Offer and Acceptance

Introduction
• What is a contract?
• Agreement
• Promise
• Obligation
• Enforceable by law

Contracts govern everyday life and are very important. There is no large definition of what one is; only
general principles and concepts.
It is an agreement between two or more people in agreement over something they promise to do.
These promises create an obligation – the promise must be fulfilled.
The obligation must be enforceable by law. If it is not then it is not a contract, it is a favour or promise. In
contract the obligation is binding.
These are the underlying concepts of what a contract is.

What is a contract?
• Agreement
• Contractual freedom
• Consensus ad idem
“The intent of man cannot be tried, for the Devil himself knows not the intent of man”
– Chief Justice Brian (1478)

Contractual Freedom – entered into freely by both parties, unlike other areas of the law where there is no
voluntary agreement. In contract we are free to enter into any we like along with the content of this. Because
everything is voluntary the contract is an expression of the wills of the two parties.

Consensus ad idem – parties entering must agree to the same thing, as if they don‟t an obligation can arise
which they don‟t agree to. Consensus ad idem must occur so everyone voluntarily enters into the contract which
will be as they thought it would.

Just because someone says something it may not actually be what they believe. This is why we must take the
objective 3rd party stance – outside appearance of the promise. It is not about what was said or meant, but what
is in the contract.

Contractual freedom is not unlimited though – there are certain things that are off limits, e.g. minors,
consumer protection etc.

Elements
• Offer
• Acceptance
• Consideration
• Intention to create legal relations
• No vitiating elements (otherwise contract can be illegal)

Offer and acceptance is the majority way that most contracts are formed.
Both parties must give and take in a contract; otherwise it is not a contract.
 Terminology
• Simple and special contracts

A simple contract is one where one party offers and the other simply accepts, e.g. buys something in a shop
or a service etc.
A special contract is one which comes under statuary law, e.g. a tenancy agreement.

• Void, voidable, enforceable contracts

• Hermann v Charlesworth

For something to be void the contract must have been formed over something that is illegal, e.g. buying
drugs from a dealer. In this case no contract exists as it is not valid. There are no rights and obligations with
either party.
In Hermann v Charlesworth the case involved the period when arranged marriages became illegal. Due to
this contracts with marriage brokers were illegal and so became void.

Voidable contracts are those which have some kind of vitiating element, but alone they are not void. One
party must chose to either fix the contract or make it void, e.g. contracts made under duress. Until a decision is
made it is voidable and is hanging in the balance until someone decides whether it is void or valid.

Enforceable contracts involve some sort of vitiating element, yet the contract is still valid at the beginning.
One party cannot however enforce part of the contract, yet the other can, e.g. minor contracts (uneven
relationships), or when a contract needs to be made in writing yet is made orally instead.

Unilateral and bilateral contracts

• Holloway v Attorney-General

A unilateral contract involves two parties, where one is obliged to perform but the other person does not
have to – only one person is bound to perform and the other enters by performing, e.g. reward for a missing dog
– the person offering the reward is bound to give it, yet no one is bound to find the dog or collect the reward
until they choose to do so.
In a bilateral contract both parties must perform and both are obligated to do so.
Holloway v Attorney General – a teacher was told she could have a job if she completed a training course.
After doing the training, she was refused the job – this was a unilateral contract as it was the teacher‟s choice to
do the training and so the other party was obliged to give her the job.

Form of the contract

• E.g. s 2(1) Contracts Enforcement Act
• Deeds

There is no form to follow to enter into a contract – you only need a recognisable agreement, unless the
contract must be in writing.

Offer
Offer and acceptance don‟t work every time, e.g. companies and negotiations over contracts. This is why the
courts have come up with the global approach – what are both parties actually agreeing to? Offer and acceptance
is useful to most contracts‟ though, just not complex ones.

The global approach

• NZ Shipping Co v A M Satterthwaite: “English Law [...] takes a practical approach, often at
the cost of forcing facts to fit uneasily into the marked slots of offer, acceptance and consideration”
 • Meates v Attorney-General: “The acid test [...] is whether, viewed as a whole and objectively
from the point of view of a reasonable person on both sides, the dealings show a concluded bargain.”
• Ashcroft v Capital Coast Health
• Transpower NZ v Meridian Energy

Definition
• Expression of willingness to enter into a binding contractual relationship on certain terms as
soon as they are accepted

The hard part to determine is whether a certain situation or expression actually is an offer. There has to be
some kind of promise, performance must be specific and the promise must create an obligation that is legally
binding. The offer must have all the terms and obligations in it in order to be an offer.

There are many things which may look like offers, however they are often not:

Mere supplying of information

• Harvey v Facey

If someone asks how much a car is work, is told, then accepts, there is no offer, only one person supplying
them with information.
In Harvey v Facey, H wanted to buy a manor house from F. He sent a telegraph asking if he would sell, and
what the lowest price would be. He got a reply stating that H would sell no lower than a certain price, and F
accepted. The court said there was no contract though because only answered H‟s first question and never
actually offered to sell his house. There was no intention to enter into a contract.

Invitation to treat
• Invitatio ad offerendum – invitation to make offer
• Distinct from offer
• No intention to be contractually bound
• Gibson v Manchester CC
• Harvey v Facey

In Gibson v Manchester City Council, the council asked if Gibson would be interested in buying his council
flat, and if so to apply. A new council was brought in and decided not to sell the flats and Gibson argued that he
already had a contract. The court said there was no contract, as the council did not send an offer, but an
invitation of negotiation. They were inviting Gibson to make an offer.

Invitation to treat – Advertisement

• Grainger & Sons v Gough
“If it were [an offer], the merchant might find himself involved in any number of contractual obligations
[…] which he would be quite unable to carry out, his stock of wine […] being necessarily limited”

This is something which looks like an offer, but we must ask what is the intention – does the store intend to
be bound by their advertisement. What if they run out of stock – it would not make sense for them to be bound.
It doesn‟t make sense and so the court treats this as an invitation to treat (make an offer).

• Partridge v Crittenden
“I think that when one is dealing with advertisements and circulars, […] there is business sense in their
being construed as invitations to treat and not offers for sale”

• Exception: Offers to the world at large

• Carlill v Carbolic Smoke Ball Co
• Requires intention to create legal relation
 If the ad says they have a specific stock for the first 10 people in, there is possibly an intention, but they are
clear about their stock and intention. These are offers to anyone who will accept, but they are guarded by
safeguards like “while stocks last”.

• Exception: Puff
• Farfetched statements that are meant to draw attention to product

These are claims which are so outrageous that no one could believe it to be true. These are not offers, such as
Red Bull saying you will grow wings.

Invitation to treat – Display of goods

• Pharmaceutical Soc v Boots Cash Chemists (If the goods on the shelf are prescription only
and on display then taking them is not acceptance. The display of drugs on a shelf is not an offer but an
invitation; otherwise it would be illegal to purchase some things.
• Timothy v Simpson

To display goods is not an offer.

Invitation to treat – Auctions

Where does the offer lie in an auction? The auctioneer offers to sell it, but the bidder offers to buy it.

Invitation to treat: opening of auction

If this was not the case then otherwise acceptance would be the first bid – creating an immediate contract.
Therefore the first person who bids has a contract and no one else can bid after the first bid.
• Offer: Bidder‟s bid
• Acceptance: Auctioneer‟s hammer
• Payne v Cave
• S 59(2) Sale of Goods Act 1908

If the auctioneer can accept an offer then they can also refuse it too. Both parties must be happy with the
price. With reserve prices for instance, the only way the highest bid id guaranteed to win is if they meet the
reserve price.
Note: without reserve means that there is no reserve at all, e.g. $0, any bid wins.

So how do reserve auctions work? Standard auctions can be refused by an auctioneer, but how do we
guarantee they sell in reserve cases?

Auction without reserve

• Barry v Davies
In this case there was machinery being sold worth £28,000 and was put up without a reserve. Because no one
bid the auctioneer lowered the price to £400. When someone placed this bid he then refused to sell because of
the price, even though he had previously said the highest bid would win. The question of who the offer lied with
arose. The courts said there were two contracts in a reserve auction. The normal auction contract and the
procedural contract. In the second, this contract has the bidder accept the type of contract he was going to enter
into by bidding, e.g. he is accepting the offer of entering the auction with its rules by bidding. Therefore if the
auctioneer refuses to sell when he promised to, he is in breach of the procedural contract. Though the sale
cannot be demanded as it is a separate contract, the bidder can demand damages. Damages are the difference
between what the person bid and what they would have needed to bid in order to win. For example, in this case
the bidder was awarded £24,000 in damages.

• Warlow v Harrison
• Two contracts approach
• 1st contract  sale of goods
 • 2nd contract  promise to sell without reserve

Invitation to treat – Tender

• Generally invitation to treat, e.g. a council will invite builders to give them an offer for a
quote on building something.
• Markholm Constructions v Wellington CC
• Two contracts approach
• Unilateral offer to use certain method
• Pratt Contractors v Palmerston Nth CC
• Gregory v Rangitikei DC
• “Highest or any tender not necessarily accepted”

Acceptance
• Definition
• Acceptance is the corresponding final and unconditional expression of willingness to assent to
the terms of the offer

In the offer, everything must be included in that, e.g. intention to create legal relationships. With acceptance
it is much simpler – just need to agree to the offer. Most problems arise over issues over when acceptance is
complete and who it is completed by.
The general rule is that acceptance is complete as soon as the offeror knows their offer has been accepted.
But who can actually accept an offer? This depends on the type of offer.
If the offer is made to a particular person, it must be that person who accepts only. If it is to a group of
people then it must be the group of people or perhaps one of them. This could be applied to a group of people,
e.g. lawyers are the only ones who can accept.

Who may accept?

• Offeree –
Boulton v Jones
• Group of Offeree‟s –
MacMahon v Gilberd
• Multiple Acceptances –
Patterson v Dolman:
In this case, two people were offered an item. Both replied at the same time accepting and the item was sold
to the person who replied first. Neither knew of the other person being offered the item or of their acceptance.
This leads to multiple acceptances and offers. Therefore you must tell them in conditions, e.g. the first person to
accept gets the item. If there is no such statement then several contracts are possible.

Unilateral Offers
- Standard offer
- Acceptance through performance

A unilateral offer is when only the offeror offers something (such as a reward for returning something) and
the acceptance is completed by performance – however no one is bound to this. Normally acceptance is by
promising to enter into a contract, but in a unilateral contract there is only one promise and the acceptance is a
performance.

Problem
- Ignorance of offer = binding contract?
- Arguments both ways
 What happens however, in the case of a reward for example, when a person completes the performance
(acceptance) without knowing of the offer? Can they accept the offer without knowing it exists? This hasn‟t
been decided yet. Some say it can be completed in ignorance, but others say it cannot because there is no
meeting of the minds. There is also the theory that you can‟t agree to something that you don‟t know about.

Counter-offers
• Reporoa Stores v Treloar:
“The offeree must unreservedly assent to the exact terms proposed by the offeror.”

Acceptance is always complete with accepting all parts of the offer‟s terms. If someone asks if they can
accept the offer to different terms then it changes the conditions of the original offer, and this is not acceptance
as the offer has changed and there is no agreement. If the offer changes then there is no acceptance, but a
counter offer; presenting a new offer. Though the changes made may be minute, they still lead to no acceptance.

• Alteration of terms creates counter-offer

• Wilmot v Johnson
• Cross v Davidson
• Katz v Jones

In Wilmot v Johnson, someone sold land to a trust. The offeror send a contract to the trust with the name xyz
and the trustees got it, crossed this out and signed their own names. Legally this is not altering the trust in
anyway; however there is an altercation to the offer, so the court said there was no acceptance. This shows how
the smallest change can lead to a counter offer.

Rejection of original offer

The consequence of a counter-offer is that the original offer gets refused.
• Hyde v Wrench
In the case of Hyde, an offer to sell land for £1000 was countered with a request to sell it for £950. The
offeror said no and to leave the deal completely, and the offeree said that they wished to go back to the original
offer of £1000 and that they accepted the terms. However they could not do this, as the offer is only valid until it
is rejected – after this it cannot be accepted as it disappears.

Mere inquiries
Sometimes we must distinguish between counter offers and mere inquiries.
• Stevenson v McLean
• Powierza v Daley
“The line between rejecting an offer and merely inquiring as to a possible violation can be a fine one,
but the basic test is the effect on a reasonable person in the shoes of the offeror”

In the case of Powierza v Daley, someone wanted to buy property and it was offered at $x, with the
condition that if accepted a deposit of $40,000 needed to be paid immediately. The buyer said yes to the offer
and asked whether he could pay half of the deposit now and half the next week. However this is not a counter
offer, as the buyer was happy with the offer and was just inquiring about the original offer, not rejecting it. If the
person says they will accept the offer no matter what, but just ask if some difference is possible, it is only a mere
inquiry as nothing is being rejected.

Communication
General rule
• Acceptance is complete when communicated to the offeror
At what point is the acceptance complete? The general rule is when the offeree communicates it to the
offeror. Can also have a contract withdrawn before acceptance.
 Inference by conduct
• no specific form required
• Acceptance may be inferred from action
Can be any sort of gesture indicating that the offer is accepted – can make it difficult to know if there is a
contract or not. The offeree doesn‟t even need to say something. Look at supermarket – don‟t ask if accept
buying, you just do it. Acceptance is complete by the action.
• Brogden v Metropolitan Rly – supply of coal to a railway. The railway asked is a
supplier would supply coal, but there was no reply, they just sent the coal. The court said that by sending the
coal should have indicated that there was an acceptance – conforming to the terms of the contract. If clear from
actions, acceptance can work this way.

Prescription of method
Acceptance is largely formal-less. The offeror can however, prescribe the mode of communication, e.g. how
the acceptance must be given.

• Mandatory prescription
In this case, the offeror says there is only one particular way that acceptance can be complete. This is very
limiting though, so not often used. Courts are careful in interpreting such terms.

• Preferred prescription
This is when a method is prescribed, but if a person uses a different method it should be ok, as long as it is
not disadvantageous to the offeror since you are not using the prescribed mode of communication.

- Manchester Diocesan Council v Commercial and General Investments

Acceptance was prescribed as a phone call by a date. A day before the two people met in person and
acceptance was given. Though prescribed method not used, still gave acceptance before the deadline and not
less advantageous to the offeror.

• Alternative method at offeree‟s risk

• Eliason v Henshaw
In this case, a letter was sent by horse offering something. Acceptance was to be sent with the same horse
back. The person however sent it by mail though and it arrived after the horse returned. This was
disadvantageous because the offeror was expecting a reply earlier then what was given, so no contract as
acceptance not valid.

• Silence
• Felthouse v Brindley
In this case, an uncle had a racehorse, which he offered to sell to his nephew by mail. In the letter it said that
if he received no reply then he would assume the nephew was happy and would buy it. No action is required to
be a contract – can accept by doing nothing. But what if the nephew forgets to reply to the uncle? The court said
that you can‟t go down this path of thinking. Otherwise there would be chaos as people would be sent offers
every day. Can‟t prescribe the method of communication as nothing.

• Waiver of communication
An offeror can tell the offeree that acceptance can be completed by a performance.
• Commerce Commission v Telecom Mobile
Telecom had a marketing campaign selling things. Once they were received there was a letter saying that
once the box was opened, you accept a 24 month plan. They waived the means of communication; don‟t need to
accept as will know by seeing phone charges anyway.
 Termination of Offer
- Revocation
How do we get out of a contract before acceptance? In revocation the offeror can withdraw their offer before
acceptance.
• Routledge v Grant
In this case, the offeror promised to hold their offer open for six weeks – implies it won‟t be withdrawn – but
it was. The court said they would withdraw it, as there was no consideration as to hold the contract open; the
offeree was not doing anything in return – one way contract, so offeror was not bound. This was seen as a
favour rather than a contractual promise.
Revocation must be communicated to the offeror; they must know that it has been removed.
• Sommerville v Rice

- Rejection of promises
The withdrawal of unilateral offers also applies, which brings large problems, for what if the offeree is in the
middle of the performance but then rejection of promise in contract. Since performance is not completed then it
can be withdrawn. There is however, no clear authority on this.
• Great Northern Rly v Witham
• Daulia v Four Millbank Nominees
In this case, the court says in a unilateral offer, once the offeree starts performance then the offer is accepted.
However this is just an obiter statement as there is no authority. It seems like the courts will just take these on a
case by case analysis.

- Rejection by offeree
Once the offeree rejects the offer then there is no contract and it is terminated.

- Lapse of time
A contract may have a time frame by which acceptance must be given. Though it is not revoked, it just keeps
on going for a reasonable time; includes offers where no time limit.
• Kean v Dunfoy

- Failure of condition
Offers can be under condition – prescribed mode or performance, e.g. buying a house can be a conditional
offer – check house first – person can remove their offer as the condition of offer may fail.
• Financings Ltd v Stimson

- Death of a party
• Death of offeror
Generally the offer disappears – can‟t have a contract with a dead person. Heirs could possibly continue the
contract, but generally offer is terminated.
• Dickinson v Dodds

• Death of offeree
An heir could step in, but generally this would not work. If offer not dependant on offeree then it is possible
for heirs, though unlikely.

Tenders

- One person needs something so they put an ad out for tenders

- Tenders are offers to build or do the work wanted
- Usually councils or public bodies need work done
- Tenders include the money and time required for the job
- The council then goes through all submissions and picks one
- This could also include the sale of a house
- Money offered to owners
 - Owners decide which offeror to sell to

Asking for a tender is not an offer; it is an invitation to treat

Markholm Construction v Wellington CC – Tenders for sections that were for sale; if they got multiple
offers on the same section then a decision would be made by ballot. After the bids were received the council
found out they had undervalued them all and refused the ballots and sales – could they do this?
This is similar to an auction, and so the two contracts approach was taken:
- Tender contract (normal tender rules, can refuse etc)
- Procedural contract (how would be conducted)
The offer lies in the call for the tenders. The procedural contract is accepted by those who submit the tender.
The Council can refuse the ballot, but since the procedural contract was accepted, then there was a breach and
damages were paid.

Pratt Contracts v Palmerston North CC – tenders asked for in building of a bridge. The method to decide
was the lowest tender would win. The plaintiff had the lowest bid but was not offered the work. The court said
there was no contract between the plaintiff and defendant – party free to decide what tender they went with.
However, the second contract (procedural) was offered and accepted that the lowest tender would get the
contract; the plaintiff accepted the promise so the contract existed. The council was in breach and was forced to
pay damages.

How can we prevent a party from being bound?

- Just include a right not to accept any offer
Gregory v Rangitikei DC – Tender with process for deciding sent out. The plaintiff entered with the lowest
bid but did not receive the work. The court said they did not have to accept his bid, as the ad said “highest or
any tender not necessarily accepted”.

Unilateral Contracts

- Performance = acceptance

Acceptance in Ignorance?
R v Clark – a reward was offered; pardon for the accomplice to a murder. They stepped up and confessed,
but did so without knowing of the reward. Could they accept? The High Court said they can‟t accept the offer as
they did not know about it – no meeting of the minds – need an offer and acceptance that correspond to each
other – can only accept something you know about.
Magnum Photo Suppliers – followed this decision.

Williams v Cowardine – Reward for information of a murderer, the plaintiff was the accomplice and
stepped up. They were remorseful, but knew of the reward at the same time; reward was not the main factor in
their decision to confess. The court said their motives for confessing were irrelevant since she knew of the offer;
why she is accepted is not relevant.

Cross Offers
These are offers which are sent at the same time for the exact same thing – agree on same thing, but both are
offer and neither are acceptances. As they agree on both, can there be a contract?
Tinn v Hoffman – Plaintiff offered to buys steel for a certain amount at a certain weight, and the defendant
offered to sell for exactly the same conditions; both sent letters to each other. The court said there was no
contract as acceptance must relate to the offer, so if both are an offer then there is no meeting of the minds, as
they would never know if their offer was accepted.
The US came to the same conclusion

Termination of an Offer
- The offer could be withdrawn at any time the offeree was performing the obligation.
 - If acceptance is performance when completed, then this is when the contract becomes binding
- But what if someone is halfway through?

Great Northern Rly v Witham – obiter statement: if an offer is revoked before acceptance there is no
contract.

The US took the two contracts approach:

- Unilateral contract
- Implied procedural contract (not revoke during performance)
This has not been adopted outside the US.

Daulia v Four Millbank Nominees – Obiter: once performance started then the offer cannot be revoked, so
to start performance means there is acceptance, not when they are finished.

It is likely the courts will not take a black and white approach, but rather take it as a case by case basis.

Offer and Acceptance Revision

Introduction
Top Reasons for not getting an A
– Jumping directly to issues
– Confusing Structure
– Failing to identify issues
– Failing to discuss arguments

Exam Skills
– Knowledge
 Cases, Statutes, Legal Rules
– Understanding
 Application to unfamiliar or complex situations

Example
Alfred is an international arts dealer. He wants to sell a painting to Betty, who lives in Sydney. He sends her
a fax which says: “Betty, will you buy my painting „Beautiful Flower‟ for $2,000. I need an answer as soon as
possible.”
Betty is keen and at 4pm Sydney time rings the number Alfred has provided in the fax. However, as it is
already 6pm in New Zealand, Alfred has left the office. Betty leaves a message accepting his offer on the
answering machine at Alfred‟s office.
Later that night, and without hearing the message, Alfred rings Betty at home. He revokes his offer before
she can say anything.
Advise Alfred.

Basic Structure
Offer
Mere supply of information / Invitation to treat / Counter-offers
Acceptance
Who can accept / Unilateral offers / Prescribed mode / completion of acceptance / postal rule
No Revocation
Revocation of offer / Revocation of unilateral offer / expiry of offer

Client Advice
Balanced Presentation
 What are possible arguments for and against client?
  What are possible outcomes?
Key is Discussion

Do not try to convinve the client they are right, just give a fair and balanced arguement with for and against
discussions – all possible arguments and all possible outcomes.

Offer & Acceptance Revision

What is a Contract?
- Agreement / Promise = Obligation = Enforceable by law
- Contractual Freedom; expression of wills
- Consensus ad idem; must agree to same thing
- No particular form

Elements
- Offer + Acceptance
- Consideration
- Intention to create legal relations
- No vitiating elements

Types of Contracts
- Simple contract: offer and acceptance
- Special contract: statutory (tenancy agreement)
- Void: formed over something illegal = no rights etc
- Hermann v Charlesworth (arranged marriages)
- Voidable: vitiating element, chose to fix or not
- Enforceable: vitiating element, still valid, one party can enforce (minor contracts)
- Unilateral: two parties involved, one enters by performing (missing dog), person offering contract bound
- Holloway v AG (teacher job)
- Cannot accepted in ignorance (R v Clark)
- Cannot revoke offer once performance started (Daulia v Four Millbank Nominees obiter)
- Bilateral: both parties perform, obligated

Offer

Definition
Expression of willingness to enter into binding contractual relationship on certain terms as soon they accepted

Not Offer
- Mere supply of information: ask how much something is then accept to buy = no contract
- Harvey v Facey (Telegraph, manor house)
- Invitation to treat: no intention to be bound
- Gibson v Manchester CC (Buy council flat)
- Advertisement: store not intend to be bound
- Grainger & Sons v Gough (confirms this)
- Puff: farfetched statements (Red-bull)
- Display of goods: policy reasons
- Pharmaceutical Soc v Boots Cash Chemists (drugs on shelf)

- Auctions: acceptance would be first bid

- Two contracts approach (Warlow v Harrison)
- 1st by owner of goods and auctioneer
- 2nd by auctioneer and bidder
- If not sell in no reserve auction then bidder gets compensation of difference
- Barry v Davis

- Tenders: offer the quote, unilateral contract

 - Highest tender not always accepted as long as not state that it will be in terms (Gregory v
Rangitikei DC)
- Two contract approach when procedure contained in tender
- Tender contract (normal tender rules)
- Procedural contract (how to be conducted)
- If tender offered with procedure of how to be run, bound to it (Markholm Construction v
Wellington CC)
Acceptance

Definition
The corresponding final and unconditional expression of willingness to assent to the terms of the offer

General Rule
- Acceptance complete when offeror knows their offer accepted

Who Can Accept

- Offeree
- Group of offeree‟s
- Multiple acceptances
- Patterson v Dolman (two offered item, both accept, only one get – must tell conditions, otherwise
more than one contract possible)

Unilateral Offers
- Acceptance through performance (no one bound to do this)
- Can accept is never knew (return dog); in ignorance – probably no

Counter Offer
- Ask if can accept to different terms = different contract
- Not acceptance, original contract disappears
- Alteration of terms
- Wilmont v Johnson (trustees names on trust, cross out xyz & fill in)

Mere Inquiries
- Still acceptance, just a question over it; reasonable person see it?
- Powierza v Daley (Could pay half deposit now and half later? – Nothing rejected)

Communication
- Conduct (Brogden v Metropolitan Rly)
- Supplier of coal sent it to railway after asked if would supply
- Prescription of method
- Mandatory: only one way possible
- Preferred: prescribed, but if use other = ok = can‟t be disadvantageous to offeror
- MDC v CGI (phone call, saw in street before due date)
- Alternative method at offeree‟s risk
- Eliason v Henshaw (told to send back with horse)
- Silence: Felthouse v Brindley – cannot have acceptance as doing nothing
- Waiver of communication: completed on performance (Commerce Commission v Telecom Mobile)

Termination
- Revocation
- Routledge v Grant (No consideration to be bound to keep offer open)
- Must be communicated to the offeror
- Withdraw unilateral promise: Daulia v Four Milbank Nominees (Obiter: once performance started offer accepted)
- Lapse of time
- Rejection of offer
- Failure of condition
- Death of party
 The Posting Rules in Contract
Acceptance complete on posting Adams v Lindsell
Acceptance complete on posting, even if letter delayed Dunlop v Higgins
Acceptance complete on posting, even if lost and never arrives Household Fire Insurance Co v Grant
The posting rules do not apply when a particular mode of
Holwell Securities Ltd v Hughes
communication is prescribed
A letter must be properly dispatched for acceptance to be
Re London and Northern Bank, ex parte Jones
complete on posting

Revocation of Offer
A revocation of offer must be communicated to the offeree,
Henthorn v Fraser
prior to acceptance of the offer, to be effective

Is it possible to retract an offer
after acceptance?
Retraction of Acceptance
Hudson argues that there is no good reason why you can‟t retract acceptance by a
speedier means or communication used for acceptance. If post letter but use phone
to retract – offeror hears you first and told to ignore letter then this entirely
reasonable. No authority to support argument though

Telephone
Acceptance complete when received Hampstead Meats Pty Ltd v Emerson & Yates Pty Ltd

The Doctrine of Estoppel

If it is the offeror‟s own fault that they do not receive the Canterbury District Health Board v National Union
message, the offeror is contractually bound of Public Employees

Offer and Acceptance

Case Principle Information
Types of Contract
Hermann v Charlesworth Void contracts – no rights Arranged marriage broker
Holloway v AG Unilateral contracts enforceable Teacher, training, job promise
Murderer accomplice, reward for
R v Clark Cannot accept unilateral in ignorance
confession
Cannot revoke unilateral offer once
Daulia v Four Millbank Nominees Obiter
performance started
Not Offers
Harvey v Facey Mere supply of info = no contract Telegram, manor house, price
Invitation to treat = no intention to be
Gibson v Manchester CC Buying council flat
bound
Grainger & Sons v Gough Advertisement = invitation to treat Confirms approach
Pharmaceutical Soc v Boots Cash
Display of goods = invitation to treat Drugs on display – policy issue
Chemists
1st – seller and auctioneer, 2nd –
Warlow v Harrison Two contracts approach in auctions
auctioneer and bidder
Compensation on no reserve auctions if Bid refused by seller, compensation of
Barry v Davis
don‟t sell difference of price
Gregory v Rangitikei DC Highest tender not always accepted
Markholm Construction v Wellington If tender offered with procedure of how Ballots on submissions to plots of land
CC to run, offeror bound to it if double interest
Acceptance
Two people accepted an offer = two
Patterson v Dolman Conditions must be in contract
contracts
Mere alteration of terms = counter Swapped xyz for names when received
Wilmont v Johnson
offer trust papers
Could pay half deposit now and rest
Powierza v Daley Mere inquiry not counter offer
later?
Communication
Supplier of coal sent to railway when
Brogden v Metropolitan Rly Conduct can be performance
asked it would supply
Preferred method of communication
Saw person in street day before offer
MIDC v CGI can be different if not disadvantageous
due and accepted
to offeror
Alternative method at offeree‟s own Didn‟t send back with horse as
Eliason v Henshaw
risk instructed
Felthouse v Brindley Silence cannot be acceptance Letter of horse, no reply = happy
Commerce Commission v Telecom
Communication can be waivered Use phone = accept plan
Mobile
Termination
Revocation can occur of no acceptance
Routledge v Grant Saw holding offer open as a favour
to keep offer open
Once performance started, offer
Daulia v Four Milbank Nominees Obiter statement – no real authority
accepted (unilateral contract)
 1

CONSIDERATION

Consideration is essential to form a binding contract; it is what turns giving and taking into a binding contract.

1. INTRODUCTION:
1.1 Tension between the classical approach which seeks certainty and the modern shift towards pragmatism and
fairness.

The law of contract came with the Industrial Revolution – people from rural and into the cities. There came a
need for clarifications over new exchanges of promises. During the 18th and 19th centuries saw the classical period
for contract – sought to give certainty. However it was during the 20 th century that commentators saw a movement
away from the clear rules and more towards other ideas on how to see contract in a more pragmatic approach – less
black and white view, more subjective where courts could look at individual cases.

1.2. Nudum pactum: a bare promise is not enforceable. E.g.: A promises to give B a house without more.
However, a bargain or contract is enforceable. The difference between the two has been marked out by the presence
or absence of consideration.

A naked promise is not enforceable. This is when a person gives a promise which is only one way. There is no
intention to create legal relations. Consideration takes the promise and makes it enforceable.

2. DEFINITIONS

2.1 What is consideration? Lord Mansfield’s two definitions:

Eastward v Kenyon (1840) 11 Ad & E 438.

Mansfield was the first to attempt to argue that consideration is mere evidence of partying intention to be bound
– not much to this idea though, so he tried again in the case of Eastward, where he said that a pre existing moral
duty (honesty and rectitude of the thing) which is consideration for any promise.
In the case, the question of whether Eastward was owed money was asked. He had looked after a girl when her
father died and the girl promised to pay him back when she reached age and came into money. When she got
married her husband took on her promise but neither paid Eastward. He said there was a moral duty to get the
money, but the courts held that this was not so.

2.2 Two contrasting modern approaches to this difficult problem:

2.2.1 The traditional benefit/detriment approach: either some detriment to the promisee (in that she
may give value) or some benefit to the promisor (in that he may receive value.)
See Currie v Misa (1875) LR 10Exch 153 Lush J: ‘A valuable consideration, in the sense of
the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or
some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the
other..’.
AG for England and Wales v R [2002] 2 NZLR 91.
Wadsworth Norton Solicitors Nominee Co Ltd v Edmonds [1992] 1 NZLR 596 (H Ct)

In the case of Wadsworth, a couple called the Hapis wanted to buy a house. They went to a solicitor to arrange a
mortgage through a nominee company who made an advance to them. They still needed more so Edmonds borrowed
money too from the same company with the intention to give it to them. The Hapis received their money from the
company, and the money that Edmonds had tried to borrow also went straight to them as well. Edmonds was
charged with the interest, but he had never received the money. Since he got no benefit the contract became
unenforceable for lack of consideration.

Dale v Manitoba [1995] 10 WWR 703

In the case of Dale, there was a province in Canada (Manitoba), and a university, who came together to arrange a
four year program to get disadvantaged students to university. They were offered positions which were funded. The
province then decided to rearrange the funding and reduce it. The arrangement between the university and the
province was an arrangement intended for students. In return the students had rearranged their lives and work to go
on the course. The province gets an indirect benefit as the students become tax payers in their area. The courts saw
that there was consideration in the contract so the province was not allowed to reduce the funding.

1
 2

This is the basis of benefit/detriment approach. This is criticised though as it does not always work – what
happens if a person gives up smoking and over eating for money – all the benefits are in one way.

2.2.2 The bargain approach: the price for which the promise of the other is bought. There must be
mutuality - one promise must induce the other promise:

Foster v Dawber (1851) 6EX 839. The writing of a receipt could not be consideration.
Or: Wigan v English & Scottish Law Life Assurance Soc [1909] 1 Ch 291.

Chas S Luney Ltd v State Bank of South Australia (Unrep, HC, Ch, CP 49/93; affirmed on
appeal CA 255/94, 8 June 1995), Tipping J said at p 14 of the High Court judgment: “The
party seeking to enforce the contract (the promisee) must show that he or she provided
something of value to or at the request of the other party (the promisor) and in return for the
latter’s promise.”
AG for England and Wales v R [2002] 2 NZLR 91, PC [2004] 2 NZLR 577
Fuel Expresso v Hsieh [2007] 2 NZLR 651 (CA). Both approaches [18].

The case of Fuel Expresso saw a barista leave a coffee cart, who signed a clause saying they would not work
within the radius of where he had just left – could such an agreement have consideration?

2.3 Categories of consideration: Consideration usually comes in two forms:

2.3.1 Executed consideration is consideration provided by an act.

Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 (unilateral offer)

In Carlill, acceptance is by the act of a party – executed consideration. Consideration comes into effect when
acceptance occurs. Acceptance is also consideration.

Holloway v AG [1994] 2 ERNZ 528

In Holloway there was an applicant for student training – if she completed the course then she would be
appointed a position. When no position was given, was there an agreement? The courts said there was, and that it
was binding. She provided acceptance through her training, but also executed consideration at the same time.

Antons Trawling Company Ltd v Smith [2003] 2 NZLR 23

In this case, Smith worked on a vessel for Antons and was good at finding new fisheries. NZ fisheries are under
a quota system. There was a dispute over an oral agreement with Smith and his employers. Smith said they promised
that if he found a new fishery that he would receive a share in the quota that was received in it. This is a unilateral
offer which he completed/accepted by finding the fishery.

2.3.2 Executory consideration is consideration which has not yet been carried through in fact.

A contract in existence, where promises are exchanged, is considered to be executed in the future. E.g. ring to
find out how much wood is and order some – payable on delivery. There is both a promise and an agreement,
however there has been no completion of the consideration.

3. DEVELOPMENT

3.1 Past consideration is not valid consideration: if consideration is furnished before the promise is made, it is
not effective.
For example: you drive home and your car breaks down – someone passes and fixes the car for you, then you
drive home. At home you call them and offer them money but you never pay. The promise came after the act – past
the consideration so it is not a valid contract.

Eastward v Kenyon. (promise after service)

AG for England and Wales v R
Hay v Nieper Unreported, High Court, Christchurch, CIV-2007-409-2647, 6 March 2008 [7-8].

2
 3

This is a steady principle and it is well executed, though there are exceptions. If the promise and the act were in
the same transaction then the sequence doesn’t matter.
If it looks like a request for an act and promise comes later then they will be bound together.

Exception: It has been held that if the consideration was originally furnished at the request of the promisor, the
later promise and the earlier request are coupled together and the courts consider it to be a binding agreement.
Lampleigh v Brathwait (1615) Hob R 105. The service had been procured at the specific request of
the defendant.

Lampleigh: Brathwait killed someone and asked Lampleigh to do all that he could to get him a royal pardon.
This was completed, and in doing so expenses were incurred, and Brathwait had promised Lampleigh £100 for such.
It looks like past consideration, but it is seen to be a binding agreement and implied payment afterwards due to the
specific request from Brathwait.

Exceptions must be controlled and limited though. The courts are prepared to look at both specific requests and
implied owes – so we must be careful.

Later cases have restricted the operation of this exception:

Re Casey’s Patents, Stewart v Casey (1892) 1 Ch 104. Services performed in the course of business,
not friendship.

Casey: The courts were prepared to imply a request, but emphasis on the business relationship – situation where
the courts are prepared to imply a request – patent situation. Casey was a manager of patent rights, and the owners of
the patents said in consideration of working the patents they would give him 1/3 of the value of them. They didn’t
pay. In court they said the promise was for his past services which was already done, but the court found in favour
of Casey and saw the favour as an implied enforceable promise with consideration in this business contract.

This exception to the past consideration rule has been succinctly summarised in
Pao On v Lau Yiu Long [1980] AC 614, at 629, [1979] 3 All ER 65 at 74 ...’The act must have been
done at the promisors’ request: the parties must have understood that the act was to be remunerated further
by a payment or the conferment of some other benefit: and payment, or the conferment of a benefit, must
have been legally enforceable had it been promised in advance.’
.
NB: The parties’ understanding can be implied from the circumstances.
Casey v C.I.R [1959] NZ 1052. ‘At the time when the loans were made, the circumstances clearly raised
an implication that the parties intended that interest should be paid on the loans. The subsequent fixing of
an amount to include interest.. admitted the existence of a prior agreement to pay interest...’

Casey: Farming arrangement between a husband and wife. The husband worked the property and the wife
helped. Though this was not a contract case, the consideration issue came up. A loan was given from the wife to the
husband in 1918, where he promised to pay her back when he could. There was no fixed interest rate – assumed it
would be whatever was current at the time it was paid back. No payment was made until 1954 when the farm was
sold, and the wife was paid $50,000 – the original loan was £800. Inland revenue had the question of what was a gift
and what was a repayment of the loan. They saw it as the difference between 800 and 50,000 a gift, ignoring the
interest that the loan would have.
The argument then arose as to the interest rate. What was the situation at the time the loan was made? Was it
decided that interest would be payed? The courts admitted of an existence of an agreement that interest would be
paid at a reasonable rate – much smaller taxable difference. Because of the large increase in what was returned, this
showed that there was obviously an agreement for an interest rate on the loan, but we must remember this is a
farming case – so we apply the exception of a business to the courts’ implication.

Teo Tipene v Mere te Puni (1904) 23 NZLR 1079. No commercial context.

Teo: De facto relationship – couple not married, one worked on the house owned by the other party. When they
separated, the male wanted to claim he had an arrangement and understanding that he would be paid for the work on
the house. The court said that it was a non commercial domestic relationship, no they were not prepared to operate
the exception. No implied circumstances suggested otherwise.

3.2 A person cannot sue on a promise when she or he has not supplied the consideration.

3
 4

“...no stranger to the consideration can take advantage of a contract, although made for his benefit”.
(Wightman J in Tweddle v Atkinson (1861) 1 B & S 393).

For example: if you were promised to get an A+ if someone else gives the marker a car – consideration is
from someone else so can’t sue as we are not providing consideration.

Exception: A person thought to be a stranger to the contract may in fact turn out to be a joint promisee.
If can show consideration on behalf of both parties, consideration seen to move between both of them.
Coulls v Bagot’s Executor and Trustee Co Ltd [1967] ALR 385 (Aust H Ct).

Coulls: Coulls entered into a contract with a company who wanted to quarry his land, where he would receive
royalties. He authorised the company to pay him and his wife jointly. When he died the executors wanted to see if
the company should continue to pay his wife. Even though the consideration was by one person, it was jointly
promised – this was agreed. However after applying this, it turned out the promise wasn’t existing between two of
them, only one – principle still remains though.

It is unclear if this is a separate rule to the rule of priority – only party to contracts can sue on it. This is a specific
act of consideration, only applying to consideration, so they are separate principles.

3.3 How much or what sort of consideration is enough?

3.3.1 The general rule is that the courts will not interfere with an agreement which the parties
themselves have deemed fair and reasonable.

A person can advertise to sell a car for a dog with three legs – this is valid consideration.

Hobbes: `The value of all things contracted for is measured by the appetite of the contractors, and
therefore the just value is that which they be contented to give.’(Leviathan, pt. 1, c.15, also quoted in
Pollock).

Whatever is offered, however, must be capable of expression in terms of value though this need not be
economic value. The promise must also be enforceable, lawful, in itself possible and reasonably definite.
Dunton v Dunton (1892) 18 VLR 114 (Aust). (Doesn’t have to have economic value).

There is no concept of unfairness in the law of contract – the courts will not interfere except for cases such as
duress. Once a contract is entered into, you can’t try to get out by simply claiming it is unfair.

See Re Murphy [1933] NZLR s 83 (back of report) Consideration need not be adequate to the
promise, but it must be of some value in the eye of the law.

Murphy: Murphy transferred land to a borough on certain conditions: he and his family were to be able to use
cottages on the land for 10 years with no rates or rent. It was agreed that Murphy would not have to pay costs to
transfer the land and that it would be called Murphy Park. Murphy died and the transfer was not carried out. His
executors wanted to know if this was a gift or if there was valid consideration making it enforceable. The Murphy
family saw it as an incomplete gift and therefore unenforceable.
The courts said there did not need to be an adequate promise, must be something of adequate value in the eyes of
the law. Murphy got the benefits for his family and the cottages, the costs and expenses, plus the naming of the park,
and in return the borough got the land. This was seen to be sufficient value and the parties were therefore bound.

Leading UK case Chappell & Co. Ltd v Nestlé Co. Ltd [1960] AC 87. (HL) Lord Sommervell of
Harrow ...’ A contracting party can stipulate for what consideration he chooses. A peppercorn does not
cease to be good consideration if it is established that the promisee does not like pepper and will throw
away the corn...’

Chappell & Co: Nestle chocolate company wanted to promote their products. They purchased a music single and
used it in their campaign saying that for payment with 3 wrappers the record could be theirs to own. Once the money
and wrappers were received by them, the money was kept and the wrappers thrown out.
The issue was on the royalties payment (% of the retail price had to go to the owner of the copyright, Chappell).
They argued what consideration was for this record – what was it worth?

4
 5

Nestle said it was part of the amount sent in by people, but Chappell argued and said that the wrappers had to be
included as well. The House of Lords said anything can be of value and accepted Chappells’ argument. One judge
took the benefit detriment approach:

Lord Reid took a benefit/detriment approach stating : ‘It is a perfectly good contract if a person
accepts an offer to supply goods if he a) does something of value to the supplier and (b) pays money: the
consideration is both (a) and (b). There may have been cases where the acquisition of the wrappers
conferred no direct benefit on Nestlé... but there must have been many cases where it did....And even
where there was no direct benefit from the acquisition of the wrappers there may have been an indirect
benefit by way of advertisement.’

The essential question is whether there was consideration which the law recognises. It does not matter
that the consideration was not specified in the contract or that insufficient consideration was specified.
AG for England and Wales v R [2002] 2 NZLR 91, [2003] 2 NZLR 23.

AG for Whales: This was over a restraint of trade clause (breach of confidence). The case involved England
trying to enforce an agreement over a NZ soldier who was meant to be in the army, but instead was in the SAS
where he was shot, his comrades killed, and he was captured and tortured then returned. When he left the SAS he
wanted to write a book about his experience. The British Government wanted to cease such books – trying to hold
him to his confidentiality agreement which was signed with their government.
Was there consideration between the agreements of not giving information by the soldier? He argued that he was
under duress when he signed. This went to the Privy Council where the New Zealand decision was upheld in
England.
The issue of value had been given by the soldier – what had the government given him in return? Did they pay
him a sufficient price for his promise? The court said the value could be an act – promising not to return him to his
original non SAS unit – where he had never even served. In making the promise the soldier was asking not to be
returned, so it was seen as a reciprocal act and the Government succeeded.

Fuel Expresso v Hsieh [2007] 2 NZLR 651 (CA). Para [18].

Kiriwai Farm Ltd v Jakubska Unreported, High Court Wellington, CIV-2008-435-253, 13 November
2009, Mallon J. Consideration for licence to occupy - obligation to pay rates, occupation of land to promote
a concept, retention of house.

3.3.2 Forbearance as consideration: Consideration can also be the opposite, in the form of
forbearance from doing something that you are at liberty to do

Forbearance is when one party agrees not to do something they are at liberty to do – this is just as valid as any
other agreement.

Hamer v Sidway (1881) 124 N.Y. 538.

Hamer: an uncle promised his nephew £5000 when he reached his 21 st birthday as long as he did not smoke,
drink, gamble or swear. This was completed and the nephew was seen to be entitled to the money as he was giving
up something that he had a right to.

Dunton v Dunton (1892) 18 VLR 114 (Aust)

Dunton: John Dunton entered into an agreement with his ex-wife to give her £6 a month if she stayed sober and
in a respectful manner – this was upheld, and his ex was seen to have limited her freedom and was giving up
something she had a right to – enforceable.

AG for England and Wales v R (ministry foreborn from sending soldier back to unit)

There are different ways that forbearance can occur:

- Compromise of suit
If someone thinks they owe money and have a legal claim, the other disagrees so they settle instead.
- Forbearance to sue
If someone agrees they owe money and ask for time to pay instead of directly suing.

5
 6

Both compromise and forbearance are treated according to the same principles when dealing with
consideration.

Paulger v Butland Industries Ltd [1989] 3 NZLR 549.

Paulger: Paulger directed a company in financial difficulty, so he wrote to the creditors saying it would be sold
and that they would be payed within 90 days. He personally guaranteed the payments. The company however went
into receivership, something Paulger had no control over. The secured creditors were paid and the unsecure ones
sued. Butland sued on the personal guarantee – accepted in case of a contract, there was consideration. The courts
said Paulger made an offer, acceptance was by the creditors forbearing to sue the debts for 90 days = consideration
in the forbearance, so it could be sued on.

It can be more complicated though, e.g. if there is no set amount of days to forbear suing on – the courts
generally look at what would be a reasonable time. Also, what happens if it turns out one party isn’t able to sue at
all?

What happens when the claim which is given up has no legal basis, or its legal basis is questionable?
(i) If the person forbearing honestly and reasonably believes that he or she has a
good cause of action, then giving this up is good consideration for the promise of the
other party to pay.

Couch v Branch Investments (1969) Ltd [1980] 2 NZLR 314.

In Couch, the courts said it won’t matter if it turns out there is no legal claim, as long as certain conditions are
met.
In the case, Couch entered into an agreement with Branch Investments; he wanted to buy a boat. Unknown to
him there was doubt on the validity of his hire purchase agreement. After he entered into it the boat sank in a way
that was impossible to claim insurance on, so he stopped making payments on it. Couch and the investment
company meet and came to an agreement that the company would forbear to sue for a month, and in return couch
said he would pay at 10% and give the company a mortgage on two properties he owned which he would sell for
more money.
As such there were two agreements: the hire purchase and the forbearance with mortgages etc.
Couch defaulted on his agreement, divorced his wife and the property issues became complicated. Couch
became bankrupt, his property was sold with no profit, and his wife did not want to offer her property which she got
in the divorce to the mortgage company. The company wanted the second agreement enforced.
The original agreement of the hire purchase turned out to be invalid, so forbearance was seen to lack
consideration. The court said:

`Except in those cases where the agreement in respect of which the forbearance to sue is
given is a sham, or so frivolous or vexatious that it is patently obvious, even to a layman, that it
could not succeed, or so lacking in any foundation as to make its assertion incompatible with
both honesty and a reasonable degree of intelligence, or a fraud, the Courts will not inquire into
the merits of the cause of action upon which the forbearance to sue is based. It will be sufficient
if the promisee honestly believes that he has a good cause of action.’ (McMullin J at 335).

Moyes & Groves v Radiation NZ Ltd [1982] 1 NZLR 368. `A compromise of disputed
rights where there are genuine and substantial claims on both sides may undoubtedly constitute
good consideration.’ (Cooke J at 371).
Moyes – idea of genuineness is important in these cases, even if it turns out there is no claim for issues to learn
from Couch.

(ii) The same principle applies even where it later transpires that the person forbearing did not
in fact have a good cause of action in the first place: See Couch v Branch Investments, above.
Hay v Nieper [2008] [9-16].

(iii) But if the person forbearing knew, or ought, as a reasonable person to have known, that
the claim was clearly bad and unenforceable, then giving up the right to sue is not consideration.

Tully v Cresswell (1914) 33 NZLR 724.

6
 7

Tully: though it was unknown that the claim was bad, they ought to have known. Cresswell was a practicing
solicitor who took over the Tully family accounts that a stock and station company had on them (farming).
Cresswell found evidence of debt the Tully farm still owed, and if he had made inquiries he would have seen that it
had been paid. He did nothing for 12 months, then told Tully who couldn’t remember. He signed a letter where
Cresswell forbeared to sue for 14 days – Tully then went to investigate.
It turned out that Cresswell had no right to recover the original money, but now he wanted the second
arrangement to be completed – which he lost. The courts said that Cresswell had no real claim.

(iv) If the original claim is `a sham, frivolous, vexatious or unreasonable’ forbearance to sue
on it will not constitute valid consideration:
See Couch, Moyes & Groves v Radiation NZ Ltd, above.

3.3.3 Performance of an existing duty as consideration: Situations where the courts reserve
a right to interfere for exceptional reasons. These are all variations on the situation where a person
promises to do something in return for the other person agreeing to do something she or he is
already bound to do.

Agreeing as consideration to do something you already are obliged to do – is this valid consideration? As a
general rule, no, but there are three separate categories:

3.3.3.1 Performance of a public duty: In situations where a person is under a public duty to act in a
certain way, a promise to do so is not regarded as consideration for a binding contract. E.g. lifeguard,
fireman, ambulance, doctor, military, police etc.

Collins v Godefroy (1831) 1 B & Ad 950 (109 ER 1040).

Collins: authority for basic proposition that agreeing to do something already bound to do is not consideration,
(police wouldn’t ask for money in an emergency).

Airways Corp of NZ Ltd v Geyserland Airways Ltd [1996] 1NZLR 116 (H Ct).

- However, the cases suggest that where something additional to the duty is involved, there may be
valid consideration:
Glasbrook Bros v Glamorgan [1925] AC 270.

Glasbrook: A coal miner strike was pending, management was in touch with the police to provide statutory guard
at the mine – normally they wouldn’t do this. They agree to pay the police money – enforceable. Yes, as it is
additional to their regular duties.

Black White & Grey Cabs Ltd v Reid [1980] 1 NZLR 40.

In the taxi case, the taxi company had a legal statutory duty – provide drivers with access to radio channels –
Transport Act said common facilities necessary for public demand. The company said they would have access to
any channel in the telephone system – above and beyond statutory requirement. So there is good consideration that
the company entered into with its drivers.

- In some cases, the Courts have been very keen to find the ‘something additional’ to an existing duty,
or to say that in some cases, performance of an existing duty is sufficient, as long as the contract is not
contrary to public policy.

What is an additional duty?

Ward v Byam [1956] 1 WLR 496. Lord Denning - a promise to perform an existing duty was
good consideration because it was of benefit to the person to whom it was given. Williams v
Williams [1957] 1 All ER 305)

3.3.3.2 Duty already owed to a third party: Case law establishes that such promises can be binding.

This is usually a legal duty owed by contract. Manner in which obliged to do something is different – contractual
duty.

7
 8

Shadwell v Shadwell (1860) 9 CB (NS) 159.

Shadwell promised to marry a woman which was enforceable, but his uncle was understood to pay him a regular
sum to him if he married her, which he missed payments on. It was held in this case the uncle received benefits as he
was pleased with the marriage and promise to his nephew showed certainty.

NZ Shipping v Satterthwaite (The Eurymedon) [1974] 1 NZLR 505.

Pao On v Lau Yiu Long [1980] AC 614.

Chas Luney v State Bank of South Australia (CP 49/93, Christchurch),

Luney (the promisee) entered into the building contract with Fairmont (the third party) and
by doing so provided a benefit to the bank (the promisor) by enabling it to make the profit it was
intending to make out the financial facility which it was providing to Fairmont.

Luney: Luney was a construction company which entered into an agreement to build flats with Fairmont who got
their financing from SA bank. Luney gets concerned in Fairmont’s position, so agreed with the bank to receive
direct payments from them instead. The bank ceased payments over concerns as well though. Luney then argued that
a contract between them and the bank - the bank said there was no consideration.
Luney entered into a building contract with Fairmont – who owes obligation to them as a third party. Benefit
indirectly to the bank as it enables them to make a profit. Duty of the third party is consideration for agreement with
the bank.

3.3.3.3 Duty already owed to promisor (most important of the three)

Parties already in a relationship, enter into a new agreement, but only meet on the first agreement. The courts
move away from the idea of no consideration and ask what the parties actually agreed to. The court wants to find out
how common contracts can remain and how the parties not forced to have to leave such contracts.

(i) As a general rule this cannot comprise consideration. However, there are exceptions.

Two preliminary points:

 Sometimes the original contract expressly gives one party a power to vary the contract. This is
very common in building contracts - there may be a term that if the price of materials rises the contract
price will rise accordingly - this is perfectly valid. The consideration is that provided under the contract
i.e.: constructing the building is consideration on one side, on the other is price - all that remains is that
the latter be ascertained.

 Sometimes what seems to be a variation without consideration turns out to be a waiver instead
e.g.: one party has promised to pay a deposit, other party says “don’t worry about that, just pay the
purchase price”.

E.g. a vendor agrees not to get a deposit but instead the full amount later – not a consideration issue.

Cook Islands Shipping Co v Colson Builders Ltd [1975] 1 NZLR 422. No consideration for the
additional payment. The plaintiff was only doing what in terms of the cargo contract it was obliged
to do - to carry the freight.

Cook Islands: Defendants want the plaintiffs to cargo oranges, loading is provided for in the contract (1 day) but
it took longer. The shipping company added extra charge per hour that the boat remained waiting. The court said the
plaintiff was only doing what they were obliged to do by contract – no consideration agreement to pay more so
unenforceable.

North Ocean Shipping Co v Hyundai Construction Co Ltd (The Atlantic Baron) [1979] QB
705. Indicates that the courts will strive to find an extra benefit in variation cases no matter how small
or intangible.

North Ocean: Ship owners agreed to have a tanker built for them with a fixed price in instalments – builders got
a letter or credit to repay them if they did not perform. The US dollar devalued though and the total changed when
the builders demanded an extra 10% increase. The parties tried to negotiate, but the ship was needed due to another

8
 9

contract so they agreed as long as the builders got their letter of credit increased. After completion of the ship the
owners tried to get the 10% back from the builders. It was held that the builders had done something extra by
increasing their credit letters, so there was extra to the original contract. As such there was consideration and the
extra 10% was guaranteed to the builders.

Another example of looking for something extra in a contract case can be seen in Moyes. In this case, a buyer
ordered goods in 1973 from India, which should have arrived in 1974 but didn’t arrive until 1976 – parties had
forgot about the contract by then – so what happens? The prices had changed over the years, so the seller did not
want to sell them for the original 1973 price. Instead they offered to sell them at cost, otherwise they would be
returned to India. The buyer agreed reluctantly, but when they got the goods they only paid the original price.
The issue arose as to whether the seller could enforce the new price. They supplied the goods (which they
already had to do), but they did an additional thing – they did not abandon the original contract, instead they gave up
their right to do so. The buyers promise for the higher price was therefore enforceable.
Moyes & Groves Ltd v Radiation NZ Ltd [1982] 1 NZLR 368

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

This became a principle and doctrine in its own right in the Williams case. This involved builders who had been
contracted to refurbish a flat, who subcontracted some carpentry work to Williams. Williams underquoted for the
work so they could get it and they underperformed. The builders were liable for penalty under the original contract.
Williams were under financial difficulty, and so the builders agreed to pay an extra amount in an oral contract due to
such. When all was completed the full amount was never paid to Williams though.
In the UK, the High Court said they had to consider two things:
Consideration could consist of a practical benefit to the builders and such benefit existed in this
case, made up of two things: i) the builders would not have to take on other carpenters; ii) the builders
would avoid having to make penalty payments under the main contract.

The court also asked about the old law and instead they said it was:
Necessary to limit the old decisions by focussing on the parties’ intentions viewed pragmatically in
the context of fairness, reasonableness and commercial utility. The defendant’s promise was
commercially necessary to keep the contract alive.

This is a new idea and it looks very radical. If applied, would all contracts that were renegotiated be enforceable?
There would be a great potential to undermine the general rule. Because of such, we need to look at the control of
the principle, focused around the idea of duress which featured strongly on the facts – one party puts pressure on the
other to get benefit.

(ii) Duress: “coercion of a man’s will”.

Pao On v Lau Yiu Long [1980] AC 614, 634. “Duress... is a coercion of the will so as to
vitiate consent... In determining whether there is a coercion of will such that there is no true
consent, it is material to inquire whether the person alleged to have been coerced did or did not
protest; whether, at the time he was allegedly coerced into making the contract, he did or did not
have an alternative course open to him such as an adequate legal remedy; whether he was
independently advised; and whether after entering into the contract he took steps to avoid
it.”(p635)

This sets out the tests which need to be applied to the facts to see if duress is present. It asks what the effects of
duress are? If there is duress, the contract is not immediately void, but it is voidable. So a party who argues duress
on them can try to void the contract. If a person sought legal advice first, then it is not voidable though.

AG for England and Wales v R

This case talks about what duress is in the Court of Appeal judgement (par 61-62 and 64-67), and in the Privy
Council judgement (15-20).
It was decided that the case of Williams could apply and they looked at the issues of duress; what pressure was
put on the soldier, was it legitimate? The consideration was forbearance to send him back to his old unit.
The pressure put on the soldier was the threat of being sent back to his unit if he did not sign – large drop in
salary and professional effects (SAS a higher rank), so in signing this he had all these facts in his mind.
At the end of the day the court saw the demand as legitimate, as books threatened morale, so the ministry was
seen to be acting in good faith and in their best interests. There were also some provisions allowing the soldier to
publish some parts that he wanted as long as he received permission, and the soldier was not ordered to sign so he

9
 10

did have a choice; an alternative to signing. The court saw no duress, and said if there had been, they decided the
contract would have been voidable, though the soldier had still affirmed it so it wouldn’t have undermined Williams.

Pharmacy Care Systems v AG Unreported, CA198/03, 16 August 2004; SCt (2004) 17

PRNZ 308. ‘In summary, the elements of duress in New Zealand law today are these: First,
there must be a threat or pressure. Secondly, that threat or pressure must be improper. Thirdly,
the victim’s will must have been overborne by the improper pressure so that his or her free will
and judgment have been displaced. Fourthly, the threat or pressure must actually induce the
victim’s manifestation of assent. Fifthly, the threat or pressure must be sufficiently grave to
justify the assent from the victim, in the sense that it left the victim no reasonable alternative.
Sixthly, duress renders the resulting agreement voidable at the instance of the victim. This may
be addressed either by raising duress as a defence to an action, or affirmatively, by applying
timeously to a court for avoidance of the agreement. Seventhly, the victim may be precluded
from avoiding the agreement by affirmation.’ Para 98. S Ct: ‘law on duress is sufficiently clear
and settled. Not necessary in interests of justice for Supreme Court to examine matter in this
case’.para 2.

This shows the descriptive steps to take in looking at duress. The case was an appeal, arguing that duress was not
a settled principle in relation to consideration.

The effect of duress? A finding of duress does not automatically make the second contract or
variation invalid because of lack of consideration. It lies with the person on whom the duress has
been imposed to affirm or avoid the contract.
Pao On v Lau Yiu Long
Moyes & Groves Ltd v Radiation NZ Ltd [1982]
Cook Island Shipping v Colson
AG for England and Wales v R

(iii) Analysis: Williams v Roffey has been criticised.

Some criticisms of Williams have been that it looks to partly as a threat to undermine consideration
where a duty is already owed, that it was only a low decision of the Queens Bench, that it was never
appealed, and that it is applied in commercial contracts now.

(iv) Where will Williams v Roffey lead us?:

(a) The principle in Williams v Roffey has been indirectly affirmed in the UK CA in In re
Selectmove Ltd [1995] 1 WLR 474 and Simon Container Machinery Ltd v Emba Machinery
AB [1998] 2 Lloyd's Rep. 429, and applied in later cases: e.g.: Horwood and Os v Land of
Leather Ltd [2010] Lloyd’s Rep IR 453, [41] and see:
Opel v Mitras Automotive (UK) Ltd 18 December 2007, QB at [42]
‘…Williams v Roffey would seem to permit any variation of a contract, even if the benefits and
burdens of the variation move solely in one direction, and I am bound to apply the decision
accordingly, whatever view I might take of its logical coherence. The law of consideration is no
longer to be used to protect a participant in such a variation. That role has passed to the law of
economic duress, which provides a more refined control mechanism, and renders the contract
voidable rather than void.’

This shows that the judge is reluctant to apply Williams, though he is still willing to accept that it is relevant.

(b) The case has also been followed and adapted in Australia.

See Musumeci v Winadell (1994) 34 NSWLR 723. Recast the elements of Williams v Roffey for
Australia: (italics = differences)
(i) If A has entered into a contract with B to do work for, or to supply goods or services
to, B in return for the payment by B, and
(ii) At some stage before A has completely performed his obligations under the contract B
has reason to doubt whether A will, or be able to, complete his side of the bargain, and
(iii) B thereupon promises A an additional payment or other concession (such as reducing
A’s original obligation), in return for A’s promise to perform this contractual obligation at
the time, and

10
 11

(iv)
(a) As a result of giving his promise B obtains in practice a benefit, or obviates a
disbenefit provided that A’s performance, having regard to what has been so
obtained, is capable of being viewed by B as worth more to B than any likely remedy
against A (allowing for any defences or cross-claims), taking into account the cost to B
of any such payment or concession to obtain greater assurance of A’s performance, or
(b) as a result of giving his promise, A suffers a detriment (or obviates a benefit)
provided that A is thereby foregoing the opportunity of not performing the original
contract, in circumstances where such non-performance, taking into account B’s likely
remedy against A (and allowing for any defences or cross-claims) is capable of being
viewed by A as worth more to A than performing that contract, in the absence of B’s
promised payment or concession to A.
(v) B’s promise is not given as a result of economic duress or fraud or undue influence or
unconscionable conduct on the part of A nor is it induced as a result of unfair pressure on the
part of A, having regard to the circumstances, then,
(vi) The benefit to B or the detriment to A is capable of being consideration for B’s
promise, so that the promise will be legally binding.

The main changes include the idea of Williams applying to additional payments and concessions of some kind,
so reduction of obligation also applied. The court also talks about promises not given over economic duress, not as a
result of ‘unfair pressure’ – something less than duress (could undermine Williams as not applying). There was also
a close look at whether parties had alternatives or not.

In Williams it was worth more to keep the contract alive than to sue. The builders did have a legal remedy which
they could have followed, but pragmatically it was easier not to use it.

Silver v Dome Resources Ltd [2007] NSWSC 455, [127]-[137].

(c) Williams has been followed in New Zealand:

Newman’s Tours Ltd v Ranier Investments Ltd [1992] 2 NZLR 68, 80, (Auck H CT) –
accepted the principle
Machirus Properties Ltd v Power Sports World (1987) (1999) 4 NZConvC 193,066 (Heron
and Gendall JJ). See below. – definitely applied.

Williams has come back to affect both AG & Antons:

AG for England and Wales v R

Antons Trawling Company Ltd v Smith [2003] 2 NZLR 23

In Antons it was asked whether variations to contracts can be enforced. What rights did the captain have to a
share in the fishery he found? An oral agreement of a % of the share of quota that the company got. Was there
consideration in this second agreement? He seems to already be doing what he was already obliged to do.
The court said that Williams applied to New Zealand, so it was enforceable. Another thing the court said in
Antons, was that variations should be enforced anyway in commercial contracts as long as they are not illegal or
against policy – in interests of commercial relations.
The New Zealand courts however, went further than Williams. In Antons there was a discussion of what
consideration actually was (par 93) – and it went right back to Mansfield’s idea – the fact that a promise had been
made should mean that consideration should apply in variations to contracts cases. Promises should be morally
followed.

Hunan Holdings Ltd v Harvey Unrep, High Court, Auckland, CIV 2005-404-1480, 13
December 2005, Winkelmann J.

(d) What has Antons done?

Willcocks v Teat Unrep, High Court, Rotorua, CIV 20089-463-000784, 27 September 2010,
Wylie J.
This was a High Court case and was unreported – this was a business case with lots of commercial issues and
complex facts, but there was a discussion of the principles of what the High Court thinks of both Williams and
Antons. The judge saw both principles as separate things.

11
 12

In Williams, he made it clear that this only applies to variations, not ordinary contracts. Whenever we enter into a
new agreements (not variations), consideration is always needed.

It has still not been affirmed at a high level whether Antons applies though.

3.3.3.4 Part payment of a debt

Varying an existing duty will lead to no consideration making in unenforceable, however in this case it is
different for here we see a new contract being formed.

