LAW 241A/B: Contract Law

EXAM NOTES 2022

THE BASICS .................................................................................................................................................. 4

ENFORCING AGREEMENTS ........................................................................................................................ 4
Agreement objective ascertained................................................................................................................ 4
Parties must be ad idem.......................................................................................................................... 4
Objective test in the shoes of the promisee ............................................................................................ 4
IS THERE A CONTRACT? ............................................................................................................................ 4
Offer ............................................................................................................................................................ 4
Establishment of an offer......................................................................................................................... 5
Termination of an offer ............................................................................................................................ 6
Acceptance ................................................................................................................................................. 7
Communication of acceptance ................................................................................................................ 7
The postal rule......................................................................................................................................... 8
Battle of forms ......................................................................................................................................... 8
Intention ...................................................................................................................................................... 9
Type of relationship ................................................................................................................................. 9
Certainty.................................................................................................................................................... 10
Vagueness ............................................................................................................................................ 11
Incompleteness ..................................................................................................................................... 11
Consideration ............................................................................................................................................ 12
General principle of consideration ......................................................................................................... 13
Compromises and forbearance to sue .................................................................................................. 13
Existing legal duty ................................................................................................................................. 13
Contractual variation ............................................................................................................................. 14
Part payment of debt ............................................................................................................................. 15
Formalities ................................................................................................................................................ 16
Deeds .................................................................................................................................................... 17
Privity..................................................................................................................................................... 18
HOW DO WE READ AND INTERPRET CONTRACTUAL TERMS? .......................................................... 18
Incorporation ............................................................................................................................................. 18
Incorporation by signature ..................................................................................................................... 19
Incorporation by notice .......................................................................................................................... 20
Incorporation by course of dealing ........................................................................................................ 21
Implication ................................................................................................................................................. 21
Implication by custom ............................................................................................................................ 21
Implication by legislation ....................................................................................................................... 22
Implication by class of contract ............................................................................................................. 22
Implication by specific contract .............................................................................................................. 22
Exclusion clauses ..................................................................................................................................... 24
Incorporation of exclusion clause (apply incorporation principles!) ....................................................... 24
Interpretation of an exclusion clause ..................................................................................................... 24
 Unresolved law in relation to exclusion/limitation clauses ..................................................................... 25
Exclusion clauses attempting to contract out of statutory schemes ...................................................... 25
Interpretation ............................................................................................................................................. 26
New Zealand’s approach to interpretation! (Firm PI 1 Ltd v Zurich Australian Insurance Ltd affirmed in
Bathurst) ................................................................................................................................................ 26
PARTIES’ CHOICES TO SECONDARY OBLIGATIONS ............................................................................ 29
Liquidated damages vs. doctrine of penalty.............................................................................................. 29
Doctrine of penalty ................................................................................................................................ 29
Application of modern test in New Zealand (Honeybees) ..................................................................... 31
Forfeiture................................................................................................................................................... 32
Deposits ................................................................................................................................................ 32
CONTRACTUAL REMEDIES ...................................................................................................................... 32
Fundamental principles of damages ......................................................................................................... 33
The expectation measure ...................................................................................................................... 33
Causation .............................................................................................................................................. 34
Specific performance and injunction ......................................................................................................... 34
Specific performance............................................................................................................................. 34
Injunction ............................................................................................................................................... 35
Remoteness .............................................................................................................................................. 35
Development of remoteness ................................................................................................................. 35
The not unlikely test .............................................................................................................................. 36
Refining the expectation interest............................................................................................................... 37
Cost of cure and non-pecuniary losses ................................................................................................. 37
Certainty in assessing damages ........................................................................................................... 38
Mitigation ............................................................................................................................................... 39
Estoppel .................................................................................................................................................... 40
Equitable estoppel ................................................................................................................................. 40
Promissory estoppel .............................................................................................................................. 40
WHAT CAN LEAD TO THE END OF A CONTRACT? ............................................................................... 42
Cancellation .............................................................................................................................................. 42
Cancellation under CCLA ...................................................................................................................... 42
Requirements of cancellation under CCLA ........................................................................................... 43
Step one: are there grounds for cancellation? Remember, there can be multiple grounds! ................. 44
Step two: affirmation or cancellation? ................................................................................................... 48
Step three: compliance with notice/leave formalities?........................................................................... 48
Step four: what is the effect of the cancellation? ................................................................................... 49
Step five: what contractual relief might be available? ........................................................................... 50
Misrepresentation ..................................................................................................................................... 52
Elements of a misrepresentation under section 35 ............................................................................... 52
Illegality ..................................................................................................................................................... 56
Is the contact illegal? ............................................................................................................................. 56
What is the effect of the illegal contract?............................................................................................... 58
What relief can the courts grant? .......................................................................................................... 58
Restraint of trade clauses ......................................................................................................................... 60
 S 83: Restraints of trade........................................................................................................................ 60
Is the restraint reasonable? ................................................................................................................... 60
Unfair terms, duress, undue influence, and unconscionability .................................................................. 62
Unfair terms ........................................................................................................................................... 62
Duress/undue influence/unconscionable conduct ................................................................................. 64
Undue influence .................................................................................................................................... 65
Principles of undue influence (Royal Bank of Scotland v Etridge (No 2)) ............................................. 65
Requirements of unconscionable bargain under equity ........................................................................ 66
Surety transactions (undue influence, misrepresentation, unconscionable conduct) ............................... 69
Surety principles .................................................................................................................................... 69
Frustration (defence)................................................................................................................................. 69
Requirements for defence of frustration (multi-factorial approach in Planet Kids Ltd v Auckland Council)
.............................................................................................................................................................. 70
Mistake...................................................................................................................................................... 73
S 24: Mistake......................................................................................................................................... 73
Requirements for mistake outlined in s 24 ............................................................................................ 75

Exam/Essay Tips:
- Summarise cases and prepare own notes: name of parties and citations, judges of the case (minority
and majority), procedural posture (what is the history of the case; decisions of lower levelled courts),
decision (paragraphs from highlights of the decision).
- Make sure you understand the principles: understand every case in light of the principles and the
outliers and challenges that clash with the principles – how is this relaxed, interpreted, developed,
expanded? Why is the law the way it is?
- Practice problems and essays.

How to answer a question?

- Know what the question is.
- Find the subsidiary questions. Underline the key terms in the questions and make sure you answer
them.
- Write to the point.
- Choose cases well: cite the best cases for the points being made.
- Observe the right style.
- Proof-read.
 THE BASICS

Corrective justice Economic efficiency

Law needs to correct injustice in case of a breach.
- It defends equality of parties’ choice to offer and
accept future performances.
- Restores equality between parties.
Default rules
Parties can decide whether they abide to these rules in
contract.
Parties generate surplus through voluntary transactions
in contract.
- Economic actors are best to make decisions in best
economic interest, but in even that one party
chooses to benefit himself at the expense of
another, there is no surplus.
Mandatory rules
Rules that are present regardless – e.g. cannot make
binding offer that can’t be revoked, can’t employ people
for less than minimum wage.

ENFORCING AGREEMENTS

Agreement objective ascertained

Contracts are voluntary transaction. Promises in contract are consensual between two parties.
- Smith v Hughes: Parties must be ad idem.
- Hartog v Colin & Shields: objective test for agreement is what a reasonable person, in shoes of the promisee,
would believe based on the promisor’s conduct.
Parties must be ad idem
Smith v Hughes – Claims no contract because parties were not ad idem (of same mind) because Hughes
Parties must be ad wanted old oats not new.
idem unless one party - Whether there can be a contract in absence of subjective agreement.
entered contract - Contract couldn’t be voided despite no agreement about type of oats.
based on reasonable, - Is an objective test of a reasonable person expecting sale of good quality oats since
objective belief of no express discussion about old oats.
other’s intention. • Sample was given = caveat emptor (buyer beware).
• Objective intentions were the same despite different subjective intentions (seller
gave a sample, buyer to own neglect should’ve figured they were new).
- Parties not ad idem = no contract.
• Whatever subjective intention is, if reasonable person would believe he was
asserting to terms proposed by other party, and other party enters contract on
that belief, then party is equally bound as if he agreed to terms.
Objective test in the shoes of the promisee
Hartog v Colin & Colin & Shields contracted to sell Hartog hare skins but mistakenly offered at lower price.
Shields – If they enter Wanted out as didn’t intend to price so low.
a contract knowing - Whether contract is breached by plaintiff by accepting the offer.
the other party doesn’t - Plaintiff couldn’t have reasonably thought that offer expressed real intention; would’ve
have the same belief, known of mistake.
even if it’s reasonable, - Reasonable to infer knowledge of mistake = subjective intentions different., objective
no contract. price of hare significantly lower than price used in negotiations = no contract.

IS THERE A CONTRACT?

Contract formation requires:

1. Intention to create legal intentions by both parties.
2. An offer and acceptance by both parties.
3. Consideration (or deed).

Doctrine of offer and acceptance

- A legal contract has formed when an offer made by the offeror to contract is accepted by the offeree,
assuming all other conditions are satisfied.
- Possible to have offer and acceptance without agreement (Hartog).

Offer
- An offer is made with the intention that it shall become binding as soon as the person to whom it is addressed
 simply communicates his assent to its terms.
- Can be oral, written or by conduct.
- Offer must embody the intention to be bound by terms expressed once accepted.
Establishment of an offer
- Intention to be bound by the terms of the offer once accepted and intention to undertake legal liability.
- Sufficiently clear terms.
- Offers can be made to class of persons, a person or as a reward to public at large (Carbolic).
An offer is established by:
- Distinguishing from invitations to treat (Boulder Consolidated; Carbolic; Boots).
- Establishing whether there are any default rules that displace contrary intention.
• The default rule is…
• There is/isn’t contrary intention…
Offers distinguished from invitations to treat
Bilateral contracts Unilateral contracts
In circumstances that aren’t extraordinary, Advertisements are made by people who intend to be
advertisements are invitations to treat. bound once the other party performs an action or
service which they offered to pay for.
Boulder Miscommunication about what section of land was ready for sale/which section Tangaere
Consolidated Ltd v selected. Negotiations made but no actual agreement.
Tangaere – Offer is - Whether correspondence between parties purported a concluded contract.
made with intention - No acceptance of any offer can result in a concluded contract unless there is an initial
that it’ll become offer available for acceptance.
binding as soon as - Principles that govern offers in contract law per McMillian J:
person who receives 1. The inference of an existing agreement is dependent on whether one party can be
offer communicates assumed to have made a binding offer and the other accepts it.
agreement to terms of 2. Invitations to treat are distinguished mainly if the offer is made with intention that it be
offer. binding as soon as acceptance is given.
• Offer + intention + consent to be bound by terms of offer + acceptance =
contract.
3. Parties who are objectively ad idem is sufficient to established defined offer and
acceptance.
4. No acceptance in a contract is valid without first a contractual offer.

Carlill v Carbolic Carbolic Smoke Ball Co. placed advertisement offering a reward to anyone who would
Smoke Ball Co. – In contract the flu via smoke balls. Carlill bought one and contracted the flu.
unilateral contracts, - Whether there is a legal binding contract.
people intend to be - Advertisement can only be interpreted as an intention offer, otherwise it’s
bound by an act in the meaningless.
moment where the • Ad was not a mere puff (exaggerated advertisement) as Carbolic implied a
other party performs deposit of money.
act/service which they - Default rule for unilateral contracts:
offered payment for. • Unilateral contracts can be binding once contract is accepted by certain
behaviours. These are not invitations to treat.
Pharmaceutical If display of drugs was the offer, would be in breach of the Pharmacy and Poisons Act
Society of Great 1933.
Britain v Boots Cash - Are display of goods an invitation to treat?
Chemists (Southern) - Display of goods is merely an invitation of treat, not an offer.
Ltd – Display of • Customer makes the offer when they present the goods to the cashier,
goods are an acceptance by the cashier and the registered pharmacist would witness
invitation to treat. transaction.
- If display was the offer, customers would be contractually bound to purchase once
they picked up goods and would have no right to put it back on the shelf.
- Generally, display of goods should generally be treated as invitations to treat because
there’s still a purchase-payment after selecting product, and cashier is welcome to
reject the purchase.
- Assessment is dependent on objective sense of intention and external actions
(choice) of parties.
Tenders and collateral contracts
Tenders are written invitation sent to potential suppliers of a good or service to inform them about the information
required for the buyer to choose among them.
- Spencer v Harding: tenders are generally invitations to treat. Person submitting tender makes the offer,
requestor is free to accept/reject.
Pratt Contractors Council enters negotiations with Higgins based on non-forming tender (doesn’t meet
Ltd v Palmerston specifications but is cheapest). Pratt calls actions based on breach of express/implicit
North City Council – terms of tender documents as they submit tender conforming to the pass/fail requirement.
Advertisement for - Court held that there was a unilateral contract to accept the lowest confirming tender.
tenders are invitations Contract stressed that tenderers had to submit tenders that conformed to two very
to treat but can create specific requirements.
collateral contract if it • Main contract to purchase not concluded. Request for tenders is an invitation to
amounts to a treat and there is no contract unless council accepted the offer.
unilateral offer. • Request to conform tenders according to criteria is a unilateral contract. Pratt
sent lowest conforming tender, and council had accepted by stating the
requirements; therefore breach of contract.
- Pratt is entitled to be restored to the position they would’ve held had the council
complied with the obligations imposed.
Blackpool & Flyde There is an implied, collateral contract where the defendant makes an offer to consider all
Aero Club v conforming tenders when sending out a request for them.
Blackpool BC [1990] - A unilateral contract arises when a party sends a conforming tender. If this tender is
– Contractual right to not considered, it amounts to a breach of the unilateral contract.
be considered if - Courts will identify an implied offer to consider all conforming tenders when:
tender conforms. • The invitation is not broadly open, is only to a small group.
• There are procedures adopted for the tendering process – e.g. tenders solicited
from selected parties all know to inviter, request prescribes a clear orderly
procedure, etc.
Termination of an offer
Offers can be termination by:
- Revocation (Dickinson) – must be communicated before acceptance.
- Rejection (Hyde) – can’t be accepted without consent by offeror but rejection/counteroffer must be specific and
definite to bring termination of offer.
- Counteroffer (Hyde) – counteroffers override original offers.
- Failure of a condition (Dysart).
- Death of offeree – if one party dies, the offer dies.
- Lapse of time – if offer has an expiry date = no effective acceptance after said date.
• Offer closes after reasonable amount of time if there is no date (fact dependent).
• If time is fixed, offeror isn’t bound to keep offer open unless there is an option agreement (separate
promise for good consideration), otherwise offer can be revoked (might be in breach of option agreement).

Revocation of offer
Offeror must communicate the revocation of offer, otherwise offeree is free to accept.
- Byrne & Co v Leon Van Tienhoven & Co: revocation need not be explicit, but must be communicated to the
offeree.
• Postal rule doesn’t apply to the revocation of the offer. It must arrive for it to be effective. If offer is already
accepted before, offer cannot be withdrawn.
Revocation of offer must be communicated
Dickinson v Dodds – Whether sale to third party amounts to revocation even when initial party has no
Revocation must be knowledge of sale.
communicated before - Offer can be withdrawn before acceptance without any formal notice,
acceptance and will • Sufficient that party have knowledge that offeror has done something
be effective even if inconsistent with the offer – i.e. sell to third party.
not communicated
directly/explicitly or
directly by offeror.
Mirror-image rule
Hyde v Wrench – If Wrench offered to sell farm, Hyde counter-offered, Wrench refused. Hyde later accepted
there is an outright initial offer by letter.
refusal of offer, there - Whether there is a binding offer when initial offer was not revoked before acceptance.
is no offer. A new - Held to be no existing binding contract. Counteroffer rejects initial offers.
(counter) offer rejects • Party cannot revive an initial offer if they rejected it by counteroffer.
and overrides the • Counteroffer must be specific and not a mere inquiry.
former offer. • Mirror image rule applies offer and acceptance have to match.
Cross v Davidson – Plaintiff purported to accept an offer and then imported new term into contract by
Importation of a new demanding delivery of product by next week. Delivery had not been discussed in terms of
term into the contract the contract.
means no concluded - Whether certain correspondence between parties showed a concluded contract.
contract. - Mirror image rule applies.
• If there is additional or lack of same terms agreed to, then it isn’t the same offer.
• The new offer needs to be accepted again.
• Offers that contain implied conditions are moot.
The offeror is master of the offer
Dysart Timbers Ltd v Parties were involved in legal dispute, judgement in Court of Appeal favoured Dysart.
Nielsen [2009] NZSC Nielsen appealed to Supreme Court and made offer of settlement. Supreme Court gave
– Offeror is the master leave to appeal, then Dysart conveniently accepted offer of settlement. Nielsen claimed it
of the offer. Offer can was too late to accept because fundamental circumstances changed (leave to appeal).
lapse if there’s an Argued there was an implied condition that offer was subject to condition (leave to
objective, appeal), therefore no longer open for acceptance.
fundamental change - Whether offer of settlement lapsed before acceptance.
in the circumstances - Offer found to be still standing and contract is enforceable.
that form the basis of - For circumstantial change to be great enough to result in lapse of offer, terms must be
the offer before explicitly included in initial offer.
acceptance.
The offeror is the master of the offer and can stipulate the circumstances in which the
offer will lapse.
- Objective test looks at choices and actions of the offeror if it’s not apparent that the
offeror offered based off certain circumstances (implicit conditions).
- Offeror has the power to explicitly express conditions where offer would lapse/be
revoked without reason.
• Less eight is given to something where the offeror must have contemplated when
offering but chose to stay silent about it when determining what a fundamental
change is.

Acceptance
Acceptance must be communicated to the offeror in response to the offer (silence isn’t enough).
- Offeror can choose how offer is accepted except in unilateral contracts/postal rule, even in absence of
communication.
- Offeror is always master of offer.
• Can say no to default rules and choose mode of acceptance.
- Mirror image rule applies.
• Acceptance of offer must be in exact terms of the offeror.
Communication of acceptance
Felthouse v Bindley Claimant negotiated with third party over sale of a horse. Miscommunication about price,
– An acceptance offered to split price, no reply from third party. Gave horse to an auctioneer who sold the
requires positive horse, third party sued for conversion.
words/behaviour that - No action against auctioneer for conversion as third party had no property in the
indicate intention to horse due to insufficient acceptance. Third party was silent.
be bound by terms. - Possible alternative remedy: defendants are liable to plaintiffs when goods are lost in
Silence not sufficient. the defendant’s negligence (absolute rule per Coats v Chaplin).
- Parties must accept offers explicitly, either written or verbal.
• Subjective intention is not enough even when the offeree intends to accept the
offer.
• Silence can’t pass as external expression of will; law is not interest in subjective
state of mind of individual (corrective justice).
• Allowing offeror to impose contract when acceptance is silent is inefficient practice
(economic efficiency).
Williams v Defendant put advert offering reward for identification of murderer. Claimant could
Carwardine [1833] identify but didn’t confess until she got beaten up. Claimed for reward but defendant
KBD – Claimant’s refused to pay arguing that she was motivated because she wasn’t motivated by the
reason for accepting offer.
an offer makes no - Whether claimant’s motives matter in acceptance of offer.
difference to the - Claimant’s reason for accepting an offer makes no difference to whether acceptance
validity of their is valid (except where defence such as duress can be raised).
acceptance.
Acceptance in unilateral contracts
- Doesn’t need to be active communication if acceptance complies with terms of offer (Carbolic).
- Mode of acceptance is governed by the offeror.
- Parties cannot enter a contract without knowledge of the offer.
Intention in acceptance
- Acceptance requires express intention of person.
- Mere conduct can count in unilateral contracts, constitutes acceptance.
- Cross-offers (even if same terms) don’t make a contract because it shows parties didn’t choose to enter same
contractual relationship.
The postal rule
- Default rule that in some circumstances where parties communicate with mail, the acceptance of offer is valid
and binding the minute it is posted in the mail, regardless of it being received.
- Offeror has power to determine how offer is accepted.
• Only applied to acceptance not revocation (Byrne).
• Doesn’t apply if offer stipulates that acceptance must be received or must arrive by a certain time.
• Doesn’t apply to instantaneous forms of communication (e.g., telex, fax, phone, etc).
Henthorn v Fraser – Parties negotiated for house purchase, had 14 days to purchase. Offeror posted
Postal rule doesn’t withdrawal of offer next day, didn’t reach offeree until after an unconditional acceptance
apply for revocation. of the offer was posted and delivered.
- If offeror could contemplate that post is a means of communicating acceptance,
acceptance is complete as soon as it’s posted.
- Offeror has the power to choose method of acceptance; postal rule justified on choice
of offeror.
Holwell Securities Acceptance of offer to sell posted to offeror and letter incl. cheque of deposit. Calls
Ltd v Hughes – offeror to notify him of notice of acceptance by post. Never arrives. Cause of action for
Postal rule doesn’t specific performance.
apply where - Postal rule did not apply because of terms of specific performance of option (provide
inconsistent with the defendant notice in writing). Oral information is not the same as actual communication
terms of the offer, only in writing.
in cases where offer - Parties can have implicit opting out of default rules in circumstances where it would
specifies that lack sense of have an application of postal rule (e.g. need by a certain date, or offeror
acceptance must needs to be in possession of writing).
reach offeror.
CCLA 2017 Postal rule doesn’t apply to digital communications. Default rules apply except to the
extent that parties otherwise agree/enactment provides otherwise.
- ss 213-216 of CCLA applies to electronic communications except to the extent that
parties agree otherwise; enactment provides otherwise.

s 214:
- Where there is a designated information system for contractual arrangements, time of
receipt for electronic communications is when they enter the information in the
system.
- Where there is no designated information system, the time of receipt is when it comes
to the addressee’s attention.
Battle of forms
- Battle of forms arises when two businesses are negotiating the terms of a contract and each party wants to
contract based on their own terms.
- Contract is concluded but not clear as to what set of terms prevail.
• If application of mirror image rule, then last terms communicated may be one that prevails.
- If you are accepting an offer on a form with terms and conditions, with alternative other terms, you cannot
enjoy those terms without recognition of material change in terms.
 • Must identify the moment of choice of both parties through objective interpretation of their words, choices
and conduct.
Butler Machine Tool Claimant offered to sell defendant machine tool on condition that their proposed contract
Co v Ex-Cell-O Corp terms would apply over any contrary terms of the buyer. One term allowed claimant to
(England) Ltd – vary price depending on market prices at delivery date; defendant agreed to everything
Response to an offer but price variation clause. Defendant’s order had tear-off party which seller could sign
that doesn’t mirror and return, stating acceptance of offer on terms; signed but included cover letter re-
terms is not stating contract on their own terms.
acceptance, it’s a - Complete contract on defendant’s terms as defendant hadn’t accepted claimant’s
counteroffer. offer when they submitted order, rather they made a counteroffer. Claimant accepted
this counteroffer when they completed and returned slip.
- Onus of parties to meet a mechanical point of agreement.
• If acceptance is condition to terms of contract, there is no concluded contract until
offeror receives acceptance in that manner.

Two possible approaches to battle of forms:

1. Mirror image rule (Lawton LJ): returning signed form was acceptance.
2. Holistic approach (Lord Denning): construe communications as a whole to determine
whether there is a contract.
• Look at all documents or conduct between parties and see whether they reached
agreement on all material points; even though there may be differences between
forms and conditions printed on back.
Powierza v Daley – Original communication about purchase of land was an offer. Changed terms (increasing
An inquiry will not deposit) was a counteroffer. Document sent back to offeror and signed in agreement but
extinguish an offer or changing back to initial offer. Purchaser changed it back and signed document but later
counteroffer. Basic tried to accept counteroffer.
test to distinguish - Court objectively observed overall conduct.
counteroffer and mere • Held it was an inquiry of whether vendor would change deposit.
inquiry is the effect on • Acceptance of counteroffer is when the initial deposit is put back and Powierza
the reasonable person crosses figures are a mere inquiry.
in the offeror’s shoes. - Test for distinguishing inquiry from counteroffer is one of objective interpretation from
the overall conduct of parties from the perspective of the offeror.

Intention
Lack of agreement on essential terms can bear on intention of parties to form legal relationships.
- Once intention to be bound is found, courts will go to extraordinary lengths to give it effect.
Type of relationship
- Jones v Padvatton: parties in domestic/familial relationships are presumed not to intent to be legally bound by
their arrangements (default rule).
- Rose & Frank Co v JR Compton & Bros Ltd: presumed that commercial parties intend to be legally bound by
their arrangements (default rule).
- Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd: presumption of required signature in land sale and in
other commercial circumstances.
Jones v Padavatton Claimant and defendant were mother and daughter, made deal about employment and
– Parties in domestic living arrangements. Relationships soured over how daughter hadn’t completed her
relationships are studies. Daughter sought possession of house and argued an entitlement to stay and
presumed to not continue to receive payment from mother.
intend to be legally - Parties presumed to not have intended to be legally bound, defendant hadn’t provided
binding by their sufficient evidence to rebut this presumption therefore had no right to anything.
arrangements. - Salmon LJ (dissent): defendant would be left destitute in foreign country is enough
evidence to rebut presumption however, there was an implied condition to complete
studies in reasonable time therefore, claimant is entitled to terminate contract for
breach of terms.
- Subsequent contract about housing too vague to conclude contract.
- Objective test of parties: where there is no intention to be bound ≠ contract.
- Default rule about domestic relationships can be rebutted.
• Family is not an enterprise of choice, nor equal strangers.
• No separation of interests or contractual surplus.
Rose & Frank Co v Parties in ongoing agreement that contained a clause: ‘arrangement is not subject to
JR Compton & Bros legal jurisdiction…’. Claimant relied on agreement and placed orders but didn’t receive a
Ltd – Commercial delivery on one occasion; contract terminated without notice. Action for breach of
parties are presumed contract.
to intend to be legally - ‘Binding in honour only’ clause clearly indicated lack of intention to be legally bound
bound by their by arrangement. Once order was placed and accepted, there is a separate legally
arrangements. enforceable contract for delivery of goods.

Commercial parties presumably intend to be legally bound by their arrangements but can
express no necessary intention to be.
- ’Binding in honour only’ clauses or exclusion from jurisdiction of the courts will
preclude the existence of a binding contract.
- Possible for subsequent arrangements between parties to be legally binding.
- Default rule about commercial parties can be rebutted.
Concorde Action for wrongful repudiation in manufacture of guns; Anthony was distributor,
Enterprises Ltd v Concorde was manufacturer. Contract was conditional on marketability, not satisfied and
Anthony Motors terminated contract.
(Hutt) Ltd – - Purpose of negotiations between parties/solicitors was commercial agreement.
Presumption in - Generally, commercial parties do not intend to be bound before the agreement has
commercial dealings been drawn up, signed, and executed by both sides; in the facts, there is nothing to
that contracts are only displace this inference.
binding once written, - Cooke J: “when parties in negotiation for sale and purchase of property act so,
signed, and executed ordinary inference from conduct is that they intend to contract by a document which
by both parties. requires signatures. Unreasonable to assume that parties contemplate that anything
short of signings of documents would bring finality to negotiations”.
• Presumption of required signature in land sale and in other commercial
circumstances.
• There is no law in commercial contracts requiring signature as evidence but is a
natural inference objectively.
• Can be rebutted.

Certainty
1. Will the contract fail on uncertainty?
- Is a term vague? Is something incomplete? E.g., price/quantity/date of delivery left out, further agreement to
be made without mechanism set.
2. If the contract fails, is there a remedy?
- If plaintiff has expended money, may be entitled to quantum meruit.
- If there is a machinery to give necessary certainty and parties agree, then courts can enforce the agreement.
- If it is a matter that expertise can settle, then parties have settled on terms that are enforceable by the court.
An agreement is not binding if not certain, due to either being vague of incomplete
- If terms aren’t clear, court can’t determine a breach of the term. Need certainty to ascertain whether parties
have performed in accordance.
- Courts are reluctant to add new terms into vague contracts as it undermines contractual autonomy.
- If something is non-essential to contract (trivial), courts may not let contract fail.
• Looks to intention of parties (what reasonable person in parties’ shoes regard as essential).
• It is necessary for parties to agree on essential terms.
- Certainty doctrine prevents parties from trying to contract out of contracts by claiming vagueness.
• Burden of challenging a contract on uncertainty lies with party who is arguing that agreement has
vague/incomplete term.
• Absence of terms that parties thought were essential to the contract goes to the intention to be bound.
Incompleteness: something essential is missing from Vagueness: no definite meaning can be given to it
the contract. without the court adding new terms.
Something essential is omitted from the agreement or If contract is too vague (at least in essential terms to
agreement expressly requires further agreement, without the contract) and courts have to add new terms, then
external mechanism set. it cannot be enforced.
- If parties leave something unsettled, may be evidence - Can be resolved by (Hillas):
they intended further negotiations (e.g., 10-year • Custom or usage of particular trade (previous
service contract as one-off transaction doesn’t reflect usage of parties; broader customers or usage
commercial reality). of trade).
• Reasonableness.
• Severance of vague words as meaningless
and redundant if non-essential to contract.
- Whether term is irrelevant is determined by party
intention.
- Court must be satisfied that:
• Word is meaningless.
• Court has exhausted all other tools.
• Neither party regarded term as essential.
Vagueness
WN Hillas & Co v Sued defendant for breach of written contract. Clause claimant relied on didn’t sufficiently
Arcos Ltd – If describe goods to be sold; referred to standard of fair specification over types of Russian
objective meaning can softwood timber for purchase (two kinds of Russian softwood, various qualities).
be attributed to clause - Necessary to imply a reference to softwood in option clause.
using normal • Interpretation of fair specification to mean that defendant should supply softwood
principles of over various kinds and sizes; capable of being assessed objectively.
interpretation and • Therefore, contract not void for uncertainty.
implication, contract - If parties fail to agree on terms without which contract cannot be enforced, then court
won’t be void for cannot enforce a contract.
uncertainty.
Wellington City Negotiations between parties based on correspondence that stated negotiations ‘in good
Council v Body faith’. Pursued action alleging breach of contract that council had failed to negotiate in
Corporate 51702 good faith by failing to respond/accept offers and by seeking to sell property to third party
(Wellington) – on similar terms to claimant.
Process contract can - Enforceability of negotiation contracts are dependent on terms and their specificity.
be enforceable but Promise to negotiate in good faith is too vague to be enforceable on these facts.
negotiations in good • English law: rejects contract can be enforced based on negotiations of good faith.
faith requirement is • Australian law: dependent on the circumstances.
too subjective. - Tipping J: “…for there to an enforceable contract, parties must have reached
consensus on all essential terms, or at least upon objective means of sufficient
certainty by which terms may be determined”.
- Standard/mechanism to determine objective criterion of vague terms = contract
enforceable.
- No sufficient to complete contract without being bound by limits of party = not
enforceable.
Incompleteness
Electricity Parties interested in gas field, agree that if one of them purchased the share than they
Corporation of New would split gas between two. Contract (Heads of Agreement) left unresolved and had no
Zealand Ltd v mechanism to solve: “Fletcher and Electricity Corporation to use all reasonable
Fletcher Challenge endeavours to agree a full sale and purchase agreement within three months of this
Energy Ltd – agreement”. Substantial drop in price meaning ECNZ no longer interested in converting
Agreement regarding gas field into power station, Fletcher applies successfully to make ECNZ comply with
terms that are viewed agreement. Appealed on basis that there was lack of certainty around terms in Heads of
as essential is Agreement (“to be agreed”, “not agreed” in certain clauses).
necessary. - Head of Agreement was not intended to be a binding document; if it was, then
conditional on approval of ECNZ (not clear what they were obliged to do under
contract).
- Deference of essential term ≠ no intention to be bound – parties entered in
negotiations intending to conclude an agreement, but document appeared to be
incomplete and didn’t provide mechanisms to solve.
- Even where parties are ad idem about essential terms, contract may not have formed
due to unagreed essential terms = intention to contract may be missing.

Prerequisite to contract formation is:

1. Intention to be immediately bound at point where bargain is agreed to; and
2. An agreement, express or implied, or means of achieving agreement on every term
which:
- Was legally essential to the formation of such bargain; or
- Regarded by parties as essential to their particular bargain.
• Term is essential when one party maintains position that there must be
agreement upon it.
CCLA 2017 – Price is Section 129 – Fixing contract price
not commonly settled. (1) The price in contract of sale may be–
CCLA can apply to (a) Fixed by the contract; or
sale of goods (b) Left to be fixed in a manner agreed in the contract; or
contracts. (c) Determined by the course of dealing between the parties.
(2) The buyer must pay a reasonable price if the price is not determined in accordance
with the subsection (1).

Section 130 – Agreement to sell at valuation.

