INTRODUCTION TO CONTRACT LAW

OFFER

Gibson v Manchester City Council [1979] 1 WLR 294

Gibson fills out a form to buy property off the Council. He submits the form. A new council is elected which refuses to sell the house.

It was held that the words „maybe be prepared to sell,‟ and „if you would like to make a formal application to buy…‟ in the Council‟s letter prevent the letter from being taken as an offer.

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

CSB Co posts an ad stating that a £100 reward will be payed to anyone who contracts the flu or a cold whilst using the carbolic smoke ball, and that £1000 is deposited with a bank „to show our sincerity.‟ Carlil uses the ball and contracts the flu.

It was held that the ad contained an express offer to pay the award. It was not a „mere puff‟ because money was deposited „shewing our sincerity.‟ Carlil accepted the offer by performing the act (unilateral).

The offer was open to anyone who contracted the flu within a reasonable time after contracting the flu.

MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR 125

Can a ticket produced by MacRobertson be construed as an „agreement or memorandum of agreement‟ for taxation purposes? Are terms on the ticket binding?

Held that the issue of the ticket by MacRobertson constitutes an offer by the airline. The passenger may accept this offer after they have been given a reasonable opportunity to read the conditions. The airline is not in contractual relations with the passenger until they are provided a seat on the plane. There is no promise by the airline to carry the passenger until this point.

OFFERS DISTINGUISHED FROM INVITATIONS TO TREAT

Shop sales

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401

Boots runs a chain of self-serve pharmacies. A pharmacist always supervised the cashier. The Poisons Act required the sale of certain medicines to be supervised by a registered pharmacist, which PSGB alleged Boots was not

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doing.

It was held that goods on display were no more than an invitation for customers to choose what they decided. The customer offers to buy the item by presenting them at the register. The shopkeeper can then choose to accept this. If customers were bound as soon as they chose an item (as PSGB thought) they would have no right to replace the item for a similar, more desirable, one.

Auctions

AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454

AGC puts land up for auction. The highest bid does not meet the reserve. AGC permits the auctioneer to withdraw the reserve. A bid lower than McWhirter‟s is accepted. He sues.

It was held that there is no need to distinguish between a sale with or without a reserve. The auction remains an invitation to treat. Every bid is no more than an offer, which is not binding unless assented to. The auctioneer can accept any of the offers he is instructed to.

Tenders

Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] 1 AC 207

Harvela, the Trust and Sir Leonard owned shares in a company. The Trust offers to sell its shares by way of tender. Harvela makes a fixed bid. Sir Leonard makes a bed referencing Harvela’s: his bid would be x amount higher than Harvela‟s.

It was held that a referential bid cannot be made, because if it could a person bidding a fix price could never win. The Trust could not accept the referential bid, nor could Sir Leonard

Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151

Airservices invites Hughes and another company, Thompson, to enter a tender process for an advanced air traffic system. Airservices sets out the selection criteria to both parties. Airservices accepts Thompson‟s offer and not Hughes’ without evaluating the offers with reference to the selection criteria.

It was Held that the letter that set out the criteria was not a mere invitation to treat, and upon signing it the parties were bound by its stipulated process. Upon lodging its (Hughes) final offer, the terms in the letter received contractual force.

TERMINATION OF AN OFFER

Revocation

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Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674

Goldsbrough Mort pays 5 shillings to Quinn for him to keep an offer for the purchase of land open for a week. Before the end of the week Quinn repudiates that offer. Nevertheless, Goldsborough Mort accepted the offer within the week. Quinn denied the existence of an enforceable contract.

It was held that „a promise to keep an offer open for a specified period is not binding (so that the offer can still be revoked at any time) unless the promise is made in a deed or is supported by consideration.

Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475

Mobil offers extended tenure to Wellcome (franchisees) if they achieve a score of 90% in judging over the next 6 years. Offer was accepted by signing a tear of slip. Later, Mobil announced it would not be granting tenure as part of the plan.

It was held that because the offer because the proposal was too vague to give to a contractual obligation. But, if they were wrong, there is no universal proposition that the offeror is not at liberty to revoke it after the offeree has embarked upon the sought means of acceptance. Further, the offer could be revoked because the offer actually benefitted the franchisees too.

Lapse and death of offeror

Fong v Cilli (1968) 11 FLR 495

A contract is drawn up for Mr Goon (Fong) to transfer land to the Cilli. Luigi Cilli is informed of Fong‟s death. The contract is forwarded to Luigi for signing.

It was held that an offer cannot be accepted if the offeree is aware of the offeror‟s death at the time the offer is accepted. Since Luigi executed the agreement, and was aware of Mr Goon’s (the land owner‟s) death, a contract was never formed.

Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57

Laybutt owns a piece of land that he offers to Amoco. Before he sells it he dies, leaving his wife as the sole executor of his state. Amoco accepts the offer and serves it on Laybutt‟s widow.

It was held that upon death, any contractual responsibilities pass on to personal representatives. This does not apply if the contract depends on the personal skills or judgment of the deceased. Thus, there is no reason for which the option to buy could not be exercised by Amoco.

Failure of condition and changed circumstances

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Dysart Timbers Ltd v Neilson [2009] NZSC 43; [2009] 3 NZLR 160 (NEW ZEALAND)

Before appeal, Neilson offers to settle out of court after being sued by Dysart, who accepts. The Supreme Court accepts the appeal. Nielson‟s lawyers withdraw the offer, arguing that it was implied in the offer that the leave for appeal application would be withdrawn before the Supreme Court made a decision.

It was held that an offer automatically lapses if there is a fundamental change in circumstances before the offer is accepted. But, the leave for appeal was not a fundamental change and the appeal was dismissed.

Rejection and counter-offer

Stevenson, Jaques & Co v McLean (1880) LR 5 QBD 346

Defendant offers Plaintiff steel at a price. Plaintiff sends a telegram asking if the Defendant will accept „forty for delivery over two months, or if not the longest you will allow.‟ Defendant doesn‟t respond. Later, Plaintiff accepts the first offer, but the Defendant sells steel to another.

It was held that the Plaintiff‟s question was not a rejection or counter offer, but a „mere enquiry.‟ The rejection was not effective until it reached the plaintiffs, even though the Defendant was at liberty to revoke the offer until Monday.

WEEK TWO

ACCEPTANCE

CONDUCT CONSTITUTING AN ACCEPTANCE

Smith v Hughes (1871) LR 6 QB 597

Smith owns oats. Hughes inspects the oats and offers to buy them. The oats were delivered, but Hughes was not happy with them, as they were new oats, whereas he thought the agreement was for old oats and refused to take them.

It was held that, whatever a man‟s subjective intentions may be, if he conducts himself in such a way that the other party believes that he is assenting to the party‟s proposed terms, and upon that belief the party enters into the contract, the man conducting himself is bound by those terms regardless of his subjective beliefs.

Taylor v Johnson (1983) 151 CLR 422

Ms Johnson enters into a contract with the Taylor children to sell her lots

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of land at a price of $15000 overall. Ms Johnson thought she was selling her land for $15000 per lot, and thus refused to sell her land. Taylor sued for specific performance.

It was held that the objective theory of contract law (manifestation of intention rather than actual intention) is „in command of the field.‟ However, the subjective theory was applied here, as a person who makes a serious mistake as to the content of a contract may be entitled in equity if the other party knows that the person is entering into the contract under a mistake, and, that party makes no effort to make the other party aware that they are entering into the contract under a mistake.

Fitness First (Australia) Pty Ltd v Chong [2008] NSWSC 800

Ms Chong joins up with Fitness First on certain terms, and does not read her contract before signing it. The contract contains a term stipulating that she pays a $200 cancellation if she terminates within the first 12 months. She cancels her contract and refuses to pay the fee arguing she was not aware of it.

It was held that a valid contract does not require both parties to be ad idem, or of one mind. The general rule in this case is that a party assents to all the terms of a contract it signs.

CONSCIOUSNESS OF THE OFFER

The Crown v Clarke (1927) 40 CLR 227

Clarke sees a proclamation that „£1000 [will be payed] for… information as to a murder.‟ He is charged with that murder, and makes a statement leading to the arrest and conviction of the actual murderer. WA Gvt refuses to pay the reward.

It was held that „acceptance and performance of condition… involve that the person accepting and performing must act on the offer. Clarke did not act on the faith of, or in reliance upon the proclamation, and thus was not entitled to the reward.

SILENCE AND ACCEPTANCE INFERRED FROM CONDUCT

Felthouse v Bindley (1862) 11 CBNS 869; 142 ER 1037

Plaintiff writes to Defendant that he wishes to buy his horse, adding „if I hear no more I consider the horse mine.‟ The Defendant had directed his auctioneer not to sell his horse, but it was sold anyway, meaning the Plaintiff could no longer purchase it. The plaintiff sues the auctioneer.

It was held that the Plaintiff had no right to impose the sale of the horse upon his nephew with the condition that he must reply to repudiate the offer. Whilst the nephew intended to sell his horse to his uncle, he had not communicated it to his uncle, or done anything to bind himself. So, no

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contract was formed.

Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523

Mr Jury has a majority shareholding in Empirnall. Machon Paull undertakes works for Empirnall. They send Mr Jury a contract, but are told that he „does not sign contracts.‟ Progress payments were made. Later, Machon Paull wrote to Mr Jury and said „we are continuing on the stance that the conditions of the contract are accepted.‟

It was held that the silence of the offeree may indicate they have assented to the terms where an offeree has been given a reasonable opportunity to reject the terms, and takes the benefit from those terms under circumstances which indicate the other party would be payed.