(i) In general cannot be enforced as there is no consideration to accept a lesser sum.

Foakes v Beer (1889) 9 app Cas 605. No consideration for a promise to forgo the interest.
In Foakes, Foakes owed money to beer, who obtained a court judgement for the debt. Foakes asked for time to
pay, and an arrangement was made that action would not be taken if instalments were made; interest was not
discussed. Beer agreed he would accept all the sums and after he was paid the full amount over the installation
payments he asked Foakes for interest. It was agreed in the court that there was no consideration in saying that no
interest would exist, as less than what was owed was paid.

This is criticised as not representing reality. We don’t want a situation where parties can manipulate to get out of
what they owe.

Thwaites v CIR (2006) 22 NZTC 20,052, a recent application; still being applied in New Zealand.

The decision has been criticised as not reflecting commercial reality.

(ii) Relationship between Williams v Roffey and Foakes v Beer principles

In a debt situation can we apply Williams? Is there practical benefit to the creditor? This is an issue which was
addressed in Selctmove Ltd. A company owed tax to Inland Revenue – entered into an agreement to pay it off and
future liabilities. The company made payments, but not all of them. Inland Revenue threatened to wind the company
up. The company resisted this petition and argued that Williams applied – pragmatic benefit operating as
consideration. Practically, Inland Revenue was likely to get more than what they were originally owed.
The enforceability issue came up in court. It turned out the person acting for Inland Revenue who authorised the
repayments did not have authority to do so. The court also rejected Williams as applying:

In re Selectmove Ltd [1995] 1 WLR 474 (CA). Peter-Gibson (obiter) rejected the suggested
extension of Williams v Roffey as it would ...in effect leave the principle in Foakes v Beer without any
application. When a creditor and a debtor who are at arm’s length reach agreement on the payment of
the debt by instalments to accommodate the debtor, the creditor will no doubt always see a practical
benefit to himself in so doing. ....it is in my judgment impossible, consistently with the doctrine of
precedent, for this court to extend the principle of Williams’ case to any circumstances governed by the
principle of Foakes v Beer. (p 481)

There was concern that applying Williams would undermine Foakes. They said Williams cannot overrule Foakes
due to precedent issues.

It seems clear that F v B applies only to situations which involve a simple obligation to pay a debt. It
does not cover a compromise as to payment of rent which involves also the continuation of a tenant in
occupation where that occupation is vital to the landlord. In such a situation, W v R can apply:

In the case of Machirus, Power Sports World had a shop in a mall which got into difficulty due to various
circumstances. Negotiations of renewing the lease and repayments of rent were made. This went on for 3 years –
payments and reduced rental prices and progress payments were come to – no mention of any interest. Some
payments were made, 2 cheques were banked, and then Machirus asked for interest. There were disputes and
negotiations, and the shop continued to make payments until they left the lease.
Machirus brought an action to recover the arrears payments of interest on them as well as costs. The High Court
saw an agreement not to include interest. Machirus said there was no consideration no them not to provide interest,
relied on Foakes. The High Court considered the relationship between these select cases.
They distinguished Selectmove Ltd, and limited Foakes, saying it only applied to pure debt situations. They said
where there were additional benefits after the repayments then Williams will apply. It was of benefit for Machirus to
how the shop in their mall = additional to getting the money.

12
 13

Machirus Properties Ltd v Power Sports World (1987) (1999) 4 NZConvC 193,066 (Heron and
Gendall JJ). F v B applies unless there is some real benefit to the creditor which is not simply the fact that
the creditor would get some money back. The commercial realities were that a compromise was reached
and waiver of interest was for the benefit of both parties. MP did not have to find new tenants or mitigate
any loss and retained the prospect of a renewed lease by PS.

3.3.3.5 Other Limitations on the rule in Foakes v Beer:

(i) Different performance

Foakes is accepted if you try to repay the debt in something that is not money
Foakes v Beer Lord Blackburn said “Where a matter paid and accepted in satisfaction of a
debt might by any possibility be more beneficial to the creditor than his debt, the court will not
inquire into the adequacy of the consideration.”
Couldery v Bartram (1881) 19 Ch 394, Jessel MR said: “According to English Common
Law a creditor might accept anything in satisfaction of his debt except a less amount of money.
He might take a horse, or a canary or a tomtit if he chose...”

(ii) Part payment by a third party: May satisfy a debt:

Applied semi-recently to NZ. Held if a third party steps in it doesn’t matter what they offer or pay – Foakes
won’t apply; must be a circumstance where you cannot pay at all, otherwise it is fraud. This does not arise often.
Hirachand Punamchand v Temple [1911] 2 KB 330. Fletcher Mouton LJ said “If a third
person steps in and gives consideration for the discharge of the debtor, it does not matter
whether he does it in meal or malt, or what proportion the amount given bears to the amount of
the debt.” (340)

Budget Rent a Car v Goodman [1991] 2 NZLR 715 (H Ct).

(iii) Composition with creditors: Are agreements between creditors to accept lesser sums
binding? Yes:
Agreements to accept less is common – Foakes does not apply. E.g. more than one creditor come together and
compromise as claiming individually would be of no benefit. This is how liquidation works – secured creditors paid
first. This prevents legal expenses and time involved in bankruptcy and liquidation.
Boyd v Hind (1857) 1 H & N 938, 156 ER 1481, 1485.
(a) Sometimes there are no theoretical problems about consideration at all because the debtor
may agree to make payment in a different way e.g.: assigning income to a trustee, or giving
security over property;
(b) It has been consistently held that one creditor cannot break the pact and sue for whole debt,
otherwise this would be a fraud on the other creditors (Hirachand). This reasoning is still weak. It
explains why the consideration binds the creditors inter se, but does not explain why the debtor
can take advantage of this. And what if all the creditors agree to renege? This could not be said to
be a fraud on all of them, or any one of them individually.

(iv) S 92 Judicature Act 1908: ‘Discharge of debt by acceptance of part in satisfaction - An

acknowledgment in writing by a creditor, or by any person authorised by him in writing in that
behalf, of the receipt of part of his debt in satisfaction of the whole debt shall operate as a
discharge of the debt, any rule of law notwithstanding.’
This is unique to New Zealand. It must be in writing, only be on a creditor who has received a part payment and
must promise a full payment.

(v) Release by Deed: If the formalities for a Deed are complied with, the release of a Deed is binding,
and there is no need to show consideration.

(vi) Claims disputed in good faith – accord and satisfaction:

Where the claim is for an unliquidated (i.e.: uncertain) sum, or where the amount owing is in dispute,
the rule in Foakes v Beer does not apply.

An uncertain amount is owing – generally loses so can’t prove with facts and figures, e.g. loss of enjoyment, or
could be a genuine dispute of the amount.

13
 14

First we must make sure it is an accord and satisfaction situation. Starts with parties owing. The debtor send an
amount to the creditor asking if he will accept, and after such the creditor must reply if it will accept, e.g. will a
cheque be banked or not?
The issue is a genuine dispute which occurs after the money is sent – is the debt satisfied? What have the parties
agreed? If the cheque is banked, does this mean they accept the lesser amount?

In these cases, an agreement to accept a lesser sum than that argued for may be binding:

Homeguard Products (NZ) Ltd v Kiwi Packaging Ltd [1981] 2 NZLR 322 Accord and
satisfaction.
In the case of Homeguard, this is a partly overruled case in New Zealand. It features typical facts; Kiwi was
supplying Homeguard with goods on an ongoing basis, so Homeguard had a running account with them. There was
a dispute of what was owed in this running account. After such, Homeguard sent a cheque to Kiwi to be “in full
settlement of our account”. There was no reply, the cheque was banked, then they were later sent an account for
credit of what they sent and the full amount of what was still owing. Kiwi sued for the rest.
Here we see a genuine dispute for the amount, and the court looked at what had happened to the cheque. It was
sent with the letter at the same time – irretrievable manifestation of consent of Kiwi’s acceptance of Homeguard’s
account – so the debt was seen as satisfied.
This might make it easy for parties to offer less though. Debtors could send in a cheque to large companies
where paperwork is done low down, so commercial circumstances in Homeware could be unfair.

a) When a debtor sends a cheque in full and final settlement, she is making an offer: “Here is
some money. I’m offering it to you in full and final satisfaction of the debt I owe you. Will you
accept it as such?” Whether the creditor then accepts it is a question of fact. If the creditor writes
or rings up saying “I am keeping the cheque, but I don’t accept it in full and final settlement” then
there is no acceptance of the conditional offer and the debt is not discharged by accord and
satisfaction.

This approach changed in later cases where it was decided that all facts were needed, not just banking
information:

See HFB Dalgety Ltd v Morton [1987] 1 NZLR 411.

In Dalgety, the Morton’s wanted to sell their farm through the Dalgety company for a commission arrangement
when it sold, as based on a % of the price. Once complete, the agent calculated the amount, sent it to the Morton’s,
but the cheque that was sent back was too small, as the Morton’s felt the agent was not justified in the full amount of
the commission. The smaller cheque was sent with a note saying this is what they felt was enough. The cheque was
banked, a letter was sent saying Dalgety did not accept this, and they sued for the balance.
Foakes was applied – fixed sum due, payment of a lesser amount not satisfy it. This is not accord and
satisfaction. They went through the steps to confirm this:

Where a fixed sum is due and there is no genuine dispute as to the amount or the fact that it
is owing, payment of a lesser sum, even by cheque, will not satisfy the whole debt.
- Any dispute must be real and not just a reluctance to pay.
- On the question of accord and satisfaction, which was a question of fact, this
would only exist if there was a meeting of two minds or if one of the persons involved acts
in such a way as to induce the other to think the money is taken in satisfaction of the
claim.

You can’t just be reluctant to pay. The Morton’s were not suggesting any alternatives, just giving a different
amount. Because of this there is no genuine dispute of the amount so it is not accord and satisfaction. Homeguard
was not applied, as if it was the debt would likely be cleared. They said with accord and satisfaction, it would only
apply if there was a meeting of the minds.
Dalgety’s letter was written and sent at the same time the cheque was received, preventing them from being
bound, so they did not enduce Morton to think they had accepted the full amount.

b) Did the creditor by his or her words and/or actions show that he or she was accepting the
payment in full and final satisfaction?

14
 15

- It seems that if the creditor simply banks the payment and does no more the court can
normally infer that she or he was accepting it in full and final satisfaction; (Homeguard approach
applies)

- In certain circumstances a delay by the creditor between banking the cheque and advising the
debtor that it is not accepted in full and final satisfaction may mean the debt is extinguished by
accord and satisfaction: (advising you don’t accept is crucial)

Haines House Haulage v Gamble [1989] 3 NZLR 221.

The Haines case involved a removal company who sold a house to the Gamble’s. They entered into discussions
over the price to pay. Gamble sent a letter to the company with a cheque of full and final settlement and another note
of how they had reached such costs etc. The director received the cheque, receipted it, and ten days letter the
Gamble’s got a letter saying it was not accepted. The High Court, when Haines sued, placed an emphasis on accord
and satisfaction as a matter of fact. They said the court can infer it by simple banking, but all circumstances should
be looked at objectively. They said the creditor should be prompt with their dissent so Haines lost. Several reasons
include that the Gamble’s had set out the full amounts in their letter of what they thought was owed, someone high
up in the company received it, and that the rejection was not prompt.

Where a cheque is retained but not banked at all, there is unlikely to be accord and satisfaction.
Webster Developments Ltd v Bassili [1992] 2 NZLR 366(H Ct).

c) Recent developments:
The Hutt City Council v New Zealand Railways Corporation (1997) 6 NZBLC 102,320.
Homeguard clearly no longer law.
Principles were: (a) Accord and satisfaction a matter of fact; (b) the fact of banking creates an
inference of acceptance by the creditor but this is not irrefutable; (c) the longer the creditor takes
to assert rejection of settlement, the harder it is for such creditor to refuse an accord and
satisfaction defence; (d) the whole facts are to be viewed objectively. (p 102,324)
[The Hutt City Council v N Z Railways Corporation (1998) 12 PRNZ 264.] See (1998)
NZLJ 311 ‘Cheques in full satisfaction’.

In the case of Magnum, a cheque was banked by mistake and the other party was notified by fax immediately
when it was discovered so there is no accord and satisfaction. The Court of Appeal said:
Magnum Photo Supplies Ltd v Viko New Zealand Ltd [1999] 1 NZLR 395: No accord and
satisfaction was created where a cheque was banked by mistake and although a receipt was sent,
the other party was notified as soon as possible. ‘Presentation of this cheque will constitute
acceptance of this offer…Should the offer…be acceptable to Magnum we look forward to
confirmation of that.’

CA stated that:
 where a cheque is sent in full settlement without any reference to the manner of
acceptance, followed by banking and lapse of time before rejection, lapse of time is one factor
to be taken into account when looking to infer agreement to accept (e.g.: Hutt CC v NZ
Railways);
 where there is no lapse of time, but apparent acceptance of terms prescribed in the offer,
the question is whether the party acted in such a way as to cause the party tendering the cheque
to reasonably believe the offer was accepted before rejection was communicated.

4. PROMISES UNSUPPORTED BY CONSIDERATION

This is a situation where one party has tried a consideration argument but failed, and so they are left with no
consideration to their promise. Is there any way to make it enforceable – an equitable remedy?

4.1 Sometimes, the courts will enforce promises for which no form of consideration such as extra, or practical
benefit, can be found. This is known as equitable estoppel.

The rules of contract can be found in the common law. Equity seeks to provide justice where the common law
fails. Equitable principles arised out of the Court of Chancery. Equity looks to provide a remedy and people must
come to equity with clean hands – done what they are bound to do to the full extent. The court is based on
conscious, good faith and fairness. Equity looks at the intent rather than the form.

15
 16

In England there were common law courts and equity ones, so people were jumping from one to the other,
however this changed in the 1800’s.

4.1.1 An introduction to waiver:

4.1.1.1 Equity and common law intercept where the principle of waiver operates.

A waiver is a point where equity and the common law intercept. Any variation to a contract without
consideration is usually unenforceable, but the court can change this, or a party can waive their right in a contract.
Waiver’s don’t require consideration.

Waimor Holdings Ltd v Dean [1981] 2 NZLR 416.

The distinction between a valid waiver and a variation unsupported by consideration is not always clear.
The following rules seem to apply however:

This involved the sale of land. Dean was to sell to Waimor with a deposit of $1000 at the signing of the contract,
with more money paid as conditions were met, then a settlement date. The deposit was not paid as Waimor claimed
that Dean had waived it by saying he did not want it. It was held there was a clear waiver of the deposit as the
parties knew there would be more opportunities to pay which could service as a deposit.
This is a waiver which did not lead to variation of the contract. There are differences between a waiver and a
variation:

 Waiver is less than a variation in the sense that it does not irrevocably alter the rights of the
parties under the original contract. The cases indicate that it usually applies to changes in the way a
contract is to be performed, rather than altering the structure of it. This is why the $1000 deposit is an
example of this.

See Watson v Healy Lands Ltd [1965] NZLR 511, at 513. ‘...where the modified version of
the original contract involves such changes in the contractual obligations of the parties that its
structure is clearly affected, then the change goes beyond any question of waiver and must be
regarded as a variation.’

Connor v Pukerau Store Ltd [1981] 1 NZLR 384

This case saw the nature of waiver understood. It involved the sale of a business from Pukerau to Connor. There
was a conditional arrangement that Connor would arrange finance and confirm by a certain date. The day before this
date, Connor said his finance was arranged, but the next day he found this was not the case though and also said he
couldn’t do what he wanted to the store anyway, so rejected his offer to buy. Pukerau sold the store to someone else
for less and sought the difference from Connor.
Had Connor waived the condition of finance? Conditions to his benefit. He had made it clear he got finance and
wanted the store, are there other requirements though?

 There must also be clear, unequivocal evidence or unambiguous representation that strict rights
under the contract will not be relied on. This can be by words or conduct.

In Connor, a number of aspects with this – he told them he arranged finance and told the locals he was buying
the store in a meeting.

 The person or persons to whom the representation is made must rely on it such that they do or
refrain from doing something as a result.

This is where the waiver argument failed, as Pukerau made no changes after they heard of his answer.

The court said this case was rare, so it would be unusual for it to occur again.

4.1.1.2 The concept of common law waiver is quite hard to pin down.

4.1.1.3 Waiver and equitable estoppel are very similar - they are both aimed at protecting a party who
has changed his or her position relying on a representation made by another party, such that reliance would
lead to detriment if that other party is not held to the representation.

16
 17

This is the common law principle of waiver. Often difficult to tell the difference between a waiver and a
variation, and is sometimes confused by judges too.

4.2 The “High Trees” doctrine: equitable/promissory estoppel: The equitable doctrine of promissory estoppel
is one approach the law had developed to deal with situations where a person should be precluded from retracting a
statement upon which another has relied.

This was a promise without consideration where equity steps in as the law would be unfair if the party was not
held to their promise - unconscionability.

4.2.1 Words:
Estoppel: Strouds Law Dictionary (5th Ed) at p 880, tells us that the word comes from a French
word ‘estoupe’, and formed the basis for the English word ‘stopped’.

Coke said ‘A man’s owne act or acceptance stoppeth or closeth up his mouth to allege or plead the
truth’. (Coke upon Littleton, 18th Ed, CO Litt 352a)
Promissory: Obviously enough relates to the word promise in this context.
Equitable: Denotes that the remedy is equitable. For those of you not doing equity, think of this in
terms of justice - the courts will look to a remedy which is fair and which will do justice in the case -
which is ‘equitable’.

4.2.2 General principles:

Hughes v Metropolitan Railway Co (1872) 2 App Cas 439.

In Hughes, the parties were in a contractual relationship; a railway leasing railway houses from Hughes which
were in disrepair. Hughes gave notice to fix them within six months. A month later there were discussions if Hughes
would buy back the reversion of rest of lease, during which nothing was done with the houses. Negotiations didn’t
work and four months later the railway said they would make the repairs. By the sixth month Hughes sent notice
suing for the surrender of the lease as the houses were not fixed yet. The railway did repair the houses, just not
within the six months.
The case was whether the company would argue forfeiture. The court said there should be an equitable remedy.
They said the six month notice was suspended during the negotiations:

Lord Cairns said in this case: ...’it is the first principle upon which all Courts of Equity proceed, that
if parties who have entered into definite and distinct terms involving certain legal results - certain
penalties or legal forfeiture- afterwards by their own act or with their own consent enter upon a course
of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising
under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who
otherwise might have enforce those rights will not be allowed to enforce them where it would be
inequitable having regard to the dealings which have thus taken place between the parties.’

Central London Property Trust Ltd v High Trees House [1947] KB 130.
These events arose before, during and after WWII. Flats were leased to High Trees in 1937 which were sublated
to people. In 1939 people left London and the flats were only 1/3 full. The Property owner agreed to reduce the rent
as such, and after the war the flats became full again. The owners then pursued High Trees for increased rental and
to some arrears for the war years.
Denning talked of the Hughes case, saying there was a fusion between law and equity so the owners could not go
back on their promise to reduce the rent. The court held it was a temporary reduction until the flats were fully let
again. So the court found the promise to be enough even without consideration. Denning set out the factors needed
for such:

- the promise was intended to be binding;

- intended to be acted upon;,
- and was in fact acted on.

High Trees went further than Hughes, as in Hughes the limit was extended, but in High Trees not only was there
a reduction of rent lasting for a certain time, but arrears were unable to be recovered.

17
 18

This gave us the doctrine of promissory estoppel – seemed to have the ability to undermine consideration and
have it removed. But there are limitations to it, and it is always treated as a last resort after consideration arguments.
Because of the concern of this, limitations were applied from the start.

Lord Denning noted that the essence of common law estoppel had been that the representation be one of
existing fact.

4.2.3 Traditional limitations:

 The doctrine applies only to existing contractual relations
McCathie v McCathie [1971] NZLR 384. Turner J said here that ... ‘it is transparently clear
that a promissory estoppel can be founded only on assurances given (whether by words or
conduct) between parties who are already bound one to the other in contract. The doctrine is
used simply as a defence to liability for the strict performance of existing contractual
obligations.’

 The doctrine is a “shield” not a “sword”: The doctrine can only be used as a defence to an
action.
Combe v Combe [1951] 2 KB 215. The Hightrees principle never stood alone as giving a
cause of action in itself. It did not create new causes of action where none existed before.
(Denning LJ).

 There must be reliance upon the representation:

Connor v Pukerau Store Ltd [1981].

 Detriment: In the UK, there appeared to be no requirement of detriment, but the NZ position
appeared to be different.
CIR v Morris [1958] NZLR 1126.
McCathie v McCathie [1971] NZLR 58. See p 73 of Turner J’s judgment, Ln 17, Haslam J,
p75, Ln 15

 Suspension or extinction: Can the conditions which have been waived be resumed on the
giving of reasonable notice?
What can the doctrine do? Suspension or extinction? Mostly it acts to suspend rights. High Trees is a mixture.
Usually suspension, but sometimes on the facts it will be too late to go back to the original position restored. The
courts look for what is fair, but if the facts have gone too far then the doctrine can extinguish rights completely:

Tool Metal Manufacturing Co Ltd v Tungsten Electric Co [1955] 1 WLR 761 HL ‘there
are some cases where the period of suspension clearly terminates on the happening of a certain
event or the cessation of a previously existing state of affairs or on the lapse of a reasonable
period thereafter. In such cases no intimation or notice of any kind may be necessary.
But in other cases where there is nothing to fix the end of the period which may be
dependent upon the will of the person who has given or made the concession, equity will no
doubt require some notice or intimation together with a reasonable period for readjustment
before the grantor is allowed to enforce his strict rights.’

 The equitable nature of the doctrine: A person seeking to rely on promissory estoppel must
‘come to equity with clean hands’.
Re Goile [1963] NZLR 666... ‘Equity will require him to be bound by his arrangement,...
only if the other party has acted in conformity with it.’(p 679)
In re Selectmove [1995] 1 WLR 474 (p 481).

4.2.4 The doctrine summarised:

Ajayi v Briscoe [1964] 1 WLR 1326, at 1330, Lord Hodson said: “...when one party to a contract in
the absence of fresh consideration agrees not to enforce his rights an equity will be raised in favour of
the other party. This equity is, however, subject to the qualifications (1) that the other party has altered
his position, (2) that the promisor can resile from his promise on giving reasonable notice, which need
not be a formal notice, giving the promisee a reasonable opportunity of resuming his position, (3) the
promise only becomes final and irrevocable if the promisee cannot resume his position.’

4.2.5 The relationship with Foakes v Beer: Can an existing debt be discharged by promissory estoppel?

18
 19

Why can’t we use promissory estoppel in these cases as well? There is doubt over this. The only case we have in
New Zealand is Homeguard, where the High Court considered promissory estoppel, but distinguished a promissory
estoppel situation – shouldn’t apply to a debt situation where there is a debt owed – past liability. Promissory
estoppel seen about future representations and promises, so Foakes v Beer not enforced.
Homeguard Products (NZ) Ltd v Kiwi Packaging Ltd [1981].

Collier v Wright [2008] 1 WLR 643. Arguable in the UK.

In the UK there is the case of Collier – a debt situation. It was accepted promissory estoppel could apply to a
debt situation, but there was no real discussion of why or any reasoning.

There is question over the situation of New Zealand – suggestion that it will not apply.

4.2.6 Relationship of promissory estoppel and waiver: The traditional limitations to promissory estoppel
already outlined (pre-existing contract, alteration to position in reliance etc) suggest that waiver and promissory
estoppel could be the same.

Connor v Pukerau Stores [1981]

It can be difficult to tell them apart – cases could go either way, e.g. in Connor this could have been decided
using either.

Boviard and Another v Brown [1975] 2 NZLR 694.

This was an example of what the courts tried to do when both existed on the facts. It involved a sale and a
purchase, with an extension to confirm finance, which was, and so papers were sent. The property however was sold
to someone else – mistake of the seller’s solicitor. It was said that waiver and promissory estoppel similar, but
promissory estoppel was more suitable – the judge just simply chose what to apply.

4.2.7 Promissory estoppel as a cause of action: Since the late 80’s the case law indicates the doctrine is
becoming much more vigorous and may even become a cause of action.

Promissory estoppel began to overlap with proprietory estoppel. This is a doctrine to provide justice in a land
situation only.

4.2.7.1 Proprietory estoppel

Ives Investments Ltd v High [1967] 1 All ER 504
Action to stop High using a right of way. High resisted the action by showing he was encouraged to use the right
of way. This shows the doctrine being used as a shield.

Andrews v CML [1982] 2 NZLR 556

Used as a sword – form of action. There was an issue on a lease of business and whether it should be renewed or
not. It was seen it should be, as the land lord encouraged the person who bought it to continue to update it. This
shows the doctrine can go further than promissory estoppel as it can be used as a sword and a shield.

4.2.7.2 There are indications that proprietory estoppel and promissory estoppel may be merging.

Walton Stores (Interstate) Ltd v Maher (1988) 76 ALR 513

This is where the two came together. It saw promissory estoppel reborn and revitalised. It was about an
agreement to lease and negotiations in a business situation. In the negotiations it was understood that Maher would
pull down a building to build a new one for Walton, who would lease the property. Walton’s solicitors agreed to the
terms and asked for the documents to be sent. The building was pulled down and the new one was started. Two
months later the building was 40% complete and Walton refused to take the lease. Maher sued saying there was an
enforceable promise.
The High Court of Australia looked at equitable estoppel laws and applied it, saying Walton should take the
lease as their conduct showed signs of acceptance.

 The court noted that this would be extending the doctrine to allow it to apply to pre-
contract representations, and to be used as a sword rather than a shield. - The case was not a
proprietory estoppel case because no-one was asserting they had an interest in land, rather the
other way around.
 Consideration was still necessary for a binding contract. Promissory estoppel would
occupy ground left vacant due to the constraints on consideration.

19
 20

 Unconscionability was the basis of the estoppel.

 There were very strong grounds for judicial intervention in this case.

4.2.7.3 Estoppel well-established but not destructive of consideration generally:

If there is no consideration then we use Williams first, then promissory estoppel.

In these cases the courts used methods to control the doctrine. The first requirement was one of clarity – must
have evidence both parties agreed to the promise and they must be clear. The second saw an emphasis on the idea of
contract predominating; if the contract can resolve the dispute then this will be looked at first.

Gillies v Keogh [1989] 2 NZLR 327 Richardson J said that the principles of estoppel require:
- encouragement of a belief or expectation;
- reliance on that;
- detriment.

McDonald v AG Unrep., Hct Invercargill, CP 13/86

The courts were careful about remedies. A government body sent letters to farmers of wheat. The letters and
conduct made one farmer assume they would buy his wheat so he did not sell it. When they didn’t buy, the seller
was provided a remedy under promissory estoppel – sword not shield. The judge noted it may be a negligence claim
in tort and said promissory estoppel shouldn’t be used as a sword all the time in any situation.

Chas Luney v State Bank of South Australia, H Ct

Already mentioned – a & s contract, 3rd party suing, Williams looked at too.

Rodney Aero Club v Moore [1998] 2 NZLR 192

The Hutt City Council v New Zealand Railways Corporation (1997) 6 NZBLC 102,320.
[The Hutt City Council v N Z Railways Corporation (1998) 12 PRNZ 264.]
Mainzeal Property and Construction v Facility Finance [2000] 3 NZLR 594.

Bay of Plenty Electricity Ltd v Natural Gas Corporation Energy Ltd [2002] 1 NZLR 173
This was the first time the doctrine was applied in a summary judgment situation. These are quick resolutions to
disputes between parties where one side has no defence. The claim is based on promissory estoppel and went all the
way to the Court of Appeal, who said such it was such a strong claim it could be applied to a summary judgment
situation.

Werribee Trust Limited v Santa Rosa Developments CA 129/04, 6 December 2004.

Unlikely loose statements in conversations between solicitors or their employees will be sufficient
representation

Gouk v Carr Unreported High Court Tauranga, CIV-2007-470-264, 26 September 2007, paras
[59-65]. Reliance and detriment. Sufficient if life ordered in reliance on promise. Purchase of new
house part of that.
If there is a change in lifestyle = sufficient detriment.

Miller v Parkin Unreported, High Court Auckland, CIV-2008-404-003323, 15 December

2008, paras [42]-[54]. Reliance, detriment, cured by suspension element.
Kiriwai Farm Ltd v Jakubska 13 November 2009, Mallon J. Detriment to women in time
and cost of erecting house in return for licence to occupy. Benefit of house conferred which
unconscionable for Ms K to retain. Test of benefit is objective.
Tried to make people who built houses on her farm to leave after they fell out of their commune like situation of
living. Only one was in a lease and the other in negotiations to lease. Promissory estoppel seen to apply.

South Canterbury Finance Ktd v Huka Ltd Unrep, High Court, Auckland, CIV-2010-404-
004947, 30 November 2010, Associate Judge Bell. Estoppel ineffective where a term in the
contract prevented waiver of rights. Contract trumps unfairness.
Example that courts look to contracts first to see if they can resolve the dispute.

5. SUMMARY - Consideration and promissory estoppel in the law of contract.

20
 21

5.1 Consideration:
5.1.1 If there is consideration, a party can sue for breach of contract. The courts seem to be finding
consideration in the smallest benefit, and however intangible, in which case resort to estoppel is
unnecessary. (Moyes & Groves; Williams v Roffey, AG v R, Antons v Smith).
Carter, ‘Reactions to Williams v Roffey’, (1995) Jnl of Contract Law, 248,
B Coote, ‘Common forms, Consideration and Contract Doctrine’, (1999) JCL 116.

5.1.2 However, has Anton’s abolished consideration for variations and introduced a rule based on
reliance? See:
Karen Scott ‘From Sailors to Fisherman: Contractual Variation and the Abolition of the
Pre-existing Duty Rule in New Zealand’ (2005) Canta LR 201.

5.2 No consideration: A promise will be binding if:

- it is made in a deed; or
- the doctrine of promissory estoppel, which is in a state of flux, applies:
5.2.1 Where the relationship is contractual it is important to remember that the doctrine will
not be applied if the situation is shown to be covered by a term of the contract (See Cooke P in
Minister of Education, v De Luxe Motor Services [1994] 1 NZLR 27, at 33. ‘It is fashionable
for lawyers concerned with contract to become preoccupied by doctrines of promissory
estoppel...But the true interpretation of the contract itself has to be considered first.’ [US
empirical evidence supports this view: See study reported by R Hillman, “Questioning the “New
Consensus”, [1998] Columbia LRev, 580].

But otherwise:
5.2.2 no need for a pre-existing contractual relationship (Burbery, Harris, McDonald);

5.2.3 the doctrine may be used as a sword as well as a shield: (Burbery, Waltons Stores,
McDonald, Kiriwai);

5.2.4 the doctrine does not apply to the discharge of an existing debt (Foakes v Beer, but
note exceptions to that case), Homeguard, but may apply where debt entered into on strength of
assurance that won’t be called up (Harris).

5.2.5 Doctrines of promissory and proprietory estoppel are merging: (Waltons, Gillies,
Harris);

5.2.6 The basis of the doctrine is unconscionability. See Waltons Brennan J p 123 and
Richardson J in Gillies - three requirements, Kiriwai.

5.2.7 the remedy is discretionary “the remedy ...varies according to the circumstances of the
case” (Harris citing Waltons). This leaves open what sort of loss the injured party will be able to
claim.

Consideration Exam Revision

- Turns what giving and taking into binding contract

- Nudum Practum – bare promise not enforceable

Definition
- Mansfield: evidence of parties intentions to be bound & pre existing moral duty
(Eastward v Kenyon)

Modern approaches:
- Benefit / detriment approach

21
 22

- Wadsworth v Edmonds (no benefit received by one party – contract

unenforceable)
- Dale v Manitoba (Consideration found, funding not allowed to be
reduced)
- Bargain approach: one promise induces the other
- Chas Luney (To enforce contract, must show something of value to other
person for their promise)

Categories of Consideration
- Executed consideration: provided by an act, acceptance = consideration (Holloway v AG
& Antons)
- Executory consideration: contract executed in future, no consideration yet (E.g. payable
on delivery)

Development
- Past consideration is not valid consideration; promise after act (Eastward v Kenyon)
- Exceptions: consideration coupled with earlier request (Lampleigh v Brathwait)
- Services performed in course of business (Re Casey’s Patents)
- Not in domestic relations (Teo Tipene v Mere te Puni)

- Can’t sue on promise when you haven’t supplied the consideration (unclear if separate to
privity rule)

How much consideration needed?

- General rule: courts won’t interfere on parties agreements

- What offered needs expression of value (not need to be economic; Dunton v Dunton
(wife be clean)
- Chappel v Nestle (Wrappers)
- AG for England and Wales v R (Not send soldier home)

- Forbearance as consideration (consideration = not do something entitled to)

- Hamer v Sidway (nephew not drink)
- AG v R
- Compromise of suit (settling of dispute)
- Forbearance to sue (agree money owed, time to pay)
- Paulger v Butland Industries Ltd (Guarantee
repayments)
- If person forbearing honestly thinks they have claim, even if don’t this still
consideration
- Couch v Branch Investments
- If person forbearing knew, or out to have know unenforceable claim, then no
consideration

- Performing existing duty can be consideration sometimes:

22
 23

- Performance of public duty where obliged to act = no consideration (police,

doctor, fireman)
- If addition duty required = consideration (Glasbrook Bros v
Glamorgan)
- Duty already owed to third party: usually by contract (Shadwell v Shadwell)
- Duty already owed to promisor: enter second contract but only meet on the first?
- First contract could give powers to vary the second (building
contracts)
- Variations do not need consideration
- Cook Islands Shipping Co (No consideration for
additional payments: already obliged)
- Williams v Roffey
Williams v Roffey
- Contract not met on, more paid to have work done, completed, extra money not paid as
argued no consideration as already bound, however; consideration could be practical
benefit.
- Need to limit principle, could stop all contracts being enforceable.
- Duress: Coercion of will
Did person protest?
Were they coerced or where there other options?
Independent advice before entering?
After entering, steps taken to avoid it?
- Pao On v Lau Yiu Long
- AG v R
- Duress not automatically void
- Seen that case could apply to additional payments; worth more to keep contracts alive =
consideration
- Followed in NZ in Antons
- Was there consideration? Already obliged to perform
- Said should apply in commercial cases where not illegal
- Discusses Mansfield: Promise made so should be morally followed
- Case only applies to variations, not ordinary contracts.

- Part payment of a debt: bound to pay, but here we see a new contract being formed in the
part payment
- Foakes v Beer: no consideration for promisee to forgo interest on debt
when it was agreed to make part payments
- Can we apply Williams?
- Practical benefit of receiving some money
- Court said no in Re Selectmove Ltd
- Would stop Foakes principle
application
- Decided Foakes only applies to debt situations, except for:
- Compromises of rent over tenancy continuation (Machirus)

23
 24

-Rent negotiated, difference claimed for

later
- Foakes not apply: no debt; benefit to
landlord
= Williams
- Foakes does not apply with agreements of creditors to accept lesser
sums when owing (liquidation)
- Does not apply when the amount is an uncertain sum or disputed

- Agreements to accept lesser sums than what argued owing can be binding (Homeguard)
- Amount owed and disputed, cheque sent “in full
settlement”
- No reply, cheque banked = debt satisfied
- This is an offer, acceptance = banking, rejection = not banking &
phoning to let know of rejection
- Exception: Dalgety v Morton
- Amount owing not disputed; not want to pay, sent smaller amount
“in full settlement” with equation of how amount worked out
- Foakes applied; fixed sum, part payment not settle, no dispute of
amount – can’t just be reluctant to pay.
- If the cheque is banked and no reply = acceptance
- If delay between banking and rejection of the amount = could be acceptance
(Haines House Haulage v Gamble – depending on circumstances
- If cheque kept and not banked = no acceptance
- If cheque banked by accident and notification prompt = no acceptance
(Magnum Photo Suppliers)

Equity

Promises not supported by consideration

- Try to argue consideration and fail: equity can step in
- Equitable estoppel: courts enforce promise where no consideration
- Must come to equity with clean hands: done all required to do
Waivers
- Usually variations to contracts unenforceable; party can waive their right in contract –
don’t need consideration.
- Waimor Holdings Ltd v Dean (Payment of deposit on certain date waived – no
variation)
- Waiver is less than a variation – does not change rights of parties under contract
- Person relying on waiver must do so that refrain from doing something as result (Connor
v Pukerau)

24
 25

- Condition of finance said to be met

- Not the case; was condition waived?
- Didn’t matter; no changes made on answer so no
waiver
- Similar to equitable estoppel; protect party who changed position due to representation,
where reliance would lead to detriment if party not held to representation.

Equitable/promissory estoppel & High Trees Doctrine

- Promissory estoppel approach where person precluded from retracting statement where
someone else relied on it.
- Hughes v Metropolitan Railway Co: six months notice to repair suspended during
negotiations = equitable remedy
- Central London Property Trust v High Trees House: rent reduced, then years later
increased and difference sought to be recovered.
- Seen as temporary reduction; binding without
consideration
Reasons for such a finding that:
- Was intended to be binding and intended to be acted on
- Led to doctrine of promissory estoppel; limitations needed
- Traditional limitations
- Doctrine only applies to existing contractual relations (no longer the case)
- Used only as a defence
- Must be reliance on the representation
- NZ ; detriment
- Can doctrine suspend rights?
- Come to equity with clean hands
- Not apply to debt owed, as applies to future representations, not past (Foakes
not apply)

- Today promissory estoppel can be used as an action

- Can overlap with proprietory estoppel (justice in land)
- Shield: stop someone using a right of way
- Sword: allow lease to continue when tenant encouraged to update
building

- Equitable estoppel does not destroy consideration

- Use Williams first, then equity
- Must be evidence both parties agreed to promise
- If contract can resolve dispute, it will be looked at first
- If consideration is provided, can sue on it; don’t need promissory
estoppel

Consideration
Principle Case Information

25
 26

Definition
Looked after girl promise to
Mansfield: Evidence of parties
pay back when of age On
intentions to be bound and pre Eastward v Kenyon
facts Mansfield’s description
existing moral duty.
wasn’t present.
Benefit / Detriment / Bargain Approach
Money borrowed for others
No benefit received from one
Wadsworth v Edmonds house deposit, went to them
party; unenforceable
first though
University funding, students
Benefit found; enforceable Dale v Manitoba
in society
Bargain; one promise induces
Chas Luney Affirms this
another; enforceable
Development
Past consideration is not valid Eastward v Kenyon Look after child
Killed someone, asked for
Consideration can be coupled friend to get him pardon;
Lampleigh v Braithwaite
with another request implied payment would come
afterwards
Promised share of value in
Services performed in course of
Re Casey’s Patents patents from those he
business; consideration
working for
Work on house for free
Services in domestic Teo Tipene v Mere te
during relationship:
relationships; no consideration Puni
relationship ended
Consideration’s Value
Dunton v Dunton Wife behave
What offered needs expression of
Chappel v Nestle Wrappers
value; not need to be economic
AG v R Not sending soldier home
Forbearance as Consideration
Not performing a right you are
entitled to do can be Hamer v Sidway Nephew not drink etc
consideration

26
 27

Asked creditors not to sue,

Paulger v Butland
Forbearance to sue; consideration said would guarantee
Industries Ltd
repayments
If person forbearing honestly Hire purchase agreement not
Couch v Branch
thinks they have a claim; valid; still liable for money
Investments
consideration owed though
Performing an Existing Duty
If an additional duty is preformed
Glasbrook bros v
on top of an existing duty; Police at mining strike
Glamorgan
consideration
No consideration for
Cook Is Shipping Co additional payments; already
Variations to existing contracts do
obliged
not need consideration
Consideration was in keeping
Williams v Roffey
contract alive
Paid to keep subcontracting
Consideration can be a practical work done so original
Williams v Roffey
benefit contract would be breached
and penalties occur
Part Payments of Debts
No consideration for promisee to
Money owed, asked for time
forgo interest on debt when agree
Foakes v Beer to pay in instalments; interest
to pay part payment (only apply
not discussed.
to debt situations)
Agreement to accept lesser sum
Homeguard Products v Disputed amount – “full and
can be binding, when amount is
Kiwi Packaging final settlement”
disputed
Didn’t want to pay real estate
When amount is not disputed,
agent, send smaller amount,
lesser sums not have to be Dalgety v Morgan
this banked and the rest was
accepted
asked for
If delay between banking cheque Haines House Haulage v Cheque sent and banked,
and rejection; could be Gamble received by director with

27

acceptance
If cheque banked by mistake and
promptly reply; might not be
acceptance
Waivers do not need
consideration
If rely on waiver, must refrain
from doing something as a result
Person precluded from retracting
statement when it was relied on
by someone else
28
letter or how costs totalled.
Only got letter 10 days later
saying rejected.
Magnum Photo Cheque banked on accident;
Suppliers told immediately of mistake
Waivers (Equity)
Waimor Holdings Ltd v
Deposit payment date waived
Dean
Store sellers didn’t rely on
Connor v Pukerau finance condition; sold
anyway
Promissory Estoppel
Six month notice to repair
Hughes v Metropolitan
suspended during
Railway Co.
negotiations
Central London Property
Rent reduced, then increased,
Trust v High Trees
difference claimed back
House
28
 -1-

PRIVITY OF CONTRACT

The common law doctrine of privity of contract means that a contract cannot as a general rule confer
rights or impose obligations arising under it on any person except the parties to it. Only the parties can sue
or be sued, and strangers to the contract can have no rights conferred or imposed.
There are two limbs to this rule; obligations (simple to follow) and rights (merits of the rule not clear).

This doctrine overlaps with the doctrine of consideration. If someone doesn’t provide consideration,
how can they sue on a contract when they are not party to it? How can they get the benefit without
consideration. However they are different rules – there are cases where consideration is not provided by
them, but by someone else.
If we do allow third parties to sue it could hamper with the rights of contracting parties – if effecting
someone else, can they change contract when they feel like it? If we give rights to a third party how can we
relate to rights of contracting parties?

1. THE IMPOSITION OF CONTRACTUAL LIABILITIES ON THIRD PARTIES

The general rule is that two persons cannot, by any contract into which they enter, impose liabilities on
a third person not a party to the contract. The reason for the rule is that a person should not be subjected to
contractual obligations without his or her consent.
The reason for this is so people can’t be obliged to meet obligations on contract not involved in. This is
different to tort – obligation imposed on you. Can’t impose burden of exclusion clause on third parties
either – e.g. sell car with an exclusion clause, which due to fault causes damage to someone else – the third
party can still sue and ignore the exclusion clause – they are not bound.

2. THE ACQUISITION OF CONTRACTUAL RIGHTS BY THIRD PARTIES

What about benefits to third parties? Contract with A and B to get C something? Can C sue on it?

A Introduction
Core common law rule found in Dunlop Tyre Co Ltd v Selfridge & Co Ltd. Dunlop sold tires to a
company, with terms they would be sold not at low price – they agreed and said they would do the same if
they sold them on. When they sold to Selfridge, they too agreed to the conditions, and that for every tire
they broke their promise on they would pay Dunlop an amount.
There was a breach of contract and it was asked whether Dunlop could sue on the contract that did not
exist with them? Could they sue to get the benefit? The House of Lords said no:
Per Viscount Haldane
“My Lords, in the Law of England certain principles are fundamental. One is that only a person who
is a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of
contract. Such a right may be conferred by way of property, as, for example, under a trust but it cannot be
conferred on a stranger to a contract as a right to enforce the contract in personam.”
“In the law of England certain principles are fundamental. One is that only a person who is a party to a
contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of contract.”

The consequences of this, are that simple contracts to pay money to third parties could become
unenforceable. Tweddle v Atkinson (1861) 1 B & S 393 – fathers agree to pay money to children if they got
married. One died, son sued estate to get money. His claim failed, as he was only a third party beneficiary.
Could a window enforce contract between a husband and employer for compensation if he died? Could
you sue a holiday organiser for the bad holiday you and your family experiences, when only one person
made the contract.
Critics ask why they couldn’t sue? The US never took this view. In NZ there is the Contract Privity Act
which substantially changed the rule – third parties given the rights to sue.
 -2-

The rule was amended in the UK in 1999 with the Contracts Rights of Third Parties Act – similar to
NZ.

B. Remedies of the promisee

The Privity Rules have never been absent, in particular to rights of the promise for the benefit of a third
party. What are the remedies of the promise?

(i) Specific Performance

A third party may get the benefit if the promise sues on behalf of them. In Beswick v Beswick [1968]
AC 58; [1967] 2 All ER ll97, a coal merchant transferred his business to his nephew, who promised on his
death he would pay his aunt money each week. When the uncle died the nephew did not pay. An action was
brought by the widow – contract made without her though. However, she could sue in two capacities – on
behalf of her husband’s estate, and on the privity capacity. Her second failed on the application of Dunlop,
but the first succeeded.
The New Zealand example can be found in Rattrays Wholesale v Meredyth-Young & A’Court Ltd
[1997] 2 NZLR 363 – lessee promised the lessor benefit to the lessors’ nominee – enforceable by degree of
specific performance required the lessee to do it.

(ii) Declaration
This follows the same rules, as found in Snelling v John Snelling Ltd [1973] QB 87; [1972] 1 All ER 79,
the plaintiff and two brothers were directors of a family company, which was financed by loans from all
three of them – contracted between themselves they wouldn’t seek repayments from the company and if
they resigned they would forfeit the loan. One resigned and sued the company for repayment.
The contract was not seen to be made with the brothers, not with the company; so the plaintiff could sue
on it. But the brothers could get a declaration that promise binding – prevented him from suing.

(iii) Damages
What if promisee sues for damages? Can they recover in respect of third parties losses? What is the
promisees own loss in such a case?

Damages for the third party’s loss

The general rule contracting party can’t claim for losses. Doubt can be seen in Jackson v Horizon
Holidays Ltd [1975] 1 WLR 1468; [1975] 3 All ER 92 – holiday case. The plaintiff made contact with the
defendant for holiday with family. Holiday was bad, he sued for a breach. The Court of Appeal asked what
who could recover? The contract was made by the husband, but the wife and children were with him. The
court held he could claim loss for himself and the wife and children.
There were two reasons for this decision – the plaintiff could recover for his own disappointed family
holiday – entitled to compensation. The minority view was that he could recover for loss suffered by the
wife and children. Denning was prepared to allow this, however he was slapped down by the House of
Lords in Woodar Investments v Wimpey [1980] 1 WLR 277, where it was affirmed the core common law
rule that you can’t ordinarily recover.
There are exceptions to the core rule though. The major exception can be found in Dunlop v Lambert
(1839) 2 Cl & F 626 – held signor of goods lost at sea can recover damages from the carrier, even though
ownership passes over to the signee; someone else suffered the loss.

The rule was applied in The Albazero [1977] AC 774 – the rule restated:
Per Lord Diplock
“In a commercial contract concerning goods, where it is in the contemplation of the parties that the
proprietary interest in the goods may be transferred to another before any breach causing damage to the
 -3-

goods, an original party to the contract is to be treated as having entered into the contract for the benefit of
the other person and may recover the actual loss suffered by that person.”

A significant development in the contract of defective buildings can be found in Linden Gardens Trust
Ltd v Lenesta Sludge Disposals Ltd [1994] AC 85 – building put up badly and sold on – if the third party
can’t sue, what about the contracting party? Linder applied Albazero in this context:
“Where a building development was, to the knowledge of the parties, likely to be acquired by a third
party, and there was a prohibition on the assignment of the benefit of the contract without the consent of the
builder, then the third party would foreseeably suffer loss from defective performance of the contract but
would be unable personally to sue on the contract. In these circumstances the contracting party could
recover in respect of the third party’s loss.”

The rule was then qualified in Alfred McAlpine Ltd v Panatown Ltd [2001] 1 AC 518, [2000] 3 WLR
946– holds no justification in holding Albazero and Linden if there is no remedy. If third party can sue and
has remedy, then there is no justification to apply Linden. Contract to build office block, but site belonged
to a third party. A was building for Panatown. A entered into duty of care deed with owner of site,
accepting liability of negligence. Building was defective, the plaintiff sued on behalf of the site owner,
seeking to envoke the Linden principle.
The House of Lords held the plaintiff can’t recover in respect of site owners loss, as Albazaro exception
does not apply where a third party has contractual rights against the carrier – which they did in this case.
The court said no black hole where neither could sue.
“The Albazero exception did not apply where the third party had itself acquired contractual rights
against the carrier, and by similar reasoning it did not apply in the instant case where the owner had an
independent contractual right against the builder. There was no “black hole” where neither owner nor third
party could sue.”

How can we apply the principle to New Zealand building cases? What is the New Zealand position? Do
third parties have a cause of action? It is clear they do in terms of defective buildings, if it is residential, but
not so if it is commercial; no right of action, as seen in Rolls Royce NZ Ltd v CHH Ltd [2005] 1 NZLR
324. So Linden can still operate since a third party has no action. In commercial buildings, they could have
a right of action under the Contracts Privity Act; unlikely though as Act only gives action to third party if
designated.

So normally you cannot sue, as seen in Woodar, except in Albazero and Linden – promise can sue for
third parties loss, unless the third party has their own action.

McKinlay Hendry Ltd v Tonkin & Taylor HC Wellington, Miller J, 22-3-04, CIV 1999-485-78, on
appeal CA81/04, 9 Dec 2005

Damages for the promisee’s own loss

What has the promisee lost? Are their damages nominal or substantial?

Price v Easton (1833) 4 B & Ed 43 – breach of promise by promisor to pay debts owed by promisee to
a third party; which they didn’t. This led to a loss by the promisee – substantial loss, so can recover
substantial damages.
In Beswick – nephew not paying his aunt – were the damages substantial? No – said to be nominal, as
the promisee died without any other assets except for this agreement – estate not in position to make other
arrangements. If there were other assets in the estate, it may have made provisions for the widow under
this.

Can we generalise the promisee’s loss when they wanted it to go the a third party but it didn’t so they
are unhappy – can they recover on this?
 -4-

Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460 at 501-502. per Windeyer J
“Suppose C was a person whom A felt he had a duty to reward or recompense, or was someone
who, with the aid of $500, was to engage in some activity which A wishes to promote or from which he
might benefit—I can see no reason why in such cases the damages which A would suffer upon B’s breach
of his contract to pay C $500 would be merely nominal: I think that, in accordance with the ordinary rules
for the assessment of damages for breach of contract they could be substantial. They would not necessarily
be $500; they could I think be less, or more.”
So A has the right to damages in compensation for frustration of form of contract. It is because
expectations of benefit were frustrated, and this is the damages amount.

Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] AC 85

Lord Griffiths:
- The promisee has suffered a loss in not receiving the bargain for which he had contracted.
- The promisee recovers damages in respect of his own loss in ensuring that the third party receives
the intended benefit.
But Linden was not decided on this point; caution was favoured as seen in Albarzero.

The issue was raised in New Zealand in McKinlay Hendry Ltd v Tonkin & Taylor HC Wellington,
Miller J, 22-3-04, CIV 1999-485-78, on appeal CA81/04, 9 Dec 2005 – Griffiths view not seen to be
favourable, took Albazero approach instead.
Commentary has supported Griffiths though, but the House of Lords did not decide the point in Alfred
McAlpine Ltd v Panatown Ltd – they saw no reasons why there would be problems though. However this
case decided on the point that Panatown’s rights were negated – existing remedy for third party to sue,
equally relevant to this ground as narrower ground.
No action lies if the third party has a direct right of action against the promisor, on the same reasoning
as with claims by the promisee for the third party’s loss. In Panatown Lord Browne-Wilkinson said that
there is little inducement for the courts to extend the law so as to give both the promisee and the third party
concurrent rights of enforcement.
So the promisee can’t sue of the third party has an action, as they will get the benefit eventually. If both
could sue there would be twice as much damages. What about promisee’s losses in building cases? No
benefit to third parties (house what defected). So if promisee gets damages, must it be used for the third
party to repair the damages?
The difficulty is that it is their own loss, if recovering for someone else it would be held as trustees, but
have promisee themself has suffered as loss. How do we ensure the third party gets the benefit?
The promisee must show it’s a genuine loss because the third party didn’t get the benefit – not just
technical breach. In Panatown – said to look at benefit of damages and where will go? – will they use
damages to repair? If say they will, how do we force it to occur? Courts could require promisee an
undertaking with court so the money would go to the third party – enforceable.

Invercargill CC v Hamlin [1996] 1 NZLR 513

Rolls Royce NZ Ltd v CHH Ltd [2005] 1 NZLR 324
Coote (2001) 117 LQR 81
MacMillan [2001] LMCLQ 338

C. Trusts of contractual rights

This is another was that the problems of privity can be avoided. Trusts are an equitable operation to
hold property for someone else. Property in trust may be tangible property, or something intangible – debt
(person entitled to it = benefit).
 -5-

The promisee under contract has benefit under contract – valuable debt. Can make this subject matter of
the trust.
Can create a trust – declare self trustee, with someone else as beneficiary, and make benefit of contract
subject of trust. Person with benefit can then enforce it = way around privity issues. Occasionally courts do
this – not often, as want clear evidence of intention to create a trust. Reason so strict that it like a gift – once
created its irrecovable, can’t be taken back. Swain v Law Society [l982] 2 All ER 827 – argued and rejected.

Re Schebsman [l944] Ch 83

D. Exclusion clauses and third parties

Another way to avoid problems developed in relation to exclusion clauses and how they mught be
phrased to give enforceable benefits to a third party. There are several ways to do this. The first is the
principle of agency. There are many cases where third parties try to get exclusion clauses in original
contract.

(i) Contractual Exclusions

Adler v Dickson [1955] 1 QB 158

This is the leading case - Scruttons Ltd v Midland Silicones Ltd [l962] AC 446; [1962] 1 All ER 1-
drum of chemicals shipped under contract with clause limiting liability of the carrier to $500. The
stevedore’s tried to unload goods and damaged them – claimed benefit of limited liability in contract – they
didn’t make contract, it was made between signees and carrier.
The House of Lords said no – they applied Dunlop Tyre Co Ltd v Selfridge & Co Ltd – third party can’t
get the benfit of a contract when they are not involved in it. However, per Lord Reid
“I can see a possibility of success of the agency argument if (first) the bill of lading makes it
clear that the stevedore is intended to be protected by the provisions in it which limit liability, (secondly)
the bill of lading makes it clear that the carrier, in addition to contracting for these provisions on his own
behalf, is also contracting as agent for the stevedore that these provisions should apply to the stevedore,
(thirdly) the carrier has authority from the stevedore to do that, or perhaps later ratification by the stevedore
would suffice, and (fourthly) that any difficulties about consideration moving from the stevedore were
overcome.”
He contemplated the idea that the owner might contract on own behalf and as an agent for the
stevedore, so would get the befit of the exclusion clause – this was not the case on the facts though.

The argument did occur and succeed in NZ Shipping Co Ltd v AM Satterthwaite & Co Ltd [1974] 1
NZLR 505; [1975] AC 154; [1974] 1 All ER 1015. This was a similar case, where goods were shipped
under contract with terms issued by the carrier, giving immunity to the stevedore’s, who then went on to
damage the goods. It was held they could rely on the principle. So here there was a contract made between
the stevedore’s and the signee. Made by carriers, acting for themselves and as agents for the stevedore’s.
Terms were that the signees gave them the befits of the contracts exclusion clause, and in return they
unloaded the goods; consideration as performing what you are already bound to do is still valid.

This does not just apply to stevedores’ though, but when a party contracts to a clause as an agent for
someone else’s benefit. Various Australian cases use the same argument.
The question was considered in New Zealand in the case of Herrick v Leonard and Dingley Ltd [1975]
2 NZLR 566, where McMullan J asked if Scruttons conditions were met – failed as clause only referred to
agents and servants, but not independent contractors. Still agreed with the decision though. There are no
clear indications the carrier was acting as an agent in this case, as no prior authority or ratification, though
was considered, not enough conditions met.

The Mahkutai [1996] AC 650; [1996] 3 All ER 502

 -6-

If you the stevedore in tort, do they have a contractual defence to what otherwise would be liability due
to negligence? There are defences:

(ii) Defences to Tort Actions

- Vicarious immunity
This was put forward in Elder Dempster & Co v Paterson Zochonis & Co Ltd [1923] 1 KB 420, stating
servants or agents acting under contract with exclusion clause can be sued in tort as independent people,
but can claim protection of contract for employers. If so, why can’t it apply in some stevedore cases?
Scruttons – unused principle and House of Lords did not support it.
The Supreme Court adopted it though in London Drugs Ltd v Kuehne & Nagel (1993) 97 DLR (4th)
261 – the plaintiff stored goods in defendant’s warehouse under contract, where liability to damage small.
Two employees damaged the goods and they were sued – could they apply on the limitation made by the
warehouse owner and owner of the goods? The majority held they could – third party beneficiaries entitled
to rely on the clause, as acting under their employment for employer – appears to be vicarious immunity.
In the later Canadian case of Fraser River Pile & Dredge Ltd v Can-Dive Services Ltd (1999) 176 DLR
(4th) 257 – the principle was broadened to go beyond employer and employee cases. Sis the parties intend
to extend the clause to the third party? Were the third parties actions ones that contemplated as being in
scope of the contract? This is a common law exception to the privity rule.
Recent New Zealand authority has also taken this line, but is it needed – we have the Contracts Privity
Act which protects third parties.

In Sheehan v Watson [2011] 1 NZLR 314, the owner of an industrial property leased it to a company.
An employee of the company caused a fire on the premises and the owner was indemnified by their
insurance for the loss; the insurer then on behalf of the owner took the employee to court for damages.
S269 of the Property Law Act prevents claims for lessor’s bringing claims on a lessee for damage caused
by fire when the premises are insured, but does it apply to lessees employees or agents?
The court though Parliament would want to protect agents agents as well and referred to London Drugs
saying that the reasoning could be applied by analogy and that the lessees agent could get the same
protection.
Generally we can just rely on the Contracts Privity Act though.

- Assumption of risk
By entering a contract excluding liability to a third party, the plaintiff assumes the risk by them.
Assumption of risk in tort requires the plaintiff to be fully aware of all circumstances and of the danger and
must freely and voluntarily agree to run the risk = stringent conditions. Courts don’t usually like finding
this when negligence is involved, and it is not easy to prove.

- Non-contractual notice
This is not about the assumption of risk, but person free to modity or exclude tort liability, which would
otherwise arrive by non contractual notice. E.g. putting up a notice saying “enter at own risk” – excludes
liability. Could also be advice given gratuitously, where a person says they are not liable for the advice they
give.
Smith v Eric S Bush [1989] 2 WLR 790 – purchaser of a house applied for a mortgage from a building
society, who told valuers’ to get a mortgage valuation; there was a contract excluding liability to the society
and the valuers they used, and the courts said this was notice of an exclusion clause to the purchasers, so
they were bound by it. However, the Unfair Contracts Terms Act got them out of it.
In Rolls Royce NZ Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324, a sub contractor gave notice of an
exclusion clause in the main contractors contract with the owner. It was held the subcontractor could rely
on this.
Reasonable notice is needed to be given, but actual knowledge of the clause is not necessary.

These are the common law defences to tort actions. There are also statutes though:
 -7-

- Exclusion of liability as a benefit under the Contracts (Privity) Act 1982

Benefit going to third parties; in certain circumstances then can enforce benefits, including exclusion
clauses.
The Eurymedon (NZ Shipping) principle may apply where one person contracts as agent for another, so
the other gets the benefit of the clause as a contracting party. By contrast, the Contracts (Privity) Act 1982
applies where one person contracts for the benefit of a sufficiently designated third party, and there is no
intention that that person should be a contracting party. A benefit under the Act includes the benefit of an
exclusion clause.
In either case it may be possible to argue that the plaintiff has assumed the risk of the defendant’s
breach of duty or that the defendant has excluded his or her liability by a non-contractual notice. Probably,
the notice principle can effectively subsume the agency analysis. A defendant seeking to shelter behind an
excluding provision in a contract between others can rely both on the notice principle and on the Contracts
(Privity) Act.

Pacific Associates Inc v Baxter [1989] 3 WLR 1150

E. Novation
This is another way a third party can get the benefit of an exclusion clause, when the contract is made
with others. Novation takes place when two contracting parties will stand in, in relation to one of them;
creating a new contract which all must agree on. For example, A and B make a contract, and agree to bring
in C – A and B make a new contract, where B goes and C takes over their responsibilities.
Novation leads to a new contract where consent is needed from both contracting parties. Can’t just give
up contract with someone and pass on rights and liabilities to someone else – agreement is needed.

Lambly v Silk Pemberton Ltd [1976] 2 NZLR 427

Karagahape Road International Ltd v Holloway [1989] 1 NZLR 83

F. The Contracts (Privity) Act l982

The background to the Act lies in the report of “Contracts and Commercial Law Reform Committee
Report on Privity of Contract (1981)” – law reform committee observed there were means of avoiding the
privity doctrine (as seen before) – but noted there could be a problem not allowing third parties to have
rights. They accepted courts usually were able to give intentions of the parties, but not always. The
committee said they couldn’t see policy reasons against allowing third parties to be involved when the
intentions were there.
Included in the report was a draft Bill with major amendments. The Act didn’t abolish the privity rule,
just created significant exceptions. Reform included some third parties being able to have rights to enforce
contracts. Previously, there were many contracts where parties could get benefits from, but could not
enforce them.
The purpose of the Act is to allow intended terms of contracts between others to enforce contract, but
not to interfere too much in the autonomy rights of the contracting parties – it is a balancing exercise.

Finn, “Reform of Privity” (1981) 1 Canta L.R. 292

Newman “The Doctrine of Privity of Contract: The Common Law and the Contracts (Privity) Act
1982” (1983) Auck Univ. LR 339.
Coote, “The Contracts (Privity) Act l982” (1984) Recent Law 107
UK Law Commission “Privity of Contract: Contracts for the Benefit of Third Parties” LC No 242,
Cm 3329, 1996
Kincaid (1997) 12 JCL 47
Smith (1997) 17 OJLS 643
Chee Ho Tham “Trust not Contract” (2005) 21 JCL 108
Coote “Contract not Trust” (2006) 22 JCL 72
 -8-

(i) Contracts for the Benefit of Third Parties

The key provision of the Act is section 4:

S 4. Where a promise contained in a deed or contract 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 (whether or not the person is in existence at the time when the deed or contract is made)
the promisor shall be under an obligation, enforceable at the suit of that person, to perform that
promise:
Provided that this section shall not apply to a promise which, on the proper construction of the
deed or contract, is not intended to create an obligation enforceable at the suit of that person.

A promise contained in a deed or contract

What if the contract was induced by a misrepresentation with a benefit to a third party – can they sue on
it? Is a misrepresentation included? Section 6 of the Act says induced misrepresentations in contracts are
treated as if they are a term of the contract.
On the face of it, not promise in deed or contract, however a case decided to take this approach in
Pragma Holdings Ltd v Great South 507 Ltd (HC, Auckland, CIV 2005-404-1931, 30 August 2006) – court
favoured a liberal interpretation of the clause, refused to strike out a claim by third party for
misrepresentation inducing the contract.

The benefit must be in the contract – this lead to difficulty in contracts which involve nominees. The
argument was made in Karangahape Road International Ltd v Holloway [1989] 1 NZLR 83 – nominee to
contract made with contracting party couldn’t enforce under s4 as here arose by virtue of a nominee, not
contractual promise. So if to benefit A or nominee, they get there by being nominated, so on this argument
they don’t get it.
However, the benefit still confirmed by contract notwithstanding that only know who the person is once
they are nominated – this line is accepted today in Rattrays Wholesale v Meredyth-Young & A’Court Ltd
[1997] 2 NZLR 363 – where Tipping J took the view that a nominee gets the benefit from being nominated
and from being in the contract = both!
This did not apply in Gartside v Sheffield, Young & Ellis [1983] NZLR 37, where it was asked if
disappointed legacies under a will sue a solicitor in duty of exercising a will, where in the circumstances
the testator told solicitor to draw will but died before this complete. The plaintiff could have got here under
new will if properly executes. It was held they had a claim in tort in principle of duty of care owed by the
solicitor. Could the Act apply? The events of the case occurred before the Act, but if it was in place it
would not help them, as the contract was between the testator and solicitor, where no benefit to legacy in
this – this found in the will, so no promise in deed or contract and cant rely on Act in this case.

