LEGT 1710 Business and the Law

Week 6 Contract Law (Contd)

Breach of contract/Termination of contract/Remedies for breach of contract Lecturer: Dr Leela Cejnar
2013 The University of New South Wales Sydney 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, Sydney

ASSIGNMENT 2
On Blackboard now Contract law, problem question See Guidelines to Students (attached to the assignment) DUE WEEK 9: MONDAY 23 SEPTEMBER 2013 See Course Outline (paragraph 4.4) for details about where and how to submit Assignment 2 Must be submitted ONLINE on Blackboard (via Turnitin), due by 5pm Monday 23 September
1 2

ASSIGNMENT 2
ONLINE SUBMISSION ONLY Check your plagiarism score and re-submit on Turnitin as many times as you wish UNTIL the deadline of 5pm on 23 September Word limit is 2000 words please observe the word limit

Week 5: Summary
Requirements for a valid contract (contd)
Capacity Consent Proper form Agency: the exception to Privity 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)
4

Privity of contract Vitiating elements

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

Unconscionable contracts
The 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
6

Unconscionable 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
7

Restraint of trade clauses

Clauses in restraint of trade are found in: Contracts for employment Contracts for sale of business Contracts between manufacturers and traders Clauses in contracts in restraint of trade will generally be void as being contrary to public policy unless the restraint is reasonable

Restraint of trade clauses

What is reasonable is determined by: The geographic extent The time period involved The nature of the business and the activity being restrained Whether the restraint is reasonable, both in the interests of the parties and the public

Todays lecture
Breach of contract Termination for breach of contract Remedies available for breach of contract, under the common law Loss of the right to sue (the limitation period) Time of the essence

10

Overview - Week 6
Breach of Contract/Termination for breach of contract/Remedies On completion of this week you should be able to: 9 Explain when a contract may be terminated or discharged 9 Identify the remedies for breach of contract 9 Explain what is a statutory limitation period 9 Explain what time of the essence means

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)

11

12

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

Breach of contract
Remedies (1) Common Law Termination of contract Damages (2) Equity Rescission Restitution Rectification Specific Performance Injunctions (Also: Remedies under the Australian Consumer Law - to be discussed in Consumer Law lecture)
13 14

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

At Common Law: Termination of contract

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

15

16

At Common Law: Termination of contract

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

At Common Law: Termination of contract

By performance: contract usually ends when each party has performed its contractual obligations Obligations under a contract must be performed exactly Near enough is not good enough Cases: In re Moore & Co Ltd and Landauer & Co Sumpter v Hedges See Latimer at 6-290
17 18

At Common Law: Termination of contract

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)

At Common Law: Termination of contract

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

See Latimer at 6-300

19 20

At Common Law: Termination of contract

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

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

See Latimer at 6-290

21 22

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) See Latimer at 6-500

At Common Law: Termination of contract

By frustration: After formation of the contract, performance may become impossible if something unexpected happens over which neither party has any control See Latimer at 6-350

23

24

At Common Law: Termination of contract

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 v Panalpina (Northern) Ltd case

At Common Law: Termination of contract

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

See Latimer at 6-350

25

26

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

At Common Law: Damages

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

27

28

At Common Law: Damages

Key issues: Causation Remoteness Case: Hadley v Baxendale See Latimer at 6-430

At Common Law: Damages

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

29

30

At Common Law: Damages

Causation and Remoteness: ASK: Is the loss suffered by the injured party a usual and reasonably direct consequence of the breach of contract?

At Common Law: Damages

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 See Latimer at 6-420

31

32

At Common Law: Damages

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

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 See Latimer at 6-430

Case: Victoria Laundry (Windsor) Ltd v Newman Industries Ltd See Latimer at 6-430

33

34

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

Amount of damages
Damages are recoverable for economic loss as well as for: Distress and disappointment Upset/anxiety Discomfort Mental distress See Latimer at 6-460
35 36

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 See Latimer at 6-480

Types of damages
The type of damages that will be awarded will be determined by the seriousness of the breach and whether the contract has specified the amount of damages to be paid in the event of breach

37

38

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 See Latimer at 6-450

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 See Latimer at 6-471
39 40

Types of damages
Penalties Only enforceable if amount is a genuine preestimate of the loss from the breach of contract Must not be extravagant or unconscionable Must not be designed to apply pressure or intimidate the other party Must be transparent: based on reasonable criteria and clear evidence/information as to how the amount is calculated See Latimer at 6-471
41

Equitable remedies
Restitution Rescission Rectification Specific Performance Injunction

These are discretionary remedies at equity and only granted where damages are not an adequate remedy
42

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

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 See Latimer at 6-510

43

44

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 enrichment and Defendant has no defences (such as estoppel, incapacity, illegality) to rely on

Rescission
Termination by right Court order setting aside contract, to restore parties to pre-contractual position May be granted because of: mistake misrepresentation undue influence duress unconscionability See Latimer at 6-280
45 46

Rectification
Court order requiring correction of mistake/error, to bring document in line with correct agreement between parties See Latimer at 5-695

Specific Performance
Court order requiring a party to specifically perform their contractual obligations See Latimer at 6-400

47

48

Injunctions
Court order prohibiting a party from doing something Court order requiring or compelling a party to do something See Latimer at 6-410

Injunctions
Cases:
Lumley v Wagner Curro v Beyond Productions Pty Ltd Network Ten Pty Ltd v Rowe See Latimer at 6-410

49

50

Next week
Consumer Law Read Latimer, Ch 7

51