Brambles Holdings v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153

Brambles manages Bathurst‟s waste disposal. After the first contract expired, and a new one was drawn up, Bathurst wrote to Brambles to increase liquid waste desposal fees; additional income would be placed in a fund. Brambles disagrees, but charges the stipulated rates anyway. Bathurst claims it is entitled to the increased fees.

It was held that, for a variety of reasons (Ipp J: initial rejection of letter was „part of the posturing of negotiation.‟ And (Heydon JA) Brambles taking the benefit of the increased fees etc.) that the normal analysis of offer an acceptance must not be applied in every case: sometimes it is relevant to ask whether an agreement can be inferred by the conduct of the parties.

COMMUNICATION OF ACCEPTANCE

General rule

Latec Finance Pty Ltd v Knight [1969] 2 NSWR 79

Knight filled out and returned a hire-purchase agreement with Latec, who processed the agreement, noting they had „accepted‟ without communicating it to Knight. Knight returns the goods, having not made any payments, due to a defect. Latec sue.

It was held that acceptance must always be communicated. Acceptance can be communicated other ways, but „very clear language is needed for a document of such construction.‟

Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34 Brinkibon (London) accepts an offer for the purchase of steel bars by Stahag Stahl (Vienna). Brinkibon accepts from London via telex (fax). Brinkibon were to sue Stahag for a breach of contract, but it was first

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ascertained whether the contract was formed in Vienna or London.

It was held that, if it is necessary to determine where a contract was formed, acceptance occurs at the place where the acceptance is communicated to the offeror. With instantaneous communications, the general rule is that acceptance is made when and where the acceptance is received.

Postal acceptance rule

Adams v Lindsell (1818) 1 B & Ald 681; 106 ER 250

A defendant makes an offer to the plaintiff through post. The letter of acceptance is received two days later than what had been expected, so the defendant had already sold its wool when the letter was received.

It was held that an offer is accepted where and when the letter has been posted.

Electronic communications

Electronic Transactions (Victoria) Act 2000 (Vic) ss 3(1), 13A

S3: a) covers data and images (ie. emails, texts) b) covers sound (ie. phone calls)

S13: if electronic address is designated by the addressee- the time the communication becomes capable to being retrieved by the addressee

If no electronic address is designated, the time when the communication is capable to being retrieved, and, the addressee becomes aware that the communication has been sent to that address.

Guide to Enactment of the UNCITRAL Model Law on Electronic Commerce (1996)

CORRESPONDENCE BETWEEN OFFER AND ACCEPTANCE

Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1 WLR 401

Butler and Ex-Cell-O negotiate the sale of machinery. The Seller‟s quote contains a price variation clause. The Supplier replies „please supply terms and conditions as below‟ without including a price variation clause. Seller supplies on the basis of the price variation clause and attempts to increase the price.

It was held that the traditional approach may be applied in this sort of case, but applying a „battle of the forms‟ approach yields the same outcome- in most cases the battle is won by the person who fires the last shot (provides the last accepted set of terms), but, in some cases, the battle depends on the shots fired by both sides (where the terms are reconciled producing a harmonious result), but in this case the battle was won by whoever gets (or got) in first: from this, it was clear

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that contract was on the buyer‟s terms.

WEEK THREE

CONSIDERATION

E Jenks, The History of the Doctrine of Consideration in English Law (Cambridge University Press, London, 1892), pages 81-82

THE ESSENTIAL ELEMENTS

The benefit/ detriment requirement

The “bargain” requirement

Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424

Commonwealth announces it will pay a subsidy for the purchase of wool. Australian Woollen Mills (AWM) purchases large quantities of wool in pursuit of the subsidy. Commonwealth denies AWM its full subsidy, which AWM sues to recover.

It was held that for consideration there must be a relation of quid pro quo or „this for that‟. Since the Commonwealth had never promised the subsidy in return for the purchase of wool, and only announced it as policy, there was no such relation.

Beaton v McDivitt (1987) 13 NSWLR 162

McDivitt becomes concerned that he will not be able to pay rates on his land, so he divides it up and allows the Beatons to live there rent free (so long as they engaged in permaculture) on the understanding that the title would be transferred after some time. Eventually, the relationship sours and the Beatons are ordered off the land.

It was held that in this case there was no consideration moving from Beaton to McDivett because the promises Beaton made cannot be classified as quid pro quo for a transfer of title. In some cases consideration will be so illusory or one-sided that quid pro quo will not be found.

Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (receivers and managers appointed) (in liq) [2009] VSCA 238; (2009) 25 VR 411

Atco (parent) loans money to its subsidiary, Newtronics. Due to financial difficulties, Atco agrees not to call for its loans to be payed so long as Newtronics continues to trade. Later, Atco demands payment of its loans by Newtronics.

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It was held that for a quid pro quo to exist in this context Newtronics must show that Atco made a request for it to continue its trading in return for the undertaking of continued support and that Newtronics was moved by this request. The evidence could not support such a conclusion, and thus there was no „this for that.‟ A request/exchange must be made.

ADEQUACY OF CONSIDERATION

Woolworths Ltd v Kelly (1991) 22 NSWLR 189

Here, Kirby P sets out the reasons for why the law has declined to consider the adequacy of consideration in ascertaining a bargain:

People put different weight on different things

Judges are not qualified to give opinions on the value of things

A requirement of adequacy would open a ‘vast territory of evidence’ causing uncertainty

People should be able to make their own deals

There is already legislation and equitable safeguards against vitiating factors.

SUFFICIENCY OF CONSIDERATION

Past consideration

General rule

Roscorla v Thomas (1842) 3 QB 234; 114 ER 496

Thomas delivers a horse and is payed by Rascorla. Later, Thomas promises that the horse is „sound and free of vice.‟ The horse becomes vicious, so Rascorla sues.

It was held that as a general rule, the promisor‟s promise must be coextensive with the promisee‟s consideration. Past consideration will not support a future promise.

Promise to pay for past services performed at the request of the promisor

Ipex Software Services Pty Ltd v Hosking [2000] VSCA 239

Hosking helps Ipex in the transfer of his computer company to their name under the belief that he would receive a shareholding in the restructured company. After the transfer was finalised, an agreement was written up entitling Hosking to a share in the re-structured group.

It was held that Hosking‟s consideration was not past, but executed, thus he was entitled to a company share.

Lampleigh v Brathwait (1616) Hob 105; 80 ER 255

Braithwait had murdered a person. He requested that Lampleigh join

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him on a journey to receive a pardon from the king. The journey ended up becoming long and expensive. Upon their return, Braithwait promised to pay Lampleigh an amount.

It was held that where A makes a request to B that he performs services, and B performs the services requested of him, and A then promises to pay B for those services, B‟s performance of those services is good consideration for A‟s promise.

Existing legal duty

Stilk v Myrick (1809) 2 Camp 317

A boat captain promises his seamen the wages of two deserters if they continue working the ship back to London. Upon returning, he decides not to pay the extra wages.

It was held that continuing to work the boat could not be viewed as consideration since the seamen were under an existing legal duty to carry the boat back to London.

Foakes v Beer (1884) 9 App Cas 605

Foakes owes Beer a judgment debt. He agrees to pay it in increments. Beer then sued for the interest on the judgment debt calculated from when it was initially meant to be payed.

It was held that payment of a lesser sum, in satisfaction of a greater sum cannot be any satisfaction for the whole, as Beer was under an existing legal duty to pay the full amount.

Hartley v Ponsonby (1857) 7 El & Bl 872 FRESH CONSIDERATION

A ship captain had agreed to pay a crewmember a greater amount for sailing in worse, more dangerous conditions.

It was held that since the danger was not stipulated in the original terms of employment, the extra pay could be considered fresh consideration. Thus, the extra wages were to be payed.

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 PRACTICAL BENEFIT

The Roffey Brothers, having contracted with Williams to build apartments, find himself unable to complete the work. After this concern is raised, Williams agrees to pay the Roffey Brothers an amount if they complete as many apartments at possible.

It was held that if A enters into a contract with B to do work for B in return for payment by B and at some stage before A finishes B has reason to doubt whether A will be able to finish, then B promises A additional payment to finish on time, and as a result B obtains in practice a benefit, or obviates a disbenefit, and B‟s promise is not given as a result of duress or fraud, then the benefit to B is capable of being consideration for

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B‟s promise.

Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 PRACTICAL BENEFIT

Musumeci rents a fruit store from Winadell. Musumeci‟s profit margins decrease, so it is granted a lower rent payment.

It was held that Williams v Roffey Brothers should be followed with a recasting: it being that „before A finishes his obligations under the contract B has reason to doubt whether A will be able to complete his obligations, so B promises extra payment or another concession to A and as a result B obtains a practical benefit, A suffers a detriment, or obviates a disbenefit and this is worth more than any remedy against the beneficiary… then the benefit to B or detriment to A is good consideration for B‟s promise.‟

Re Selectmove Ltd [1995] 1 WLR 474

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Pao On v Lau Yiu Long [1980] AC 614 PROMISE IS MADE TO A THIRD PARTY

Pao On owns Shing On. Pao On agrees to sell Shing On to Fu Chip. Lau Yiu Long is Fu Chip‟s major share holder. Pao On enters into an agreement with Fu Chip not to sell 60% of its shares before a specified time. Pao On then entered into a subsidiary agreement with Lau Yiu Long to sell 60% his shares to Lau at an agreed price. Pao On realised this agreement was poorly drafted, and refused to continue with the first agreement unless it (the subsidiary agreement) was redrafted. A new subsidiary agreement was formed indemnifying and guaranteeing Lau from a fall in share price. By the next year share prices had dropped substantially. Lau, with threat of being sued, argued that no consideration had passed for the subsidiary agreement; the parties were already bound to the terms of the main agreement.