Laidlaw v Parsonage [2010] 1 NZLR 286

The benefit to the third party

Can include the benefit of an exclusion clause; usually it is only positive benefits, which section 2
defines as including any advantage, any immunity and any limitation or other qualification of rights or
obligations. For example, A promises to B to pay C = positive benefit to C. Still includes immunity though,
can exclude liability.

Allison v KPMG Peat Marwick [2000] 1 NZLR 560

Sheehan v Watson [2011] 1 NZLR 314

Designation
The core of section 4 is the core requirement of designation; an unnamed description or reference to
class. In Cross v Aurora Group Ltd (1989) 4 NZCLC 64,909, the court said designation is a strong and
 -9-

positive word, meaning more than mere contemplation or a possibility. So incidental beneficiaries can’ just
sue.

Nomination Cases
What about nominees then? Do they count as being sufficiently designated? Field v Fitton [1988] 1
NZLR 482 took a strict view on this and said for a nominee to get the benefit of section 4 then it must
depend on the nominee being defined with sufficient particularity. They said a bare nominee is not enough:
Field per Bisson J
“It is difficult to treat a bare nominee not designated by name as a person identified by description
or as being within a designated class of persons. The nominee could be anyone at all. If the nominee is not
named the word “nominee” in the contract should be qualified by the addition of a descriptive phrase or the
addition of the particular class within which the nominee falls so as to specify or identify the nominee in
the manner required by s 4.”
So on this view a nominee is not sufficient on its own; need some idea of who they are.

This view is out of favour and was criticised in Rattrays Wholesale v Meredyth-Young & A’Court Ltd
[1997] 2 NZLR 363 by Tipping J, who preferred a wider view. He said the comments in Field were obiter
and said there was no reason to take such a view. He said:
Rattrays per Tipping J
“The purpose of the designation requirement was to enable the promisor to know with sufficient
certainty who could claim the benefit of the promise. Once nominated that person was identified with
certainty. It did not matter that until then the person could be anyone at all.”
So why might qualify? Tipping J said there is no difference in saying x nominee, or person not in
existence but is contemplated by section 4 – the section specifically says a person does not need to be in
existence. So no conceptual difference between the two.
If the nominee is referred to then there must be meaning and intention behind it, so this must mean they
get the benefit as otherwise, why refer to them?

In Ballance Agri-Nutrients Ltd v The Gama Foundation [2006] 2 NZLR 319, a contract referred to
parties successors and permitted assignees. Could contract allow assignees to bring an action even though it
does not refer to who they are personally? If they are included it is obvious to be able to enforce. This is an
express agreement with Rattrays.
Laidlaw v Parsonage [2010] 1 NZLR 286 saw Rattrays and Ballance seen to be correctly decided on
this point. This was a leaking home case – appellant agree to sell home to purchasers and or nominee and
respondant to family trust became the nominee and the property was transferred. The house then leaked and
the respondant sought summary judgement over the breach of warranty that the building did not comply
with the Building Act – upheld by applying Ballance.
per Ellen France J
“The promise relied on by the trustees was made to the purchaser and the purchaser included the
nominee. There was therefore a promise which purported to confer a benefit on a person to whom there was
a sufficient designation in terms of s 4. Nothing turned on the fact that the provision was included as part of
the description of the parties rather than part of the terms setting out the benefit the nominee was to receive,
nor on the fact that the nomination remained revocable up until the time of the contract”
This shows a wide view of reference to nominees.

Suppose the contracting party has nominated a third party – can the contracting party still sue? Rivette v
Atrax Group New Zealand Ltd (2011) 11 NZCPR 723 – purchaser of stock in trade got a nominee company
to purchase business and pay for stock. It was alleged they made an inflated estimate of the value of the
stock and the purchaser sought the difference from the nominee company.
The court was asked – could the purchaser seek judgement when they contracted to someone else to
buy. They said yes, as the original party still has contracting rights, and if they nominee someone you can
still sue. There is no reason both cannot sue.
 - 10 -

You only loose rights in a novation. However it was also asked who suffered the loss? Here, the
company was alleged to pay too much for the stock, so the court thought the defendant had a good claim as
not suffered any loss.

Karangahape Road International Ltd v Holloway [1989] 1 NZLR 83.

Defective Property Cases

What happens when there is a contract, where B builds for A, who sells to C? Does C have an action
under the Contracts Privity Act? No, if they are not designated. So if C is not mentioned in the contract,
they can’t sue on it as they are not designated. There would be no cause of action as in Linden Gardens.
What is the contract stated a warranty of quality from B to A extended to subsequent purchasers. Since
C is the subsequent owner, they are designated. It does not matter that there is the potential for this to be
anyone.
This is the same argument for exclusion clauses, where a clause exists between A and B with a benefit
going to C. But what if the contract with a shipper and signee and the exclusion clause goes to independant
contractors who are not stated in the contract, just says extends to B’s independent contractors? The
intention of the benefit is that it goes to them, so since it exists they are covered.
So a third party could also have a cause of action if mentioned too.

Pre-Incorporation Cases
Section 4 says a person need not be in existence at the time they are designated. Section 4 can aply to a
pre-incorporation case. This was confirmed in Speedy v Nylex NZ Ltd HC, Auckland CL 29/87, 3 February
1989 and in McKinlay Hendry Ltd v Tonkin & Taylor HC Wellington, Miller J, 22-3-04, CIV 1999-485-78
(on appeal CA 81/04, 9 Dec 2005), where a contract was seen to be able to designate a company that was
not yet incorporated into the contract but could enforce section 4.
Caution must be noted, as section 4 applies where a contract is for the benefit of a company yet to be
incorporated. So a contract with A and B for the benefit of C will apply. This will not apply when the
contract is made on behalf of the company though, as here A and B, where A is an agent for C. So if the
purpose was to bring in C as a party, section 4 will not apply, only applies when a third party is not int he
party itself. In this case the Company Act will apply instead: Companies Act 1993, ss 182-185

The proviso
A promise must be intended to create an obligation enforceable. Nominee cases debated this in Field v
Fitton, thought reference to nominee = no intention to perform.
If a contract states a third party has enforceable rights then it applies and is effective. The problem
arises when the party does not say this.
Saunders v BNZ [2002] 2 NZLR 270 – plaintiff’s were a firm of solicitors who brought proceedings on
inspectors of the firm who failed to detect a fraud by an employee. One argument that the solicitors entered
was that they were owed the benefit of the appointment of the inspector by the Law Society.
It was however held the appointment was a regulatory one, and no benefit was intended for the firm;
proviso applied – no intention for action enforceable by them.

Malyon v NZ Methodist Trust Association [1993] 1 NZLR 137

(ii) Variation or Cancellation of the Contract

See ss 5-7, the broad effect of which is to allow variation or cancellation (a) until the third party
materially alters his position in reliance on the promise or obtains judgment or the award of an
arbitrator against the promisor; (b) at any time by agreement between the parties and the
beneficiary or pursuant to express provisions in the contract which are known to the beneficiary;
or (c) pursuant to a court order.
 - 11 -

What if parties change their minds? Need provisions governing the relation between contracting parties
and third parties. This is covered under section 5:

S 5 precludes variation or discharge without the consent of the beneficiary where the position of the
beneficiary has been materially altered by his or her own or another’s reliance on the promise, or
the beneficiary has obtained judgment upon the promise, or the beneficiary has obtained the
award of an arbitrator upon a submission relating to the promise

This looks like estoppels. Not saying contractual rights, in effect stops party enforcing rights.

There is the possibility to contract out of third party benefit regime under section 6:

S 6 - Contracting parties can vary or discharge the contract (a) by agreement between the parties and
the beneficiary, or (b) pursuant to express provision in the contract which is known to the
beneficiary, and the beneficiary had not materially altered his position in reliance on the promise
before the provision became known to him.
S 7 - Either party can apply to a Court to authorise variation or discharge upon such terms or
conditions as it thinks fit.

If parties agree then there is no problem.

If their position has not been altered before they knew of this then they cannot claim.

(iii) Enforcement by the Beneficiary

S.8 'The obligation imposed on the promisor by section 4 of this Act may be enforced at the suit of
the beneficiary as if he were a party to the deed or contract, and relief in respect of the promise,
including relief by way of damages, specific performance or injunction shall not be refused on
the ground that the beneficiary is not a party to the deed or contract in which the promise is
contained or that, as against the promisor, the beneficiary is a volunteer.'

Would expect court to provide damages to the beneficiary as they had suffered a loss. Could pay for
their reliance. Court could order full benefit to them as expected from the contract as well.

(iv) Defences
If a third party does have a cause of action what defences do the contracting party have? If the third
party is not bound to the contract then how could the defendant defend themselves? This is what section 9
provides:

S.9 provides in substance that in a claim by a beneficiary against a promisor, the promisor may rely
on any defence, counter claim, set-off etc which would have been available to him if the
beneficiary had been a party or if the beneficiary were the promisee.

So the beneficiary is in the same position and can rely on any defences had the third party been a
contracting party.

Privity of Contract

- Generally contract cannot impose right or obligations on anyone except parties to it

- Only in some circumstances can a third party have rights under a contract
- Originally only a person to contract could sue: Dunlop
- Amended today in NZ: Contracts Privity Act
 - 12 -

Remedies of the promisee

- Specific performance:
- Third party can get benefit if the promisee sues on behalf of them: Beswick & Rattrays
- Declaration:
- Could get a declaration that the promise is binging to prevent from suing: Snelling
- Damages:
- For third party’s loss:
- Generally cannot claim: Woodar investments
- Exceptions:
- The Albazero: commercial contract over goods, original party seen as entering for
benefit of third party and can recover for their loss
- Linden Gardens Trust: Defective building, can sue for third party loss if
prohibition on assignment of benefit of contract without builder’s consent
- Alfred McAlpine Ltd: cannot sue if third party already has contractual rights
- For the Promisee’s own loss
- Coulls: can get damages for expectation of benefit to third party being frustrated
- Linden Gardens Trust: suffer loss in not receiving bargain contracted for, and can
recover damage of own loss to ensure third party receives benefit
- No action if the third party has a direct right of action against the promisor
- Must show there is a genuine loss due to third party not getting benefit (defective
building)
- Court can require damages go to third party directly if needed

Trusts of contractual rights

- Can avoid problems of privity
- Value of benefit can be placed in a trust, so person with benefit can enforce it

Exclusion clauses and third parties

- Contractual exclusions:
- Limitation of liability not apply unless contracting party acted as agent for third party:
Herrick
- Defences to Tort Action:
- Vicarious immunity
- Elder Dempster: agents acting under contract with clause can be sued in tort
independently unless they are employees
- London Drugs Ltd: employees can rely on clause due to vicarious immunity
- Includes claims by lessor on lessee’s employees
- Assumption of risk
- Entering into contract excluding liability to third party at own risk
- Must be made fully aware of all circumstances and danger and freely/voluntarily
agree
- Non-contractual notice
- Free to modify/exclude tort liability in non contractual way (warning notice)
- Reasonable notice must be given, actual knowledge of clause not necessary
- Exclusion of liability as a benefit under the Contracts (Privity) Act
- If act for benefit of sufficiently designated third party, benefit of contract can include
clause
 - 13 -

- Possible to argue plaintiff assumed risk

Novation
- Third party can get benefit of exclusion clause
- Where one party stands in for another, creating a new contract (replacement)
- Consent is needed from both contracting parties

Contracts (Privity) Act

- Exceptions to privity rule included, gives third parties rights to enforce some contracts

- Contracts for benefit of third party:

- Section 4: promises in contract for benefit of designated person not party to contract (not
have to be in existence at time), the promisor bound to perform the promise. Not apply to
promise not intended to create an enforceable obligation
- A promise contained in a deed or contract
- Induced misrepresentations treated as terms of contract
- Benefit must be in contract
- Possible to have nominee as third party even when only know who they are when
nominated: Rattrays
- Does not apply to legacies of will (not third party to creation, but will)
Gartside
- The benefit to the third party
- Can include the benefit of an exclusion clause and limitation of liability
- Designation
- Cannot be incidental beneficiaries without description of some-kind
- Nomination cases
- Previously needed to have descriptive phrase to specify them: Field
- Criticised in Rattrays: wider view by Tipping J
- Explained section allows for nominee to not be in existence at the time
- Laidlow: Ellen France J preferred a wide view of reference to nominees
- If contracting party nominates a third party they still have the right to sue: Atrax
Group
- Only lose rights in novation
- Defective property cases
- Unless designated cannot sue as no right of action: Linden Gardens
- If warranty stated to extend to subsequent purchasers this is enough to sue on
- Same for exclusion clause to parties independent contractors: intention =
benefit
- Pre-incorporation cases
- Section 4 can apply to pre-incorporation cases
- Company that not yet incorporated into contract
- Not apply if made on behalf of company though, only if third party isn’t a
party
- The proviso
- Promise must be intended to create an obligation enforceable
- If contract states a third party has enforceable rights then it applies and is effective
- Saunders: no benefit intended, no intention for action enforceable by them

- Variation or cancellation of the contract:

 - 14 -

- s5-7: this is allowed until third parties position materially changed in reliance of promise,
with agreement of parties, or by court order
- s5: cannot vary or cancel without consent of beneficiary if materially changed position
in reliance of the promise
- s6: can vary or cancel contract by agreement of parties and beneficiaries, by provision
in contract known to beneficiary when their position not materially changed in reliance
to promise before provision made known to them
- s7: parties can apply to court to authorise variation or cancel contract

- Enforcement by the beneficiary:

- s8: beneficiary can enforce contract as though they were a party to it and cannot be refused
on argument that they are not a party

- Defences:
- s9: beneficiary can rely on any defence available as though they were party to contract or the
promisee, so in same position and not at disadvantage

Privity of Contract

Principle Case Information

Introduction

Originally only a person to contract Tires, sold on, original party not
Dunlop
could sue sue

Act covers exceptions to claiming under contract as a third

Contracts (Privity) Act
party

Remedies of the Promisee

Beswick Sue on behalf of estate (aunt)

Third party can get benefit if the
promisee sues on behalf of them
Rattrays Tipping J

Could get a declaration that the

Brothers promise not to seek
promise is binging to prevent from Snelling
repayments of loan to company
suing

Generally a third party cannot claim

Woodar Investments House of Lords
damages

Can claim if original party seen as

entering for benefit of third party and The Albazero Lord Diplock
can recover for their loss

Can sue for third party loss if

Linden Gardens Defective building, Lord
prohibition on assignment of benefit of
Trust Griffiths
contract without builder’s consent

Cannot sue if third party already has

Alfred McAlpine Ltd House of Lords
contractual rights

Promisee can sue for own loss and can Coulls Windeyer J
 - 15 -

get damages for expectation of benefit

to third party being frustrated Linden Gardens
Lord Griffiths
Trust

Exclusion Clauses & Third Parties

Limitation of liability not apply unless

contracting party acted as agent for Herrick McMullan J
third party

Agents acting under contract with clause can be sued in tort

Elder Dempster
independently unless they are employees (vicarious liability)

Employees can rely on exclusion

London Drugs Ltd Supreme Court
clauses due to vicarious liability

Contracts (Privity) Act

Promisor bound to promises in contract for benefit of

Section 4
designated person not party to contract

Possible to have nominee as third party

even when only know who they are Rattrays Tipping J
when nominated

Cannot be a third party nominee as a Third party to will, not to

Gartside
legacy of a will contract to form the will

Rattrays Tipping J
Nominee not have to be in existence at
time, wide view approach
Laidlow Ellen France J

In defective property cases, unless

Linden Gardens Defective building, Lord
designated you cannot sue as a right of
Trust Griffiths
action

Inspectors failed to discover

If no benefit is intended in contract for
Saunders fraudster; not there for their
third party they cannot sue on it
benefit

Cannot vary or cancel without consent of beneficiary if

Section 5
materially changed position in reliance of the promise

Can vary or cancel contract by agreement of parties and

beneficiaries, provision in contract known to beneficiary when
Section 6
position not changed in reliance to promise before provision
made known to them

Parties can apply to court to authorise variations or cancel the

Section 7
contract

Beneficiary can enforce contract as though they were a party to

Section 8
it and cannot be refused on argument that they are not a party

Beneficiary can rely on any defence available as though they

Section 9
were party to contract or the promisee, so in same position and
 - 16 -

not at disadvantage
-
-
 -1-

THE LAW OF CONTRACT 2011

EXCLUSION CLAUSES

An exclusion clause is a term which limits or excludes liability in some way, but what foreseability does this
term have? They tend to be viewed as bad; a way to escape liability. They may however be a sensible way to
allocate risk. Often the courts regard these clauses without favour and have come up with ways to deal with
them:
Application of exclusion clauses
In order for an exclusion clause to apply it must be shown:
- that the clause is part of the contract (offer and acceptance point)
- that it does in fact cover the events which have happened
- that the effect of the clause is not limited or negated by statute. (There are statutes which remove or
limit exclusion clauses, but there is no general statute saying when it does or does not apply – just limitations.

The clauses can come in various forms – one party could exclude their liability for consequence of breach,
there may be partial exclusion, may limit damages, deny representations over the subject matter of the contract,
time limits in making claims, etc.

Is the clause part of the contract?

1. Contractual documents

Chapelton v Barry UDC [l940] 1 KB 532

The plaintiff hired a deck chair owned by the council at the beach. Near the chairs was a sign saying to
collect a ticket from an attendant. He did this but did not read the ticket. The chair collapsed and he was injured
– could the defendant rely on the exclusion clause on the ticket? The court said no – said it was not intended to
be contractual document but only a receipt.

Holmes v Burgess [l975] 2 NZLR 311

This confirmed the same point as Chapelton. It was over a colt for sale in an auction that didn’t reach reserve
so was sold outside the auction. On agreement the plaintiff required the defendant to put it through the
auctioneers and sign a notice acknowledging familiarity with the auctioneer’s conditions. The colt turned out to
be broken so the defendant stopped his cheque, however there is limited liability in auctions. The plaintiff sued
and the defendant argued misrepresentation. The plaintiff said they could rely on the exclusion clause in the
auctioneer’s conditions.
It was held the auctioneers conditions were not intended to be part of the contract though, so the exclusion
clause was not enforced. It was seen as a private sale where conditions would not apply.

If the exclusion clause is part of the contract, is it signed?

2. Incorporation of signed documents

The general view on this issue can be seen in L'Estrange v Graucob [1934] 2 KB 394.

Per Scrutton LJ
“When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add,
misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or
not.”
 -2-
This is the leading case putting emphasis on the document. This is the English rule; however it is different to
that in Canada. In Canada, cases indicate that signing is only effective if it is reasonable the signer assented to
the terms in the contract – is it reasonable? Seen in Tilden Rent-a-Car v Clendenning (1978) 83 DLR (3d) 400.

This view is taken by the Supreme Court of Canada in Crocker v Sundance Northwest Resorts Ltd (1989) 51
DLR (4th) 321 (SCC). The plaintiff entered a race at a ski resort on an inflated rubber tire. He was drunk,
thrown off and injured – signed an application form with a clause releasing the defendant from liability of
competitors. Was this binding? He never read it.
The plaintiff sued the defendant for negligence in organising the race, allowing him to participate drunk and
on the contractual waiver it was seen not to be binding as he had never been made aware of it. The court asked if
he had reasonable notice of the term instead.
- Signed contractual waiver not binding, it not having been read by the plaintiff or known to him or
drawn to his attention.

In Australia the previous leading case was Le Mans Grand Prix Circuits Ltd v Iliadis [1998] 4 VR 661 (CA).
This was along the same line as Crocker, but was later overtaken by Toll which is now the leading case in
Australia.

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2005) 219 CLR 165 (HCA). This was a High Court judgement
which saw signing as decisive so affirmed importance of a signature (L’Estrange view). If you sign, you accept
the risk.
- Affirms the importance of a signature as conveying a representation that the person who signs has
read and approved the contents of the document or is willing to take the chance of being bound by those contents
whatever they might be.
- Recognises that in the absence of misrepresentation etc, there is no requirement that the other party
must show that due notice was given of the terms of the contract.

The New Zealand position is not clear. A recent decision of the Court of Appeal, Nalder & Biddle (Nelson)
Ltd v C & F Fishing Ltd [2007] 1 NZLR 721 (CA), involved a written proposal to refit a fishing boat. There was
a provision clause limiting liability of the repairer and their terms of trade to the plaintiff. A contract was made a
year later without referring to the original written proposal (oral agreement). The plaintiff did sign job cards
which referred to the conditions though.
Had the liability clause been incorporated into the contract? The Court of Appeal said no, as after a year
there is no suggestion the terms were discussed and no evidence the defendant knew about the written proposal –
no referencing to such. They saw the job cards as making no difference – didn’t incorporate the defendant’s
limitations to liability.

This seems more like the Canadian approach, and seems to suggest the parties were negotiating in a
contractual vacuum. Evidence shows the defendant was willing to accept the conditions – not a clear decision by
the court.

3. Incorporation by notice

In L’Estrange we know this can occur through signing, but it could also be through notice. It may be orally
said that someone excludes liability – which is allowed. This is usually done by putting up a sign limiting
liability or on a ticket with an exclusion clause. These cases involve exclusion clauses without signing, just
notice.

a) Time of notice

Notice needs to be given in time; if it is too late then it is not part of the contract – before or during the
contract, not after conclusion.
 -3-

- Sufficient notice must be given before or at the time of making the contract:

Olley v Marlborough Court Ltd [l949] 1 KB 532 [l949] 1 All ER 127 (CA). There was a booking at a hotel,
and in the room was a notice with an exclusion clause for stolen property. It was held this was no defence for the
hotel who allowed a thief to get keys and break in, as it came too late after the contract to stay, so the clause
could not be effective.

Thornton v Shoe Lane Parking Ltd [l97l] 2 QB 163; [l97l] 2 WLR 585. The plaintiff drove their car into a car
park and received a ticket from an automatic machine. On the back of it was an exclusion clause – could car
park rely on this clause – limited liability for accidents or damage. The defendant was then injured in the car
park. It was held in court the clause came too late and was a straight case of offer and acceptance.
Lord Denning said in such a case you can’t refuse or get your money back once you get a ticket off the
machine. Being ready to accept money is the offer and acceptance is the money given – but the terms are not
given until the contract is complete. If there was a sign beside the machine with an exclusion clause then it
would be effective, but the ticket comes too late. So the car park cannot rely on the exclusion clause.
The fact that it was an automatic machine is also important – can’t argue or negotiate with it. May be
different in shop where can negotiate with a seller and back out or deal etc.

If you sign after you make the contract then it is still too late.

Grogan v Robin Meredith Plant Hire The Times, 20 Feb 1996

b) Degree of notice

Has sufficient notice of the clause been given? Degree and effect is a question of fact whether steps were
taken to bring it to notice to the party.
This is confirmed in Parker v South Eastern Railway Co (1877) 2 CPD 416 – had the defendant done what
was reasonably sufficient of giving notice to the part of a contract about limitations to their liability?

In any incorporated case we need to inquire into this question; what sort of notice, how was it given, size of
the notice, reasonably readable; these are all questions of fact.

- Question of fact whether steps taken to bring the notice to the attention of the other party are reasonably
sufficient:
Harvey v Ascot Dry Cleaning Co Ltd [l953] NZLR 549 (SC) – a suit was taken by the plaintiff to the
defendant for cleaning. He was given a docket, folded, and put into his pocket without reading it. It had a
limitation clause on it – limiting liability to the clothing. The suit was damaged; could the cleaners rely on the
clause – yes. The fact that it was folded did not matter and the defendant gave reasonable notice, so it is a factual
question.

- Clause may be incorporated by reference to another document – could refer to terms of an Act or the
policy of a particular store or company:
Thompson v L.M. & S. Railway [l930] 1 KB 4 (CA) – subject to railway company terms (on ticket), terms not
on the ticket but on the timetable. There was an exclusion clause on page 505. Can the company rely on it – seen
as yes due to reasonable notice. Thompson was illiterate – what if the defendant had known this? The defendant
would have to take steps reasonable for such a situation.

Geier v Kujawa [1970] 1 Lloyds Rep 364

This involved a passenger in a car with notice saying they were carried at their own risk. She was German
and could not read it as had no knowledge of English. The court said may need to take steps – passenger not
bound by notice on the dashboard.
 -4-
Width of exclusion clauses: wider it is, clearer the notice needed. This is stated in Spurling v Bradshaw
[1956] 2 All ER 121 by Denning: Some clauses he had seen would need to be printed in red ink on the face of
the document with a red hand pointing to it before the notice could be held to be sufficient.

This principle is accepted in many other cases:

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 2 WLR 615
This was a photographic transparency library, where the defendant wanted to hire equipment, which was
delivered with notice of the conditions – 14 days to return or holding fee would be applied. There were 47 pieces
hired, and were not returned for four weeks as the defendant did not read the notice. Over £3000 was owed and
the plaintiff asked for it. The Court of Appeal held the clause in the contract was not effective as it was not fairly
and reasonably brought to the attention of the party. Adequate notice was not given.
This was not an exclusion case, but a penalty case. Penalty clauses can’t be in effect unless reasonable pre-
estimate of the damage – but if beyond it is not enforceable. However, the case was not argued this way.

AEG (UK) Ltd v Logic Resource Ltd [1996] CLC 265

A clause required a purchaser to return goods at their own expense if they were defective and this was the
only remedy. Held the clause not incorporated as not fairly and reasonably brought to the attention of the buyer,
however Lord Hobhouse dissented:
“A wide range of clauses are commonly incorporated into contracts by general words. If it is to be the
policy…that in every case those clauses are to be gone through with, in effect, a toothcomb to see whether they
were entirely usual and entirely desirable in the particular contract, then one is completely distorting the
contractual relationship between the parties and the ordinary mechanism of making contracts. It will introduce
uncertainty into the law of contract.”

c) Previous course of dealing

If the parties had had prior dealings this may operate. What is clear is that it must be a consistent course of
dealings from which exclusion can be inferred.

McCutcheon v David McBrayne Ltd [l964] 1 WLR 125; [l964] 1 All ER 430; (HL)
The plaintiff sent vehicles in a ferry, who sometimes signed a risk notice and sometimes did not. On the day
the ferry sank he did not sign. Held not incorporated as no sufficient course of dealings.

Kendall & Sons v William Lillico & Sons Ltd [l969] 2 AC 31

The parties had regular dealings for the sale of poultry, three to four times a month for three years. One
always sent a contract note after the deal – exclusion clause. On ordinary principles too late as contract already
made, but court said past practices seen to incorporate it so enforced.

British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd [l975] QB 303; [l974] 2 WLR 856; [l974] 1 All ER
1059; (CA)

Engineering Dynamics Ltd v Norgren Matonair (NZ) Ltd CA 105/96, 29 October 1996
4. Construction of the contract

If the clause is incorporated then the next question is how should it be interpreted? Courts have a rule of
strict construction – party who wants to exclude liability must show in clear words.
Such approach is under attack in commercial cases; in English legislation, courts were allowed to look at the
effectiveness of exclusion clauses. The clause allowed courts to set aside exclusion clauses. The statute allows
that, so changes the judicial issues of explaining and trying to explain as the statute allows it.

a) Construction contra proferentem

 -5-
The strict canon of construction which the Courts have commonly adopted is known as the contra
proferentem rule. It requires that an exclusion clause be strictly construed against the interest of the party who
seeks to rely on it. Any ambiguity or other doubt will be resolved in a way least favourable to that party. This is
clearly stated in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80 (PC).

Beck & Co v Szymanowski [1924] AC 43

Contract for sale of cotton, provided goods delivered be in respect of accordance with contract. Seller didn’t
deliver enough – did the clause protect them? Held no, as the clause applied to goods delivered, and the plaintiff
was arguing about goods undelivered.

McCosh v Williams CA 275/02, 12 September 2003

Clause protected mediator from liability arising from mediation work done. Held only applied to acts done
during the mediation, not acts after the conclusion.

One particular application is the Exclusion of liability for negligence – most common. Courts are reluctant to
allow exclusion negligence – strict construction.

Producer Meats Ltd v Thomas Borthwick Ltd [l964] NZLR 700 (NZCA)
Exclusion for processed meat, stated it was uninsured and held at owners risk in factory. The meat was
damaged due to negligence of processor; could they rely on the clause? Held by the court of Appeal the words
warned the owner of the meat at risk – accidental loss and damage, but didn’t stop him being able to sue in
negligence, as the exclusion never excluded liability, just said at owners own risk.

Hollier v Rambler Motors [l972] 2 WLR 401; [l972] 1 All ER 399 (CA)
The plaintiff took a car to the defendant’s garage. There was a notice – the company was not responsible by
damage of fire to cars of customers on premises. Held no sufficient sign so not incorporated.

George Mitchell Ltd v Finney Lock Seeds Ltd [l983] 2 AC 803; [l983] 3 WLR 163; [l983] 2 All ER 737
Contract for sale and purchase of cabbage seeds, but they did not grow properly as something wrong with
seeds. Were defendants liable? There was an exclusion clause for all liability to loss or damage arising out of use
of goods and any consequential loss for damage. There were also loss of profits. The court said the words were
not ambiguous and so there was no principle of construction to be applied in giving effect to the clause.
The court turned instead to the Unfair Contract Terms Act instead though, held unreasonable, and so the
plaintiff’s claim succeeded.

Bisley v Thompson [l982] 2 NZLR 696

Kaniere Gold Dredging Ltd v Dunedin Engineering Co Ltd (1985) 1 NZBLC 102,223.
Contract to supply buckets for dredging machinery. One broke and led to a collapse with damage. There was
an exclusion saying no liability at all to the supplier, except for material proved to be defective = store credit for
value would be awarded. Held the clause was effective as in the contract it was clear and not ambiguous, so
should be given effect.

This is the rule of strict construction as it applies to negligence.

What does the phrase “All care: no responsibility” mean in a contract for the storage of goods?
- Although every precaution will be taken the goods are at the owner’s risk, so liability where there is
fault or negligence is excluded.
or
- Every precaution will be taken and otherwise the goods are at the owner’s risk, so excluding liability
only where there is no fault.

In Livingston v Roskilly [1992] 3 NZLR 230, Thomas J took the second view (majority). He said ordinary
people would think the latter. If taking all care without responsibility, why say care at all?
 -6-
In Shipbuilders Ltd v Benson [1993] 3 NZLR 549 (CA), the Court of Appeal thought the former – clause like
this very antithesis of accepting legal obligation to take care.

What if the parties concurrently liable in tort and contract? There is a suggestion that contract exclusions
may not extend into liability in tort. Frost & Sutcliffe v Tuiara [2004] 1 NZLR 782 (CA) saw the suggestion that
a contracts exclusion may not apply in tort. Tipping J said two cases of action usually concurrent and
coextensive, and if relevant facts are the same, it would be a very unusual situation for a greater duty to be owed
in tort than in contract. He said a possible example could be:
“If the relevant facts are the same, the situation would have to be most unusual before it would be
appropriate to hold that greater duties were owed in tort than in contract. A possible example might be an
express contractual limitation on the scope of the contractual duty in an artificial and improper way, leading the
court to find that the duty so excluded was still owed in tort. That would be a policy decision, preventing a
professional person from improperly limiting the scope of his or her professional responsibilities.”

Chase v de Groot [1994] 1 NZLR 613

Distinction between exclusion and limitation clauses

Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [l983] 1 WLR 964; [l983] 1 All ER 101 (HL)
Are there degrees to construction? May be permissible to modify rules of strict construction in so far as a
clause being on of limitation, not exclusion. Claim involving security company who meant to patrol a harbour in
Scotland – New Years Eve, patrolman went off to celebrate – tides rose and one of boats went under jetty and
damaged it – should have been there to help it.
Could company rely on exclusion clause in contract which limited liability for failure to supply services up
to £1000, but the value of the boat was £15,000. House of Lords held clause had to be unambiguous, construed
contra proferendum, but limitation clauses need not be as strict as exclusion clauses. Reason was that an agreed
limitation of liability more likely to be in accord with parties intention – not as much need to be strict. On facts,
clause seen to be effective in limiting liability.

Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
Courts of Australia do not agree on this point – High Court said notwithstanding comments the same general
principles apply to limitation clauses as exclusion clauses.

SGS (NZ) Ltd v Quirke Exports Ltd [1988] 1 NZLR 52

New Zealand case where matter was discussed; Cooke P said he found House of Lords approach more
attractive because:
- It may be that a court should be especially slow to interpret a clause as in effect totally negating
contractual liability
- But a clause ostensibly of limitation but in effect of virtual exclusion should be approached for what it
really is. May limit damages to a very small amount – affect same as exclusion, so if virtually exclusion it
should be approached for what it really is.

The more the clause negates liability, the stricter it will be construed.

b) Deviation cases

W have seen how courts construe exclusion clauses against parties seeking to rely on them, sometimes they
do more though. Courts have held in particular situations where one party deviates from their obligations, then
they step outside the contract and can’t rely on contract and terms in it – includes the exclusion clause. So can’t
rely on any clause in the contract, and courts have done this in shipping cases (where contract for shit to go from
A to B, but goes from A to C – deviates from agreed voyage):

Joseph Thorley Ltd v Orchis SS Co Ltd [l907] 1 KB 660

 -7-
Owner of ship said court can’t rely on exclusion clause in respect to damage of goods – if deviate from
contract they stepped outside the contract.

Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [l967] 1 AC 361;
[l966] 2 WLR 944; [l966] 2 All ER 61 (HL)
Wilberforce: ship owner who deviates from agreed voyage steps outside contract – so all exclusion and
liabilities do not apply to the deviated voyage and have stepped out of the contract.

Same principle seen in bailment of goods, where one takes possession of another’s goods as in Lilley v
Doubleday (l88l) 7 QBD 510, A agreed to store B’s goods in warehouse, but stored them someone else. Goods
destroyed by fire – exclusion clause was ineffective, as A had stepped outside the contract and lost the benefit.

Glyn v Margetson [l893] AC 351

Alexander v Railway Executive [1951] 2 KB 882

c) Non-performance and fundamental breach of contract

Not clear if courts are saying there is a rule of law on this matter – applies to one or the other. It was used to
develop Doctrine of Fundamental Contract. The courts were reluctant to allow party to rely on exclusion clause
if party had had a serious breach of contract. This is what the doctrine was about. Certain terms of contract were
treated as fundamental, such that if breach of this term, party in breach couldn’t rely on the exclusion clause.
A well known breach of this can be found in Karsales (Harrow) Ltd v Wallis [l956] 2 All ER 866; [l956] 1
WLR 936 (CA) – Defendant inspected a car, found in good order, agreed for hire purchase and made contract
with hire purchase company. Term in contract saying no conditional warranty vehicle road worthy. The car was
delivered to defendant’s premises and left on street – shell of the car – incapable for running with lots of damage
– wreck was delivered.
Defendant refused to pay for it and sued for instalments. In response, pleaded the state of the car. Plaintiff’s
relied on the exclusion clause. Court said what delivered not contracted for – defendant succeeded and not liable.
This first case involving this matter where the doctrine was used – party can’t rely on exclusion clause.

This led to lots of cases, as if can have such rules need to know what is and isn’t fundamental. Is the breach
itself fundamental – sufficiently serious breach, such that party can’t rely on clause? Key point – not a rule of
construction, but a rule of law. Rule of construction on parties intentions that clause wouldn’t apply – so if
clause clear enough, can cover serious breaches of contract. If a rule of law though, exclusion clause
automatically is seen as ineffective. Important to know how to treat it.

When matter went to the House of Lords in Suisse Atlantique Societe d'Armement Maritime SA v NV
Rotterdamsche Kolen Centrale, they slapped Denning down – said no blanket rule exclusion clause won’t apply
if there is a fundamental breach of contract. Simply about construction, and properly worded clause could cover
a fundamental breach – this can be excluded in a clause.
They said a rule of law maybe contrary to freedom of contract – parties are able to agree to terms themselves,
particularly in commercial cases. Why should courts impose rule of law in these cases where terms are decided
by parties.

The Court of Appeal continued to apply the doctrine though, but just called it construction. Well known case
on this is decision in Harbutt's Plasticine v Wayne Tank & Pump Co [l970] 1 QB 447. Defendant installed pipes
in factory to disperse stearine – plasticine substance. This was in molten state. Design defect and pipes were
plastic so the pipes melted and stearine went through pipes, set fire and burnt it down. Seems like a fundamental
defect.
Clause in contract to limit liability to contract price - £2300, but plaintiff wanted contract of factory -
£173,000. Court held the breach was fundamental and brought contract to an end – didn’t even say anything
about construction – it ended the exclusion clause in it.
This wrong in principle – no breach of contract automatically end a contract – innocent parties can accept
breaches if they want.
 -8-
This case stood for ten years until overruled in: Photo Productions Ltd v Securicor Transport Ltd [l980] 1
All ER 556; [l980] 2 WLR 283 (HL). Factory made contract to have a security company to patrol factory –
patrolman started a small fire and burnt the factory down. Plaintiff brought action for loss of action, and
defendants relied on exclusion clause – not liable for damage for what employees did unless avoidable by due
diligence (company couldn’t know he arsonist).
The Court of Appeal said fundamental breach can’t rely on an exclusion clause, on appeal to House of Lords
they slapped down Denning in Court of Appeal and said by Wilberforce: “I have no second thoughts as to the
main proposition that the question whether, and to what extent, an exclusion clause is to be applied to a
fundamental breach, or a breach of a fundamental term, or indeed to any breach of contract, is a matter of
construction of the contract.”
Exclusion clause should be applied to any breach of contract a matter of construction of the clause – no rule
it won’t apply to fundamental breach of contract. House of Lords also said its right in terms of policy, because
they said in this sort of contract, these clauses operate to allocate risk, so in practice determines insurance.
Almost certain this a claim brought against the security company by factory insurance claimer. Why should we
allow the insurance company get their money back when they have accepted the risk?
House of Lords said owner of factory should have insurance, rather than have the security company have to
insure against their employees – would have had to charge a much higher fee – as such they exclusive liability.
Court saw arrangement economically efficient.
This is the third case involving the defeat of a fundamental breach of contract excluding liability.

Leading decision elsewhere have also gone the same way. In the Australian case of Darlington Futures Ltd v
Delco Australia Pty Ltd, it was agreed with House of Lords the question is of construction.

The same occurred in Canada with Hunter Engineering v Syncrude Canada Ltd (1989) 57 DLR 321 (SCC).
The more recent case of Tercom Contractors Ltd v British Columbia 2010 315 DLR 4 385 – confirmed doctrine
of fundamental breach should be laid to rest.

It was also rejected in New Zealand in the case of, DHL International (NZ) Ltd v Richmond Ltd [1993] 3
NZLR 10 (CA). It involved a contract with courier to take documents to a bank in Italy; shipping documents.
Somehow someone got the documents which meant when they were presented to Italian bank they could uplift
goods without having to pay for them – the courier company sued for allowing this. Could couriers rely on
clause of limitation to delivery of documents? Said courts shouldn’t interfere in risk allocation:
Per Richardson J
“In international commercial arrangements of this kind involving major commercial organisations, it
would be unsafe to approach the interpretation of their contract on the footing that it was a product of unequal
economic power or to regard standard terms and limitation provisions as somehow suspect and so give them a
strained construction to protect the shipper. Such provisions are to be given their natural plain meaning read in
the light of the contract as a whole. Only in that way will the reasonable expectations of the parties as expressed
in the contract be fulfilled.”
Endorsement of Photo Productions. Also pointed out the carrier couldn’t carry out operation at such a low
cost if it didn’t limit its liability – so plaintiff must have accepted the risk if wanted to insure against it. So if
fundamental breach may affect interpretation clause of contract, but no rule of law as long as clause clear
enough.

Provided terms clear, courts will give effect to them in accordance with express intentions of the parties.
Clauses can cover fundamental breaches – treated like other exclusion clauses.
However there are certain rules of law which may control the operation of exclusion clauses in special and
extreme cases – no doctrine of fundamental breach, but can still control some exclusion clauses. One way is
through the principle of deviation – not entirely clear if can treat expression as a construction of contract or a
rule of law. This discussed in DHL, but said they stand on their own.
Also the problem of total non-performance – not easy how to deal with it. What if a man offers to buy peas
and beans are delivered? Clause in contract may seek to exclude liability, even for that - complete non-
performance. Clause may not cover it though. We have not dealt with cases of this manner. Has been discussed.
That a clause might not operate in total non-performance if would lead to an absurdity – this is the test. Would it
 -9-
defeat the main object of the contract? Have to remember it is a contract, as if can get away with not complying
it ceases to be a contract, so must retain legal characteristics of a contract.
Reason why courts given close attention to exclusion clauses is to protect the weak form the strong – unfair
advantages etc, but can’t be taken too far, as contracts need to be stuck with. Sometimes it may be that the
stronger party behaves improperly – extorts agreement from the weaker, but equity protects this doctrine of
unconscionability.
Objection to exclusion clauses are based upon consumer cases – problem largely resolved by the Consumer
Guarantee Act – way around the exclusion clauses. Would we take a harder line in non-consumer cases?

Kaniere Gold Dredging Ltd v Dunedin Engineering Co Ltd (1985) 1 NZBLC 102,223.

5. Common law restrictions

a) Fraud and misrepresentation

HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 1 All ER Comm 349
L'Estrange v Graucob [1934] 2 KB 394 (CA)
Curtis v Chemical Cleaning Co [l95l] 1 KB 805; [l95l] 1 All ER 631 (CA)

b) Collateral contracts

In the case of collateral contracts – promise made enticing someone to enter into another contract – can have
relevance to exclusion clauses – there may be one in the main contract, but not the collateral one, so you are not
bound if you decide to sue on it.

Couchman v Hill [l947] KB 554; [l947] 1 All ER 103 (CA)

Mendelssohn v Normand [l970] 1 QB 177; [l969] 2 All ER 1215; (CA)

There was a promise by a car park attendant to look after a car where the plaintiff was thinking about
parking. The car was damaged, and the plaintiff was able to sue on the collateral contract notwithstanding the
exclusion clause to damage happening in the car park.

J. Evans & Son (Portsmouth) Ltd v Andrea Merzario [l976] 1 WLR 1078; [l976] 2All ER 980; (CA)

6. Statutory intervention

What about the effect of statute? In some countries there are wide ranging statutory preventions. In the UK
there is the Unfair Contract Terms Act ant this appeals generally to exclusion clauses and does various things –
certain exclusions clauses not given effect, e.g. to negligence or personal injury – they may require a test or
reasonableness.

In New Zealand there is no general provision in statute controlling exclusion clauses, however some statutes
are significant in the way they deal with them:

a) Credit Contracts and Consumer Finance Act 2003, s 135

This cannot be contracted out of – controls credit and finance in hire purchase agreements, disclosures of
interest rates, credit charges, right to cancel etc.

b) Disputes Tribunals Act 1988 s 18(6), 18(7)

Pursuant to s80(6) – the Disputes Tribunal decides on substantial merits and justices of a case, and are not
bound to strict legal rights – could allow the Tribunal to ignore exclusion clauses. Their jurisdiction continues to
 - 10 -
go up – contract, tort, property damage etc – cheaper than the District Court. It is designed for relatively small
disputes (up to $15,000, or $20,000 if both parties agree).

c) Insurance Law Reform Act l977, s15

There are provisions providing contracts of insurance can’t be avoided by misstatements – way to escape out
of insurance responsibilities.

d) Contractual Remedies Act l979, s.4

s4 – “Where a clause denies that a statement, promise or undertaking was made, or that it was a
representation or a term, or that it was relied on, a court is not precluded from going behind it and determining
the truth of the matter. The court may nonetheless uphold the clause if it considers that it is fair and reasonable
that it be conclusive between the parties.”

If a clause disputes the existence of representations made prior to the contract, this section will ignore it, and
the court can look to the truth of the matter. The court can then decide if it is fair and conclusive.

If we have two commercial parties negotiating it is likely a clause caught by s4 will usually not be upheld.
The leading case for this is Brownlie v Shotover Mining Ltd CA 181/87 21 February 1992. This was a contract to
purchase a license to mine a river for gold. It was alleged misrepresentation occurred over the recovery level of
gold available. The clause said the purchaser relied solely on their own judgement – caught by s4.
The Court of Appeal asked whether the prevision should prevail? McKay J generally when parties have
contracts they should put in all terms and warranties into it. If they are not agreed to put something in, it is
reasonable to say that verbal agreements should not be excluded.
In these circumstances, the court would not uphold the clause, even though both were commercial parties –
they said to support the clause would uphold fraud. There is no absolute rule, just usually they won’t. Here the
vendor was found guilty of fraud, so it was not reasonable to allow the clause to be effective.

A consumer agreement may be more likely for the clause to be ignored. Snodgrass v Hammington CA
254/93, 22 December 1995 saw a private sale of a house, where in the small print liability was excluded – no
negotiations, the vendor negligently misrepresented the state of the house. It was held reasonable the clause not
be conclusive.

M.E. Torbett Ltd v Keirlor Motels Ltd (1984) 1 NZBLC 102,079

Herbison v Papakura Video Ltd [1987] 2 NZLR 527
Elmers v Brown (1990) 1 NZ Conv C 190,216
McLauchlan (1988) 18 VUWLR 311

e) Fair Trading Act l986

s9 of the Act provides: “No person shall, in trade, engage in conduct that is misleading or deceptive or is
likely to mislead or deceive.”

There are remedies for damages under the Act, but for our examination we are only concerned with
exclusion clauses. You can recover for misrepresentation of deceiving conduct – statutory action covering the
same general ground.

Provisions apply in the statute aimed at maintaining standards of contract in trade, so held can’t exclude
liability arising from statute – public policy point, e.g. can’t exclude liability from the Crimes Act. This is the
same for the Fair Trading Act.

Smythe v Bayley’s Real Estate Ltd (1993) 5 TCLR 454

per Thomas J
“The FTA sought to protect the consumer from unfair trading, and it would be inconsistent with that
objective to permit a person engaged in trade to exempt himself or herself from liability under the Act.”
 - 11 -

You could instead formulate a disclaimer instead though, so that nothing is misleading, or the statement
might not be the cause of loss. In Butcher v Lachlan Elder Realty Pty Ltd (2005) 79 ALJR 308 a real estate agent
published a misrepresenting brochure – was this an action for misleading conduct? The service diagram in it was
seen as inaccurate. There was however a disclaimer in it as to the reliability of the information contained in the
brochure.
The high Court saw it was clear the brochure was not the source of the information – all the agent had done
was reproduce something else. Agent knew nothing about it, just handed the information over. If it is apparent
this is true then the court will hold defendant not liable as no breach – purchaser relied on their own inquiries.

This point is made clear in Body Corporate 202254 v Taylor [2009] 2 NZLR 17. Brochures made by a
vendor, distributed by agents, involved a leaky building development. Statements as to the quality were seen to
be misleading. There was a clause in it saying the vendor or agent didn’t guarantee the quality of the buildings
described. The court said if worded in such a way then there may be no breach. It is clear the agent was just
passing over information, so the agent themself was not being misleading. The court accepted Butcher.
However, on the facts it was not seen here. The information was seen as coming from the vendor.

David v TFAC Ltd [2009] 3 NZLR 239 (CA)

This case made it more clear that this clause is less for commercial cases, and more for consumer ones. It has
less force in respect of commercial transactions, where any party is expected to express wishes and risk
allocation and why shouldn’t they be able to contract out of the Fair Trading Act?
The decision didn’t go as far; it just accepted the principle that if the words are misleading, it is not
necessarily a breach. The court accepted failure to get independent advice does not exclude misleading advice –
clause won’t exclude the conduct.
But in this case, purchasers of a franchise admitted the vendor told them to seek independent advice – new
scheme for New Zealand and there were not many cases like it. The vendors didn’t apply for advice, so there
was no breach.

f) Consumer Guarantees Act 1993, s 43.

This is the most significant of the Act’s discussed. We are only talking about the exclusion clauses part of the
Act. The Act imposes statutory guarantees as to the quality of goods and services, making sure they are fit for
purpose to consumers:
- The CGA 1993 provides for an extended regime of rights and remedies in circumstances where goods
or services are supplied in trade to consumers
- A “consumer” is a person who acquires goods of a kind ordinarily acquired for personal, domestic or
household use or consumption and not for the purposes of trade (s 2)
- Subject to certain exceptions, the provisions of the Act have effect notwithstanding any provision to
the contrary in any agreement: s 43(1) – (cant contract out of the Act)

Many common law cases we have seen have been talking about what we would use this Act for, and where it
applies an exclusion clause can be seen as ineffective and we can get around the difficulties.
So, common law only really applies in business, non consumer goods and goods not covered by statute.
Where the Act does not apply, you can contract out of liability, but common law will take over.

So, do we still have the probability of an exclusion clause in light of the Act? Exclusion clauses can exist in
other contracts, but is further reform needed?

Generally businesses are seen to be able to protect themselves, so on these levels statutory provisions are
seen effective.

Nesbit v Porter [2000] 2 NZLR 465 (CA)

Issue – Did the CGA apply to a multi-use four wheel drive utility vehicle where the evidence showed 80 per
cent use for business purposes and 20 per cent use for private purposes?
 - 12 -
Held - The majority or dominant purpose was not determinative, and it was necessary to ask whether there
was a personal use as a matter of regular practice or in the ordinary or usual course of events or things. It was a
question of fact and degree whether goods were ordinarily acquired for personal use when only a proportionately
small number was acquired for that purpose, and on the facts the Act was held to apply.

Reading

Burrows, Finn and Todd, chapter 7

Exclusion Clauses

- Excludes liability in some way

- Must be:
- Part of the contract: Chapelton (clause on receipt)
- Cover events that happened
- Not limited by statute

- Come in various forms:

- Exclude liability for consequence of breach
- Partial exclusion
- Limit damages
- Deny representation
- Time limits in making claims

Incorporation of signed document

- England: L’Estrange: if document with contractual terms signed it doesn’t matter if read or not
- Canada: Crocker: clause only effective if reasonable the signer assented to terms
- Australia: Toll: affirms importance of signature – decisive
- New Zealand: not clear, Nalder & Biddle suggests lean towards Canadian approach

Incorporation by notice
- Can be through signing, or notice (sign, ticket etc)

- Time of notice:
- Needs to be before or during contract, not after
- Thornton: Denning; terms not given until contract complete, ticket too late, can’t rely on clause

- Degree of notice:
- Type, how given, size, readable etc all relevant facts
- Harvey: limitation clause on folded docket seen as reasonable notice
- Interfoto Picture Library: hire equipment delivered with notice, not fairly brought to
attention of party
- Can be incorporated by reference to another document (Act, policy of company etc)
- Thomson: reference to railway company terms (on ticket) – seen as reasonable

- Previous course of dealings:

- Must be consistent course of dealings from which exclusion can be inferred
- McCutcheon: sometimes did and didn’t sign risk notice; no sufficient course of dealings
 - 13 -

Construction of the contract

- Construction contra preferentem:
- Exclusion clauses must be strictly construed against the interest of the party wanting to rely on it
- Ambiguity or doubt resolved in least favourable way to that party: Tai Hing Cotton Mill
- Exclusions for liability strictly construed by court
- Hollier: no sufficient sign, not incorporated
- Kaniere Gold Dredging Ltd: Clear exclusion of liability, effective as not ambiguous
- Limitation clauses not as strictly construed: Ailsa Craig Fishing Co (UK)
- Australia does not agree: Darlington Futures Ltd
- New Zealand prefers UK position: SGS (NZ) Ltd
- The more the clause negates liability, the stricter it will be construed

- Deviation cases:
- If party steps outside contract and deviates from their obligations they can’t rely on contract and
terms in it
- Suisse Atlantique: exclusion clauses don’t apply to deviated ship voyages as outside
contract.

- Non-performance and fundamental breach of contract:

- Courts clear on this, usually reluctant to allow party to rely on clause if serious breach occurs
- Breach previously had to be fundamental to the contract for this to occur
- Karsales (Harrow) Ltd: Car delivered not what contracted for, can’t rely on clause
- Suggestion that a properly worded clause can cover a fundamental breach
- Photo Productions Ltd: exclusion clause should be applied to any breach of contract; no
rule it won’t apply to fundamental breach; clause can allocate risk (insurance)
- Terms need to be clear so court can give effect to them; intention of parties
- Still some problems though:
- Principles of deviation
- Problems of total non-performance; how could exclusion clause cover this; absurd

Common law restriction

- Fraud & misrepresentation
- Collateral contracts
- Promise made to enduce main contract
- Possible to sue on collateral contract, even if main one has clause
- Normand: Promise by car park attendant to look after car, despite exclusion clause

Statutory intervention
- Certain clauses will have no effect, as many statutes cannot be contracted out of:

- Contractual Remedies Act

- If clause disputes existence of representation before contract, Act can ignore clause
- Usually not used in commercial situations, however:
- Brownlie: to support clause would uphold fraud (recovery level of gold)
- Usually used in consumer agreements:
- Snodgrass: small-print had clause, vendor negligently misrepresented house

- Fair Trading Act

- Cannot contract out due to public policy: Smyth v Bayley’s Real Estate Ltd
 - 14 -
- Disclaimer can be used though:
- Butcher: misrepresenting brochure, disclaimer about reliability of information,
seen as not source of information – not liable as no breach

- Consumers Guarantees Act

- Cannot contract out of the Act
- Where Act doesn’t apply you can contract out of liability – common law takes over

Exclusion Clauses

Principle Case Information

Incorporation of Signed Document

England: if document with contractual

terms signed it doesn’t matter if read L’Estrange Scrutton LJ
or not

Canada: clause only effective if

reasonable the signer assented to Crocker Drunk man skiing, injured
terms

Australia: affirms importance of

Toll
signature

Clause discussed, contract made

NZ: uncertain, suggests lean towards
Nalder & Briddle a year later – no reference to it
Canada
though

Incorporation by Notice

Needs to be before or during contract, Car-park ticket with clause on

Thornton
not after (Denning) back

Limitation clause on folded

Harvey
Type, how given, size, readability all docket
relevant factors in notice
Interfoto Picture
Hire equipment sent with notice

Notice can be by incorporation to Railway ticket referred to Railway

Thomson
another document company’s terms

Sometimes signed risk notice,

Can infer an clause if there is a
McCutcheon sometimes did not – no
consistent course of dealings
consistency

Construction of the Contract

Ambiguity or doubt resolved in least

Tai Hing Cotton Mill
favourable way to that party
 - 15 -

No sufficient sign, not

Hollier
incorporated
Clauses strictly construed by court
Clear exclusion of liability,
Kaniere Gold Dredging
effective

UK: Limitation clauses not strictly Liability to 1000, damage 15,000

Ailsa Craig Fishing Co
construed (boat)

Australia: Limitation clauses should

Darlington Futures Ltd
be strictly construed

NZ: prefers English position SGS (NZ) Ltd Cooke P

Exclusion clauses may not apply to

deviated ship voyages as outside Suisse Atlantique Wilberforce
contract

If serious breach that fundamental,

Car delivered not what
court may not allow reliance on Karsales (Harrow) Ltd contracted for, can’t rely on
exclusion clause clause

A properly worded exclusion clause Worker started fire, if liable

Photo Productions Ltd would have to charge more;
can cover a fundamental breach
insurance issue

Possible to sue on collateral contract, Promise by car park attendant to

Normand look after car, despite exclusion
even if main one has clause
clause

Statutory Intervention

CRA: If clause disputes existence of

representation before contract, Act can Brownlie To support clause would uphold
fraud (recovery level of gold)
ignore clause (possible in commercial)

CRA usually used in consumer

Snodgrass Small-print had clause, vendor
agreements negligently misrepresented house

FTA: cannot contract out due to public Smyth v Bayley’s Real

Thomas J
policy Estate

FTA: disclaimer can be used instead
Misrepresenting brochure,
disclaimer about reliability, seen
Butcher
as not source of information –
not liable as no breach
- 16 -
 FINALITY, COMPLETENESS AND CERTAINTY
Reading:
Burrows Finn & Todd Law of Contract in New Zealand, Ch 3.7 – 3.7.9
Cases listed. Those marked with a “#” should be regarded as essential reading.

1.1. INTRODUCTION
How uncertain can an agreement be and still be a contract? Often contracts can be very complex, where
judgements need to be made as to whether agreements are contracts.
Courts often have to deal with less than complete or precise agreements. This can be:
(i) Where negotiations are complete, but not all relevant matters are provided for. This is generally when one
party thinks they have done everything necessary of them, but there is still a problem. It must be decided if this
problem is enough to end the contract though; or
(ii) Where the parties have reserved some matters to be decided in the future. This is where one party knows they
have not done everything they could/should have done in terms of the contract.
Are such agreements enforceable as contracts?
Recent important discussion of this is in Electricity Corporation of NZ v Fletcher Challenge Energy Ltd
[2002] 2 NZLR 433 #, especially pp443-445.

1.2. the ECNZ decision

Principal feature of case was that ECNZ and FCE were negotiating large-scale long-term supply of natural gas.
The parties drew up Heads of Agreement (HoA), and noted one matter was “to be agreed"; others were “not
agreed”. No later agreement was reached; FCE tried to enforce the HoA as a contract; HC found for FCE (see
[2001] 2 NZLR 219) but the CA allowed ECNZ’s appeal - no contract.
CA decision turns on lack of any indication parties intended HoA to be immediately binding in law; also
important that no machinery provisions existed to resolve uncertain matters.

1.3 ECNZ dicta as to principle.

See para 53 of the judgment.
1.3.1.. Question 1 – intention to be bound. First question is whether the parties intended to become legally
bound. Court takes a neutral approach to this. If no contractual intention at x time, no contract then. This is whether
people are taking on legally enforceable obligations for legally enforceable rights. At this point was there a definite
contract, not just an agreement? When did the parties agree to be legally bound? At what point was the intention to
be bound occur?
1.3.1 2. material to be considered. Court can take into account the “factual matrix” in which agreement is made,
including earlier negotiations, AND post-agreement conduct. How do we judge on what was agreed? What were the
circumstances in the contract that were made? What was the conduct after?
In Fletcher, the electric company asked to change the deal, but if there wasn’t a contract why did they ask? Why
did Fletcher negotiate if they thought there was a binding agreement?

1.3.3. Second question – are the terms of the agreement sufficiently certain as to “essential matters”? If there
was an intention to be bound, Court will try to find a way to make agreement binding. Question is whether there is
sufficient certainty as to matters which are legally essential or were considered by parties as essential. Did they do
enough to allow the courts to enforce the contract, after the agreement? If the parties intended to sign to the contract,
the court can sometimes enforce the contract even if it is not wholly complete, to try and make it work for both of
the parties due to their original intentions.

1.3.4. Matters “legally essential” Little or no guidance from CA in ECNZ as to what things are “legally
essential” or how much certainty is needed.
Logic suggests one requires certainty as to, or method of making certain, identity of parties, of subject matter;
nature of consideration and time for performance. What are the things the courts would have to know to make
something enforceable? We need a method of making clear who the parties are, what are they bargaining about, the
nature of consideration (not how much, but what kind – land, money, work etc), and what is goin to happen? If we
do not have these, how can we enforce the contract?
For example - Svenson v Ngakuru [2008] 2 NZLR 149 (area of land to be sold not sufficiently indicated).
Requirements will vary with nature of contract. We know the parties and the nature (land), but the problem was the
identity of the subject matter, as the agreement never said how much land was being sold.
Certainty exists if matters can be made certain certum est quod certum reddi potest. See as example Marxen v
Smith [1990] 3 NZLR 585 (filling in agreement for purchase of restaurant). There were disputes as to what should
be paid, and the judge fleshed out all the essentials of the case to try and reach a decision.
The more a matter is “consequential”, perhaps the more likely it is not essential – cf ECNZ, [51]. Here, the
Court of Appeal said a contract would not be invalid if people had not gone though and thought about risk allocation

1
– it would be their own fault. If something goes wrong and it is not covered in the contract, this doesn’t make the
contract invalid.

1.4. Using Contractual Machinery

Where parties leave matters to be settled by an external reference point or by some machinery provision in the
contract at a future date - no uncertainty. We are usually talking about people who want immediate contracts, but
don’t know the issues involved so agree to sort them out at a later day – this is problematic though. There are
methods to say that once you do this, you can do that etc.
Similarly parties may that the precise terms will be drafted by one party (or the party's agent) using "standard"
provisions - e.g. see Robertson Enterprises Ltd v Cope [1989] 3 NZLR 391. Parties agreed to a transaction drafter
by one of the parties’ solicitor – acceptable and legally valid.

1.4.1. arbitration clauses - a widely drafted arbitration clause can be used to cover a failure to agree as to some
future matter, if there is agreement to accept arbitration. See Attorney-General v Barker Bros [1976] 2 NZLR
495# (extension of lease of land for an airstrip in the Chatham Islands). NOTE ECNZ indicates that no prior
contractual obligation to accept arbitration is needed.

If we don’t know what is to be in a contract we can put in this machinery to allow things to go through and
begin. There can be problems of what to do and if it will work though. The law will allow parties to have fallback
machinery process, e.g. if it is not resolved then it will be sorted out later, and if this does not work then there will
be a definite way that it will be resolved. The simplest default could be an arbitration clause – process where parties
go to an arbitrator and they say what it ought to be.

1.5. Matters “to be agreed” The CA in ECNZ signal significant change in the law as to matters left to be
agreed in the future.
A clause needs to be wide enough to cover failures to agree. In a way, making a contract enforceable by going to
arbitration to sort it out – but arbitration s for binding contracts. This is a problem the courts have not sorted out.
Arguments for the future combined with machinery for the future can be problematic. You can’t say “we
ourselves will decide this later” – contract to make a contract. A court can’t treat it as a contract as they have
nothing to guide them in making a decision, as well as the fact they can’t intervene because it says “ourselves”.
If parties intend matter to be settled ONLY by their future agreement – no contract, as no intention to be bound
– ECNZ p 444 and see Barrett v IBC International Ltd [1995] 3 NZLR 170# (settlement at date to be mutually
agreed – no contract). There was nothing the court could do because the parties said they would sort things out
themselves – the court must walk away.
See also Plowman v Franklin District Council [2010] 1 NZLR 537 (HC) “agreement in principle” not binding.
Trying to enforce an ‘agreement in principle’ suggests there are other things to agree.

If the parties left a gap and have not mentioned anything, the courts may step in. There are distinctions between
deciding in the future and deciding by ‘ourselves’. One allows the court to step in and the other doesn’t.
But if matter is to be agreed and there is an intention to be bound, court will try to resolve matter even if no
machinery provided. – see ECNZ – if no subjective agreement needed. Compare Wellington City Council v Body
Corporate 51702 (Wellington) [2002] 3 NZLR 486, # at 495-496. The court said a contract to negotiate in good
faith is not binding. Negotiations suggest it will be between the parties themself and courts can’t get involved.
Court may settle matter by implying term as to machinery, or reasonableness, or drawing from prior dealings.
May not always be possible.

1.6. Gaps and meaningless or ambiguous terms

Courts may find some gaps not to be filled, so no contract. See e.g. Scammell v Ouston [1941] AC 251; 1 All
ER 14 (sale of a vehicle "on hire-purchase terms" - no indication of which kind of terms).BUT meaningless or
ambiguous words may be severed if they do not affect the real nature of the agreement - Nicolene Ltd v Simmonds
[1953] 1 QB 543. Compare Van Der Hulst v Tainui Corporation [1998] 2 NZLR 359, 363.

