Performance (Module 6)

Key Cases

 Cutter v Powell
 Sumpter v Hedges
 Shipton, Anderson & Co v Weil Bros
 Hoenig v Isaacs
 Bolton v Mahadeva
 Jacob & Youngs v Kent
 Burger King v Hungry Jacks

Definition of Discharge (Lecture Slides 8-11)

 The contract ends, no further performance is required

 The process whereby a valid and enforceable contract is brought to an end, thereby releasing
the parties to it from all further obligation to perform
 It is the termination of any rights and obligations pursuant to the contract

Five ways a contract can end

 By performance
 By prior or subsequent agreement between the parties
 Through frustration
 Through breach
 By operation of law

Characteristics of Performance o Slide 13 - generally o Slides 16 & 17 – time o Slide 18 – order o Slide 19
– quality

Discharge by Performance

 The parties have fully (and exactly) performed their contractual obligations
 Actual Performance v attempted performance
 The parties must do as they agreed
 Often there is no exact deadline or exact order of performance, or it may not be necessary to
fully complete to exact specifications
 But sometimes there are strict conditions in relation to time, order of performance and quality

General Rule of Performance

• General Rule
• Performance must be exact

• When does it apply?

• For all contracts but of particular concern for ‘entire contracts’

• What is the strict effect of this?

• Cutter v Powell (1795) 6 TR 320;101 ER 573 (not in text)

• Sumpter v Hedges [1898] 1 QB 673 [5-150]

Cutter v Powell (1795) 6 TR 320;101 ER 573 (not in text)

FACTS

• A man is contracted to complete a voyage between England and Jamaica for 8 weeks

• About 5 days before arriving, he died

• They do not pay him for any, so his widow sues

HELD

• The obligation upon him was such that only entire performance would be acceptable

• Entire performance was a condition precedent to the contract so nothing else would succeed

Sumpter v Hedges [1898] 1 QB 673 [5-150]

Two houses and stables were agreed to build by the claimant for the defendant. It was agreed that
£565 would be payable on completion. However, the claimant ran out of money and was unable to
complete the contract after commencing performance. He had performed just over half of the
contract. The defendant completed the work himself. The claimant sought to recover £333
representing the value of the work he had completed. He argued that in completing the work
himself, the defendant had thereby accepted partial performance and prevented the claimant from
completing the contract.

Held:

The claimant's action failed. The court held that the defendant had no choice but to accept partial

performance as he was left with a half-completed house on his land.

DIVISIBLE CONTRACTS

• Entire contracts
• Payment is dependent on completion of the whole of the

performance

• Divisible contracts

• If the contract can be split up into components and some are

completed, there is absolute performance of those parts

(‘milestones’ and ‘separable portions’)

• Government of Newfoundland v Newfoundland Railway Co (1988)

13 App Cas 199 [5-200]

• See table at [2-210]

Government of Newfoundland v Newfoundland Railway Co (1888)

• A railway company and its assignees brought action the Government. Under the contract the
company was to build a government-subsidized railway. However, it was not completed. The parties
disputed whether the contract was ‘entire’ and no part of the subsidy was payable unless the entire
railway had been completed. The company succeeded on that. The government counterclaimed for
the non-completion, and sought a set off from the subsidies.

Held: The Board emphasised the intertwined nature of the obligations and said that it ‘had no
hesitation in saying that in this contract the claims for subsidy and for non-construction ought to be
set against one another.’ The set-off could not be made as against the assignees: that once notice of
the assignment of the debt had been given, ‘the debt or claim is so severed from the rest of the
contract that the assignee may hold it free from any counter-claim in respect of other terms of the
same contract.’ However it distinguished between a set-off properly allowable under the contract
itself, which bound an assignee of a debt due under that contract, and a cross-claim which might
‘arise from any fresh transaction freely entered into by [the government] after notice of assignment
by the company.

De Minimus

Shipton, Anderson & Co v Weil Bros & Co [1912]

A contract was concluded for the sale of wheat lying in a warehouse. The Government requisitioned
the wheat, in pursuance of wartime emergency regulations for the control of food supplies, before it
had been delivered, and also before ownership in the goods had passed to the buyer under the
terms of the contract.

Held:

It was held that the seller was excused from further performance of the contract as it was now
impossible to deliver the goods due to the Government’s lawful requisition.

SUBSTANTIAL PERFORMANCE

 Substantial benefit (condition v warranty test)

Hoenig v Isaacs [1952] 2 All ER 176 [5-120]

If performance is substantial, a breach of condition

is treated as a breach of warranty.

