pty Ltd v Fowler [2014] NSWCA 51. 19 Equuscorp Pty Ltd (formerly Equus Financial Services Ltd) v Haxton (2011) 246 CLR 498; Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14.

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[24.11] Early case law refers to the requirement for a ‘total failure of consideration’ which aligns with contractual concepts. In Baltic Shipping Co v Dillon,20 the High Court stated the relevant question for the plaintiff was ‘what did I bargain to receive for my money and have I received it?’ In Roxborough v Rothmans of Pall Mall Australia Ltd,21 the High Court favoured the view that ‘failure of consideration’ for the purposes of a claim for money had and received was not limited by contractual concepts. In that case there was no failure of performance by Rothmans of any promise. The question was whether it was ‘unconscionable’ for Rothmans as the recipient of the payments to retain them in circumstances in which it was no specifically intended or especially provide that Rothmans should retain them. Broadening of the concept of consideration removes the need for a court to consider if the failure of consideration is ‘total’. A court is more likely to ask whether in light of a failure of the consideration for the payment it is inequitable or against public policy for the payment to be retained.22 [24.12] In Baltic Shipping Co v Dillon,23 the High Court, stated the question for the plaintiff as ‘what did I bargain to receive for my money and have I received it?’. [24.13]

Baltic Shipping v Dillon (1993) 176 CLR 342 High Court of Australia Mrs Dillon was a passenger on the cruise ship Mikhail Lermontov, which sank on a trip from New Zealand to Australia. Mrs Dillon had booked a fourteen-day cruise; the ship sank nine days after the cruise began. The two questions before the High Court were whether Mrs Dillon was entitled to the repayment of the fare in restitution, and whether she was entitled to damages for the disappointment and distress at the loss of the holiday. In relation to the issue of repayment of the fare, the High Court unanimously decided that as the claimant had partly enjoyed the benefits of the contract, there was no total failure of consideration and therefore no right to restitution of the fare. Mason CJ  Is the fare recoverable on the ground of total failure of consideration or otherwise? …

20 (1993) 67 ALJR 228. 21 (2001) 185 ALR 335. See also Ideas Plus Investments Ltd v National Australia Bank Ltd [2006] WASCA 215; Lactos Fresh Pty Ltd v Finishing Services Pty Ltd (No 2) [2006] FCA 748 (recovery of overpaid rent); cf Ovidio Carrideo Nominees Pty Ltd v Dog Depot Pty Ltd [2006] VSCA 6. 22 Equuscorp Pty Ltd (formerly Equus Financial Services Ltd) v Haxton (2011) 246 CLR 498. 23 (1993) 67 ALJR 228.

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The concept of an entire contract is material when a court is called upon to decide whether complete performance by one party is a condition precedent to the other’s liability to pay the stipulated price or to render an agreed counter-performance. If this were a case in which the appellant sought to enforce a promise to pay the cruise fare at the conclusion of the voyage the concept would have a part to play; then, if the appellant’s obligations were entire, on the facts as I have stated them, the appellant’s incomplete performance of its obligations would not entitle it to recover. When … an innocent party seeks to recover money paid in advance under a contract in expectation of the entire performance by the contract-breaker of its obligations under the contract and the contract-breaker renders an incomplete performance, in general, the innocent party cannot recover unless there has been a total failure of consideration. If the incomplete performance results in the innocent party receiving and retaining any substantial part of the benefit expected under the contract, there will not be a total failure of consideration. In the context of the recovery of money paid on the footing that there has been a total failure of consideration, it is the performance of the defendant’s promise, not the promise itself, which is the relevant consideration. In that context, the receipt and retention by the plaintiff of any part of the bargained-for benefit will preclude recovery, unless the contract otherwise provides or the circumstances give rise to a fresh contract. So, in Whincup v Hughes, the plaintiff apprenticed his son to a watchmaker for six years for a premium which was paid. The watchmaker died after one year. No part of the premium could be recovered. That was because there was not a total failure of consideration. A qualification to this general rule, more apparent than real, has been introduced in the case of contracts where a seller is bound to vest title to chattels or goods in a buyer and the buyer seeks to recover the price paid when it turns out that title has not been passed. Even if the buyer has had the use and enjoyment of chattels or goods purportedly supplied under the contract for a limited time, the use and enjoyment of the chattels or goods has been held not to amount to the receipt of part of the contractual consideration. Where the buyer is entitled under the contract to good title and lawful possession but receives only unlawful possession, he or she does not receive any part of what he or she bargained for. And thus, it is held, there is a total failure of consideration. As this Court stated in David Securities Pty Ltd v Commonwealth Bank of Australia: ‘the notion of total failure of consideration now looks to the benefit bargained for by the plaintiff rather than any benefit which might have been received in fact.’ … … I  have come to the conclusion in the present case that the respondent is not entitled to recover the cruise fare on either of the grounds just discussed. The consequence of the respondent’s enjoyment of the benefits provided under the contract during the first eight full days of the cruise is that the failure of consideration was partial, not total. I do not understand how, viewed from the perspective of failure of consideration, the enjoyment of those benefits was ‘entirely negated by the catastrophe which occurred upon departure from Picton’ to repeat the words of the primary judge.

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MONEY PAID UNDER A MISTAKE [24.14] The law recognises the right of a person who mistakenly pays money to another to recover the unintended payment. For example, where a cargo of goods is insured under a policy of insurance and the insurer pays out a claim in the belief that the cargo has perished, when in fact it was sold, the insurer will be able to recover the payment made because of the mistake.24 Another common situation is where a bank pays a cheque drawn on its customer’s account in favour of a third party, in circumstances where the payment has been stopped by the customer. The bank will be able to recover from the payee despite its negligence, but subject to the payee having changed their position.25 [24.15] Until recently, distinctions were drawn between the different types of mistake involved. Any payment based upon a mistake that did not relate to liability—or was not as between plaintiff and defendant, or was a mistake of law—was said to not be recoverable. Since the decision of David Securities Pty Ltd v Commonwealth Bank of Australia,26 these types of limitations have been removed. Most importantly, the High Court has recognised that no distinction should be made between mistakes of fact and mistakes of law. Instead, the court has chosen to limit recovery based upon whether the payment was made in voluntary submission to an honest claim. This change to the court’s approach is due to the recognition of unjust enrichment as the basis of a claim in restitution and the basis of the claim for mistaken payments. In Australia and New Zealand Banking Group Ltd v Westpac Banking Corp,27 the court clearly recognised the right to recover for a mistaken payment: Receipt of a payment which has been made under a fundamental mistake is one of the categories of case in which the facts give rise to a prima facie obligation to make restitution, in the sense of compensation for the benefit of unjust enrichment, to the person who has sustained the countervailing detriment.28

[24.16] The authorities set out a variety of categories of mistake that are sufficient to support a prima facie right to recovery. Mistake in this context includes a belief as to the existence or non-existence of a state of affairs, factual or legal, which turns out to be mistaken. A  person who transfers money to another may be moved to do so under the influence of a mistake. The mistake can be of several varieties, for example: •

A mistake of fact giving rise to a legal liability to make payment. For example, where the payer expends money to buy or lease land owned by the payer or expends money pursuant to a contract that is in fact void.29

24 Norwich Union Fire Insurance Society Ltd v William H Price Ltd [1934] AC 455. 25 See Commercial Bank of Australia Ltd v Younis [1979] 1 NSWLR 444. 26 (1992) 175 CLR 353. 27 (1998) 164 CLR 662. 28 Ibid, 673. See also Hydro-electric Commission of the Township of Nipea v Ontario Hydro (1982) 132 DLR (3d) 193, 209 per Dickson J; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 375, 393. 29 See Chirnside v Keating (1889) 15 VLR 697; Rover International Ltd v Cannon Film Sales Ltd [1989] 1 WLR 912.

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A mistake of fact that a legal liability will accrue in the future. For example, where a party makes a payment for the purpose of meeting an anticipated liability although they knew no actual liability had yet accrued.30



The payer has deposited money thinking in error that the payer was a bank.



Payment is made in the mistaken belief that a seller has title to the land or goods to be sold.31



The payer pays in the mistaken belief that he or she was obliged to pay when in fact the payment was not legally obliged to be paid.

[24.17] Prior to the decision in David Securities Pty Ltd v Commonwealth Bank of Australia,32 the payer may have been entitled to recover the payment in all but the last example. In that example, recovery would have been precluded because the mistake was one of law. Since that decision, the distinction between law and fact for the purpose of mistaken payments has become largely irrelevant. Instead, the High Court has chosen to distinguish between the types of mistaken payments on the basis that a voluntary payment is not recoverable. [24.18]

David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 High Court of Australia David Securities paid the Commonwealth Bank money, in addition to interest, pursuant to a covenant in a mortgage. The covenant was designed to gross-up the amount of withholding tax that the Australian customer deducted from interest payable to its overseas lender. Unbeknown to David Securities, s 261 of the Income Tax Assessment Act 1936 (Cth) avoided the covenant. David Securities’ claim to set off the additional amounts was rejected by the Full Federal Court applying the traditional prohibition on recovery from mistake of law. On appeal, the High Court overturned this decision. The High Court indicated that where a mistake of either fact or law caused the plaintiff to make the payment, recovery in restitution for unjust enrichment would be prima facie available. Mason CJ, Deane J, Toohey J, Gaudron J and McHugh J [After examining the previous decisions that distinguished between mistakes of law and mistakes of fact their Honours concluded that the distinction was no longer relevant. The question was then the basis of recovery.] … Having rejected the so-called traditional rule denying recovery in cases of payments made under a mistake of law, it is necessary to consider what principle should be put in its place. It would be logical to treat mistakes of law in the same way as mistakes of fact,

30 Kerrison v Glyn, Mills, Currie and Co (1911) 17 Com Cas 41. 31 Commercial Bank of Australia Ltd v Younis [1979] 1 NSWLR 444. See also Bank of New South Wales v Murphett [1983] VLR 489. 32 (1992) 175 CLR 353.

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so that there would be a prima facie entitlement to recover moneys paid when a mistake of law or fact has caused the payment. Jurisdictions which have abolished the traditional rule by legislation have done so by stating that recovery should be allowed in cases of mistake of law in the same circumstances as it would be were the mistake one of fact … The proposition that there should be a prima facie entitlement to recover moneys paid when a mistake of fact or law has caused the payment has not been universally accepted. Two alternative formulations of the basis of recovery have been proposed:  first, that the person making the mistaken payment must have supposed that he or she was legally liable to make the payment; and, secondly, that the mistake of the person making the payment must have been a fundamental one. The first of these formulations can be subjected to the same criticism levelled at the traditional rule denying recovery in cases of mistake of law, namely, that it is illogical to concentrate upon the type of mistake made when the crucial factor is that the recipient has been enriched. To overturn the traditional rule and then replace it with a proposition incorporating the classic formulations of the liability approach … would be counter-productive. In Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd, Goff J illustrated how existing authority had moved beyond the narrow liability approach. In Australia and New Zealand Banking Group Ltd v Westpac Banking Corp, this court implicitly accepted that view and we see no reason now to doubt that conclusion. The second alternative formulation asserts that, in addition to being causative, the mistake must also be fundamental. This raises the question expressly left open in Westpac Banking Corp … The requirement that the mistake be fundamental as well as causative is not as restrictive as the liability approach considered above, but it has been suggested that the requirement is still a worthwhile precaution against a potential flood of claims and consequent insecurity of receipts. The notion of fundamentality is, however, extremely vague and would seem to add little, if anything, to the requirement that the mistake cause the payment. If the payer has made the payment because of a mistake, his or her intention to transfer the money is vitiated and the recipient has been enriched. There is therefore no place for a further requirement that the causative mistake be fundamental; insistence upon that factor would only serve to focus attention in a non-specific way on the nature of the mistake, rather than the fact of enrichment. If a strict approach is taken towards the issue of mistake so that a plaintiff bears the burden of establishing on the balance of probabilities that a causative mistake has been made, there would also be no need to appeal to the element of fundamentality as a limiting factor. So, the payer will be entitled prima facie to recover moneys paid under a mistake if it appears that the moneys were paid by the payer in the mistaken belief that he or she was under a legal obligation to pay the moneys or that the payee was legally entitled to payment of the moneys. Such a mistake would be causative of the payment. However, the respondent argues that a plaintiff should be required to prove that retention of the moneys by the recipient would be unjust in all the circumstances before recovery should be granted; if the circumstances of the case showed that it would not be unjust for the recipient to retain the money, the fact that the plaintiff could point to a causative mistake, whether of fact or law, would not assist the plaintiff. According to the respondent’s submissions, moneys paid under a mistake of law could only be recoverable in so far as the recipient has been unjustly enriched

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at the expense of the payer, such that it would be unconscionable for the recipient not to give restitution to the payer. … Although this alternative approach is not greatly different from that stated above, it does have important consequences in relation to the elements of the action which the plaintiff must plead and prove. It also appears to proceed from the view that in Australian law unjust enrichment is a definitive legal principle according to its own terms and not just a concept. The two decisions of this court just mentioned reject that approach. In Pavey & Matthews Deane J stated: To identify the basis of such actions as restitution and not genuine agreement is not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate … That is not to deny the importance of the concept of unjust enrichment in the law of this country. It constitutes a unifying legal concept which explains why the law recognises, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognise such an obligation in a new or developing category of case.

Accordingly, it is not legitimate to determine whether an enrichment is unjust by reference to some subjective evaluation of what is fair or unconscionable. Instead, recovery depends upon the existence of a qualifying or vitiating factor such as mistake, duress or illegality. … As La Forest J stated in Air Canada v British Columbia, the two species of mistake (ie, fact and law) should be ‘considered as factors which can make an enrichment at the plaintiff ’s expense ‘unjust’ or ‘unjustified’. The respondent’s submission that the appellants must independently prove ‘unjustness’ over and above the mistake cannot therefore be sustained. The fact that the payment has been caused by a mistake is sufficient to give rise to a prima facie obligation on the part of the respondent to make restitution.

ILLEGALITY [24.19] In contrast the situations discussed above where a contract is void or unenforceable by reason of illegality, the availability of a restitutionary claim for money had and received will depend upon whether it would be unjust having regard to the statutory policy for the recipient of the benefit to retain the benefit.33 Relevant factors will be whether the statutory purpose is protective of a class of persons from whom the claimant seeks to recover and whether the claimant is an innocent party.

33 Equuscorp Pty Ltd (formerly Equus Financial Services Ltd) v Haxton (2012) 286 ALR 12 [34].

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[24.20]

Equuscorp Pty Ltd v Haxton (2012) 286 ALR 12 High Court of Australia The facts of the case are summarised at [18.16]. French CJ, Crennan and Kieffel JJ 

Whether restitutionary relief was available Equuscorp’s restitutionary claims, as argued in this court, depended entirely upon the unenforceability of the loan agreements. Had the agreements been enforceable, it is unlikely that the restitutionary claims could have been brought. The loan agreements were unenforceable because they were made in furtherance of an illegal purpose. That conclusion was not challenged in the Court of Appeal nor in this court. The policy considerations informing the common law, discussed earlier in these reasons, must be taken to have required that conclusion. The question that follows is how the common law would have affected Rural’s right to pursue restitutionary relief. Equuscorp based its claims for money had and received on what it said was a ‘total failure of consideration’. It submitted that Rural had advanced money under the loan agreements on the basis that they were enforceable. That was a state of affairs, it was argued, which was always unsustainable. As a result, the respondents were unjustly enriched. The argument directs attention to the nature of the claim for money had and received and its interaction with the common law relating to illegal transactions. The claim for money had and received was an offshoot of the old form of action of indebitatus assumpsit which, by the 17th century, had superseded the action of debt. The requirement of a promise to fit the claim within the old writs led to the creation of what Lord Atkin described as ‘fantastic resemblances of contracts … in order to meet requirements of the law as to forms of action’. So the action came to be thought of as resting upon an implied contract. The implied contract theory was rejected in Australia by this court in Pavey & Matthews Pty Ltd v Paul as ‘but a reflection of the influence of discarded fictions’. It was rejected in England in Westdeutsche Landesbank Girozentrale v Islington London Borough Council. It came to be displaced by the concept of unjust enrichment. Unjust enrichment was described by Deane J in Pavey & Matthews as: … a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognize such an obligation in a new or developing category of case.

It is not a ‘definitive legal principle according to its own terms’. Nor was it such when first propounded in legal scholarship. It was:

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… an ex post facto explanation of decisions that had already been reached, an organisational category separate from contract. The substance of the law still had to be found in its concrete emanations.

In David, this court explained the part played by unjust enrichment in a claim for money had and received (in that case for recovery of a payment made under mistake of law). That explanation may be expressed, at a fairly high level of abstraction, as an approach to determining such claims. In summary: •

recovery depends upon enrichment of the defendant by reason of one or more recognised classes of ‘qualifying or vitiating’ factors;



the category of case must involve a qualifying or vitiating factor such as mistake, duress, illegality or failure of consideration, by reason of which the enrichment of the defendant is treated by the law as unjust;



unjust enrichment so identified gives rise to a prima facie obligation to make restitution;



the prima facie liability can be displaced by circumstances which the law recognises would make an order for restitution unjust.

Unjust enrichment therefore has a taxonomical function referring to categories of cases in which the law allows recovery by one person of a benefit retained by another. In that aspect, it does not found or reflect any ‘all-embracing theory of restitutionary rights and remedies’. It does not, however, exclude the emergence of novel occasions of unjust enrichment supporting claims for restitutionary relief. It has been said of Lord Mansfield’s judgment in Moses v Macferlan that it was his view that ‘the grounds for obtaining relief in money had and received were not to be considered static and the remedy could be made available in any case in which money had been paid in circumstances where it was unjust for the defendant to retain it’. Nor is the emergence of general principle precluded when ‘derived from judicial decisions upon particular instances’. These appeals, however, focus upon the particular category of case involving ‘failure of consideration’. Failure of consideration is one of the factors that makes retention of a benefit prima facie unjust. It was recognised by Lord Mansfield as a ground for a claim for money had and received. It was a criterion of recoverability which survived the rejection in the United Kingdom and Australia of the implied contract theory. This court has, on more than one occasion, described failure of consideration in terms set out by the late Professor Birks: Failure of the consideration for a payment … means that the state of affairs contemplated as the basis or reason for the payment has failed to materialise or, if it did exist, has failed to sustain itself.

As Gummow J pointed out in Roxborough, failure of consideration for the purpose of a claim for money had and received is not confined by contractual principles. In that case there had been no failure of performance by Rothmans of any promise it had made. There was no question of repudiation by it of its contractual obligations. The question was whether it was ‘unconscionable’ for Rothmans as the recipient of payments to retain them in circumstances in which it was not specifically intended or especially provided that it should so enjoy them.

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The question of unconscionability, as his Honour explained, derived from the general equitable notions which found expression in the common law count for money had and received. This court acknowledged in Westpac Banking that ‘contemporary legal principles of restitution or unjust enrichment can be equated with seminal equitable notions of good conscience’ albeit the action itself is not for the enforcement of a trust. The reference to conscionability in this context, however, does not mean that whether enrichment is unjust is to be determined by reference to a subjective evaluation of what is fair or unconscionable. As the court reiterated in Farah Constructions (at [150]): [150] … recovery rather depends on the existence of a qualifying or vitiating factor falling into some particular category. [Footnote omitted.]

Failure of consideration as a basis for a claim for money had and received may arise from a number of causes. One cause is illegality. Where a payment is made under a contract which is unenforceable for illegality, the unenforceability of the agreement may constitute a failure of consideration which is capable of supporting a claim for recovery of the payment. It is not necessary for present purposes to expatiate upon the concept of ‘total failure of consideration’ debated in the submissions to this court, its amelioration by the concept of apportionment of consideration and the question whether ‘total failure of consideration’, however understood, is necessary to a claim for money had and received based upon failure of consideration. What is important for present purposes is the interaction between the foundation for the claims for money had and received in this case and the policy of the common law which renders unenforceable an agreement made for the furtherance of an illegal purpose. The outcome of a restitutionary claim for benefits received under a contract which is unenforceable for illegality, will depend upon whether it would be unjust for the recipient of a benefit under the contract to retain that benefit. There is no one-size-fits-all answer to the question of recoverability. As with the question of recoverability under a contract affected by illegality the outcome of the claim will depend upon the scope and purpose of the relevant statute. The central policy consideration at stake, as this court said in Miller, is the coherence of the law. In that context it will be relevant that the statutory purpose is protective of a class of persons from whom the claimant seeks recovery. Also relevant will be the position of the claimant and whether it is an innocent party or involved in the illegality. Much judicial and academic ink has been spilt on this topic, which exercised the minds of Roman jurists in the days of the Republic. It elicited the cri de coeur of Lord Chief Justice Wilmot in 1767, ‘no polluted hand shall touch the pure fountains of justice’, and the more temperate offering of Lord Mansfield, who wrote of a plaintiff ’s need to ‘draw [his] remedy from pure fountains’. The importance of policy in determining the effect of illegality upon a restitutionary claim was central to Lord Mansfield’s observation in Holman v Johnson: It is not for [the defendant’s] sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so say.

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There were often compelling policy arguments on both sides. In listing reasons for and against the grant of relief in relation to illegal transactions, Professor John Wade, writing in the Tex LR in 1946, said that: The balancing process … leaves on one side the view that a court should not help a man who has engaged in an illegal transaction out of the predicament in which he has placed himself, and on the other the view that a court should not permit unjust enrichment of one person at the expense of another. Of these two arguments, each of which seems most nearly determinative upon its side of the question, neither takes precedence upon logical analysis. [Footnote omitted.]

The search then is for a principled basis for determining whether or not relief is to be allowed. Professor Birks, in an article published in 2000, proposed as a criterion for the grant or refusal of restitutionary relief in relation to an illegal contract: Would allowing that cause of action to be maintained make nonsense of the refusal to enforce the contract?

He characterised the question as one about self-stultification of the law. As he correctly pointed out on such an approach: The inquiry is constantly an inquiry into consistency and rationality, not into turpitude.

Birks described contracts of loan as providing the paradigm at the strong end of the spectrum of self-stultification: Against a person who will not repay a loan, the claim in contract and a personal claim in unjust enrichment on the ground of failure of consideration appear to yield substantially the same performance.

So in Boissevain v Weil Lord Radcliffe said of such a case: A court that extended a remedy in such circumstances would merit rather to be blamed for stultifying the law than to be applauded for extending it.

The negative goal of avoiding self-stultification in the law may be expressed positively as the objective of maintaining coherence in the law as discussed by this court in Miller. That approach is consistent with the proposition in the Third Restatement on Restitution and Unjust Enrichment that: Restitution will also be allowed, as necessary to prevent unjust enrichment, if the allowance of restitution will not defeat or frustrate the policy of the underlying prohibition.

The point is also made in the restatement that: [d]ifferent rules govern the availability of restitution in connection with agreements that are merely ‘unenforceable’ … and agreements that are unenforceable because they are ‘illegal’.

That distinction is important and is reflected in the distinction between §31 and §32 of the restatement which deal with unenforceability and illegality respectively. In a statutory setting, of course, both categories of case can be brought under a general rubric conditioning

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enforceability upon statutory purpose and associated public policy considerations. Moreover, as acknowledged in the restatement: [l]ying somewhere astride these familiar classifications are cases in which the claimant has violated a statute whose objectives might be regarded as both procedural and substantive.

Nevertheless, the making of an agreement which is unenforceable for illegality throws up a distinct suite of issues affecting the availability of restitutionary relief in respect of benefits received under the agreement. There has been some consideration by intermediate courts of appeal of the availability of restitutionary relief in respect of loan agreements affected by illegality arising out of the prospectus requirements of companies legislation and thereby held unenforceable. The reasoning in those cases, however, focussed upon considerations applicable to unenforceable agreements generally, rather than the specific issues which arise in the case of agreements unenforceable for illegality. In Hurst, McHugh JA observed that nothing in ss 83 and 86 of the Companies Act 1961 (NSW), the precursors of s 170 of the Code and its associated provisions, indicated ‘that the legislature intended that a loan of money made to an investor who takes up an interest is not recoverable as a matter of restitution’. The question of restitution had not been argued in that case either before the primary judge or in the Court of Appeal. His Honour referred to Pavey & Matthews for the proposition that a quantum meruit may be payable in respect of work done under a contract ‘even though a statute declares that the contract is unenforceable’. Pavey & Matthews was not a case about illegality. The unenforceability considered in that case derived from failure to comply with a statutory condition of enforceability a requirement for building contracts to be in writing imposed by s 45 of the Builders Licensing Act 1971 (NSW). Deane J said of s 45: [t]he section does not make an agreement to which it applies illegal or void.

There was, as Mason and Wilson JJ pointed out in the same case, no ‘compelling analogy’ between s 45 and the prohibitory money-lending legislation in issue in Mayfair Trading Co Pty Ltd v Dreyer. The observation by McHugh JA in Hurst that in some cases restitution is available in respect of benefits obtained under an unenforceable contract was uncontroversial. His Honour’s reasons for judgment in Hurst did not include a consideration of the particular questions raised where a contract is unenforceable because of illegality involving contravention of a statutory prohibition or furtherance of an illegal purpose involving such contraventions. Equuscorp referred to decisions of the Full Court of the Federal Court in ABCOS and Amadio Pty Ltd v Henderson. Both of those decisions concerned, among other things, loan agreements rendered unenforceable because of their connection to an illegal scheme to offer prescribed interests without complying with the requirements of the New South Wales and Victorian Codes respectively. In ABCOS, Wilcox and Lindgren JJ correctly observed that when a statute discloses an intention to exclude restitution ‘no prima facie obligation to make restitution will arise from the illegality flowing from contravention of the statute’. Their Honours saw ‘nothing in the Code that suggests an intention to exclude the remedy of restitution, in the case of a breach of s 169’.

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They agreed with McHugh JA in Hurst and found the reasoning of Mason and Wilson JJ in Pavey & Matthews to be applicable. In so doing, their Honours did not consider the specific issue of the availability of restitutionary relief where a contract is unenforceable for illegality. The need to maintain coherence in the law, discussed by this court in Miller, and to avoid stultification of statutory prohibitions by the common law, discussed by Birks, was not referred to in ABCOS. ABCOS was applied by the Full Federal Court in Amadio. That case concerned a scheme to attract investors to form a syndicate to purchase a commercial building in Melbourne. The owner of the building gave a firm of solicitors an option to purchase the building. The solicitors marketed the scheme. No prospectus was registered. The owner, Amadio, lent the syndicate a sum of money secured by a mortgage, executed by each investor. The scheme failed. Complex litigation followed. The primary judge held that the Code had been contravened and that the mortgage and associated guarantee were unenforceable. Amadio made a restitutionary claim against the investors for repayment of money which it had lent to them. The Full Court treated the claim as analogous to that considered in ABCOS. The Full Court agreed with the conclusion expressed in the joint judgment in that case that there was nothing in the Code that suggested an intention to exclude restitutionary relief in the case of a breach of ss 169–171. Their Honours said: Thus, as Hurst, O’Brien and Australian Breeders Co-operative demonstrate, the unenforceability of a contract entered into as a consequence of a breach of the prescribed interest provisions arises by reason of the policy of the statute and not by reason of a direct statutory prohibition against such contracts.

Again, the analysis in Amadio did not engage with the questions relevant to the effect of illegality on restitutionary relief discussed earlier in these reasons. It may be said also that the factual position in Amadio was complex, with claims on both sides for restitutionary relief. That is not to say that the decision was incorrect. It offers, however, little guidance in the resolution of these appeals. Had a right to claim restitution for money had and received been available to Rural in this case, it would have been able to recover by such claims what the policy of the law denied it in respect of the loan agreements. Rural was not an arm’s length financier. It was part of the closely related group of companies that were involved in the promotion of the schemes. The loan agreements were an integral part of the schemes and in so far as they involved the issue of invitations and offers to investors to take up prescribed interests without the benefit of the protections required by the Code, furthered that illegal purpose. As in the Hurst case, while not essential to the investments, the loans made the investments more attractive. Recovery from the investors would have been recovery from persons whose protection was the object of the statutory scheme. The respondents were not in pari delicto with Rural. The failure of consideration invoked by Equuscorp was the product of Rural’s own conduct in offering the loan agreements in furtherance of an illegal purpose. This is a clear case in which the coherence of the law, and the avoidance of stultification of the statutory purpose by the common law, lead to the conclusion that Rural did not have a right to claim recovery of money advanced under the loan agreements as money had and received. There was therefore no right to claim such relief

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available for assignment to Equuscorp. In any event, for the reasons that follow, any such rights, if they had existed, would not have been assigned by the deed. Bell and Gummow JJ Money had and received However, as noted earlier in these reasons, in the alternative, Equuscorp had pleaded against Mr Haxton, Mr Bassat and Cunningham’s a claim for money had and received to its use. It is these claims which are pressed on the appeals by Equuscorp in this court. The first line of defence by the respondents is that the scheme and purpose of Pt IV Div 6 of the Code, with particular reference to ss 170 and 174, is at odds with permitting against holders of prescribed interests an action for money had and received by them under loan agreements which were entered into as a direct consequence of contravention of s 170. That submission should be accepted and it is dispositive of the appeals, but several points should first be made. The first point is that, unlike the position under the foreign exchange regulations considered by Lord Radcliffe in Boissevain v Weil, s 170 of the Code did not by its terms forbid and render illegal either the contractual promise by the respondents to repay the moneys lent, or the very act of borrowing independently of the contractual promise. If s 170 had done so, then it would have struck both the contractual and restitutionary claims. But s 170 did not, and the decision of Byrne J to refuse to enforce the loan agreements was based upon considerations of the kind discussed in the extracts from Miller v Miller set out above. The second point is to recognise the fallacy of an assumption that contractual and restitutionary issues can readily be collapsed, so that, on the grounds just mentioned, to refuse to Equuscorp a contractual remedy necessarily denies the action by Equuscorp against the investors for money had and received. It was accepted in David Securities Pty Ltd v Commonwealth Bank of Australia that the existence of ‘illegality’ may provide a qualifying or vitiating factor which enlivens a restitutionary action. The availability of such an action where there is an ineffective contract will determine whether the existing distribution of gains and losses is to lie undisturbed. … The determinative issue, as Equuscorp accepted, is whether the policy of the statute law represented by Pt IV Div 6 of the Code denies any scope for an action for money had and received. In that regard, guidance is provided by the statement by Professor Palmer in his treatise The Law of Restitution: The illegality of the transaction will preclude recovery of damages for breach, or any other judgment aimed at enforcement of the contract, and the problem is whether the plaintiff can nonetheless obtain restitution of values transferred pursuant to the contract. The fact that public policy prohibits enforcement of the contract is not a sufficient reason for allowing one of the parties to retain an unjust enrichment at the expense of the other. Such a retention is warranted only when restitution is in conflict with overriding policies pursuant to which the transaction is made illegal.

That statement requires qualification to include within its scope circumstances where a contract is ineffective, not by reason of ‘illegality’ sourced in a statute, but where the statute

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requires compliance with formalities which have not been observed by the parties, or restricts legal capacity, as does the doctrine of ultra vires. The Restatement of the Law Third, Restitution and Unjust Enrichment, adopted and promulgated in 2010, deals separately with ‘Unenforceability’ (§31) and ‘Illegality’ (§32), but to relevantly similar effect. A person who renders performance under an agreement that cannot be enforced against the recipient by reason of the failure to satisfy an extrinsic requirement of enforceability, such as the Statute of Frauds 1677 (the Statute of Frauds), does not have a restitutionary claim against the recipient if the allowance of that claim ‘would defeat the policy of the law that makes the agreement unenforceable’: §31(2). A person who renders performance under an ‘illegal’ agreement may not obtain restitution if the allowance of restitution will ‘defeat or frustrate the policy of the underlying prohibition’: §32(2). Given the range of statutory regimes, the decided cases yield varied outcomes in restitutionary actions. The cases in which actions were successfully brought on common indebitatus counts, notwithstanding failure by the plaintiff to comply with the writing requirement of s 4 of the Statute of Frauds, were discussed by Deane J in Pavey & Matthews Pty Ltd v Paul. They, and the decision of the Supreme Court of Canada in Deglman v Guaranty Trust Co of Canada and Constantineau, may be supported on the ground that the policy of the Statute of Frauds was ‘neutral’ and did not require the random conferral of windfall benefits upon defendants who pleaded the statute to an action in contract but were also sued for money had and received or a quantum meruit. These decisions upon the Statute of Frauds may be compared with Pavey & Matthews. In that case, there was no written agreement between the owner and the builder as required by s 45 of the Builders Licensing Act 1971 (NSW), but the owner had undertaken to pay a reasonable remuneration, and such a sum was recovered on a quantum meruit. The case was determined by Mason and Wilson JJ upon an examination of the policy and purpose of s 45. The statutory purpose did not extend to enable the owner to request and accept the work but to decline to pay for it. As Deane J put it, there was no legislative intent to penalise the builder beyond making the agreement itself unenforceable against the other party. In his analysis of Pavey & Matthews, Professor Ibbetson responds as follows to the criticism that the measure of recovery in the case meant that in reality there was enforcement of the contract outlawed by the statute: Although the quantum meruit recovered by Pavey is in fact identical to what had been promised under the contract, this is wholly coincidental and completely independent of the parties’ agreement. If he had been promised a determinate sum, still his recovery would only have been on a quantum meruit. Moreover, in order to entitle him to the restitutionary action he has to show that the benefit has been freely accepted by the defendant; if the action were straightforwardly on the contract no such free acceptance would be necessary.

More recently, in Yaxley v Gotts the English Court of Appeal considered the requirement now made in absolute terms by s 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (UK) that a contract for sale of land can only be made in writing which incorporates all the terms the parties have expressly agreed. It was held that an oral agreement nevertheless might give rise to a constructive trust because such trusts were saved by s 2(5) of that Act. But

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the Court of Appeal saw no scope for the doctrine of proprietary estoppel. Robert Walker LJ said: Parliament’s requirement that any contract for the disposition of an interest in land must be made in a particular documentary form, and will otherwise be void, does not have such an obviously social aim as statutory provisions relating to contracts by or with moneylenders, infants, or protected tenants. Nevertheless it can be seen as embodying Parliament’s conclusion, in the general public interest, that the need for certainty as to the formation of contracts of this type must in general outweigh the disappointment of those who make informal bargains in ignorance of the statutory requirement. If an estoppel would have the effect of enforcing a void contract and subverting Parliament’s purpose it may have to yield to the statutory law which confronts it, except so far as the statute’s saving for a constructive trust provides a means of reconciliation of the apparent conflict.

In Nelson McHugh J referred to Kiriri Cotton Co Ltd v Dewani, where the Privy Council upheld an action by a tenant for money had and received to recover a premium the tenant had paid, contrary to a rent restriction law, to obtain the lease. McHugh J cited this as an example of the class of cases where recovery was permitted because the statutory scheme rendering a contract or arrangement illegal was enacted for the benefit of a class including the claimant. The respondents correctly submit that this principle applies here but to the opposite effect. This is because the prospectus provisions were not enacted for the protection of Rural and the other Johnson interests, but for the protection of the respondents as investors in the prescribed interests. Conclusions The explanation of the money-lending cases given by Mason and Wilson JJ in Pavey & Matthews is in point here. Their Honours said: The relevant provisions in those cases explicitly rendered unenforceable contracts executed by the money-lender. The statutes were directed at making unenforceable an obligation to repay money already lent and a security already given in respect of such an obligation. It was not possible to interpret these provisions so that they left on foot any quasi-contractual causes of action on the part of the lender. Request and receipt by the borrower of the money lent were integral elements in a situation in which the contract and all securities were expressed to be unenforceable. An additional feature of the money-lending cases is that the legislation was designed to protect borrowers by imposing onerous obligations on moneylenders to comply with the statutory requirements. [Emphasis added.]

The prospectus provisions have a long history. This was traced by Mahoney JA in Hurst to the mid-19th century. As Heerey J later remarked when dealing with the prospectus provisions of the Code, so seriously did the legislature regard these provisions, including s 170, that a breach not necessarily fraudulent and not necessarily causing monetary loss nevertheless could result in a 5-year term of imprisonment. This supports the conclusion that in a case such as is presented by these appeals, the investors who received prescribed interests should not be in the same position as if Pt IV Div 6 of the Code had not been enacted or had been complied with by Rural, and the loan agreements had been effective in accordance with their terms. The

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respondents correctly submit that to permit recovery on the actions for money had and received would stultify the statutory policy evident in Pt IV Div 6 of the Code. We agree with what is further said on this point by French CJ, Crennan and Kiefel JJ at [45] in their reasons. Equuscorp, as successor to Rural, in these circumstances cannot complain that the loss is left to lie where it has fallen. [Footnotes removed.]

