tabl1710 lecture wk6 - breach of contract, termination

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TABL 1710Business and the Law

Week 6Contract Law (Contd)

Breach of contract/Termination of contract/Remedies for breach of contract

Lecturer: Paul Tuohy

2015 The University of New South WalesSydney 2052 Australia

The original material prepared for this guide is copyright. Apart from fair dealing for the purposes of private study, research, criticism or review, as permitted under the Copyright Act, no part may be reproduced by any process without written permission.

Enquiries should be addressed to the Head of School, Taxation and Business Law, UNSW, Sydney22

In-Class Exercise on Lecture Topics 1 and 2

PLEASE SPEAK TO YOUR TUTOR IF YOU MISSED THE IN-CLASS EXERCISE

Worth 10% of your mark You must do this exercise before week 9 After week 9 students who have not done this

exercise will automatically receive 0/10 for this assessment

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MAJOR ASSIGNMENT On Moodle now DUE WEEK 9: Monday 4 May 2015Contract law, problem questionSee Guidelines to Students (attached to the

Assignment)See suggested readings and research guidance

notesNote: Students should show evidence of research

beyond the suggested readings and beyond the textbook

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MAJOR ASSIGNMENT

ONLINE SUBMISSION ONLY

Check your plagiarism score and re-submit onTurnitin as many times as you wish UNTIL the deadline of 5pm on 4 May

Word limit is 2000 words please observe the word limit

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Discussion Forum

Now available on Moodle Separate Discussion Forum for EACH TUTORIAL

CLASS Tutors will provide details about how to use the

Discussion Forum for your tutorial class Access problems? Please email Margaret Connor

[email protected]

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Lecture 3: Summary

Essential elements of a contract: Intention to enter into a legally binding contract Agreement Offer Acceptance

Consideration Something of value (price) Exception: Promissory Estoppel

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Lecture 3: Summary

Other elements for a valid contract: Legal capacity Genuine consent Legality of purpose Any formal/procedural requirements must be satisfied(See Latimer at 5-510 to 5-570)

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Lecture 4: Summary

Intention to create legal relations Social/family/domestic/voluntary Commercial/business Historically the rebuttable presumptions Now change in approach

Terms of a contract Representation:

- Pre-contractual negotiations Terms

- Express/Implied- Condition/Warranty- Uncertain/Meaningless/Ambiguous terms

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Week 5: Summary

Exclusion Clauses Notice to be given before contract made or at time of making of contract

(Thompson V London, Midland & Scottish Railway Co; eBay case; Olley v Marlborough Court; Balmain Ferry case)

Exclusion clause must be properly incorporated into the contract (Curtis v Chemical Dry Cleaning)

You are bound by what you sign (LEstrange v Graucob) Rules of interpretation:

Ambiguity (or Contra Proferentum) Rule; Negligence Rule; Four Corners Rule (Sydney County Council v West; Thomas National

Transport case)

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Week 5: Summary

Requirements for a valid contract (contd) Capacity Consent Proper formPrivity of contract Agency: the exception to PrivityVitiating elements Mistake Misrepresentation Illegality Inequality between the parties

Duress (threats of violence to person/property etc) Undue influence (improper use of position of authority) Unconscionable conduct (abuse of superior bargaining position when you

know other party in situation of special disadvantage/special disability: Commercial Bank v Amadio)

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Week 5: Summary

Unconscionable or Unfair Contracts Contract will be set aside as unconscionable (unfair) where the

defendant has abused their superior bargaining position in their dealings with the plaintiff

Case: Commercial Bank of Australia v Amadio See Latimer at 5-730

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Week 5: Summary

Unconscionable or Unfair ContractsThe plaintiff has to establish: They were in a position of special disability or special

disadvantage That substantially affected their ability to protect

themselves The defendant knew, or ought to have known, of the

plaintiffs disability/disadvantage and should not have taken advantage of it

AND The actions of defendant were unconscionable

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Week 5: Summary

Unconscionable or Unfair Contracts Examples of special disability/special disadvantage

include: age financial needs illness ignorance inexperience inability to understand the language inability to read

