CONTRACT FORMATION

1. AGREEMENT
1.1 Provided the other requirements are met, contractual agreement normally exists where an offer made by one
party is accepted by the other party. The contract comes into existence when acceptance of an offer has been
communicated to the offeror.
BUT O+A analysis is ‘neither sufficient … nor necessary to explain all cases’, many egs where nonetheless
sufficient manifestations of mutual assent (Heydon JA in Brambles v Bathurst CC).
Up until the moment of formation the parties are under no contractual obligations and are free to withdraw
from negotiations [especially under the ‘classical’ (19C) model of contract law – tempered nowadays eg by
promissory estoppel (later)].

1.1.1 Brambles v Bathurst City Council (2001) 53 NSWLR 153

Facts
Brambles (defendant/appellant) and the Council (plaintiff/respondent) entered into a contract in 1982
to manage solid waste disposal depot expiring in 1989. Second contract entered into in 1900.
Defendant received liquid waste and retained the money. Plaintiff wrote to defendant in September
1991 that it resolved to increase liquid waste fees. Defendant replied in October 1991 denying that
the contract covered liquid waste. Defendant charged at the increased fees.
Issue
Whether the 1990 contract governed the charging of liquid waste and the fees collected;
Whether the September 1991 letter constitutes a contractual offer
• If so, whether the defendant rejected the offer in October 1991 response
• Whether there was a consideration
Held
The 1990 contract governed the fees for liquid waste in establishing fees for general commercial
waste under cl 21. The defendant breached the contract by charging higher fees but there was no
loss from such breach by the Council.
A rejected offer may remain operative as the basis of mutual assent manifested by conduct. The
initial response of the company did not amount to a rejection, but an attempt to negotiate while
leaving the offer open for acceptance. Council reasonably would have thought the appellant by its
conduct in in charging higher fees and keeping them had accepted the offer contained in the
September 1991 letter. Given the context being they have a long term relationship, the council
reasonably understood the response is not a definitive rejection, the offer still standing, then the
council reasonably thought they accepted the offer by conduct.
Principle
(O+A analysis is not sufficient to explain all cases.)
Even if an offer is rejected, it may not come to an end. It might be repeated, otherwise revived or
remain available for acceptance “or adoption as the basis of mutual assent manifested by conduct”.

1.2 Offer
An Offer is a statement of a willingness by one party to be bound to the terms immediately on acceptance by
the other party without further negotiation, judged (objectively) from the perspective of the reasonable
(putative) offeree.

1.2.1 Offer is distinguished between:

(A) Invitation to treat:

Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd [1953] 1 QB 401
Principle
Goods on display is an invitation to treat. Contract is completed when the customer makes
the offer and the shop accepts the offer.

(B) Statement of government policy:

Australian Woollen Mills v Commonwealth (1954) 92 CLR 424
Facts
The commonwealth announced wool subsidy policy. AWM purchased large quantities of
wool. Commonwealth discontinued the policy and subsidised a certain amount of wool in
stock. AWM repaid the subsidy for the exceeding amount but sued to recover.
Issue
Does the commonwealth subsidy announcement constitutes as unilateral contract?
Held
High Court: To establish a contract, there must be the relation of a quid pro quo between the
announcement as an offer and the act as the executed consideration.
The necessary connection or relation between the announcement and the act is provided if
inference is drawn that A has requested B to do something.
Alternative ways of testing whether there is express or implied request: (i) whether the
offeror has stated a price which the offeree must pay for the promise; (ii) whether the offer
was made in order to induce the doing of the act.
Privy Council: presence of a quest alone does not establish a contract.
Principle
A statement of government policy is generally not an offer. A necessary connection between
announcement and act is required to establish a contract. There is a link if offeror requests
offeree to do something.

(C) Providing information:

B Seppelt & Sons Ltd v Commission for Main Roads (1975) 1 BPR 9147
Facts
A series of letters passed between the Commissioner of Main Roads and a company in
connection with certain land in the City of Sydney which would be affected by road
proposals. The Department wrote to the company that it was prepared to purchase the land
$385,000. The vendor replied that they accept the price.
Issue
Whether a contract has in fact been made by correspondence
Whether the letter from the department was a contractual offer and whether, consequently,
its "acceptance" created a binding contract (whether the letter from the company was an
acceptance)
Held
(per Glass JA) letter from the department contemplated the normal conveyancing procedure.
Subsequent exchange between the solicitors further supported this view.
Even if the letter from the department was an offer, the company’s response constituted a
counter offer (3rd paragraph of the letter).

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 (per Samuels JA) the letter from the department is to be read in the sense that the defendant
was telling the plaintiff that it was prepared to negotiate towards a purchase.
(per Mahoney JA) When determining whether a contract has in fact been made by
correspondence subsequent acts of the parties can be referred to.
In all the circumstances there was no contract as the parties intended not to be bound even
provisionally until preparation of a formal contract embodying all the terms governing their
agreement.
Principle
There is no binding contract when parties are providing information for further negotiation
and / or recording partial consensus.

(D) Actions bids

Holding of public auction usually is an invitation to treat
Action advertised to be "without reserve": not an offer

(E) Tender bids

Call for tender: invitation to treat. Each tender is an offer
Harvela Investment Ltd v Royal Trust Co of Canada (CI) Ltd
Parties have preliminary contracts governing tender process

(F) Tickes
Often incorporating exclusion clauses
Can be regarded as offers but only after reasonable opportunity to consider the terms

1.2.2 Offer to the world

May be hard to prove a willingness to be bound

(A) Leonard v Pepsico Inc 88 F Supp 2d (SDNY 1999), affirmed 210 F 3d 88 (2nd Cir 2000)

(B) Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

Facts
Defendant's ad says 100 will be awarded to those who use their product and catch a cold.
1000 was deposited in bank as evidence of sincerity.
Plaintiff bought the product and contracted influenza.
Issue
Is there a contract?
• Whether a promise is intended by the defendant
• Whether an offer can be made to the world
• Whether notification of acceptance is required to establish contract
• Whether the advertisement is uncertain because it failed to stipulate a period of time
within which the disease must be contracted
• Whether there is consideration
Held
(per LINDLEY LJ) The deposit in bank as proof of sincerity indicates that there is a promise.
Offers can be made to anybody who will perform the conditions in the advertisement and
anyone who does perform the condition accepts the offer.
Offeror in his language and from the nature of the transaction does not expect or require
notice of acceptance. Even if notice is required, notice of acceptance is sent
contemporaneously with notice of performance.
Construction on the period of time: 3 alternatives
• Limited to catching the prevailing epidemic or during the prevalence of the
increasing epidemic
• While using the remedy
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 • Within a reasonable time having used the remedy: experts to determine how long
the effect can be reasonably expected to endure
Consideration is that use of their remedy by public will react and produce a sale; and
inconvenience of the plaintiff.
Principle
Reasonable person looking at document would have thought indicating willingness to be
bound. (Authority for reasonable person test.)
Unilateral offer is capable to be accepted even though to no particular person. The offer is
accepted by performance of conditions requested by the offer on the face of the offer.
Generally the acceptance should be notified to the offeror. But when the offeror expressly or
impliedly dispense with the need for notification, no notification is required.

1.2.3 Revocation and lapse of offer

(A) Offeror may revoke the offer at any time prior to acceptance, unless consideration is given to
keep the offer open for a certain period of time

(1) Goldsbrough Mort & Co v Quinn (1910) 10 CLR 674

Facts
The respondent signed a letter stating that in consideration of 5 shillings, he granted
the appellant the right to buy his land within one week. Before expiration of the
week, the respondent informed the appellant's solicitor that he repudiated the offer.
Issue
Whether the letter signed by the respondent constituted a contract or was it a mere
offer
Held
(per Griffith CJ) an offer may be withdrawn at any time before acceptance. A mere
promise to leave it open for a specified time makes no difference unless there is a
consideration for the promise. The real transaction is not an offer accompanied by a
promise, but a contract for valuable consideration.
(per Isaacs J) the feature which distinguishes an option from a mere offer is the
consideration. The parties have entered into a unilateral contract that a certain offer
should last for a week, and in this contract the consideration was 5s.
Principle
An offer with a promise to continue the offer for a certain period of time is a contract
if consideration is given for such promise and the offeror may not revoke the offer
prior to expiration of the said period.
(B) Revocation must be communicated to the offeree and the postal acceptance rule (later)
doesn’t apply to revocations

(1) Stevenson Jaques & Co v McLean (1880) 5 QBD 346

Facts
Seller offered to sell goods for cash. Buyer telegraphed asking whether the seller
would consider credit terms. Seller treated this as a rejection and sold goods
elsewhere. Buyer purported to accept the offer of cash sale by telegram.
Issue
Whether buyer's first telegram amount to a rejection.
Held
(per Lush J) The buyer’s first telegram out not to be construed as a rejection of the
offer / counter-offer, but merely as an inquiry for more information. The seller had
not communicated a revocation of the offer. So it remained open until it was
accepted.
In the absence of an intermediate revocation, a party who makes a proposal by
letter to another is considered as repeating the offer every instant of time till the
letter has reached its destination.
Principle
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 Revocation must be communicated to the offeree and the postal acceptance rule
doesn’t apply to revocations.
(C) Revocation can be inferred from conduct

(1) Dickinson v Dodds (1876) 2 Ch D 463

Facts
Dodds (defendant, appellant) sent offer to Dickinson (plaintiff, respondent) on
Wednesday to sell a property, the offer being left open until 9am next Friday.
Dickinson was told by a third party on Thursday that Dodds "had been offering or
agreeing to sell" to someone else.
Dickinson left formal acceptance to Dodd's mother-in-law on Thursday evening and
handed Dodds a duplicate on Friday morning before 9am.
Issue
Whether Dickinson had agreed to purchase the property
Whether Dodds had effectively revoked the offer
Held
(per James LJ) the offeror is bound to let the offeree know that he withdraws the
offer. In this case the plaintiff knew that Dodds was no longer minded to sell as
plainly and clearly as if Dodds had told him in so many words “I withdraw the offer”.
Principle
A third party can notify the revocation of an offer to offeree. Such revocation will be
effective at least where the third party is held liable (so liable as to cause the offeree
to know the offer is withdrawn).
(D) Unilateral contracts can be revoked.

(1) Mobil Oil Australia Ltd v Wellcome International (1988) 81 FCR 475
Facts
Mobil's general manager for retail marketing Mr Stumbles introduced the nine-for-six
proposal to the franchisees in 1991.
Mobil announced in 1994 that it would not grant renewals based on the nine-for-six
proposal.
Issue
Whether there was an offer of a one-for-one or nine-for-six promise to be accepted
by performance of an act to be found in the speech of the general manager.
If so, whether Mobil could revoke the offer and whether franchisees have accepted
the offer.
Held
General manager’s statement was too vague and uncertain to be capable of giving
rise to contractual obligation.
Obiter: (even if it were an offer) an offeror of a promise for an act can effectively
revoke the offer where performance of the act of acceptance has been embarked
upon but not completed.
A person offering to enter into a unilateral contract may be prevented from revoking
the offer by (i) an implied ancillary contract not to revoke, or (ii) an estoppel.
Principle
An offer made in return for performance of an act is revocable at any time.
The offeror will only be prevented from revoking the offer where there is an implied
ancillary contract not to revoke or an estoppel.
(E) If no time is specified for keeping the offer open, the offer lapses after a reasonable time
(F) The making of a counter offer extinguishes the original offer
(1) Butler Machine Tool Co v Ex-Cell-O Corp [1979] 1 WLR 401
Facts
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 Butler (plaintiff, respondent) offered to sell a machine to Ex-Cell-O (defendant,
appellant) on Butler’s standard terms and conditions (including a price variation
clause) on 23 May. Appellant replied with its own terms and conditions (without the
price variation clause), and said if you accept please sign the acknowledgment and
send it back. Respondent signed and replied confirming the order. In the cover letter
seller said “this being delivered in accordance with our revised quotation of 23 May”.
Issue
Was the price variation clause part of the contract.
Held
When the seller offered to sell with the price variation clause, the buyer did not
accept. The buyer sent back a counter offer without the clause. The seller accepted
the buyer’s counter offer by sending the signed acknowledgment. Their cover letter
only mentioned the kind of equipment and delivery date, not any other terms.
Therefore the buyer’s form is standing.
Obiter: (per Lord Denning MR) sometimes the battle of forms is won by the man who
get the blow in first. If he offers to sell at a named price on the terms sated on the
back, and the buyer orders the goods purporting to accept the offer, on an order
form with his own different terms on the back, if the difference is so material that it
would affect the price, the buyer ought not to be allowed to take advantage of the
difference unless he draws it specifically to the attention of the seller.
Principle
The making of a counter offer extinguishes the original offer.
(G) Even if an offer is rejected, it may not come to an end … it might be repeated, otherwise
revived or remain available for acceptance ‘or adoption as the basis of mutual assent
manifested by conduct (Brambles v Bathurst CC)

1.2.4 Acceptance
Acceptance is an unqualified assent to the terms of an offer.
(A) Under the objective theory of contract – an external manifestation of assent to an offer
(Empirnall Holdings v Machon Paull Partners)
(B) Offer can specify how to accept and if this is the case, the offeree must comply with the
method of acceptance for it to be effective
(C) Acceptance must be communicated to the offeror but can be inferred from conduct

(1) Empirnall Holdings v Machon Paull Partners (1988) 14 NSWLR 523

Facts
Empirnall (developer) engaged Machon (architects) to act as project managers.
Machon sent draft contract to Empirnall but were told that the director and
shareholder of Empirnall “does not sign contracts”.
Empirnall accepted the work and even paid periodic invoices.
Issue
Could Machon subsequently rely on the written terms of the contract documents
notwithstanding that there had been no explicit acceptance
Held
(per McHugh JA) silence of an offeree in conjunction with the other circumstances
may indicate that he has accepted the offer. The ultimate issue is whether a
reasonable bystander would regard the conduct of the offeree, including his silence,
as signalling to the offeror that his offer has been accepted. The developer knew the
offer and terms by the architects and they took the benefit of the work and never
rejected. They let the architects perform and performed the contract themselves (by
periodic payments). The contract was accepted by conduct.
Principle
Acceptance must be communicated to the offeror but can be inferred from conduct.
(D) Silence cannot be specified as a means of acceptance

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 (1) Felthouse v Bindley (1862) 142 ER 1037
Facts
Plaintiff wrote to John offering to buy his horse. In the letter the plaintiff stated if no
response acceptance is deemed to be made. John did not respond and told the
auctioneer not to sell the horse because it had been sold. The auctioneer sold the
horse by mistake.
Principle
Silence cannot be specified as a means of acceptance.
(E) Acceptance must correspond with the offer (“mirror image rule”) (Butler Machine Tool Co Ltd
v Ex-Cell-O Corporation (England) Ltd, see 1.2.3(F)(1))
(F) Knowledge of & reliance on offer is required for acceptance (quid pro quo)

(1) R v Clarke (1927) 40 CLR 227

Facts
The Crown made proclamation that 1000 will be awarded for information that leads
to arrest and conviction of murderers. Clarke was arrested and charged with murder.
Clarke made a statement which led to the arrest of Coulter who was convicted of
murder, but he did so only to clear his name.
Issue
Whether Clarke accepted the offer by performance when he did not act in response
to the offer.
Held
(per Isaacs ACJ) the same act done with reference to an offer would be
performance of the condition, but done with reference to a totally distinct object
would not be such a performance. Example: £100 for swimmer.
(per Starke J) unless a person performs the conditions of the offer, acting upon its
faith or in reliance upon it, he does not accept the offer and the offeror is not bound
to him.
Principle
Knowledge of and reliance on offer is required for acceptance.

1.2.5 Postal acceptance rule

(A) When the circumstances are such that it must have been within the contemplation of the
parties that, according to the ordinary usages of mankind, the post might be used as a
means of communicating the acceptance of an offer, the acceptance is complete as soon as
it is posted.

(1) Henthorn v Fraser

Facts
The defendant and the claimant were situated at Liverpool and Birkenhead
respectively. The defendant called at the office of the claimant in order to negotiate
the purchase of some houses. The defendant handed the claimant a note giving him
the option to purchase some houses within 14 days. On the next day, the defendant
withdrew the offer by post, but this withdrawal did not reach the claimant until 5 P.M.
Meanwhile, the claimant responded by post with an unconditional acceptance of the
offer, which was delivered to the defendant after its office had closed. The letter was
opened by the defendant the next morning.

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 Held
Where the circumstances are such that it must have been within the contemplation
of the parties that, according to ordinary usage of mankind, the post must be used
as a means of communicating the acceptance of an offer, the acceptance is
complete as soon as it is posted. The fact that both parties were living in different
towns justifies the inference that both parties had contemplated that a letter sent by
post was a mode by which acceptance might be communicated.

(2) Brenssan v Squires [1974] 2 NSWLR 460

Facts
Defendant granted plaintiff an option for purchase of land. It was provided that
option may be exercised by notice in writing addressed to the defendant by a certain
date. The notice was posted before such date but was received after.
Issue
Whether the material date was the date of posting or the date of receipt
Held
(per Bowen CJ) the general rule is that a contract is not concluded until acceptance
of an offer is actually communicated to the offeror. To this rule there is an exception
in the case of acceptance by post.
The word “addressed” should be interpreted as simply describing the notice, not in
the sense of sent or posted. Therefore actual notice to the defendant was required
for due exercise. The plaintiff must fail.

(3) Wardle v Agricultural and Rural Finance Pty Ltd [2012] NSWCA 107
[]

(B) Instantaneous communications

(1) Brinkibon Ltd v Stahag Stahl mbh [1983] 2 AC 34

Facts
English buyer sent a telex to Vienna accepting the terms of sale offered by Austrian
seller.
[]

(2) Electronic Transactions Act 2000

S5
S13A
S14A-E

(3) Australian Consumer Law

Ss 41-43

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2. CERTAINTY

2.1.1 Elements

(A) Sufficiently complete

Material or essential terms versus non-essential terms – do all the essential terms exist?

(1) Hall v Busst (1960) 104 CLR 206

Facts
Hall purchased from Busst an island. The contract provides that Hall shall not resell
the island without Busst's prior consent and Busst has an option to repurchase the
land. The purchase price shall be £3157 4s 0d plus the value of all additions and
improvements minus all deficiencies.
Hall sold the island to a third party without notice.
Issue
Whether the plaintiff could enforce the contract
Held
(per Dixon CJ) the value of all additions and improvements is not sufficiently certain
to give rise to an enforceable contract. Value of deficiencies is another uncertain
element. There can be no external standard to value of additions and deficiencies to
the island.
(per Fullagar J) in a contract for the sale of goods, if the price is not determined, a
reasonable price is implied. For a contract on sale of “land and improvements” this
rule does not apply. The essential terms are the parties, the subject matter and the
price. Only if these are fixed with certainty, the law will supply the rest.
(per Windeyer J, dissenting) distinction between sale of goods and sale of land is
that for sale of land parties must expressly refer to a reasonable price whereas for
sale of goods a reasonable price is imposed by law. When parties agree to sell for a
reasonable price or at a fair valuation they do not leave an essential term
incomplete.
Principle
Where the parties fail to agree on essential terms of a contract, the contract shall be
invalid.

(2) Can court imply a term

(a) Implied in law

Implied into all contracts of a particular class or which answer a given
description
For first time implication: must be a necessary incident of a definable
category of contractual relationships: Byrne v Australian Airlines
Without it, the enjoyment of rights conferred by the contract would or could
be rendered nugatory, worthless or seriously undermined

(b) Implied by statute

(i) Sales of Goods Act 1923 (NSW)

(ii) Australian Consumer Law

Ss 51-56
Ss 60-61

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 (c) Implied in fact

(i) BP Refinery (Westernport) Pty Ltd v Shire of Hastings cited in

Codelfa Constructions Pty Ltd v SRA NSW

(ii) Byrne v Australian Airlines

(iii) The Moorcock

(d) Custom and usage

(i) Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur

Insurance (Australia) Ltd
(ii) Q of fact; custom must be so well known and acquiesced in...; must
not contradict an express term; party can be bound even if no
knowledge of the custom

(3) Machinery or formula

(a) Agreement sufficiently complete if allow e.g. price to be fixed by a third party
(e.g. expert/valuer, or “arbitrator” who always gives a binding decision & is
subject to arbitration legislation)
(b) If specified mechanism fails, then Sale of Goods Act says contract void, but
otherwise (some) courts may allow reasonable price (text p138)
(c) This can even be one side’s solicitors (agents/fiduciaries), at least if
expressly required to act “reasonably”: Godecke v Kirwan 1973 CLR
(d) Also complete if either a formula (e.g. CPI) or standard (e.g.
reasonableness), but courts need then check whether or not too vague
(e) Hillas v Arcos 1932: HLs prepared to uphold option for further softwood of
“fair” specification (= quality, deliveries)
(f) Main concern in Hall v Busst: including “reasonable” depreciation, also
Whitlock v Brew 1968 CLR

(B) Sufficiently certain or clear

Courts will seek to give effect to contracts if possible.
Can the terms be given a meaning?

(1) Council of the Upper Hunter District County District v Australian Chilling and
Freezing (1968) 118 CLR 429
Facts
Council agreed to supply electricity to the company at certain rates. Agreement
clause 5 provided for automatic changes in rates according to changes in the wages
and coal supply. Contract also included an arbitration clause for determining
disputes.
Issue
Whether clause 5 is uncertain and therefore void.
Held
(per Barwick CJ) a contract of which there can be more than one possible meaning
or which when construed can produce in its application more than one result is not
therefore void for uncertainty. The question becomes one of construction, of
ascertaining the intention of the parties and of applying it. As long as the language is
not so hopelessly vague, the contract cannot be held to be void or uncertain or
meaningless.
It is possible to give the clause 5 meaning. The contract provided the means of
resolution of questions as to what items constitutes Council’s costs, namely by the
decision of an independent arbitrator. If the words “supplier’s costs” were
meaningless, the presence of the arbitration clause would not save the clause. But
clause 5 provides a certain criterion by reference to which the differences of the
parties as the propriety of an increase in charges could be resolved.
Principle
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 A contract of which there can be more than one possible meaning or which when
construed can produce in its application more than one result is not therefore void
for uncertainty.
As long as it is capable of a meaning, it will ultimately bear that meaning which the
courts in an appropriate case, or an arbitrator will decide in its application.
The question becomes one of construction, of ascertaining the intention of the
parties (OBJECTIVELY) and of applying it.
In examining the meaning of words in a contract, courts do not take a narrow or
pedantic approach to this requirement and will attribute a meaning unless it is
impossible to do so.

(C) No illusory promises

A consideration is illusory if its payment or fulfilment depends upon an unfettered discretion
vested in the promisor

(1) Biotechnology Australia v Pace (1988) 15 NSWLR 130

Facts
Pace and Biotechnology entered into an employment contract. Offer letter stated the
remuneration includes option to participate in the Company's senior staff equity
sharing scheme.
Issue
Whether the provision on senior staff equity sharing scheme is uncertain
Held
(per Kirby P) illusory: It is a “future arrangement” and depends for fulfilment upon the
decision of the appellant.
uncertain: even if the promise was a term of the contract, it was irredeemably vague
and uncertain and so unenforceable.
(per McHugh JA) illusory: Biotechnology has unfettered discretion in relation to the
performance of the scheme. No objective criterion of measurement is available.
(per Hope JA, dissenting) Biotech is bound at least of make an honest offer.
Honesty and reasonableness would provide criteria to fix the amount of the
minimum offer Biotech was required to make.
Principle
Court will endeavour to uphold the validity of the agreement between parties. But the
court will not do so where agreement as to essential terms is illusory or the contract
is irremediably obscure.

(2) Placer Development Ltd v Commonwealth (1969) 1212 CLR 353

Facts
Commonwealth entered into an agreement with plaintiff on formation of a company
to produce timber products in PNG for export to Australia.
Clause 14 provided that for customs duty paid by the company, commonwealth shall
pay a subsidy of an amount or at a rate determined by the commonwealth.
Issue
Whether the Commonwealth was obliged to determine a rate of subsidy or to pay
subsidy
Held
(per Kitto J) a promise of a governmental subsidy is meaningless in the absence of a
specification of some amount or some basis of calculation.
(per Taylor and Owen JJ) there is a complete absence of any identifiable criteria.
This is left solely to the discretion of the Commonwealth.
(per Menzies J, dissenting) clause 14 does require the Commonwealth to fix a
subsidy and then to pay the subsidy fixed.

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 (per Windeyer J, dissenting) the expression an illusory promise means a real
promise but one which is devoid of legal consequence. It is illusory because it
deceptively creates the illusion of a contract where there is none. Clause 14 does
not reserve to the Commonwealth any option as to whether it will perform the
promise. Commonwealth had no discretion to do or not to do, its discretion was only
as to the amount to be paid.
Principle
A contract made for a consideration which is illusory is unenforceable. Whenever
words which by themselves constitute a promise are accompanies by words
showing that the promisor is to have a discretion or option as to whether he will carry
out that which purports to be the promise, the result is that there is no contract on
which an action can be brought at all.