Claims for services rendered [24.21] Quantum meruit is an action for the reasonable value of services performed. If the services are performed by a contracting party at the express or implied request of the other party, a claim for quantum meruit may be brought against the other party only if there is no contract—or no effective contract—between the parties, or the contract is at an end.34 In such a case, the law may imply an obligation on the defendant to pay the reasonable value of the services rendered.35 Although, in theory the elements suggest a party in breach of the contract can claim a quantum meruit for the work performed, in practice it is more difficult for a party in breach to prove the other party has received a benefit from the defective performance of the contract.

SERVICES AS A BENEFIT [24.22] The identification of an objective benefit becomes more difficult in the context of services performed by parties to a contract. It is clear that where the defendant requests the services and the plaintiff provides the services the law will without more, recognise an obligation on the part of the recipient to pay a reasonable value for the services. In Lumbers v W Cook Builders Pty Ltd (in liq) (Lumbers)36 the plurality stated that: The doing of work, or payment of money, for and at the request of another, are archetypal cases in which it may be said that a person receives a ‘benefit’ at the ‘expense’ of another which the recipient ‘accepts’ and which it would be unconscionable for the recipient to retain without payment.’

[24.23] The corollary to this statement is that the mere fact of the conferral of some benefit upon another does not suffice to establish an obligation to repay the expenditure in providing that benefit.37

34 See Rover International Ltd v Cannon Film Sales Ltd [1989] 1 WLR 912 (void contract); Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 (unenforceable contract); Lodder v Slowery [1904] AC 442 (terminated contract); Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251, 275; Timis v Mina [1999] NSWCA 140 [54]; Coshott v Lenin [2007] NSWCA 153; Perum Building & Construction Pty Ltd v Tallenford Pty Ltd [2007] WASCA 245. 35 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221. 36 (2008) 232 CLR 635 at 662–3, [78]–[79]. 37 Friend v Booker (2009) 239 CLR 129, 141 [7].

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CLAIM WHERE CONTRACT GOVERNS PAYMENT [24.24] A party will be unable to claim a quantum meruit for services performed if a subsisting contract governs the terms of payment. As demonstrated by the decision in Lumbers, this principle applies to both the parties to the contract and any third parties seeking payment for work performed in accordance with the terms of the contract.

Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 High Court of Australia Lumbers entered a contract with W Cook & Sons Pty Ltd (Sons) for the construction of a house on his land. Sons commenced construction of the house but, following a corporate restructure, a related company W Cook Builders Pty Ltd (Builders) took over the construction work and completed the house. During the project, the administration of the contract was conducted by the same personnel. Lumbers refused to pay Builders, alleging that it had a contract with Sons and was therefore not liable to Builders. Lumbers also alleged that it was mistaken as to the identity of the company undertaking the work and would not have agreed to engage Sons if it knew the work would be undertaken by another entity. There was no suggestion that the work was defective in any respect. The trial judge refused the claim by Builders for payment in restitution due to the contract with Sons. On appeal, the South Australian Supreme Court allowed the appeal and ordered payment on the basis of a quantum meruit. This was justified first on the basis of an incontrovertible benefit through the services provided by Builders, as Lumbers and secondly on the basis the Lumbers freely accepted the work by agreeing to the work being carried out and by moving into the house in circumstances where they knew the building services were not provided gratuitously. The existence of the mistake concerning identity did not alter the unjust nature of the enrichment.38 An appeal to the High Court by the Lumbers was allowed. Gleeson CJ < 656> As to the concept of conferring of benefit, what was involved was the performance of building work on property owned by the Lumbers in circumstances where there was a building contract between the Lumbers and Sons obliging Sons to perform that work and the Lumbers to pay Sons for it, and a sub-contract between Sons and Builders obliging Builders to perform the work and Sons to pay Builders. As it happens, there was no material difference between the total price to be paid under the contracts. However, the case for Builders can be tested by supposing that there had been such a difference. Furthermore, the unusual agreement as to progress payments made between the Lumbers and Sons, an agreement that was closely connected with the personal relationship between Mr Warwick Lumbers and Mr McAdam, highlights the significance of the 1993 contract as, from the point of view of the

38 See also the example from P Birks, ‘In defence of free acceptance’, in A Burrows (ed), Essays on the Law of Restitution, Clarendon Press, Oxford, 1991, 128–131.

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Lumbers, the source of their legal rights and obligations. In Steele v Tardiani, which in one sense was a simpler case than the present because there was only one contract involved, Dixon J explained the problems of identifying, for the purpose of a quantum meruit claim not based on the contract, a ‘benefit’ conferred on a building owner by the performance of work otherwise than in accordance with the contract. He accepted that, where building work is done outside the contract, and the benefit of the work is taken, there may arise an obligation to pay for the work. He went on to refer, however, to ‘the dilemma in which a building owner is placed’. He quoted Collins LJ who said, in Sumpter v Hedges: Where, as in the case of work done on land, the circumstances are such as to give the defendant no option whether he will take the benefit of the work or not, then one must look to other facts than the mere taking the benefit of the work in order to ground the inference of a new contract … The mere fact that a defendant is in possession of what he cannot help keeping, or even has done work upon it, affords no ground for such an inference.

The reference to an ‘inference of a new contract’ may reflect an approach since overtaken by Pavey & Matthews Pty Ltd v Paul, but the problem involved in identifying a conferring or accepting of a benefit remains. The concept of ‘free acceptance’ invoked by the majority in the Full Court, whatever its exact scope, is commonly related to a defendant who ‘did not take a reasonable opportunity open to him to reject the proffered services’. That was not the situation of the Lumbers in the present case. Similarly, what was sought to be characterised as an ‘incontrovertible benefit’ was that which Sons had undertaken to provide for the Lumbers and for which the Lumbers had agreed to pay Sons. If the principle relied upon by Builders extends to the claim by Builders against the Lumbers, it is difficult to see why it would not extend also to the work performed by the numerous sub-contractors engaged by Sons and later by Builders. Much, perhaps most, of the physical construction work on the site was performed, and many of the physical materials brought to the site were supplied, by such sub-contractors. Why Builders was in a different position from them vis-à-vis the Lumbers was not explained. In a broad colloquial sense, they were conferring benefits on the Lumbers, and the Lumbers were accepting those benefits, but that was not so in any legal sense. It was argued that the Lumbers had received a ‘windfall’ and that it would be unconscionable of them to refuse to pay Builders for the work in question. This characterisation proceeds upon assumptions as to the respective rights and obligations of the Lumbers, Sons and Builders which, for reasons already stated, have not been justified. In so far as the Lumbers have been relieved from liability to pay the full agreed price for the work done on their property it appears principally to be the consequence of Builders’ failure to make or pursue a prompt claim against Sons, and Builders’ failure to pursue its claim against Sons in the present proceedings. If that claim had been pursued, it may well have resulted in a claim by Sons against the Lumbers. Alternatively, it may be the consequence of the unexplained attitude of Sons in the letter written by Mr Malcolm Cook in early 1999. The procedural and evidentiary deficiencies in the case make it impossible to conclude that the conduct of the Lumbers in refusing to pay Builders is unconscionable. If they have been enriched, it is at the expense of Sons. If any party has been enriched at the expense of Builders, it is Sons.

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Gummow, Hayne, Crennan and Kiefel JJ  The framework for analysis The analysis undertaken by the majority in the Full Court proceeded from principles stated at a high level of abstraction. There were four elements in the framework of the analysis made by the Full Court: ‘benefit’ (or ‘incontrovertible benefit’), ‘acceptance’ (or ‘free acceptance’), ‘expense’, and unconscionability. Obviously, much turns on what is meant by those terms and upon what are the features said to make retention of the ‘benefit’ unconscionable. Adding words like ‘incontrovertible’ and ‘free’ to some of the terms emphasises the evident difficulties of definition. As is especially relevant here, much also turns on the particular facts and circumstances to which the terms are to be applied. None of the terms, ‘benefit’, ‘acceptance’ or ‘expense’, can usefully be defined or applied without deciding whether attention is to be confined to the party who is identified as conferring the benefit and the recipient of that benefit, or account must be taken of the legal relationships that exist between one or other of those two parties and some third party or parties in relation to the events and transactions said to constitute conferring a ‘benefit’, its ‘acceptance’, or the incurrence of ‘expense’.  … These reasons will demonstrate that the legal relationship between Sons and the Lumbers cannot be dismissed from consideration, whether on the bases assigned by the majority in the Full Court or otherwise. When proper account is taken of the rights and obligations that existed between Sons and the Lumbers under their contract, the analysis made by the majority in the Full Court is shown to be flawed. The Lumbers are not shown to have received a ‘benefit’ at Builders’ ‘expense’ which they ‘accepted’, and which it would be unconscionable for them to retain without payment. No less importantly, proper analysis of the legal relationships revealed by the evidence will illustrate the dangers inherent in ‘top-down reasoning’. The application of a framework for analysis expressed only at the level of abstraction adopted in this case, by reference to ‘benefit’, ‘expense’ and ‘acceptance’ coupled with considerations of unconscionability, creates a serious risk of producing a result that is discordant with accepted principle, thus creating a lack of coherence with other branches of the law. There are two reasons of particular relevance to this case why that is so. They may be identified by reference to two questions which, although expressed separately, will later be seen to intersect in several ways. First, does applying the posited framework for analysis to the facts of the present case extend the availability of recovery beyond the circumstances in which a claim for work and labour done (or money paid) for and at the request of the defendant would be available? Secondly, and no less importantly, how is the result of applying this framework for analysis consistent with the obligations relevant parties undertook by their contractual arrangements? The doing of work, or payment of money, for and at the request of another, are archetypal cases in which it may be said that a person receives a ‘benefit’ at the ‘expense’ of another which the recipient ‘accepts’ and which it would be unconscionable for the recipient to retain without payment. And as is well apparent from this Court’s decision in Steele v Tardiani, an essential step in considering a claim in quantum meruit (or money paid) is to ask whether and how that claim fits with any particular contract the parties have made. It is essential to consider how the claim fits with contracts the parties have made because, as Lord Goff of Chieveley rightly warned in Pan Ocean Shipping Co Ltd v Creditcorp Ltd, ‘serious difficulties arise if the law seeks

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to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract’. In a similar vein, in the Comments upon §29 of the proposed Restatement, (3d), ‘Restitution and Unjust Enrichment’, the Reporter says: Even if restitution is the claimant’s only recourse, a claim under this Section will be denied where the imposition of a liability in restitution would overturn an existing allocation of risk or limitation of liability previously established by contract.

Likewise, it is essential to consider whether the facts of the present case yield to analysis as a claim for work and labour done, or money paid, because where one party (in this case, Builders) seeks recompense from another (here the Lumbers) for some service done or benefit conferred by the first party for or on the other, the bare fact of conferral of the benefit or provision of the service does not suffice to establish an entitlement to recovery. As Bowen LJ said in Falcke v Scottish Imperial Insurance Co: The general principle is, beyond all question, that work and labour done or money expended by one man to preserve or benefit the property of another do not according to English law create any lien upon the property saved or benefited, nor, even if standing alone, create any obligation to repay the expenditure. Liabilities are not to be forced upon people behind their backs any more than you can confer a benefit upon a man against his will. (Emphasis added.)

The principle is not unqualified. Bowen LJ identified (83) salvage in maritime law as one qualification. Other cases, including other cases of necessitous intervention, may now be seen as further qualifications to the principle but it is not necessary to examine in this case how extensive are those further qualifications or what is their content. For the purposes of this case the critical observations to make are first that Builders’ restitutionary claim does not yield to analysis as a claim for work and labour done or money paid and secondly, that Builders’ restitutionary claim, if allowed, would redistribute not only the risks but also the rights and obligations for which provision was made by the contract the Lumbers made with Sons … … The relevance of the contract between the Lumbers and Sons When account is taken of the contractual relationship between the Lumbers and Sons several observations may then be made. First, the Lumbers accepted no benefit at the expense of Builders which it would be unconscionable to retain. The Lumbers made a contract with Sons which either has been fully performed by both parties or has not. Sons made an arrangement or agreement with Builders which again has either been fully performed or it has not. If either the agreement between Sons and the Lumbers or the agreement or arrangement between Sons and Builders has not been fully performed (because all that is owed by one party to the other has not been paid) that is a matter between the parties to the relevant agreement. A failure of performance of either agreement is no reason to conclude that Builders should then have some claim against the Lumbers, parties with whom Builders has no contract. Because Builders had no dealings with the Lumbers, Builders has no claim against the Lumbers for the price of any work and labour Builders performed or for any money that Builders may have paid in relation to the construction. Builders has no such claim because it can point to no request by the Lumbers directed to Builders that Builders do any

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work it did or pay any money it did. Reference to whether the Lumbers ‘accepted’ any work that Builders did or ‘accepted’ the benefit of any money it paid is irrelevant. It is irrelevant because it distracts attention from the legal relationships between the three parties: the Lumbers, Sons and Builders. To now impose on the Lumbers an obligation to pay Builders would constitute a radical alteration of the bargains the parties struck and of the rights and obligations which each party thus assumed. There is no warrant for doing that. The second observation to be made is more general. It is that identification of the rights and obligations of the parties, in this as in any matter, requires close attention to the particular facts and circumstances of the case. Necessarily that requires close attention to what contractual or other obligations each owes to the other. [Footnotes omitted.]

INEFFECTIVE CONTRACTS [24.25] A contract that is unenforceable or ineffective is not a void contract. An unenforceable contract is one that has come into existence, but an action may not be commenced for enforcement or any other remedy based upon the contract. A contract will usually be unenforceable because it infringes the requirements of a statute. For example, in the majority of Australian states, a contract for the sale of land is unenforceable at law unless in writing and signed by the party to be charged.39 As with a void contract, the fact the contract is unenforceable is not an unjust factor giving rise to a claim in restitution. A distinction may be drawn between contracts that are unenforceable due to non-compliance with a statute and those that are rendered unenforceable for illegality. In each case the availability of a restitutionary remedy will depend on whether, after having regard to the scope and purpose of the relevant legislation, it would be unjust for the recipient to retain the benefit.40 [24.26] The principles governing restitution of services rendered pursuant to an unenforceable contract are best exemplified by the High Court decision of Pavey & Matthews Pty Ltd v Paul.41 [24.27]

Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 High Court of Australia The case involved a building contract in NSW rendered unenforceable by the operation of s 45 of the Builders’ Licensing Act 1971 (NSW). Most of the work had been completed under an oral contract which was unenforceable under the legislation. However, the trial judge awarded the

39 See Chapter 11 for further discussion and other examples. 40 Equuscorp Pty Ltd (formerly Equus Financial Services Ltd) v Haxton (2012) 286 ALR 12, [34]–[45]. 41 (1987) 162 CLR 221.

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plaintiff a quantum meruit. In the Court of Appeal, the decision was reversed on the basis that the plaintiff was in essence seeking to enforce the oral contract; in addition, the claim was against the policy of the Act. In the High Court, the claim by the builder for a quantum meruit succeeded. Deane J approached the problem first by distinguishing between two distinct categories of quantum meruit. The first allowed recovery of a debt arising under a genuine contract, whether express or implied. The second allowed recovery of a debt owing in circumstances where the law itself imposed or imputed an obligation or promise to make payment for a benefit accepted. In the first case, the action was on the contract. In the second, the action was not based on a genuine agreement at all. Deane J pointed out that it was the absence of a genuine agreement or the fact that it was not applicable, frustrated, avoided, or unenforceable ‘that provides the occasion for (and part of the circumstances giving rise to) the imposition by law of the obligation to make restitution’.42 Approving the statement of Jordan CJ in Horton v Jones,43 Deane J concluded that if the Statute of Frauds was the legislation under consideration, it would not have prevented a claim for quantum meruit succeeding. Deane J It is clear from the above propositions that the obligation to pay ‘reasonable remuneration for the executed consideration’ was seen by Jordan CJ as arising independently of any genuine agreement or promise upon which a special count could be framed. The ‘existence of the unenforceable contract’ prevented any such genuine agreement from being implied. The reference to the ‘unenforceable contract’ being relevant ‘as evidence, but as evidence only, on the question of amount’ emphasised the perception that the obligation to pay reasonable remuneration was quite different from liability to make the payments under the ‘unenforceable contract’. Plainly enough, his Honour saw that obligation as a liability in debt arising by operation of law upon the circumstances: the ‘obligation is imposed by law, and does not depend on an inference of an implied promise’ … The ‘action of debt’ for ‘reasonable remuneration’ to which Jordan CJ referred was not an action on the old express quantum meruit count under which a plaintiff claimed not a liquidated amount payable by the defendant but a nominated sum being ‘so much money as he therefore reasonably deserved to have’ … … It is not necessary to pursue here the question whether, now that the common law is released from the controls of the old forms of action, there is a continuing need for or utility in the traditional approach that any claim which would in previous times have been asserted by a common indebitatus count must be seen as lying either in contract or quasi-contract … It suffices to say that, even accepting that traditional approach, it is clear that the old common indebitatus count could be utilised to accommodate what should be seen as two distinct categories of claim: one to recover a debt arising under a genuine contract, whether express or implied; the other to recover a debt owing in circumstances where the law itself imposed or imputed an obligation or promise to make compensation for a benefit accepted. In the first category of case, the action was brought upon the genuine agreement regardless of whether it took the

42 Ibid, 257. 43 (1934) 34 SR (NSW) 359, 367–368.

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form of a special or a common count. It follows from what has been said above that the cases in which a claimant has been held entitled to recover in respect of an executed consideration under an agreement upon which the Statute of Frauds precluded the bringing of an action should be seen as falling within the second and not the first category. In that second category of case, the tendency of common lawyers to speak in terms of implied contract rather than in terms of an obligation imposed by law … should be recognized as but a reflection of the influence of discarded fictions, buried forms of action and the conventional conviction that, if a common law claim could not properly be framed in tort, it must necessarily be dressed in the language of contract. That tendency should not be allowed to conceal the fact that, in that category of case, the action was not based upon a genuine agreement at all. Indeed, if there was a valid and enforceable agreement governing the claimant’s right to compensation, there would be neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration. The quasi-contractual obligation to pay fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or unenforceable. In such a case, it is the very fact that there is no genuine agreement or that the genuine agreement is frustrated, avoided or unenforceable that provides the occasion for (and part of the circumstances giving rise to) the imposition by the law of the obligation to make restitution. To identify the basis of such actions as restitution and not genuine agreement is not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate. The circumstances in which the common law imposes an enforceable obligation to pay compensation for a benefit accepted under an unenforceable agreement have been explored in the reported cases and in learned writings and are unlikely to be greatly affected by the perception that the basis of such an obligation, when the common law imposes it, is preferably seen as lying in restitution rather than in the implication of a genuine agreement where in fact the unenforceable agreement left no room for one. That is not to deny the importance of the concept of unjust enrichment in the law of this country. It constitutes a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognize such an obligation in a new or developing category of case … In a category of case where the law recognizes an obligation to pay a reasonable remuneration or compensation for a benefit actually or constructively accepted, the general concept of restitution or unjust enrichment is, as is pointed out subsequently in this judgment, also relevant, in a more direct sense, to the identification of the proper basis upon which the quantum of remuneration or compensation should be ascertained in that particular category of case. The fact that the action which can be brought on a common indebitatus count consistently with the Statute of Frauds is founded on an obligation arising independently of the unenforceable contract does not mean that the existence or terms of that contract are necessarily irrelevant. In such an action, it will ordinarily be permissible for the plaintiff to refer to the unenforceable

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contract as evidence, but as evidence only, on the question whether what was done was done gratuitously. In many cases, such as where the claim is for money lent or paid, the obligation to make restitution will plainly involve the obligation to pay the precise amount advanced or paid. In those cases where a claim for a reasonable remuneration or price is involved, the unenforceable agreement may, as Jordan CJ pointed out in Horton v Jones [No I], be referred to as evidence, but again as evidence only, on the question of the appropriate amount of compensation. If the unenforceable contract has not been rescinded by the plaintiff or otherwise terminated, the defendant will be free to rely on it as a defence to the claim for compensation in a case where he is ready and willing to perform his obligations under it: see Thomas v Brown. The defendant will also be entitled to rely on the unenforceable contract, if it has been executed but not rescinded, to limit the amount recoverable by the plaintiff to the contractual amount in a case where that amount is less than what would constitute fair and reasonable remuneration. … … The common indebitatus count for compensation does not involve enforcing an agreement which is unenforceable by the builder under s 45 of the Act any more than it involves bringing an action upon an agreement upon which the bringing of an action is precluded by the Statute of Frauds. As has been seen, the basis of such an action lies not in agreement but in restitution and the claim in restitution involves not enforcing the agreement but recovering compensation on the basis that the agreement is unenforceable. … Finally, it was submitted on behalf of Mrs Paul allow recovery by the builder of what is fair and reasonable compensation for work done under a contract which is rendered unenforceable against her by s 45 of the Act would be contrary to the legislative intent to be discerned in the words of the section when read in the context of the Act. In support of that submission, reliance was placed on various decisions on the effect of provisions in moneylending legislation. I do not agree with this submission for reasons which I shall briefly state. I would note that, apart from considerations based on the particular history of the Queensland Act, those reasons correspond closely with those advanced by McPherson J in the Full Court of the Supreme Court of Queensland in rejecting a corresponding submission which was made in Gino D’Alessandro Constructions Pty Ltd. … There is no apparent reason in justice why a builder who is precluded from enforcing an agreement should also be deprived of the ordinary common law right to bring proceedings on a common indebitatus count to recover fair and reasonable remuneration for work which he has actually done and which has been accepted by the building owner: … Nor, upon a consideration of the words of s 45 in their context in the Act, am I able to identify any legislative intent to deprive the builder of that ordinary common law right. The section does not make an agreement to which it applies illegal or void. Nor do its words disclose any legislative intent to penalise the builder beyond making the agreement itself unenforceable by him against the other party. It may be that the bringing of an action as on a common indebitatus count would conflict with the apparent legislative policy underlying s 45 if the claimant in such an action were entitled as of right to recover the amount which the building owner had agreed to pay under the unenforceable agreement. I  am, however, unpersuaded that the bringing by a builder of an action on the common indebitatus count in which he can recover no more

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than what is fair and reasonable in the circumstances as compensation for the benefit of the work which he has actually done and which has been accepted by the building owner conflicts with any discernible legislative policy. Plainly enough, the survival of the ordinary common law right of the builder to recover, in an action founded on restitution or unjust enrichment, reasonable remuneration for work done and accepted under a contract which is unenforceable by him does not frustrate the purpose of the section to provide protection for a building owner. The building owner remains entitled to enforce the contract. He cannot, however, be forced either to comply with its terms or to permit the builder to carry it to completion. All that he can be required to do is to pay reasonable compensation for work done of which he has received the benefit and for which in justice he is obligated to make such a payment by way of restitution. In relation to such work, he can rely on the contract, if it has not been rescinded, as to the amount of remuneration and the terms of payment. If the agreed remuneration exceeds what is reasonable in the circumstances, he can rely on the unenforceability of the contract with the result that he is liable to pay no more than what is fair and reasonable … … More relevant for present purposes is the special category of case where restitution is sought by one party for work which he has executed under a contract which has become unenforceable by reason of his failure to comply with the requirements of a statutory provision which was enacted to protect the other party. In that category of case, it would be contrary to the general notions of restitution or unjust enrichment if what constituted fair and just compensation for the benefit accepted by the other party were to be ascertained without regard to any identifiable real detriment sustained by that other party by reason of the failure of the first party to ensure that the requirements of the statutory provision were satisfied. Thus, if it is established on the hearing of the present case that Mrs Paul has sustained an identifiable real detriment by reason of the failure of the builder to ensure that there was a written memorandum of the oral contract which satisfied the requirements of s 45 of the Act, that would be an important factor in determining what constituted fair and just restitution in the circumstances of the case for the work done and materials supplied of which she has accepted the benefit. The mere fact that the reasonable remuneration for the building work done at Mrs Paul’s request exceeded Mrs Paul’s expectations would not, however, of itself constitute any such identifiable real detriment since it is not necessary for the purposes of s 45 of the Act that a written contract contain either an agreed price for the building work or an estimate of what the cost of it to the building owner will ultimately be.

Partially performed contracts [24.28] A  claim for restitution will not be available if the contract governs the payment for services rendered. Where the plaintiff has substantially performed the services under the contract a right to the contract price will accrue.44 Even if the contract is discharged for breach or frustration an action on the contract for the price will be available. If the contract is validly

44 See [19.08] for discussion of a party’s right to the contract price.

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discharged, the non-defaulting party may be able to elect to claim a quantum meruit or contract price. Unless the value of the work performed exceeds the contract price there will be no benefit in claiming a quantum meruit.45 In most cases where a contracting party claims a quantum meruit after discharge for breach, no right to the contract price has accrued because the services were only partially performed. [24.29] Although a claim in restitution is not in theory dependent upon proof of fault the authorities appear to treat a claim for quantum meruit by the defaulting party differently to the party not in default. An innocent party who terminates the contract for the breach of the other party will usually be entitled to elect between a claim for damages and a claim for restitution.46 The court will readily accept that performance of the contract by the innocent party up to the time of discharge provides a benefit to the other party, even if the work is only partly completed.47 Whether this approach will be followed in the case of a defaulting party is unclear following the decision in Lumbers. In previous decisions a party in default, seeking payment for services that were either incomplete or defective needed to provide evidence that the services, which may not comply with the request, were accepted by the other party or that the other party received an objective benefit.48 [24.30] Several relevant principles can be extracted from the decision in Lumbers: a. A claim for quantum meruit based upon an express or implied request to perform services does not require proof of any other unjust factors; b. The 'the bare fact of the conferral of some benefit upon another does not suffice to establish an obligation to repay the expenditure in providing that benefit';49 This proposition is subject to qualifications which were not elaborated on by the High Court in Lumbers; c. How the claim for quantum meruit fits with the terms of the contract is important because the law of restitution should not be expanded as to ‘redistribute risks for which provision has been made under an applicable contract’.50 [24.31] As suggested by Edelman J in Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd,51 the decision in Lumbers and, by analogy the case law concerning recover of money for a failure of consideration, arguably require a careful consideration in each case of the exact nature of the request and the nature and extent of the services required to comply with the request to justify recovery. For example in Stocznia Gdanska SA v Latvian Shipping Company,52 a ship building

45 This may be the case if the plaintiff entered into a losing contract: Boomer v Muir 24 P 2d 570 (1933). 46 See Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435, 450 noted at section 17.2.4 and Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, 277; Brenner v First Artists’ Management Pty Ltd [1993] 2 VR 221. 47 See Brenner v First Artists Management Pty Ltd [1993] 2 VR221. 48 See Sumpter v Hedges (1898) 1 QB 673; Steele v Tardiani (1946) 72 CLR 386. 49 Friend v Booker (2009) 239 CLR 129, 141 [7]. This principle is particularly relevant where improvements are made to property without the consent or request of the owner of the property. 50 Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 at 662–3, [78]–[79]. 51 [2014] WASC 162, [112]. 52 [1998] 1 WLR 574.

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contract provided for the plaintiff to ‘design, build, complete and deliver’ six ships. In allowing recovery for a quantum meruit, the House of Lords distinguished between a contract for an end product, or a transfer of title, and one ‘which also included the provision of services prior to delivery’.53 Applying these principles if the request in the contract is for a complete product and the product is not provided, then a claim for quantum meruit based upon the request in the contract will not succeed.54 This result, although potentially unfair in some circumstances, gives due precedence to the terms of the contract and the allocation of risk within it. In contrast, if the contract is for the provision of services, rather than an end product, it may be appropriate for the law to recognise an obligation for the defence to pay for those services accepted by the defendant. An example of this approach, duly endorsed by the High Court in Lumbers, appears in Steele v Tardiani. 55 [24.32]

Steele v Tardiani (1946) 72 CLR 386 High Court of Australia The defendant employed the plaintiffs to cut firewood into certain lengths and diameters. The defendant alleged that the plaintiffs were in breach of contract because the wood was not cut into the correct lengths. However, the defendant continued to take possession of all wood cut by the plaintiff and sell it. The High Court considered that as the contract was ‘infinitely divisible’, the plaintiffs were entitled to be paid 8 shillings per ton for any wood split into the correct dimensions. The High Court further held that the plaintiffs were entitled to recover on a quantum meruit for the remaining timber they had split, and which the defendant had accepted and sold. The High Court agreed that a quantum meruit was available if the defendant had accepted the benefit of the work. Dixon J It is upon these principles that the defendant relies in support of his appeal against the decision by which he has been held liable to the plaintiffs for the value of the work done by them in cutting firewood to the quantity estimated, nearly all of it being in excess of the contract width or diameter. The defendant says that his trees were cut upon his land and the firewood left lying there was his. What was he to do? By what step could he actively ‘reject’ the advantage which the transmutation of his standing trees into firewood necessarily gave him, however unsuitable to his purpose might be the actual lengths and widths? Was he to allow the wood to rot on the ground? What practical choice had he except to make it clear to the plaintiffs that, to obtain payment, they must split the wood to the contract width, and, when

53 Ibid, 600. A similar distinction in the context of a claim for monies received is drawn in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour [1943] AC 32. 54 See for example the decision in Sumpter v Hedges [1898] 1 QB 673. 55 (1946) 72 CLR 386.

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they refused or failed to do so, to employ other labour for the purpose of reducing its width or ‘diameter’ so far as otherwise he was unable to dispose of the firewood. Why should he be precluded from selling his wood in the shape the plaintiffs wrongfully left it? It was his wood and why should his dealing with it imply a new contract with the plaintiffs? If it were true that he made it clear to the plaintiffs before they departed that they must complete their contract by splitting the wood to the specified width, these considerations would indeed place him in a strong position. If his evidence were accepted, the plaintiffs would occupy the situation of a party who abandons a special contract to perform work on the property of another before completing the work and leaves that other party no effective choice in accepting or rejecting the benefit. But the defendant’s evidence was not accepted by the judge at the trial, who, on the contrary, held that, as the timber cut, whether over six feet or not in length and whether over six inches or not in width, was sold by the defendant, he must pay a reasonable sum for that which he took and sold, even though it did not strictly comply with the terms of the original contract. What detailed facts the learned judge found on which to base this conclusion there is no express statement to show. But the rejection of the defendant’s testimony generally is involved in other findings and I think that we must take it that the defendant did not base his refusal or failure to pay the plaintiffs on their failure to split the wood to the specified width, or, at all events, did not express to the plaintiffs his insistence or desire that they should so cut it. Indeed, even in his pleading, the defendant did not take the point as to diameter or width and it was only during cross-examination that it was developed as part of the defence. On the other hand, there is evidence, which his Honour may have accepted, and which the learned judges of the Full Court certainly treated as representing fact, which would authorize a conclusion adverse to the defendant. Upon the evidence it would be open to conclude that the defendant considered that the plaintiffs were bound by the restrictions imposed upon them to go on working for him and that it was for this reason that he did not pay them regularly, that he allowed them to continue cutting timber and splitting it to a width of more than six inches and raised no objection, that notwithstanding this disconformity with the direction or stipulation he had originally given or made, he afterwards promised to pay for the wood cut if and when it was delivered to a buyer or buyers, that he suffered them to leave his employment without informing them that they must split the firewood again in order to reduce its diameter, if they were to be paid, he then having reason to suppose that they did not consider that he was insisting on this requirement and, indeed, that his reliance upon diameter or width was an afterthought. In such circumstances, it would be proper to treat the failure in complete performance as possessing little importance to the defendant and as acquiesced in by him, with the consequence that the subsequent sale of the firewood might rightly be regarded by the learned judge as a taking of the benefit of the work and so, as involving either a dispensation from precise performance or an implication at law of a new obligation to pay the value of the work done. The actual finding made by the judge at the trial is general, but as it is consistent with his Honour’s having proceeded on the foregoing views of the facts, which are open on the evidence, I do not think the defendant should succeed in his attack upon the conclusion that he is bound to pay a fair and reasonable rate of remuneration in respect of the timber actually cut, even though much of it exceeded the stipulated width.

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The finding that during their period of employment the plaintiffs had cut fifteen hundred tons of timber was also attacked on the part of the defendant. But it must be taken that the learned primary judge refused to accept the testimony given by and for the defendant that a much smaller quantity lay on the ground and was disposed of, and on the evidence adduced for the plaintiffs, the estimate of fifteen hundred tons was, in my opinion, reasonably open. In assessing the rate to be paid by the defendant for the work actually done, his Honour proceeded in accordance with the judgment of Parke B in Mondel v Steel and I do not think that any valid complaint can be made of the value placed upon the work done.

Defence—change of position [24.33] The defence of most interest to the claims discussed in this chapter is the defence of change of position. While originally change of position was considered conceptually separate to estoppel, a majority of the High Court in Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd56 (AFSL) labelled the defence as ‘a species of the genus “inequitable” not a synonym for it’.57 According to a majority of the High Court in AFSL, the defence is available to a person whose position has so changed that it would be ‘inequitable in all the circumstances’ to require restitution or restitution in full.58 In the case of mistaken payments, ‘the question is whether it would be unconscionable for a recipient who has changed its position on the faith of the receipt to be required to repay’59 The change of position defence is usually raised in the context of claims for restitution of mistaken payments.60 Defendants generally should prove: 1 2 3

they acted to their detriment; on the faith of the receipt of the benefit; such that it would now be inequitable for the money to be returned.61

[24.34] Acting on the faith of the receipt requires that there is a causal link between the receipt of a payment and the incurring of a detriment. Usually this will involve the expenditure or payment of money received on the faith of the payment but may also include the giving up of an opportunity for gain, as discussed below. Mere expenditure of the money on ordinary living

56 (2014) 307 ALR 512. 57 Ibid, [77]. 58 (2014) 307 ALR 512; [17] per French CJ, [72] per Hayne, Crennan, Kiefel, Bell, Keane JJ, citing Lord Goff in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 580; [1992] 4 All ER 512; [1991] 3 WLR 10. 59 (2014) 307 ALR 512, [88] per Hayne, Crennan, Kiefel, Bell, Keane JJ. 60 It is suggested that change of position is not relevant to a claim for quantum meruit based upon a request by the defendant: Sunwater Ltd v Drake Coal Pty Ltd [2016] QCA 255, [10]. 61 For a summary of the development of the change of position defence, refer to the Honourable Justice WMC Gummow, ‘Moses v Macferlan: 250 Years On’ (2010) 84 ALJ 756; Keith Mason, ‘Strong Coherence, Strong Fusion, Continuing Categorical Confusion: The High Court’s Latest Contributions to the Law of Restitution’ (2015) 39 Australian Bar Review 284.

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expenses or payments to others will not qualify.62 Likewise the anticipatory expenditure of funds prior to payment may not attract the defence.63 [24.35]

Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 307 ALR 512 High Court of Australia Australian Financial Services and Leasing Pty Ltd (AFSL) was a business financier. H and B were manufacturers and suppliers of equipment. TCP was a customer of AFSL and H and B. AFSL was induced by the fraud of TCP to make payments to H and B. At the request of TCP, H and B applied the payments in discharge of TCP’s debts to H and B. The fraudulent conduct was detected when TCP went into liquidation. AFSL demanded repayment of the money by H and B on the basis of a payment by mistake. H and B resisted the claims on the basis they had changed their position on the faith of the payments. During the 6 months after the payment they had relied upon the payments and applied them in discharge of TCP’s debts to them, ceased pursuing the recovery of those debts and continued to trade with TCP. Hayne, Crennan, Kiefel, Bell and Keane JJ Change of position and detrimental reliance [77] As Gummow J, writing extra-judicially, has said: ‘[I]t is important to appreciate that ‘change of position’ is a species of the genus ‘inequitable’, not a synonym for it’. One category of case in which it would be inequitable to require a recipient to repay is where the recipient has so far altered its position in relation to the receipt that it would be a detriment to it if it were now required to repay. [78] The approach argued by AFSL does not involve an inquiry as to whether it would be inequitable to require the recipient to repay. Instead, AFSL’s approach focuses upon the extent to which Hills and Bosch have been ‘disenriched’ subsequent to the receipt. This approach seeks to give effect to an understanding of unjust enrichment as a principle of direct application, which operates by measuring the extent of enrichment or, where a defence of change of position is invoked, the extent of disenrichment subsequent to that receipt. Such a ‘principle’ does not govern the resolution of this case because the concept of unjust enrichment is not the basis

62 David Securities Pty Ltd v The Commonwealth Bank of Australia (1992) 175 CLR 353; Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 (taxes retained by a wholesaler and paid to the government were recoverable by the retailer after the tax was declared invalid). Contrast TRA Global Pty Ltd v Kebakoska [2011] VSC 480 where an employee successfully invoked change of position where a redundancy payment was expended on ordinary living expenses. 63 South Tyneside Metropolitan Borough Council v Svenska Internation plc [1995] 1 All ER 545 (defence not allowed); cf Dextra Bank & Trust Co Ltd v Bank of Jamaica [2002] 1 All ER (Comm) 193 (defence allowed for anticipatory payment); (2014) 307 ALR 512.