(1) An agreement to sell goods is void if–
(a) The agreement is on the terms that the price is to be fixed by the valuation of a
third party; and
(b) The third party cannot or does not make the valuation.
(2) However, if the goods or any part of the goods have been delivered to and
appropriated by the buyer, the buyer must pay a reasonable price for the goods or
that part of the goods.
(3) If the third party is prevented from making the valuation by the fault of the seller or the
buyer, the party not at fault has a right to claim damages against the party who is at
fault.

If there is a contrary intent to setting a price then this cannot apply, but more likely to be
applied where intention is to have a reasonable price even if not mentioned,

Consideration
Requirement that someone will give something in return for there to be a binding contract (common law) (applies
only in simple contracts/contracts without deeds).
• Deed is special type of written contract complying with s 9 of Property Law Act 2007.
- May consist of right, interest, profit or benefit to one party, or some forbearance, detriment, loss or
responsibility undertaken by the other (Currie v Misa).
- Must be sufficient but need not be adequate because of capitalist market economy; libertarian ideas of
respecting autonomy; risks of courts being overwhelmed by claims of bad bargains; practical difficulty in
ascertaining whether price was fair.
Bilateral contracts Unilateral contracts
Promises themselves are the benefit and therefore the
consideration, not the performance of the act.
- Parties can rely on promise being forced before
either party performs.
- Purely executory contracts are enforceable as soon
as entering – binding before actual performance.
The act is the consideration, unlike in bilateral contracts
the performance must occur.
- There is no contract until consideration is
performed.

General principle of consideration

Hamer v Sidway – Defendant agreed with plaintiff (nephew) that if plaintiff refrained from drinking,
Consideration must be gambling, smoking until 21, defendant would pay him. Defendant died without paying.
sufficient, in either Judgement for defendant, appealed.
benefit to the promisor - Whether mere abstention from illegal conduct is sufficient consideration.
or detriment to the - Restricted lawful freedom of action within prescribed limits upon agreement is
promisee (or both). sufficient consideration.
• A waiver of legal rights at the request of another party is sufficient consideration
for a promise.
• Proved benefits to the promisor is not relevant.
Chappell & Co. Ltd & To buy record, individual would have to send in three chocolate wrappers to defendant.
Another Appellants v Claimant sued for copyright infringement and sought injunction of sale of chocolate.
Nestle Co. Ltd & Defence to copyright infringement for music records at time allowed for infringement if
Another Respondents defendants paid copyright owner set royalty based on retail price – only applies to
– Consideration must records intended for ordinary retail sale. Claimants argued defendants required any
be something the law consideration to be provided in money only.
would recognise as a - Whether wrappers would constitute an ordinary retail sale under the copyright
benefit to the promised section, if so, how are parties to decide how much percentage of wrapper sales go
or a detriment to the to royalty; and whether wrappers were consideration.
promisee but doesn’t - Chocolate wrappers were held to be part of consideration; ordinary retail sale under
need to be something the statute required all consideration involved to be money.
the promisor actually • ‘A peppercorn doesn’t cease to be good consideration if it is established that
has use or value in. the promisee doesn’t like pepper and will throw away the corn’.

Courts are only interested in the promise of performance that provides some benefit to
the other party or imposes some detriment on the performing party.
- Contracting party is free to stipulate whatever consideration.
• Consideration must be sufficient but need not be adequate as courts are not the
best judges of what is and isn’t adequate to a party.
Compromises and forbearance to sue
Cook v Wright – Good Promissory notes left unpaid despite claimant being entitled to sums from the owner;
consideration in return defendant argued no obligation to pay as he was merely an agent of party. Threatened
for a promise: to sue. Compromised to pay a reduced amount and signed promissory note despite not
1. Honest belief claim initially owing anything.
is valid. - Commissioners’ compromise to not sue was found to be good consideration.
2. A bona fide • Commissioners gave something up as they were unable to claim what they
intention to pursue were entitled to (the sums), therefore altered their position.
it. - Promise not to sue under a reasonable claim which plaintiff honestly believed in and
3. Reasonable bona fide intended to pursue could be considered good consideration.
grounds for thinking • Claim must be reasonable and in good faith.
it’s valid.
Existing legal duty
There is a general rule that an existing legal duty doesn’t constitute good consideration as it is already given.
- Promisee doesn’t get detriment, promisor doesn’t benefit.
Collins v Godefroy – Subpoena to appear as witness, offered to pay if agreed to attend. Showed up but was
Person cannot rely on a not called upon, demanded the payment anyways.
promise to perform their - Whether a duty in law was consideration.
existing legal duties as - No consideration as cannot rely on already legally bound duty to do so.
consideration. • Fulfilling an existing public duty cannot be consideration, unless there is an
additional obligation agreed upon.
Scotson v Pegg – Defendant agreed to contract for coal delivery at certain rate but claimant already made
Promise to perform an exact contract with third party. Claimed that claimant was already bound to delivery coal
act that person is therefore not good consideration.
already bound to - Promise is good consideration notwithstanding that claimant was already bound to
perform under contract perform under third party contract.
with third-party is good - In cases of an existing contractual duty, promisee can choose to breach and be
consideration. liable to damages to third party.
• Promisee can choose to breach and be liable for damages to a third party (in
personam duty). Provided that there is a benefit, immaterial there is prior
contract.
• Promisee cannot voluntarily choose not to perform original duty as it is an
existing legal duty, whereas they can do so in contract with another third party.
• If promises to third parties were not considered good consideration, no one
would have a stake in other’s contracts.
Contractual variation
When parties decide to change the contract between them, therefore entering new contractual relationship.
- Variation of contract will be recognised as valid even if consideration under an existing legal duty of the
promise is exactly the same, so if there is practical benefit = sufficient, good consideration.
Stilk v Myrick – Captain promised remainder of sailors that is they stayed, would share the wage of the
Person cannot rely on a deserters. Agreed (new contractual relationship) but captain refused to pay after
promise to perform their voyage.
existing legal duties as - Sailors were already under contractual obligation to work duration of voyage, did not
consideration. provide consideration for the contractual variation.
- Promised performance was already promised to captain, it was an in personam right
to same person.
• Unclear how courts would decide today (cf. Roffey Bros). May find that there
was practical benefit to captain in stopped remainder men from deserting.
• Definition of practical benefit still unclear.
Williams v Roffey Defendant was contractor working for third party and was liable to pay penalty if work
Bros & Nicolls wasn’t completed. Subcontracted carpentry work at set price per flat completed, comes
(Contractors) Ltd – into financial difficulties. Defendant pays extra per flat to avoid penalty, creating varied
Where parties have an contract. Claimant completed flats but defendant refused to pay so claimant stopped
existing contractual working and sued for breach. Defendant claimed no breach as no consideration was
relationship, party can provided therefore not bound by promise; counter-sued for breach of contract and
rely on existing claimed no obligation to pay original contract price as it was conditional on full
obligations as completion of flats.
consideration if it - Court held sufficient consideration; substantial performance doctrine applied.
provides other party - Five potential elements amounting to ‘practical benefit’:
with practical benefit or 1. Claimant continued work and didn’t stop in breach of subcontract.
avoids practical 2. Defendants avoided the trouble and expense of engaging other people to complete
disadvantage, duress, work.
fraud. 3. Defendants voided penalty in main contract for delay of work.
4. Haphazard method of payment was replaced by more formalised scheme involving
payment of a specified sum on completion of each flat.
5. By complete one flat at a time, defendants were able to direct other trades to do
work in completed flats which otherwise would’ve held up until claimant had
completed his work.
• Defendant breached contract by ceasing payments therefore claimant has right
to repudiation.
Existing legal duty Contractual variation
Parties to a contract cannot rely on a pre-existing duty Practical benefit is good consideration in the variation of
when making promises in exchange and giving contract, even under existing legal duties (past
consideration. consideration).
Antons Trawling v
Smith – Consideration
is an indication of an
intention to be bound
and a choice by parties.
Only purpose is to
serve as a signal to be
bound by contracts, not
an end in itself.
Variation in fishing contract with parties as Smith claimed managing director promise to
pay him 10% share of fishing quota in exchange of demonstration that there are enough
fish in region that Ministry of Agriculture and Fisheries should increase quote. Increases
quota by substantial amount but Anton claims no consideration.
- Variation becomes enforceable on basis of reliance. Agreement to vary contract is
enforceable without consideration.
- Fulfilling an existing duty is not sufficient consideration unless the promise is to vary
an existing and valued contract to which the parties are already bound and there are
no policy reasons why the variation should not be enforced.

Two approaches to consideration (undecided):

1. Roffey Bros accepted in New Zealand in Attorney-General for England and Wales v
R.
2. American approach: mere performance of duty already owed under contract cannot
constitute consideration, and that only principled way to such result is to decide that
consideration shouldn’t be necessary for variation of contract.
Part payment of debt
One party owes another in debt (creditor/debtor). Debtor accepts party payment (contractual variation of money
owed as party gives up what is owed without incurring new obligation).
Pinnel’s Case [1601] Payment of a smaller amount in satisfaction of the full debt is not consideration and
doesn’t remove the obligation to pay the full amount unless something else of value id
provided as consideration for the forbearance to sue for the full amount or the payment
is before the date the payment is due.
- One cannot only pay part of the sum at the time you were supposed to and claim
satisfaction.
• No possibility that lesser sum is satisfactory to the plaintiff than greater sum
entitled to.
- Part satisfaction with an additional thing of value is good consideration.
• Namely, paying earlier or giving creditor something additional (additional
obligation, a horse, etc).
• Good consideration even if it’s less value than full debt.
Foakes v Beer – Part Paid off all debt but creditor claimed interest for the instalments. Debtor argued creditor
payment is not was bound by agreement to not bring any claims over debt, creditor says no
sufficient consideration consideration therefore not binding.
even when parties - Application of Pinnel’s case. Promise to pay lessor amount of same amount over
intend and agree to it. greater period of time wasn’t good consideration.
Pinnel’s case rule is still • Defendant is already under an obligation to pay the debt.
good law.
Pinnel’s case rule is still good law, except where (Foakes):
• Additional elements, like substantive change in mode of payment, terms of
payment, etc.
• When parties dispute on sum of debt/size/value and make a compromise.
• When several creditors see that they’re unlikely to get anything and make
arrangements (vary agreement).
Re, Selectmove Ltd – Owed tax to Internal Revenue, IR petitions to have Selectmove wound over debt. Select
Rule remains the same resists, arguing IR allowed them to pay tax in arrears – either have risen to contract of
even after Roffey Bros estoppel (wavering contract but defendant doesn’t provide consideration). IR argues
decision. If law were to representative had no authority to make promise, Select still failed to pay tax in arrears
change, would be anyways.
through legislation. - Pinnel’s case rule is valid even after Roffey Bros on part payment of debt.
• Representative had no authority to bind IR to any representation, no
Applied Foakes and consideration as already under obligation to pay tax, and promise to fulfil
rejected Roffey by existing obligation at later date = not sufficient consideration.
denying instalments as - Promise to pay an existing debt cannot be used as consideration.
consideration for a - Estoppel applies to condition representations (will not insist on my rights if you do
debt. X).
• It is reasonable for parties to go back on conditional promises if other fails to
adhere.
• Other party is unlikely to successfully establish estoppel unless they’ve adhered
 to conditional promise.
MWB Business Agreement between parties contain ‘no oral modification’ (NOM) clause – all variations
Exchange Centres Ltd of occupancy license must be agreed, written and signed by both parties before effect.
v Rock Advertising Defendant who occupied property failed to pay, and revised payment schedule over the
Ltd – UK example of phone with claimant’s employee. Defendant argued NOM to be ineffective because
applying Roffey to part clause is inherently unenforceable, or claimant estopped from relying on clause as they
payment when retaining paid under revised scheme, and it provided a practical benefit which is good
a tenant. consideration to varied agreement.
- Whether claimant was estopped from relying on NOM clause; whether defendant
confer practical benefit; whether part-payment of debt was good consideration.
- Principle of freedom of contract applied.
• NOM clauses couldn’t restrain parties’ ability to vary contract over phone.
• Defendant’s payment conferred sufficient practice benefits that amounted to
good consideration for variation.
- Supreme Court didn’t comment on whether part-payment of debt so Court of Appeal
may be influential. Practical benefit occurs when:
1. Benefit of obtaining performance is larger than suing/dealing with breach.
2. Additional benefit external to parties’ bargain or something beyond mere
benefit for avoiding a breach.
- Whether practical benefit should be good consideration in promise to pay less
situations is moot.
• Practical benefit would be that Rock would continue to occupy building and stay
in business, increasing likelihood of paying arrears off to both advantage of
them and MWB.
MWB Business Supreme Court overturns Court of Appeal. Holds for claimant.
Exchange Centres Ltd - Claimant not estopped from relying on binding NOM clause.
v Rock Advertising - NOM clauses are binding if:
Ltd – Part payment • They meet other requirements of contractual validity (certainty).
isn’t sufficient • Serves legitimate commercial purposes.
consideration despite • Don’t conflict with any public property.
Foakes. But Pinnel’s - Possible for parties to orally waive right to rely on NOM clause but requires express
case remains good law words or necessary implication that clause is waived/oral agreement is binding.
even after Roffey. - Part-payment itself is insufficient consideration, Pinnel’s case rule remains good
law.
• If the law is to change, it would probably be by legislation.
Where Foakes doesn’t apply
Situations in which the rule in Foakes v Beer does not apply:
- When there is an additional element.
• Substantive change in mode of payment.
• Terms of payment.
• Additional elements of non-monetary offers.
- When there is a disputed sum.
• When parties dispute on a sum of debt, size, value, etc. and make a compromise.
• Where the claim is for a sum that is not fixed (dispute about price for shitty work done).
- Composition with creditors.
• When several creditors see that they are unlikely to receive payment from debtor and arrange between
them.
- Payments of the lessor sum is made to creditors by third party.
- S 27A of Property Law Act 2007.
• Law recognises part-payment of debt as a satisfaction of an entire debt.
• S 27A(1): ‘An acknowledgement in writing by a creditor, or by any person authorised by the creditor in
writing, of the part of the creditor’s debt in satisfaction of the whole debt operates as a discharge of the
debt.
i. Creditor must actually have received the party payment. Mere promise of payment is insufficient.
ii. Acknowledgement must be in writing and signed by creditor/someone authorised.
iii. Acknowledgement must state that party payment is in satisfaction of whole debt.

Formalities
No general requirement that contract be in writing/particular form. Contracts can be entered into orally, in writing,
or by conduct. However, practically if it’s big contract for big transaction than would want to be in writing.
- Statutory formality requirements may require a contract to be made in writing; be recorded or evidenced in
writing; be made in the form of a deed (very rare in New Zealand).
- Types of contract where law may require certain formalities to be observed: sale/transfer of interest in land,
absence of signature of party of whom the conduct is to be enforced is constitutive (without it, no binding
contract).
• Short-term leases don’t require formalities.
Reasons for formalities
In-rem (land) rights In personam (against particular person) rights
- Parties requiring exercising behavioural prescription - Ensuring formation of contracts will not result in too
to convey to potential litigants that they have many disputes/litigations over who owns what.
thought about the seriousness and significance of a - Provides evidentiary certainty by marking an
sale and purchase of land. enforceable promise and relives judge of inquiries.
- Acknowledged public interest in tracking land - Cautionary function when more is at stake,
ownership and long-term leases, especially in cases encourages parties to think about potential serious
of fraud. consequences.
- Protection of vulnerable parties, particularly in
consumer law and forces parties to be transparent.
Deeds
Instrument that allows assumption of obligations through specific formalities but gives up consideration.
- Choice and express intention to be formally bound by binding obligations, regardless of consideration.
- Escrow is something given to another for safe keeping until condition (deed) is fulfilled – e.g. deed given to
lawyer until condition is fulfilled = escrow.
Vincent and Another v Agreement for contract spans over long period of time. Signed, sealed, delivered to
Premo Enterprises solicitors. Both parties execute and hand over parts to lease sublet on property to
(Voucher Sales Ltd and respective solicitors but they were not exchanged.
Others) – Deeds are - Lord Denning: “deed is binding on the maker of it, even though parties have not
binding when they are been exchanged as long as it’s signed, sealed and delivered”.
signed, sealed and - Delivered defined in an old legal sense, delivered as evidence of intention (not
delivered by one party to handing it to other party).
another, even if other party • Parties may make delivery (actual exchange) a condition of the deed, in
has not yet executed the which it becomes an escrow.
deed document.
Codification of a deed
Property Law Act 2007 Section 9 – Deed must be in writing, executed and delivered
(1) A deed must be–
(a) In writing; and
(b) Executed in accordance with this section; and
(c) Delivered in accordance with this section.
(2) An individual executes a deed if–
(a) He or she signs the deed; and
(b) His or her signature is witnessed in accordance with subsection (7).

S 9(7): A witness–
(a) Must not be a party to the deed; and
(b) Must sign the deed; and
(c) If signing in New Zealand, must add–
i. The name of the city, town, or locality where he or she ordinarily resides; and
ii. His or her occupation or description.

S 9(9): A deed is binding when–

(a) Delivered by–
i. The person to be bound by it; or
ii. Another person having express or implied authority to deliver it on behalf of
the person intended to be bound by it; and
(b) Either–
i. It is apparent from the circumstances that the person to be bound by the
deed intended to be bound by it; or
 ii. If the binding force of the deed is subject to the fulfilment of one or more
conditions, when each condition is fulfilled.
Privity
Doctrine of privity under common law states that a contract cannot confer rights or impose obligations upon a
party who is not a party to the contract, even if third party is beneficiary.
- Contract cannot impose a duty on third parties and cannot create an obligation to the beneficiary to contract
which they are not a party to.
- Third parties are strangers to the consideration/contract and therefore have no rights under it.
• If it is intention of parties that beneficiary won’t have right under the contract, then they won’t. All depends
on intention of the parties. (s 13)
• Once contract is made, parties can always vary the contract but if there is a beneficiary, they can’t vary
contract if the position of the beneficiary has been materially altered due to reliance on the promise. (s 14)
• Obligation imposed on a promisor may be enforced by the beneficiary as if the beneficiary were a party to
deed/contract. (s 17)
Certain rights are given to third parties under contracts although they are a stranger to the consideration. The
beneficiary to whom parties’ intent to create a right under contract, can claim under the contract even though he is
a stranger.
Problem with privity
- Person who will suffer loss from breach is not the same person who holds legal right; insufficient rule that
doesn’t allow parties to know how to deal with contracts best, to shape bargain as they see fit.
- Not fair that one party be owed obligation under contract that isn’t enforceable.
Statutory reforms of privity rules
Certain rights are given to third parties under contracts, despite being strangers to the consideration.
- Beneficiary to whom parties intend to create a right under contract can claim under contract.
CCLA Section 12 – Deed or contract for benefit of person who is not party to deed or
contract
(1) This section applies to a promise contained in a deed or contract that
confers, or purports to confer, a benefit on a person, designated by name,
description, or reference to a class, who is not a party to the deed or contract.
(2) The promisor is under an obligation, enforceable by the beneficiary, to
perform the promise.
(3) This section applies whether or not the person referred to in subsection (1) is
in existence when the deed or contract is made.

Laidlaw v Parsonage –
Unnamed nominee gets
benefit from promise in
contract and later
nomination, therefore can
use s 12 of CCLA.
- Section 13: if it is intention of parties that beneficiary won’t have right under the
contract, then they won’t. All depends on intention of the parties.
- Section 14: once contract is made, parties can always vary the contract but if
there is a beneficiary, they can’t vary contract if the position of the beneficiary
has been materially altered due to reliance on the promise.
- Section 17: obligation imposed on a promisor may be enforced by the beneficiary
as if the beneficiary were a party to deed/contract.
Claimed nominees in selling of residential property to Parsonage “and/or nominee”
were only entitled to enforce the transfer not warranty after house leak.
- Whether trustees were entitled to benefit of agreement for sale and purchase.
- Designation by description of purchaser required no more than sufficient
identification of person who would take benefit.
• The nominee gets the benefit from both the promise in the contract and the
later nomination.

HOW DO WE READ AND INTERPRET CONTRACTUAL TERMS?

Incorporation
Oral terms are a matter of who the court believes and what evidence (if any) the parties can present.
- Incorporation is when external condition is incorporated into contract.
- Implication is when parties cannot find term anywhere and question is whether parties implied effect to the
term.
Written terms can be incorporated into contract by:
1. By being part of a signed document.
2. By one party giving notice of those terms.
3. By being inferred from a prior course of dealings.
Parole evidence rule
Parties are prevented from introducing any evidence that adds to/varies/contradicts with the written contract. This
rule does not apply in the interpretation of contractual terms.
- Gordan v MacGregor citing Inglis v John Buttery & Co: you cannot draw on outside evidence that contracts the
written contract to explain its meaning.
• An exception is evidence (emails, recollected conversations, etc) can be introduced to a dispute to explain
what terms were included in contract.
• Oral evidence is permitted to establish the parties did not intend to record the whole agreement in written
document. (Evidence can to oral terms will be permitted if parties intended to leave contract incomplete on
oral terms).
- Couchman v Hill: oral conversation can become part of a contract and evidence of oral conversation could be
adduced to complete the contract.
- AM Bisley & Co v Thompson: contract can be partly written and partly oral – e.g., parties have oral
conversation where A assured B delivery by certain time as part of contract.
Partly written, partly oral contracts?
Newmans Tours Ltd v Ranier Investments Ltd: whether a contract should be regarded as partly written and partly
oral is assessed on:
- Aim is to ascertain the objectively expressed intentions of parties.
• It is strong evidence that parties intended for contract to be exhaustive if written document appears to be a
comprehensive record of agreement.
• The more the suggested oral term is in disharmony with wording of written document, the more difficult it
is to persuade court that it was intended to survive with written document.
- Court will give effect to agreement regardless of the form it may have been expressed if satisfied that it is the
objective intention of contracting parties
Incorporation by signature
L’Estrange v F Garucob Ltd: parties are bound by a contract’s terms and conditions regardless of whether they
read it or not if parties have signed it, except where there is fraud or misrepresentation.
- Accepted in New Zealand in BBX Financial Solutions Pty Ltd v Wallace.
- Rejected in Canada by Supreme Court in Crocker v Sundance Northwest Resorts Ltd: even if document is
signed, it can still require a party to take reasonable steps to bring terms to the other’s attention to be bound
by terms.
General principles for incorporation by signature
1. Party will generally be bound by terms if they sign a document, regardless of whether they read it
(L’Estrange).
2. This general rule will not apply in case of fraud or misrepresentation.
3. However, document must be a contractual document (Grogan).
- Potential for law to bypass this rule for particularly onerous terms so that notice may still be required (Ocean
Chemical, Alphapharm).
Potential exception for unfair/onerous contractual terms
New Zealand may be open to adopting openness of Australian/UK courts for exceptions in cases where contract
has an unfair term:
- Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd: there may be circumstances in which document presented for
signature or document that has unusual terms, may involve a misrepresentation.
• Also possible circumstance where one party wouldn’t reasonably understand another party’s signature to
a document as a manifestation of intent to enter into legal relations or as agreement to its terms.
- Ocean Chemical Transport Inc v Exnor Craggs Ltd: where a signature is obtained under pressure of time or
other circumstances and clause was particularly onerous or unusual for incorporation in contract.
• BBX Financial Solutions Pty Ltd v Wallace: question of whether signature should be considered absolute
in pressured situations remains unclear.
Parties must know that document is part of the contract
Party must have knowledge that there were contractual terms in document, or a reasonable person ought to have
considered that there would be contractual terms in the document.
• E.g., A is trying to say B has to sign one document when another document is a part of the contract as
well.
- Grogan v Robin Meredith Plant Hire: question is whether document comes within the class of documents
which party receiving it knew it contained contractual terms or which a reasonable man would expect to
contain relevant contractual terms.
- Vance v Huhtamaki New Zealand Ltd: example of purpose of document being assessed to see whether
 reasonable person would stipulate it to contain contractual terms. In this case, a reasonable person wouldn’t
infer that a confirmation of debt for was a contractual document.
Incorporation by notice
Parker v South Eastern Railway Co: if A knows there is writing on the document and B has given reasonably
sufficient notice that writing contains conditions of the contract, A will be bound by contract.
General principles for incorporation by notice
1. If document doesn’t require a signature, A will generally by bound by terms if they’ve read the
conditions or know about the writing and B has given them reasonable notice that writing contains
conditions.
2. If location of conditions is clear, B is taken to have made reasonable steps.
3. If condition is unreasonable, a greater degree of notice may be required. This is a fact-based analysis.
4. If a reasonable person wouldn’t have received notice that there were further contractual terms binding
A then A will not be bound.
5. Notice must be given before the contract is entered.
6. If there’s misrepresentation about an exclusion clause, clause will not be incorporated as part of
contract and there cannot be relief or there can only be relief to the extent it was properly explained
(uncertain).
No signature required + A Parker v South Eastern Railway Co: where party receives a document, knows
knows about writing + B there’s writing on it and other party has given reasonable notice that writing
gave reasonable notice = contains contractual conditions, party will be bound irrespective of whether they
bound (Parker). read it.
What counts as Thomspon v London Midland and Scottish Railway Co: even where the conditions
reasonably sufficient are not on the document received, if the document clearly indicates where party can
notice of terms? find the conditions and that they apply even if they’re stated elsewhere, parties are
(Thomspon) bound as long as the reasonable notice had been communicated.
- The more unreasonable the condition, the higher the notice requirement needs
to be met.
- Did the party take all reasonably necessary steps, as a matter of ordinary
practice, to bring conditions to the attention of the other party?
If term is onerous, a greater J Spurling v Bradshaw: if clause in document is onerous, more notice may be
degree of notice may be required.
needed. What counts as - Interfoto Picture Library Ltd v Stiletto Visual Programme Ltd: parties must take
onerous? (J Spurling; reasonable steps to draw extra attention to clause if it is unreasonable and
Thompson; Thornton) extortionate to the other party.
(Compare with Inferfoto and • Other party can also argue that it was not an unreasonable term and
O’Brien) therefore did not need to bring additional notice to what was ordinarily
required.
- O’Brien v MGN Ltd: additional notice may not be needed where clause doesn’t
impose any extra burden or seek to absolve the defendant from liability.
• If clause merely deprives claimant of a windfall for which he has done very
little in return, defendant does not need to give extra notice if there is clear
reference to contractual terms in document or elsewhere.
Did the recipient of notice Chapelton v Barry Urban DC: just because terms are included in a document,
know that the notice refers doesn’t mean they’ll be included in a contract if the reasonable person wouldn’t
to terms of a contract? Or know they’re included unless brought to their attention.
would a reasonable - Exclusion clause of liability found not to be included in the contract if the
person know? reasonable person wouldn’t consider the document (ticket) to specify additional
(Chapelton). terms of contract.
- Must assess the purpose of the document (ticket is evidence by which he could
show obligation to pay for use of chair hired, not that there’d be conditions of a
contract on the back that would exclude defendant’s liability).
Notice must be given Thornton v Shoe Land Parking Ltd: contracts will not operate with incorporation of
before the contract is terms where notice of terms and incorporation happens after parties enter the
entered into (Thornton). contract.
- Parties with no practical opportunity to refuse to enter a contract will not be
bound (Parker test doesn’t apply, e.g., ticket from machine vs. ticket from
person and if it did, there is no sufficient notice).
Is the notice affected by Curtis v Chemical Cleaning and Dyeing Co: misrepresentation of an exemption
misrepresentation? clause may mean clause isn’t part of the contract and if A misrepresents the
(Curtis) existence/extent of the clause, then they can’t rely on it except to the extent it’s
 highlighted in its limits.
- A misrepresentation precludes reliance on an exemption except to the extent it’s
been communicated (Denning LJ), or misrepresentation of a clause may not be
included at all (Somervell LJ).
• Not clear which view would prevail. State this uncertainty!
Incorporation by course of dealing
Practices of parties that indicate that such terms are understood to be included in contracts.
General principles for incorporation by course of dealings
1. Course of dealings must be consistent with prior practice.
2. If a term is not discussed in the making of an oral contract, there is a high threshold for incorporation
of terms by course of dealings.
3. Prior course of dealings will be determined on the facts.
Consistency with prior practice
McCutcheon v David MacBrayne Ltd: when conduct is not consistent with prior practice, there is no reason why it
should still produce an invariable contractual result.
- Exclusion clause will not be included in contracts where an oral agreement is not consistent with prior practice
of getting a customer to write in written conduct.
- Parties cannot exclude liability, and is therefore liable for loss.
Oral contracts
Hollier v Rambler Motors (AMC) Ltd: there is a high threshold to show that a prior course of dealings results in the
implication of a term into an oral contract where that term is not discussed in the making of the contract at issue.
- If an ordinary person would not read the clause and interpret an exclusion clause as excluding liability despite
defendant’s negligence, then it is not incorporated.
Prior course of dealings determined on the facts
J Spurling Ltd v Bradshaw: taking part of the same transaction many times and exhibiting the same behaviour
(e.g., reading document provided) will suggest a course of dealing from which a term of a contract can be inferred.
- If party is experienced in the sort of business and has a habit of not reading such documents, and upon
receiving document had no express objections then conditions are generally incorporated into contract.