 Cost of rectification as a proportion of the entire contract price

• Bolton v Mahadeva [1972] 2 All ER 1322 (not in text)

 Scale of rectification work (diminishment in value)

• Jacob & Youngs Inc v Kent 230 N.Y. 239 (1921) (not in text)

Hoenig v Isaacs [1952] 2 All ER 176 [5-120]

• Hoenig was contracted to paint Isaac’s apartment and furnish it for £750
• After painting and supplying furniture, Hoenig claimed payment
• Isaac complained the work had a few defects it costed £55 to have another workman
rectify the
defects
• Isaac decided to only pay £400P to Hoenig
• Hoenig sued for the balance of the agreed price
Was Isaac obliged to pay the agreed price in
full?
HELD
→Isaac was not obliged to pay the full price, but entitled to deduct the cost of repairs from
the original
price
→Hoenig had performed substantially
Bolton v Mahadeva [1972] 2 All ER 1322
• The claimant installed central heating in the defendant's home. The agreed contract price
was
£560. The defendant was not happy with the work and refused to pay. Defects in the work
amounted to £174. The action by the claimant to enforce the payment failed since the court
held
there was no substantial performance

Jacob & Youngs Inc v Kent 230 N.Y. 239 (1921)

• Plaintiff brought action to recover the balance of $ 3,483.46 due upon a building contract.
Plaintiff alleged that he had duly performed all the terms and conditions of the contract.
However, the contract specifications provided that all wrought iron pipe should be a grade
known as "Standard pipe" of "Reading" manufacture. A small amount of the iron pipe was of
another manufacture. Plaintiff claimed that it had substantially performed the contract, but
that through mistake and inadvertence, and not willfully, a minor deviation had been made
through which defendant suffered no damage. The trial court entered judgment for
defendant based on a directed verdict. The case was appealed.
• HELD: •
The court reversed the trial court judgment and remanded for a new trial. The court found
that plaintiff had made a minor deviation from the contract terms that involved no damage
to defendant, and that defendant took possession of and continued to use the building
without seeking to disturb in any respect the work done by plaintiff. The court held that
plaintiff was thus entitled to prove that he had substantially performed the contract, that
defendant suffered no damage through its innocent mistake, and that what defendant
received was what he had the right to expect under the contract

Burger King Corporation v Hungry Jack’s Pty

Ltd (2001) 69 NSWLR 558

• Hungry Jack’s (HJ) was a large Australian franchisee of Burger King Corp (BK). However,
over the years, difficulties emerged in the relationship between the two companies. BK
decided to force HJ to sell out of its franchising rights. To achieve this, BK exercised certain
of its contractual powers in a way that made it impossible for HJ to perform its franchise
obligations. In particular, BK refused to approve new sub-franchise outlets that, in terms of
the franchise agreement, HJ was obliged to open each year. BK then gave HJ notice that it
was terminating HJ’s franchise rights because of HJ’s failure to open the required sub-
franchise outlets.
• Issue: Among other issues, the court considered whether BK owed a duty of good faith to
HJ and had breached that duty.
• Decision: A duty of good faith was implied by law into this contract and had been
breached by the refusal to approve the
sub-franchise outlets.
• Reason: There are now numerous Australian cases recognising an implied duty of good
faith in appropriate contracts,
perhaps in all commercial contracts. The duty will exist if, without it, the rights conferred by
a contract would be made
worthless or seriously undermined. In light of this duty, BK was obliged to exercise its
contractual powers (such as the
power to approve sub-franchise agreements) honestly and reasonably, and not for a
purpose outside the contract (for
example, to thwart HJ’s contractual rights).

Changes (Module 7)

Key Cases
• Williams v Roffey Bros
• Paradine v Jane
• National Carriers v Panalpina
• Davis Contractors v Fareham Urban District Council
• Scanlan’s New Neon v Tooheys
• Codelfa Construction State Rail Authority of NSW
• Krell v Henry
• Herne Bay Steam Boat Co v Hutton
• Fibrosa v Fairbairn

VARIATION BY AGREEMENT – CONSIDERATION & PRACTICAL BENEFIT

Revise consideration and pre-existing duties / obligations

• Stilk v Myrick; Hartley v Ponsonby

‘PRACTICAL BENEFIT’
• Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991]
1 QB 1 [6-080]

Stilk v Myrick (1809) 170 ER 1168

Facts: When crew members abandoned the ship, a return

voyage between London and the Baltics was in peril. The
seamen were due to receive wages of £5 per month during
the voyage. The captain offered the remaining crew an
equally divided share of the deserted seamen’s salary if they
could return sail the ship to London with reduced crew. The
ship was returned to London by the remaining seamen
however, the additional payment was not made.

Issue: Was there consideration?

Held: No consideration as the existing crew did the same

work as before

Williams v Roffey Bros & Nicholls

(Contractors) Ltd [1991] 1 QB 1

Facts: The appellants Roffey Bros, were builders who got a contract
to refurbish flats belonging to a housing corporation. The contract
had a penalty clause for late completion. Then, it was subcontracted
to Williams, a carpenter. When Williams fell behind with his work
the appellants offered him bonus payment to finish on time.
Williams carried on working until the payments stopped. He sued
the appellants for breach of contract.

Issue: Was there consideration?; the appellants only received the

practical benefit of avoiding the penalty clause. They did not receive
any benefit in law. Williams was only agreeing to do what he was
already bound to do. The appellants relied on Stilk v Myrick (1809)
where it was held that performance of an existing duty was not good
consideration.

Held: The Court of Appeal held that the doctrine in Stilk v

Myrick had been refined since then. A promise to make bonus
payments to complete work on time was enforceable if the promisor
obtained a practical benefit and the promise was not given under
duress or by fraud. It was the appellants’ own idea to offer the extra
payment. Consequently, the promise for extra pay was enforceable.

Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723

• The Musumeci's leased a shop in a shopping centre run by Winadell. Winadell

subsequently leased another shop in the centre to a competing business. Musumeci's
asked for a rent reduction (by one third) to compensate for this and Winadell
agreed. When a dispute later arose Winadell sought to terminate the lease and Musumeci
sought damages for breach, relying in part on Winadell’s promise to charge a reduced
rent.
• Was there valid consideration for rent reduction?
• The court held that there was an agreement and there was consideration. In this case
Winadell received a practical benefit that could constitute consideration; agreeing to the
rent reduction meant it remained viable for the Musumeci's to remain in occupancy which
avoided the prospect of a vacancy

FORMAL REQUIREMENTS
• Contracts required to be in writing MUST be varied in writing
• Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd
[1957] 98 CLR 93

Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd [1957] 98 CLR 93

• The dispute occurred in Victoria between a registered company, Tallerman & Co Pty Ltd
("the plaintiff") and an incorporated company, Nathan's Merchandise Pty Ltd. ("the
defendant), where both parties operated their business. Two previous binding contracts
were made in communications on 14th May 1951 and 2nd August 1951 respectively.
However, in correspondence of 21st March1952 the defendant instigated an alteration to
the legal position of both parties, by offering to commence "without prejudice" the delivery
instruction covering the balance of bullets, provided that the final delivery would not be
made later than 30th September 1952. The plaintiff first repudiated this offer on the 3rd
April, but by the 4th of June 1952, a second critical letter was sent out by the plaintiff's
solicitor stating its acceptance of the defendant's offer. On 8th July 1952, the defendant
propose that it will only purchase 800,000 bullets as opposed to the contracted amount of
1,000,000(less 200,000 which had been delivered and paid) as the contract on the 2nd
August had not been accepted by the plaintiff. And no delivery instructions were given by
the defendant on or before the 30th September.
• In this case, Dixon CJ and Fullagar J stated that:
• “The general rule is that a contract is not completed until acceptance of an offer is actually
communicated to the offeror, and a finding that a contract is completed by the posting of a
letter of acceptance cannot be justified unless it is to be inferred that the offeror
contemplated and intended that his offer might be accepted by the doing of that Act.”
• Here, the High Court included the element of intention as a requirement for the operation
of the postal acceptance rule, rendering its operation more limited.

RULE OF ABSOLUTE CONTRACTS

• Contracts must be performed no matter what)
• Performance must be exact?
• Paradine v Jane (1647) Aleyn 26; 82 ER 897

Paradine v Jane (1647) Aleyn 26; 82 ER 897

Facts
The plaintiff, Paradine, brought an action against the defendant, Jane, for the rent
arrears for the lands that Paradine had
leased to Jane. The defendant acknowledge that he owed the money for the rent.
However, the reason why he did not pay it
was because the land was invaded by the enemy of the King, his cattle was driven away
and he was expelled from the land,
so effectively, he could not enjoy it.

Issue
Should a lessee who was expelled from his land be liable for rent for a period in which
he has been expelled from the land.

Held
(1) Where a party creates a duty or charge upon himself by virtue of a contract, he is
bound to perform the duty or pay the
charge, notwithstanding any accident. The reason why this is so, is because the party
could have inserted a clause in the
contract, which prescribes what is to be done with the rent in case of an accident.
 (2) In the absence of an express covenant, the lessee is equally liable as the rent is an
obligation created upon the
reservation.
(3) The lessee in the present case is bound to pay rent, despite the fact that the house
may have been burnt by lightning,
thrown down by enemies and although he may have been expelled from the land or the
land may have been inundated.

But this can lead to unfair outcomes and these eventually led in 1863 to the exception
of ‘frustration’ in:
• Taylor v Caldwell (1863) 3 B & S 826; 122 ER 309

Taylor v Caldwell (1863) 3 B & S 826; 122 ER 309

• The case of Taylor v Caldwell[1] is a fundamental case in the area of frustration with
regards to contract law. Taylor v Caldwell is an extremely important case, as Murray states,
“frustration developed to alleviate harshness of absolute obligation rule”. Frustration comes
about in circumstances where the courts will discharge the parties of obligations under the
contract, therefore meaning that the parties are not liable for any further obligations under
the contract.
• Case Facts •
The case centred on a musical hall which the claimant agreed to hire from the defendant.
The hall was to be used for ‘grand concerts’ and fetes. However before the performance
that the music hall was to be used for; there was a fire and the hall was destroyed. Neither
party was at fault for this destruction. The claimant sued for breach of contract. The legal
issue is whether because the hall that the claimants had contracted to use could no longer
be used, this excuses the rights and liabilities of the parties’ obligations under the
agreement? Under the doctrine of absolute obligations the defendants would be liable to
the claimants because under the agreement they would no longer be able to perform their
obligations which had been contracted for; namely the use of a music hall for four days. In
the case, Justice Blackburn notes the harshness of this obligation and therefore, it was held
that the defendant was released from their obligations under the doctrine of frustration.