1.7 Defective machinery and the "objective" approach

What happens when we have machinery which breaks down? If the machinery was the way to fix the problem,
but the process fails, now what? For example, you agree to buy a painting and if you don’t agree the cost, it will be
at the cost of what an expert values it at, but then the expert dies. The expert was the machinery to fix the contract so
now what? The court used to say there would be no contract, but today the courts ask if they can fix it themselves
for an objective, fair and reasonable way.
Older cases revealed difficulties where contractual machinery was defective. New view, set up in Sudbrook
Trading Estates Ltd v Eggleton [1983] 1 AC 444# A tenant wanted to buy land and there was a machinery

2
provision to decide the price he would pay. Both the seller and buyer would get valuers who would decide what it
was worth, and if they would not agree then a third party umpire would be appointed to decide, however there was
no provision saying who this person would be. The seller decided since there was none there would be no sale, but
the House of Lords said this was commercially impossible, due to the intentions of the parties they said they could
find a way to do it. The court can replace defective machinery with machinery of its own in appropriate cases. Can
do so if:
(a) the machinery provision could classed as a subsidiary or minor element of the entire bargain,
(b) the parties had clearly intended the machinery to determine a contractual obligation objectively (as with a
"market” or "fair" value).
If the parties intend to have machinery but it is not good enough the court can step in and fix it due to the
intentions of them. The machinery in this case is not broken, it is just not successful.
Sudbrook has been extended to allow the courts to supply machinery provisions to cases where the machinery
provided was essentially defective and did not allow for proper decision of the issue. See the case of Money v Ven-
Lu-Ree Ltd, reported at [1988] 1 NZLR 685 (HC); [1988] 2 NZLR 414 (CA) # and [1989] 3 NZLR 129 (PC) #
(purchase of shares with parties to get valuations - no other machinery provided).
In this case there was an agreement that parties would get accountants to value shares of a company, so one
person could be bought out of his shares. However, during this another company bought the company and the share
prices rose. Where was the binding agreement made? Before the company was bought, where the shares were worth
less, or after when they were worth more?
The High Court said there was no agreement, but the Court of Appeal and Pricy Council said they could make it
work – the agreement for valuation of the shares shows intention to pay the market value. The machinery was not
good, but the intention was there so the court could put in another provision to fix this. It allows the parties to not
have to work out the machinery, all they need is an objective intention, e.g. market price. It would be different if a
subjective one, e.g. market price less amount decided by the buyer – court can’t intervene.

1.7.1. The limits of the machinery approach.

Sudbrook or Money v Ven-Lu-Ree can not apply:
1.7.1.1. where the parties want to settle on subjective grounds - see Hinterleitner v Heenan (1990) 1 NZ
ConvC 190,468 (CA) and Plowman v Franklin District Council [2010] 1 NZLR 537 (HC), [53].
If agree later what the market price is but say you will pay less than that depending on your own reasoning – the
machinery is not objective so how can the court settle this? Can’t put in a objective one instead.
1.7.1.2. if the parties have regarded the machinery provision as essential to the agreement. See as example
Nelson v Cooks McWilliams Wines Ltd [1986] 2 NZLR 215 (grape-purchasing case - price to be determined
solely by a special committee)
If the parties say machinery is the only way it will be sold then it is that or nothing. In Nelson, grapes were being
grown for buyers, and the price paid would be a critical and standard agreement with two different machinery
provisions. The first was an arbitrary way over dealing with the grapes quality, delivery, time etc, but price could
not be decided this way, but instead by a fixed later agreement of the grower and company, or by a special
committee of growers and buyers (but no committee existed), so the machinery did not work. But the court said
nothing they could do to solve this – no contract. There were no provisions saying who would be in this committee
and how it would be chosen so what could be done.
1.7.1.3. where there is an existing, effective machinery provision - Northern Regional Health Authority v
Derek Crouch Construction Co Ltd [1984] 1 QB 644; 2 All ER 175. A court cannot be asked to improve
machinery if it is already working but just slow.

1.8 FUTURE AGREEMENTS

1.8.1. "agreements to agree"
The common law does not recognise a contract to make a contract see Walford v Miles [1992] 2 AC 128;
[1992] 1 All ER 453. Agreement to negotiate in good faith not contractually enforceable - Wellington City Council
v Body Corporate 51702 (Wellington) [2002] 3 NZLR 486# (but see McLachlan (2003) 20 NZULR 265). The
body corporate said there was a contract for them to buy land that flats were on from the council. They said they had
a contract saying they would enter into negotiations for sale. The High Court said there was a contract, but the Court
of Appeal said there wasn’t – can’t have a contract enforcing people to negotiate in faith. Could be different if
objective guidelines within original contract, e.g. look for market price, could be resolved. But negotiations are not
binding.
You can’t force people to negotiate with you at a later date, but you could put in machinery provisions if
negotiations fail.

BUT there are ways around the difficulties of future agreements:

(i) to leave matters to be determined by the use of a machinery provision or external standard. (see above for
principles).
(ii) to make the contract conditional on some future event - as to this see later lectures on conditional contracts.

3
 (iii) to "buy" a right to be able to enforce at some future time a set of currently agreed terms - the option
approach.
(iv) to settle for some lesser fetter on one or other party's freedom of action:
- by securing a right of pre-emption or "first refusal".
- a "lock-out" provision
- or by creating some other minor degree of obligation

We will NOT discuss in lectures numbers (iii) and (iv). For them see Burrows Finn & Todd Law of Contract in
New Zealand, 3.7.4
The most common way in keeping flexibility but creating binding contracts is with:

4
 2. CONDITIONAL CONTRACTS

2.1 INTRODUCTION. A "condition" is a stipulated fact or occurrence, the existence of which affects the
obligations of parties to a contract.
E.g. if you want to buy a house you would want to get an engineering report first. You know the price and don’t
want them to sell to someone else, but you don’t want to buy before the report – you make a conditional contract on
the report being successful. A similar situation when needing to get mortgage – subject to finance conditions.
2.1.1. Conditions precedent and subsequent A condition precedent in theory is a condition which must
fulfilled before an agreement becomes contractually binding.
A condition subsequent is in theory a condition which must be fulfilled if the contract is to continue to have
binding effect.
A functional analysis of conditions may be more useful.

In one you are bound to comply with the contract, but in the other you are entitled to change your mind. You can
avoid such problems by simply stating what you must actually have done to start or continue the contract.

2.2. CONDITIONS REQUIRED FOR THE FORMATION OF AN AGREEMENT

This is where part of the offer and acceptance procedure is made subject to a condition. Until that condition is
fulfilled, the offer and acceptance procedure has not been completed and there is no contract.
2.2.1. Conditional offers - See Buhrer v Tweedie [1973] 1 NZLR 517
2.2.2. Conditional acceptance Frampton v McCully [1976] 1 NZLR 270.

We assume the parties went through offer and acceptance – do you have a contract? Was there intended to be a
contract? Are there conditions which still need to be met?
We must remember, that contracts do not have to be in writing – an oral agreement is fine. However, in the case
of large scale transactions the courts will assume that a formal contract is required and that an oral one will not be
enforceable, as this is usually the case.

2.3. CONDITIONS REQUIRED FOR AGREEMENT TO BECOME A CONTRACT

Offer and acceptance is complete, but until the condition is fulfilled, the agreement has no contractual force.

2.3.1. Subject to contract cases.

Normal position is that any contractual liability of the parties is to be suspended until the formal document is
signed - a presumption of law to this effect (see Chillingworth v Esche [1924] 1 Ch 97 at 114).
2.3.1.1 presumption in large scale land transactions. If the transaction is of a type normally recorded in a formal
written document (as with major land sales), rebuttable presumption that no contract until document executed - see
Carruthers v Whitaker# [1975] 2 NZLR 667; also Spengler Management Ltd v Tan [1995] 1 NZLR 120 and
Verissimo v Walker [2006] 1 NZLR 760, 768-70.
2.3.1.2. Rebutting presumption. The presumption is rebuttable on the facts - see France v Hight [1990] 1 NZLR
345 (intended lease of farmland effective immediately, despite statement that the terms of the lease shall be
"incorporated" in a formal lease).
In a rebuttable presumption, one part can point to the evidence and show the court that what was intended is not
the truth of what can be done, so in return the court can say if this is not possible then you must reach another
particular requirement. If something is irrebuttable though then no intervention is allowed by the court.
The parties point to evidence that they did not in fact intend to have formal document before a binding contract.

2.3.1.3. presumption in large scale commercial transactions Same presumption applies in complex commercial
contracts - Concorde Enterprises v Anthony Motors [1981] 2 NZLR 385#. See also Holmes v Australasian
Holdings Ltd [1988] 2 NZLR 303, (oral agreement not intended to be binding until a contemplated written contract
signed) and compare Shell Oil Ltd. v Wordcom Investments Ltd [1992] 1 NZLR 129.

No contract until formal document = presumption for common ordinary position.

Two other possibilities may result.

2.3.1.4 full contract is to settle matters not yet agreed between the parties. No complete offer and acceptance. No
contract until final document executed (e.g. Winn v Bull (1877) 7 Ch D 29).
The parties can have an agreement and say anything not sorted out will be done in the drafting of the contract.
This is not a contract as there is no agreement on all the important details. It is uncertain and unenforceable.
BUT if the parties have agreed how incomplete matters are to be filled in later, can be a binding contract
(machinery provision) - Coachman Properties Ltd v Panmure Video Club Ltd [1984] 2 NZLR 200 and
Robertson Enterprises Ltd v Cope [1989] 3 NZLR 391).

5
 2.3.1.5. formal document is merely to replace and formalise an immediately binding agreement.
If the parties say they have an agreement and do a formal contract later, but one party needs it to be binding
immediately, then if they agree then they will be bound. Performance required before contract drawn. So before
formal contract it is still binding and enforceable.
As examples see Branca v Cobarro [1947] KB 854# and Reid Motors v Wood [1978] 1 NZLR 319#. Also see
Walmisley v Christchurch CC [1990] 1 NZLR 199.

Branca – Sold lease to be used as a mushroom farm, where all the details were in an agreement, saying that it
was a provisionary document until the formal document was signed. But the purchaser had to pay a substantial
deposit on the first agreement. Why was money given if there was no contract? Rest of purchase price was also
owed in three days – how can we wait for the formal document given the obligation to complete the performance –
contract must be enforceable from the first agreement.

Reid – Applied Branca, provisional agreements on sales of cars on hire purchase. The courts said the agreements
were binding as people gave up their other cars and gave titles to the seller, so the agreement is presumed
immediately.

2.3.1.6 carry-over of “subject to contract” provision – express or presumed - contract "Subject to contract"
qualifier may be carried over from one set of negotiations to another in some cases - Cohen v Nessdale Ltd [1982]
2 All ER 103; Smada Group Ltd v Miro Farms Ltd (2008) 6 NZ ConvC 194,588; [2007] NZCA 568, [32].#

If subject to contract and both can walk away, but later discussions return – the English courts held the first
agreement is subject to contract, then the second time you must see whether or not they agree this – what is the
difference.

2.4. CONDITIONS REQUIRING SOME PERFORMANCE BUT SUSPENDING OTHER

OBLIGATIONS.
Here there is a contract - a binding agreement - but not all of the contractual obligations of the parties are yet in
force. NOTE Where there is no explicit term that one (or both) parties attempt to fulfil the condition, a term will be
implied that one (or both) parties take reasonable steps to achieve the fulfilment of the condition.

Set up contract but performance is on the conditions that give your client what they want. Conditions which
requires some performance of contract but suspend other part of it – provide for this that have to happen before the
contract has to be fully preformed. E.g. buying a house subject to an engineer’s report. It is better for the person who
wants a binding contract, but falls over if some performance is not completed is satisfaction.

2.4.1. Subject to solicitor's approval

General rule is that such a clause does not prevent the formation of the contract. The parties are bound by their
agreement, but full performance need not take place until approval is given.
Imports requirements that solicitor's approval be sought and that the approval be not unreasonably withheld.
Solicitor is only entitled to withhold his approval on the basis objections as to matters within a solicitor's normal
sphere of expert advice - not to refuse approval on basis of the nature of the bargain.
See Provost Developments v Collingwood Towers [1980] 2 NZLR 205#
As to what is within solicitor's professional expertise, see McEwin v Tripp (1986) 2 NZCPR 440 and Mirams v
Bruce (2006) 5 NZ ConvC 194,292.

It looks like we are bound but our legal advisor can say it is off – looks like a commitment to contract, but it is
not. The Court of Appeal said a lawyer has to act one removed from the interests of their client. If subject to their
approval – contract binding unless problem is found within the solicitor’s sphere of expertise.
E.g. a lawyer’s expertise shows a problem so the contract can be stopped. But, a lawyer can’t stop a contract if it
is not a good deal – this is what they are held to do. In Collingwood – can’t make approval on the value of a bargain.
If was, then wouldn’t have a contract at all.
Mirams – Where is the boundary? A solicitor said there was no technical problem, but the settlement dates were
out of line. The position was where a client would have to pay for a new property before they got the money for the
second. Court said this not the lawyer’s problem, this is the clients – value of the deal. The deal is not impossible,
just difficult. The solicitor doesn’t need to give formal reasons to not approve, but failure to not give reasons makes
explanations at a later date seem harder to believe.

2.4.2. Subject to finance

Such a condition suspends substantive obligations. It does not prevent formation of a contract: Gardner v
Gould [1974] 1 NZLR 426.

6
 2.4.3. Subject to approval required by statute
May be either as to the contract itself or as to subject matter. Saying something is subject to finance means it is
still a contract, conditions just need to be met. The same could occur if the contract was subject to insurance.

2.4.3.1 Approval of the contract

E.g. older cases on Land Settlement Promotion and Land Acquisition Act 1952, which could require approval of
land sale contracts - requirement of approval under the Act does not prevent there being a contract. See for instance
Neylon v Dickens [1977] 1 NZLR 595 (CA) affirmed [1978] 2 NZLR 35 (PC).

2.4.3.2. Approvals relating to the subject matter of the contract

For example planning consents. Such approvals are often themselves conditional, so contract may provide a
condition as to "planning consents on terms agreeable to the purchaser". There will still be a contract, imposing
obligations to seek planning approval, and not to reject a consent unless acting bona fide on reasonable grounds -see
Lerner v Schiehallion Nominees Ltd [2003] 2 NZLR 671#, 678 (HC); approved in Mana v Fleming [2007]
NZCA 324, [35]. “Reasonableness” applies to conditions solely for that party’s benefit See also Gilbert v
Manninen (2009) 10 NZCPR 209 (HC).
If the approval is so limited as to make the condition incapable of fulfilment, the contract may be at an end - see
W R Clough & Sons Ltd v Martyn [1978] 1 NZLR 313.

Things get more complicated when people want approval on the subject matter of contracts, e.g. if you buy a
building subject to being able to use it for a specific purpose; you may need council consent for example. It is easy
to put in provisions to get something, but what if the council only gives you partial permission? If it is subject to a
simple approval then a contract exists no matter how unsuitable the terms of the approval are. If you say in the
contract that all conditions must be suitable to you, then you may not have a contract as there is no intention to be
bound to anything unless you want to be. The way around this is to say the conditions must be suitable to you as any
reasonable person would accept them.

2.5. CONDITIONS TERMINATING ANY CONTRACTUAL OBLIGATIONS

The condition may be automatic, or give one party a right to terminate (e.g. by giving notice). The nature of the
right to terminate may be important -see below.

2.6. WAIVER OF CONDITIONS

Mutual waiver amounts to a contractual variation - enforceable as such. Problems arise with unilateral waiver of
an as yet unfulfilled condition. Unilateral waiver possible if:

Things can go wrong with waivers of conditions – people taking gambles. Can one part have a contract with
conditions that are not met, yet are waived?

2.6.1. The condition waived was solely for the benefit of person waiving it.
2.6.1.1. Determining status of condition To determine this
(i) look at the contractual description of the condition, if any. If the contract actually states that a clause is solely
for one party’s benefit, then it is to be treated as such - Hawker v Vickers [1991] 1 NZLR 399# (finance clause
stipulated to be for the sole benefit of the purchaser).
(ii) look at the substance and effect of the clause – as noted, earlier this is a matter to be objectively viewed -
Globe Holdings Ltd v Floratos [1998] 3 NZLR 331#, 338.
Much of the relevant law is considered in Moreton & Craig v Montrose Ltd (in liquidation) [1986] 2 NZLR
496# (conditions not solely for purchaser’s benefit as they affected vendor’s security for unpaid moneys. Conditions
as to finance, planning etc will normally be solely for the purchaser’s benefit. Position is otherwise if the vendor
gains a real benefit – as with additional security for mortgage – as in Moreton & Craig.

This can only be if the condition was to the person waiving its benefit – you must be the one to give up the
benefit. E.g. continue with purchase when condition for builders report fails – can decide to still buy if the
inspection failed.
How do we tell if the advantage is for one party though? We must see what the parties actually said in the
contract – generally there are provisions stating what conditions are to whose benefit. You can also ask what is the
function of the clause – on the facts, whose benefit is it for?
Generally it would be a good idea to see who the risk would be on – e.g. if something is subject to finance then
this benefits the purchases, as if they can’t get finance they can’t complete the sale – risk is on them to waive this
condition.

7
 Moreton – contract for purchase of historic building – restricted things can be done to it. Whole finance was not
made, some was paid and the seller kept money in the mortgage of it while the seller went away to try and get
consent to use the building for a specific purpose so he could get more money. The day after the contract was signed
the building burnt down – the empty property was worth more in value.
Who owned it? The purchaser waived the planning consent as there was no longer a uildign there – could have
got the land and insurance. The Court of Appeal agreed with the seller as they still had money in the building as it
was not yet fully paid for, plus the land was changed in this time – contract conditions were seen to be of benefit to
both parties and not just one.

2.6.2. The waiver is done within the time limit for fulfilment of the condition.
A conditional contract terminates if a time limit for fulfilment of a condition is not met: Valentines Properties
Ltd v Huntco Corporation Ltd [2001] 3 NZLR 305, 313 (PC). Waiver must before any such limit: Scott v Rania
[1966] NZLR 527.
If no time fixed in the contract, courts will imply a term that the condition must be performed within a
reasonable time - Mt Pleasant Estates Co Ltd v Withell [1996] 3 NZLR 324#, 331.
See Steele v Serepisos [2007] 1 NZLR 1# as to notice issues.

The time of waiving must be within the limits of the condition. If there is no fixed time limit, which there should
always be, then the courts say that it must be within a reasonable time.

Mt Pleasant – in conditions such as this, the party who wants to terminate is saying that the other person has
until a certain date to complete the conditions otherwise contract incomplete.

2.6.3. The waiver is sufficiently conveyed.

Waiver can be by words or conduct (e.g. Neylon v Dickens). Essential point is for the party waiving to give
appropriate notice that he/she is not relying on condition and intends the contract to go ahead. See Williams v Kirk
[1988] 1 NZLR 452#.
Express communication of the waiver to a common agent of both parties will suffice: BS Developments No 12
Ltd v PB & SF Properties Ltd (2006) 7 NZCPR 603 (CA).
NOTE waiver by conduct hard to establish where parties in antagonistic
Waiver by conduct may be particularly difficult to establish where the parties to the contract are in a hostile or
uncooperative relationship: Carr v Frost [2008] NZCA 391.

How do we convey a waiver? We could tell the other party by express words, words with intention or by
behaviour – we must be clear though. In Williams the word waiver was not used but the intention of the
conversation was clear that a waiver was happening.
Can we complete a waiver by conduct? In effect where time limit for conditions is close and other side believes
that the conditions will not be met, e.g. if s person does not get consent for building planning but asks to start
anyway – this is a waiver.

2.6.4. Waiver in multi-party contracts

Waiver possible in multilateral contracts where all relevant parties waive - Carr v Frost (above).

2.7. The standard of endeavour needed to fulfil a condition

Essentially depends on the terms of the contract. The contractual standard must be adhered to, or the party at
fault cannot rely on the condition's failure. Contrast Innes v Mars [1982] 2 NZLR 68, North Shore Demolitions v
McKay# and Connor v Pukerau Stores. See also Lerner v Schiehallion Nominees Ltd [2003] 2 NZLR 671 at
685.

How hard do we have to try and complete a contract? If the contract says – “do all things needed” – this covers
everything possible, even if it is expensive and difficult. Better to say must meet reasonable conditions in trying to
fulfil the contract.

2.7.2.1. Effect of failure to meet contractual standard A party obligated to seek fulfilment cannot rely on failure
of a condition due to its own default - Firestone Tire & Rubber Co NZ Ltd v Harvard Construction Ltd (1997)
3 NZ ConvC 192,665.# Contract may be enforced.
NOTE as to onus of proof in such cases, see Ansley v Prospectus Nominees Unlimited [2004] 2 NZLR 590;
(2004) 10 TCLR 952

What if a person has not tried hard enough though? The courts say you can’t complain about a condition not met.
The court treat it as though the condition has been fulfilled anyway.

8
 3. INTENTION TO CREATE LEGAL RELATIONS

Topic will not be lectured – covered in Burrows Finn & Todd Law of Contract in New Zealand, ch 5.

3.1. INTRODUCTION
An agreement only becomes a contract if there was both consideration and an intention to create legal
relations. This latter means the parties must have intended that the agreement have created legally binding
obligations.

3.2. WHEN IS AN AGREEMENT TO BE TAKEN AS INTENDING LEGAL RELATIONS?

3.2.1. Older cases use rebuttable presumption in favour of contract in business cases; against in “domestic”
cases- see Rose and Frank Co v J R Crompton and Bros Ltd [1923] 2 KB 261; [1924] 1 All ER Rep 245, 252 ,

3.2.2. Modern NZ approach – don’t use presumptions; look closely at facts of particular transaction – see
Fleming v Beevers [1994] 1 NZLR 385 and Mabon v Conference of the Methodist Church of New Zealand
[1998] 3 NZLR 513. In Fleming agreement to leave share of house by will to surviving partner held valid; in
Mabon held church not entering employment contract with a minister. (Compare Ermogenous v Greek Orthodox
Community of South Australia Inc (2002) 209 CLR 95 at 106 and Percy v Church of Scotland Board of
National Mission [2006] 2 AC 28, [2005] UKHL 73).

3.3. "DOMESTIC" ARRANGEMENTS

3.3.1. Agreements between spouses

Older cases presumed agreements between husband and wife not intended to be binding - see e.g. Balfour v
Balfour [1919] 2 KB 571 (maintenance agreement not binding); more recent ones found presumption more easily
rebutted – e.g. Merrit v Merrit [1970] 2 All ER 760; 1 WLR 1211 (maintenance agreement, involving disposition
of matrimonial home).
Modern NZ law requires close scrutiny of facts – likely most agreements as to property, maintenance will be
intended to be binding.

3.3.2. Agreements between parents and children

Good example of issues, and differing approaches, in Jones v Padavatton [1969] 1 WLR 328; 2 All ER 616
(mother making financial provision for daughter while studying). Other "relatives" cases are similar. Subject matter
may be a critical feature e.g. Parker v Clark [1960] 1 WLR 286; 1 All ER 93 (providing care in return for promise
to leave a house by will).

3.3.3. Other “social” relationships.

Generally small-scale transactions between friends or relatives normally not contractual, but depends on facts -
e.g. the competition cases - e.g. Welch v Jess [1976] 2 NZ Rec Law (NS) 185; Simpkins v Pays [1955] 1 WLR
975; 3 All ER 10.

3.4. "BUSINESS" ARRANGEMENTS

Older cases apply strong presumption in favour of contractual force for "business" transactions – see Esso
Petroleum Ltd. v Customs and Excise Commissioners [1976] 1 All ER 117; 1 WLR 1; but now in NZ must look
at all facts.
Courts look to the reality of the transaction rather than the words used - use of words indicating no legal
commitment are not conclusive. See e.g. Edwards v Skyways Ltd [1964] 1 WLR 349; 1 All ER 494. ("ex gratia"
promise in a redundancy agreement held to be binding).

3.4.1." Honour clauses"

A clear statement that the agreement is not binding in law but in honour only prevents legal liability - Rose and
Frank Co v J R Crompton and Bros Ltd [1923] 2 KB 261; [1924] 1 All ER Rep 245, 252.

3.4.2. Letters of Comfort.

These are business documents, short of a guarantee, given by one party to encourage another to provide finance
or assistance to a third party. Often leads to difficulties as to whether legal relations were intended, and to
determining what, if any, obligations the letter entails. See Kleinwort Benson Ltd v Malaysia Mining
Corporation Bhd [1989] 1 All ER 785; 1 WLR 379. Position is not yet clear as to whether there should be a
presumption against an intention to create legal relations.

3.4.3. Special cases

9
 3.3.3.1. Agreements with the Government
"Routine" transactions (supply of goods; sale of property; employment contracts) assumed to be enforceable.
Courts normally with assume that political/electioneering promises were not intended to create binding legal
obligations- see Meates v Attorney-General [1979] 1 NZLR 415, apparently accepted on this point on appeal to
the Court of Appeal [1983] NZLR 308; Australian Woollen Mills Ltd v Commonwealth of Australia [1956] 1
WLR 11, [1955] 3 All ER 711.

BUT circumstances (e.g. use of a formal contractual document or setting) may indicate the Government intended
to take on enforceable contractual liabilities, even though the subject matter of the agreement is concerned with
issues of governmental policy. For principle see Rod Milner Motors Ltd v Attorney-General [1999] 2 NZLR
568(CA) (import licensing case); as an example see As example see Rothmans of Pall Mall (NZ) Ltd v Attorney-
General [1991] 2 NZLR 323, 326 (cigarette advertising regime case: agreement for negotiation on changes held
invalid for want of consideration, not because of a lack of intention to create legal relations).

3.4.3.2 Agreements between Unions and Employers.

Some cases have held that agreements, outside any system of registered awards or agreements, between an
employer and unions representing the employees of the employer are presumed not to be legally binding - see Ford
Motor Co v AUEFW [1969] 2 All ER 481 and Re Andrew M. Paterson Ltd [1981] 2 NZLR 289. Reasoning in
these cases is dubious - especially the NZ case. Changes to the privity rule and the current regime in industrial law
may make the courts see such agreements as intended to be binding.

10
 4. TERMS OF THE CONTRACT
Overview
Issues here are the rules which determine the terms of the parties’ agreement, and how the agreement is to be
interpreted. A term of a contract may come into existence in different ways.
Reading: Burrows Finn & Todd Law of Contract in New Zealand, ch 6.

4.1 EXPRESS TERMS

4.1.1. Express terms stated by the parties
Simplest kind of term - matters expressly stated by the parties. May be issues of proving agreement on the term,
and of interpreting its meaning. What was said, is it part of the contract, are oral statements later excluded by writer
terms, etc.

NOTE “condition” has multiple meanings. Can mean a term delaying or suspending substantial performance of
a contract (see earlier). At one time reflected a difference between a condition (breach gave a right to terminate) and
a warranty (breach remediable only by damages). Terms often now used haphazardly, and position largely governed
by Contractual Remedies Act 1979.

4.1.2 Terms expressly incorporated by reference.

Common for parties to contract on basis that certain standard provisions apply – e.g. Hague Rules in shipping
contracts; Warsaw Convention in air transport contracts. May also incorporate statutory provisions for convenience
– e.g. include lease or mortgage may incorporate covenants implied by Property Law Act 2007. Incorporation by
reference is uncommon.

4.2 TERMS IMPLIED BY STATUTE

In a few cases statute may make certain provisions mandatory - atempts to omit them may be ineffective or may
make the contract illegal. See e.g. consumer’s right to cancel a credit contract –Credit Contracts and Consumer
Finance Act 2003 s27.
In other cases statute provides terms which apply only if parties have not specifically agreed otherwise – e.g.
Sale of Goods Act provisions re price, delivery, and quality.

If parties have not addressed an issue in the contract then there can be a default provision provided for by statute.

4.3. TERMS IMPLIED BY THE COURTS FROM SOURCES EXTERNAL TO THE CONTRACT
Note discussion here does not follow Burrows, Finn & Todd analysis – law may be changing along lines
suggested in Attorney General of Belize v Belize Telecom Ltd, [2009] UKPC 11 , [2009] 1 WLR 1988, [2009] 2
All ER 1127.
Courts try to find the meaning of what the parties have agreed expressly or impliedly. Note: It is not the courts
job to “improve” the contract or make it fairer or more efficient. The question will be what have the parties actually
agreed, or to be taken to have impliedly agreed.

This is where the court adds something into the contract from an external source. They use other terms saying
they are a part of the contract – they don’t actually go through the contract itself. Their job is not to improve the
contract, just to say what should also be regarded as part of the contract.

4.3.1 Terms implied by custom or usage

Here terms may be taken as terms of an agreement because the contract deals with a particular trade or business,
in which the custom is that the implied term applies. Useful discussion in Woods v N J Ellingham & Co [1977] 1
NZLR 218; compare Everist v McEvedy [1996] 3 NZLR 348, 361-2. Requires:
(a) Evidence of a trade custom applicable to this contract – a custom that is notorious.
(b) Term must be reasonable
(c) Term must be consistent with the contract.

4.3.2. Terms Implied In Law

A "term implied in law" is one which the courts imply into a particular contract because all contracts of the
particular class because each such contract requires the term to make the contract work. As examples:
- Lister v Romford Ice & Cold Storage Co [1957] AC 555 (in contracts of employment an implied duty on the
employee to exercise due care to prevent injury to others). Though it is not stated, it is implied because necessary.
- Liverpool CC v Irwin [1976] 2 All ER 39 (tenancy agreements of multi-story blocks - implied term requiring
landlord to keep the lifts and stairs in reasonable repair).

These are the provisions needed for a contract to actually work.

11
 4.3.2.1. A general term of fair dealing? See Hughes Aircraft Systems International Ltd v Airservices
Australia (1997) 146 ALR 1, 36-8; see limited term in Transit New Zealand v Pratt Constructors Ltd [2002] 2
NZLR 313, 365-366; upheld [2003] UKPC 83.
NB On “public law principles”, see Lab Tests Auckland Ltd v Auckland District Health Board [2008]
NZCA 385, paras 56-60 – courts will rarely review decisions made by public bodies about the use of their
contracting powers under administrative law principles.
- As regards “good faith” – note statutory requirement of good faith bargaining in some employment contracts
under the Employment Relations Act 2000, s4

4.4 Terms implied into the particular contract as a matter of interpretation

4.4.1. The traditional view implying a term “in fact” to give “business efficacy” to the agreement
Seen in the conditional contract cases – implied term to seek fulfilment etc – e.g. Devonport Borough Council
v Robbins [1979] 1 NZLR 1.
This traditional view applies the five (overlapping) conditions laid down by Privy Council in BP Refinery
(Western Port) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20, 27.

Here we have a transaction where something is missing and so the contract is not working – there are no
provisions to fix it. As such we use implied facts to make it work. There are five conditions for the implied terms:

#1. The term must be reasonable and equitable. Holds the balance on contract between parties.
#2. The term must be necessary for business efficacy of the contract. If it works without it, don’t put it in.
#3. Term must be "obvious". What would a bystander assume to be obvious?
#4. Term must be capable of clear expression. Must be exact and not ambiguous.
#5. Term must not contradict the express words of the contract.

4.4.2. Implying a term into a particular contract as a part of the process of interpreting the contract
Different approach suggested in Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 11, [2009] 1
WLR 1988, [2009] 2 All ER 1127 (PC), [16]-[27].
Lord Hoffmann emphasises terms are only to be implied on this basis where there is a gap in the contract and the
court is satisfied the parties are to be treated as impliedly agreeing on the need to fill the gap and the court can
determine what the parties are to be taken as having intended in the circumstances.
NOTE at [26]-[27] suggests BP Westernport did not intend to set out separate requirements.

Implying terms into a contract is part of reading the written document. It is not about making it work better or
more reasonably, just about making it work. We must look at what a reasonable bystander or observer would
understand it to mean.

Reasoning can be challenged, but approach may be adopted in NZ.

See Nielsen v Dysart Timbers Ltd [2009] 3 NZLR 160; [2009] NZSC 43, [25] and fn 12.
Also Belize Telecom does accord with the way NZCA has in recent years dealt with implied terms – see for
example Vickery v Waitaki International Ltd [1992] 2 NZLR 58 (implied promise to keep works open – cafe in
freezingworks, factory closed, cafe claimed there were implied terms that they would stay open); and Rod Milner
Motors Ltd v Attorney-General [1999] 2 NZLR 568 (CA) (implied promise to adhere to advertised procedures).

NOTE Courts will not imply terms which make the contract objectively unfair at its making – e.g. Aotearoa
International Ltd v Scancarriers A/S [1985] 1 NZLR 513, 555).

4.4. AGREEMENTS – WRITTEN, ORAL OR BOTH

Most contracts may be entirely or partly oral; a few require writing or evidence of writing (e.g. contracts of
guarantee, contracts of employment and contracts affecting an interest in land).
What comprises the contract? Purely one, or a combination? If we have a written contract we presume this is the
contract – place to start; intended complete agreement.
Thus generally contracts will be one of following:

A. Completely oral
Verbal agreement only. Issue is determining what was said and therefore what was agreed.

B. Completely written
Common for parties to state a formal written document sets out the terms- and all the terms - of the contract.
Courts can sometimes over-ride and find other terms- see below and compare s4 Contractual Remedies Act 1979
cases.

12
 NB start with presumption that a written contract does contain all the terms of the contract – e.g. Tak and Co
Inc v AEL Corporation (1995) 5 NZBLC 103,887.

C Partly oral and partly written.

Such contracts can arise in different ways – always intended to be mixed (usually not problematic) or ones where
in fact oral terms add to apparently complete written document.
This could be intended in cases where we don’t know what it is that is going to be done. E.g. contracting work,
told what to do when know what it is – don’t need to write that will do it.

D. Parol evidence rule

NOTE “parol evidence” [oral evidence] stated that where a contract was in writing its meaning was a matter of
law for the judge and therefore the court could not receive evidence to “add to, vary or contradict” the written
document.

The parol evidence rule is confined to a written document – can’t bring oral evidence to vary the bargain or
contradict terms, only to fill the gaps. Can effect courts’ decision to decide if any oral terms at all.

Rule largely undermined by exceptions, but sometimes important (e.g. Farmers Mutual Insurance Ltd v QBE
Insurance International Ltd [1993] 3 NZLR 305.)

Farmers – said machinery would be there asap in the contract, but allowed oral evidence which said it would be
there by the next harvest. This didn’t change the contract, just provided something which adds or suplaments it –
this is ok. Can’t have an agreement which replaces something in the document though.

Often courts will find oral term to add to written contract – will receive evidence of oral term and enforce it. See
e.g. A M Bisley and Co Ltd v Thompson [1982] 2 NZLR 696.
BUT usually will not allow oral term to contradict written one – e.g. Wakelin v Jackson (1984) 2 NZCPR 195.
Boundaries difficult to determine!
NB rule much influenced by standard form contracts and abuse of market power – these now often dealt with by
statute.

Wakelin – written contract, sale of business, where contract said the turnover amount. The plaintiff tried to argue
he was told a higher amount orally – wanted damages. The court said no action as was in the written document –
can’t put line through something and change it.

If there are exploitive elements, the courts seem more ready to allow additional terms to be added. Another way
around the parol evidence rule is through collateral contracts:

4.5. COLLATERAL CONTRACTS

Occasionally courts recognise both the main written contract and a “collateral” oral contract under which the
promisor/representor makes the promise or representation to induce the promisee to enter the written agreement. See
for example Industrial Steel and Plant Ltd v Smith [1980] 1 NZLR 545 at 557.

Two separate contracts in effect – cant use the written one to stop the other being in effect.

Provided ways of finding contractual nexus where main contract defective (as in Industrial Steel v Smith) or
where otherwise representee could not sue (e.g. Shanklin Pier Ltd v Detel Products Ltd [1951] 2 KB 854.
Contractual Remedies Act limits practical need for collateral contracts, but some still sued on, e.g. Kenneth
Williams & Co Ltd v Thomas (1990) 1 NZ Conv C 190,583
NOTE a collateral contract cannot contradict the main contract!!!!!

Shanklin – oral promise saying would use good quality paint. Written one didn’t say this. Entered written
contract due to the oral one. Can’t use the oral one to effect the written one, as they are separate.

4.6 INTERPRETING THE CONTRACT

For “modern” approach to interpretation of contracts see Investors Compensation Scheme Limited v West
Bromwich Building Society [1998] 1 WLR 896 at 912–913. Applied widely since – e.g. Vector Gas Ltd v Bay of
Plenty Energy Ltd [2010] NZSC 5). Three key points:

Investors – commonsense interpretation. Objective – what a reasonable person would expect.

13
 A. Objective approach- words of contract mean what a reasonable person knowing all the background facts
would take them to mean. Court may disregard or give less emphasis to standard form or “boilerplate” provisions if
they would distort the clear intention of the parties Totara Investments Ltd v Crismac Ltd [2010] 3 NZLR 285;
[2010] NZSC 36, at [31].
Evidence of one party’s view of meaning inadmissible - e.g. Harrison v Harrison [2004] 2 NZLR 638.
(Different if all parties shared intention to give words an unusual meaning (a “private dictionary”) see Vector Gas
Ltd v Bay of Plenty Energy Ltd at [25]-[26] and [124]-[125].
Note importance in cases of ambiguity (only) of contra preferentem rule – ambiguity to be resolved against the
party who proposed that term, see for example: Trustees Executors Ltd v QBE Insurance (International) Ltd
[2010] NZCA 608, [39]–[40].

Not about being confused as to what is in the contract or what you thought it meant

B. Common sense interpretation

The interpretation of a contract should not be narrowly literal, but should be in accord with business common
sense. Literal readings may give way to commercially workable interpretation which fulfils purpose of the contract.

C. Matrix of fact
Court must have regard not only to contractual document but also “matrix of fact” or surrounding circumstances,
such as:
– the background of the transaction
– the market in which the parties are operating
– the practice of the trade in question
– the origin or genesis of the transaction
- previous dealings between the parties.
See Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, 995–996.

Compare Pyne Gould Guinness Ltd v Montgomery Watson (NZ) Ltd [2001] NZAR 789
- look first at the words used – see what they appear to mean:
- look at the surrounding circumstances and any relevant and helpful external material to make sure the apparent
meaning of the words themselves still seems right. If it does not, look to what the parties must have meant in the
light of these external matters.
See also Trustees Executors Ltd v QBE Insurance (International) Ltd [2010] NZCA 608 [33].

NOTE caution needed before relying on external material lest it lead to error. See differing interpretations of CA
and PC in Canterbury Golf International Ltd v Yoshimoto [2004] 1 NZLR 1.

What can be looked at?

Evidence of preliminary negotiations traditionally inadmissible – see Potter v Potter [2003] 3 NZLR 145 at
156, but three judges in Vector Gas hold it admissible where it shows a common intention or understanding. UK
holds to old rule: Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101.
Post-contract conduct was traditionally inadmissible, but again rule has changed. See Gibbons Holdings Ltd v
Wholesale Distributors Ltd [2008] 2 NZLR 277. Post-contract behaviour could be looked at where shared or
mutual conduct evidenced a common understanding or intention.

Finality, Completeness & Certainty

- How uncertain can a contract be if not all relevant matters provided for?
- If reserve matters for future, is this binding?

ECNZ
- ‘Matter to be agreed’ – no later agreements = no contract.
- Court tells us: Must be intention to be legally bound with rights & obligations
Court can look at circumstances that agreement made in
Terms of agreement that legally essential must be certain for court to enforce
Svenson – area of land not sufficiently indicated

Contractual Machinery
- Matters to be settled by external reference point of machinery provision at later date = not uncertain

14
 - Agree to sort issues out later
Arbitration clause
- Cover failure of agreements: AG v Barker Bros
- Fallback machinery process
- Definite way to resolve problem
- For binding contracts only
Matters ‘to be agreed’
- If intention to settle matter only by future agreement – no contract
- No intention to be bound
- If party agree to settle between selves, court cant intervene
- If party to agree in future then court can intervene

Court Intervention
- If see gaps as not filled, can hold there no contract
- Meaningless words can be severed if not affect nature of contract – Nicolene
- Defective machinery
- If machinery breaks down, court can ask if they can fix themselves
- Sudbrook: no agreement for third party umpire of dispute from valuations
- Due to intentions could said can fix themselves: not broken, just not working
- Machinery can be added by court if current is defective
- Cannot apply when:
- Parties want to settle on subjective grounds (own valuations)
- Parties agree current machinery provision essential (only way to solve issue)
- If machinery already working (can’t improve is slow)

Can’t have contract to make a contract (future agreement): Wellington CC v BC

Conditional Contracts

- Easiest way to allow for flexibility

- Condition affects obligations of parties
- Condition can allow contract to come into force, or to allow contract to continue

Conditions needed for contract

- Normally no liability until formal document signed. However:
- Presumption in large scale land transactions & commercial transactions
- Can rebut presumptions by showing contract impossible to complete
- Can be binding if formal document only to replace binding agreement
- E.g. performance needed before contract drawn to can agree it binding
Conditions requiring performance
- Binding agreement without contractual obligations yet
- Implied that both parties will take reasonable steps to achieve fulfilment of condition

- Subject to solicitor’s approval

- Doesn’t prevent formation of contract, full performance requires it though
- Lawyer must act one removed from client, not about the bargain: Collingwood
- Contract binding unless problem is found with contract

- Subject to Finance
- Suspends substantive obligations, doesn’t prevent formation of contract

- Subject to approval required by statute

15
 - Insurance, planning consents etc
- Still contract, imposes obligation to seek approval
- Need to say condition must be suitable to you as reasonable person
- What if only get partial consent
- What if large expenses involved in getting consent

Waiver of conditions
- Waiver of condition can only be done by person waiving the benefit
- Look at advantages, what parties said, provisions of contract, where risk falls etc
- Waiver must be done in time limit of fulfilment of condition (e.g. before finance)
- Waiver must be sufficiently conveyed
- Words of conduct, appropriate notice
- Williams: word not used but intentions of conversation showed it

Fulfilling condition
- How hard must you act?
- ‘Do all things needed’
- Includes everything possible, including expensive options etc
- Best to say; reasonable conditions be made
- If not tried hard enough, court treats it as though condition met

Intention to Create Legal Relations

- Contract must have consideration and intention to create legal relations

- Must look closely on facts of transaction

Domestic Arrangements
- Subject matter critical in domestic agreements: Parker v Clark
- Small scale transactions between friends normally not contractual

Business Arrangements
- Must look at all facts and reality of transaction over the words used: Edwards v Skyways

Agreements with Government

- Routine transactions assumed to be enforceable
- Political promises not seen as intended to have binding legal effect.

Terms of the Contract

- Can be expressed/stated by the parties

- Can be implied by statute as mandatory – Sale of Goods Act

Terms implied by court

- Meaning of what party agreed expressly or impliedly (not about improving contract)
- Court can add something from an external source if needed
- Terms implied by custom or Usage
- Where contract deals with particular trade or business
- Evidence of trade custom needed, must be reasonable and consistent with contract
- Terms implied by law

16
 - Court implies term as all contracts of same class require it to work

Terms for interpretation

- Something missing and contract not working, use implied facts to make it work
- Term must be reasonable, necessary for efficiency, obvious, clear and consistent
- BP Refinery v Shire of Hastings
- Terms only to be implied if there a gap in contract that needs to be filled
- AG of Belize v Belize Telecom Ltd
- Only about making it work, not improving contract
- What would a reasonable bystander understand term to mean?
- Vickery v Waitaki International Ltd: implied term freezing works stay open for cafe
business to continue operating. Not in contract, but implied.

Types of Agreements
- Oral: What said/agreed
- Written: What is in formal document
- Mixture: Intention to be mixed?
- Parol Evidence Rule
- If contract in writing this seen as law for judge. Can have evidence to add, vary or
contradict it.
- Only for written documents – no oral evidence allowed unless to fill gaps.
- Farmers: Contract over deliver, oral said by next harvest, contract said asap.
Saw oral evidence as not contradictory, only supplementary.

Collateral Contracts
- Can be a main (written) contract, and a collateral (oral) contract which induced the main one.
- Collateral contract cannot contradict the main contract
- Shanklin: oral promise to use good paint, contract not include this, seen as binding.

Interpretation
- Investors: commonsense interpretation, what would reasonable person expect?
- Objective approach
- What would words of contract mean to ordinary person
- Ambiguous terms to be resolved against those who proposed them

Look at:
- Background, market operated in, practice of trade, origin of transaction and previous dealings: Reardon
- Words used, their appearance, surrounding circumstances and external material to make sure meaning of
words still correct – What did the parties mean in light of external events? Pyne Gould Guinness Ltd

17
 Finn’s Lecture Topics
Principle Case Information
Finality, Completeness & Certainty
Court said need intention to be
Matters to be agreed in future
bound, look at circumstances
where there is no later agreement, ECNZ
agreement made in, and if essential
leads to no contract.
terms of agreement were made.
Arbitration clause for binding AG v Barker Used to cover failure’s of
contract only Bros agreements
Can’t have contract to make Wellington CC No contracts to operate in good faith
contract v BC in future
Conditional Contracts
Lawyer must act one removed from Lawyer cannot refuse contract on
Collingwood
client when approval being sought grounds of bargain
Waiver of condition must be Word not used, but intention of
Williams
sufficiently conveyed conversation showed it
Intention to Create Legal Relations
Subject matter critical in domestic arrangements Parker v Clark
Must look at all facts and reality of transaction over
Edwards v Skyways
words used
Terms of the Contract
Term can be implied by statute Sale of Goods Act
Term must be reasonable, necessary for efficiency,
BP Refinery v Shire of Hastings
obvious, clear and consistent with contract
Terms only to be implied if gap in contract that needs
AG of Belize v Belize Telecom Ltd
to be filled
Vickery v
What would reasonable bystander Cafe in freezing works, saw implied
Waitaki
understand term to mean? term the factory would stay open
International Ltd
Parol Evidence Rule only allows Contract over delivery, oral said by
oral evidence for written contracts Farmers next harvest, contract said asap. Saw
if to fill gaps oral evidence as not contradictory
Collateral contract can’t contradict Oral promise to use good paint,
Shanklin
main contract contract not include this, seen as

18
 binding
Commonsense interpretation needed – what
Investors
reasonable person expect?
Must look at background, market operated in, practice
Reardon
of trade, origin of transaction and previous dealings
Must look at words used, their appearance,
surrounding circumstances and external material to Pyne Gould Guinness Ltd
make sure meaning of words still correct

2007 Contract – Certainty etc

2a.
In terms of contractual rights that Irene has, she should be advised that matters to be agreed in
the future generally lead to no contract (ECNZ). This is because there needs to be an intention to
be legally bound in some way, and it is likely that the cost of the tables is legally essential to the
contract. If this is found to be the case, then the lack of certainty will likely affect the ability of
the contract to be binding. If the parties intentions is to settle this matter only by a future
agreement then there will be no contract.
It is also clear that there are no machinery provisions present in her agreement to protect her
from disputes she may have to the cost of the tables. If she and the manufacturer do not agree to
a certain price there are no provisions for her to fall back on, and this again affects the contracts
certainty. A court can intervene in such a way as to fill gaps in a contract, and could add
machinery provisions if the contract was to continue.
In determining whether there is an intention to create legal relations, as this is a business
arrangement we must look at the facts and reality of the transaction and the words used
(Edwards v Skyways). From what we are told about the arrangement it seems to be detailed
enough as to the general intentions of the parties, and if both parties wished to continue it is
likely that either they or a court could add in machinery provisions to supplement what is
missing. This could come in the form of an arbitration clause (AG v Barker Bros), or it could be
left up to courts to decide.
As such, Irene should be advised that her rights under the current contract are likely to come
under question due to the large uncertainty over the essential matters, however if both parties
choose to continue and fix this, it is likely she will be able to enforce her right to receive the
tables. Furthermore, should the contract go ahead she will be obliged to purchase the items as
promised. For her benefit it may be good to add a clause to protect her if her business begins to
fail, or if she is no longer able to purchase the tables, or her demand runs out etc.

2b.
The following is a conditional contract which as we know will affect the obligations of either
party. Such conditions can allow contracts to come into force, or allow them to continue. As the
contract is subject to Irene’s solicitor, both parties should take reasonable steps to achieve this
condition – Jason should give Irene the opportunity to complete this. As it is likely for her
benefit only, Jason cannot waive this condition, only Irene can. Therefore it does not matter that
Jason wants to go ahead with the contract despite Irene’s lawyer not going through it, as it is not
his decision to make.
When a contract is subject to solicitor’s approval, this does not stop the formation of a contract,
only full performance. A lawyer must act one step removed from their client, and the contract

19
will continue unless problems are found within it. Problems regarding the bargain of the contract
are not causes for the solicitor to not give their approval on (Collingwood) – the problems must
be genuine issues. As such, we need more information about the terms described as ‘unusual’
and ‘expensive’. Do these relate to a bad bargain in the contract, or is there generally something
wrong with this agreement? If they refer to the bargain, then the contract cannot be refused
approval on this ground; only if there is something genuinely wrong.
If the contract is approved then the obligations contained in it will fall onto Irene and she will be
obliged to meet such, otherwise it is likely she will be entitled to walk away. Irene should be
advised that she can chose to waive her condition of seeking her solicitor’s approval, however
such a cause of action is not recommended.
Depending on the date (whether 31 March has been reached yet), if Irene’s lawyer does not read
the terms and the contract goes ahead, and the terms within turn out to be a genuine issue not
related to the bargain of the deal, Irene may have a cause of action in negligence against her
lawyer, is she can prove that his inability to read the terms was his own fault and not hers for not
following up with him. As such, there could be limited protections for her if the contract goes
ahead.
Following on from this we must ask if Irene did enough to fulfil this condition? Aside from
sending her solicitor the lease, was there anything else she could have done to make sure he read
it? Could she have mitigated her loss by calling to ensure he had read it etc? It is likely that she
has done enough, however she should be advised this could be raised as a defence nonetheless.

2c.
Unfortunately for Irene, an agreement to negotiate in good faith is not enforceable (Wellington
CC v BC). This is because you cannot make a contract about making a contract sometime in the
future, and as such her rights which she was promised will most likely be unenforceable.

20
 2008 Contract – Certainty etc

3i.
The contract between James and Louis is a conditional one, where conditions will affect the
obligations of either party, and will determine whether the contract comes into force, or
continues. Firstly, there is no issue regarding Louis’ lawyer drawing up the agreement – this is
perfectly valid. The contract is conditional on James’ solicitor’s approval and his securing of a
bank loan for his expenses. We are told that the shop he hopes to leaser requires tenants form
above to use it as a way to get out of the building. We must therefore ask whether this is to do
with the bargain of the contract, or whether it is a genuine issue. It is likely to be a genuine issue;
as if James was not made aware of it earlier then it seems to be serious enough to bring the
contract to a halt. Therefore it is unlikely James’ solicitor will not be able to refuse his approval
on this ground, as we know he may not refuse for the bargain alone (Collingwood) and that he
must act one step removed from James.
The fact that James agrees to the condition and then changes his mind is not likely to be an issue,
as his initial agreement was never given to Louis but only to his lawyer. When he changes his
mind it is likely he was entitled to do such. However this raises the issue as to whether his
solicitor was in breach of any duty in not telling Louis that James agreed, as well as the issue as
to the date.
We know that the agreement was to receive approval 10 days after 1 November, however James’
solicitor only tells Louis on 12 November. This forces us to ask two questions; whether the ten
days began after 1 November (if so then the refusal would be on time and valid), whether it
began on 1 November (resulting in the refusal being too late and invalid), or whether the 10 days
were 10 working days – if such then the refusal would come within the time limit. To know
James’ position as to the lease we need more information as the this issue, for if the refusal was
made outside the 10 days then it is likely that James may be forced to take on the lease.
The contract is also subject to James getting a bank loan for his expenses. As he thought the
contract was not going ahead he never sought this at all, and so he has failed this condition
automatically. However this does not mean the contract will automatically come to an end. This
raises the question of how hard James should have acted in the circumstances to get his bank
loan, and this will likely relate back to whether or not the contract was seen to have been rejected
by his lawyer within the 10 days. If it was seen as a valid rejection, it is unlikely a court will see
James as being forced to get a loan, as he is not continuing with the contract and it is no longer
needed. However, if the rejection falls outside the 10 days then a court would likely see James as
making no reasonable effort at all to obtaining this condition and could treat it as though the
condition had been met anyway.
We need more information as to the level of what James must go through to get the loan – must
he do all things reasonably necessary, or all things possible?

3ii.
The contract between James and Frank contains no mention of any price, however James has
agreed to conform with the ‘usual conditions for furniture sales’ on ‘normal hire purchase
conditions’. As such we need more information as to what these actually are. The terms have
been implied by a custom, and as such they must be notorious and well known to the trade –
expected. We do not have this information, and so we require it to make a decision as to whether
this is reasonable or not. Would a reasonable person agree with the conditions set out? Do these
conditions contain anything about the price?
An implied term must be reasonable, necessary for efficiency, obvious, clear and consistence
(BP Refinery) – it is arguable as to whether this is the case as there is no information about what
these implied terms cover. There is little certainty in this contract, as there appear to be no

21
provisions about price, machinery processes for disputes etc. However as James has signed off
on the implied custom terms it shows us he intends to be legally bound by this agreement and
that there is an intention to create legal relations.
As such, James should be advised that if the implied custom terms turn out to be reasonable etc
and the contract goes ahead, it is likely he will have to pay Frank for the bookshelves, although
there may be some dispute on the price and so this will be arguable. Due to the lack of
information is it difficult to give a complete answer as to the likelihood of this situation, and so
the majority will come down to what the ‘usual conditions’ actually are.

3iii.
As ECNZ tells us, in a contract where it is said that ‘matters to be agreed’ in the future, this will
result in there likely being no contract at all. This is because there must be intentions to be
legally bound with rights and obligations. From the facts given we know that James and Mary
have agreed to a delivery date, however there is very little else in this contract. They have said
they will agree on the price later, and there are no machinery provisions to protect them should
they disagree on the price. This lack of certainty will likely affect whether the contract is seen as
valid or not. This is because the materially important information has been left out of the
contract, and it will be too difficult for a court to enforce it as there is no certainty to the terms.
As such, it is unlikely that James will be bound to pay the price that Mary is asking for, as their
original agreement expressly states that the two of them will decide it together. Though no
contract is likely to be found, James may have to pay her some costs due to the
miscommunication on his party, however it is unlikely that he will have to pay the costs and
keep the chairs, unlike the bookshelves.

2009 Contract – Certainty etc

2ai.
As we can see, this is a conditional contract, and these conditions will affect the obligations of
either party and will either allow the contract to some into force or continue. When a contract
requires a solicitor’s approval it remains binding unless a problem is found by them which is
within their sphere of expertise. We know from Collingwood that the solicitor must act one step
removed from their client, and may not withhold their consent unreasonably, or on the grounds
of the nature of the bargain. From the facts given we are told that Wyse refuses to give his
approval on the grounds of the price. As this is purely a bargain issue to the contract it is unlikely
that his disapproval will affect the contract in anyway, and it is likely to go ahead despite this as
there are no legitimate grounds for his refusal.

2aii.
In terms of Mary not receiving the price she wanted for her house we must look into the terms of
her arrangement with Arthur. She has agreed to undertake her best endeavours to obtain a sale,
however there is no mention about the prices she must accept. As such, it is arguable as to
whether Mary can cancel on these grounds. If the contract had stated that she could only settle on
a price that suited her then there would be no contract, as there would be no intention to be
legally bound. Rather, the contract should state that she would accept a reasonable price for the
house. This would help her avoid her current situation that she is now, where she has an offer
well below what she wanted. As such, we need more information about the rest of the terms in
the contract, and whether there are any provisions for what would happen in this case

2aiii.

22
We are told that Arthur cannot get planning permission within the timeframe that he wanted, and
that Mary wants to go ahead nonetheless. This looks like Mary is waiver the condition of
planning consent, however it is not hers to waive. A waiver may only come from the party who
is waiving a benefit solely for their purpose. The planning consent it solely for Arthur’s purpose,
and so Mary cannot waive this right, only Arthur can. We are not told that permission is
impossible though, we are just told it is not available within the right timeframe. As such, we
must ask for more information as to whether there is anything in the contract which provides for
this matter. If there is something in the contract which stated that if planning permission was still
undergoing yet not cleared by the date, then the time limit could be extended, then this could
help Arthur and Mary. However we are not told this. As such, as it stands it is likely that Arthur
would be within his rights to cancel the contract, despite Mary’s wishes to continue.

2b.
In the clause given to us, we see that there has been the intention to negotiate a contract, however
all relevant matters have not yet been provided for (pending the remaining contract which we
have not been given). Firstly, the parties have promised to get valuers in to look to reach a
reasonable price for sale. However there is no machinery provision to fall back on should the
valuers come to different conclusions as to the restaurant’s worth. It would be worthwhile adding
in a clause stating that if there is a large difference, then the parties must then either go to
arbitration, court or meet in the middle to decide the price which will be paid.
The contract states that the parties will negotiate in good faith to agree to running the business
together, however under Wellington CC v BC you cannot have a contract to create a contract;
cannot have a contract to negotiate in good faith. Therefore it is likely that any rights or
obligations under this will fall. Unfortunately there is no machinery provision here either to
determine what will happen should the two parties not come to a reasonable conclusion/decision.
As such an arbitration clause would likely be useful in this situation, for without any machinery
provisions a court could not enforce anything as there would be nothing to guide them on. If a
contract states the only way something can be decided is by a future arrangement between the
two parties, then the contract is only an agreement and is not binding; there needs to be an
intention to be legally bound.
Unfortunately for Louise, as it stands this entire clause remains ineffective legally. This is
because Melissa has no intention to be legally bound. The contract is entirely left up to her, as it
is her decision as to whether or not she is bound or not – therefore there can be no contract. It
would be very difficult to have a contract depending on a person’s health and wellbeing and how
they felt in three years time, and as such the current contract laid out would not be suitable at all
as there are no rights to rely on, or obligations to act upon. A better solution would be to either
make a definite arrangement or none at all, as it is not certain enough to simply make a contract
based on how one party will feel three years into the future.

2010 Contract - Certainty etc

Belinda
The best way for B to set up her contract is with a conditional contract. This will allow her the
flexibility she needs in terms of rezoning, planning permissions and finance. B should enter a
contract with the building firm conditional of the mining going ahead, being able to raise
sufficient finances, getting rezoning permission, resource consents etc, and for added protections,
it should be subject to insurance, her solicitors approval, and possibly to engineering reports etc.
Within this, B should also add in a provision that she will accept partial consent/zoning/finance
etc as any reasonable person would in the circumstances. This means that if only a smaller
development goes ahead, or if she cannot raise all the money etc she will not have to continue

23
with the contract despite meeting some of the conditions. It is added protection, however she
should be advised that any partial permissions etc, if a reasonable person in her position would
be seen to still go ahead, she will have to no matter her intentions as she will be legally bound.
The reason she cannot put in a clause stating that the conditions must meet her requirements is
because this lacks any intention to be legally bound – the entire contract rests on her decision as
to what she receives, and there is no give and take. Therefore if she wanted to go ahead and the
building company decide not to, as there was never any intention to be legally bound, B would
have no rights to enforce.
Similarly, B should include a provision that she will do all that can be reasonably expected in
trying to get her finance, resource consents etc. This will stop her having to do all that is
possible, which could result in her losing more money than she reasonably has. This provision
will still require her to reasonably get her finance etc, however if it is impossible or if it is very
difficult and unreasonable to expect her to get it, she will not be bound.
There should also be some machinery provisions within the contract to protect B from the
building company trying to charge her too much money in order for her to reject them so they
can walk away. An arbitration clause in the result of parties not being able to negotiate a
reasonable price will do, and there should be a clause stating that this is not the only provision
available in the case of disputes. This will allow a court to step in if necessary to resolve the
situation, as otherwise if the machinery breaks down and it is all that is allowed, a court could
not help B.
If B and the company do not put in prices and details about the building in the contract then
simply stating they will agree in the future may not be binding. This is because in a building
contract, specific information such as materials, prices etc would be seen to be legally essential,
and without such a contract would be unenforceable. You cannot agree to negotiate in good faith,
as this is a contract to create a contract and is not allowed. There needs to be intentions to be
legally bound and intentions to create a legal relationship, and so there should be some details in
the contract about what the purpose and final outcome is to be, so that if it breaks down a court
can step in, see the intentions of the parties and enforce or change it so that it can continue, as
without there will be nothing to guide it.

Alan
The initial agreement to pay $30,000 in cash is likely to be binding so there are no issues over
this amount. The agreement to sell land after this is not definite though, and is highly unlikely
that this will be enforced. This is because a contract must contain all the essential legal terms in
it, and show the parties intentions. Simply stating that you will sell someone part of your land if
they do work for you is not enough, as the land, price etc are not even stated, and if a court was
to step in there would be no way for them to enforce the situation as there are no guidelines as to
the parties intentions to go on.
To agree about something in the future needs all the relevant matters to have been negotiated –
here there has been none of this. There appears no intention to be legally bound by Alan, as he
has said he will give her a special price – yet there is no mention what this is so it is completely
up to him. There are no machinery provisions as to what will happen should the two dispute the
price of the land, and there is nothing obvious that a court could take from the agreement to try
and make it work.
It is obvious that Clare is not a contract lawyer, otherwise she would have immediately noticed
this irregularities, and Alan should be advised that it is unlikely he will be forced to sell his land,
however he will likely be obliged to pay Clare nonetheless her extra amount of money which
was not covered by his initial promise of $30,000.

On 31 August 2010, Arthur agrees to sell his country hotel at Culverden to Mary for $580,000. They draw up
their own agreement which simply describes the hotel premises and business and states the purchase price and then
provides, in the following numbered clauses:

24
 3. This agreement is conditional on Mary having sold her house at 22 Worcester St Christchurch, or having an
unconditional contract for its sale, by 28 February 2011, and Mary undertakes to use her best endeavours to obtain
such a sale. If there is no sale or unconditional contract by 28 February 2011, either Mary or Arthur may call the
deal off by giving notice to the other party.
4. If the sale of the hotel goes ahead, Mary may buy all Arthur’s furniture currently in the hotel and his Mercedes
car at a reasonable price and both parties will arrange for valuations as at 31 March 2011.
5. Possession of the hotel and payment of the purchase price is to take place on 31 March 2011.
Advise Arthur in the following ALTERNATIVE instances:
A. Mary lists her house for sale with several real estate agents who all advertise it assiduously. However after
the earthquake of September 2010 interest in central-city properties is limited, and although Mary’s house is not
damaged in the February 2011 her house is in the “Red Zone’ and no-one has access to it so the agents cannot show
it to prospective buyers, if any. She does however receive on 26 February 2011 an unconditional offer from Vulture
Capital Funds Ltd to buy the house for $300,000. (The house has a government valuation of $600,000). Mary
informs Arthur that their contract is off because she cannot sell her house “for any price that you could expect me to
accept”.

- Intention to create legal relations? Terms; nothing about price negotiations.

- Has she done all that is necessary?
- Subject to sale or having unconditional contract
- Is she compelled by the provisions to accept the offer?
- If she does not look to sell she can’t rely on not getting a buyer – Firestone

What is meant by best endeavours? Analogy – Connor, only went to one finance company and failed, even
though he needed to take reasonable efforts. Does best endeavours require you to do more? If it said, “all things
necessary” then you must do everything (Emerson).
To avoid this, put in a clause for contract saying need a reasonable amount for the house, e.g. $500,000
minimum.

AND
B. Mary has sold her house and both parties have had the furniture and the car valued. Arthur is happy with the
value put on the furniture, but tells you that his valuer says the car is worth $35,000; Mary’s valuer puts its value at
$22,000 and Arthur says “at a price that low it’s not worth my selling it at all, because I couldn’t get a suitable
replacement.” He asks whether the agreement to sell the car is binding in law.

- Reasonable price = machinery price?

- Is this binding = is there a contract?
- Fundamental problme’ price. What is a reasonable price. Who’s valuer do we go with?
- If just about reasonable price the courts could decide this, but talks of valuers – no provisions for
disagreement.
- Have they agreed to accept the valuations? Money – intentions to get prices objectively determined =
contract.
- If one party never appointed a valuer = breach and court can fix it on authority of Sudbrook – replace
machinery provisions if breaks down.
- Need to add provision for third umpire to get answer, or what valuer takes precedent in despute.

AND
C. In January 2011 two of Arthur’s key employees gave notice they would cease employment on 31 March, the
day Mary takes possession of the hotel. Because Arthur did not advertise for replacement staff, Mary has to hire
temporary staff at a significant extra cost which she estimates at $4000. She wants Arthur to pay that sum “because
it was implicit in our agreement that the hotel would be fully staffed when I took over.”

- Terms not expressly implied

- Was there an implied term?
- Implied terms an issue as nothing is expresses. Mary must contend there is an implied term, as no
expresses one. Which type applies to this situation?
- Implied by custom, fact, statute or law?
- Unlikely to be statute
- If custom must be notorious – well known to the trade, expected. Must be reasonably consistant with
contract (not in contract so can’t be inconsistent). Don’t know about notoriousness, but it is it likely to be
reasonable? Hard to prove this.