(3) MacRobertson 1975 CLR

Facts
Clauses set out in an airline ticket gave the airline the right to cancel a flight or
cancel a booking without incurring any liability.
Held
These clauses rendered illusory any implied promise the airline might have made to
carry the passenger.

2.1.2 Agreement to agree

(A) May and Butcher v The King 1934 KB

If Parties have an ‘agreement to agree’ on price, this is incomplete and no SoGA implied
term for a reasonable price for goods

(B) Foley v Classique Coaches 1934 KB

Pl sold land to Def for its bus business, kept petrol station adjoining. Def separately agreed
to buy all petrol requirements from Pl “at a price to be agreed” and did so for three years –
English Court of Appeal did imply a term that petrol to be sold at reasonable price

2.1.3 Agreement to negotiate

(A) Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1
Facts
Appellant and respondent entered into a heads of agreement for a joint venture for a coal
mine. The HOA outlined the basis of the proposal and provided that parties will proceed in
good faith to consult upon a detailed JVA. Appellant withdrew from the negotiations.
Issue
Whether the heads of agreement is enforceable
Held
(per Kirby P) the courts will not enforce an agreement to agree. Depending on the nature of
the matter to be negotiated, the extent to which the negotiation has advanced, the issues
remaining for resolution and the nature of those issues a court may be able to derive from
the past resolution of differences a reasonable or fair resolution of those remaining upon the
posited assumption of good faith negotiations. So long as there is a sufficient mechanism
agreed to settle matters (eg by access to arbitration), an agreement to negotiate in good
faith may be sufficiently certain. The HOA was too vague, illusory and uncertain to be
enforceable.
(per Handley JA) agreement to negotiate in good faith is illusory and therefore cannot be
binding.
Principle
Provided there was consideration for the promise, in some circumstances, a promise to
negotiate in good faith will be enforceable, depending upon its precise terms.

(B) United Group Rail Services Ltd v Rail Corporation NSW (2009) 74 NSWLR 618
Facts
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 Dispute resolution clause: Clause 35.11(d), the mediation clause was uncertain and
unenforceable because “Australian Dispute Centre” did not exist. Clause 35.11(c) provides
that parties shall meet and undertake genuine and good faith negotiations. Clause 35.12
provides that if the matter is not resolved under 35.11, the dispute will be referred to
arbitration.
Issue
Whether clause 35.11(c) was void for uncertainty. Whether clause 35.12 was severable from
35.11 and therefore remain valid.
Held
(per Allsop P) an agreement to negotiate, if viewed as an agreement to behave in a
particular way, may be uncertain but is not incomplete. The question is whether the clause
has certain content. A promise to negotiate genuinely and in good faith with a view to
resolving claims to entitlement by reference to a known body of rights and obligations, in a
manner that respects the respective contractual rights of the parties, giving due allowance
for honest and genuinely held views about those pre-existing rights is not vague, illusory or
uncertain.
The parties would not be taken to be agreeing to something of a different kind if they were to
go to arbitration after the failure of senior representatives to agree. The contract is
essentially the same, i.e. in the absence of agreement to settle, the dispute goes to
arbitration.
Principle
Agreement to negotiate is not incomplete. A promise to negotiate genuinely and in good faith
with a view to resolving claims to entitlement by reference to a known body of rights and
obligations, in a manner that respects the respective contractual rights of the parties, giving
due allowance for honest and genuinely held views about those pre-existing rights is not
vague, illusory or uncertain.

(C) Harold R Finger Pty Ltd v Karellas Investments Pty Ltd

Facts
Finger and Karellas enter into a ‘Heads of Agreement’ to negotiate a lease agreement over
supermarket premises in Newtown.
Certain terms are agreed up front – including rent terms but the agreement requires
execution of a lease, and negotiation of certain other terms. And it contemplates Karellas’s
withdrawal if those matters are not settled within 12 months.
Karellas notifies Finger that Karellas wants to change some of the terms already negotiated
– because it feared the project would be unprofitable, after a financial feasibility study.
Finger treats that as a repudiation and terminates – and (after a time) seeks $3m in
damages from Karellas.
Issue
Was the ‘heads of agreement’ a binding contract
Did Karellas repudiate the heads of agreement
Held
(per Ward JA) the heads of agreement contemplated a process of negotiation as to the
additional terms required to be included in the agreement for lease/lease before any such
agreement for lease was to come into existence. The fact that Karellas had a right to
terminate the agreement and “withdraw from the project” if the formal documentation was
not executed within 12 months points to the conclusion that no immediately binding
agreement for lease came into existence on the heads of agreement. The heads of
agreement is an agreement to negotiate and implicitly an agreement to do so in good faith.
In seeking to reopen already negotiated terms, Karellas was still acting in accordance with
its obligations to negotiate in good faith.

13
2.1.4 Conditional promise

(A) Subject to finance

(1) Meehan v Jones (1982) 149 CLR 571

Subject to finance – CP or CS?
Facts
Contract to sell land. Subject to conditions including purchaser obtaining oil supply
agreement and financing arrangements. If either conditions not satisfied before 31
July 1979, contract shall be null and void
Vendor claimed the contract was void for uncertainty and sold to a third party on 23
July. Purchaser gave notice to vendor on satisfaction of the conditions on 30 July.
Issue
Whether a contract of sale of land was binding when it included a term which made
the contract subject to certain conditions, particularly a condition making it subject to
the purchaser or his nominee receiving approval for finance on satisfactory terms
and conditions
Held
(Different reasoning. Likely to be tested.)
(per Gibbs CJ) for subject to finance clauses, subjective test is to be applied. The
condition is generally for the protection of the purchaser, and it is the satisfaction of
the purchaser, not that of some hypothetical reasonable man, that will satisfy the
condition.
Discretion or option to the fulfilment of a condition upon which the contract depends
is not illusory. It is similar to an option agreement.
(per Mason J) there is implied obligation that the purchaser will act honestly, or
honestly and reasonably, in endeavouring to obtain finance and in deciding whether
to accept or reject proposals for finance. Purchaser does not have an absolute or
unfettered right to decide what is satisfactory.
(per Murphy J) subject to finance clauses leave satisfaction with the finance to the
purchaser’s discretion. Unless parties expressly provided so, the discretion is
unlimited and the purchaser has no obligation to act honestly or reasonably.
(per Wilson J) the requirement of an honest judgement (not reasonableness) may be
tough to provide the vendor with the maximum protection which is available under
the clause.
Principle
Discretion or option to the fulfilment of a condition upon which the contract depends
is not illusory.

(B) Subject to formal contract

(1) Godecke v Kirwan (1973) 129 CLR 629

Facts
Appellant and respondent signed a document "offer and acceptance" setting out
terms of sale of land.
The document provided that possession shall be given and taken upon signing of a
formal contract. Purchaser promise to execute a further agreement upon
requirement of vendor containing covenants and conditions in the offer document
and other reasonable ones.
Vendor withdrew.
Issue
Whether there was a binding contract
Held

14
 (per Walsh J) The clause should be construed as limited to permitting the insertion
of covenants and conditions not inconsistent with those contained in the offer. It was
limited also by reference to the reasonableness.
(per Gibbs J) parties to a contract may leave terms – even essential terms – to be
determined by a third person.
Principle
Contract may be binding when it is subject to a formal agreement.
(2) Also see [intention, Masters v Cameron]

2.1.5 Server or waiver

(A) Whitlock v Brew (1968) 118 CLR 445

Facts
Whitlock agreed to sell and Brew agreed to buy an area of land for £165,000. clause 5 of the
contract provided that purchaser shall grant a lease to Shell "upon such reasonable terms as
commonly govern such a lease".
Issue
Whether the contract was void for uncertainty.
Whether clause 5 was severable.
Held
(per Kitto J) there is no ascertainable set of reasonable terms in common use for such a
lease. The result is that the document does not record a consensus ad idem as to the
essential terms. Parties did not authorise an arbitrator to determine the terms.
Parties have no intention to conclude a contract of sale without having to grant any lease to
Shell Co. To treat the contract as binding although shorn of cl 5 would be to turn the sale
into a different sort of sale from that which the parties contemplated.
Principle
When a contract contains a number of stipulations one of which is void for uncertainty, the
question whether the whole contract is void depends on the intention of the parties to be
gathered from the instrument as a whole. If the contract be divisible, the part which is void
may be separated from the rest and does not affect its validity.
(B) Will the party for whose benefit the clause was inserted waive the requirement for
performance by the other party?

15
3. CONSIDERATION

3.1 Definition
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... (Currie v Misa (1875) LR 10 Ex 153 at 162)

3.1.1 Executed consideration

3.1.2 Executory consideration

3.1.3 Past consideration

3.2 Rationale
3.2.1 Means of distinguishing between fair and unfair transactions
3.2.2 Ensure that only transactions that enhance economic efficiency are enforced by the courts
3.2.3 Operates to limit the involvement of the state in voluntary undertakings
3.2.4 Fulfils the same function as formalities requirements ie provides evidence that a promise has in fact
been made and was intended to be legally binding
3.2.5 Protects impulsive or inadvertent promisors

3.3 Exception: deed

A promise given under seal in a deed does not require consideration.
• Formal written contracts.
• Signed before witnesses.
• No consideration required.

3.4 Principles
3.4.1 The promisee must provide consideration

(A) Coulls v Bagot’s Executors and Trustee Co Ltd (1967) 119 CLR 460
Facts
Arthur Coulls, Doris Coulls and O’Neil signed a document where Arthur authorised O’Neil to
pay royalties to Arthur and Doris as joint tenants. Arthur died.
Issue
Whether Doris or Arthur’s estate was entitled to the royalties.
Held
(per Barwick CJ, dissenting) the agreement was a promise in respect of which there was
privity between A on the one hand and B and C on the other. It is clearly enforceable but
only enforceable if both B and C are parties to the action. Upon the death of one of the joint
promisees, the promise remains on foot and remains enforceable.
(per Taylor and Owen JJ) where there is joint promisees, an action to recover must be
brought by both promisees. On the death of one of such joint promisees, the right of action
vests in the survivor. The mere fact that Doris’ signature appears noes not make her a party;
this is a question to be resolved upon a consideration of the written instrument itself. The
terms of the contract do not negative the implication that it was the testator who was to be so
entitled. Husband cannot alone “authorise” the survivor to receive royalties after the death of
either himself or his wife.
(per McTiernan J) the whole tenor of the document indicates that the document is a contract
to which the only parties are Arthur and the company.
(per Windeyer J, in dissent) A contracts with B that B will pay C $500. B fails to pay C. C
cannot sue B because C is not a party and hasn’t given consideration. If A sues B, there is
no damages because A doesn’t suffer any loss. (Solution in equity)
16
 Principle
Promisee must provide consideration.
3.4.2 Consideration must move from the promisee but need not move to the promisor
3.4.3 Only one of the joint promisees need provide Cn on behalf of the joint promisees. (Coulls v Bagots)
3.4.4 Consideration need not be adequate, but must be sufficient (something valuable in the eyes of the
law)

(A) Chappell & Co Ltd v Nestle & Co Ltd [1960] AC 87

Facts
Nestle advertised gramophone records for sale to the public at the price of 1s. 6d. each, with
a stipulation to the effect that intending purchasers must in respect of each record send, in
addition, 3 wrappers from sixpenny packets of their milk chocolate. Wrappers were
worthless and were thrown away.
Issue
Whether the wrappers are a valid part of the consideration
Held
(per Lord Reid) If a contract under which a person is bound to do something as well as to
pay money is a sale, then either the price includes the obligation as well as the money, or
the consideration is the price plus the obligation. Acquiring and delivering of the wrappers
was certainly part of the consideration in these cases.
(per Lord Somervell 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.
Principle
Consideration must be sufficient but need not be adequate.

(B) Woolworths Limited v Kelly (1991) 22 NSWLR 189

Held
(per Kirby P) Reasons why court will not assess whether consideration is valuable enough:
(1) different participants will put different values upon the bargain the are getting. It is
impossible for the law to indulge in an evaluation of the equivalence of the promises
exchanged.
(2) limited expertise of lawyers
(3) to assess adequacy, court need to rely on a vast territory of evidence. Different
decision makers would reach different conclusions upon the same evidence.
(4) lead to uncertainty
(5) law provides means to challenge the adequacy of a bargain in particular cases
where some wrong or moral fault can be shown to justify the challenge.
(6) common law respects the right of parties to reach their own bargains.
3.4.5 Not illusory: see
3.4.6 Forbearance to sue or a bona fide compromise of a disputed claim is valid

3.5 Past consideration

3.5.1 General rule

(A) Past consideration is not good consideration.
(B) A rule that creates some inconvenience for:
(1) Renegotiation to vary contracts.
(2) Promises to accept part payment of a debt.
(3) Post contractual expressions of gratitude.

(C) Roscorla v Thomas (1982) 3 QB 234

Facts
17
 Plaintiff bought a horse from defendant. After the sale, defendant promised that the horse
was sound and free from vice. Horse turned out to be vicious.
Issue
Whether the promise of the defendant after the sale can be enforced
Held
Promise must be coextensive with the consideration. A consideration past and executed will
support no other promise than such as would be implied by law.
Principle
Past consideration is not valid.

(D) Re Casey’s Patents

Facts
The holders of letters patent employed Casey to promote their invention in the commercial
world. Afterwards, they undertook in a letter, "in consideration of his services as manager in
working the patents" to give him one third share of the patents. Later, the other patent
holders attempted to have his name removed from the Register of Patents.
Held
(per Bowen LJ) A past service raises an implication at the time it was rendered, that it was to
be paid for. When subsequently there is evidence of a promise to pay, that may be seen as
an admission which fixes the amount of the bargain, on the basis of which the service was
rendered.
Principle
Performance of services at request of another who subsequently promises to pay is good
consideration if it was assumed at the time of the request that services would be paid for.

3.6 Contract and conditional promise

3.6.1 Examples
(A) I hear that a colleague is planning a trip to Sydney. I say: Great – I will take you to dinner at
the Bennelong when you arrive.
(B) I want a colleague to come to Sydney to visit, because I want to have discussions with her. I
say: If you come up to Sydney, I will take you to dinner at the Bennelong.

3.6.2 Australian Woollen Mills v Commonwealth

Between the statement or announcement , which is put forward as the executed consideration for
the alleged promise, there must subsist the relation of a quid pro quo.

3.7 Existing legal duty

3.7.1 General rule

Performance of an existing legal duty is not good consideration

(A) Stilk v Myrick

Captain promises to pay crew an addition amount if they continue the voyage after desertion
of two sailors.
On return to port, captain refuses to pay, on the basis that the sailors did no more than they
were already contracted to do (and succeeds).

(B) Part payment of a debt

Foakes v Beer (1884) 9 App Cas 605
Facts
Foakes owes Beer a debt of over £2,000. They enter into an agreement under which Foakes
will pay by instalments. When the principal is prepaid, Beer claims interest.
Issue
Whether Beer was entitled to interest. Whether the agreement was capable of being legally
forced.
18
 Held
(per Earl of Selbourne LC) Not being under seal, it cannot be legally enforced against the
respondent, unless she received consideration for it from the appellant.
(per Lord Blackburn) all men of business do recognise and act on the ground that prompt
payment of a part of their demand may be more beneficial to them than it would be to insist
on their rights and enforce payment of the whole.
Principle
That payment of a lesser sum in satisfaction of a greater, cannot be any satisfaction for the
whole, because it appears that by no possibility a lesser sum can be a satisfaction to the
plaintiff for a greater sum.

3.7.2 Exceptions
(A) The performance of a legal duty where the legal duty is exceeded

(1) Glasbrook Bros Ltd v Glamorgan County Council

Facts
Glasbrook owned a group of collieries. During national coal strike Glasbrook insisted
on extra police protection. 70 men were placed on special duty pursuant to a written
agreement under which Glasbrook promised to make specified payments.
Issue
Whether there is a binding contract
Held
(per Viscount Cave LC) if in the judgement of the polie authorities, formed
reasonably and in good faith, the garrison was necessary for the protection of life
and property, then they were not entitled to make a charge for it, for that would be
exact a payment for the performance of a duty which they clearly owed to the
appellants and their servants; but if they thought the garrison a superfluity and only
acceded to Glasbrook’s request with a view to meeting his wishes, then they were
entitle to treat the garrison duty as special duty and to charge for it.
Principle
The performance of a legal duty where the legal duty is exceeded is good
consideration.
(B) Performance of a contractual duty where the performance by beneficiary of the promise
confers a practical benefit on the other party

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

Facts
Roffey held a main contract and subcontracted to Williams. The main contract
imposed a penalty for late completion. Williams got into financial difficulties. Roffey
agreed to pay an additional amount. Williams continued work but Roffey stopped
payment.
Issue
Whether Williams could claim the additional payment
Held
(per Glidewell LJ) the defendant’s promise to pay the extra amount was supported
by valuable consideration and thus constituted an enforceable agreement.
Elements

19
 (i) A contracts with B: A to provide work and B payment.
(ii) Before A completes, B doubts A’s capacity to complete.
(iii) B promises A additional payment for A’s promise to complete on time.
(iv) B thereby obtains ‘in practice a benefit or obviates a disbenefit’
(v) B’s promise is not given as a result of economic duress or fraud by A
(vi) Benefit to B is capable of being consideration for B’s promise.

(per Russell LJ) a gratuitous promise, pure and simple, remains unenforceable
unless given under seal. But where a party undertakes to make a payment because
by so doing it will gain an advantage arising out of the continuing relationship with
the promisee, the new bargain will not fail for want of consideration.
Principle
Where a party undertakes to make a payment because by so doing it will gain an
advantage arising out of the continuing relationship with the promisee, the new
bargain will not fail for want of consideration.

(2) Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723

Facts
Lessee of shopping centre fruit market requires variation of rent – or else they will go
out of business. Landlord promised to accept reduced rent but later sought to resile
from the arrangement.
Issue
Whether lessee could claim the reduced rents
Held
(per Santow J)
Subject to the five elements (see below) Williams v Roffey should be followed in
allowing a practical benefit or detriment to suffice as consideration.
The practical benefit for the lessor was that they had greater assurance of the
lessees staying in occupation. The practical detriment for the lessee was that they
risk their capacity to survive against a competitor.

20
 (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
(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.

Principle
Williams should be followed in Australia and extends to situations where modifying
party agrees to suffer a detriment.
(C) Performance of the existing contractual duty represents a bona fide compromise of a legal
claim against the other party

(1) Wigan v Edwards (1973) 47 ALJR 586

Facts
Edwards agreed to purchase a house from Wigan.
After the contract was signed, Edwards gave Wigan a list of matters requiring
attention before completing the transaction.
Wigan signed a document promising to remedy listed minor defects and major faults
5 years from purchase date.
Issue
Whether thre was valuable consideration for the appellant’s promise
Held
Promise to do precisely what the promisor is already bound to do is a sufficient
consideration when it is given by way of a bona fide compromise of a disputed claim,
the promisor having asserted that he is not bound to perform the obligation under
the pre-existing contract or that he has a cause of action under that contract. The
respondent honestly believed that having regard to the defective condition of the
house, they were not bound to complete.
Principle
Promise to do precisely what the promisor is already bound to do is a sufficient
consideration when it is given by way of a bona fide compromise.
(D) Promise to perform an existing K obligation is valid Consideration if made to a person not a
party to the original contract

21
(1) Pao On v Lau Yiu Long [1980] AC 614
Facts
Plaintiffs agreed to sell to Fu Chip issued capital in Shing On for shares in Fu Chip.
Plaintiffs agreed not to sell 60% of shares in Fu Chip within certain period.
Plaintiff and defendants (shareholders of Fu Chip) entered into a second agreement
where plaintiffs agreed to sell to the defendant the 60% at the purchase price.
Plaintiff and defendants cancelled the second agreement and replaced with a
guarantee of indemnity.
Issue
Whether the guarantee of indemnity is enforceable
Whether the guarantee states a consideration sufficient in law to support the
defendants’ promise of indemnity
Held
(per Lord Scarman) an act done before the giving of a promise to make a payment
or to confer some other benefit can sometimes be consideration for the promise.
The act must have been done at the promisors’ request; the parties must have
understood that the act was to be remunerated; and payment or conferment of a
benefit must have been legally enforceable. The promise of indemnity was given
because at the time of the main agreement the parties intended that the first
defendant should confer upon the plaintiffs the benefit of his protection against a fall
in price.
Principle
Past performance may provide good consideration for a new promise, if that past
performance was made in anticipation of the promise -- eg, service rendered in
anticipation of an agreement for remuneration; or (here) a promise to hold shares, in
anticipation of a promise to indemnify the holder from potential loss.
Promise to sell back could constitute sufficient consideration (on the assumption that
the ownership of the shares carried a potential gain should the market rise again).
A promise to a third party that you will perform a contract made with another, IS
good consideration, so long as there was no duress or fraud. (Main agreement
promise to hold was to Fu Chip. New indemnity agreement made the same promise
to LYL.)

22
4. INTENTION TO CREATE LEGAL RELATION

4.1 Objective approach

4.1.1 Assessed objectively – on the external manifestation of intention

4.2 Traditional presumptions

4.2.1 Traditionally the language of presumptions was used
(A) Agreements in family settings and social situations – presumption that parties do not intend
to create legal relations (so if want to assert ITCLR exists – you must prove)
(B) Commercial agreements – there is a presumption that the parties intend to create legal
relations (so if want to assert absence of ITCLR you must prove)

4.2.2 Ermogenous v Greek Orthodox Community of SA

Facts
Appellant served as the Archbishop of the autocephalous Greek Orthodox Church. He claimed to be
employed by respondent.
Issue
Is there an intention to create legal relations between parties
Held
(per Gaudron, McHugh, Hayne and Callinan JJ) the inquiry on ITCLR may take account of the
subject-matter of the agreement, the status of the parties to it, their relationship to on another, and
other surrounding circumstances. “Intention” describes what it is that would objectively be conveyed
by what was said or done, having regard to the circumstances in which those statements and
actions happened.
(per Kirby J) there is no presumption that contracts between religious or associated bodies and
ministers of religion, of their nature, are not intended to be legally enforceable.
Principle
Caution is required to use the language of presumptions.
ITCLR is to be assess objectively based on the words and the circumstances. Relevant factors
include: subject matter of the agreement, status of the parties to it, their relationship to each other,
and other surrounding circumstances

4.3 Commercial agreements

4.3.1 Parties can expressly exclude the intention

(A) Rose & Frank Co v JR Crompton & Bros Ltd

Facts

Issue

Held

Principle

4.3.2 Absence of ITCLR may be inferred

(A) Esso Petroleum Ltd v Commissioners of Customs and Excise

4.3.3 Letters of comfort or support

(A) Kleinwort Benson Ltd v Malaysia Mining Corp Berhad

23
 (B) Banque Brussels Lambert SA v ANI
Facts
Defendant (ANI) provided a letter of comfort to the plaintiff (BBL) in relation to a loan facility
provided by BBL to Spedley. ANI is the controlling shareholder of Spedley. In the letter ANI
agreed to provide BBL with 90 days notice of any decision to dispose of its interest and
confirmed that it was ANI’s practice to ensure that Spedley will at all times be in a position to
meet its financial obligations. ANI disposed of its shareholding without giving notice.
Issue
Did parties manifest an intention to create legal relations
Held
(per Rogers CJ) There should be no room in the proper flow of commerce for some
purgatory where statements made by businessmen, after hard bargaining and made to
induce another business person to enter into a business transaction would, without any
express statement to that effect, reside in a twilight zone of merely honourable engagement.
If the statements are appropriately promissory in character, courts should enforce them
when they are uttered in the course of business and there is no clear indication that they are
not intended to be legally enforceable.
Principle
Not all letters of comfort are contracts. The courts will consider whether the parties intended
to create contractual relations by objectively assessing the content of the letter and the
circumstances surrounding the negotiations.

4.3.4 Preliminary agreements

(A) Masters v Cameron

Facts
Cameron agreed to sell the Masters a certain property for £17,500. Document provides that
agreement is subject to the preparation of a formal contract by one party’s solicitor.
Issue
Is there a binding contract or only a record of terms upon which the signatories were agreed
as a basis for the negotiation of a contract
Held
(per Dixon CJ, McTiernan and Kitto JJ) Three classes of case (it is a Q of construction
whether intention exists or not):
• The Parties intend to be bound immediately, but propose to restate the terms in a
form which will be fuller or more precise, but not different in effect; [ITCLR NOW]
• The Parties have agreed on all the term of their bargain, and do not intend to vary
those terms, but have made performance conditional upon the execution of a formal
document; [ITCLR NOW, PERFORMANCE CONDITIONAL ON SECOND
DOCUMENT]
• The Parties do not intend to make a binding agreement at all unless and until they
execute a formal contract, in which case, the terms of the agreement are not
intended to have any binding effect [NO ITCLR UNLESS AND UNTIL SECOND
DOCUMENT]

classes Bound Performance

1 Yes Yes

2 Yes Not until the second document

3 No No

Principle
The question depends upon the intention disclosed by the language the parties have
employed, and no special form of words is essential to be used in order that there shall be
no contract binding upon the parties before the execution of their agreement in its ultimate
24
 shape. Nor is any formula, such as ‘subject to contract’, so intractable as always and
necessarily to produce that result

4.4 Family

4.4.1 Balfour v Balfour

if an intention to enter into an enforceable undertaking does not appear by the express terms of the
engagement, it must be capable of being properly read into the provisions. The language used, the
relative situation of the parties to the understand, may be such as to indicate no such intention was
present

4.4.2 Todd v Nicol

Facts
Defendant invited the plaintiffs to move from Scotland to Australia and promised to alter her will so
that the house would be theirs until they died.
Issue
Is there a binding contract
Held
(per Mayo J) Regard may be had to the subsequent conduct and communications between the
parties for the purpose of discovering whether the intention to be attributed to them was to make a
binding agreement or otherwise.
There is no explicit reference to ITCLR. It is necessary to inquire whether there is any material from
which an inference may be drawn. There can be no definite rule or formula for deducing ITCLR.
Relevant elements in this case include the expense of travel, the expectation that certain belongings
of the plaintiffs would have to be sold, the abandonment of employment and of the security of their
Scottish residence.
There is a contract, but the plaintiffs breached the contract.