ELEMENTS OF FRUSTRATION

• National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 [7-580]

• “[Frustration] takes place when there supervenes an event (without) the fault of
either party and for which the contract makes no sufficient provision which so significantly
changes the nature (not merely the expense or onerousness) of the outstanding contractual
rights or obligations from what the parties could reasonably have contemplated at the time
of its execution that it would be unjust to hold them to the literal sense of its stipulations in
the new circumstances. In such a case the law declares both parties to be discharged from
further performance.”
 National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 [7-580]

National Carriers Ltd (NCL) granted Panalpina a 10-year lease of a warehouse. The sole
means of accessing the warehouse was via a road which was closed by the local authority
for 20 months, because a neighbouring property was in a dangerous condition. Panalpina
were thereby prevented from using the premises for that period, and they failed to pay
rent. NCL brought an action to claim the unpaid rent.
• Issues •
Where external factors operate to prevent contracting parties from performing their
obligations under the agreement, the doctrine of frustration operates to discharge the
parties from further performance. Panalpina argued the closure of the access road rendered
the warehouse unusable and, therefore, the lease was frustrated and they were not under a
duty to pay rent. They sought a declaration that the agreement had become frustrated and
should be discharged. NCL contended the legal estate in land had passed to Panalpina and,
therefore, the risks and benefits of the land had passed with it. Panalpina could protect
themselves from risk by purchasing insurance. To apply the doctrine of frustration to leases
would prejudice third party interests and, even if frustration were to apply to leases, it
should only apply where there is complete destruction of the land itself.
• Held •
The lease had not been frustrated. The doctrine of frustration was, in principle,
applicable to leases in exceptional circumstances. Although a lease is more than a simple
contract because it creates an interest in land, this does not preclude the possibility of the
doctrine applying to leasehold agreements. The interruption of 20 months in a 10-year lease
was not significant enough to destroy the entire contract and, therefore, Panalpina were
obliged to pay rent for the full term.

Czarnikow v Rolimpex [1979]

• The sellers (Rolimpex), a state trading organisation, tried to rely on

the actions of their own government as a defence to claims for nonperformance of commercial
contracts.

Held: The sellers were not an organ or department of the Polish

government but an independent state enterprise, and had a good

defence to liability, consequent upon an export ban imposed by the

Polish government.

Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696

The appellants tendered for a contract with the respondents to build houses. The tender was
accompanied by a letter which stated that the tender was subject to adequate supplies of materials and
labour when required to carry out the work within the time specified. Later, the appellants entered into
a contract with the respondents to build the houses at a fixed price, subject to certain adjustments. The
contract incorporated a number of preliminary documents, listed in a clause. The tender was specified
to be one of them, but the letter was not. Due mainly to the lack of skilled labour, the work took longer.
The appellants were paid the fixed price, plus the stipulated increases and adjustments. However, they
claimed that they were entitled to more money on the basis of quantum meruit. The appellants also
argued that the price in the contract was not binding either because it was subject to an overriding
condition contained in the letter, or due to the delay in the performance of the contract due to the
shortage of labour which frustrated the contract. Issues (1) Are the appellants entitled to more money
on the basis of quantum meruit? (2) Was the contract overridden by the letter in the tender? (3) Was
the contract frustrated due the shortage of labour that caused a long delay in the performance of the
contract? Held The appeal was dismissed. The appellants are not entitled to be paid more money on the
basis of quantum meruit as: (1) The letter in the tender and the condition which it stipulated were not
incorporated in the contract. (2) The fact that the two parties expected that the work could be finished
within eight months hence no frustration when it turned out that it could not be performed within the
specified time.

Krell v Henry [1903] 2 KB 740

Defendant agreed to hire from the plaintiff a flat in Pall Mall on 26 June and 27 June, on which days it
had been announced

that the coronation processions would take place and pass along Pall Mall. The contract did not contain
any express terms on

the coronation processions or any other purposes for which the flat was to be hired. The defendant paid
the deposit upon

signing the contract. The processions, however, did not take place on the announced dates. As a result,
the defendant

declined to pay the balance of the agreed rent.

Issue

Was the defendant obliged to pay the rent despite the fact that the processions did not take place as
planned?

Held

The decision was in favour of the defendant.

(1) Applying Taylor v Caldwell (1863) 3 B & S 826,as both parties recognised that they regarded the
taking place of the
coronation processions on the days originally fixed as the foundation of the contract, the words of the
obligation on the

defendant to pay for the use of the flat for the days named were not used with reference to the
possibility that the

processions might not take place.

(2) The plaintiff was not entitled to recover the balance of the rent fixed by the contract.

Radical Change

Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169 [7-640]

• Lack of a benefit not originally promised does not mean frustration

Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 [7-640]

• A risk that is easily foreseeable is not likely to frustrate the contract

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 [7-640]

• A supervening event that affects a common, unexpressed assumption that underpins

performance can frustrate the contract

Sometimes a contract may be frustrated but the work has continued

• Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 [7-640]

