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Breach Repudiation and Terminating a Contract Michael Bennett Barrister Seven Wentworth Chambers www.legalwiseseminars.com.au

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Page 1: Breach Repudiation and Terminating a Contract Repudiation and Terminating a Contract Michael Bennett Barrister Seven Wentworth Chambers !"#$%&'$()'*#"+,($-,(.'$'/0(-"$%-' ' ' '

Breach Repudiation and Terminating a Contract

Michael BennettBarrister

Seven Wentworth Chambers

www. lega lw iseseminars .com.au

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Page 31: Breach Repudiation and Terminating a Contract Repudiation and Terminating a Contract Michael Bennett Barrister Seven Wentworth Chambers !"#$%&'$()'*#"+,($-,(.'$'/0(-"$%-' ' ' '

1

Breach & Terminating a Contract

Michael [email protected]

Overview

1. Introduction

2. State of Flux

3. Applicable law

4. What constitutes breach & terms

5. Termination rights:1. The right to terminate

2. Electing to terminate

3. Complete termination

4. Partial termination

5. Revival of the right to terminate

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2

Overview continued

6. Contracts and settlement of proceedings

7. Termination for convenience

Introduction

• Contract law is important

• Certainty in the law is important

• 17th of 183 countries

• But knowing rights of breach is necessary

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3

2 State of Flux

• Contract law is in a state of flux

1.Commonwealth Govt Initiative �– 22/3/2012

2.Significant changes in other areas of the law– National Consumer Credit Protection Act 2009

(Cth)

– Personal Property Securities Act 2009 (Cth)

– Australian Consumer Law

3.Technological advancements

3 Applicable jurisdiction

• Proper law of an agreement �– allows choice

• Some legislations removes choice

• If no stipulation, �‘most real connection�’

• One common law of Australia– NoteWestern Export Services Inc v JirehInternational Pty Ltd (2011) 86 ALJR 1

• Assumes Cth and NSW laws apply

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4 Breach of contract

• Breach:– promisor fails to perform contractual obligationwithin the time stipulated for its performance

– anticipatory breach

• Precise consequences depend on theparticular circumstances of the case

4 Breach of contract cont�…

• Damages is an inevitable consequence ofbreach of contract

• The right does not depend on loss or damage

• Absent proof of loss or damage limitsentitlement to nominal damages

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5

4 Breach of contract �…

• 3 other possibilities from breach– Activate an express right under the contract– Disentitle the promisor from enforcing promisee�’spromise to perform

– Entitle the promisee to terminate the contract

• This third right is the focus of thispresentation and the paper

4 Breach of contract �…

• Tripartite classification:– Condition–Warranty

– Intermediate term

• Trite to state these

• Important to remember that consequencesinform characterisation, not the other wayaround

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4 Breach of contract cont �…

• It is also not so simple as this

• In Associated Newspapers v Bancks it was asimple commercial circumstance

• High Court held it was a compositeundertaking of 3 ingredients:– 1) present full page drawing– 2) weekly– 3) on front page of comic section

5 Termination rights

• Right to terminate arises if either:– Express in contract– Implied by law

• Important to remember termination istermination of the obligations to furtherperform promises

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5 Termination rights cont �…

• Right to terminate �– express in the contract– This will be interpreted commercially not literally

• Right to terminate �– implied by law– Breach of condition– Sufficiently serious breach of intermediate term

– Repudiation of obligation

5 Termination rights cont�…

• Election to terminate

• Termination is always a matter of choice

• Cannot set up self executing circumstances oftermination �– New Zealand Shipping Co Ltd vSociete des Ateliers et Chantiers de France[1919] AC 1

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5 Termination rights cont�…

• General principles of election law apply1. What matters is whether promisee is entitled to

do so, not whether that basis was proffered

2. Unequivocal words or conduct required

3. Subject to statute, requirements for an effectiveelection to terminate depend on parties�’intention

4. Presumption in favour of common law rights

5 Termination rights cont �…

• Onus of proving effective election is on thepromisee electing

• Requirements for election to terminate– Right to terminate is available at the time of theelection

– Compliance with any requirements for exercise

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5 Termination rights cont�…

• Contractual rights to terminate are strictlyconstrued

• Failure to follow contractual regime willrender invalid any termination

• Some statutes will apply regardless– Eg s 269 of the Australian Consumer Law requiresnotice

– Eg s 72 of the Property Law Act 1972 (Qld)requires a right to be heard after notice

5 Termination rights cont �…

• 5 impediments to termination

1.Exclusion clause

2.Terminating party having breached contract

3.Waiver of right to terminate

4.Estoppel

5.Unfair conduct of terminating party

• Impossibility to substantially return toprevious position (necessary for rescission) isnot relevant

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5 Termination rights cont �…

• Consequences of termination:– Complete termination

– Partial termination

– And, in certain circumstances, may be affected byrevival of right to terminate

5 Termination rights cont �…

• Primary effect �– discharge both parties fromthe duty to further perform

• This discharges any duty to be ready andwilling to perform

• Neither party can call on the other to performany unperformed obligations

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5 Termination rights cont �…

• Intention of parties following termination isrelevant. Therefore:– Any contractual terms intended to deal withconsequences of termination must be applied

– Any terms intended to apply notwithstandingtermination must be applied

– Rights which accrued unconditionally prior totermination remain enforceable

5 Termination rights cont�…

• Contrary to common belief, partialtermination is available:

• At common law:– Termination of unperformed obligations (not agenuine category)

– Severable contracts– Termination of application

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12

5 Termination rights cont �…

• Partial termination expressly provided:– Termination for cause

– Circumstances beyond the control of the parties

– Issues of validity

5 Termination rights cont �…

• Revival of the right to terminate

• Occurs in 5 circumstances– Continuing breach by promisor

– Subsequent breach by promisor

– Continuing repudiation by promisor

– Subsequent repudiation by promisor

– Failure by promisor to comply with a notice toperform

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5 Termination rights cont�…

• Revival of right to terminate– Look for �‘fresh right�’–May be estopped from relying on fresh right

6 Settlement Agreements

• Common occurrence �– should know these

• Only solicitors or, if unrepresented, party tosign documents �– no counsel

• See rule 4.4 of UCPR and Dist Court Note

• Settlement agreements are contracts– Harvey v Phillips– Singh v Secretary, Departyment of Family &Community Services

– A W Ellis Engineering Pty Ltd v Malago Pty Ltd

Page 44: Breach Repudiation and Terminating a Contract Repudiation and Terminating a Contract Michael Bennett Barrister Seven Wentworth Chambers !"#$%&'$()'*#"+,($-,(.'$'/0(-"$%-' ' ' '

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7 Termination for Convenience

• Common law does not usually permittermination in absence of breach

• Exception is indefinite contracts �– canterminate on reasonable notice: New SouthWales Cancer Council v Sarfaty

• Parties can express provide for it but needs:– Clear and unambiguous right to unilaterally end

– Entitlement to compensation (uncertainty !)