25
 - Term implied by law; class of contracts grouped together to work with . New owner might have own staff
or want to refurbish – not essential to making contract work.
- Leaves us with implied fact – law less than certain.
- Discuss Belize and BP. BP suggests 5 party, unlikely to be approved – necessary, reasonable, equitable etc
– most likely result is no assumption at all.
- If do nothing = loss on Mary. Would a reasonable bystander agree with the decision?
- Different if asking for money because Arthur never told her about the changes to staff – he knew, she
didn’t. Needs choice to rehire but must show this.
- In this case – reasonable?

26
 Misrepresentation and Breach of Contract

I. MISREPRESENTATION

Before a contract is entered into there must have been an exchange between parties, where negotiations on the
subject matter of the contract occur, in order for parties to decide whether they will enter or not. Subsequently, it can
turn out that these are false, so the party who has been misled may want a remedy. The complaint is usually about
something which has occurred before the making of a contract.
In principle, a person can claim damages and if it is serious enough a misrepresentation the contract could be
cancelled.

A. Common Law
The present law can be found under s6 CRA, however prior to this, if a misstatement induced the contract and
the misstatement became a term, one could sue for breach. If such occurred there were ordinary remedies for the
breach.
So if the statement was part of the contract – what then? There could be an action for deceit, but it is difficult to
show deceitful statements. Derry v Peek (1889) – the defendant’s false representation must be made knowingly
without belief in truth and recklessly caring if truth or false. So in this case we must show an actual belief = hard.
Another remedy for action is in negligence, under Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] – may
be liable in tort for statements which are relied on. In principle can apply to pre-contractual statements.
Today this has been overtaken by s6:

B. Contractual Remedies Act 1979, s 6

s6. Damages for misrepresentation – (1) If a party to a contract has been induced to enter into it by a
misrepresentation, whether innocent or fraudulent, made to him by or on behalf of another party to that contract –
(a) He shall be entitled to damages from that other party in the same manner and to the same extent as if the
representation were a term of the contract that has been broken; and (treats the representation as if it is a term of the
contract)
(b) He shall not, in the case of a fraudulent misrepresentation, or of an innocent misrepresentation made
negligently, be entitled to damages from that other party for deceit or negligence in respect of that
misrepresentation. (Can’s sue with tort remedies)
(2) Notwithstanding anything in section 56 or section 60 (2) of the Sale of Goods Act 1908, but subject to
section 5 of this Act, subsection (1) of this section shall apply to contracts for the sale of goods.

(1) Meaning of misrepresentation

We are looking for a statement of present or past, which is not generally straightforward. What if there is no
intention?

Statements of intention
Edgington v Fitzmaurice (1885)
Court said the state of a man’s mind is just as important – a company issued a prospectus inviting subscriptions
and stated funds would be used for alterations to the building and to buy equipment, however their intention was to
pay off debts and this was seen as a misrepresentation of facts, as stated director had intention when didn’t have it.

Opinions and beliefs

Bisset v Wilkinson [1927]
A vendor of land which had never been used for sheep said it would hold a specific number. The court held this
was only his opinion and was not actionable. If he never had that opinion then it would be a misrepresentation, or if
the facts were not equally known by the parties then his superior position which could be seen as opinion may carry
weight suggesting they knew enough to make an opinion.

Coll v Lakes Station Partnership 2009

Purchase of farm, representation by the vendor saying it could hold a certain amount of stock. Purchaser sued,
saying it could not hold this amount. The judge said there was a safe assessment between numbers, and the estimate
suggested the owner could never know, as it is hard to be accurate and there was no guarantee by the vendor. As
such there was no misrepresentation.

McAlpine Snowline Ltd v Wethey (1986)

Statement that property will have easy finance and easy to get tenants was seen as a mere opinion.

1
 Smith v Land and House Property Corporation (1884) 28 Ch D 7
Statement that a property let to F, who was described as a desirable tenant, was seen by the court as not
suggesting he was a bad tenant, but he did not pay his rent and so this was a misrepresentation of fact.

Statements as to the future can imply the statement as a present fact

Esso Petroleum Ltd v Mardon [1976]
Projection given that 2000 gallons of petrol would be sold in a garage business in three years – seen as implied
assurance that forecast had implied assurance based on research. Could never get near this number though, and held
to be a misrepresentation on the prospects of sale of petrol.

Ware v Johnson [1984]

Statement by seller of fruit orchard it would produce a certain amount – assurance vines of quality that produce
at a future time, but it did not so it was a misrepresentation.

New Zealand Motor Bodies v Emslie [1985]

Budget forecast for company – implication that present state could justify the forecast.

Mere puffery
Easterbrook v Hopkins [1918]
Land said to be “fertile and improvable” was a non actionable puffery. This brings to mind the debate in
Carbolic – statement that by using ball won’t catch flue. Seen as not puff, because way statement given – if get sick,
you get money.

Silence
The general rule is that there is no misrepresentation

Deverick v Hedley (2000)

Vendor didn’t disclose to a buyer of house that it had been occupied by a person who died of AIDS – held no
misrepresentation.

Amaltal Corp Ltd v Maruha Corp [2007]

In most cases non-disclosure of the truth not actionable. Exceptions where the failure to speak may distort the
truth of previous statements, or where there is active concealment, or where a true representation is rendered false by
a subsequent change in circumstances.

Wakelin v Jackson (1984)

Statement that the nearest competition to a food bar was a mile away, but misrepresentation as hadn’t said that a
license had just been granted to one around the corner.

A true representation may become false if circumstances change before the contract is finally made – may be
duty to speak.

With v O’Flannagan
Negotiations for sale of medical practice in January, said worth a certain amount. The doctor got ill and the value
diminished and it was worth less. Held there was an obligation to tell the purchaser if there is a change in
circumstance.

A vendor’s silence can be taken to confirm misrepresentation.

King v Wilkinson (1994)

Position of fence and driveway led purchaser to assure fence on boundary of property, but wasn’t boundary.
Appearance misleading and coupled with vendor’s silence was seen as a misrepresentation.

Failure to speak may distort the truth.

Ware v Johnson [1984]

Vendor orchard, implication state would imply future production. Purchaser given incomplete list of herbicides
used on it, in circumstances they wanted to see them all – some on list been taken off and held to be
misrepresentation.

2
 If silence does contribute to a misleading impression, the question may arise if misrepresentation was that the
speaker was unaware of what was not disclosed? Innocent non disclosure. Generally s6 does not require a state of
mind – does this apply? If there is non-disclosure but it is innocent and distorts the truth, is it actionable?

Ladstone Holdings Ltd v Leonora Holdings Ltd [2006]

Held must be deliberate non-disclosure before can be liable, as wouldn’t serve the policy of the Act if non-
disclosure’s facts could be constructive misrepresentation.

Clarkson v Whangamata Metal Supplies Ltd (2003)

Half-truths cases with both silent and positive representation and innocent half-truths weren’t simply innocent
misrepresentations by silence. The court was not convinced that Ladstone applied to half truth cases.

Some contract can be where one party is obliged to disclose to another – these are known as being made in
utmost faith, e.g. insurance – positive obligation to expose the facts. If fail, unsure if amounts to misrepresentation
for the purpose of claiming. Not clear if can get damages though.

As such, we must prove there has been a misrepresentation, and it must be made:

(2) Representation made by or on behalf of the other party

This means the contracting party can be liable to misrepresentation made by their agent and so the contracting
party can be liable. What about agent’s position? Possible for them to be personally liable in tort, as the agent is not
a party to the contract. Under s6 the other party is entitled to damages, but not from the other party. But they are an
agent not a party, so can sue them if you want. So action in tort can be brought due to them not being a party – no
protection under s6.

What if the contract was never made – can you sue for the waste of time in a tort claim – unlikely to succeed.

Prime Commercial Ltd v Wool Board Disestablishment Co Ltd

Can there be a duty in tort of no contract eventuates? Lack of contract process seen as rejected, known as a
business risk when negotiations fail.

(3) Representation made to the plaintiff

The statement must be made by that party as merely passing on a statement by another may not qualify. So the
plaintiff or agent must adopt the statement as their own. It must be made to the contracting party – could include
representation made to the world at large or public.

Baker v McKechnie (1983)

Misrepresentation for room advert saying room had air conditioning but it didn’t, so could sue for
misrepresentation.

(4) Inducing effect

Misrepresentation must induce entry into the contract.

Jolly v Palmer [1985]

Agent for sale of house falsely said the government valuation was higher than what it was and the purchaser
relied on this and paid more than what they would normally do. It was held this had an inducing effect and so s6 was
applied.

Sometimes a misrepresentation can’t be seen as inducing the contract: Smith v Chadwick (1882): prospectus
wrongly named x as the company, but the plaintiff never heard of the company so this never induced the contract
and never effected his decision and judgement.

If there is no misrepresentation then there is no inducement and it won’t be actionable. Though it must induce
the contract entry, it does not have to be the sole inducement - New Zealand Motor Bodies v Emslie [1985] – the
defendant complained about a budget forecast they said misrepresented the company – not the only reason he was
induced to buy, but it was one relevant circumstance, so it was held the defendant was liable.

It must be a misrepresentation either the person intended to induce entry or must be such that would induce a
normal person to act (material inducement) – objective element - Savill v NZI Finance Ltd [1990]. So can’t rely on
misstatement unrelated to impending contracts.

3
 Vining Realty Group Ltd v Moorehouse [2010]
Court of Appeal said would not sit well in mouth of representation in saying other parties fault in believing
statement.

Bonz Group Pty Ltd v Cooke (1996) 7 TCLR 206

(5) Defendant’s state of mind

(6) Damages
It must cause damage. Plaintiff with action under s6 is entitled to damages if the representation was a term. So
can get contractual damages; equivalent to action for breach of contract. Walsh v Kerr [1989] recognised his
normally about putting the plaintiff in a position they would be in if the representation was true.
So damaged difference between if the representation was true and what it actually is. Could get consequential
losses as long as not too remote.
- Damages are awarded on the contract measure, “as if” the representation were a term
- Normally this is the sum required to put the plaintiff in the position he/she would have been in had the
representation been true
- Compare the tort measure, where the plaintiff is returned to the position he/she would have been in had the
representation not been made

Crump v Wala [1984] 2 NZLR 331

Ware v Johnson [1984] 2 NZLR 518
Prime Commercial Ltd v Wool Board Disestablishment Co Ltd CA 110/05, 18/10/06

C. The Fair Trading Act 1986

These provisions are based around the Australian Act, and the key provision is:

s9. Misleading and deceptive conduct generally – No person shall, in trade, engage in conduct that is misleading
or deceptive or is likely to mislead or deceive
This covers much of the same ground as s6CRA – same effect, so it is an overlap. Not coincidence, as s9 is
broader, not limited to misrepresentation inducing a contract, but does cover that. So can be alternative action to s6.

(1) General
Factors must be proved to claim under the Act: misleading conduct. There is a large range of remedies. Must
look at elements and compare to s6CRA.

Conduct must be in trade: s2(1) – “Trade” means any trade, business, industry, profession, occupation, activity
of commerce or undertaking relating to the supply or acquisition of goods or services or to the disposition or
acquisition of any interest in land.
To apply, both parties may be in trade, though usually has consumers, but does cover business disputes.

What is misleading or deceptive conduct?

- This is not expressed, not need particular form – words of s9 counts.
- Doesn’t say deceiving conduct must be a misrepresentation, but some indication this is what it really
means. Can’t be too prescriptive, but generally involves same tests as s6CRA.

E.g. opinions, statements, silence etc – can all give rise.

In the end, we need misleading and deceptive conduct – not limited to misrepresentation. So silence may amount
to deceptive conduct, even if it is outside the established categories of common law. It is a question of fact.

AMP Finance NZ Ltd v Heaven (1997)

To decide if there is a breach we should proceed in three stages: per Tipping J –
“The first step, which focuses on the conduct in question, is to ask whether that conduct was capable of being
misleading. The second step is to consider whether [the plaintiffs] were in fact misled by the relevant conduct. This
step focuses on the effect of the relevant conduct on [the plaintiffs’] minds. The third step requires consideration of
whether it was, in all the circumstances, reasonable for [the plaintiffs] to have been misled.”

4
 Red Eagle Corporation v Ellis [2010]
The Court of Appeal in AMP didn’t intend formula to apply in every situation as it is undesirable to be so
constrictive in all cases. They said the approach will vary from case to case. We should ask:
- Did the conduct objectively have the capacity to mislead or deceive a reasonable person (won’t have to
show it actually did) – establish breach
- If breach proved, must see if loss or damage is suffered due to the conduct of the defendant. (common /
practical sense of causation)
- Does not have to be the sole cause, just an effective one
- Is there any fault on the plaintiff?

Don’t have to show any state of mind – not have to show negligence or intention in breach of s9. However, there
must be misleading conduct by the defendant, so if parted information through someone else – may not include them
giving information.

David v TFAC Ltd [2009] 3 NZLR 239

Court accepted conduit conduct and can avoid liability for conduct as just passing on information told.

Damages
S 43(2)(d) - Court can order the person who engaged in the conduct to pay to the person who suffered the loss or
damage the amount of the loss or damage.
The measure of loss can be treated like a claim in tort, therefore courts make comparison of position of plaintiff
between what are and what would have been without misleading conduct – reliance lost.

Cox & Coxon Ltd v Leipst – Court makes comparison between what the position of the plaintiff was or would
have been without the contravention and what it was because of the contravention.

So in Baker – plaintiff misled in purchasing a property without knowing the entrance drive was an unformed
paper road – owned by the local council. The plaintiff claimed for damaged, the Court of Appeal said in applying
Cox, their claim was limited to consequences of making representation, and on facts saw no adverse consequence, as
the property still valued at purchase price notwithstanding paper road and no other loss shown.

(2) Remedies
Can recover consequential losses under the Fair Trading Act, wasted money, trading loss etc. Key point under
the Act is that damages may be reduced by plaintiff’s own conduct and by conduct of others if there is a
contributory loss: Goldsboro v Walker [1993] damages discretionary, and in determining the amount to award, court
can take into account the plaintiff’s own contribution to loss and contribution of anyone else. Difference to common
law – fact others contributed makes no difference. This was confirmed in Red Eagle.

(3) Comparison with s 6 CRA

S 6 Contractual Remedies Act 1979 Fair Trading Act 1986

- Must show misrepresentation
- Misrepresentation in any contract, not
confined to trade
- Damages as of right
- Only contracting party may sue
- Only damages against contracting party
- Damages on contract measure
- Limited contracting out under s 4
- 6 years to sue from date of breach
- Must show misleading or deceptive conduct
- Only conduct in trade
- Discretionary remedy
- Any person may apply for remedy under s43
- Remedy against person who engaged in
misleading conduct
- Damages usually on tort measure
- No contracting out
- 3 years to sue from discoverability of loss

5
 II. CANCELLATION FOR BREACH OR MISREPRESENTATION

Considering there is a misrepresentation or breach of contract – what can we do? Can get damages, but often
parties want to get out of the contract, so in addition to right of damages there may be a right to cancel the contract.
Circumstances in which this can happen are in s7 and s9. These cover the types of breaches for cancellation.

A. Remedy of cancellation

CRA, s 7
7. Cancellation of contract – (1) Except as otherwise expressly provided in this Act,
this section shall have effect in place of the rules of the common law and of equity
governing the circumstances in which a party to a contract may rescind it, or treat it as
discharged, for misrepresentation or repudiation or breach.
(2) Subject to this Act, a party to a contract may cancel it if, by words or conduct,
another party repudiates the contract by making it clear that he does not intend to
perform his obligations under it or, as the case may be, to complete such performance.
(3) Subject to this Act, but without prejudice to subsection (2) of this section, a
party to a contract may cancel it if -
(a) He has been induced to enter into it by a misrepresentation, whether innocent or
fraudulent, made by or on behalf of another party to that contract; or
(b) A term in the contract is broken by another party to that contract; or
(c) It is clear that a term in the contract will be broken by another party to that
contract.
(4) Where subsection (3)(a) or subsection (3)(b) or subsection (3)(c) of this section
applies, a party may exercise the right to cancel if, and only if, -
(a) The parties have expressly or impliedly agreed that the truth of the
representation or, as the case may require, the performance of the term is essential to
him; or
(b) The effect of the misrepresentation or breach 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.
(5) A party shall not be entitled to cancel the contract if, with full knowledge of the
repudiation or misrepresentation or breach, he has affirmed the contract.
(6) A party who has 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.
(7) The Court may, in its discretion, on application made for the purpose, grant
leave under subsection (6) of this section, subject to such terms and conditions as the
Court thinks fit, if it is satisfied that the granting of such leave is in the interests of
justice.

Can only cancel in the case of serious breaches. Damages can be awarded for any breach, but getting out is a big
step, so it must be a serious matter. This is the broad requirement to get out by an innocent party. An innocent party
is not obliged to cancel wither – can also make other party to perform instead. So a breach is not an automatic end to
a contract.
There are various ways to cancel a contract:

B. Repudiation – s 7(2)
CRA, s 7(2) - Subject to this Act, a party to a contract may cancel it if, by words or
conduct, another party repudiates the contract by making it clear that he does not intend
to perform his obligations under it or, as the case may be, to complete such
performance.

As such, a refusal to perform can be by words or conduct. A party could notify they won’t perform before
performance.

- Anticipatory repudiation
Hochster v de la Tour (1853) – agreement in April to employ someone in June. In May they said they didn’t
need him anymore. The plaintiff sued for damages before the date of performance and succeeded, seen as
anticipatory repudiation.

6
 There must be a clear refusal by words or conduct.

- Repudiation by conduct
Forslind v Bechly Crundall (1922) – Seller of timber, held to have repudiated when delay in timing. Provided
weak excused for not performing, just seen as wasting time.

Not found too lightly

- Clear evidence of repudiation needed

Schmidt v Holland (1982) – buyer of a house went to the vendor and asked if he would let him out of the
contract. This was not repudiation, just a question if he would enforce it. He did not say he was not going to go
through. However, further conduct did show this, as failed to pay deposit on time and he bought another house.

Oxborough v N Harbour Builders (2002) – builder not repudiated when deficiency of his work found in
construction as he told the plaintiff he was willing to address concerns and willing to admit to arbitration. Not
enough breaches to say he wouldn’t remedy the contract, so no repudiation.

Starlight Enterprises v Lapco Enterprises (1979) – agreement to make 5000 bags for Starlight for $3 a bag. After
making over $500 the price was raised to $4.10. Starlight treated this as repudiation. One party cant unilaterally
change the price, however it was held this was not repudiation, as Lapco was just mistaken in thinking they could
raise the price.

The Edge Buying Group Ltd v Coca Cola Amatil Ltd – parties had different views on contract, but merely
making a bone-fide assertion on the contract is not enough to cancel the contract. This is a dangerous assertion.
However, still depends on assertion and what is said etc – reasonableness.

- Repudiation of substantial part of contract entitles cancellation –

Smyth v Bailey (1940) – sale of 15,000 units of corn, dispute occurred and an amended invoice was sent with 440
units short. Held there was no repudiation as it was sent after the dispute. Not a substantial amount.

If parties to a contract have a dispute, suppose a party thinks they can cancel the contract when they are not
entitled to do it – what if they are wrong?

- An unjustified cancellation may itself be a repudiation

Ingram v Patcroft (2011) – Ingram was in arrears of rent and the lease required punctual payments and allowed
re-entry by Patcroft if in arrears by 14 days. Patcroft miscalculated and entered 1 day early, changed the locks and
said the lease was terminated – excluded Ingram. Ingram said entry was a breach of the lease and that it was
unlawful, whereas Patcroft said it had been terminated.
The Supreme Court held this was an unlawful exclusion of Ingram and was a breach of contract and that gave
rise to the right of cancellation by Ingram. As Patcroft had repudiated, this was a continuing breach where Ingram
could accept.
Ingram’s late rent was not enough of a breach. Eventually however Ingram accepted Patcroft’s repudiation.

So cancelling parties must be on sound ground.

Repudiation can also be dealt with in s7(3c) – clear a term will be broken.

S7(3) Subject to this Act, but without prejudice to subsection (2) of this section, a
party to a contract may cancel it if -
(a) He has been induced to enter into it by a misrepresentation, whether innocent
or fraudulent, made by or on behalf of another party to that contract; or
(b) A term in the contract is broken by another party to that contract; or
(c) It is clear that a term in the contract will be broken by another party to that
contract.

C. Substantial breach
(1) Breach of essential term – s 7(4)(a)
Can cancel is a party was induced to enter by misrepresentation – can be grounds for cancellation, if
misrepresentation is serious enough – must be a breach of an essential term:

S 7(4) - Where subsection (3) (a) or subsection (3) (b) or subsection (3) (c) of this
section applies, a party may exercise the right to cancel if, and only if, -

7
 (a) The parties have expressly or impliedly agreed that the truth of the
representation or, as the case may require, the performance of the term is essential to
him;

At common law, a term of a contract described as a condition could entitle cancellation – so important that
parties agree any breach will be a cancellation. Parties could supply expressly in contract that a term of a contract is
of essence.

- Time of the essence

NZ Tenancy Bonds v Mooney (1986) – contract said time specified for payment of bond was strictly in essence of
contract. It was collected 53 days late without authority. Held payment was essential term to entitle cancellation.

- Can be essential term even though minor consequences of breach

So where parties say this and there is a breach, they can cancel the contract. This could apply to minor breaches,
but as they allow cancellation the parties are agreeing that they are not in fact minor.

Rick Dees v Larsen (2007, SC) – agreement for sale and purchase, no date to settle specified, vendor served
notice date, but purchasers solicitor to fax notice couldn’t be done, as other solicitor’s fax was engaged and could
not get through on the phone. Conformation was received at 5:07pm; however it was needed at 5pm with a
confirmation of clear funds. Since this had not happened, the vendor was seen as entitled to cancel.

- Essentiality may be implied

Bannerman v White (1861) – B sued W for price of items delivered. W had asked B if sulphur had been used to
make them and he was told it had not, however it had. When he found out he refused to pay, and it was seen he was
entitled to cancel as he made it clear that performance of the condition was essential.

Mana Property v James Developments (2010) – M agreed to sell land to J for a subdivision. The boundaries
needed to be adjusted before settlement and the contract said the area was to be no smaller than 4.1715h. By the date
of settlement it was only 4.699h. J said they were cancelling as the area did not reach the specified one. The
Supreme Court held the relevant clause was an essential term, intended by both to be strictly applied with, and
reminded parties could agree it was essential even if it was only a minor matter.
However, J still could not cancel, as M could achieve the amount before time for performance was essential.

Bunge Corporation v Tradax (1981) – Shipping contract, term buyer give seller 15 days notice of when loading
needed. Held by the House of Lords this is an essential term due to the importance of it – date for loading is critical,
so the breach did amount to cancellation.

The general test is set out in Progeni Systems Ltd v Hampton Studios Ltd (1987) – the truth of a representation
will be essential when the representation is of such fundamental importance to the representee in his consideration
whether to enter the contract that without it he would not have contracted with the representor at all or on those
particular terms.
If not essential could get damages even if not a cancellation.

(2) Substantiality of the breach – s 7(4)(b)

What is a substantial breach? Alternatively we can look at the consequences of the breach instead of the terms
given. Many terms are not essential in contract, but breaches can have serious effects. So must look at consequences
not term breached:
S 7(4) - Where subsection (3) (a) or subsection (3) (b) or subsection (3) (c) of this
section applies, a party may exercise the right to cancel if, and only if, -
(a) … or
(b) The effect of the misrepresentation or breach 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.

At common law, it is known as inominate term – term not agreed to be essential, but the effect of the breach
suffered is serious enough to allow cancellation.

8
 Aerial Advertising Co v Batchelor's Peas Ltd (Manchester) [1938]
The plaintiff entered into a contract with the defendant to fly over towns trailing a streamer advertising their
product. The pilot was meant to telephone for instructions each day, but he failed on the 10 th and 11th of November.
So on the 11th of November he flew over a town who were remembering the dead of WWI due to Armistice Day and
caused offence, who said they would boycott the product. The plaintiff decided to cancel the contract as it was seen
as sufficiently serious.

Gallagher v Young [1981]

A vendor of a house was aware of two unsatisfied council requisitions on the property requiring work to be done:
substantial expense in proportion to price purchaser paid. The court held the benefit of the contract substantially
reduced and the burden was increased. As such they were entitled to cancellation.

So cases must be judged on the facts as to whether they are substantial enough a breach or not.

Nordern v Blueport Enterprises Ltd [1996]

Cancellation of lease seen to be justified when landlord leased upstairs to massage parlour, as it changed the
atmosphere of the premises and was a breach of quiet peace and enjoyment of the property. The landlord’s refusal to
do nothing amounted to repudiation.

There are cases where cancellation is not justified also:

Young v Hunt – contract to buy a coffee lounge business. Seller said turnover was no less than $600 a week. The
buyer went in, found it was less and so vacated. The seller claimed the buyer repudiated so she could cancel. Who
can cancel? It was established there was a misrepresentation on turnover of 7% - not seen as substantial enough and
no agreement that misrepresentation on turnover essential. So buyer had no grounds to cancel and so the seller
could.

Jolly v Palmer [1985]

Misrepresentation of Government valuation of house, purchaser paid 11% too much and not seen as sufficient to
justify cancellation – must be more than trivial and minimal.

Westpac Merchant Finance Ltd v Winstone Industries Ltd [1993]

Landlord failed to remedy water supply problems suffered by tenant who purported to cancel the contract so the
landlord sued for rent. The tenant said the water damages were a breach of covenant. The court said it needed to
consider the case on its own facts, the nature and circumstance and in the end it was not scene as substantial enough.

(3) Reason for cancellation

- An unjustified cancellation itself amounts to a repudiation - Young v Hunt - Ingram v Patcroft
Reasons may be due to breach of another party, though may not be substantial enough.

- But a cancellation for a bad reason is valid if there also existed a good reason
Thompson v Vincent (2001) – misrepresentation by vendors selling motel business. Units described as 22-24
units, but there was only resource consent for 12 and this was not made known. The business went bad and the
purchaser vacated after they learnt there was no planning consent for all the units. It was held there was a half-truth
to say 22-24, when only permission for 12. Material distortion.
The purchaser had repudiated on knowing this, but later became aware of the misrepresentation of the half truth.
Court said they could rely on it at a later date.
Why shouldn’t they cancel if by the time the case comes around they learn of a reason substantial enough to do
so.

(4) Option to cancel

Innocent party is not obliged to cancel, even after the breach by the other party – this is the position in the Act
and in common law. So guilty party in principle can’t unilaterally bring contract to an end. This is well illustrated in
the common law case of:

White & Carter (Councils) v McGregor [1962]

Advertisement contract between parties for ads on bins, however after it was made the advertised repudiated but
this was not accepted by the council, who kept them their and sued for the remainder of the cost. It was held by the
House of Lords that contractors could recover the full price and not be obliged to cancel and sue for damages.
This is consistent with the principle that an innocent party has the right to a contract. But did the innocent party
aggravate the loss? They embarked on a course of conduct which cost money, served no use or purpose and was of

9
no use to the other party – inflamed their loss. Shouldn’t they be bound to not aggravate the loss – did something
unwanted and self-imposed.
So we can accept the principle of a party entitled to contract, but worth knowing the minority view on the case.

What if the innocent party does not want to cancel? Here, the innocent party treats the repudiation as if it is not a
breach, so they can’t later sue for damages:
Howard v Pickford Tool Co Ltd (1951) per Asquith LJ – An unaccepted repudiation is a thing writ in water and
of no value to anybody: it confers no legal rights of any sort or kind

But Ingram v Patcroft (2011) accepts that an unaccepted repudiation may excuse other party’s non-performance.
Here, Patcroft in repudiation was in breach, as he sought to turn the tenant out a day early. Patcroft indicated
payment of rent futile as cancelled the contract. Since he said payment was futile, he can’t later sue for rent/cancel
for non payment. Their conduct acted as a waiver, excusing Ingram’s non-performance. There was no point in them
paying as Patcroft said they would not accept. So there is no breach by Ingram that Patcroft could take advantage of.
So Ingram sued Patcroft and unaccepted repudiation amounted to a waiver excusing non performance.

There are practicalities involved, as often innocent parties have no option in these cases – may be forced to
cancel. Or in a serious breach, in theory they have an option, but in practice they do not.

Can a party cancel in respect of another’s breach if the cancelling party is himself or herself guilty of a breach?
Noble Investments v Keenan (2006, CA) – The common law rule that the party cancelling should be ready and
willing to perform had survived the introduction of the CRA. Its purpose was to prevent a party from benefiting
from its own wrong, and it did not apply where there was no such benefit - Principle accepted in Ingram v Patcroft
(2011).

So if a party is unwilling to perform and cancels for someone else’s breach it is allowed. But here, the mere fact
a party was in breach doesn’t exercise the right of option to cancel. In Ingram, there was a breach, but the other
party was willing to pay, although Patcroft was unwilling to perform. So party in breach can cancel if willing to
carry on.

(5) Affirmation
- CRA s 7(5) - A party shall not be entitled to cancel the contract if, with full knowledge of the repudiation
or misrepresentation or breach, he has affirmed the contract. So if one party wants to keep the contract going after
the serious breach, they can’t later cancel on it.
- Whether conduct amounts to affirmation is a question of fact. The question is whether there has been a real
and genuine affirmation of the contract (Hughes v Huppert). Conduct amounting to affirmation is fact specific.
- A party issuing a writ of specific performance may be keeping his options open rather than affirming
- Continued repudiation after affirmation may justify a new decision to cancel

Vincent – this was a representation of contract for sale of apartment by purchasers. The vendor sought a writ for
specific performance and the purchaser still defaulted on settlement and it was held the vendor would then cancel.
So they could cancel for the ongoing default.

Westpac Merchant Finance Ltd v Winstone Industries Ltd [1993] – leaks on tenant of property which he put up
with for 2 years – seen as affirmation and held to have affirmed.

We need to make a judgement as to the intentions of an affirmation being made or not. Or in the case where one
party is keeping their options open, as if good not done, then continuing representation, so innocent party could
change mind if no performance.

Jolly v Palmer [1985] – vendor affirmed after purchase repudiation, but then the conduct of the purchaser saw a
continuing refusal to perform, so the vendor cancelled on the later contract. Can change mind in such a case.

(6) Method of cancellation

CRA, s 8(1), (2)

8. Rules applying to cancellation – (1) The cancellation of a contract by a party
shall not take effect –
(a) Before the time at which the cancellation is made known to the other party; or
(b) Before the time at which the party cancelling the contract evinces, by some
overt means, 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

10
 ii) the other party cannot reasonably expect to receive notice of the cancellation
because of that party’s conduct in relation to the contract.
(2) The cancellation may be made known by words, or by conduct evincing an
intention to cancel, or both. It shall not be necessary to use any particular form of
words, so long as the intention to cancel is made known.

So to cancel it must be made clear to the other party. In (b-ii) – this was added in 2002, and before notice was
required in all cases except when it was not reasonably practical to do so.

Schmidt v Holland [1982]

A seller after purchaser’s repudiation sold to someone else. But the cancellation of the first contract was not
affective as the first party was not notified by the seller, as they just sold on – no basis for cancellation. They could
not claim for damages in breach of contract.

Chatfield v Jones [1990]

Repudiation by purchaser may waiver need for communication. Can simply view it as a waiver – considered in
case but solution was left open.

The matter was resolved in the Act in 2002.

Car & Universal Finance v Caldwell [1965] 1 QB 52

Party makes a voidable contract, how can we give notice of cancellation in a fraud case? It was held s8 provision
was there to cater for such a position: If a party by deliberately absconding puts it out of the power of the other party
to communicate his intention to rescind, then he could not insist on a right to be made aware of the election to
determine the contract. It was sufficient if other overt means (contacting police, AA etc) short of actual
communication were used.

(7) The consequences of cancellation

CRA, s 8(3), (4)

(3) Subject to this Act, when a contract is cancelled the following provisions shall
apply:
(a) So far as the contract remains unperformed at the time of the cancellation, no
party shall be obliged or entitled to perform it further:
(b) So far as the contract has been performed at the time of the cancellation, no
party shall, by reason only of the cancellation, be divested of any property transferred or
money paid pursuant to the contract.
(4) Nothing in subsection (3) of this section shall affect the right of a party to
recover damages in respect of a misrepresentation or the repudiation or breach of the
contract by another party.

Cancellation for misrepresentation cancels obligations in the future – so all unperformed parts at cancellation no
longer need to be performed. However, there can be situations where the section is misleading, e.g. secondary
obligations: if a contract has an arbitration clause does this end too, what about liquidation clauses?
A literal reading suggests these will come to an end, but they don’t. The right to damages continues after
cancellation (s8(4)) – then seems likely anything governing this right will survive. So only unperformed obligations
yet to be carried out are covered by the section.

Brown v Langwoods Photo Stores Ltd [1991]

Franchise agreement, one party cancelled – what is the impact? The Court of Appeal said cancellation does not
avoid the contract from the beginning and existing rights are still enforceable. Held unpaid periodic payments in
contract before cancellation could still be claimed as the right is already due.

A similar question arises in payments for deposits – how are these effected by the sections?

Garratt v Ikeda [2002] 1 NZLR 577

A vendor legitimately cancelled a contract to sell land as the deposit was not paid on time. Held to be a dispute
over s8(3), and whether the vendor could sue after the cancellation to recover the deposit, as this right had already
fallen due. As obligations had fallen due unconditionally before cancellation, they could be sued on and relied upon.
S8 is about rights of the future, not ones already existing.
To take advantage of this decision, it must be clear that the money is unconditionally fallen due. So if money
payable under contract, but obligation depends on final settlement, then it is conditional and you can’t sue on it in a
cancellation.

11
 This gives rise to difficulty in excessive deposits. In Garratt the deposit was 10% of the purchase price, and the
purpose of a deposit is to prove the purchases is serious about buying, so if you pay it and cancel you do not get it
back, as it becomes forfeited.

Simanke v Liu (1994) 2 NZ ConvC 191,888

Payment described as a deposit on a property, however it was nearly half the purchase price. Here, it was held
this amount was not to show seriousness, but rather be a part payment – seemed penal in this case. As full payment
is due on settlement and in reality this is a payment, it can’t be subject to forfeiture. Since the vendor could not get
this, they asked if they could get 10%. The court said no, as there is no basis for a court to substitute one entitlement
for another. They did give some damages in relation to losses of the vendor only.

We can reach this result in reference to s5 – Garratt referred to this too:

S5 CRA enables parties to contract out of the Act – e.g. to provide for their own remedies, or alter the incidents
of cancellation. It is always a question for the interpretation of the contract whether its provisions override the act,
or supplement it.

So if given notice about what happens if you pull out – can lose deposit.

(8) Remedial discretion

CRA, s 8(3)
(b) So far as the contract has been performed at the time of the cancellation, no
party shall, by reason only of the cancellation, be divested of any property transferred or
money paid pursuant to the contract.

If you have performed you can’t automatically get your money back, and it is the same for property transferred –
prima-facie. So a purchaser who pays over half of the money and repudiates, and so the vendor cancels, this
cancellation does not result in money going back. If you buy a business and stock in trade is invested, then
cancelling results in the stock staying with the purchaser.
This could be highly unjust, so courts can adjust the rights of parties under s9 – available to relieve hardship.
Position for courts to make orders. They are very wide ranging with large discretion.

CRA 1979, s 9
(1) When a contract is cancelled by any party, the Court, in any proceedings or on
application made for the purpose, may from time to time if it is just and practicable to
do so, make an order or orders granting relief under this section.
(2) An order under this section may:
(a) Vest in any party to the proceedings, or direct any such party to transfer or
assign to any other such party or to deliver to him the possession of, the whole or any
part of any real or personal property that was the subject of the contract or was the
whole or part of the consideration for it:
(b) Subject to section 6 of this Act, direct any party to the proceedings to pay to any
other such party such sum as the Court thinks just:
(c) Direct any party to the proceedings to do or refrain from doing in relation to any
other party any act or thing as the Court thinks just.
(3) Any such order, or any provision of it, may be made upon and subject to such
terms and conditions as the Court thinks fit, not being in any case a term or condition
that would have the effect of preventing a claim for damages by any party.
(4) In considering whether to make an order under this section, and in considering
the terms of any order it proposes to make, the Court shall 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 the performance of
the contract; and
(d) The value, in its opinion, of any work or services performed by a party in or for
the purpose of the performance of the contract; and
(e) Any benefit or advantage obtained by a party by reason of anything done by
another party in or for the purpose of the performance of the contract; and
Such other matters as it thinks proper.

S9(5) protects the position of bona fide purchasers for value of any property in respect of which an order could
be made under subs (2)(a);
S9(6) provides that no order shall be made in respect of any property where a party to the contract has so altered
his position in relation to the property, whether before or after cancellation, that it would be inequitable to make
such an order.

12
 So what is the relationship between these provisions and the right to damages? This section is not about
damages, it is relief on cancellation. Damages come under s10:
S10(1) preserves the right of a party to a contract to recover damages after the contract has been cancelled and
also provides that the value of any relief granted under s 9 must be taken into account in assessing the damages.
S10(2) goes on to provide that any sum ordered to be paid by a party under s 9(2) may be set off against any
damages payable by him or her to the other party.

So covers any relief under s9 to be taken into account when seeking damages after cancellation. So what is the
relationship then?

Newmans Tours Ltd v Rainier Investments Ltd [1992] 2 NZLR 68

What can a court order under s9? Does it allow a court to do whatever it wants or is it limited by common law?
per Fisher J
- S9 extends to all reliance and expectation losses. Ss 9 and 10 may have been intended to be complementary
and mutually exclusive, but in the light of the broad discretionary language of s9 that view was impossible to
sustain.
He recognised there may not be the intention to be as wide as it is, however due to the language it cannot be
interpreted any other way.
- Relief upon cancellation of any given contract ultimately must be determined in a global exercise which
takes into account all the performances, breaches, gains and losses of all the parties to that contract.
He considered the relationship between different claims under s9 – said it is a global exercise.

How far is this limited by common law damages (remoteness etc)?

- Although s 9 was of broad application, secondary qualifications which would apply to damages at common
law, like remoteness and mitigation, would continue to be relevant. Experience had proved that in the great majority
of cases the principles would produce a just and logical result.
- The traditional hierarchical approach to remedies, favouring damages before specific performance,
injunctions and declaratory relief, might well be disappearing at common law. The Act provided an opportunity for
a fresh start. The Courts would adopt the solution which best met the occasion without predisposition towards a
particular type of remedy.

Young v Hunt – purchaser repudiated after possession taken of coffee bar, where he had paid the vendor $11,000.
On cancellation, what happens? The court allowed the purchaser to recover $5000 from the vendor and calculated
this on the basis that there was some misrepresentation and they deducted what the vendor lost due to the
cancellation.
This is an illustration of court exercising their powers under s9.

(9) Contracting out

CRA, s 5 - If a contract expressly provides for a remedy in respect of

misrepresentation or repudiation or breach of contract or makes express provision for
any of the other matters to which ss 6 to 10 of this Act relate, those sections shall have
effect subject to that provision.

Parties can agree to contract out of the Act but they must be clear.

(10) Cancellation and other statutes

We have regime for remedies under the CRA – however there are savings under other Acts. The CRA does not
affect the Sale of Goods Act 1908 as cases are excluded from coverage from the CRA, so common law principles
continue there. Also, remedies under the Consumer Guarantees Act 1993 are also not affected by the CRA.
This leaved a fragmented law on remedies – doesn’t apply with two important Acts, so law needs clarification as
we have an overlapping provision which could lead to confusion as to which applies.

Misrepresentation

- Negotiations over contracts can later turn out to be false; remedies may be sought
- Usually about issues occurring before making of contract

Contractual Remedies Act, s6

13
 - Damages for misrepresentation: if party induced to enter due to misrepresentation made to them by another
party to contract, is entitled to damages as if representation a term of contract that broken. Can’t sue in tort
remedies, only contract. Applies to all contracts for sale of goods.
- Meaning of Misrepresentation:
- Statement of intention
- Edington: state of man’s mind important, intention that not held was given
- Opinions and beliefs
- Bisset: if only opinion may not be actionable (sheep estimate)
- Statements as to future can imply statement as to present fact
- Eso Petroleum Ltd: sales projection seen as implied assurance
- Ware v Johnson: assurance of quality leading to production was misstatement
- Mere Puffery
- Not actionable: Easterbrook
- Silence (generally no misrepresentation)
- Deverick: no misrepresentation in not giving medical info on past owner of house
- Amatal: exceptions where failure to speak may distort truth of previous statement, where
active concealment, or where true representation made false by later change
- With: obligation to tell purchaser if change in circumstance
- King v Wilkinson: position of fence misleading of boundary, silence was a
misrepresentation
- Representation made by or on behalf of the other party:
- Contracting party can be liable for misrepresentation made by their agent
- Agent can be personally liable in tort as not party to contract
- Representation made to the plaintiff:
- Statement must be made by the party, not merely passed on as a statement by another
- Statement must be made to the contracting party
- Inducing effect:
- Jolley: information was relied on and had an inducing effect
- Emslie: the misrepresentation had no inducing effect so not actionable
- Does not need to be the only reason, but must be a relevant circumstance to be liable
- Savill: can’t rely on a misstatement unrelated to contract
- Damages:
- Can get contractual damages equivalent to action for breach of contract
- About putting plaintiff in position they be in if representation true

Fair Trading Act 1986, s9

- No person shall engage in conduct that is misleading or deceptive. Broader than CRA, not limited to
misrepresentation inducing contract
- General:
- Must be proved to be misleading
- Must occur in trade, can apply to consumers and business disputes
- Misleading/deceptive conduct:
- Indication it is a misrepresentation with same tests as CRA
- Not limited to misrepresentations; could include silence
- AMP Finance NZ Ltd 3 stage approach (Tipping):
- Conduct capable of being misleading
- Plaintiffs misled by the conduct
- Reasonable for plaintiff to have been misled

- Red Eagle Corporation v Ellis

- Case by case analysis
- Did conduct have capacity to mislead/deceive a reasonable person
- Was loss/damage suffered due to conduct

14
 - Does not have to be sole cause, just effective one
- Fault on plaintiff?
- Damages:
- Court can order payment of damages
- Treat as claim in tort; what would position be without misleading contract?
- Baker: no adverse consequence of misrepresentation, no loss, no action
- Remedies:
- Can recover consequential loss, however possibility of contributory loss due to actions of innocent
party
- Comparison with Contractual Remedies Act:
- Misrepresentation vs. misleading/deceptive conduct
- Misrepresentation in any contract vs. only trade contracts
- Only contracting party can sue vs. any person can apply for remedy
- Damages against contracting party vs. remedy against person engaged in misleading conduct
- Damages on contract measure vs. damages on tort measure
- Limited contracting out vs. no contracting out
- 6 years from breach vs. 3 years from breach

Cancellation for Misrepresentation

- Can only cancel in case of serious breaches, however damages can be awarded for any breach though
- Innocent party is not obliged to cancel, they could still enforce, so breach not automatic end
- Main way to cancel is by repudiation or substantial breach (Contractual Remedies Act)

Repudiation, s7(2)
- Refusal to perform by words or conduct
- Anticipatory repudiation:
- Hochester: made clear contract would not eventuate so plaintiff sued before date of performance;
seen as anticipatory repudiation
- Repudiation by conduct:
- Forslind: repudiation can occur by delay/waste of time in completing contract
- Evidence of repudiation needed
- Schmidt: questioning if can be let out of contract is not repudiation
- Oxborough: deficiency in work where prepared to remedy is not repudiation
- Starlight Enterprises: raising the price in a contract is not repudiation when thought genuine right
to do so
- Repudiation of substantial part of contract entitles cancellation:
- Smyth: no substantial change so no repudiation
- An unjustified cancellation may be repudiation itself:
- Ingram v Patcroft: lease cancelled wrongfully, seen as repudiation
- s7(3): if clear a term will be broken, repudiation can occur

Substantial breach
- Breach of essential term - s7(4a):
- If misrepresentation is serious enough there must be a breach of an essential term
- Time of the essence
- NZ Tenancy Bonds: payment an essential term to entitle cancellation
- Can be essential term even though minor consequences of the breach
- If parties agree for something to be essential, even if they minor, they now essential
- Essentiality may be implied
- Bannerman: made clear that performance of a condition was essential; entitled to cancel
- Mana Property: clause essential as intended by both to be strictly applied with

15
 - Bunge Corporation: essential due to importance (critical)
- Substantiality of the breach – s7(4b):
- Can look at consequences of breach and see the serious effect occurring to see if substantial
- Inominate term; not agreed to be essential, effect of breach suffered serious enough to allow
cancellation
- Aerial Advertising Co: minor breach with major consequences
- Jolley v Palmer: more than trivial and minimal
- Westpac Merchant Finance Ltd: must consider case on own facts, and nature and circumstances
- Option to cancel:
- No obligation on innocent party to cancel after breach
- Guilty party cannot unilaterally bring contract to an end: White v Carter
- If don’t want to cancel they treat the repudiation as if no a breach; cant later sue on it
- Unaccepted repudiation can excuse non performance: Ingram v Patcroft:
- Repudiation was in breach, cancelled contract, said payment futile: cant later sue for it, acts as a
waiver since admitted he wouldn’t accept it
- If party wants to cancel for someone’s breach, and they are guilty of a breach too, can’t benefit from
own wrong: Noble Investments
- Mere fact a party is in breach does not give a right to cancel
- Affirmation – s7(5):
- Cannot cancel contract if they have affirmed it after knowing a breach has occurred: Winstone
Industries Ltd
- Method of cancellation – s8(1)(2):
- To cancel must be made clear to the other party
- Schmidt: purchaser repudiated so property sold on, yet they never notified of this
- Chatfield: repudiation by purchaser may waiver need for communication
- Caldwell: if party deliberately puts it out of other party’s power to give notice, they cant insist on
having to be made aware
- Consequences of cancellation – s8(3)(4):
- Cancellation for misrepresentation cancels obligations in the future
- All unperformed parts no longer need to be performed
- Right to damages and other unperformed obligations yet to be carried out continue
- Brown: existing rights not cancelled, e.g. payments owed before cancellation
- Garratt: can sue for deposit after cancellation as right already fallen due
- Liu: can’t just call it a deposit, must be approx 10%
- Remedial discretion – s8(3), s9:
- s8(3): If performed you don’t automatically get money or property transferred back
- Court given wide ranging powers to make orders to relieve hardship of this
- s9(5): protects position of bona fide purchasers for value of any property
- s9(6): no order made on property where party altered position in reliance on it, where would
be inequitable to make such an order
- s9 includes reliance and expectation losses: Newmans Tours Ltd
- Relationship to receiving damages
- s10(1): parties right to recover damages after cancellation preserved. Takes into account any relief
given under s9 in determining damages
- s10(2): any sum awarded under s9 may be set off against damages payable to party from others
- Contracting out – s5:
- Can agree to contract out of the Act but it must be made clear
- Cancellation and other statutes:
- Does not affect the Sale of Goods Act or Consumer Guarantees Act

Misrepresentation & Cancellation

Principle Case Information

16
 Meaning of Misrepresentation (Contractual Remedies Act, s6)
State of man’s mind important, intention that not held was
Edington
given
If only opinion may not be actionable Bisset Estimate sheep numbers
Sales projection can be seen as implied Eso Petroleum
Petrol gallons to sell
assurance Ltd
Assurance of quality leading to production
Ware v Johnson Vines said to produce, didn’t
can be a misstatement
Mere puffery not actionable Easterbrook Land “fertile & improvable”
Misrepresentation in not giving medical
Deverick Aids past owner, silence
info on past owner of house (silence)
Silence actionable when distorts truth or previous statement
Amatal
or active concealment
Obligation to tell purchasers of changes in With v Doctor office for sale, doctor
circumstances O’Flannagan get sick, price go down
Silence over position of a fence can be King v
Fence not on boundary
misleading Wilkinson
Information relied on must have an
Jolley v Palmer False government valuation
inducing effect
If no inducing effect not actionable Emslie Budget forecast; one reason
Can’t rely on misstatement unrelated to contract Savill

Misrepresentation in Fair Trading Act, s9

Tipping J: Capable of being
Three stag approach to determine if there AMP Finance
misleading, being mislead,
has been misleading/deceptive conduct NZ Ltd
reasonable to be misled
Capacity to mislead
Case by case analysis needed, not just reasonable person,
Red Eagle
formula to determine if misleading or loss/damage suffered,
Corporation
deceptive conduct effective cause, fault on
plaintiff?
If no adverse consequences of the
Entrance paper road, price
misrepresentation then no action as no Baker
still same though
loss

17
 Cancellation by Repudiation
Contract to work, found out
Anticipatory repudiation: clear contract
Hochester month before not happening,
not eventuate
sue
Repudiation can occur by delay/waste of Contract to buy timber, took
Forslind
time in completing contract too long to complete
Questioning if can be let out of contract is not repudiation Schmidt
Deficiency in work where prepared to Willing to go to arbitration
Oxborough
remedy is not repudiation etc
Raising the price in a contract is not
Starlight
repudiation when thought genuine right to Bag prices from $3 to $4.10
Enterprises
do so
There must be a substantial change in the 15,000 units of corn, 440
Smyth
contract for repudiation short, not substantial enough
An unjustified cancellation may be Ingram v
Tenancy cancelled early
repudiation itself Patcroft
If it is clear a term will be broken, repudiation can occur Section 7(3)

Cancellation by Substantial Breach

Time can be an essential term NZ Tenancy Bond payment time essential

18
 Bonds
Essentiality may be implied where
performance of condition essential to Bannerman Sulphur in product?
contract
A clause can be essential due to its Bunge 15 days notice of loading
importance Corporation essential
A minor breach with major consequence Aerial WWI anniversary, peas,
can count instead Advertising Co plane
Consequences of breach must be more 11% difference not enough
Jolley v Palmer
than trivial and minor under this Act
Westpac
Must consider case on own facts, nature Water issues, put up with for
Merchant
and circumstances as to consequence 2 years
Finance Ltd
Guilty party cannot unilaterally bring Ads put up even though not
White v Carter
contract to an end wanted
Unaccepted repudiation can excuse non Ingram v
Tenancy cancelled early
performance Patcroft
Cannot benefit from own wrong (cancel when you are in
Noble Investments
breach as well)
Cannot cancel contract if they have Westpac
Water issue put up with for 2
affirmed it after knowing a breach has Merchant
years
occurred Finance Ltd
To cancel must be made clear to other Purchaser repudiated,
Schmidt
party property sold
Repudiation by purchaser may waiver need for
Chatfield
communication
If party deliberately puts it out of other party’s power to give
Caldwell
notice, they can’t insist on having to be made aware
Existing rights not cancelled - payments owed before
Brown
cancellation
Can sue for a deposit after cancellation as right already fallen
Garrett
due
Cannot just call something a deposit, must Deposit a part payment as
Liu
have characteristics of one (10%) nearly half the price

19
 Contract Tutorial – Misrepresentation & Cancellation

1.
This question requires an analysis of the law relating to misrepresentation in contract, with a
focus on s6 of the CRA and s9 of the FTA in order to see whether damages are available for the
alleged misrepresentation.
Under s6 of the CRA, before we are able to see what damages are available we first have to meet
the requirements of relief. The first test is whether there has been a misrepresentation. From the
facts we are told that L has been told the machine would make 20,000 copies on one bottle of
toner, and as we know, statements to the future can imply present facts. We need more
information to confirm that this claim is based on current knowledge, however as it stands there
is a good argument to suggest that there has been a misrepresentation.
The second requirement is that the misrepresentation was made by the other party to the plaintiff.
The misrepresentation itself was made by the manufacturer though, not the representative. Under
Goldsborough we know that it is not sufficient that communication passed on by information by
a third party will lead to liability. O was only passing on information, they were not the
manufacturer’s agent, and the misrepresentation was not made on behalf of the contract. As such
it is unlikely that L can rely on the CRA, for further into the contract there is a clause stating that
there is no reliance on the sale representative, and under s5 we know that you can contract out of
the Act.
If L was to succeed on this, which it is highly likely they would not, the next step would be to
show the misstatement had an inducing effect, and that it was one of the reasons that L entered
into the contract. It is highly likely that L would be able to prove this, however as they have
failed the previous requirement it is not likely they will reach this stage. After such they would
look at getting damages, which are as of right, not discretionary and are not tort based, but
contract based. These can only be received form a contract to a party, and so the manufacturer
would not be liable to pay anything under the CRA

However, though the CRA does not help L in this situation they are still able to claim under s9
of the FTA. This section required that no party in trade can undertake behaviour to mislead or
deceive others. The Act is much broader than the CRA and is able to cover things outside
misleading conduct. The conduct must occur in trade, and on our facts given there is no issue
over this and so L would be able to claim under the Act. Furthermore, you do not have to be a
party to the contract in order to be sued, and so in this case the manufacturer H can be sued and
argued that they undertook misleading conduct. L is still unlikely to be successful against O as
they were only passing on information.
To succeed, we must show that there has been misleading or deceptive conduct of some kind and
it is generally thought the same test applies as seen in the CRA. Under AMP Finance Tipping
suggest a three stage approach. Firstly we should look to see if the conduct was capable of being
misleading. As the manufacturing brochure clearly stated the machine could do 20,000 copies
when it could not do anywhere near this in reality, it is unlikely there will be an issue over this.
The second stage is to show the plaintiff’s were misled by the conduct, which they clearly were
since they relied on it and bought the machine thinking it would do what it said. And thirdly, we
should see whether it was reasonable that the plaintiff was misled, which as the information was
contained in the manufacturing brochure and there was nothing to suggest it was false, is likely
to be found as well.
Under Red Eagle Corp though, it was suggested we should take a case by case analysis, while
ensuring the conduct had the capacity to mislead a reasonable person, that damage was suffered,
that the misleading conduct was an effective cause of this and that there is no fault on the
plaintiff. From our facts we know it was clearly misleading to a reasonable person, the damage

20
caused was the loss in value which the plaintiff wanted to get out of the machine, and we are not
told if there is any fault on the plaintiff, however on the facts this is unlikely.
As such, it would be highly likely that L succeeds in claiming under the FTA, and so a court
could order a payment of damages. Damages under the FTA are different to the CRA as they
apply a tort based claim, where it is asked what position the plaintiff would have been in had
there been no misleading contract. As such it is likely that the court will allow for damages as to
the added costs that L has had to incur relying on the misleading statement.
L should thus be advised that it is highly likely they will be unsuccessful in claiming under the
CRA; however it is likely their claim will be successful under the FTA.

2.
This question requires an analysis of the law relating to cancellation of a contract and a close
comparison to ss7-9 of the CRA. The two main ways of cancelling a contract are for substantial
breaches or by repudiation. The test for substantial breaches leading to cancellation come under
s7(4a-b), however you only need to satisfy one of the requirements.
Under s7(4a) there needs to be a breach of an essential term. An essential term has to be
expressly or impliedly known to be essential. Under Young, an essential term is one which a
party would not enter the contract without. As the G’s have insisted the two terms which have
been breached into the contract, we can automatically assume that they are indeed essential
terms, as it would be likely that would not continue with the contract without them, and after
they discover the breach they immediately want to cancel the contract. Therefore it is highly
likely that they will meet this requirement.
Under s7(4b) there must be a substantial breach; what are the consequences of the breach?
Substantiality is not defined, though Jolley suggests that it depends on the facts of the case as
long as it is more than trivial and minimal. Aerial Advertisement Co says is can be a minor
breach with major consequences. In our case, the breach of the L’s not staying with the G’s does
not appear to be largely substantial, and we need more information. For instance, if the G’s
already had experience in this work perhaps the L’s presence is not going to lead to substantial
hardship; as it stands though it is unlikely to be seen as substantial. As for the difference in
weekly amounts, this is similar to the facts of Young where the difference was not large enough
in price to be a substantial breach. As such it is likely that the G’s would fail on this test,
however it does not matter as they have already satisfied s7(4a), and so it is likely that there is
grounds for a cancellation of the contract.
As we know though, it is also possible to cancel a contract by repudiation as well. This can occur
it is likes like a party to a contract is walking out on it or their obligations under it. In our case it
is likely the G’s can repudiate the contract by anticipatory repudiation; where it is clear the
contract will not eventuate and so they can sue before performance. This is because they have
been told there will be a breach of an essential term and this allows for cancellation under the
CRA. If we are to look at things the other way, it is also possible that the L’s themselves have
repudiated the contract, for as we know, repudiation of a substantial part of a contract can be
repudiation itself; this occurs when they decide to breach the essential term. There is also the
possibility that repudiation is able to occur if it is clear that a term will be broken, under s7(3).
As it is likely that this contract will lead to a cancellation due to the following, we must now
address the issues of what comes next. If a party wants to cancel a contract they must
communicate this with the other party (s8) unless it is impractical or impossible to do so. We are
told that the G’s do not know where the L’s will be going, however as they have found out about
the breach the day before settlement it is likely they will see them and be able to communicate
their intention to cancel the contract then.

21
The G’s also want their deposit back. A deposit is evidence of intention to enter the contract and
is usually around 10%. As we are told it is only $1500 there will be no issues as to the deposit
being too extravagant. If a purchaser defaults they generally lose a deposit, however this is
different as the L’s are the party in the wrong, and due to policy concerns it is unlikely they
should be allowed to keep it due to their breach. As such it is likely the deposit will be returned
to the G’s.
However under s8 money does not just return to parties automatically, as you must use s9 where
the court is given the powers to do this and grant relief which is discretionary, and is only given
if it is just and equitable to do so. On the facts it is likely this will be seen to be the case.
Furthermore, should the G’s seek to recover any damages from the L’s, then s10 will take into
account any award made by the court under s9 when looking at what should be awarded.
As such, the G’s should be advised it is likely their contract will be cancelled and their deposit
will be recovered under the CRA.

2008 Contract – Misrepresentation & Cancellation

The following question requires an analysis of s6 CRA and s9 FTA to determine whether J can
recover damages for any misrepresentation that may have occurred between himself and A. It
will also require an analysis of ss7-9 CRA to see whether J is able to alternatively cancel the
contract by repudiation or by a substantial breach and get damages in this matter instead.

Under s6 CRA, damages are awarded if a person is induced to enter a contract due to a
misrepresentation made on behalf of the other party to them. This misrepresentation is treated as
a broken term of the contract, and remedies are based on contract recovery methods; the plaintiff
is put into a position should the terms not have been breached (misrepresentation not occurred).
Firstly we need to ask whether there has been a misrepresentation in the first place. The
assurance that the agent gives J about renting the home out as rental will be seen as an assurance
and not an opinion, however this statement was not false so it is not a misrepresentation. It is
highly likely that the statement describing the property as “tranquil” etc will be seen as mere
puffery, which is not actionable for misrepresentation either. Under the Act, statements about the
future can imply statements about present facts, and so when J is assured the family which would
rent the property were ‘excellent’ it is likely this could be seen as a misrepresentation. Finally,
silence is generally not actionable, however under Amatal it is if failure to speak distorts the
truth of a previous statement, or there is active concealment. On our facts it is arguable whether
this has happened, for A knew that J’s main purpose in buying the property was for what he
thought was the quiet. Did A know that there was a lot of noise during the summer? On the facts
it seems likely that if A knew this, then it was active concealment. Furthermore his silence to the
issues with the family could likely be seen as active concealment as well.
The next step is to ask whether the representation was made by or on behalf of the other party, to
the plaintiff. As A is an agent of his company, it is likely that J could have a claim against them
as A is acting for them. There are no issues about who the representation was made to in this
case.
The next step is to see whether the misrepresentation had an inducing effect on J entering the
contract. Unfortunately, though it is possible A’s non disclosure on the issues with the family
who stayed in the house was am misrepresentation, J admitted he would probably not rent the
house out, and that his primary purpose was to find somewhere quiet for his wife. Savill says
you can’t rely on a misstatement unrelated to the contract, and as he was not looking to rent the
house, the statement becomes unrelated to forming the contract. As such this leaves the silence
over the lake and the noise in the summer which can be seen as having an inducing effect. It is
unlikely there will be any issues proving this misstatement had an inducing effect.

22
It would be helpful to receive more information about A and their knowledge of the lake.
Assuming that they knew it was noisy during the summer, added with the fact they knew J
wanted somewhere quiet for his wife, this would likely be seen as a misrepresentation which J
could get damages on. As a defence for A though, it may also be relevant as to the level of noise
that the boats make; is it unreasonable noise? Assuming this is not the case, J should be advised
it is likely he can claim under the CRA for damages, which will be contractual based. However
if the silence turns out to not be a misstatement, J could always apply under s9 in the FTA for
damages.

Under s9 FTA a person cannot engage in conduct that is misleading or deceptive. It is broader
than the CRA, as it is not just about misrepresentations and can cover silence. To recover
damages we must prove there has been a misrepresentation which has occurred in trade. The
main test for this comes under the Red Eagle Corp case, which suggested we should take a case
by case analysis and look at whether the misrepresentation had the capacity to mislead a
reasonable person, whether damage occurred due to it, whether the misrepresentation was an
effective cause of the damage, and whether there was any fault on the plaintiff.
On our facts and what has already been discussed, A’s silence about the water appears to be
misleading and deceptive, given that he is aware that J’s main reason for buying the property is
to move his wife there who needs the quiet. The loss suffered is likely to be the waste in money
from buying the property which does not live up to the quiet it was said to have, and it would be
relevant to know whether this noise has any detrimental to his wife’s condition at all. It is
unlikely for there to be any fault found on J’s part in this situation. It may also be relevant to
have more information as to whether or not A was aware of the noise, as if he was then it is
likely his conduct would be seen as deceptive under the FTA.
As such, J should be advised that it is likely he could recover under this Act, and the damages
received would be tortious, in that he would be returned to a position had he never entered the
contract. He should also be advised that it will likely be easier to claim under the FTA than the
CRA as there are fewer restrictions about recovering where silence has been used as deceptive
conduct

It is now important that we look at ss7-10 CRA to see J’s chances of cancelling the contract due
to the misrepresentation that has occurred. There are two ways to cancel a contract, and that is by
repudiation or by a substantial breach.
Under s7(3) it is possible for repudiation to occur if it is clear a term is going to be broken in the
contract. As we know, a misrepresentation under the CRA is treated as a term of the contract
which has been broken, and so assuming that A has misrepresented J about the noise in summer,
then as it becomes clear this term is going to be breached, repudiation can occur by J.
Alternatively, J can also cancel the contract by meeting the requirements of either s7(4a) or
s7(4b). Under 4a there must have been a substantial breach of an essential term. Essentiality may
be implied, and Bannerman says an essential term is where it is made clear that performance of
a condition is essential to the contract. On our facts this is likely to be found, as J said his main
reason for buying the property was because he wanted somewhere quiet for his wife, and we can
assume that as she is terminally ill that this is the most important factor in entering the contract.
As such it is likely J will meet the requirements of s7(4a).
If he did not meet this section, J would have to meet the requirements under s7(4b), where he
must prove that a breach is substantial sue to its consequences. We would need more information
about the effect of the noise on his wife, and whether it was very noisy, or minimal, as Jolley
tells us the breach must be more than trivial and minimal. However Westpac states that we
should consider the facts, nature and circumstances of each individual case. It is arguable as to
whether this condition would be met, however as J has met s7(4a) it does not matter, as it is
possible for a court to now allow him to cancel the contract.

23
To cancel the contract it must be made clear to the other party unless it is impossible to do so;
there is unlikely to be any issue of this in our situation. There would also be a defence for A if J
had affirmed the breach under s7(5), however this is highly unlikely as well.
If J has given a deposit of some kind, then due to policy concerns it is also likely he will get this
back due to the misrepresentation, as it would be unjust and against equity for A to keep it.
However, any money already paid does not automatically get returned due to s8, so J would have
to apply under s9 with a court order for relief which is granted where it is just and practical to do
so; which is likely in the case. If J further decides to get damages from A, s10 of the Act will
force the court to take into account anything received by the s9 court order in making a decision
for damages.
J should be advised that it is likely he will be able to cancel the contract under the CRA as well
as seek damages, however there is also the possibility of using the FTA to receive damages
under this alternative statute.