4.5 Government agreements – policy positions in administrative documents

4.5.1 Administration of PNG v Leahy

Facts
Plaintiff request further assistance from the Commonwealth Department of Agriculture to control
cattle ticks. An arrangement made where the department would take over the spraying and the
plaintiff to pay for the labour. The department failed to carry out the spraying skilfully and efficiently
and plaintiff’s cattle became more seriously infected.
Issue
Is there a binding contract between the parties
Held
(per Dixon CJ) there was no intention on the government’s part to enter into any contract to
undertake contractual obligations or to do or undertake more than was considered naturally and
properly incident to carrying out their governmental function in the conditions prevailing.
(per Mctiernan J) the conduct of the parties constituted an administrative arrangement by which the
government in pursuance of its agricultural policy, gave assistance to the plaintiff.

25
5. FORMALITIES
5.1 The general rule is that a contract need not be in writing to be enforceable unless there is a specific rule
(found typically in a statute) that requires the contract to be in writing and/or to be signed to be enforceable.
5.1.1 Does the contract need to be in writing to exist
(A) Eg transfer of shares in a corporation
(B) If not in writing: no contract
5.1.2 Does the contract need to be in writing or evidenced by writing to be enforced
(A) Eg contract for a promise relating to disposition of an interest in land
(B) If not in writing: can you rely on doctrine of part performance?
5.1.3 Section 54A conveyancing act 1919 (nsw)

54A Contracts for sale etc of land to be in writing

(1) No action or proceedings may be brought upon any contract for the sale or other
disposition of land or any interest in land, unless the agreement upon which such action or
proceedings is brought, or some memorandum or note thereof, is in writing, and signed by
the party to be charged or by some other person thereunto lawfully authorised by the party to
be charged.
(2) This section applies to contracts whether made before or after the commencement of
the Conveyancing (Amendment) Act 1930 and does not affect the law relating to part
performance, or sales by the court.
(3) This section applies and shall be deemed to have applied from the commencement of
the Conveyancing (Amendment) Act 1930 to land under the provisions of the Real Property
Act 1900.

(A) Applies to contracts for sale of land or ‘other dispositions of land’ or any interest in land
(B) Some memorandum or note thereof in writing
(C) Signed by the party to be charged (or some other person lawfully authorised)
(D) If cannot satisfy: no action or proceedings may be brought upon any contract for sale or
transfer of interests in land

5.2 Memorandum or note

5.2.1 The note or memorandum must be in existence prior to steps to enforce the contract (so can come
into existence after agreement is reached); note or memorandum need not have been intended to
provide evidence of the contract.

(A) Popiw v Popiw

Facts
Respondent husband orally promised the applicant wife that if she would return to
cohabitation with him he would transfer the title to the home to their joint names. In the
proceedings the respondent filed an affidavit in which he set out the terms of the promise he
had made.
Issue
Is there a binding contract
• Is there ITCLR, consideration and certainty
Is the contract unenforceable because there is no note or memorandum in writing thereof to
satisfy the Statute of Frauds
Held
(per Hudson J) ITCLR: the promise was given after the relationship had broken down and
was made in an effort to restore it (distinguished from Balfour v Balfour). The fact of the visit
to the respondent’s solicitor is evidence of ITCLR.
Consideration: even if cohabitation is existing duty, there was no remedy open to the
respondent to compel the performance of that duty. From a practical point of view what the
respondent was to get in exchange for his promise was something far more advantageous to
him than the right of cohabitation which he had no means of enforcing and the applicant in
returning was submitting to a detriment in placing herself in a position which she could not
have been compelled to occupy.
26
 Certainty: the applicant was to return to the matrimonial home and live with the respondent
as his wife. It is to be implied that she would behave reasonably as his wife and make a
bona fide attempt to restore and maintain the matrimonial relationship. The obligation of the
respondent is simply to transfer the property into the joint names.
Formalities: non-compliance with the Statute of Frauds does not render a contract void, but
enforceability of the contract is to be denied. A note or memorandum of a contract in order to
be available in an action on the contract must have been in existence when the action was
commenced. The affidavit was not in existence when the proceeding was commenced.
5.2.2 A written note or memorandum of the contract, which can be in more than one document but some
debate as to how the document (usually the latter one) must refer to the other

(A) Harvey & Edwards Dunlop & Co Ltd

Facts
A company was sued for debt owed to the respondent. Appellant agreed to sign a POA
instructing the attorney to sell assets to pay for the debt in consideration that the respondent
would not sign judgement against the company.
Issue
Whether this agreement is a special promise to answer for the debt of another and if so
whether there is a memorandum in writing to satisfy the Instruments Act.
Held
(per Knox CJ, Gavan Duffy and Starke JJ) any document signed by the party to be charged
or by some person authorized by him which contains all the essential terms of the
agreement is a sufficient memorandum. The memorandum need not be contained in one
document; it may be made out from several documents if they can be connected together.
Certain correspondence which took place between the solicitors of the parties and the power
of attorney were so connected together as to constitute a memorandum in writing containing
all the terms of the agreement
5.2.3 Must have all the essential terms.

5.3 Signature
5.3.1 Document must be ‘signed’ by the party to be charged

5.3.2 Pirie v Saunders

Facts
Appellants and respondent contemplated the preparation of a formal memorandum of lease. The
appellants gave written instructions to their solicitor to prepare a lease.
Issue
Whether a sufficient note or memorandum had been proved
Held
(per Dixon CJ, Fullagar, Kitto, Taylor and Menzies JJ) the solicitor’s notes are nothing more or less
than a brief notation of his instructions for the preparation of a draft lease for submission to the
respondent’s solicitor. Both the document and its contents are quite consistent with the hypothesis
that the parties had not made any prior binding contract and that their rights and obligations were not
to be effected until the execution of a memorandum of lease.
5.3.3 Authenticated signature fiction: the name of the party to be charged, is placed on the document
said to constitute the written memorandum of the contract, is said to be treated as a signature…if
such party expressly or impliedly indicates that he recognises the writing as being an authenticated
expression of the contract.’
5.3.4 HCA rejects this as applying to a document ‘which in not in some way or other recognisable as a
note or memorandum of a concluded agreement.’
5.3.5 If more than one document makes up the memorandum, need signature on the document that
connects up the other documents.

27
5.4 Options if cannot enforce written contract

5.4.1 Part performance

(A) Equity will grant specific performance of an oral contract if there are sufficient acts of part
performance
What court is doing is not enforcing the written contract but ‘is charging the defendant upon
the equities arising from the acts performed by the plaintiff in execution of the contract

(B) Ogilvie v Ryan

Facts
Defendant occupied a cottage owned by a company. Managing director of the company
moved in with her. Later managing director bought a house and told the defendant that the
house would be hers for as long as she lived.
Issue
Is there a constructive trust
Is the agreement unenforceable for lack of writing
• To what extent must acts of part performance refer to the contract
Held
(per Holland J) the facts establish a constructive trust of the beneficial interest promised to
the defendant.

Express trust: trustee hold legal title of the property for the beneficiaries, who have
equitable interest in the property.
Constructive trust: trust imposed by court

There being no writing, the only answer offered by the defendant to this defence was part
performance. As to the sufficiency of the acts to constitute part performance, the test is laid
down in Madison v Alderson: unequivocally and in their own nature referable to some such
agreement as that alleged.
• narrow interpretation: the acts of part performance must be such as to be not only
referable to a contract such as that alleged, but to be referable to no other title.
• broad test in Kingswood Estate Co Ltd v Anderson: acts of performance must be
such as must be referred to some contract, and may be referred to the alleged one;
that they prove the existence of some contract, and are consistent with the contract
alleged.
• House of lords approved Kingswood in Steadman v Steadman: if the acts of part
performance pointed on a balance of probabilities to some contract, and either
showed the nature of, or were consistent with, the oral agreement alleged, then
there was sufficient part performance of the agreement for the purpose of enforcing
the contract.
• NSW Court of Appeal: Glass JA held that Court of Appeal was not at liberty to apply
the law in Steadman, because High Court has twice endorsed the test in Maddison.
If broad test is applied, acts were sufficient in the present case. But they do not meet the test
in Maddison. It cannot be postulated of the defendant’s acts that they were unequivocally
referable to or indicative of a promise to give her an interest in the deceased’s property.

(C) Khoury v KhourI

Facts
Co-owner (Peter) of a house verbally agreed with his brother (Bechara) that in return for
certain payments by Bechara, Peter would hold his share in the property on trust for
Bechara. Bechara made the payments.
Held
(per Bryson JA) a contract to declare a trust is a contract for the sale or disposition of an
interest in land. Payment of money is not a sufficient act of part performance. Acts of part
performance have been almost universally closely related to possession and use or tenure
of the land itself. Acts on the land can much more readily be seen as unequivocally referable
to the contract than payments of money.
28
5.4.2 Quantum meruit

(A) Pavey & Matthews Pty Ltd v Paul

Facts
Appellant agreed to do certain building work for the respondent on the basis that the
respondent would pay the appellant “a reasonable remuneration for that work, calculated by
reference to prevailing rates of payment in the building industry.” Appellant completed work.
Issue
Whether a builder may bring an action in indebitatus assumpsit for the value of work done
and materials supplied under an oral building contract, notwithstanding the provisions of s 45
of the Builders Licensing Act
Held
(per Mason and Wilson JJ) s 45 of the Act should be read as entailing unenforceability to
indirect, as well as direct enforcement of the contract. The question then is whether the
appellant’s action on a quantum meruit amounts to a direct or an indirect enforcement of the
oral contract.
The true foundation of the right to recover on a quantum meruit does not depend on the
existence of an implied contract.
Interpretation of “to enforce”: NSW Court of Appeal attributed a broader operation to mean
“to compel observance of”; therefore action on a quantum meruit is to enforce the plaintiff’s
claim. High Court held that it is more appropriate to look to the more precise legal meanings
that have been assigned to the term in comparable situations where a contract or a security
is expressed to be unenforceable.
(per Deane J) obligation to pay reasonable remuneration is different from liability to make
the payments under the “unenforceable contract”. The obligation to make payment for an
executed consideration given and received under an unenforceable contract should now be
accepted as lying in restitution or unjust enrichment. The fact that the obligation arises
independently of the unenforceable contract does not mean that the existence or terms of
that contract are necessarily irrelevant. It will be permissible for the plaintiff to refer to it as
evidence only.
(per Brennan J, in dissent) an inability to sue on a contract provides no ground for imposing
a quasi-contractual obligation inconsistent with the contractual obligation to pay
remuneration, and the effect of the Statute cannot be circumvented by substituting a
corresponding quasi-contractual obligation.

29
6. ESTOPPEL
Estoppel is a substantive principle of law which operates to preclude a party to legal proceedings from
asserting against another party either facts, legal rights, or the absence of legal obligations, to the extent that
it would be unconscionable to do so.

Pre-existing legal relation No pre-existing legal relation

Representation of facts Common law estoppel (Burrowes) Common law estoppel (Walton –
Deane J and Gaudron J)

Promises or assurances Equitable estoppel (High trees, Equitable estoppel (Walton – Mason
Legione) CJ, Wilson and Brennan JJ)

6.1 History of estoppel

6.1.1 Defensive “shield”

(A) Estoppel by representation

An early line of authority permitted plaintiffs to rely on representations of both fact and intention.

(1) Burrowes v Lock

Facts
X assigned an interest under a trust to Y. Then X purported to assign the same
interest to the plaintiff (Burrowes). The plaintiff asked the trustee (the defendant,
Lock) whether the interest was encumbered. The trustee carelessly and forgetfully
answered “No” while the interest was in fact encumbered.
Held
The defendant trustee made a statement of fact that was relied upon. It turned out to
be unreliable. The plaintiff will suffer detriment. Therefore the defendant was obliged
to make good the representation by compensating the plaintiff.

(B) Jorden v Money

Facts
Money owed Marnell 1,200 pounds. Money gave Marnell a bond for this amount. Marnell
died and Mrs Jordan inherited the bond. Money was contemplating marriage, but was
concerned about his means. Mrs Jordan said she would never enforce the debt, so he
married. Five years later she sought to enforce the debt, and Money claimed she should be
estopped. Money failed, on the grounds that Mrs J’s statement was one of intention – a
promise – but it was not supported by consideration.
Held
Money didn’t give consideration for the promise. Estoppel was held not be able to interfere in
contractual situations. It could not substitute for proper consideration.

(C) High Trees estoppel

(1) Central London Property Trust v High Trees House

(test case)
Facts
CLPT leased a block of flats to HTHL for 99 years in 1939 for a ground rent of 2500
pounds per year. During WWII, CLPT agreed to reduce the rent to 1250 pounds
(but this agreement was not supported by consideration). After the war, CLPT
raised the rent to 2500 pounds and asserted a right to arrears of over 7,000 pounds.
Held
(Denning LJ) HTHL had relied on CLPT’s promise for a future intention (not just
representation of fact) that they would not take the full rent. And they relied on this to
their detriment. It would be unconscionable for CLPT to seek back the original rent.
Used as a shield by the tenant saying you shouldn’t be able to assert your legal right
under the lease against me because you made a promise that I relied on to my
detriment.

30
 Principle
(pre-existing legal relation + statement of future intention)
Where a party to a pre-existing contract promised that certain contractual rights
would not be enforced, and the promise was intended to be binding or intended to
be acted on and was acted on by the promisee, a court of equity would refuse to
allow the promisor to enforce the rights in question, at least without giving the
promisee a chance to resume her original position.

(2) Legione v Hately

Principle
High tree estoppel is good law in Australia. The Australian High Court accepted in
principle that a clear representation made in the context of an existing legal
relationship, that one party will not rely on its legal rights, will be binding in
circumstances where the other party has relied to its detriment on that
representation, and it would be unconscionable for the first party to resile from the
representation.

6.1.2 Sword - Proprietary estoppel

(A) Dillwyn v Llewellyn

(Used to pursue a legal claim.
Active form: someone makes an clear promise and the plaintiff acts on this promise and then
they resile.)
Facts
Father tells his son he is giving him land (but the conveyance is not perfected). The son
expends a considerable sum in building on the land. The father dies.
Held
The son is successful in claiming that the father’s executors must complete the gift because
the father’s promise induced him to spend money on the land on the assumption that the gift
is effected.
Principle
It is unconscionable for the legal owner of land to take a benefit conferred only because the
plaintiff was induced to believe that the gift had been perfected.

(B) Ramsden v Dyson

(a more passive form where someone watches the plaintiff making a mistake and says
nothing.)
Principle
Where a person improves land in the mistaken assumption that it is his own, and the true
owner, being aware of the mistake, deliberately stands by doing nothing to correct the
mistaken assumption, equity will prevent the true owner from profiting from the mistake.
It is unconscionable for the owner to take the benefit of the improvements in these
circumstances.

(C) Remedy for proprietary estoppel

(1) Conveyance of land
(2) Grant of a life estate
(3) Grant of an equitable charge over the land

(4) Morris v Morris

Facts
At the invitation of his son and daughter-in-law, Father sells his unit and uses the
proceeds to build a second storey flat onto their home. They divorce. Dad can’t live
there anymore. He claims an interest in the house
Held
He is granted an equitable charge.
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6.2 Equitable estoppel

6.2.1 Waltons v Maher

(Promissory estoppel)
Facts
W is in negotiations with M for lease of department store premises in Nowra. The proposed lease
required M to construct a building to W’s specifications on M’s land.
W’s solicitor sends a draft deed of lease to M, which M signs and returns. M proceed to demolish an
existing building on site. The deed is not complete and therefore ineffective – but W does not warn M
of this.
W knows construction is proceeding but does not warn M.
W becomes aware that it may need to withdraw from the deal, and tells its own solicitors to ‘go slow’,
but does not tell M.
Then W purports to withdraw.
M argues an estoppel to hold W to the deal.
Held
(per Mason CJ and Wilson J) equitable estoppel and doctrine of part performance
Principle purpose of part performance is to overcome non-compliance with the formal requirements
for the making of contracts. Equitable estoppel depends on considerations of a different kind from
those on which part performance depends.
Unconscionable
The doctrine extends to the enforcement of voluntary promises on the footing that a departure from
the basic assumptions underlying the transaction between the parties must be unconscionable.
Unconscionability may be found in the creation or encouragement by the party estopped in the other
party of an assumptions that a contract will come into existence or a promise will be performed, and
that the other party relied on that assumption to his detriment to the knowledge of the first party.
(per Brennan J)
Common law estoppel is not a source of legal obligation; the source of legal obligation may for
example be in the assumed contract and the estoppel compels the party bound to adhere to the
assumption that the contract exists. Equitable estoppel is a source of legal obligation.
The plaintiff must prove:
1. P assumed a particular legal relationship did, or would exist in circumstances where D would
not be free to withdraw
2. D induced P to make that assumption; a D who has not actively induced P to adopt an
assumption will nevertheless be held to have done so if he knowing the P’s reliance may cause
detriment to the P, fails to deny to P the correctness of the assumption.
3. P acts, or refrains from acting, on the basis of the assumption
4. D knew or intended P to do so
5. P’s action (or inaction) will cause P detriment if the assumption is not fulfilled
6. D failed to avoid that detriment
And the remedy is the ‘minimum equity’ to reverse the detriment. The enforcement of promises was
not available.

6.2.2 Newness of Waltons

(A) Promissory estoppel can be a cause of action (a sword)
(B) There need be no pre-existing contractual relationship
(C) ‘Unconscionability’ is essential in establishing whether failure to fulfil a non-contractual
promise is actionable
(D) The remedy is flexible – not necessarily fulfilment of the expectation but the minimum equity
necessary to undo the detriment. (But this proposition has been challenged in subsequent
case law.)

32
 6.2.3 Austotel v Franklins
In the context of commercial negotiation, it will not always be the case that pre-contractual
negotiation will grant an estoppel.
Facts
Franklins was to lease land from Austotel. Austotel tried to get Franklins to sign a comfort letter from
Franklins for financing purposes. Franklins was reluctant to do that because they did not want to be
bound at that stage. Austotel found another party willing to give the comfort letter, and therefore
withdrew the negotiation with Franklins. Franklins tried to argue estoppel.
Held
(per Kirby P) The necessary element of unconscionability wasn’t there. The Court has before it two
groupings of substantial commercial enterprises, well resourced and advised, dealing in a
commercial transaction having a great value. They did not reach the point of formulating their
agreement in terms which would be enforced by the law of contract. This is a reason for scrutinising
carefully the circumstances which are said to give rise to the conclusion that an insistence by the
appellants on their legal rights would be so unconscionable that the Court will provide relief from it.
There may have been expectation, reliance and detriment, but no unconscionable circumstances.
(per Priestley JA, Kirby P agreed) For equitable estoppel to operate there must be the creation or
encouragement by the defendant in the plaintiff of an assumption that a contract will come into
existence or a promise be performed or an interest granted to the plaintiff by the defendant, and
reliance on that by the plaintiff, in circumstances where departure from the assumption by the
defendant would be unconscionable.
(per Priestley JA, in dissent) by the time Franklins was placing orders for the delivery of materials for
incorporation in the supermarket, it was obviously relying on Austotel’s commitment to leasing the
supermarket to Franklins. Any arguable unconscionability or inequitable behaviour by Franklins (e.g.
deliberately refrained from discussion on additional rent) before Austotel broke off, never took any
active form at all, remained internal to Franklins and was not communicated to Austotel.
(per Rogers A JA) Franklins deliberately, and in the hope of gaining for the company an advantage,
refrained from any discussions on an important, indeed crucial, element in the lease. The deliberate
gamble that the plaintiff had embarked on failed and it is not for equity to put the plaintiff into the
position it would have been in had it never embarked on its gamble. There is a fundamental
difference between a situation where the parties simply fail to address a question necessary for a
complete and concluded agreement and the present, where there is a deliberate and conscious
decision to refrain from coming to agreement on the term.
Principle
When large robust well advised commercial parties are negotiating, and the only problem is that they
never get to the final point of finalising the contract, be careful of stepping in just solving the problem
by estoppel. It won’t necessarily be unconscionable for commercial parties to not finalise a deal.

6.3 Post Waltons

6.3.1 Cth v Verwayen

Facts
V sought damages from the Cth for injuries in the defence forces – but 20 years after the fact. At the
time Cth defences that it had no liability in negligence using defence force; and also in limitations of
actions. Cth made statement that it would waive the limitations period and accept liability. V relied on
the statement and brought the action and spent legal fees. Later, Cth policy changed, and it pleaded
the limitations period and contested liability.
Held
There were 7 separate judgements and no clear majority on any point. 2 judgement for V on
estoppel, and 2 judgement for V based on the doctrine of waiver.
(per Mason CJ, in dissent) one overarching doctrine of estoppel
It should be accepted that there is but one doctrine of estoppel, which provides that a court of
common law or equity may do what is required, but not more, to prevent a person who has relied
upon an assumption as to a present, past or future state of affairs, which assumption the party
estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a
result of the denial of its correctness. A central element of that doctrine is that there must be a
proportionality between the remedy and the detriment which is its purpose to avoid.
Two types of detriment
33
 Expectation loss: loss resulting from the denial of the relevant assumption or breach of the promise
(ie the loss of the expected benefit) – this is detriment in the broad sense.
Reliance loss: detriment suffered as result of reliance on relevant assumption – this is detriment in
the narrow sense.
Remedy
Each case is one of degree. Reliance upon an assumption for an extended period; substantial and
irreversible detriment suffered in reliance or detriment which cannot satisfactorily be compensated or
remedied, may give rise to an estoppel justifying the assumption be made good.
In this case to hold the Cth to its representations would be a disproportionate response to the
detriment suffered by the respondent.
(Brennan J, in dissent) Remedy
The only relevant detriment which the plaintiff suffered was financial loss in continuing with the
action until the defence was amended. To hold the Cth to its promise to admit liability would be to go
beyond the minimum equity.
(per Deane J) one overarching doctrine of estoppel
The operation of promissory estoppel in equity conforms with the operation of estoppel by conduct in
law and equity.
Remedy
The prima facie remedy is to prevent departure from the assumed state of affairs.
(per Dawson J) the doctrine of promissory estoppel should not be confined to cases where the pre-
existing legal relationship arose from contract. Parties here were in a legal relationship which began
at least with the commencement of the action by V against Cth.
The real detriment to V was that he was induced by the assumption that Cth would not insist upon
the statute to allow the litigation to proceed for more than a year without taking any steps to bring it
to a conclusion by way of settlement or withdrawal.
(per Toohey J) judgement for V on the basis that Cth had irrevocably waived the defences.
(per Gaudron J) doctrine of estoppel permits a court to do what is required to avoid detriment and
does not in every case require the making good of the assumption. It may be that an assumption
should be made good unless it is clear that no detriment will be suffered other than that which can
be compensated by some other remedy.
(per McHugh J) equitable estoppel is aimed at preventing detriment to the promisee. A court of
equity will only require the promise or assumption to be fulfilled if that is the only way in which the
equity can be fulfilled.
Issues left open
Is there a single unified doctrine of estoppel, including a unity between common law estoppel and
equitable estoppel?
What is the remedy for estoppel? An order that one may not resile from the representation? Or
reversal of detriment?
• Mason CJ found there was one overarching doctrine of estoppel rather than a series of
independent rules, and the remedy was the minimum equity to do justice.
• Deane J agreed re ‘one doctrine’ but held that the prima facie remedy is to prevent
departure from the assumed state of affairs.
• Brennan J and McHugh J based their decisions on equitable estoppel.

6.3.2 Giumelli v Giumelli

(Proprietary estoppel)
Facts
Son stays to work on the family farm upon the promise of receiving part of the land. Parents
encouraged him to build a house on the land. They persuaded him not to take other employment.
Later, they made him choose between the family business and taking a new wife (of whom they
disapproved). He chose the wife, and a year later sued for the land.
Held

34
 An equitable estoppel gives rise to a prima facie entitlement to fulfilment of the expectation raised by
the representation. Qualifications may be necessary both to avoid injustice to others (in this case the
brother) and to avoid relief which went beyond what was required for conscientious conduct by the
defendant.
In this case, monetary value was awarded instead of an order to convey property, because in the
meantime, another brother had made improvements on the land. The sum was to be assessed by
reference to the value of the property in question rather than the loss of income suffered by the
plaintiff by relying on the promise.
Principle
Prima facie remedy is fulfilment of the expectation; the prima facie entitlement to relief based upon
the assumed state of affairs will be qualified in a case where such relief would be unjust to other
intervening party.