See Latimer at 5-730

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Todays lecture

Restraint of trade clauses Breach of contract Termination for breach of contract Loss of the right to sue (the limitation period) Time of the essence Remedies available for breach of contract, under the

common law

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Overview - Week 6 Breach of Contract/Termination for breach of

contract/Remedies

On completion of this week you should beable to:9 Explain when a contract may be terminated or

discharged9 Identify the remedies for breach of contract9 Explain what is a statutory limitation period 9 Explain what time of the essence means

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Restraint of trade clauses

Clauses in restraint of trade are found in:Contracts for employmentContracts for sale of businessContracts between manufacturers and traders

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Restraint of Trade clauses in contracts will generally be unenforceable (ie: void as being contrary to public policy) unless the restraint is reasonable

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What is reasonable is determined by:The geographic extentThe time period involvedThe nature of the business and the activity being

restrained Whether the restraint is reasonable, both in the

interests of the parties and the public

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Enforceability

Contracts classified by enforceability:

Valid - a contract which the law will enforce

Voidable - the contract remains valid and binding unless and until it is repudiated (ie cancelled) by the injured party

Void - no legal rights or obligations from the outset (void ab initio)

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Enforceability

Contracts classified by enforceability:

Unenforceable - valid on its face but no legal action can be brought on the contract, often because of a procedural defect

Illegal - the purpose of the contract contravenes a statute or the common law, and generally treated as void

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Breach of contractRemedies(1) Common Law

Termination of contract Damages

(2) Equity Rescission Restitution Rectification Specific Performance Injunctions

(Also: Remedies under the Australian Consumer Law - to bediscussed in Consumer Law lecture)

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At Common Law:Termination of contract

When one party: completely fails to perform their obligations (actual

breach)or indicates that they do not intend to perform their

obligations (anticipatory breach), the other party is entitled to terminate the contract

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Breach of contract may be either:

Total breach: where one of the parties does not perform the contract at all

OR Partial breach: where one of the parties does not

perform the full requirements of the contract

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A contract may be terminated or discharged: by performance by agreement by operation of law (eg bankruptcy) by lapse of time by frustration

See Latimer at 6-280 to 6-350

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By performance: contract usually ends when each party has performed its contractual obligations

Obligations under a contract must be performed exactlyNear enough is not good enough

Cases: In re Moore & Co Ltd and Landauer & CoSumpter v Hedges



By performance:

Entire or divisible contracts- If a contract does not provide for pro rata recovery expressly or

by implication then this equals an entire/lump sum contract- If the contract is to be delivered by instalments which are to be

separately paid for, then the terms of the contract will show whether the breach is a repudiation of the whole contract OR whether the breach is severable (ie referable to the particular instalment only)


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By agreement: contractual obligations can be discharged by agreement between the parties

By operation of law: bankruptcy, death, material alteration of a written document without consent, merger of contract terms into one document

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By lapse of time: when contract stipulates a time period after which it will expire and parties allow this time to lapse or expire

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Time of the essence Performance of the contract must take place in the time

specified Or, within a reasonable time if no time is specified

If performance at certain time is essential, contract may contain a time of the essence clause

If time not of the essence, serving a notice to complete will fix the time for performance/completion of the contract Non-compliance will become a breach


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Loss of the right to sue:Statutes of Limitation

Statutes of Limitation protect a person from being forced to defend a case after a certain number of years (when the case becomes statute barred)

Period of limitation begins to run as soon as a cause of action arises (so when the breach of contract first occurs)

Statutory limitation period: 6 years (or 12 years for formal contracts)


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By frustration: After formation of the contract, performance may become impossible if something unexpected happens over which neither party has any control


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Cases:

Codelfa Constructions Pty Ltd v State Rail Authority (NSW)Ooh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd


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Frustration can arise if: There is some significant or radical change to

nature of contractual rights and obligations by an unexpected event

Neither party caused the unexpected event Neither party contemplated the unexpected event

when the contract was entered into In the new circumstances, it would be unjust to hold

the parties to the originally agreed contract

See Latimer at 6-350, footnote 51: National Carriers Ltd vPanalpina (Northern) Ltd case

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At Common Law: Damages

Every breach of contract gives the innocent party a right to claim damages

Main purpose of damages is to enable the innocent party to receive (monetary) compensation for injury or loss suffered because of the breach

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Damages are calculated on the basis of looking at what the position of the plaintiff would have been if the contract had been properly performed

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Key issues: Causation Remoteness

Case: Hadley v Baxendale


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Causation and Remoteness: The plaintiff must show that the breach of contract by the

defendant was the cause of the loss

Must be a connection between the breach and the loss suffered

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Causation and Remoteness:

ASK:

Is the loss suffered by the injured party a usualand reasonably direct consequence of the breach ofcontract?