Implication
No written term but courts imply terms that they think reflect intention of parties.
- Incorporation is when external condition is incorporated into contract.
- Implication is when parties cannot find term anywhere and question is whether parties implied effect to the
term.
Terms can be implied by:
1. Custom.
2. Legislation.
3. Contract class.
4. Specific contracts.
Implication by custom
Hutton v Warren: courts will sometimes imply certain terms that are not present in transactions that contain
unwritten conventions and rules.
- Circumstances that parties, when writing the contract, were referring to common practices that didn’t need to
be made explicit in contract.
Principles of implication by custom (Woods v N J Ellingham & Co Ltd)
Principles need to be proven in circumstances where terms should be implied by way of custom or usage:
1. What is usage?
2. What are the elements of usage?
3. How do you prove usage?
What is usage? Essentially a particular course of dealing or line of conduct generally adopted by
persons engaged in a particular transaction/business.
- Where usage is alleged to exists, persons must be taken to have intended to
follow that course of dealing or line of conduct unless expressly or impliedly
stipulated otherwise.
- Rule of conduct usually amounts to a usage if it is so generally known in the
particular department of business/life unless expressly or impliedly excluded.
What are the elements of 1. Notoriety – how commonly known is this action in the particular area of business
usage? or trade?
- Must be popular enough and can be found out by any party who would enter such
 contract.
• Everist v McEvedy: where you work at a law firm for a lawyer, your employer
is taken to insure you against liability for damages that client may bring
except in dishonest and fraud (implied by custom).
1. Certainty – must be certain and reasonable, and so universally acquiesced in that
everybody engages in trade knows or it or might know it he inquired.
- Usage must be uniform and reasonable.
• Young Kwan Kim v Young Keun Oh: not an implied custom if rules keep
changing. Parties implied a certain version of rules, this doesn’t count.
How do you prove usage? Question of fact.
- Evidence must be more than mere opinion and must establish the existence of
usage, as well as provide instances of usage being used.
Implication by legislation
Circumstances where statutes say contracts are taken to include certain terms. Question is whether and in what
circumstance should legislation be permitted to interfere with private contracts (contractual freedom vs.
regulation).
Examples of implication by legislation
Consumer Guarantees Act 1993 Sets out various guarantees as to quality of goods.
- Contract to purchase goods may not explicitly state, however Act warrants
it to be required to be fit for purpose.
• If not fit for purpose, vendor has certain obligations they have to meet
to uphold warranty.
- S 43: parties are permitted to contract out of these in limited
circumstances.
Contract and Commercial Law Sets out various conditions that are implied into contracts for the carriage of
Act 2017 goods (namely that they’re fit to be carried/stored in accordance with contract,
etc).
- S 245: parties can contract out of those implied terms in limited situations.
Implication by class of contract
Class of contract is generally where courts have recognised particular type of transaction requires implication of
term.
- Overlaps with implication by specific contracts. Implication by contract class is more general on type of
contract rather than facts of the matter (like specific contracts).
- Type of contract is something that would apply across all contracts in this specific type of transaction, e.g.,
lease agreements, solicitor-client, banker-customer, etc.
• Type of contract generally implies type of term, e.g., term to take reasonable care when building a house.
Necessity test (Liverpool City Council v Irwin)
Liverpool City Council v Irwin: if party wants to imply terms into a contract, only need to do so to extent that is
necessary.
- Have to assess with the nature of the contractual relationship.
- Just because court finds an implied term, doesn’t mean they’ll have found the party breached that term.
• Courts can find an implied term to be excluded but parties still need to show that term has been breached.
Implication and exclusion clauses
Parties are permitted to exclude themselves from liability of implied terms.
- On the absence of such exclusion, implied terms remain present. Liability can only be excluded if expressly
done so in a type of contractual relationship where the law generally implies a term.
• Conflicts with legislation – if landlord were to be excluded liability for not maintaining common areas, how
would this work under Residential Tenancies Act or the Privacy Act?
• Is it significant to preserve what parties agreed to, or is it paramount to allow for parties to exclude terms
as courts cannot impose liability on parties to which they didn’t agree to?
Implication by specific contract
Where a particular term may not necessarily be applicable to other contractual relationships or transactions but is
application to a certain factual matrix before the court.
- Vickery v Waitaki International Ltd: can be difficult to determine whether terms are implied or interpreted from
express terms.
Common law tests for implication by specific contract
The business efficacy test The Moorcock: implication which the law draws from what must obviously have
been the intention of parties.
- Implication which law draws with the object of giving efficacy to the transaction
 and preventing such a failure of consideration as cannot have been within the
contemplation of either parties.
- The Moorcock: what term is necessary to ensure that contract goes through as
a matter of business? Courts will imply whatever term that is necessary to make
the deal work.
• In this case, implied condition of reasonable care is breached – parties
should’ve inquired that bottom of river is reasonably fir for purpose or told
plaintiffs it wasn’t
The officious bystander test Shirlaw v Southern Foundries: prima facie that any contract is left to be implied and
need not be expressed is something so obvious that goes without saying.
- If parties were to confront any officious bystander and suggest some express
provision for it in their agreement, bystander would reply with “oh, of course”.
• Term is so obvious that it can be implied.
Contemporary tests for the implication of terms into specific contracts (New Zealand follows Bathurst/BP)
Test of necessity! Bathurst Resources Ltd v L & M Cool Holdings Ltd
1. If a term is to be implied, it must be strictly necessary. High threshold.
- Apply step four and five of BP Refinery (if these are not met, term is not implied, period).
• Implied term must be capable of clear expression.
• Implied term must not contradict any express term of the contract.
2. Start with the words. If a contract does not provide for an eventuality, the usual inference is that no
contractual provision was made for it.
- If it’s silent, then it’s silent.
3. Implied terms need to be something that parties must’ve been taken to have agreed at time of contract
formation. An unexpressed term can only be implied if the court finds that term would spell out what
the contract, read against the relevant background, must be understood to mean.
- Apply steps one to three of BP Refinery (these are not restrictive, just analytical).
• Implied term must be reasonable and equitable.
• It must be necessary to give business efficacy to the contract so no term will be implied if contract is
effective without it.
• It must be so obvious that it goes without saying.
- Something unexpressed but agreed based on factual context – what did they actually agree to?
4. The test to interpret a contract when considering implication of term is objective.
- Standard of a national reasonable person with all the background knowledge reasonably available to parties at
time of contract.
5. Implication of term doesn’t depend on proof of parties’ actual intention nor requires court to speculate
how actual parties would’ve wanted contract to regulate the eventuality if confronted with it prior to
contracting.
- Courts aren’t trying to give effect to subjective intentions, just what the contract objectively is supposed to
mean.
Confusion in law
Attorney-General of Belize v Belize Telecom: cited with approval in New Zealand by Hickman v Turn and Wave
Ltd albeit existence of BP Refinery.
- Ultimate question is whether the implied term is what the parties meant. Uncertain whether other tests are
redundant.
• Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd: Belize confuses
implication and interpretation. They aren’t the same nor should they be carried out the same. Not relevant.
Case examples of implication of terms in specific contracts
- Devonport Borough Council v Robbins: implication that there would be reasonable co-operation between
parties. Object of contract being to achieve common good, therefore, inconceivable that they would rightly
keep each other at arm’s length.
- Ware v Johnson: implication that vines were incapable of being in satisfactory condition as pleaded.
- Artifakts Design Group Ltd v NP Rigg Ltd: implication that the first defendant would use its best endeavours to
promote the sale of the plaintiff’s goods in New Zealand.
- Hill v National Bank of New Zealand Ltd: implication that bank was obliged to act in manner that enabled
reasonable arrangements to be made; provided that customer was always conducting account within
arrangements.
- Butcher v Port: implied that as part of duty of reasonable co-operation, the underwriters were bound to take
reasonable prompt steps for the purpose of ensuring that their representative performed his proper function.
 Exclusion clauses
When parties have clauses in contract that say liability for particular damages is excluded in incurring liability.
Attempts to apportion and predict the risk of breach of contract as opposed to determining in action for damages.
- Limitation clauses: limit or negate promisor’s obligation under contract.
- Exclusion clauses: restrict or exclude the availability of remedies for a breach of contract; no liability at all.
Incorporation of exclusion clause (apply incorporation principles!)
Where contract is a document with a signature includes an exclusion clause, parties will be bound by it and
incorporation of an exclusion clause will be non-contentious.
- Where clause is not part of document or there’s no signature, then question is whether reasonable notice has
been given to the incorporation of a term.
- If there’s misrepresentation, apply Curtis.
• Whole clause might be out; or
• May be able to rely on extent that’s communicated.
Interpretation of an exclusion clause
Exclusion clauses are to be interpreted accordance to contra proferentem rule!
- Rule of contra proferentem states an ambiguous contract term should be construed against the drafter of
contract/party benefitting from exclusion clause.
- Wallis, Sons & Wells v Pratt & Haynes: party seeking to rely on exclusion clause needs to show clause clearly
intends to bypass legal remedies for breach of contract in the context of an entire agreement clause.
• Exclusion of liability for a breach of contract must clearly be expressed by the contract. Any exclusion of
liability needs to be clear, otherwise it’s not granted.
- Photo Studio Production Ltd v Securior Transport Ltd: overturns fundamental breach doctrine which suggests
that exclusion clauses cease to exist when there’s a fundamental breach.
• Allowing for exclusion clauses to operate, when expressly stated, upholds contractual freedom of parties
to choose to include clauses in initial contract formation and exclude liability.
Framework for interpretation of exclusion clauses in contract
Dorchester Finance Ltd v Deloitte: the interpretation of exclusion clauses in contract involves an inquiry as to what
a reasonable and properly informed third party would consider the parties to mean. Ultimate objective is to
ascertain what parties intended their words to mean in the particular factual context in which the contract was
made.
- There is an assumption that party will not have intended to limit liability unless clear and unambiguous
language is used.
- Court will look at clear language or necessary implication before concluding that right to claim damages is
extinguished.
Bypassing of negligence via exclusion clauses
Producer Meats (North Island) Ltd v Thomas Borthwick & Sons (Australia) Ltd: courts adopt a strict approach to
construing clauses excluding liability for negligence.
- Parties are free to exclude the right to sue for negligence in effect via the contract. However, words must be
very clear and use unambiguous language that parties intended to exclude liability for negligence.
- Lack of clarity will mean the exclusion clause doesn’t apply. Where it is not clear, you cannot extend the
clause to exclude liability for negligence.
• Ambiguous words of “at owner’s risk” were not clear enough to exclude liability for negligence – no
evidence that words have acquired trade usage within meat industry. Words were not further
contextualised with clear exclusion.
Case examples of strict approach
- Producer Meats adopted in New Zealand in Chase de Groot: if you want to exclude liability for negligence, you
need to do it clearly.
• Parties cannot hide behind a clause that purports to exclude contractual warranties and representations.
- Alderslade v Hendon Laundry Ltd: if there is any other way that damage could be incurred other than
negligence of party, then courts will not exclude clause to negligence unless explicitly clear in contract.
• Clause may extend to cover negligence otherwise; it would lack subject matter.
• Arguable that this is an exception to express and clear requirement to exclude liability for negligence. If
there’s no other way that liability could arise other than by negligence, then exclusion clauses will be taken
to cover negligence even if not clear.
• State the uncertainty in the law and the clash between this and authority.
- Kaniere Gold Dredging Ltd v Dunedin Engineering & Steel Co Ltd: if clause covers the entire agreement, the
courts cannot say it excludes negligence as this would not be a proper interpretation of clause.
• Contrary to Hollier v Rambler Motors: the goal must be to interpret exclusion clauses as the parties
intended them to operate; if specific clause doesn’t exclude liability for negligence, then it is not clear
 enough to extend the clause to exclude it. Even if it is incorporated into contract.
Unresolved law in relation to exclusion/limitation clauses
Interpretation of exclusion clauses vs. limitation clauses
- SGS (NZ) Ltd v Quirke Export Ltd: there is an uncertainty as to whether contra proferentum approach applies
with less rigour to limitation clauses than to exclusion clauses. This is not resolved.
• Limitation clauses must be appropriately interpreted within its whole context, with plain meaning.
Fundamental breach rule (no longer applies in New Zealand)
Karles (Harrow) Ltd v Wallis: if A has committed a fundamental breach of contract, A cannot rely on
exclusion/limitation clause to exclude/limit liability for breach. Overridden and no longer applies in New Zealand.
- Photo Production Ltd v Securicor Transport Ltd: exclusion/limitation clauses can exclude/limit liability in event
of a fundamental breach, however courts need to ascertain whether parties intended the clause to still apply in
event of such breach.
• Have to interpret that clause and ask whether parties intend to cover a fundamental breach of contract. If
words can only mean one thing (exclude or limit liability period), then it applies; regardless of a
fundamental breach to contract.
• Allowing for exclusion clauses to operate, when expressly stated, upholds contractual freedom of parties
to choose to include clauses in initial contract formation and exclude liability.
- DHL International (New Zealand) Ltd v Richmond Ltd: such exclusion/limitation provisions are to be given their
natural, plain meaning, read in the light of the contract as a whole.
• It is only in that way will the reasonable expectations of parties as expressed in their contracts be fulfilled.
Doctrine of deviation
Doctrine of deviation occurs when contract for transport of goods or holding of goods for other people becomes
completely difference to what was initially planned (becomes deviated).
- Suisse Atlantique etc v NV Rotterdamsche etc: journey becomes so different to any exception or limitation
clauses would not apply to liability incurred during the different trip.
Doctrine extends to transport of goods by land and bailment.
- Photo Production: doctrine of deviation may be a caveat to the dismissal of fundamental breach, however
unclear.
• Can argue based on facts where a fundamental breach has occurred in deviation sense. Uncertain as to
whether doctrine of deviation prohibits limitation/exclusion clauses applying.
Exclusion clauses attempting to contract out of statutory schemes
Parliament has passed various acts that have stipulated that even if parties have attempted to contract out of
liability under legislation, clauses will not be effective and parties would be criminally liable for attempting to do so.
- Conflicts with freedom of contract. Parliament wants to interfere with the applicability of exclusion clauses that
affect functioning markets and to protect people from exploitation by ensuring everybody is subject to liability
appropriately.
Example of legislation
Credit Contracts and Deals with the borrowing and lending of money by regulating type of information
Consumer Finance Act given when creditor lends money and protects borrowers.
2003 (no contracting out, is - For credit contractors, guarantees, consumer leases and buy-back transactions,
a criminal offence) no contracting out of the CCCFA is permitted at all, and this can be a criminal
offence under the FTA (s 135 of CCCFA).
Fair Trading Act 1986 (can Regulates practice of trade (business-business) and business-consumer
potentially validate relationships, incl. requirements for consumer information. Provides protection
exclusion clauses but is against misleading and deceptive conduct requirements for consumer information.
dependent on fair and - For general business dealings, protections of the FTA against misleading and
reasonable criteria) deceptive conduct, cannot be contracted out of (s 5C) except for written
agreements in trade where it is fair and reasonable for clauses
disclaiming/bypassing liability to be upheld (s 5D).
• Parties need to be in trade.
• Value of transaction, subject matter of transaction, respective bargaining
powers, knowledge of breach of legislation, and legal representation are
considerations of fair and reasonability.
Consumer Guarantees Act Statutory guarantees in context of consumer contracts for the provision of goods
1993 (can potentially and services. Deals with direct consumer-business contracts.
validate exclusion clauses - For contracts involving the supply of goods and services to consumers,
but is dependent on fair and contracting out of the CGA is prohibited except in limited circumstances (s 43)
reasonable criteria) which are narrower than under the FTA, given both parties have to be in trade.
• Consumers cannot contract out of CGA unless they procure the

Other legislation
goods/services in trade. Exceptions must be fair and reasonable.
• Value of transaction, subject matter of transaction, respective bargaining
powers, knowledge of breach of legislation, and legal representation are
considerations of fair and reasonability.
- Insurance Law Reform Act 1977 & Health and Safety at Work Act 2015:
• Contractual clauses purporting to modify/bypass statutory provisions
regulating insurance contracts (ILRA) and workplace health/safety (HSWA)
will have no effect. No allowances for contracting out.
- Disputes Tribunal Act 1988:
• Disputes Tribunal has jurisdiction to adopt a flexible approach when
determining claims under $30,000 and this cannot be contracted out of
(DTA, ss 10(1A)(b); s 16(1)).

Interpretation
Principles of interpretation held understand the bound of terms in contract and whether obligations within have
been breached.
Traditional (conservative) approach to interpretation (Benjamin Developments Ltd v Robt Jones (Pacific) Ltd)
1. The plain meaning of words in contract will take precedence if they’re unambiguous and clear.
2. If the meaning is clear, then you cannot look at preliminary or background matters to get a different meaning
than what parties actually said in the contract.
3. You can only defer to a different interpretation from the context of the contract if:
- When the interpretation would produce an unreasonable result.
- When the meaning is ambiguous or uncertain.
Rationale for conservative approach
Melanesian Mission Trust Board v Australian Mutual Provident Society: intention of parties is to be discovered
from the words used in the document; is meaning is clear and ambiguous, effect must be given to them because
that is what the parties are taken to agreed to.
- Not a function of the courts to search for ambiguity.
- Unless context shows that ordinary meaning cannot be given, or that there is ambiguity, ordinary meanings
must always prevail.
Modern approach to interpretation (Investors Compensation Ltd v West Bromwich Building Society)
Note that not all principles are applicable in New Zealand!
1. Objective assessment of what would a reasonable, third party, with all the background knowledge parties had
reasonable available to them, interpreted the parties to mean?
2. What is the background? What information was reasonably available to the parties at time of contract?
- Includes virtually any information that was reasonably available (law at time of contract, property titles publicly
available, previous owners of property, shareholders of company, anything constitutes background
information).
3. Prior negotiations are not admissible as a tool to help interpret the meaning of a contract (not applicable in
New Zealand affirmed in Bathurst).
4. If you can establish that a reasonable third party agrees that is what parties intended, then apples can refer to
pears.
- It is always about the mind of the reasonable third party. Start with plain and ordinary meaning but assessed to
background information; can it be said that parties meant something else objectively?
5. Law doesn’t require judges to attribute to the parties an intention which they plainly couldn’t have had.
- The use of natural and ordinary meaning does not allow for linguistic mistake, but if background information
informs a mistake than we are not obliged to follow the natural meaning of words.
- If plain meaning leads to outcome that doesn’t make business/common sense, then courts have to interpret it
differently to lead to an outcome that does.
Prior negotiations are inadmissible
Chartbrook Ltd v Persimmon Homes Ltd: inadmissibility of prior negotiations as evidence acknowledges that
courts could get it wrong sometimes and may reach interpretation that parties have not been taken to reasonably
intend.
- If we exclude evidence of prior negotiations to assist with interpretation, we may get it wrong but also, we don’t
have to spend time and money in further ascertaining what parties mean.
- A system which allows the admissibility of prior negotiations may be justified in the more general interest of
economy and predictability in obtaining advice and adjudicating disputes.
New Zealand’s approach to interpretation! (Firm PI 1 Ltd v Zurich Australian Insurance Ltd affirmed in Bathurst)
1. It is what a reasonable third party would understand the parties to have meant by the words.
2. How does the plain meaning interpretation work in terms of the whole contract?
3. Anything that parties would’ve had access to would be relevant to the interpretation of particular
words/phrases/clauses.
4. Is there an alternative interpretation that would make more business/common sense? Why should this
apply in lieu of the clear interpretation of parties’ intentions from the words?
5. Prior negotiations are admissible but only if they’re relevant.
6. What would the reasonable person take the parties to have intended at the time of the contract
through their subsequent conduct?
7. Prior interpretations of a phrase by a court in the context of a contract may not be helpful in
ascertaining what it means in another contract’s context.
Rationale for New Zealand’s approach
Bathurst affirmed in PI: desirability of providing certainty needed to facilitate efficient conduct of commerce,
holding people to bargains they make, and supporting access to justice through efficient and just proceedings.
- Giving primacy to written words of agreements provides commercial certainty.
- Contextual reading to those words recognises that words have to be read in context and that promotion of
commercial certainty shouldn’t be allowed to dealer what parties actually meant by words in which they
recorded their agreement.
- Cannot use subjective interpretation of parties; have to assess what both parties mean in context of contract,
purpose of contract, and what information was reasonable available to parties at time of contract.
The text rules!
Contractual context is still necessary in interpretative process, but text remains centrally important.
- If language at issue has an ordinary and natural meaning, it is a possibly conclusive indicator of parties’
objective intentions.
- Wider context might point to alternative interpretation or help in determining meaning in ambiguous or
uncertain cases.
Specialised meanings
Question to specialised meanings (parties’ own lingo/understanding) is whether evidence tends to prove anything
relevant to the reasonable person. If yes, then is admissible.
- Objective evidence (incl. words/conduct) showing parties understood words to have specialised
meaning/words carried particular meaning is not determinative but is relevant.
- Can only be admissible if relevant to reasonable person interpreting the contract.
Principles distilled
Reasonable third party ICS; Firm PI: objective interpretation by the national reasonable person in the
position with reasonably available knowledge at time of contracting.
- Admissible background information must be what a reasonable person would
think relevant.
- Evidence that only refers to subjective intentions or beliefs is not admissible
uncles it indicates common/mutual understanding. If so, then can inquire into
what the other party said as an indication to the mutual understanding.
Plain meaning Firm PI: interpretation of the plain meaning must be applied in a
interpretation with the purposive/contextual approach to the contract, regardless of ambiguity.
whole contract - Requirement that reasonable person have all relevant background information
reflects that contractual language must be interpreted in overall context of
contract.
- Context is provided by the whole contract and is informed by relevant
background information.
• How does the plain meaning interpretation work in terms of the whole
contract?
• How does the particular interpretation of the term work with the whole
contract?
Any information is relevant ICS; Firm PI: anything that parties would’ve had reasonable access to them would
to interpretation be relevant to interpretation.
- Background can include everything which would’ve affected the way language
in contract would’ve been understood by a reasonable person.
• ICS: background information includes laws in force, different
knowledge/experience of parties, etc.
• AIB Group: factual background information may not be relevant relative to
what is actually agreed in contract unless it is used otherwise than for a
normal purpose.
- Text is of primal importance! Background information only informs text.
• Pyre Gould: background information will draw away from plain meaning
 only in extreme circumstances (e.g., leads to an absurd conclusion).
-Language in commercial contracts is a lot fancier than ordinary language
because it has the purpose of creating certainty for parties (incl. third).
• This is a result of attempts to record ongoing negotiations formally.
• Parties’ awareness that contract is relied on a third party may justify more
restrictive approaches to using background information in some cases.
• Parties’ awareness of third parties reliance can be relevant background
information.
Business/common sense ICS: business/common sense can override a plain meaning interpretation, but
courts don’t take this lightly!
- Firm PI: overriding plain meaning interpretations are only done in the most
extreme and obvious cases (e.g., if plain meaning leads to an absurd
conclusion).
• Why do you think an alternative interpretation that makes more
business/common sense should apply in lieu of the pretty clear
interpretation that is concluded? Must be justified!
Prior negotiations Bathurst confirms that extrinsic evidence (incl. prior negotiations) is admissible.
- Extrinsic evidence includes emails, phone calls, prior negotiations and
communications.
• Prior negotiations are only inadmissible to the extent that it proves only
party’s subjective intentions/belief. Has to be objective!
• Prior negotiations have to be relevant to the reasonable person.
- The parole evidence rule doesn’t apply to interpretation.
Subsequent conduct Bathurst: subsequent conduct after execution of contract could indicate party’s
intention.
- Question is whether it’s relevant to the reasonable person.
- Changing of mind after the contract is not admissible evidence.
- Focus is on behaviour of parties and whether this could indicate what they are
taken to mean at the time of the contract, if it’s relevant to the objective
interpretation.
• Subsequent conduct doesn’t need to be mutual, individual conduct is
more relevant.
• Subsequent conduct (e.g., post-dispute) may be very unlikely to be
admissible as conduct may be self-serving and admission may add time
and cost.
• Problematic when subsequent conduct is of executives to corporate
parties who had no involvement in negotiations and no knowledge of
background.
Precedent Prior interpretations of a phrase by a court in the context of a contract may not be
helpful to ascertain what it means in another context of contract except in standard
form contracts.
- Beautfort Developments: prior judicial legislation of phrase in standard form
contracts could be influential in interpretation because of their standard nature.
Important cases
Firm PI 1 Ltd v Zurich Interpretation of a replacement policy for a residential apartment complex with was
Australian Insurance Ltd destroyed in Christchurch earthquake. Insurance policy max. limit of $12.95m based
on pre-earthquake estimate of replacement value. Actual replacement cost was
$25m. Zurich claimed clause MD15 limited liability to difference between statutory
cover provided by EQC and sum inured ($12.95m less EQC cover of $6.8m). Firm PI
argued that ‘loss’ meant ‘actual loss’ so cover provided by EQC was deducted from
replacement cost of $25m, leaving Zurich liable for full amount of sum insured.
- Whether sum excluded ECQA sum provided under legislation.
- Supreme Court interpreted clause in whole context of contract.
• General structure of bargain/overall commercial purpose did not affect the
interpretation.
• Not enough evidence to conclusively determine specialised meaning meant
in favour of what parties’ intended. Must have enough evidence that indicates
express intention of parties or industry.
• No firm conclusions as to commercial absurdity as only used in most extreme

Bathurst Resource Ltd v
L&M Cool Holdings
cases.
• Clause read in whole contract meant that cover was limited to difference
between EQC cover and sum insured.
- Held to understand that liability should be reduced by linking the contractual
clause to additional ECQA sum also being granted.
• Firm PI is largely confined to its facts; signalling further that Supreme Court is
taking a more conservative approach to contract interpretation.
• Likely to use opportunities to bring New Zealand into line with UK and
Australia (conservative approach).
• Emphasised words of contract are centrally important and contextual
interpretation may have little part to play if parties know that third parties will
rely on the words used.
D sold coal mining permits to P. Contract provided that two payments of $40mil USD
are made on triggers (ship over 20k tonnes = first, 1 mil tonnes = second). Variation
of contract provided that second instalment is deferred if P reaches 20k threshold but
continued paying royalties to D (percentage of sales) under separate agreement.
- Whether payment was owed if P stopped mining due to royalty agreement.
- Supreme Court held in P’s favour.
• General principles for admitting extrinsic evidence and implied terms; ‘to ship’
meant any type of transport, and there was no differentiation between coals.
Payment obligation was triggered.
• Expectation to generate commercial profits doesn’t mean that is what the
contract means – legal obligations are not created by expectations; they are
created under contract. Under contract D took risk that P would stop minding
and agreement stated royalties are only payable on mining. Tough luck!
- Courts are not going to imply a term based on whether parties stuck to the
contract or not.
• Supreme Court will not revisit general principles of contractual interpretation
set out in Firm PI. Supreme Court will not abandon its own prior judgements
that have tentatively established in New Zealand law, that evidence of
parties’ conduct before and after contract can be admitted to aid
interpretation.
• Court attempts to rein in some excessive reliance on evidences’ conduct,
which adds significantly to discovery and litigation costs.

PARTIES’ CHOICES TO SECONDARY OBLIGATIONS

Liquidated damages vs. doctrine of penalty

Liquidated damages are clauses that state what would happen in event of a breach.
- Fine for parties to agree on liquidated damages, but courts will not enforce LD if it’s a disguised penalty
clause, to protect weaker parties.
- There is a conflict between notion of forfeiture in equity and the common law doctrine of penalty. Doctrine of
penalty is applied in common law courts to distinguish between liquated damages and penalty clauses.
• Penalties/liquidated damages: party will owe the other a sum of money in certain cases of contract breach.
• Forfeiture: one party gets to keep everything that the other paid to them after a breach of contract.
• Exclusion/limitation clause: clause in contract that excludes or limits liability in case of breach.
Rationale
Section 34 of CCLA Parties are allowed to bargain consequences of a breach of contract.
Section 43 of CCLA Courts are to give a broad range of remedies for a breach of contract (subject to
section 34) only when they do not bargain the consequences themselves.
Doctrine of penalty
Contracts between sophisticated parties that are represented and advised by lawyers with equal bargaining power
are not subject to the Dunlop test (Cavendish).
- Rationale for enforcing contracts is to uphold the choice of parties. Some contracts don’t have equal choice
(e.g. consumer) so if one party is less than fully rational and is in less bargaining power, efficient contracts are
not pursued.
• Where sophisticated parties are of equal bargaining power, the law trusts the parties to be the best judges
of their own interest.
- Overarching issue is whether the clause is penal, not whether it is a genuine pre-estimate of loss.
 • They are not mutually exclusive; just because it’s not a pre-estimate of loss, doesn’t mean it’s penal.
For consumer/standard contracts apply Dunlop. For complex, commercial contracts apply Cavendish.
Doctrine of penalty in standard consumer contracts (Dunlop)
1. Parties’ description is not conclusive.
- Though parties who use ‘penalty’ or ‘liquidated damages’ may prima facie be supposed to mean what they
say, courts must ascertain whether payment stipulated is penalty or liquidated damages.
2. Penalties are stipulated as in terrorem of the offending parties as a deterrent.
- Liquidated damages are genuine, equally agreed on, pre-estimates of damage.
3. Assess whether parties meant clause as a genuine pre-estimate or penalty at the time of contract formation.
4. Uncertainty mechanism:
• If a sum is extravagant and unconscionable in comparison with the greatest loss that could possibly result
from breach, it’s a penalty.
• If breach sum stipulated is a sum greater than sum which ought to have been paid without breach, it’s a
penalty.
• There is a presumption that if the same sum applies to various breaches (some serious, some trifling), it’s
a penalty.
• Genuine pre-estimate of sum in contract formation doesn’t have to be completely right or accurate to
losses in court.
Dunlop Pneumatic Contract of tyre sales from manufacturer to dealer requires dealer to not sell of offer the
Tyre Co Ltd v New goods to any private customers/co-operative society for less than the manufacturer’s list
Garage and Motor Co prices. Clause stipulates a requirement to pay a sum of 5l for each item sold in breach
Ltd – Test to as liquidated damages not penalty. Damage was total of 250l.
distinguish liquidated - Court of Appeal held it to be a penalty clause to deter from infringement. Loss
damages and penalty incurred from breach is too indirect and cannot be proven.
clauses is established. - House of Lords held that it was not a penalty clause because it does not fulfil the
requirements.
• Loss is indirect but courts are willing to acknowledge the loss and liquidated
damage clause as an estimate of that interest.
• Reasonable for parties to contact an estimate of damage at a certain figure; 5l
is not extravagant of a sum therefore there would be no reason to suspect that
it is not a true bargain used to assess damages, but a penalty to be held in
terrorem.
Narrowness of penalty doctrine
Associated and Contract for hire-purchase; clause in contract says contract may terminate the hiring by
Distributors Ltd v Hall returning the goods at such address as you may direct own risk and cost at any time.
– Doctrine of penalties Another clause says in event of agreement/hiring being determined (ended), hirer will
is narrowed. The pay compensation for depreciation of goods, plus any other sums payable hereunder
doctrine of penalty is such sums as with the amount previously paid (instalments) for rent, not less than on
inapplicable where half of agreement (amount to be paid). Basically, you get 50% of the price of the bike if
triggering event isn’t a you return it early.
breach. • When you purchase with instalments, it is an unsecured loan. If the buyer
becomes insolvent, there is no guarantee of the debt payable. Also, no in-rem
right in property. Hire-purchase allows for the seller to remain the property owner
and the buyer pays through hiring. There is an in-rem right in the property.
- Whether clause was a penalty.
- Court of Appeal held that the clauses were not a penalty.
- Doctrine of penalty applies to breaches of contract. There is no breach as hirer is
allowed to choose to bring the bike early, the clause allows for an alternative
performance.
- The common law doctrine of penalty is inapplicable where the triggering event is not
a breach of contract.
Modern test for the doctrine of penalty (Cavendish)
1. Whether the provision is a secondary obligation…
2. Which imposes detriment on the breaching party out of all proportion to any legitimate interest of the
innocent party in the enforcement of the primary obligation.
Cavendish Square Makdessi (defendant) breaches non-competition provision. Loss was no interim or final
Holdings BV v payments for shares and Makdessi is compelled to sell shares at NAV (net asset value)
Makdessi – Deterrent rather than true value (40% of 69.7m vs. 40% of $300m).
clauses are fine - Whether the clause was a liquidated damages clause or a penalty clause.
between sophisticated - Court held not penal.
parties, even in • Sophisticated mechanism for evaluating value of shares through clauses make it
terrorem. part of primary obligations, not secondary.

Test is now whether New test is whether provision is a secondary obligation, which imposes detriment out of
provision is a all proportion to any legitimate interest of innocent party in enforcement of primary
secondary obligation, obligation!
which imposes - Innocent party’s interest is in performance, not punishment.
detriment out of all • Compensation is not necessarily the only legitimate interest the innocent party
proportion to any will have in performance of the breaching party’s primary obligation.
legitimate interest of - Refusing to give back deposit can be a penalty.
innocent party in • Provision may be penal if it disentitled breaching party from receiving sum of
enforcement of primary money which would otherwise be owed to him.
obligations. • Obligation to transfer assets (for nothing or at an undervalue) can be capable of
constituting a penalty.

Dunlop test is misleading.

• Only useful in simple damage clauses in standard contacts, not complex
commercial contracts.
- Properly advised parties of comparable bargaining power in negotiated commercial
contracts are the best judges of what is legitimate in a provision dealing with the
consequences of breach.
- Deterrent clauses are fine between sophisticated parties, even in terrorem, because
the legitimate interest of party might extend beyond compensation for loss.
• A deterrent provision is not inherently penal.
• Can be an ingenuine pre-estimate of loss and still not be a penalty or contrary to
policy of law.
Application of modern test in New Zealand (Honeybees)
The proportionality assessment:
- If consequence of breach is too out of proportion with legitimate interest of innocent party in performance of
primary obligation = penalty.
- Determination starts at time of contract formation and by reference to terms and circumstances of contract.
• Broader commercial context; intention of parties, etc.
- Consequence clauses may reflect protection of interests in performance of primary obligation; these interests
are the ones to be weighted when assessing proportionality of consequence.
- Legitimate interests may extend beyond consequential loss.
• May impact of non-performance on broader commercial interests the parties seek to achieve/protect
through contract or relate to a system of business which contract forms a part of.
- Legitimate interests won’t include objective unrelated to performance interest.
• Deterrence is a legitimate objective.
- Presumption that sophisticated parties in commercial sense are best judges of own interests.
• Courts will consider bargaining power when it’s unequal, however not main test.
• Issue is whether innocent party’s legitimate interest in performance is disproportionate to consequences of
breach.
- Calculation of damages is sometimes a measure of performance interest.
• Likely where the clause purports to provide pre-estimate of damage or appears in contract where only
legitimate interest is a monetary value of losses which flow directly from that breach.
127 Hobson Street Ltd Contract between day care and proprietors for the installation of a second lift. Contract
v Honeybees stipulated that if lift was not made within two years, Honeybees was indemnified
Preschool Ltd – New (compensated) for all obligations they may incur: rent, operating expenses, etc. Lift
Zealand follows the wasn’t made.
Cavendish - Courts held that New Zealand follows the Cavendish test.
proportionality test. - Winkelmann CJ: “clause stipulating a consequence for a breach of a term of the
contract will be an unenforceable penalty if the consequence is out of all proportion
to the legitimate interests of the innocent party in performance of the primary
 obligation”.
• Liquidated damages can exceed the expectation interest; test is of
proportionality, and it allows for interests beyond an innocent party’s interest in
compensation for direct losses to be reflected in such clauses.
• If you can relate the liquidated damages clause to a legitimate interest in the
performance of primary obligations, then it is not penal.