6.3.3 Sidhu v Van Dyke

Facts
S and V had an affair and S promised V that he will subdivide property and convey her a house.
They part, and he refuses to proceed with the subdivision.
V claims detrimental reliance – staying, improving the cottage and working on the station.
Issue
What is the sufficiency of proof of detrimental reliance required? Was her conduct in reliance on the
representation? Would she have behaved this way anyway, out of love and affection?
What is the appropriate measure of equitable compensation?
Held
The onus of proof is on the plaintiff to prove that he has been induced to rely upon the defendant’s
promises.
She need prove only that reliance on the representation was a contributing factor. It doesn’t have to
be the only motivation she had.
Remedy = equitable compensation of land value but not a conveyance, since S’s wife also had an
interest in the property.
(But see comment at [84] – reimbursement of outlay might be sufficient in a case of a relatively small
monetary outlay.)
6.4 The following cases do not add on new principles but are demonstration of facts scenario and how the
principles are applied)

6.4.1 Delaforce v Simpson Cook

Facts
After a divorce, husband promises to leave a certain house in his will to his wife.
She relies on the promise, and neglects to get specific orders to this effect in a divorce settlement.
He changes his will and dies. She contests the will and wins.
Held
(per Allsop P) Giumelli appears to have removed any requirement that the remedy be only
‘vindication of the “minimum equity’’.

6.4.2 Saleh v Romanous

Facts
Vendor of land purports to sell to P, on the promise that Vs brother (owner of neighbouring land) will
agree to a joint venture development of the plots. This promise is pre-contractual negotiation, and
not mentioned in the signed contract.
When the brother refused, P refused to complete.
P argued estoppel to defend a claim for specific performance.
Held
Vendor attempted to rely on parol evidence rule: verbal or oral negotiation evidence is inadmissible if
the contract is in writing; and entire contract clause: parties do not rely on any other representations.
On the contract basis the purchaser cannot win. But these doctrines do not impede equity.
35
 P used estoppel as a shield.

6.4.3 Calvo v Ellimark Pty Ltd

Facts
Lawyer who submits a claim for fees is held to be estopped from suing for those fees because she
failed to respond to a request for fees at the time when the plaintiff needed that information for a
costs order.
Held
The P’s detriment was an inability, now, to seek and claim those costs against the other party.
Remedy: making good the expectation generated by reliance on the lawyer’s conduct.

6.4.4 Arfaras v Vosnakis

Facts
In this case there was no contract: no exchange of promises and no consideration. Grieving
husband is pressed by his mother-in-law to bury his wife in a double burial plot for which she held
the licence.
She promises – seriously, and in front of a funeral director -- that she will assign the licence to him,
so that he can be buried in the other half.
He buries his wife. Then the mother-in-law changes her mind and refuses to assign the licence to
him.
Held
The detriment would be not being able to be buried next to his wife.

6.4.5 Doueihi v Construction Technologies Australia

Facts
(Family situation)
D represents the Vatselias family.
Husband is director of CTA. He was married but is now separated from Miss V. While married and
‘in the family’, CTA leases and spends considerable capital fitting out premises on land owned by the
family.
After the separation, H seeks a formal agreement.
Held
D(V) was estopped from denying a long term lease on the basis of ‘proprietary estoppel by
encouragement’.
In a domestic/family situation, the absence of a legally binding agreement is explicable
(distinguished from Austotel).

6.5 Remedies for estoppel

6.5.1 A reliance-based or expectation-based approach to relief for estoppel?

(A) A choice is to be made between 2 perspectives on relief
(1) It may be appropriate to permit the promisor to resile. The promisee is granted a
remedy proportionate to the actual detriment suffered
(2) It may be appropriate to hold the promisor to the assumption. The promisee is
granted relief equivalent to enforcement of the promise.
(a) Form of relief (Giumelli: money payment instead of transfer of interest in
land. Money payment to be value of the property, not loss of income.)

6.5.2 Constructive trust

6.5.3 Equitable compensation

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 CONTRACT TERMS

1. EXPRESS TERMS

1.1 Entire agreement clause

1.1.1 Parties may attempt to ensure that any pre-contractual statements are not treated as contractual
terms by including an entire agreement clause stating that the written document contains the “entire
agreement” of the parties and no other extrinsic statement are to be treated as incorporated into that
contract.

1.1.1 Limits
(A) May not be effective to preclude establishment of collateral contract.
(B) May not be effective to exclude evidence relevant to establishing an estoppel.
(C) Not necessarily preclude implication of terms e.g. may be void as unfair terms under the
ACL.

1.1.2 Hope v RCA Photophone of Australia

Facts: RCA sued to recover money alleged to be payable by the Hope for the hire of “electrical
sound-reproduction” equipment. No reference was made to whether it was to be new or
secondhand. Clause 27 provided:
The agreement and lease as herein set forth contains the entire understanding of the
respective parties with reference to the subject matter hereof and there is no other
understanding agreement warranty or representation express or implied in any way binding
extending defining or otherwise relating to the equipment or the provisions hereof on any of
the matters to which these presents relate.
Held: clause 27 makes it unnecessary to discuss whether the defendant might be allowed to allege
and prove the existence of a supplementary term that the equipment was to be new equipment.

1.2 Parol evidence rule

1.2.1 Definition
Dealing with “what are the terms of the contract”. See 3.1 for “what do these terms mean”.
If there be a contract which has been reduced into writing, verbal evidence is not allowed to be given
of what passed between the parties, either before the written document was made, or during the
time that it was a state, of preparation, so as to add to or subtract from, or in any manner to vary or
qualify the written contract.
(A) The rule prevents extrinsic evidence being given to add to, vary or contradict the terms of a
contract as they appear in a written document.
(B) The rule limits the evidence that can be given to explain the meaning of the terms of a
written contract.

(C) “parol evidence”

(1) Direct evidence of actual intention
(2) Prior negotiations
(3) Subsequent conduct

1.2.2 Application
The parol evidence rule only applies to exclude extrinsic evidence of terms supplementing a written
contract where that contract is wholly in writing.

(A) Whether a contract is wholly in writing

(1) Strict approach: a written documents on its face appears to be the complete record
of parties’ contract.
(2) Flexible approach: use extrinsic evidence to determine whether a contract is wholly
or partly in writing, emphasis on ascertaining the presumed intentions of parties.
High Court has not conclusively determined which approach should be taken. State courts
have indicated a preference for the more flexible approach.
1
 (B) State Rail Authority of NSW v Heath Outdoor
Facts: Heath Outdoor entered into a number of contracts with the State Rail Authority.
Contract provided that SRA may terminate at any time upon one month’s notice. Defendant
orally assured that the clause will only be invoked for non-payment of rent or objectionable
advertising content.
Issue: whether parol evidence rule prevents reliance on the oral assurance
Held: the parol evidence rule has no operation until it is first determined that the terms of the
agreement are wholly contained in writing. The existence of writing is no more than an
evidentiary foundation for a conclusion that their agreement is wholly in writing.
In this case, the proper conclusion to be drawn is that the clause was a contractual term.
The discussion between plaintiff and defendant did not add to the terms of the contract.
Oral assurance does not amount to a collateral contract because it contradicts the main
contract.

1.2.3 Exception
(A) Collateral contract
(B) Estoppel

(1) Saleh v Romanous

Facts: Vendor of land purports to sell to plaintiff, on the promise that vendor’s
brother (owner of neighbouring land) will agree to a joint venture development of the
plots.
Held: (per Handley AJA) vendors submitted that parol evidence rule and the entire
agreement clause excluded any pre-contractual promissory estoppel. Court rejected
the submission. A promissory estoppel is not enforced as a contract, but as an
equitable restraint on the exercise or enforcement of the promisor’s rights. Equitable
doctrine is not subject to common law parol evidence rule or entire agreement
clause.
Promissory estoppel used as a shield to prevent the vendor from enforcing the
contract.
Principle: parol evidence rule and entire agreement clause do not exclude a pre-
contractual promissory estoppel.
(C) Rectification
(D) Contract subject to a condition precedent: extrinsic evidence may be admissible to establish
that a written contact is subject to a condition precedent, or to show that the parties did not
intend to make a biding contract.
(E) The true consideration: extrinsic evidence may be admissible to prove the real consideration
under a contract
(F) Implied term

1.3 Pre-contractual statement

1.3.1 Classification
(A) Puff or mere advertising
(B) Representation
(C) Term

1.3.2 Intention of parties

Objectively whether the statement intended to guarantee its truth.

(A) Hospital Products Ltd v United States Surgical Corp

A representation made in the course of negotiations which result in a binding agreement
may be a warranty, i.e., it may have binding contractual force in one of two ways:
• it may become a term of the agreement itself, or
• it may be a collateral contract, the consideration for which is the promise to enter
into the main agreement.
2
 In either case the question whether the representation creates a binding contractual
obligation depends on the intention of the parties. If the parties did not intend that there
should be contractual liability in respect of the accuracy of the representation, it will not
create contractual obligations.
The intention of the parties is to be ascertained objectively; it can only be deduced from the
totality of the evidence.

1.3.3 Secondary guides

(A) Time of statement

(1) Ellul v Oakes

First, courts may have regard to the time which elapsed between the time of making
the statement and the final manifestation of agreement. If the interval is a long one,
this points to a representation.
Secondly, they consider the importance of the statement in the minds of the parties;
as statement which is important is likely to be classed as a term of the contract.
Thirdly, if the statement was followed by the execution of a formal contract in writing,
it will probably be regarded as a representation should it not be incorporated in the
written document.
Finally, where the maker of the statement is in a better position to ascertain the
accuracy of the statement, the courts will tend to regard it as a contractual term.

(B) Importance of content

(1) Couchman v Hill

Facts: the plaintiff purchased at an auction sale a heifer belonging to the defendant
which was described in the sale catalogue as “unserved.” The catalogue stated that
the sale would be subject to the auctioneers' usual conditions and that all lots must
be taken subject to all faults or errors of description. At the sale the plaintiff asked
both the defendant and the auctioneer whether they could confirm that the heifer in
question was unserved and received from both the answer “Yes.”
Held: Ordinarily the buyer would have been bound by the printed conditions
exhibited at the auction and stipulations contained in the catalogue. But it was open
to Couchman to intimate to the vendor that he was not willing to bid for the heifers
unless the vendor modified the terms of the sale in some way specified by him.
Couchman sought a promise that the heifers were unserved, which the seller agreed
to, and it was on that basis that the contract was entered into.

(C) Existence of written memorandum

Hospital Products Ltd v United States Surgical Corp

(1) Equuscorp v Glengallan Investments

Facts: a group of investors entered into written loan agreements with lenders.
Investors purport to rely on an oral agreement (with a pre-contractual promise that
their liability to loss is limited to a certain sum). They alleged that the “operative”
contract was not the written contract (upon which they intended to claim tax
deductions).
Held: the legal rights and obligations of parties turn upon what their words and
conduct would be reasonably understood to convey, not upon actual beliefs or
intentions. Having executed the document, and not having been induced to do so by
fraud, misrepresentation, the respondents are bound by it.

(D) Knowledge and expertise of the parties

(1) Oscar Chess Ltd v Williams

Facts: the defendant’s car was in fact a 1939 model but the registration book said it
was 1948 and the defendant believed so. Plaintiff car dealer bought the car and
discovered that it was a 1939 model.
Held: (per Denning LJ) the material distinction here is between a statement which is
a term of the contract and a statement which is only an innocent misrepresentation.
3
 Whether a warranty was intended depends on the conduct of the parties, on their
words and behaviour, rather than on their thoughts. If an intelligent bystander would
reasonably infer that a warranty was intended, that will suffice.
(per Morris LJ, dissenting) the statement described the subject matter of the contract
then being made and the statement directed the parties to, and was the basis of,
their agreement as to the price to be paid or credited to the defendant.

(2) Dick Bentley Productions Ltd v Harold Smith (Motor) Ltd

Facts: Dick Bentley purchased a second hand Bentley from Smith (a car dealer).
Smith told Bentley that the car had done 20,000 miles. The mileage was untrue.
Held: (per Lord Denning) if a representation is made in the course of dealings for a
contract for the very purpose of inducing the other party to act on it, and it actually
induces him to act on it by entering into the contract, that is prima facie ground for
inferring that the representation was intended as a warranty. The maker of the
representation can rebut this inference if he can show that it really was an innocent
misrepresentation.

1.4 Collateral contracts

1.4.1 Crown Melbourne v Cosmopolitan Hotel

Facts: Pre-contractual statement made ahead of a lease which required substantial refurbishment at
the expense of the tenant: “we will look after you at renewal time”
Held: (French CJ, Kiefel and Bell JJ) the “look after” statement did not constitute an offer capable of
acceptance – too uncertain.
(Keane J) the “look after” statement was “too vague to found any objectively reasonable
understanding”. Even if the “look after” statement had been included in the lease, it would have been
too uncertain to be enforceable as a promise of renewal
(Nettle J) “a reasonable person in the position of the tenant could not have construed the assurance
as a binding promise to offer a further term of five years”. And even if it was a promise, it was
illusory, because no rent terms were agreed.
(Gordon J, dissenting) the “look after” statement was an offer to make an offer of renewal, accepted
by entry into the main lease: damages ought to have assessed the “loss of opportunity” to accept an
offer of renewal.

1.4.2 Element (J J Savage & Sons Pty Ltd v Blakney)

(A) The statement must have been intended to be relied upon
(B) The party to whom the statement was made relies upon it
(C) The maker of the statement intends to guarantee its truth
Facts: Blakney contemplated buying a motor boat from JJ Savage. JJ manager expressed his views
about different engines and recommended a particular that could achieve certain speed. In formal
document, no reference to estimated speed of the boat. The boat can't reach the speed.
Held: (per Barwick CJ, Kitto, Menzies, Owen and Walsh JJ) on receipt of the letter there were three
courses open to the respondent. He could have required the attainment of the speed to be inserted
in the specification as a condition of the contract; he could have sought from the appellant a
promise; or he could be content to form his own judgement relying upon the opinion of the appellant.
Only the second course would give rise to a collateral warranty.
1.4.3 Obstacle: if the statement is so important, then why isn’t it in the main contract?

(A) Shepperd v the Council Ryde Corporation (1952) 85 CLR

This obstacle is not as challenging if the statement concerns an issue that one would not
expect to find in the main contract
Facts: Shepperd purchased land from defendant council. Plaintiff alleged that prior to
entering into the contract he was informed by the defendant that an area opposite to his land
would be created and maintained as a park.
Held: (per Dixon, McTiernan, Fullagar and Kitto JJ) the reluctance of courts to hold that
collateral warranties or promises are given or made in consideration of the making of a
contract is tradition. The reason is that too often the collateral warranty put forward is one

4
 that you would expect to find its place naturally in the principal contract. In the present case
it is otherwise.

1.4.4 Hoyts v spencer

Facts: Spencer entered into a lease with Hoyts. The lease provided that Spencer may terminate with
4 weeks’ notice. Hoyts alleged that in consideration of its taking the lease, Spencer agreed that he
would not give notice unless requested by the head lessor.
Held: (per Isaacs J) to the extent the parties have deliberately agreed to record any part of their
contract, that record stands unimpeachable by oral testimony. Collateral contract cannot impinge on
the main contract, or alter its provisions or the rights created by it.
Principle: The pre-contractual statement must be consistent with the terms of the main contract.
1.4.5 Terms of a collateral contract must be certain. (Crown Melbourne)

1.5 Incorporation of express terms

1.5.1 Signature

(A) L'Estrange v Graucob

Facts: plaintiff signed a form headed “Sales Agreement” for a cigarette vending machine.
Plaintiff brought an action for breach of an implied warranty that the machine was
reasonably fit for purpose. The defendant sought to rely on an exclusion clause in the
agreement.
Held: (per Scrutton LJ) when a document containing contractual terms is singed, in the
absence of fraud or misrepresentation, the party signing it is bound, and it is immaterial
whether he has read the document or not.

(B) Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd

Facts: Alphapharm is a sub-distributor of an influenza vaccine. Richard Thomson agreed to
look after the collection, storage and regulatory approval of the vaccine. Richard Thomson
engaged Finemores to collect the vaccine. Alphapharm had no direct dealings with
Finemores. Finemores requested Richard Thomson to complete a credit application form,
and above the place for signature it provided “please read conditions of contract”. RT signed
without reading. Conditions provided that RT signed as agent for persons having an interest
in the goods, and an exclusion clause.
Issue: whether the conditions are incorporated into the contract
Held: (per Cleeson CJ, Gummow, Hayne, Callinan and Heydon JJ) it is not the subjective
beliefs or understandings of the parties about their rights and liabilities that govern their
contractual relations. What matters is what each party by words and conduct would have led
a reasonable person in the position of the other party to believe.
The general rule is that where there is no suggested vitiating element and no claim for
equitable or statutory relief, a person who signs a document which is known by that person
to contain contractual terms and to affect legal relations, is bound by those terms and it is
immaterial that the person has not read the document.
Three possible circumstances in which the party who signed the document might not have
been bound by its terms: (1) if the document signed was not a contract but merely a
memorandum of a previous contract which did not include the relevant terms; (2) non est
factum; (3) misrepresentation.

(C) Curtis v Chemical Cleaning & Dyeing

Facts: Curtis took a dress to Chemical Cleaning & Dyeing for cleaning. She was handed a
paper headed “Receipt” and asked to sign. She asked why signature was required and was
told that it was because the cleaners would not accept liability for certain specified risks. The
receipt in fact excluded any liability for damage.
Held: (per Denning LJ) any behaviour is sufficient to be a misrepresentation if it is such as to
mislead the other party about the existence or extent of the exemption. Misrepresentation
would disentitle the creator of it to the benefit of the exemption. By failing to draw attention to
the width of the exemption clause, the assistant created a false impression amounted to a
misrepresentation.

5
 If nothing was said, the document might reasonably be understood to be only a voucher for
the customer to produce when collecting the goods, and not understood to contain
contractual conditions.

1.5.2 Notice

(A) Causer v Browne

Facts: Causer’s husband took her frock to the defendants’ dry cleaning business. He
received a docket at the foot of which were certain terms.
Held: (per Herring CJ) where the offeree did not know what the conditions were, he did
know that the offer was subject to conditions and did accept it without making any further
inquiry, the offeree will be bound. Where the offeror is able to show that he has done all that
is reasonably necessary in the circumstances to bring the conditions to the notice of the
offeree, the offeree will be bound.
Before the person delivering the document can hold the person receiving it bound by any
special conditions in his favour recorded thereon, he must show that the person receiving it
was aware that it was not merely a voucher or receipt, but intended to modify the effect of
the ordinary contract.

(B) Oceanic Sun Line Special Shipping Company v Fay

Facts: Fay made a booking for a cruise with the defendant. Upon payment he was handed
an exchange order to be exchanged for a ticket when he boarded the vessel. On the ticket
there was a condition on jurisdiction of any action against the defendant.
Issue: whether the contract contains the exclusive foreign jurisdiction clause on the ticket
Held: if a passenger signs and thereby binds himself to the terms of a contract containing
exclusion clauses, it is immaterial that the passenger did not trouble to discover the contents
of the contract. But where an exemption clause is contained in a ticket, yet the other party is
not in fact aware of the term, the carrier cannot rely on that clause unless he has taken
reasonably necessary steps to bring the clause to the passenger’s notice. In this case the
only step the defendant took was the note in the brochure that conditions were printed in the
unavailable passenger ticket contract. It is insufficient to make the conditions terms of the
contract.
As the contract was made when the exchange order was issued, and insufficient was done
to bring the cause to the plaintiff’s attention, the exclusion clause was not incorporated into
the contract, and could not be subsequently incorporated by insertion in the ticket.

1.5.3 Ticket case

(A) Parker v South Eastern Railway Co

Facts: On the deposit of articles at the cloak-room at a railway station, a charge is made of
2d. for each, and the depositor receives a ticket, on the face of which are printed the times of
opening and closing the cloak-room and the words “See back,” and on the back there is a
notice that the company will not be responsible for any package exceeding 10l. A placard
upon which is printed in legible characters the same condition is also hung up in the cloak-
room. Parker deposited his bag and it was lost.
Issue: whether the conditions in the ticket was included in the contract
Held: the issue of the ticket was an offer. If the customer took it and retained it without
objection, his act was regarded as an acceptance.
In determining whether a person is bound by conditions printed on the ticket, 3 questions are
relevant: objectively,
• Did the person who received the ticket know there was writing on it; if no, not bound.
If so, Q2.
• Did that person know that the ticket referred to terms. If so, bound. If not; Q3
• Did the party relying on the terms do what was reasonable to bring notice of the
existence of the terms sought to be incorporated to the other party’s attention. If so,
bound.

6
 (B) Thornton v Shoe Lane Parking Ltd
Facts: Thornton parked his car the car park owned by the defendant. There was a notice
outside. As Thornton drove in, a ticket was pushed out from a machine. Ticket provided that
it is issued subject to conditions as displayed inside the car park.
Held: (per Lord Denning MR) the ticket cases did not apply, because any person who
received the ticket could not negotiate. He may protest to the machine, even swear at it; but
it will remain unmoved. The offer is made when the proprietor of the machine holds it out as
being ready to receive the money. The acceptance takes place when the customer puts his
money into the slot. The terms of the offer are contained in the notice placed on or near the
machine stating what is offered for the money. The customer is bound by the terms so long
as they are sufficiently brought to his notice beforehand. He is not bound by the terms on
ticket if they are different from the notice, because the ticket came too late.
In obiter: The exempting condition is so wide and so destructive of rights that the court
should not hold any man bound by it unless it is drawn to his attention in the most explicit
way.

1.5.4 Course of dealings

(A) Balmain New Ferry v Robertson

Held: having travelled on many occasions backward and forward by the company’s boats,
the plaintiff must have been aware that the company’s method of conducting their business
was to release the turnstiles only on payment of a penny.

(B) Henry Kendall & Sons v William Lillico & Sons Ltd
Facts: in more than 100 regular dealings over a course of 3 years, the seller of meal
provided a ‘Sold Note’ containing ‘Conditions of Sale’. The buyer’s agent knew of the
existence of the conditions, but claimed never to have read them.
Held: the Court’s task was to decide what each party would reasonably conclude from the
utterances, writings or conduct of the other. The only reasonable inference from the regular
course of dealing over so long a period was the buyers were evincing an acceptance of, and
a readiness to be bound by, the printed conditions of whose existence they were well aware
although they had not troubled to read them. Thus the general conditions became part of the
oral contract.

(C) Rinaldi & Patroni v Precision Mouldings

Facts: on 9 or 10 previous occasions, parties would agree orally on the cartage of a boat. A
cart note (for signature by the consignee) would be stapled to an invoice and sent to the
respondent for payment. On the note printed a list of conditions.
Issue: Were ‘cart notes’ used on 9 or 10 previous occasions incorporated into otherwise oral
contracts of carriage?
Held: (per Burt CJ) the cart note was nothing more than an acknowledgement of the delivery
of the good; a request by the carrier to the consignee to carry the goods. It was a not
contractual document, and for that reason the terms printed at the back cannot establish a
course of dealing leading to the conclusion that they were incorporated by implication into
subsequent contracts.

(D) La Rosa v Nudrill Pty Ltd

Facts: parties entered into a contract cartage contract over telephone. The drill rig was
damaged while being transported. From time to time, the appellant carried on the cartage
business under various names. After performing each job for the respondent, the appellant
sent an invoice to the respondent. The appellant tried to avoid liability by relying on
exclusion clause in invoice. Both parties accepted that a telephone conversation between
them gave rise to a cartage contract and was confined to matters of price, destination,
pickup and time. The contract was oral and the only written component was the invoice
claiming payment for the service already provided.
Held: The question is whether an express term is incorporated into a contract as a result of
an inference arising from the prior conduct of the parties as a whole. Moreover, it is not
essential in a prior dealing case that the term in issue must have been incorporated in a
previous contract between the parties, whether by a contractual document or otherwise.

7
 The invoices were not a 'contractual document' within either the narrow or wider meaning of
the expression. In each case the invoice was provided to the respondent for services already
supplied pursuant to a prior contract. The purpose of the invoices was to secure payment for
those services.
It will be a question of fact and degree whether, in a particular case, the parties, by their
conduct, have incorporated a term into their contract by a previous course of dealings. Each
case turns on its own facts and circumstances. Factors of relevance in determining whether
the alleged term was incorporated include the number of prior dealings, how recent they
were, and the consistency in the prior dealings and the dealing in question (for example, the
similarity between the subject matter of the dealings and the manner in which the dealings
were entered into or concluded). This is not, of course, an exhaustive statement of relevant
factors.
The course of dealing must be consistent and sufficiently long. It is not however necessary
to show the other party had actual knowledge of the term

1.5.5 Reference

(A) Westpac Banking Corporation v Wittenberg

(69-131)
Held: (per Buchanan J)

Key authorities
Riverwood International Australia Pty Ltd v McCormick [2000] FCA 889: a policy may be
incorporated by reference; changes to policy would require reasonable notice to
employees before binding them).
Goldman Sachs JB Were Services Pty Ltd v Nikolich [2007] FCAFC 120: promissory
elements of policies will be contractual (but not aspirational elements), if incorporated.
Romero v Farstad Shipping (Indian Pacific) Pty Ltd [2014] FCAFC 177: a policy setting
out commitment to a method for meeting statutory obligations was held to be contractual.
Commonwealth Bank of Australia v Barker (2014) 253 CLR 169: a disclaimer in a policy
stating that it is NOT part of the contract is effective to preclude contractual force.