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of restitutionary relief in Australian law. The principle of disenrichment, like that of unjust enrichment, is inconsistent with the law of restitution as it has developed in Australia. Disenrichment operates as a mathematical rule whereas the inquiry undertaken in relation to restitutionary relief in Australia is directed to who should properly bear the loss and why. That inquiry is conducted by reference to equitable principles. [79] In §65 of the Restatement of the Law Third, Restitution and Unjust Enrichment, under the rubric ‘Change of Position’, the American Law Institute states: If receipt of a benefit has led a recipient without notice to change position in such manner that an obligation to make restitution of the original benefit would be inequitable to the recipient, the recipient’s liability in restitution is to that extent reduced.

[80] In Lipkin Gorman, Lord Goff used similar language in explaining the basis of the change of position defence: [W]here an innocent defendant’s position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution.

[81] In David Securities, reference was made to what was said in Lipkin Gorman concerning the defence. It was observed that in Lipkin Gorman, Lord Bridge of Harwich, Lord Ackner and Lord Goff said that the defence should be recognised by English law but declined to define its scope. However, in David Securities the ‘central element’ of the defence was identified as being ‘that the defendant has acted to his or her detriment on the faith of the receipt’ [emphasis in original]. Whether English cases subsequent to Lipkin Gorman have taken a wider view of the defence, one which eschews a requirement of detrimental reliance in favour of a mere causal link, cannot alter what was said in David Securities regarding the defence. Whether the conclusion reached in the English cases, including Lipkin Gorman, is different from that which would be reached by reference to equitable principles is a moot point. In any event, consistently with an inquiry as to whether it is unconscionable for the recipient to retain the moneys, it is necessary in cases such as the present to consider what was done by the recipient in reliance upon the receipt. [82] In David Securities, in the passage in which reference is made to a recipient acting on the faith of the receipt, it was said that a common element in cases in Canada and the United States, where the defence has been accepted, is that it is necessary that the defendant point to ‘expenditure or financial commitment’ which can be ascribed to the mistaken payment. The passage does not provide precise direction as to the resolution of the issue in this case, but it is tolerably clear that their Honours did not suggest that the defence was available only to a recipient who was able to demonstrate monetary disenrichment on the faith of the mistaken payment. [83] AFSL argued that it is necessary and appropriate to assess, forensically, the value of TCP’s debts to Hills and Bosch, or their prospects of recovery, in order to measure the extent to which they remained enriched by AFSL’s mistaken payments. AFSL’s argument in this regard relied upon cases such as Commonwealth v Amann Aviation Pty Ltd and Sellars v Adelaide Petroleum NL. However, these cases concerned the assessment of damages by way of compensation for

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breach of contract or statutory or common law norms of conduct predicated upon proof of loss by reason of the breach. Here, Hills and Bosch had done AFSL no wrong that gave rise to an obligation to compensate AFSL for the loss suffered by it as a result. As Lord Goff observed in Lipkin Gorman, restitutionary claims are not founded upon a wrong done to the payer. [84] More importantly, under Australian law, a mathematical assessment of enduring economic benefit does not determine the availability of restitutionary remedies. The equitable doctrine which protects expectations, with which the notion of ‘detriment’ is associated, is not concerned with loss caused by a wrong or a breach of promise. As Deane J observed in Verwayen, ‘[e]quity has never adopted the approach that relief should be framed on the basis that the only relevant detriment … is that which is compensable by an award of monetary damages’. The equitable doctrine concerning detriment is concerned with the consequences that would enure to the disadvantage of a person who has been induced to change his or her position if the state of affairs so brought about were to be altered by the reversal of the assumption on which the change of position occurred. On this view, the injustice which precludes such a result lies in the disadvantage which would result to the recipient if the payer were to be permitted to recover payments as mistakenly made where they have been applied by the recipient. [85] This view accords with the understanding of detrimental reliance sufficient to ground an estoppel, as explained in Grundt v Great Boulder Pty Gold Mines Ltd by Dixon J. The fundamental purpose of an estoppel is to provide protection against the detriment which would flow from a party’s change of position if the assumption which led to it were deserted. [86] While it may be accepted that estoppel affords a level of protection to expectations different from that afforded by the change of position defence, and estoppel is also concerned with the manner in which expectations are created, both estoppel and the defence are grounded in that body of equitable doctrine that prevents the unconscientious assertion of what are said to be legal rights. In Grundt, Dixon J explained the precise ground on which estoppel precludes an otherwise good claim. Although lengthy, it is worthwhile setting his Honour’s explanation out in full: [I]t is often said simply that the party asserting the estoppel must have been induced to act to his detriment. Although substantially such a statement is correct and leads to no misunderstanding, it does not bring out clearly the basal purpose of the doctrine. That purpose is to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it. So long as the assumption is adhered to, the party who altered his situation upon the faith of it cannot complain. His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then, if it is allowed, his own original change of position will operate as a detriment. His action or inaction must be such that, if the assumption upon which he proceeded were shown to be wrong and an inconsistent state of affairs were accepted as the foundation of the rights and duties of himself and the opposite party, the consequence would be to make his original act or failure to act a source of prejudice.

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[87] It will be observed that Dixon J saw that a party’s position, which had changed on the basis of an assumed state of affairs that is now sought to be altered, provided the necessary detriment. The passage makes clear that the detriment must flow from reliance upon that assumption, when that assumption is to be departed from. [88] Detriment has not been considered to be a narrow or technical concept in connection with estoppel. So long as it is substantial, it need not consist of expenditure of money or other quantifiable financial detriment, as Robert Walker LJ observed in Gillett v Holt. His Lordship went on to say that the requirement of detriment must be approached as ‘part of a broad inquiry as to whether repudiation of an assurance is or is not unconscionable in all the circumstances’. In the context of mistaken payments, the question is whether it would be unconscionable for a recipient who has changed its position on the faith of the receipt to be required to repay. [89] Campbell is an example of a case where the continuance of an assumed state of affairs in business over a period of time and the disruption which would be caused if one or more payments were to be corrected were held to be determinative. Griffith  CJ held that it would be inequitable to require repayment from the defendant, which had, over a long time, received mistaken payments on a regular basis and took them into account in estimating and directing annual profits. His Honour dismissed the plaintiff ’s action for money had and received. [90] In London & River Plate Bank Ltd v Bank of Liverpool Ltd, Mathew  J referred to the detrimental effect of the passage of time in the context of business: A holder of a bill cannot possibly fail to have his position affected if there be any interval of time during which he holds the money as his own, or spends it as his own, and if he is subsequently sought to be made responsible to hand it back. It may be that no legal right may be compromised by reason of the payment … but even in such a case it is manifest that the position of a man of business may be most seriously compromised, even by the delay of a day.

[91] In Lipkin Gorman, Lord Goff referred to London & River Plate Bank as, on one possible view, an example of the change of position defence. These considerations have also, as Meagher JA observed below, influenced courts in the United States in decisions such as Stephens v Board of Education of the City of Brooklyn and Banque Worms v BankAmerica International. [92] What was said in London & River Plate Bank may be understood to refer to the concern which has often been expressed in decisions of the courts about the finality of transactions and the security of receipts. In Kleinwort Benson Ltd v Lincoln City Council, Lord Goff suggested that defences such as change of position are concerned to protect the stability or finality of transactions. It may perhaps be more accurate to say that, where the defence of change of position is made out, finality is the result that is achieved. But the desirability of ‘certainty of receipts’ cannot itself dictate the outcome of the inquiry respecting the actions taken by a recipient where a mistaken payment is made in a commercial context. It is necessary to recall that the action for money had and received is itself a qualification upon what the law otherwise regards as the overriding importance attached to the security of actual receipts.

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[93] Here, Hills and Bosch not only continued to trade on the basis of the payments received, they discharged TCP’s debts and no longer sought to recover them. In the Restatement of the Law Third, the American Law Institute acknowledges forbearance as relevant to the defence of change of position. [Footnotes omitted.]

QUESTIONS FOR REFLECTION (1) Can a party to a subsisting contract claim the payment of money or payment for services as an alternative to damages? In what circumstances is this possible? (2) What is the role of unjust enrichment within the Australian remedial framework? (3) In Steele v Tardiani (1946) 72 CLR 386, Dixon J states ‘ “taking the benefit of the work” means that the defendant has done so in the exercise of some choice that was actually open to him … No promise can be inferred unless it is open to the beneficiary either to accept or to reject the benefit of the work … The chief example of work of which the advantage must be received and in that sense accepted by the person for whom it is done, is that of the erection or repair of a building upon the land of the person benefiting, but not erected or repaired according to the conditions of the contract.’ Is it possible for a person to freely accept building work that has not been requested? Consider the impact of the High Court decision in Lumbers v W Cook Builders Pty Ltd (in Liq) (2008) 232 CLR 635 on a claim by a party where work is performed without a request but later accepted by the defendant. (4) When is the party in breach of a contract entitled to payment for services rendered on the basis of a quantum meruit?

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INTRODUCTION [25.01] Equitable remedies differ from common law remedies on the following bases: (1) equitable remedies are usually only given where common law damages are an inadequate remedy; (2) equitable remedies are discretionary and may be refused where the plaintiff is in breach of his or her own obligations, where the plaintiff has failed to take the action within a reasonable time, or where the claim would produce unfair or harsh results to a defendant; and (3) equity acts in personam. This means that a defendant would be ordered personally to perform a contract (specific performance) or conversely, abstain from breaching it (injunction). The failure to comply with an order of a court of equity may lead to committal or attachment for contempt of court, depending upon the circumstances. This chapter will examine the more significant equitable remedies relating to contracts, specific performance and injunctions.

SPECIFIC PERFORMANCE [25.02] Specific performance may be ordered to force a party to an executory (unperformed) contract to perform that contract, or may be ordered against a party to enforce the fulfilment of any one or more obligations remaining unperformed under a contract. Specific performance of a positive contractual obligation will only be granted where damages are an inadequate remedy. The most common situation in which this will be the case is where the subject matter of the contract is unique. Contracts for the sale of land are the most common examples, but specific performance can also be granted in the case of unique goods.1 A Court of Equity may refuse to grant specific performance for discretionary reasons even if damages are an inadequate remedy. Generally, contract to lend money are only enforced in exceptional circumstances as damages are usually an adequate remedy.2

1

Dougan v Ley (1946) 71 CLR 142 (taxi and licence to operate).

2

Wight v Haberdan Pty Ltd [1984] 2 NSWLR 280, 289.

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625

[25.03]

JC Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282 High Court of Australia The lessees of a theatre made an oral agreement to give the confectioners an exclusive right to sell ice cream, confectionery, and soft drinks in the theatre during the continuance of a lease of a shop that the confectioners had taken from the owner of the theatre for five years. The confectioners exercised their rights for some time, but the lessee later repudiated the agreement and revoked the licence. The confectioners took proceedings for specific performance or an injunction and equitable damages in addition, or in lieu thereof. They failed on both counts. Starke J … Would then a Court of equity have entertained a suit upon the agreement found by the learned Judge? Courts of equity have, no doubt, exercised jurisdiction to enforce contracts specifically and to restrain the breach of contracts which such a Court would specifically enforce and to restrain the breach of negative stipulations in contracts whether in the particular case the Court would or would not specifically enforce the whole contract … But over and over again it is asserted in the books that a Court of equity will not compel one party to perform his part of a contract unless justice can be done as regards the other party … Nor will it as a rule enforce contracts of personal service or any other contract the execution whereof would require continued superintendence by the Court … It is clear that the Statute of Frauds is a complete answer at law to any action for damages arising from breach of the agreement. Again, it is clear, on the principles already referred to, that no Court of equity would have enforced, specifically or by way of injunction, the right of the respondents to sell sweets in the theatre. Nor would any such Court have enforced the right of the appellant to supervise and control the right of selling sweets in the theatre. The enforcement of either right would have required a continued and effective superintendence of acts and services which would be impossible for any Court. So we limit our consideration to the stipulation that the respondents should have the exclusive right to sell sweets in the theatre. This positive stipulation imports the negative that no other person should be allowed the right of selling sweets in the theatre. Indeed, the substance of the stipulation is that no other person should be allowed to sell sweets in the theatre … Lowe J concluded that a Court of equity had authority to and would enforce such a stipulation, though it would not or could not otherwise enforce the agreement, specifically or by means of an injunction. But it is just at this point that I am unable to agree with the learned Judge. His view really means that one stipulation of the sweets agreement can be enforced whilst every other stipulation is unenforceable, both at law and in equity. If parts of an agreement are separable and distinct from the rest, I can understand that a Court of equity might in a proper case enforce those parts and leave the parties to their remedies at law as to the rest of the agreement, especially where those remedies would be adequate and just. But it is contrary to all equitable principles to enforce part of an agreement and leave the parties without any remedy whatever as to all other obligations of that agreement. It would result substantially in very different legal obligations, and great injustice to both parties.

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In the present case the respondents would have no redress if the appellant refused to allow them to sell sweets in the theatre, and the appellant could not recover the charges payable in respect of the sweet rights or have any redress if the respondents violated its directions as to the dress, deportment and behaviour of their employees. Indeed, I  dissent entirely from the notion that this agreement can be divided into two parts, one enforceable and the other wholly unenforceable. Consequently, in my opinion, a Court of equity would, in the case before us, have had no jurisdiction or authority whatever to enforce the stipulation giving the respondents the exclusive right of selling sweets in the theatre by restraining the appellant from permitting or allowing any other person to sell them. Dixon J Equitable relief is obtainable, notwithstanding the Statute of Frauds, by a party who in pursuance of his contract has done acts of performance consistent only with some such contract subsisting, but, if the doctrine is not confined to cases in which a decree might be made for the specific performance of the contract, it is at least true that the doctrine arose in the administration of that relief and has not been resorted to except for that purpose. It must be remembered that, although the remedy of specific performance is commonly applied in aid of a legal right, it extends to cases where, for one reason or another, there is no remedy at law, as well as to cases where the remedy at law is inadequate. … But it is evident from a mere statement of the nature of the agreement in this case that it falls outside the scope of the remedy of specific performance. The parties meant their oral contract to be a final expression of obligation for the regulation of their future relations. It was not an agreement preliminary to a further transaction which, when carried out, should define their relative positions. Unlike a contract to assure property, it did not require the parties to adopt a formal instrument or to do some act in the law which should thereafter afford the measure of their rights and duties. Specific performance, in the proper sense, is a remedy to compel the execution in specie of a contract which requires some definite thing to be done before the transaction is complete and the parties rights are settled and defined in the manner intended. Moreover, the remedy is not available unless complete relief can be given, and the contract carried into full and final execution so that the parties are put in the relation contemplated by their agreement. Specific performance is inapplicable when the continued supervision of the Court is necessary in order to ensure the fulfilment of the contract. It is not a form of relief which can be granted if the contract involves the performance by one party of services to the other or requires their continual co-operation. The doctrine of the Court of chancery was against decreeing one party to perform specifically obligations which the contract imposed upon him, if it was unable to secure to him the performance by the other contracting party of the conditions upon which those obligations depended, and could only leave him to his action of damages at law in the event of the conditions being unperformed. In the present case the condition of the contract which entitles the plaintiffs and their servants to admission for the purpose of selling confectionery in the theatre is concurrent with the conditions governing the time, place and manner of supply, the character of the goods supplied, and the appearance, dress and behaviour of their servants. It would be contrary to principle to bind the Company by a decree to perform its obligations leaving it only a remedy sounding in damages in the event of a breach by the plaintiffs of the conditions to be observed by them. It would be equally contrary to principle for the Court to

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undertake the supervision of the specific fulfilment of these conditions. It, therefore, could not be contended that a decree of specific performance might be made … [Gavan Duffy CJ and Evatt J agreed with the reasoning of Dixon CJ and Starke J. McTiernan J dissented.]

DEFENCES TO SPECIFIC PERFORMANCE [25.04] As specific performance is a discretionary remedy, although a breach of a contract by a defendant may be proved, an order will not be made as a matter of course without consideration of the conduct of the plaintiff and the circumstances of the defendant, so far as they may be relevant. There are a number of accepted categories of case where an order will not be made. The defences are: •

where the contract was entered as a result of mistake or misrepresentation;



where enforcement would create undue hardship upon the defendant;



where the plaintiff is in breach of contract or not ready, willing, and able to perform his or her obligations under the contract;



performance of the contract is not possible or would be futile;



where the plaintiff is guilty of laches; and



that the contract is unenforceable because of informality.

Where the contract was entered as a result of mistake or misrepresentation [25.05] This applies where a party to a contract against whom specific performance is being sought may have entered the contract as a result of a misrepresentation by the plaintiff, or as a result of a mistake by the plaintiff. The court will take into account the conduct of the plaintiff in inducing or contributing to the mistake or misrepresentation.3

Where enforcement would create undue hardship upon the defendant [25.06] This defence is only raised in exceptional cases. It arises where the order of the court might place the defendant in such a position that the defendant would be, for example, exposed to the risk of prosecution.4 A buyer of land will need strong evidence of hardship to overcome the principle that specific performance is not a remedy which should lightly be refused when the seller has established the existence of a valid contract that equity ordinarily decrees to be

3

Neild v Davidson (1890) 11 LR (NSW) Eq 209, compare Tamplin v James (1880) 15 Ch D 215 at 221 (24 May 1996); applied in Gallinar Holdings Pty Ltd v Riedel [2014] NSWSC 476.

4

Pottinger v George (1967) 116 CLR 328, 337 (breach of local government regulations).

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specifically performed, which the buyer has declined to complete.5 The mere fact a buyer is confronted with difficulty in finding the purchase money will not, by itself, constitute a sufficient reason to deny a seller an order for specific performance.6 Relevant factors may include financial hardship, undue influence and duress. [25.07]

Fairborne Pty Ltd v Strata Store Noosa Pty Ltd [2009] QSC 250 Supreme Court Qld The parties entered into a contract dated 27 July 2008 for the applicant (acting as the vendor) to sell to the respondent (acting as the purchaser), land described on the face of the contract as ‘Part of Lot 32 on SP 170751’, situated on Lionel Donovan Drive at Noosaville. The contract’s special conditions provided for the purchaser, upon execution of the contract, to apply to the local authority for reconfiguration of the existing lot and an adjoining lot, such that the property sold under the contract would form one lot in the new survey plan. The purchaser failed to attend settlement or to tender the purchase price. On 30 April 2009, the vendor’s solicitors wrote to the purchaser’s solicitors advising that the vendor affirmed the contract. The vendor contended that it was ready, willing and able to settle the contract and sought specific performance. Daubney J The vendor’s claim for specific performance [8] The first respondent purchaser sought to resist the application for a decree of specific performance on the following bases: (a) that the applicant had failed to comply with a requirement in special condition 9 of the contract, which required the obtaining of an exemption from compliance with the provisions of Part 2 of the Land Sales Act 1984 (‘LSA’); (b) that the first respondent had validly terminated the contract in reliance on an alleged failure by the applicant to comply with special condition 8.10 of the contract; (c) that damages are an adequate remedy, and that specific performance should not be ordered; and (d) that it is not possible for the first respondent to perform the contract and/or enforcement of the contract would impose undue hardship on the first respondent. [9] The first of these defences referred to special condition 9 of the contract, which was in the following terms:

5

Dowsett v Reid (1912) 15 CLR 695; Pasedina (Holdings) Pty Ltd v Khouri (1977) BPR 9460; Fairborne Pty Ltd v Strata Store Noosa Pty Ltd [2009] QSC 250.

6

Likewise a seller faced it an inability to release a mortgage will also be unable to succeed in a defence of hardship: Dalton v Warren (2007) Q Conv R 54-676. See also Evans v Robcorp Pty Ltd [2014] QSC 26, where a summary application for specific performance was refused on the basis of hardship to the buyer due to financial inability to settle.

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9 Land Sales Act Exemption The Vendor shall forthwith upon execution of this Contract make application pursuant to section 19(1) of the Land Sales Act 1984 (as amended) (‘the Act’) for exemption from compliance with the provisions of Part 2 of the Act with respect to this Contract and the Purchaser shall at the request of the Vendor execute all documents and requests necessary for such application. The Vendor will use its best endeavours to obtain such exemption. In the event such exemption is not obtained within thirty (30) days from the Contract Date this Contract shall be deemed to be at an end and the deposit will be refunded to the Purchaser.

[10] The difficulty with the first respondent’s contention in this regard is that on 14 August 2008, an exemption from provisions of the LSA was issued by the relevant officer within the Department of Justice and Attorney-General. That exemption was in the following terms: ‘DETERMINATION OF APPLICATION FOR EXEMPTION FROM COMPLIANCE WITH ALL OR ANY OF THE PRIVISIONS OF PART 2 OF THE LAND SALES ACT 1984 Pursuant to Section 19(2) of the Land Sales Act 1984, I, Peter Harten, Principal Business Services Officer, Delegate of the Director General, Department of Justice and AttorneyGeneral, hereby grant the application for exemption from compliance with the provisions of Sections 8 and 9 of the said Act made by Fairborne Pty Ltd ACN 074 190 864, C/- Siemons Lawyers, PO Box 870, Noosa Heads Qld 4567 and received in this Office on 7 August 2008 in relation to the subdivision of land described in the Schedule, being a subdivision of not more than five allotments for the purposes set out in the application. The granting of this exemption is subject to the condition that a copy of a plan referred to in Section 9(1)(b) of the said Act is to be given by the vendor to the purchaser as soon as practicable after such a plan becomes available.’

[11] The submission which counsel for the first respondent sought to maintain before me was that this was insufficient for the purposes of compliance with special condition 9. The thrust of the submission was that it was insufficient because it only gave exemption ‘from compliance with the provisions of ss 8 and 9’ while special condition 9 required ‘exemption from compliance with the provisions of Pt 2’ of the LSA. [12] Even a cursory look at the provisions in Pt 2 of the LSA reveals that the only sections within that part which could possibly or conceivably be of relevance or application to this particular contract were ss 8 and 9.  Accordingly, the exemption dated 14 August 2008 was clearly sufficient for the purposes of fulfilling the requirements of special condition 9. [13] The first respondent’s second argument related to special condition 8.10, which conferred, in certain specific circumstances, a right upon either party to terminate the contract. Subsequent to the oral argument in this matter, however, the solicitors for the first respondent advised that their client conceded that it had waived its right to terminate the contract pursuant to special condition 8.10. Accordingly, this point was not pursued. [14] The next contention advanced on behalf of the first respondent was that, because this deal was a commercial transaction as opposed to, say, the sale of a residential dwelling, there was no reason to conclude that damages would not adequately compensate the applicant. Such a distinction is not, however, determinative of whether the court ought, in a particular case,

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exercise its discretion to order specific performance. The contract in question, having been affirmed by the applicant vendor, remains executory. Specific performance is the remedy which compels execution in specie of that contract ‘which requires some definite thing to be done before a transaction is complete and the parties’ rights are settled and defined in the manner intended’. In view of my finding with respect to the fulfilment of special condition 9, it can be said that this is a valid and binding contract. A  challenge to the exercise of the discretion to grant specific performance on the basis that the applicant has an adequate remedy at law is not determined merely by characterising the contract as one relating to commercial land or one relating to residential land. Rather, the court is called upon to assess whether, in all the circumstances of the particular case, an award of damages, rather than a decree of specific performance, will adequately ensure that justice is done between the parties. [15] The only matter to which the first respondent has directed me for the purpose of making that assessment is, as I  have said, the assertion that this is a contract for the sale of ‘commercial’ not ‘residential’ land. But even if I were to give any weight to that distinction, it has long been recognised that there is a justification for ordering specific performance against a purchaser of land arising from the vendor’s legitimate interest in divesting itself of the land. In all the circumstances, the interest of the applicant vendor seems to me to outweigh the impact of the distinction sought to be drawn by the first respondent purchaser. [16] Finally, it was contended on behalf of the first applicant that the purchaser would not be able to comply with an order for specific performance. In that regard, reliance was placed on the matters deposed to in an affidavit by the second respondent, Mr Brown, who explained something of the background to the first respondent. The first respondent, of which each of the second, third and fourth respondents are directors, is a wholly-owned subsidiary of Strata Store Group Pty Ltd He says that there is a group of companies called the ‘Strata Store Group’, and that the first respondent was one of a number of the companies within that group which have specific projects to undertake. The specific project which the first respondent was to undertake was to develop what is referred to as a strata storage facility at Noosaville. Such a facility is, in effect, a strata titled mini warehouse facility. He said that the group of companies is developing such facilities at Coolum in Queensland, Ballarat in Victoria and Bunbury in Western Australia. Other companies in the group also occasionally act as project managers for the facilities developed by other operators. [17] Mr Brown acknowledged the existence of the contract with the applicant vendor, and said that when the contract was entered into, and when the time for settlement was extended, it was his belief, as managing director of the first respondent, that the contract would be completed. He then deposes to the following: 13 The First Respondent has made numerous attempts to obtain equity and/or loans to allow it to complete the Contract. We have had discussions with the following institutions or individuals: Maximum Capital; B&C Capital Group; Growth Corp Solutions; Global Capital; Mr Craig Wylie; Mr Cameron Barnes; Alliton Capital; CBA Private Banking; Marshall Michael; and Integra Capital. Many other individuals and organisations have been contacted—the above are institutions or individuals with whom there has been discussion with the First Respondent. However, none of these discussions have led to the provision of any funds.

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14 Whilst the First Respondent is presently solvent, it would not be able to satisfy orders that would require it to complete the Contract. Although I am not aware precisely of the sum that is sought by the Applicant for settlement of the contract, I believe that it would be of the order of two million dollars. In that regard I  refer to the Exhibit at page  82 of the Affidavit of Mr Siemon referred to above, where the settlement price as at 27 April 2009 is stated as $1,972,881.89. 15 Now produced and shown to me and marked ‘GRB-3’ is a true copy of the most recent financial accounts in respect of the First Respondent, being for the year ending 30 June 2008. They show that the First Respondent had a total equity of negative $1238 as at 30 June 2008. The First Respondent operates on a day-to-day basis by funding from other members of the Strata Store Group, or by injections of funds from individuals associated with the Strata Store Group.

[18] Mr Brown then says that if an order for specific performance were made he would ‘need to take urgent advice on placing the First Respondent into administration’ and he believes that this is the course that would be adopted. [19] The only financial accounts which are exhibited to the material filed before me are those for the first respondent for the year ended 30 June 2008. I have been provided with no information as to the financial wherewithal of the first respondent’s holding company, Strata Store Group Pty Ltd. It is apparent from the matters deposed to by Mr Brown that the first respondent relies on other entities within the group, or associated with the group, for its day-to-day funding. Yet, apart from personal financial information relating to the second respondent, third respondent and fourth respondent, there is no testimony whatsoever concerning the ability, or lack of ability, of the group to source funding for this project. The affidavit of Mr Brown is carefully limited to providing information in relation to the first respondent only. [20] In Patel v Ali [1984] 1 Ch 283, Goulding J said (at 288) that ‘only in extraordinary and persuasive circumstances can hardship supply an excuse for resisting performance of a contract for the sale of immovable property’. [21] In Pasedina (Holdings) Pty Ltd v Khouri (1977) BPR 9460, Holland J analysed the distinction between the defence of impossibility and the defence of hardship in cases of specific performance. He pointed out that the defence of impossibility was exemplified by a case such as Sewell v Webster (1859) 29 LJ Ch 71, in which an order that the defendant specifically perform his promise to pull down a party wall would have required him to act contrary to a statute which governed the matter. This presented a case of ‘legal impossibility’. His Honour also referred to the case of Ferguson v Wilson (1866) 2 LR Ch at 77 as an example of ‘factual impossibility’, being a case in which a plaintiff had sought specific performance of a promise to allot part of an issue of company shares, but before the plaintiff began his proceedings all of the issue had been allotted to others. [22] The case with which I  am now concerned does not present issues of either legal impossibility or factual impossibility. Rather, the first respondent relies on the defence of hardship. In that regard, Holland J in Pasedina (Holdings) Pty Ltd ((1977) BPR 9460, 9460–9461) said:

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A purchaser who pleads hardship as a defence to a vendor’s claim that the purchaser be ordered specifically to perform the bargain into which he has entered has to meet and overcome the principle that specific performance is not a remedy which should lightly be refused when the vendor has established the existence of a valid contract that equity ordinarily decrees to be specifically performed which the purchaser has declined to complete: Fullers Theatres Ltd v Musgrove (1923) 31 CLR 524 at 548–9; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438. On the authorities, I doubt whether difficulty confronting a purchaser in finding the purchase money could, by itself, constitute sufficient reason to deny a vendor an order for specific performance. Financial hardship generally appears as only one ingredient in a group of circumstances which would make specific performance work a clear injustice to the defendant.

[23] His Honour’s observations in that regard have been applied in other jurisdictions—see Iambic Pty Ltd v Northwind Holdings Pty Ltd [2001] WASC 44; Boyarsky v Taylor [2008] NSWSW 1415. [24] For the reasons I have set out above, I do not consider that the material relied on by the first respondent goes so far as to constitute sufficient reason to deny the vendor in this case an order for specific performance. At the very least (and without saying that it would necessarily have been sufficient), one would have expected to have seen material to demonstrate not merely that the first respondent had difficulty in sourcing finance on its own but that it had no capacity through the group of companies of which it is part or through the persons with whom it is associated, and on all of whom it in any event relies for ongoing funding, to make out a case of lack of financial resource to complete the purchase. [25] No other circumstance has been pointed to which would make specific performance work a clear injustice to the first respondent, and I see no reason why the applicant ought be denied the necessary decree.

Where the plaintiff is in breach of contract or not ready, willing, and able to perform his or her obligations under the contract [25.08] This principle is an example of the maxim that a person seeking equity must come to court ‘with clean hands’. If a party is in breach of his or her obligations imposed by the contract, the plaintiff will have no merit and, in the discretion of the court, a decree will not usually be made.7 A  plaintiff seeking specific performance of a contract of sale must, as part of the pleading, state that he or she is ready, willing, and able to perform the contract or any outstanding obligations due under the contract to that point which have to be performed.8 However, in rare cases, a plaintiff in breach of an inessential term of a contract may be granted specific performance where those breaches would not permit a defendant to terminate the contract.9

7

Australian Hardwoods Pty Ltd v Commissioner for Railways [1961] 1 WLR 425, 432–433.

8

Fullers’ Theatres Ltd v Musgrove (1923) 31 CLR 524, 550.

9

Mehmet v Benson (1965) 113 CLR 295, 307–308 (plaintiff not in a position to perform contract within the stipulated time; however, time not the essence of the contract at that point).

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Performance of the contract is not possible or would be futile [25.09] As a general rule, equity will not specifically enforce that which cannot be done.10 The defence of impossibility will operate where there is legal impossibility (unable to undertake an act inconsistent with the law)11 or factual impossibility (factually unable to actual carry out the act).12 For example, in a suit for specific performance for the sale of land, an order cannot be made if the defendant has disposed of the land to a third party.13 A defendant may be ordered to perform an obligation notwithstanding a condition precedent to performance of that obligation may be the obtaining of the consent of a third party, whose consent the defendant has no power to require.14

Where the plaintiff is guilty of laches [25.10] A plaintiff may be refused an order for specific performance if the plaintiff is guilty of unreasonable delay in pursuing the action, and this delay unfairly prejudices the defendant’s position. For example, in Lamshed v Lamshed,15 a plaintiff commenced an action for specific performance of a contract for the sale of land in 1956, but did not prosecute it further until 1962, during which time the defendant had contracted to sell it to a third party. The plaintiff was held to be disentitled to an order on the basis that the plaintiff ’s delay unfairly placed the appellant in a position of uncertainty over a substantial period of time, and if the case was prosecuted further, this would unfairly prejudice the rights of third parties who had acquired an interest in the land.16

That the contract is unenforceable because of informality [25.11] Contracts required by legislation to be in writing and signed by the party to be charged17 are generally not capable of specific performance unless the contract complies with the

10 Ferguson v Wilson (1866) LR 2 Ch App 77. 11 See for example Sewell v Webster (1859) 29 LJ Ch 71 where an order that the defendant specifically perform his promise to pull down a party wall would have required him to act contrary to a statute which governed the matter. 12 Ferguson v Wilson (1866) 2 LR Ch 77 where the plaintiff had sought specific performance of a promise to allot part of an issue of company shares, but before the plaintiff began his proceedings all of the issue had been allotted to others. Refer also to Pasedina (Holdings) Pty Ltd v Khouri (1977) BPR 9460. 13 The fact the improvements no longer exist is not a bar: Black Creek Deer Farm Pty Ltd v Australia & New Zealand Banking Group Ltd [1996] V Conv R 54-549. 14 McWilliams v McWilliams Wines Pty Ltd (1964) 111 CLR 656, 661 (order granted subject to the consent of a Minister of the Crown being obtained). 15 (1963) 109 CLR 440. 16 Ibid, 455. 17 Conveyancing Act 1919 (NSW), s 54A; Instruments Act 1958 (Vic), ss 126, 127; Property Law Act 1974 (Qld), s 59; Land of Property Act 1936 (SA), s 26; Land Reform (Statute of Frauds) Act 1962 (WA), s 2; Conveyancing and Law of Property Act 1884 (Tas), s 36; Law of Property Act 2000 (NT), s 62.