Contract 2009 – Misrepresentation & Cancellation

This situation requires an analysis of the law relating to misrepresentations found in s6 CRA and
s9 FTA to determine whether or not S is guilty of a misrepresentation to N, as we need to know
this before we look at claims from himself towards her. It also requires a focus on ss7-10 CRA
in terms of cancellation of a contract to see whether N was justified in her cancellation, and if not
whether S can indeed get the damages he is hoping to recover.
Under s6 CRA, damages for a misrepresentation can be awarded if a party has been induced to
enter into a contract due to a misrepresentation made to them by another party or their agent to
the contract. If we can prove this, then damages are able to be awarded on a contractual basis.
That is, damages will seek to put the plaintiff in a position as if the misrepresentation never
occurred. The misrepresentation is treated as a term of the contract which has been broken.
The first thing we must consider is whether there has been a misrepresentation? As we know, an
opinion or belief may not be actionable in every circumstance (Bisset). In our facts we are told
that S thinks he can do the job for a certain price, and that he did a similar job for $20,000. There
is no guarantee in his estimate of the price however. As such it is likely that any claim from N
that S misrepresented her as to the price will be unsuccessful, as N never guaranteed or promised
that the price would be exactly $20,000, only that he thought he could do it for a similar price.
If this was seen to be a misrepresentation, then there would be no issues over whether it was
made by S to N, and the next thing which would be dealt with would be whether or not the
misrepresentation had an inducing effect. This is likely to be found, as N went to the other
property to see the size of it as a way to see if the price would be similar. From Jolley we know
that the misrepresentation must be relied on and must have an inducing effect on entering the
contract. If this was found, then the next step would be for the court to award damages to put the
plaintiff in the position they would be in if the misrepresentation did not occur, which in our case
would mean S would likely have to charge her only $20,000.
However, as it is likely that no misrepresentation will be found under the CRA, S should be
advised that it is unlikely N will be successful in trying to claim any damages from him in this
manner. However, she does have the option of claiming damages under the FTA.

Under s6 FTA, a person cannot engage in misleading or deceptive conduct while in trade. This is
broader than the CRA as it is not limited to a misrepresentation by a party. Though there is no
issue about this being a trade situation, we would have to prove that there has been some kind of
misleading or deceptive conduct. Red Eagle Corp suggest we apply a case by case analysis
when asking this question, and that we should see whether the conduct had the capacity to

24
mislead a reasonable person, whether loss was suffered, whether the conduct was an effective
cause of the damage, and whether there was any fault on the plaintiff.
From our facts it is unlikely to be found that S’s conduct would have misled a reasonable person,
as his comments were an estimate, and he never promised they would be for that amount.
Furthermore we are never told about the contract he and N entered into and whether that
contained the price, and so we need more information. As such, it is unlikely N would be
successful in claiming that there had been a misrepresentation under the FTA
S should be advised that it is unlikely that N will be able to receive damages from him in respect
of any misrepresentation he made towards her and the contract.

We now need to examine the law relating to cancellation of a contract under ss7-10 CRA to
determine whether N’s cancellation of her contract with S was justified, and if not whether there
are any claims for damages S may have over N. Cancellation can occur by repudiation of a
substantial breach of the contract.
In terms or repudiation there normally needs to be a refusal to perform which comes by words or
conduct. From our facts though there is nothing to indicate that S has refused to complete the
contract at all, however under s7(3) repudiation is possible if it becomes clear that a term of the
contract will be broken. We are told that N made it clear that it was essential for the work to be
finished by a certain date, and that she claimed S could not do this as his equipment was
inadequate and so repudiation can occur because of this, allowing her to cancel the contract.
However we need more information regarding this. Was S’ equipment inadequate at all? Was he
going to finish? If it turns out that N was wrong and S could have finished, then it is likely she
did not have any rights in cancelling the contract, as there would have been no repudiation if the
work could have been completed. This is arguable, and we need more information.
Cancellation can also occur due to a substantial breach, and in order for this to occur, either the
requirements in s7(4a) or s7(4b) must be met. Under s7(4a) it must be shown that there has been
an breach of an essential term. From the facts we know that N told S that time was essential, as
the work had to be completed by a certain date. NZ Tenancy Bonds tells us that time can be
essential to a contract, however we need more information as to whether or not S could have
finished, or whether he was likely to miss this deadline. If it was likely he could not finish then S
would likely meet this requirement. Essentiality can be implied, as Bannerman says that if it is
made clear that performance of a condition is essential, then a party may be entitled to cancel.
On our facts it is likely this is the case, as N said it was essential for the work to be completed on
time, however we need more information as to whether or not her suspicions were true or not.
Under s7(4b) there must be been a substantial consequence as result of a breach. On our facts the
breach had not yet occurred though, but if it did then it is likely this would have been substantial
as it would mean N’s building work could not be undertaken at the date she had arranged it to be.
It is arguable as to whether we can speculate to the future, however as it is likely N would meet
the requirements under s7(4a) it is likely she would be entitled to cancel the contract, on the
basis that S would not have been able to complete the work.
There is not likely to be any issues regarding notice of cancellation, and so we must now look at
the consequences of cancellation. Though a cancellation cancels future obligations, existing
rights that are owed are not cancelled, for example the money owed for work done. As such it is
likely that though N has cancelled, S will still be able to recover the cost of what he has already
completed. This money is not given automatically though due to s8(3). As such, S would have to
make a claim under s9 for a court order which would have the money ordered to him if it was
seen as just and practical to do so. It is highly likely this would be seen to be the case, as
otherwise it would be against policy, as N would receive S’ work and would not have had to pay
for them. As such it is likely S can recover the costs for the work he has done to date. It is likely
the court will decide on the amount that S receives.

25
S has said he wants to recover damages, which he can do under s10. These damages will
ultimately depend on whether or not N was justified in cancelling the contracts due to her
suspicions that S could not complete the contract on time. If she was right it is unlikely damages
will be awarded, but if she is wrong then it is a possibility. Any damages awarded to S will take
into account any money received from a s9 court order though.
As such S should be advised that as long as he can prove that N was wrong in assuming he could
not complete the work, it is likely he can recover damages and costs from her. However if it
turned out he could not complete the work, it is likely he will only be able to recover costs for
work he has already done, less any damages that N could seek from him under s10. Furthermore,
it is unlikely that S will be forced to pay any damages for a misrepresentation under CRA and
FTA, as his conduct is not likely to be seen as a misrepresentation.

2010 Contract – Misrepresentation & Cancellation

This situation requires an analysis of the law relating to misrepresentation and cancellation, with
a particular focus on ss6-10 CRA and s9 FTA. This will allow us to conclude whether S will
have any remedies against W and A, and the possibilities of receiving damages and cancelling
the contract, as well as recovering their deposit back.
S6 CRA states that damages can be made available for a misrepresentation if a party was
induced to enter a contract due to it made to them on behalf of the other party. Damages in this
statute are contractually based, and we treat the misrepresentation as a term of the contract which
has been breached, so any damages will put the plaintiff in a position as if the contract had gone
ahead without it.
To claim damages for misrepresentation the first requirement we need to prove is whether or not
there has been a misrepresentation. We are told that the advertisement is an exaggeration
however it is unlikely this will be seen as a misrepresentation, but rather puff as the ad reads as
any ordinary property advertisement would, and technically speaking there is no lie in what it
says. Puff is generally not actionable (Easterbrook). A’s silence over the highway bypass may
be a misrepresentation however silence is usually not actionable. However, Amatal shows us
that it can be if failure to speak may distort the truth of a previous statement, or where there is
active concealment. On the facts it looks like an active concealment and non-disclosure, which
under Ladstone is actionable if deliberate; this is likely to be the case, as it is likely A knew
about the highway and did not want to tell S about it. Lastly, A tells S that there are other people
interested in the property when in fact there has been no one else to see it. It is possible for this
to be a misrepresentation, as is seems like a false statement of intention and so is arguable.
However as it is likely A’s silence over the bypass is likely actionable we can move on to the
second requirement.
The second requirement is that the misrepresentation was made by the other party to the contract
or their agent, to the plaintiff themselves. There is not likely to be any issues over this, as A is a
real estate agent and is highly likely to be seen as an agent for S.
Next we need to show that the misrepresentation had an inducing effect on entering the contract.
We need more information about whether it is likely if S knew about the bypass that they would
not enter the contract; which his likely to be the case seeing as they want to cancel the contract
when they find this out. As puff is not actionable, S could not claim the advertisement had an
inducing effect, however it would be arguable as to whether or not they could argue that A’s lie
about others being interested was inducing. The misrepresentation does not need to be the sole
inducing reason, just a relevant circumstance, and on this basis it is likely to be found.
As such S would be entitled to claim for damages due to the misrepresentation. Damages in the
CRA would seek to put S in the position had the misrepresentation not occurred. In this case it is

26
likely that S would receive damages for loss in value of the property, or they could claim for loss
in enjoyment, expectation loss or consequential loss etc.
If would also be relevant to advise S that if they failed to claim under the CRA, they would also
be able to claim against A and W under s9 FTA. Under s9, a party cannot enter into conduct
which is misleading or deceptive. The Act is broader than the CRA and is not limited to
misrepresentation and can include silence. Thus it would likely be easier to claim under for our
situation.
To get damages we need to show that there has been misleading or deceptive conduct. Generally
it is thought to decide this, the test will be the same as seen in the CRA requirements. In Red
Eagle Corp it was suggested we take a case by case analysis, see whether the conduct was
capable of misleading a reasonable person, whether damage occurred, whether the conduct was
an effective cause of the damage, and whether there was any fault on the plaintiff.
On our facts it is likely that A’s conduct would likely mislead a reasonable person, as his non
disclosure meant that there was no way S could have known about the bypass as it was hidden
from him. The damage which occurred is likely to be the loss in expectation of the businesses
profitability, and A’s conduct is likely to be an effective cause of this as without it the damage
would not occur as S would not enter the contract. As a defence, A could suggest it was up to S
to look into the property and go to the council to see if there were any developments going on,
however as it is likely A knew what was happening, it is unlikely there will be a contributory
negligence allowance in the situation.
In proving this, S would be able to claim damages under the Act. Damages here are opposite to
the CRA as they are tortious not contractual, and so the plaintiff would be put into a position had
the conduct never occurred.

Aside from damages due to misrepresentation, S should also be advised of the requirements for
cancellation and how to receive their deposit back from W. Under ss7-10 CRA, cancellation
may occur due to repudiation of a contract, or by a substantial breach.
In terms of repudiation, from our facts it looks as though W’s behaviour could be seen as a
repudiation. From Ingram we know that unjustified cancellation can be seen as repudiation, and
W’s reasons for cancelling was because for ‘uncooperative attitudes’. Before this he said that S
had no right to cancel, which seems as though he suggesting there has been no breach. As such
his cancellation becomes unjustified as a party cannot unilaterally cancel a contract where there
has been no breach. Because of this repudiation, S would be able to apply to cancel the contract
themselves and receive damages as a result.
To cancel a contract, a party must show that either s7(4a) or s7(4b) have been met. Under s7(4a)
there must have been a breach of an essential term. Unfortunately there has been no breach of
any term, only a misrepresentation. However as contract treats the misrepresentation as a term of
the contract this automatically gets seen as a breach. There is no information to suggest it was
essential though, and though we know essentiality can be implied there is nothing to suggest this.
Therefore it is arguable whether s7(4a) would be met.
Under s7(4b) a party must show the substantiality of a breach, as in the consequence, justifies
cancellation. Under Westpac we must consider the case on its own facts, nature and
circumstances. It is likely that non-disclosure of the bypass will be detrimental to what S was
expecting from the contract, and this breach will likely have substantial consequences as a result.
Therefore it is likely S will meet this requirement and be entitled to cancel the contract.
To cancel a contract it must be made clear to the other party unless it is impossible to do so; it is
unlikely there will be any situations here. We must also ask whether the contract entered into
contracted out of the CRA which is possible under s5 – this too is unlikely and we are not given
any facts to support this.
The consequences of cancellation will cancel future obligations, however existing rights yet to
be carried out will continue on. As for the deposit, if there had been no misrepresentation and S

27
had simply defaulted then this would be kept by W, however in our case there has been a
misrepresentation, and there is in fact no deposit. A deposit is usually around 10% of a purchase
price, and here we are told that S paid $75,000 out of $225,000. Under Lui we know that just
because something is called a deposit will not make it so, and in both that case and ours this is
likely to be seen as a party payment and therefore recoverable. It is likely S will get this back,
and it is unlikely that anything will be able to be claimed by W, firstly due to the
misrepresentation and policy concerns, and secondly because a court will not substitute terms of
a contract for new terms.
On cancellation S would have to apply under s9 to receive the money back, as under s8(3)
money is not automatically transferred back. Under s9 a court order will be given if it is just and
practical to do so; which is likely in our scenario. Furthermore, if S decides they want to claim
for damages, then under s10 anything they receive back under s9 will be taken into account when
an award is made.
As such S should be advised that it is likely that they could claim damages due to a
misrepresentation of contract under CRA and FTA, however it is also likely that if they wish to
cancel the contract under the CRA that this will be highly likely to occur sue to the substantiality
of the breach of contract.

28
 ILLEGAL CONTRACTS

1.1. WHAT IS AN ILLEGAL CONTRAC

Illegality is highly modified by statute. One important feature – where covered by the Act, a court may give
discretionary relief, e.g. if illegal, a judge can decide the outcome and remedies. As such, we need to know what is a
legal contract, what can a court do, and what are they likely to do? The Act is engaged when there is an illegal
contract:

Illegal Contracts Act (ICA) s 3 - If the contract is illegal at law or in equity, whether illegal at inception or by
performance, and whether or not the illegality is severable, it is illegal under the Act. (Severability is mainly
relevant under the Act in restraint of trade cases - as modified by s.8) ICA s 5 - illegality by breach of statute - see
below.

There are thus THREE main heads of illegality:-

(a) illegality by common law rules
(b) illegality by breach of a statute
(c) illegality as being a contract in restraint of trade.

Illegality – where it could have been done legally, but is hasn’t been. E.g. – illegality in performance; transport
chemicals in the wrong kind of tanker.

1.1.1. The Distinction Between Void And Illegal Contracts

See Burrows, Finn & Todd, ch 13.2
Not all breaches of the Act make it illegal. Some contracts could simply be void or voidable.

1.1.2 Contracts ousting the Courts jurisdiction

The important contracts to note are the ones which try and oust the court’s jurisdiction.
Any contractual provision which ousts the rights of the parties to resort to the courts of law is void - see e.g. Lee
v Showmen's Guild of Great Britain [1952] 2 QB. 329.; likewise provisions which impose some detriment on a
party who seeks to litigate are objectionable and void - see e.g. Novamaze Pty Ltd v Cut Price Deli Pty Ltd
(1995) 128 ALR 540.
BUT a provision requiring other steps to be taken before resort is had to the courts of law can be valid - e.g.
arbitration clauses, which are valid - see Scott v Avery (1856) 5 H L Cas 811.
THIS CLASS OF CONTRACTS IS NOT AFFECTED BY THE ILLEGAL CONTRACTS ACT - see s 11(b) -
remains void and ineffective and are not to be validated.

Can’t take someone to court over something illegal, e.g. sale of drugs. Can’t make an agreement to benefit two at
the expense of another. If what you did was illegal and a crime, it does not matter that you did not know about it,
except for in s5.

1.2 ILLEGALITY BY THE COMMON LAW RULES

The heads of common law illegality are sometimes said to be a closed class - Fender v St.John-Mildmay
[1938] AC 1; but effectively a new head in Peters v Collinge [1993] 2 NZLR 554. Public policy determines which
contracts are illegal contracts. If public policy changes, law follows – e.g. contracts for sexual services and
Prostitution Law Reform Act 2003, s7.

1.2.1. Contracts to commit a crime a tort or a fraud on a third party.

An agreement made with the object of defrauding or deceiving a third party is illegal - see e.g. Silver v Mitchell
[1932] NZLR 882. An agreement for the deliberate commission of a crime is illegal. At common law, it was
irrelevant that the parties did not know they committed an offence Belvoir Finance Co v Stapleton [1971] 1 QB
210 - under the ICA not all offences make contracts illegal (s5) and lack of knowledge is relevant to relief (s7).

1.2.2. A contract to the prejudice of the public safety.

Includes contracting with enemy in time of war ( see Burrows, Finn & Todd ch13.4.3.). More relevant to
contracts which are lawful in country of suit, but involve actions unlawful in place where they are to occur. See
Duncan v McDonald [1997] 3 NZLR 669, 672..BUT rule is not absolute - courts may consider local interests over-
ride “comity” considerations - see e.g. Controller and Auditor-General v Davison [1996] 2 NZLR 278, 287.

Duncan – contract involving fraud in another country illegal in NZ, however there are times when courts don’t
care, or simply don’t do anything.
 Controller – rare occasions where a court won’t care if a person has to breach another country’s law in giving
evidence for example.

1.2.3. Contracts interfering with the course of justice

(i) contracts interfering with the reporting or prosecution of an offence - e.g. Slater v Mall Finance &
Investment Co Ltd. [1976] 2 NZLR 1 and Polymer Developments Group Ltd v Tilialo [2002] 3 NZLR 258.
Contracts collateral to such an interference are also illegal - Barsdell v Kerr [1979] 2 NZLR 731.

Slater – can’t ask for money to not go to the police over something – this is an illegal contract.

Polymer – Tilialo’s brother stole from a company, who said if he did not repay he would go to jail – this is not
seen as a threat but just a matter of fact. Tilialo agreed to pay, but could not make it all so was brought to court –
saw it as illegal as was a contract to not bring a private prosecution.

(ii) Contracts interfering with investigation of an offence - including contractual terms which prima facie are
valid but in fact interfere - A v Hayden (1985) 56 ALR. 82.
Note contractual terms which attempt to impose confidentiality to prevent release of information which a party
to the agreement may be lawfully required to divulge are invalid - see Wyatt & Co Ltd v Queenstown-Lakes
District Council [1991] 2 NZLR 180, 191. Contrast AG Australia Holdings Ltd v Burton (2003) 58 NSWLR
464.

Hayden – There was a training exercise by the Australian intelligence service in hostage work. They signed a
clause saying they would not say who they worked for, and the employer would not say who their employees were.
They went to a hotel to do the exercise but the hotel did not know about it and called the police. The service refused
to tell the police who they were. The police tried to prosecute them, but they couldn’t as their employer wouldn’t
reveal their identities. This was seen as an illegal provision as it was interrupting justice. As soon as they tried to
prosecute the contract became illegal.

A confidentiality clause doesn’t matter if the law says you must disclose something.

AG Australia – can have a clause saying you won’t volunteer information: only disclose what required to do.

(iii) Contracts for maintenance and champerty.

See Burrows, Finn & Todd, ch 13.4.3

1.2.4. Contracts injurious to good government

Public policy requires that contracts which tend to weaken or interfere with good government be unlawful.
(a) agreements interfering with the democratic process
See Peters v Collinge [1993] 2 NZLR 554 - contract interfering with right to stand for Parliament illegal.
Contracts binding MPs to vote in a particular way also invalid - see Burrows, Finn and Todd ch 13.4.5

- Can’t bind people not to stand for government

- Can’t buy votes
- Can’t buy titles

(b) agreements prejudicial to good administration of government.

See Burrows, Finn & Todd, ch 13.4.4.

1.2.5. Contracts to defraud the revenue

Any contract which seeks to evade the payment of taxation which is properly due is illegal. For the case law see
Burrows, Finn & Todd, ch 13.4.5.
NOTE contracts may be valid at law but void as against the Commissioner of Inland Revenue, Income Tax Act
1994, ss GC18 and GC20

Contracts involving tax evasion are illegal, but tax avoidance (arranging to pay less of what is owing) is lawful
and profitable. Fixing to pay less is fine, cheating and lying is not.

1.3 CONTRACTS IN BREACH OF A STATUTE

1.3.1. Contracts illegal at inception

 Some statutes specifically make any contract in breach of the statutory provisions illegal Gaming Act 2003 s14.
Others prohibit certain kinds of contracts without providing a consequence - contract in breach of the Act will
probably be illegal as will be ones where a contract would breach an implied prohibition - see Lower Hutt City v
Martin [1987] 1 NZLR 321.

If illegal and inception – cant have this kind of contract, simple fact.

Statute could prohibit conduct though – discrimination on grounds of religion. If this is illegal, should follow
that that a contract requiring someone to do such would be illegal.
e.g. Pay landlord extra money to only let one group live in a block of flats. This is illegal as it makes no sense to
be legal.
Parliament can say – able to do this, but only up to a certain point.

NOTE a contract may be tainted by illegality because it is designed to assist or promote a contract in breach of a
statute, see Portland Holdings Ltd v Cameo Motors Ltd [1966] NZLR 571, 577.

1.3.2. Contracts illegal by performance

s.5 of the Act - lawfully entered contracts do not become illegal contracts because of illegal performance unless
there is express provision or the object of the statute breached requires it.
See Automobile Centre (Auckland) Ltd. v Facer [1974] 2 NZLR 767.
So contracts lawfully entered are not illegal by performance unless there are specific provisions to this effect, or
the breach is one which frustrates the policy of the statute.

S5 does not apply to those contracts legal at inception, only about ones which become illegal when carried out,
e.g. transporting chemicals = legal, but if not in the proper tanker = illegal.

1.4. THE EFFECTS OF ILLEGALITY

At common law, void contractual provisions give rise to no binding effect, but other, severable, provisions could
be enforced. ICA s.6 - generally illegal contracts are void and cannot serve to pass title.

In common law, if a contract was illegal then there was no contract; nothing was judiciable at all. Property
became frozen and remained where it was. One party could lose everything and one could gain it all.
To fix this, the courts were given discretion to work out a fairer outcome. The starting point was the transaction
itself and whether it had no effect or title – this led to problems for third parties. The Act protects parties in good
faith and who provide consideration as such.

1.4.1. Third parties -Third parties' rights safeguarded by s.6(1) provided they acted in good faith and for
valuable consideration. (If the party did know, or ought to have known about the illegality then there is no protection
or relief).
Note - it is not yet clear whether “notice” requires actual or only constructive knowledge - Equiticorp
Industries Group (In Statutory Management) v The Crown (Judgment No 47 : Summary) [1996] 3 NZLR 586
says either suffices.

1.5.RELIEF UNDER THE ILLEGAL CONTRACTS ACT

s 7 gives extremely wide discretionary powers but these are not unlimited.

The courts can enforce illegal contracts if they want to, or they can validate parts of it for particular purposes;
resolving issues etc – wide range of power. There are limits to this though.

1.5.1. Capacity to grant relief

s.7(1) - relief can be given subject to the express provisions of any other enactment.
Relief can be given if:
(a) other enactment only provides that a contract in breach is illegal or unenforceable Harding v Coburn
[1976] 2 NZLR 577 (on basis enactment only declares what would be the result anyway) or
(b) if the statute provides a remedy for the illegality inconsistent with the ICA - National Westminster
Finance New Zealand Ltd. v South Pacific Rent-a-car Ltd. [1985] 1 NZLR 646 (on basis the remedy does not
prevent validation and relief of another kind).
A provision that validation is not possible does not prevent other kinds of relief - Re AIC Merchant Finance
Ltd. [1990] 2 NZLR 385 and Duncan v McDonald [1997] 3 NZLR 669,.
Duncan – provisions in the Land Transfer Act saying you can’t remove a mortgage. The Court can change what
the mortgage is worth though.

1.6. NATURE OF RELIEF AVAILABLE

 ICA gives the courts very wide powers to validate illegal contracts - with or without conditions. Conditions
usually imposed if simple validation might infringe policy of statute or be otherwise unfair - see e.g. France v
Hight [1987] 2 NZLR 38 affirmed [1990] 1 NZLR 345;
Further coverage in Burrows, Finn & Todd, ch 13.7

Validation is the most simple and common case, as usually illegality is complex and doesn’t really matter.
Solves a large number of cases.

1.7 CONSIDERATIONS IN GRANTING RELIEF AND THE COURTS POWERS

s.7(3) lists relevant considerations for the courts in exercising discretion to grant relief. "Public policy" in the
abstract not treated as significant - compare Slater v Mall Finance Ltd at first instance [1976] 2 NZLR 1 with Mall
Finance & Investment Co. Ltd v Slater [1976] 2 NZLR 685, and with Polymer Developments Group Ltd v
Tilialo [2002] 3 NZLR 258.
Most cases depend on own particular facts. BUT some general principles apply:

Parliament can tell the courts what to take into consideration when making a decision on illegality – gives them
jurisdiction if they look at what they are told to.

A. Relief will be granted if the policy of the statute would not be frustrated.
See as examples Hurrell v Townend [1982] 1 NZLR 536 and Lower Hutt City Council v Martin [1987] 1
NZLR 321.

If the object of the statute is consistent with the decision of the court, then relief can be given – this is
Parliament’s intention.

B. Relief problematic in “course of justice” cases - See Barsdell v Kerr [1979] 2 NZLR 731; Mall Finance
& Investment Co Ltd v Slater [1976] 2 NZLR 685 and Polymer Developments Group Ltd v Tilialo [2002] 3
NZLR 258.

C. Court will not increase penalties or hardship suffered by a party to an illegal contract. see e.g.
Broadlands Rentals v R D Bull Ltd. [1976] 2 NZLR 595. Courts will not grant relief to give an unfair windfall
profit to one party - see House v Jones [1985] 2 NZLR 288, but compare Williams v Gibbons [1994] 1 NZLR 273.
BUT innocent third parties will be protected - see e.g. Duncan v McDonald [1997] 3 NZLR 669.
The aim of the court is to reach a fair and reasonable result, so if their decision would increase hardship or
benefit largely then they will not be so inclined to grant relief.

D. The conduct of the parties is a very relevant factor.

knowledge - courts will have regard to parties’ knowledge and whether breach deliberate e.g. see Leith v Gould
[1986] 1 NZLR 760. A mistaken belief transaction is lawful is relevant - South Pacific Rent-a-Car case.
delay - delay is important - see House v Jones [1985] 2 NZLR 288. Could be too late to get relief.

Was the breach deliberate? Doesn’t prevent relief is so, just harder to make the courts inclined to give it in the
case where both knew about the illegality. If only one party knew about it, then the innocent one will generally
receive the relief. If mistakenly thought it was lawful then this is different – better reason to get relief.
 NOT EXAMINED↓↓↓↓↓

1.8 CONTRACTS IN RESTRAINT OF TRADE

See Burrows, Finn & Todd, ch 13.9. Common law regarded as void any contract which unreasonably restrained
the freedom of trade.

A. THE NATURE OF THE RESTRAINT OF TRADE DOCTRINE

A contract in restraint of trade is one which restricts the rights of a party to carry on business, trade or profession
as s/he wishes by limiting the nature, scope or clientele of the business.

B. THE COMMON LAW RULES REGARDING RESTRAINT OF TRADE

Restraint of trade provisions are prima facie void - onus on person wishing to enforce them to show they are
reasonable. Must show:

(a) There is a valid interest to be protected.

As to businesses, see Townsend v Jarman [1900] 2 Ch. 698; compare Helsby v Oliver [1999] 1 NZLR 77, 84-
87; and Dhanapala v Jackson (1999) 9 TCLR 67, 96.

Employees may be restrained to protect know-how or customer goodwill or both – Fuel Espresso v Hsieh 2007]
2 NZLR 651 (CA).

(b) That the restraint is reasonable as between the parties and in light of the public interest. This involves
4 main matters.

(1) Restraints on a vendor of a business are easier to justify than those on an employee. Equality of bargaining
power is important on this point, see e.g. H & R Block Ltd v Sanott [1976] NZLR 213.

(2) The wider the restraint, the harder it will be justify it. Brown v Brown [1980] 1 NZLR 484; Anderson v
Davies [1997] 1 NZLR 616.

(3) A provision which could be abused by one party only is likely to be unreasonable

(4) Reasonableness inter partes will not save a contract which is not reasonable in the light of the public interest.

C. THE ILLEGAL CONTRACTS ACT AND RESTRAINT OF TRADE CASES

Section 11(1)(a) - restraint of trade dealt with only as is provided in s.8 - probably court must use one of s8
options - see CE Elley Ltd v Burgess (1997) 7 TCLR 582, 588.
In effect the court can deal with restrictive covenants as it sees fit, though modification takes effect from the
original date of the contract.

Deletion sometimes occurs - C E Elley Ltd v Burgess, above, but more commonly courts will modify clause
and then enforce clause as amended - for examples see of the courts modifying covenants either as to time, or area
or nature, see Brown v Brown; H. & R Block v Sanott, Dhanapala v Jackson (1999) 9 TCLR 67, 96; and
Cooney v Welsh [1993] 1 ERNZ 407.

NOTE
Problem point is whether possibility of modification is to be considered in proceedings for enforcement by
interim injunction - allowing this may mean enforcement of protection in clauses that are too wide to be enforced
without variation.

JURISDICTION
Under the Employment Relations Act 2000, restraint of trade cases arising from “employment contracts go
solely to Employment Relations Authority, which can exercise powers under ICA. Other kinds of restraints will go
to ordinary courts.
 MISTAKE

2.1. INTRODUCTION :
Common law rules relating to mistaken contracts were unsatisfactory; cases hard to reconcile; often apparently
unfair. Problem of inflexibility of remedy - "contract" either void or valid.

Mistakes could be things which are not documented even though one or more parties assumed they were, or if
something is not met with expectations. There appears to be a contract and agreement, however one or more parties
try to say it shouldn’t be binding due to some matter. We must ask would a reasonable bystander have consented to
this?
Who carries the loss in the contract? There was confusion in the common law so it was decided the courts should
follow the illegal contract’s model – go to court so judge can give discretionary relief. This is the only Act which
can provide relief for mistakes in contracts. It is also easier to get relief under mistake than misrepresentation.

The Contractual Mistakes Act 1977 was designed to provide for fairer results in mistaken contracts - especially
by use of discretionary powers to grant relief.
The Act is a code, and largely replaces the old law. Focus is on the result of a mistaken contract. - see s. 5(1).

2.2. RELATIONSHIP WITH OTHER AREAS OF LAW.

See s.5(2) which preserves two mistake-related areas (rectification and non est factum) as well as stating CMA
does not affect many other areas .
BUT relief under the Contractual Mistakes Act can be sought concurrently with remedies under other rules of
law where appropriate - e.g. misrepresentation.

2.3 WHAT IS A CONTRACT FOR THE PURPOSES OF THE ACT

At common law, mistakes stopped contracts coming into existence, but the Act gets around this now:
See s 2(3). In effect a contract for the purposes of the Act will exist if the parties have reached an apparent
agreement although in fact one or both parties were mistaken in a way that is covered by s 6(1) of the Act. This is so
even if at common law the mistake would have prevented any contract coming into existence.
- generally use "objective" criteria for agreement to see if a "contract" had been formed.

If there hadn’t been the mistake, then the agreement would be there, so the contract would have existed – this is
what is followed. What would an objective bystander think? The mistake must have occurred before the offer and
acceptance. If it was after the Act does not have any effect.

Mistake must be made prior to or at the point of entering into the contract. A mistake as to how existing
contractual terms operate does not qualify - see N B Hunt & Sons Ltd. v Maori Trustee [1986] 2 NZLR 641
(mistaken application of a rent review clause not within the Act).

2.4. THE DEFINITION OF MISTAKE

s.2 has only a very general definition of mistake - mistake includes mistakes of law.
As example of mistake of law, see Philips v Philips [1993] 3 NZLR 159; [1993] NZFLR 321 – oral agreement
for division of a property binding or not? No.
A mistake in the interpretation of a document OTHER THAN the contractual document is a mistake of law for
which relief may be given. You can’t claim there was a mistake in understanding the contract, only other documents
or information – once you sign you are bound. If this was not the case then anyone could get out of all contracts
simply by calling on mistaken interpretation.

(a) mistakes in interpretation of contractual documents.

A mistake in the interpretation of a document creating and recording a contract is not a mistake for which relief
is available under the Act - Shotter v Westpac Banking Corporation [1988] 2 NZLR 316; compare Clements v
Singh (2002) 4 NZ ConvC 193,585 (2002) 20 NZTC 17,851.

(b) Mistaken beliefs and future facts:

A mistaken belief can be a mistake of fact - Conlon v Ozolins [1984] 1 NZLR 489. BUT the mistaken belief
will have to be about present or past fact Shivas v BNZ [1990] 2 NZLR 327 at 356. “Mistake” as to expectations or
future events not a mistake under CMA - Compcorp Ltd v Force Entertainment Ltd (2003) 7 NZBLC 103,996.
Can’t know about the future – uncertain so can’t be mistaken.

(c) Ignorance/inadvertence and forgetfulness as a mistake.

A party who gives no thought to whether a particular matter exists or not is ignorant of it, rather than mistaken as
to it - see NZ Refining Company v Attorney-General (1992) 14 NZTC 9,006 at 9,015; Ladstone Holdings Ltd v
Leonora Holdings Ltd [2006] 1 NZLR 211 [70]-[87].
 In Slater Wilmshurst Ltd v Crown Group Custodian Ltd [1991] 1 NZLR 344 it was held a person who once
knew the true position but had forgotten it had a mistaken belief coming within the Act). Case difficult to reconcile
with NZ Refining Co – and may be simplest, as in Leonora Holdings, to see it as wrongly decided.

Mistakes require you to turn your mind to something, e.g. forgot, ignorance etc. If you never thought about
something, it can’t be a mistake – just ignorance.
Ladstone – If you didn’t know about relevant information there is no mistake.
Slater – party once had known but then forgot could plead mistake on assumption they were acting wrongly.

2.5. REQUIREMENTS FOR RELIEF

If seeking relief you must show you made a mistake meeting all three tests. You have to show on the facts there
is a mistake affecting each. This is about influence; it does not have to be the dominant reason, just has to be a
significant mistake which influenced you. Three matters - see s 6(1):
(A) a mistake coming within s 6(1)(a); and
(B) an unequal exchange of value – s 6(1)(b); and
(C) that applicant did not carry any risk of mistake – s 6(1)(c).
NOTE - test for effect of a qualifying mistake is if applicant can show it "influenced" the decision to enter the
contract - clearly lower threshold than at common law.

2.5.A. A MISTAKE QUALIFYING FOR RELIEF UNDER s 6(1)(a)

(1). A mistake by one party which is known to the other party.
Covers two distinct categories of cases :
(a) those where one party has induced a mistake by the other party (often, but not always, arising from
fraudulent misrepresentation);
(b) where one party did not induce but knows of, and seeks to profit from, a mistake by the other party - (as e.g.
see King and Ayton v Wilkinson (1994) 2 NZ ConvCas 191,828.
Requirement of “knowledge” requires actual knowledge - Tri-Star Customs and Forwarding Ltd v Denning
[1999] 1 NZLR 33, 37 (CA).

King – vendor of a house did not tell the buyers the boundary line was smaller than what they thought it was
even though he knew they were wrong.
In this case, one party knows they are mistaken – could also sue under the Fair Trading Act though instead.

(2) Both parties making the same mistake.- s.6(1)(a)(ii).

At common law, classified as "common mistake". Both parties have the same, wrong, view as to the true state of
affairs. See Philips v Philips [1993] 3 NZLR 159; [1993] NZFLR 321 (mistake of law as to enforceability of oral
agreement).
NOTE that common mistake can overlap with innocent or negligent misrepresentation under the Contractual
Remedies Act 1979.

This is the same mistake by both parties. Phillips – both thought their agreement was legally binding but it
wasn’t.

(3) Each party making a different mistake about the same matter of fact or law
Subsection was intended to deal with two different situations:-
(a) true cross-purposes cases - A thinks position is X; B thinks it is Y, it is in fact Z (cf National Bank of NZ
v Murland [1991] 3 NZLR 86, 97).

National – Murland thought he was liable for a certain amount in guaranteeing a company, the bank thought they
were liable for a different amount, and the contract said neither. If there is no answer, then one must be correct, but
the problem is that the court can’t know the answer to this.

(b) cases of latent ambiguity - what at common law was called "mutual mistake" - see Raffles v Wichelhaus
(1864) 2 H & C 906; 159 E.R. 375 – where A thinks position is X, B thinks position is Y and court cannot tell
whether it should be X or Y. Drafting of the Act does not cover this. Courts did try to use Act in such a case in
Conlon v Ozolins [1984] 1 NZLR 489 – which caused real difficulties - but now CA accepts such cases are not
covered – see Mechenex Pacific Services Ltd v TCA Airconditioning (New Zealand) Ltd [1991] 2 NZLR 393.

2.5.B. THE REQUIREMENT OF UNEQUAL EXCHANGE

The Act in s6(1)(b).only requires an unequal or disproportionate exchange of value
The two criteria in s6(1)(b) will overlap in some cases. "Substantially unequal exchange of values" test likely to
apply where the contractual obligations of the parties have been fully performed while "disproportionate" obligation
or benefit formula is more applicable to obligations requiring performance over all or part of the duration of a
contract.

There is the assumption that courts should not get involved when people freely enter into contracts of some sort.

Must be a disparity - Sunnylea Farms Ltd v Gray (2004) 21 NZTC 18,667.

Difference of value are assessed objectively BUT how "different" do the values have to be? No clear guidance
from the courts. Difference of 6% not enough: Bartley v Beale (1997) 3 NZ ConvC 192,601; Contractual Remedies
Act cases suggest a rough benchmark of 10-15% difference- see e.g. Snodgrass v Hammington (1994) ANZ Conv
R 159(HC)
For example, $2 million may seem like a large amount, however if it was out of $1.3 billion it would not be
enough of a difference.

2.5.C. PROVISION FOR A RISK OF MISTAKE

Section6(1)(c) prevents a claim of relief for mistake by any applicant who is required to carry risk of that
mistake. See Dennis Friedman (Earthmovers) Ltd. v Rodney County Council [1988] 1 NZLR 184 at 192 (
plaintiff had been required him to satisfy himself as to the conditions in which the work would be performed so bore
risk of mistake).
Only applies if some allocating risk in the contract.

2.6. RELIEF AVAILABLE UNDER THE ACT

The Contractual Mistakes Act, like other contractual statutes, confers on the courts a very wide range of powers -
to vary, confirm or declare void the contract - and to award compensation etc.- which may be used if the court
decides that relief is appropriate. The powers allow thus extend to granting relief to or against any party to the
proceedings - not merely to or against parties to the contract. Powers are contained in s 7.

2.7. FACTORS AFFECTING THE DISCRETION TO GRANT RELIEF

Only two statutory guidelines-

(a) Who caused the mistake:

s 7(2). Not often relied on so far, but where a party has deliberately or carelessly induced a mistaken belief on
the part of the other party, relief will generally not be available - Australian Guarantee Corporation (NZ) Ltd. v
Wyness [1987] 2 NZLR 326 , and see Burrows, Finn & Todd para 10.5.2.
Wyness –gave information over vehicles which was incorrect.

(b) The preservation of contractual certainty

See s 4 ( added in by parliament)..

2.8 THE GRANTING OF RELIEF IN PRACTICE

(i) A "spreading the loss" approach - e.g. in Engineering Plastics Ltd. v J. Mercer & Son Ltd. [1985] 2
NZLR 72.
There are not enough cases to get a clear pattern of how a court will make a decision. The parliamentary
intention is to spread the loss over parties. Engineering – wrong on whether relief available. Involved a Christchurch
firm who ordered goods for a certain amount, thinking they would get 100, when they only got 1. The loss was
spread between, not dumped on one party only.

(ii) a "contractual term" approach - treat the statement as to which there was a mistake as being a term and in
effect award compensation equivalent to damages - e.g. Ware v Johnson [1984] 2 NZLR 518.
Ware – didn’t spread the losses.

(c) consistency with other rules of law. - not to use CMA to allow a party to get a remedy denied by other rules
of law - e.g. Slater Wilmhurst v Crown Group Custodian.
Slater – court said it shouldn’t use the Act to give an answer different to general law, said consistency needed.
However, if this is the case then why enact the Act and get discretion from Parliament if you are not going to use it?

2.9 THE POSITION OF THIRD PARTIES

Section 8 provides protection for third parties acting in good faith and providing consideration. See also
Burrows, Finn & Todd para 10.5.3.
Under the Act there are specific provisions protecting third parties. This cut out an area from the Act it was
expected to apply to. This is difficult because how can you protect a third party and someone involved at the same
time. For example; a person buys a car with a cheque, sells it, the cheque bounces. How can we protect the vendor
and innocent buyer?
 CHALLENGING WRITTEN CONTRACTS

Generally speaking, the parties to a written contract are bound by its terms (absent vitiating factors such as lack
of contractual capacity, undue influence, duress, misrepresentation, mistake, illegality etc).
Two special doctrines preserved under the CMA, which may sometimes be important.

3.1 RECTIFICATION
An equitable remedy - court orders the correction of an error or omission in a written instrument such as a
formal written contract, or a lease ( Wellington City Council v New Zealand Law Society [1988] 2 NZLR 614,
affirmed [1990] 2 NZLR 22) or a mortgage: Westland Savings Bank Ltd. v Hancock [1987] 2 NZLR 21)
A very good example furnished by Dundee Farm Ltd. v Bambury Holdings Ltd [1978] 1 NZLR 647 - formal
agreement for sale and purchase erroneously included an extra lot of land some distance away - contract was
rectified.
See also Haira v Burbery Mortgage Finance & Savings Ltd (In Receivership); Koya v Haira [1995] 3
NZLR 396, 401-02 (rectification of clerical error which omitted part of finance company’s name).

We are not specifically talking about contracts, but about documents. Allows the court to change wording to put
the contract right to make intentions better. E.g. if you write the terms wrong the court can change them around.
This could also include wordings, as if you wrote the company name wrong this could be changed.

Dundee – buy and sell of a farm, agreed to formal document, due to the lawyers negligence another piece of
separate land the seller owned elsewhere was included in the contract. The court was satisfied the contract was
originally only for the farm and not the separate farm, so they rectified the document – put back to right.

3.1.1. Types of mistake for which rectification may be sought

Rectification is clearly available where the written document incorrectly records a prior common contractual
intention. That common intention need not have been recorded in the contract (Joscelyne v Nissen [1970] 2 QB
86).
Rectification is not available if the document correctly reflects the common intention; even if it was based on a
common mistake - Frederick E Rose (London) Ltd. v William H Pim, Jnr. & Co. Ltd. [1953] 2 QB 450, [1953]
2 All ER 739 or a unilateral mistake: March Construction Ltd v Christchurch City Council (1995) 6 TCLR 394;
(1995) 5 NZBLC 103,878.

We are concerned with the common intentions not being correctly worded, so we need to know what the clear
intentions were – what was the bargain that was written wrong? Can’t get rectification if the document writes down
a mistaken agreement – unworkable as there is a flawed oral agreement. You also can’t rectify if only one party was
mistaken.
Frederick – oral agreement was one thing, which was written in the contract, but both were mistaken as what
they really had was something else.
March – March made a mistake in getting costs, wrote down then discovered later – not rectification but
mistake.
If there is no common intention then there is no relief.

3.1.2. Unilateral mistake and rectification

Equity (probably) allowed rectification in cases of unilateral mistake where it was inequitable for the contract to
apply in its executed form (see McLauchlan “Rectification for Unilateral Mistake” (1999) 18 NZULR 360.
BUT see Tri-Star Customs and Forwarding Ltd v Denning [1999] 1 NZLR 33, 39 – CA considers CMA
prevents rectification for unilateral mistake – view is open to challenge..

Rectification is an equitable remedy so fairness comes into account, e.g. conduct, delay, knowledge etc. Lack of
care will not stop you getting rectification but it is relevant. Critically not given if it would have an unfair loss on the
other party.

3.1.3. Criteria for relief.

Relief is discretionary – court may have regard to conduct of applicant – thus may refuse remedy where delay in
seeking the remedy (Wellington City Council v New Zealand Law Society, or lack of care by party seeking
relief: Sylvan Lake Golf & Tennis Club Ltd v Performance Industries Ltd. (2002) 209 DLR(4th) 318 (SCC).

Relief may be refused it would be otherwise unfair to the other party to the agreement (Wellington City Council
v New Zealand Law Society, above) or would prejudice an innocent third party: Washworld Corp (Leases) Ltd v
Reid (1998) 8 TCLR 372, 378.
 Washworld – can’t grant rectification loss on a third party – not party to the agreement so not getting involved.

3.2 DOCUMENTS MISTAKENLY SIGNED AND NON EST FACTUM

"Non est factum" = "This is not my deed". A common law plea allowing persons who were unable to verify the
contents of documents which they had executed to deny the binding effect of a signature. Has been widened to apply
to some cases of persons who were able to check the document but did not.

In this case we are only talking about written documents. Usually we are bound by signed documents, but this is
an exception – used to deal with those who are illiterate (blind, can’t read etc) – they rely on others to tell them what
the document says – could be misinformed.
In the 19th and 20th century this was beginning to be allowed to people who had never read the document though
– undercuts the law. The House of Lords thus re-wrote the law in Gallie.

Leading case is Gallie v Lee [1971] AC 1004; sub nom Saunders v Anglia Building Society [1970] 3 All ER
961.
Gallie was an elderly woman whose house was her only asset. A nephew persuaded her to transfer the lease to
him so he could complete a business transaction and she would be protected and retain the home. Her glasses were
broken so she couldn’t read it, and trusted the nephew and signed. The document transferred the entire house to him
completely though, and he got a mortgage over it and ran. The bank then asked for payments.
The court said she could not plead non est factum, as she was careless – of full age and competence. She knew
she was parting with the lease, the terms were just different. She took no care in signing it either.

3.2.1 Requirements
very difficult indeed for a person of full age and intelligence to raise a plea of non est factum;
The policy basis for these limitations is the risk of prejudice to third parties who may have relied on the validity
of the document - see Conlon v Ozolins [1984] 1 NZLR 489.
Main requisites are:
(a) that the document signed is one that is of a "radically" or "fundamentally" or "basically" different nature from
what it is believed to be.
(b) mistake induced by another
(c) no fault or carelessness.

(a) “Radically different” see Gallie v Lee and Chiswick Investments v Pevats [1990] 1 NZLR 169;
Chiswick – Chiswick signed the document as a witness with no liability – different to signing the document
himself.

(b) mistake induced by another - see- Bradley West Solicitors Nominee Co Ltd v Keeman [1994] 1 NZLR
111.
Bradley – mistake must arise from someone telling you something wrong about the document – not about your
own interpretation of it.

(c) fault or carelessness by signatory means plea unavailable. See Gallie v Lee and Bradley West Solicitors
Nominee Co Ltd v Keeman.

Fault or lack of care preventing the plea being raised may occur other than in the execution of the document. See
Norwich and Peterborough Building Society v Steed [1993] Ch 116, sub.nom Norwich and Peterborough
Building Society v Steed (no 2) [1993] 1 All ER 330 (lack of care in selecting donee of a power of attorney).

Norwich – Steed went overseas and left his mother to deal with his property, where his sister convinced her to
take out a mortgage over it then ran. The court said if the mother was incompetent then why give her power over the
property, and so Steed was liable.

Today, this is usually granted to those who are blind, illiterate or can’t speak the language of the document.

Illegality

- Illegal Contracts Act covers illegal contracts

- If illegal a judge can decide outcome and remedies
- Not all breaches of Act make it illegal, could be void
- Provisions in contracts to oust right to go to court are void – Lee v Showmen’s Guild
- Can have provision to go to arbitration before court though
- Cannot go to court over something illegal (drugs)
- If contract illegal, third parties protected if acted in good faith – s6.1

Illegality & common law

- Public policy determines which contracts are illegal (Prostitution Law Reform Act)
- Contract with object to defraud or deceive third party illegal – Silver v Mitchell
- Contract interfering with reporting of prosecution illegal – Slater (money not to go to police)
- Contracts interfering with investigation of offence illegal – A v Hayden
- Illegal provisions as interrupt justice (confidentiality clause)
- Contracts that weaken or interfere with good government illegal (buy votes)
- Contract to evade payments of tax illegal

Breach of statute
- Contracts illegal at inception:
- Contract in breach of statutory provisions illegal
- Discrimination on grounds of religion
- Contracts illegal by performance:
- Lawfully entered into, becoming illegal by performance
- Transport waste legal, improper transportation illegal

Relief
- Wide discretionary powers given to court, not unlimited though – s7
- Can validate parts of it if needed.
- Relief can be given if:
- Contract in breach is illegal or unenforceable – Harding v Coburn
- Statute provides a remedy for illegality inconsistent with ICA – Duncan v McDonald
- Considerations to grant relief include:
- Focus on particular facts and three general principles:
- Relief granted if the policy of statute wouldn’t be frustrated (consistency)
- Court won’t increase penalties or hardship suffered by party to contract
- Innocent third parties protected
- Fair and reasonable results
- Conduct of parties relevant
- Knowledge relevant – deliberate breach?

Mistake

- Can be things not documented (expectations)

- What would reasonable bystander consent to?
- Who carries the loss?
- Contractual Mistakes Act – only Act to provide relief for mistakes in contract
- Relief under Act can be sought at same time as remedies under other rules of law
- Mistake must have occurred prior to contract being formed or at the point of entering: NB Hunt & Sons

Definition of Mistake
- Very general approach, includes:
- Mistakes in interpretation of documents
- These are documents other than the contract itself – relief available
- Mistakes in interpretation of contractual documents
- No relief available due to public policy: Shotter
- Mistaken beliefs and future facts
- Mistaken belief must be about present or past facts
- No relief for mistakes of expectation or future facts (future uncertain)
- Ignorance & forgetfulness as a mistake
- If not thought given to a matter this is ignorance, not mistake
 - If never thought about something it is not a mistake
- If person once knew true position but forgot it can be a mistake: Slater

Requirements for relief

- About influence, not have to be dominant reason, just significant influence
- Three test approach, mistake must meet all three:
- Mistake qualifying for relief under s6(1)(a)
- Mistake by one party which is known to the other party
- One party induces mistake on other party, or
- One party didn’t induce, but knows of other party’s mistake and seeks to
profit from it: King (property boundaries)
- Both parties making the same mistake
- Each party making a different mistake about same matter of fact or law
- Hard for court to know answer to such
- Requirement of unequal exchange
- Must be an unequal or disproportionate exchange of value
- Differences of value are assessed objectively
- Provision for a risk of mistake
- Can’t claim relief for mistake if you are the one required to carry risk of it

Relief
- Court can vary, confirm or declare contract void and/or award compensation
- Applies to any party to the proceedings, not just parties to contract
- Court will look at who caused the mistake; deliberate or careless?
- Generally rules:
- Courts will seek to spread the loss so not all on one party: Engineering Plastics
- Must be consistency with other rules of law: Slater

Rectification

- Generally parties bound to written contracts

- Rectification an equitable remedy for correction of an error or omission: Dundee Farm Ltd
- Not just for contracts, includes documents
- Use where document incorrectly records a prior common contractual intention
- Not available if it correctly reflects intentions, all about the common interests
- Cant rectify if only one party was mistaken
- Relief discretionary; court looks at conduct of applicant.

Non Est Factum

- Allows people who were unable to verify the contents of documents which they executed to deny binding
effect of their signature
- Only for written documents
- Used for those who are blind, illiterate etc
- Difficult to prove if of full age and intelligence, must show:
- Document signed radically or fundamentally different to what believe it to be: Chiswick
- Mistake induced by another: Bradley
- No fault of carelessness: Gallie v lee

Illegality, Mistake & Rectification

Principle Case
Illegality
All illegal contracts are covered by this Act Illegal Contracts Act
Provisions in contract to oust rights to go to court are void Lee v Showmen’s Guild
If contract illegal, third parties are protected if they acted
Illegal Contracts Act s6.1
in good faith
Public policy determines which contracts are illegal Prostitution Law Reform Act
Contract with object to defraud or deceive a third party is
Silver v Mitchell
illegal
Contract interfering with reporting of prosecution is illegal Slater
Contracts interfering with investigation of an offence are
A v Hayden
illegal
Relief can be given if contract in breach is illegal or
Harding v Coburn
unenforceable
Relief can be given if statute provides a remedy which
Duncan v McDonald
inconsistent with ICA
Mistake
Relief for mistakes in contract only covered by this Act Contractual Mistakes Act
Mistake must have occurred prior to contract being formed
NB Hunt & Sons
for relief
Mistakes in interpretation of contractual document – no
Shotter
relief
If person once knew true position but forgot it, this can be
Slater
a mistake
Mistakes can occur where one party does not induce it but
King (property boundary)
knows it has occurred and seeks to profit from it
Court generally seek to spread losses so not all on one
Engineering Plastics
party
Relief must be consistent with other rules of law Slater
Rectification
Rectification an equitable remedy for correction of error or Dundee Farm Ltd (extra land
omission added)
To claim non est pactum, document signed must be Chiswick (witness with no
radically different to what believed to be liability)
To claim non est pactum, mistake must be induced by Bradley (not your own
another interpretation)
To claim non est pactum, there must be no fault or
Gallie v Lee (glasses broken)
carelessness by signatory

2007 Contract – Mistake & Illegality

5a.
V and P’s situation requires an analysis of the CRA due to the mistakes which have occurred in
their situation. This is the only Act which provides for remedies in the case of mistakes in
contract. The mistake must have occurred before the contract was formed.
Firstly we need to see whether there was a mistake at all. Mistakes can be in the interpretation of
documents, but not in the interpretation of contractual documents. The can be mistakes about
beliefs on past and present facts, and in some cases forgetfulness can be a mistake. In our
situation there is a mistake about beliefs on present facts, as we are told that P does not believe
the mallards should come under the contract, and V thinks that they should.
The next thing we must analyse is whether the two parties are entitled to relief due to this
mistake. This requires a three test approach. Firstly, under s6(1)(a) we must show the mistake is
qualifying for relief. Each party has made a different mistake about the same matter of fact or
law, and so they meet this first requirement, however in this situation it is usually difficult for a
court to come to a conclusion as there is little to guide their decision. He second requirement
under s6(1)(b) is to show there was an unequal exchange of some-kind. It must be an unequal or
disproportionate mistake, where the difference in value is judged objectively. We need more
information as to the value of the mallards and whether P has wasted his money on them or not.
Snodgrass suggests that anything over 10-15% difference in what was expected and what was
received will qualify under this section, and so to meet this we must get more information.
Assuming there is an unequal exchange, the third requirement under s6(1)(c) is that the person
claiming relief did not carry any risk of the mistake. There is no discussion of risk undertaken by
P, and so we can assume that this does not apply to our situation.
From such we can assume that relief is possible, and now must analyse what type of relief would
be likely to be given. Relief comes under s7 CRA and here the court is given powers to validate
or sever parts of the contract, or allow for compensation. The court will take into account the
conduct of the parties, the public policy in allowing relief, whether the mistake was intentional or
careless, as well as ensuring that the loss is not all placed on one party (Engineering Plastics).
At this stage we need more information as to both parties knowledge and what they legitimately
assumed from the contract terms. We need to know whether V intended to cheat P, however this
is not stated so we cannot assume this at this point in time. The value of the mallards will also be
taken into consideration at this point in time as well.
It is likely that in this situation, assuming that V legitimately thought the mallards should be
included, that perhaps compensation of some kind would be made available to P. In terms of
knowledge that both parties would have likely had, we are told that V’s business includes
introduced species of wildlife, and perhaps P should have known this and made sure that he was
not getting any introduced animals if he did not want them. At the same time, V said the
agreement was for his surplus ‘native’ wildlife, so again this rebuts the last defence. The
knowledge of both parties as further information would be required to conclude on this issue. If
the mallards were worth less money, this would likely be recoverable. Furthermore, if the court
thought it appropriate another solution would be that P sends the mallards back to V in return for
his money he paid. Once again though, this would depend on receiving more information about
the parties knowledge and the value of the mallards.
If evidence was to emerge showing that V though he could add the mallards into the contract
after he had spoken to P because he thought P would be stupid enough to take them, this is
strong evidence that V intended to cheat P. As such the definition f mistake would change from a
mistake of both parties, to a situation where one party knows of another party’s mistake and
seeks to profit from it. This is because V never checked with P whether he wanted the mallards,
and he is stated to have wanted to get rid of them. As such, V’s conduct would likely change the
situation where it came to relief, and V may be forced to compensate for the situation, or pay to
have the mallards flown back to him at his own cost. This would depend on the court’s reasoning
though.

3b.
This next situation requires an analysis of the ICA due to the claimed illegal contract which as
occurred between P and V. To be an illegal contract, a contract must be illegal under common
law, statute or by a restraint of trade. As the Wildlife Protection Act is involved, this is an illegal
contract by statute (or so V claims). In this situation, a judge generally decides the outcome and
remedies, where under s7 knowledge of the parties will come into consideration. As this is a
breach of statute, the contract will either be illegal at inception or by performance. As it is
possible to make this a legal contract by getting consent for the sale of the birds, this contract is
illegal by performance as it has the possibility of being made legal.
Relief for illegal contracts is similar to what is found with mistakes in contract under the CRA.
The court is given wide discretionary powers under s7 where they can validate or sever parts of
the contract, or they can compensate parties. Consideration to grant relief requires a focus on
whether relief would not frustrate the policy of the statute in breach, the court will not increase
penalties and hardships suffered by parties to the contract as relief is remedial not punitive, and
the conduct of parties will be relevant; was this a deliberate breach.
Firstly, we are told that V has changed his mind about the contract and has told P about it being
illegal. Unfortunately for V this sounds as though he had knowledge of the contract being illegal
from the time he sent the birds down, as to change his mind on the grounds it is illegal suggests
he knew this before; his knowledge will come into question when the court looks at granting
relief, and so we need more information as to whether he knew the contract was always illegal. It
would also be helpful to know whether the contract is actually illegal or not and whether the
birds are protected. For the sake of this situation we will assume that they are.
If the court was to grant relief completely over this matter it is likely the decision would frustrate
the policy of the Act, as the penalties for this breach are quite high. Therefore it is more likely
that a court will be inclined to grant P and V the opportunity to apply for consent from the DGC,
even though the matter has already gone ahead.
The largest consideration the court will take into account though is the parties knowledge of the
breach and their conduct. We are told that P did not know anything about the breach, and though
this is not a complete defence it is still relevant under the Act. As such we need more
information about V’s conduct and his knowledge at the time of the breach. If the court sees his
actions as being deliberately in breach while having full knowledge of the illegal contract, it is
likely that he will have to pay costs to get consent etc however it is unlikely there will be any
punitive damages as this is not what the Act is about.
Therefore, P should be advised that it will be up to the courts discretion to grant relief from this
illegal contract, and if V’s conduct turns out to not be bone-fide then it is likely that P’s position
will be safe, though it is likely a court will still require him to get consent nonetheless for the
sale.

2008 Contract – Mistake & Illegality

5a.
The situation between D and H requires an analysis of the facts in comparison to the ICA due to
the illegal contract which has formed. An illegal contract requires a judge to decide the outcome
and remedies of it, and for a contract to be illegal it must be illegal by statute, common law or by
a restraint of trade; in our situation the contract is illegal by statute due to its breach of the
Protected Objects Act. For a contract to be illegal by statute, it must either be illegal at inception
or by performance. On the facts we are told that to send the paintings consent is required, and so
the contract is illegal by performance, as it is possible to make it legal by meeting one condition
pursuant to the Act.
When looking to get relief from an illegal contract we must look at s7 ICA, where a court is
given powers to validate or sever parts of the contract, or compensate relevant parties. This is
given if the breach is illegal or unenforceable. From the facts we know that either party can get
consent to send the parties, so the most likely situation in this case is the court turning the
contract into a conditional one on the condition that consent is given. It is likely that parties will
be obliged to act reasonably in getting this consent before the contract can continue, rather than
the court deciding to cancel the contract completely.
When making considerations as to the relief it will give a court generally takes sever things into
account. They will look at whether relief would frustrate the policy of the Act, they will not seek
to increase penalties or hardship as the purpose of the act is remedial not punitive, and finally
parties conduct and knowledge of any breach etc will be relevant.
On our facts it is unlikely that both parties will be given complete relief to ignore the statute they
are in breach of, as due to the large penalties included it appears that relief would indeed
frustrate the policy of the Act. It would be helpful to have more information as to whether either
of the parties knew about the breach they were in, as this could affect a court’s decision in the
relief they award. Nonetheless, it is likely that the contract will be made conditional on gaining
consent to send the paintings, and D should be advised that H will likely be able to enforce the
contract should this be the case. D will most likely have to reasonably undertake to get this
consent, and if he does not H will be able to enforce his right sunder it.

3b.
The situation between D and T also requires analysis in relation to the ICA as the contract they
have entered into is an illegal one. In this situation the contract is illegal by common law. Public
policy generally determines what contracts will be illegal, and a contract interfering with the
reporting of prosecutions is illegal (Slater). In our situation this occurs because T enters into a
contract with D, where she promises not to tell the police about a crime D has committed if he
gives her his paintings. This is a form of blackmail, and it does not make a difference under the
law that D’s crime occurred where T was the victim – it is still illegal.
As discussed before, relief under the ICA will take into account policy and the parties conduct
and knowledge. D’s conduct, though bad, will likely not come into the situation. This is because
his assault is a matter for criminal law, and we are dealing with the contract entered into between
himself and T. T has effectively blackmailed D, and so her conduct will be looked at when a
court makes their decision in granting relief – should they grant relief at all. Though D’s conduct
will most likely not come under great discussion, that fact of his assault will likely come into the
court’s mind when considering relief, as the circumstances of each case require analysis of
external factors relevant to the contract. The fact that T has revoked on her promise not to go to
the police does not affect her situation largely, as the contract was illegal from the beginning so
there is nothing after that can make it any better or worse.
In this scenario, D should be advised that it is most likely that T will have to return D’s
paintings, and D will likely have charges laid against him by the relevant authorities. T will
likely be asked to give evidence against him despite her initial promise not to should she keep
the paintings. It is unlikely that T will be punished under the ICA as it is for remedial relief only,
not punitive relief.

3c.
The situation between D and S requires an analysis between the facts and the CRA. This is
because there are issues of mistake of contract, and this is the only Act which is able to deal with
mistakes in contract. Firstly we need to see whether there has been a mistake at all. In our
situation there has been a mistake about past and present facts, and under the Act this will allow
a claim.
The next step to getting relief is to apply the three test rule. The first test comes under s6(1)(a)
where we need to see if the mistake qualifies for relief. On the facts we know that both parties
have made the same mistake in relation to the painter of the paintings, and so this meets the first
requirement. The second requirement under s6(1)(b) is that there must have been an unequal
exchange of some kind, or a disproportionate exchange in value. On the facts we know that there
has been a substantial difference in price value for the paintings, and so arguably D will meet
this test.
However it is at the third test which D will fail on. Under s6(1)(c) the party claiming for relief
cannot have had to born the risk of the mistake. On the facts we are told that D is selling the
paintings ‘regardless of the actual identity of the painter’. Though this appears to be S’ risk, it is
actually both of theirs, and so neither one of them is entitled to apply for relief. D has taken the
chance of selling the paintings to S at a price based on a painter he assumes them to be by. This
risk has been taken that should they turn out to be by another painter and are more valuable, D
will not be able to seek relief as he has taken the risk of such. The same goes for S, in that if the
paintings turned out to be worthless, because he has taken the risk in buying the paintings
regardless of the painter he could not seek relief.
As such it is unlikely that D will meet the requirements to get relief under the CRA. If he was
however, though unlikely, it is likely the court would allow him compensation rather than the
paintings back, as the loss from mistakes is generally spread between the parties: Engineering
Plastics.
 2009 Contract – Mistake & Illegality

Andy & Beatrice (mistake)

The situation between A and B requires an analysis of the CRA due to the mistakes in the
contract between the two parties. This is because this Act is the only one which is able to deal
with mistakes of contract that occur prior to the contract forming.
The first step is to see whether a mistake has actually occurred; what kind of mistake is it? The
mistake is one on beliefs on present facts as to the chronometers make and year. Both A and B
were mistaken together, and so this will qualify as a mistake under the CRA and will allow them
to apply and seek relief from the court.
To get relief, they must meet the three test requirement; the first test under s6(1)(a) requires that
the mistake qualify for relief. As both parties has made a mistake they meet this first
requirement. Under s6(1)(b) we must prove that there has been an unequal or disproportionate
exchange of value, where differences in values are assessed objectively. On the facts we know
that A claims to have paid $1000 more than he should have, and the item is now worth even less.
Snodgrass suggests that to meet this requirement the difference in value of what a person got
and what they expected to get should be at least 10-15%. As such we require more information
as to what a chronometer that A wanted would have cost him, as well as looking at the fact that
he has spent more than he should have on the one he currently has. It is likely A will meet this
requirement though. The third requirement under s6(1)(c) is to see if there are any provisions for
risks. Neither party is said to have carried any risk in this situation, and so it is likely this section
will not apply, and as the other requirements have been met, the parties are eligible for relief
from the contract.
Relief under the Act can be found in s7, where a court can vary or confirm parts of a contract, or
they can compensate parties. In deciding this they will look at the conduct of who caused the
mistake and whether it was careless of deliberate. They will also look at the parties knowledge of
the mistake and will not place the loss solely on one party (Engineering Plastics).
In this case it is likely that compensation will be awarded due to the mistake. It is unlikely that B
will be forced to pay back all the money in return for the item as this would place the loss solely
on her. As it is unlikely either party had any knowledge of the mistake before the contract was
formed it is more likely that B will be forced to compensate A for paying more than he should
have for an item he did not want.