It was held that the real consideration given by Pao On in return for the indemnity was the promise to perform their pre-existing contractual obligations to Fu Chip. A pre-existing contractual obligation to a third party can be good consideration because the promisee obtains the benefit of direct obligation, that is, if Pao On breached the main agreement with Fu Chip, Lau Yiu Long would be allowed to Pao On for the breach, whereas ordinarily he‟d only be able to sue Fu Chip

Wigan v Edwards (1973) 1 ALR 497 BONA FIDE COMPROMISE OF A GENUINE LEGAL DISPUTE

Edwards purchased a house from Wigan. The house was defective, and Edwards said that he would not finalise the contract unless the defects were attended to. Under pressure, Wigan compromised to remedy the major defects within a week of purchase, and to rectify any other defects

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within 5 years. He did not carry out this promise.

It was held that if one party honestly and legitimately believes they are excused from a contractual duty, then the performance of that contractual duty is good consideration for a subsequent promise by the other party. Here, whilst the Edwards were wrong in the belief that they did not have to complete the purchase, it is what they honestly believed, and thus Wigan was bound by his promise.

cf. Ballantyne v Phillott (1961) 105 CLR 379

It was held that there was no genuine foundation for Ms Ballantyne‟s claim that Phillott had defamed her, and thus neither party was bound to the terms of their compromise that Phillott would discontinue his claim against Ballantyne for unreturned loans, and that Ballantyne would admit she had no right of claim against Phillott in defamation.

WEEK FOUR

INTENTION TO CREATE LEGAL RELATIONS

THE OBJECTIVE APPROACH

Shahid v Australasian College of Dermatologists [2008] FCAFC 72; (2008) 168 FCR 46

Shahid wants to join the College of Dermatologist. She applied multiple times, her application providing a right of appeal upon payment of a substantial fee. Her appeal was quashed three times. She sued, arguing that the appeal process created a contract whose terms must be followed, and that the appeal process, by not being genuine and effective, breached this contract.

It was held that the parties‟ uncommunicated intentions should not be considered. The parties did intend to enter legal relations having regard to the comprehensive appeal process, the time and effort involved in the application and the payment of a substantial sum. “Where one party makes, and another party accepts, a money payment as consideration for a promise by the other to provide some service or to bestow some benefit, the proposition that each intended the promise to be binding and to carry the normal legal consequences does seem rather obvious.‟

Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (receivers and managers appointed) (in liq) [2009] VSCA 238; (2009) 25 VR 411

Same facts as above.

Although it is customary to conceive of intention to create legal relations

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as a contractual requirement separate and distinct from the need for

consideration, the better view may be that the rules as to consideration

supply the answer as to whether parties intend to enter into a legally

binding bargain. Even so, in some cases consideration and the intention

to create legal relations can be distinct; as where, for example, although

application of the rules as to consideration as such suggest the

formation of legally binding agreement, the parties have otherwise

expressly or impliedly signified that they do not intend their arrangement

to be legally binding. In such cases, the existence of background

circumstances, such as that a dealing is between members of the same

family, or between corporations within the same corporate group, when

taken into account in conjunction with the ordinary rules as to

consideration, may yield a different result to the application of the rules

of consideration simpliciter.

PRESUMPTIONS

Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95

Ermogenous is employed by the GOCSA as Archbishop. He is payed by GOCSA, and upon resigning sues for unpaid annual and long service leave. GOCSA had argued that their was no intention to create legal relations between the parties due to the relationship‟s spiritual character.

It was held that there is no presumption that contracts between religions or associated bodies and ministers of religion, by their nature, are not legally binding. The word „intention‟ describes what would objectively be conveyed by what was said or done having regard to the circumstances in which those things happened. It is not a search for the uncommunicated intentions of the parties.

COMMERCIAL TRANSACTIONS

Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502

ANI is the parent company of Spedley. Spedley and BBLSA enter into a loan agreement of a substantial sum, only after ANI provides a strongly worded „letter of comfort‟ asserting that it would not reduce its shareholding in Spedley, it would give BBLSA 90 days notice if it wished to do so, and, that it would ensure that Spedley is in a position to meet its debts. Spedley was unable to repay, so BBLSA sued ANI arguing that the letter of comfort amounted to a contractual document.

As a starting point there was a prima facie presumption that in commercial transactions there is an intention to create legal relations.

It was held that, if the statements made in letters of comfort are appropriately promissory in character, court should enforce them when

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they are uttered in the course of business and there is no clear indication that they are not intended to be legally binding.

cf. Kleinwort Benson Ltd v Malaysia Mining Corp Bhd [1989] 1 WLR 379

Kleinwort agrees to loan MMC‟s subsidiary a loan facility after MMC provides two letters of comfort stating „It is our policy to ensure [our subsidiary] is at all times in a position to meet its liabilities to you under the loan faculty.‟ The tin market crashed and Kleinwort sued on the letter of comfort.

It was held that the letters of comfort had no legal effect, amounting to only a statement of the company‟s intention at the time, creating only a moral responsibility to repay the loans.

DOMESTIC AND SOCIAL AGREEMENTS

Ashton v Pratt (No 2) [2012] NSWSC 3

Pratt agrees with Ashton to pay a substantial financial award if Ashton becomes his mistress. Pratt dies and Ashton sues for the unpaid award.

It was held that even though there was an agreement, there was no intention for it to create legal relations because: The context was social, it was to establish the relationship as „mistress,‟ the parties did not seek legal advice and the parties did not record this agreement.

Todd v Nicol [1957] SASR 72

A widowed Ms Nicol invites her sister-in-law Todd to Australia to live with her. In reliance upon a promise that, upon her death, the Nicol house would belong to her, Todd sells all her stuff. The relationship sours and Nicol asks the Todds to leave.

It was held that an intention to create legal relations might be implied into an agreement where the intention is not express. Since it is significant for a person to sell everything, quit their job and move overseas for a promise, the intention could be implied.

GOVERNMENT AGREEMENTS

Administration of Papua and New Guinea v Leahy (1961) 105 CLR 6

The Administration leases land to Leahy. It becomes the Administration‟s policy that it should engage in tic eradication. Leahy and the Administration agree that it should take over the spraying of Leahy‟s property. Some cows die and Leahy sues.

It was held that the Administration had no intention to create legal relations with Leahy because it was merely performing a government function and simply pursuing a policy of tic eradication. The arrangement was of a more administrative nature than contractual.

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cf. Placer Developments Ltd v Commonwealth (1969) 121 CLR 353

Commonwealth and Placer enter an agreement whereby placer would start a timber company importing from New Guinea to Australia, and the Commonwealth would, in return, pay a subsidy. This agreement received parliamentary approval. The Commonwealth did not pay the subsidy in accordance with the appropriate clause.

It was held that both parties intended the contract to create legal relations as it was approved by the parliament, it was of a commercial nature, and the language of the agreement pointed to an intention,

PRELIMINARY AGREEMENTS

Masters v Cameron (1954) 91 CLR 353

Masters and Cameron enter into an agreement for the transfer of property which said „this agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions.‟ The Masters refused to go through with the sale.

It was held that an agreement on which the parties have negotiated terms of a contractual nature that exists alongside an agreement that it shall be dealt with by a „formal contract‟ may fall into three categories. In the first of these the parties have finalised all the terms and intend to be immediately bound to those terms, but at the same time propose to have the terms restated fully in a formal document. In the second the parties have completely agreed on all terms and do not intend to vary those terms but still have made the performance of one or more of those terms conditional upon the execution of a formal contract. The third, the parties do not intend to make any legally binding agreement unless and until they execute a formal agreement. This case was of the third category. The expression „subject to preparation of a formal contract‟ and particularly as the signed document would contain any documents the solicitor thought necessary indicated that the parties had established no more than a basis for future agreement.

Baulkham Hill Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622

In this case a fourth category was put forward, namely „one in which the parties were content to be bound immediately and exclusively by the terms they had agreed on whilst expecting to make a further contract in substitution for the first containing, by consent, additional terms.

WEEK FIVE

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CERTAINTY

COMPLETENESS

Milne v Attorney-General for the State of Tasmania (1956) 95 CLR 460

Facts irrelevant.

Per HCA: „[N]o contract is concluded until all the parties negotiating are agreed upon all the terms of their bargain- unless indeed the terms left outstanding are such as the law will supply.‟

ANZ v Frost Holdings Pty Ltd [1989] VR 695

ANZ contracts with Frost for the design and supply of 50,000 calendars. Nothing was agreed on as to their price, size, style and the format of the calendar. ANZ decides not to complete the deal and Frost sues.

It was held that „it is a first principle of the law of contracts that there can be no binding and enforceable obligation unless the terms of the bargain, or at least the essential or critical terms have been agreed upon. So there is no concluded contract where an essential or critical term is expressly left to be settled by future agreement.‟ Since nothing had been agreed on as to the format, size, style of the calendars, even though the Goods Act 1958 (Vic) (if parties have agreed upon all essential terms) allows the implication of a „reasonable price,‟ no contract was formed.

Foley v Classique Coaches Ltd [1934] 2 KB 1

Foley agrees to sell a piece of land to Classique on the condition that Classique enter into a second agreement with him whereby Foley would sell petrol to Classique at price decided „from time to time‟ and Classique would not purchase petrol from anyone else. This contract survived three years before Classique decided to by petrol from elsewhere.