Forfeiture
Forfeiture allows innocent party to keep what they’ve already been paid.
- Limited doctrine that conflicts with doctrine of penalty.
• A forfeiture clause is different from a secondary obligation clause in that it is a payment that the
breaching party seeks to recover (at least partially) from the counterparty.fi
• They don’t overlap.
• Demonstrates how limited penalty doctrine is.
- Restricts freedom of contract.
• Examined at the time of enforcement, and court has discretion to the order it will make (as it is an equitable
doctrine).
- Courts are able to give parties more time to satisfy their obligations.
Galbraith v Mitchenall Consequence of clause meant company was enriched by the breach. Defendant gets to
Estates Ltd – You can keep van, keeps payments and keep deposit in the event of a termination.
give the breaching - Court followed Romer LJ in Stockloser v Johnson.
party more time to • No equity exists unless there has been unconscionable conduct at the time
make more payments, contract was entered into and purchaser was reading, willing and able.
but that’s it. • “If a purchaser defaults in punctual payment of instalments of… the court will…
relieve the purchaser from his contractual liability to forfeit instalments (apart
from deposit) already paid to the extent of giving him a further chance and
further time to pay the money which is in arrear if he is able and willing to do so”.
• Denning in Stockloser: equity operates because it is unconscionable for seller to
retain the money. He ought not unjustly to enrich himself at the plaintiff’s
expense. Not followed in Galbraith.
- Forfeiture differs from penalty as it’s fact-based situations with only one available
remedy, which is that the courts can allow more time to make rest of payment.
Deposits
Workers Trust and Two parties with contract for sale of land with deposit of 25%. Buyer fails to pay
Merchant Bank Ltd v remainder 75% within 14 days, made to forfeit the deposit.
Dojap Investments - A forfeiture of a deposit may be a penalty.
Ltd – The dividing line • Sellers could not retain the deposit, and must return it, subtracting any loss they
between a penal could prove they suffered.
requirement for a • A reasonable deposit would be 10% (customary), and if higher the seller must
deposit, and liquidated show special circumstances which justify such a deposit.
damages is unclear. • In order to be a reasonable and true deposit, it must be objectively operating as
earnest money and not a penalty.
- Browne Wilkinson LJ: provision that requires party, in event of breach, to pay or
forfeit sum to the other, is unlawful as being a penalty unless provision can be
justified as liquidated damages (genuine pre-estimate of loss which innocent party
will incur because of breach).
• Controversial judgement because this directly conflicts with Galbraith.
• Assimilates doctrine of penalty and forfeiture.
• Despite bank and commercial customer having agreed specifically to a remedial
regime, court will not give effect to it.
- Cavendish agrees with Workers Trust: “sum paid over by one to another as a
deposit, as some sort of certainty for contractual performance, doesn’t prevent it
from being a penalty”.
It is unclear whether deposit clause is subject to the doctrine of penalty or the doctrine
of forfeiture.

CONTRACTUAL REMEDIES

Damages and other remedies are secondary obligations.

 - General intention of damages for breach of contract is to put plaintiff in the same place they would’ve
been in if contract had been performed (Wertheim).
- Usual remedy in contract is damages to particular measure (expectation interest in remedy).

Fundamental principles of damages

Three interests: Fundamental principal of contract remedy is to protect the expectation
1. Restitution (avoiding unjust interest.
enrichment in equity). - Corrective justice: parties are promised performance and deserve value of
2. Reliance interest (putting such performance. Right in future performance is given at contract
plaintiff in position they were formation and it would be wrong to give any more or less than what is
before the contract). owed.
3. Expectation interest (putting - Economic efficiency: law sets damages where it is efficient to breach
plaintiff in position they losing contracts. Incentivises parties to make economically efficient
would’ve been had contract contracts. Benefits of performance should outweigh costs of performance,
been performed). otherwise it is more efficient to breach rather than perform.
Primary obligations Secondary obligations
Primary obligations are terms that are implicitly/explicitly Secondary obligations occur when parties fail in
owed in contracts – what parties have decided. performing primary obligations – obligations to remedy
the wrong involved in breach of contract.
The expectation measure
Plaintiff cannot recover for losses they didn’t actually suffer
Wertheim v Sought damages for late delivery of goods. Calculated difference between market price
Chicoutimi Pulp Co – at delivery and market price at expected delivery date; would’ve recovered more than if
Expectation measure contract hadn’t been broken.
for contract damages. - Governing principle of damages is to put party whose rights have been violated in
Follow the principle, not same position, as far as money can do so, as if rights had been observed.
the rule. • Award of damages for breach shouldn’t put claimant in better position.
- Rule is look to market value at breach but principle is: plaintiff should be no better or
worse off than if the contract was fulfilled.
• Don’t fetishize the rules, they just reflect the protection of the expectation
interest.
Plaintiff cannot recover for losses they wouldn’t have suffered
Golden Strait Corp v Contract to charter ship for seven years with exception clause for cancellation in event
Nippon Tusen of war between US/UK/Iraq. If war breaks, both parties have right to cancel. One party
Kubishka Kaisha breaches contract before legitimate causable cancellation in 2001, war breaks in 2003.
(Golden Victory) – - Basis for calculation of damages held that where there was an available market,
Cannot compensate loss should be measured at date of acceptance of breach not the actual loss to the
plaintiff for more than expectation interest.
they actually lost. • Creates finality in contractual negotiations and certainty as events subsequent
to date of acceptance of breach would become irrelevant.
• If defendant had right to cancel contract in 2003 and you are aware, after that
point there is no protective interest of the innocent party.
Position of plaintiff is one had the contract been performed
Hawkins v McGee – Plaintiff sought medical treatment for surgical procedure on his hand. Defendant
Measure of recovery on proposed using skin from chest to graft onto injured palm and guaranteed that plaintiff
contract us based upon could return to work few days after with “100% perfect hand”. Resulted dissatisfied, long
what defendant period of hospitalisation and prolonged recovery time, pain suffered. Plaintiff sued
should’ve given plaintiff, defendant for breach of contract alleging that defendant provided warranty that hand
not what plaintiff has would be perfect.
given defendant or - Damage calculation is the difference between value to him of a perfect hand and the
otherwise expended. value of hand in present condition.
- Branch J: damages in contract intend to put plaintiff in position as he would’ve been
Contract law does not for the breach.
protect reliance interest - Plaintiff is only limited to recover expectation damages. Pain resulting from
at all. operation was legal detriment suffered by plaintiff in consideration for the contract.
• You are willing to incur expenses in return for surplus when entering a contract.

Must prove plaintiff incurred a loss

Priyanka Shipping Ltd Glory sold bulk carrier vessel to Priyanka for demolition under special negative
v Glory Bulk Carriers covenant not to trade further for any other purpose – guaranteed not to trade or sell to
Pte Limited – third party for other purposes other than demolition. Price of scrap fell, freight and
Negotiating damages charter rates rose, Priyanka began trading vessel, enters two charters (past) and a third
can be awarded where (future charter). Glory sought injunction to prevent further trading and sought damages.
breach results in loss of - If claimant cannot establish that any loss has resulted (when purely economic),
valuable asset created normal inference is that claimant has suffered no loss and may only recover nominal
or protected by the right damages.
which was infringed. • Contract for sale of vessel was solely for purpose of demolition. There is no
Plaintiff needs in rem pecuniary loss flowing directly from breach of promise.
rights over the thing. A - Contract law doesn’t protect restitution interest.
way to recover the - Plaintiff needs an in rem right over thing.
restitution interest. • You get an in personam right in person to perform, negotiating damages reflect
the unjust enrichment and can be awarded as a recovery of the restitution
interest.
Causation
Quinn v Birch Bros Contracted to do work in consideration of payment and promised all supplies needed.
(Builders) Ltd – Ladder wasn’t given so used a makeshift trestle, falls and injures himself. States breach
Establishes effective of contract and demands compensation to cover for personal injury.
cause test (is the result - Held it was in no way something flowing probably and naturally from breach of
flowing from the contract.
breach). - Breach of contract merely provided opportunity to injure himself and was the
occasion of injury but not direct cause.
- Not determined by foreseeability.
Borealis AB v Geogas Geogas supplies butane to Borealis. Butane contaminated with fluid causing damage to
Trading SA – Novus plant and equipment, wanted to be compensated. Geogas doesn’t deny breach but said
actus interveniens chain of causation broke as they didn’t respond to alarm that indicated acidic content.
obliterates wrongness Damage could’ve been mitigated.
of defendant and is fact - Conduct of claimant must constitute an event of such impact that it obliterates the
sensitive. wrongdoing of defendant.
• If breach by defendant and claimant’s subsequent conduct are concurrent
causes, unlikely chain is broken.
- The more the claimant has actual knowledge of breach, of dangerousness, or need
to take appropriate remedial measures, likelihood chain is broken. Vice versa.

Specific performance and injunction

Specific performance Injunction
Specific performances are orders from the court to Injunction is order from court not to do something
perform positively what is promised. (interim remedy).
Specific performance
Discretionary remedy in equity given when awarded damages won’t fully remedy injury of innocent party.
- Will not be awarded when:
• Would inflict personal hardship on parties.
• Requires constant supervision by courts.
• Unfairness in contract formation – e.g., nonsense that falls short of undue influence, duress, etc.
• Inappropriateness – e.g., is not appropriate to award under equity purposes; occurs in contracts for
personal services that would not ordinarily be performed.
Loan Investment Contract for sale of land with consideration of £13,300. Contract also provided that LIC
Corporation of would provide unsecured loan (not protected by a guarantor) from buyer to seller for
Australasia v Bonner £11,000 at rate of 7.5% p.a. Seller repudiates.
– Common law courts
generally award Specific performance is a discretionary remedy.
specific performance of - Specific performance ordinarily granted in contracts for the sale of land as sale of
contract for the sale of land is type of contract in which damages would put plaintiff in the position they
land, even in would be.
commercial context but - Contracts for sales of land will be specifically enforced, but contracts for loan of
not in an unsecured money won’t.
loan. • In this case, contract was predominantly commercial relating to loan
 arrangements = specific performance order not granted.
• Court cannot force someone to pay a loan because might not be able to make
borrower pay it – insolvency, bankruptcy, etc.

Injunction
Priyanka Shipping Ltd Default remedy for negative covenants (restriction from engaging in certain activities) is
v Glory Bulk Carriers an injunction.
Pte Limited – Negative - Exceptions to this are:
covenant (commitment • Unconscionability associated with the negative covenant.
not to do something) is • Oppression of one party by the other.
a case in which specific - Inconvenience and hardship is not sufficient to disprove the need for an injunction.
performance can
always be granted. Injunction is a discretionary remedy.
- Party seeking injunction need not prove that no injunction means suffering of
damage.
- Burden on the party bound by negative covenant to prove why covenant shouldn’t
be enforced by injunction.

Remoteness
Damages can be claimed for those things as may fairly and reasonably be considered either arising naturally from
the breach of contract or as being in the reasonable contemplation of the contracting parties to arise from breach
of contract.
Traditional test for 1. Does the damage naturally arise from the breach of contract?
remoteness (Hadley v - If yes, not too remote.
Baxendale) 2. If the damage does not naturally arise, was there any communication about this
special damage/circumstances?
- If yes, not too remote.
- If no, too remote.
Modern rationale Party may not be liable for foreseeable losses as they are not the type or kind of loss
which he can be treated as having assumed responsibility.
Development of remoteness
Hadley v Baxendale – Hadley owned mill featuring a broken crankshaft. Engaged Baxendale, defendant, to
Damages only for transport the crankshaft to location so it can be repaired. Defendant made error causing
results reasonably crankshaft to be returned to the claimant a week later than agreed, during time they
supposed to have been were out of operation. Unreasonably delayed. Claimant contended that defendant
in contemplation of the displayed professional negligence and attempted to claim for loss of profit from
parties. unexpected closure. Defendant said such action was unreasonable as he hadn’t known
they delayed return would necessitate mill’s closure and therefore, loss of profit failed to
satisfy test of remoteness.
- Claimants may only recover losses which reasonably arise naturally from breach or
are within parties’ contemplation when contracting.
- It is possible for someone to be responsible for loss that wouldn’t be covered in
special circumstances by communicating with other party that loss is expected.
• Communication of circumstances would then be in the reasonable
contemplation of parties.
• On the facts, Baxendale hadn’t reasonably foreseen consequences and Hadley
hadn’t communicated. Wasn’t liable.
Communication of special circumstances
Horne v Midland No notice of exceptional loss but notice of delivery by specific date. Late delivery costed
Railway Co – Notice plaintiff opportunity to sell shoes at an exceptionally high price.
must be sufficiently - Defendant was not liable for loss as carriers couldn’t choose to take responsibility
extensive in choice to for loss. Couldn’t contemplate loss under the circumstances without clear notice.
undertake responsibility - If such notice amounted to evidence of an actual contract to bear the exceptional
for loss in contract. loss rising from breach, then such contract (if found to exist) would be binding.
• On the facts, there is no such contract.
- Notice must be sufficiently extensive in choice to undertake responsibilities for loss
in contract, otherwise it would amount to a new contract, and new assumptions of
liability.
…within parties’ contemplation when contracting
Likely test
Victoria Laundry Claimed for loss of profits after delayed delivery of five months. Communicated urgent
(Windsor) Ltd v need for boiler due to correspondence, however role of boiler not communicated nor
Newman Industries was it known that they needed it for lucrative contracts. Experienced loss of business
Ltd – Right test is what and loss of highly lucrative contract with dying contracts.
is likely or liable to - Defendant held to be liable for the loss in profit but not lucrative contracts.
result. • Carriers don’t know anything, however suppliers ought to know consequences
of delat.
• Contract is too remote. Need some sort of undertaking before trigger notice
principle of Hadley.

Damages will be awarded for loss actually arising where it is foreseeable, at the time of
contract, that loss was likely to result from breach.
- What is foreseeable depends on the knowledge possessed at the time of contract.
• Knowledge may be actually known by parties or may be inferred from what the
reasonable person ought to know in the ordinary course of things.
The not unlikely test
The Heron II – Test for Ship takes nine days longer to deliver sugar. Upon arrival, only sold at lower prices.
recoverable damage is Claimed for market price difference.
whether it is in the - Hadley decision expresses that type of damage which was plainly foreseeable but
contemplation of the would only occur in a small minority of cases cannot be regarded as arising in usual
promisor as ‘not course of things, or be supposed to have been in contemplation of parties.
unlikely to occur for the - Victoria Laundry test established too low. Never held sufficient that loss was
breach’. foreseeable as serious possibility or as being on the cards.

Leading case on The ‘not unlikely test’ to determine reasonable contemplation under Hadley.
remoteness. - Considerably less than 50% but easily foreseeable and not very usual.
Inclusive principle
H Parsons (Livestock) Pigs died from shitty ventilator which caused pignuts to go mouldy, resulting in e. coli
Ltd v Uttley Ingham & outbreak. Argued defendants were in breach of warranty that food hopper was fit for
Co Ltd – If the kind of purpose, therefore liable for loss of pigs and profit as a natural consequence.
harm is reasonably Defendants argued they couldn’t have known that mouldy pignuts would cause deadly
foreseeably not unlikely infection, damage too remote from breach.
then liable for full - Held deadly infection couldn’t have reasonably been foreseen at time contract was
extent. made, only reasonably foreseeable that pigs would become ill if food was
inappropriately stored.
- Where the type of damage is reasonably foreseeable at the time of contract
formation, then damages will be recoverable for losses consequent on breach, even
if the specific consequence couldn’t have been reasonably foreseen.
McElroy Milne v Development project to be sold with tenant whose lease is guaranteed; tenant lined up
Commercial 12 months with knowledge of resale of development on completion. Owner of property
Electronics Ltd – and solicitor forget to put guarantor in contract. Tenant repudiates contract, results in
Illustrates problem with delay in sale, property market crash = drop in price.
putting words together - Kind of loss within contemplation of defendant’s law firm that if contract is breached,
to articulate test for there’d be a delay and that would leave plaintiff vulnerable to market movement.
remoteness. • Egg-shell skull principle applies: if kind of loss is foreseeable, defendant must
accept responsibility for the extent of it.
- Assessment of damages is a question of fact.
Refining of The Heron II – did the party assume liability?
 The Achilleas – Party Ship owner loses new contract due to charter of vessel. Had to place new contract at
may not be liable for much lower rate; charterer agrees to pay difference between market price and his daily
foreseeable losses as rate. Dues for difference between two contracts; charter accepted breach might result in
they’re not the type of cancellation of contract and kind of loss but argued they’re only liable for difference
kind of loss for which between reduced rate and market price. Loss was not type of loss unlikely to occur.
he can be treated as - Affirmed Heron II. Must ask whether parties have assumed responsibility.
having assumed • In this case, it is unlikely that parties would assume responsibility for such a
responsibility. wide possibility of outcomes. Could’ve contemplated kind of loss, but person in
position of plaintiff wouldn’t consider defendant was assuming liability for that
type of loss.
- Must look objectively at intention of parties. Party may not be liable for foreseeable
losses if the loss is not the type or kind for which they have assumed responsibility
for.
• This is ascertained from the contract as a whole – i.e. commercial background,
intention of parties, etc. Is a question of law.
• If type of loss is reasonably contemplated, then the extent of the loss is
irrelevant.
Rationale
- Damages are to evaluate the worth of primary obligations and compensate innocent party accordingly
(McElroy; Parsons).
- Parties decide their secondary obligations, like their primary (Achilleas).
Summary of remoteness
The general rule for remoteness is that damages are only available for what is reasonably supposed to have been
in the contemplation of the parties (Hadley).
- What is in the contemplation of the parties arises from:
1. What is considered as naturally arising from the breach (imputed knowledge).
2. What is contemplated by parties due to communication of special circumstances (actual knowledge).
• If party has not assumed responsibility for the loss, it is not included in any foreseeable losses which
should have been contemplated by parties (Achilleas).

Refining the expectation interest

Cost of cure is the ordinary measure but not when disproportionate to diminution of value of breach (Ruxley).
Cost of cure and non-pecuniary losses
Loss of amenity
Ruxley Electronics Contract for construction of pool, breach was pool was constructed with a deep end of
and Construction Ltd 6ft 9inch not 7ft 6inch. Pool was safe for diving and owner had no intention of fitting a
v Forsyth – Cost of diving board. Diminution of value = £0 (shortfall of depth doesn’t decrease value of
cure is ordinary pool). Cost of cure = £21,560 (reconstruction of pool is required to change the depth of
measure but not when the pool; owner unlikely to build new pool with money; cost of cure wholly
disproportionate to disproportionate to its advantage). Loss of amenity = £2500 (loss of enjoyment).
diminution of value. Pecuniary benefit from performance = £0 (no value in difference in market). General
inconvenience = £0 (hassle suffered by plaintiff).
No compensation for - Where cost of cure is out of proportion to benefit obtained, appropriate measure of
non-pecuniary losses. damages is diminution of value; even if it leads to nominal award.
• Cost of reinstatement is not appropriate measure of damages if the expenditure
would be out of all proportion to benefit to be obtained.
• Appropriate measure of damages in such a case is the difference in value, even
though it would result in nominal award.
Mere inconvenience/annoyance
Addis v Gramophone Defendant employed claimant, contract specified an entitlement to six months’ notice
Co Ltd – When benefit prior to dismissal. Defendant gave the notice then humiliated him within those six
from full performance months, preventing him from doing his job and earning six months’ worth of
brought about by cost commission; then refused to pay. Sought damages for lost earnings/commission, hurt
of cure is completely feelings and exemplary damages to reflect oppressive matter of dismissal.
out of proportion to cost - Held to be found in breach of contract.
of cure, diminution of • Claimant had right under contract to work and earn commission, defendant
value is more prevented exercise of right.
appropriate. • Claimant entitled to wages for six-month period during his formal notice and the
likely commission he would’ve earned during the six months had he continued
 employment, and damages in respect of time which might reasonably elapsed
before he could obtain other employment, no other entitlement to emotional
damages.
- Damages will be awarded for actual losses arising from the breach of contract.
• Damages for emotional/psychological harm usually unavailable in actions for
breach of contract.
Emotional/psychological harm
Bloxham v Robinson Sale and purchase of one-half share in dental practice breached.
– Award for injury to - Court of Appeal held that respondent was not liable for emotional stress.
feelings is inappropriate - Affirmation of long-standing exception to rule about recovery for distress.
in commercial cases. - Recovery can be admitted where the object of contract is to provide pleasure.
• In a commercial case, award for injury to feelings is inappropriate due to policy
reasons.
Where the object of contract is pleasure
Jarvis v Swans Tour Brochure/contract for vacation in Switzerland had long list of unfulfilled promises.
Ltd – No compensation Holiday not in accordance with terms.
for non-pecuniary - Awarded £125 in damages by Lord Denning.
losses except for when - Damages must cater for occasions where value of promise to promisee exceeds
the object of the financial enhancement of his position which full performance will secure.
contract is enjoyment. • Damages for mental distress can be recovered in contract like for shock in tort
law.
• If the purpose of contract is enjoyment, being denied enjoyment can be
compensated for.

Certainty in assessing damages

Sometimes losses caused by breach are too hard to assess, or too uncertain to provide damages.
- Loss of chance is recoverable and can be substantial (Chaplin).
- If it cannot be proven what loss profits would be, wasted expenditure can be relied on instead (reliance
interest) as it indicates bottom line of expectation interest (Anglia Television; McRae).
Loss of chance
Chaplin v Hicks – Advertisement of contest in newspaper. Chaplin is denied the opportunity to interview
Loss of chance can be after winning selection round. Loss was not loss of contract but loss of opportunity.
compensation even if - Held damage wasn’t too remote to assess.
full expectation interest - Loss of opportunity is something of value = worthy of being compensated for.
is hard to deal with. - It is the duty of jury to estimate the pecuniary value of losing the right to belong to a
limited class of competitors.
Reliance interest as a measure of expectation interest
Relationship between reliance and expectation interest
Restitution > reliance > expectation
- If the expectation measure is uncertain, reliance interest is used as an approximate measure.
• Resources, skills, money, etc. are invested when entering contract (reliance).
• Expenditures one incurs in reliance may not enrich other party or generate surplus.
• Parties are entitled the expectation interest; therefore a lower interest (reliance) can measure an
approximation of the expectation interest so parties would at least get what they put in the contract.
- Not always the case. In a losing contract, the expectation would be lower than reliance interest (no contractual
surplus, might enrich plaintiff).
Anglia Television Ltd Claimant contracted defendant (actor) to play lead in play, claimant already incurred
v Reed – Claimant may costs. Defendant wrongfully repudiates contract which forced claimant to abandon the
recover damages for play. Tried to recover damages for wasted expenditure. Defendant admitted liability for
expenditure wasted wasted expenditure but held not liable for any expenditure prior to contract. Profits
prior to contract if it was uncertain so damages to be measured by the expenditure.
reasonable in parties’ - Whether the wasted pre-contract costs were recoverable heads of damages in
contemplation that it breach of contract action.
would be wasted if - Held for claimant.
there was a breach. • Defendant had to have known at time of contracting that claimant already spent
money in preparation, would be wasted if he walked away from contract.
Therefore, could recover damages for pre-contractual expenditures.
- Plaintiff’s choice of measure.
• Cannot claim for both loss of profits and wasted expenditure.
 • Wasted expenditure is not limited to expenses incurred after contract, can be
prior as well, as long as it was in the reasonable contemplation of parties as
likely to be wasted if contract was breached (remoteness).
Losing contracts
When arguing that contract is losing, the burden of proof shifts to defendant to prove expectation interest was
lower than reliance interest.
1. Onus is on the plaintiff to prove that contract is not ‘losing’.
- Remedy of recovery of expenditure is approximate and limited by actual expectation interest. If contract was a
losing contract, it would be limited by expectation measure and all expenditures wouldn’t be recoverable.
- Plaintiff has incurred expenses in reliance of the promise, the fact that expectation was not result of promise
means expense is wasted.
2. Onus is then on defendant to prove that contract is losing.
- Even if there had been the result expected, the expense incurred would be equally wasted.

When uncertain, remedies for a loss of a chance can be given where the objective of the contract was for a
chance.
- Reliance interest is given because expectation interest can be measured through reliance that can be proven.
McRae v Tender for purchase of oil tanker lying on reef said to contain oil. McRae’s tender
Commonwealth accepted sold oil tanker including contents wrecked on reef. After laying out significant
Disposals expenses for salvage, there was no oil tanker. Asked to claim the expectation interest
Commission – Wasted and profit (av. tanker = £1mil, valued ship on reef = £250k, estimated value of oil
expenditure is used to approx. £50,000).
measure the - Held not unreasonable to rely on promise.
expectation when it • No specifications in contract about particular size, value, or condition. Also no
cannot be valued. contract to deliver oil = expectation mature too uncertain/cannot be valued.
- Damages are to be measured by reference to expenditure incurred/wasted in
reliance of promise that tanker existed on reef.
Mitigation
There is a duty on the innocent party to take reasonable measures to mitigate any losses caused by the breach.
- Responsibility of the breaching party won’t extend to damages which could’ve been reasonably mitigated.
- Mitigation incentivises behaviour of innocent parties to act efficiently despite damages being available.
Reasonable mitigation
British Westinghouse Seller promises to supply eight coal operated steam turbines for £250,000.
Electric and Specifications and guarantees as to output and coal consumption for a period of 20
Manufacturing Co Ltd years. Turbines don’t meet the guarantee and are more costly to operate. Original
v Underground damage over the course of 20 years, at about £14000 a year = £280987.
Electric Railways Co • Buyer accepts delivery (failure to mitigate losses if they declined), in recognition
of London – There is a of breach.
duty to mitigate and • After three years buyer, replaces with better turbines and are benefitted from
limit liability for the full previous mitigation by purchasing superiors turbines from different company
loss. (£78186). More efficient and less steam consumption than if original turbines had
conformed with contract.
- Whether doctrine of mitigation should consider excess benefits gained by buyer.
A duty to mitigate and - Benefits from mitigation should be considered and subtracted from damages.
limit to liability for the • Plaintiff should be placed in same position as if the contract was fulfilled, no
full loss. Actual more or less.
diminution of loss is • Defendant is only liable for what is reasonable, contract law only protects the
taken into account expectation interest.
including benefits. - The duty to mitigate is a limitation to breaching party’s liability for the full loss.
Costs of mitigation is • Actual diminution of loss is taken into account.
recoverable. • Only compensate innocent party for actual loss (Golden Victory). If they don’t
mitigate, breaching party is only liable for damages up to the losses that
innocent party could reasonably have mitigated.
• Law only looks at actual loss! Losses + cost of mitigation – benefits from
mitigation = damages.
Mitigating with defendant
Payzu Ltd v Saunders Sale of silk over the course of nine months. Contract was for the payment to be paid
– A duty to mitigate is within a month from the delivery at discounted price; initially one check gets lost, next
fact sensitive and instalment the check arrives late. Defendant refused to continue with original contract
dependent on the but told claimant he would still deliver goods if they paid cash. Claimant rejected and
nature of the contract. purchased goods elsewhere at higher price. Claimed for difference between contracted
price and the market price elsewhere.
- Whether the buyer’s duty to mitigate meant the must accept the new offer below
market price.
- Claimant cannot claim damages where they had an opportunity to mitigate with the
defendant.
• May be unreasonable to expect plaintiff to consider offer from party who has
grossly injured him, but in commercial contracts it is generally reasonable to
accept a new offer from original party.
• Reasonable mitigation can be beyond reasonable or simply reasonable
depending on circumstances.
- Duty to mitigate usually extends to offers from defaulting party in commercial
contracts.

Estoppel
A party can be estopped from acting inconsistently with a prior representation. It is part of equity, not contract, and
requires no consideration or pre-existing legal rights.
- Prevents party from going back on their express/implied word when it would be unconscionable to do so.
- Propriety (estoppel from taking land back) and promissory estoppel (estoppel regarding promises) are unified
in New Zealand and Australia.

Equitable estoppel Promissory estoppel

Claiming estoppel based on assertion of past/present Goes towards party’s future intentions.
facts.
Equitable estoppel
Jorden v Money – A Money had debt of £1200 by bond and gave bond to creditor (Jorden’s brother) for
person may be amount. Bond inherited by Jorden after death. Money on reliance that Jorden would
estopped from acting in never enforce debt, applies for an injunction against Jorden and gets married. Money
a way which is sought declaration that debt had been abandoned and release from the bond.
inconsistent with a - No estoppel based on defendant’s representation was intention not fact.
representation of fact - Lord Cranworth: “if a person makes any false representation to another, and that
he has made, if another other acts upon that false representation, the person who has made it shall not
party had acted in afterwards be allowed to set up that what he said was false, and to assert the real
reliance on that truth in place of the falsehood which has so misled the other”.
representation to his • Representation can be what the facts are – e.g. who owns what, something that
detriment. has happened.
• Different from someone making a representation of the future – e.g. what they
are going to do.
Promissory estoppel
When parties make a presentation of fact, they cannot later argue contrary in court of law to that representation.
Elements to a promissory estoppel cause of action in New Zealand
Wilson v Fanshawe 1. Belief of expectation in A created or encourage by B’s words/conduct (can be
implied by inaction/omission).
2. To the extent that it is an express representation, must be clearly and
unequivocally expressed.
3. A reasonable reliance on the expectation created, to their detriment.
4. Would be unconscionable for B to depart from the belief or expectation.
Wilson v Fanshawe Three main elements (non-exhaustive):
- No prima facie position 1. Quality and nature of the assurances which gave rise to belief or expectation.
for remedy under 2. Extent of the detrimental reliance on assurances.
promissory estoppel. 3. Unconscionability of defendant departing from their assurances.
- Expectation interest or
reliance measure.
Development of promissory estoppel
United Kingdom
Central London Parties sought declaration from court as to what defendant’s legal position was.
Property Trust Ltd v - Statement was representation as to the future.
High Trees House Ltd • Promise to suspend plaintiff’s rights to full rent during war period. Claimant
– Promise doesn’t give knew that promise would be acted upon, and defendant acted upon that
rise to cause of action, promise.
but courts will prevent • Promise enforceable despite lack of consideration but only while conditions
promisor acting which led to promise prevailed (war).
inconsistently with • Claimant could demand full rent going froward, but not any back-payments.
promise. - Effect of promissory estoppel is usually to suspend claimant’s legal rights, not
extinguish them completely.

Denning LJ’s requirements for promissory estoppel:

1. Claimant makes unequivocal promise to waive strict legal rights.
2. Intended to create legal relations and claimant intended to be legally bound by this
promise.
3. Defendant changes their position in reliance on this promise (not necessarily
detrimental reliance).
Combe v Combe – Husband promises to pay wife between grant of decree nisi and date of decree absolute
Doctrine of promissory while divorcing. Husband never pays so she sued for either breach of contract or on
estoppel is a shield, not grounds that promise was enforceable in estoppel. Husband claims no consideration =
a sword. no binding contract.
- Wife’s decision to not apply for maintenance was not made in reliance to the
husband’s promise to pay or was no by his request.
• Even if it was, agreement would be void to contrary of public policy (parties
cannot agree to oust the jurisdiction of courts).
- Denning LJ: promissory estoppel is about when one party who promises another,
intends to affect legal relations between them. Once party has taken hit at word and
acted upon the promise, then the promisor cannot revert to previous legal relations
as if no promise had been made, regardless of support by consideration.
• Consideration is only made at other party’s request or in exchange for other
party’s promise.
• Party cannot turn other’s promise into binding contract by undertaking
performance of making an unreasonable or unexpected promise.

Promissory estoppel provides a defence where three conditions are met:

1. One party, by words/conduct, makes a promise which he knows/intends the other
will rely on.
2. Promise is intended to affect their legal relations.
3. The other party relies on that promise and acts on it.
Australia
Walton Stones Maher, relying on representations (despite no contract) demolished building and begun
(Interstate) Ltd v building. No contract ended up being signed between parties due to difficulties in
Maher negotiations. Maher continued to construct new building despite Walton calling off deal.
- Estoppel as a Maher sought to enforce agreement.
sword and means - Whether Maher was entitled to WS’ representations to enforce an agreement,
to recover despite no completed contract.
damages. • Held permitted to believe that a formal contract was mere, unnecessary
- Unified proprietary formality.
and promissory • Exercise of legal right not to exchange contracts was not itself unconscionable
estoppel. but elements of urgency and Maher acting on his detriment on reliance of WS’
- Awarded assumed execution made it so.
expectation - Mason CJ: mere reliance on executory promise, resulting in detriment or changed
damages. position, doesn’t give rise to the need for promissory estoppel.
• Additional element required – e.g., creation/encouragement by party,
assumption that contract will come into existence, promise of performance,
reliance on assumption to party’s detriment, knowledge by promisor of reliance.
- Emphasis of unconscionable behaviour as a cause of action on principled grounds
from equity perspective.
• Distinguished from Combes. Promissory estopped can be used in a cause of
action in Australia.
• Party to another can tell them to perform a promise (positive creation of rights,
not waiver of rights).
• Does not outflank doctrine of consideration.
 New Zealand
Wilson Parking v Haghi owned property and intended to develop it. Wilson leased property as carpark,
Fanshawe – allowed for right of first refusal in event that property was sold. Haghi arranged to sell
Promissory estoppel property and buy it back after a year, required Wilson to waive right of first refusal for
can be used as a cause buy-back agreement. Waived and promised to waive for the buy-back agreement, in
of action in New reliance Haghi incurred substantial costs in obtaining finances for buy-back agreement
Zealand. by developing the property. Wilson encouraged the continuing of development then
refused to waive rights, instead entering a sale and purchase to buy property.
- Appropriate to hold Wilson to promise it had originally made, waive letter amounted
to unequivocal wavering of right in event of Haghi purchasing property.
• Reliance on the promise incurred substantial detriment and would be unjust to
permit Wilson to take advantage of windfall gain by opportunistically emerging
on its promise.
• Promise didn’t only confer benefits for Haghi but provided mutual advantages
for both parties.
- Promissory estoppel can be used as a shield or a sword.
• Until there is reliance on the expectation created, promise is not enforceable.
- Measure of remedy cannot be prima facie said to be protection of expectation
measures, may well be reliance or other things that remove unconscionable
behaviour of faulting party.
• Main remedy of contract is securing the expectation interest, but different in
cases of estoppel has remedy is based off equity.