Fibrosa SA v Fairbairn Lawson Coombe Barbour Ltd [1943] AC 32

The Defendents, agreed to sell to the appellants, a Polish company, machinery for £4,800. This
was done by a written contract. One-third of the price was to be paid with the order. The deadline for
the delivery of the machinery was three to four months after the settlement of the final details. The
contract contained a CIF term, requiring the English company to arrange the delivery by sea to Gdynia,
Poland. The delivery was subject to certain terms and conditions. Clause 7 of the contract provided for
granting of a reasonable extension of the delivery deadline in case of hindrance of the dispatch of the
goods due to war or any other cause beyond the control of the English company. The Polish company
paid only £1,000 from the required £1,600 deposit to be paid upon placing the order. On 1 September
1939, a war broke between Germany and Poland and on 3 September, Great Britain declared war on
Germany. As a result, Gdynia was occupied by the Germans and the English company decided not to
dispatch the goods. The Polish company wanted to recover the £1,000 paid as a deposit. The Court of
Appeal ruled in favour of the respondents and the case escalated to the House of Lords. Issues (1) Did
the express provision on war in Clause 7 of the contract prevent the frustration of the contract. (2) Were
the appellants entitled to recover the deposit money? Held The appeal was allowed. (1) Clause 7 was
limited only to a delay in respect of which a reasonable extension might be granted. The war was not
such a delay because it involved prolonged and indefinite interruption of the prompt contractual
performance. Therefore, Clause 7 did not prevent the frustration of the contract. (2) As there was a total
failure of consideration and under the contract the payment of the £1,000 deposit was not an absolute,
final and “out and out” payment, but a conditional payment on account of the purchase price, the
appellants are entitled to recover that sum from the respondents.

Breach & Termination (Module 8)

 Key Cases

• Crawford Fitting Co v Sydney Valve & Fittings

• Perri v Coolangatta Investments

• Amman Aviation v Commonwealth of Australia

• National Engineering v Chilco Enterprises

• DTR Nominees v Mona Homes

• White & Carter v McGregor

Cth of Australia v Amann Aviation Pty Ltd

Cth engaged Amann to provide aerial surveillance

• Amann spent a large amount of money: buying and modifying aircrafts, employing staff and
setting up facilities to perform the contract

• Surveillance was to commence on the 12th of September 1987 but Amann was not ready

• On the same day Cth gave notice that they were terminating the contract – Cth’s notice was
held to be invalid and a repudiation of the contract

• Amann sued for termination and damages Was Amann entitled to loss of profits? What type of
losses were Amann entitled to?

HELD →Amann was not entitled to loss of profit as the contract was never performed. However,
Amann spend a considerable amount of money ($6 million) in preoperational expenses (wasted
expenses) and was entitled to recover this amount

Meehan v Jones (1982) 149 CLR 571

• Appeal from Supreme Court of Queensland

• This case involved a contract for the purchase of property which was "subject to suitable
finance being available". The purchaser

told the vendor that they had found satisfactory finance, but the vendor refused to complete.
The purchaser sought specific

performance, but the defendant argued that there was no contract on the following grounds:

• 1 - that the condition left vital matters yet to be agreed - so what appeared to be a "contract"
was really no more than an agreement

to agree.
 • 2 - that the language was so imprecise that one could not say what actions would satisfy it.

• 3 - that if P retains discretion as to whether they will perform obligations, then what appears
to be a contract is really illusory.

Held

• In Australia and NZ, the courts have not found "subject to finance" clauses void for
uncertainty. NSW has been an exception, and

they have found the clauses void, whether construed objectively or subjectively

• Correctly construed the clause means satisfactory to the purchaser - the clause is to protect
the purchaser. An adventurous purchaser

should not be prevented from proceeding because a reasonable person might have been more
cautious - and a cautious person

should not be required to proceed if there is genuine concern over the finance. Whilst one may
expect a purchaser to act honestly,

there may be an implication that the purchaser will make reasonable efforts to obtain finance.

Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537

• An agreement was reached in April 1978 for the sale of a property for $220,000 with a deposit
of $22,000. No date was set for completion. Clause 6 stated that "this contract is entered into subject to
purchasers selling their property". As time passed without the purchasers selling their property the
vendors became increasingly concerned. In July they served a notice to complete by 8 August, and
purported to terminate the contract on 10 August. On 29 September the vendor commenced
proceedings for a declaration that the contract had been effectively terminated, the deposit forfeited
and sought the removal of a caveat. The following February the purchasers had obtained finance and
stated that they waived the benefit of Cl 6 and indicated they could complete. They eventually sold their
property in June, and sought specific performance.

• HELD •

There is a difference between a condition precedent and a condition subsequent. In the former
case, the transaction creates no enforceable rights unless and until the condition is satisfied. In the latter
case, there is a binding contract although certain obligations may not arise until the condition is
satisfied. The courts tend towards the latter construction which sees the condition as precedent to
performance rather than precedent to the contract. It is artificial to say there is no contract when the
parties have settled so many details. This construction also gives the courts greater scope in adjusting
the rights of the parties. A condition will not be constructed as precedent to the contract unless the
contract compels this conclusion.