It was held that a term stipulating a „reasonable price‟ could be implied into the contract in the circumstances since the parties believed they were part of a contract for three years, and the contract provided an arbitration clause which could apply to the price of petrol.

CERTAINTY

Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429

Council sells electricity to ACF. Cl 5 of the agreement allows the Council to vary supplier‟s costs (maximum demand charge and maximum energy charge) in other respects not specified in the agreement, so long as ACF is given 14 days notice in writing.

It was held that cl 5 was not void for uncertainty. So long as the wording of the agreement is not so „obscure and so incapable of definite meaning

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that the court is unable to attribute to the parties any contractual intention‟ the contract cannot be held meaningless. Furthermore, no narrow or pedantic approach is warranted in attributing this meaning. And, per Kitto J, the „supplier‟s costs‟ are ascertainable through the application of „normal business principles.‟

Implying objective standards

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

Dr Pace was employed by Biotechnology under a contract that would give him the option to participate in the company‟s equity sharing program. Pace was aware that such a scheme did not exist at the time of agreement. He sued the company after they failed to properly provide this option.

It was held that the fulfilment of this scheme depended on the decision of one party: there was no external standard to affix an appropriate or reasonable equity sharing scheme because „there mere existence of other equity sharing schemes in other companies with different scientists provides no such reference point.‟ And thus the scheme was void for uncertainty because it left too many decisions to be made by the court to give it content.‟

Whitlock v Brew (1968) 118 CLR 445

Hall v Busst (1960) 104 CLR 206

Hall purchased land and chattels off Busst in an agreement that would enable Busst to repurchase the land if Hall wished to resell. If Hall exercised this option he would pay a price „which shall be added to the value of all additions and improvements to the property… and subtracted from its deficiencies.‟ Hall sold without giving notice to Busst, who subsequently sued.

It was held that the words „the value of all additions and improvements‟ was too uncertain because there was no external standard to which the value of these things could be ascertained. It is even more difficult to ascertain a price to „cover the depreciation in the value of all buildings‟ by reference to an external standard.

Agreements to negotiate

United Group Rail Services Ltd v Rail Corporation of New South Wales [2009] NSWCA 177; (2009) 74 NSWLR 618

An agreement to “meet and undertake genuine and good faith negotiations with a view of resolving” was upheld with the view that these „are not empty obligations.‟

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ILLUSORY PROMISES

Meehan v Jones (1982) 149 CLR 571

Jones agreed to sell an oil refinery to Meehan at a price. The contract contained a special condition by which Meehan would obtain „finance on satisfactory terms and conditions in an amount sufficient to complete the purchase.‟ Meehan had done everything necessary under the contract but for the above, and informed Jones, but Jones had agreed to sell the refinery to another, arguing that the above provision was too uncertain.

It was held that a “subject to finance” or “subject to finance on satisfactory terms and conditions” clause denotes finance which is satisfactory to the purchaser is not to say that he has an absolute or unfettered right to decide what is satisfactory. Since all else had been done, the contract was enforceable.

Godecke v Kirwan (1973) 129 CLR 629

Godecke (purchaser) and Kirwan sign an agreement where, if required, the vendor/I/we will prepare a formal agreement containing „the forgoing and such other covenants and conditions as they may reasonably be required.‟ Kirwan refused to proceed.

It was held that the terms were not illusory because the new „covenants and conditions‟ were limited to those consistent with the terms of the offer. Further, the standard of reasonableness, which could be determined objectively, prevented the conference of an unfettered discretion on the solicitors.

Placer Development Ltd v The Commonwealth (1969) 121 CLR 353

Placer and The Commonwealth entered into an agreement whereby Placer would provide timber products from New Guinea, and the Commonwealth would pay a subsidy determined by it „from time to time but at an amount… not exceed[ing] the amount of customs duty paid and not remitted.‟

It was held that “wherever words which by themselves constitute a promise are accompanied by words showing that the promiser is to have a discretion or option as to whether he will carry out that which her purports to be the promise, the results will be that there is no contract upon which an action can be brought at all.‟ Since no objective standard could be implied, and the Commonwealth had a discretion to determine the subsidy (there was no quantum or formula to determine it) the term was void.

WEEK SIX

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FORMALITIES

THE STATUTE OF FRAUDS AND ITS AUSTRALIAN EQUIVALENTS

Instruments Act 1958 (Vic) s 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 interest in land unless the agreement on which the action is brought, or a 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.

Guarantee vs. indemnity

Yeoman Credit Ltd v Latter [1961] 1 WLR 828

It was held that an indemnity is a contract by one party to keep the other harmless against loss, but a contract of guarantee is a contract to answer for the debt, default, or miscarriage of another who is primarily liable to the promise.

ONLY A GUARANTEE REQUIRES A SIGNED NOTE OR MEMO UNDER THE ACT

THE FORMALITIES REQUIRED

Joinder of documents

Tonitto v Bassal (1992) 28 NSWLR 564

In this case it was held that two documents (an option agreement and a letter) can be „joined‟ to satisfy the Statute of Frauds so long as the words used in one document are capable of referring to another, and evidence can be given to resolve the ambiguity.

Signature

Pirie v Saunders (1961) 104 CLR 149

Pirie grants Saunders a lease orally. During negotiations Pirie‟s solicitor took notes containing a brief outline of some of the terms. The court considered whether the solicitors notes constituted a „memo or note of agreement‟ and, if yes, whether the notes were signed by Pirie.

It was held that the solicitor‟s notes could not be construed as a note or memorandum for the statute as the note did not list all the essential terms, and in particular, the fact that the notes did not even specify the

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house to be leased was fatal. Moreover, the fact that Pirie stood by as his solicitor wrote his name was insufficient to give rise to an „authenticated signature.‟

Documents in electronic form

Electronic Transactions (Victoria) Act 2000 (Vic) ss 7, 9

Section 7: A transaction is not invalid because it wholly or partially took place online.

Section 9: The signature requirement of an electronic transaction can be met if a method is used to identify the person and indicate their approval of the transaction, and that method is reliable in all the circumstances and proven to do so, and the person who requires the signature gives consent for its transmission in that way.

THE CONSEQUENCES OF NON-COMPLIANCE

Unenforceability (Unenforceable but not void)

Popiw v Popiw [1959] VR 197

It was held that an unenforceable contract can be used as a defence, and in some cases, may be subject to restitution.

Part performance: Ogilvie v Ryan [1976] 2 NSWLR 504

Ms Ryan moves into a home with Ogilvie. Upon Ogilvie‟s death his executor commences proceedings to reacquire the home from Ryan, who alleged that the pair had previously agreed that the house would be hers, rent-free for as long as she lived, upon Ogilvie‟s death.

It was held that a constructive trust will be declared in equity to defeat a species of fraud, namely that in which a defendant seeks to make an unconscionable use of his legal title by asserting it to defeat a beneficial interest in a property As for part performance, it was held that the narrower approach in Maddison v Alderson should be applied: “acts relied upon as part performance must be unequivocally and in their own nature referable to some such agreement as that alledged.‟ Thus a claim for part performance could not be pursued. (NOTE: Applying the broader test, that the acts must only point, on the balance of probabilities to the existence of an incomplete contract, would give rise to part performance in these circumstances)

CAPACITY

Age of Majority Act 1977 (Vic) s 3(1)

The age of majority in Australia is 18. Persons under the age of 18, or the age of majority are classified as minors.

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BINDING CONTRACTS: NECESSARIES

Goods Act 1958 (Vic) s 7

Contracts for necessaries are binding on minors. A minor must only pay a „reasonable price‟ for those goods. Necessaries refer to goods suitable to the condition in life of such minor or other person and to his actual requirements at the time of sale and delivery.

CONTRACTS BINDING UNLESS REPUDIATED

CONTRACTS REQUIRING RATIFICATION

Supreme Court Act 1986 (Vic) s 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 (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

VOID CONTRACTS

Supreme Court Act 1986 (Vic) ss 49, 51

S49

Contracts made by a minor for

(a) Repayment of money lent or to be lent (b) Payment of goods supplied or to be supplied, other than necessaries (c) Accounts stated

Are void

S51(1)

If a minor who has contracted a loan (a contract for which is void under this division) agrees after full age to repay all or part of that loan, that agreement and any instruments relating to it is, subject to subsections (2) and (3), void against everyone.

WEEK SEVEN

ESTOPPEL

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INTRODUCTION

THE DEVELOPMENT AND ELEMENTS OF EQUITABLE ESTOPPEL

Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101

Quaglia asked for a rent reduction from her landlord Je Maintiendrai. Low demand for retail space put Quaglia in a good bargaining position: she asked for reduced rent. Je Maintiendrai charged a reduce rent, but once the tenancy ended they asked for „arrears‟ that were legally due under the terms of the lease.

It was held that there is no valid reason for distinguishing between promissory and equitable estoppel. Since the Tennant‟s business was small it would be detrimental for it to pay these „arrears‟ (accrued over 18 months) in a lump sum.

Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

Walton Stores negotiated with Mahers to lease a part of his land. Mahers was told that he must „act fast‟ in the destruction of a building on the land to secure the lease. Walton Stores rescinded from the deal.

It was held that estoppel may be used offensively like a „sword‟ so long as the representor is unconscionable in his departure. 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 allowed to ignore it,‟ (Estoppel no longer requires a representation of fact or future conduct). Per Brennan J: to establish an equitable estoppel the plaintiff must prove:

1.The plaintiff assumed or expected that a particular legal relationship exists between the plaintiff and the defendant (or will exist in the future, and that the defendant was not free to withdraw from this representation).