Andy & Paper (mistake)

The situation between A and the paper also requires analysis in comparison to the CRA as there
has been a mistake in A’s understanding of the advertisement he took out with the paper. This is
a different mistake to before as it is a mistake in interpretation of a contractual document,
assuming that all the terms were on the paper he signed. On this basis there is no relief as it
would be contrary to public policy if a person could get out of a contract because they did not
understand it: Shotter. There is a possible chance of seeking relief in that A misunderstood a
document separate to the contractual one (prices) however it is unlikely he will succeed on this
basis as the two would likely be connected, even though they are said to be on separate pieces of
paper.
However in saying this we must ask whether the paper knew of A’s mistake – did they enduce if
or allow it to continue so they could profit off of it? We are told the person who ran the ad
thought it was strange, and so we need more information about this. Why was it strange? Was
the price so absurd a reasonable person should have know that there was a mistake? If this can be
proved then there is the possibility for some relief under the CRA however this is highly
unlikely. Though the person running the ad gets a profit out of it, it is unlikely this can be seen as
a way to profit from the mistake, unless it can be proven she ought to have known, or did know
about the mistake.
However, due to the illegal contract issue, which will be dealt with next, it is likely that A will
not have to pay for the full price of the ad as compensation under the ICA may be available as
the contract to have the ad taken out turned out to be illegal.

Andy and Paper (illegal contract)

The situation between A and P needs a discussion with analysis to the ICA as the advertisement
contract in an illegal contract. An illegal contract will have a judge decide the remedies and
outcomes, and for it to be illegal the contract must be illegal at common law, statute, or by a
restraint of trade. In our case it is by breach of statute due to the conflict between the
advertisement and the relevant section of the Summary Offences Act. For a contract to be illegal
at statute it must either be illegal at inception or by performance. In this case it is likely to be
found illegal at inception, as it was never legal to advertise the ad that A wanted in the first
place, as the SMA does not allow ads for the recovery of stolen goods to say no questions will be
asked.
In deciding whether they will give relief to the illegal contract, the court must take several things
into consideration. They will look at the conduct and knowledge of the parties, they won’t
increase penalties or hardship of parties as the acts is remedial not punitive, and they will not
grant relief if it would frustrate the policy of the Act.
We are told that A did not know about the illegality of his advertisement, and it is likely that as a
publisher, P should have known as it would likely be seen to be a reasonable expectation of their
business. It would be unlikely that the court would simply grant relief for the illegality, however
as the chronometer has now been found the ad is going to be removed anyway and so the
contract has come to an end nonetheless. However the fact that it was illegal will not likely
change this situation.
As we know from the dispute arising from A and P over costs of the advertisement, it is likely
that with this added situation A may be able to reduce the amount he has to pay P for the
advertising. The fact that the contract was illegal will not make him free of the deal altogether
though, as policy-wise this would be unfair to P as it would mean A had received all of the
advertisement for free. A likely scenario will thus be that any fine received due to the SMA will
be shared between the parties as they both share in the blame, and it is likely some of the costs
for the advertisement will be compensated to A.

Andy v Lee (illegal contract)

As the advertisement was illegal this will affect L’s ability to receive the reward money from A.
We need more information on L though, as what was he doing in a derelict building in the first
place – was he the person who stole the item in the first place? Unfortunately we cannot know
this, and so would need to do more investigations into his character. If he was legitimate, it is
likely the court would grant him relief under the ICA and he would be able to recover part of the
reward owed, though likely not all of it. If it turns out that he was the person who stole the item
in the beginning, it is highly unlikely that L will receive anythignn due to policy concerns
surrounding such.

2010 Contract – Mistake & Illegality

3i. Martyn v Bob

The situation between M and B requires an analysis of the CRA due to the mistakes of contract
between the two parties. This is because the Act is the only one which deals with mistakes in
contracts which occur prior to the agreement. In order for a court to grant relief it must be shown
that a mistake occurred, and that it meets the three requirement steps for relief before a court can
analyse whether or not to grant relief.
Firstly we must ask whether there is a mistake at all. We are told that B entered the contract
thinking it was for the 32 space, when it was actually for the 22 space. As such this is a mistake
about present facts, and so under the Act it will likely be seen to be a mistake.
We must now apply the three requirements for relief test. First, under s6(1)(a) we must see if the
mistake qualifies for relief. We are told that B believes that M knew about his mistake, and if
this is true then the mistake would be o ne where one party knows of the mistake and seeks to
profit from it, and so would qualify. If it could not be proven that M knew about the mistake
however it would be difficult to get past this step and is likely that B would fail the first
requirement. On the assumption that M did know about B’s mistake however, we will continue.
The next test under s6(1)(b) is to see whether there is an unequal or disproportionate exchange
between the parties, where differences will be assessed objectively. This is highly likely to be
found, as we are told that space 22 is usually $1500 less than what B paid for it, as it is likely he
was paying for the cost of space 32 without actually getting it. As such, it is likely that B’s
mistake will be successful on this ground.
The next requirement comes under s6(1)(c) where we must show the mistaken person did not
accept the risk of the mistake. There is no discussion of risk in the facts given, and unless we
receive additional information it is likely we can assume that there was no risk allocation, and so
we can move past this section as it is not relevant. As we have past the three requirements we
can now look at getting relief from the court.
Relief under the Act is covered by s7, where the court can vary, confirm or declare certain terms
void, or they can compensate parties. They will look at who caused the mistake, and whether it
was deliberate or careless, and finally they will not allow the loss to fall on one party only
(Engineering Plastics). If it is true that M did in fact know about B’s mistake then this conduct
will likely work in B’s favour. Furthermore, the large difference in value costs which were spent
are a likely indicator that M did have some knowledge of the mistake, or that he ought to have as
a reasonable person. If however M was innocent it is unlikely that B can get relief as he would
have failed on the first requirement test; however this is unlikely due to the suspicious evidence
against M.
As such M should be advised that the most likely outcome of this situation would be for the
court to grant B compensation for his loss. It is unlikely have they will declare the entire contract
void, as otherwise B would have received his space entirely free for the show, and this would
place all the loss onto M. It is likely B will be compensated for the extra amount he was forced to
pay, or a figure the court finds appropriate.

3ii. Martyn v Lee

The situation between M and L also requires an analysis of the CRA due to the mistake in
contract between the two parties. It is likely that this will be seen as a mistake of belief of present
facts, as Lee wanted two spaces, not the one. The first requirement would likely see L succeed
on the basis that both he and M has made two separate mistakes. Usually it is difficult for a court
to grant relief in a situation where both parties made a different mistake, however due to the facts
there is enough to guide them in making any decision. The second requirement would likely be
met, as the stalls L brought would not fit into the space he was given and so he had to leave, thus
never using the space in the first place; why should he pay in this instance when he has received
nothing? Finally, on the third requirement, again there is no discussion of risk, and so this section
is not likely to be relevant.
In terms of relief, the court would likely take M’s conduct into consideration especially in the
fact that he has done nothing to mitigate his loss that we are told. We are not yet told whether M
hired out the space to someone else to make up for the loss, and furthermore we know that M
knew L had limited English and perhaps there was an onus on him to ensure he was getting what
he wanted due to the language barrier. Though L signed the document, it is likely it would be
unfair to force him to pay for the space when he did not use it, and so it is unlikely the court
would make him pay as this would place hardship upon him.
It is likely that some form of compensation would occur in this situation, provided for the fact
that the court took into account L’s limited English skills, and the fact that it was M who made
the initial mistake and told L to sign the document, stating it was what they agreed when M
should have checked this. Nevertheless it is likely that M’s likely genuineness will still be taken
into account.

However there is also another defence open to L, and that it the defence of non est factum (that is
not my deed). This is a claim which allows people who are unable to verify a document executed
to deny their signature. This is a claim usually reserved for those who are illiterate or blind etc,
or on occasions for people who do not understand the language – L’s situation.
To get this defence you must show the document is fundamentally different to what you believed
it to be (Chiswick) – it is likely this will be seen to be the case due to the difference in stalls. The
second requirement is that the mistake is induced by another (Bradley) – this is also likely to be
found, as M was the one who made the mistake when hearing L’s accent, and furthermore M told
L the document he was giving him to sign was what they agreed, when it wasn’t. There must
also be no fault or carelessness (Gallie) – this situation may prove difficult for L, as though he
has limited English should he have got an interpreter or should he have signed at all? It is likely
the contract would be assumed to be a simple one, so this defence of M’s is arguable, yet at the
same time due to policy concerns this defence is not one which is likely to be given easily. As
such it is more likely that L will succeed in simply claiming relief under the CRA, though it is
arguable as to whether or not he could get relief under the non est pactum defence.
 REMEDIES FOR BREACH OF CONTRACT

What can you do after breach been admitted or proved – what remedies can you seek? It breaks down into
damages, equitable remedies available outside contract law to seek performance, such as injunctions.

1. Damages
1.1 Introduction:

1.1.1 Damages are a universal remedy which is available for every breach, small or large, and whether the
contract has been cancelled or not.
A claim for damages is one for compensation in money for the fact that the claimant has not received the
performance for which she or he has bargained.
These are a universal remedy available for all breaches, irregardless of whether the contract has been cancelled
or not. We are talking about common law damages, which feed into how they dealt with under CRA. Sometimes
parties cancel under the Act, sometimes they don’t. Many cases only revolve around common law damages – can be
both; confusing at times.
Size of breach will result in size of damages received. About compensation for parties. Some parties can look for
performance, nominal damages (symbolic award; small – unlikely to only go for this alone: White Arrow Express
Ltd v Larney’s Distribution Ltd (1996)

1.1.2 There is a difference between the kind of damage for which a plaintiff can recover - remoteness of damage;
and the monetary assessment of the compensation - the measure or quantification of damages.

1.2 Quantification of damages:

1.2.1 Damages are compensatory only, intended to restore the plaintiff to the position she or he would have been
in had the contract been performed. They generally bear no relation to the defendant’s gain.
These are compensatory only; to put you in position as if contract had gone ahead and gone right. This different
to tort, where designed to put the damage right – position in if no damage. Contract about pretending the contract
did happen. There are exceptions to this rule though.

Bloxham v Robinson (1996) - Sale of dentist practice, Bloxham suing Robinson saying he not get what
guaranteed in contract (half of practice). Both understood it the part of the assistant practice, not partner one, which
run by part-timers. After settled, B realised he didn’t have half of practice in terms of clients and profits. Court
supported his view of this, and in looking at damages the court confirmed rule of compensation damages – about
putting plaintiff in position if contract had gone properly. Not to put plaintiff in position he in if he never entered
contract.
Bloxham tried to claim income he would have earned as a lecturer, had he continued in his previous occupation.
Court not agree, as would put him in a past position.

1.2.2 Generally, the plaintiff must establish what he or she has lost. A breach of contract may give rise to various
different kinds of loss.

1.2.3 Expectation loss

Normally the profit expected to get out of contract, or figure required to put the defective item right; replacement
or repair cost. There can be unusual applications of this also.

Williams v Kirk [1988] - Contract for sale and purchase of land. Normally if contract falls through the seller will
re-sell it. Here it re sold in reasonable time so damages worked out in difference between contract price of original
agreement, and what they got when they sold it on, plus extra losses (costs involved). The re-sale price was taken as
reasonable price to get as the market had not changed greatly.
 -2-

Stirling v Poulgrain [1980] - Family trust arrangement, plaintiff wanted to gift away as much property before
they died. Law set up so could gift away a certain amount each year without having to pay gift duty. This was done
over number of years. Solicitor negligently didn’t give right documentation to Inland Revenue, so result would take
longer to give away as property gone up in value. Lawyer negligent and breached contract. Damages worked out by
court, needed to see how could compensate the family. Court calculated loss on what cost to write off extra value
over a short period of time.

Loss of chance cases:

Chaplin v Hicks [1911] - Plaintiff claiming damages as she aspiring actress, entered into competition with
chance to be interviewed by defendant and selected for one of 12 actresses to choose. She was selected as part of
first 50, so interview meant to happen. Found to be a breach of contract as defendant sent her a letter while she away
and not able to attend interview and not allowed another – lost chance for it. Court not put off by fact there was no
market cost – it was an interview. Court said cant prevent them from finding damages to be recovered; had to
attempt to return her to position of contract if contract went right.

Markholm Construction v Wellington CC [1985] - Ballot for land, by date must put in offers to purchase and
amount. Council realised the price range was too low for the land and withdrew the ballot; Markholm construction
one of them – what had they lost? There were 240 applicants, so all had a chance. Court saw was clear it loss of
chance and court estimated what it was worth. Saw it as a probability calculation.

1.2.4 Reliance loss.

Exceptions to the general rule of contract damages; takes tort view. Here put in position as if contract not made,
as compensated for expenses or costs spent in reliance of the contract going ahead. Most often claimed where can’t
prove expectation loss, but can prove costs and losses.

McRae v Commonwealth Disposals Commission (1951) - Salvage company which found shipwrecks, bought
them from owner and took apart etc. Expensive expedition to do. An oil tanker was sold to them which meant to be
on coast of Australia. Expedition started, people hired and equipment for etc. When they got there, ship not there
and no evidence the ship had ever been there. As such, could not say what expectation loss was as not ship, so went
to court over costs spent – no item, no market.

Bloxham v Robinson (1996) - Court recognised reliance loss as one can claim instead of expectation loss

Arapiki Enterprises Ltd v Tong [1998] - Party attempting to set up radio station in warehouse, so bought
premises that were low rent and spent money renovating their part of the warehouse – large expenses involved.
Landlord let another tenant into building which created lots of fumes, dust and noise which damages plaintiff’s
attempt to set up their radio station successfully as equipment sensitive. Plaintiff ha to cease broadcasting, and sued
landlord for breach of covenant of lease – quiet peace and enjoyment. Court had to work out what compensation
would be. Business not viable at this point, so could not prove profits etc, so allowed them the value of the
expenditure in reliance of the contract, even though it out of proportion to the value of the lease, as low rental;
irrelevant. Got costs of repairs, installation, wages, fees for recording, payments for equipment etc.

GSE v Walters Supplies Ltd - Sale of engineering company to plaintiffs by Walters. Agreement had a restraint of
trade clause, where if business sold, they couldn’t for period of time set up a similar competing business with past
experience. Walters did set up another business in breach of this restraint of trade clause. GSE’s business got into
trouble and failed. What compensation could they get? GSE claimed reliance interest, but what they claimed as this
was the cost they paid for the business. Normally reliance loss for putting party in position they be in if contract was
right. GSE said taking this cost, as not in position to show profit could make if contract had been successful.

1.2.5 Restitution loss:

 -3-

Not claimed often, purpose is to deprive defendant of benefit it unjust to let them keep; different to expectation
loss. Discussed in GSE v Walters Supplies Ltd 2008 - could present loss as a restitution loss. Could include unjust
gain or unjust impoverment.

1.2.6 Consequential loss:

This is loss one step removed from obviously foreseeable loss. Williams v Kirk – vendor re-selling land entitled to
get difference in sale prices plus costs. This included advertising, mortgage payments, legal costs etc – all
consequential loss, as not direct but flow on due to first loss.
There can often be remoteness issues over consequential loss – is loss so far removed from breach it shouldn’t be
compensated for? Includes forseability issues.

Parsons v Uttley Ingham [1978] - Farm equipment used to deliver food to animals. The item was defective
(breach) and consequently the food inside it went mouldy and when the pigs ate it they got sick and died. The court
said the pigs being such was foreseeable so the fact they died was too – a form of consequential loss as one step
removed. The direct loss was the equipment, and the rest was consequential.

Yoon v Cullen & Anor (1999). Consequential losses – holding costs: mortgage interest, legal expenses, rates,
advertising to resell. Court emphasised a claim for consequential loss is completely divorced from other losses. Sale
of land where purchaser defaulted and didn’t go ahead with the contract. They voluntarily gave large deposit, and
here they seeking to get the deposit back. The vendor counter-claimed though for consequential losses as had to
keep paying mortgage and had resold the property so also claimed legal costs, advertising and rates. The land had
gained in value though and some sold at a profit, and rest left at greater value than what in original contract.
Purchaser asked why should pay them when they had more now than before. Court saw it as consequential loss, so
increase in land had nothing to do with claims. Said claims for consequential losses divorced from other losses.

1.2.7 The plaintiff may combine more than one category of loss but not so as to recover more than once for the
same loss.

Bloxham v Robinson (1996) - ‘If he receives his loss of income, he is fully compensated and cannot in addition
claim loss of capital. If he is compensated for loss of goodwill, he cannot in addition claim the loss of the income
which is the reason for the lesser value of goodwill.’
Can recover difference and ‘goodwill’ – higher this is, the higher profit can be made. This measured by lesser
potential to produce income, but Bloxham also claimed loss of profit, which court said would be doubling up his
damages.

1.2.8 Expectation loss and reliance losses are alternative losses.

Cycle Manufacturing v Williamson [1993]

1.2.9 In principle, it seems the plaintiff has free choice as to how the losses will be quantified. Further, the
plaintiff does not have to show the expenditure would have been recouped if pursuing reliance loss, if the defendant
has prevented him or her from fully testing the profitability of the contract.
In terms of reliance rule the basic test to try and claim these successfully to show you would have made enough
profit from the contract to pay for your costs you are claiming from. Don’t have to show profit would be made, if it
was the defendant who stopped them from being profitable:

CCC Films Ltd v Impact Quadrant Films Ltd [1984] - Contract for a licence to use three films and distribute
them and make money from them. Received tapes in the post; however they were lost and never arrived. They paid
$12,000 for the licence to distribute, however now in position with nothing to distribute and loss of money. They
claimed the $12,000 and did not give evidence to show they would have ever made a profit from the tapes.
The court said the plaintiff can choose what type of loss to claim, even if reliance loss means they not have to
prove the contract would have led to profit. Court said it was the defendant who prevented the plaintiff from taking
 -4-

advantage of the contract, so it is the defendant who has to show that making back the loss not possible in profits. In
this case the money was recoverable even though no evidence given.

McRae - The defendant tried to argue the tanker may not have been worth anything when they got there.
However the court said since the plaintiff showed they made expenditure due to the breach it was wasted costs and
was recoverable, and did not have to show the tanker was ever worth something.

Arapiki Enterprises Ltd v Tong [1998] - Could plaintiff recover losses in their radio business? Not enough
evidence to establish it, but the CCC case was applied and so no onus on the plaintiff to show they would have made
a profit.

1.2.10 Arguably, the plaintiff’s expectation of a benefit puts a ceiling on recovery under the other heads - the
‘bad bargain’ principle. Generally a court wont step in for such contracts:

(a) In terms of expectation loss, the plaintiff is entitled to recover benefits to which she or he is entitled under the
contract, but not those which she or he had only hoped to gain. Expectation losses can limit reliance losses:
C & P Haulage Ltd v Middleton [1983] – lessee running business on premises but kicked out due to breach of
lease so set up business at home; didn’t lose day to day running. In original building they made improvements to it,
and the lease said they couldn’t be removed at the end of the lease. So under any circumstances they had to leave,
they could not take any improvements. However on leaving, due to contract, can’t take them away as it was a bad
bargain and their own fault.

(b) But for restitution losses, it appears the question of profit is irrelevant. If it is held a defendant is not entitled
to retain a certain benefit, the plaintiff is entitled to be free of the bargain:
Lodder v Slowey (1901)

(c) Further, there is authority to suggest that reliance loss may have been extended to undermine the principle
that expectation loss limits the loss under other heads.
Commonwealth of Australia v Amann (1991) – suggests there may be ways to undermine the bad bargain
principle. Involved parties entering contract about conducting aerial surveillance of coast of Australia. Lots of costs
involved and running costs; planes, pilots, surveillance staff etc. Expenses of 5.5 million in starting this contract up.
Prior to starting, on date it to be formed, the defendant wrongfully repudiated, so what could they claim? Was the
plaintiff going to be able to claim start-up costs given what they intending to do?
They didn’t need to make CCC argument, but argued it worked out there be operating losses and with start-up
the total would come to 23 million, and profits only be 17 million. So plaintiff seen to have all benefits on them, and
entering contract with defendants gave highly likely chance of contract being renewed, and so would be done
further. With the next contract the losses would be likely to be recovered.
The rule that burden on defendant when it them who stopped them from showing what they made, meant
plaintiff could recover the 5.5 million. However this was based on a second hypothetical contract about making
money back, and this was accepted.
Not used in NZ yet, but possible to be used as an argument. CCC more likely to be argued.

(d) Consequential claims may clearly exceed the amount by which the plaintiff expected to benefit from the
performance of the contract. There is no issue over consequential losses as you do not have to prove anything in
relation to profits in terms of consequential losses.

1.2.12 Quantifying Expectation losses: These can generally be quantified in two ways - on the basis of
difference in value or cost of cure. Amount different in value or cost to replace or fix the item:

(a) The court will adopt whichever seems appropriate.

Where it costs less to reinstate something than would to give you full value, court will generally take the cheaper
option, as plaintiffs obliged to mitigate their losses within reasonable expectation.
 -5-

(b) Cost of cure:

Bevan Investments Ltd v Blackhall and Struthers (No 2) [1978] – Company employed Blackhall to build a
building and it had structural defects while built. Construction had to stop and an alternative plan drawn up. In the
end, Bevan did not continue due to financial reasons, and instead claimed for a breach of contract. Most building
contracts have a clause for build and care relating to the plans. The court asked what the damages would be by
looking at the reasonable costs to carry out the modified plan. There was a further issue: how did they work this out?
Time of calculation important – general rule is that time for assessment is the time of the breach. Here, the court
departed from that and they took the time of trial instead. The reason they did this as it be only way to put plaintiff
in position they be in if contract never occurred. It had been 10 years since building so prices were of what cost in
the beginning.

(c) A third form of quantification has introduced uncertainty - consumer surplus:

Ruxley Electronics Ltd v Forsyth [1995] – contract for building of a pool, and when built it was a foot shallower
than it was meant to be. It can still be used though, and fact it shallower didn’t change the value of a property.
However there was still a breach of contract and the court had a problem of damages, as to put right would mean the
whole pool be taken out and redone, and this cost was an over-compensation for the plaintiff, but at the same time
there was a breach by the builder. In smaller court an amount was given for ‘distress’ of the breach. The House of
Lords later upheld this award to mark the fact there was a breach:
Per Lord Mustill: ‘There are not two alternative measures of damage, at opposite poles, but only one: namely the
loss truly suffered by the promisee. In some cases the loss cannot be fairly measured except by reference to the full
cost of repairing the deficiency in performance. In others, and in particular those where the contract is designed to
fulfil a purely commercial purpose, the loss will very often consist only of the monetary detriment brought about by
the breach of contract. But these remedies are not exhaustive, for the law must cater for those occasions where the
value of the promise to the promisee exceeds the financial enhancement of his position which full performance will
secure.’

(d) The general rule is that the courts are not concerned as to the use to which damages are put by a successful
plaintiff. Court doesn’t care if you use money to reinstate the loss of damage.
Ruxley – desire to fix the pool would go once the money was given, so likely damages not be spent on putting
item right, but House of Lords said it did not make any difference to recovery, but does make a difference to the
amount able to be claimed.

Leaves us with a difficult position and there was lots of criticism of the case:

Andrew Bruce, (1995) – said to put an arbitrary figure on the breach of the contract, and can’t relate it to
anything: not in position you be in should the contract be carried out.
Steven Gee QC (1995) Gazette 23 – encourage builders to take risk that by cutting corners they only be forced to
pay a small amount of damages, so not correctly mark the breach. Builders can buy their way out of cutting corners
in a contract.

1.2.13 Where damages are based on a difference in value a further distinction must be drawn based on actual or
market values. What happens if contract involves chattels?

(a) The general rule is that where the claim is for non-delivery of promised and paid for chattels, and adequate
alternatives are available on the open market, market values apply, but the measure is the price which the plaintiff
would have had to pay to replace them. Otherwise the plaintiff will not be financially restored to the position they
would have been in had the contract been performed.
Caldwell v Logan House Retirement Home [1999] – sale and purchase of retirement home, and when complete
they found many of the chattels were damaged or removed. The court said the plaintiff entitled to replace the items
if they needed to as business pressure to buy these items to continue it. Where cost what looking at to replace
 -6-

chattels, as long as they genuine replacement, not most expensive, they will accept the price you paid for them. Can
accept price if shortage and have to pay more, or forced to pay for something better – some requirements over such,
however in terms of valuement, the cost you pay will generally be covered.

(b) Difficulties arise where it is necessary to estimate what sum suffices for the purchase of similar goods where
there is no available market.

(c) s51(3) Sale of Goods Act 1908 contains the general rule: Where there is an available market for the goods in
question the measure of damages is prima facie to be ascertained by the difference between the contract price and
the market or current price at the time or times when the goods ought to have been accepted, or, if no time was fixed
for acceptance, then at the time of the refusal to accept.

(d) Where dealers are concerned, however, what usually goes is loss of profit, even though the goods may be
readily sold to someone else - the dealer only makes one sale instead of two. Here we talking about situations where
a purchaser defaulted on agreement and dealer left with the item:

W.L. Thompson Ltd v Robinson (Gunmakers) Ltd [1955] – attempted to deal with situation where dealer argued
they lost profit in only making one sale instead of two. Buyer of car repudiated so seller returned it to their supplier.
When in court it was argued the dealer should only get nominal damages as could have sold it instead of returning it,
so not really lost anything. Court said when they a dealer, and they can prove they sold one car less than should
have, they can recover the loss of profit on that car.

Charter v Sullivan [1957] – buyer who repudiates, seller resells the car for the same price, but still sued for loss
of profit. The buyer said there was no loss though, as no difference between what sold for and the contract price:
Jenkins LJ ‘available market’ means goods are available in a market at a market or current price meaning fixed
by reference to supply and demand. The seller could not show they could have sold that car and another one as well.
If supply exceeds demand they could establish loss, but if it a situation where demand exceeds supply they can’t
show a loss of profit. Here only nominal damages awarded for the breach.
Sellers LJ: The market must at least be one where the item could be sold.

There is a different situation for second-hand cars:

Lazenby Garages v Wright [1976] – In second-hand car market, each sells uniquely, so here where car sold at a
higher price, it didn’t allow dealer to say the lost profit, as can’t establish they lost anything, as cant show they could
sell that car and another one to the second buyer. For mass-produced items, market values can be used but for
exclusive items (second-hand cars), the actual value has to be used.

(e) Goods which are used to make a product: prima facie rule can be displaced, where parties have knowledge
of end-use. Items used to make other things, so whoever buys them is likely to be sold on or used to make something
else.

Bence Graphics v Fasson [1997] – Defective film used by plaintiff to create another product which was on-sold.
Defendants close business relationship with plaintiff and knew of end-use. Damages based upon liability to
subsequent or ultimate user of the product of which defendants’ goods were a part, and not on loss of value. Plaintiff
buyer had to take this measure - could not elect loss of value.
 -7-

1.2.14 Time for quantification:

(a) The time of breach is usually taken as the starting point. However, the court may take a later time if the
injured party does not know of the breach or cannot take steps to mitigate the loss. E.g. if need to make repairs to
mitigate loss.

Bevan Investments Ltd v Blackhall and Struthers – contract for designs of building, when built it had defects,
need to get a new design. Court said matters put right by costs of putting right new plans when went to trial. Not at
breach, as big time between breach and trial so costs gone up. Not unreasonable for delay in not continuing with the
building at the earlier time when discover breach, so rise in costs was reasonable despite the delay.

(b) It seems in cases where there has been a rising market in the goods, so that their value has increased, policy
requires that the defendant will not be allowed to exploit the situation to reduce the amount to be paid in
compensation.

Turner v Superannuation and Mutual Savings Ltd [1987] – purchaser couldn’t complete purchase so wanted
deposit back, defendant kept property that now worth more by the time the hearing came around. Purchaser argued
damages should be assessed at date of hearing as value gone up. Court said damages can be assessed at a later date if
necessary to fully compensate an innocent party; will never be used to benefit a defaulting party.

NZ Land Development Co Ltd v Porter [1992] – sale and purchase of land from development company. Claim
over company’s inability to get title. Contract was created in 1973 where money was paid, but no title arises. In
1983 they started proceedings with specific performance. In 1986 they cancel the contract as nothing is resolved and
so they sue. Comes to trial in 1991 – what value is given back? Land had gone up in price so what would be the
compensation given, where was the loss?
Value of the land at cancellation was $15,000 and at trial it was $30,000. Up until 1986 they tried to keep
contract alive, and at cancellation there was some delay, and so it should have come to trial halfway between
cancellation and trial. Gave a value halfway between of $22,500.

1.2.15 Damages and tax liability: the question of whether or not assessment of damages should take account of
any tax liability has engaged UK and NZ courts in the past, with differing results. Where there are claims for lost
earnings in employment contracts then the person liable will have to pay the full amount, but what happens about
tax being taken off?

British Transport Commission v Gourley [1956] – if breach of compensation for loss of earnings, then when paid
to the plaintiff, then what would have been paid in tax should be taken off it. So plaintiff gets less and defendant
pays less – does it compensate them fully? (UK)

Smith v Wellington Woollen Manufacturing Co Ltd [1956] – NZ felt obliged to follow UK

North Island Wholesale Groceries Ltd v Hewin [1982] – NZ courts said they wouldn’t follow English courts
anymore and Court of Appeal they said it shouldn’t apply to loss of office, as contractually obligation to pay the
whole amount, and they contrasted NZ tax law with UK law.

Horsburgh v NZ Meat Processors Union [1988] ‘another reversal of course should not be contemplated by this
Court’ Cooke P

1.3 Remoteness of damage: the law must draw a line somewhere on practical grounds, to define the kind of
damage which will attract compensation. In some cases it may be undesirable to compensate the plaintiff in full for
all the loss sustained, as this would place too great a burden on the party in breach; due to policy reasons. Requires
 -8-

close analysis in each case as to losses, and there is an approach of what parties would have foreseen at the time of
entering into contract, as to see if loss too remote, we need a method to work it out. In contract:

1.3.1 A defendant is not liable for every loss caused by a breach of contract. Some such loss may be
regarded as too remote. Therefore, all the forms of loss discussed must meet a remoteness test.

1.3.2 The fundamental test is whether the loss was within the reasonable contemplation of the parties.

Hadley v Baxendale (1854) – involved a mill which had broken a crank-shaft, so sent to be copied using the
defendant. The defendant promised to deliver it the following day, but he delayed unduly which meant the mill had
to operate with losses while it was away, so period of losses longer than expected. Issues over loss of profit.
Alderson B: ‘the damages... should be such as may fairly and reasonably be considered either arising naturally
i.e. according to the usual course of things, from such breach of contract itself or such as may reasonably be
supposed to have been in the contemplation of both parties at the time they made the contract as the probable result
of the breach.’
Two limbed approach; plaintiff seeking loss due to delay, and the claim can be supported in two way – ordinary
stopping of mill from usual course of not having the crankshaft (not satisfied as plaintiff could have had a spare
one), or if defendant knew of special circumstances – were losses expected made apparent to them? Turned out they
didn’t know, so that claim under second limb was not made either.
Leaves us with two limbs; damage resulting in ordinary course of things, or, abnormal damage arising from
special circumstances where there is knowledge.

Victoria Laundry v Newman Industries [1949] – involved launderers and dyers who ordered a new boiler; agreed
delivery date. Defendant knew about business and knew they anxious it be delivered on time. It was delivered nearly
6 months late though. The plaintiffs claimed loss of daily profits, and loss of earnings from planned expansion of
business which the defendants did not know about.
Asquith J reformulated the Hadley rule: ‘The test for remoteness in contract is whether the loss was ‘reasonably
foreseeable as liable to result from the breach’. On the question of knowledge, the judge noted that it is of two kinds:
1. Imputed, which everyone, as a reasonable person, is taken to know - the ordinary course of things and what
loss is liable to result from breach.
2. Actual: knowledge actually possessed, of special circumstances outside the usual course of things, such that
breach will lead to special loss.
The tests are objective, not subjective - the parties do not have to have the actual loss in mind; it’s what a
reasonable person would think.
Plaintiffs got their loss of profits from daily business but not from the new business they planned to undertake, as
no knowledge. Court sympathetic though, as said there could be a general sum for loss of business from dying
contract, which part of new business may have come from. Seems they pushed it under the first requirement.

Jackson v Royal Bank of Scotland [2005] - The test in Hadley is not to be construed like a statutory text, nor are
the two limbs mutually exclusive. The first limb begs the question, since the damages which are to be recoverable
under it depend on how the breach of contract is characterised. The characterisation of the breach depends on the
terms of the contract, its business context, and the reasonable contemplation of the parties. The common ground of
the two limbs is what the contract-breaker knew or must be taken to have known, so as to bring the loss within the
reasonable contemplation of the parties.

Clarkson v Whangamata Metal Supplies [2008] – Court of Appeal followed the House of Lords in Sempra
Metals Ltd (formerly Metallgesellschaft Ltd) v Inland Revenue Commissioners [2007]:
Lord Mance at [215]: ‘The two limbs of Hadley v. Baxendale are the practical expression of a single principle
(inspired by the civil law) that parties should only be liable for damages which were when they contracted within
their contemplation in the event of a breach. The precise line between the two limbs is itself hazy - especially in the
modern legal environment where it is axiomatic and integral to contractual construction that it occurs not in a
vacuum, but in the light of all surrounding circumstances within the parties' knowledge…’
 -9-

Issue was whether interest could be claimed in a settlement for losses, and could it be compound interest; keeps
growing. Court said it is possible depending on all the circumstances of the case:
‘We conclude that, in an appropriate case, interest, including compound interest, could be awarded in a breach of
contract case, if the plaintiff can satisfy the normal remoteness test in Hadley v Baxendale. However, such loss
needs to be pleaded and proved.’
Interest recoverable irrespective of two-limb test set out in the anachronistic authority of Hadley.

1.3.3 Is liability less extensive in contract than tort?

(a) Is there a distinction between the tests for remoteness of damage in tort and for contract?
Tort seeks to put a person in position as were before breach, however contract puts them in a position had the
breach never occurred. In tort, parties argue others were careless and there is a duty for others to take care. In tort
you can’t protect yourself from future, but in contract you can protect yourself for the future in negotiations etc.
Liability for tort is much more extensive. Easier and wider to claim in tort, so can frame loss in certain way to claim
under one or the other; can lead to undesirability.

Koufos v C Czarnikow Ltd: The Heron II [1969] – issue in contract where forseeability in contract was
discussed:
Lord Reid: ‘The crucial question is whether, on the information available to the defendant when the contract was
made, he should, or the reasonable man in his position would have realised that such loss was sufficiently likely to
result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss
of that kind should have been within his contemplation.’

(b) This distinction has been criticised because it means the test for remoteness of damage differs depending on
the legal classification of the cause of action, and because there seems to be no logical reason why a party who has
undertaken a duty of care by contract should be less at risk as to damages than someone on whom a general duty is
imposed under tort law. (Parsons v Uttley Ingham, McElroy Milne v Commercial Electronics. Cooke P.)

(c) Yet in Sempra, Lord Mance said: ‘Loss of interest is recoverable as damages for breach of contract, if it was
within the reasonable contemplation of the parties, in the sense explained in Koufos v. C. Czarnikow Ltd, under
either limb when the contract was made and is specifically pleaded and proved on that basis’.

1.3.4 What does ‘reasonable contemplation’ mean?

(a) What degree of probability is required?

Bevan Investments Ltd v Blackhall & Struthers [1978]: plans for a house where the building was defective so
new plans had to be done up, but building was not continued. Sufficient degree of probability if, had he considered
the question, he would as a reasonable man have concluded the loss was ‘liable to result’ in the sense of being ‘a
serious possibility’ and ‘a real danger’. (p 118)

Pilkington v Wood [1955] – plaintiff bought a house on the advice of their lawyer that the title was good. When
it came to reselling the house the title was defective and it was worth less and so the plaintiff sued the original
vendor of the house. In terms of losses claimed, it found the plaintiff could have different in price to what paid for
and what worth. Plaintiff claimed loss of valuation of the house and interest on his bank overdraft, as since unable to
sell he left with a loan. These not recoverable as too remote, as arrived from plaintiffs fact that they didn’t have
sufficient funds, and not because of contemplation by parties at the time of the contract; there was no evidence the
plaintiff knew money lent and it was not unusual to be left with a debt during selling of home. Plaintiff also claimed
cost to move to another city for work. However he got new job before he decided to sell, and so chance of his
employment not likely to be known to the plaintiff or a result of any contract.
This case applied a reading of Victoria Laundry as to what was reasonably foreseeable... ‘Depends on the
knowledge then possessed by the parties or at all events by the party who latter commits the breach...’ Here we see
an interchangeable use of the label ‘reasonably foreseeable’ as it is generally used in tort – doesn’t change meaning
when used in contract law.
 - 10 -

Isaac Naylor Ltd v NZ Co-operative Wool Marketing Assoc Ltd [1981]. Cooke J applied a ‘so likely’ test. E.g.
was the damage so likely?

Inder Lynch Devoy & Co v Subritzky [1979]. Somers J: ‘...such damage as may fairly and reasonably be regarded
as arising naturally... from the breach or, materially in the present case, because of special knowledge which the
person in breach had at the time of the making of the contract... The rule does not require actual contemplation by
the parties. It is enough that a reasonable man in the position of the appellants would have realised that the damage
was not an unlikely consequence of the breach.’

McElroy Milne v Commercial Electronics Ltd [1993]. Cooke P ‘...reasonable foresight or contemplation... are
always important considerations... Factors including directness: ‘naturalness’ as distinct from freak combinations of
foreseeable circumstances, perhaps even the magnitude of the claim and the degree of the defendant’s culpability,
are not necessarily to be ignored in seeking to establish a just balance between the parties... remoteness is a question
of fact to be answered after taking into account the range of relevant considerations, among which the degree of
foreseeability is usually the most important.’
Hardie Boys J: ‘It is I think better to concentrate on achieving a result that is just to both plaintiff and defendant.
For that is always the ultimate objective.’

(b) Extent of loss:

Involved unusual cases of loss where NZ takes a different approach. Tend to be losses arising due to a fall of the
market. Is the defendant responsible for these falls which usually just bad luck – are these losses foreseeable or
remote?
McElroy Milne – involved land where plaintiff wanted to sell land so they leased it, so it could be sold with a
tenant. They wanted lease to be guaranteed by tenant to make it solid. This meant to be drawn up by the lawyer, but
negligently it never happened: breach of contract. The lessee repudiated the lease, however this matter was settled.
The plaintiff then sued their lawyer for the general loss. At time of trial the market collapsed and the property had
not been sold as had hoped for. Could the lawyer be liable for the market which dropped by chance?
The Court of Appeal held it was in the contemplation that not having a guarantee would affect the sale in some
way, and that this was loss of this kind so not too remote.

South Australia Asset Management Corp v York Montague Ltd (Banque Bruxelles Lambert SA v Eagle Star
Insurance Co Ltd [1996] – Valuer negligently valued land saying it was worth more than what it was actually was.
The bank then gave a loan on the land – had they known the value they wouldn’t have entered into contract. There
was a fall in the market: Should the liability of a valuer who gave a careless valuation extend to the full
consequences when a lender relied on the advice and was locked into a subsequent contract which they would not
otherwise entered into? The House of Lords said no: Valuers only liable for foreseeable consequences of the
information being wrong. So liability the difference from what said to be and what should have been.

This decision had been criticised in Stapleton report (1997) – if bank wouldn’t have given loan with real
valuation, and holding them liable the plaintiff would not be completely better off, but would be in same position as
before, as without information they wouldn’t have entered into the contract.

1.3.5 Damages for injured feelings:

(a) The general rule is that these cannot be recovered as flowing from breach of contract. ‘It makes no difference
if a contract is broken with a snarl or a smile.’
Addis v Gramophone Co [1909] – doesn’t matter how the party has acted as this not about the contract. Rights
and duties in the contract is as far as things go, so contracts are about mutual bargaining, and hurt feelings don’t
count for anything. Case involved a wrongful dismissal, where compensation couldn’t extend to hurt feelings.
 - 11 -

(b) Connected with this is the question of whether exemplary damages - awards to punish the acts of the
defendant - can ever be awarded in contract. Can depend on the plaintiff’s maliciousness and misconduct depending
on their behaviour towards contract. Some discomfort towards this due to element of punishment, which usually
meant to be constricted to criminal law.

(c) Exceptions: In specific cases, the courts will go behind the general rule and look at the purpose of the
contract to see if damages should be awarded for hurt feelings:

(i) Damage to credit and reputation. Case law is inconsistent but it appears this form of loss may be recoverable.
Wilson v United Counties Bank Ltd [1920] – arose as plaintiff went to WWI where entered into contract with
bank that they would look after business and finances while he was away. Due to their negligence it collapsed and
he became bankrupt. Due to breach he could claim all ordinary losses, and on top there was an award of damages for
injury to credit and reputation. This can be seen as connected to feelings in many ways, and so in this case it can be
recoverable for damage to them.

Aerial Advertising Co Ltd v Batchelor’s Peas Ltd [1938] – plaintiff entered contract with company to fly over
towns with a banner promoting their product. There were restriction in contract, and one breach was to fly over
towns on Armistice Day remembrance services, which was done. As a result their company was denounced and they
lost business. There was a large drop in demand and these results meant pecuniary losses could be claimed. All these
losses awarded generally were connected to the plaintiff’s reputation of the company, so here we see a business
reputation can recover damages if harmed.

NZ Airlines Pilots’ Association v Air NZ [1992] – pilots spoken to magazine about safety of their aircraft as
concerned about safety aspects. Their association made comments that published. This was seen as a breach of their
contract and Air NZ sought loss of business reputation and goodwill. They argued it was reasonable foreseeable and
the Court of Appeal said you could recover for this as long as could assess the amount to be recoverable. There was
a suggestion that Addis shouldn’t allow parties to recover damages for their business reputation. This seems similar
to a defamation case under contract.

TAK v AEL Corp (1995) – contract where defendant suppling pedigree heifers (high standard) to Japanese
parties. They came with certificates confirming their status but was seen as a fraud and the plaintiff knew about this.
The plaintiff sued, and framed loss as being what they owed to the parties in Japan. They also claimed for damage to
their reputation, where Air NZ used to rely on. Judge also awarded exemplary damages due to deliberate fraud, as
judge thought they ought to be punished. There were also discussions as to why there should be exemplary damages
in contract.

Cash Handling Systems Ltd v Augustus Terrace Developments Ltd (1996) – court recognised exemplary
damages are possible in contract.

Cedenco Foods Ltd v State Insurance 1997 - breach of insurer’s obligation of good faith

Malik v Bank of Credit and Commerce International SA [1997] – UK case where there was a claim for stigma
damages. Malik worked for a large bank which collapsed due to a massive fraud by those in charge of the bank. Due
to this, Malik lost his job and found it difficult to get a new one due to stigma of being employed of the bank, where
he was completely innocent. There was a discussion by the House of Lords of Addis, as giving him damages went
against the general rule. One way did this was to read into employment contract an implied term, to conduct
business so to not break confidence of trust and confidence between employer and employee. They saw the loss as a
continuous financial loss, not one to hurt reputation. They said it looked like a hurt reputation, but that since that
usually claimed under tort, it can still arise in contract if it came from the breach. They did not think it would lead to
a floodgate of claims, as this kind of collapse is not common, and a plaintiff would have to show they are
handicapped in the job market.
 - 12 -

Loss of reputation as financial loss which was reasonably foreseeable; dishonest and corrupt business which
prejudicially affected employee’s future employment prospects.

(ii) Contracts to provide enjoyment or prevent distress. This trend began with Lord Denning recognising that
holidays are specifically intended to provide pleasure and happiness, but it appears the principle may have been
extended to other situations:

Jarvis v Swan’s Tours [1973] – contract which described a ‘holiday from hell’. Meant to be a house party with
skiing in Switzerland; on arriving there was a small group of people, and there was no party. The field was too far
away and his skies were too short. He found the food disappointing, as was the yodeller. Denning said he not bound
by past as this contract about entertainment and enjoyment, and their enjoyment should represent damages awarded.

Heywood v Wellers [1976] – arrangement by woman to solicitor to get an injunction to stop a man from
molesting her which not done. This caused distress, and Denning said consequence of distress a direct result from
breach of contract.

Byrne v Auckland Irish Society [1979] – indication New Zealand may follow this series of cases.

Ruxley Electronics v Forsyth – swimming pool a foot shorter than meant to be, and damages were awarded as
such, not an entire replacement. It was given for loss of amenity to the plaintiff and loss of enjoyment.

Bloxham v Robinson (1996) – sale of half share in dental practice. Majority said there could be an award for
mental anguish where contract to provide pleasure, relaxation, peace of mind, freedom from molestation etc. Said it
was unlikely to be found in a commercial arrangement, as these tend to not be like this.

Warrington v Great-West Life Assurance Co (1996) – example of peace of mind contract; insurer failed to pay
out in a disability payout, and so damages awarded for such.

Farley v Skinner [2002] (HL) – upheld a party can be awarded for disappointment at loss of pleasurable amenity.
Involved a special report made by surveyor when wanting to buy property. Plaintiff worried about flight path, but
report said it not an issue. This contract seen as an attempt to ensure peace of mind and pleasure when they became
a homeowner and due to breach they can recover for such. It is sufficient if a major or important object of the
contract is within this category. The peace of mind etc does not have to be guaranteed.

(iii) Employment contracts: Cases usually involve wrongful dismissals, and there are feelings involved with
holding down a job. In these cases, the trend has been to recognise that the modern employment relationship is one
where the employer owes the employee duties and that the employee is entitled to status, pleasure and support from
her or his work. So can get damages for stress and humiliation

Horsburgh v NZ Meat Processors Union [1988] – cleaner wrongfully expelled from union and as such he could
not get a job afterwards. Court recognised humiliation of unemployment no light thing, and depravation of being
able to get work should be given. This won’t be for every dismissal, but only for certain similar cases.

Whelan v Waitaki Meats Ltd [1991] – there was an unlawful dismissal from a senior position. There were
damages for mental distress, anxiety, mental distress, loss of dignity and injury. Gallen J: ‘...when parties enter into
a contract which affects one of them at least personally, then that involves consequences which can properly be
reflected in the award of damages if reasonable expectations of the parties are not met and a breach of terms which
are explicit or at least implicit in the requirement relating to such contracts are broken.’

Law Commission Report No 18 Aspects of Damages: Employment Contracts and the Rule in Addis v
Gramophone Co (1991) – prior to Government altering employment law at the time. Despite the previous cases
 - 13 -

there was uncertainty of whether you could recover for such. They cited Whelan as the way that legislation should
reflect. Today we have the Employment Relations Act which allows recover of these damages.

Air NZ Ltd v Johnston [1992] – appeal against an award for unfair dismissal under old legislation where amounts
granted for humiliation and loss of dignity. The court wouldn’t give any damages for penalising, so not interested in
exemplary damages. Claims for distress to family were also unrecoverable.

Stuart v Armourguard Security Ltd [1996] – principles drawn together:

1) Whelan not only applicable to senior and public positions;
2) The statutory approach and the common law approach should be the same and the remedies similar for both;
3) Modern employment situations require confidence and trust. Policy required recognition and enforcement of
an implied term not to dismiss without cause so as to damage reputation and cause distress and humiliation. ‘It is not
revolution. The time has come.’ McGechan J

Employment Relations Act 2000:

S. 123(1) Where the Authority or the Court determines that an employee has a
personal grievance, it may, in settling the grievance, provide for any 1 or more of
the following remedies:
(c) the payment to the employee of compensation by the employee's
employer, including compensation for—
(i) humiliation, loss of dignity, and injury to the feelings of the
employee; and…

Malik v Bank of Credit and Commerce International [1997] – stigma damages for being made redundant so this
is a similar situation to damage to reputation and difficulty to fins work.

(iv) Application of ordinary remoteness principles? There is case law which has gone outside the ‘purpose of the
contract’ principle and allowed damages for mental distress on ordinary remoteness principles:

Hayes v Dodd [1990] – case of English court holding to the general approach; breach in transaction of selling
commercial premises. There was a promise it had a right of way, which it didn’t, and so it sold on with a loss.
Damages awarded for vexation and losses, but Court of Appeal said they would not uphold this award as the
purpose of the contract did not support it.

Newell v Canadian Pacific Airlines Ltd (1976) – Couple wanted the defendants to airlift their dogs for them as
cargo and they were injured due to breach of the contract. The court talked about Jarvis and used Denning’s dicta
where he said holiday cases to provide pleasure or of that kind – said it was like this. They said the plaintiffs assured
the dogs been safe and the defendants had met with them before the contract and so not too remote, so ordinary
principles apply.

Baltic Shipping v Dillon (1993) - High Court of Australia: Damages for disappointment and distress recoverable
if proceed from physical inconvenience caused by the breach, or where object of the contract is to provide
enjoyment etc (3 of 7 judges); where there is an express or implied promise that disappointment will not be caused
or person will be protected from disappointment (1 of 7); where defendant has agreed to provide pleasure,
entertainment etc (2 of 7); or if breach of express or implied term that promisor will provide pleasure or enjoyment
etc (1 of 7).

Rowlands v Collow [1992] – construction of driveway in Wellington where there was a steep street. It wasn’t
done properly and so access to property impossible. Damages to mental distress made possible in this case, as
Thomas J approved the Whelan case, saying general principles should be asserted over Addis and that remoteness
principles should be applied to see if damages recoverable better than a strict test. He said commercial contracts
would likely involve remoteness principles; however non-commercial cases will likely see remoteness principles as
suggesting damages be recoverable.
 - 14 -

Mouat v Clark Boyce [1992] – There was a claim in tort, contract and equity; solicitor behaved negligently with
a client. Cases like this will involve a court making a decision based on one claim but discussion of them all. An
elderly widow mortgaged a house to lend money to her son, who defaulted. She sued her solicitors who arranged the
deal, and one claim for stress.
Damages for stress: Richardson J: ‘ I can see no objection in principle or in terms of public policy to the award
of such damages so long as the kinds of harm suffered were reasonably foreseeable consequences of the particular
breaches of duty and were caused by those breaches of duty... Courts can be expected to examine claims of this kind
with appropriate rigour.’
The court rejected public policy concerns of floodgate effects.
However, Cooke P said there should be no difference as to recoverability when there are claims in tort and
contract. He also talked of commercial contracts and was unsure about this aspect of recovering damages.

Farley v Skinner [2002] – aircraft noise levels; court rejected ordinary principles: ‘entitlement to damages for
mental distress caused by a breach of contract is not established by mere foreseeability: the right to recovery is
dependent on the case falling fairly within the principles governing the special exceptions.’ Lord Steyn. However,
there are a lot of exceptions listed, and most would cover commercial cases.

Commercial contracts?
Crump v Wala [1994] – Contract for supply of American jeans which turned out to be Asian. ‘Anxiety goes hand
in glove with expectations based on promises.’ Hammond J: so expected to simply put up with it.

Hanmore v Ganley (No 2) (1996) – issue of whether a judgement should be reopened to deal with stress damages
over design of a fishing vessel. The Court of Appeal said they wouldn’t reopen it, as they would not be likely to get
the loss anyway.

Smith v Singh 2007 – A contract for sale of family home not seen as commercial.

Bloxham v Robinson (1996) - Thomas J: dissenting on this issue, which sets out the reasons why the general
foreseeability principle should control this issue, and rejects the usual arguments made to oppose them:
1. No floodgates risk as general principle of remoteness will control;
2. Necessary to make the principles consistent with tort law, and concurrent liability can exist in tort and
contract;
3. The loss is real and can exist in some contract situations, commercial or otherwise, therefore it should not be
ignored because it is said not to exist in theory;
4. Necessary to fully meet the function of damages at common law, of restoring the party to the position they
would be in had the breach not taken place;
5. Difficulty in assessment should not prevent such awards; and
6. Exceptions to the so-called general prohibition are now extensive as to render it uncertain and there are other
statutory inroads apart from in the employment context: vis Contractual Remedies Act, Fair Trading Act).

Anderson v Davies [1997] - Paterson J in High Court. Rejected Rowlands v Callow. Involved the sale of a
business, but held as it a commercial contract there should be no damages for distress (similar to remoteness
principles). Exemplary damages possible if requirements met: i) breach of underlying civil obligation - i.e.:
parasitic; ii) breach of a kind for which exemplary damages are possible; iii) malicious, outrageous behaviour by the
defendant.

But see: Farley v Skinner [2002] - Lord Steyn noted coverage by exception for supply of wedding dresses,
double glazing, HP transactions, landlord and tenant, building contracts, engagement of professionals eg: real estate
agents and solicitors.

Exemplary damages
 - 15 -

Paper Reclaim v Aotearoa International [2006] - The CA rejects the idea.

(d) Summary
(i) Where the purpose of the contract is to provide pleasure and enjoyment, it is arguable that damages for failure
to supply such features are recoverable.
(ii) For employment contracts, there seems to be little doubt of recoverability whether statutory or common law.
(iii) For commercial contracts Addis may prevail, but the intellectual battle continues to rage and it has been
accepted in some cases that the ordinary principles of H v B and the requirements of reasonable foreseeability
control the remoteness issues in these cases. NZ judges incline to having the full range of remedies available to them
no matter what form of loss is being claimed.
(iv) Paper Reclaim v Aotearoa International holds that exemplary damages may not be claimed in contract in
New Zealand.

1.3.6 Mitigation of damage:

(a) If the loss would not have been suffered if the plaintiff could have taken reasonable steps to mitigate it, there
will be no damages. There must be a reasonable opportunity to mitigate – question of fact (e.g. reselling a home
after first contract falls out, freight contract etc.) In relation to land, important to know that not obliged to resell land,
but if you do and get less than previous contract and you sue to get shortfall, a question can arise as to whether you
have resold it with the best effort to sell it at the right price. Contract of employment can involve mitigation factors
(look for a new one).

Sullivan v Darkin [1986] – purchase of land where purchaser defaulted and so vendor left with it. They resold for
$23,000 less than original price so claimed the difference in loss and the cost (consequential losses). It was argued
against as suggested it not been sold for a proper price, and they argued the vendor had a duty like one in a
mortgagee sale (high duty to advertise and sell for best price in good faith), they argued the price below market
value. The court said it was not the same as mortgagees, but that all they have to do is act reasonably and accept a
price that reflective of market. The court saw it been advertised, looked after, but court said it relevant the vendor
needed to sort out bridging finance, whereby they had to find money quickly. As such, the vendor seen to be
reasonable.

Turner v Superannuation and Mutual Savings Ltd [1987] - purchaser leave vendor with land, and by hearing it
worth more than before. The purchaser claimed deposit, and vendor claimed difference between contract price and
value of land at the date of breach, even though it had gone up since. Mitigation relevant, as vendor left with
property and the court said it not reasonable to put it back on market as they reluctant to sell in first place and only
prepared to sell it to one party only. The vendor also unsure as to whether buyer would come back to sort the issues
out, so vendor not obliged to put property back on market after default.

A defendant usually can decide to resell or not, and depending on circumstances court will look at this, but not
too closely.

Yoon v Cullen & Anor (1999) - consequential damages different to other damages. Involved a defaulting
purchaser where the vendor claimed consequential damages. Some had been sold at a profit, some held onto but
worth more. Since they claimed consequential damages though, the court said these were separate and there was no
issue of reselling as didn’t matter the prices they sold at.
A defaulting party may not rely on fortuitous market conditions as reducing the seller’s loss at the date of breach.
Gains in value of land retained by innocent vendor following cancellation not to be brought into account in assessing
damages claimed for consequential loss (holding costs) - damages to be assessed at date of settlement or breach.

Walop No 3 Ltd v Para Franchising Ltd 2004: ‘the innocent party is under no obligation to prove that all
reasonable steps to mitigate were taken by it. Rather, the onus is on the defaulting party to satisfy the Court that
damages should be reduced because a plaintiff has failed to take reasonable steps to mitigate loss consequent on a
defendant’s wrong and should not be permitted damages in respect of any part of the loss due to the plaintiff’s
neglect to take such steps.’
 - 16 -

Tucker v Sun, 2009: Mitigation of damages. Mitigation on resale- standard not so high where defendant is the
wrongdoer and has imposed time constraints on the vendor. Vendor must make a bona fide resale, and that requires
that he or she acted reasonably in all the circumstances.

(b) It appears that it is difficult to establish that the plaintiff should have mitigated the loss by litigation.
Pilkington v Wood - suggested by defendant the vendor who left with defective property due to title, argument in
terms of mitigation that they should have sued original party who passed the title to them - way to mitigate damages
to them. Court said no as requires too much, not clear success in this case.

(c) The effect of the suggested mitigation on the plaintiff’s business reputation is also relevant
If there is a possibility of litigation but the plaintiff didn’t take it due to their business reputation, courts will
agree that alright.
James Finlay & Co. v NV Twik Hoo Tong [1929] - building case involving goods which arrived too late and not
able to be onsold. The defendant said they should have tried to enforce the onsale contracts through to mitigate the
damage. The court said no as it would have been false as it would suggest to purchasers that the goods delivered
earlier than had been and would affect their business reputation.

(d) Benefits may accrue to the plaintiff after breach. These may be forced benefits or benefits due to voluntary
action of the plaintiff. Benefits mitigate the loss, even though they may be due to action taken by the plaintiff but
where he or she was not obliged to act:
If you are forced to replace a defective item, due to quantification you can do this by going into market and
getting a reasonable replacement close to original. However, as it is new it will be better than what got.

(i) Forced benefits: If the only reasonable replacement is more valuable to the plaintiff than the promised
original the plaintiff must give credit for the value of the betterment, but only after allowance for any burdens
associated with the forced nature of the additional or premature investment.

Caldwell v Logan House Retirement Home [1999] – sale and purchase of retirement home where number of
chattels that meant to come were missing or damaged. Claim for loss of delivery of those, so court said they could
go get them if necessary for the business. If they couldn’t get cheaper alternatives then they could get brand new
items instead if reasonable. As such they will have greater valuable than original, longer lifespan or more efficient or
useful. Does the plaintiff have to give betterment? Yes, as in better position than before. However court says this
comes after take into account that had to spend the money when perhaps not in position to spend it - have to borrow
money with interest. From basic point of view, having to spend money here when needed to spend it somewhere
else. SO the credit for betterment is first taken off any losses the defendant has incrued - so not all of betterment
goes to defendant due to the issues involved.
The plaintiff has the onus of proof to show there have been losses and that betterment should be less.
Did a plaintiff have to give credit for betterment? A deduction for betterment on a substituted item more valuable
or efficient is tempered with recognition of added cost to the plaintiff of treating himself to the luxury or having to
invest funds prematurely. A plaintiff is entitled to value of the use of capital or interest on borrowing early. Plaintiff
has onus of proving loss flowing from unexpected expenditure caused by defendant, and defendant has onus of
showing betterment has occurred.

(ii) Voluntarily acquired benefits:

L.T. Walker Holdings Ltd v Tuf Shoes Ltd [1981] - in some circumstances you can still take account of benefits
even if voluntarily acquired of you. Plaintiff to purchase a factory where it was to be made ready by settlement. It
wasn’t ready so plaintiff had to go to another building and fit it out instead. The plaintiff claimed for capital asset -
resale value of lease of other premises. It was argued that the capital asset should be taken into account, so despite
costs in fitting out new factory, there was an argument that since the plaintiff had something worthwhile and they
chosen to go to another factory and refurbish it, it should be taken into account.
The court said if they didn’t take into account the acquiring of a capital asset then they will be getting more than
what contract meant to give them. Court said the burden of proving mitigation on the defendant, but it is sufficient if
the defendant shows the alleged loss is represented by a capital asset of the plaintiff, where the plaintiff then must
show the full extent of the loss.
 - 17 -

Hussey v Eels [1990] - if court accepts an argument that the benefit to the plaintiff is independent and
disconnected from breach of contract, then it won’t be taken into account; outside original contract and nothing to
do with breach. Purchaser bought defective property due to misrepresentation by vendor and when discovered they
knocked the building down to redevelop the land, where it now worth more. The court said the cost of repairing the
building still recoverable, as the knocking down not part of a continuous transaction resulting in the purchase. The
court said the original negligence did not cause the profit on the resale. The development value been unlocked by the
plaintiffs themselves.

1.3.7 Contributory Negligence:

This can affect the amount of damages when the plaintiff has contributed to the loss itself. There is an Act which
covers this but there is still some confusion.

(a) The defendant may also allege the plaintiff behaved unreasonably before or at the time of the contract and so
should take some responsibility for the damage.
This is relevant to the loss, e.g. carelessness. This is also relevant to tort, and can significantly reduce damages.
Previously this used to be a complete defense to a tort action, so if plaintiff negligent in some way it didn’t matter
how large, it would wipe out the entire claim completely. This was the situation until 1947 when the Contributory
Negligence Act was passed - taken from English law to put this unfairness right and stop defendant getting out of
liability.

Contributory Negligence Act 1947 s.3: Apportionment of liability in case of

contributory negligence - (1) Where any person suffers damage as the result partly of
his own fault and partly of the fault of any other person or persons, a claim in respect
of that damage shall not be defeated by reason of the fault of the person suffering the
damage, but the damages recoverable in respect thereof shall be reduced to such
extent as the Court thinks just and equitable having regard to the claimant’s share in
the responsibility for the damage:
Provided that
(a) This subsection shall not operate to defeat any defence arising under a
contract:
(b) Where any contract or enactment providing for the limitation of liability is
applicable to the claim, the amount of damages recoverable by the claimant by virtue
of this subsection shall not exceed the maximum limit so applicable.
S. 2: defines ‘fault’: means negligence, breach of statutory duty, or other act or
omission which gives rise to a liability in tort, or would, apart from this Act, give rise
to the defence of contributory negligence.

(b) The Act has given rise to questions whether it would be applicable to contract.
Parties soon argued this should apply to contract as well as tort.

(i) Introduction:
So what are the issues of concurrent liability in tort and contract? Can this legislation apply to a contract
situation, and how can it apply? What are the problems to concurrent liability, and how does the court interpret the
act?
 The problem of concurrent liability.
 Interpretation of the Act.

(ii) Concurrent liability:

If a defective building is built then the owner can take a claim against a builder in tort years later in relation to
this. Invariably this is a contractual relationship as well though, and there will be a contract governing the
relationship between the owner and builder. If the plaintiff asked the builder to use cheap materials or certain
products, then though the builder is reasonable for the defects, the plaintiff can be responsible for certain amounts of
the damage due to the contract. In theory the contributory negligence act could stop the builder paying out a full
amount to the owner, and this argument does successfully apply in court.
 - 18 -

Contracts usually include to use good materials etc, so if a plaintiff asks them not to use them they affect the
building of the property in some way.

These problems in relationship to contract, historically the law has avoided the idea that concurrent liability can
apply to contract and tort, as they wanted parties to chose their claim and to sue under one or the other, so if under
contract cont argue contributory negligence - seems to be unfair to defendants. As such arguments were made that
the Act should apply to contract, as the term 'fault' should not be exclusive to tort.
Early arguments often unsuccessful due to belief that concurrent liability didn’t exist. Today this view has
changed though, and was accepted in the UK earlier than NZ that concurrent liability is ok, and allows you to use
the contributory negligence Act in this case. Eventually the NZ courts followed and went further, as Court of Appeal
seems to argue outside the Act and use it as an analogy.

McLaren Maycroft v Fletcher Development Ltd [1973] - authority for view that relationship with professional
and client is a contractual one only, so where a defendant breached of some kind, there is no coextensive liability in
tort. Based on old view of there being no concurrent liability.