• Here the wording of the contract suggests that the condition is of the former type.
Nevertheless it is capable of the latter construction and the tradition of the court tends towards this
interpretation. [It appears the tradition of the court is more important than the parties expressed
intentions.] Hence there is a contract, and Mason suggests that there is an implied obligation upon the
purchasers to make all reasonable efforts to sell their property. • The condition is precedent to the
purchaser's duty to perform the contract and they are entitled to terminate on its non-fulfilment. As the
condition was inserted for the benefit of the purchasers, they are entitled to waive its benefit. • Can the
vendor also terminate for the non-fulfilment of the condition? From the phrasing of the term there are
strong grounds for this interpretation. However this may not be necessary as the vendor is sufficiently
protected by the implied condition that the contract be completed within reasonable time. In this case
however the contract was not validly terminated

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

• Renard Constructions (ME) Ply Limited ("the contractor") had contracted with the Ministerfor
Public Works ("the principal") to construct sewerage works in 1986. The principal had purported to
terminate the contractor's employment under the contract pursuant to cl44.1 ofNPWC3- 1981 General
Conditions of Contract. The contractor referred the matter to arbitration. The arbitrator published an
award in favour of the contractor on 17June 1989. He ruled that the principal had invalidly exercised the
power under cl44.1 of theNPWC3- 1981 form of contract and had repudiated the contract. He found
that the principal was unreasonable in exercising the power under cl44.1. He also allowed the contractor
to recover more on the basis of a quantum meruit than it would have been entitled to under the
schedule of rates in the contract for the work done. The principal appealed to the Supreme Court. Cole J
granted leave to appeal, and upheld the appeal, on the basis that the principal's only obligation under
cl44.1 is to give bona fide and proper consideration to the contractor's representations. Cole J assumed
a finding in the arbitration that the principal had, at least, given bona fide proper and due consideration
to the contractor’s representations. Since he concluded that there was no repudiation by the principal,
Cole J did not have to consider the quantum meruit issue. The contractor appealed by leave to the Court
of Appeal. The principal cross-appealed on quantum. The Court of Appeal allowed the contractor's
appeal and dismissed the principal's cross-appeal. Held: The Minister had improperly exercised the
power to terminate the contractor's employment under cl 44.1, thereby repudiating the contract.

• The High Court held that the decision of the Court of Appeal was unattended by sufficient
doubt, and refused special leave to appeal.

White & Carter (Councils) Ltd v McGregor [1962] AC 413

• White & Carter, the appellants, were advertising contractors that agreed with a representative
of a garage proprietor to advertise for his garage for the period of three years. The respondent, the
garage owner, wrote to the appellant on the same day of the agreement to cancel as the representative
was mistaken during the negotiation. The appellants refused this and began advertising for the garage
five months after the contract had been agreed between the parties. The respondent refused to pay and
the appellant sued for the whole amount of the contract.

• Issue •
 The court was required to understand whether the contract between the parties could be
repudiated on the basis of the mistake that had been made by the representative of the garage owner.
If this repudiation was not permitted, then it had to be determined whether the appellants could claim
for the whole of the contract value or whether the damages would be limited. It was also argued by the
respondent that where a party has no legitimate interest in performing the contract, the burden should
not be placed on the other party unnecessarily.

• Held •

The court found that the appellants had the right to carry out the contract and claim for the
entire value of the contract. On this basis, this did not require the appellant to accept the withdrawal of
the contract by the respondent. The court did not accept the argument that was put forward by the
respondent as to the enforcement by the appellant of the contract.

Fairness (Module 9)
Key Cases

• Butcher v Lachlan Elder Realty

• Smith v William Charlick Ltd

• North Ocean Shipping v Hyundai

• South Australian Railways Commissioner v Egan

• Commercial Bank of Australia v Amadio

• Louth v Diprose

• ACCC v Lux Distributors

Concrete Constructions (NSW) v Nelson (1990) 169 CLR 594

• Concrete Constructions was constructing a building in Sydney

• The foreman of Concrete Constructions gave misleading information to Nelson (an employee of
Concrete Constructions) about the entrance shaft and how it was secured

• The misleading information was relied upon my Nelson and he fell down the shaft and was injured

• Nelson sued Concrete Constructions arguing that through its foreman it had engaged in misleading
conduct in trade or commerce Did the misleading conduct occur through trade or commerce?

HELD →The conduct did not take place in ‘trade or commerce’ →Giving information was not party of the
company’s commercial or trading activities →Conduct takes place ‘in trade or commerce’ when it
involves selling or dealing, particularly for the purpose of business or as a livelihood

Capable of leading someone to into error (Objective Test)

(Taco Test) Taco Company of Australia Inc & Anor v Taco Bell Pty Ltd (1982) 42 ALR 177

• A leading Australian case on misleading or deceptive conduct is Taco Company of Australia Inc
& Anor v Taco Bell Pty Ltd (1982) 42 ALR 177. This case provides a four step test to determining whether
particular conduct is misleading or deceptive.

This involves:

1.Identifying the relevant section (or sections) of the public whom the question of whether
conduct is, or is likely to be, misleading or deceptive;
 2.Considering the matter by reference to all who come within it, including the astute and
gullible, the intelligent and the not so intelligent, the well educated as well as the poorly educated, men
and women of various ages pursing a variety of vocations;

3.Adducing evidence that some person has in fact formed an erroneous conclusion. This
however is not essential;

4.Establishing a causal connection between the conduct of the offending party and the
misconception by consumers.