2. The defendant induced the plaintiff to act on this 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

6. The defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.

Legione v Hateley (1982) 152 CLR 406

Legione contracts to sell his land to Hateley, subject to a clause whereby neither party can enforce their contractual rights unless 14 days notice of default is given. Hateley defaults, and the Legiones give notice.

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Later, Hateley‟s solicitor called the other party‟s solicitors to say that they would be ready to settle, mentioning „I think it will be alright, but I‟ll have to get instructions.‟ Later, the Legione‟s solicitor wrote to Hateley‟s purporting to rescind the contract. The Hateleys tendered payment of the balance, but Legione rejected it.

It was held that the solicitors had ostensible authority to complete the sale, and that meant that the Legiones were bound by their conduct. The Hateleys were induced by this conduct to believe that a settlement had been reached, and it would inequitable to allow the Legiones to rescind from the agreement without first giving appropriate notice.

Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475

Same facts as above.

It was held that both the 1-for-1 and 9-for-6 plans were stated in „too general‟ terms too give rise to an assumption. The franchisees, by working to improve performance, could not have suffered any real detriment, and, the minimum equity to make good this „assumption‟ would not require Mobil to be held to its proposal.

Commonwealth v Verwayen (1990) 170 CLR 394

Verwayen and others were injured when two navy vessels collided. Proceedings were not initiated for 20 years, until a High Court decision cast doubt on the presumption that the Commonwealth was not responsible for injury suffered in combat. Eventually Verwayen initiated a claim against the Commonwealth who, as policy, admitted liability but denied Verwayen‟s loss and damage by not pleading the Limitation of Actions Act 1958 and that it owed no duty to Verwayen. Verwayen‟s defence relied upon the Commonwealth not pleading these defences, however, two years later it was granted leave to amend its case.

It was held that estoppel prevented the Commonwealth from relying on those defences because if it was allowed to depart from the assumed state of affairs Verwayen would have suffered stress, anxiety, inconvenience and wasted effort in pursuit of a case that would be rendered futile. Thus, the minimum relief to rectify this departure would be to prevent the Commonwealth from relying on those defences.

THE EFFECT OF AN ESTOPPEL

Giumelli v Giumelli (1999) 196 CLR 101

The Giumellis own an orchard. One son is promised a piece of the land if he stays on the property. In reliance on this he gives up an opportunity for a different job. The family relationship breaks down and the other brother moves in instead.

It was held that the equitable relief should not detriment a third party, so instead of transferring the property (specific performance) an equitable

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compensation was made of the same amount (in this case, damages).

ESTOPPEL AS A CAUSE OF ACTION

W v G (1996) 20 Fam LR 49

W and G were in a lesbian relationship and decided to have babies. W became pregnant twice via IVF. Eventually the couple split. W claimed that G had made a representation that she would help rear the kids, and subsequently departed from that relationship.

It was held that estoppel can be used offensively, and that it is not „necessary to find that the plaintiff is worse off having had the children. It is sufficient that the plaintiff is now faced with the expensive and onerous task of raising two children by herself.‟

PRIVITY

IDENTIFYING THE CONTRACTING PARTIES

Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460

Mr Coulls and his wife received royalties from a company, but upon his death the children from another marriage stand to benefit. They sue for these royalties.

It was held that even though Mrs Coulls was entitled to these royalties in law, she was not entitled to sue to reclaim them, as she was not privy to the contract. Mrs Coulls could not have been a party to the contract because the contract was titled „Agreement between Arthur Coulls and O‟Niel construction,‟ and consideration moved from Arthur Coulls alone for the promise by O‟Niel. Lastly, the language of the contract (ie “I authorise”) suggested that Mrs Coulls could not be a party to the contract.

NON-APPLICATION OF THE PRIVITY RULE: AGENCY

Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (The ‘New York Star’) (1978) 139 CLR 231

Schick shipped razors to Sydney on „The New York Star,‟ and transmitted a Bill of Lading to Salmond in Australia (the consignee). It contained a „Himalaya clause‟ that extended the protection of liability that the carrier may have had to servants and agents of the carrier. Port Jackson Stevedoring (PJS) unloaded and stored these razors, the majority of which were stolen from their warehouse. Salmond sued in tort, PJS relied on the Himalaya clause.

It was held that PJS was covered by the Himalaya clause because the Bill of Lading made it clear that the stevedore was to be protected, the Bill made it clear that the carrier was contracting as agent for the stevedore, and either the carrier was authorised to make the contract on behalf of the stevedore, or, the stevedore subsequently ratified the carrier‟s

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actions. Lastly, the stevedore actually provided consideration to the promisor by unloading the cargo.

CIRCUMVENTING THE PRIVITY RULE: TRIDENT V MCNIECE

Trident General Insurance Co Ltd v McNiece Bros Ltd (1988) 165 CLR 107

Blue Circle and Trident entered into a contract of insurance which defined the assured as „Blue Cirlcle, all its subsidiary, associated and related companies, all contractors and sub-contractors…‟ and indemnified it against „all sums which the assured shall become legally liable to pay… in respect of bodily injury to… any person.‟ Hammond was working for a Blue Circle sub-contractor (McNiece) when he was seriously injured. Hammond sued McNiece who, in turn, sued Trident for an indemnity.

It was held (5:2) that McNiece could enforce against Trident for different reasons. Three justices found that a special privity exception should be made for insurance contracts as not doing so would result in injustice, and it is reasonable that a sub-contractor would not be likely to acquire their own insurance under the assumption that the contractors insurance would cover them too. The remaining majority judges found in trust or unjust enrichment.

Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet Holding AG [2004] NSWSC 149

Hill v Van Erp (1997) 188 CLR 159

Currey has Hill prepare her will. Van Erp stood to benefit from it. The will was not witnessed properly so Van Erp did not receive this benefit. She sued in tort.

It was held that Hill owed a duty to Van Erp and she was entitled to damages for Hill‟s breach. This effectively circumvented the privity rule.

REFORM

WEEK EIGHT

EXPRESS TERMS

IDENTIFYING THE EXPRESS TERMS

Written terms and the effect of signature

L’Estrange v F Graucob Ltd [1934] 2 KB 394

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L’Estrange purchases a cigarette vending machine from Graucob, placing her order using a standard form. The form contained, in small print, a term which stipulated that „any express or implied condition, statement or warranty, statutory or otherwise not stated herein is hereby excluded. The machine did not work how it was expected to work, so L’Estrange sued for breach of an implied term that the machine would be fit for its purpose.

It was held that the contract contained no implied term because an express term excluded it. Further, L’Estrange was bound by the term in small print because „when a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing is bound, and it is wholly immaterial whether he has read the document or not.‟

Toll (FGCT) Pty Ltd v Alphafarm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

Approved the application of the rule from L’Estrange.

“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.”

Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805

Curtis had taken her dress to CCD for dry cleaning. She handed a note and told to sign it because CCD would not accept liability for broken beads and sequins. She signed the receipt not knowing it actually contained a clause exempting CCD for liability for damage „howsoever arising.‟ The dress was returned with a stain; Curtis sued.

It was held that when a signature to a condition, purporting to exempt a person from their common-law liabilities, is obtained by an innocent misrepresentation the party who has made that representation is disentitled to rely on the exemption. In this case the assistant failed to draw attention to the width of the exemption clause, and this amounted to a misrepresentation.

Incorporation of terms by notice

Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CLR 197

Fay buys a ticket from OSLSSC. He was informed that the ticket will contain the terms and conditions of the cruise and outlined the details of his cruise. He paid and received an „exchange order‟ for the ticket. A clause of the ticket states that the Greek Courts have exclusive jurisdiction over any action against the ship. Dr Fay is injured whilst on

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the cruise.

It was held that the contract was formed in Australia when the company issued the exchange order. This means that OSLSSC was bound to issue the ticket on the terms already agreed upon in Australia. The normal „ticket case‟ analysis cannot be applied to a case of this type because Fay was not given the time to consider the terms, and it was not likely to be Fay‟s intention to undergo the expense of travelling to Athens just to receive terms he does not agree with.

eBay International AG v Creative Festival Entertainment Pty Ltd [2006] FCA 1768; (2006) 170 FCR 450

Creative promoted Big Day Out and sold tickets through Ticketmaster and the BDO website. The terms and conditions were accepted by clicking the appropriate box. The terms on the website listed old condition 6 whilst the tickets that were issued contained new condition 6. There was no attempt by Creative to draw attention until November 2006. eBay challenged this new condition.

It was held that the new clause 6 was invalid because the contract was formed because the ticket was sent. For tickets bought over the counter prior to November 2006, the conditions were not brought to the holder‟s attention before the payment, so the term was invalid, but all tickets sold after November 2006 were valid. The new condition 6 allowed tickets to be cancelled if resold for profit, this was held to be misleading conduct as Creative had no way of actually detecting if the tickets were resold for profit.

Parker v South Eastern Railway Co (1877) 2 CPD 416

Parker payed to leave his bag in a SERailway cloakroom. After paying he received a ticket with a clause stating that SERailway was excluded from liability for the loss or damage of items worth more than ten pounds. He did not read the ticket but noticed it contained words. His bag was missing. Parker sued, SERailway relied on the exclusion clause.

It was held that a person receiving a ticket is not bound by its conditions if he did not see or know there was any writing on the ticket. They are bound, however, if they knew the document had writing and that it contained conditions (whether or not they read them). If a person does not actually know that the writing contained contractual terms, but the delivery of the ticket was such that they could see writing on it, they are taken to have been given reasonable notice of the conditions.