Elements of promissory estoppel per Randerson J:

1. Expectation created/encouraged.
2. Reasonable reliance on expectation created.
3. Unconscionability.

WHAT CAN LEAD TO THE END OF A CONTRACT?

Cancellation
Contracts are allowed to be cancelled due to loss mitigation, inappropriate contracts, effects on third party
participation, inequal bargaining powers and freedom of contract.
- If party A repudiates/misrepresents/breaches/anticipates breach the contract, party B is entitled to cancel
contract.
Cancellation under CCLA
Section 34 Provisions in contract relating to cancellation take effect subject to that contractual provision.
Section 35 Damages for misrepresentation (not under cancellation).
Section 36 Cancellation in case of repudiation.
Section 37 Cancellation in case of misrepresentation/breach/anticipated breach.
Section 38 Permits a party to affirm a contract despite knowing that cancellation will disentitle them from
cancelling under ss 36;37.
Section 39 Cancellation must be approved by Court if parties have substantially the same interest.
Section 41 Requirement of notice of cancellation or clear intention to cancel.
Section 42 Effects of cancellation on parties’ remaining obligations.
Section 59 Nothing in the cancellation provisions of CCLA bypass or effect specific areas of the law (specific
performance/injunction, mistake/duress/undue influence, non est factum, frustration, sale of goods,
ss 235;260 Property Law Act, Consumers Guarantee Act, any other enactment that governs
terms/enforcement/remedies available in contract).
Exceptions to the cancellation provisions under CCLA
Sale of Goods Act 1908 Sale of goods are dealt with under Part 3 of CCLA not subpart 3.
- Can still get damages for misrepresentation in a sale of goods under s
35(2).
- Finch v Motors: car bought unsuitable for towing boat. Remedy only
available under Part 3 of CCLA (under Sales of Goods Act).
- Crump v Wala: could only cancel contract under s 7 of Contractual
Remedies Act for jeans that were 25% American-made jeans.
Consumer Guarantees Act 1993 - Commercial contract for goods: Part 3 of CCLA (sale of goods provision).
- Commercial contract for services: Part 3, subpart 3 of CCLA (cancellation
provisions).
- Consumer contract about vendor’s remedies: Part 3 or Part 2, subpart 3 of
CCLA depending on whether contract is for goods or services.
- Consumer contract for goods about consumer’s remedies: either
Consumer Guarantees act or Part 2 of CCLA.
- Consumer contract for services about consumer’s remedies: either
Consumer Guarantees Act or Part 2, subpart 3 of CCLA.
• Except where there is inconsistency – e.g., automatic refund under
CGA if consumer cancels service contract.
Fair Trading Act 1986 Provides parties with option for remedies in event of misleading/deceptive
conduct.
- Parties can choose remedies under Fair Trading Act or CCLA cancellation
provisions.
Property Law Act 2007 ss 235-260 deals with cancellation of leases.
- Landlord can only cancel a lease using ss 244-252 of Property Law Act.
- Tenant still has rights to cancel under CCLA provisions.
Overlap of CCLA and common law
Historically, cancellation in common law focused on condition precedents and entire contracts.
- Application of CCLA on conditions precedent and entire contracts unclear in modern times.
• Conditions precedent: likely that if A and B contract, and B doesn’t want to pay because A wasn’t met a
condition precedent (do something before payment), court will regard B as cancelling under CCLA so
courts could potentially grant relief under s 43 to A.
• Entire contract: if A doesn’t complete contract it’s likely to be regarded as repudiation, entitling B to cancel
the contract which would enable court to grant relief under s 43 to A if appropriate.
- The refusal by B to complete contract because A has failed to meet a condition precedent or complete entire
contract is likely to be considered cancellation by B for A’s repudiation (possible grant relief to A under s 43 for
part-performance).
Conditions precedent - Morton v Lamb: term of contract is so essential that incompleteness by
party means other party cannot complete their obligation. Must show
readiness, willingness and ability to carry out obligation.
- Ellen v Top: part of contract left unperformed must be a substantial part of
the contract to justify a termination. If someone’s not willing to do their
part, other party isn’t bound to either.
- Bettini v Gye: stipulation or inference that a term is essential and effect of
breach should be analysed to decipher whether breach goes to root of
contract, and is therefore a condition precedent.
- Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd: if party’s
conduct/lack thereof causes breach but doesn’t render performance of
contract totally different then It is not so fundamental as to undermine the
contract. Breach has to make contract complete nullity.
Entire contracts - Cutter v Powell: requirement of complete performance of contract. If
contract requires completion, then cannot recover if it’s not completed.
The bro died before completing.
• Quantum meruit: recover some remuneration if A couldn’t complete
due to B’s actions.
• Doctrine of substantial performance: if you’ve done a fair share of the
work, you get the full fee although other party can claim for
shortcomings in performance.
Requirements of cancellation under CCLA
1. Are there grounds for cancellation? Do the grounds for cancellation meet the requirements?
• Are they also ready and willing to perform?
• Work through both requirements of essentiality and substantial burden/obligation and say which one is
more likely.
- Repudiation? Misrepresentation? Breach of contract? Anticipated breach?
2. Has the cancelling party elected to affirm (s 38) or cancel the contract?
3. If they haven’t affirmed the contract and want to cancel, have statutory provision on notice (s 41)
and/or leave from court (s 38) been complied with?
4. What will the effects be in relation to the rest of the contract? (s 42)
5. What remedies, if any, might be granted by court? (ss 43-45)
Step one: are there grounds for cancellation? Remember, there can be multiple grounds!
Kumar v Station: parties don’t need to provide a valid reason for cancelling a contract, just an entitlement to.
S 36: Repudiation
Section 36 – Party may cancel contract if another party repudiates it
(1) A party to a contract may cancel the contract if, by words or conduct, another party (B) repudiates the contract
by making it clear that B does not intend to—
(a) perform B’s obligations under the contract; or
(b) complete the performance of B’s obligations under the contract.
(2) This section is subject to the rest of this subpart.

Must be shown that party to contract made it plain that they have an intention to not perform the whole contract
(not just a term) by clear and express words or conduct.
- Can be by express words (Hochster) or reasonably inferred from party’s behaviour (Mersey).
• Hochster v De La Tour: must look at actual circumstances to ascertain whether one party is relieved from
future performance by conduct, or whether that conduct amounts to an absolute refusal to perform
contract.
- Schmidt v Holland: request to be let out of contract may not be repudiation.
- Kumar v Station Properties: not wanting to perform agreement because of misunderstandings of agreement
may not be repudiation.
• Misunderstandings aren’t intentions to not perform obligations.
• Question of degree: may be repudiation if party consistently refuses to perform, or external factors to
contract show an intention to repudiate.
Examples of repudiation
Synge v Synge [1894]; Lovelock If X sells a house to Y when X had prior arrangements to sell the house to Z.
v Franklyn (1846); Morrison v
Speedy Parcels Ltd (1990)
Chatfield v Jones [1990] Consistently refusing to complete a contract on basis that an enforceable
contract never existed.
Stewart v Davies (1995) Refusing to settle a purchase until rent was paid.
875 Frankton Road Ltd v An unjustified attempt to cancel a contract may amount to repudiation.
Dandekar [2014]
Hirst v Vousden (2004) An unequivocal refusal to grant or acknowledge a lease on terms which had
been agreed upon may be repudiation.
Partial repudiation
If party has partially completed, then refuses to complete a contract:
- Kumar v Station Properties: refusal must constitute a significant contractual breach that is sufficient to entitle
innocent party to cancel.
• E.g., breach to an essential term or breach that would substantially alter benefit/burden of affected party
under contract.
- If breach doesn’t justify cancellation in terms of provisions, innocent party will be left to its remedy in damages.
Effect of repudiation
Innocent party can accept a repudiation and cancel a contract or can choose to affirm (complete) a contract.
- If affirmed, parties can still get an award of specific performance or be absolved of obligations in the case of
repudiation, that renders their own obligations in contract unnecessary.
• Hesham v Zenab: seller repudiated sale of land agreement after execution, buyer affirmed agreement and
was awarded specific performance.
• Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd: defendant persistently maintained
that it couldn’t ship goods on time, absolving plaintiff of their obligations.
S 37: Misrepresentation/Breach/Anticipated breach
Section 37 – Party may cancel contract if induced to enter into it by misrepresentation or if term is or will
be breached
(1) A party to a contract may cancel if it–
(a) Party has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made by or
on behalf of another party to the contract; or
(b) A term in the contract is breached by another party to the contract; or
(c) It is clear that a term in the contract will be breached by another party to the contract.
(2) If subsection (1)(a), (b), or (c) applies, a party may exercise the right to cancel the contract is, and only if–
(a) Parties have expressly or impliedly agreed that the truth of representation or, as the case may require, the
 performance of the term is essential to the cancelling party; or
(b) The effect of the misrepresentation or breach of the contract is, or, in the case of an anticipated breach,
will be,–
(i) Substantially to reduce the benefit of the contract to the cancelling party; or
(ii) Substantially to increase the burden of the cancelling party under the contract; or
(iii) In relation to the cancelling party, to make the benefit or burden of the contract substantially
different from that represented or contracted for.
S 37(1)(a): Misrepresentation
Use the section 35 misrepresentation requirements!
- Misrepresentation can be innocent or fraudulent.
• Section 37 doesn’t apply to sale of goods, but section 35 does.
- Party seeking to cancel must have been induced to enter contract by the representation; and
- Contracting parties must have expressly or impliedly agreed that the truth of representation is essential to
cancelling party; and
a. Misrepresentation must substantially reduce benefit of contract; or
b. Substantially increase burden for party purporting to cancel; or
c. Benefit or burden of contract for the party purporting to cancel must substantially differ from what is
represented or contracted for.
S 37(1)(b): Breach
- Term in contract is breached by another in contract and…
- Parties expressly or impliedly agreed that performance of term is essential to cancelling party; and
a. Breach must substantially reduce benefit of contract; or
b. Substantially increase burden for party purporting to cancel; or
c. Benefit or burden of contract for the party purporting to cancel must substantially differ from what is
represented or contracted for.
S 37(1)(c): Anticipated breach
Anticipated breach is passively not performing an obligation. Has high threshold.
- It must be clear that term in the contract will be breached by another party to the contract; and
- Parties have expressly or impliedly agreed that performance of term is essential; and
a. Anticipated breach must substantially reduce benefit of contract for cancelling party; or
b. Substantially increases burden for party purporting to cancel; or
c. Benefit or burden of contract for the party purporting to cancel must substantially differ from what is
represented or contracted for.
Do the categories meet the requirements of cancellation?
Only need to show one but worth through both and show which is more applicable!
- Use the words in the statute:
• S 37(2)(a): parties have expressly or impliedly agreed that the truth of representation or, as the case may
require, the performance of the term is essential to the cancelling party.
• S 37(2)(b)(i): does the contract substantially to reduce the benefit of the contract to the cancelling party?
• S 37(2)(b)(ii): does the contract substantially increase the burden of the cancelling party under the
contract?
1. Essentiality 2. Substantial alteration of benefit/burden
Essentiality (content and time)
1. Does this contract determine this term as essential?
2. If it doesn’t, and deals with representation, was the term/representation essential to the parties in
entering the contract in all circumstances?
- Look at the intention of parties entering contract.
• Consider whether they would’ve entered the contract but for the representation. How central was the
term/representation to the contract?
• Why was it central? Why wasn’t it?
Mana Property Trustee Ltd v James Developments Ltd: whether, unless term was agreed at
Content the time of contract to be essential, the cancelling party would more probably than not have
decliner to enter into contract.
- It is a matter of interpretation of the objective intentions of parties.
Time is not automatically essential. Essentiality of time is assessed in the same way as
Time essentiality of content.
- Time is usually of essence in mercantile contracts, dependent on assessment of terms,
contract and circumstances.
- If not mercantile, time is not of essence unless parties expressly say so or nature of
 contract’s content requires it to be.
• If there is no reference to time, then wait a reasonable time, give notice making time
of essence, wait another reasonable time, then there are grounds to cancel.
Mana Property Trustee Ltd v Agreement to sell subdivided property acknowledged ‘boundary adjustment
James Developments Ltd would be necessary before settlement could occur’ (if J wanted to cancelled,
had to give settlement notice, wait for expiry then give cancellation notice).
Contract specified final area plan couldn’t be more than certain measurement
but final area which M got certificate of title for was more. J informed M that
contract was cancelled for non-compliance with clause.
- Whether term was essential; if yes, is cancellation valid without following
terms of general contact (settlement notice).
- Application of essentiality test found term to be essential.
• Imperative in clause, position of clause in broader context was
intended to be strictly complied with by both parties.
- Term was essential, but time by which it needed to be satisfied wasn’t, so
J did not validly cancel contract.
Effect of time being of essence
Time will not be of essence unless parties state expressly it is, or nature of subject matter of contract requires it.
- When time is of the essence, strict compliance with time is necessary and failure to comply entitles other party
to cancel; even if it’s by 10 minutes. If party doesn’t comply with time essentiality, cancellation is available
immediately. If time is not essential, must comply with notice requirement.
- Union Eagle Ltd v Golden Achievement Ltd: failure to comply with an essential condition as to time in an
ordinary contract of sale for land will not be intervened by equity. Tough luck!
- Steele v Serepisos: notice should be required making time of the essence for a fulfilment of contractual
condition when time is not initially of the essence.
• Notice warns party that notice giver requires performance by certain time.
• Notice indicates notice giver will regard the other party as being in repudiation, hence vulnerable to
cancellation, if notice terms aren’t observed.
- Hunt v Wilson: if time isn’t specific at all, courts will imply fulfilment within a reasonable time; but to cancel you
then need notice with specified time and can only cancel if other party fails to fulfil obligation within that time.
Land contracts
If a land contract makes no reference to time, failure to pay on time generally doesn’t give rise to cancellation.
- Doesn’t affect substance of contract – money in return for transfer of title (the land isn’t going anywhere).
Mana Property Trustee Ltd v Court can imply performance must happen in reasonable time.
James Developments Ltd - Generally, cannot immediately cancel on expiry of reasonable time
[2010] (SC) because time is not of the essence; must wait until substantial delay.
• J should’ve served a settlement notice (stipulating time under clause)
and waited for expiry of notice. Then would’ve been entitled to cancel
for repudiation/breach.
- Must give notice requesting performance with further, reasonable time,
before cancelling. Entitlement to cancel may not arise because term was
essential, if time performing it wasn’t essential.
• Gives party time to fulfil their obligations.
Mercantile contracts
Making time of the essence after formation
MacIndoe v Mainzeal Group – It After failure to pay, vendor can notify purchaser (making time of the essence).
is possible to make time of the After a reasonable time, failure to pay is repudiation/breach.
essence after contract formation. - Effect of failure of purchaser to comply with contractual obligations and
notice was substantially to reduce the benefit of the contract to vendor and
substantially increase burden for vendor. Cancellation therefore
permissible under s 37(2)(a) or s 37(2)(b)(i).
- Basically, vendors can tell purchaser that time is of the essence when
they haven’t complied with terms of contract (after formation). It’s not
superseded by what is in the standard form contract originally.
• Notice of reasonable time to pay is at least two weeks.
Any delay when parties expressly make time of the essence is a ground to cancel the contract
Bunge Corpn v Tradax SA – Time agreed to be essential by parties. Purchaser was late by 10 minutes.
Court requires precise - Doesn’t matter is it’s only slightly late, strict rule provides certainty and
compliance with express restricts floodgates for how late its too late.
stipulations as to time whenever - Time will be considered of essence in mercantile contracts.
this is the parties’ intentions. • Where circumstances indicate that precise compliance with time
stipulations will fulfil intentions of parties, courts will enforce it.
• Commercial sense to treat clause in context and circumstances of
contract as condition to be performed.
Representation
When assessing essentiality of representation, it is the same approach when assessing essentiality of a term.
- Pegasus Town Ltd v Draper: contracts including disclaimers and clauses excluding reliance on representation
from vendor don’t prevent an agreement of essentiality being established.
• Purchasers’ expressly and impliedly through words and conduct established an implied/expressed
agreement that truthful representations were essential.
Substantial alteration of benefit/burden for cancelling party
Did breach/misrepresentation substantially reduce or increase the benefit or burden for party; or substantially alter
that burden in relation to party?
- Jolly v Palmer: something more than trivial or minimal is needed.
• Misrepresentation/breach led to a significant alteration to the bargain of parties because…
- Unclear whether there is an objective or subjective approach.
• Sharplin v Henderson: requires an assessment considering both subjective (on the facts) and objective
(intention of parties) factors.
• MacIndoe v Mainzeal Group Ltd: even if time is not initially an essential term, impact of non-compliance
with term could be substantial.
- Assess under both grounds and state uncertainty then state best opinion.
Examples of substantial alteration
Gallagher v Young Property sale with false undertakings that vendor didn’t know about
requisitions on property by local authorities. Compliance with requisitions
would be substantial in context of purchase price, purchasers therefore could
cancel contract.
Watson v Tennent Part-payment in property sale agreement conditional on various renovations.
Not completed but only cost $3000 to rectify. Was not a substantial increase
to burden/reduction in benefit for seller. Could not cancel contract.
MacIndoe v Mainzeal Group Ltd Even if it isn’t an essential term to pay, if you don’t pay the vendor then they
are obviously at huge disadvantage = substantial alteration.
Is the party ready, willing and able to perform contractual obligation?
Any party who wants to cancel a contract must be ready and willing to perform the contract in all material aspects,
unless they do not benefit from their own non-compliance with contract.
- If parties are not ready and willing to perform, then they cannot validly cancel the contract.
Cort v The Ambergate Railway If a party wants damages, party must show that they were willing to perform
Company their obligation under the contract.
Bahramitash v Kumar – Parties Failure to pay is normally a substantial breach because it is a condition
don’t secondarily need to go (essential term); or it deprives the other side of substantially the whole benefit
through with their part of contract of the contract.
if performance would be futile. - Generally when settling purchase of land, payment of purchase price and
conveyance of property title are interdependent.
- Buyer must advance money first, but not when the vendor has made it
clear it would it be futile.
• In this case, evidence showed that vendors wouldn’t have accepted
anything less than full purchase price. Vendor wasn’t willing or ready
to settle.
- Indication from vendor, by words or conduct, that tender by purchaser
would be futile is significant because:
• Vendor cannot treat purchaser as being in default by failing to make
tender.
• Vendor will be taken to have indicated that they are not ready or
willing to perform settlement obligations.
Where readiness and willingness doesn’t apply
Ingram v Patcroft Properties Ltd: requirement of readiness and willingness to perform applies to stop cancelling
party from profiting from own non-performance. Doesn’t apply if there is no such benefit.
Noble Investments Ltd v Keenan Where cancelling party receives no benefit from non-payment; non-fulfilment
affirmed in Ingram v Patcroft of obligation, there is no need to show that they are willing and ready to
Properties Ltd perform.
- Party could be seen as benefitting from own wrong in cancellation if it
seeks to deprive other party of benefit of contract in circumstances where
breach is a direct result of breach committed by cancelling party.
- Party could also be seen as benefitting from own wrong where it’s unable
to unwilling to perform obligations under contract and seeks to avoid
liability for breach but cancelling on basis of other party’s breach.
Step two: affirmation or cancellation?
1. Was there a ‘real and genuine’ affirmation on the facts?
2. Did the parties have full knowledge of a misrepresentation/repudiation/breach/anticipated breach?
• If so, what is the impact of the affirmation?
- In repudiation/anticipated breach, agreed party can elect to affirm the contract and cancel for the breach that
subsequently occurs.
Is there affirmation?
Knowledge Parties must have knowledge of misrepresentation/breach/repudiation to
affirm contract.
- Hughes v Huppert: question is whether any affirmation is real and
genuine.
• Full knowledge of the representation of facts is necessary.
• Where the parties have already adverted to particular problem by
including reference to it in terms of contractual arrangements between
them, it may be very difficult to say that party hasn’t affirmed.
- Section 38 of CCLA: where parties have full knowledge of a breach,
misrepresentation or repudiation and affirm the contract, parties are
disentitled to cancel the contract.
Intention Party must have intention to affirm contract.
- Unclear whether this is objective or subjective assessed.
• Fact dependent.
- Intention must be unequivocal.
• Suggestions of conditional affirmation but moot.
- Communication of affirmation is not required.
Inference through actions
- Hughes v Huppert: to affirm you need knowledge of relevant facts, but not knowledge of right to cancel.
Unclear whether legal knowledge is required.
- Jansen v Whangamata Homes Ltd: affirmation is not always explicit.
• Affirmation is immediately binding upon communication. May be conscious or imputed by law.
• Actions of party indicated affirmation of contract (demanding payment for extra work done; settlement
letter would shortly take place; letter advising issue of title gave them information that they would only
need to know contract continued).
- Scarf v Jardine: having more than a reasonable amount of time may negate ability to cancel contract for
particular breach.
What is the impact of affirmation?
Effect of affirmation on cancelling party Effect of affirmation on breaching party
Cancelling party can continue performance of contract May be relieved of liability for non-
and sue for other party’s subsequent non-performance performance/breach/repudiation if something happens
(White & Carter Councils Ltd v McGregor). after repudiation that justifies non-performance (Avery v
- If parties affirm, they lose their right to cancel the Bowden).
contract under s 38. - Parties remain subject to all obligations and
liabilities under contract if cancelling party affirms
contract.
- Breaching parties can complete the contract and
take advantage of any supervening circumstances
that justify declining non-completion.
Step three: compliance with notice/leave formalities?
1. Has cancellation been made known to the breaching party?
- Assess words and conduct showing an intention to cancel (s 41(2)). Compare with Schmidt v Holland.
- If communication is not reasonably practicable (s 41(1)(b)(i), has there been some other means that are
reasonable in the circumstances that show an intention to cancel the contract? (s 41(b)).
- If the breaching party’s conduct is such that they cannot reasonably expect to receive notice of cancellation
 (e.g. abandonment) (s 41(b)(ii), has there been some other means that are reasonable in the circumstances
that show an intention to cancel the contract (s 41(1)(b)).
2. Do the parties have substantially the same interest under the contract? If so, the court may need to grant
leave for cancellation (s 39).
Notice formality
Section 41 – When cancellation may take effect
(1) The cancellation of a contract by a party does not take effect–
(a) Before the time at which cancellation is made known to the other party; or
(b) Before the time at which the party cancelling the contract shows, by some clear means that is reasonable
in the circumstances, an intention to cancel the contract, if–
(i) It is not reasonably practicable for the cancelling party to communicate with the other party; or
(ii) The other party cannot reasonably expect to receive notice of the cancellation because of that other
party’s conduct in relation to contract.
(2) The cancellation may be made known by words or by conduct showing an intention to cancel, or both. It is not
necessary to use any particular form of words, so long as intention to cancel is made known.

- S 41(1)(a): made known branch.

- S 41(1)(b)(i): not reasonably practicable branch.
- S 41(1)(b)(ii): not reasonable expected branch.
- S 41(2): made known by words or conduct showing intention to cancel branch.
S 41(1)(a): made known branch
Kauri Developments Ltd v Nicholson: notice must be provided personally to party and not to an agent of the party.
- Can be made through a third party.
- Can be words or actions, or both.
• Schmidt v Holland: no communication to accept repudiation and end contract despite clear repudiation
from other party = no cancellation of contract.
S 41(1)(b)(i): not reasonably practicable branch
Cancellation is acceptable through non-practicable branches.
- E.g., sending letter to party’s solicitor in situation where it wasn’t reasonably practicable to directly serve other
party (Kauri) or inquiries made through police/AA where car’s buyer couldn’t be located (Car and Universal
Finance Co Ltd v Caldwell).
S 41(1)(b)(ii): not reasonably expected branch
Despite party not reasonably expecting notice from another, cancellation can still be acceptable.
- If party has said no express requirement for notice of cancellation, then can use substitute method to
communicate – e.g., abandonment (Holland).
- If possible and practicable, notice should always be given and it is difficult to argue that D was lost entitlement
to notice.
Leave formality
Section 39 – Parties with substantially same interest
(1) A party with substantially the same interest under the contract as the party whose act constitutes the
repudiation, misrepresentation, or breach may cancel the contract only with the leave of the court.
(2) The court may, on application made for the purpose, grant leave under subsection (1) if it is satisfied that it is
just to do so.
(3) The leave may be granted on the terms and conditions that the courts think fit.

If parties have the same substantial interest and one party wants to cancel, then need to seek leave.
- Definition of substantially same interest unclear.
• S 24(2) (mistake section of CCLA) defines it as: if parties are in similar roles, then may have substantially
same interest under contract.
Step four: what is the effect of the cancellation?
1. What obligations continue following a valid cancellation?
- Unconditionally accrued obligation (Photo Production)? Right to claim payment of deposit (Garrat v Ikeda)?
Restraint of trade clause (Broadcasting Corp)?
2. What real personal property or money stays with the party? What is the default position (not remedies
available)?
- Personal property (Young v Hunt)? Money (Mayall v Weal)?
Effect of cancellation at common law
- Laird v Pim: party cannot recover the full value of a chattel, unless under circumstances which import that the
property has passed to the defendant, as in the case of goods sold and delivered, where they’ve been
absolutely parted with and cannot be sold again.
 • Obligations don’t continue after a cancellation, payment obligations don’t uphold. Cannot sue for purchase
price if there’s no actual conveyance; can only get damages.
- General Billposting Co Ltd v Atkinson: employer repudiated = employee free from performing restraint of trade
clause.
• Condition was being given proper notice of dismissal which was not done = repudiation. Employee is
absolved from further performance of contract, including clauses therein.
Effect of cancellation on statutory provisions
Section 42 – Effect of cancellation
(1) When a contract is cancelled, the following provisions apply:
(a) To the extent that the contract remains unperformed at the time of the cancellation, no party is obliged or
entitled to perform it further;
(b) To the extent that the contract has been performed at the time of cancellation, no party is, by reason only
of the cancellation, divested of any property transferred or money paid under the contract.
(2) This section is subject to the rest of this subpart.
(3) Nothing in this section affects the right of a party to recover damages for a misrepresentation or the
repudiation or breach of the contract by another party.

Cancellation of contract only extinguishes future obligations from the date of cancellation.
- S 42(1)(a): if contract is underperformed, no obligation on either party to continue performance.
• Exceptions may apply, like right to payment that is unconditionally accrued, obligations to pay damages,
terms that survive termination (restraint of trade, etc).
- S 42(1)(b): if contract is performed and cancelled, no party is divested of any property transferred or money
paid under the contract.
- S 42(3): Courts have power to grant relief after cancellation if just and practicable.
S 42(1)(a): no obligation to perform further if contract remains underperformed at cancellation
S 42(1)(a) absolved both parties ongoing obligations except in cases of:
- Photo Production Ltd v Securicor Transport Ltd: secondary obligations continue (e.g. pay damages).
- Broadcasting Corp of New Zealand v Nielsen: restraint of trade in employment contracts may continue.
- Garrat v Ikeda: unconditionally accrued rights like right to payment.
Meaning of unconditionally Notion that party’s obligations to perform discontinue after cancellation looks
accrued rights (Garrat v Ikeda) to further performance which naturally signifies what contract expects to be
performed in the future.
- Rights already unconditionally existing under the contract before the time
of cancellation are not subject to s 42.
• Garratt as purchaser, owed Ikeda $130k at time of cancellation. He is
able to recover unpaid deposit.
- Simanke v Liu: if deposit is greater than 10%, may be viewed as part of
payment and courts may not allow recovery.
S 42(1)(b): no party is divested of any property or money transferred/paid under contract
Money - Mayall v Weal: where purchaser cancelled contract due to
misrepresentation but already paid money, no injunction can be granted to
prevent other party from using money.
- Waikato Insurance & Financial Services Ltd v Inrich Financial Services
Ltd: right to commission paid to cancelled party not divested.
Land If real property has been transferred, cancellation doesn’t give the vendor any
equitable interest which will support a caveat.
Personal property Young v Hunt: property stays with purchaser if at the time of cancellation, they
are clearly his property.
- Wide discretion is used to vest the property back into vendor where it is
appropriate to do so.
Step five: what contractual relief might be available?
1. Is there a contractual provision for remedies?
2. If so, how much does it exclude the statutory remedies?
- What is the interaction with the statutory provisions in s 43?
3. If the statutory remedies apply, what order should be made under s 43?
- Taking into account requirements in s 44(2) and ss 45-47.
- What is the just and equitable order (s 45 factors)?
4. Could the plaintiff secure further damages following an award under s 43? (s 49)
Is there a provision in the parties’ contract that talks about remedies?
Section 34 – Remedy provided in contract
If a contract expressly provides for a remedy for misrepresentation, repudiation or breach of contract, or makes
express provision for any of the other matters to which sections 35 to 49 relate, those sections have effect subject
to that provision.

Is there a contracting out provision in the contract I am being asked to assess?

- No = statutory provisions apply.
- Yes = what is the extent of the contracting out provision in relation to the statutory provision?
• Sharplin v Henderson: clause in sale contract held to only cover ‘misdescriptions’ and not pre-contract
misrepresentations, so didn’t make remedies for misrepresentation unavailable under CCLA.
If not contracted out, what order should be made under s 43?
S 43: Power of court to grant relief
Section 43 – Power of court to grant relief
(1) When a contract is cancelled by any party, the court may, if it’s just and practicable to do so, make an order or
orders granting relief under this section.
(2) The relief may be granted in the course of any proceeding or on application made for the purpose.
(3) An order under this section may–
(a) Direct party to pay to any other party the sum that the courts thinks just.
(b) Direct a party to do or refrain from doing, in relation to any party, an act or thing that the court thinks just.
(c) Vest the whole or any part of any relevant property in a party.
(d) Direct a party to transfer or assign the whole or any part of any relevant property to any other party.
(e) Direct a party to deliver the whole or any part of the possession of any relevant party to any other party.
(4) In subsection (3)–
Party means a party to the proceeding.
Relevant property means real or personal property that was the subject of the contract or was the whole or
part of the consideration for the contract.

- In event of cancellation, court can make order for payment, start/stop party doing something, grant part/whole
property rights, transfer/assign property, or deliver possession of property (s 43(3)) if it is just and practicable
to do so (s 43(1)).
Who can claim relief?
- Contracting parties, someone claiming through/under contracting parties, or any other person (if it’s material
they know whether relief is granted) can apply for relief (s 48).
- Award under s 43 won’t stop someone claiming damages (s 49(2)), but will be considered when assessing a
claim for damages (s 49(4)).
• Court can offset damages under s 43 against subsequent claims for damages under s 49(4).
• Can’t double dip!
What is the just an equitable order?
S 45: mandatory considerations for the court
Section 45 – Matters court must have regard to
(1) In considering whether to make an order under s 43, and in considering the terms of any order, the court must
have regard to–
(a) The terms of the contract; and
(b) The extent to which any party to the contract was or would have been able to perform it in whole or in part;
and
(c) Any expenditure incurred by a party in, or for the purpose of, performing the contract; and
(d) The value, in the court’s opinion, of any work or services performed by a party in, or for the purpose of,
performing the contract; and
(e) Any benefit or advantage obtained by a party because of anything done by another party in, or for the
purpose of, performing the contract; and
(f) Any other matters that the court thinks proper.

Newmans Tours Ltd v Ranier Investments Ltd: court’s discretion under section 43 is broader than common law
principles.
- The object of relief under s 9 should be to compensate for loss caused by cancellation, not to grant bonus for
the injured party.
- Compare section 45 with the facts and reason why the court will make a just order.
• Whether the cancelling party can recover profits gained under a cancelled contract will depend on careful
analysis of circumstances, incl. nature of contract.
• May be distinction between contracts for payment of money and contracts for rendering services.
Orders of relief about property
Section 46 of CCLA Orders involving property and possession can’t be made if they would deprive a
person, not party to the contract, of possession of any estate/interest in property if
they acquired that property in good faith and for valuable consideration.
- Third party cannot know about any contract disputes and must have paid for
property.
Section 47 of CCLA - S 47(1): no property over can be made if any party to contract has altered party’s
position in relation to property that would be, in opinion of the court, inequitable to
any party, having regard to all circumstances.
• Definition unclear.
- S 47(2): position alteration can happen prior or following cancellation.
• Like if there’s a property and they’ve done something to it (sold, renovated,
etc).