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legislative requirements. An exception arises where despite the lack of formality the party seeking to enforce the contract can prove sufficient acts of part performance.18

INJUNCTION [25.12] An injunction is an order of a court exercising inherent equitable jurisdiction, or a jurisdiction conferred by statute that equates to the same thing—most commonly compelling a party to refrain from doing an act (a negative or prohibitory injunction) or, more rarely, to perform some positive act (a mandatory injunction). The grant of an injunction is subject to the same equitable considerations as a claim for specific performance. It may however be available to prevent the other party from breaching a contract not otherwise amenable to specific performance, such as a contract of personal service. An injunction will not be granted however if its effect is to order specific performance. [25.13]

JC Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282 High Court of Australia The facts of the case are summarised at [25.03]. Dixon J It, therefore, could not be contended that a decree of specific performance might be made, and it was recognized that if the plaintiffs are entitled to any equitable remedy, it must be by way of injunction. But the reason why specific performance of the contract could not be decreed ought not to be forgotten in considering whether an injunction might be granted upon the ground of part performance. An injunction is a remedy appropriate to restrain the violation of a provision or term of a contract which is the final expression of the parties’ legal relations. But, in granting an injunction for this purpose, the Courts of equity acted in aid of a legal right. Before Sir John Rolt’s Act (25 & 26 Vict c 42) a perpetual injunction was not granted restraining breaches of such an agreement until the right had been tried at law. The remedy of injunction was, of course, appropriate to and was and is freely used for the protection of equitable interests and rights, but in matters of contract, as in matters of tort, it does not appear to have been used except in aid of a legal right unless in a case falling within the scope of the remedy of specific performance … If the contract could not be enforced at common law by an action of damages, it could not be enforced in equity by an injunction. On the other hand, in cases of specific performance strictly so called, the Court of equity itself has for the last two hundred years decided on the validity and construction of the contract with which it had to deal; and it performs contracts for the breach of which an action of damages could never have been brought … If, however, a clear legal duty is imposed by contract to refrain from some act, then,

18 Refer to Chapter 11 for a discussion of the doctrine of part performance.

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prima facie, an injunction should go to restrain the doing of that act. It appears to be of little importance now whether the duty is imposed by a term of the contract expressed in negative or affirmative language. It is said that the agreement in this case imposed upon the Company a duty not to revoke, during the term contracted for, the licence to the plaintiffs to go into the theatre to sell confectionery, and, during the term, to admit to the theatre no one else for the purpose of selling confectionery. To grant an injunction restraining the defendants from doing either of these things may appear an indirect way of compelling specific performance of the Company’s part of the agreement. Probably the true rule is that an injunction should not be granted which compels, in substance, the defendant to perform his side of the agreement when the continuance of his obligation to do so depends upon the future conduct of the plaintiff in observing conditions to be fulfilled by him. If the contract is one the execution of which the Court cannot superintend, it does not seem to be in accordance with principle to bind one party to performance in specie leaving him to a remedy in damages only if the other fails to fulfil the conditions on his side to be observed. But, perhaps, if a clear and negative duty is imposed even by such a contract, an injunction may be granted when the remedy at law is inadequate to the right, at least when, by dissolving the injunction in the event of the plaintiff ’s own subsequent breach of condition, the parties may be restored to the relative position they occupied before suit. But, assuming the agreement between the parties in this case should be interpreted in a way which would give rise to a negative duty of the required character either not to revoke the licence or not to admit a stranger to sell confectionery, yet that duty is not enforceable at law because the contract is not evidenced by writing. Thus no injunction can be granted in aid of a legal right to enforce the duty, and the injunction must be founded upon an equitable title to its performance. The agreement gives no equitable interest, and the equity must arise, if at all, from part performance. Moreover, it must not be forgotten that, by reason of the Statute of Frauds, the conditions of the contract to be observed on the part of the plaintiffs may be broken by them with impunity; for not even an action for damages upon the contract could lie at the suit of the Company. … But in a case like the present which, because of the nature of the agreement, lies outside the scope of the remedy of specific performance, no equity can arise to have the contract carried into complete execution. No equity could be set up save to have a distinct negative duty separately enforced. It may well be that such an equity can never be found in agreement unless the agreement gives rise to an enforceable legal right. But, if it conceivably may arise from acts of part performance, those acts must be of such a nature as to make it right to enforce the negative duty separately, and they must do more than give rise to considerations in favour of requiring performance in specie of the entire contract. Acts which merely argue the existence of a contract which is outside the scope of equitable remedies cannot suffice. When breach of a negative stipulation is enjoined, that term of the contract is enforced irrespective of the remaining provisions. The equity to its enforcement is found in the nature of the negative stipulation itself considered as a separate obligation. If the party against whom an injunction is sought is to be charged not merely upon the negative contract, but upon the equities arising out of acts of part performance, surely to give rise to the equities the acts of part performance relied upon must directly relate to the negative duty. It may perhaps be true that, because of

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the negative character of the obligations to which an injunction is appropriate, acts of part performance can seldom, if ever, directly relate to such obligations. This may be the reason why no case has been found in which acts of part performance have been relied upon as affording a title to an injunction restraining breach of a negative agreement. But, however this may be, in this case there are no acts of part performance which are referable unequivocally to the existence of anything more than some contract enabling the plaintiffs to sell confectionery and the like in the theatre. There are no acts which directly relate to the existence of a duty not to revoke the licence, or of a duty not to admit a stranger to sell confectionery. It is, therefore, unnecessary to decide whether in such a case as the present anything but a legal right enforceable at law will support the injunction. It is enough to say that no acts of part performance have taken place from which a negative equitable obligation arises.

QUESTIONS FOR REFLECTION (1) What were the bases upon which the High Court refused specific performance in JC Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282? What are the other discretionary bases upon which a court may refuse specific performance? (2) In what circumstances with the defence of hardship succeed in response to a claim for specific performance? (3) Can an injunction be awarded if it has the same effect as an order for specific performance? (4) When will an injunction be awarded to enforce a contract of personal service? Read Lumley v Wagner (1852) 1 De GM&G 604; 42 ER 687.

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PART 8 CONSUMER PROTECTION

26 Unfair Contract Terms 639 27 Consumer Guarantees 675

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CHAPTER 26 UNFAIR CONTRACT TERMS

INTRODUCTION [26.01] Section 23 of the Australian Consumer Law (ACL) provides that a term of a ‘consumer contract’1 or ‘small business contract’2 is void if the term is ‘unfair’3 and the contract is a ‘standard form contract’.4 Section 23 was originally introduced as part of the ACL by the Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2009 (Cth) on 1 July 2010. The ACL applies as a law of the Commonwealth to the conduct of or contraventions by corporations,5 but will not apply to financial services,6 which are regulated by similar provisions under the Australian Securities and Investments Commission Act 2001 (Cth). Therefore, as a law of the Commonwealth from 1 July 2010, the unfair terms provisions of the ACL apply to contracts in which a corporation is the seller.7 The unfair contract terms provision also commenced in Victoria8 and New South Wales9 on 1 July 2010. On 1 January 2011, the ACL, including s 23, commenced as

1

ACL, s 23(2).

2

Section 23 was extended to small business contracts by the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015. The provisions apply to small business contracts entered into or amended or renewed after 12 November 2016.

3

ACL, s 24.

4

ACL, s 27.

5

Refer to Competition and Consumer Act 2010 (Cth), s 131.

6

Competition and Consumer Act 2010 (Cth), s 131A.

7

The unfair terms provisions of the ACL apply as a law of the Commonwealth to contracts entered into or renewed after 1 July 2010 or to terms of contracts entered into before commencement that are varied after commencement.

8

Fair Trading Amendment (Unfair Contract Terms) Act 2010 (Vic).

9

Fair Trading Amendment (Unfair Contract Terms) Act 2010 (NSW).

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a law of each state and territory.10 The ACL has application as a law of each state or territory to unfair terms in standard form consumer contracts11 between persons or corporations within the jurisdiction or connected to the jurisdiction.12 Unlike the Competition and Consumer Act 2010 (Cth), the applicable Fair Trading Act in each state and territory applies the ACL as a law of the state or territory to contracts where the seller is a person or corporation and does not exclude financial services from its operation. In the case of application to small businesses, one party to the contract must be a business within the definition in s 23(4) of the ACL. [26.02] The object of the unfair terms provisions is to outlaw unfair terms in standard form consumer contracts while keeping the rest of the contract capable of enforcement if the unfair term is severable and the contract can be performed without it.13 The unfair terms provisions have potential application to a number of standard form agreements where consumers are given very little opportunity to negotiate, such as mobile phone contracts, gym memberships, online contracts for the sale of goods and standard land contracts.

CONTRACTS TO WHICH UNFAIR TERMS APPLIES [26.03] The unfair terms provisions of the ACL will apply to standard form consumer contracts entered into, varied or renewed after the commencement of the provisions. Each of these requirements will be considered in this chapter.

Consumer contract [26.04] The unfair terms provisions apply either to a ‘consumer contract’ or a ‘small business contract’. Consumer contract is defined in s 23 as a contract for: (a) the supply of goods or services; or (b) the sale or grant of an interest in land to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use of consumption.

10 This coincided with the adoption of the ACL in each of the other jurisdictions. Qld—Fair Trading Act 1989 (Qld) as amended by Fair Trading Amendment (Australian Consumer Law) Act 2010 (Qld); SA—Fair Trading Act 1987 (SA) as amended by Statutes Amendment and Repeal (Australian Consumer Law) Act 2010 (SA); WA—Fair Trading Act 2010 (WA); Tas—Australian Consumer Law (Tasmania) Act 2010 (Tas); NT—Consumer Affairs and Fair Trading Act 1990 (NT) as amended by the Consumer Affairs and Fair Trading (National Uniform Legislation) Act 2010 (NT); ACT—Fair Trading (Australian Consumer Law) Act 1992 (ACT) as amended by the Fair Trading Amendment (Australian Consumer Law) Act 2010 (ACT). The unfair terms provisions in New South Wales and Victoria were re-enacted in those jurisdictions from 1 January 2011 as part of the adoption of the ACL. Refer to Fair Trading Act 1987 (NSW) and Australian Consumer Law and Fair Trading Act 2012 (Vic). 11 Refer to [26.04] for discussion of the definition consumer contract and to [26.11] for definition of standard form contract. 12 NSW—Fair Trading Act 1987 (NSW), s 32; Vic—Australian Consumer Law and Fair Trading Act 2012 (Vic), s 12; Qld—Fair Trading Act 1989 (Qld), s 20; SA—Fair Trading Act 1987 (SA), s 18; WA—Fair Trading Act 2010 (WA), s 11; Tas—Australian Consumer Law (Tasmania) Act 2010 (Tas), s 10; NT—Consumer Affairs and Fair Trading Act 1990 (NT), s 31; ACT—Fair Trading (Australian Consumer Law) Act 1992 (ACT), s 11. 13 The Hon Dr Craig Emerson, Second Reading Speech, House of Representatives, Hansard 24 June 2009, 6981.

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[26.05] ‘Goods’ and ‘services’ are broadly defined in s 2 of the ACL. ‘Goods’ includes items such as ships, aircraft, animals, minerals, trees, gas, electricity, software, second-hand goods and any part of goods. ‘Services’ is defined in similarly broad fashion, and includes rights in relation to an interest in real or personal property, benefits, privileges or facilities to be provided, granted or conferred in trade or commerce, but does not apply to the performance of work under a contract of employment. Financial services are excluded from the operation of the ACL due to the exclusion in the Competition and Consumer Act 2010, s 131A. The intention is for unfair terms in financial services agreement to be regulated by the Australian Securities and Investments Commission Act 2001, ss 12BF–12BM. A similar provision to s 131A does not appear in the state or territory Fair Trading Acts; therefore, the ACL as a law of a state or territory will apply to unfair terms in contracts for the provision of financial services whether the provider of the financial services is a person or corporation. [26.06] ‘Interest in land’ is defined to include equitable and legal interest in land or a right of occupancy over land or in a building on land and a right power or privilege over or in connection with land. This will include a sale of land, house or unit, lease, easement, trust, and covenant. A mortgage, while ordinarily an interest in land, is also a financial service and therefore subject to the unfair terms provisions of the Australian Securities and Investments Commission Act 200114 or the ACL as a law of a state or territory.

Nature of parties to the contract [26.07] The definition does not specifically refer to the nature of the seller of the goods or services. Importantly, it should be noted that the supply is not required to be from a person in trade or commerce, but under the ACL as a law of the Commonwealth, the supply must be from a corporation. Under the ACL as a law of a state or territory the supply may be from a person or corporation and there is no requirement for trade or commerce. [26.08] The buyer under the contract must however be an individual. Under the Acts Interpretation Act 1901 (Cth), s 2B an individual is defined as ‘a natural person’.15 This means that a corporate buyer will be unable to claim a term of a contract is unfair.

Consumer goods, services or interest in land [26.09] Section 23 provides that the acquisition of the goods, services or interest in land must be for personal, domestic or household purposes. The definition therefore focuses on the purpose for which the goods, services or land are being acquired, rather than the nature of the goods,

14 Unfair terms provisions in Australian Securities and Investments Commission Act 2001 (Cth), ss 12BF–12BM. 15 The Acts Interpretation Act 1901 (Cth) will be relevant to the interpretation of the ACL as either a law of the Commonwealth or a law of a State or Territory. Refer to NSW—Fair Trading Act 1987 (NSW), s 31; Qld—Fair Trading Act 1989 (Qld), s 19; Vic—Australian Consumer Law and Fair Trading Act 2012 (Vic), s 11; SA—Fair Trading Act 1987 (SA), s 17; WA—Fair Trading Act 2010 (WA), s 23; Tas—Australian Consumer Law (Tasmania) Act 2010 (Tas), s 9; NT—Consumer Affairs and Fair Trading Act 1990 (NT), s 30; ACT—Fair Trading (Australian Consumer Law) Act 1992 (ACT), s 10.

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services or land purchased.16 This means that whether the contract is a ‘consumer contract’ will be determined by reference to the subjective intention of the consumer in the acquisition of the goods, services or land. [26.10] The definition of ‘consumer contract’ means that whether a standard form contract is subject to the unfair contract terms provision will vary from consumer to consumer. Theoretically, it is, therefore, possible for a sale or lease of commercial goods or land to be a consumer contract, if the acquirer is intending to use the goods or land for personal purposes.17 For example, a contract between a retailer and customers for selling toasters will be a consumer contract if the consumer uses the toaster at home, but not a consumer contract if the consumer uses the toaster in their business. The difficulty associated with distinguishing between types of transactions means that traders should ensure that all of their standard contracts are reviewed for unfair terms.

SMALL BUSINESS CONTRACT [26.11] Small business contract is defined in s 23(4) of the ACL as a contract: (a) for the supply of goods or services or the sale or grant of an interest in land; and (b) at the time of the contract at least one party is a business that employs fewer than twenty persons; and (c) either the upfront price under the contract does not exceed $300,000 or if the contract is for a duration of more than 12 months the upfront price does not exceed $1,000,000.00. [26.12] Section 23 applies to small business contracts entered into or renewed on or after 12 November 2016. Section 23 will also apply if the contract is varied after 12 November 2016, but only to the varied term.18 According to the definition, the unfair terms provisions will apply if either the buyer or seller under the contract is a small business, but the ACL as a law of the Commonwealth will only apply if the supply is from a corporation. This means either the small business supplier must be a company or the supplier to a small business must be a company. Under the ACL as a law of a state or territory the supply may be from a person or corporation.

Nature of goods and services [26.13] Similar to a consumer contract, the subject matter of a small business contract must be the supply of goods, services or the sale or grant of an interest in land. Unlike a consumer contract, the purpose of acquiring the goods is irrelevant. The broad definition of goods,

16 Note that the definition of ‘consumer’ and ‘consumer goods’ for the statutory guarantee provisions focuses on the price and the nature of the goods being purchased: ACL, s 3. 17 This may also be the case if the goods are acquired for a dual purpose where the personal purpose is a substantial purpose and s 4F(1)(b) of the Competition and Consumer Act 2010 (Cth) is applied: Monroe Topple & Associates v Institute of Chartered Accountants (2002) 22 FCR 110, [97]. 18 Competition and Consumer Act 2010, s 290A.

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services and interest in land19 mean that there is potential for the application of the unfair contract terms provisions to apply to a large number of contracts with business, including retail leases, franchising, telecommunications and advertising.

Less than twenty employees [26.14] When determining if the business employs less than twenty people, only full-time employees are counted. Casual employees are not included. It is not clear whether the business must employ at least one person to satisfy the definition, but the likely interpretation is that ‘less than twenty people’ includes zero employees. In the case of most owner-operated businesses, it wold be usual from the business and tax planning perspective for at least the owner to be an employee, so the issue may not arise.

Meaning of ‘business’ [26.15] There is little guidance in the Competition and Consumer Act 2010 or the ACL as to the meaning of ‘business’. The definition in s 2 of the ACL is inclusive of ‘not for profit’ but does not go any further. No particular business entity is specified so a business may be conducted by natural persons, a corporate entity, partnership, trust or joint venture. [26.16] Phrases such as ‘carry on a business’ and ‘trade or commerce’ have received significant judicial consideration in the context of the ACL and its predecessor the Trade Practices Act 1974. The emphasis in the case law when construing these phrases has been on the nature of the conduct engaged in by the party.20 While this line of cases may provide some guidance about types of business or trading activities, the question in relation to s 23 is about the nature of the entity that has entered the contract. In Spriggs v Federal Commissioner of Taxation, 21 the High Court considered that the existence of a business depended on a number of indicia, which should be considered in combination and as a whole. Relevant factors include, but are not limited to, the existence of a profit-making purpose, the scale of the activities, the commercial character of the transactions, and whether the activities are systematic and organised, often described as whether the activities are carried out in a business-like manner.22 [26.17] In most cases, whether the entity is a business will be obvious and the contract will be entered into as part of the business activities of the entity. Some situations may not be clear such as where a contract is entered into by a trustee for a family trust or an individual sells an investment property. In both cases, the buyer may have an ABN and the acquisition is for investment purposes, but it may be the first or an isolated transaction. In each case, whether the entity is a business will depend on the extent of the rental or

19 Refer to [26.06]. 20 Hornsby Shire Council v Salmar Holding Pty Ltd (1972) 1216 CLR 52, 54, 56; Actors and Announcers Equity Association of Australia v Fontana Films Pty Ltd (1982) 150 CLR 169, 184. 21 (2009) 239 CLR 1. See also Woods v Deputy Commissioner of Taxation [1999] FCA 1589, [34]–[35]. 22 (2009) 239 CLR 1, [59].

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investment activities, how the activities are conducted, whether the activities were intended to be profit making and the extent to which they are repetitious and regular and conducted in a business-like manner.23 This may mean that in the case of an isolated or one-off purchase of an investment property, the buyer is not a business, even though the buyer goes on to rent out the property at a profit.

Limit on upfront price of contract [26.18] Whether a contract is a small business contract will depend upon the upfront price of the contract. Upfront price is also used and defined in s 26 of the ACL. As suggested at [26.23]–[26.27], the upfront price will not include contingent payments such as default interest and payments in the event of a default or termination. In the context of a sale of land, its meaning is likely to include the purchase price and adjustments to the price for outgoings,24 but not any contingent payments such as termination costs.

Standard form contract [26.19] The consumer contract and small business contract must also be a standard form contract as defined in s 27 of the ACL. Whether the terms of a contract are in a standard printed form is not determinative of whether it will be a ‘standard form contract’ under the ACL. The definition is based upon qualitative factors relating to conduct, such as differences in bargaining power and whether an opportunity to negotiate was given, not the form in which the contract is presented. This makes the formulation of a general rule about when a standard form contract exists difficult. Whether a contract is a standard form contract should be assessed on a case by case basis having regard to the factors in ACL, s 27. Standard form contracts are typically used for the supply of goods and services to consumers in many industries, including telecommunications, finance, domestic building, gyms, motor vehicles, travel and utilities. [26.20] The definition commences with the presumption that, unless proven otherwise, a contract is a standard form contract if one of the parties to the proceeding alleges it to be a standard form contract.25 A court may take into account ‘such matters as it thinks relevant’ but ‘must take into account’ a number of factors listed in the section in reaching a conclusion about whether the contract is a standard form contract.26

23 See for example Mould v Commissioner of State Revenue [2015] VSCA 285 (renting of properties by a trust were viewed as a business). 24 See, for example, Office of Fair Trading v Foxtons Ltd [2009] EWHC 1681; [2009] All ER 110. 25 ACL, s 27(1). The onus will be on the trader to prove the nature of the contract and whether any negotiation was entered into: Explanatory Memorandum, Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth). 26 ACL, s 27(2).

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[26.21]

Australian Consumer Law Section 27 27 Standard form contracts (1) If a party to a proceeding alleges that a contract is a standard form contract, it is presumed to be a standard form contract unless another party to the proceeding proves otherwise. (2) In determining whether a contract is a standard form contract, a court may take into account such matters as it thinks relevant, but must take into account the following: (a) whether one of the parties has all or most of the bargaining power relating to the transaction; (b) whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties; (c) whether another party was, in effect, required either to accept or reject the terms of the contract (other than the terms referred to in section 26(1)) in the form in which they were presented; (d) whether another party was given an effective opportunity to negotiate the terms of the contract that were not the terms referred to in section 26(1); (e) whether the terms of the contract (other than the terms referred to in section 26(1)) take into account the specific characteristics of another party or the particular transaction; (f) any other matter prescribed by the regulations. [26.22] The section requires a consideration on a case by case basis of the factors to each contract. The factors under s 27 of the ACL highlight the need for a combination of inequality of bargaining power and ‘take it or leave it’ negotiations. Therefore, how the party with the bargaining power conducts itself during the contracting process and whether the bargain was a genuine negotiation or a trampling of rights is likely to be relevant. The stronger party can neutralise an unfair terms argument by insisting upon negotiation through an independent legal representative which at a minimum opens the opportunity for negotiation and permits exchange on variation of terms to suit the individual buyer and protects the buyer whose characteristics, such as age, infirmity or illiteracy may hinder their ability to negotiate with the seller. The mere opportunity to seek legal advice is unlikely to be enough.27

27 UK Housing Alliance Ltd v Francis [2010] EWCA Civ 117. See also Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd [2015] FCA 1204 for a recent application of the provisions.

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Application to contracts after commencement [26.23] The unfair terms provisions of the ACL apply only to consumer contracts and small business contracts entered into after the commencement of the relevant provisions28 or to a contract renewed after the commencement.29 There is no definition of ‘renewal’, but it is likely to extend to contracts renewed through the exercise of an option, such as leases that are extended to give effect to an option to renew. A grey area exists in relation to contracts ‘created’ after commencement upon exercise of an option to purchase entered into prior to commencement. The resolution of this question will depend in each case on the terms of the option and whether it is considered a conditional contract or an irrevocable offer to sell.30 In contrast, where a contract is varied, rather than renewed after commencement, the unfair terms provisions will only apply to the varied contract terms and not the contract as a whole. Careful consideration will therefore need to be given to whether terms contained within a variation are unfair.

Exempt contracts [26.24] Certain contracts are exempt from the operation of the unfair terms provisions in the ACL. According to s 28 of the ACL the unfair contract terms provisions do not apply to: (a) (b) (c) (d)

a contract of marine salvage or towage; a charterparty of a ship; a contract for the carriage of goods by ship; 31 a contract that is a constitution of a company, managed investment scheme or other kind of body; and (e) a small business contract to which a prescribed law of the Commonwealth a State or Territory applies.

28 Unfair Contract Terms provisions, as applicable to consumer contracts, commenced on 1 July 2010 in Victoria, New South Wales and the Commonwealth and on 1 January 2011 in the other state jurisdictions. Application to small business contracts commenced in all jurisdictions on 12 November 2016. 29 Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2010 (Cth), Sch 7 Pt 2 Application and Transitional Provisions; NSW—Fair Trading Act 1987 (NSW), Sch 5 cl 17; Vic—Australian Consumer Law and Fair Trading Act 2012 (Vic), s 16; Qld—Fair Trading Act 1989 (Qld), s 123, s 26; WA—Fair Trading Act 2010 (WA), s 38; Tas—Australian Consumer Law (Tasmania) Act 2010 (Tas), s 51; NT—Consumer Affairs and Fair Trading Act 1990 (NT), Sch 3 Pt 2 cl 6. There are no transitional provisions for the application of the unfair contract terms provisions in SA—Fair Trading Act 1987 (SA) or ACT—Fair Trading (Australian Consumer Law) Act 1992 (ACT). Therefore, contracts in existence in those jurisdictions from 1 January 2012 irrespective of the date of contract, will be subject to the unfair terms provisions. 30 The ‘standing controversy’ concerning the juristic foundation of an option (whether it be a conditional contract or an irrevocable offer) was referred to by Dixon J in Braham v Walker (1961) 104 CLR 366, 376. For a more recent reference to the same debate, see David Deane & Associates Pty Ltd v Bonnyview Pty Ltd [2005] QCA 270, [22]; Vale 1 Pty Ltd v Delorain Pty Ltd [2010] QCA 259. 31 The reference in s 28(1)(c) to a contract for the carriage of goods by ship includes a reference to any contract covered by a sea carriage document within the meaning of the amended Hague Rules referred to in section 7(1) of the Carriage of Goods by Sea Act 1991 (Cth).

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[26.25 ] The unfair terms provision are also inapplicable to insurance contracts governed by s 15 of the Insurance Contracts Act 1984 (Cth).32 Section 15 provides that a contract of insurance is not capable of being made the subject of relief under any other Commonwealth Act or state Act. ‘Relief’ is defined to include relief in the form of a judicial review of a contract on the ground that it is ‘harsh, oppressive, unconscionable unjust, unfair or inequitable’.

IDENTIFYING UNFAIR TERMS [26.26] Once it is established that the contract is a standard form consumer contract or small business contract, the next step is to consider the interpretation and operation of the term in dispute. The operation of a potentially unfair term may be limited or restricted either by applying the usual rules of contract interpretation or because of equitable principles or other statutory regimes.33 It is suggested that only after applying these existing rules should the application of the unfair terms provisions be considered.34 Only terms that are part of the contract should be scrutinised as unfair terms. Exclusion clauses that are not effectively incorporated into the contract and therefore not binding on the other contracting party should not be further reviewed as unfair terms. Terms implied into the contract are theoretically capable of review, but given the common law approach to the implication of terms at law and for business efficacy are unlikely to be unfair terms.35 [26.27] An unfair term must satisfy the three criteria in ACL, s 24. In determining whether a term is unfair as against the criteria, a court must take into account relevant contextual matters and the extent to which the ‘term’ is transparent. A court may obtain guidance from the indicative list of examples in ACL, s 25.36

Excluded terms [26.28] The unfair terms provisions of the ACL apply to all terms of a standard form consumer contract or small business contract except a term, to the extent to which the term: (a) defines the main subject matter of the contract;

32 Private health insurance, state and Commonwealth government insurance contracts and reinsurance contracts are not subject to the Insurance Contracts Act 1984 (Cth). Refer to s 9 of the Insurance Contracts Act 1984 (Cth). 33 For example, the National Credit Code provides for terms of consumer credit contracts that are unenforceable or unfair. 34 Jeannie Paterson, Unfair Contract Terms in Australia, Law Book Company, Sydney, 2012, [6.10] notes that a different possibility is that courts will take a narrow view of existing common law doctrines in order to give a wide application to the unfair terms provisions. 35 Refer to the examination in Baybut v Eccle Riggs Country Park Ltd [2006] All ER 162, which review the position under the Unfair Terms in Consumer Contracts Regulation 1999 (UK). 36 Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd [2015] FCA 1204.

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(b) sets the upfront price payable under the contract; or (c) is required or expressly permitted, by a law of the Commonwealth or a state or territory.37 The main reason for excluding the subject matter of the contract from the unfair terms provisions is to avoid contracting parties trying to escape a contract on the basis of a change of mind.38 It is difficult to imagine a situation in which the description of the subject matter or the price to be paid will be unfair. Generally, these are terms negotiated39 and agreed between the parties and do not involve obligations or rights that could favour one party and not the other.

Terms defining the main subject matter [26.29] Whether a term is one that defines the main subject matter of the contract will be a question of fact dependent upon an identification of the subject matter of the contract. Whether a term is part of the main subject matter of the contract or merely connected to the subject matter may depend on the meaning a reasonable person in the position of the consumer attributes to the term.40 [26.30]

Office of Fair Trading v Ashbourne Management Services Ltd [2011] EWHC 1237 English High Court (Chancery Division) Ashbourne and its directors carried on the business of recruiting members for gym and health and fitness clubs, providing standard form agreements for their use and collecting payments from members under those agreements. Ashbourne advised gym clubs to adopt agreements with specified minimum membership periods of between 12–36 months. Members who wished to terminate their agreements before the end of the minimum periods were described by Ashbourne as ‘defaulters’ and dealt with by registering or threatening to register their defaults with a credit reference agency.

37 ACL, s 26(1). Examples include terms implied by the Trade Practices Act 1974 (Cth), ss 70, 71, 71, 74 (implied warranties); Sale of Land Act 1962 (Vic), ss 9AA, 9AB, 9AD (sale of unregistered land); Land Sales Act 1984 (Qld), ss10A, 11, 23 (sale of unregistered land); Fair Trading Act 1999 (Vic), ss 32G, 32GB, 32H (implied warranties); Conveyancing Act 1919 (NSW), s 52A (implied warranties in land contracts), s 66K (passing of risk), s 66S, s 66X (cooling-off period); Property Agents and Motor Dealers Act 2000 (Qld), s 364 (cooling-off period), s 133 (terms in appointment of agent); Land and Business (Sale and Conveyancing) Act 1994 (SA), s 5 (cooling-off), s 18 (unregistered land), s 24I (standard auction conditions). 38 Director of Consumer Affairs Victoria v Craig Langley Pty Ltd & Matrix Pilates & Yoga Pty Ltd [2008] VCAT 482. 39 The view is that generally a party should not be able to succeed in an allegation that a negotiated term is unfair: Director of Consumer Affairs Victoria v Craig Langley Pty Ltd & Matrix Pilates and Yoga Pty Ltd (Civil Claims) [2008] VCAT 482. 40 Refer to the approach in Director General of Fair Trading v First National Bank plc [2002] 1 AC 481 and Office of Fair Trading v Abbey National plc [2010] 1 AC 696 in relation to the Unfair Terms in Consumer Contracts Regulation 1999 (UK). Replaced by the Consumer Rights Act 2015, which deals with unfair contract terms and notices from 1 October 2015. Parts 1 and 2 of the Consumer Rights Act 2015 consolidate and replace the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) and relevant provisions of the Unfair Contract Terms Act 1977 (UCTA).

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One of the aspects considered by Kitchin J was whether any of the terms within the agreement fell within the prohibition in regulation 6(2)(a) of the Unfair Terms in Consumer Contracts Regulations 1999 (UK) (UTCCR) (2) In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate— (a) to the definition of the main subject matter of the contract, or (b) to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.

Kitchin J Does the term imposing a minimum membership period fall within the scope of regulation 6(2)(a) UTCCR? [141] There are two aspects to the prohibition of the assessment of the fairness of a term under reg 6(2): first, the term must be in plain intelligible language; second, the assessment of the fairness of the term must relate to the definition of the main subject matter of the contract, or to the adequacy of the price or remuneration as against the goods or services supplied in exchange. [142] The OFT contends that the term in each of Ashbourne’s standard form agreements which requires the customer to remain a member for a minimum period does not fall within reg 6(2)(a) because the main subject matter of each agreement is membership of the gym club and the right to use the club which is conferred by that membership. The period of time for which that right is conferred is an ancillary or subsidiary provision. The OFT also contends that even if the minimum period term is part of the main subject matter of the agreement it may still be assessed for fairness by reference to the consequences of earlier termination. [143] The defendants respond that there is nothing incidental, ancillary or subsidiary about a term which defines the period during which the benefits are to be conferred. It is quite literally a defining feature of the obligation assumed by the gym club. [144] I have set out the text of reg 6(2) at [65] above. It accurately implements art 4(2) of the Unfair Terms Directive. The 19th recital to that directive gives some idea of its purpose: Whereas, for the purposes of this Directive, assessment of unfair character shall not be made of terms which describe the main subject matter of the contract nor the quality/price ratio of the goods or services supplied; whereas the main subject matter of the contract and the price quality ratio may nevertheless be taken into account in assessing the fairness of other terms; whereas it follows, inter alia, that in insurance contracts, the terms which clearly define or circumscribe the insured risk and the insurer’s liability shall not be subject to such assessment since these restrictions are taken into account in calculating the premium paid by the consumer;

[145] In the First National Bank case, the House of Lords explained that the regulation must be given a restrictive interpretation such that it only applies to terms that fall squarely within it. Lord Bingham said at [12]: … [T]here is an important ‘distinction between the term or terms which express the substance of the bargain and ‘incidental’ (if important) terms which surround them’: Chitty on Contracts,

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28th ed (1999), vol 1, ch 15 ‘Unfair Terms in Consumer Contracts’, p 747, para 15-025. The object of the Regulations and the Directive is to protect consumers against the inclusion of unfair and prejudicial terms in standard form contracts into which they enter, and that object would plainly be frustrated if regulation 3(2)(b) were so broadly interpreted as to cover any terms other than those falling squarely within it. In my opinion the term, as part of a provision prescribing the consequences of default, plainly does not fall within it.

[146] Lord Steyn observed at [31] that the Unfair Terms Directive treats consumers as presumptively weaker parties and therefore fit for protection from abuses by stronger contracting parties and that this is an objective which must throughout guide the interpretation of the Directive as well as the implementing regulations. He continued at [34]: Clause 8 of the contract, the only provision in dispute is a default provision. It describes remedies which only become available to the lender upon the default of the consumer. For this reason the escape route of regulation 3(2) is not available to the bank. So far as the description of terms covered by regulation 3(2) as core terms is helpful at all, I would say that clause 8 of the contract is a subsidiary term. In any event, regulation 3(2) must be given a restrictive interpretation. Unless that is done regulation 3(2)(a) will enable the main purpose of the scheme to be frustrated by endless formalistic arguments as to whether a provision is a definitional or an exclusionary provision. Similarly, regulation 3(2)(b) dealing with ‘the adequacy of the price or remuneration’ must be given a restrictive interpretation. After all, in a broad sense all terms of the contract are in some way related to the price or remuneration. That is not what is intended.

[147] Further guidance as to the correct approach to the scope and application of this regulation has been given by the Supreme Court in Office of Fair Trading v Abbey National Plc [2009] UKSC 6; [2010] 1 AC 696. The issue before the court was whether as a matter of law the bank charges levied on personal current account customers in respect of unauthorised overdrafts constituted ‘price or remuneration’ as against the supply of services in exchange within the meaning of reg 6(2). In allowing an appeal from the Court of Appeal, the Supreme Court held that they did. It followed that that any challenge to the fairness of the terms by which the customers agreed to pay the charges based upon a contention that they were excessive by comparison with the services supplied was precluded by reg 6(2)(b). [148] Although the Abbey National case was concerned with the scope of the exclusion under para (b) of reg 6(2), Lord Walker JSC explained at [31] that the two paragraphs are not unconnected: 31. I have to say that I do not find it particularly helpful to consider whether paragraphs (a) and (b)  should be read conjunctively or disjunctively. The court is not faced with a text (such as ‘charitable or benevolent’ in the will of Caleb Diplock: Chichester Diocesan Fund and Board of Finance (Inc) v Simpson [1944] AC 341, 349, 369) where the two approaches are stark alternatives. In my view the two paragraphs must be given their natural meaning, and read in that way they set out tests which are separate but not unconnected. They reflect (but in slightly different ways) the two sides (or quid pro quo) of any consumer contract, that is (a) what it is that the trader is to sell or supply and (b) what it is that the consumer is to pay for what he gets.

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The definition of the former is not to be reviewed in point of fairness, nor is the ‘adequacy’ (appropriateness) of the latter.

[149] Further, the court made clear (per Lord Walker JSC at [29]; Lord Phillips PSC at [57]– [61] and [78]–[80]; Lord Mance JSC at [95] and [101]) that although the assessment of the fairness of the terms could not relate to the adequacy of the price or remuneration as against the services supplied, the terms would still be open to potential attack on the basis that they were unfair upon some other ground. [150] Lord Phillips PSC put it this way at [57]–[61]: [57] The agreed statement of facts and issue describes the issue raised by this appeal as follows: Whether an assessment of the fairness of the relevant terms (pursuant to which the relevant charges are levied) would relate to the adequacy of the price and remuneration, as against the services supplied in exchange, within the meaning of regulation 6(2)(b) of the Unfair Terms in Consumer Contracts Regulations 1999. This does not accurately describe the issue raised by this appeal, which is very much more narrow. That issue is whether the relevant charges constitute ‘the price or remuneration, as against the services supplied in exchange’ within the meaning of the regulation. If they do not, the attack on the fairness of the terms that is open to the OFT will not be circumscribed by regulation 6(2)(b). If they do, they will still be open to attack by the OFT on the ground that they are ‘unfair’ as defined by regulation 5(1), but that attack cannot be founded on an allegation that the relevant charges are excessive by comparison with the services which they purchase, for that is forbidden by regulation 6(2)(b). [58] That this was indeed the issue was made clear by counsel on either side in their oral submissions. Towards the close of his reply, Mr Sumption QC said: All that I can ask the courts to declare, and all that my clients have ever asked the courts to declare, is that the insufficient funds charges are included in the price within the meaning of the word ‘price’ in [regulation] 6 and that no assessment of the fairness of the terms imposing the IFCs may relate to their adequacy as against the service supplied. [59] Mr Crow QC for his part submitted on behalf of the OFT that even if article 4(2) of the Directive did apply, the relevant terms were still subject to assessment for fairness. In that event, while it would not be open to the to assess the fairness of the price by reference to the adequacy of the goods or services supplied in exchange, it would be open to it to assess the fairness of the price according to other criteria. [60] This agreement between the parties reflects acceptance by the banks in the Court of Appeal of a finding by Andrew Smith J that was contrary to one of their submissions. The banks had submitted that a term of a contract that provided the ‘price or remuneration’ for ‘goods or services supplied’ was absolutely exempt from assessment for fairness by reason of regulation 6(2). This was described as the ‘excluded term’ construction of the Regulation. Andrew Smith J held that this was not correct. Regulation 6(2) precluded assessing a price term for fairness by reference to its adequacy as payment for the goods or services provided in

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exchange. It did not, however, preclude assessing a price term for fairness according to other criteria. This has been described as the ‘excluded assessment’ construction of the regulation. [61] Mr Sumption submitted that the difference between the ‘excluded term’ and the ‘excluded assessment’ constructions was ‘a distraction from the real issues’. It is certainly a distraction from the narrow issue that the parties are now agreed is before the court. But it is only because the ‘excluded assessment’ construction has prevailed that the issue has been narrowed from that in the agreed statement of facts and issue. Had the ‘excluded term’ construction prevailed, a finding in favour of the banks that the relevant terms were included within the meaning of the word ‘price’ in regulation 6(2) would have precluded any challenge to those terms on the ground of fairness. As it is, if the banks succeed on the narrow issue, this will not close the door on the OFT’s investigations and may well not resolve the myriad cases that are currently stayed in which customers have challenged relevant charges.