Causer v Brown [1952] VLR 1

Causer took his wife‟s dress at a dry-cleaning owned by Brown. He was given a docket on which appeared a clause purporting to exempt Brown from any liability for damage to the dress. The dress was returned damaged.

It was held that the docket was one which might only reasonably

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understood to be a voucher for Causer to produce upon collecting the dress. This meant that the onus was on Brown (the docket‟s creator) to inform his customers that the docket contained contractual terms, or prove that Causer knew or ought to have known that it contained terms. The defendant did not discharge this onus.

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163

Thornton parked his car, for the first time, at Shoe Lane. He bought a ticket from a ticket dispenser which read (in the bottom left corner of the ticket) “this ticket is issued subject to the conditions displayed on the premises.” A notice outside the premises read „cars are parked at owner‟s risk.‟ Thornton was injured in the car park.

It was held that „ticket case‟ reasoning does not apply in these circumstances because „ticket cases‟ assume that the customer may get their money back if they disagree with the terms. In this case Thornton had no opportunity to return his ticket as it was bought from an automatic machine. In this case acceptance occurred once the money was paid for the ticket. This means a customer would be bound only if they were given sufficient notice of the terms. „The court should not hold any man bound by it unless it is drawn to his attention in the most explicit way.‟

Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1991) 22 NSWLR 1

Dillon payed a deposit for a cruise with Baltic and was given a “booking acknowledgement” and later, a “booking form” which stated that a contract of carriage is made “only at the time of issuing the tickets… subject to the conditions… printed on the tickets.” Later, Dillon received her ticket which contained terms asserting that all passengers must obey all by laws of the Ministry of Merchant Marine and a condition limiting the liner‟s liability for damage. The ship crashed and Dillon sued.

It was held that since the booking form did not actually inform Dillon of the onerous terms unless she took steps of her own, the shipping company had a responsibility to bring unusual terms to the notice of its passengers (liability limits were expressed in terms of „units of account‟ which would mean nothing to the ordinary passenger). Effectively, Dillon was entitled in law to assume that the contract would not contain any unusual terms for which she was not given notice.

New South Wales Lotteries Corporation Pty Ltd v Kuzmanovski [2011] FCAFC 106

Kuzmanovski purchased a „scratchie‟ from a Lotteries retailer. He claimed he won $100,000 when he (mistakenly) matched the word “BATHE” with a picture of a swimmer. The Public Lotteries Act 1996 (NSW) set out the rules for ascertaining a „win,‟ and the ticket itself contained on its face, in prominent type script “THIS TICKET IS GOVERNED BY THE PUBLIC LOTTERIES ACT 1996 THE REGULATIONS AND THE RULES.” Kuzmanovski sued claiming a win.

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It was held that the writing on the scratchie was such a statement which „unambiguously sought to incorporate the statutory requirements of the Lotteries Act and its subsidiary legislation into the contract.‟ And thus these rules and regulations were incorporated into the contract. It was further held that Lotteries had acted misleadingly as the words “SWIM” and “BATHE” are synonymous but did not produce a win.

Interfoto Picture Library Ltd v Stiletto Visual Programs Ltd [1989] QB 433

Stilleto ordered 47 transparencies from Interfoto over the phone. The transparencies were delivered with a note that contained terms, which stated that “all transparencies must be returned within 14 days of delivery,” and, “a five pound holding fee would be charged per transparency per day.” Stilleto had not read these terms, and returned the transparencies four weeks later with a huge late bill.

It was held that the offer occurred when the transparencies were delivered, and acceptance occurred when the parcel was opened. But, if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that the particular condition was fairly or reasonably brought to the attention of the other party.

Incorporation by a course of dealings

Balmain New Ferry Co Ltd v Robertson (1906) 4 CLR 379

Balmain placed a notice over the entrance to their wharf stating that a fare of one penny must be payed upon entrance and exit. Robertson had used the wharf before and was aware of these terms, but on one occasion missed his ferry and refused to pay the exit fee. He sued.

It was held to be immaterial in these circumstances whether Balmain had done what was reasonable to direct public attention to the notice, as Robertson had entered the wharf many times before and was aware of the terms (he admitted this in evidence). Thus Robertson was taken to have impliedly agreed that he would not exit the wharf without paying the fee.

Rinaldi & Patroni v Precision Mouldings (1986) WAR 131

Rinaldi agreed to transport a large boat for Precision at a price. The parties had entered into several similar contracts in the past with a standard sequence of events and conditions. Each „cart note‟ had read „all goods are accepted subject to the conditions on reverse.‟ One such clause purported to exempt Rinaldi from liability for damage caused to the boat whilst transporting it. The boat was damaged and Precision sued.

It was held that the parties been conducting their business, over some time, using liability exemption clauses those clauses could be incorporated into the current contract. However, the „cart note‟ terms

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could not be incorporated in this case because the cart note was presented for signature after the contract was formed, the cart note could not be understood as a contractual document (only an acknowledgment of delvery). Thus the exemption clause could not be incorporated by a course of dealings.

Statements made during negotiations

Relevance of the parol evidence rule

Corbin on Contracts, 1950, vol. 3, pp. 215-216

State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170

SRA entered into an agreement with Heath allowing him to advertise on their billboards. Their agreement contained a term (condition 6) that allowed the SRA to terminate the contract with a month‟s notice without giving rise to a claim for compensation on Heath‟s part, but Heath had been given an oral assurance that this power would not be exercised. The SRA terminated the agreement in light of new advertising laws.

It was held that a more flexible approach to the parol evidence rule should be taken whereby writing which appears to represent a written contract is merely an evidentiary foundation for the conclusion that the agreement was wholly in writing, and that however „complete‟ a contract may seem, the court cannot exclude evidence of oral terms if a party asserts they were agreed. If these oral terms are not proven, a court may simply find that the agreement was wholly in writing; it was subsequently found that the oral statements did not form part of the contract.

Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133

Spencer agrees to rent its premises to Hoyt’s for 4 years. The contract, in writing, contained a proviso which said „Spencer may… terminate this lease by giving to the lessee at least four weeks notice.‟ Spencer terminated the lease giving appropriate notice, But Hoyt’s sued arguing that Spencer had promised him that he would not exercise his termination power unless required to do so by the head lessors, and that on that basis he had entered into the main contract (collateral contract).

It was held that if the parties decided to make only one contract and commit only it to writing, then, “what is written is the conclusive record of the terms of their agreement, and, unless it can be shown that the document was not intended as the complete record of their bargain, no oral evidence can be admitted to qualify or alter it.” However, by arguing the existence of a collateral contract (oral), the parol evidence rule could not apply. BUT, a collateral contract must be consistent with the main contract and cannot impinge upon the main one. In this case the collateral contract would impair Spencer‟s rights, and thus could not form part of the agreement.

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Saleh v Romanous [2010] NSWCA 274

Saleh and Edmond had entered into a contract to sell their blocks of land to Romanous, and the development of these blocks was critical to Romanous‟ decision. In negotiating with Romanous, Saleh asserted that Eddie should be left to him, and that if he didn‟t want to build Saleh would not have to buy. Romanous could not agree with Edmond, and sued Saleh to recover his deposit.

It was held that an equitable estoppel operated to prevent Saleh from enforcing his contract of sale, and that the parole evidence rule could not operate to prevent a promissory estoppel in relation to pre-contractual negotations. THIS, HOWEVER, IS NOT A UNIVERSALLY ACCEPTED VIEW.

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WEEK NINE

EXPRESS TERMS (cont’d)

IDENTIFYING THE EXPRESS TERMS (cont‟d)

When is a statement a term of a contract

Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471

Investors entered into a written loan agreement on certain terms. When a court proceeding was brought against them, the investors asserted that the transaction was actually governed by an earlier loan agreement on different terms.

It was held that, as their contract was completely in writing and through the parol evidence rule, “the respondents each having executed a loan agreement… cannot be heard to say that they are not bound by the agreement recorded in it.‟

Van den Esschert v Chappell [1960] WAR 114

Before signing a contract, the purchaser asked the vendor whether the house contained termites. He said that the house didn‟t, but if it did, that he would take steps to eradicate them. The purchaser went through with the contract, but soon discovered termites and sued for breach of contract.

It was held that „on the purchase of a house… an enquiry regarding the presence of white ants (broader: or for any other important information) was most important: when asked immediately before signing a contract… an affirmative answer… was intended to be made part and parcel of the contract and was to be regarded a term.‟

JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435

Blakney enters into a contract with JJ Savage for the purchase of a speedboat. During negotiations Blakney enquired as to the speed of certain boats. JJ Savage had provided an „estimated speed‟ of „15km/h‟ for one engine. This estimate induced Blakney to purchase the boat. He later discovered that the boat could not reach this speed and sued.

It was held that a statement relied upon as forming part of a contract must be promissory and not a mere representation. An estimated speed indicates an expression of opinion as the result of an „approximate calculation based on probability‟ and such an opinion cannot form part of a contract.

Oscar Chess Ltd v Williams [1957] 1 WLR 370

Williams sold his car to Oscar Chess (a car dealer) for 290 pounds as a

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1948 model. At the time he sold it, Williams honestly believed it was a 1948 model as it was the date listed in the owner‟s manual. Oscar Chess subsequently discovered the car was an earlier model and sued claiming that the car being a 1948 model formed part of the contract.

It was held that both parties were operating under a genuine mistake, and had Oscar Chess sued earlier the sale could have been set aside in equity, but suit was brought too late. The test here is whether a reasonable person would infer that a warranty was intended by the representation. It was obvious that Williams had no actual knowledge of the year the car was made; he was relying on a manual, so he had not made a contractual promise. Further, Oscar Chess was a car dealer (he has expertise) and could have checked the year himself. The suit failed.

Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623

Bentley was in the market for a Bentley car. Smith, having said that he could determine the history of cars, found a Bentley and wrote to Bentley that it „was one of the nicest cars‟ they had in for „a long time.‟ He had also told Smith that it was fitted with a replacement engine and had only travelled 20,000km since. Bentley purchased the car, but it was not of appropriate condition.

This case is effectively an expansion of the rule in Oscar Chess. It was held that if an intelligent bystander could infer a warranty from the parties‟ conduct, that will be sufficient. Further, if a representation is made in the course of negotiations for the very purpose of inducing the other party to contract, and it actually induces the party to enter the contract, that is a prima facie ground for inferring a warranty. This inference can be rebutted if the representation was made by way of an innocent mistake, or it is unreasonable for the party to be bound by the warranty. However, in this case Smith was a car dealer who was in a position to determine the warranty of the car by writing to the manufacturer, so he was bound by the warranty.

CONSTRUING THE TERMS

Extrinsic evidence in construing a contract

Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45

This case confirms the rule in Codelfa. It was held that if the words or a written contract are unambiguous and capable of clear meaning, then the court cannot consider the surrounding circumstances to interpret the contract and/or contradict the language of the contract. Such evidence can be heard if the contract contains ambiguities or mistake/s.

cf. Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896

The facts of this case are irrelevant. This demonstrates the broader

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British approach to construing express terms, according to Paneth, this approach has (or perhaps had) been adopted by inferior courts in Australia (a source of confusing

Here, Lord Hoffmann set down 5 principles that should be followed when construing the terms of a contract. They appear as follows:

(1) A contract should be interpreted in the position of the reasonable person having all background knowledge.

(2) This background knowledge may include absolutely anything which would have affected the way a reasonable man would have understood the contract‟s language.

(3) The subjective intent of the parties does not constitute admissible evidence.

(4) The meaning of the words of a contract is not their natural or ordinary meaning, but one reasonably understood in the context.

(5) If it is concluded that a party has gone wrong in their use of language, the law does not require judges to attribute to the parties an intention which they could not have had. (ie if a contract‟s words are not effective in a business setting, the court should provide for that efficacy.

Process of construction

Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45

Trust entered into a contract with Sydney Council for the lease of a domain (including parkland and a car park) for fifty years. Clause 4(b)(iv) read: „rent for each yearly period may be determined by the trustees… they may have regard to additional costs and expenses which they may incur… in the vicinity of the parking station and the footway‟ (emphasis added). The issue here was whether the trustees were to have regard to only the aforementioned matters, or other things as well.

It was held that the word „may‟ had given rise to an ambiguity, and so evidence can be given to clarify the clause‟s meaning. When resolving an ambiguity regard should be given to (1) more than just the internal linguistic considerations, (2) the circumstances (in order to ascertain the parties‟ intention or objective) and (3) appreciation should be given to the commercial purpose of the contract, and it‟s background within that context. Here, the intention of the contract was to allow the provision of a public facility (non-profit), and the council was responsible for the car park and footway, and the purpose of cl4 was to allow the trustees to recover expenses for the pathway‟s construction or repair. Accordingly, „additional costs and expenses‟ were the only thing the Trustees had the power to give regard to.

Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451

Pacific were to deliver goods without a Bill of Lading. As a precaution they called BNP to ask for an indemnity in respect of loss or damage

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from delivery without a Bill of Lading. Ms Dhiri (working for BNP) signs the letter of indemnity only with the intention for it to authenticate the signatures on the letter of indemnity and not actually bind the bank.

It was held that: „what is important is not Ms Dhiri‟s subjective intention, or even what she might have conveyed or attempted to convey to NEAT about her understanding of what she was doing. Pacific did not know what was going on in Ms Dhiri‟s mind, or what she might have communicated to NEAT as to her understanding or intention.‟ This is confirmation of the objective approach to construing signatures.

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99

APRA contracted with the ABC to provide it rights for certain musical works in exchange for a licence fee which word increase annually by a percentage calculated with reference to population numbers and CPI. The ABC applied on the base year increase causing APRA to sue.

It was held that the cumulative increase could not be applied because it contradicted the actual wording of the contract: „whilst the parties were evidently anxious to provide in some way [a measure] against the depreciation in the value of money… it may be granted that… cl 2 may produce results which may not commend themselves to a person seeking to achieve a… constant value for the licence fee. But if that result is produced by [the actual words in the document]… the court… [cannot] attribute to the parties and intention for which the express words do not provide.‟ If the words of a contract are clear and unambiguous they must give those words their natural meaning even if it produces an unreasonable result. However, if a document gives rise to two constructions the preferred one is that which avoids an unreasonable result.

Quirke v FCL Interstate Transport Services Pty Ltd [2005] SASC 226; (2005) 92 SASR 249

FCL agreed to transport oranges for Quirke. There had been no written agreement between the parties at the time of collection. FCL insisted that Quirke executed a „credit application‟ containing a guarantee that operated in respect of the provision of goods (but not services; FCL provided only services). The application was executed. The issue here was whether the guarantee could apply to services as well as goods, even though the actual working only referred to goods.

It was held that Quirke could not be bound by the guarantee in respect of services, as this contradicted the wording of the document. If the language of a contract has plain meaning then extrinsic evidence will not be admissible to clarify it. The wording of the „Credit Application‟ was plain and unambiguous, as such; a „fair or reasonable‟ meaning could not (and in general cannot) be substituted for the actual one.

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Exclusion Clauses

Darlington Futures Ltd v Delco Aust Pty Ltd (1986) 161 CLR 500

A contract between a broker (Darlington) and its client (Delco) contained two exclusion clauses, one excluded the broker for liability for „loss arising in any way out of any trading activity undertaken on behalf of the client whether pursuant to this agreement or not.‟ The second limited Darlington‟s liability to $100 in respect of „any claim arising out of or in connection with the relationship established by this agreement.‟ Darlington engaged in trading unauthorised by Delco, and incurred substantial losses. Delco sued.

It was held that the first of the clauses applied only to activity undertaken on behalf of the client (natural meaning of the words), thus the defendant was not excluded from liability. The second of the clauses, however, was phrased appropriately to limit the broker‟s liability: an unauthorised transaction has a substantial connection to the relationship of broker and client established by the contract. Thus the broker‟s liability was limited to $100 per transaction.

Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd (1966) 115 CLR 353

TNT carried goods for May and Baker. The contract of carriage did not specify a route. TNT engaged a sub-contractor, Pay, to pick up and deliver the goods. Pay brought the goods home after discovering the depot was closed, when a fire destroyed all of the cargo. May and Baker sued TNT for losing its good. TNT relied on an exemption clause.

It was held that what occurred (a fire, misdelivery etc.) was „such a departure from the promised carriage that TNT was not entitled to rely upon the exemptions of the written contract. A carrier is unlikely to be able to rely on an exclusion clause for the loss of cargo during a deviation from the contractually agreed route or voyage.

Davis v Pearce Parking Station Pty Ltd (1954) 91 CLR 642

Davis parked his car at a car park owned by Pearce. He received a parking check which read „this car is garaged at the owner‟s own risk, and the parking station will not be responsible for loss or damage of any description.‟ Davis‟ car was stolen out of Pearce‟s negligence. He sued in tort.

It was held that the above exclusion clause was worded appropriately to protect Pearce from liability for negligence.

cf. Council of the City of Sydney v West (1965) 114 CLR 481

West parks his car at a car park owned by Sydney and prints a ticket. The ticket excluded Sydney from liability for loss or damage to any vehicle. West‟s car was taken by a person pretending to be West, and that presented West‟s ticket.

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It was held that handing over the car to the wrong person constituted an unauthorised delivery of the vehicle, and not just a mere act of negligence, thus Sydney was not afforded the benefit of the exclusion clause because it was not within the „four corners‟ of the contract.

WEEK TEN

IMPLIED TERMS

TERMS IMPLIED IN FACT

Formal contracts

Byrne v Australian Airlines Ltd (1995) 185 CLR 410

Two baggage handlers (Byrne) were dismissed from their employment. They alleged that these dismissals were in breach of the Industrial Relations Award on the ground that their dismissals were harsh, unjust, or unreasonable (a breach of the statute gave rise to a right to seek a court penalty). Byrne claimed further damages in common law, arguing that the provisions of the award were implied into their contracts of employment in custom, fact and law.

It was held in regard to the term implied by custom that there was insufficient evidence of a custom whereby the provisions of the Act were carried into the contract of employment: it was not sufficiently notorious and acquiesced into the airline industry.

In regard to the term implied in fact it was held that the inclusion of the term would function in a partisan fashion, as it would allow an employee to sue under breach of contract and statute: it is not obvious (or likely) that the employer would agree to this. Further, the term was not necessary for the contract‟s operation, as the employers were still protected under the Act and thus there was no gap to fill.

In regard to a term implied in law it was held that it was not necessary to imply the term in law, as “there is nothing to suggest tat the contracts of employment were not workable and effective before the introduction into awards of such provisions cl11(a)”

The Moorcock (1889) LR 14 PD 64

Defendants own a wharf and jetty, the plaintiff owned the steamship Moorcock. They entered an agreement whereby the ship would be discharged and loaded at the wharf, and for that purpose the ship would be moored along the jetty, taking ground at low water. The tide ebbed, damaging the boat. The Moorcock‟s owner sued, arguing the defendant had breached an implied term that they would take reasonable care to ascertain that the river‟s bottom was in a condition that would not damage

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the ship.