Misrepresentation
Section 35 – Damages for misrepresentation
(1) If a party to contract (A) has been induced to enter into the contract by a misrepresentation, whether innocent
or fraudulent, made to A by or on behalf of another party to that contract (B),
(a) A is entitled to damages from B in the same manner and to the same extent as if the representation were
a term of the contract that has been breached; and
(b) A is not, in the case of a fraudulent misrepresentation, or of an innocent misrepresentation made
negligently, entitled to damages from B for deceit or negligence in respect of the misrepresentation.
(2) Subsection (1) applies to contracts for the sales of goods –
(a) Despite section 197 and 201(2); but
(b) Subject to section 34.

S 35 is an action for damages, it does not stop the contract from continuing (unless contract is cancelled (s 37)).
- What might not be available under s 37 (cancellation) may be under s 35.
- S 35 covers sales of good contracts, whereas s 37 (cancellation) does not. If sale of land, both apply.
- Contains no requirement for representation to have been considered essential or to have substantially affected
the bargain. Instead, misrepresentation that induces entry to contract is redressable in damages.
• Materiality may still be a factor whether party is induced.
Elements of a misrepresentation under section 35
1. There is in fact a misrepresentation.
2. The misrepresentation was made by or on behalf of the accused party.
3. This misrepresentation was made to the injured party.
4. The injured party was induced to enter the contract due to misrepresentation.
5. The misrepresentation was not excluded by a clause in the contract
6. Assess potential remedies.
Is there a misrepresentation?
Term or misrepresentation?
Representation = statement or understanding external Term = part of the contract. Remedy is whether the
to the contract. Remedy is under s 35. term has been breached under s 37.
Representation vs. term depends on parties’ intentions
- Couchman v Hill (term): whether it is a term or representation is a matter of parties’ intentions objectively
ascertained.
• P bought heifer after D said it was unserved. Statement modified contract because parties intended for it
to be a term.
- Oscar Chess Ltd v Williams (representation): intention of parties is an objective test. If party has special
knowledge which other party acts on, term could be implied. If only passing on knowledge from another,
unlikely to be a term.
• Nothing indicated that statement as to date of car amounted to promise or guaranteed that information
given was accurate.
• Distinction was statement which is a term of contract and statement which is an innocent
misrepresentation.
• Seller had no personal knowledge and didn’t intend to bind himself to warrant that misrepresentation was
truthful.
- If put into writing, evidence intended to be a term.
Did the representing party intend that representation to form a term of the contract?
- If something is a term, then plaintiff can enforce it against the defendant.
- If it’s a representation, they cannot seek relief under that contract because it’s not binding under that contract.
• Have to seek relief under misrepresentation provisions.
Reasonability test (West v Quayside Trustee Ltd)
Ridgway Empire Ltd v Grant: if it is a representation, the question is what a reasonable person would’ve
understood from those words in all circumstances.
- West v Quayside Trustee Ltd: the necessary inquiry is as to the meaning actually conveyed by the
representation. Meaning intended by representor is irrelevant.
• Representation must relate to an existing fact or past event (incl. state of mind of person making
representation). Representation is only actionable if party making representation did not have any genuine
intention to fulfil representation.
• Non-fulfilment of promise at time of expected performance doesn’t establish that promisor didn’t intend to
perform it went promise was made/intention lacked foundation.
• Courts must determine whether representation was misrepresentation by examining its meaning. Meaning
relied upon by party believing it must be reasonable in all circumstances if there is an actionable
misrepresentation.
Types of misrepresentations
Opinion - Bisset v Wilkinson: opinion can’t form basis of misrepresentation claim.
• Opinions of parties with equal knowledge cannot implicate any special knowledge
or background.
• Could not be proven that farm held the view unreasonably, so no evidence of
misrepresentation.
- Smith v Land: statements of opinions could imply statements of fact which if untrue,
could found a claim for misrepresentation.
• If you have an opinion and there is an imbalance of knowledge within parties, the
opinion may still imply facts that are false and be misrepresentations.
- Ridgway Empire Ltd v Grant: position of representor may make a statement of fact an
opinion.
• Where it is obvious the vendor is not in a position to know about the absolute
correctness of a statement, then even if statement is expressed as unqualified
fact, it may be proper to interpret it as no more than an opinion based on facts
known or reasonably expected to be known to them.
• What a reasonable person would have understood from the words in all
circumstances (nature and subject matter of transaction; respective knowledge of
parties; relative positions and words used).
Puffery Pufferies are exaggerations that couldn’t be reasonable expected to be taken as true by
person they’re addressed to.
- Hopkins v Easterbrook: whether a statement is a mere puff or actionable
representation depends on surrounding circumstances (fact-based analysis).
Statements of law Wrong statements of law don’t qualify as misrepresentations.
- Fleming v Pillar: representing that party has power to enter into a contract isn’t a
misrepresentation, just a false statement of law.
• Legal position could include a statement of fact. Must argue why it is/isn’t a fact.
Failure to Failure to disclose information may amount to misrepresentation. Silence is relevant to
disclose/correct the extent it distorts positive representations.
- Wakelin v RH and EA Jackson Ltd: did not disclose approval of lunch bar and advised
no more would be given; painted an erroneous picture to plaintiffs.
- Sturley v Manning: representation about past turnover of business where representor
failed to disclose that lucrative part of business discontinued.

If you don’t disclose material changes in circumstances prior to execution of contract,

could be misrepresentation.
- With v O’Flanagan: inaccurate representation prior to execution of a contract about
medical practice had to be considered ongoing until execution. Vendors had a duty to
advise of changes in circumstances.

If you stay silent but had an obligation to correct another’s thinking, could be
misrepresentation.
- Dell v Beasley: some situations where silent party who knows about a mistake will be
taken to have made a misrepresentation by failing to correct other party’s assumption
 or misapprehension of the circumstances.
Was the misrepresentation made by or on behalf of party?
Only an issue when party indirectly states misrepresentation.
What is the nature of the authority?
- Statement must be within the agent’s authority from the principal.
• Shortal v Buchanan: act relied on as binding must be that of particular class of acts which agent is held out
as having a general authority on behalf of his principal to do.
- Authority will not often be absolute.
• Shortal v Buchanan: if a person, without inquiring into agent’s authority, chooses to enter into contract
made by an agent purporting to be made on behalf of a principal, then that person takes the risk of the
contract being one which agent is authorised to make, and if it is in excess of the principal’s authority, the
principal is not bound.
- Authority can be wide-ranging.
• Mullens v Miller: authority from principal includes an authority to describe property, represent actual
situation, represent its value (if he sees fit). Principal thereby authorises agent to do so and to state any
fact or circumstance which may relate to the value of the authority.
- Merely passing on a statement is insufficient
Was the misrepresentation made to the injured party?
Only an issue when statement is indirectly made. Question of whether injured party has received the
misrepresentation.
- Statement can be made to the public or a group where the injured party is a part of.
- Incredibly broad, includes:
• Advertisements.
• Ware v Johnson: making a representation to an agent even when principal is not known.
• Rondova v When Routine Bites Hard: making a resenting to A intending it for B or knowing it will be
communicated prior to contract.
- Contracts made involving a party and their nominee do not entitle the nominee to sue for misrepresentation
under s 12 of CCLA.
Was the injured party induced to enter the contract by representation?
Knowledge 1. Did the injured party know about the misrepresentation?
- If not, cannot show it affected their decision to enter contract.
- For misrepresentation to be actionable, representee must be aware of it and
understand it in the sense in which he later complains.
• Leeds City Council v Barclays Bank plc: must be actively present in his mind.
2. Did the injured party know it was untrue?
- If yes, generally cannot get relief because can’t say it induced them to enter contract.
- Have to have actual knowledge of misrepresentation.
• Nocton v Lord Ashburton: insufficient for representor to claim that the facts were
unavailable to representee to verify the accuracy of a statement.
Reasonableness 1. Did the injured party take a reasonable interpretation of the representation?
- See West v Quayside Trustee Ltd reasonability test.
2. Was it reasonable for injured party to rely on representation?
- Vining Realty Group Ltd v Moorhouse: no explicit requirement for reliance by
representee to be reasonable but general suggestion.
- Western Park Village Ltd v Baho: if no reasonable person in position of purchaser
would’ve relied on statement of type given, would be rare to say misrepresentation
induced purchaser to buy.
Materiality 1. Was the representation material in making the person enter the contract?
- Savill v NZI Finance Ltd: representation will need to be somewhat material to show
inducement despite no express legislative requirement.
- Any misrepresentation materially influencing party is capable of being
misrepresentation that induced party to enter contract.
• Smith v Chadwick: may be situations where person didn’t consider representation
important.
• Attwood v Small: cannot sue for misrepresentation if party gets own independent
verification of representation.
- Edgington v Fitzmaurice: representation doesn’t have to be the only reason why a
party entered a contract. Just need to prove that this specific representation is
material.
Intention 1. Did the party intend to rely on the representation?
- Intention to rely on the representation to induce other party to enter the contract is
required, not just an intention to cause them to believe it.
• A’s intention for B to act on representation or where A wilfully used language
calculated or of a nature to induce normal person in the circumstances to act.
• Savill v NZI Finance Ltd: not sufficient to say that representation caused him to
act in a particular way. Must prove that representor intended him to do so, or
intentionally used language or a nature to induce normal person in the
circumstances to act how representee did.
Does a contractual clause exclude liability for misrepresentation?
Section 34 – Remedy provided in contract
If a contract expressly provides for a remedy for misrepresentation, repudiation, breach of contract, or makes
express provision for any of the other matters to which sections 35 to 49 relate, those section s have effect subject
to that provision.

- Parties are free to contract out of liability for any representations made outside the contract through entire
agreement clauses.
• Entire agreement clauses state contract is sole record of representations made, no representations
external to the contract (verbal or otherwise) have any binding effects on parties.
• Provides certainty for parties and can protect sophisticated parties from overzealous employees/agents.

Section 50: to what extent does the contractual clause that excludes liability, affect the application of section 35
and section 37?
- ANZ Bank New Zealand Ltd v Bushline Trustees Ltd: task of courts, under s 50, are to assess whether in all
circumstances, it is fair and reasonable for the entire agreement clause to be conclusive, with regard to s
50(3).
• S 50 exemplifies that tension of freedom of contract and unconscionable conduct is never fully resolved!
- S 50 only covers clauses excluding application of statements during negotiations, not general clauses
excluding liability.
S 50: Statement, promise or undertaking during negotiations
Section 50(1) (1) This section applies if a contract, or any other document, contains a provision
purporting to prevent a court form inquiring into or determining the question of–
(a) Whether a statement, promise or undertaking was made/given, either in words or
by conduct, in connection with or in the course of negotiations leading to the
making of the contract; or
(b) Whether, if it was so made or given, it constituted a representation or a term of the
contract; or
(c) Whether, if it is was a representation, it was relied on.
Section 50(2) (2) The court is not, in any proceeding in relation to the contract, prevented by the
provision from inquiring into and determining any question referred to in subsection
(1) unless the court considers that it is fair and reasonable that the provision should
be conclusive between parties, having regard to the matters specified in subsection
(3).
Section 50(3) (3) The matters are all the circumstances of the case, including –
(a) The subject matter and value of the transaction; and
(b) The respective bargaining strengths of all parties; and
(c) Whether any party was represented or advised by a lawyer at the time of the
negotiations or at any other relevant time.
Example cases
Brownlee v Shotover Exclusion clause that stated ‘purchaser acknowledges that it has purchased the licence
Mining Ltd (HC) solely in reliance upon its own judgement and not upon any representation or warranty by
the vendor or any agent of the vendor and the vendor doesn’t warrant the accuracy of any
matter or fact herein or any document or paper or any statement by the vendor or any
person’.
- Whether it is fair and reasonable to enforce clause.
- Nothing inherently unfair in clause.
• Highly desirable that written contracts are drawn to state all terms of intended
contract to avoid uncertainties which can arise from allegations of verbal
representations/collateral warranties.
• No agreement to include express warranties in written contract = reasonable for
 them to expressly state that verbal warranties are excluded.
- Commercial contract between commercial parties both legally advised + value/subject
matter of transaction substantially justify expectation that parties would be familiar
with its terms and are intended to be bound by them.
PAE (New Zealand) Initially held to have misrepresentation but directors could rely on exclusion clause.
Ltd v Bosnahan - Entire agreement clause not conclusive.
• Court has discretion to determine whether fair and reasonable that clause is
conclusive. Assessed relative bargaining positions and access to independent
legal advice.
• PAE had all material resources to safeguard themselves (similar bargaining
position, legal advice, experience in powerful transactions) = unfair and
unreasonable to get relief.
- Parties should not be allowed to invoke statutory protection to circumvent the effect of
provisions which it had deliberately structured for its own benefit.
Snodgrass v Parties in unequal bargaining position, exclusion clause in small print, not subject of
Hammingyon negotiation or was not brought to the attention of party before contract entered into.
- Courts didn’t uphold exclusion clause.
Shotover Mining Ltd v If you see fraud in a transaction, and the fraudulent party tried to rely on the entire
Brownlee agreement clause to exclude liability then that may be a considerable factor to it being
unfair and unreasonable to rely on.
What remedies are available?
Section 35 – Damages for misrepresentation
(1) If a party to contract (A) has been induced to enter into the contract by a misrepresentation, whether innocent
or fraudulent, made by A by or on behalf of another party to that contract (b),
(a) A is entitled to damages from B in the same manner and to the same extent as if the representation were
a term of the contract that has been breached; and
(b) A is not, in the case of a fraudulent misrepresentation, or of an innocent misrepresentation made
negligently, entitled to damages from B for deceit or negligence in respect of the misrepresentation.
The expectation measure
- New Zealand Motor Bodies Ltd v Emslie: expectation measure is proper measure of damages even if
misrepresentation is (tortiously) negligently made.
- Dodds v Southern Response Earthquake Services Ltd: measure for damages for misrepresentation is usually
the different between the value currently and what it should’ve been had the representation been true.
• Subject to s 34 whether there is an express provision in contract that talks about remedies for
misrepresentation.
Courts can give other awards too…
- Crump v Wala: consequential loss is recoverable if it falls within relevant remoteness rules.
• Loss must be caused by misrepresentation.
• Damages for non-pecuniary losses (anxiety, stress) not easily recoverable.
- Marlborough District Council v Antimarloch Joint Venture Ltd: court may grant full cost of fixing the problem so
contract can be performed; damages was not just a difference in value, but the whole contract needed to be
performed.
Where there is an exclusion of liability clause…
It is possible for parties to contractually provide that there will not be liability in event of misrepresentation.
- McKenzie Institute International v Accident Rehabilitation and Compensation Insurance Corporation CA: if
parties have already dealt with it in contract, courts won’t interfere.
• Clause prevented further fees being payable if number of claimants was less than anticipated.
- Cygnet Farms Ltd v ANZ Bank New Zealand Ltd: courts uphold contractual freedom and won’t interfere when
parties have bargained about remedies, even if there is a misrepresentation.
• Where there are good reasons of certainty and predictability in the policy of law, courts will not interfere
where parties to a contract have agreed on the allocation of risk.

Illegality
1. Is the contract illegal?
2. If so, what is the effect of the contract on the parties?
3. What relief should the court grant in relation to the illegal contract, if any, and to whom?
Is the contact illegal?
Illegal contract definition
Section 71 – Illegal contract defined
(1) In this subpart, illegal contract –
(a) Means a contract governed by New Zealand law that is illegal at law or in equity, whether the illegality
arises from the creation or the performance of contract; and
(b) Includes a contract that contains an illegal provision, whether that provision is severable or not.

Contract is considered illegal if it breaches a statute or is illegal at common law – e.g.,

- Contracts where parties agree to commit a serious crime.
- Contracts where one party pays money to a witness of crime to withhold information from police and law.
Contract to use improper influence to affect award of public honour.
Illegal vs. void contracts CCLA only applies to illegal contracts, not void. CCLA may not apply to void
contracts.
- Void contracts refer to contracts/contractual provisions that have no legal effect
for being in breach of a statute.
- Consequences of void clauses is non-enforceability.
• Void contract = no rights arise under it, anything transferred under contract
should be recoverable, or other forms of restitution under common mistaken
belief that contract was valid/total failure of consideration.
• Contract may only be void to extent that it goes beyond provisions permitted
by statute. Contract is to be modified to accord with statute to be enforced.

- Example of void, but not illegal contracts:

• Contracts that oust the courts’ jurisdiction (preserved in s 84(1)(b) restraint of
trade clauses).
• Contracts affecting freedom or security of marriage.
- Example of contracts which other statutes specify are void:
• S 136 of Credit Contracts and Consumer Finance Act.
• S 89(5) of Commerce Act 1986.
Contracts that breach legislation (subject to statutes that say it’s a breach or nothing in CCLA applies)
If statute states contract is breaching and its void, then courts must interpret to determine whether Parliament
intended for the contract to be illegal.
Breach at inception of contract
Statutes that state certain - S 40 of Companies Act 1993: ‘contract or deed under which a company is or may
contracts will be illegal be required to issue shares, whether on the exercise of an option or on the
conversion of financial products of otherwise, is an illegal contract for the
purposes of subpart 5 of Part 2 of the CCLA’.
- S 213 of Electoral Act 1993: ‘a loan entered into in a contravention of [s 213 of
the Electoral Act 1993] is an illegal contract for the purposes of subpart 5 of Part
2 of CCLA’.
Statutes that state certain - S 27(2) of Residential Tenancies Act 1986: ‘requiring payment of any amount by
arrangements will be way of rent in contravention of subsection (1) is hereby declared to be an
unlawful unlawful act’.
- Where statutes set out offences dealing with illegal supply of goods/services,
e.g., Misuse of Drugs Act 1975.
- Statutes can specify standards that render contracts illegal if not met.
• Lower Hutt City Council v Martin: clause in employment contract allowed
payment of gratuity between 5-10 years employment restricted by s 6(2) of
Finance Act (No 2) 1941.
Breach during performance of contract
Contract doesn’t become illegal unless enactment expressly provides or object of statute clearly requires it to be.
Court will be required to determine whether a contract has become illegal during performance by:
1. Looking at purpose of statute in question.
- Effects on third parties.
1. Asking whether the purpose would be frustrated by giving effect to contract that have breached statute.
- Example of breach during performance (Carey v Hastie): started work before granting of a permit after party
failed to get permanent themselves. Sued for payment of work but other party agued it was illegal.

E.g., traffic regulations require car to have current WOF when sold. A sells car without WOF in breach. Object of
regulations is to promote safety rather than protect consumers. Contract to sell car is not an illegal contract as
upholding it doesn’t frustrate the purpose of regulation.
Contracts that are illegal at common law
- Contracts to commit crime/tort/fraud on third party.
• Silver v Mitchell: misleading invoices to client designed to defraud for contract between architect and
structural engineer.
- Contracts prejudicial to public safety.
• Furtado v Rogers: any contract detrimental to interests of own country is prohibited as if Parliament
expressly forbid it.
- Contracts that interfere with course of justice.
• Private bargains to avoid prosecution for public offence.
• Polymer Developments Group Ltd v Tilialo: deed in illegal contract containing an illegal term to agree not
to pursue legal proceedings.
• Osbourne v Worksafe New Zealand: voluntary offer by director were payment in exchange for dropping
charges for coal mine explosion.
- Contracts that are injurious to good government.
• Peters v Collinge: contracts preventing an expelled MP from standing for another party.
• Amalgamated Society of Railway Servants v Osbourne: contracts that tell a party how to vote in
Parliament.
• Garforth v Fearon: contracts by which one party is to exercise influence in their public office role.
• Phillips v Foster: contracts containing provisions calculated to deceive revenue authorities and evade tax.
However, could not prove that one party wouldn’t make full disclosure to IRD so wasn’t enough to make
contract illegal.
What is the effect of the illegal contract?
S 73: Illegal contracts have no effect
Section 73 – Illegal contracts have no effect
(1) Every illegal contract is of no effect.
(2) No person is entitled to any property under a disposition made by or under an illegal contract.
(3) This section and section 74 may apply–
(a) Despite any rule of law or equity to the contracts; but
(b) Subject to the provisions of this subpart and of any other enactment.

- No effect in any way (excl. s 74).

- If there’s a contract for sale then that person has no propriety rights.
Effect on third parties
Section 74 – Protection of persons who acquire property in good faith and without notice
(1) Nothing in section 73 invalidates a disposition of property referred to in subsection (2) f the person to whom
the disposition was made –
- Was not a party to the illegal contract; and
- Had no, at the time of the disposition, notice that the property was the subject of, or the whole of any part of
the consideration for, an illegal contract; and
- Otherwise acted in good faith.
(2) The dispositions are –
(a) Disposition of property by a party to an illegal contract for valuable consideration;
(b) Disposition of property made by or through a person who became entitled to the property under a
disposition in which paragraph (a) applies.

Third parties who have acted in good faith and without notice of the circumstances vitiating original contract are
protected by s 74.
- Third party must have paid for property.
- Good faith purchases of property that are subject to illegality will be protected.
• A transfers car to B in exchange for heroin = illegal contract. B would get no title for car.
• B sold car to C, who had no knowledge of illegality of prior contract and that B doesn’t have title under
contract. C still has good title of car.
What relief can the courts grant?
Section 76 – Court may grant relief
(1) The court may grant to a person referred to in section 75 any relief that the court thinks just, incl. (without
limitation)–
- Restitution; or
- Compensation; or
- Variation of the contract; or
- Validation of the contract in whole or in part or for any particular purpose.
(2) The relief may be granted in the course of any proceeding or on application made for the purpose.
(3) Subsection (1) and section 75 apply–
(a) Despite section s 73 and 74; but
(b) Subject to the express provisions of any enactment.
(4) The court may, by an order made under this section,–
(a) Vest the whole or any part of any relevant property in a party; or
(b) Direct a party to transfer or assign the whole or any part of any relevant property to any other property; or
(c) Direct a party to deliver the whole or any part of the possession of any relevant property to any other party.
(5) In subsection (4),–
Party means a party to the proceeding.
Relevant property means real or personal property that was subject of the contract or was the whole or part of
the consideration for the contract.

- Statute indicates carte blanche broad discretion of courts to order whatever relief they see suitable, without
limitations.
• S 76(3)(a): applies with exception to s 74 (effects on third parties), so courts can invalidate third parties’
disposition of property and return it to original if they want (probably only in extreme situations but highly
unlikely).
- Can validate contracts and enforce illegal contracts instead of compensating if they see just (circumstantially
dependent).
- S 76(3)(b): if another statute in CCLA prevents relief for illegal contracts, courts can still retain jurisdiction to
relieve under s 76.
• National Westminster Finance New Zealand Ltd v South Pacific Rent-a-car Ltd: validated contract
anyways despite agreement not complying with statute. Remedy regulations were not consistent with [pre-
cursor] CCLA so made discretionary. Order.
• Re AIC Merchant Finance Ltd: no inconsistencies between section and relief under [pre-cursor] CCLA
except validation of transactions not permitted.
Who can get relief?
Section 75 Relief may be granted to:
- Party to an illegal contract; or
- Party to a contract who is disqualified from enforcing it because it became illegal
during its performance; or
- Person claiming through or under the aforementioned parties.
Section 80 Person, acting with knowledge of facts/law or who committed an unlawful act/unlawfully
omitted to do an act that made contract illegal, can still be granted relief.
- Courts must take knowledge into account when exercising discretion.
Section 81 Persons who have material interest in knowing whether relief will be granted, who aren’t
party/third party to contract, can still apply for relief to be given to someone qualifying
under s 75 if it’s material for them.
- Courts must assess whether they meet materiality threshold (unclear).
Considerations of the court when granting relief
Section 77 Order under s 76 may be made on terms and conditions court thinks fit.
Section 78 In considering whether the grant relief under s 76 (and nature and extent of relief), court
must consider:
- Conduct of parties.
- Object of enactment if contract breached it.
- Gravity of penalty expressly provided by enactment if contract breached it.
- Any other matters court thinks proper.
Section 79 Harding v Coburn: court must not grant relief if it isn’t in public interest.
- Result should not be contract to the objective of statute or public policy.
• Re AIC Merchant Finance Ltd: legislation designed to protect interests of
investors in securities, granting relief wouldn’t be against public interest at large.
• Euro-National Corp v NZI Bank Ltd: if to validate would produce a result which is
contrary to the very measure which has been breached, then principle [from
Harding] is more potent.
• Lower Hutt City Council v Martin: not open for judge to exercise discretion to
validate contract because significant consideration was legislature’s intention to
control local body expenditure
 Restraint of trade clauses
Prudential Assurance Co Ltd v Rodrigeus referring to Petrofina (Great Britain) v Martin: restraint of trade clauses
in contract restrict the ability of one party to conduct business, often within a set geographical or temporal scope.
- Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd: restraint of trade clauses must be no more than
reasonably necessary to protect the legitimate interest of the party seeking protection of clause.

1. Is the restraint reasonable?

- What are the legitimate interests of the party? Is it in legitimate interests to have a restraint clause?
- Is it in the public interest to have a restraint clause? Why/why not?
2. Under s 83, what can be done about the unreasonable restraint?
- Delete? Modify? Decline whole contract?
S 83: Restraints of trade
Section 83 – Restraints of trade
(1) Court may if a provision of contract constitutes an unreasonable restraint of trade, –
(a) Delete the provision and give effect to the contract as amended; or
(b) Modify the provision so that, at the time of the contract was entered into, the provision as modified
would’ve been reasonable and give effect to the contract as modified; or
(c) Decline to enforce the contract if the deletion or modification of the provision would so alter the bargain
between the parties that it would be unreasonable to allow the contract to stand.
(2) The court may modify a provision even if the modification cannot be effected by deleting words of the
provision.

Common law as to restraints of trade is preserved under s 84. Court has discretion under s 83 to:
- Delete whole provision and continue contract as is.
- Modify clause so it’s reasonable (still in contract) and enforce the modification in contract.
• Basically, yeah you should have a restraint, but the terms of it were too onerous.
• Doesn’t stop from restraint clause being breached.
- Delete the whole contract if modification would alter the bargain substantially.
Common law development of restraint of trade
Nordsenfeldt v Maxim Restraint of trade clause prevented N from being in gun trade for 25 years.
Nordenfeldt Guns - Held to be a reasonable restraint.
and Ammunition Co • Reasonable to protect the business. Reasonable to restrict the whole of UK, if
Ltd any less would be no point.
- Law is opposed to all restraints upon liberty of individual action, but acknowledge
restraints in important circumstances like employment and sale of business.
- Reasonability must be assessed with the facts and within public interest.
• Nature of business.
• Public’s interest in free competition.
• Profit from work means protection over trade is necessary.
Esso Petroleum Co Purchase agreement for petrol conditional on running garages accordingly (one
Ltd v Harper’s Garade agreement ran for 4 years, 5 months; the other 21 years).
(Stourport) Ltd - Time of restraint of 21 years considered too long.
Restraint of trade in employment contracts
Mason v Provident Clothing and Supply Co Ltd: courts are stricter in restraint of trade clauses in employment
contracts than in sales for business (more likely to interfere with them).
- Ronbor Enterprises Ltd v Green: purchasers of a business should be able to profit off goodwill (unique selling
points of business, etc). If another party starts exact business, it diminishes profitability.
• Parties are usually of equal bargaining power.
• Sophisticated parties in complex contractual transactions are the best judges of their own interests.
- Employment-related constraints are dealt with the Employment Relations Authority.
Example of unfavourable restraint of trade in employment contract
Herbet Morris Ltd v Employee restricted from using general knowledge and skills gained in course of
Saxelby employment.
- Only time that restraint can be seen legitimate and reasonable is where employer
has propriety rights (in nature of trade connection or nature of trade secrets).
- Restriction of general knowledge too unreasonable and wide.
Is the restraint reasonable?
What are the legitimate interests of parties under contract?
Brown v Brown: a restraint of trade should be no wider than the circumstances of the case reasonable require.
Reasonableness relates to legitimate interests of the parties of the contract and to wider public interest.
- O’Brien v Discovery New Zealand Ltd: Must establish that employer has a legitimate proprietary interest that
restraint clause protects and that restraint is no wider than necessary to protect that interest.
Employment relationships
There is a general implication that a duty of good faith by employee may include an obligation to treat information
properly and not use certain obligations (in absence of confidential business information clauses).
Categories that determine whether information can be used in assessing party’s legitimate interests
Faccenda Chicken Ltd v Fowler:
1. Information which (because of trivial character or easy accessibility from public sources of information) can’t
be regarded by a reasonable person or by law as confidential.
• Employer can’t insist that employee not use information in their subsequent employment.
2. Information which employee must treat as confidential, either because he was told expressly or because of its
character it is obviously confidential but remains in employee’s head and becomes part of his own
skill/knowledge applies in course of employment once learned.
• If information becomes part of general skills and knowledge, then may still be okay so long as it isn’t
exact.
3. Confidential specific trade secrets that may be learned by heart, but cannot be lawfully used in subsequent
employment or to anyone’s benefit but the employer’s.
• Like KFC’s 11 herbs and spices or the recipe for Coca Cola!
Examples of legitimate interests in employment relationships
H & R Block Ltd v Agreement prevented disclosure of confidential business information and restricted
Sanott ability to become an employee or owner of any other tax return business
during/subsequent employment for five years within 25 miles. Employment terminated
and he set up own business using forms.
- Forms found to be confidential information as only capable of being produced by
employee who goes through same process.
- Restraint on becoming employee/employer of another tax return business found
reasonable but terms of it weren’t.
• Interest of parties was to protect clients and stop employees from taking
advantage of position to damage propriety rights of employer.
• Allowing employees to set up another business using information they’ve
learned in course of employment could unduly benefit them or take clients from
employer.
- Court modified reasonable (but terms not reasonable) restraint.
• Restriction on tax preparation business too wide = changed to tax business for
wage and salary earners.
• Five year limit too long = changed to three years.
• 25 miles too much = modified to five miles.
- Modification of restraint clause doesn’t prevent party from breaching so damages
are still available.
Fuel Espresso Ltd v Clause restrained former employee from working in his own coffee cart set up 70 metres
Hsiesh away from original until certain date.
- Held to be reasonable.
• Employee was trained and invested in by former employer.
O’Brien v Discovery Restraint of trade restricted P from starting new employment. D argued can’t start for
New Zealand Ltd another three months after notice period. P was told clause wouldn’t be used punitively,
accepted offer from new employment and argued new role wouldn’t be in direct
competition with prior employer.
- Held that D had various legitimate proprietary interests and P would be in
competition in new role.
• Confidential information, etc.
- Clause was reasonable but needed to be modified.
• Reduce the non-dealing and non-solicitation period from six months to three.
• Additional three months from notice period modified to seven weeks.
• Application of restraint removed from D’s clients.
Instone v A Schroder Clause for full copyright for all songs written by P to D for five years. By submitting all
Music Publishing Co compositions during period + copyright, P binds himself to never trade intellectual
Ltd property in any other way during period, P also deprives himself to turn his products to
account elsewhere even if D decides that composition is shit.
 - Contracts which require provision of exclusive services (restraint of trade) during
continuance of contract is capable of being against public interest and not
enforceable.
• Would be different if contract had clause that permitted P to end contract if
works had no use after certain amount of time and to regain the rights in works.
- Clause found to be entirely unreasonable and was therefore deleted.
Vendor-purchase relationships
Sometimes, allowing a vendor to immediately start up similar business after selling to a purchaser, devalues the
goodwill of business and decreases the value of business the purchaser bought.

It’s a fact specific analysis! (Anderson v Davies)

- In determining whether restraint is too wide, necessary to assess all circumstances affecting particular
transaction and parties to it, and position that they were in at time the restraint was entered. Question of
weighing interests by considering:
• The type of business protected by the restraint clause.
• Strength and value of connection which vendor has with customers or clients of business.
• Type of business carried on by parties.
• Size of business.
• Extent of competition in fields in which business carries out.
• Respective roles and skills of vendor and purchaser.
Anderson v Davies D sold P a clinic. Restraint of trade clause said D cannot compete with P for 5 years
within 15km. D also couldn’t use own name for any other clinics within 15km. D began
working at another clinic after 1.5 years within radius, soliciting patients from others in
close proximity.
- Restraint of trade provision from vendor to purchaser is enforceable if it’s not wider
than circumstances of care reasonably require.
- Court must assess objectively and whether restraint goes further than to protect the
goodwill of the purchaser, namely the connection and reputation that vendor already
has in the business.