[151] The further reasoning of Lord Phillips PSC at [79]–[80] is also very helpful: [79] The Court of Appeal accepted the following argument advanced by the OFT. The object of regulation 6(2) is to exclude from assessment for fairness that part of the bargain that will be the focus of a customer’s attention when entering into a contract, that is to say the goods or services that he wishes to acquire and the price he will have to pay for doing so. Market forces could and should be relied upon to control the fairness of this part of the bargain. Contingencies that the customer does not expect to involve him will not be of concern to him. He will not focus on these when entering into the bargain. The relevant charges fall into this category. Freeif-in-credit current accounts are opened by customers who expect to be in credit. Customers who go into debit without making a prior agreement for an overdraft normally do so because of an unforeseen contingency. Customers do not have regard to the consequences of such a contingency when opening a current account. Accordingly, the relevant charges that are then levied do not fall within regulation 6(2). [80] It seems to me that this reasoning is relevant not to the question of whether the relevant charges form part of the price or remuneration for the package of services provided but to whether the method of pricing is fair. It may be open to question whether it is fair to subsidise some customers by levies on others who experience contingencies that they did not foresee when entering into their contracts. If it is not it may then be open to question whether the relevant terms fall within regulation 5(1). These questions do not, however, bear on the question of whether the relevant charges form part of the price or remuneration that is paid in exchange for the services provided to the holder of a current account. In agreement with Lord Walker JSC, and for the additional reasons that he gives, I am not persuaded by the Court of Appeal’s reasons for excluding the relevant charges from the ‘price or remuneration’ in regulation 6(2).

[152] Turning now to the application of these principles in the context of this case, I believe that the main subject matter of each of Ashbourne’s standard form agreements involves, on the one hand, the agreement by the gym club that a consumer may become a member of the club and use and access its facilities for the minimum period and, on other hand, the payment by the member of a monthly subscription of a certain sum, again for that minimum period. I do

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not accept that a term providing for the minimum period is not a ‘core term’ but is merely a ‘subsidiary provision’, as the OFT urged upon me. There is a danger in using these expressions as shorthand for the words of reg 6(2) as the Supreme Court explained in the Abbey National case. However, in so far as it is helpful to use them, I believe that cl 2 of each of the agreements is a core term rather than a subsidiary provision because it defines the period during which the member is entitled to use the facilities of the gym club and, in return, must pay a particular monthly subscription. Nor do I believe the OFT gains any assistance from paras 1(b), (e) or (o) of the indicative list of terms. These all concern terms dealing in one way or another with default or non-performance. I therefore believe that cl 2 of each of the agreements does fall within the scope of reg 6(2). [153] That is not the end of the analysis, however, because the question then arises as to whether reg 6(2)(a) precludes any assessment of the fairness of cl 2 of each of the agreements or whether the regulation only precludes an assessment relating to the definition of the main subject matter of the contract, that is to say its meaning, description and clarity. In the Abbey National case the Supreme Court was, of course, only concerned with the scope of para (b) of reg 6(2). Nevertheless, it seems to me that there is no basis for drawing a distinction between the two paragraphs in this regard. If reg 6(2)(b) only precludes the assessment of the fairness of a term by reference to the adequacy of the price or remuneration as against the goods or services supplied then, in my judgment, it follows that reg 6(2)(a) only precludes the assessment of the fairness of a term by reference to the definition of the main subject matter of the contract. This is not only the natural meaning of the words used in reg 6(2) but also gives effect to the purpose of its two paragraphs as explained by Lord Walker JSC. Moreover, as the House of Lords explained in the First National Bank case, this regulation should be given no wider an interpretation than necessary. This is a matter to which I  must return in addressing the third issue, namely fairness. [26.31]

Unfair Contract Terms Law: A Guide for Businesses and Legal Practitioners41 Commonwealth of Australia

Terms that define the main subject matter of a contract The unfair contract terms laws do not apply to terms that define the main subject matter of a contract. The main subject matter of a contract refers to the goods or services (including land, financial services or financial products) that the consumer is acquiring under the contract. Where a consumer has decided to purchase particular goods or services, they cannot then challenge the fairness of a term that defines these goods or services, given that they had a

41 Commonwealth of Australia, A Guide to the Unfair Contract Terms Law (2016), 9, available at www.accc.gov.au.

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choice of whether or not to make the purchase on the basis of what was offered. For example, a consumer cannot allege that a term is unfair on the basis that they have changed their mind about, or no longer require, the good or service that they have agreed to purchase. The main subject matter of the contract may also include a term that is necessary in order for the product or service to be supplied.

Example When a consumer agrees to buy a product over the internet and agrees to have that product delivered by post, the consumer cannot later challenge the delivery term as being unfair, if delivery is necessary for the product they agreed to buy to be supplied.

Term setting the upfront price [26.32] The second excluded term is a term setting the ‘upfront price payable under the contract’. Upfront price is further defined in s 26(2) of the ACL. [26.33]

Australian Consumer Law Section 26(2) (2) The upfront price payable under a consumer contract is the consideration that: (a) is provided, or is to be provided, for the supply, sale or grant under the contract; and (b) is disclosed at or before the time the contract is entered into; but does not include any other consideration that is contingent on the occurrence or nonoccurrence of a particular event.

[26.34] It is clear that the upfront price is a reference to the price payable for the goods, services or land to be supplied whether in a lump sum or series of payments or in the case of a credit contract the interest payable for the loan. For example, if a contract provides for the sale of 100 computers at $1000 per computer, this will constitute the upfront price. To be included as part of the upfront price the amount must be disclosed to the consumer at or before the contract is entered into. Whether future payments or a series of future payment form part of the upfront price will depend upon the transparency of the disclosure about these payments or the method by which the payments are determined. [26.35] There is some debate42 about contingent payments such as default interest for failure to pay or termination fees, which may be described as part of the price, but are only payable

42 See Jeannie Paterson, Unfair Contract Terms in Australia, Law Book Company, Sydney, 2012 [4.110]–[4.180].

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if a certain event occurs. According to the ACCC Guide to Unfair Contract Terms,43 a distinction should be drawn between the interest payable on a loan and any fees disclosed in the contract and default fees. On this basis, terms related to the principle and interest cannot be challenged but default fees payable in the event of breach are contingent and may be an unfair term. Contingent payments that do not form part of the upfront price and are therefore likely to include default interest after breach, additional amounts payable in the event of default or untimely payment,44 concession rates,45 forfeiture clauses, early termination fees,46 commission payable on happening of an event,47 terms for capitalisation of interest48 and agreed damages clauses. It is arguable that although a properly drafted agreed/liquidated damages clause may not be a penalty at law, in substance these terms penalise a party in the event of breach or termination and may be scrutinised as an unfair term.49 [26.36]

Office of Fair Trading v Foxtons Ltd [2009] EWHC 1681 English High Court The Office of Fair Trading commenced a challenge to the standard terms used by Foxtons in their letting agreements. Both a declaration that certain terms were unfair and injunctive relief were claimed. The terms alleged to be unfair were provisions relating to renewal commission, sales commission and the payment of commission notwithstanding a sale of the property to a third party. A key issue for the court was whether the terms related to commission were excluded from a consideration of fairness by regulation 6(2)(b) Unfair Terms in Consumer Contracts Regulations 1999 (UK) (UTCCR) which excludes from the unfair terms provisions terms as ‘to the adequacy of the price or remuneration’. The court was therefore required to consider whether the renewal commission and sales commission were part of the price. Mann J adopted the approach of the Court of Appeal in Office of Fair Trading v Abbey National plc [2010] 1 AC 696 to the assessment of whether the term related to the ‘price’ under

43 Commonwealth of Australia, Unfair Contract Terms: A Guide for Businesses and Legal Practitioners, 2016, 10, available at www.accc.gov.au. 44 Andrews v Australian and New Zealand Banking Group Ltd [2011] FCA 1376. See also Ange v First East Auction Holdings Pty Ltd (2011) 284 ALR 638 (fees charged for withdrawing painting from an auction was not a penalty). 45 Bairstow Eves London Central Ltd v Smith [2004] EWHC 263. 46 Refer to Australian Securities and Investments Commission, Early Termination Fees for Residential Loans: Unconscionable Fees and Unfair Contract Terms, Regulatory Guide 220 (2010). 47 See for example Office of Fair Trading v Foxtons Ltd [2009] EWHC 1681; [2009] All ER 110. 48 PSAL Ltd v Kellas-Sharpe [2012] QSC 031 (capitalisation of interest on a monthly basis where interest higher than usual for short term loan, held to be unconscionable). 49 Note the comments of Applegarth J in PSAL Ltd v Kellas-Sharpe [2012] QSC 031 in relation to a term in a loan that charged interest at 7.5%, but if the borrower paid on time the interest was 5%. Although it was drafted so as to avoid the doctrine of penalties, his Honour held that in substance there was not difference between the effect of this term and a term that charged 5% interest and, in the event of breach, 7%.

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the contract. First his Honour considered the substance of the terms of the contract and whether on their face, renewal commission and sales commission were part of the price for the bargain or a separate payment. Secondly, his Honour considered the brochure material and what a consumer would understand was the price. The brochure concentrated on the activities for finding an initial tenant and did not put at the forefront the existence of renewal commission. Mann J The legal issues [32] The OFT seeks to establish that certain of Foxtons’ terms are not in plain and intelligible language, and that various of its terms are unfair contrary to the provisions of the Regulations and the Directive. Foxtons disputes those matters. In the circumstances the following issues are raised: (a) Are the renewal commission provisions in both the old and the new terms unfair? This involves the following points: (i)

Are those provisions of a nature which exempts them from a fairness scrutiny by virtue of Regulation 6(2)?

(ii)

If so, does that exemption in fact not apply because the provisions are not in plain intelligible language, with the effect that they are subject to fairness scrutiny?

(b) If they are subject to a fairness scrutiny, are they unfair? (c) Are the third party renewal commission provisions unfair? (d) Are the sales commission provisions unfair? I shall take those issues in turn. The renewal commission—generally and Regulation 6 … [34] The first point that falls for decision is whether the renewal commission provisions are outside the scope of the fairness inquiry by virtue of the provisions of Regulation 6. The essence of the parties’ positions is as follows. Foxton relies on both limbs of Regulation 6(2) and says that a fairness inquiry is prevented because such an inquiry would relate to the definition of the main subject matter of the contract or to the adequacy of what is in effect the price or remuneration paid by the customer. In essence Foxton says that there is one overall commission, or one overall price, for its services, and the renewal commission is an element of that price. The OFT says that that is contrary to the perception of customers and it is wrong to treat the renewal commission in that way. Alternatively, insofar as it might otherwise have been right to do so, the provisions are not in plain and intelligible language, so the Regulation 6 exclusion does not apply. I shall first consider whether the commission comes within Regulation 6(2) on the assumption that it is in plain intelligible language, and consider the language point second. The renewal commission and Regulation 6 [35] The Court of Appeal in Bank Charges 2 [Abbey National plc v Office of Fair Trading [2009] EWCA Civ 116] considered the purpose of Regulation 6 and how it was intended to operate. They emphasised that the exclusion from consideration of fairness which was effected by Regulation 6 applied to that part of the bargain between the supplier and the consumer which

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could be described as ‘core’ and not ‘ancillary or incidental’. It is unnecessary for me to set out the extensive reasoning in that case. It is sufficient to refer to the following: (i)

At paragraph 49, Sir Anthony Clarke MR, giving the judgment of the court, said: As we see it, it follows from the reasoning of the House of Lords [in First National Bank] that what article 4(2) of the Directive was seeking to exclude from the assessment required by the national authorities (here the OFT) was the core bargain or the core price but not ancillary or incidental provisions. In our judgment, regulation 6(2) of the 1999 Regulations should be construed with that underlying purpose in mind.

(ii)

At paragraph 50, the Master of the Rolls said: It follows that the House of Lords’ approach to the ‘core bargain’ applied not only to ‘the main subject matter of the contract’ in paragraph (a) but also to ‘the price or remuneration’ in paragraph (b).

(iii)

At paragraph 52 he said: In our view these considerations support the conclusion that the purpose of regulation 6(2)(b) was to limit the exclusion to the essence of the price, just as the purpose of regulation 6(2)(a) was to limit it to the main subject matter of the contract. As appears below, the reason for the limitation was to reflect the fact that the parties would be likely to (or might well) negotiate the main subject matter of the contract and the essential price but not the detail.

[36] Thus they emphasised the need to enquire as to whether or not the term in question lies at the heart of the bargain. If it does then the consumer is considered to be able to perceive the merits or demerits of the deal in terms of fairness, subject to matters being plainly expressed. However, one does not approach this exercise purely as a matter of common law construction of the contract. It is necessary to go beyond such notions and to ascertain how the matter would be perceived by the typical consumer (as well as the supplier). This is apparent from paragraph 72 of the judgment of the Master of the Rolls in which he sets out extracts from Chitty on Contracts which itself quotes the director general of Fair Trading: … it would be difficult to claim that any term was a core term unless it was central to how consumers perceived the bargain. A supplier would surely find it hard to sustain the argument that a contract’s main subject matter was defined by a term which a consumer had been given no real chance to see and read before signing it—in other words if that term had not been properly drawn to the consumer’s attention. (Emphasis appears in the judgment.)

Chitty goes on: Rather than relying on the construction of the contract in the traditional way (the intention of both the contracting parties as viewed objectively), this view proposes that a court should look at the reasonable expectation of the consumer in question.

[37] On several other occasions the Court of Appeal’s judgment emphasises the need to ascertain whether or not the payment, or if necessary the obligation itself, forms part of the ‘essential bargain’ between the parties. It is not necessary for me to set out all those citations, but examples can be found in paragraphs 86 and 90. The court also emphasised the position of

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the typical consumer and what he or she might expect in conducting this enquiry. For example, in paragraph 86(c)(iii) the Master of the Rolls says: Moreover, it ensures protection in respect of the kind of issues that a consumer will not have in focus when entering into a bargain. The purpose for which the exception was included was to carve out from the assessment of fairness that part of the bargain which can genuinely be viewed as representing the consensus between the parties and thus a genuine reflection of freedom of contract.

[38] Other important pointers emerge from the judgments in Bank Charges 2. The assessment to be carried out is a broad one. In Bank Charges 2 the Court of Appeal observed at paragraph 89: The next question is how to decide whether a particular term forms part of the essential bargain. It seems to us that this is a broad question which depends upon the circumstances of the particular case. The judge said this at [358]: and how directly the term is directed to defining the payment obligation. We agree.

[39] The answer to the question in the Bank Charges case turned, of course, on the facts of that case, but some of the factors which were important in that case have a resonance with factors in the present case and are useful pointers. Paragraph 109 points out that whether or not the obligation on the customer is contingent is a ‘strong indication’ that the provisions are incidental or ancillary rather than core. So is the fact that the relevant provision is not specifically negotiated. The position of the provision in any advertising material is also apparently relevant; it follows from that that the fact that it is not referred to at all also has relevance. I shall consider these, and other points, separately. I shall consider first the old terms, and then the new ones. … [50] At the end of the day the question of whether the obligation to pay renewal commission is part of the core bargain in the contract is a matter of impression. Having weighed the above matters, and considered the remainder of the material submitted to me, I  have come to the conclusion that it is not part of the core bargain, on the facts of this case. I start from the position that the core has to be seen as such by both Foxtons and the typical consumer. It is therefore not compelling that Foxtons itself seems to see the commission as part of an overall price for the overall benefit of introducing a tenant to the property. For it to be part of the core bargain the customer would have to be taken to acknowledge, if not share, that view. I consider that he or she would not. The typical consumer approaches Foxtons so that they can assist in finding a tenant. He will understand that he has to pay for that service, and payment by commission, as such, is intelligible and will be understood and accepted. At this stage the focus will be on getting a tenant found, checked and engaged, and it is likely that the consumer would be focussing on the initial term of the engagement (assuming a fixed term, which has been the hypothesis of the present case). I doubt if the client will necessarily be looking to a renewal at that stage in the sense of thinking forward to it and considering it likely. The publicity material presented by Foxtons focuses almost exclusively on this stage of the operation. It describes the services offered, and I  consider that it is likely that that is what the tenant will be thinking that he is paying for. The first two pages of the form that he signs will do nothing to dispel that notion and

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if anything would reinforce it. The thrust of these pages is that the landlord will be paying for management activities (ie real activities in exchange for commission) but the landlord will pay less if he chooses lesser activities (letting only without management). This focus on activities does not point towards the occasion of renewal, where most of these activities will not take place. True it is that if and when he reads the terms the client will see that commission is payable on renewal, but the uncertainty of renewal will make this a subsidiary matter in his eyes. If he then looks to the clauses which govern the activities of Foxtons in relation to a renewal he will see that they do relatively little (and even charge separately again for providing the agreement). That is hardly likely to engender a realisation or acceptance that the renewal commission is part of the core bargain. As far as the landlord is concerned the core bargain will be getting the tenant in, in exchange for commission which would seem naturally to be associated with that activity, that is to say the commission payable on the first period’s rent. [51] I reach the same conclusion by looking at the matter from another angle. Imagine that the landlord is told, in terms, that he will pay 11% commission on all the rent due in respect of the first term, and an equivalent amount in rent on renewals for as long as the tenant remains in the property as tenant, whether or not Foxtons play any part in putting that renewal in place, and whether or not other agents act in a renewal and charge commission themselves (because that brings the point home). The first element of the commission would not surprise him. However, I  think the second element would, even if he is a circumspect client who reads the terms properly. That is not because the terms are hidden away; it is because the point is more likely to be something that the client would not really have focussed on or thought through. A renewal is in the future, and is another event, different from the initial activities, so far as the client is concerned. It might or might not happen (a version of the ‘contingency’ point). That surprise is a result or reflection of the fact that the renewal commission element and conversely Foxtons’ participation in renewals, is not part of the core bargain; it is not the sort of central thing that the client would be looking at. … [54] I emphasise at this point of the judgment that my conclusion on the present point relates to the renewal commission element of the relevant Foxtons contracts in the circumstances of those contracts (such as they were) as they were put before me. I am not making any finding that renewal commission, per se, cannot be part of the core bargain and be immune from a fairness challenge pursuant to Regulation 6(2). I am not even finding that Foxtons’ renewal commission, within this contractual framework, would be incapable of becoming part of the core bargain. As I have pointed out above, Foxtons’ witnesses sought to make a commercial case for saying that there was one overall commission, and it has been suggested that if renewal commission cannot be charged then the ‘first term’ commission might have to be raised. I make no findings on such a case—it involves commercial and economic considerations which were not tested or debated before me. It might be possible to bring about a state of affairs in which the renewal commission element becomes part of the core bargain. That might (and I stress ‘might’) be possible if there is something in the nature of a real negotiation or real bargain between the parties which involved this element. That would almost certainly involve a real degree of clear disclosure, if not active flagging, of the point. Such conduct might put the client in the position of being sufficiently well

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informed that one could conclude that he had accepted this important element of the deal. But nothing like that happens in the cases which I have to consider. There was no suggestion that, as part of the negotiation, the renewal commission was drawn to the attention of the client. In their joint paper the two Law Commissions drew attention to the importance of how the deal was presented to the client in paragraph 3.23: In other words, whether the term relates to the definition of the subject matter depends (at least in part) on how the ‘deal’ was presented to the consumer.

There is nothing to suggest that the deals which I have to consider were presented in such a way as to refer to, let alone bring into the centre, the question of renewal commission. [55] For those reasons I hold that the renewal consideration provisions under the old Foxtons terms are not exempted from a consideration of fairness by Regulation 6. If the same contract was considered under the ACL, the fact the renewal commission and sales commission were contingent payments would also support the conclusion they were not part of the price.

Terms required or permitted by a law [26.37] The final category of terms excluded from the unfair contract terms provisions are those terms that are required or expressly permitted, by a law of the Commonwealth or a state or territory. An example provided by the ACCC Guide to Unfair Contract Terms50 is s 105 of the Motor Dealers and Chattel Auctioneers Act 2014 (Qld), which provides that a contract for the sale of a used motor vehicle must contain a clause providing for a cooling-off period of one business day. This term could not then be found to be unfair on the grounds that the cooling-off period of one business day was too short. A further example may be s 139A provides that ‘A term of a contract for the supply of recreational services to a consumer by a person is not void under s 64 of the ACL only because the term excludes, restricts or modifies, or has the effect of excluding, restricting or modifying’ the statutory guarantee provisions in Part 3-2. Dietrich51 argues that s 139A only protects an exclusion clause from being void under s 64 of the ACL and that such an exclusion clause is open to scrutiny as an unfair term.52 Acceptance of this view requires s 139A to be interpreted as only permitting the exclusion clause ‘to the extent’ it complies with s 139A from being void under s 64 and not under s 23 of the ACL.

50 Commonwealth of Australia, Unfair Contract Terms: A Guide for Businesses and Legal Practitioners, 2016, 10, available at www.accc.gov.au. 51 Joachim Dietrich, ‘Liability for personal injuries from recreational services and the new Australian Consumer Law: Uniformity and simplification, or still a mess?’ (2011) 19 Torts Law Journal 55. 52 Director of Consumer Affairs Victoria v Trainstation Health Clubs Pty Ltd [2008] VCAT 2092 (an exclusion clause limiting liability in recreational contracts for all liability howsoever caused was beyond the exclusion permitted and held to be unfair).

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TEST FOR AN ‘UNFAIR TERM’ [26.38] To determine if a term is unfair a court will need to take into account both substantive and procedural matters. According to ACL, s 24, a court is required to consider the three criteria in the context of the transaction as a whole, including the extent to which the term is transparent. As part of this assessment a court is able to have regard to the indicative list of unfair terms in ACL, s 25.53 The three criteria in ACL, s 24 are: (a) will the term cause a significant imbalance in the parties’ rights and obligations arising under the contract; (b) is the term reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term (it is presumed there is no legitimate interest unless the advantaged party proves otherwise); or (c) will the term cause detriment (financial or non-financial) if applied or relied upon by the other party?

Approach to assessment—whole of contract and transparency [26.39] In addition to the three criteria in s 24 of the ACL, a court is also required to consider the extent to which the term is transparent as well as consider the contract as a whole. [26.40]

Australian Consumer Law Sections 24(2), (3) (2) In determining whether a term of a consumer contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the following: (a) the extent to which the term is transparent; (b) the contract as a whole. (3) A term is transparent if the term is: (a) expressed in reasonably plain language; and (b) legible; and (c) presented clearly; and (d) readily available to any party affected by the term.

53 ACL, s 25.

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[26.41] The requirement for a court to consider the contract as a whole54 necessitates an assessment of the written terms of the contract and whether, as a whole, there is balance in the rights and obligations of the parties. Factors such as whether the unfair term is linked to a benefit in the contract, such as a cheap price, or the purpose of the terms, may be considered.55 However, the mere fact the contract contains terms favourable to the buyer does not necessarily counter the existence of an obviously unfair term.56 [26.42] Whether a term is transparent will also involve an examination of the terms of the contract to determine if the potentially unfair term is in plain language, legible, clearly presented and readily available to any party affected by the term.57 The placement of the particular term in the contract so as to alert the consumer will be important to its transparency.58 The fact a term is drafted in legalese or complex language or is hidden in small print may be a factor in determining if there is a significant imbalance in the rights of the parties, but will not of itself mean the term is unfair.59 For example, in Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd,60 the term did not clearly identify the amounts that Chrisco was entitled to direct debit, whether Chrisco would confirm the payments first and it was not clear by what means the consumer could cancel the plan. The term provided that payments to Chrisco would ‘continue accordingly’ without any detail of the amount of the payments in the term or any other term of the contract. Likewise, a term drafted clearly, placed in a prominent position or drawn to the attention of the consumer may ultimately be substantively unfair despite being clear about its effect.61 [26.43] Finally, a court is given a broad discretion to take into account any other matters the court considers relevant. Potentially, a court may consider factors such as broad business practices in the relevant industry, the circumstances in which each relevant contract was made,62 whether the terms were brought to the attention of the consumer or small business and whether the consumer had a reasonable opportunity to consider the terms of the contract.63 In Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd,64 Edelman J described ACL, s 24 as a ‘guided form of open-ended legislation’.65 His Honour approached a consideration of each of the elements in ACL, s 24 having regard to the contract as a whole and the transparency of the

54 ACL, s 24(2). 55 Jetstar Airways Pty Ltd v Free [2008] VSC 539. 56 Kucharski v Air Pacific Ltd (General) [2011] NSWCTTT 555 (reduced price airfare did not influence the fact that no refund provision was an unfair term). 57 ACL, s 24(3). 58 Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd (2015) 239 FCR 33, [91]–[92]. 59 Ibid, [72]–[75]. 60 (2015) 239 FCR 33. 61 Director of Consumer Affairs Victoria v Trainstation Health Clubs Pty Ltd [2008] VCAT 2092. 62 Jetstar Airways Pty Ltd v Free [2008] VSC 539, Cavanough J. 63 Jeannie Paterson, Unfair Contract Terms in Australia, Law Book Company, Sydney, 2011, [8.130]. 64 (2015) 239 FCR 33. 65 (2015) 239 FCR 33, [40].

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term. While the discretion appears prima facie wide, Edelman J focussed on matters impacting substantive unfairness rather than procedural aspects of formation such as whether the term was negotiated.66 While the discretion appears prima facie wide, it is submitted that a court is more likely to have regard to circumstances or factors directly relevant to a consideration of the three criteria in s 24, which of their nature, concern the substantive terms of the contract, such as: (i) whether the term is essential or inessential to the bargain; (ii) whether the term is commonly used in the industry; (iii) whether the term is enforceable under the common law; (iv) whether the term was brought to the attention of the consumer; (v) the clarity of the term and nature of the rights granted to the supplier; or (v) whether the consumer has knowledge of the term and an understanding of its effect.67 [26.44] It should be emphasised that the mere fact a term is legible or brought to the attention of the parties does not mean that it will be fair. The term may be of such a nature that, despite disclosure, the term is still considered by a court to meet the three criteria.68 However, where a term is the subject of genuine negotiation between the parties, it will not be lightly considered to be unfair.69 Although this is not expressly an element of the test of unfairness,70 it would seem otiose for a party to be able to resile from a contract that genuinely reflects the bargain as negotiated.

Criterion 1—Significant imbalance in the parties’ rights and obligations [26.45] There are two requirements for this criterion. First, the applicant should established that the term creates an imbalance between the rights of the parties and second, that the imbalance is significant. In the context of the Unfair Terms in Consumer Contracts Regulation 1999 (UK), 71 Bingham LJ stated in Director General of Fair Trading v First National Bank plc,72 the requirement for a significant imbalance is met if ‘a term is so weighted in favour of the supplier as to tilt the parties’ rights and obligation under the contract significantly in his favour.’ 73 ‘Significant’ is a word that takes its meaning from the context in which it is used.74 It potentially covers a spectrum ranging from ‘not trivial’ through ‘appreciable’ to ‘important’, ‘substantial’ and

66 Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd (2015) 239 FCR 33, [50]. 67 Refer to Jeannie Paterson, Unfair Contract Terms in Australia, Law Book Company, Sydney, 2011. 68 Refer to the comments of Cavanough J in Jetstar Airways Pty Ltd v Free [2008] VSC 539, [115]. 69 Director of Consumer Affairs Victoria v Craig Langley Pty Ltd & Matrix Pilates & Yoga Pty Ltd [2008] VCAT 482, [66]. 70 An opportunity to negotiate is an element of whether there is a standard form contract, ACL, s 27(2). 71 Replaced by the Consumer Rights Act 2015 (UK), which deals with unfair contract terms and notices from 1 October 2015. Parts 1 and 2 of the Consumer Rights Act consolidate and replace the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) and relevant provisions of the Unfair Contract Terms Act 1977 (UCTA). 72 [2002] 1 All ER 97 (HL). 73 Ibid, 109 (HL). 74 Emaas v Mobil Oil Australia Ltd [2000] QCA 513, [26].

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‘momentous’.75 When considering the now repealed unfair terms provisions of the Fair Trading Act 1999 (Vic), Cavanough J held that ‘significant’ meant ‘significant in magnitude’ or ‘sufficiently large to be important’ or, in other words, that the imbalance should be substantial.76 This makes an assessment of this particular element, prima facie, a factual inquiry having regard to the particular term in the context of the contract as a whole.77 In reaching a conclusion, a court is required to examine the term in light of the other provisions in the contract taking transparency into account. Of particular relevance may be other terms in the contract that are in favour of the consumer (ie reduced price,78 other benefits).79 [26.46]

Director of Consumer Affairs (Vic) v AAPT [2006] VCAT 1493 Victorian Civil and Administrative Tribunal The Director of Consumer Affairs (Vic) brought an action against AAPT alleging that the terms in their mobile phone contracts were unfair and contravened the unfair terms provisions of the Victorian Fair Trading Act. Morris P The meaning of ‘unfair term’ [31] In order to ascertain the meaning of ‘unfair term’ the proper place to start is with the words of the statute. The words of section 32W [32] It is apparent that a term in a consumer contract is to be regarded as unfair if it causes a significant imbalance in the parties’ rights and obligations arising under the contract. It is apparent that the significant imbalance must be to the detriment of the consumer. And it is apparent that in determining whether a term causes a significant imbalance in the parties’ rights and obligations one must have regard to all the circumstances. What is less apparent is: what is meant by a ‘significant’ imbalance? And what is the role to be given to the words ‘contrary to the requirements of good faith’?

75 Coombs v Bahama Palm Trading Pty Ltd [1991] Aust Contract Reports 90-002, 89,123 (considering the meaning of significant component in a sale of business). 76 Jetstar Airways Pty Ltd v Free [2008] VSC 539, [105]. In Director of Consumer Affairs Victoria v AAPT Ltd [2006] VCAT 1493, the view was expressed that this was a normative judgment about extent of unfairness. 77 See also the Explanatory Memorandum Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2010, available at http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbill home%2Fr4154%22 (accessed 18 May 2010). 78 Jetstar Airways Pty Ltd v Free [2008] VSC 539; Director of Consumer Affairs Victoria v Backloads.com Pty Ltd (Civil Claims) [2009] VCAT 754; Office of Fair Trading v Ashbourne Management Services Ltd [2011] EWHC 1237; Kucharski v Air Pacific Ltd (General) [2011] NSWCTTT 555 (reduced price airfare did not influence the fact that no refund provision was an unfair term). 79 Director General of Fair Trading v First National Bank [2000] QB 672, 687 (CA).

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[33] The word ‘significant’ simply means ‘important’ or ‘of consequence’. It does not mean ‘substantial’. It is not a word of fixed connotation and besides being elastic is somewhat indefinite. However, in its context, it is designed to identify an imbalance, to the detriment of the consumer, which should be regarded as unfair. In this sense the definition is circular. But it is impossible to avoid the notion of fairness in determining whether a term causes a significant imbalance, even though this exercise is designed to ascertain whether a term is unfair.

Criterion 2—Is the term reasonably necessary to protect the legitimate interests of the party? [26.47] The next element is that the term was not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise.80 This reversal of the onus of proof will require the advantaged party to produce evidence of their legitimate interest and to prove on the balance of probabilities that the term was reasonably necessary to protect that interest. [26.48] What is a legitimate interest will vary depending upon the nature of the subject matter, the price paid and the other terms of the transaction as a whole. Discretionary factors a court may take into account in determining the legitimate interests of a party include industry norms, risks inherent in the transaction, the financial position of the parties and the state of the market for that product at the time of contracting. While the interests of sellers of goods or property are common to an extent, the varied nature of the subject matter and the different personal attributes of sellers mean that what is required to protect one seller’s legitimate interests may differ from that required to protect those of another.81 It is suggested that a court is likely to find that a term is not reasonably necessary to protect the legitimate interests of a party where the party has adequate common law or statutory protection or where the term goes beyond that countenanced by the law. [26.49] Ultimately a court may be unwilling to find a term reasonably necessary to protect a legitimate interest unless the term is proportionate to the potential risk and the interest sufficiently outweighs the detriment to the consumer.82 This may result in close scrutiny of whether common standard conditions, long accepted and commonly found in contracts, which reflect industry norms are in reality necessary to protect the seller’s interests.83

80 ACL, s 24(4). 81 See for example PSAL Ltd v Kellas-Sharpe [2012] QSC 31, where Applegarth J gave careful consideration to the business expenses of the application in deciding whether there was a legitimate reason for capitalising interest monthly. 82 Director of Consumer Affairs Victoria v AAPT [2006] VCAT 1493; Director of Consumer Affairs Victoria v Trainstation Health Clubs Pty Ltd [2008] VCAT 2092; Director of Consumer Affairs Victoria v Backloads.com Pty Ltd [2009] VCAT 754. 83 Refer to Director of Consumer Affairs Victoria v Backloads.com Pty Ltd (Civil Claims) [2009] VCAT 754.

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Criterion 3—Will the term cause detriment (financial or nonfinancial) if applied or relied upon by the other party? [26.50] The final element is that the term (if relied upon or applied) would cause financial or non-financial detriment to the consumer. The consumer will have the onus of proving that if the term is enforced, the consumer will suffer financial or non-financial detriment. While there is no requirement for the consumer to prove that prior to enforcement of the term, detriment was suffered, there is a suggestion by Edelman J in Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd84 that whether a corresponding benefit is provided may be relevant. Proof of financial detriment clearly requires proof of a financial loss or expenditure. Non-financial detriment may include mental distress, inconvenience or other personal injury.

The ‘grey list’—examples of unfair terms [26.51] An indicative non-exhaustive list of terms that may be unfair is specified in s 25 of the ACL. The purpose of the list is to provide statutory guidance about the types of terms that may be of concern, but the section does not ‘prohibit the use of those terms, nor do[es it] create a presumption that those terms are unfair’.85 Consequently, these examples have been referred to as the ‘grey list’. The terms on the grey list have in common the fact they give unilateral rights to one party and no rights to the other party in relation to contractual changes, termination of the contract and rights generally under the contract. [26.52] Importantly, there is no presumption that the examples in s 25 of the ACL are always unfair because the effect of the term needs to be considered in the context of the contract as a whole with regard to the three criteria of an ‘unfair term’ in s 24 of the ACL. Nevertheless, it may be more difficult for a party to convince a court that a term falling within one of the examples is not an unfair term.86 Ultimately, the better view should be that while the examples indicate certain terms that are at risk of being unfair, whether the term is actually unfair will still depend upon an examination of the term in the context of the whole of the agreement with regard to three criteria in s 24 of the ACL and the context surrounding the inclusion of the term in the contract.

84 (2015) 239 FCR 33, [60]–[68], [100]. 85 (Explanatory Memorandum to the Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2010 (Cth) 23, available at http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbill home%2Fr4154%22 (accessed 18 May 2010). 86 Jetstar Airways Pty Ltd v Free [2008] VSC 539, [115].

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[26.53]

Australian Consumer Law Section 25

25 Examples of unfair terms (1) Without limiting section 24, the following are examples of the kinds of terms of a consumer contract that may be unfair: (a) a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract; (b) a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract; (c) a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract; (d) a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract; (e) a term that permits, or has the effect of permitting, one party (but not another party) to renew or not renew the contract; (f) a term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract; (g) a term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract; (h) a term that permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning; (i) a term that limits, or has the effect of limiting, one party’s vicarious liability for its agents; ( j) a term that permits, or has the effect of permitting, one party to assign the contract to the detriment of another party without that other party’s consent; (k) a term that limits, or has the effect of limiting, one party’s right to sue another party; (l) a term that limits, or has the effect of limiting, the evidence one party can adduce in proceedings relating to the contract; (m) a term that imposes, or has the effect of imposing, the evidential burden on one party in proceedings relating to the contract; (n) a term of a kind, or a term that has an effect of a kind, prescribed by the regulations. (2) Before the Governor—General makes a regulation for the purposes of subsection (1)(n) prescribing a kind of term, or a kind of effect that a term has, the Minister must take into consideration: (a) the detriment that a term of that kind would cause to consumers; and (b) the impact on business generally of prescribing that kind of term or effect; and (c) the public interest.