Policies are unilateral statements by an employer concerning its intentions and practices in
governing a workplace and employment relations.
Employees are under obligation (implied in law) to obey lawful and reasonable orders by
employers (including terms of the policy).
A term may be implied in fact that in light of the formal imposition of its policies that employer
would honour so much of those policies as operated for the real and practical benefit of an
employee (e.g. assured payments, distinct procedural protections) and would not arbitrarily
or capriciously withdraw them.

(B) McKeith v Royal Bank of Scotland; Royal Bank of Scotland Group PLC v James
(79-127)
Facts: Senior employees persuaded to stay and serve during a major takeover and
restructure, on the promise of an entitlement to severance payments if they are made
redundant.
Issue: (1) Was the policy incorporated into original employment contracts? (2) Did RBS
make a contractual offer to abide by policy terms for those who agreed to stay?
Held: (per Tobias AJA) (1) no. It had been kept ‘secret’, and express contract terms
permitted policy changes.
First, Riverwood was a case decided purely on its own facts. Secondly, the relevant part of
the Manual which was found to be critical to the conclusion of the majority in that case was
the strong predominance of provisions beneficial only to the employee. Thirdly, in Goldman
Sachs some of the provisions of the WWU which the respondent sought to have
incorporated into his contract of employment were clearly contractual in nature but not the
complaints process on which the respondent relied. The case turned on its own facts.
Fourthly, the same observation may be made about Romero and Foggo. The nature of the
relevant policy provisions in these cases is quite different from that relied on by James. No

8
 principle can be derived from the authorities called in aid by James of his claim that the
Policy was incorporated into his contract of employment.
(2) yes.
However – the policy still left ex gratia payments at the discretion of the employer. They did
not exercise this discretion ‘capriciously’ or ‘arbitrarily’, when they refused McKeith a
payment, so there was no breach of contract.

2. IMPLIED TERMS
At common law, there are three main groups of terms that can be implied to fill the gaps in contracts: terms
implied in law, terms implied in fact and terms implied by custom and usage.
If a term is implied into the contract, it will be implied from the moment of contract formation.

2.1 Implied in law

2.1.1 Liverpool City Council v Irwin

Facts: defendants were lessees of a maisonette. They refused to pay rent because of defect in the
common parts of the building, including continual failure of the lifts, the absence of lighting on the
stairs etc. defendant counterclaimed for damages for the breach of an alleged implied term that the
plaintiffs would keep the common parts in repair.
“Conditions of Tenancy” contains a list of tenants’ obligations, including obligations not to obstruct
staircases and passages, and not to permit children to operate the lifts.
Issue: whether the plaintiffs were in breach of contract; whether the plaintiffs had implied agreed to
keep the common parts in repair.
Held: where there is an apparently complete bargain, the courts are willing to add a term on the
ground that without it the contract will not work.
There can be no doubt that there must be implied easements for the tenants and their licensees to
use the common parts. But are these easements to be accompanied by any obligation upon the
landlord.
Such obligation should be read into the contract as the nature of the contract itself implicitly requires,
no more, no less: a test of necessity. The subject matter of the lease and the relationship created by
the tenancy demand, of their nature, some contractual obligation on the landlord.
Principle: the test is necessity to have regard to the inherent nature of a contract and of the
relationship thereby established.

2.1.2 Reid v Rush Tompkins

Facts: plaintiff suffered injuries while driving on a road in Ethiopia in the course of his employment
by the defendant.
Issue: whether there is implied term that the defendant would take out appropriate insurance cover
for the benefit of the plaintiff; or the defendant would advise the plaintiff accordingly that he should
himself obtain the appropriate insurance
Held: (per Ralph Gibson L.J.) implied term that the defendant would take out appropriate insurance
Such a term could not be implied by law under the test of “necessity,” as applicable to all such
contracts of employment. The written contract contained a number of detailed terms dealing with the
economic welfare of the plaintiff, and it is impossible to suppose that the defendant would have
acknowledged as obviously included within the contract additional terms with reference to provision
by it of personal accident insurance.
Implied term that the defendant would give to the plaintiff all necessary advice
It is impossible to imply a term as a matter of law a specific duty to advise the plaintiff to obtain
specific insurance cover. Such a duty is inappropriate for incorporation by law into all contracts of
employment. It would require of employers, many of whom may have no such resources of advice or
experience, and who may employ only one or two servants, to discover much information about
foreign legal and social systems in order to decide whether such a term requires action on their part.

2.1.3 Scally v Southern Health Board

Facts: the appellants were medical practitioners whose terms of employment had been negotiated
by representatives of their professional bodies. Changes to a contributory pension scheme required
employees to make an election, but the employees did not know this and missed out on valuable

9
 benefits. They brought actions against their employers alleging breach of contract in respect of
failure of their employers to inform them.
Issue: whether the law would imply into the contract of employment an obligation on the employer to
notify the employees of the rights in question.
Held: where a contract of employment, negotiated between employers and a representative body,
contained a particular term conferring upon the employee a valuable right contingent upon his acting
as required to obtain the benefit, of which the employee could not be expected to be aware unless
the term was brought to the attention of the employee, there was an implied obligation on the
employer to take reasonable steps to publicise the term.

2.1.4 University of Western Australia v Gray

Facts: UWA claims ownership rights of a medical professor’s inventions.
Held: When implying terms in law into a contract, more than reasonableness was required; the test
was the elusive one of necessity.
The test of necessity for terms implied in law differs from the necessity concept required for business
efficacy in implied-in-fact terms. The former was informed by more general considerations; which
required regard be had to the nature of the contract and of the relationship thereby established and
such considerations also required that the term not be implied if the social consequences would be
detrimental.
The necessary tie between implication in law and considerations of policy has been widely
acknowledged. The imposition of terms as a matter of law amounts to no more than the imposition of
a legal duty where the law thinks policy requires it. Considerations of policy can be of considerable
significance in negativing the making of an implication, or else demonstrating that the issues raised
by the proposed implication are of such a character or complexity as to make it inappropriate for a
court, as distinct from a legislature, to impose the obligation in question.

2.1.5 Commonwealth Bank of Australia v Barker

Facts: employment of Barker was terminated for redundancy. He was not informed about an
alternative position because the recruitment consultant was not aware that he no longer had his
Bank mobile or email address. Barker alleged that Bank breached the implied terms that the Bank
would maintain trust and confidence with him and that it would not do anything likely to destroy or
damage the relationship of trust and confidence without proper cause.
Issue: Should Australian employment contract law imply a term (as they do in the UK) that parties
owe a duty not to act in a manner calculated or likely to destroy mutual trust and confidence in the
relationship?
Held: implication of terms
The implication of a term in law is based upon more general considerations than those covered by
the concept of business efficacy. An implication in law may be evolved from repeated implications in
fact. “Necessity” which will support an implied term in law is demonstrated where, absent the
implication, the enjoyment of the rights conferred by the contract would or could be rendered
nugatory, worthless or seriously undermined, or the contract would be deprived of its substance, or
drastically devalued.
Implied term of mutual trust and confidence
The duty to cooperate satisfies the criterion of necessity. The implied term of mutual trust and
confidence imposes mutual obligations wider than those which are necessary. The complex policy
considerations encompassed by those views of the implication mark it as a matter more appropriate
for the legislature than for the courts to determine.
Duty of good faith
The conclusion should not be taken as reflecting upon the question whether there is a general
obligation to act in good faith in the performance of contracts, or whether contractual powers and
discretions may be limited by good faith.
(Kiefel J)
Good faith has been accepted in other legal systems – as a ‘vitally important ingredient for a modern
general law of contract’. General application of good faith in contract remains unresolved in
Australia.

10
2.2 Implied in fact

2.2.1 Formal contracts

(A) BP Refinery (Westernport) Pty Ltd v Shire

(Application see Servcorp)
Requirements for implication of a term on a factual basis:
(1) It must be reasonable and equitable;
(2) It must be necessary to give contract business efficacy, so that no term will be
implied if the contract is effective without it;
(a) what the law desires to effect by the implication is to give such business
efficacy to the transaction as must have been intended at all events by both
parties who are business men. (The Moorcock)
(b) The word 'business', at least in the context of a business-related contract,
emphasises that whether the alleged term is to be implied must be
evaluated, objectively, by reference to the commercial purpose of the
contract as revealed by the objective framework of facts within which the
contract came into existence, including the nature and character of the
subject matter of the contract and the market in which the parties are
operating. (Codelfa, Byrne)
(3) It must be so obvious that it ‘goes without saying’;
(a) An implied term will not be so obvious that it goes without saying if it is not
possible to choose between several competing formulations. (Codelfa)
(b) it is not necessary that the alleged implied term should be obvious in the
sense of being immediately apparent, even upon a superficial consideration
of the express terms of the contract and the objective framework of facts
within which it came into existence. (Servcorp)
(4) It must be capable of clear expression; and
(a) An implied term will not be incapable of clear expression merely because it
operates by reference to a standard such as 'reasonableness'. (Servcorp)
(5) It must not contradict any express terms.
(a) The requirement that an alleged implied term not 'contradict' any express
term plainly includes a direct contradiction. However, the requirement has a
broader connotation. For example, a term cannot be implied if it is apparent,
on the face of the document, that the parties adverted to the point in
question and either deliberately rejected it or deliberately refrained from
dealing with it. (Servcorp)
(b) An implied term may grow out of an express contractual term. An implied
term will not necessarily, in the relevant sense, contradict an express term
merely because it modifies the effect of the express term. An exception from
the general effect of an express contractual term will not necessarily, in the
relevant sense, contradict it. (Servcorp)

(B) Attorney General of Belize v Belize Telecom

Held: The BP test is “best regarded not as a series of independent tests which each must be
surmounted but rather as a collection of different ways in which judges have tried to express
the central idea that the proposed implied term must spell out what the contract actually
means”.
“There is only one question: Is that what the instrument, read as a whole against the relevant
background, would reasonably be understood to mean?”

(C) The Moorcock

In business transactions such as this, what the law desires to effect by the implication is to
give such business efficacy to the transaction as must have been intended at all events by
both parties who are business men; not to impose on one side all the perils of the
transaction, or to emancipate one side from all the chances of failure, but to make each
party promise in law as much, at all events, as it must have been within the contemplation of
both parties that he should be responsible for in respect of those perils or chances.
11
 (D) Codelfa Construction Pty Ltd v State Rail Authority of NSW
Facts: the State Rail Authority engaged Codelfa to excavate tunnels. Codelfa was obliged to
complete the work within 130 weeks. Parties assumed that Codelfa would be immune from
injunction but that proved to be an erroneous assumption. Codelfa was prevented from
carrying out construction work between certain hours. Codelfa claimed that a term should be
implied into the contract that if it was restrained by injunction from carrying out the work by
the shifts it had planned, the authority would indemnify it against additional costs incurred
Held: (Mason J) implication and rectification
The difference is that with rectification the term which has been omitted and should have
been included was actually agreed upon; with implication the term is one which it is
presumed that the parties would have agreed upon had they turned their minds to it - it is not
a term that they have actually agreed upon. Rectification ensures that the contract gives
effect to the parties' actual intention; the implication of a term is designed to give effect to the
parties' presumed intention.
Implication: obvious and clear
For obvious reasons the courts are slow to imply a term. In many cases, what the parties
have actually agreed upon represents the totality of their willingness to agree: each may be
prepared to take his chance in relation to an eventuality for which no provision is made. The
more detailed and comprehensive the contract the less ground there is for supposing that
the parties have failed to address their minds to the question at issue. It is not enough that it
is reasonable to imply a term; it must be necessary to do so to give business efficacy to the
contract.
This is not a case in which an obvious provision was overlooked by the parties and omitted
from the contract. Rather it was a case in which the parties made a common assumption
which masked the need to explore what provision should be made to cover the event which
occurred. In ordinary circumstances negotiation about the matter might have yielded any
one of a number of alternative provisions, each being regarded as a reasonable solution.
My reluctance to imply a term is the stronger because the contract in this case was not a
negotiated contract. The terms were determined by the Authority in advance and there is
some force in the argument that the Authority looked to Codelfa to shoulder the
responsibility for all risks not expressly provided for in the contract.

2.2.2 Informal contracts

(A) Hawkins v Clayton

Where it is apparent that the parties have not attempted to spell out the full terms of their
contract, a court should imply a term by reference to the imputed intention of the parties if,
but only if, it can be seen that the implication of the particular term is necessary for the
reasonable or effective operation of a contract of that nature in the circumstances of the
case.

(B) Byrne v Australian Airlines

Facts: the appellants were employed by the respondent as baggage handlers at Sydney
airport. They were dismissed from their employment for pilfering. They claim their dismissal
was harsh, unjust or unreasonable, in breach of the Transport Workers (Airlines) Award
1988.
Issue: whether a term should be implied into the agreement to the same effect as the
Award.
Held: (Brennan CJ, Dawson and Toohey JJ) a rigid approach (BP test) should be avoided in
cases where there is no formal contract. It is necessary to arrive at some conclusion as to
the actual intention of the parties before considering any presumed or imputed intention. And
the test to be then applied was formulated in Hawkins v Clayton.
(McHugh and Gummow JJ) caution is required against an automatic and rigid application of
the cumulative criteria identified in BP when the contract is not wholly in writing.
Implied in law?
Terms implied by the application of what one might call the business efficacy test are terms
unique to the particular contract in question, depending upon the form of the contract, the
express terms and the surrounding circumstances. By contrast, terms implied by law are, in
general, implied in all contracts of a particular class or which answer a given description.
12
 In the present case, the contract is not rendered nugatory if the existing provisions remain to
operate concurrently with the regime established by the Award. There is nothing to suggest
that the contracts of employment were not workable and effective before the introduction of
the provisions. This is not a case where such provision is necessary lest the contract be
deprived of its substance, seriously undermined or drastically devalued in an important
respect.
Principle: the test for implication in informal contract is “necessary for the reasonable or
effective operation of a contract of that nature in the circumstances of the case”.

2.3 Specific terms

2.3.1 Duty of good faith

Good faith
• Implied in law: all contract by their nature must be performed in good faith
• Implied in fact: when a particular type of transaction demonstrates that
it’s necessary to give business efficacy
• Construction
o Mackay v Dick: As a general rule, where in a written contract it appears
that both parties have agreed that something shall be done, which
cannot effectually be done unless both concur in doing it, the
construction of the contract is that each agrees to do all that is
necessary to be done on his part for the carrying out of that thing,
though there may be no express words to that effect

(A) Royal Botanic Gardens & Domain Trust v South Sydney City Council
Held: High Court declined to take the opportunity to consider the boundaries of the duty of
good faith and to lay down a framework which may have contributed to the formulation of the
scope and operation of that duty.

(B) Secured Income Real Estate v St Martins Investments

Facts: Vendor of office block is owed $170K of purchase price, to be paid only if certain
rental returns are confirmed. Vendor offered to lease so much of the space from purchaser
to raise rents to the required level, but purchaser refused to let space to vendor (and hence
did not have to pay the $170K).
Held: (Mason J) it is common ground that the contract imposed an implied obligation on
each party to do all that was reasonably necessary to secure performance of the contract.
There is clearly manifested in the contractual provisions, inaptly expressed in part though
they are, the intention that the respondent was not to be entitled before the final date for
completion by any capricious or arbitrary decision to prevent the grant of a lease of unlet
space in the building.
The respondent was not entitled to refuse to grant a lease to the appellant so as to deprive
the appellant of a benefit which would otherwise accrue to it under the contract. On the other
hand, a refusal on the ground that there were doubts that the appellant could or would pay
the rent promptly would, if the ground were made out, not be capricious or arbitrary.

(C) Renard Constructions v Minister for Public Works

(Case decided on facts.)
Facts: Renard, the contractor, and the Minister, the principal, entered into a contract for the
construction of pumping stations. The contracts provides that if the contractor fails within the
period specified in the notice in writing to show cause to the satisfaction of the principal, the
principal may take over the work or cancel the contract.
Project manager was concerned by the delay and poor workmanship of the contractor and
recommended the contractor be called upon to show cause. Contractor responded. Senior
officer of the principal was not aware of the contractor’s submissions and decided to take
over.
Held: (Priestley JA) implication in fact
It seems relatively obvious that an objective and reasonable outsider to this contract would
assume without serious questions that the principal would have to give reasonable
13
 consideration to the question whether the contractor had failed to show cause and then, if
the principal had reasonably concluded that the contractor had failed, that reasonable
consideration must be given to whether any power and if any which power should be
exercised.
Business efficacy: the over-riding purpose of the contract is to have the contract work
completed by the contractor, in return for payment by the principal. The contract can only be
effective as a workable business document under which the promises of each party to the
other may be fulfilled, that is, as subject to requirements of reasonableness.
Implication by law
For the class of contract in which one party promises to build a work of some size for the
other party for a price fixed by the contract, which sets out to regulate the carrying out of the
contract, and in doing so provides for a number of eventualities (e.g. slow work,
unsatisfactory work, financial problems of the contractor, method of payment, settlement of
disputes), the law would attach the same implication as a necessary incident of such
contracts.
Good faith
Inclusion of ex aequo et bono clause in NSW is not against public policy. There is a close
association of ideas between the terms unreasonableness, lack of good faith, and
unconscionability. There is strong argument for recognition in Australia of the obligation
similar to that in the US.
(Handley JA) case can be resolved by construing the meaning of the clause. “Showing
cause” already infers a need to make a reasonable assessment of facts.
(Meagher JA) rejects any obligation of reasonableness. Parties can act in their own best
interest. But decides on the facts that the principal could not have been ‘satisfied’ since all
the information given to the principal was misleading and distorted.

(D) Burger King v Hungry Jack’s

Facts: HJ and BK entered into a Development Agreement. Under the Agreement, HJ was
required to develop at least 4 restaurants per year. For each restaurant HJ need to obtain
approvals, which is at the ‘sole discretion’ of BK.
Held: HJ claimed that there were implied terms that BK would do all that was reasonably
necessary to enable HJ to enjoy the benefits of the Agreement; that BK must act reasonably
in exercising its powers under the Agreement; and that there was an implied obligation on
BK to act in good faith in the exercise of its contractual powers.
Examples of terms implied by law
Traditionally, specific terms have been implied by law into contracts of a certain class.
Examples include contracts between employer/employee (implied term not to disclose secret
processes), for the sale of goods (implied terms of reasonable fitness and merchantable
quality and that payment and delivery of goods are concurrent obligations), for the provision
of work and materials, between landlord and tenant (implied term that premises will be
reasonably fit for habitation) and in contracts of carriage by sea (an implied warranty of
seaworthiness)
For a term to be implied in a new category of case, it must be both reasonable and
necessary.
Meaning of good faith and reasonableness
Australian cases make no distinction of substance between the implied term of
reasonableness and that of good faith.
Implied term of good faith and reasonableness
The extraordinary range of operational requirements in the franchise agreements created a
need to imply an obligation of reasonableness and good faith in the exercise of powers and
discretions. That does not mean that BK is not entitled to have regard only to its legitimate
interests in exercising its discretion. However, it must not do so for a purpose extraneous to
the contract.

14
 2.3.2 Duty to cooperate

(A) Servcorp WA v Perron Investments

Facts: parties entered into a lease included a renewal clause. If parties cannot agree on the
renewed rent, the new rent will be determined at current market rent by reference to external
valuation experts appointed by parties. The lessee refused to agree to appoint the expert
and claimed an entitlement to continue on the old rent. The lessor alleged that there was an
implied term to the effect that each of the parties agreed to do all things as were reasonably
necessary on its behalf to enable the other party to have the benefit of the agreement; that
each of the parties must not unreasonably refuse to agree to the appointment of an expert.
Held: overview of principles
It is a general rule applicable to every contract that each party agrees, by implication, to do
all such things as are necessary on his part to enable the other party to have the benefit of
the contract.
The implied duty to co-operate cannot over-ride the express provisions of the contract;
Similarly, a duty to co-operate cannot be imposed on a party to compel him to bring about a
circumstance or result that the contract does not require, or to do something that the
contract would relieve him from doing.
Application of BP test
Business efficacy: the case advanced on the Lessee's behalf in effect frustrates the rent
review process under the agreement by asserting that the Lessee is entitled to refuse to
agree without reasonable cause.
Reasonable and equitable: taking into account the objective framework of facts within which
the Agreement came into existence and the parties' presumed intention in this setting, and
generally for the reasons I have given in concluding that the business efficacy requirement
was satisfied, the implied term pleaded as the Lessor's primary contention was reasonable
and equitable as between the parties.
Contradictory to the express terms: the implied term contemplates that there may be
circumstances in which the Lessee can properly decline to agree. The Lessee's right under
to decline to agree is not expressed to be unconditional or unqualified. Even if, contrary to
my view, the Lessee's entitlement is unconditional and unqualified, it does not follow that the
implied term contradicts any express term. An implied term which supplements or is an
exception to the general effect of an express term will not necessarily contradict the express
term.
Obvious: if the parties had intended that the Lessee should have an unfettered discretion to
decide whether the rent should be reviewed by reference to the Current Market Rent, then
the multi-step process would have been unnecessary.
Clarity: In the present case, the imposition of the implied term pleaded as the Lessor's
primary contention does not, by the imposition of a standard of 'reasonableness', fail to
satisfy the requirement of clarity of expression.

2.4 Implied by custom and usage

2.4.1 Con-Stan Industries of Australia v Norwich Winterthur Insurance (Australia) Ltd

Facts: Con-Stan engaged Bedford as its insurance broker to secure various insurances. Norwich
was selected. Premiums were paid by Con-Stan to Bedford but Bedford didn’t pass on to Norwich.
Bedford was wound up and Norwich sued Con-Stan to recover the premiums.
Held: (per Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ) under the general principles of the
law of agency, a broker is the agent of the assured, not the insurer. Con-Stan argued that there was
an implied term in the contract of insurance between Con-Stan and Norwich that an insurer is
entitled to look only to the broker for payment of the premium, or that payment by an assured to his
broker is a good discharge of his obligation to the insurer.
Propositions:
(A) The existence of a custom or usage that will justify the implication of a term is a question of
fact
(B) There must be evidence that the custom relied on is so well known and acquiesced in that
everyone making a contract in that situation can reasonably be presumed to have imported
that term into the contract. It is not necessary to be universally accepted.
15
 (C) A term will not be implied into a contract on the basis of custom where it is contrary to the
express terms of the agreement.
(D) A person may be bound by a custom notwithstanding the fact that he had no knowledge of it.
(E) It is necessary to establish a clear course of conduct.
In this case the custom alleged has not been proved to the high standard which the law requires.

2.5 Implied by statute

2.5.1 Sales of Goods Act

13 Ascertainment of price
(1) The price in a contract of sale may be fixed by the contract, or may be left to be fixed in manner thereby
agreed, or may be determined by the course of dealing between the parties.
(2) Where the price is not determined in accordance with the foregoing provisions, the buyer must pay a
reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each
particular case.

17 Implied undertaking as to title etc

In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there
is:
(1) an implied condition on the part of the seller that in the case of a sale the seller has a right to sell the
goods, and that in the case of an agreement to sell the seller will have a right to sell the goods at the time
when the property is to pass,
(2) an implied warranty that the buyer shall have and enjoy quiet possession of the goods,
(3) an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third
party not declared or known to the buyer before or at the time when the contract is made.

18 Sale by description
Where there is a contract for the sale of goods by description, there is an implied condition that the goods
shall correspond with the description; and if the sale be by sample as well as by description, it is not
sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the
description.

19 Implied condition as to quality or fitness

Subject to the provisions of this Act, and of any statute in that behalf, there is no implied warranty or
condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale,
except as follows:
(1) Where the buyer expressly or by implication makes known to the seller the particular purpose for which
the goods are required so as to show that the buyer relies on the seller’s skill or judgment, and the goods are
of a description which it is in the course of the seller’s business to supply (whether the seller be the
manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose:
Provided that in the case of a contract for the sale of a specified article under its patent or other trade name
there is no implied condition as to its fitness for any particular purpose.
(2) Where goods are bought by description from a seller who deals in goods of that description (whether the
seller be the manufacturer or not), there is an implied condition that the goods shall be of merchantable
quality:
Provided that if the buyer has examined the goods there shall be no implied condition as regards defects
which such examination ought to have revealed.
(3) An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the
usage of trade.
(4) An express warranty or condition does not negative a warranty or condition implied by this Act unless
inconsistent therewith.