Unfair terms, duress, undue influence, and unconscionability

Contracts can be invalidated if one of the parties was subject to duress, undue influence, or unconscionability
when agreeing on terms (apply all grounds and note if it doesn’t regardless).
- S 46H of Fair Trading Act 1986 allows Commerce Commission to apply for declaration that a term in
consumer/trade contract is unfair. Term then cannot be relied on.
- Common law grounds of duress allow courts to assess whether there was an improper threat/pressure that
overcame party’s free will and coerced them to enter contract. Contract is then voidable.
Unfair terms
Fair Trading Act 1986
Section 25A – Unfair contract terms in standard form consumer contracts
(1) If a court has declared, under section 46I, that a term in a standard form consumer contract is an unfair
contract, a person must not –
(a) include the unfair contract term in a standard form contract (unless the term is included in a way that
complies with the terms (if any) of the decision of the court); or
(b) apply, enforce, or rely on the unfair contract term in a standard form contract.
(2) The prohibitions in subsection (1) do not apply to any contract entered into before this section comes into
force; but if the contract is varied or renewed on or after this section comes into force, the contract must be
treated as a new contract for the purposes of subsection (1).

Cannot use an unfair term in a contract if declared by court to be unfair, period.

- Commerce Commission v Home Direct Ltd: term granted D income while P couldn’t get their money back via
unexchangeable voucher. Provided windfall benefit.
• Term was unfair and unreasonable. Not reasonably necessary to protect legitimate interests because
there were none.
Section 46H Any person may ask the Commission to apply to a court for a declaration under 46I in
relation to a contract to which the person is a party.
Section 46I High/District Court may declare term unfair only if:
- Term is one of a consumer or trade contract (between business/consumer or
trades).
 - Consumer/trade contract is standard form (non-negotiable) contract (in accordance
with 46J).
- Declaration isn’t prohibited by s 46K(1).
- Term is unfair in sense described in s 46L.
Section 46J - S 46J(1): a standard form contract is a contract where terms haven’t been subject to
effective negotiations between parties.
- S 46J(2): in assessing whether contract is standard form, Court must consider:
• Whether one party has all/most bargaining power.
• Whether contract was prepared by one or more parties before discussion about
transaction occurred with other party/parties.
• Whether one of more parties was require to accept or reject terms of contract
(other than terms referred to in s 46K) in the form which they were presented.
• Extent to which parties had effective opportunity to negotiate terms of contract
(other than terms referred to in s 46K).
• Extent to which terms take into account specific characteristics of any party.
- S 46J(3): contract is presumed to be a standard form contract if alleged by a party
unless other party to proceeding proves otherwise (no imbalance in bargaining,
opportunity for negotiation, etc).
Section 46K(1) May not be an unfair term if it:
- Defines main subject matter of contract.
- Sets the upfront price payable under contract.
• S 46K(2): Upfront price means consideration (conditional and non-conditional)
payable under contract, only to extent that consideration is set out in transparent
term.
- Is a term required or expressly permitted by any enactment.
Section 46L S 46L(1): A term in a consumer contract is unfair when:
- Term would cause significant imbalance in parties’ rights and obligations under
contract.
- Term is not reasonably necessary to protect the legitimate interests of party who
would be advantaged by term.
- Term would cause detriment (financial or otherwise) to a party if it were
applied/enforced/relied on.

S 46L(2): Court must take into account (as well as other relevant additional terms):
- Extent to which the term is transparent.
• Was the clause in the front and centre of the contract?
- The contract as a whole.
• What was the whole bargain? Is it a term that is unfair in the position of the
whole contract?

- S 46L(3): The onus is on businesses to prove that the term is fair. Or on consumers
if they are the respondent.
- S 46L(4): insurance terms (see long notes).
Section 46M Examples of unfair terms in consumer contracts:
- Permits party (but not the other) to avoid or limit performance of contract.
- Permits one party (but not the other) to terminate the contract.
- Penalises one party (but not the other) for breach or termination of contract.
- Permits one party (but not the other) to vary the terms of the contract.
- Permits one party (but not the other) to renew or not renew the contract.
- Permits one party to vary upfront price payable under the contract without the right
of another to terminate.
- Permits one party unilaterally to vary characteristics of goods or services to be
supplied or interest in land to be sold or granted.
- Permits one party unilaterally to determine whether a contract has been breached or
to interpret its meaning.
- Limits one party’s vicarious liability for agents.
- Limits party’s right to sue another.
- Limits evidence one party can adduce in proceedings relating to contract.
- Imposes evidential burden on one party in proceedings relating to contract.
Fair Trading Amendment Act 2021
Section 26B If a court declares a term unfair in a standard form small trade contract, under s 46I then
parties cannot use it, at all.
Section 26C Definition of small trade contract is if:
- Each party to the contract is engaged in trade.
- It’s not a consumer contract.
- Doesn’t comprise or form part of a trading relationship that exceeds annual value
threshold when relationship first arises.
If party alleges that contract is a small trade contract, onus is on other party to prove
otherwise.
Section 26D Definition of trading relationship, and example of annual value threshold.
Section 26E Governor-General has power to make regulations specificizing certain contract classes
as small trade contract or exclude certain contracts from being considered as so.

Duress/undue influence/unconscionable conduct

State that one is more relevant than the others because it doesn’t particularly meet elements, etc.
- Avenue of redress for duress is common law.
- Avenue of redress for undue influence and unconscionable conduct is equity.
• Discretionary and may be granted/refused subject to conditions.
Duress
Duress occurs when something/someone is forcing you to enter the contract. Common law sets aside contracts
entered into due to duress incl. threats or violence to life/limb; duress of goods; economic duress.
- Contracts procured by duress are voidable unless affirmed or third parties without notice already acquired
rights under contract for value.
- Attorney-General for England and Wales v R: court must consider whether pressure should be regarded as
legitimate or illegitimate and the nature of any alternatives reasonable open to plaintiff will be of major
importance.
Principles of duress (Pharmacy Care Systems Ltd v Attorney-General)
1. Was there an improper threat/pressure? Illegitimate/legitimate.
2. Was the wrong party coerced by the threat/pressure?
3. What can the wronged party to do about it?
- Void the contract.
- May be required to make restitution, but unclear!
2. Has the wronged party affirmed the contract?
- Right to void contract for duress will be lost.
Is there a threat or pressure? Is the threat improper?
Haines v Carter: duress necessarily involves illegitimate application of pressure by threats.
- Illegitimacy of pressure may lie in illegality of actions threatened or may be associated with illegitimacy of
particular threats in contract which they’re made.
• Depends on nature of threat. May be a legitimate warning in commercial reality like in Roffey Bros.
• North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (The Atlantic Baron): threat not to complete
building of ship unless purchaser agreed to 10% price increase is an illegitimate threat.
• Threat to a person for a crime unless you do this (conditional threats).
• Lawful threats are not illegitimate (threat to prosecute, threat to report a person for crime, etc).
Was the party coerced by the pressure of threat? Did it leave them with no reasonable alternatives?
Victim’s will must be overborne by the improper threat or pressure to that their free will and judgement have been
displaced. Threat or pressure must actually induce victim’s manifestation of assent. Threat or pressure must be
significantly grave to justify the assent from victim, in the sense that it left victim with no reasonable alternative.
- Dimskal Shipping Co SA v International Transport Workers’ Federation: pressure must be a significant cause
inducing the plaintiff to enter into relevant contract.
- Pharmacy Care Systems Ltd v Attorney-General: doesn’t need to be the only reason plaintiff entered into
relevant contract, just a significant one.
- McIntrye v Nemesis DBK Ltd: entering contract because it’s considered the ‘best outcome available’ is not
being coerced. Whether there is protest or independent advice is considered also.
What is the effect of the duress?
Pao On and others v Lau Yiu and another: contract will be voidable, not void if there’s duress.
- Contract remains until voiding party (claiming contract is void) puts the other party in the position they would’ve
been in if the contract had never been made (default position when seeking to rescind contract).
Halpern v Halpern: if defendants are able to establish their consent to compromise agreement was procured by
improper pressure (duress or undue influence), law can probably provide a suitable remedy. But unclear whether
restitution is required.
- Law not clear on whether the aggrieved party needs to make restitution when the contract is made by duress.
• E.g., A pressures B to contract to make 100 donuts. B makes 100 donuts, but A doesn’t want them
anymore. A might have to make restitution (pay B for the 100 donuts) to put B in prior position before
contract, even if contract was procured on duress.
- If restitution can be made, make it. However, acknowledge ambiguity in the law.
• Where specific restitution cannot be made (e.g. destruction of item).
• Where court considers it inappropriate to make restitution (work done to benefit of aggrieved party wasn’t
necessary).
- Bainbrigge v Brown: parties cannot rescind a contract against a third party who gets rights on the contract for
some value and without notice of circumstances.
Has the party affirmed the contract?
- Haines v Carter: taking steps to affirm the contract/actioning agreement when claiming duress will remove the
right to void a contract for duress.
• There may be duress to enter the contract, and pressure can be ongoing and be operative to continue
abiding by agreement. This is not affirmation!
• Duress needs to end a point where it’s obvious that decisions aren’t made by duress. If the pressure
stopped, did the party continue the contract?
- Pharmacy Care Systems Ltd v Attorney-General: not taking timely steps against alleged agreement procured
by duress can amount to affirmation of contract.
Undue influence
Undue influence is where consent to contract is given due to dominant party improperly using their power over the
vulnerable party. Vulnerability arises from power imbalance due to relationship between parties that existed prior
to contract.
- Royal Bank of Scotland v Etridge (No 2) accepted in R v Attorney-General for England and Wales: there are
two forms of unacceptable conduct identified in equity: threats (similarly to duress) or a relationship involving
‘measure of influence or ascendancy’ (e.g., trust and confident relationships).
- Undue influence is usually only likely to occur when one party doesn’t get the same benefit as the other.
Prior principles of undue influence (Contractors Bonding Ltd v Snee)
1. Other party to transaction (or someone who induced transaction for own benefit) had capacity to influence
plaintiff.
2. The influence was exercised.
3. The influence exercised was undue.
4. The influence exercised brought about the transaction.
5. The transaction was to the manifest disadvantage of complainant.
Principles of undue influence (Royal Bank of Scotland v Etridge (No 2))
1. Is there actual (party actually did something) or presumed influence (failure to protect interests of vulnerable
party)? Is there a relationship of trust and confidence?
2. Is the influence undue?
- It is normally sufficient to prove undue influence if there is a trust and confidence relationship between parties.
- Automatic presumption of influence in certain relationships – e.g., child-parent, trustee-beneficiary, doctor-
patient, solicitor-client.
- Trust and confidence must be placed in wrongdoer to manage party’s financial affairs and transaction requires
an explanation (it’s disadvantageous to wronged party and raises red flags).
- Burden of proof is on the wronged to prove undue influence. If there’s no satisfactory evidence to the contrary,
onus shifts on wrongdoer to prove no undue influence.
2. Did the complainant receive third party, independent advice?
- No determinative, dependent on advice given by third party. Question is whether it overrode any undue
influence of wrongdoer.
3. Does the transaction require an explanation?
- Brusewitz v Brown: trust and confidence relationships may give rise to rebuttable presumption of undue
influence, particular when combined with a bad bargain and knowledge of weaker party’s problems (health,
money, etc).
- Something more is needed in the transaction to give rise to an explanation – e.g., great disadvantage to the
vulnerable person.
Examples of actual undue influence
- Contractors Bonding Ltd v Snee: son prevailing upon alcoholic and mentally incapable mother to give a
guarantee over her home by way of security for a loan to son’s company.
- Greene King plc v Stanley: son planting materially false impressions in the minds of his parents as to the
extent and duration of the risks they would run in executing a charge over their home.
- Daniel v Drew: nephew procuring resignation of his aged aunt when her son was absent and on threat of a
dispute affecting the trust having to go to court.
- Thorne v Kennedy: impecunious migrant being told her rich fiancé that their marriage wouldn’t go ahead
unless she signed a prenuptial agreement making very little financial provision for her.
Examples of presumed undue influence
- Brusewitz v Brown: D was close and trusted friend who had knowledge about P’s health problems and affairs.
Paid tiny amount for huge benefit, Court held undue influence. Failed to show independent legal advice given
because lawyer was just there to see if deceased was of sound mind.
- Re Brocklehurts’ Estate: old man gave shooting right son his land to his friend without taking advice. Evidence
suggested only relationship of friendship, in fact old man was probably the dominant one in the relationship.
- ASB Bank Ltd v Harlick: parents provided guarantee for loan to daughter + son-in law via mortgage over
parents’ property; average family relationship, nothing to suggest the parents weren’t independent or any
greater ‘trust and confidence’ normally present between parents and children.
- Public Trust v Ottow: husband and wide granted loan from Public Trust and both guaranteed the loan
personally. Wife alleged undue influence by husband, but not shown: she was going to benefit from loans to
live in various properties, and the loan was clearly for the benefit of her and her family.
Rebutting the presumption of undue influence
The onus switches to the dominant party to show that the weaker party was not unduly influenced by showing they
had independent legal advice from a lawyer who knew all material facts.
- Brusewitz v Brown: mere independent legal advice may not be sufficient to rebut presumption.
- Inche Noriah v Shaik Allie Bin Omar: advice needs to be given fully from a qualified person to prove that
influenced party was acting independently of the influence.
- Hammond v Osborn: not enough to refute presumption that defendant didn’t actively abuse the situation.
Being passive is not an excuse.
Fa’agutu v Derhamy Mudharaba agreement. D arranged agreement between F & H. H in poor condition and
passed after execution of contract. F claimed undue influence.
- Established relationship of trust and confidence.
• Spiritual elements to H and D’s relationship. Deteriorating health = cognitive
vulnerability, didn’t fully understand importance of transaction. Presumption in
relationship due to long term accountant and friend of 30 years.
- Transaction required explanation.
• Transfer of almost all life savings at end of life to investment = significantly more
risk than term deposit. Inadequate information provided, transfer of funds
without binding agreement, haste of meetings, personal benefit to D through
dividends. Knowledge of H’s health.
Remedies for undue influence
Allcard v Skinner: if a contract is procured under undue influence, it can be voided.
- Parties are put in the position prior to contract being entered into = no obligations at all.
• Deposits are paid back to original state, properties are divested back, etc.
• Bainbridge v Brown: unless third party without notice has acquired rights under contract for value.
• Lancashire Loans Ltd v Black: if third party had notice then contract can be voided.
- If it has been affirmed, expressly or implicitly, it cannot be voided.
• Public Trust v Ottow: co-operating with loan rollover where loan had been procured under undue
influence.
Unconscionable conduct
Unconscionable conduct is where one party has a disadvantage or disability that impairs their ability to enter the
contract fully and freely informed. Significant overlap and not easy to differentiate from undue influence.
- Fa’agutu v Derhamy: both undue influence and unconscionable conduct allow for courts to set aside contracts
where one party has operated under disability/vulnerability that vitiates consent to transaction in ways that it
would be unjust to permit the transaction.
• Sometimes the doctrines overlap but require separate analysis.
- Unconscionable conduct = focuses on conduct of stronger party when they’ve knowingly taken advantage of
special disability of weaker party.
• Can come under equity and FTA! Assess both! J
- Undue influence = transactions where one party with impaired judgement, irrespective of conscience of the
other, enters a contract.
Requirements of unconscionable conduct in New Zealand (Gustav and Co Ltd v Macfield)
1. There must be a qualifying disadvantage/disability significantly impairing a person’s ability to assess
what is in their best interests.
- Qualifying disability/disadvantage not form inequal bargaining but rather condition/characteristic what
significant diminishes party’s ability to assess their best interests.
- Open-ended concept, can be: ignorance, lack of education, illness, age, mental/physical infirmity, stress or
anxiety.
2. The other party must know about (actual/constructive) this disadvantage/disability and take advantage
of it (active extraction and passive acceptance of benefit).
- Factors associated with substance of transaction (e.g. marked imbalance in consideration) or way which
transaction was concluded (e.g. lack of independent advice) may lead to constructive knowledge.
- Stronger party may be put into inquiry, in absence of such, may be stressed as if they knew of the
disabfility/disadvantage.
- Third party can impute knowledge, e.g. may be under obligation to prompt questions.
3. If there was a significant disability and the other party knew, did they take advantage of it?
- Taking advantage is both active extraction and passive acceptance of benefit.
- Unconscionable victimisation (taking advantage) occurs where circumstances are ought to be known or known
to stronger party in which they have an obligation to not follow the transaction.
4. If these conditions are met, the other party has the burden of proving their conduct was not
unconscionable.
- Onus of proof falls on the stronger party to prove transaction was fair and reasonable.
Inherent vulnerability Jenkins v NZI Finance Ltd: P must be under disabled circumstances. Mere pressure
from defendant is not sufficient.
- Fa’agutu v Derhamy: terminal illness.
- Commercial Bank of Australia v Adamio: elderly age, lack of formal education,
limited English and business experience.
- Nichols v Jessup: nature and quality of bargain, advantages/disadvantages
conferred by plaintiff are factors.
Actual of constructive Hart v O’Connor: unconscionability of bargain is assessed on basis of person who
knowledge made it with a sound mind. Needs knowledge of other party’s disability.
- Nichols v Jessup: plaintiff must be aware or ought to have reasonably known of
material disadvantages that would render bargain unconscionable.
Examples of where unconscionable conduct was not found
- Hart v O’Connor: unsound mind of P was not known to D. Contracts validity is assessed on basis of person
who made it with sound mind, needs knowledge of disability.
- Jenkins v NZI Finance Ltd: need more than just mere pressure from D. P must be under disabled
circumstances, e.g., medical conditions, extreme stress, etc.
- Gustav and Co Ltd v Macfield Ltd: it is not enough for D to know of health issues, must know issues were so
serious that it would affect their decision making.
Examples of where unconscionable conduct was found
- Moffat v Moffat: lack of independent legal advice, lack of knowledge in property interests, and hurry to
complete the separation made it unconscionable to carry on with contract. Ex-husband is to transfer full
interest in property as tenants in common (equal).
- Commercial Bank of Australia v Amadio: elderly age, lack of formal education and English literacy, limited
business experience meant mortgage needed to be unconditionally set aside due to unconscionable bargain.
Bank is obliged to make further inquiries into the conscionability of bargain before proceeding to procure their
signatures on mortgage plaintiffs didn’t understand.
- Bowkett v Action Finance Ltd: legal executive for Action Finance ought to have known about P’s inability to
pay (imputed knowledge of expertise) and son was going bankrupt. Held unconscionable bargain.
- Nichols v Jessup: simple imbalance in relationships/unfairness is not sufficient to render unconscionable
conduct. It is only unconscientious when party knew, at time of bargain, that other suffered from material
disability or disadvantage, and of its effect, and that it would be unconscionable of him to enforce a bargain.
- Fa’agutu v Derhamy: knowledge of terminal illness and other detriments to health gives rise to an obligation to
not proceed with transaction without true belief that party was consenting with independent legal advice.
Remedies for unconscionable conduct under equity
Unless affirmed, contract will be void.
- Restitution may be needed (unclear).
• See restitution contentiousness under undue influence and apply the same.
Fair Trading Act 1986
Section 7 – Unconscionable conduct
(1) A person must not, in trade, engage in conduct that is unconscionable.
(2) This section applies whether or not –
(a) There is a system or pattern of unconscionable conduct; or
 (b) A particular individual is identifies as disadvantaged or likely to be disadvantaged, but the conduct; or
(c) A contract is entered into.
(3) This section is not limited by any rule of law or equity relating to unconscionable conduct.

- If the matter is subject to trade (under s 2 definition), there is a general prohibition on unconscionable conduct.
However, doesn’t replace unconscionable conduct in equity.
• If the matter is in trade, analyse both under FTA and equity (above).
- Court looks at various factors under ss 8(1) and 8(2) in context of how conduct actually affected/likely to affect
person.
- S 7 allows for general conduct to be unconscionable even if it isn’t directed to particular person (s 8(3)).
Section 2 Definition of trade:
any trade, business, industry, procession, occupation, activity of commerce, or
undertaking relating to supply or acquisition of goods or services or to the disposition
or acquisition of any interest in land.
Section 8(1) When assessing whether party’s conduct is unconconscioniable, courts must
consider:
- Bargaining power of person of conductor and any person who is disadvantaged.
- Extent to which parties acted in good faith.
- Particular characteristics and circumstances of affected person (or
representative) and whether they were reasonably able to protect their own (or
person they’re representing) interests.
- Whether affected person was able to understand any documents provided by
trader.
- Whether trader subjected person to unfair pressure or tactics otherwise unduly
influenced an affected person.
- Whether the trader reasonably failed to disclose to an affected person…
• Any intended conduct that may adversely affect affected person’s interests.
• Any risk to affected person’s interests arising from intended conduct, if trader
should’ve foreseen the risk would not be apparent to affected person.
- Any other circumstances court considers relevant.
Section 8(2) If conduct involves contract between trader and affected person, court may also
consider:
- Circumstances which contract was entered into, incl. inducement and extent to
which affected person had effective opportunity to negotiate.
- Whether there as independent legal advice or other professional advice about
contract before entering.
- Terms of contract.
- Form of contract, incl. transparency of terms in written contracts.
- Whether terms allow affected person to reasonably meet obligations.
- Whether affected person’s obligations are necessary for the protection of trader’s
legitimate interests.
- Conduct of trader and affected person in complying with terms of contract.
- Length of time affected person has too remedy breach.
- Whether action by trader regarding enforcing the contract was lawful.
- Any other conduct by trader after entering contract, in connection with their
relationship.
Section 8(3) – not Where there is no particular victim, s 8(3) empowers courts to consider a hypothetical
applicable in exam victim and hypothetical circumstances of transactions to see how conduct is likely to
have affected hypothetical person.
- Hypothetical person may be in target audience.
• Courts will assess whether it would be reasonable to expect hypothetical
person to understand terms of sale and product; whether business would’ve
acted in good faith; whether unfair pressure would’ve been applied to
purchase goods, etc.
Remedies available under FTA
Court may be able to give a larger award at equity rather than FTA and is able to make orders it considers
appropriate in the circumstances.
- S 40(1) of FTA: penalty fine of up to $200k for individuals and $600k for corporations with non-compliance to
FTA provisions, incl. s 7 for unconscionable conduct.
- S 43 of FTA: permits range of civil remedies for breaches of FTA provisions, incl. s 7.
 • S 43(3)(a): declaration that contract is void.
• S 43(3)(e)-(g): order to repair, refund, pay for loss or damage, supply goods.
• S 43B(1): District Court is limited to value of $350k under s 43 remedies.
• S 43B(2): Disputes Tribunal is limited to $30k under s 43 remedies.

Surety transactions (undue influence, misrepresentation, unconscionable conduct)

Contractual relationship in which surety engages to answer for the debt or default of a principal to a third party –
basically guarantee situations (A provides loan to B on condition that C guarantees it). C can set aside guarantee
because of B’s undue influence and A’s notice of that influence.
- Surety is triggered when C uses undue influence over C to get C to guarantee something.
• Hogan v Commercial Factors Ltd: should apply beyond banks.
• Royal Bank: guarantee must be non-commercial (because sophisticated parties are best judges of their
own risks).
- Surety helps determine where A should be considered to have notice of risk of undue influence.
• Failing to take reasonable steps to give notice of general/specific risks of undue influence to C means A is
considered to be on notice of undue influence. Guarantee can be set aside against A, meaning A can’t
enforce it.
- Can come under unconscionable conduct where C may be under significant disadvantage affecting their ability
to assess best interests and A knows or should’ve known about it but took benefit of transaction.
Surety principles
- A bank/lender taking guarantee/security for loan is put on notice of a risk of undue influence or unconscionable
conduct by principal debtor in all cases where relationship between surety and principal is non-commercial and
loan is not made to the surety.
- Bank isn’t put on notice where there’s a joint loan to the surety and debtor unless bank knows the loan isn’t
being used for surety’s purposes.
• Bank is put on notice irrespective of any interest of surety in the company if it’s a loan made to a
company.
- Being put on notice = must take reasonable steps to ensure surety understands the nature and effect of
transaction, and genuinely wishes to enter the contract.
- Bank is able to give appropriate or independent advice if they know it hasn’t been given to surety, even if
surety declines it.
- Where independent advice is required, bank should communicate directly with surety to ensure they know that
solicitor is in fact acting for them.
• Surety should be told that purpose of that is that they’re not able to dispute the bank at a later date if
transaction becomes legally binding.
- If bank suspects undue influence/misrepresentation/or unconscionable conduct by debtor, it must take
reasonable steps to ensure that surety is giving their consent free from influence of misrepresentation.
• Solicitors should be told about suspicions, however, note conflicts of interest.
- Solicitor must advise which ensures surety knows of the nature and extent of risks involved in proceeding with
transaction; certificate must be given to the bank.
- Shit solicitor advice doesn’t effect the bank unless the bank knows of the shit advice and doesn’t take
reasonable steps to undo it.
- If bank doesn’t take reasonable steps to ensure surety knows the risks they’re running by being a surety, then
bank is deemed to have notice of any claim the surety may have that the transaction was procured by undue
influence, misrepresentation or unconscionable conduct by the principal debtor.

Frustration (defence)
Where both parties are discharged of their duties due to circumstances beyond their control.
- Defence against a claim for contractual breach (one party cannot be at fault).
- If successful, contract ceases to exist from the date of the frustrating events.
• Like cancellation, all unconditional rights accrued prior continue (right to payment, etc).
Development of frustration
Courts primarily focused on whether frustrating event removed the central element of contract. Risks need not be
within reasonable contemplation of parties for obligations to be discharged.
- Paradine v Jane: no defence of frustration without incorporation of force majeure clauses (excludes liability in
event of external event). Principle of absolute liability because parties could’ve added provision in to save
themselves but didn’t.
- Taylor v Caldwell: parties are excused in some cases where there should be an implied term to the degree
allowed by the nature of the contract that it appears parties must’ve known contract couldn’t be fulfilled from
 time of formation, until time to fulfill it arrived. Implied condition approach.
- Jackson v Union Marine Insurance Co: frustrating delay, so long as to fundamentally change the agreement;
both parties are discharged from liability.
- Poussard v Spiers: sickness or death cannot be punished by way of breach of contract.
- Krell v Henry: non-occurrence of event that is the foundation of contract is a frustrating event that can
discharge liability.
- Herne Bay Steamboat Co v Hutton: contemplation approach – was it within the contemplation that a frustrating
event would occur? If yes, held to contract. If no, contract potentially frustrated.
Current approach to frustration
Davis Contractors Ltd v Fareham Urban District Council: frustration occurs whenever law recognises a contractual
obligation has become incapable of being performed because circumstances in which performance is called for,
would render it a thing radically different from that which was undertaken by contract.
- High threshold!
• Need to go beyond hardship or inconvenience or material loss. Must be a change in significance of
obligation, that if performed, would be different from what was contracted for.
• Contract must be completely different to what parties intended to contract when signing.
Requirements for defence of frustration (multi-factorial approach in Planet Kids Ltd v Auckland Council)
1. What did the parties agree to do? What is the purpose of contract?
2. What can parties no longer do because of the supervening event?
3. Does this render the contract radically different?
Considerations for the Court! (Planet Kids Ltd v Auckland Council)
- Terms of the contact.
- Its matrix or context of the contract.
- Parties’ knowledge, expectations, assumptions and contemplations as to risk, at the time of contract, to the
extent that these risks can be ascribed mutually and objectively.
• What can we say about the risks the parties foresaw or ought to have foresee? Both subjectively and
objectively.
- Nature of supervening event.
• What was the event, and does it have irreversible damage?
- Parties’ reasonable and objectively ascertainable calculations as to possibilities of future performance in new
circumstances.
• Did the parties consider what they would do if supervening event occurred?
- Consequences of decision against the demands of justice.
• If the contract is frustrated, it cannot be unjust to the parties.
Could the parties have foreseen the supervening event? Was it objectively foreseeable?
Doctrine of frustration held to be inapplicable if even is foreseeable but not foreseen.
- Supervening event must be one which any reasonable person would regard as likely to occur.
• Consequences of event must be foreseeable.
• Effects of the consequences of event on contract must be foreseeable.
• Inference that frustration is inapplicable because event is foreseeable may be displaced by contrary
evidence.
- Objective interpretation of contract in its context.
• Parties’ mutual knowledge, expectations, assumptions and contemplations particularly as to risk of event.
• Parties’ intentions and purpose of contract are considered.
• Parties not deciding to follow usual commercial practice and deal with risks ordinarily can be taken to have
made a conscious choice to ignore a foreseeable risk.
What was the nature of the event? Consequences?
If contract’s goal is achieved otherwise than as planned, then frustration is unlikely to apply.
- Lack of hardship is a consideration of the nature of the supervening event.
- Davis Contractors Ltd v Fareham UDC: supervening events that simple make the contract less profitable are
not enough for frustration.
Salam Air SAOC v P applied for injunction preventing D from exercising right to payments issued by P’s
Latam Airlines Group bank. Issued in relation to lease transaction from D to P for aircraft. P returned plane
SA – contract may to D in June 2020 before D went bankrupt.
preclude frustration. - P argued government made regulations because of COVID which frustrated
contract because it stopped entry to non-citizens.
- Commercial risk was placed solely on P.
• Nature of contract and terms are determinative whether agreement is
frustrated by specific event and how particular risks are allocated. Being
 barred from flying is a commercial risk to P only.
- No shared purpose between parties.
- Risk borne were inherent in commercial operation of aircraft and assumed by P
under contract.
• Risk that P might be unable to take passenger flights for a significant period,
or there may be a long-lasting decrease in travel demand were risks inherent
in commercial operation of aircraft.
- P’s frustration too weak to justify interference. COVID didn’t impact agreement
and did not frustrate contract.
Risk allocation in the contract = frustration unavailable
Force majeure clauses
Where a contract allocates the risk of the even occurring through force majeure clauses, the law will uphold
contractual freedom and defer from that.
- Planet Kids Ltd v Auckland Council: if clauses are included in contract, may need to interpret how widely they
apply.
• Clause may be interpreted as being only wide enough to apply to events of less disruptive kind.
- If clause states an alternative action instead of frustrating whole contract, courts will uphold parties’ choice.
- Jackson: if event is outside the clause, then court may apply the common law principles.
- British Electrical & Associated Industries (Cardiff) v Patley Pressings Ltd: if clause is not certain enough, court
will apply common law principles.
• ‘Subject to force majeure conditions’ is too uncertain.
Automatic allocation of risk in law (can be altered by contract)
Sale of land - Risk of damage to property passes to the purchasers because contracts for land
contain a trust that arises from the specifically enforceable contract. Property
belongs to the purchaser in equity.
• Even with regard to conditional contracts, but risk passes back to seller if
conditions aren’t met.
- Planet Kids: There is no room for the doctrine of frustration when
building/structures on land are destroyed prior to settlement (can still get
remedies under Contractual Remedies Act).
Sale of goods Generally, risks passes with property incl. goods.
- S 148 keeps risks for the transfer of goods with the seller until transfer of
possession, except where delivery has been delayed through the fault of either
party.
If party causes the event, they cannot rely on it to frustrate the contract!
- Maritime National Fish Ltd v Ocean Trawlers Ltd: a party cannot rely on frustration that is self-induced.
- Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation: some level of responsibility for the
frustrating event will be precluded; however, unclear. May be situations where there’s only a minor contribution
from parties where the courts will find it appropriate for frustration.
• Courts may leave frustration open despite minor contribution to parties. May ask whether the event
would’ve had the effect it did without the contribution of parties anyways?
Consequences of frustration
The contract no longer exists if frustrated! All further obligations no longer apply.
- Appleby v Myers (overruled): frustration disentitles parties to claim and parties are left where they are. Not
even for part-performance.
- Chandler v Webster (overruled): parties should not be able to claim from one another.
- Fibrosa Spolka Akcyina v Fairbairn Lawson Combe Barbour Ltd: parties can claim from one another under
CCLA. Courts have discretion to adjust the relative financial consequence of a frustrated contract to the
concerned parties.
All money that has been paid can be recovered, all money that was to be paid is no longer payable (unless
expenses incurred).
Remedies for frustration
- All that money has been paid can be recovered and all money that was to be paid is no longer payable except
for expenses that A incurred where court thinks just, incl. overhead expenses and work/services A undertook.
- Except any valuable benefit that B obtained as result of A’s actions before contract was discharged.
Section 60 Sections 61 to 66 apply if a contract governed by New Zealand law is frustrated.
- Parties are therefore discharged from further performance of contract.
Section 61 - Can recover money already given to another party.
- Can recover money due to be paid but hasn’t already.
Section 62 Court may allow party who has incurred expenses to retain or recover money
before the time of discharge in performing or for the purpose of the contract.
- Courts have wide discretion to allow party to retain/recover whole or party of any
money that was paid or is payable.
• Applies to payable expenses – e.g., supposed to pay someone, spent
money on materials, frustrating event happens, you can claim for money
spent despite owing money.
- Amount must not exceed expenses that were incurred.
Section 63 Parties can recover sums for part-performance.
- Courts must consider:
• Any expenses incurred, incl. what they must account for under s 62. (Can’t
double recover).
• Effect to the benefit of the circumstances that give rise to frustration.
- Courts will assess the actual value of the benefit as it is affect by the event.
- Sum recoverable must not exceed the value of the benefit to other party.
Section 64 Third party benefits may be considered a benefit obtained to a party to the contract
if party has assumed obligations under the contract in consideration of benefits
being conferred to third party by any other party to contract.
- Applies whether third party is a party to the contract or not.
Section 65 Court can include overhead expenses and any work/services performed by party
when estimating expenses that incurred.
Section 66 Courts can’t consider money payable under contract for insurance.
- Doesn’t apply where frustrated contract required existence of insurance or
insurance was lawfully required.
Example cases of attempted recovery for frustration under CCLA
- Gamerco SA v ICM/Fair Warning (Agency) Ltd: Guns & Roses concert case. Application of ss 61 to 66 of
CCLA to a frustrated contract will be a matter of whether court considers any deductions from the amount
paid, should be applied at its broad discretion.
• Band wanted to use s 62 to recover expenses. Onus on them to prove expenses and why they should be
recovered.
• Court rejected both considerations of total retention and divisions of losses.
- BP Exploration Co (Libya) v Hunt (No 2): courts assess the value as the valuable benefit as a the time and as
affected by the frustrating even under s 63.
• Revolution in Libya resulted in expropriated half-shares and insufficient compensation for H who had
concession to explore desert for oil. BP actioned against H claiming frustration.
• Benefit was the value of oil he got from concession before revolution and whatever settlement from
government – nothing more. Assessed at the time of frustrating event, not what could’ve been.
Exclusion clauses in frustrated contracts
Section 67 of CCLA: parties are free to contract out of frustration provisions under CCLA. Parties can regulate
liability how they see fit.
- If contract say frustration provisions don’t apply, they don’t. Provisions will only apply consistently with such
contracting out provisions.
Category of exclusions
Category 1 Court must give effect to exclusion provisions that regulate frustrating
circumstances.
- S 67: sections 60 to 66 must be given effect to the extent (if any) that appears to
be consistent with the exclusion clause.
Category 2 S 69(a): frustrated contract provisions do not apply to contracts for the carriage of
goods by sea or charterparty.
- Except for time charterparty (hire of charter for specific time) and charterparty by
way of demise (charterer owns boat during charter (incl. maintenance)).
• Ship owner is entitled to no remuneration (payment) if it’s prevented from
reaching port by frustrating event, if freight provides that it shall not become
payable until the conclusion of voyage.
• Advanced-paid freight is regarded as payment at the risk of shipper and is
not recoverable if goods are not delivered, even in event of frustrating
event.
- Customary to insure against risks though.
Category 3 S 69(b): frustrated contract provisions don’t apply to insurance contracts except as
 provided by s 66.
- Once insurer insured A and A has paid premium, frustrating event doesn’t
entitled A to refund of premium for period of insurance they’ve already paid for.
- S 66: when determining what A is able to recover/retain under s 61-64, courts
cannot consider funds payable under insurance except if initial contract
expressly required there to be insurance/required by statute.
Category 4 If contract is for sale and delivery of specific goods or s 128 applies, frustration
provisions don’t apply.
- S 128(1)-(2): agreement to sell specific goods becomes void if goods perish to
no fault of any party.
• Type A contract: s 128 arrangements (goods not delivered and are
specifically identified that perish/destroyed/so badly damaged they stop
having characteristics of goods parties agreed to).
• Type B contract: risk has gone to purchaser, but goods haven’t been
delivered.