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[26.54]

Director of Consumer Affairs Victoria v Backloads.com Pty Ltd [2009] VCAT 754 Victorian Civil and Administrative Tribunal Backloads.com was a removalist company carrying on business in Victoria. It advertised its services on the internet and provided a facility on its website whereby customers could obtain a quote and book the services. Booking could also be made by phone or email. The conditions of each contract were displayed on the internet. The conditions contained a number of terms alleged by the director to contain unfair terms. Harbison J considered each of the terms, concluding the following ones were unfair. The application of each example of unfair terms in the Victorian equivalent of the current unfair terms regime is noted. Harbison J [Her Honour first considered the terms of the contract, and the general requirements of the unfair terms provisions referring to the approach in both Jetstar Airways Pty Ltd v Free [2008] VSC 539. and AAPT (2006) VCAT 1493. Each of the alleged unfair terms was then examined. This extract considers three of the clauses]

Term 8 (b) [221] The second term impugned is clause 8(b) which reads as follows: If the information supplied is incorrect, inadequate, inaccurate or varied after a quotation has been given, the company may at its discretion perform the work strictly as per its quotation or vary its charges in accordance with a pro rata adjustment based on the variation in the specified quantity, volume or weight of goods plus any variation of estimated loading and unloading times charged at the time rate.

[222] The Director says that should be remembered that this is a contract for the removal of a potentially large number of small household goods, in which the consumer is required under the contract to identify the precise goods to be moved. The Director says I should take into account that it is likely that accurate identification of a vast number of small items is likely to be very difficult. Estimates of this nature may well change and more goods may need to be added after the contract is concluded, and up until the time of removal and transport. [223] If, as this clause suggests, the consumer is required to perform the contract strictly in accordance with the quote, the Director says this may well lead to unfairness because the consumer is given no chance to vary the contract except by incurring a penalty, whereas there are other clauses of the contract which allow the trader to vary the contract without penalty— such as clause 11(c) (to which I will later refer). [224] The Director relied upon the evidence given by the witnesses Joanne Hogan, Marwa Khalaf, and Bardia Ghostine in this case to illustrate the likelihood that extra goods will often be identified to be added to the list of items to be moved after the contract is entered into, and the difficulties that this term causes in practice to the consumer.

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[225] Thus, the Director submitted, read in the context of the removalist industry, clause 8(b) unfairly penalised the consumer. [226] The respondent suggests that the clause is not very different from other clauses used in the industry, particularly the AFRA contract. The respondent suggested that its own term was much more specific than other clauses in use and this therefore meant that there was no uncertainty for the consumer as to what would happen if the consumer sought to add extra items to the list of goods to be moved. [227] … [228] The respondent also submitted that this clause should be read in conjunction with the fact that the price offered by the respondent was a low price, much lower than other prices in the market. This means that the respondent had very little room to manoeuvre, both literally, (in terms of space booked on trucks) and in terms of its own contractual arrangements with contractors. [229] The respondent says that clause 8(b) must be read in conjunction with clause 8(a). Clause 8(a) provides that the client warrants the information provided is accurate. In other words, clause 8(a) gives the client the obligation to specify precisely what is to be carried and 8(b) simply provides what is to happen if the client does not comply with section 8(a). [230] Mr Matysik emphasised that the problem of inaccurate information from consumers as to exactly what is to be moved was a very difficult problem for his company. He emphasised that it was not just a question of billing the customer for the extra space taken by items not previously identified. By the time a consumer notifies the respondent of extra items, all available space may already be allocated on the truck. If extra goods were added then other deliveries which had already been contracted for may not be able to be accommodated. It was not just the extra time required to load extra bits and pieces that needed to be costed. The requirement to take extra goods may jeopardise contractual arrangements with other parties in a way which was not easy to compensate for in monetary terms. [231] The Director suggested in relation to clauses 8(a) and 8(b) that at the very least the clauses should be looked at as being deficient in providing notification to consumers. There is no evidence that consumers were told that precise identification of items is critical for the price. A term with such consequences should contain a warning to consumers to prevent its unfairness. [232] The Director suggested that I should apply the unfair surprise concept in Jetstar to this clause. As with 2(e), it is a discrete, unusual, one-sided term. The Director suggests that if it is so important to the transaction for a consumer to supply accurate information to the respondent as to the precise items to be moved, then the consequences of not providing accurate information should be clearly brought to the attention of the respondent in a prominent and clear way. In her submission this was not done in any of the respondent’s material. [233] In my view clause 8(b) is an unfair term. The practical problems identified by Mr Matysik and the cheapness of the services offered by the respondent are relevant circumstances in weighing up the unfairness. Those factors may well justify the charging of a relatively high fee to properly reflect the difficulties involved in a change to the description or number of goods to be transported.

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[234] It cannot however justify an absolute discretion given to the respondent to charge what it likes, in the way this term does. [235] By giving to the respondent an absolute discretion to enforce the contract or to vary its charges, without having given any warning to the consumer of the importance of the provision by the consumer of a correct and full description of goods to be carried, the clause causes a significant imbalance in the parties’ rights and obligations arising under the contract to the detriment of the consumer. [236] The respondent has suggested that no other mechanism is available to properly recompense the respondent for incorrect or inadequate specification of goods. [237] It appears to me that the term may be able to be rectified to accommodate the Director’s concerns by making it clear that charges may only be increased to reflect a reasonable allowance for the factors identified in the evidence of Mr Matysik. However, as term 8(b) is presently expressed, in my view it is an unfair term. [238] In the words of subsections 32X (c), (d)  (f) (g)  and (h)  of the Act, it has the object or effect of penalising the consumer by permitting the respondent in its discretion to perform the contract without regard to the consumers desire or need to vary the contract, and permits the respondent to vary the price or the characteristics of the services to be supplied under the contract, and to determine whether the contract has been breached and determine its meaning. … Term 9(b) [253] Term 9(b) of the contract reads as follows: The company hereby assigns its rights and the rights of any persons on behalf of whom it is acting to collect all charges and payments from clients to the contractor. The contractor agrees to issue invoices and to collect all such charges and payments directly from the clients.

[254] The Director says that this term is unfair because it assigns to an unidentified nonparty (described as ‘the contractor’) all of the rights the respondent would otherwise have enforce the contract terms. In doing so it creates confusion and uncertainty for the consumer. It permits this unidentified non-party to issue invoices and collect charges directly from the consumer. [255] Who is this unidentified non-party? There appears to be no way provided in the contract for the consumer to find this out. The respondent’s argument appears to be that this assignee is whichever truck driver actually carries out the pickup and perhaps also delivery of the goods. It is not clear from the evidence whether this will always be the same person. Mr Matysik submitted that this assignment clause reflects the fact that the respondent does not contract directly with the consumer, but passes on the consumer’s contractual obligations to the contractor. The way in which this was said to occur was put in the vaguest of terms. [256] The respondent says that this way of doing business is extremely important to the consumer because it provides for a cost effective way of accessing removalist services. It says that clause 9(b) is central to this operation because the heart of what it offers is a facility for consumers to make their own contractual arrangements with the individual truck driver.

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[257] Mr Matysik suggested, without expanding on the idea, that this arrangement is similar to a franchise. He says that the AFRA contract does not contain a term such as this term because AFRA does not use the respondent’s agency system. [258] It seems to me that the difficulty with the respondent’s argument is that it is not apparent from any of the respondent’s material or the conditions of contract that the respondent holds itself to be simply an agent or franchisor who introduces consumers to a contractor, nor that the contractual obligations under the contract are to be assumed by that contractor and not by the respondent. [259] The Director asks me also to note that this assignment purports to occur at the time of formation of the contract. The uncertainties caused by clause 9(b) are increased when clause 9(b) is seen in conjunction with clause 10 which provides that the respondent (not the assignee) is to have a lien on the consumer’s goods until payment is received. [260] Term 9(b) is, in my view an unfair term. It creates confusion. It clearly causes a significant imbalance in the parties’ rights and obligations to the detriment of the consumer because the identity of the entity to whom the assignment is made is unclear and the rights and obligations of the consumer vis à vis that non-party are unclear. [261] I do not take the view that all assignment clauses must by definition be unfair terms but the confusion and inconsistency of this clause with the rest of the contract, in my view, makes it unfair for the reasons I have stated. [262] The fact that the service may be cheaper than alternatives can be no justification for a complete failure to specify the identity of the assignee or the terms of the proposed assignment. [263] The confusion also has the effect of rendering the term contrary to requirements of good faith in the way in which that term has been interpreted in Jetstar Airways because the purported involvement of the non-party in the contract, and the use of this clause as an artificial device to attempt to transfer rights and obligations to this non-party is a departure from good standards of commercial morality or practice. [264] Subsection 32X ( j) allows me to take into account as an element when assessing whether a term is unfair, that the term permits the supplier to assign the contract to the consumer’s detriment without the consumers consent. In my view it is clearly to the consumer’s detriment to attempt to assign the consumers rights and obligations to an unknown person. … Term 14(f ) [330] Term 14(f) provides as follows: The client shall INDEMNIFY the company against any action, claim, suit, fine or demand brought by any third party, the client or the contractor against the company as a result of or in connection with any breach by the client of any term of his contract, or the occurrence of any of the events listed in this clause, or clauses 10, 12 or 14 and this indemnity shall extend to the reasonable solicitor/client costs of the company in defending any action and in enforcing this indemnity.

[331] The Director says that this term is unfair because it confers an unreasonable benefit upon the respondent by purporting to make the consumer liable for the consequences of any

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proceedings against the respondent by the consumer, but also by the respondent’s contractor and by any third party arising out of, or as the consequence, of any breach of the contract by the respondent, even a breach involving negligence or fraud by the respondent. [332] The respondent says this term assists the client by pointing out the legal responsibility of the consumer and it is only used to highlight to consumers who may not be aware that their actions may have legal consequences. [333] The respondent says that clause 14(f) does not do anything but restate the normal law except for the addition of solicitor/client costs. The respondent points out that provision for solicitor/client costs is also in many other contracts. [334] In my view this clause is unfair because of its breadth. The customer is obliged to indemnify the respondent against any breach of terms 10, 12 or 14 of the contract. These breaches may be caused by the respondent, not just the consumer. [335] The Director also says that the obligation in the contract to pay solicitor client costs is unfair. It is certainly unfair to require a consumer to pay the respondents solicitor client costs of defending an action brought against the respondent by a person other than the consumer. [336] I consider that it is also unfair for a standard form contract term to require a consumer to pay solicitor client costs. There are some circumstances in which courts and tribunals may make an award of solicitor client costs. This term presumes that those circumstances will apply in every consumer contract. It removes the consumer’s right to argue as to whether solicitor client costs should apply to the particular circumstances of their individual contract. There is no equivalent term in the contract requiring the respondent to pay the consumers costs to be assessed on a solicitor client basis in the event of default by the respondent. I doubt whether a consumer would understand what the term solicitor and client costs means, or how it differs from costs which might otherwise be payable by the consumer in the event of a default. [337] A  term requiring the payment of solicitor client costs may not be unfair if it is clearly notified to and understood by a consumer and if it is the subject of genuine and informed negotiation. This is not the case here. [338] For all of the above reasons, it is my view that term 14(f) is an unfair term.

REMEDIES AND ENFORCEMENT [26.55] There are three circumstances in which a term of a contract may be challenged as unfair. First, a contracting party or regulator may raise the unfair term as a defence to a claim by the other party. Second, a contracting party or regulator may seek a remedy in response to the continued use of an unfair term by a supplier. Third, a contracting party or regulator may act pre-emptively to declare a term unfair to prevent reliance on that term by the supplier. A number of civil remedies are available under the ACL to either contracting parties or regulators in the event a court determines a term of a contract is unfair. These remedies are: (1) declaration that term is unfair under s 250(1) of the ACL; (2) injunction under s 232 of the ACL preventing the use of the term; or (3) compensation order under s 237 of the ACL for loss suffered.

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Declaration [26.56] The primary remedy in the first instance is a declaration that the term is unfair.87 A declaration can be sought either by a party to the contract or a regulator. A declaration that a term is unfair under s 250 of the ACL results in the ‘term’ being void under s 23 of the ACL. The remainder of the contract may continue to operate if it is ‘capable of operating without the term’.88 It is unclear whether the whole term will be void or where the term has several parts only that particular part will be void and therefore unenforceable. Under s 250 of the ACL, a court may declare a term, and impliedly part of a term, to be unfair. [26.57] The mere fact a term is declared void under s 23 of the ACL is not a contravention of the ACL.89 However, where a party continues to rely upon or seek to enforce a term declared to be unfair, a person who suffers or may suffer loss is able to seek compensation or other remedies under s 237 of the ACL. There is otherwise no right to damages under s 236 of the ACL unless there is other conduct, such as misleading conduct which causes loss.

Compensation [26.58] Under s 237 of the ACL,90 a person who suffers or is likely to suffer loss or damage as a result of a person ‘applying or relying on’ a term declared to be unfair may seek a remedy, including: (i) the recovery of money paid or property transferred under the term; and91 (ii) declaration that another contract entered in reliance upon the unfair term void.92 [26.59] Regard may be had to the conduct of the parties after the declaration was made in making an order.93 An order may be made against the person relying on or applying the unfair term or a person ‘involved’ in the contravention.94 The time limit for applying under s 237 is within six years of the declaration.95

87 The jurisdiction to grant a declaration is given to: (i) Australian Consumer Law (Queensland)—District Ct: s 51 Fair Trading Act 1989; (ii) Australian Consumer Law (Cth)—Federal Court, Federal Magistrates, District Court ($750,000), Supreme Court: s 138–138B Competition and Consumer Act 2010 (Cth). 88 ACL, s 23(2). 89 Refer to ACL, s 15. 90 The jurisdiction to grant a remedy under s 237 is given to: (i) Australian Consumer Law (Queensland)—District Ct with no regard to the monetary limit: s 51 Fair Trading Act 1989; and (ii) Australian Consumer Law (Cth)— Federal Court, Federal Magistrates, District Court (up to $750,000), Supreme Court: s 138–138B Competition and Consumer Act 2010 (Cth). 91 ACL, s 243(d). 92 ACL, s 243(a). 93 Competition and Consumer Act 2010 (Cth), s 137D. 94 ACL, s 237(1). Note the definition of ‘involved’ in ACL, s 2. 95 ACL, s 237(3).

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Injunction [26.60] Finally, an injunction96 may be granted if the court is satisfied that a person engaged or proposes to engage in conduct that is relying on or applying a term declared to be unfair.97 There is no time limit for such a claim.

QUESTIONS FOR REFLECTION (1) The unfair contract terms provisions apply to a situation where a person acquires goods for personal, domestic or household purposes and to a small business contract. What types of transactions will fall outside of the provisions? (2) Having regard to the definition of standard form contract in s 27 of the ACL, do you think that a standard form contract exists where parties enter into a standard real estate contract to sell a house and the seller refuses to negotiate terms, except for the price and deposit? (3) Read s 26 of the ACL. Do you think that a term providing for interest to be payable if the purchase price is not paid within 14 days is an excluded term? (4) Read s 25 of the ACL. Do you think that a term allowing one party only to terminate the contract if the other party becomes insolvent is an unfair term? What other facts would you need in order to reach a conclusion?

96 The jurisdiction to grant an injunction is vested in: (i) ACL (Queensland)—District Court (if another proceeding in that court under Australian Consumer Law (Queensland); otherwise Supreme Court: s 51 Fair Trading Act 1989; and (ii) ACL (Cth)—Federal Court, Federal Magistrates, District Court ($750,000), Supreme Court: ss 138–138B Competition and Consumer Act 2010 (Cth). 97 ACL, s 232(1) & (3).

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INTRODUCTION [27.01] Prior to 1 January 2011, Part V, Div 2 of the Trade Practices Act 1974 (Cth) implied a set of contractual terms in favour of consumers.1 A  breach of these implied terms permitted an action for breach of contract. These implied terms could not generally be excluded by suppliers. Following amendment of the Trade Practices Act 1974 (Cth) and the renaming of this legislation as the Competition and Consumer Act 2010 (Cth), the implied terms provisions from the previous statutory regime were replaced with consumer guarantees from 1 January 2011. The consumer guarantees are to be found in Ch 3, Pt 3-2, Div 1 of the Australian Consumer Law (ACL). The ACL was enacted as Schedule 2 of the Competition and Consumer Act 2010 (Cth).2 [27.02] The consumer guarantees provided for in the ACL operate as statutory guarantees of certain minimum standards and obligations where goods or services are provided to consumers. These consumer guarantees may find application where goods or services are supplied after 1 January 2011.3 Where a consumer guarantee is not met, a statutory cause of action arises. The significance of the consumer guarantees for consumers is that rather than implying a term into a contract, a failure by a supplier (or a manufacturer in specified circumstances) to comply with a statutory consumer guarantee can be directly enforced as a breach of the ACL. As the statutory cause of action is not dependent on contractual privity, rights of action are available against manufacturers as well as retailers. Liability under the statutory consumer guarantee is generally strict, meaning that liability can arise without the need to demonstrate negligence. The operation of the consumer guarantees cannot, except in limited circumstances, be contractually excluded.

1

Implied contractual terms also previously existed in the fair trading laws of the states and territories.

2

Competition and Consumer Act 2010 (Cth), s 130 defines the term ‘Australian Consumer Law’ to mean Sch 2 as applied under Subdivision A of Division 2 of Part XI of the Competition and Consumer Act 2010 (Cth).

3

Relevant goods and services acquired prior to the 1 January 2011 are subject to the implied contractual terms provided for by the Trade Practices Act 1974 (Cth) and state and territory fair trading laws.

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[27.03] Due to constitutional limitations, the operation of the ACL (as Commonwealth law) is largely limited to conduct engaged in by corporations.4 However, it has some limited application to persons.5 The ACL has also been incorporated as part of each of the laws of the states and territories by virtue of separate state and territory legislation,6 making the ACL national, state and territory law from 1 January 2011. The operation of the state and territory legislation will allow a claim to be made against a non-corporate entity that may not otherwise have been available under Commonwealth law. In order to protect consumers of financial products and services, certain aspects of the ACL are also mirrored in provisions of the Australian Securities and Investments Commission Act 2001 (Cth). [27.04] The ACL can be enforced by Australian courts and tribunals, including those of the states and territories. Regulation of the ACL occurs through the auspices of the Australian Competition and Consumer Commission, the Australian Securities and Investments Commission, as well as the consumer protection agencies of each state and territory.7

CONSUMER GUARANTEES RELATING TO THE SUPPLY OF GOODS [27.05] The consumer guarantees in the ACL concerning goods find application where a person supplies goods to a consumer and, for certain consumers (ss 54–59 of the ACL), the supply is in trade or commerce. Each of these requirements will be considered separately.

Supply [27.06] Supply, in relation to goods, is defined in s 2 of the ACL to mean ‘supply (including resupply) by way of sale, exchange, lease, hire or hire-purchase’. The terms ‘supplied’ and ‘supplier’ have corresponding meanings.8 The statutory definition generally contemplates that consideration be provided in exchange for the goods although where a consumer acquires goods from a supplier and gives them to another person as a gift, the recipient of the gift may exercise the same rights or remedies available to the consumer.9 An expanded definition of supply in

4

Competition and Consumer Act 2010 (Cth), s 131.

5

Competition and Consumer Act 2010 (Cth), s 6.

6

Fair Trading (Australian Consumer Law) Act 1992 (ACT) s 7; Fair Trading Act 1987 (NSW), s 28; Consumer Affairs and Fair Trading Act 1990 (NT), s 27; Fair Trading Act 1989 (Qld), s 16; Fair Trading Act 1987 (SA), s 14; Australian Consumer Law (Tasmania) Act 2010 (Tas), s 6; Australian Consumer Law and Fair Trading Act 2012 (Vic), s 8; Fair Trading Act 2010 (WA), s 19.

7

Office of Fair Trading (Qld); NSW Fair Trading (NSW); Office of Consumer and Business Affairs (SA); Consumer Affairs Victoria (Vic); Department of Commerce, Consumer Protection (WA); Office of Consumer Affairs and Fair Trading (Tas); Office of Regulatory Services (ACT) and Office of Consumers Affairs (NT).

8

ACL, s 2.

9

ACL, s 266.

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s 5 of the ACL also means that the consumer guarantees find application where a consumer is supplied with goods by way of a promotional donation. [27.07] In addition to suppliers, manufacturers of goods may also be bound by certain consumer guarantees. Section 7 of the ACL provides that a manufacturer includes a person that grows, extracts, produces, processes or assembles goods; a person held out as the manufacturer of the goods; a person whose name, brand or mark is applied to the goods supplied; a person who allows another to hold the first person out to the public as the manufacturer of the goods together with a person who imports goods into Australia; when, at the time the goods are imported, the manufacturer of the goods does not have a place of business in Australia.10

Goods [27.08] Section 2 of the ACL contains an inclusive and broad definition of ‘goods’. ‘Goods’ includes ships, aircraft and other vehicles, animals, minerals, trees and crops (whether on, under or attached to land or not), gas and electricity, computer software, second-hand goods and any component part of, or accessory to, goods. Section 8 of the ACL provides that goods are taken to be supplied to a consumer even if the goods are affixed to land or premises at the time of the supply.

Consumer [27.09] Section 3 of the ACL provides the meaning of the term ‘consumer’. In relation to the acquisition of goods, a person is taken to have acquired goods as a consumer if, and only if: •

the amount paid for the goods did not exceed $40,000;



the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption; or



the goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads.

It should be noted that a broad ranging review of the ACL was initiated in mid-2015 to assess the effectiveness of, and protections afforded by, the ACL and to make any recommendations. On 19 April 2017, the final report of the Australian Consumer Law Review, conducted by Consumer Affairs Australia and New Zealand (‘CAANZ’), was publicly released. One of the twenty-two changes proposed by CAANZ to strengthen and clarify the operation of the ACL was to increase the monetary threshold in the meaning of consumer from $40,000 to $100,000. If this recommendation is implemented, it is likely to significantly expand the range of transactions and parties afforded protection by the consumer guarantees

10 See Rasell v Cavalier Marketing (Australia) Pty Ltd (1991) ATPR 41-152 for an example of a situation where an importer of carpet was deemed to be a manufacturer under the substantially similar s 74A of the former Trade Practices Act 1974 (Cth).

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[27.10] As previously noted, where a consumer acquires goods from a supplier and gives them to another person as a gift, the recipient of the gift may exercise the same rights or remedies available to the consumer.11

Trade or commerce [27.11] For the purpose of the consumer guarantees contained in ss 54–59 of the ACL, goods must be supplied in trade or commerce. Trade or commerce is defined in s 2 of the ACL to mean ‘trade or commerce within Australia or between Australia and places outside Australia and includes any business or professional activity (whether or not carried out for a profit)’. [27.12] The case law concerning the phrase ‘trade or commerce’ was considered in Chapter 13 in relation to misleading conduct. It has been noted that the terms ‘trade’ and ‘commerce’ are not terms of art; rather they are words of wide import12 that will apply to conduct in a course of dealings, activities or transactions which by their nature have a trading or commercial character.13 [27.13] The consumer guarantees in ss 54–59 of the ACL will not be applicable to private sales between individuals. These guarantees also do not apply if the supply is by way of auction. The term ‘sale by auction’ is defined in s 2 of the ACL to mean, in relation to the supply of goods by a person, ‘a sale by auction that is conducted by an agent of the person (whether the agent acts in person or by electronic means)’. The need for an agent to be involved will mean that a sale that is completed using the services of an online auction website such as eBay (which does not involve an agency relationship) will not be a ‘sale by auction’ for the purpose of the statutory definition. To fall within the definition, the goods need to be sold upon the fall of the auctioneer’s hammer.

Goods that are not covered [27.14] Due to the interaction of the statutory provisions discussed, not all acquisitions of goods made after 1 January 2011 will be covered by the consumer guarantees provided for in the ACL. The consumer guarantees will not apply where goods are acquired: •

for the purpose of resupply;



to use them up, or transform them, in trade or commerce, in the course of a process of production or manufacture or in the course of repairing or treating other goods or fixtures on land;



from a private seller by way of one-off sale (other than the consumer guarantees as to title, undisturbed possession and undisclosed securities);14

11 ACL, s 266. 12 Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134, 167. 13 Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594, 604. 14 As contained in the ACL, ss 51, 52 and 53 respectively.

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at auction, where the auctioneer is acting as the owner’s agent (other than the consumer guarantees as to title, undisturbed possession and undisclosed securities);15 or



for a business use and the goods cost more than $40,000.

Each of the nine consumer guarantees relating to the supply of goods are separately examined below.

Guarantee as to title—s 51 [27.15]

Australian Consumer Law Section 51(1) (1) If a person (the supplier) supplies goods to a consumer, there is a guarantee that the supplier will have a right to dispose of the property in the goods when that property is to pass to the consumer. [27.16] The guarantee as to title provided for by s 51 of the ACL applies regardless of whether the goods are supplied in trade or commerce. Under this guarantee, the supplier must have the right to dispose of title to the goods when property is to pass to the consumer. Rules relating to when property is to pass are to be found in sale of goods legislation that exists in all Australian jurisdictions.16 For ascertained goods, property passes when the parties intend it to pass.17 In addition to issues of title, s 51(1) will also find application where a supplier may be prevented by law from disposing of property in the goods.18 [27.17] Section 51(1) of the ACL has no application where the supply is by way of hire or lease.19 The section also has no application where the supply is a supply of limited title to goods as provided for by s 51(2) of the ACL. Section 51(2) applies where there is an intention that the supplier of the goods should transfer only such title as the supplier, or another person, may have and this intention appears from the contract or is to be inferred from the circumstances of that contract.

15 As contained in the ACL, ss 51, 52 and 53 respectively. 16 See L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, 2018, section 8.800. 17 For example, Sale of Goods Act 1896 (Qld), s 20. 18 See, for example, Niblett v Confectioners’ Materials Co Ltd [1921] 3 KB 387, where a seller was held not to have a right to sell goods carrying a label the subject of a trade mark held by another. 19 ACL, s 51(3).

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Guarantee as to undisturbed possession—s 52 [27.18] In the same way that a buyer of goods expects to receive good title to the goods, the buyer will also expect the right to freely enjoy the goods, without disturbance from third parties. In this regard, s 52(1) of the ACL provides that if a supplier supplies goods to a consumer (and the supply is not a supply of limited title) there is a guarantee that the consumer has the right to undisturbed possession of the goods. Section 52(1) does not apply to the extent that a consumer’s undisturbed possession of goods may be lawfully disturbed by a person who is entitled to the benefit of any security, charge or encumbrance disclosed to the consumer before the consumer agreed to the supply.20 [27.19] Where the supply is one of limited title,21 such as in a sale by a mortgagee exercising power of sale, there is a guarantee that the following persons will not disturb the consumer’s possession of the goods: (a) the supplier; (b) if the parties to the contract for the supply intend that the supplier should transfer only such title as another person may have—that other person; (c) anyone claiming through or under the supplier or that other person (otherwise than under a security, charge or encumbrance disclosed to the consumer before the consumer agreed to the supply).

The guarantee as to undisturbed possession provided for by s 52 applies regardless of whether the goods are supplied in trade or commerce.

Guarantee as to undisclosed securities—s 53 [27.20]

Australian Consumer Law Section 53(1) (1) If (a) a person (the supplier) supplies goods to a consumer; and (b) the supply is not a supply of limited title; there is a guarantee that:

(c) the goods are free from any security, charge or encumbrance: (i)

that was not disclosed to the consumer, in writing, before the consumer agreed to the supply; or

(ii)

that was not created by or with the express consent of the consumer; and

20 ACL, s 52(3). 21 As that concept is referred to in section 27.17.

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(d) the goods will remain free from such a security, charge or encumbrance until the time when the property in the goods passes to the consumer. [27.21] The guarantee as to undisclosed securities provided for by s 53 of the ACL applies regardless of whether the goods are supplied in trade or commerce. [27.22] Section 53(2) of the ACL provides that a supplier does not fail to comply with this guarantee only because of the existence of a floating charge over the supplier’s assets unless and until the charge becomes fixed and enforceable by the person to whom the charge is given.22 In circumstances where a charge has become fixed and enforceable, a release of the charge would need to be proffered by the supplier of the goods to avoid being in breach of this guarantee. [27.23] Where the supply is a supply of limited title to goods, s 53(3) of the ACL provides that there is a guarantee that all securities, charges or encumbrances known to the supplier, and not known to the consumer, were disclosed to the consumer before the consumer agreed to the supply. Failure to disclose any such interests known to the supplier, will entitle the consumer to a remedy. [27.24] The guarantee as to undisclosed securities does not apply if where the supply is made by way of hire or lease.23

Guarantee as to acceptable quality—s 54 [27.25]

Australian Consumer Law Section 54(1) (1) If a person supplies, in trade or commerce, goods to a consumer; and the supply does not occur by way of sale by auction; there is a guarantee that the goods are of acceptable quality. [27.26]

Australian Consumer Law Section 54(2) Section 54(2) provides that goods are of acceptable quality if they are: (a) fit for all the purposes for which goods of that kind are commonly supplied; and (b) acceptable in appearance and finish; and 22 Section 339 of the Personal Property Securities Act 2009 (Cth) affects the meaning of the references in the ACL, s 53(2) to a floating and fixed charge. 23 ACL, s 53(4).

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(c) free from defects; and (d) safe; and (e) durable; as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods), would regard as acceptable having regard to the matters in subsection (3). (3) The matters for the purposes of subsection (2) are: (a) the nature of the goods; and (b) the price of the goods; and (c) any statements made about the goods on any packaging or label on the goods; and (d) any representation made about the goods by the supplier or manufacturer of the goods; and (e) any other relevant circumstances relating to the supply of the goods. (4) If goods supplied to a consumer are not of acceptable quality; and the only reason or reasons why they are not of acceptable quality were specifically drawn to the consumer’s attention before the consumer agreed to the supply; the goods are taken to be of acceptable quality. (5) If goods are displayed for sale or hire; and the goods would not be of acceptable quality if they were supplied to a consumer; the reason or reasons why they are not of acceptable quality are taken, for the purposes of subsection (4), to have been specifically drawn to a consumer’s attention if those reasons were disclosed on a written notice that was displayed with the goods and that was transparent. (6) Goods do not fail to be of acceptable quality if the consumer to whom they are supplied causes them to become of unacceptable quality, or fails to take reasonable steps to prevent them from becoming of unacceptable quality; or they are damaged by abnormal use. (7) Goods do not fail to be of acceptable quality if the consumer acquiring the goods examines them before the consumer agrees to the supply of the goods; and the examination ought reasonably to have revealed that the goods were not of acceptable quality. [27.27] As can be seen, the guarantee imposed by s 54 of the ACL is that goods supplied, in trade or commerce, to a consumer will be of acceptable quality. Where applicable, the guarantee is imposed upon both suppliers and manufacturers of goods. The guarantee is applicable to both new and second-hand goods although factors such as age, price and condition temper the operation of the guarantee. The guarantee does not apply where goods are sold under by the hammer by way of auction. Goods do not fail to be of acceptable quality where the reasons why they would not otherwise be of acceptable quality were specifically drawn to the consumer’s attention before the consumer agreed to the supply,24 if the consumer causes them

24 ACL, s 54(4), (5).

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to be of unacceptable quality or damages the goods by abnormal use25 or where the consumer examined the goods prior to the supply being made and the examination ought reasonably to have revealed that the goods were not of acceptable quality.26 [27.28] In determining if goods are of acceptable quality, the fault or otherwise of the supplier is irrelevant. The requirements imposed by s 54(2) will be construed in light of the matters listed in s 54(3). For example, what a reasonable consumer would regard as being of acceptable quality is likely to vary with the nature of goods (new or second-hand) and the price paid for those goods (expensive or relatively cheap). [27.29] The use of term ‘acceptable quality’ in the ACL may be contrasted with the term ‘merchantable quality’ being the requirement under s 66 of the former Trade Practices Act 1974 (Cth). It is generally accepted that the requirement of acceptable quality is a more stringent requirement than that of merchantable quality. The greater stringency is a reflection of the need to protect the reasonable expectations of consumers rather than simply having regard to issues of merchantability.

Guarantee as to fitness for any disclosed purpose—s 55 [27.30] Section 55(1) of the ACL provides that if a person (the supplier) supplies, in trade or commerce, goods to a consumer; and the supply does not occur by way of sale by auction; there is a guarantee that the goods are reasonably fit for any disclosed purpose, and for any purpose for which the supplier represents that they are reasonably fit. [27.31] An example of the operation of s 55 of the ACL, in relation to a purpose specified by the supplier, is provided in Consumer Guarantees, A Guide for Businesses and Legal Practitioners (‘Consumer Guarantees Guide’): A diver buys a watch which the supplier says will be suitable for diving. A couple of weeks later, the diver goes for her first dive wearing the new watch, only to surface and see the dial filled with water. She would have the right to a remedy from the supplier.27

[27.32] The operation of this statutory provision is such that if the particular purpose for which the goods are acquired is disclosed to the supplier, the goods must be reasonably fit for that disclosed purpose. The requirement of being ‘reasonably fit’ is usually regarded as requiring a standard of quality higher than that imposed by the guarantee of ‘acceptable quality’ although not as high as a requirement of absolute fitness for purpose.

25 ACL, s 54(6). 26 ACL, s 54(7). 27 Commonwealth of Australia, Australian Consumer Law: Consumer Guarantees, A Guide for Businesses and Legal Practitioners, available at http://consumerlaw-staging.tspace.gov.au/files/2016/05/0553FT_ACL-guides_ Guarantees_web.pdf, 15.

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[27.33] This section will find application where goods are acquired for a special purpose that is disclosed or where goods may have a use in addition their common purpose provided this is disclosed. Disclosure is not required where goods are acquired for their common purpose, rather than a special purpose.28 [27.34] Provided disclosure is made of the particular purpose for which the goods are acquired, it is irrelevant whether the particular disclosed purpose is a purpose for which the goods are commonly supplied.29 Under s 55 (2), a disclosed purpose is a particular purpose for which the goods are being acquired.

Australian Consumer Law Section 55(2) (2) A disclosed purpose is a particular purpose (whether or not that purpose is a purpose for which the goods are commonly supplied) for which the goods are being acquired by the consumer and that (a) the consumer makes known, expressly or by implication, to: (i)

the supplier; or

(ii)

a person by whom any prior negotiations or arrangements in relation to the acquisition of the goods were conducted or made; or

(b) the consumer makes known to the manufacturer of the goods either directly or through the supplier or the person referred to in paragraph (a)(ii). [27.35] An example of the operation of the section, in relation to a purpose specified by the consumer, is provided in the Consumer Guarantees Guide: A consumer tells a car dealer that he wants a car capable of towing his boat. The dealer sells him a car that the dealer says will do the job. The car’s normal purpose is to transport people but, as the consumer has told the dealer that he wants to use the car to tow a boat, then the car must be able to do so.30

[27.36] Section 55 has no application if the circumstances demonstrate that consumer did not rely on, or that it was unreasonable for the consumer to rely on, the skill of judgment of the supplier, the intermediary or the manufacturer as the case may be.31

28 For example, the common reason for the acquisition of a car is well known: Frank v Grosvenor Motor Auctions Pty Ltd [1960] VR 607. 29 ACL, s 55(2). 30 Commonwealth of Australia, Australian Consumer Law: Consumer Guarantees, A Guide for Businesses and Legal Practitioners, available at http://consumerlaw-staging.tspace.gov.au/files/2016/05/0553FT_ACL-guides_ Guarantees_web.pdf, 15. 31 ACL, s 55(3).

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Guarantee relating to supply of goods by description—s 56 [27.37] Section 56(1) of the ACL provides that if a person supplies, in trade or commerce, goods by description to a consumer; and the supply does not occur by way of sale by auction; there is a guarantee that the goods correspond with the description. [27.38] Section 56 will find application where a consumer acquires goods placing reliance upon the contractual description of the goods, for example in a TV commercial or a catalogue. If the goods do not correspond with the contractual description, so if, for example, the goods are of a different size or colour, the consumer will be entitled to a remedy. Where applicable, the guarantee is imposed upon both suppliers and manufacturers of goods. It is not possible for a supplier or manufacturer (as the case may be) to argue that a consumer inspected the goods before purchase and that the inspection should have revealed any errors in the description of the goods. In this regard, s 56(2) of the ACL expressly provides that a supply of goods is not prevented from being a supply by description only because, having been exposed for sale or hire, they are selected by the consumer. However, the section will not be applicable where a consumer acquires specific goods after inspection of the goods in circumstances where the description of the goods is not a factor relied upon by the consumer in making the acquisition. [27.39] Where goods are supplied both by description and by reference to a sample or demonstration model, the consumer guarantees provided for by both s 56 and s 57 will apply.32 Section 57 is considered next.