It was held that such an implied term existed, as the defendant was in the best position to ascertain the river floor‟s quality and honest business could not be carried out between the parties unless the defendants undertook to ascertain the condition of the river floor that adjoined the jetty. It was this that would ensure that jetty was fit for its purpose.

Re Ronim Pty Ltd [1999] 2 Qd R 172

A contract for the sale of land provided that “completion shall be effected at such a time and place as may be agreed upon by the parties. The time for completion shall between the hours of 9am and 5pm on the date for completion.” On the date for completion the purchaser could not search for the property and the computer was not working (this was the only way the title could be searched). The Vendor reneged the next day, the Purchaser arguing that it was implied in the circumstances that the time for completion could be extended.

It was held that the BP Refinery 5-point test should be applied. Where the parties have contracted in clear terms, its intent must be respected. But this was an unforeseen circumstance: „where through no fault of their own, on the day for completion, the parties cannot carry out the necessary computer checks… to verify the title, because the relevant departmental computer is inoperative, the obligation to compute is suspended until that can be done.‟ Whilst the contract would operate normally without the implied term, in these circumstances it was necessary for the efficacy of the contract.

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337

Codelfa contracts to build an underground railway for the Rail Authority. The works turned out to be noisy, and neighbours obtained an injunction limiting construction to certain hours. Codelfa claimed from the Rail Authority costs incurred and losses due to the injunction, asserting that an implied term existed that the Rail Authority would indemnify it against losses incurred due to injunction.

It was held that the BP-Refinery 5 point test for implying terms should be applied throughout Australia, that is: „[F]or a term to be implied, the following conditions (which may overlap) must be satisfied:

1) It must be reasonable and equitable 2) It must be necessary to give business efficacy to the contract so that

no term will be implied if the contract is effective without it 3) It must be so obvious it goes without saying 4) It must be capable of clear expression 5) It must not contradict any express term of the contract

In this case it was held that the term could not be implied because: the contract was already comprehensive, and the parties may be prepared to take a chance in relation to some eventualities for which provisions were

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not made. Further, the parties had already contemplated that the noise would be noisy, and had been advised that an injunction could not be brought against them: “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 grant to restrain [them], they would have settled upon the term implied.‟

Informal contracts

Hawkins v Clayton (1988) 164 CLR 539

Hawkins stood to benefit (by way of an interest in property owned by Ms Braisier) from a will prepared by Clayton (a law firm). Braiser died, but Clayton did not inform Hawkins. The property promised by the will fell into disrepair and a substantial fine was imposed on Hawkins as Braisier‟s executor. Hawkins sued Clayton in negligence and for breach of an implied term that he would be informed of Braisier‟s death.

It was held that „in a case where… the parties have not [spelled] out the full terms of the contract, a court should imply a term by reference to the presumed intention of the parties, if, but only if… it… is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case.‟ Care should be taken to avoid an automatic or rigid application of the ordinary criteria (i.e. the BP 5 point test) for implying terms when it is apparent the parties have not reduced their agreement to a written one (OBITER: PURSUASIVE).

TERMS IMPLIED IN LAW

University of Western Australia v Gray [2009] FCAFC 116; (2009) 179 FCR 346

The University alleges that a researcher, Gray, has an implied „duty to invent‟ and that this meant rights in relation to these inventions belonged to the University.

It was held that no term is implied in law that contracts between academics and universities involve a „duty to invent.‟ This „necessity‟ test for implying this term fell on „more general considerations‟ and „policy issues,‟ namely, the fact that academics have the freedom to choose their subject and manner of research negates the existence of such a term.

Liverpool City Council v Irwin [1977] AC 239

A landlord owned an apartment with „common areas‟ used by all tenants and visitors. These „common parts‟ fell into disrepair. Tenants started withholding rent, arguing that the landlord had breached an implied duty to keep these „common areas‟ in repair.

It was held that in contracts of lease and tenancy in high rise buildings with common areas, where the terms and otherwise provided for, terms

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for the right of exclusive possession of the premises by the tenants, a covenant for quiet enjoyment, a right for tenants and visitors to freely access and use the stairwells and lifts, and the right to use rubbish shoots should be implied. The landlord must also, out of necessity, have an obligation to maintain these „common areas‟, and keep them in reasonable repair and usability.

Breen v Williams (1996) 186 CLR 71

Mrs Breen sues her doctor, Williams, for access to her medical records.

It was held that a term should not be implied in a contract if it is effective without it. Since Breen‟s records were not required for any therapeutic reasons, the contract was wholly effective without it. Thus no term was implied in law that a doctor must provide its patients with their medical records.

TERMS IMPLIED BY CUSTOM

Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226

Con-Stan buys insurance from Norwich through a broker, Bedford. Con-Stan was to pay premiums to Bedford, and Bedford would on-pay to Norwich. However, Bedford did not on-pay these premiums. Subsequently, Norwich sued Con-Stan for the unpaid premiums (Con-Stan was obliged to pay these premiums to Norwich as part of the contract).

It was held that „it is necessary to establish a clear course of conduct under which insurers do not look to the assured for payment of the premium. This may be established by proving either an absence of claims by insurers against assured, or the existence of claims directed exclusively to brokers as a practice rarely ever departed from. Having examined the evidence of custom that was led in the present case we do not think this requirement is satisfied. A CLEAR COURSE OF CONDUCT MUST BE ESTABLISHED TO IMPLY TERMS IN CUSTOM.

THE ROLE OF GOOD FAITH

Should a duty of good faith be recognised?

Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234

Renard enters into a contract with the Minister (the principal) to construct pumping stations. It provided a time for completion, and a term that empowered the principal to ask the contractor to show cause why the principal should not take over the work, and/or cancel the contract.

It was held that a term of reasonableness is be implied in law to restrain the above clause because the particular contract is standard form, and the contract is an example of a broader class of building contracts. „For

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the principal… to be able to exclude the contractor from the site and/or cancel the contract would be… to make the contract as a matter of business quite unworkable.‟

Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228

Provides uncertainty for the implication of good faith in Victoria. Here, Warren CJ describes the concept of good faith as „nebulous‟ suggesting it escapes clear definition. Further, Buchanan JA was „reluctant to conclude commercial contracts are a class of contracts carrying an implied term of good faith as legal incident.‟

Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1

Same facts as above: a tender process for an air control system is not followed, resulting in a claim by Hughes.

It was held that a duty to deal fairly in the performance of the tender should be implied. If the purpose of a tender process contract is to be accomplished, or tenderers are to be given an effective opportunity to enjoy the fruits of their bids, and not have that opportunity destroyed by the unfair dealing of the other party to the contract, the duty to deal fairly is a pre-supposition of such a contraction

What should good faith require?

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596

SIRE (vendor) sold an office building to St Martins. A balance remained payable by a specified date. The contract provided a formula to reduce this sum, and also, that all leases thereafter should be approved by the purchaser. At all times the rents were below the requisite figure, and the formula dropped the balance owing to 0. SIRE sued St Martins for the breach of an implied term that the purchaser would cooperate in securing tenants.

It was held that a duty to cooperate should be implied in the contract because it is common ground that each party to a contract agrees, by implication, to do all such things as necessary on his part to enable the other party to have the benefit of the contract; however, this duty was not found to be breached because the purchaser had not been motivated by a desire to deprive the vendor of the balance of the price. It had genuine doubts to the vendor‟s ability to pay the rent promptly and in accordance with a lease.

Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558

Hungry Jacks and Burger King entered into a development agreement

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whereby HJs would develop restaurants in Australia, and each new restaurant required the approval of BK at it‟s „sole discretion.‟ BK decided it wanted a better market share so it imposed a freeze on HJs recruitment of 3rd party franchises, and withdrew financial and operation approval from HJs. This prevented Hungry Jacks from performing under the development agreement. BK subsequently served a Notice of Termination, citing HJs failure to develop restaurants as their reason.

It was held that a term is implied in law in a standard form contract containing a general power of termination to act reasonably and in good faith in exercising that power. „Good faith‟ should not restrict the advancement of a parties‟ own legitimate interests, but does preclude the exercise of contractual powers for extraneous purposes. By using the above term to prevent HJs from developing restaurants it had breached this duty of good faith.

Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] FCA 903

Subaru introduces a new program and requests its dealerships to conform. Garry Rogers Motors does not conform.

It was held that a duty of good faith was not breached because the company was only pursuing its own legitimate business interests and it had good reason to terminate the agreement (it thought the new plan would be preferable) and the dealership was given appropriate notice.

WEEK ELEVEN

CONSUMER CONTRACTS

UNFAIR CONTRACT TERMS

Competition and Consumer Act 2010 (Cth), Schedule 2 (“Australian Consumer Law”), Parts 2-3 and 5-2

Australian Securities and Investments Commission Act 2001 (Cth), Part 2, Division 2, Subdivisions BA and G

Standard form contracts

Robert A Hillman and Jeffrey J Rachlinski, “Standard-Form Contracting in the Electronic Age” (2002) 77 New York University Law Review 429 at 435-454

The scope of the unfair contract terms law

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The test of an unfair term

Director of Consumer Affairs v AAPT Ltd [2006] VCAT 1493

Effect of a term being unfair

CONSUMER GUARANTEES

Competition and Consumer Act 2010 (Cth), Schedule 2 (“Australian Consumer Law”), Part 3-2, Division 1, and Part 5-4

Australian Competition and Consumer Commission, Consumer guarantees – a guide for consumers, 2011