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191

• This is an appeal from a judgment of the Full Court of the Federal Court of Australia, which, by
a majority, reversed the decision given by the judge at first instance, and granted an injunction
restraining the present appellant, Parkdale Custom Built Furniture Pty. Ltd. by itself, its servants and
agents, from engaging in trade or commerce in conduct that is misleading or deceptive or that is likely to
mislead or deceive by selling, offering for sale, dealing with, displaying or advertising any lounge suites,
lounges or lounge chairs so as to mislead or deceive members of the public into believing that they are
lounge suites, lounges or lounge chairs manufactured by Puxu Pty. Ltd., the present respondent.

McWilliam’s Wines Pty Ltd v McDonald’s System of Australia Pty Ltd (1980) 49 FLR

• McWilliams advertised a cask of wine under the name “Big Mac”

• McDonalds marketed a hamburger also under the name “Big Mac”

• McDonalds argued that McWilliam’s conduct was misleading as consumers might think the
“Big Mac” wine was a McDonalds’ product Was McWilliam’s conduct of naming his wine “Big Mac” likely
to mislead consumers into thinking the wine was made by McDonalds?

HELD →No, there was misleading or deceptive conduct →The advertisement did not in any way
suggest a connection between McWilliams and McDonalds

Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592

• Misleading or deceptive conduct - Sale of waterfront property - Real estate agent published
brochure containing survey diagram obtained from vendor's solicitors - Survey diagram alleged to be
inaccurate - Brochure contained a disclaimer by the real estate agent as to the reliability of information
from other sources - Purchasers intended to develop property in reliance on the survey diagram -
Whether real estate agent made a representation - Whether real estate agentengaged in misleading or
deceptive conduct or conduct "likely to mislead or deceive".
 Smith v William Charlick Ltd (1924) 34 CLR 38

• Australian Wheat Wharvest Board, a monopoly supplier, threatened not to supply a miller
with flour in the future. This refusal was not a breach of any existing contract. The demand was made
for the payment of a ‘surcharge’ which was legally unjustified. The High Court said that the surcharge
could not be recovered because as a general principle, refusing to deal (not being in breach of contract),
should not amount to economic duress.The action of claiming of economic duress failed due to the
pressure was mere commercial pressure, not duress. If it was not, therefore, a ground upon which the
contract could be set aside. Starke J said that “ the buyers choose to pay a further sum for wheat already
sold to them rather than to be shut out from further trade. The money was, no doubt, paid unwillingly,
but it was, nevertheless paid voluntarily, in the legal sense, and with full knowledge of the facts and
without any unlawful compulsion, extortion, undue influence, or the abuse of any duty.” Therefore for a
plea of duress to succeed, therefore, the party coerced must be able to point to some evidence of
illegitimate pressure, a threat or some form of actual violence, that induced the decision to contract.

North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (“The Atlantic Baron”) [1979] 1 QB
705

Facts:

The claimant was a shipbuilding company. They contracted to build a ship for the defendant for
a fixed price in USD payable in instalments. They opened a letter of credit as security to refund the
payments should they default on the contract. After the first payment, the USD devalued by 10%. The
claimant insisted that the defendant pay an additional 10% on the remaining instalments. The defendant
refused, but when they paid the second and third instalments without a 10% uplift, the claimant
refunded the money. The defendant suggested that the parties enter arbitration to resolve the dispute,
but the claimant refused. The claimant continued to insist on the additional 10%, threatening to
terminate the contract. By this time, the defendant was negotiating a lucrative contract for the charter
of the ship. They told the claimant that though they did not consider themselves obliged to pay the extra
10%, they would do so ‘without prejudice’ if the claimant agreed to increase the amount available under
the letter of credit. The claimant agreed.

Issue(s):

Eight months later, after the ship was built, delivered and the payments made, the parties
entered arbitration. The claimant sought the return of the additional 10% they paid on two grounds.
1.That the defendant had not provided consideration for the agreement; 2.That the contract was
voidable for economic duress. The arbitrators submitted these two issues to the court to determine as a
matter of law.

Decision:

The High Court held that the claimant provided consideration for the agreement. They were not
merely relying on their pre-existing contractual obligations. Rather, they had agreed to do something
extra – extending the letter of credit. The High Court also held that the economic duress defence failed.
The substantive elements of the defence were established: the claimant had threatened to breach the
contract without any legal justification in a manner which gave the defendant no practical choice but to
renegotiate the deal. However, the defendant then made the payments without protest and delayed
avoiding the contract for eight months. As such, they had affirmed the contract and lost the right to
avoid it.

South Australian Railways Commissioner v Egan (1973) 130 CLR 506

• In The South Australian Railways Commissioner v Egan (1973- 1974) 130 CLR 506 a clause in
an engineering contract, when properly analysed, required any dispute between the Commissioner and
a contractor 'to be referred to and decided finally and conclusively by the Chief Engineer for Railways.

Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447

• It involved a bank guarantee given by elderly parents for their son. The bank manager
attended the home of the parents to obtain their signatures on a mortgage. He did not provide any
explanation about the document. The bank subsequently demanded payment on the guarantee and
when that could not be met the bank served notice that it would exercise power of sale under the
mortgage.

• The Court (by majority) held that the bank had engaged in unconscionable conduct and could
not rely on the guarantee. This required a finding that the parents suffered from a 'special disadvantage'
in their dealings with the bank and that the bank had taken advantage of that special disadvantage.