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Causation and Remoteness

Compensation will NOT be awarded for damages that are too remote

The plaintiff may not be able to recover if an additional factor unconnected with the defendants breach breaks the causal chain between the defendants action and the plaintiffs loss or damage

This is a question of fact


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Losses which can be claimed are those that: flow naturally from the breach of contract are special losses made known to the defendant when

the contract was made

Case: Victoria Laundry (Windsor) Ltd v Newman Industries Ltd


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At Common Law: Damages Damages for special losses cannot be awarded unless: the plaintiff made known the special circumstances to the

defendant at the time the contract was made if so, the defendant will be taken to have accepted the risk

by default

Case: Victoria Laundry (Windsor) Ltd v Newman Industries Ltd


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Amount of damages

The aim of damages is to put the injured party back as

close to the position they would have been in had the

breach never occurred

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Amount of damages

Damages are recoverable for economic loss as well as for:Distress and disappointmentUpset/anxietyDiscomfortMental distress


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Mitigation of damages The innocent party has a duty to take reasonable steps to

minimise or mitigate their loss. Failure to do so can result in a reduction of damages

Mitigation is a question of fact

Onus of proof is on the defendant to show that the innocent party (plaintiff) did nothing to mitigate the loss

Case: Payzu v Saunders


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Types of damages

The type of damages that will be awarded will bedetermined by the seriousness of the breach andwhether the contract has specified the amount ofdamages to be paid in the event of breach

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Types of damages

General damages: compensation for loss suffered by the plaintiff as a result of the breach

Nominal damages: defendant breached contract but plaintiff has not suffered any actual loss

Exemplary damages: punitive and may be awarded for non-economic loss


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Types of damages

Liquidated damages: awarded where a plaintiff is able to sue for a specified sum, which must be a genuine or bona fide pre-estimate of the actual loss that will flow from the breach

Unliquidated damages: awarded where an injured party has no fixed sum in mind and leaves the court to decide the amount


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Types of damages PenaltiesOnly enforceable if amount is a genuine pre-

estimate of the loss from the breach of contractMust not be extravagant or unconscionableMust not be designed to apply pressure or

intimidate the other partyMust be transparent: based on reasonable criteria

and clear evidence/information as to how the amount is calculated


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Equitable remedies

Restitution Rescission Rectification Specific Performance Injunction

These are discretionary remedies at equity andonly granted where damages are not an adequateremedy

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Equitable remedies

Restitution: The court orders the return of property or the payment of money

Rescission: Setting aside an agreement and restoring parties to their pre-contractual positions

Rectification: The court corrects a written document

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Restitution

Based on the concept of some UNJUST ENRICHMENT

Can be used where there has been: a mistake of fact or of law duress some element of compulsion


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Restitution The plaintiff must establish:Defendant obtained a benefit or enrichment;Benefit was at plaintiffs expense It would be unjust to allow defendant

to keep benefit or enrichmentandDefendant has no defences (such as estoppel,

incapacity, illegality) to rely on

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Rescission

Termination by right Court order setting aside contract, to restore parties

to pre-contractual position May be granted because of:mistake misrepresentationundue influenceduress unconscionability


Rectification

Court order requiring correction of mistake/error, to bring document in line with correct agreement between parties


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Specific Performance

Court order requiring a party to specifically perform their contractual obligations


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Injunctions

Court order prohibiting a party from doing something Court order requiring or compelling a party to do

something


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Injunctions

Cases:

Lumley v WagnerCurro v Beyond Productions Pty LtdNetwork Ten Pty Ltd v Rowe


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Contract Law LECTURE queries

Your tutor is your primary point of contact but. if you have any contract law LECTURE queries, you may contact Paul Tuohy at: [email protected]

All contract law TUTORIAL and ASSIGNMENT queries should be directed to your individual tutor

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Next week

Introduction to Tort LawTopic for weeks 7 & 8 (Lecturer: Dr Leela Cejnar)Read Latimer Chapter 4: 4-010-4-120

IMPORTANT TOPICProblem question in the exam

tabl1710 lecture wk6 - breach of contract, termination

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