20 Sale by sample
(1) A contract of sale is a contract for sale by sample where there is a term in the contract express or implied
to that effect.
(2) In the case of a contract for sale by sample:
(a) there is an implied condition that the bulk shall correspond with the sample in quality,
(b) there is an implied condition that the buyer shall have a reasonable opportunity of comparing the bulk
with the sample,

16
 (c) there is an implied condition that the goods shall be free from any defect rendering them unmerchantable
which would not be apparent on reasonable examination of the sample.

32 Rules as to delivery
(1) Whether it is for the buyer to take possession of the goods, or for the seller to send them to the buyer, is
a question depending in each case on the contract express or implied between the parties. Apart from any
such contract express or implied, the place of delivery is the seller’s place of business if the seller has one,
and if not, the seller’s residence:
Provided that if the contract be for the sale of specific goods which to the knowledge of the parties when the
contract is made are in some other place, then that place is the place of delivery.
(2) Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for
sending them is fixed, the seller is bound to send them within a reasonable time.
(3) Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller
to buyer unless and until the third person acknowledges to the buyer that the third person holds the goods on
the buyer’s behalf:
Provided that nothing in this section shall affect the operation of the issue or transfer of any document of title
to goods.
(4) Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a
reasonable hour is a question of fact.
(5) Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state
must be borne by the seller.

57 Exclusion of implied terms and conditions

Where any right, duty, or liability would arise under a contract of sale by implication of law, it may be
negatived or varied by express agreement, or by the course of dealing between the parties, or by usage, if
the usage be such as to bind both parties to the contract.

2.5.2 Australian Consumer Law

51 Guarantee as to title
(1) If a person (the supplier) supplies goods to a consumer, there is a guarantee that the supplier will have
a right to dispose of the property in the goods when that property is to pass to the consumer.
(2) Subsection (1) does not apply to a supply (a supply of limited title) if an intention that the supplier of
the goods should transfer only such title as the supplier, or another person, may have:
(a) appears from the contract for the supply; or
(b) is to be inferred from the circumstances of that contract.
(3) This section does not apply if the supply is a supply by way of hire or lease.

52 Guarantee as to undisturbed possession

(1) If:
(a) a person (the supplier) supplies goods to a consumer; and
(b) the supply is not a supply of limited title;
there is a guarantee that the consumer has the right to undisturbed possession of the goods.
(2) Subsection (1) does not apply to the extent that the consumer’s undisturbed possession of the goods
may be lawfully disturbed by a person who is entitled to the benefit of any security, charge or encumbrance
disclosed to the consumer before the consumer agreed to the supply.
(3) If:
(a) a person (the supplier) supplies goods to a consumer; and
(b) the supply is a supply of limited title;
there is a guarantee that the following persons will not disturb the consumer’s possession of the goods:
(c) the supplier;
(d) if the parties to the contract for the supply intend that the supplier should transfer only such title as
another person may have—that other person;
(e) anyone claiming through or under the supplier or that other person (otherwise than under a security,
charge or encumbrance disclosed to the consumer before the consumer agreed to the supply).
(4) This section applies to a supply by way of hire or lease only for the period of the hire or lease.

53 Guarantee as to undisclosed securities etc.

17
(1) If:
(a) a person (the supplier) supplies goods to a consumer; and
(b) the supply is not a supply of limited title;
there is a guarantee that:
(c) the goods are free from any security, charge or encumbrance:
(i) that was not disclosed to the consumer, in writing, before the consumer agreed to the supply; or
(ii) that was not created by or with the express consent of the consumer; and
(d) the goods will remain free from such a security, charge or encumbrance until the time when the property
in the goods passes to the consumer.
(2) A supplier does not fail to comply with the guarantee only because of the existence of a floating charge
over the supplier’s assets unless and until the charge becomes fixed and enforceable by the person to whom
the charge is given.
(3) If:
(a) a person (the supplier) supplies goods to a consumer; and
(b) the supply is a supply of limited title;
there is a guarantee that all securities, charges or encumbrances known to the supplier, and not known to
the consumer, were disclosed to the consumer before the consumer agreed to the supply.
(4) This section does not apply if the supply is a supply by way of hire or lease.

54 Guarantee as to acceptable quality

(1) If:
(a) a person supplies, in trade or commerce, goods to a consumer; and
(b) the supply does not occur by way of sale by auction;
there is a guarantee that the goods are of acceptable quality.
(2) Goods are of acceptable quality if they are as:
(a) fit for all the purposes for which goods of that kind are commonly supplied; and
(b) acceptable in appearance and finish; and
(c) free from defects; and
(d) safe; and
(e) durable;
as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden
defects of the goods), would regard as acceptable having regard to the matters in subsection (3).
(3) The matters for the purposes of subsection (2) are:
(a) the nature of the goods; and
(b) the price of the goods (if relevant); and
(c) any statements made about the goods on any packaging or label on the goods; and
(d) any representation made about the goods by the supplier or manufacturer of the goods; and
(e) any other relevant circumstances relating to the supply of the goods.
(4) If:
(a) goods supplied to a consumer are not of acceptable quality; and
(b) the only reason or reasons why they are not of acceptable quality were specifically drawn to the
consumer’s attention before the consumer agreed to the supply;
the goods are taken to be of acceptable quality.
(5) If:
(a) goods are displayed for sale or hire; and
(b) the goods would not be of acceptable quality if they were supplied to a consumer;
the reason or reasons why they are not of acceptable quality are taken, for the purposes of subsection (4), to
have been specifically drawn to a consumer’s attention if those reasons were disclosed on a written notice
that was displayed with the goods and that was transparent.
(6) Goods do not fail to be of acceptable quality if:
(a) the consumer to whom they are supplied causes them to become of unacceptable quality, or fails to take
reasonable steps to prevent them from becoming of unacceptable quality; and

18
 (b) they are damaged by abnormal use.
(7) Goods do not fail to be of acceptable quality if:
(a) the consumer acquiring the goods examines them before the consumer agrees to the supply of the
goods; and
(b) the examination ought reasonably to have revealed that the goods were not of acceptable quality.

55 Guarantee as to fitness for any disclosed purpose etc.

(1) If:
(a) a person (the supplier) supplies, in trade or commerce, goods to a consumer; and
(b) the supply does not occur by way of sale by auction;
there is a guarantee that the goods are reasonably fit for any disclosed purpose, and for any purpose for
which the supplier represents that they are reasonably fit.
(2) A disclosed purpose is a particular purpose (whether or not that purpose is a purpose for which the
goods are commonly supplied) for which the goods are being acquired by the consumer and that:
(a) the consumer makes known, expressly or by implication, to:
(i) the supplier; or
(ii) a person by whom any prior negotiations or arrangements in relation to the acquisition of the goods were
conducted or made; or
(b) the consumer makes known to the manufacturer of the goods either directly or through the supplier or
the person referred to in paragraph (a)(ii).
(3) This section does not apply if the circumstances show that the consumer did not rely on, or that it was
unreasonable for the consumer to rely on, the skill or judgment of the supplier, the person referred to in
subsection (2)(a)(ii) or the manufacturer, as the case may be.

56 Guarantee relating to the supply of goods by description

(1) If:
(a) a person supplies, in trade or commerce, goods by description to a consumer; and
(b) the supply does not occur by way of sale by auction;
there is a guarantee that the goods correspond with the description.
(2) A supply of goods is not prevented from being a supply by description only because, having been
exposed for sale or hire, they are selected by the consumer.
(3) If goods are supplied by description as well as by reference to a sample or demonstration model, the
guarantees in this section and in section 57 both apply.

3. CONSTRUCTION

3.1 Parol evidence rule

Dealing with “what do these terms mean”. See 1.2 for “what are the terms of the contract”.
The parol evidence rule prevents the use of extrinsic evidence, or outside evidence, as an aid to explain the
meaning of the terms of the written contract.

3.1.1 Codelfa
The broad purpose of the parol evidence rule is to exclude extrinsic evidence (except as to
surrounding circumstances), including direct statements of intention (except in cases of latent
ambiguity) and antecedent negotiations, to subtract from, add to, vary or contradict the language of a
written instrument. Generally speaking facts existing when the contract was made will not be
receivable as part of the surrounding circumstances as an aid to construction, unless they were
known to both parties, although if the facts are notorious knowledge of them will be presumed.

3.2 Principles of construction

What would reasonable persons in the positions of the parties have understood the words to mean by
reference to:
• The text of the agreement;
• Surrounding circumstances known to the parties at the time;
• The purpose (‘genesis’) and object of the transaction.
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 Prefer a commercially sensible construction; avoid ‘nonsense’.

3.2.1 Mackay v Dick (1881) 6 App Case 251

As a general rule, where in a written contract it appears that both parties have agreed that
something shall be done, which cannot effectually be done unless both concur in doing it, the
construction of the contract is that each agrees to do all that is necessary to be done on his part for
the carrying out of that thing, though there may be no express words to that effect

3.2.2 Pacific Carriers v BNP Paribas

Facts: a cargo of legumes was shipped from Australia to India by Pacific Carries. Seller NEAT
instructed Pacific to deliver cargo to such person as directed by the purchaser Royal. Pacific was
asked to take a risk to deliver cargo to people who could not produce a bill of lading. Pacific sought
indemnity in respect of loss or damage. A letter of indemnity was provided by Royal signed by a
bank. But the bank disclaimed liability and merely authenticated Royal’s signature. Pacific rejected
the letter. NEAT asked its bank BNP to sign a letter of indemnity without the disclaimer. BNP officer
signed the letter but was not authorised to bind BNP to any indemnity. Limitation of authority was not
known to Pacific. Pacific subsequently suffered loss and sued BNP.
Held: The meaning of commercial documents should be determined objectively. The construction of
the letter of indemnity is to be determined by what a reasonable person in the position of Pacific
would have understood them to mean. That requires consideration, not only of the text, but also the
surrounding circumstances known to Pacific and BNP, and the purpose and object of the
transaction.
The commercial purpose was plain. Pacific had limited knowledge of the financial capacity of NEAT.
The terms of the document understood in the light of the surrounding circumstances and the
purpose and object of the transaction, and the market in which the parties were operating, meant
that BNP was undertaking an obligation of indemnity. There was nothing in the terms to indicate that
BNP was merely authenticating the execution by NEAT, and there was nothing in the surrounding
circumstances to suggest that Pacific would accept such authentication only.

3.3 Evidence in construing a contract

3.3.1 Subjective intentions

No admissible.

3.3.2 Prior negotiation

Evidence of pre-contractual negotiations will be admissible to establish objective background facts
which were known to both parties and the subject matter of the contract; not admissible for the
purpose of providing the subjective intentions and expectations of the parties. (Codelfa)

3.3.3 Subsequent conduct

It is not legitimate to use as an aid in the construction of a contract anything which the parties said or
did after it was made.
Evidence of subsequent conduct may be sued to decide whether a contract has been entered into,
identify the subject matter of the contract, and ascertain the terms of a contract not wholly in writing.

3.3.4 Surrounding circumstances

Surrounding circumstances comprise (i) the general commercial background of the contract; (ii) the
genesis of the contract; and (iii) such other material as is required to determine, objectively, the
purpose, aim or object of the contract.

(A) UK approach
Evidence of the surrounding circumstances should always be admissible in construing a
contract.

(1) Investors Compensation Scheme Ltd v West Bromwich Building Society

(a) Ascertain meaning the document would convey to a reasonable person with
all the background knowledge reasonably available to the parties at the time
of the contract.
(b) Background includes anything that would ‘have affected the way in which
the language of the document would have been understood by a
reasonable’ person.
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 (c) Previous negotiations and subjective intentions are excluded.
(d) Background may indicate ‘the parties must, for whatever reason, have used
the wrong words’.
(e) Give words their ‘natural and ordinary’ meaning but if background facts
indicate an error in language ‘the law does not require judges to attribute to
the parties an intention which they plainly could not have had’.
Interpretation must ‘yield to business common sense’. (Not in Australia)

(B) Australian approach

(1) Codelfa
Evidence of surrounding circumstances is restricted to ‘factual background known to
the parties at or before the date of the contract”.
Evidence of pre-contractual negotiations and intentions is not admissible, because it
is not evidence of the contract that the parties actually eventually made.
The true rule is that evidence of surrounding circumstances is admissible to assist in
the interpretation of the contract if the language is ambiguous or susceptible of more
than one meaning. But it is not admissible to contradict the language of the contract
when it has a plain meaning.
Codelfa is directed to how an ambiguity is resolved and is silent on the question of
how an ambiguity is identified. No authority whether surrounding circumstances are
admissible when identifying ambiguity.

(2) Royal Botanic Gardens and Domain Trust v South Sydney City Council
Facts: Trustees of the Domain and Council entered into a lease for a term of 50
years. The lease provides that the yearly rent during each subsequent 3 year period
may be determined having regard to additional costs and expenses in maintaining
grounds above the subterranean carpark.
Issue: whether the lessor could have regard to other considerations
Held: in the context, to specify a particular matter to which a party may have regard,
without expressly stating either that is the only such matter, or that the specification
does not limit the generality of the matters to which regard may be had is likely to
result in ambiguity. The resolution of the ambiguity requires the application of settled
principles of construction.
The clause read as a whole contained a statement of the totality of the matters to be
taken into account in fixing the successive rent determinations. This is consistent
with the non-commercial nature of the transaction, and reinforced by the absence of
any dispute resolution mechanism. No question of uncertainty arises in this
construction.
It is unnecessary to determine whether a broader view of the admissible background
than was taken in Codelfa is preferred. Courts should follow Codelfa.
It is inappropriate to consider here the implied obligation or duty of good faith and
fair dealing in contractual performance and the exercise of contractual rights and
powers.

(3) Western Export Services v Jireh International

(special leave. No precedential authority)
Facts: Jireh and WES entered into a written agreement. The relevant clause
provided for the payment of commission by Jireh to WES on the price of coffees,
teas and other products sold by Jireh to GJGC stores; the clause made no mention
of payment where the products were sold by any entity other than Jireh. In
particular, it made no mention of two associated companies of Jireh that
commenced to supply GJGC stores in 2004.
Held: NSW Court of Appeal (Macfarlan JA) courts must of course give commercial
agreements a commercial and business-like interpretation. However, their ability to
do so is constrained by the language used by the parties. If after considering the
contract as a whole and the background circumstances known to both parties, a
court concludes that the language of a contract is unambiguous, the court must give
effect to that language unless to do so would give the contract an absurd operation.
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 In the case of absurdity, a court is able to conclude that the parties must have made
a mistake in the language that they used and to correct that mistake. A court is not
justified in disregarding unambiguous language simply because the contract would
have a more commercial and businesslike operation if an interpretation different to
that dictated by the language were adopted.

(4) Electricity Generation Corporation v Woodside Energy Ltd

Facts: Woodside and EGC entered into a long term gas supply agreement. In
addition to providing for the delivery of a proportionate share of a maximum daily
quantity of gas, the agreement had provided for the Woodside to use reasonable
endeavours to make available to the EGC a supplemental maximum daily quantity of
gas. Woodside was entitled to take into account ‘relevant commercial, economic and
operational matters’ in determining whether it was ‘able’ to supply the supplemental
daily quantity. Following an explosion at a third party gas plant which led to a
temporary reduction in the gas supply in Western Australia, Woodside informed
EGC that it would not supply the supplemental maximum daily quantity of gas for an
indefinite period. EGC had to enter into short term contracts for gas supply at prices
above the long term supply contract prices, even though Woodside had the physical
capacity to supply the supplemental maximum daily quantity of gas to it.
Held: The meaning of the terms of a commercial contract is to be determined by
what a reasonable businessperson would have understood those terms to mean. It
will require consideration of the language used by the parties, the surrounding
circumstances known to them and the commercial purpose or objects to be secured
by the contract. Appreciation of the commercial purpose or objects is facilitated by
an understanding ‘of the genesis of the transaction, the background, the context and
the market in which the parties are operating’.
Comment: inconsistency of approach or a ‘divergence’ between Woodside and
Jireh. Jireh supports the proposition that ‘ambiguity’ can be evaluated without regard
to surrounding circumstances and commercial purpose or objects.

(5) Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd
Facts: Wright Prospecting Pty Ltd, Hancock Prospecting Pty Ltd (together
‘Hanwright’), and Hamersley Iron Pty Ltd and Mount Bruce Mining Pty Ltd (‘MBM’)
entered into an agreement governing the payment of royalties in relation to iron ore
mined by MBM.
Issue: (1) whether the phrase ‘MBM area’ in the 1970 agreement referred to an area
of land fixed by the then existing boundaries of identified temporary reserves to
which rights of occupancy had been transferred to MBM (as had been held by the
primary judge with whom the New South Wales Court of Appeal agreed) or was a
reference to the rights themselves. (2) what is the proper construction of the phrase
‘persons or corporations deriving title through or under’ MBM
Held: the term was ambiguous, therefore the case did not raise the question
whether ambiguity must be shown before a court interpreting a written contract can
have regard to background circumstances.
Kiefel and Keane JJ imply that the issue is not yet settled. French CJ, Nettle &
Gordon JJ imply that resort to external circumstances is legitimate only when there
is a ‘constructional choice’.
Summary of the applicable legal principles to the construction of commercial
contracts
(a) The rights and liabilities of parties under a provision of a contract are
determined objectively, by reference to its text, context (the entire text of the
contract as well as any contract, document or statutory provision referred to
in the text of the contract) and purpose.
(b) In determining the meaning of the terms of a commercial contract, it is
necessary to ask what a reasonable businessperson would have understood
those terms to mean. That inquiry will require consideration of the language
used by the parties in the contract, the circumstances addressed by the
contract and the commercial purpose or objects to be secured by the
contract.

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 (c) Ordinarily, this process of construction is possible by reference to the
contract alone. Indeed, if an expression in a contract is unambiguous or
susceptible of only one meaning, evidence of surrounding circumstances
(events, circumstances and things external to the contract) cannot be
adduced to contradict its plain meaning.
(d) However, sometimes, recourse to events, circumstances and things external
to the contract is necessary. It may be necessary in identifying the
commercial purpose or objects of the contract where that task is facilitated
by an understanding ‘of the genesis of the transaction, the background, the
context [and] the market in which the parties are operating’. It may be
necessary in determining the proper construction where there is a
constructional choice.
(e) Each of the events, circumstances and things external to the contract to
which recourse may be had is objective. What may be referred to are
events, circumstances and things external to the contract which are known
to the parties or which assist in identifying the purpose or object of the
transaction, which may include its history, background and context and the
market in which the parties were operating. What is inadmissible is evidence
of the parties’ statements and actions reflecting their actual intentions and
expectations.
(f) A commercial contract should be construed so as to avoid it ‘making
commercial nonsense or working commercial inconvenience’.

(6) Victoria v Tatts Group

Facts: A term required the State to pay compensation to Tatts if it did not renew a
‘gaming licence’, but not if it issued no gaming licences to anyone. The State
changed its gambling regulation regime, and issued different kinds of authorities to
operate gambling machines.
Issue: was Tatts entitled to compensation?
Held: “gaming licence” had a specific meaning, related to the earlier legislation.
Since no gaming licence was issued under that particular legislation, no
compensation was available to Tatts. The court first look at the definitions in the
agreement itself, and then context and purpose of the agreement. The court also
looked at Treasurer’s letter accompanying the agreement.
Comments: it seems that the court is giving more weight to context and purpose.

(7) Escosse Property Holdings v Gee Dee Nominees

Facts: parties entered into an agreement for a 99 year lease of a parcel of farming
land, given by a land owner in receivership, because a refusal of subdivision made
outright sale impossible
Issue: who had to pay the rates and taxes on the land
Held: the dispute clause “can only be so construed for what it is: a clumsily tailored
variation of an ill-fitting off-the-shelf precedent. To bring linguistic and grammatical
precision to its construction would be to burden the clause with more weight than its
jumble of words will bear. Court went back to the purpose and treated it as an
outright sale.

(C) On-going debate

Can you use evidence of surrounding circumstances and context to RAISE (and not merely
RESOLVE) an ambiguity

(1) Bruce v Baju Henly Square [2016] SASCFC

Issue: whether mention of floor space size on a ‘concept drawing’ of a new
apartment was a term of the contract
Held: Objectively assess the purpose and nature of the drawing in the context of the
whole parcel of contract documents (including more detailed architectural drawings).
It was a marketing document, and it carried a disclaimer, so the statement of size
could not be relied on.

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(2) Apple and Pear Australia Ltd v Pink Lady America LLC [2016] VSCA
Facts: Parties executed an option deed to grant Apple an option to acquire
trademark of Pink. If exercised, Apple would be granted exclusive licence to use the
trademark of Pink.
Issue: whether "trademarks" applies only to those listed in schedule or they also to
those later trademark adopted by Pink.
Held: (discussion of important High Court authorities at [91]-[140])
(Tate JA) The words were not ambiguous. The agreement was not futile, just less
commercially valuable to Pink. External circumstances were not admissible when
the words are not ambiguous.
(Ferguson, McLeish JJA) regard to external circumstances would not have altered
the result.

(3) Angas Securities Ltd. v Small Business Consortium Lloyds Consortium No

9065 [2016] NSWCA
Facts: SBC was the undertaker and Angas was the assured. Policy indemnified
Angas for losses suffered as a result of borrower defaults. Angas lent money on
security of mortgage over the house of the borrowers. They defaulted, and Angas
suffered loss. Angas sued the valuer, claiming that valuer was negligent in valuing.
Angas also claimed under the insurance. SBC wrote a letter to Angas, offered to pay
more than the indemnified losses, and offer to contribute to legal cost in action
against valuer. It was a term of their offer that any amount recovered from valuer
would be applied to the payment of their cost, and to reimburse SBC to the full
amount paid under the policy. Deed of release was signed, but no reference was
made to the arrangement in letter.
Disputed clause in the Deed: Angas agrees that repayment of the indemnity sum to
SBC takes priority from any funds received from any claim against a Third Party for
recovery of damages arising out of the default by the borrower (save for payment of
recovery costs).
Action against valuer successful.
Issue: whether Angas was only compelled to pay the proportion of the funds
recovered from the third party representing Angas’ losses that are indemnified under
the Policy or the entire amount
Held: the letter from SBC evidencing the cost sharing arrangement is an objective
fact that formed part of the surrounding circumstances that can be taken into
account in construing the Deed of Release.

(4) WIN Corporation Pty. Ltd. v Nine Network Australia Pty. Ltd. [2016] NSWCA
Facts: WIN and Nine operated under license issued under broadcasting services
act. Each licence specified geographic area in which licensee was authorised to
broadcast. WIN and Nine agreed that WIN could transmit Nine's programs in its own
area. Parties entered into a program supply agreement, under which Nine grants
WIN the exclusive licence to broadcast in areas covered by WIN’s licence. Because
the licence was exclusive, Nine could not televise free-to-air transmission in WIN's
area.
Issue: whether live streaming fell within “to broadcast”
Held: There was no single ‘plain and ordinary meaning’ of “broadcast”. Words are
inherently ambiguous without context. The context in this case include the legislative
definition as well.
Distinction between impermissible recourse to the parties’ subjective intentions and
expectations and permissible regard to objective matters known to the parties:
Evidence of prior negotiations is admissible to the extent that it establishes objective
facts known to both parties and the subject matter of the contract. Evidence
reflecting the subjective intentions of the parties is inadmissible for the purpose of
determining the meaning of the contract.
Court rejects Nine’s attempt to rely on earlier ‘long form drafts’ of the agreement
which specifically excluded live-streaming’.

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 Rule in Codelfa: A potential tension that inheres in this proposition is that to
recognise words as bearing a “plain meaning” is merely to state a conclusion arrived
at by some process of interpretation which cannot, as a matter of logic, exclude
context. The task of assessing whether a phrase or expression is ambiguous or
susceptible of more than one meaning does not necessarily have to be undertaken
without regard to evidence of surrounding circumstances.

(5) Zhang v ROC Services (NSW) Pty. Ltd. [2016] NSWCA

Facts: Zhang was injured and sued the driver, owner of trailer, insurer of driver's
employer, and ROC that installed the machinery. Insurer sought to rely on exclusion
clause that it would not pay “for any liability for death or bodily injury arising out of or
in any way connected with a defect in Your Motor Vehicle or in a Motor Vehicle, but
in Queensland only if it causes loss of control of the vehicle whilst it is being driven”.
Issue: whether the words "whilst it is being driven" applies only to accidents in
Queensland (in which case the exclusion clause would apply) or all the words (in
which case the exclusion clause would not apply because the car was stationary
when Zhang was injured).
Held: (Leeming JA) the starting point is to determine the literal or grammatical
meaning of the terms. Secondly, one then determines the legal meaning. Thirdly one
then applies the legal meaning to the facts of the case.
In determining whether susceptible to more than one meaning, the court should
consider text, content, purpose of provision, including relevant surrounding
circumstances.
The contract is to be read as a whole. It is not only permissible but mandatory to
have regard to how the potential legal meanings fit with the other provisions of the
contract.
The language should ordinarily be construed to give the policy a businesslike
construction and avoids a commercially absurd result.
Punctuation informs the meaning of a provision, but the significance of punctuation
is reduced if the policy uses punctuation in an inconsistent or haphazard manner.
Where two meanings are open, it is proper to adopt that meaning that will avoid
consequences that appear irrational and unjust. Injury caused by defect in vehicle in
Queensland while stationary was not excluded by the clause. It would be unjust to
operate different in Queensland as opposed to the rest of Australia.