Mistake
Doctrine of mistake allows party to get relief from contract where they’ve misunderstood something – goes against
contractual freedom as mistake disposes the fact that parties should be bound by whatever they sign.
- Section 21: purpose of mistake is to mitigate and give courts appropriate powers to grant relief.
• Mitigation of arbitrary effects resulting from shitty decisions (only to an extent).
• Appropriate powers refer to constrained power of courts to grant relief.
- Parliament recognises importance of contractual freedom and need for secure contracts; need for party’s
assurance that obligations will be fulfilled. High threshold for relief.
Common law approach to mistake (only provides historical understanding, apply CCLA!)
- Paal Wilson & Co A/S v Patenreederei Hannah Blumenthal: common law approach to contracts requires
understanding of intention (when contract involves exchange of promises) to be understood as what a
reasonable person would understand A to be promising B and what B actually understood of the promise from
A’s representation.
• Approach to infer consensus for contract for objective/subjective elements of contractual relationship.
- Taylor v Johnson: objective approach still leading despite conflict.
• Party who enters written contract under serious mistake about fundamental term/contents will be entitled
to an order voiding contract under equity if other party is aware of their mistaken belief or
misapprehension of content subject matter of contractual term and deliberately prevents party from
correctly understanding.
- Upyon-on-Severn rural District Council v Powell: mistaken about liability doesn’t stop a contract for service
from being performed.
• Completely objective approach to consensus for a contract despite both parties subjectively mistaken
about specific obligations.
- Bell v Lever Bros: even if parties are both mistaken about key fact, courts will go to the objective reality of their
agreement and find an agreement there.
• High threshold for mistake under common law that would allow recission (as if it never existed).
• A fundamental mistake, absolutely central to contract, is needed, not just about quality of subject matter.
Rules for recission for mistaken under common law (not applicable)
Mistake operates to nullify consent, therefore recission must have:
- A mistake about identity of contracting parties, mistake about subject matter at the date of contract, or mistake
in quality of subject matter of contract.
• Mistake as to quality of thing contracted for will not affect assent unless it is a mistake of both parties
and it’s existence is of a quality that will render the contract essentially different from what is believed.
S 24: Mistake
Section 24 – Relief may be granted if mistake by one party is known to another party or is common or
mutual
(1) A court may grant relief under section 28 to a party to a contract if, –
(a) In entering the contract –
i. the party was influenced in the party’s decision to enter into the contract by a mistake that was material
to that party, and the existence of the mistake was known to the other party or to one or more of the
other parties to the contract; or
ii. all the parties to the contract were influenced in their respective decisions to enter into the contract by
the same mistake; or
 iii. the party and at least one other party were each influenced in their respective decisions to enter into
the contract by a different mistake about the same matter of fact or of law; and
(b) the mistake or mistakes resulted, at the time of the contract, –
i. in a substantially unequal exchange of values; or
ii. in a benefit being conferred or an obligation being imposed or included, that was, in all the
circumstances, a benefit or an obligation substantially disproportionate to the consideration for the
benefit or obligation; and
(c) in a case where the contract expressly or by implication provides for the risk of mistakes, the party seeking
relief (or the party through or under whom relief is sought) is not obliged by a term of the contract to
assume the risk that that party’s belief about the matter in question might be mistaken.
(2) The relief may be granted in the course of any proceeding or on application made for the purpose.
(3) For the purposes of subsection (1)(a)(i) and (iii), the other party or other parties must not be a party or parties
who have substantially the same interest under the contract as the party seeking relief.
S 22: CCLA overrides common law and equity
Section 22 – This subpart to be code
(1) This subpart has effect in place of the rules of common law and of equity governing the circumstances in
which relief may be granted, on the grounds of mistake, to –
(a) A party to a contract; or
(b) A person claiming through or under a party to a contract.
(2) Subsection (1) applies except as otherwise expressly provided in this subpart.
(3) Nothing in this subpart affects –
(a) The doctrine of non est factum (it is not my deed);
(b) The law relating to the rectification of contracts;
(c) The law relating to undue influence, fraud, breach of fiduciary duty, or misrepresentation, whether
fraudulent or innocent;
(d) Subpart 4 (frustrated contracts);
(e) Subpart 5 (illegal contracts);
(f) Sections 74A and 74B of the Property Law Act 2002 (recovery of payments made under mistake).
(4) Nothing in this subpart deprives a court of the power to exercise its discretion to withhold a decree of specific
performance in any case.

- Mistake doesn’t apply to prior laws in situations which make mistake relevant.
- Mistake doesn’t effect remedies that Parliament has expressly reserved, non est factum (blind people
mistakenly signing contracts), or rectification (parties changes what they agreed to).
S 23: Interpretation of the mistake doctrine
Section 23 – Interpretation
(1) In this subpart, unless the context otherwise requires, mistake means a mistake, whether of law or of fact.
(2) For the purposes of this subpart, a mistake in the interpretation of a document is a mistake of law.
(3) Subsection (2) –
(a) Does not limit the meaning of the term mistake of law; but
(b) Is subject to section 25.
(4) There is a contract for the purposes of this subpart where a contract would have come into existence but for
circumstances of the kind described in section 24(1)(a).
Meaning of mistake – need - Mistake of fact = wrong understanding about something in reality.
to say it’s either of fact or of • E.g., thought you owned a car, thought your cat’s name was Emily.
law! • Answer is a yes or no, right or wrong.
- Mistake of law = misunderstanding about how the law applies to a situation.
• E.g., thought the sale of house was taxable under Income Tax Act, thought
you couldn’t share information under employment contract.
Interpretation of document Misinterpretation of a document is a mistake of law that can give you relief under s
(s 23(2)) 24.
Interpretation of contract (s Section 25: if you make a mistake in the interpretation of a contract, you cannot get
23(3)(b)) relief under mistake doctrine.
- Cannot get relief for wrongful interpretation of contract because contract is
binding.
• Upholds general security of contract and contractual freedom.
Mistake in formation of Section 23(4) provides that there will be a contract if there would’ve been one but
contract (s 23(4)) for the mistake.
- Cf. common law and equity approach where mistake is material in whether
there’s a contract in the first place.
 - Scope of s 23(4) not clear.
• Held to extent to cases where mistake by one/both parties has led to invalid
formation of contract because of legal bar other than mistake.
New Zealand contracts only This subpart doesn’t apply to contracts governed by foreign law.
(s 32) This subpart does not apply to any contract, or any part of contract, that is governed
by a law other than New Zealand
Requirements for mistake outlined in s 24
1. Was there a mistake leading the party to enter the contract?
- Identify the mistake(s) at issue.
- Determine whether it is excluded.
• Was it a mistake in contractual interpretation? (s 25; Shotter; Paulger; Mechenex)
• Was the party aware of the mistake (s 26)
- What category is the mistake? (s 24(1)(a); s 24(1)(b); s 24(1)(c))
- Did the mistake materially influence party to enter the contract? (Camelot Court; Ware v Johnson).
2. Did the mistake cause an unequal exchange of values or disproportionate benefit/obligation?
3. Does the contract already address liability for mistakes?
4. What relief may the court grant if mistake under s 24 is made out?
Was there a mistake leading the party to enter the contract?
Mistakes must be assessed at the time when the contract was made.
- Mistake of fact or mistake of law?
Is the mistake excluded?
Section 25 If you make a mistake in the interpretation of a contract, you cannot get relief
under mistake doctrine.
Section 26 If a party is aware of a mistake but elects to enter into the contract despite the
mistake; mistake cannot be relied upon for relief.
Three categories of mistake under s 24(1)(a)
Section 24(1)(a)(i) – One party One party influenced to enter the contract by a material mistake known by other
mistaken; other one knows. party/parties to the contract.
- Mistake influenced A to enter the contract.
- Mistake was material to A.
- B/other parties to the contract knew about the mistake.
Section 24(1)(a)(ii) – Same All parties are influenced to enter the contract by the same mistake.
mistake. - Everyone makes the same mistake.
Section 24(1)(a)(iii) – Different At least two parties are influenced to enter the contract by different mistakes
mistakes. about the same matter of fact/law.
- Two parties have different views about the same thing and are influenced to
enter the contract.
One party mistaken and other one knows
- Tri-Star Customs and Forwarding Ltd v Denning: existence of mistake must be known, can be constructive
(what you ought to have known). Inquiry is a straight-forward question of fact, which doesn’t require
substitution of other words or the application of a formula.
• Can you show they actually knew? Anything less may not be sufficient to claim mistake under s 24(1)(a)(i).
- Wellington Harness Racing Club Inc v Hutt City Council: actual knowledge is required, not constructive.
Same mistake
- Phillips v Phillips: common mistake which influence parties in their decision to settle order in terms, with regard
to the discrepancies produced, conflict with the interests of justice.
Different parties, different mistakes, same matter of law/facts
- Wijeyeratne v Medical Assurance Society NZ Ltd (criticised): W thought he had interest in car that allowed him
insurance, insurer thought he was owner of car. Different beliefs, same matter of car ownership. However,
reasoning criticised.
Multiple mistakes?
- Conlon v Ozlins (not authority): Court of Appeal implied where there is a mistake, there can be another.
• Case is a decision on particular facts and is not authority for invoking CCLA where one party
misunderstood the clearly expressed intention of another, or where one party meant something different
from plain meaning.
- Paugler v Butland Industries: confines Conlon. Where one party is clear about their intention under the
contract and the other misunderstands, cannot say there are multiple mistakes.
• D mistaken about contract’s meaning, excluded by s 25.
Does the mistake influence the party/parties to enter the contract?
Mistake needs to be material in influence. Need to show whether the mistake was a material factor/influence in
their decision to enter the contract.
- Camelot Court Motel Ltd v Anderson: immaterial mistake under provisions cannot give a basis for seeking
relief under the Act.
- Ware v Johnson: no more than both parties must necessarily have mistakenly accepted in their minds the
existence of some fact which affected to a material degree the worth of the consideration given by one of the
parties.
When contract is deemed not have been entered into by mistake
Interpretation of contract does not form a basis for relief under s 28
A mistake in the interpretation of a contract is not a basis for relief under s 28 (s 25). Courts have adopted a broad
approach to mistake in contractual interpretations, doesn’t just cover interpretation after contract is agreed.
- Shotter v Westpac Banking Corp Ltd: mistake in document setting out terms which subsequently become the
subject of the contract does not form a basis for action under s 28.
• Courts shouldn’t punish a party because the other fails to properly read the contract, esp. if he’s signing it
thinking he’s only guaranteed for something in his own interpretation.
- Paulger v Butland Industries; Mechenex Pacific Services Ltd v TCA Airconditioning (New Zealand) Ltd:
mistake as to the meaning in an offer document cannot form basis for relief under s 28.
• Paulger: Parliament intends to maintain well-established principle that contracts are to be construed
objectively and to avoid uncertainty that would occur if mistaken parties were permitted relief when
undertaking a contract to mean something different from its plain and ordinary meaning.
• Mechenex: mistake as to the interpretation of the contract, despite only being misinterpretation of
description of subject of contract, cannot be availed of. Parties cannot claim ignorance.
- Both decisions in Paulger and Shotter are criticised for being overly restrictive. Arguments for some situations
where reasonable mistaken interpretations should be allowed relief. Rectification may be available
alternatively in these situations.
Exception may not apply when the document doesn’t assist with interpretation in category three mistakes
- National Bank of New Zealand Ltd v Murland: if the mistake is of category three and the document is silent on
the matter of law/fact, then Court may consider it appropriate to grant relief.
• Unknown if this applies to category one mistakes.
• If a proper interpretation of contract doesn’t resolve different mistakes of law or is silent, it may not fall into
the interpretation of a contract and perhaps relief could be granted.
If both parties make different mistakes about the same matter of fact or law, and contract is silent on the point or
interpretation doesn’t lead to clear conclusion, then possible that both parties are mistaken under category 3
entitling relief. Apply the interpretation principles!
Awareness
Section 26 – Decision to enter into contract not influenced by mistake is party is aware of it
(1) For the purposes of relief under section 28 in respect of a contract, the decision of a party to the contract to
enter into it is not made under the influence of a mistake if, before the party enters into it and at a time when
the party can elect not to enter into it, the party becomes aware of the mistake but elects to enter into the
contract despite the mistake.
(2) This section applies whether or not an application for relief is made.

If the party is aware of the mistake and they enter it despite this, then it cannot be said that party is influenced by
mistake.
Other circumstances
- Compcorp Ltd v Force Entertainment Centre Ltd: contracting in the expectation of a course of events doesn’t
give rise to vitiating mistake if matters don’t turn out as expected.
• Cannot claim mistake if contract meets doesn’t meet expectations.
- Adams v Touchtwo Ltd: where parties haven’t turned their mind to an issue, cannot be said to have been
mistaken about it.
• Onus is on parties to discuss foreseeable matters before entering contract.
- Ladstone Holdings Ltd v Lenora Holdings Ltd: cannot claim mistake if both parties simply did not know or
couldn’t have known about something that renders the contract different.
• May be argued that discovery of relevant mistake is as much a matter of the level of generality used to
analyse a particular fact situation and the way the issue is pleases as it is a matter of real distinction
between lack of knowledge and a mistake.
Parties have substantially same interest
Under s 24(3), for category one and three mistakes, parties cannot have substantially the same interest if relief is
to be granted under CCLA.
- E.g., if contract involves a purchaser, a vendor, and two providers of finance, mistakes involving only the two
financiers are likely to be seen as external to the Act because their interests are likely to be substantially the
same. Mistake by the vendor and financier would unlikely be affected by s 24(3).
• S 24(3) doesn’t specify application to category two, so if parties have substantially the same interest and
are influenced to enter by the same mistake, relief can still be granted under CCLA.
Has there been an unequal exchange of values or a disproportionate benefit and obligation?
Under s 24(1)(b), party/parties have to prove either:
1. A substantially unequal exchange of values; or
2. A benefit being conferred, or an obligation being imposed/included that is substantially disproportionate to the
consideration for the benefit or obligation.
Substantially unequal exchange at the time of contract
Appropriate to contracts (one-off transactions) where performance by parties involves an exchange of property or
money.
- Gallaway Cook Allan v Carr: mistake must result at the time of the contract (when it was entered into) and
must be assessed on whether the obligations, at time of entering contract, were inequal.
- Janus Nominees Ltd v Fairhall: substantially inequal means whether there is a lack of substantive equality
depending on the facts.
• Each case must be considered within its own context.
• Continuing obligations after entering contract proves that it isn’t very substantial.
• Westerman Realty Ltd v McKinstry: ‘below the rough benchmark of 10-15% difference in value’.
Substantially disproportionate benefit/obligation at the time of contract
Appropriate to contracts where performance by one or both parties involved the undertaking of continuing
contractual duties (not determinative), like contract for services or loan transactions.
- Gallaway Cook Allan v Carr: mistake must result at the time of the contract (when it was entered into) and
must be assessed on whether the obligations, at time of entering contract, were inequal.
- Janus Nominees Ltd v Fairhall: definition of substantially disproportionate is fact dependent.
• Westerman Realty Ltd v McKinstry: ‘below the rough benchmark of 10-15% difference in value’.
Does the contract already address liability for mistakes?
Under s 24(1)(c), parties are able to allocate/assume risk in contract as a choice, and the law will not interfere with
that.
- Shotover Mining Co Ltd v Brownlie: question is of interpretation of words in exclusion clause used; question is
whether particular contract or provision has effect in allocating risk for mistake.
Is there a contractual clause that appears to allocate risk in the event of a mistake?
Party seeking relief for mistake under CCLA must show A or B.
S 24(1)(c) will only apply where the contract makes express or implied provision for a risk of mistake. Applicant
party needs to prove either:
A. Provision doesn’t say party has to bear the risk; or
B. Provision/exclusion clause doesn’t actually apply to the mistake in which they are seeking relief under.
Judicial approaches on exclusion clauses
- Dennis Friedman (Earthmovers) Ltd v Rodney County Council: if there is a clause where party is deemed to
be satisfied with material facts about the subject of contract, then statutory relief may not be granted for
mistaken beliefs based on those particulars.
- Shotover Mining Co Ltd v Brownlie: where B has induced A to enter a contract by mistake, B cannot ever then
hide behind risk allocation clause/exclusion clause to protect themselves against a claim for relief in mistake.
• Contentious rule, why should courts intervene where parties have allocated risk and haven’t specified
fraud? Highlights mistake doctrine and misrepresentation overlap.
- Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd: suggests a specific assumption of risk may be
necessary to engage, not just general.
• Suggests s 25(1)(c) is overly broad and therefore does not give effect to intention of statute.
What relief may the Court grant if there is mistake under s 24?
S 28 – Nature of relief
(1) If, under sections 24 to 26, the court has power to grant relief, the court may make any order that it thinks just.
(2) In particular, but without limiting subsection (1), the court may do 1 or more of the following things:
(a) Declare the contract to be valid and subsisting in whole or in part or for any particular purpose;
(b) Cancel the contract;
(c) Grant relief by way of variation of contract;
(d) Grant relief by way of restitution or compensation.
(3) The court may, by an order under this section, –
(a) Vest the whole or any part of any relevant property in a party; or
 (b) Direct a party to transfer or assign the whole or any part of any relevant property to any other party; or
(c) Direct a party to transfer the whole or any part of the possession of any relevant property to another party.
(4) In subsection (3), –
Party means a party to the proceeding.
Relevant property means real or personal property that was the subject of the contract or was the whole or
party of the consideration for the contract.
(5) An order may be made on the terms and conditions that the court thinks fit.

There are three avenues for relief for mistake (section 28, rectification under equity, or non est factum under
common law).
- Courts have incredibly broad discretion. Granting no relief is also an option!
• Relief may only be granted if the Court thinks it is just!
• If the contract looks beneficial to both parties, it is unlikely that courts will grant relief.
Who can get the relief?
Section 29 and section 30: a party to a contract, party claiming through under them, or party who has interest in
knowing whether relief will be granted can all apply to relief.
Retention of common law and equitable remedies
Provisions under CCLA are meant to replace common law and equity, except in relation to non est factum and
rectification of contracts. These are entirely different causes of action!
- Mistake does not affect undue influence, fraud, breach of fiduciary duty, or misrepresentation.
- Mistake also doesn’t affect frustration, illegality or Property Law Act 2007.
Statutory remedy under s 28
Chatfield v Jones: question is whether remedy will interfere with the general security of contracts. Must consider:
1. How does this remedy preserve the integrity of contractual relationships or is it exercised in a way that
doesn’t prejudice that?
2. Did the party seeking the relief cause the mistake? (s 27)
1. The remedy must not prejucide the general security of contractual relationships under s 21.
Section 21 – Purpose of this subpart
(1) The purpose of this subpart is to mitigate the arbitrary effects of mistake on contracts by giving courts
appropriate powers to grant relief in the circumstances mentioned in section 24.
(2) These powers –
(a) are in addition to and not in substitution for existing powers to grant relief in respect of matters other than
mistakes; and
(b) must not be exercised in a way that prejudiced the general security of contractual relationships.

Powers must not be exercised in a way that prejudices the general security of contractual relationships (aka the
law cannot contribute to a situation where people’s confidence in the contracts they sign are reduced).
2. Did the claiming party cause the mistake?
Section 27 – Mistake caused by party seeking relief
The extent to which the party seeking relief (or the party through or under whom relief is sought) caused the
mistake is one of the considerations that must be taken into account by the court in deciding whether to grant
relief under section 28.

On the facts, if it were to arise, how much did the party contribute to the mistake?
- Contribution will not be determinative as to remedy or exercise of discretion under s 28 but will be relevant.
- Meaning of cause is morally neutral – can cause mistake without being at fault.
- Extent of reliance on provision unclear.
- Slater Wilmhurst Ltd v Crown Group Custodian Ltd: discretionary remedy granted for mistake shouldn’t be
available if their own actions stopped them getting relief in other parts of the law.
• Bain v Fothergill: damages are not available normally for purchaser if breach is due to defect in title of
land.
• Parties actions will be relevant in determining whether relief is granted. Being able to get relief in another
area of law because of their own actions may be a factor in limiting discretionary relief under mistake if
courts find it just.
3. What remedy is just under s 28?
Section 28(2) Court may do one or more of the following:
- Declare contract to be valid and subsisting in whole/part/for particular purpose.
- Cancel the contract.
- Vary the contract.
- Grant relief by restitution or compensation.
Section 28(3) Court may, by order under s 28:
- Vest whole/part of any relevant property in a party; or
- Direct party to transfer whole/part of relevant party to any other party; or
- Direct party to transfer whole/part of possession of relevant party to another.
4. Is there an impact on third parties under s 31?
Rights of third parties not effected under section 31.
- If there’s a mistake in contract and that property from contract is subsequently transferred to a third party
(whether as subject or consequence of contract), court cannot make property order if:
• property was transferred for valuable consideration to a good faith party that’s not a party to contract, who
did not have notice that property was subject of or consideration for mistake in contract.
Transactions by parties to mistaken contracts can be invalidated by courts where necessary to achieve an
appropriate form of relief.
- Section 31 grants limited power to do so if transaction resulted in passing property/possession to a third party.
However, exact effect of s 31 is unclear.
- Third parties are also unaffected if property from party to mistaken contract to another who has provided
consideration but may have had notice (category one), then received property from that party (without
knowledge of mistaken contract, acting in good faith, with provided consideration).
Examples of where courts have exercised statutory discretion to grant relief for mistakes
- Phillips v Phillips: Court cancelled whole contract because of mistake. Previous High Court decision set aside
consent order which gave effect to agreement between parties in a relationship property dispute.
- Engineering Plastics Ltd v J Mercer & Sons Ltd: contractual variation granted where mistake was made in
what purchaser thought defendant was going to supply.
• Adopted Conlin (criticised), party made a mistake as to what they thought they were going to receive so
they also made a mistake as to what they were thinking.
• Court considers all factors to decide whether variation is justified, then decides whether to grant relief.
- Ware v Johnson: granted damages for loss of profit under multiple causes of action. Courts will apply ordinary
damage principles for breach of contract to assess the appropriate remedy.
• Not prescriptive but Ware v Johnson is authority for damages under mistake (expectation measure).
Rectification
Rectification is where parties have consented to all terms of contractual agreement but the terms recorded don’t
accurately match the mutual intentions of parties (basically catfish contract).
Requirements of rectification (Swainland Builders)
Swainland Builders Ltd v Freehold Properties Ltd, approved in New Zealand in Kusabs v Staite:
1. Parties had common continuing intention, whether or not amounting to an agreement, in respect of a
particular matter in the instrument to be rectified.
2. There was an outward expression of accord.
3. The intention continued at the time of the execution of the instrument sought to be rectified.
4. By mistake the instrument did not reflect that common intention.
Acknowledge the lack of clarity in the law on this. Analyse under both tests and conclude what court is likely to
rule if applying both, then conclude whether rectification is made out under Westland and Swainland test.
Alternative approach from Westland Savings Bank Ltd v Hancock has been used in New Zealand in Green
Growth No 2 Ltd v Queensland Second National Trust:
- There was an outward expression of accord replaced by common continuing intention must be objectively
apparent.
• Outward accord = communicated collectively to the agreement and its terms.
• Objectively apparent = doesn’t necessarily requite clear communication with each party (can be implied
behaviour, previous communications, etc).
- Authority on this requirement is divided.
• Express departure from Swainland.
• Kaimai Properties Ltd v Queen Elizabeth the Second National Trust favours Swainland approach.
Common intention
Belief must be common, not merely similar.
- Compangie D’Assurances Maritime Aeriennes Et Terrestres (CAMAT) v QBE International Insurance Limited:
similar belief is not suffice to establish claim for rectification. Parties have to prove convincingly that both
agreed.
- Pernod Ricard (NZ) Ltd v Lion – Beer, Spirits & Wine (NZ) Ltd: if it’s two companies then you need to
determine which persons can be said to have the intention of those companies as companies are not people.
- Realty Services Holding Ltd v Slater: common intention must continue until execution of document.
- Watson v Whitehead citing Kruzkiener v Hanover Finance Ltd: if parties had lawyers who negotiated the
 agreement for them then rectification will not be available.
• Rectification may be available if unrepresented party is making a claim against represented party.
- Dundee Farm Ltd v Bambury Holdings Ltd: bargain between parties didn’t include a separate property, only
the farm so rectification and specific performance permitted.
Proving common intention
- Tucker v Bennett: onus is on party seeking rectification to prove common and continuing intention.
- Kruzkiener v Hanover Finance Ltd: common intention must be more than inconclusive.
• Must highlight where it argues for and against common/continuing intention.
- Westland Savings Bank Ltd v Hancock: actions before, during, and after indicate a common and continuing
intention.
Rectification is not available for category one mistakes
- A Roberts & Co Ltd v Leicestershire City Council: rectification can be granted in cases of unilateral mistakes if
mistake is known by other party.
- Tri-Star Customs and Forwarding Ltd v Denning: rectification is not available for unilateral mistakes under
CCLA.
• Highly criticised. CCLA preserves law of rectification but restricts is application for unilateral mistakes.
Court of Appeal in Kaimai indicated need for reconsideration.
Non est factum (it is not my deed)
Plea by party to withdraw their consent at an agreement on the basis that they were under a mistaken
understanding about the arrangement would mean due to a shit explanation of it.
Requirements of non est facum (Bradley West)
Bradley West Solicitors Nominee Co Ltd v Keeman:
1. Person raising plea must have signed document believing it to have a particular character or belief.
2. Document must have a radically different character of effect, creating an entirely different result from
what was understood by party.
3. Party’s mistaken belief must have resulted from an erroneous explanation or description of document
given by someone else.
4. Party must show that they acted reasonably in the circumstances to understand the implications of
document being signed.
5. Non est factum is unavailable is party did not take reasonable steps to read and understand document
prior to signing it and acted upon reliance of trusted adviser.
Expectation vs. actual effect of document
- Saunders v Anglia Building Society: difference between what party expected the document to be and the effect
of the document must be radically different. Substantial, fundamental, radical.
• High threshold for non est factum plea. Non est factum will not be successful if the contract was for a
transaction of the same type (A intended to give it to B but instead have it to C is not non est factum).
• Requires clear and positive evidence. Difference whether it be in kind or substance, must such that
document signed is entirely or fundamentally different from that which it was thought to be, do that it can
be said that it was never the signer’s intention to execute document.
- Landzeal Group Ltd v Kyne: contract with and without a restraint of trade clause is different enough to claim
non est factum.
• P didn’t read the contract but in circumstances, signed it with belief that it contained what was mutually
agreed to, additional to limited legal knowledge. Could still plea non est factum.
Party cannot be negligent
Saunders v Anglia Building Society: person may be precluded for a non est factum plea by his own negligence,
carelessness or inadvertence from averring mistake.
- Failure to read a document by a literate person doesn’t amount to carelessness in every case but person
needs to exercise reasonable care.
• What amounts to reasonable care will depend on the circumstances of case and nature of document
being signed.
• It is reasonable to expect more care to be exercised if document is thought to be of more importance
character than not.
- Onus of proof is on the party claiming to prove he took reasonable action before signing a document.
• Not reading before signing is not an excuse.
Parties that are misled
If parties are misled, then test in Bradley West is applied.
Effect of non est factum
A successful plea for non-est factum render document void (non-existing).
Mistake and misrepresentation
Mistake = can involve both parties. Misrepresentation = caused by one party.
- Both concern entrance to a contract. Category one mistake can give rise to both mistake and
misrepresentation.
• In an exam, go through both mistake and misrepresentation elements and identify applicable remedies
under misrepresentation (s 25 or s 27) and mistake (s 24 and s 28). Remedies may be the same.
• Even if there is no mistake made out, still state “if there were a mistake and the court did find it, they
would have to consider how to exercise the discretionary remedy under s 28 and these are the factors…
however, it’s whatever the courts think is just”.

Why does the state enforce agreements?

- Both are about choice, although for different reasons. Corrective justice respects people and their
choices, economic efficiency respects individual choices due to efficiency.
1. Corrective justice – parties owe each other and if there is a breach, the law needs to come in to fix
the injustice. Fairness and stability.
- Contract law defends the equality of the parties as choosers (choosers to offer future performance –
chooses to accept future performance).
- Once the choices are made, new rights and duties are created.
- Enforcement of contracts protects the equal power of parties to choose – breach = offense to equality
between parties.
- Restores equality between promisor and promisee, restoring promisee’s rights and discharging
promisor’s duty.

2. Economic efficiency – without contract and contract law, agreements would not be enforced.
Without ability, we would not have anything that requires complex collaboration.
- Every contract creates a surplus – addition of efficiency and wealth.
- We can trust parties to partake in voluntary transactions to generate surplus.
- The law trusts rational economic actors to make decisions in best economic interest, therefore the court
rarely second guesses parties.
- If one person chooses to benefit himself, it is at the expense of another – this is not efficient therefore if
there are two parties agreeable to profitable surplus, than there is no position in which someone is
profiting more than another.