Guarantee relating to supply of goods by way of sample or demonstration model—s 57 [27.40]

Australian Consumer Law Section 57(1) (1) If: (a) a person supplies, in trade or commerce, goods to a consumer by reference to a sample or demonstration model; and (b) the supply does not occur by way of sale by auction; there is a guarantee that: (c) the goods correspond with the sample or demonstration model in quality, state or condition; and

32 ACL, s 56(3).

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(d) if the goods are supplied by reference to a sample—the consumer will have a reasonable opportunity to compare the goods with the sample; and (e) the goods are free from any defect that: (i)

would not be apparent on reasonable examination of the sample or demonstration model; and

(ii)

would cause the goods not to be of acceptable quality.

[27.41] An example of the operation of s 57 is provided in the Consumer Guarantees Guide: A sample of fabric is used to sell a couch but the couch delivered to the consumer is a different colour from the sample. The consumer has a right to a remedy.33

[27.42] As also noted in the Consumer Guarantees Guide, provided the differences are substantial; this guarantee will apply regardless of whether the differences are unavoidable. For example: If shading, piling or colouring in an installed woollen carpet is substantially different from the sample used to sell it, the consumer may be entitled to a remedy.34

[27.43] Where goods are supplied both by reference to a sample or demonstration model as well as by description, the consumer guarantees provided for by both s 57 and s 56 will apply.35

Guarantee as to repairs and spare parts—s 58 [27.44] Section 58(1) of the ACL provides that if a person supplies, in trade or commerce, goods to a consumer; and the supply does not occur by way of sale by auction; there is a guarantee that the manufacturer of the goods will take reasonable action to ensure that facilities for the repair of the goods, and parts for the goods, are reasonably available for a reasonable period after the goods are supplied. This guarantee, imposed on a manufacturer (not a supplier), goes beyond any obligation imposed by the common law. As mentioned at [27.07], the definition of manufacturer in s 7 of the ACL includes a person who imports goods into Australia; when, at the time the goods are imported, the manufacturer of the goods does not have a place of business in Australia. [27.45] An example of the operation of s 58 of the ACL is provided in the Consumer Guarantees Guide: A consumer drops his digital camera, which he bought new a year ago for $2000. He contacts the importer, as the manufacturer does not have an office in Australia, and asks where he can

33 Commonwealth of Australia, Australian Consumer Law: Consumer Guarantees, A Guide for Businesses and Legal Practitioners, available at http://consumerlaw-staging.tspace.gov.au/files/2016/05/0553FT_ACL-guides_ Guarantees_web.pdf, 16. 34 Ibid. The example given draws its inspiration from Cavalier Marketing (Australia) Pty Ltd v Rasell (1990) 96 ALR 375. 35 ACL, s 57(2).

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get it repaired. The importer advises they no longer supply parts for that model of camera. A reasonable consumer would expect a one-year-old camera valued at $2000 to be repairable. The manufacturer has not taken reasonable steps to provide spare parts or facilities, so the importer must provide a remedy.36

[27.46] The determination of what may constitute a ‘reasonable period’ for the purposes of s 58 of the ACL will be dependent on objective factors such as the price paid for the goods, the nature of the goods and the usual life of goods of like nature. [27.47] This guarantee will not apply where the manufacturer takes reasonable action to ensure the consumer would be given written notice before the supply was made that facilities for the repair of the goods would not be available or would not be available after a specified time or parts for the goods would not be available or would not be available after a specified period.37

Guarantee as to express warranties—s 59 [27.48] Section 59(1) of the ACL provides that if a person supplies, in trade or commerce, goods to a consumer and the supply does not occur by way of auction, there is a guarantee that the manufacturer of the goods will comply with any express warranty given or made by the manufacture in relation to the goods. Similarly, s 59(2) of the ACL provides that, in like circumstances, the supplier will comply with any express warranty given or made by the supplier in relation to the goods. [27.49] An ‘express warranty’ is defined in s 2 of the ACL.

Australian Consumer Law Section 2 ‘Express warranty’, in relation to goods, means an undertaking, assertion or representation: (a) that relates to: (i)

the quality, state, condition, performance or characteristics of the goods; or

(ii)

the provision of services that are or may at any time be required for the goods; or

(iii)

the supply of parts that are or may at any time be required for the goods; or

(iv)

the future availability of identical goods, or of goods constituting or forming part of a set of which the goods, in relation to which the undertaking, assertion or representation is given or made, form part; and

36 Commonwealth of Australia, Australian Consumer Law: Consumer Guarantees, A Guide for Businesses and Legal Practitioners, available at http://consumerlaw-staging.tspace.gov.au/files/2016/05/0553FT_ACL-guides_ Guarantees_web.pdf, 17. 37 ACL, s 58(2).

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(b) that is given or made in connection with the supply of the goods, or in connection with the promotion by any means of the supply or use of the goods; and (c) the natural tendency of which is to induce person to acquire the goods. [27.50] Given the width of this definition, an express warranty is deemed to arise where a consumer is aware of a relevant promotional undertaking, assertion or representation made by the manufacturer or the supplier (as the case may be) at or before the time of acquisition of the goods which undertaking, assertion or representation would, objectively, induce the consumer to acquire the goods. As noted by Corones, s 59 of the ACL represents a fundamental change to the common law position in that it elevates pre-contractual representations to the status of consumer guarantees, thereby circumventing difficult common law problems of proof and rendering otiose the need to rely on misrepresentation or collateral contract in order for the consumer to have a potential remedy against a manufacturer.38 [27.51] This guarantee enables a consumer to enforce a warranty given by either a manufacture or a supplier about the attributes of goods such as their quality, performance or durability. An example of the operation of s 59 of the ACL is provided in the Consumer Guarantees Guide: A supplier tells a consumer that a bed will remain suitable for its purpose for ten years. This is a statement about how long the bed will be able to be used for and if the bed does not meet this standard (i.e. only lasts for six years), the consumer will be entitled to a remedy.39

[27.52] The s 59 guarantee also encapsulates warranties against defects. This means that where a warranty against defects is provided and the goods do not comply with a consumer guarantee, the consumer may either pursue their rights under the warranty or the statutory consumer guarantee. The term ‘warranty against defects’ is defined in s 102(3) of the ACL.

Australian Consumer Law Section 102(3) A warranty against defects is a representation communicated to a consumer in connection with the supply of goods or services, at or about the time of supply, to the effect that a person will (unconditionally or on specified conditions): (a) repair or replace the goods or part of them; or (b) provide again or rectify the services or part of them; or (c) wholly or partly recompense the consumer;

38 SG Corones, The Australian Consumer Law, 3rd edn, Thomson Reuters, Sydney, 2016, 431. 39 Commonwealth of Australia, Australian Consumer Law: Consumer Guarantees, A Guide for Businesses and Legal Practitioners, available at http://consumerlaw-staging.tspace.gov.au/files/2016/05/0553FT_ACL-guides_ Guarantees_web.pdf, 30.

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if the goods or services or part of them are defective, and includes any document by which such a representation is evidenced. [27.53] The form and contents of a warranty against defects is the subject of statutory provision. Section 102(1) of the ACL provides that the regulations may prescribe requirements relating to the form and content of warranties against defects. In this regard, reg 90 of the Competition and Consumer Regulations 2010 (Cth) provides that:

Competition and Consumer Regulations 2010 (Cth) Regulation 90 (1) For subsection 102 (1)  of the Australian Consumer Law, the following requirements are prescribed: (a) a warranty against defects must be in a document that is transparent; (b) a warranty against defects must concisely state: (i)

what the person who gives the warranty must do so that the warranty may be honoured; and

(ii)

what the consumer must do to entitle the consumer to claim the warranty;

(c) a warranty against defects must include the text mentioned in subregulation (2); (d) a warranty against defects must prominently state the following information about the person who gives the warranty; (i)

the person’s name;

(ii)

the person’s business address;

(iii)

the person’s telephone number;

(iv)

the person’s email address (if any);

(e) a warranty against defects must state the period or periods within which a defect in the goods or services to which the warranty relates must appear if the consumer is to be entitled to claim the warranty; (f) a warranty against defects must set out the procedure for the consumer to claim the warranty including the address to which a claim may be sent; (g) a warranty against defects must state who will bear the expense of claiming the warranty and if the expense is to be borne by the person who gives the warranty—how the consumer can claim expenses incurred in making the claim; (h) a warranty against defects must state that the benefits to the consumer given by the warranty are in addition to other rights and remedies of the consumer under a law in relation to the goods or services to which the warranty relates. (2) For paragraph (1) (c), the text is ‘Our goods come with guarantees that cannot be excluded under the Australian Consumer Law. You are entitled to a replacement or refund for a major failure and compensation for any other reasonably foreseeable loss or damage. You are also

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entitled to have the goods repaired or replaced if the goods fail to be of acceptable quality and the failure does not amount to a major failure’.

Consumer guarantees relating to the supply of services [27.54] In addition to the nine consumer guarantees relating to the supply of goods, there are three consumer guarantees relating to the supply of services. These consumer guarantees are to be found in ss 60–62 inclusive of the ACL. [27.55] The consumer guarantees in the ACL relating to the supply of services find application where a person supplies services to a consumer and the supply is in trade or commerce.

Supply [27.56] The meaning of ‘supply’ in relation to services means to ‘provide, grant or confer services’.40 The meaning of ‘trade or commerce’ was separately considered at [27.11–13] above. The meaning of ‘services’ and ‘consumer’ are considered below.

Services [27.57] Section 2 of the ACL provides an inclusive definition of the term ‘services’. For this purpose, services includes any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce. Some examples of services provided in the Consumer Guarantees Guide include: •

dry-cleaning;



installing or repairing consumer goods;



providing swimming lessons;



lawyers’ services.41

[27.58] The reference in the statutory definition to rights in relation to, and interests in, real property means that a sale of land will be treated as a supply of a service under the ACL provided the sale occurs in trade or commerce. Other than a ‘linked credit contract’, the ACL does not apply to the supply or possible supply of financial services42 which are the subject of separate regulation under the Australian Securities and Investments Commission Act 2001 (Cth) and the Corporations Act 2001 (Cth).

40 ACL, s 2. 41 Commonwealth of Australia, Australian Consumer Law: Consumer Guarantees, A Guide for Businesses and Legal Practitioners, available at http://consumerlaw-staging.tspace.gov.au/files/2016/05/0553FT_ACL-guides_ Guarantees_web.pdf, 39. 42 Competition and Consumer Act 2010 (Cth) s 131A.

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Consumer [27.59] In relation to the acquisition of services, a person is taken to have acquired particular services as a consumer if, and only if: •

the amount paid for the services did not exceed $40,000; or



if the amount paid for the services exceeds $40,000, if the services were of a kind ordinarily acquired for personal, domestic or household use or consumption.

It should be noted that a broad ranging review of the ACL was initiated in mid-2015 to assess the effectiveness of, and protections afforded by, the ACL and to make any recommendations. On 19 April 2017 the final report of the Australian Consumer Law Review, conducted by Consumer Affairs Australia and New Zealand (‘CAANZ’), was publicly released. One of the 22 changes proposed by CAANZ to strengthen and clarify the operation of the ACL was to increase the monetary threshold in the meaning of consumer from $40,000 to $100,000. If this recommendation is implemented, it is likely to significantly expand the range of transactions and parties afforded protection by the consumer guarantees

Consumer guarantees that are not covered [27.60] Due to the interaction of the statutory provisions discussed together with s 63 of the ACL, not all acquisitions of services made after 1 January 2011 will be covered by the consumer guarantees. The consumer guarantees will not apply to the following: •

services costing more than $40,000 provided for a commercial use;



a contract for or in relation to the transportation or storage of goods as part of a consumer’s business, trade, profession or occupation;43



contracts of insurance;44 or



other than a ‘linked credit contract’, the supply or possible supply of financial services.45

Guarantee as to due care and skill—s 60 [27.61] Section 60 of the ACL provides that if a person supplies, in trade or commerce, services to a consumer, there is a guarantee the services will be rendered with due care and skill. While ‘due care and skill’ is not defined in the ACL, to comply with s 60, a supplier must demonstrate an acceptable level of skill or technical knowledge and must ensure that all necessary care is taken when providing the service to avoid loss or damage.46 It is axiomatic that services carried out in an unskilful or careless manner will infringe the consumer guarantee.

43 ACL, s 63(a). 44 ACL, s 63(a). 45 Competition and Consumer Act 2010 (Cth), s 131A. 46 Explanatory Memorandum accompanying the Trade Practices Amendment (Australian Consumer Law) Bill (No 2), 2010, [7.59].

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Guarantees as to fitness for a particular purpose or result desired—s 61 [27.62] Section 61(1) of the ACL provides that if a supplier supplies services to a consumer, in trade or commerce, and the consumer, expressly or by implication, makes known to the supplier any particular purpose for which the services are being acquired by the consumer, there is a guarantee that the services, and any product resulting from the services, will be reasonably fit for that purpose. [27.63] An example of the operation of s 61(1) of the ACL is provided in the Consumer Guarantees Guide: A consumer asks a carpenter to build a carport to cover his 4WD vehicle, which is 2 metres wide. If the carpenter builds a 1.8 wide carport that does not cover the car, the carpenter will not have met the ‘fit for purpose’ guarantee.47

[27.64] Section 61(2) of the ACL provides that if a supplier supplies services to a consumer, in trade or commerce, and the consumer, expressly or by implication, makes known to the supplier or a person by whom any prior negotiations or arrangements in relation to the acquisition of the services were conducted or made, the result that the consumer wishes to achieve, there is a guarantee that the services, and any product resulting from the services, will be of such a nature, and quality, state or condition, that they might reasonably be expected to achieve that result. [27.65] An example of the operation of s 61(2) of the ACL is provided in the Consumer Guarantees Guide: A consumer asks a handyman to fix double gates at the entrance to his driveway. The gates are poorly aligned and make a loud metal scraping noise when opened. The consumer tells the handyman that he wants to stop the noise. The handyman realigns the gates but in less than two days the problem returns. The handyman will have to fix the problem free of charge, as the service did not achieve the desired result.48

[27.66] As noted by Corones, suppliers of services must be careful not to lead consumers to believe a particular result is achievable when they ought to know that such a result is unlikely.49 [27.67] The guarantee provided for by s 61 of the ACL does not apply if the circumstances show that the consumer did not rely on, or that it was unreasonable for the consumer to rely on, the skill or judgment of the supplier.50 Section 61 of the ACL also does not apply to a supply of 47 Commonwealth of Australia, Australian Consumer Law: Consumer Guarantees, A Guide for Businesses and Legal Practitioners, available at http://consumerlaw-staging.tspace.gov.au/files/2016/05/0553FT_ACL-guides_ Guarantees_web.pdf, 25. 48 Ibid. 49 SG Corones, The Australian Consumer Law, 3rd edn, Thomson Reuters, Sydney, 2016, 449. 50 ACL, s 61(3).

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services of a professional nature by a qualified architect or engineer.51 However, architects and engineers must still render their services with due care and skill as required by s 60 of the ACL and within a reasonable time as required by s 62 of the ACL.

Guarantee as to reasonable time for supply—s 62 [27.68] Section 62 of the ACL provides that if a supplier supplies services to a consumer, in trade or commerce, and the time within which the services are to be supplied is not fixed by the supply contract or is not to be determined in a manner agreed to by the consumer and the supplier, there is a guarantee that the services will be supplied within a reasonable time. In determining what a reasonable time is, an objective approach will be adopted whereby backgrounds facts such as the nature of the services and the tasks usually involved in performing such services will be relevant.

REMEDIES IN RELATION TO GOODS [27.69] Where a consumer guarantee is not complied with, the consumer is entitled to a remedy. The remedies relating to guarantees are to be found in Ch 5, Pt 5-4 of the ACL. The remedy will be available against the supplier of the goods52 and, in certain cases, against the manufacturer of goods.53 The nature of the remedy depends upon whether the problem with the goods is minor or major. Where the problem is minor, the supplier or manufacturer (as the case may be) can choose between providing a repair or offering a replacement or refund to the consumer. Where the problem is major, the consumer may reject the goods and seek either a refund or a replacement. Alternatively, where the problem is major, the consumer may elect to retain the goods and seek compensation for the drop in the value of the goods. Regardless of whether the problem is minor or major, there is also a right to recover damages for consequential loss.54

A major failure [27.70] Section 260 of the ACL specifies the circumstances in which a failure to comply with a consumer guarantee in relation to goods will be a major failure. A major failure will occur in the following circumstances.

51 ACL, s 61(4). 52 ACL, Chap 5, Pt 5-4, Div 1, Subdiv A (ss 259–266). 53 ACL, Chap 5, Pt 5-4, Div 2 (ss 271–273). 54 ACL, s 259(6).

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Australian Consumer Law Section 260 (a) the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; or (b) the goods depart in a significant respect from their description (where supplied by description) or from a sample or demonstration model (where supplied by reference to a sample or demonstration model); or (c) the goods are substantially unfit for a normal purpose for such goods and they cannot, (d) easily and within a reasonable time, be remedied to make them fit for such a purpose; or (e) the goods are unfit for a purpose disclosed to the supplier or the person who conducted negotiations preceding the acquisition of the goods and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or (f) the goods are not of acceptable quality because they are unsafe.

Remedies against suppliers for major failures [27.71] Where the problem is major, the consumer may reject the goods and seek either a refund or a replacement. Alternatively, where the problem is major, the consumer may elect to retain the goods and seek compensation for the drop in the value of the goods.

Rejection of goods [27.72] Section 259(3)(a) of the ACL requires a consumer to notify the supplier that the goods are rejected and the ground or grounds for the rejection. The rejected goods must be returned to the supplier unless the goods have already been returned to, or retrieved by, the supplier or the goods cannot be returned, removed or transported without significant cost to the consumer due to the nature of the failure to comply with the consumer guarantee to which the rejection relates or the size or height, or method of attachment, of the goods;55 in which case the supplier must, within a reasonable time, collect the goods at the supplier’s expense.56 [27.73] A consumer is not entitled to reject goods if: •

the rejection period for the goods has ended;57



the goods have been lost, destroyed or disposed of by the consumer;



the goods were damaged after being delivered to the consumer for reasons not related to their state or condition at the time of supply; or

55 ACL, s 263(2). 56 ACL, s 263(3). 57 The rejection period is provided for by the ACL, s 262(2).

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the goods have been attached to, or incorporated in, any real or personal property and they cannot be detached or isolated without damaging them.58

Seek a refund or a replacement [27.74] After rejecting the goods, the consumer has a choice to either seek a full refund59 or to have the goods replaced with goods of the same type, and of similar value, if such goods are reasonably available to the supplier.60 Where the consumer elects to seek a refund, the supplier cannot satisfy this requirement by replacing the goods.61 Where the consumer elects to receive replacement goods, the replacement goods attract the benefit of the consumer guarantees that applied to the original goods.62

Compensation for the drop in value of the goods [27.75] Where the problem is major, rather than rejecting the goods, the consumer may elect to retain the goods and seek compensation for any reduction in the value of the goods below the price paid or payable by the consumer for the goods.63

Linked service contracts [27.76] In certain circumstances, a supply of goods is linked to a supply of services. For example, the acquisition of a mobile phone may be linked to a contract for the supply of network services. Where a consumer validly notifies the supplier of goods that the consumer rejects the goods (such as the mobile phone) and the supplier is required to give a refund as explained above, s 265 of the ACL provides that the consumer may also terminate the contract for the supply of services connected with the rejected goods (such as the contract for the supply of network services). Where a linked service contract is validly terminated, the consumer is entitled to a refund of any money or equivalent paid for the services to the extent that the consumer has not already consumed the services at the time the termination takes effect.64

Remedies against suppliers for minor failures [27.77] If the failure to comply with the consumer guarantee can be remedied and is not a major failure, the consumer is not entitled to reject the goods and demand a refund but is entitled to

58 ACL, s 262(1). 59 No provision is made for the supplier to claim any right of set off notwithstanding any diminution in the value of the rejected goods. In relation to a substantially similar provision in New Zealand, a consumer was held to be entitled to a full refund where a car was rejected after being used for over a year: Stephens v Chevron Motor Court Ltd (1996) 5 NZBLC 104,024. 60 ACL, s 263(4). 61 ACL, s 263(5). 62 ACL, s 264. 63 ACL, s 259(3)(b). 64 ACL, s 265(3). The time that the termination takes effect is provided for by the ACL, s 265(2).

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request that the supplier remedy the failure within a reasonable time.65 In these circumstances of a minor failure, the supplier can choose between providing a repair (or fixing the title to the goods where that is the problem) or offering a replacement or refund to the consumer. [27.78] If the supplier refuses or fails to comply with a requirement to remedy the failure, or fails to comply with the requirement within a reasonable time, the consumer may: •

otherwise have the failure remedied and recover all reasonable costs incurred by the consumer in having the failure so remedied; or



notify the supplier that the consumer rejects the goods and of the ground/s for the rejection.66

[27.79] Where, in the circumstances provided for above, the consumer chooses to have the failure remedied by taking the goods elsewhere for repair, there is no need to obtain consent from the original supplier or to get quotes. However, the original supplier’s liability will be limited to the reasonable costs of repair which will be informed by the usual prices charged by repairers of such items together with associated costs necessarily incurred.

Recovery of damages from the supplier for consequential loss [27.80] In addition to the remedies identified above, the consumer may also, by action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such failure.67 This right to recover damages is equally applicable to both major and minor failures.68 Damages will not be recoverable if the failure to comply with the guarantee occurred only because of a cause independent of human control that occurred after the goods left the control of the supplier.69 [27.81] The requirement for loss or damage to be reasonably foreseeable (the tortious measure of damages) places a limitation on the claims that may be made. Useful examples of the operation of this requirement are provided in the Consumer Guarantees Guide: A consumer recently bought a car, which leaked oil on her driveway. A neighbour’s dog ran through the oil and into the car owner’s house, dirtying the carpet. The car dealer would not have to pay for carpet cleaning, as the dealer could not predict that a dog would run through the oil and into the house—the cost was not reasonably foreseeable. A consumer’s washing machine breaks down due to fault. As a result, there is water damage to carpet in part of the house. The supplier will be responsible for the cost of replacing the

65 ACL, s 259(2). 66 ACL, s 259(2)(b). 67 ACL, s 259(4). 68 ACL, s 259(6). 69 ACL, s 259(5).

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carpet damaged by flooding from the faulty washing machine as it is reasonably foreseeable that water damage to flooring would result from a fault in a washing machine which causes it to leak.70

[27.82] By analogy to case law interpreting the operation of the substantially similar New Zealand statutory provision,71 in assessing damages due to the failure of a consumer guarantee, damages will not automatically be awarded for the full amount of the reasonably foreseeable loss where there is more than one cause of the loss.72

Remedies against manufacturers of goods [27.83] As noted previously, a remedy may also be available against the manufacturer of goods where consumer guarantees are not complied with.73 Section 271 of the ACL provides that damages may be sought from a manufacturer of goods in four instances. [27.84] First, if the consumer guarantee as to acceptable quality provided for by s 54 of the ACL is not complied with; damages may be recovered against the manufacturer by an affected person.74 However, a damages claim will not be available if the guarantee under section 54 is not complied with only because of the following circumstances.

Australian Consumer Law Section 271(2) (a) an act, default or omission of, or any representation made by, any person other than the manufacturer or an employee or agent of the manufacturer; or (b) a cause independent of human control that occurred after the goods left the control of the manufacturer; or (c) the fact that the price charged by the supplier was higher than the manufacturer’s recommended retail price, or the average retail price, for the goods. [27.85] Second, if goods are supplied, in trade or commerce, by description to a consumer and the description was applied to the goods by the manufacturer of the goods or with the manufacturer’s express or implied consent and the guarantee under s 56 of the ACL (relating

70 Commonwealth of Australia, Australian Consumer Law: Consumer Guarantees, A Guide for Businesses and Legal Practitioners, available at http://consumerlaw-staging.tspace.gov.au/files/2016/05/0553FT_ACL-guides_ Guarantees_web.pdf, 29. 71 Consumer Guarantees Act 1993 (NZ) s 18(4). 72 Contact Energy Ltd v Jones [2009] 2 NZLR 830 at 859–860. 73 ACL, Chap 5, Pt 5-4, Div 2 (ss 271–273). Different remedies are provided for under the ACL, Pt 3-5 Div 1 in circumstances where manufacturers are held liable for goods with safety defects. 74 ACL, s 271(1).

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to the supply of goods by description) is not complied with, damages may be recovered against the manufacturer by an affected person.75 However, a damages claim will not be available if the guarantee under s 56 of the ACL is not complied with only because of the following circumstances.

Australian Consumer Law Section 271(4) (a) an act, default or omission of any person other than the manufacturer or an employee or agent of the manufacturer; or (b) a cause independent of human control that occurred after the goods left the control of the manufacturer. [27.86] Third and fourth, if the consumer guarantee under s 58 (as to repairs and spare parts) or s 59(1) (as to express warranties) applies to a supply of goods to a consumer; and the guarantee is not complied with; damages may be recovered against the manufacturer by an affected person.76 [27.87] In any of these four circumstances, an action for damages against a manufacturer will be available whether or not the goods are in their original packaging.77 The time limit for actions against manufacturers of goods is within three years after the day on which the affected person first became aware, or ought reasonably to have become aware, that the guarantee to which the action relates has not been complied with.78 [27.88] The amount of damages recoverable from a manufacturer of goods is prescribed by the legislation. Section 272 of the ACL provides that damages may be recovered for: (a) any reduction in the value of the goods, resulting from the failure to comply with the guarantee to which the action relates, below the lower of the price paid by the consumer for the goods or the average retail price of the good at the time of supply; and (b) any loss or damage suffered by the affected person because of the failure to comply with the guarantee if it was reasonably foreseeable that the affected person would suffer such loss or damage as a result of such a failure (which is deemed to include the cost of inspecting and returning the goods to the manufacturer).

[27.89] Finally, the operation of s 271(6) of the ACL deserves express mention. Section 271(6) provides that if an affected person in relation to goods has, in accordance with an express warranty given or made by the manufacturer of the goods, required the manufacturer to remedy

75 ACL, s 271(3). 76 ACL, s 271(5). 77 ACL, s 271(7). 78 ACL, s 273.

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699

a failure to comply with one or more of the four consumer guarantees provided for by s 54, 56, 58 or 59 (1) of the ACL (as referred to above) by repairing the goods; or by replacing the goods with goods of an identical type; then the affected person is not entitled to commence an action to recover damages unless the manufacturer has refused or failed to remedy the failure, or has failed to remedy the failure within a reasonable time. Given that a manufacturer of goods would usually prefer to repair or replace defective goods, rather than face an action for damages, s 271(6) of the ACL may be seen to offer an incentive for manufacturers to provide express warranties in relation to their goods.

Manufacturers’ liability to indemnify suppliers of goods [27.90] As explained in [27.69] (and consistent with an ethos of consumer protection) a consumer may elect to pursue a remedy, where applicable, against either the supplier or the manufacturer of goods. Should a consumer elect to proceed against a supplier, there will be instances where the supplier is entitled to be indemnified by the manufacture of the goods as a reflection of the manufacturer’s true culpability. The relevant provision is s 274 of the ACL. Section 274 (1)  provides that a manufacturer of goods is liable to indemnify a supplier who supplies the goods to a consumer if the supplier is liable to pay damages under s 259(4) to the consumer for loss or damage suffered by the consumer; and the manufacturer is or would be liable under s 271 to pay damages to the consumer for the same loss or damage. [27.91] In addition, s 274(2) of the ACL provides that a manufacturer of goods is liable to indemnify a supplier for costs incurred by the supplier, including replacing or repairing goods, due to the manufacturer’s failure to comply with (i) the guarantee under s 54 of acceptable quality; or (ii) the guarantee under s 55 in relation to fitness for a purpose that was disclosed to the manufacturer; or (iii) the guarantee under s 56 in relation to a description that was applied to the goods by or on behalf of the manufacturer of the goods, or with the express or implied consent of the manufacturer. [27.92] The time limit for a supplier to seek an indemnity from a manufacturer is within three years from the earlier of the date that the supplier discharged the liability of the supplier to the consumer or the date the consumer took legal action against the supplier.79

Remedies in relation to services [27.93] Where a consumer guarantee in relation to services is not complied with, the consumer is entitled to a remedy. The remedy will be available against the supplier of the services.80 The nature of the remedy depends upon whether the problem with the services is minor or major.

79 ACL, s 274(4). 80 ACL, Chap 5, Pt 5-4, Div 1, Subdiv B (ss 267–270).

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700 PART 8 CONSUMER PROTECTION

Where the problem is minor, the supplier can choose between providing a repair or offering a refund to the consumer. Where the problem is major, the consumer may terminate the contract for the supply of the services and seek a refund. Alternatively, where the problem is major, the consumer may elect to retain the services and recover compensation for any reduction in the value of the services below the price paid or payable by the consumer for the services. Regardless of whether the problem is minor or major, there is also a right to recover damages for consequential loss.81

A major failure [27.94] Section 268 of the ACL specifies the circumstances in which a failure to comply with a consumer guarantee in relation to services will be a major failure.

Australian Consumer Law Section 268 (a) the services would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; or (b) the services are substantially unfit for a normal purpose for such services and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or (c) both of the following apply: (i)

the services, and any product resulting from the services, are unfit for a particular purpose for which the services were acquired by the consumer that was made known to the supplier;

(ii)

the services, and any of those products, cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or

(d) both of the following apply: (i)

the services, and any product resulting from the services, are not of such a nature, or quality, state or condition, that they might reasonably be expected to achieve a result desired by the consumer that was made known to the supplier;

(ii)

the services, and any of those products, cannot, easily and within a reasonable time, be remedied to achieve such a result; or

the supply of the services creates an unsafe situation.

Remedies for major failures [27.95] If the failure to comply with the guarantee cannot be remedied or is a major failure, the consumer may terminate the contract for the supply of services and seek a refund. Alternatively,

81 ACL, s 267(5).

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CHAPTER 27 CONSUMER GUARANTEES

701

where the problem is major, the consumer may elect to retain the services and recover compensation for any reduction in the value of the services below the price paid or payable by the consumer for the services.82 [27.96] If the consumer elects to terminate a contract for the supply of services, the termination takes effect at the time the termination is made known to the supplier of the services or, if it is not reasonably practicable for the consumer to communicate with the supplier, at the time the consumer indicates by reasonable means in the circumstances, the intention to terminate the contract.83 Following termination of the contract, the consumer is entitled to a refund of any money paid or consideration provided for the services to the extent that the consumer has not already consumed the services at the time that the termination of the contract is effective.84

Linked goods contracts [27.97] As noted at [27.76], in certain circumstances, a supply of services is linked to a supply of goods. Where a consumer validly terminates a contract for the supply of services, s 270 of the ACL provides that the consumer is taken to have also rejected goods that were supplied, in trade or commerce, in connection with the contract for the supply of the services. The rejection of the goods is taken to take effect at the time the termination of the contract for the supply of services takes effect.85 In these circumstances, the consumer is entitled to a refund of any money paid or consideration provided for the goods.86 Usually, to obtain a refund, the consumer must return the goods to the supplier of the goods.87

Remedies for minor failures [27.98] If the failure to comply with the consumer guarantee can be remedied and is not a major failure, the consumer is not entitled to terminate the contract for the supply of the services and demand an immediate refund but is entitled to request that the supplier remedy the failure without charge and within a reasonable time.88 What will constitute reasonable time will vary with the nature of the services that the supplier agreed to provide. [27.99] If the supplier refuses or fails to comply with a requirement to remedy the failure, or fails to comply with the requirement within a reasonable time, the consumer may: •

otherwise have the failure remedied and recover all reasonable costs incurred by the consumer in having the failure so remedied; or

82 ACL, s 267(3). 83 ACL, s 269(2). 84 ACL, s 269(3). 85 ACL, s 270(1)(c). 86 ACL, s 270(1)(e). 87 Exception to this rule are provided for in the ACL, s 270(1)(d). 88 ACL, s 267(2)(a).

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702 PART 8 CONSUMER PROTECTION



terminate the contract for the supply of the services89 and obtain a refund of any money paid or consideration provided for the services to the extent that the consumer has not already consumed the services at the time that the termination of the contract is effective.90

Damages for consequential loss [27.100] In addition to the remedies identified to date, the consumer may also, by action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such failure.91 The object of this provision is to place the consumer in the position they would have enjoyed if the relevant consumer guarantee had been complied with. This right to recover damages is equally applicable to both major and minor failures.92 The legislation imposes limitations on the consumer’s right to take action against a supplier where the failure to comply with the guarantee occurred only because of an act, default or omission of, or a representation made by, any person other than the supplier, or an agent or employee of the supplier; or a cause independent of human control that occurred after the services were supplied.93

Contracting out of consumer guarantees [27.101] As mentioned at [27.02], the operation of the consumer guarantees cannot, except in limited circumstances be contractually excluded by either suppliers or manufacturers. In this regard, s 64 of the ACL provides that a term of a contract is void to the extent that the term purports to exclude, restrict or modify the application of the consumer guarantee provisions, the exercise of a right conferred by such a provision or any liability of a person for a failure to comply with a guarantee applicable to a supply of goods or services. [27.102] In addition, a term of a contract that purports to exclude, restrict or modify the application of the consumer guarantee provisions or the consumer’s rights and remedies under these provisions may well constitute an unfair contract term under s 23 of the ACL.94 Such conduct may also constitute misleading conduct under s 18(1) of the ACL and potentially contravene s 29(1)(m) of the ACL, ‘making a false or misleading representation concerning the existence, exclusion or effect of a guarantee, right or remedy’ (which includes a consumer guarantee) leading to the potential for both a civil penalty for contravention of this provision as well as the potential for criminal liability under s 151(1)(m) of the ACL.

89 ACL, s 267(2)(b). 90 ACL, s 269(3). 91 ACL, s 267(4). 92 ACL, s 267(5). 93 ACL, s 267(1)(c). 94 The operation of the ACL in relation to unfair contract terms is separately considered in Chapter 26.

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CHAPTER 27 CONSUMER GUARANTEES

703

Terms that may be void [27.103] Due to the operation of the provisions of the ACL referred to in [27.06], a number of signs and statements operating as contractual terms may be void and a number of practices should be avoided.95

Limiting liability [27.104] As an exception to the operation of s 64 of the ACL, s 64A of the ACL allows a supplier to limit liability for failures to comply with consumer guarantees in specified circumstances. The section finds application where the contract is for the supply of goods or services of a kind not ordinarily acquired for personal, domestic or household use of consumption96 and the contract contains a term limiting the supplier’s liability for failure to comply with a consumer guarantee in the case of goods (other than a guarantee under s 51, 52 or 53) to one or more of the following items.

Australian Consumer Law Section 64A (a) the replacement of the goods or the supply of equivalent goods; (b) the repair of the goods; (c) the payment of the cost of replacing the goods or of acquiring equivalent goods; (d) the payment of the cost of having the goods repaired; or, in the case of services, to one or more of the following: (a) the supplying of the services again; or (b) the payment of the cost of having the services supplied again. [27.105] Provided these requirements are met and it is fair and reasonable for the supplier to rely on the limitation of liability term in the contract,97 the term will not be void under s 64 of the ACL.

95 For examples of practices that should be avoided, see L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, 2018, section 27.6.1. 96 As noted at ibid, section 27.2.3, a buyer of any type of goods costing up to $40,000 will be a consumer even though the goods may be used for business purposes provided that the goods are not acquired for resupply or use in a process of production, manufacture, repair or treatment. 97 As required by the ACL, s 64A(3).

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704 PART 8 CONSUMER PROTECTION

[27.106] An example is provided in the Consumer Guarantees Guide: A supplier has a contract to provide accounting software to a large Australian company. The supplier may insert a term into the contract providing that, in the event of a problem with the software, the supplier is only required to replace the software for free. This means they would not have to, for example, provide a refund.98

[27.107] To determine if reliance on a limitation of liability term is fair or reasonable, a court is required to have regard to all the circumstances of the case, and, in particular the matters listed in s 64A(4) of the ACL.

Australian Consumer Law Section 64A(4) (a) the strength of the bargaining positions of the person who supplied the goods or services and the person to whom the goods or services were supplied (the buyer) relative to each other, taking into account, among other things, the availability of equivalent goods or services and suitable alternative sources of supply; (b) whether the buyer received an inducement to agree to the term or, in agreeing to the term, had an opportunity of acquiring the goods or services or equivalent goods or services from any source of supply under a contract that did not include that term; (c) whether the buyer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties); and (d) in the case of the supply of goods, whether the goods were manufactured, processed or adapted to the special order of the buyer. [27.108] To rely on a term limiting liability of the type contemplated by s 64A of the ACL, a supplier may seek the buyer’s written acknowledgement that the goods or services (as the case may be) are being acquired for a business use.