(6) JR Consulting & Drafting v Cummings [2016] FCAFC

Held: the recitals ‘could be taken into account in determining surrounding
circumstances and the commercial purpose or object of the agreement, but that they
could not be used to expand or limit the operative provisions whether those
operative provisions are clear and unambiguous’.

4. EXCLUSION CLAUSES

4.1 Types of exclusion clauses

4.1.1 An exclusion clause may seek to exclude liability altogether - Davis v Pearce Parking.
4.1.2 An exclusion clause may also limit a party’s liability to a specified sum of money - Alderslade v
Hendon Laundry.
4.1.3 A clause may also exclude liability for certain kinds of loss, such as consequential loss.
4.1.4 Another kind of exclusion clause makes liability limited to certain requirements, such as a time limit -
H & E Van Der Sterren v Cibernetics (Holdings).

4.2 Question of construction

4.2.1 Primary rule

(A) Darlington Futures Ltd v Delco Australia Pty Ltd

Facts: Darlington was a broker dealing on the commodity futures market. It entered into a
written contract with Delco to engage in day trading. Without authority of Delco, Darlington
left the futures contracts being traded open for a longer period than one day and heavy
losses sustained. Darlington sought to rely on the exclusion clause in the contract that
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 Darlington will not be responsible for any loss arising in any way out of any trading activity
undertaken on behalf of Delco whether pursuant to the agreement or not (clause 6). Any
liability on Darlington’s part shall not in any event exceed $100 (clause 7).
Held: an exclusion clause is to be determined by construing the clause according to its
natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due
weight to the context in which the clause appears including the nature and object of the
contract, and where appropriate, construing the clause contra proferentem in case of
ambiguity. The same applies to limitation clauses.
Clause 6: parties did not intend to exclude liability for losses arising from trading activity
when Darlington had no authority to do so. Clause 7: a claim in respect of an unauthorised
transaction may nonetheless have a connexion with the relationship established by the
agreement.

4.2.2 Secondary rules

(A) Contra proferentem rule

An exclusion clause is ordinarily construed strictly against the party who is relying on the
clause.

(1) Wallis & Wells v Pratt & Haynes

Facts: seller agreed to sell seeds referred to in the contract as "common English
sainfoin". Seller provided that "sellers give no warranty express or implied as to
growth, description or any other matters". Inferior quality seeds were supplied to
purchaser. Seller sought to rely on exclusion clause to avoid liability.
Held: the clause only covered a breach of warranty and did not apply to the breach
of condition. “common English sainfoin” was a condition and therefore not excluded
by the clause.

(B) The four corners rule

A contractor who breaches the contract by stepping outside the four corners of the contract
will generally lose the protection of the exclusion clause.
It has almost exclusive application, in the context of bailment contracts.

(1) The Council of the City of Sydney v West

Facts: respondent parked his motor vehicle in the appellant’s parking station and
received a parking ticket which bore under the heading " Parking Conditions " the
following: "1. The Council does not accept any responsibility for the loss or damage
to any vehicle or for loss of or damage to any article or thing in or upon any vehicle
or for any injury to any person however such loss, damage or injury may arise or be
caused." "This ticket must be presented for time stamping and payment before
taking delivery of the vehicle." Respondent’s vehicle was taken from the parking
station by an unauthorised person using a duplicate ticket.
Held: the exclusion clause has no application to negligence in relation to acts done
with respect to a bailor's goods which are neither authorized nor permitted by the
contract. The clause clearly appears as one which contemplates that, in the
performance of the Council's obligations under the contract of bailment, some loss
or damage may be caused by reason of its servants' negligence; but it does not
contemplate or provide an excuse for negligence on the part of the Council's
servants in doing something which it is neither authorized nor permitted to do by the
terms of the contract.

(C) The deviation rule

A carrier of goods who deviates from the agreed voyage thereby loses the benefit of
exclusion clauses in the contract which would otherwise apply.

(1) Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty
Ltd
Facts: MB contracted with TNT for the carriage of goods. Pay was engaged by TNT
to collect the goods for transport to TNT’s depot. Pay collected the goods from MB
and took the goods to his home stored in a shed because TNT’s depot was closed.
This was in accordance with TNT’s practice. The shed caught fire and the goods
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 were damaged. TNT sought to rely on exclusion clause that the consignors had to
accept responsibility for any damage or loss of any goods while in the carrier’s
custody, and that no responsibility was accepted by the carrier either in trasit or in
storage for any reason whatsoever.
Held: (McTiernan, Taylor and Owen JJ) it was not within the contemplation of the
parties that an extremely valuable consignment of goods was to be kept overnight
by TNT’s servant or sub-contractor in the yard of a suburban cottage. TNT cannot
protect itself by seeking to rely upon the exemption clauses and, in such
circumstances as the present, it must be held liable for the damage which occurred
whether or not it can be said to have resulted from lack of care or to have been
directly caused by TNT’s unauthorised departure from the terms of the contract.
(Windeyer J, dissenting) the correct question is, is this departure a radical breach of
the contract? Deviation also prevents the carrier relying upon the exception clause in
the event of a loss occurring afterwards, unless it be shown that the same loss
would have occurred if there had not been a deviation.
This case is unlike those in which a carrier contracted to carry by an expressly
stipulated route, or bound to carry by his known usual and customary route, it being
the route by which he professes to go. Taking goods home in these circumstances
was not a radical breach or deviation. Negligent performance is not a fundamental
departure from a contract.

(D) Liability for negligence

(1) Canada SS Lines v R

Facts: Crown leases a shed on a dock to the company. The Crown’s servants
come to repair the shed doors using a blowtorch. Sparks set fire to goods (cotton
bales) within.
Issue: Did an exclusion clause in the lease exempt the Crown from damages
caused by the negligence of its servants?
Held: The contract as a whole included an obligation upon the Crown to keep the
building in good repair. It could not be the case that the Crown’s servants could be
exempted from liability for damaged caused in doing that work. (Note: this is
construing clauses within their context.)
Principle
(a) An express exclusion of liability for negligence must be given effect and is
sufficient to exclude liability
(b) Where there is no express reference to negligence, the court must consider
whether the words used are wide enough, with any doubt (or ambiguity)
being resolved contra proferentem. E.g.
• All liability, any loss: insufficient
• Whatever its cause, howsoever caused: sufficient
(c) If the words used are wide enough to cover liability for negligence it must be
considered whether the head of damage may be based on some ground
other than that of negligence. The other ground must not be ‘fanciful or
remote’.

(2) Davis v Pearce Parking Station Pty Ltd

Facts: Davis parked her car at a motor car parking station owned by defendant. She
received a printed document containing two parts, a delivery ticket and a parking
check. On the parking check were the words excluding “loss or damage of any
description”.
Held: the bailee is making a very small charge for taking the custody of goods which
are or may be of great value. He is likely to intend, and the bailor would reasonably
expect him to intend, to protect himself against a possibly very heavy liability arising
from the negligence of a servant. Either party can insure, and such a clause may
reasonably be taken by the bailor to mean that, if he wishes to be protected against
loss or damage at all, he must insure.

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5. PRIVITY

5.1 Basic rule

Only the parties to a contract are legally bound by and entitled to enforce it

5.1.1 Coulls v Bagot’s Executor and Trustee Co Ltd

Facts: Arthur Coulls, Doris Coulls and O’Neil signed a document where Arthur authorised O’Neil to
pay royalties to Arthur and Doris as joint tenants. Arthur died.
Issue: Whether Doris or Arthur’s estate was entitled to the royalties.
Held: (per Barwick CJ, dissenting) the agreement was a promise in respect of which there was
privity between A on the one hand and B and C on the other. It is clearly enforceable but only
enforceable if both B and C are parties to the action. Upon the death of one of the joint promisees,
the promise remains on foot and remains enforceable.
(per Taylor and Owen JJ) where there is joint promisees, an action to recover must be brought by
both promisees. On the death of one of such joint promisees, the right of action vests in the survivor.
The mere fact that Doris’ signature appears noes not make her a party; this is a question to be
resolved upon a consideration of the written instrument itself. The terms of the contract do not
negative the implication that it was the testator who was to be so entitled. Husband cannot alone
“authorise” the survivor to receive royalties after the death of either himself or his wife.
(per McTiernan J) the whole tenor of the document indicates that the document is a contract to
which the only parties are Arthur and the company.
(per Windeyer J, in dissent) A contracts with B that B will pay C $500. B fails to pay C. C cannot sue
B because C is not a party and hasn’t given consideration. If A sues B, there is no damages
because A doesn’t suffer any loss. (Solution in equity)

5.1.2 Beswick v Beswick

Facts: a man sold his business as a coal merchant to his nephew in consideration of the nephew’s
promise to pay, after his uncle’s death, a weekly amount to his aunt for her life. The aunt was not a
party to the agreement. After her husband’s death she brought an action against the nephew.
Held: she was not entitled to enforce the contract as third party beneficiary. She was entitled, in her
capacity as administratrix of her husband’s estate, to an order for specific performance of the
nephew’s undertakings.

5.1.3 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd

Facts: Blue Circle takes out an accident policy with Trident, and pays premiums to cover all
contractors. McNiece is a contractor. McNiece wishes to claim for an accident to one of its
employees. Trident rejects the claim on privity grounds.
Held: (Mason CJ and Wilson J) Recognise an exception to privity for insurance contracts.
Acknowledge that this constitutes a judicial amendment to the old privity rule (which dates back to
1861 - and has always been subject to criticism, and legislative amendment).
(Toohey J) a limited exception can be made for insurance cases.
(Deane J) Decides on the basis of trust principles: Blue Circle held the promises in trust for itself and
others, so McNiece should now join Blue Circle (as trustee) to the action against Trident.
Refused to find an exception to privity for insurance cases, because other principles of law are
available - agency, trust, estoppel and unjust enrichment.
(Brennan J, Dawson J, dissenting) Other avenues might have produced a result had they been
argued.
The ‘can of worms’ argument - we don’t know what havoc we would wreak by changing a
fundamental principle of contract law (privity). Leave it to statute.
(Gaudron J) McNiece cannot sue on the contract (not a party) but has an independent cause of
action in unjust enrichment, on the basis that Trident accepted premiums for insuring the risks that it
now refuses to cover.
[Beware of this argument. Australian law does not support any broad action for ‘restitution for unjust
enrichment’, outside of established categories (such as the quantum meruit claim accepted in Pavey
& Matthews v Paul).]

28
5.2 Exceptions

5.2.1 Agency
When an agent enters into a contract for a principal, the principal will be benefited and burdened by
that contract. (Wilson v Darling island)

5.2.2 Trusteeship
A trustee holds property upon trust for beneficiaries. Where the promisee holds the benefit of the
promise on trust for the third party beneficiary, the promisee may sue for the loss suffered by the
beneficiary. (Trident v McNiece)

5.3 Legal effects of contracts for the benefit of a third party

If the promisee obtains an order for specific performance, this will give the third party beneficiary the benefit
which they contemplated getting from the contract.

5.4 Special case: benefit of exclusion clauses

5.4.1 Bill of lading

(A) Scruttons Ltd v Midland Silicones Ltd

(Lord Reid) elements:
(1) The bill of lading makes it clear that the stevedore is intended to be protected by the
provisions in it which limit liability
(2) 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
(3) The carrier has authority from the stevedore to do that, or perhaps later ratification
by the stevedore would suffice
(4) Any difficulties about consideration moving from the stevedore were overcome

(B) Wilson v Darling Island Stevedoring & Lighterage Co Ltd

An exclusion clause in a bill of lading which purported to protect “the Carrier or his Agents or
servants” did not protect a stevedore which was the agent of the issuer because the
stevedore could not sue or be sued on a contract to which it was not a party.

(C) Port Jackson Stevedoring v Salmond & Spraggon (Aust)

A stevedore entitled to the benefit of a time bar clause in the bill of lading issued by the
charterer.
Facts: 37 cartons of razor blades had been shipped from Canada to Sydney, where the
stevedore unloaded them ad stored them in its wharfside shed. 33 cartons were stolen. The
shipment was covered by a bill of lading issued by the charterer to consignor, and
transmitted to and accepted by the plaintiff consignee. Clause 2 of the bill is a Himalaya
clause and there was a one year time bar provision.
Issue: was the stevedore entitled to the protection offered by the clause; if so, did that
clause cover the facts
Held: (Mason, Jacobs JJ) the Himalaya clause constituted an offer capable of acceptance
and when the stevedore, knowing of it, performed its conditions by unloading, it accepted
that offer and provided the consideration for it.
(Barwick CJ) the provisions constituted an agreement from the beginning with the stevedore
as distinct from an offer. The arrangement was a compact with agreed conditions to attend
the performance of certain acts, which are not promised to be done. The essential
characteristic is to provide an agreed consequence to future action should that action take
place: to attach conditions to a relationship arising from conduct. The performance of the
contemplated act both supplies the occasion for those conditions to operate and the
consideration which makes the arrangement contractual.

5.4.2 Application to other contracts

Not clear in Australia yet. If in future Australian law is to permit a third party intended to be benefited
by a contract a direct right of action on the contract, here would seem no obvious reason why this
approach should not also apply to the benefit of exclusion clauses.
29
 DISCHARGE
The duty of the parties to perform or further perform all obligations which were unperformed at the time of of
termination is terminated.
• Contract terms can continue to regulate the rights of the parties
• Rescission: exercise of a right to treat the contract as if it never existed

1. DISCHARGE BY AGREEMENT

1.1 Termination under the original contract

1.1.1 An express right to terminate

(A) Termination “at will”: a discretionary right to terminate at any time
(B) A right to terminate after a specified period of notice
(C) A right to terminate by “triggering events” such as breach or non-fulfilment of a contingent
condition.

1.1.2 Implied right to terminate a contract of otherwise indefinite duration

Where a contract is silent as to its duration, courts may be prepared to imply a right for one or both
of the parties to terminate the contract by giving reasonable notice of termination to the other party.
The period of time required for reasonable notice will depend on the circumstances of the particular
case. It is a question of fact.

1.2 Termination by subsequent agreement

1.2.1 Express agreements

Parties may terminate a contract by making a subsequent agreement under which each agrees to
release the other from the original contract.

(A) The issue of consideration

The subsequent agreement must comply with the formation rules, including consideration.
Where both parties still have obligations to perform under the contract, each party will
provide consideration in agreeing to release the other party from his or her remaining
obligations.
If one party has fully performed the contract, parties may execute a deed of termination, or
the non-performing party may provide “fresh consideration”. The contract is known as an
“accord and satisfaction”.
Accord = agreement discharging a contract
Satisfaction = consideration supporting the accord.

(B) McDermott v Black

Facts: Black alleged that he was induced by fraudulent misrepresentation made by
McDermott, the vendor, to enter into a contract of sale of shares. He later withdrew all
allegations conditional on McDermott granting him an extension of tem to complete the
contract. Extension was granted, but Black refused to complete, McDermott rescinded the
contract. Black sought to bring an action for damages in deceit, relying on the
misrepresentations that he had withdrawn.
Held: (Dixon J) an agreement not to sue upon particular allegations might give a defendant
a good equitable plea, but at common law it would be necessary to show that it amounted to
an accord and satisfaction discharging the cause of action.
The essence of accord and satisfaction is the acceptance by the plaintiff of something in
place of his cause of action. What he takes is a matter depending on his own consent or
agreement. It may be a promise or contract or it may be the act or thing promised. But,
whatever it is, until it is provided and accepted, the cause of action remains alive and
unimpaired. Until the satisfaction is given the accord remains executory and cannot bar the
claim.
Consideration may be provided in the form of a promise, or by actual performance of the
promised act. If the agreement is to accept a promise in satisfaction, the discharge of the

1
 liability is immediate; if the performance is required, then there is no discharge unless and
until the promise is performed.
[Equity]
(C) a contract required to be in writing can be terminated by a subsequent oral contract
(Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd (1957) 98 CLR 93)

1.2.2 Termination inferred from subsequent agreement

In the absence of an express term explaining the relationship between the two agreements, whether
the subsequent agreement varies, or terminates the original contract will depend on the intentions of
the parties as disclosed by the terms and circumstances of the subsequent agreement.

(A) Concut v Worrell

Facts: Worrell commences work with Concut under an oral contract in 1980. In 1986 they
execute a written ‘service agreement’, which purports to fix a term and record employment
conditions. In 1988 Concut dismisses Worrell, and Worrell claims damages to the end of the
fixed term contract. Concut relies on a breach of employment obligations pre-dating the
1986 service agreement (misappropriation of building materials etc).
cl 13 “Prior Service”: nothing contained in this agreement shall in anyway limit or restrict the
accrued rights in respect of prior services to long service leave, superannuation, holiday pay
and other like emoluments.
Held: terms of the Agreement suggested that the parties intended that the Service
Agreement would be a supplement to the existing employment contract and not replace it.

1.2.3 Termination by abandonment

Courts may treat the parties as having conducted themselves so as to mutually abandon their
contract.

(A) Fitzgerald v Masters

Facts: Masters contracts with the deceased to purchase an interest in his farm. Masters
pays a deposit and instalments, and works in partnership with the deceased for some years.
By 1931 he has paid more than half. Masters leaves the farm in 1932, and has been
contacting the deceased about the agreement since 1948. In 1951 Fitzgerald holds the
property as the executor. Fitzgerald argues that Maters has abandoned the contract.
Held: where an “inordinate” length of time has been allowed to elapse, during which neither
party has attempted to perform, it may be inferred to that the contract has been abandoned.
Here the contract had been partly performed. Before he left he had paid more than half of
the purchase price and had an equitable interest in the land. If he had at any time regarded
he contract as at an end, the first thing one would have expected him to do was to demand
repayment of his money.

2. DISCHARGE FOR FAILURE OF A CONTINGENT CONDITION

2.1 Condition

2.1.1 Contingent and promissory conditions

Contingent condition: neither party promises to ensure the occurrence of an event
Promissory condition: a contractual promise which is essential in that a breach of the promise by one
party will entitle the other party to terminate the contract and claim damages.

(A) Maynard v Goode

Facts: Goode agreed to buy land from Crosby, subject to a proviso that the transfer of land
owned by Goode went through in a reasonable time. Shortly afterwards Crosby purported to
sell land to Maynard. Goode sold his land to Angel within a reasonable time.
Held: (Isaacs J) the proviso is a condition precedent to the performance of a particular term
of the contract, in the sense that there was no obligation on Crosby to transfer unless Goode
first transferred his holding in reasonable time. In another sense it is a condition subsequent
in relation to the whole contract as a binding obligation. It was not necessary for the sale to
Angel to be completed before the contract with Crosby was binding.

2
 (Higgins J) a right to put an end to the contract or to refuse to perform it would not arise
thereunder automatically without some warning notice from the vendor, fixing a reasonable
limit of time for completion.

(B) Lewes Nominees Pty Ltd v Strang

Facts: Strang granted Lewes an option to purchase land which had to be exercised by
11/11/80, and exercise must be by notice accompanied by payment of 10% of the purchase
price. The notice and payment was posted on 11/11 but did not arrive until 12/11. A
photocopy of the notice and cheque was delivered personally on 11/11.
Held: notice and payment is a condition precedent to the exercise of the option. There was
no valid exercise of the option. Notice was given personally on 11/11 but it was not
accompanied by payment. Notice sent by post was accompanied by payment but was not
posted at a time when, in the ordinary course of delivery, it would have reached the Strang
before expiry date.

(C) Perri v Coolangatta Investments Pty Ltd

Facts: Perri entered into contract with Coolangatta to purchase land on 7/4/78 and paid
deposit. No time for completion was fixed. Special condition provided that the contract is
subject to Purchaser competing a sale of their property at Lilli Pilli. On 17/7/78 Coolangatta
issued a notice to complete by 8/8/78, and rescinded for Perri’s failure to complete on
10/8/78. On 27/2/79 Perri purported to waive the Special condition, entered a contract for the
sale of Lilli Pilli in 3/79, and sought to complete with Coolangatta on 15/3/79.
Held: (per Gibbs CJ) the special condition is a condition precedent to the performance of
certain obligations. A binding contract came into existence immediately upon signature, and
parties were from that moment subject to certain obligations. There was implied a promise
by Perri that they would do all that was reasonable to find a buyer for the Lilli Pilli property.
The implied promise is consistent with the notion that a binding contract has come into
existence.
The condition was for the benefit of Perri and Perri was entitled to waive it.
Promissory condition
Where time is not of the essence of the contract, and a party fails to carry out his obligations
within a stipulated time, the part not in default has a power to limit a particular time within
which the other party is to perform his obligations. A notice can only be given when the party
addressed is either in breach, or guilty of unreasonable delay. This principle does not apply
to contingent conditions.
Contingent condition
When time has elapsed for performance of a condition precedent, either party, if not in
default, can elect to treat the contract as at an end if the condition has not been fulfilled or
waived. It is unnecessary to give a prior notice calling on the other party to complete the
contract for fulfil the condition.
• Where a conditional contract fixes the date by which the condition is to be fulfilled,
the contract may be terminated if the condition has not been fulfilled on time.
• Where no time was fixed for completion, the condition must be fulfilled within a
reasonable time.

2.1.2 CP and CS
Condition precedent: condition must be fulfilled before the parties are bound to perform their
contract. Failure means the contract is void.
Condition subsequent: parties’ obligation to perform is immediately binding, but will come to an end
should the event specified in the condition occur. If the condition fails, the contract is voidable.

3. DISCHARGE BY PERFORMANCE

3.1 Performance

3.1.1 Time of performance

(A) Parties may expressly provide for the time at which their obligations are to be performed.

3
 (B) Where a contract does not specify the time of performance, the obligation in question must
be performed within a reasonable time. Reasonable time is a question of fact to be
determined at the time when performance is alleged to be due, not the moment of formation.

3.1.2 Order of performance

(A) Default rules

The order depends on the intention of the parties and is a question of construction.
There are established default rules which determine the order unless the parties stated
otherwise: e.g. retail store - concurrent; employment – employers pay after work is done.

(B) Dependant obligations

If A’s obligation to perform is dependent on B’s performance, B must perform first unless it
has been agreed that the parties are to perform at the same time.

(C) Independent obligations

Where parties’ obligations are independent, order is immaterial. Either party may call for
performance at any time, or after the arrival of any agreed time; whether the party seeking
has performed is irrelevant.

(1) Payment independent of performance

Where payment is independent of performance, the sum will be owing as a debt as
soon as the time for payment arises. It is irrelevant whether the required
performance for that sum has been given.

(2) McDonald v Dennys Lascelles (1)

Facts:

1925 K Besleys 1927 K assigned

Johnsons Dennys (P)
(vendor)

1927 K
(McDonald (D) guaranteed Rye’s obligation)

Rye Grazing
(purchaser)

Land owned by Johnsons. In 1925 the Johnsons agree to sell to the Besleys, and
the purchase is to be made by a deposit, 5 annual payments, and then a final
payment in 1931.
In 1927, the Besleys agree to sell their contract rights to Rye Grazing, with payment
to be made by deposit, 3 annual payments (matching the Besleys), and a final
payment in 1931.
Rye Grazing defaulted on the 1930 payment. The Besleys defaulted in the 1930
payment to the Johnsons. The Johnsons terminated the contract of sale to the
Besleys. Rye Grazing treated this as repudiation of its contract with the Besleys.
Held: (Dixon J) instalments of purchase money become immediately recoverable as
debts or liquidated demands, notwithstanding that the sale has not yet been
completed by conveyance.

(D) Concurrent performance

Some contracts, particularly contracts for the sale of land or goods, contemplate
performance at the same time. Either party can call for the other’s performance if ready and
willing to perform.

(E) Obstructing performance

(1) Implied term of duty to cooperate

In man contracts, the ability of one party to perform will depend on the cooperation
of the other. Absence of an express term, the duty may be implied

4
 (2) Prevention of performance
One party’s ability to perform may depend on the other not preventing that
performance.

(3) Refusing tender of performance

The promisor must tender performance (offer performance to the promisee) within
the time required by the contract.
(a) If A owes money to B under a contract and B refuses to accept a legal
tender, A is not discharged from the obligation to pay the debt.
(b) if a seller tenders goods to a buyer, and the buyer rejects the tender, the
seller is not liable in respect of failure to deliver.

3.1.3 The standard of performance

(A) Derbyshire Building v Becker

Held: The common law rules relating to the implication in a contract for the sale of goods of
a general condition that the goods shall be reasonably fit for a specified purpose apply with
equal force to a hire-purchase agreement. There is no reason why the same rules should
not apply to an agreement for the hire of a chattel for a particular purpose.

(B) Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners

Facts: contractors employed engineers to design the structure of a factory. They were told
that the floors had to take the weight of forklift trucks which would carry drums of oil. The
defendants had not designed a structurally sound building.
Held: obligation implied in law to exercise reasonable skill and care
The law does not usually imply a warranty that the party will achieve the desired result, but
only a term that he will use reasonable care and skill.
Obligation implied in fact to ensure that the design was fit for purpose
The common intention was that the engineer should design a warehouse which would be fit
for the purpose for which it was required. That common intention gives rise to a term implied
in fact.