Louth v Diprose (1992) 175 CLR 621

• This case considered the issue of unconscionable conduct relating to the transfer of property
by a man (Diprose) to a woman (Louth) upon whom he was 'emotionally dependent'.

• Diprose was infatuated with Louth. He showered her with gifts and at one time proposed to
her; she refused. Subsequently Louth advised Diprose she was depressed and was going to be evicted
and, if this happened, she would commit suicide (this was largely untrue). In response Diprose agreed to
buy her a house and, at her insistence, put it in her name. Years later, when their relationship
deteriorated, Diprose asked Louth to transfer the house into his name. She refused and he brought
proceedings seeking to recover the house.

• Diprose succeeded at trial. Justice King held that Diprose was beneficially entitled to the land
because it would be unconscionable for Louth to retain it in the circumstances. Louth lost on appeal and
tried again – this time in the High Court.

• Louth had manufactured an 'atmosphere of crisis' where non really existed. Diprose was in a
position of emotional dependence on Louth. The improvident purchase of the house for Louth by
Diprose was 'explicable only on the footing that he was so emotionally dependent upon, and influenced
by, the appellant as to disregard entirely his own interests.' Louth's conduct was unconscionable;
calculated to induce and actually inducing an improvident transaction conferring a benefit upon her.
Appeal dismissed.
 Remedies (Module 10)

Key Cases

• Hadley v Baxendale

• Victoria Laundry v Newman

• Cth v Amman Aviation

• Howev v Teefy

• Baltic Shipping v Dillon

• Dunlop v New Garage

• Lumley v Wagner

COMMON LAW DAMAGES

• Implied into every contract

• Available for a breach of condition and of a warranty

• What is the purpose of damages?

• Damages = monetary compensation for loss

• What loss is compensable is an important factor

Robinson v Harman (1848) 1 Exch 850

According to Robinson v Harman, the court must arrive at a dollar value that the breaching party must
pay to the innocent party to put the innocent party in substantially the same position as he or she would
have been had the contract been properly performed. This section considers how the court quantifies
the amount that must be paid

“[T]he rule of the common law is, that where a party sustains loss by reason of a breach of contract, he
is, so far as money can do it to be placed in the same situation, with respect to damages, as if the
contract had been performed.”
To achieve this result, the innocent party must prove: 1. the value of the benefits that were lost by the
defaulting party’s breach of contract2. that the breach actually caused those expectations to be lost,
and3. that the lost benefits being claimed were not too “remote” from the breach.

Each part of the innocent party’s claim will now be considered (although not in the order as listed
above) as well as any arguments that a defaulting party might raise to limit an award of damages.

Cth v Amman Aviation Pty Ltd (1991) 174 CLR 64

• Contract for coastal surveillance

• AA sets up, modifying planes, training staff etc, but wasn’t ready on time to start contract

• Cth terminated, but because time not of the essence, this was a breach of warranty only,

• C’s termination is not justified - placing C in breach

• How are damages assessed?

• AA entitled to $6.6 million damages which included at least break even or small profit and loss
of expectation of future contracts

• “The injured party is entitled to be placed in the same position that they would have been in if
the contract had been performed”

Quantification

• Howe v Teefy (1927) 27 SR (NSW) 301

• Breach involving termination of a lease of a racehorse

• Prize money which the plaintiff could reasonably expect to obtain from racing his horse
was awarded, less than the cost of training, and upkeep

• Pl said entitled to losses he made as he could not bet on it

• £250

• “though the subsequent failure of the horse to win races was an element to be taken
into consideration in calculating the value of the chance or right of which he was
deprived, I do not think that it can be said that by him being deprived of that right he did
not suffer an injury which was capable of being calculated in money. I think that he did”.

• For the judge to calculate a figure

Remoteness

Hadley v Baxendale (1854) 156 ER 145

• Their flour mill was owned by the plaintiffs.

• The company sent a broken iron shaft to Baxendale, a carrier, for use as a pattern by
engineers in London

• The defendants' clerk was told that:

• the mill was stopped,

• that the shaft must be delivered immediately, and

• that a special effort must be made to hurry the job

• BUT NOT THAT LOSS OF PROFITS WOULD OCCUR

• The delivery, was delayed for an unreasonable time so received it late and were unable
to work their mill.

• They incurred a loss of profits

Should they be entitled to them?

• Discomfort, Stress, Disappointment

• If stress is a result of physical injury caused by breach; or

• The point of the contract is keep the innocent party from stress

• Where the object of the contract is enjoyment

Baltic Shipping Company v Dillon (1993) 176 CLR 344 (compensable)

Those two grounds were recognized as compensable in the leading High Court of Australia case of Baltic
Shipping Company v Dillon (1993) 176 CLR 344. The case concerned an excursion by Baltic Shipping that
Mrs. Dillon took. During the sinking of the cruise ship, Mrs Dillon sustained injuries and lost personal
belongings. She successfully sued Baltic Shipping for breach of contract. For the feelings of distress and
disappointment she suffered, she claimed $5,000 as part of her damages claim. According to the High
Court, Baltic Shipping had promised Ms. Dillon a relaxing vacation free from such feelings. Thus,
compensation was appropriate for her distress and disappointment.