Henderson v Merrett Syndicates [1994] - UK case where House of Lords confirmed concurrent liability can exist
and it up to plaintiff to decide on how they want to claim depending on the remedy most effective for them. They
added this is as long as the contract does not preclude this from happening - look to contract and see if it governs
everything for complete choice. They disapproved of the NZ case of Mclaren.

Dairy Containers v NZI Bank [1995] - Thomas J (p 74) ‘The tortious duty is imposed by the general law and,
unless the contract between the parties precludes them from doing so, plaintiffs may choose that remedy which
appears most advantageous to them,...the principle in Henderson must now be accepted as representing the law in
NZ’.

Riddell & Anor v Porteous & Ors [1999] - court of Appeal accepted this position on basis that it not inconsistent
with the contract: contract looked at first - primary place to look first. But if it allows for a tort duty as well this can
be done.

Turton v Kerslake 1999 - Court of Appeal recognised concurrent liability but contract can stop it existing at all.
Thomas J dissented though, as didn’t want the contract to control this issue of concurrent liability, as though party
should have full choice and not be bound by contract.Thomas J dissenting: …the lawyer’s deep-rooted but
misplaced deference to the primacy of contract.’

However, it easier to be successful in tort than it is in contract, so if too much choice then people more likely to
take breaches in tort claims - worry that tort will impose all duties over contract. However due to decision, the
contract can stop this happening at present.

(iii) Interpretation of the Act:

Rowe v Turner Hopkins & Partners [1980] - action for professional negligence on solicitor by client. The High
Court followed McLaren and said the duty of care purely contractual. The Contributory Negligence Act was raised
in the case, and the judge said the definition of fault in the Act meant it could only apply to tort. So if liability only
contractual, you can’t apply this Act in this situation.
On appeal the court found there to be no negligence so there are obiter statements not relevant to decision. They
said they didn’t agree to the narrow view in the High Court about the applicability of the Act, and also doubtful of
McLaren decision.

Forsikrings Vesta v Butcher [1988] Court of Appeal decision, where they said looking at their legislation they
agreed the definition of fault in the act requires a tort issue, but when further and said where there is concurrent
liability you can apply the Act.

Day v Mead [1987] suggestion to not worry about the Act, but to use the statute by analogy. Case involved client
who invested money through lawyer in company the lawyer had an interest in. The company collapsed and the
 - 19 -

solicitor in breach of duty as not given Day suggestion to get independent advice, however they knew when they
made their second investment that there were problems in the company. As such the question of contributory
negligence arose.
Cooke P talking in terms of a fiduciary duty - contract, tort and equity. Cooke P ‘...assuming the CNA does not
itself apply, it is nevertheless helpful as an analogy, on the principle to which we in NZ are increasingly giving
weight that the evolution of Judge-made law may be influenced by the ideas of the legislature as reflected in
contemporary statutes and by other current trends.’

And in the High Court, Tompkins J earlier followed the obiter in Mouat in Hanmore v Ganley: ‘It is now clear
since the decision of the Court of Appeal in Mouat v Clark Boyce that contributory negligence can be found against
a party where the liability of the other party arises from contract, not from tort. Cooke P observed that the full range
of remedies are available to the court and that apportionment in accordance with true responsibility will always be
available not dependent solely on the Contributory Negligence Act although that Act may be used as an analogy in
developing case law in fields not covered by it’ (p 21). Damages were reduced by 75%.
Astley v Austrust [1999]. Act has no application to contract.

(iv) Summary:

(1) The CNA applies to breach of contract in NZ in at least situations where there is concurrent liability in tort
and contract;

(2) There is a possible judge-made principle of apportioning loss according to who is responsible which could be
used where the breach is purely contractual.

(3) Whatever the position, the Act will not apply at all where what has occurred is a breach of a strict contractual
duty and there is no negligence at all. If the defendant is not at fault in terms of the Act, the Act cannot be raised as a
defence to a plaintiff’s claim.

However, it is still possible for damages to be reduced due to lack of causation:

BVR Ltd v McCarthy [2008] - Damages reduced by 50% because defendant not responsible for all the losses;
dealt with as a causation issue.

(4) If each party is shown to be at fault, the plaintiff’s damages are reduced to such an extent as the court thinks
just and equitable having regard to the plaintiff’s share in responsibility for the damage (s 3(1)).

1.3.8. Penalty clauses:

(a) If the contract itself provides for breach and how any losses may fall on the parties, the courts will generally
not interfere.
This where contract provides for what will happen if there is a breach – may be a special provision for it. E.g. if
building not built by certain time there can be a daily rate to be paid until it is. These clauses can be narrow or broad.
If a party breaches and tries to get around it, they argue it is a penalty clause – saying it is unfair as out of proportion
to the loss that would happen as a result. Not about compensation but penalty. The courts can get involved, and if it
is a penalty clause, they can reconstrue the clause, and look at what damage actually been caused and state a new
amount. Or they can say since it is a penalty one is should be removed completely.
If it involves a clear sum (genuine preestimate of the loss) then these cluses won’t be seen as a penalty. They will
construe the contract at the time it was entered into.

Robophone Facilities Ltd v Blank [1966] – onus of proof on party alleging it a penalty clause to prove it.
 - 20 -

Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915]
Lord Dunedin: ‘1. the expression [‘penalty’] used is not conclusive. The Court must find out whether the
payment stipulated is in truth a penalty or liquidated damages...
2. The essence of a penalty is a payment of money stipulated as in terrorum (by way of threat) of the offending
party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage...
3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be
decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the
making of the contract...
4. To assist this task...various tests have been suggested: (a) It will be held to be penalty if the sum stipulated for
is extravagant and unconscionable... in comparison with the greatest loss [possible]; (b) It will be held to be penalty
if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which
ought to have been paid; (c) There is a presumption... that it is penalty when “a single lump sum is made payable by
way of compensation, on the occurrence of one or more or all of several events, some of which may occasion
serious and others but trifling damage”; (d) It is no obstacle to the sum stipulated being a genuine pre-estimated of
damage that the consequences of the breach are such as to make precise pre-estimation almost an impossibility...
On the contrary... it is probably that pre-estimated damage was the true bargain between the parties.’

In the case, there was an agreement the defendants bound themselves to in relation to supply of tires. There are
conditions on their agreement in relation to buying the tires and retailing them, such as not to tamper with marks on
the tires that put there, not to sell below certain listed prices and not to exhibit or export tires without consent. The
defendants agreed to pay 5 pound for every tire in breach. The court held this was a preestimate of loss, and though
it seemed like a lot, the harm that would be caused form a breach would be greater than what obvious, as this a form
of undercutting and could harm Dunlop’s reputation, and they recognised the damages would be hard to access as a
result, so the setting of the fixed and not extravagant figure was reasonable in the circumstances.

Ford Motor Co v Armstrong (1915) – Supply agreement in relation to motor supplies. Agreement to not sell
below listed prices, to other dealers, not exhibit without permission etc. In breach, each came with payment of 250
pounds. This was seen as a penalty due to large amount. It not seen as a genuine pre-estimate of loss, as they could
be various in kind, and the amount was too large for them.

Turner v Superannuation and Mutual Savings Ltd [1987] – Sale and purchase of property which fell though. The
contract required forfeiture of deposit, and deposit was worth 5.5% of the total. The contract provided for recovery
of full damages in a breach, and court said no reason why they should get both damages and deposit, as seemed like
double recovery so acting as a penalty clause.

Lordsvale Finance Ltd v Bank of Zambia [1996] – contract about provision of a banking facility, where
defendant had to pay an unexplained 1% interest. Action was for repayment sum and of this clause, which the
defendant claimed was a penalty one, which the court rejected: ‘If increase could be explained as commercially
justifiable, provided its dominant purpose was not to deter the other party from breach, it was not a penalty.’ This
meant 1% not seen as a penalty, and could be explained due to increased credit risk when a borrower defaults on a
loan, so was a commercial justification of what looked like a penalty.

(b) The rule is not a general principle based on public policy, but is concerned with relief against oppression or
unconscionable behaviour and is subject to fairly narrow constraints.

(c) The penalty rules only apply if there has been a breach of the contract. If a sum is payable for any other
reason, there is no penalty clause.

Bridge v Campbell Discount Co Ltd [1962] – hire purchase agreement in relation to a second-hand car. In
agreement the buyer could terminate it, and if they did they had to make a payment in relation to the depreciation of
the value. The method of working this out was the total of what already been paid, plus whatever it took to make up
two thirds of the hireage.
 - 21 -

The Court of Appeal said there was no breach, as all buyer did was legitimately terminate the contract, however
the House of Lords did not agree and saw him as breaking the contract so they could decide if there was a penalty or
not since there was a breach.
Lord Denning: ‘The truth is that this minimum-payment is not so much compensation for depreciation but rather
compensation for loss of the future instalments which the respondents expected to receive, but which they had no
right to receive. It is a penal sum which they exact because the hiring is terminated before the two-thirds has been
paid.’

Export Credits Guarantee Dept v Universal Oil Products Co Ltd [1983] – Involved three parties: E, U and X. U
entered into contract with X to build an oil refinery. E guarantees U’s financing. U agrees as a part of guarantee that
if it breaches their contract with X, they will pay amount of guarantee to E. E was not a party to the contract with X
though, so arrangement seen as a penalty clause, since breach not of their contract. Breach must be of contract that
party involved in, so agreed to not be a penalty.

(d) In NZ, it appears the question of whether the loss is the inevitable consequence of the breach is an important
one.

Marac Financial Services Ltd v Stewart [1993] – situation where breach by defendant, but it is the plaintiff who
follows through with their choice to do something. In case, S had a cash management account with M and he fell
behind in his payments. This led M to close the account and claim the amount outstanding and interest of 36% - very
high. S said it was a penalty provision and the court held it was M’s behaviour that triggered operation of the clause,
and is not inevitably an act of defendant, and so this stopped it being a penalty due to independent decision to close
the account.

1.3.9. Relief under the Contractual Remedies Act 1979, s9:

(a) Where a contract has been cancelled under the Act, s9 contains a wide-ranging power to grant relief.
The question arises whether this power allows greater damages to be awarded than at common law. The Act
does not take over the entire area, and in practice there is often vagueness of whether Act invoked or whether it
is just a common law claim. Common law tends to limit damages, so can you get more from the Act?

s9(1) When a contract is cancelled by any party, the Court, in any proceedings or on application
made for the purpose, may from time to time if it is just and practicable to do so, make an order or orders
granting relief under this section.
(2) An order under this section may -
(a)Vest in any party to the proceedings, or direct any such party to transfer or assign to any other
such party or to deliver to him the possession of, the whole or any part of any real or personal property
that was the subject of the contract or was the whole or part of the consideration for it:
(b) Subject to section 6 of this Act, direct any party to the proceedings to pay to any other such party
such sum as the Court thinks just:
(c) Direct any party to the proceedings to do or refrain from doing in relation to any other party any
act or thing as the Court thinks just.
(3) Any such order, or any provision of it, may be made upon and subject to such terms and
conditions as the Court thinks fit, not being in any case a term or condition that would have the effect of
preventing a claim for damages by any party.
(4) In considering whether to make an order under this section, and in considering the terms of any
order it proposes to make, the Court shall 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 the performance of the contract; and
(d) The value, in its opinion, of any work or services performed by a party in or for the purpose of the
performance of the contract; and
(e) Any benefit or advantage obtained by a party by reason of anything done by another party in or
for the purpose of the performance of the contract; and
(f) Such other matters as it thinks proper.
 - 22 -

(b) The ambit of s9(2)(b) is unclear. It seems the ability to award damages may not be subject to common law
rules concerning recoverability or assessment. The question is: is it possible to recover more under the statute?

Gallagher v Young [1981] – Cancel of sale and purchase agreement, where revealed there was damage to the
property, in looking at relief: Greig J said of the power to grant relief under s 9... ‘It is clear that there is a wide
discretion under s9 to give justice as between the parties. Under that section it is no longer a question of applying the
strict rules as to damages and it appears from the effect of s10 that the just order may replace an inquiry into
damages altogether. The Act makes it plain that the right to recover damages remains and there may be cases in
which damages are sought in place of or in addition to the relief under s9.’

Newmans Tours Ltd v Ranier Investments Ltd [1992] – Fisher J in High Court:
1. s9 extends to all forms of loss, expectation, reliance or restitutionary. ‘One must resist attempts to reintroduce
into a reforming statute limitations associated with earlier principles of common law and equity.’
2. The court thought consistency in classification of loss was desirable, however.
3. On the form of remedy, again, Fisher J thought the discretion was very broad and the traditional hierarchy of
damages, specific performance or injunction and then declaratory relief, would not necessarily apply. The court
would probably take into account the cancelling party’s stronger claim and what would suit them, economic
efficiency, advantages of leaving things as they were, how practical behavioural remedies might be, special value in
the property itself to a party, difficulties of calculation, effect on third parties, public interest.

Thomson v Rankin [1993] - Cook P said: This is a case in which, in my view, there need be no difference
between common law damages and the sum which it would be appropriate to order under s9(2)(b) of the CRA. But
if, contrary to that view, the common law were more restrictive, I would uphold the award under the statutory
jurisdiction arising on a cancellation. It is a wide jurisdiction... I agree with Fisher J in Newmans that in exercising
the jurisdiction the Court may inter alia have regard to the various heads of compensation often classified as
restitution, reliance losses or expectation losses... All in all the legislature has in s9 endowed the Courts with a
valuable instrument for achieving justice, of course on declared and rational principles, which need not be
trammelled by common law restrictions.

Newmans - Coxhead v Newmans Tours Ltd (1994) – Court of Appeal decision where they affirmed both the
previous decision and what was said in Thomson. This ended the ambiguity and debate around the issue.

(c) Therefore the statute allows any remedy thought appropriate, the decision as to this being unrestrained by any
common law restrictions.

Worsdale & Polglase [1981] – common law seen as relevant to order made. A vendor seeking to retain deposit
paid under a cancelled contract where purchaser defaulted. The court looked at the purpose of the deposit at
common law, and looking at it in these terms they saw it guarantees performance in the contract (form of sanction)
so to get refund would undermine principle and court not prepared to do this.

Yoon v Cullen & Anor (1999) – defaulting party for purchase of land where seller left with property which gone
up in value. Claim brought under consequential loss, which court said were separate to everything else, so gains in
land wouldn’t reduce the damages claimed by vendor, and the court said the case doesn’t warrant a departure from
common law damages – in spite of Act there is no need to depart from common law. So possibility of using wider
jurisdiction recognised, but not used.

(d) As a result of this judicial creativity in the use of the CRA, the statutory damages regime and the common
law damages regime are different. The powers under the Act are wider and therefore more attractive to parties
seeking a remedy.
 - 23 -

Coote, ‘The Changing New Zealand Law of Damages in Contract’, (1996) – suggestion that the inconsistency
between common law and statute unfortunate. To cancel in common law need a serious breach of an important term,
and he argued the tests were different to what we find in statute – harder in common law.

(e) There has been a steady ‘power-grab’ in which the courts have sought to make a full range of remedies
available to themselves to be exercised in a truly discretionary way. This has been done by interpreting the Act in a
wider way than originally intended – individualised justice; look closely at two parties involved, what happened and
what will do justice to them.

2. Specific Performance and Injunction

2.1 Introduction: Equity doesn’t deliver money, but performance; make defendant carry out the contract. So
they have a remedial role, as contract to put you position if never entered, whereas this puts you in position as if it
had gone ahead. They are discretionary of the court, so there can be reasons the court does not give them.
Equitable and discretionary remedies are intended to ensure justice is done. They originated because it was
realised that common law remedies were inadequate. They may be the most appropriate remedy were loss cannot be
shown e.g.: Green Hamilton v Conlon 2006
These remedies which deliver the performance of the contract can be vital to protect not only the interests of the
parties to a contract but also the notion of the sanctity of contract itself.
The availability of the equitable remedies has been restricted because their effects are seen as drastic.

Generally remedies should be sought before someone comes to equity. This is known as the hierarchy rule,
however this rule should not apply, as a remedy about compensating performance of party to make it as though it
gone ahead, so remedy should be specific performance of equitable remedy. There is some indication in NZ that
judges like this, as less emphasis that damages should come before equity.

What are the different orders that can be made in equity?

2.2 Specific performance:

2.2.1. A decree issued by the court which forces a contracting party to do that which she or he promised to do. It
is a way of enforcing positive acts – why there is caution in granting of remedies, as forcing parties to do or not do
something, and carry out behaviour they often don’t want to do, so damages can be fairer in some circumstances
instead. So while remedies look appropriate, there can be other reasons they choose damages instead.

Loan Investment Corporation of Australasia v Bonner [1970] – Went to the Privy Council; arrangement where
plaintiff agree to purchase a property, where a condition that they deposit a portion of purchase price into buying
company for 10 years at 7.5% interest. This is looks like a loan however, and nature of agreement would affect what
court thought appropriate. Bonner breached agreement, and court had to decide on remedy. Was it a sale or a loan?
Specific performance generally occurred in sales of land, however courts generally don’t grant specific performance
of a loan, as doing so might create a position of inequality – forcing a lender to lend, so borrow gets benefit of
money but vendor might not get security of money.
In the High Court it seen as a contract for sale of land so specific performance awarded, despite fact that finance
company in stronger position so there was inequality, there were suggestions the seller lacking in wisdom, and it
clear the finance company did not even want the land.
In the Court of Appeal the loan and sale were seen as separate, and due to principle that don’t order performance
on a loan it was sent back to the High Court. No judges even looked at whether damages were appropriate at all.
When reached the Privy Council they affirmed the hierarchy rule.
The contract held to be a long-term unsecured loan; a composite arrangement, and the Privy Council said they
never seen it before, so affirmed the rule about not enforcing loans. They said that on the whole, damages would be
an appropriate remedy. So it seems to confirm the hierarchy rule.
 - 24 -

The case has never been discussed in NZ at a high level, so specific performance is not a routine answer as of
yet.

2.2.2 The view that specific performance is a secondary remedy applied only where damages are inadequate no
longer predominates.

2.2.3. Pacific Industrial Corporation SA v BNZ [1991] – even rule about not ordering performance of loans is not
flexible, so can depart on the grounds of justice.

2.2.4 In general, a decree for specific performance cannot be granted in respect of an option to purchase. Equity
role not to enforce mere promises to keep a contract open and force it into existence.

Alexander v Tse [1988] - ‘Equity has never sought to enforce unexercised option by specific remedy.’ Somers J.
Aim to enforce contracts, not make them. Case mentioned that new principles could still develop in equity – not
frozen, however on facts this not occur.

2.2.5 Butler v Countrywide Finance Ltd [1993] - Hammond J ‘informed remedial choice’: ‘...what is involved in
the allocation of the ‘appropriate” remedy in a given case is a matter of informed choice, bearing in mind the general
compensation principle and the factors I have estimated above’. (plaintiff autonomy, economic efficiency, the
relative severity of the remedy on the parties, the nature of the right being supported by the remedy, the moral view
to be attached to the interests at stake, the effect of a given remedy on a third party (or the public), difficulties of
calculation, the practicability of enforcement, the conduct of the parties).
Clear these remedies not able to be used when trying to enforce vague terms of a contract – hard to insist on this,
so it must be clear and certainty – consistent with rest of contract law.

Savory Ltd v Hafele Ltd 1998 - Sale of land subject to building tie. No injunction to enforce - damages sufficient
remedy.

2.2.6 Rule as to specific performance and land may be changing

Tower Ltd v Begley [2007] – specific performance appropriate where sale of land.

Welsh v Gatchell [2009] - Specific performance is the normal remedy in NZ where land is the subject matter of
the contract.

Nonetheless overridden where hardship: Kurth v McGavin 2006

2.3 Injunction:

2.3.1 May be a more appropriate remedy to enforce a contract than a decree of specific performance. It is
equitable – discretionary, and is a way to enforce the contract. It is an alternative to specific performance.

2.3.2. Injunctions are of two kinds - Prohibitory or mandatory. Prohibitory ones prevents a breach in the future,
and a mandatory orders the undoing of something that has happened in the past. These two complement specific
performance which seeks to make a positive act.

2.3.3 When a contract is negative in nature, or contains a negative stipulation, breach of it may be restrained by a
prohibitory or preventive injunction.

Doherty v Allman [1878] - Lord Cairns: ‘the specific performance by the court of that negative bargain which the
parties have made’. Mixed up labels and seen injunctions as this.
 - 25 -

2.3.4 A mandatory injunction is restorative - it directs the defendant to undo something which has been done in
breach of the contract. E.g. if a defendant agreed not to fence land in but does it anyway, they can be ordered to take
it down, or as in Dunlop if parties agree not to sell tires to someone or for certain prices, the court can order a
defendant to refrain from expressly doing something they agreed not to do.

Jolyn Holdings v Agrisource Ltd (1999) - Mandatory interim injunctions are rare.

2.3.5 However, the order is discretionary so you won’t just always get it.

2.3.6 The court may be prepared to imply a negative covenant from an express positive covenant.

Hill & Plummer Ltd v Pinchin Johnson & Co. [1957] – two companies agreed to promote relevant goods in an
area only through the plaintiff’s company – positive obligation. Usually hard to enforce a positive obligation –
would require constant supervision by the court. However here the court implied a negative covenant into the
agreement to not seek sales of goods in the agreement to another company. Easier to get an injunction by swapping
agreement like that.

2.3.7 The remedy will not be granted in such a way as to render restoration destructive of justice between the
parties:

Charrington v Simons [1970] – mandatory injunction to get defendant to remove a concrete track which laid by
them in breach of a covenant when the plaintiff sold land to them. The court made an order, but because taking it out
would lead to large work, effort and cost, they suspended the order for three years to allow the defendant to carry
out work on the track to alter the level of it which would be acceptable to the plaintiff. Leave was granted to the
plaintiff to apply for suspension to be removed at any time – e.g. if the defendant did not look like he was going to
do anything. The court also gave the defendant to come back and apply for a discharge of the order, e.g. when work
done they can apply for order to be discharged as problem gone. So court creative around these injunctions.

2.4 Specific performance and injunction discretionary remedies:

The court is not bound to grant specific performance or injunction in every case. Policy and justice will always
come into the courts mind when looking to grant an injunction. The granting of equitable remedies are not arbitrary,
so there are consistent guidelines they follow in seeking to give these orders.

The courts have regard to the following factors:

2.4.1 Hardship to the defendant:

(a) Specific performance will be refused on the ground of severe hardship to the defendant. E.g. cost of would be
out of proportion. Courts reluctant where a person would have to take legal proceedings against a third party – won’t
usually enforce that. The threshold of severe hardship is relative.

Charrington v Simons [1970] - Buckley J: ‘A plaintiff should not, of course, be deprived of relief to which he is
justly entitled merely because it will be disadvantageous to the defendant. On the other hand, he should not be
permitted to insist on a form of relief which will confer no appreciable benefit on himself and will be materially
detrimental to the defendant.’

Markholm Construction Co Ltd v Wellington CC [1985] – expectation loss; example where damages given for
loss of a chance. The court did not give specific performance in this case – ballot by council to invite people to offer
money for land, yet council decided not to continue with the sale. There were 240 applicants who the council did not
sell to, and despite breach the court did not seek to enforce performance, as after weighing up facts the court saw it
 - 26 -

would have caused more detriment to council then to the company. It doesn’t leave plaintiff without remedy though
– there is still damages.
There are some cases which looked like an unfair contract, where arguments of undue influence and
unconscionability failed and didn’t allow defendant out of contract - yet still unfairness grounds which will be
relevant if defendant will have to pay damages of go through with contract.

Jacobs v Bills [1967] – Defendant sold land for very low price, which she was holding as a trustee while in a
depressed and desperate state.
McGregor J: ‘The discretion of the Court to grant specific performance is not exercised if the contract is not
“equal and fair”. There may be circumstances in the position or mental state of the party against whom specific
performance is sought such as to render it inequitable that he should be forced by the Court to perform his contract.
Unfairness which may stay the hand of the Court arises where the contract, if enforced, would involve a breach of
trust. A form of oppressiveness which may prevent specific performance may simply consist in the fact that
performance would involve great hardship even though without any impropriety on the part of the plaintiff.’
So remedy not refused because plaintiff has misbehaved, they are refused due to circumstances which made the
contract unfair and result in hardship.

Gilbert v Manninen 2009 - Specific performance. Obiter. Mere difficulty in paying is unlikely to amount to
hardship so as to resist specific performance.

(b) Unfairness to third parties may also prevent a decree of specific performance being granted.

Bugler v McManaway [1963] – enforcing an agreement for sale and purchase would have meant a vendor would
breach a prior contract they had with a third party. Vendor husband who sold property to which he previously
contracted his wife a license to it, so to go ahead would be unfair to the wife

(c) Severe hardship arising after the contract is entered into may be sufficient if the person of the defendant will
be disastrously affected rather than the subject matter of the contract.

Patel v Ali [1984] – sale and purchase of house where breach; should there be specific performance enforcing the
sale? There had been a 4 year delay in settling, yet this no one’s fault, and in this time the vendor’s circumstances
had changed drastically – husband bankrupt and she became disabled; should she be forced out of her home? The
purchaser got damages instead due to severe hardship after contract entered into.

(d) However, hardship generally does not include mere change of circumstances after the contract has been
entered into which makes it difficult for the party to complete.

Brett Wotton Properties Ltd v Cameron 1986 – purchase of a farm, purchaser didn’t want to use it as one but
wanted to use it as an orchard instead. Once contract entered into there was a delay, which provided for in the
contract (no one’s fault). The tax laws change during this time before settlement though, and in developing the
property as an orchard would be unprofitable. They requested settlement be postponed due to this, and as entitled to
do the vendors refused and the purchasers defaulted. The vendor sought specific performance.
The purchaser raised the issue or hardship on them as it would be unjustly burdensome and create hardship on
them. The court rejected this, and held there was nothing unfair about contract, parties entered with eyes open, there
had been a change in circumstances after it entered into, and court saw it as a business risk accepted by the
defendants. The purchaser also not without means, and they had been in possession of the land for some time. So
court not looking at severe hardship, but instead the business risk taken.

2.4.2 Contracts for personal services:

(a) Contracts involving personal services have generally not been enforced because of the unpleasant relations
which could result between the parties and the difficulties of enforcing such orders. Usually involve employment
 - 27 -

contracts, and we see a need to keep the relationship going as otherwise the contract will break down. Even if wrong
party says they want to get back into the relationship, it may be the relationship gone so bad the contract would no
longer be affected. So contracts’ for personal services usually not enforces.
However this can be abandoned where necessary – so not inflexible.

Rigby v Connol (1880) - Jessel MR: ‘The courts have never dreamt of enforcing agreements strictly personal in
their nature, whether they are agreements of hiring or service, being the common relation of master or servant, or
whether they are agreements for the purpose of pleasure, or for the purpose of scientific pursuits, or for the purpose
of charity or philanthropy.’

(b) However, an injunction may be seen to be appropriate in some circumstances

Lumley v Wagner (1852) – contract where defendant agreed to sing at a certain theatre and wouldn’t sing
anywhere else during the period of the contract. The court did not intervene to enforce a positive covenant but
intervened in the negative stipulation. It was a way of getting around this issue of contracts for services. So court
only prepared to enforce the negative stipulation to not sing anywhere else.

Warner Bros. Pictures v Nelson [1937] – actress had agreed with WB to work for them for a year (positive
obligation) and not to render her services to others during this time (negative obligation). After a breach, the
question of remedies asked if she had to go back to WB? The court looked to Lumley and said she won’t be driven
back to WB, only tempted to as she not allowed to work for others due to negative obligation of contract.

Reasoning of old contract not very sound in adhering to general principle though, so more recent cases try to
confront issue more directly and courts only force parties back when defendant has a reasonable means of earning
living elsewhere.

Warren v Mendy [1989] – doubt on past cases decision outcomes. A young boxer entered agreement with
manager who he lost confidence in, and so entered agreement with defendant to be introduced to commercial
opportunities, and brought an action in restraint of trade to get out of previous agreement; said if contract with
original manager prevents him from working elsewhere, it unfair. The original manager got an injunction to stop
second manager from representing the boxer. These injunctions objected to and an application to court led them to
being discharged.
The Court of Appeal upheld decision, and cast doubt on past cases as said the injunctions forced the boxer to
perform his contract with original manager – forced back together and no choice given to them due to enforcement
of negative stipulations to not work elsewhere. So parties not forced together – remedy in damages.

(c) Where the reality of the situation, however, is that a contract in the nature of personal services will not
actually give rise to personal or practical difficulties if enforced by injunction, the courts are prepared to avoid the
rule.

Thomas Borthwick & Sons Ltd v South Otago Freezing Co Ltd [1977] – contract around meatworks, where
question asked if there a breach of agreement which a long one (20 years) – been going for 8 years. Agreement to
kill animals and only sell to one place. Was decided the remedy could be enforcing the parties back together, as saw
that the injunction would not stop the contract running efficiently, as personnel involved in running day-to-day
contract not affected, no past difficulties, and so though those in charge involved in breach the contract could
continue.

Shell (Petroleum Mining) Company Ltd v Todd Petroleum Mining Company Ltd [2008] – Two large corporations
engaged in a joint venture, where Shell wanted to run it in a different way in relation to a particular oil field,
however they not lost confidence overall so as a result for desire to change things, legal action resulted and Shell
permanently injuncted from breaching the contract. Court took into account the fact that parties could continue
despite this, as they effectively not forced together and relationship could continue and be effective.
 - 28 -

Kiriwai Farm Ltd v Jakubska 2009 – women wanted to set up a women only lifestyle with houses for some to
live in etc. The group fell out and parties went to court – judge told them to sort things out, but one thing they
wanted was to keep living in the house. In terms of remedies the judge thought District Court shouldn’t have given
an injunction but should have considered damages instead, as land owned by someone else and parties not getting
alone yet wanted to live in home.

2.4.3 Acts requiring constant supervision:

Specific performance will not be ordered if it would involve the performance of continuous contractual duties,
the proper performance of which would require constant supervision by the court.

Ryan v Mutual Tontine Association [1893] – lease of a flat known as a service flat, with regulations made by
lessor as to how they would be looked after – lease came with clause to say a porter would always be in constant
attendance. The porter was absent everyday due to his job nearby, so the lessees pursued the landlord to enforce the
clause. The court wouldn’t grant specific performance as it was a long continuing one, and executing it would
require constant supervision by the court.

Posner v Scott-Lewis [1987] – block of luxury flats with lease clause stating lessor would employ a resident
porter to look after common areas. The porter resigned but said he would come in every day and be a non-resident
porter. Court simply ordered lessor’s to employ a resident porter – as long as order can be made clear and little
supervision required by court and little hardship on the defendants, they will make an order of this kind. So factor a
matter to be taken into account – not a determining consideration, and in this case it was clear what porter had to do
so an order could be made to make this work.

2.4.4 The principle of mutuality.

(a) The remedy of specific performance has to be mutual – i.e.: available to both parties, and this requirement
must be satisfied at the time the contract was made. There are two propositions which make up this factor: positive
and negative mutuality.

(b) Positive mutuality

Specific performance in sale of land an example, and purchasers usually seek positive performance for the
contract so they can get the land – form of positive mutuality. However as remedy available to purchaser, it also
available to the vendor. If you are a vendor getting specific performance of the contract you get paid, which is the
same as damages

Brett Wotton Properties v Cameron – vendor seeking specific performance, and held they also entitled to have
title to property transferred.

(c) Negative mutuality

Idea that specific performance will be denied to one party as not available to the other party – equity won’t make
one party perform unless the other party could do the same. E.g. minor’s contracts. Doesn’t always apply though, as
an exception is a building contract.

(d) The so-called rule is subject to exceptions.

Building contract would get specific performance of payment if there has been building work done.

Price v Strange [1978] – Builder had a sublease in the building and occupying a flat. The lease had expired and
he holding over while landlord allowing him to stay. Parties in discussion for new lease, and agreed a new lease
 - 29 -

would be granted if builder carried out repairs to the building. In terms of mutuality there is a general approach that
building contracts not enforced before building work done, as court would have to supervise the work too much, so
looks like negative mutuality. However if building as begun, principle doesn’t apply. By time court dealt with case,
builder had carried out the work and the owner refused to guarantee the lease. Performance at time of hearing the
court doesn’t need to enforce the building, as it has already been carried out, so in these circumstances there could
be specific performance of granting the lease.
Buckley J reformulated the rule to state that the court ‘will not compel a defendant to perform his obligations
specifically if it cannot at the same time ensure that any unperformed obligations of the plaintiff will be specifically
performed, unless perhaps damages would be an adequate remedy for any default on the plaintiff’s part.’ (367-368).

2.4.5 Delay: If the plaintiff has delayed in seeking to enforce the contract, this can affect the likelihood of being
granted the remedy.
Hickey v Bruhns [1977] – made clear the court will look at the length of delay and acts occurred during the
interval.

2.5 Damages in addition to or in substitution for specific performance or injunction:

These known as equitable damages and there are some slight differences between them and common law
damages. Most differences are in tort, e.g. can get equity damages at some times when can’t get common law
damages.

2.5.1 Damages are also awardable in lieu of specific performance, i.e.: equitable damages.

2.5.2 Any significant difference between common law and equitable damages in NZ?

(a) Distinctions between common law and equitable damages in New Zealand appears purely theoretical.

NZ Land Development Co Ltd v Porter [1992] – Tipping J noted there was no longer any value, except for
historical purposes, in seeking to distinguish or to keep conceptually separate common law damages and damages in
equity: ‘The Court should award such damages as are a proper and fair reflection of what the plaintiff has lost by
reason of the failure of the defendant to perform the contract. It no longer matters whether the damages are called
common law or equitable damages... Let us carry the fusion of law and equity into the area of damages.’

(b) However, it is relevant that equitable damages could deliver more than common law damages due to the
different time of assessment being applicable.

3. Other proprietary remedies - account of profits

These are not damages an equitable remedy. The main one in contract is account of profits.

Astra Pharmaceuticals (NZ) Ltd v Pharmaceutical Management Agency Ltd [2001] - The head start principle:
recognised concept of head start damages. Parties in contractual relationship where one due to breach had got a head
start on other party in regards to the contract, and so plaintiff awarded head start damages – getting back what they
gained improperly. Focus on what the defendant has gained.

AG v Blake [2001] – House of Lords confirmed in contract you can get account of profits – defendant forced to
disgorge profits made from their breach. Before case, not clear that account of profits would be used in contract.

AG v R [2002] - Soldier in breach of clause of confidentiality when wanted to publish his book on his
experiences at war. The profit on every book sold was given as damages, on top of any legal costs.
Remedies – Damages
 - 30 -

- Universal remedy for every breach

- Compensation in money for not receiving performance etc. Amount will reflect size of breach

Quantification of Damages
- Damages compensatory only; intend to restore plaintiff to position if contract been performed
- Bloxam: could not get previous salary costs as would put in previous position to contract
- Plaintiff must establish what they have lost (cannot recover more than once per loss);

- Expectation Loss:
- Profit expected to get out of contract, cost to put defective item right, replacement or repair cost
- Kirk: re-sale price and original price difference were damages awarded
- Loss of chance:
- Markholm: 240 applicants had chance when council breached; chance case; estimate loss
- Usually quantify damage on difference in value or cost of cure:
- Court adopts whatever seems appropriate; generally cheaper option (obligation to mitigate)
- Court not usually care where damages go; no difference to recovery, only amount
- If difference in value; actual or market value?
- If non delivery and adequate alternative on open market, market value applies
- Caldwell: entitled to replace items if needed due to business pressure, must be
genuine replacement, not most expensive

- Reliance Loss:
- Position as if contract never made, compensation for costs spent in reliance (used where can’t
prove expectation)
- McRae: Didn’t know expectation loss so claimed costs spent on starting failed expedition
- Tong: could not prove profits likely to get, got costs spent on reliance instead
- Don’t need to show expenditure could have been made back if defendant that stopped contract

- Restitution Loss:
- Deprive defendant of benefit unjust for them to keep: GSE

- Consequential Loss:
- Loss one step removed from foreseeable loss, e.g. advertising costs for re-sale of land (Yoon)
- Involves remoteness issues – too far removed?

- Generally can choose what way loss is to be quantified

- Time for quantification usually at time of breach. Court can change if steps can’t be taken to mitigate;
- Bevan: costs of repair went up between breach and trial, so time for quantification changed by court
- Hewin: plaintiff must pay tax off amount receive, defendant not required to pay this as well

Remoteness of damage
- Need to know what damage will attract compensation; may be undesirable to compensate plaintiff
- Defendant not liable for every loss caused by breach if too remote – need remoteness test:

- Was the loss within reasonable contemplation of the parties?

- Hadley: loss due to delay; did defendant know about special circumstances, losses expected made
apparent to them? Need to show either:
- Damage resulted in ordinary course of things
- Abnormal damage arised out of special circumstances where there is knowledge
- discretionary remedy depending on circumstances
- Victoria Laundry: loss of profits and earnings from planned expansion. New test:
- Was there imputed knowledge; reasonable person ought to know loss likely from breach?
 - 31 -

- Was there actual knowledge of special circumstances to know loss likely from breach?
- Jackson: two tests not exclusive, must look at terms of contract, business context and
contemplation of parties

- What does reasonable contemplation mean?

- Degree of probability:
- Isaac Naylor: was the damage so likely?
- Subritzky: enough that reasonable person would see damage not unlikely consequence
- Extent of loss:
- Are losses too remote or are they foreseeable?
- McElroy: market collapse lead to difference in sale; not too remote

- Damages for injured feelings:

- Generally cannot be recovered as flowing from breach; Addis: not about how party acts
- Purpose of contract may award damages for hurt feelings:
- Damages to credit and reputation: Wilson and Batchelor’s Peas: (connected to feelings)
- Stigma damages; Malik: (handicapped in job market due to past employer)
- Contract for enjoyment; Jarvis: holiday contract
- Employment contracts; Horsburgh: wrongfully expelled, relates to feelings
- Remoteness principles apply:
- Dillon: damages for distress and disappointment recoverable where express promise it won’t
occur
- Summary:
- If purpose of contract for enjoyment, arguable damages for failure recoverable
- Recoverability likely in employment contracts
- Commercial contracts arguable
- Exemplary damages cannot be claimed; Paper Reclaim

- Mitigation of damage:
- If loss not occur if plaintiff could have taken reasonable steps to mitigate; no damages
- Sullivan: claim land not resold for proper price when claim difference; under pressure to sell
though so seen as reasonable
- Turner: vendor not obliged to resell property after default
- Walop: onus on defendant to prove damages should be reduced for failure to mitigate
- Benefits to plaintiff can mitigate the loss; replace item, get brand new one (still allowances for
burdens associated with forced benefit to replace though)
- Caldwell: take into account money spent to replace items, so loss of this awarded before
credit for betterment made. Up to plaintiff to prove there been losses

- Contributory negligence:
- Defendant can allege the plaintiff behaved unreasonably (carelessness can reduce damages)
- Contributory Negligence Act s3: if partially own fault damages can be reduced by court
- Led to issues of whether can have concurrent liability in tort and contract:
- Act applies to breaches of contract in where there’s concurrent liability (defective building)
- Judge can apportion loss according to who responsible as alternative
- Act not apply where breach of strict contractual duty with no negligence
- Damages can still be reduced due to lack of causation: BVR Ltd
- Damages reduced to extent as court sees just and equitable

- Penalty clauses:
- If contracts provides for breach and how loss falls, court usually not interfere unless argued to be a
penalty clause. Rule based on relief against unconscionable behaviour and oppression
 - 32 -

- Dunlop:
- Penalty a payment of money by way of threat, not pre-estimate of damages
- Need to decide on terms and circumstances of contract; extravagant and unconscionable
in comparison to real loss, penalty larger than amount breached, same amount payable
for large and small breaches etc.
- Armstrong: penalty clause due to large amount; not a pre-estimate of loss
- Rules only apply if there has been a breach of contract, not if sum to be paid for other reason

- Relief under Contractual Remedies Act:

- s9: wide ranging powers to grant relief where contract been cancelled; ability to award damages not
subject to common law; get more from statute?
- Newmans Tours: section applies to all forms of loss, discretion broad etc
- Thomson: no difference between common law damages and sum appropriate under statute
- Yoon: in spite of Act no need to depart from common law

Damages – Specific Performance & Injunction

- Not about money, about performance to make contract continue; to plaintiff in position if cone ahead

Specific Performance
- Court can force party to do what promised
- Bonner: loans not usually allowed specific performance (damages instead), however sales of land can
seek specific performance (overridden where hardship: Kurth)
- Alexander: specific performance not for option to purchase; equity about continuing contracts, not
creating them

Injunction
- Can be more appropriate to enforcing contract. Injunctions either prohibitory (prevent future breach) or
mandatory (undue past breach)
- Mandatory injunction is restorative; directs defendant to undue something (discretionary order though)
- Remedy not for destruction of justice between parties: Charrington: oppressive to give

Specific performance and injunctions are discretionary

- Policy and justice must be looked at, as not bound to give either. Must also look at:
- Hardship to defendant:
- Specific performance can be refused on this ground; out of proportion costs
- Markholm: more detriment to defendant than benefit to plaintiff if awarded
- Unfairness to third parties can result in specific performance being prevented
- Bulger: enforcing agreement would result in breach to prior contract
- Severe hardship arising after contract can be sufficient
- Patel: delay in settling, circumstances had drastically changed; shouldn’t be forced out of home
- Contracts for personal services:
- Generally not enforced due to unpleasant relations which can follow
- Injunctions can be appropriate in some circumstances:
- Nelson: wouldn’t enforce contract, just stopped defendant entering new ones
- If contract won’t give rise to personal or practical difficulties if enforced, court can avoid rule:
- Thomas: injunction wouldn’t stop contract running efficiently by personnel in day-today
business
- Acts requiring constant supervision:
- Specific performance not ordered if performance would require constant court supervision
 - 33 -

- Principle of mutuality:
- Remedy of specific performance has to be mutual (vendor/purchaser both must be able to enforce
sale)
- Delay:
- If been delay in seeking enforcement of contract it can affect likelihood of remedy granted

Damages in addition/substitution for specific performance/injunction

- Known as equitable damages

Other Proprietary Remedies – Account of Profits

- Equitable remedy:
- Astra Pharmaceuticals: head start principle; if due to breach a party gets a head start, plaintiff can be
awarded damaged for what was gained improperly
- Blake: can be forced to disgorge profits made from a breach
- AG v R: all profits from book sold given as damages due to direct breach

Remedies

Principle Case Information

Quantification of damages

Damages to restore plaintiff to position if

Bloxam Dentist sale
contract performed

Time for quantification can change if court Cost to repair

Bevan
wishes change

Plaintiff must pay tax off what receive, not

Hewin Contrast to UK
defendant

Expectation loss

Can get resale price difference to original

Kirk Land sale
contract

Loss of chance can be awarded Markholm Tender revoked

Replacement items must be genuine and not Rest home

Caldwell
most expensive business

Reliance loss

If don’t know expectation loss, can claim costs McRae Salvage

 - 34 -

spent expedition

If can’t prove likely profits, can get costs spent

Tong Radio business
on reliance

Restitution loss

Can deprive defendant of benefit unjust for

GSE
them to keep

Consequential loss

Interest,
Loss on step removed from foreseeable loss Yoon
expenses, ads

Loss in reasonable contemplation of parties?

Crank shaft.
Damage from ordinary course, or from special
Hadley Didn’t know
circumstances defendant knew about?
losses likely

Was there imputed knowledge of actual Victoria

Machine delay
knowledge? Laundry

Two tests not exclusive; terms, context and

Jackson
contemplation

Reasonable contemplation

Was the damage so likely? Isaac Naylor Cooke J

Would reasonable person see damage likely in

Subritzky Somers J
circumstances?

Need to see if losses too remote, or if they

McElroy Market collapse
foreseeable?

Damages for injured feelings

Not about how party acts, generally ant

Addis
recover for feelings
 - 35 -

Left business to
Wilson
bank
Damages to credit and reputation can be
recoverable
Armistice day
Batchelor’s Peas
ads

Employee not
Stigma damages recoverable Malik
find job

Contract for enjoyment can be recoverable Jarvis Holiday contract

Employment contracts recoverable Horsburgh Unfair expelled

Damages for distress recoverable if promised

Dillon Australia
not occur

Exemplary damages cannot be recovered Paper Reclaim Court of Appeal

Mitigation of damage

Land must be resold for proper price;

Sullivan Reasonable
pressure to sell relevant

Vendor not obliged to resell property after

Turner Land up in value
default

Onus on defendant to prove damaged should

Walop
be reduced

Must take into account money spent to Betterment

Caldwell
replace items relevant

Contributory negligence

If partially plaintiff’s own fault, damages can Contributory

be reduced by court’s discretion Negligence Act

Damages can be reduced due to lack of

BVR Ltd
causation
 - 36 -

Penalty clauses

Requirements of how to determine penalty

Dunlop Tires
clauses

Penalty clause if not pre estimate of loss Armstrong Tires

Contractual Remedies Act

Wide ranging powers for relief after

Section 9
cancellation

Section applied to all forms of loss, discretion

Newmans Tours Fishing
broad

No difference between common law damages

Thomson Cooke P
and sum given under statute

In spite of Act, no need to depart from

Yoon Land up in value
common law

Specific Performance and injunctions

Loans not usually get specific performance,

Bonner Privy Council
land sales can

Land sale can be overridden where hardship Kurth

Can’t get specific performance for option to

Alexander Somers J
purchase

Injunction not given if be oppressive to do so Charrington Concrete track

Specific performance and injunction discretionary

Specific performance can be refused if would

Tenders revoked
cause more detriment to defendant than Markholm
for low price
benefit to plaintiff

Unfairness to third party can stop Bulger Breach prior

 - 37 -

performance contract

Severe hardship after contract can be Bankrupt,

Patel
sufficient disabled

Can give injunction to stop new contracts

being made instead of forcing old on to Nelson Singer in bars
continue

Meatworks
If injunction not stop businesses running
Thomas personnel not
efficiently can be awarded
affected

Account of profits

If due to breach a party gets a head start,

Astra
plaintiff can be awarded damaged for what
Pharmaceuticals
was gained improperly

Can be forced to disgorge profits made from a

Blake House of Lords
breach

Profits from book sold given as damages due

AG v R Soldier
to direct breach
-

2007 Contract - Remedies

This is a question which requires us to focus on the law relating to remedies for
breaches of contract. To advise the relevant parties we must identify their issues,
discuss the relevant case law and compare them both by analogy to reach a
conclusion as to the likely outcome.

Damages in contract law are a universal remedy available for all types of breach. The
four main types of damages which can arise are expectation loss, reliance loss,
consequential loss and restitution loss. From our facts given there is loss for nearly all
of these, and it is up to P where he sues G under.

Firstly, expectation loss is generally loss of profits which you expected to get out of the
contract, or the cost to put defective items right or replace or repair them. In our
situation it includes the loss in expectation of profits, good fittings and personal
satisfaction from owning the business. Reliance loss is money spent in reliance of the
contract, which in our situation includes P spending his life savings, the cost to
 - 38 -

repaint and the cost to advertise the business. Consequential loss is loss one step
removed from the foreseeable loss, and in this case includes the fact that due to P
having to buy new fittings he can no longer make his daughter’s mortgage payments,
buy goods from his lodge members, and subsequently he loses his membership
because of this. It is also possible to argue that P’s deteriorating health could be seen
as a consequential loss as well.

After knowing what loss has occurred it is likely that P will sue under expectation and
consequential loss rather than reliance loss, as reliance loss and expectation loss
cannot be claimed at the same time.

It is likely that P will be able to get damages for the loss in expectation of profits due to
the large difference in what he was told the profits would be and what they turned out
to be. In terms of the fittings he expected either being missing or damaged, under
Caldwell a person is entitled to replace items if they are needed due to business
pressure; they must be a genuine replacement and not the most expensive option. As
such it is likely that P can claim most of the costs for having to buy new items due to
the breach of G. In determining what he will get back the court will look at the price
he paid and it is likely that the market value will apply, not the actual value, as it is
the market value which P has been forced to pay to get the items.

However, due to the fact that P is getting brand new items there will be a defence of
betterment on G’s part, as he is now getting better items than what he has contracted
for. In deciding whether fewer costs should be made to P, the court will take into
account whether P has incurred any losses in buying the new products, as he may not
have had the available money, yet he was forced to pay anyway. We are told that
because P had to buy new items this has meant he was not able to afford to pay his
daughters mortgage payments or meet his contracts with the members from his lodge.
It is likely that because of this added loss from having to spend his money elsewhere
that P could get the whole amount that he paid for the items back in order to put
these issues correct. This would in turn remedy most of the consequential losses.

Assuming this, we must now look at remoteness issues when claiming remedies for
breaches to contract. This means we need to know what damage will attract
compensation, as a defendant won’t be liable for every loss caused by the breach if it
is too remote.

The first step is to see whether the loss was within reasonable contemplation of the
parties. Under Hadley this involved a test where we need to look at damage resulting
in ordinary course of things, and abnormal damage arising out of special
circumstances where there is knowledge. However this has been changed in Victoria
Laundry where the test is to see if there was imputed knowledge (would a reasonable
person ought to know loss was likely from the breach?), or whether there was actual
knowledge of special circumstances which would force a reasonable person to see loss
likely from the breach.

The actual knowledge which G had from our facts given include the fact that he knows
P has been made redundant and that he won’t likely get another job until he retires,
thus giving him vulnerable information. It appears as though G has taken advantage
of this knowledge, and it is likely it will be held relevant when looking at the damages
which should be awarded for breaches. G also knows that P will use the profits to
raise a loan for his daughter’s mortgage, and that he intends to make agreements for
lodge members to buy items from them. As such, this actual knowledge is likely to give
 - 39 -

rise to imputed knowledge that a reasonable person could assume, where breaches of
the contract are likely to give rise to substantial consequences.

From this we can conclude that it was within G’s contemplation that should the profit
estimates be wrong, or the fittings not be in the correct order, P would likely suffer
loss, and so it is likely the remoteness test will be satisfied. As G knew about the
mortgage payments and contract with the lodge members it is likely he may have to
pay damages for this consequential loss. However, it is unlikely he will have to
compensate P for losing his membership, as this is unlikely to be in G’s contemplation
as it is not reasonably foreseeable consequence from the breach; the same goes for P’s
health, as it is likely this is too far removed to be actionable.

P may also have the possibility to claim for damages to injured feelings. Though these
cannot generally be recovered as flowing form a breach, there are some instances
where they can. For instance, damages to credit and reputation are actionable
(Batchelor’s Peas), as are stigma damages (Malik). If P could show that these two
types of damages have occurred due to the breaches by G, then he may be able to get
damages from him in respect of this.

P should also be advised that as a defence G could bring up the issue of mitigation.
We are told that P has been offered more money for the business and land than what
he paid, however he has not accepted this offer to date. Turner shows us that in this
instance, there is no obligation to resell to mitigate losses, so P is not obliged to do
this.

G may claim contributory negligence, however in NZ this can only be claimed if there
is concurrent liability, and not where the breach is of a strict contractual duty with no
negligence. In this instance it is unlikely to be found that there is any negligence, and
so it is unlikely that G could claim this successfully.

As such, P should be advised the following. It is highly likely he will receive damages
for loss of credit and business reputation. It is likely that G will be imputed with the
knowledge that the damage occurring from the breach was highly likely due to the
actual knowledge he held about P’s situation. As such it is likely P can recover for the
costs spent in getting new fittings, and the consequential loss which arose from not
being able to pay the mortgage, or buy goods from his lodge members. It is unlikely
that he will be able to receive damages for his declining health or for his lost
membership however it is likely he will receive damages for the loss in expectation of
the profits he was expecting to receive.

Finally, If P wanted to keep G to manage the business his best remedy if G left would
be an injunction or to seek specific performance. An injunction is discretionary, and is
generally not enforced for personal service situations due to unpleasant relations
which can follow. If specific performance won’t lead to personal or practical difficulties
it may be given. As such we need more information as to whether G and P must work
together if P stays, and whether their relationship is hostile in anyway. If it is
impractical for them to work together it is unlikely the court will force G to stay.

Contract 2008 - Remedies

 - 40 -

In order to explain the current approach taken in contract to the measurement of

damages and to remoteness of damage we must first examine the four different heads
of liability as seen in Newmans Tours. From such we will be able to analyse the
remoteness tests such as the reasonable contemplation in order to see what damage is
actionable; as not all damage resulting from a breach will lead to liability on the
defendant. From such we can then focus on the other types of damages, and the
defences open to defendants when claims are brought against them. Finally, by
looking at the alternative equitable forms of remedies such as injunctions and account
of profits, it will become clear just how much analysis is required in deciding the
measurement of damages in comparison to the remoteness of damage tests.

Before we can know what measurement of damages should be awarded to a plaintiff

we must first consider the four main heads of liability that loss due to a breach of
contract may occur under. The first is expectation loss, which includes things such as
loss of expectation of profits, the costs to put a defective item right, or the replacement
or repair cost. This type of loss also includes loss of chance under a contract. The
second type of loss is reliance loss. This is where compensation is given for costs spent
in reliance of a contract, and is generally used where it is impossible to prove
expectation loss, such as in McRae when they could only show the costs spent on the
contract, not what they hoped to get out of it due to the breach. The third type of loss
is restitution loss, which is where compensation can be awarded to deprive a
defendant a benefit that would be unjust for them to keep. Finally, consequential loss
is loss that is one step removed from foreseeable loss, and this involves tests of
remoteness.

Now that we know the different heads of liability that loss due to a breach can occur
under, we now need to know what damage will result in compensation. To understand
this we need to apply a remoteness test, as not all damage arising due to a breach of
contract will lead to liability on the defendant. The first test is to show that the loss
was within reasonable contemplation of the parties. Hadley suggests we look for
damage resulting in the ordinary course of things, and abnormal damages arising out
of special circumstances where there is knowledge. If we can show that the damage
occurred falls under one of these it is likely a defendant will be assumed to have
reasonably contemplated it could arise out of their breach. Victoria Laundry suggests
we look at this and ask whether there was imputed knowledge, where a reasonable
person could conclude that damage would be likely due to the breach, or actual
knowledge of special circumstances which could likely lead to a breach. By showing
such we can decide what damage is too remote and what damages is not in order to
decide what remedies should be made available.

Aside from this remoteness test in determining the measurement of damages, there
are other issues which may be useful in analysing. A plaintiff may wish to claim
damages for injured feelings resulting from a breach, where if they can show that
there has been damage to their credit and reputation, stigma damages, damages for
enjoyment, or employment damages, then a remedy may be made available to them.
On the other hand a defendant may wish to defend the breach by claiming the
defendant failed to mitigate the damage; i.e. they did not take reasonable steps to
mitigate so fewer damages should be awarded. Benefits to plaintiff can mitigate loss,
such as when they need to buy new items as the ones promised in the contract were
defective or missing, and as such they get new items when the contract may not have
provided for this. A plaintiff who claims damages for having to buy new items will have
to take into account the betterment, however at the same time any loss arising out of
 - 41 -

this forced mitigation may be taken into account as well. Lastly, a defendant could
argue that there has been some contributory negligence on the plaintiff in some way
as long as they can show that there is concurrent liability and that there has been
some negligence of some kind.

Within the current approach to the measurement of damage and to remoteness of

damage there are also possibilities of claiming equitable remedies such as seeking
specific performance, getting injunctions, or getting account of profits. Specific
performance is where a party can be forced to do what they promised, and is about
continuing contract. An injunction may be more appropriate though, and they can
either prohibit a future breach or under a past one. These are discretionary though,
and the court will take into account the hardship of parties and will generally not force
parties back together in contracts for personal services unless the contract won’t give
rise to personal or practical difficulties if enforced. There is also the possibility of
claiming for account of profits, which is an equitable remedy where a defendant is
forced to relinquish profits which were acquired by a breach.

From an examination of the following it is clear just how much analysis is required in
deciding the measurement of damages to be awarded in comparison with the
remoteness principles. It is clear that breaches arising out of contract have many
remedies available, however the tests ensure that fairness will prevail for the bone-fide
parties to the contract due to the current approach which is in place.

2009 Contract - Remedies

5a.

As we know, damages are compensatory to restore a plaintiff to the position as if the

breach in the contract had not occurred. In this scenario, B would have to establish
what he had lost under one of the main categories of loss seen from Newmans Tours:
expectation, reliance, restitution or consequential loss. If B was to claim under
expectation loss (where the loss is the profit expected to receive, or the cost to put the
damage right) he could claim the loss of expectation of getting a resource consent and
thus the resort, as well as possibly any profits from contracts he had already entered
into. Expectation damages are awarded to put the plaintiff into the right position,
however in this case we know the land cannot be developed and so this would be
impractical to claim as there is no way to put the loss right.

If B were to sell the property then he could claim the difference between what he paid
and what he sold it for as well as added expenses etc, as long as the price he got was
reasonable (Kirk). As such he should be advised not to sell the property to the first
offeror unless it was a reasonable price, as if he undersells it is unlikely he could
recover the amount. Furthermore, there is no obligation to mitigate losses by reselling
the land, so B should be advised that if he does not want to sell then he does not have
to, as it won’t affect his chances of getting damages from C.

In this scenario it would be best for B to claim reliance loss. This is where
compensation can be made to a plaintiff for costs spent in reliance of a contract, and
 - 42 -

is generally used when expectation loss is not applicable. In this case due to the
breach it is likely that B could recover the money spent on advertising and promoting
the business, while still holding onto the land to do what he wants with it.

5b.

Damages for hurt feelings are usually not actionable (Addis), however if a plaintiff can
prove that there has been damage to their credit and reputation (Batchelor’s Peas) or
stigma damages (Malik) then it is possible for B to recover damages. In this case it is
likely that these will be met, as B’s reputation is said to likely suffer in the golfing
community, and as he is so successful it is likely this will have a very detrimental
effect on him. Remoteness would apply in this case, however due to his position it is
unlikely that damage to B’s reputation would not be seen as foreseeable from a breach
in contract. B should be advised though that due to Paper Reclaim, it will not be
possible to sue C for exemplary damages.

5c.

We usually quantify damages at the time of the breach however the court can change
this if steps are not taken to mitigate; similar to Bevan where the quantification was
changed to the date at trial. As B has allowed C extra time to meet her obligation, it is
unlikely that the quantification of damages will occur at the initial 3 months, as B has
in a way affirmed this breach and allowed it to continue for a set time. The court is
able to interpret this in a reasonable and just way that they see fit, and in this case it
is likely that the time for quantification of damages could change to the date of trial.

5d.

Where there is a difference in values of items bought as replacements for items

missing or defective we need to know whether to look at the actual value or the market
value. As we know, in there has been non delivery of items and adequate alternatives
are available on the open market then market values will apply. However the items
must be a reasonable alternative and not the most expensive option: Caldwell. In this
situation we must give credit for the forced mitigation of betterment in the items, as
getting new items where a contract may not have covered such can be seen as a
benefit. However, any credit for this must first take into account losses associated
with getting the items though, as the plaintiff may have spent money they did not
have, as well as the fact that they had little choice in purchasing the items due to the
defendant’s breach. The onus will be on the defendant to show there has been some
betterment, and the onus will be on the plaintiff to show there has been some loss
associated. As such it is likely B can recover the actual costs he paid for replacing the
items taking into account the fact that betterment has occurred, which will be offset
by any losses incurred.

5e.
 - 43 -

In this scenario B would need to look at getting an injunction to apply for specific
performance. Injunctions are discretionary, and in deciding to grant them the court
will look at the hardship it may cause parties and whether it involves a contract for
personal service. On the facts there is nothing to suggest it would cause much
hardship, as B admits the business could run well without C. However as this is a
contract for personal services injunctions are generally not enforced due to the
unpleasant relations which can follow. If the contract would give rise to personal or
practical difficulties then it will not likely be enforced (Thomas). We are told that B
and C are not getting along, and we need more information as to whether if C stayed
would there be any way for B to not be there with her. It is unlikely to be the case, and
in this scenario the court would likely be reluctant to force the two parties together
due to their bad relationship.

2010 Contract - Remedies

2a.

In this situation N can either claim expectation loss or reliance loss. Expectation loss
is generally used for loss of profit expected to get out of a contract, or the cost to put
the breach right. In this situation it is unlikely any money can change the fact that the
horse is sterile, however N could get damages for the loss in value of the horse he was
expecting and the loss of business profits he expected to receive using the horse as a
stud. Alternatively N could claim reliance loss, which is compensation for costs spent
in reliance of a contract. Here N could claim for the costs of the equipment he bought
in reliance of the horse breeding. It will be up to N which loss he decides to claim
under, and whichever he does chose it is likely he will be successful.

In terms of mitigation, N is not bound to find a way to spend money and resell the
horse if it is unpractical or unreasonable to do so.

We also need to show the loss was within reasonable contemplation of the parties. As
there was a warranty guaranteeing the breach would not occur this should that it is
likely the defendant knew that if a breach occurred that some damage would result, as
otherwise there would be no need for the warranty. As such it is unlikely that there
will be any issues over this.

As such N should be advised it is likely he can either recover the costs of the
equipment he spent in reliance of breeding, or he can recover the expectation of profits
and loss in value he was expecting to receive.

2b.

Firstly this is a form of expectation loss, as N expected to get a fit and healthy horse.
As we know from Caldwell, we can claim costs of replacement for items if an adequate
alternative is available on the open market, as we are entitled to replace items needed
due to business pressure however it must be a genuine replacement and not the most
 - 44 -

expensive. As such, if we can show the new horse bought is a reasonable alternative,
then it won’t matter that more money had to be spent, as it was the only one available
on the market and N needed it for his business ventures. However, in this case there
has been a forced benefit on the plaintiff which mitigates his loss in many regards.
Therefore when claiming the cost to buy the new horse there would be an onus on the
defendant to have the court take into account the possible betterment which has
occurred, as N has now ended up with something more valuable than what the
contract provided for. However, the onus is on N to show that there has been some
loss due to having to buy the new horse, such as the fact he was forced to pay for it
when he may not have had the available funds to do so. Therefore in claiming the
costs spent on the new horse, N should be advised that the damages received for such
would take into account the betterment which had occurred, however not before the
loss to N was taken into account first. It is therefore likely that N can receive some of
the cost for the new horse, though likely not all.

2c.

In this scenario N should seek to get either a prohibitive injunction or seek specific
performance. A prohibitive injunction could stop B from entering into other contracts
if she decides not to stay in the one she is in with N; however this approach is no
longer popular with courts. In granting such relief the court takes into account the
hardship or parties and whether or not the contract is for personal service. From the
facts there is no mention of any hardship, and we would need more information as to
the detrimental effect that B leaving would have on it. As this is a contract for personal
service, if enforcing the contract would rise to difficulties if enforced then it is unlikely
specific performance will be given (Thomas). This is because a court will generally not
enforce a contract that will likely lead to bad relations between people. On the facts we
are told that B is uncomfortable around N, however she is comfortable around his
wife. Therefore if N could show B would only be dealing with his wife from now on the
contract may be able to continue without any problems between the parties, and in
this instance N should be advised it is likely the court could grant specific
performance.

2d.

In this case there has been an expectation loss, as N has received a horse that is not
what it was described to be. It is irrelevant that it is dead at the time of trial. As such,
due to the warranty and what has been previously discussed before, damages will
likely be made available for this, despite the fact the horse is dead now. In terms of N’s
hurt feelings, these are genuinely not actionable. However related to this, damage to a
person’s credit and reputation can be actionable (Batchelor’s Peas), and stigma
damages can also be actionable too (Malik). It is likely that N can prove he meets
these requirements due to his current reputation and the fact that his business has
suffered as a result of the breach. In this case we need to apply a remoteness test, and
as B’s actions were deliberate, that there was a warranty guaranteeing the breach
would not occur, and it is likely she knew of N’s reputation, from Victoria Laundry we
can assume she will be seen to have actual knowledge that any breach would result in
damage to the plaintiff. Despite her actions being deliberate, due to Paper Reclaim N
is unable to claim for exemplary damages. Lastly, it is highly unlikely that N can
receive any losses for the death of the horse in terms of consequential loss, as it is
 - 45 -

likely that the death is so far removed that it would have never been in B’s
contemplation that her breach could ever lead to N being distracted while driving and
killing it. Therefore N should be advised that though it is likely he can recover for the
damage to his reputation, as well as it being likely he will recover expectation losses
for receiving the faulty horse, it is unlikely that he can claim for the horse’s death from
B due to remoteness issues.