Recreational service providers [27.109] Given the particular nature of these services, the liability that may attach to the provision of recreational services to a consumer is the subject of separate statutory treatment in s 139A of the Competition and Consumer Act 2010 (Cth). Section 139A(2) defines recreational services as services that consist of participation in a sporting activity or a similar leisure time pursuit or any other activity involving a significant degree of physical exertion or physical risk undertaken for recreation, enjoyment or leisure. While the consumer guarantees as to services are applicable,

98 Commonwealth of Australia, Australian Consumer Law: Consumer Guarantees, A Guide for Businesses and Legal Practitioners, available at http://consumerlaw-staging.tspace.gov.au/files/2016/05/0553FT_ACL-guides_ Guarantees_web.pdf, 35.

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CHAPTER 27 CONSUMER GUARANTEES

705

s 139A permits the exclusion, restriction of modification of liability. Specifically, s 139A permits a supplier of recreational services to limit liability for death, physical or mental injury, contraction, aggravation or acceleration of a disease or any other condition, circumstance or the like that is or may be harmful or disadvantageous without the limitation provision being void under s 64 of the ACL. [27.110] However, s 139A of the Competition and Consumer Act 2010 (Cth) does not permit a supplier of recreational services to modify, exclude or limit liability for property loss. Further the section does not apply if the exclusion, restriction or modification would apply to significant personal injury suffered by a person that is caused by the reckless conduct of the supplier of the recreational services.99 A  supplier’s conduct is reckless if the supplier is aware, or should reasonably have been aware, of a significant risk that the conduct could result in personal injury to another person and engages in the conduct despite the risk and without adequate justification.100 [27.111] Before leaving this topic, it should be noted that the position as outlined under s 139A of the Competition and Consumer Act 2010 (Cth) is not uniformly repeated across all state and territory fair trading legislation with exclusion of liability in the manner described being permitted in most but not all jurisdictions.101

Proof of transaction [27.112] A  consumer wishing to pursue a remedy under a consumer guarantee will usually need to be able to produce proof of the transaction. In this regard, s 100(1) of the ACL provides that where goods or services are supplied in trade or commerce and the total price (excluding GST) of the goods or services is $75 or more, the supplier must give the consumer a proof of transaction as soon as practicable after the goods or services are supplied. A  ‘proof of transaction’ is a document that identifies the supplier, state the supplier’s ABN or ACN (as the case may be), states the date of the supply, states the goods or services supplied and the relevant price.102 The following are examples of a proof of transaction: •

a tax invoice within the meaning of the A New Tax System (Goods and Services Tax) Act 1999 (Cth);



a cash register receipt;



a credit card or debit card statement;



a handwritten receipt;



a lay-by agreement; or



a confirmation or receipt number provided for a telephone or internet transaction.103

99 ACL, s 139A(4). 100 ACL, s 139A(5). 101 SG Corones, The Australian Consumer Law, 3rd edn, Thomson Reuters, Sydney, 2016, 15; this issue is considered in greater detail in L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th edn, 2018, section 9.330. 102 ACL, s 100(4). 103 Note accompanying s 100(4) of the ACL.

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706 PART 8 CONSUMER PROTECTION

QUESTIONS FOR REFLECTION (1) What advantages in consumer protection are offered by the introduction of the consumer guarantees in the ACL? (2) In what circumstances will a manufacturer of goods be bound by consumer guarantees? (3) Is the statutory obligation to render services with due care and skill the same as the common law obligation to render services with reasonable care? (4) In awarding damages for consequential loss due to a failure to comply with a statutory guarantee, is the power of the court discretionary?

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INDEX abandonment 21.15–21.18 acceptance of offers acceptance communicated to offeror 3.34–3.46 counter-offers 3.31 by electronic communication 3.41–3.46 by instantaneous communication 3.37–3.38 mere inquiry and rejection of offer 3.33 method of acceptance stipulated by offeror 3.35 offeree knowledge of, and reliance on, offer 3.28–3.29 offeree must accept terms of offer 3.27–3.33 person accepting must be offeree 3.30 postal acceptance rule 3.39–3.40 requirements 3.26 unqualified acceptance 3.32 advertisements 3.12 agreement acknowledgement in writing 11.15 overview 3.01 see also acceptance of offers; discharge by agreement; offers ambiguity 4.02–4.04 anticipatory breach 20.09–20.12, 23.26 auctions 3.13–3.14 online auctions 3.13–3.14 sale by auction, definition of 27.13 Australian common law development of 1.01, 1.11 frustration, effect of 22.15–22.18 illegal contracts 18.17–18.18 illegal contracts, severance of 18.22–18.28 mental capacity to enter a contract 10.16–10.17 minors’ capacity to contract 10.02–10.08 right of termination 20.04 statutory non-compliance, effect of 11.32 void contracts, categories of 18.02, 18.04–18.10 void contracts, severance of 18.22–18.28

BUT_CLCB3_04768_CH28_4pp_SI.indd 707

Australian Consumer Law (ACL) acceptable quality, guarantee as to 27.25–27.29 consumer guarantees 27.01–27.02 consumer protection provisions 13.25 due care and skill, guarantee as to 27.61–27.67 enforcement 27.04 express warranties 27.48–27.53 fitness for a particular purpose or result desired, guarantees as to 27.62–27.67 fitness for any disclosed purpose, guarantee as to 27.30–27.36 misleading or deceptive conduct provisions 13.26–13.28 misleading representations regarding future matters 13.36, 13.47–13.48 operation in States and Territories 13.29, 27.03 remedies for contravention of s 18 13.51 repairs and spare parts, guarantee as to 27.44–27.47 review of 27.59 standard form contracts, definition of 26.19–26.22 supply of goods by description, guarantee as to 27.37–27.39 supply of goods by sample or demonstration model, guarantee as to 27.40–27.43 terms setting the upfront price 26.33–26.35 title, consumer guarantee as to 27.15–27.17 unconscionable conduct provisions 17.12–17.17 undisclosed securities, guarantee as to 27.20–27.24 undisturbed possession, guarantee as to 27.18–27.19 unfair contract provisions 26.01–26.02 unfair terms, examples 26.53

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708

INDEX

Australian contract law development of internationalisation origins potential reform

1.01 1.12 1.02 1.12

bargaining strategies 2.04–2.08 interest-based bargaining 2.04, 2.06 positional bargaining 2.04–2.05 BATNA (Best Alternative to a Negotiated Agreement) 2.08 breach of contract anticipatory breach 20.09–20.12, 23.26 intermediate terms, breach of 20.05–20.06 partial performance and breach 19.22–19.23 recovery of quantum meruit 24.28–24.32 ‘business’, meaning of 26.15–26.17 capacity the Crown 10.21 governments 10.21 mental incapacity 10.16–10.20 minors 10.02–10.15 overview 10.01 certainty and completeness ambiguity and uncertainty 4.02–4.04 Heads of Agreement documents 4.05, 4.09, 4.16 incomplete agreements 4.05–4.13 overview 4.01 ‘subject to contract’ 4.14–4.16 collateral contracts, oral terms, incorporating 8.13 common law see Australian common law common mistake 14.03–14.09 compensation, for unfair contract terms 26.58–26.59 consideration application of rules 6.06 bargained-for conduct already performed 6.14–6.16 debts part paid in exchange for promise 6.06 exercise of legal rights 6.06 joint promisees 6.03–6.05 moral consideration 6.06 must move from promisee to promisor 6.03–6.06 overview 6.01 performance of existing contractual duty 6.06, 6.07–6.13

BUT_CLCB3_04768_CH28_4pp_SI.indd 708

requirement in simple contracts rules governing unjust enrichment, in context of construction of terms classification of terms conditions exemption clauses intermediate terms meaning of terms, interpreting overview promissory terms surrounding circumstances types and legal effect of warranties consumer contracts acquisition, purpose of buyers, definition of definition goods and services, definition of interest in land, definition of parties to contract, nature of suppliers, requirements for unfair contract terms consumer guarantees acceptable quality compensation for drop in value consequential loss in relation to goods, recovery of damages for consequential loss in relation to services, recovery of damages for consumers, acquisition of services by consumers, definition of contacting out of description, supply of goods by due care and skill express warranties fitness for a particular purpose or result desired, guarantees as to fitness for any disclosed purpose gifts goods, definition of goods, major failures goods not covered goods, relating to supply of goods, remedies relating to limiting liability linked goods contracts linked service contracts

1.06–1.10, 6.01 6.02, 6.03 24.10–24.13 9.01, 9.12 9.12 9.19–9.23 9.12, 9.16–9.17 9.01, 9.02–9.11 9.01 9.12, 9.18 9.08–9.11 9.12–9.23 9.12 26.09 26.08 26.04, 26.10 26.5 26.06 26.07–26.08 26.07 26.04–26.10 27.25–27.29 27.75

27.80–27.82

27.100 27.59 27.09–27.10 27.101–27.102 27.37–27.39 27.61–27.67 27.48–27.53

27.62–27.67 27.30–27.36 27.10 27.08 27.70 27.14 27.05–27.53 27.69–27.92 27.104–27.108 27.97 27.76

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INDEX

major failures in goods, remedies against suppliers 27.71–27.76 major failures in supply of services, remedies against suppliers 27.95 manufacturers, definition of 27.07, 27.44 manufacturers’ liability to indemnify suppliers of goods 27.90–27.92 manufacturers of goods, remedies against 27.83–27.89 minor failures in goods, remedies against suppliers 27.77–27.79 minor failures in services, remedies against suppliers 27.98–27.99 overview 27.01–27.04 proof of transaction 27.112 reasonable time for supply of services 27.68 recreational service providers 27.109–27.111 refunds or replacements 27.74 rejection of goods 27.72–27.73 remedies in relation to goods 27.69–27.92 repairs and spare parts 27.44–27.47 sale by auction, definition of 27.13 sample or demonstration model, supply of goods by 27.40–27.43 services, definition of 27.57–27.58 services, major failure in supply of 27.94 services not covered 27.60 services, relating to supply of 27.54–27.68 services, remedies relating to 27.93–27.100 supply, definition in relation to goods 27.06 supply, definition in relation to services 27.56 terms that may be void 27.103 title 27.15–27.17 trade or commerce, definition of 27.11–27.13 undisclosed securities 27.20–27.24 undisturbed possession 27.18–27.19 contract price, recovering 19.08–19.09 Contracts Review Act 1980 (NSW), unconscionable conduct provisions 17.18–17.22 contractual terms express 8.01 implied 8.01 overview 8.01 promissory terms 9.12 types and legal effect of 9.12–9.23 see also construction of terms; establishment of terms; unfair contract terms Crown, the, capacity to contract 10.21

BUT_CLCB3_04768_CH28_4pp_SI.indd 709

damages assessment of loss causation of loss consequential loss in relation to goods consequential loss in relation to services heads of damage limits on recovery of liquidated damages and penalties loss of bargain damages for loss of opportunity for mental distress misleading or deceptive conduct mitigation overview primary objective of ready willing and able to perform, proof of for rectification of defective work reduction for failure to take reasonable care remoteness restrictions on recovery of termination requirement deceptive conduct see misleading or deceptive conduct defences mistake or misrepresentation performance of contract not possible or futile plaintiff in breach or not ready, willing and able plaintiff guilty of laches to specific performance undue hardship upon defendant unenforceable contract delay, discharge by termination dependent obligations concurrent obligations deposits, recovery of following termination discharge by agreement abandonment novation overview variation distinguished from discharge writing, requirements of discharge by frustration common law, effect at express contractual provision

709

23.15–23.25 23.05–23.06 27.80–27.82 27.100 23.15–23.25 23.04–23.06 23.29–23.38 23.26 23.19–23.20 23.24–23.25 13.52–13.63 23.12–23.14 23.01–23.02 23.02–23.03 23.27–23.28 23.21–23.23 13.56–13.58 23.07–23.11 23.26–23.28 23.26

25.05 25.09 25.08 25.10 25.04–25.11 25.06–25.07 25.11 20.22–20.26 19.05–19.07 19.07 20.51–52 21.15–21.18 21.11–21.14 21.01 21.02–21.05 21.06–21.10 22.15–22.18 22.09–22.10

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710

INDEX

discharge by frustration (cont.) frustration, test for 22.02–22.07 land contracts 22.06–22.07 limits on 22.08–22.13 New South Wales legislation 22.18–22.20 overview 22.01 South Australian legislation 22.23 statute, effect of 22.19–22.23 supervening event foreseeable 22.11–22.12 supervening event self-induced 22.13–22.14 Victorian legislation 22.22 discharge by performance concurrent obligations 19.07 contract price, recovering of 19.08–19.09 dependent obligations 19.05–19.06, 19.07 divisible contract 19.10–19.12 entire obligations 19.13–19.15 independent obligations 19.04 obligations, types of 19.03–19.06 overview 19.01–19.02 partial performance and breach 19.22–19.23 partial performance, quantum meruit for 19.24 quantum meruit as alternative to contract price 19.24 substantial performance, establishing 19.18–19.21 substantial performance, obligations requiring 19.16–19.17 discharge by termination anticipatory breach 20.09–20.12, 23.26 common law right of termination 20.4 contingent conditions 20.3 contractual restrictions 20.47 for delay 20.22–20.26 deposits, recovery of 20.51–20.52 effect of 20.49–20.52 election to terminate 20.36–20.39 erroneous interpretation 20.16–20.19 essential term, breach of 20.05–20.06 inability to perform 20.20–20.21 instalments of purchase price, recovery of 20.50 intermediate term, breach of 20.05–20.06 monies paid conditional on performance, recovery of 20.49–20.52 notice to complete, required contents of 20.33–20.35 notice to complete, when to give 20.31–20.32 overview 20.01–20.03 ready willing and able to perform 20.41–20.44 refusal to perform 20.14–20.15

BUT_CLCB3_04768_CH28_4pp_SI.indd 710

repudiation 20.07–20.08 restrictions on 20.40–20.44, 20.47–20.48 terminating party not in breach 20.45–20.48 time essential 20.27–20.29 time not essential 20.30–20.35 divisible contracts 19.10–19.12 duress economic duress 15.01, 15.05–15.08 overview 15.01 to personal property 15.04 statutory prohibition 15.09 traditional form 15.02 types 15.02–15.08 duty of care, and negligent misrepresentation 13.18–13.21 electronic communication adequacy of 11.21–11.31 as ‘signature’ 11.28–11.31 statutory provisions 11.24–11.27, 11.29–11.31 Victorian legislation 11.24–11.26, 11.30 as ‘writing’ 11.21–11.27 entire obligations 19.13–19.15 equitable estoppel 1.11 development of doctrine in Australia 7.01–7.02 origins of modern doctrine 7.02 overview 7.01–7.02 promissory estoppel 7.02 recognition of 7.03–7.04 relevant remedy 7.05–7.09 and statutory non-compliance 11.36 unification of 7.09 equitable remedies differences from common law remedies 25.01 injunction 25.12–25.13 specific performance 25.02–25.03 specific performance, defences to 25.04–25.11 equity statutory non-compliance, effect of 11.33–11.36 unconscionable conduct, relief for 17.02–17.09 essential terms breach of 20.05–20.06 essential time provisions, interaction with 20.22–20.26 for guarantees 11.12 and incomplete agreements 4.06 for land contracts 11.13

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INDEX

establishment of terms business efficacy, term implied on basis of 8.15–8.17 complete agreement, terms implied to 8.20 custom or usage, term implied from 8.19 duties of good faith, fair dealing and reasonableness, terms implying 8.22–8.28 intention of parties, implied terms reflecting 8.14 notice, incorporation by 8.06–8.07 oral terms, incorporating 8.09–8.13 previous consistent course of dealings between parties, terms implied from 8.18 reference, incorporation by 8.08 signature, incorporation by 8.03–8.05 signs 8.06 unsigned documents 8.06 websites 8.07 written terms, incorporating 8.02 estoppel see equitable estoppel express warranties consumer guarantees 27.48–27.53 definition 27.49–27.50 financial services agreements, in unfair contract terms formalities content of writing electronic ‘writing’ and ‘signature’ guarantees joinder of documents land contacts needing writing overview signature statutory non-compliance, effect of variation and termination of contracts fraudulent misrepresentation frustration see discharge by frustration goods acceptable quality compensation for drop in value consequential losses, recovery of damages for consumer guarantees relating to definition express warranties fitness for any disclosed purpose

BUT_CLCB3_04768_CH28_4pp_SI.indd 711

26.01, 26.05 11.11–11.16 11.21–11.27 11.02–11.06 11.17–11.20 11.07–11.09 11.01 11.28–11.31 11.32–11.36 11.37 13.16–13.17

27.25–27.29 27.75 27.80–27.82 27.15–27.53 27.08 27.48–27.53 27.30–27.36

liability of manufacturers to indemnify suppliers linked service contracts major failures manufacturers, remedies against minor failures minors, contracts for necessary goods nature of, small business contracts not covered by consumer guarantees refunds or replacements rejection of remedies in relation to repairs and spare parts samples or demonstration models supply by description supply of title to trade or commerce, supply by undisclosed securities undisturbed possession warranties against defects governments, capacity to contract guarantees essential terms needed in writing nature of Queensland legislation writing, statutory requirement of see also consumer guarantees Hadley v Baxendale first limb second limb Heads of Agreement documents honour clauses illegal contracts at common law consequences of in pari delicto rule overview severance at common law severance by statute by statute incomplete agreements independent obligations ineffective contracts recovery of money services rendered, payment for

711

27.90–27.92 27.76 27.70–27.76 27.83–27.89 27.77–27.79 10.03–10.04 26.13 27.14 27.74 27.72–27.73 27.69–27.92 27.44–27.47 27.40–27.43 27.37–27.39 27.06–27.07 27.15–27.17 27.11–27.13 27.20–27.24 27.18–27.19 27.51–27.53 10.21 11.12 11.02–11.03 11.05 11.04–11.06

23.08 23.09–23.11 4.05, 4.09, 4.16 5.06

18.17–18.18 18.19–18.21 18.19, 18.21 18.01, 18.11 18.22–18.28 18.29–18.33 18.12–18.16 4.05–4.13 19.04 24.25–24.27 24.26

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712

INDEX

injunction granting of nature of unfair contract terms innocent misrepresentation intention to create legal relations circumstances considered circumstances indicating absence of intention ex gratia payment obligations government activities honour clauses letters of comfort letters of intent or understanding modern approach overview traditional approach interest-based bargaining intermediate terms breach of classification of nature of Internet, offers made through joinder of documents land contracts discharge by frustration essential terms interest in land, definition of nature of needing writing Queensland legislation statutory requirements writing in letters of comfort letters of intent or understanding loss assessment of of bargain damages causation of mitigation and damages of opportunity remoteness of marriage undue influence void contracts mental capacity at common law legislation Queensland legislation

BUT_CLCB3_04768_CH28_4pp_SI.indd 712

25.12–25.13 25.12 26.60 13.15 5.01–5.02 5.06 5.06 5.05 5.06 5.06 5.06 5.03–5.04 5.01–5.02 5.02 2.04, 2.06 20.05–20.06 9.12, 9.16 9.16 3.06–3.08 11.17–11.20

22.06–22.07 11.13 26.06 11.07 11.09–11 11.09 11.08–11.11 11.07–13 5.06 5.06 23.15–23.25 23.26 23.05–23.06 23.12–23.14 23.19–23.20 23.07–23.12

16.10–16.12 18.10 10.16–10.17 10.18–10.20 10.19

mental distress, damages for 23.24–23.25 mere inquiry 3.33 mere puff 3.09 minors capacity at common law 10.02–10.08 contracts that are binding unless repudiated 10.07–10.08 employment and apprenticeship, contracts of 10.05 legislation relating to 10.09–10.15 necessary goods and services, contracts for 10.03–10.04 New South Wales legislation 10.14–10.15 South Australian legislation 10.12–10.13 Victorian legislation 10.10–10.11 misfeasance 1.05 misleading or deceptive conduct chain of causation, breaking of 13.70–13.73 class of persons, conduct directed to 13.33–13.36 damages 13.52–13.63 disclaimers, effectiveness of 13.67–13.73 elements 13.27–13.46 exclusion clauses, effectiveness of 13.66 exclusion of 13.66–13.73 future matter, about 13.46–13.50 meaning of 13.32–13.46 overview 13.01–13.02, 13.25–13.26 particular person, conduct directed at 13.37–13.38 persons or corporations, conduct by 13.28–13.29 proportionate liability provisions 13.59–13.63 reduction of damages 13.56–13.58 remedies 13.51 rescission 13.64–13.65 silence, by 13.39–13.45 trade or commerce, definition 13.30–13.31 misrepresentation elements of 13.03–13.13 false statement of past or present fact 13.04–13.11 fraudulent misrepresentation 13.16–13.17 innocent misrepresentation 13.15 intention, fact distinguished from 13.05–13.06 negligent misrepresentation 13.18–13.21 opinion, fact distinguished from 13.07–13.08 overview 13.01–13.02 reliance 13.12–13.13 rescission 13.22–13.24 silence 13.09–13.11 types 13.14–13.21 mistake common mistake 14.03–14.09 mistaken identity 14.14–14.18

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INDEX

mutual mistake nature of contract non est factum overview types unilateral mistake mistaken identity mitigation, and damages moral consideration mutual mistake

14.10 14.19 14.19–14.20 14.01–14.02 14.01 14.11–14.13 14.14–14.18 23.12–23.14 6.06 14.10

negligent misrepresentation negotiation bargaining strategies BATNA (Best Alternative to a Negotiated Agreement) elements of interest–based bargaining nature of phases positional bargaining stages in each phase WATNA (Worst Alternative to a Negotiated Agreement) non est factum, mistake nonfeasance notice to complete required contents of when to give novation, discharge by agreement

13.18–13.21 2.04–2.08 2.08 2.03 2.04, 2.06 2.01–2.02 2.09–2.10 2.04–2.05 2.10 2.08 14.19–14.20 1.05 20.33–20.35 20.31–20.32 21.11–21.14

obligations concurrent obligations 19.07 dependent obligations 19.05–19.06, 19.07 entire obligations 19.13–19.15 independent obligations 19.04 substantial performance, requiring 19.16–19.17 types of 19.03–19.06 offers advertisements 3.12 auctions 3.13–3.14 communication of 3.18 defining 3.03–3.08 invitation to treat 3.10 made through Internet 3.06–3.08 mere puff 3.09 options 3.17 to public at large 3.04–3.05 standing offers 3.16 supply of information 3.09 tendering 3.15 termination 3.19–3.25 transactions, categorising 3.09–3.17

BUT_CLCB3_04768_CH28_4pp_SI.indd 713

online auctions and consumer guarantees sale by auction, definition of options

713

3.13–3.14 27.13 27.13 3.17

partial performance and breach 19.22–19.23 quantum meruit for 19.24 services rendered, payment for 24.21, 24.28–24.32 and statutory non-compliance 11.35 penalties application of doctrine 23.30–23.34 or genuine pre-estimate 23.35–23.37 and liquidated damages 23.29–23.38 penalty clauses, effect of 23.38 performance see discharge by performance; partial performance; specific performance; substantial performance positional bargaining 2.04–2.05 postal acceptance rule 3.39–3.40 price of contract, limit on upfront price 26.18 privity criticism of doctrine 12.02 ‘exceptions’ at common law 12.09–12.15 exemptions and immunities extended to third parties 12.13–12.15 overview of doctrine 12.01–12.02 statutory abrogation of 12.03–12.08 promissory estoppel 7.02 quantum meruit as alternative to contract price for partial performance recovery of ready, willing and able to perform damages, restrictions on recovery of termination, restrictions on rejection of offer remedies and enforcement goods, consumer guarantees relating to services, consumer guarantees relating to unfair contracts, remedy of declaration of see also equitable remedies remoteness Hadley v Baxendale, first limb

19.24 19.24 24.28–24.32

23.27–23.28 20.41–20.44 3.33 26.55–26.60 27.69–27.92 27.93–27.100 26.56

23.08

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714

INDEX

remoteness (cont.) Hadley v Baxendale, second limb 23.09–23.11 limits on damages 23.07–23.11 repudiation anticipatory breach 20.09–20.12 discharge by termination 20.07–20.08 erroneous interpretation 20.16–20.19 examples of 20.13–20.21 inability to perform 20.20–20.21 refusal to perform 20.14–20.15 rescission misleading or deceptive conduct 13.64–13.65 misrepresentation 13.22–13.24 unconscionable conduct 17.10 restitution alternative claims 24.06 benefit 24.08–24.15 consideration, failure of 24.10–24.13 contracting parties, between 24.04–24.05 defence, change of position 24.33–24.34 free acceptance 24.24 illegality 24.19 incontrovertible benefit 24.24 ineffective contracts, for services rendered in 24.25–27 ineffective contracts, recovery of money 24.25–24.26 mistake, money paid under 24.14–24.18 money as benefit 24.08–24.09 overview 24.01 partially performed contracts, for services rendered in 24.21, 24.28–24.32 requirements 24.07 services as benefit 24.22–24.23 termination of contract 24.04–24.05 unjust enrichment, basis of 24.02–24.03 unjust enrichment, factors 24.07–24.20 void contracts, for services rendered in 24.21 void contracts, recovery of money 24.04 services as a benefit consequential loss, damages for consumer guarantees consumer guarantees not covered definition of due care and skill fitness for particular purpose or result desired linked goods contracts major failures minor failures minors, contracts for necessary services

BUT_CLCB3_04768_CH28_4pp_SI.indd 714

24.22–24.23 27.100 27.54–27.68 27.60 27.57–27.58 27.61–27.67 27.62–27.67 27.97 27.94–27.97 27.98–27.99 10.03–10.04

nature of, small business contracts 26.13 reasonable time for supply 27.68 remedies in relation to 27.93 severance void and illegal contracts at common law 18.22–18.28 void and illegal contracts by statute 18.29–18.33 signature ‘authenticated signature fiction’ 11.16 electronic signature, adequacy of 11.21, 11.28–11.31 incorporation of terms by 8.03–8.05 by party charged or agent 11.16 simple contracts consideration, requirement of 1.06–1.10 nature of 1.06 small business contracts 26.11–26.12 less than 20 employees 26.14 limit on upfront price of contract, 26.18 meaning of ‘business’ 26.15–26.17 nature of goods and services 26.13 specific performance defences to 25.04–25.11 equitable remedy of 25.02–25.03 standard form contracts definition 26.19–26.22 unfair contract terms 26.19–26.22 standing offers 3.16 statutory non-compliance common law, consequences at 11.32 equity, consequences at 11.32 estoppel 11.36 part performance 11.34–11.35 ‘subject to contract’ 4.14–4.16 substantial performance establishing 19.18–19.21 obligations requiring 19.16–19.17 tendering 3.15 termination of contracts 11.37 see also discharge by termination termination of offers 3.19 death of offeror or offeree 3.25 failure of a condition in conditional offer 3.24 lapse of time 3.23 rejection by offeree 3.22 withdrawal by offeror 3.20–3.21 terms see contractual terms uncertainty unconscionable conduct Commonwealth legislation

2.0–2.4 17.11–17.17

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INDEX

constitutional disadvantage 17.06 in equity 17.02–17.09 meaning of 17.12–17.13, 17.16 New South Wales legislation 17.18–17.22 overview 17.01 remedies 17.17 rescission 17.10 situational disadvantage 17.06 special disadvantage 17.02, 17.06–17.09 statutory prohibition 17.11–17.23 in supply or acquisition of goods and services 17.14–17.15 by third parties 17.17 unjust contracts 17.19–17.20, 17.22–17.23 undue influence actual influence 16.02 classes of 16.02–16.09 marriage partners, between 16.10–16.12 overview 16.01 party to transaction, by 16.03 presumption of 16.05–16.10 third party sureties 16.03, 16.10–16.12 unenforceable contract 25.11 unfair contract terms ACL provisions, application of 26.03–26.17 ACL provisions, nature of 26.01 ACL provisions, objective of 26.02 after commencement, application to contracts 26.15 assessment, approach to 26.26–26.54 compensation 26.58–26.59 consumer contracts 26.04–26.10 consumers, financial or non-financial detriment to 26.50 corporations, conduct or contraventions by 26.01 declaration, remedy of 26.56 examples of 26.51–16.54 excluded terms 26.28–26.37 exempt contracts 26.24–26.25 in financial services agreements 26.01, 26.05 identifying 26.26–26.37 injunction 26.60 interests of party, protection of 26.47–26.49 main subject matter, exclusion of terms defining 26.29–26.31 overview 26.01–26.02 parties’ rights and obligations, significant imbalance in 26.45–26.46 remedies and enforcement 26.55–26.60 standard form contracts 26.19–26.22 terms required or permitted by law, exclusion of 26.37

BUT_CLCB3_04768_CH28_4pp_SI.indd 715

715

test for 26.38–26.54 transparency of 26.27, 26.39–26.44 unfair term, meaning of 26.27, 26.37, 26.38 upfront price, exclusion of terms setting 26.32–26.36 whole of contract, in context of 26.39–26.44 unilateral mistake 14.11–14.13 unjust enrichment factors 24.07–24.20 recovery of the benefit 24.07 restitution for 24.02–24.03 variation of contracts 11.37 distinguished from discharge of contract 21.02–21.05 oral variation 21.07 writing requirements 21.07–21.10 void contracts at common law 18.02, 18.04–18.10 courts, denial of access to 18.02, 18.09 marriage, prejudicial to status of 18.02, 18.10 overview 18.02 restitution 24.04 restraint of trade 18.02, 18.04–18.08 services rendered, payment for 24.21 severance at common law 18.22–18.28 severance by statute 18.29–18.33 by statute 18.03 warranties warranties against defects, definition 27.52–27.53 see also express warranties WATNA (Worst Alternative to a Negotiated Agreement) 2.08 writing requirements agreements, acknowledgement of 11.15 for discharge of contract 21.06–21.10 for guarantees 11.12 for land contracts 11.13 in oral lease agreement 11.14 overview 11.11 signature by party charged or agent 11.16 variation of contracts 21.07–21.10 writs for contract-type disputes 1.02 writ of assumpsit (breach of promise) 1.02–1.05, 1.06 writ of covenant 1.02, 1.06 writ of debt 1.02 writ of trespass 1.05

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title: BUT_CLC3E_04768_CVR

format: 245mm x 170mm

spine: 38.1mm



New case extracts, including: ●

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd



Kakavas v Crown Melbourne Ltd



Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd



Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd



Paciocco v Australia and New Zealand Banking Group Ltd



oOH! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd







Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd Equuscorp Pty Ltd v Haxton

Questions for reflection updated, helping you get the most from the cases

The fifth edition of Contract Law offers an in-depth examination of Australian contract law and its principles. The expert author team explores contemporary issues in depth and illustrates complex topics with succinct case summaries, improving your legal reasoning and analytical skills while refining your understanding of the law.

SHARON CHRISTENSEN is a Professor in the Faculty of Law at the Queensland University of Technology. New to this edition

■ ■

Fully updated with discussion of recent cases

Explores important decisions handed down, including:







● ●



The High Court decision in Paciocco v Australia and New Zealand Banking Group

The Federal Court decision in Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd

Relevant chapters updated to include:

The application of the electronic transactions legislation across Australia

The expansion of unfair contract terms provisions in the Australian Consumer Law

Incorporates statutory changes since 2013

New to this edition ■

New case extracts, including:



Questions for reflection updated, helping you get the most from the cases

● ●



Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd Kakavas v Crown Melbourne Ltd

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd



Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd



Paciocco v Australia and New Zealand Banking Group Ltd

● ●



oOH! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd

Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd Equuscorp Pty Ltd v Haxton

DES BUTLER is a Professor in the Faculty of Law at the Queensland University of Technology. TITLE: Contract Law

Format: 245mm x 170mm

Spine: TBC (20mm) Colours used: CMYK

The fifth edition of Contract Law offers an in-depth examination of Australian contract law and its principles. The expert author team explores contemporary issues in depth and illustrates complex topics with succinct case summaries, improving your legal reasoning and analytical skills while refining your understanding of the law.

SHARON CHRISTENSEN is a Professor in the Faculty of Law at the Queensland University of Technology. New to this edition ■ ■

Fully updated with discussion of recent cases

Explores important decisions handed down, including: ●



The High Court decision in Paciocco v Australia and New Zealand Banking Group

The Federal Court decision in Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd



Relevant chapters updated to include:



Incorporates statutory changes since 2013

● ●

The application of the electronic transactions legislation across Australia

The expansion of unfair contract terms provisions in the Australian Consumer Law

BILL DIXON is an Associate Professor in the Faculty of Law at the Queensland University of Technology.

CONTRACT LAW

CONTRACT LAW

FIFTH EDITION

LINDY WILLMOTT is a Professor in the Faculty of Law at the Queensland University of Technology.

SHARON CHRISTENSEN is a Professor in the Faculty of Law at the Queensland University of Technology. DES BUTLER is a Professor in the Faculty of Law at the Queensland University of Technology.

CONTRACT LAW

FIFTH EDITION

CASE BOOK

THIRD EDITION

Des Butler Sharon Christensen Bill Dixon Lindy Willmott

Willmott Christensen Butler Dixon

BILL DIXON is an Associate Professor in the Faculty of Law at the Queensland University of Technology.

LINDY WILLMOTT is a Professor in the Faculty of Law at the Queensland University of Technology.

To get the most from this text, read it in conjunction with this author team’s new edition of Contract Law Case Book, which provides access to an expanded selection of primary and secondary materials.

THIRD EDITION

Lindy Willmott Sharon Christensen Des Butler Bill Dixon

ISBN 978-0-19-030475-1

9 780190 304751

visit us at: oup.com.au or contact customer service: [email protected]

WIL_CL5E_04751_CVR_5pp.indd All Pages

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To get the most from this text, read it in conjunction with this author team’s new edition of Contract Law, which provides an in-depth examination of Australian contract law and its principles.

CONTRACT LAW CASE BOOK THIRD EDITION

Des Butler Sharon Christensen Bill Dixon Lindy Willmott

FIFTH EDITION

ISBN 978-0-19-030476-8

9 780190 304768

visit us at: oup.com.au or contact customer service: [email protected]

To get the most from this text, read it in conjunction with this author team’s new edition of Contract Law Case Book, which provides access to an expanded selection of primary and secondary materials.

CONTRACT LAW FIFTH EDITION

Lindy Willmott Sharon Christensen Des Butler Bill Dixon

THIRD EDITION

ISBN 978-0-19-030475-1

9 780190 304751

visit us at: oup.com.au or contact customer service: [email protected]

To get the most from this text, read it in conjunction with this author team’s new edition of Contract Law, which provides an in-depth examination of Australian contract law and its principles.

Butler Christensen Dixon Willmott

LINDY WILLMOTT is a Professor in the Faculty of Law at the Queensland University of Technology.

Willmott Christensen Butler Dixon

BILL DIXON is an Associate Professor in the Faculty of Law at the Queensland University of Technology.

Butler Christensen Dixon Willmott

DES BUTLER is a Professor in the Faculty of Law at the Queensland University of Technology.

CONTRACT LAW

The Contract Law Case Book is a collection of extracts from the most significant cases in Australian contract law. This text has been updated to include new case extracts, commentary, and excerpts from important statutes, enabling you to experience the law through the judges’ own words and to develop your ability to interpret and analyse cases.

SHARON CHRISTENSEN is a Professor in the Faculty of Law at the Queensland University of Technology.

CASE BOOK

BILL DIXON is an Associate Professor in the Faculty of Law at the Queensland University of Technology. LINDY WILLMOTT is a Professor in the Faculty of Law at the Queensland University of Technology.

CONTRACT LAW

DES BUTLER is a Professor in the Faculty of Law at the Queensland University of Technology.

CONTRACT LAW

New to this edition

CASE BOOK

The Contract Law Case Book is a collection of extracts from the most significant cases in Australian contract law. This text has been updated to include new case extracts, commentary, and excerpts from important statutes, enabling you to experience the law through the judges’ own words and to develop your ability to interpret and analyse cases.

CMYK

CONTRACT LAW CASE BOOK THIRD EDITION

Des Butler Sharon Christensen Bill Dixon Lindy Willmott

ISBN 978-0-19-030476-8

9 780190 304768 visit us at: oup.com.au or contact customer service: [email protected]

BUT_CLC3E_04768_CVR_SI.indd All Pages

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