3.2 Entitlement to contract price

3.2.1 Entire contract

Parties have agreed that complete performance by the promisor is a condition precedent to
enforcement of the contract.
Where a contract is entire, and the condition precedent has not been fulfilled, the contract price will
not be recoverable.

(A) Cutter v Powell

Facts: Powell agreed to pay Cutter, as second mate, 30 guineas provided he proceeds,
continues and does his duty on the ship for a voyage from Jamaica to Liverpool. Cutter died
before the vessel’s arrival at Liverpool.
Held: (Lord Kenyon CJ) the common rate is 4 pounds per month. If there had been no
contract between parties, Cutter would have recovered 8 pounds. He stipulated to receive
the larger sum if the whole duty were performed, and nothing unless the whole of that duty
were performed.
(Lord Ashhurst J) the contract is entire. The defendant’s promise depends on a condition
precedent to be performed by the other party and the condition must be performed before
the other party is entitled to receive any thing under it.
Principle: for an entire contract, unless the contracting party had performed the whole of his
contract, he was not entitled to recover anything.

(B) Sumpter v Hedges

Facts: plaintiff builder contracted to build two houses and stables for the defendant. Plaintiff
ran out of money and was unable to complete. After the plaintiff abandoned the work,
defendant finished the buildings himself.

5
 Held: (Collins LJ) it was an entire contract. In order to recover on a quantum meruit basis,
the circumstances must be such as to give an option to the defendant to take or not to take
the benefit of the word done. In the case of work done on land, the circumstances are such
as to give the defendant no option whether he will take the benefit of the work or not.

3.2.2 Severable contract

Parties have divided the contract price into a number of instalments, each corresponding to a
definite proportion of the other party’s performance.
Where a contract is severable, a promisor may be able to recover in respect of a severable part of
the contract, notwithstanding a failure to discharge obligations under the contract.

(A) Steele v Tardiani

Facts: Steele employed Tardiani to cut firewood 6 feet in length and 6 inches in diameter.
Payment was 6s per ton. Tardiani cut 1500 tons of timber split in diamiters ranging from 6
inches to 15 inches. Steele refused to pay for the work.
Held: (Dixon J) the contract in the present case is infinitely divisible. Each divisible
application of the contract is entire and is only satisfied by performance, not partial, but
substantially complete.
On the facts of this case, Steele raised no objection, and allowed the Tardiani to continue.
There was also evidence that he promised to pay for the firewood if and when it was
delivered to a buyer. Tardiani was able to recover a fair estimate of his work.

3.2.3 Strict performance

Promisor is discharged only if its performance complies exactly with the requirements of the
contract. Unless any discrepancy is so minute as to have no significance, the promisor will have
breached the contract.

3.2.4 Substantial performance

The doctrine of substantial performance allows a party to recover the contract price even though the
contract has not been fully performed, in circumstances where the performance which has been
rendered is substantial.

(A) Scope of the doctrine

Doctrine of substantial performance applies to entire contracts (Bolton v Mahadeva)

(B) Test for substantial performance

(1) Hoeing v Isaacs

Facts: Plaintiff sued to recover the balance alleged to be due under a contract to
decorate the defendant’s flat and to supply certain furniture. Contract price 750.
Defendant paid 150+150+100, and complained of faulty design and bad
workmanship. Official referee held that a door required replacing, and a bookshelf
would have to be remade. Cost in remedying the defects assessed to be 55.
Issue: was the contract entire; did the substantial performance doctrine apply when
the contract was entire; was the plaintiff entitled to succeed unless his breach was
so substantial as to give the defendant the right to terminate the contract
Held: (Denning LJ) when a contract provides for a specific sum to be paid on
completion of specified work, the courts lean against a construction of the contract
which would deprive the contractor of any payment at all simply because there are
some defects or omissions.
Only a breach which goes to the root of the contract would absolve the employer
from his promise to pay the price. The employer must pay and bring a cross claim
for the defects and omissions.
Entire performance is usually a condition precedent to payment of the retention
money, but not to the progress payments. Here the balance should not be regarded
as retention money. The contract should be regarded as an ordinary lump sum
contract.
Quantum meruit only arises when there is a breach or failure of performance which
goes to the very root of the matter.

6
 Principle: the test for substantial performance is whether the failure goes to the root
of the contract.

(2) Bolton v Mahadeva

Facts: the plaintiff sued to recover 636 as the balance alleged to be due for work
done and materials supplied pursuant to a contract to supply and install a combined
heating and domestic hot water system and to supply and fit a bathroom suite.
Defendant alleged that the plaintiff had failed to complete the work. Fumes were
given out and the heating was below what it should have been.
Held: (Cairns LJ) in considering whether there was substantial performance, the test
is the nature of the defects and the proportion between the cost of rectifying them
and the contract price.
Here the cost to repair is between 1/3 and 1/4 of the contract price. Considering the
nature and amount of the defects, the contractor had not been substantially
performed.
(Sachs J) there was no substantial performance because the work was ineffective
for its primary purpose.
Principle: (1) the test for substantial performance is the proportion between the cost
of rectifying the defects and the contract price. (2) The doctrine of substantial
performance applies to entire contracts.

(C) Adjustment of contract price

The promise may be held liable to pay the contract price, but retain the right to claim
compensation in respect of the promisor’s failure to perform.
• Cost of cure
• Difference in value

(1) Jacob & Youngs Inc v Kent

Facts: plaintiff built a country residence for the defendant. One specification in the
contract was that wrought-iron pipe was to be of ‘Reading Manufacture’. Some of
the pipe used by the plaintiff was off-spec.
Held: (Cardozo J) in most cases the cost of replacement is the measure. Owner is
entitled to money which will permit him to complete, unless the cost of completion is
grossly and unfairly out of proportion to the good to be attained. When that is true,
the measure is the difference in value.

(D) Remedy if the promisor haven’t performed to get contract price

(1) Quantum meruit
(2) Unjust enrichment

4. DISCHARGE FOR BREACH

4.1 Express rights to terminate in contract for breach

4.2 Common law principles

Whether there is a common law right to terminate for breach of contract depends primarily on a tripartite
classification of terms:
• If a term is a condition, there will be a common law right to terminate
• If a term is an intermediate term, the right to terminate depends on the gravity of the breach and its
consequences
• If a term is a warranty, a breach of the term will not of itself give rise to a right to terminate (but a
series breach of warranties may raise the issue of repudiation)

7
4.2.1 Breach of condition

(A) Tests for whether a term is a condition

(1) Test of essentiality

The test of essentiality is whether it appears from the general nature of the contract
considered as a whole, or from some particular term or terms, that the promise is of
such importance to the promisee that he would not have entered into the contract
unless he had been assured of a strict or a substantial performance of the promise,
as the case may be, and that this ought to have been apparent to the promisor.
(Tramways)

(2) Breach goes to the root of the contract

Does the breach of the stipulation go so much to the root of the contract that it
makes further commercial performance of the contract impossible? If yes, the
innocent party may terminate. If no, his claim sounds only in damages. (HK Fir
Shipping)

(3) Breach deprives party not in breach of substantially the whole benefit of the
contract
Does the occurrence of the event deprive the party who has further undertakings still
to perform of substantially the whole benefit which it was the intention of the parties
as expressed in the contract that he should obtain as the consideration for
performing those undertakings? (HK Fir Shipping)

(B) Tramways Advertising v Luna Park

Facts: Luna Park contracts for Tramways to display advertising on the tops of 53 trams, for
at least eight hours a day. Luna Park claims that Tramways is not performing – not all trams
are displaying the ads for the full 8 hours every day. Tramways continued to display the
boards.
Held: (NSW Supreme Court, Jordan CJ) test of necessity
The question whether a term in a contract is a condition or a warranty depends upon the
intention of the parties as appearing in or from the contract. The test of essentiality is
whether it appears from the general nature of the contract considered as a whole, or from
some particular term or terms, that the promise is of such importance to the promisee that
he would not have entered into the contract unless he had been assured of a strict or a
substantial performance of the promise, as the case may be, and that this ought to have
been apparent to the promisor. If the innocent party would not have entered into the contract
unless assured of a strict and literal performance of the promise, he may treat himself as
discharged upon any breach of the promise, however slight.
Wrongful termination
A party who without lawful justification purports to treat himself as discharged from the
obligations of the contract is himself guilty of repudiating the contract, and vests in the other
party a right lawfully to put an end to the contract.
(High Court, Latham JC) condition, not warranty
Wording: the words 'we guarantee' are particularly suited to emphasise the importance of
the clause which they introduce. This means the term was a condition.
Circumstances: Paying was only to begin after all 53 boards were all displayed at the same
time. This provision shows that the parties regarded the completeness of the display
contracted for as an essential element in the contract.
What default will amount to breach
“at least 8 hours per day” should be understood as meaning “substantially 8 hours per day”.
The clause would not be broken by small occasional deficiencies. Here each board was not
exhibited for substantially 8 hours each day.
Repudiation
The plaintiff was prepared to continue the performance only upon the basis of the plaintiff’s
construction of the contract. Probably this was the only way because the plaintiff did not
control the running of the trams. The defendant is entitled to view the plaintiff as repudiating
the contract, and therefore has the right to terminate.
8
 Termination basis
A promisee may justify termination on any basis applicable at the time of termination,
whether relied on or not.

(C) Associated Newspapers Ltd v Bancks

Facts: AN sought injunction to restrain Bancks from breaching his employment contract.
Clause 5 of the contract provides that Bancks would provide comic strip and AN undertook
that the drawing will be presented on the front page of the comic section of the newspaper.
Bancks’ drawing later appeared as the third page.
Issue: whether the company’s undertaking to present the defendant’s drawings on the front
page of the comic is a condition or warranty
Held: test of essentiality. The defendant would not have made the promise unless he was
assured that his work would be published in a particular manner. It was of prime importance
to the defendant that his work should be published on the most conspicuous page of the
comic section. Failure of the defendant to perform the condition went to the root of the
contract and gave the defendant the right to treat the contract as at an end.

(D) Hong Kong Fir Shipping v Kawasaki Kisen Kaisha

Facts: HK Fir chartered a vessel to KKK on a 24 month time charterparty, but the ship was
unavailable for periods of time due to machinery breakdowns. KKK sought to terminate for
breach of the seaworthiness. HK Fir contended that the termination was wrongful, and
therefore a repudiation.
Clause 1 described the vessel as “being in every way fitted for ordinary cargo service”
(seaworthiness). Clause 3 required KKK to maintain the vessel in a thoroughly efficient
state.
Held: (Upjohn LJ) the seaworthiness clause is not treated as a condition because it is
breached by the slightest failure to be fitted in every way for service. It is contrary to
common sense to suppose that parties contemplated that the charterer should at once be
entitled to treat the contract as at an end for trifling breaches.
Remedies open to the innocent party for breach of a stipulation which is not a condition
depend entirely upon the nature of the breach and its foreseeable consequences. The
question is: does the breach of the stipulation go so much to the root of the contract that it
makes further commercial performance of the contract impossible? If yes, the innocent party
may terminate. If no, his claim sounds only in damages.
(Diplock LJ) the test is: does the occurrence of the event deprive the party who has further
undertakings still to perform of substantially the whole benefit which it was the intention of
the parties as expressed in the contract that he should obtain as the consideration for
performing those undertakings?
The test is applicable whether or not the event occurs as a result of the default of parties.
• Where the event occurs as a result of the default of one party, the innocent party is
entitled to, but need not treat the event as relieving him of further performance
• Where the event occurs not as a result of default of either party, each party is
relieved of further performance.
Condition: it can be predicted that every breach of such an undertaking must give rise to an
even which will deprive the innocent party of substantially the whole benefit.
Warranty: it can be predicated that no breach can give rise to an event which will deprive the
innocent party of substantially the whole benefit.
Intermediate terms: some breaches will and other won’t give rise to an event which will
deprive the innocent party of substantially the whole benefit. The legal consequences of a
breach of such an undertaking, unless provided for expressly in the contract, depend upon
the nature of the event to which the breach gives rise

(E) Ankar v National Westminster Finance (Aust)

Facts: Ankar entered into an agreement with NWF guaranteeing the performance of GE
under a contract for the hire of machinery. NWF agreed to notify Ankar if GE proposed to
sell or assign its interest in the machinery, or if GE was in default under the lease. GE
defaulted and assigned its interest, but NWF did not notify Ankar.

9
 Held: the creditor, by varying the principal contract or extending time, has altered the
surety’s rights without consulting it though the surety has an interest in the principal contract,
and the creditor cannot be permitted to do so.
The special characteristics of the suretyship relationship and the fact that it creates a liability
strictissimi juris on the part of the surety are enough to justify treating the relevant
obligations as conditions, breach of which discharged Ankar from performance of its
obligations under the security deposit agreement.

4.2.2 Breach of intermediate term

(A) Intermediate in character

If an express term is not intended to be a condition, it will be presumed to be intermediate in
character, unless parties have clearly expressed an intention that the term is a warranty.

(B) Degree of seriousness

Breach goes to the root of the contract, or to be fundamental in character.

(C) Koompahtoo Local Aboriginal Land Council v Sanpine

Facts: KLALC and Sanpine entered a joint venture for development of commercial land.
KLALC contributed the land, and Sanpine agreed to manage the development. Clause 16
imposed many obligations on Sanpine, including development program and annual
accounts.
Clause 12. All activities of the joint venture were, pursuant to clause 12.1 of the
Agreement, to be carried out pursuant to approved development programs and
approved budgets. Clause 12.2 obliged Sanpine, as development manager, to
prepare and submit to the Management Committee for its approval a development
program and cost and revenue budget for the development within ninety days of the
date of the Agreement and biannually thereafter.
16.5 Maintenance of Books
(a) Sanpine shall ensure that proper Books are kept so as to permit the affairs of the
Joint Venture to be duly assessed. Financial records comprised in the Books shall
be kept in accordance with generally accepted accounting principles and in such a
manner as enables the Venturers to extract from the Books any information in
relation to the affairs of the Joint Venture as that Venturer may reasonably require
from time to time.”
Sanpine kept no adequate records at all, and the joint venture collapsed.
Issue: could KLALC terminate the agreement
Held: (Gleeson CJ, Gummow, Heydon and Crennan JJ) there are two circumstances in
which a breach may entitle a termination:
• Failure to comply has been agreed to be essential
• Sufficiently serious breach of a non-essential term
Hong Kong Fir tripartite classification of terms affirmed. The interests of justice are promoted
by limiting rights to rescind to instances of serious and substantial breaches of contract.
The breaches of Sanpine were in a number of respects gross, and their consequences were
serious. The breach wen to the root of the contract and deprived KLALC of a substantial part
of the benefit for which it contracted.
(Kirby J) the benefit of the contract for KLALC in large part comprised the application of
Sanpine’s expertise in management to the joint venture project. The defaulst of Sanpine
undercut that benefit to a significant extent.

(D) Cehave NV v Bremer Handelgesellschaft mbH (The Hansa Nord)

Facts: Cehave agreed to buy a quantity of citrus pulp pellets from Bremer. Contract price
was over 100,000. Buyer intended to use the goods as an ingredient in animal feed. Clause
7 provided that ‘shipment to be made in good condition’. On arrival the goods were found to
have been damaged by spontaneous combustion. Buyer rejected the goods and claimed the
return of the price.
Seller sold the goods to Baas, who resold the goods to Cehave. Cehave used the goods as
an ingredient in cattle feed.
10
 Issue: whether clause 7 was a condition; if not, whether the consequences of the breach
nevertheless justified rejection
Held: (Lord Denning MR) the task of the court: first, see whether the stipulation, on its true
construction, is a condition; second, if it is not such a condition, then look to the extent of the
actual breach which has taken place. If it is such as to go to the root of the contract, the
other party is entitled to terminate.
If a small portion of the whole cargo was not in good condition, it should be met by a price
allowance. The buyer should be bound to accept the goods and not reject them unless there
is a serious and substantial breach.
The term ‘shipped in good condition’ is an intermediate term. Their condition cannot have
been very bad seeing that all of them were in fact used for the intended purpose. The breach
did not go to the root of the contract.
Strict and substantial performance
In order for a contract or a party to be discharged by performance, the performance must
correspond exactly to the requirements of the contract. However, under the rule de minimis
non curat lex, minute failures and insignificant defects in performance will be excused.
The rule of exact compliance may be expressly excluded by the parties, for example, by the
use of an exclusion clause. The parties may alternatively express an intention that a
performance which is not exact is nevertheless to discharge a party. Sometimes this can be
implied from the nature of the obligations.

4.3 Delay and breach of time stipulations

The law confers a right of termination for delay in four cases:
• Where the right is expressly conferred
• Where time is of the essence
• Where time not being of the essence, the promisor has failed to comply with a notice to perform given
by the promisor
• The actual or prospective delay amounts to a fundamental breach or repudiation of the contract

4.3.1 Time is of essence

Parties may expressly agree that time is of essence.
In the absence of express stipulation, whether or not time is of essence is a matter of construction.
• Nature of the contract: commercial contracts for sale of goods, charterparties etc – time is
presumed to be of the essence
• Nature of the subject matter: perishable, fluctuating or wasting nature of the subject matter
• Nature of the term: time of payment is generally not essential, time of deposits is often
essential.

(A) Bunge Corporation v Tradax Export

Facts: Tradax contracts to sell Bunge 15,000 long tons of soya bean meal on FOB terms;
the June shipment of 5,000 long tons to be shipped from a US gulf port was to be nominated
by Tradax.
Clause 7: Period of delivery: Buyers shall give at least 15 consecutive days’ notice of
probable readiness of the vessel(s) and of the approximate quantity required to be loaded.
Buyer nominated but only gave notice at 8.46am on 17 June (so that15 days would mean a
July delivery) so sellers refused to go through with the contract.
Issue: was clause 7 a condition
Held: (per Lord Wilberforce) a time clause cannot be an intermediate term. There is only one
kind of breach possible, namely, to be late. The test of whether a time clause is a condition
is: first, what importance have the parties expressly ascribed to this consequence; second,
in the absence of expressed agreement, what consequence ought to be attached to it having
regard to the contract as a whole. The gravity of the breach test was rejected. It would
remove certainty from a contract.

11
 It is essential that parties should know precisely what their obligations are, especially
because the ability of the seller to fulfil his obligation may well be totally defendant on
punctual performance by the buyer.
(per Lord Roskill) the need for certainty in mercantile contracts is often of great importance,
and sometimes may well be a determining factor in deciding the construction of a term. In a
mercantile contract, when a term has to be performed by one party as a condition precedent
to the ability of the other party to perform another term, especially an essential term, the
term as to time for the performance of the former obligation will in general fall to be treated
as a condition.

4.3.2 Time is not of essence

(A) Intermediate term? There is only one way to breach a term as to time: that is, to be late

(B) Breach
Generally no right to terminate without notice.
Exception: delay in performance amounted to a repudiation or frustrate the commercial
purpose of the contract; anticipated failure to comply with a notice to perform.

(C) Notice
Promise may serve a notice saying that time becomes essential.

(1) Time of service

Promisee must establish that the promisor has breached the contract.
If no time specified, implied term to perform within a reasonable time, where
‘reasonable time’ depends on the circumstances.

(2) Requirement of the notice

(a) Inform the promisor of the obligation which is to be performed
(b) Fix a period of time which is a reasonable time for performance
(c) Clearly indicate that time is of essence, or that failure to comply will give rise
to a right to terminate

(3) Louinder v Leis

Facts: Louinder sold property to Leis by a contract dated 1 Nov 1979. No date was
fixed for completion and times was not stated to be of the essence. Clause 4
requires purchaser to tender a transfer to vendor within 28 days of receiving
vendor’s statement of title. Vendor delivered the statement on 2 Nov 1979, and
parties agreed to settle in Jan 1980. In late January vendor sought to delay
settlement for 3 months and purchaser agreed. Then vendor sought settlement
within one week. On 8 Feb 1980 purchaser had not issued the transfer, and vendor
issued a notice to complete within 21 days. On 4 Mar 1980 vendor terminated the
contract.
Held: (Gibbs CJ) where a contract contains a promise to do a particular thing on a
specified day, and time is not of the essence, the promise can terminate for non-
performance if he has given a notice requiring performance within a specified
reasonable time, and there has been a failure to comply with that notice.
A party who fails to complete on the specified day is guilty of delay whether or not
the delay would be regarded as unreasonable. The innocent party is then entitled to
give a notice fixing a reasonable time for completion and making that time the
essence of the contract. However he would not have been entitled to give a notice
requiring the respondent to complete the contract.
Unreasonable delay would justify giving a notice to complete.
(Mason J) following breach, the innocent party gives notice fixing a reasonable time
for performance of the relevant contractual obligation. The result of non-compliance
with the notice is that the party in default is guilty of unreasonable delay in complying
with a non-essential time stipulation.

12
 4.3.3 Conveyancing Act 1919 (NSW)

13 Stipulations not of the essence of contracts

Stipulations in contracts, as to time or otherwise, which would not before the commencement of
this Act have been deemed to be or to have become of the essence of such contracts in a court of
equity, shall receive in all courts the same construction and effect as they would have heretofore
received in such court.

(A) Will be rebutted by evidence that the parties objectively intended time to be of the essence –
question of construction
(B) Section 13 does not apply to a contingency (a non-promissory term that is a condition
precedent) – construe that time obligation according to the contract

(C) Holland v Wiltshire

Facts: Holland agreed to purchase property from Wiltshire. Deposit paid and balance to be
paid on 12 January. Purchaser said they would not proceed. Vendor served a notice to
complete and later re-sold the land.
Held: the legislation provides that time stipulations shall be construed as not of the essence.
But the purchasers was nevertheless excluded from the benefit of legislation because they
were never ready and willing to perform their contract.

(D) Canning v Temby

Facts: Canning contracted to sell land to Temby. Payment is to be made when title
documents are provided, but no time is stipulated in the contract.
Held: where no time for completion is specified in a contract, the law implies that it is to be
performed within a reasonable time.
When time is not of the essence, either party desiring to fix a definite time for completion so
as to entitle himself to terminate the contract on failure to complete within the time was
required to give notice to the other party to complete by a specified day, which was required
to be reasonable.

5. DISCHARGE FOR REPUDIATION

5.1 Repudiation
A contract may be repudiated if one party renounces his liability under it – if he evinces an intention no longer
to be bound by the contract or shows that he intends to fulfil the contract in a manner substantially
inconsistent with his obligations and in no other way. (Shevill v Builders Licensing Board)
Time for performance has arrived or passed.

5.1.1 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd
Facts: lessor Capalaba and lessee Laurinda entered into a lease. The lease was not registered.
Lessee wrote to lessor on 21 Aug 1986 pointing out the importance of registration, and required
lessor to complete registration within 14 days. 5 Sep 1986, lessee terminated the agreement on the
ground that lessor repudiated the agreement, or breached an essential term for failure to register.
Held: (Mason CJ) based on lessor’s unwillingness to deliver a registrable lease to lessee, lessor’s
intention was only to perform the contract in a manner substantially inconsistent with its obligations,
such as would allow lessee to treat lessor as having repudiated the contract.
It is not necessary that the notice should expressly state that the party will terminate in the event of
non-compliance. However, the notice must convey a definite and specific intent to require strict
compliance with the terms of the contract within a reasonable time, so that the recipient will be
aware that the party giving the notice may terminate.
To determine whether time allowed was reasonable, the court must consider all the circumstances of
the case.
(Brennan J) the right to terminate: a right to terminate depends on the importance of the term
repudiated. Test of essentiality. Lessor’s promise to procure registration was at the heart of the
agreement.
Where an essential term is to be performed within a reasonable time, the innocent party does not
acquire a right to rescind unless the defaulting party repudiates. A mere failure in timeous
performance is not necessary to warrant an inference of repudiation, but delay may be so serious as
to amount to a refusal to perform, which gives the innocent party a right to terminate.
13
 A notice to complete does not make time of the essence of the contract when the contract itself does
not do so. But it provides a firm foundation for the inference of repudiation.
(Deane and Dawson JJ) the innocent party makes time of the essence of a contract by an effective
notice to complete within a nominated time.
A notice fixing a time for completion, in the absence of other grounds for termination, may constitute
a repudiation if it unequivocally states that the party giving the notice will terminate on the expiry of
an unreasonably short period.

5.1.2 Anticipatory breach

If one party, before the day on which he is due to perform his part, shows by his words or conduct
that he will not perform it in a vital respect when the day comes, the other party is entitled to treat
himself as discharged. (Hansa Nord)

(A) UCCC v Citati

Facts: Citati chartered a vessel from UCCC to load a cargo at Basrah and to carry it to
Buenos Aires. It was a voyage charterparty. Charterer had difficulty finding a cargo. Lay time
would expire on 21 July, charterer would then be obliged to pay demurrage. On 18 July,
shipowner chartered the vessel to a third party.
Issue: where time is not of the essence, in other words when delay is only a breach of
warranty, how long must the delay last before the aggrieved party is entitled to throw up the
contract?
Held: (Devlin J) the obligation to load within the lay days is a warranty. Its breach only gives
rise to a claim of damages in the form of demurrage.
When the delay becomes so prolonged that the breach assumes a character so grave as to
go to the root of the contract, the aggrieved party is entitled to rescind. The yardstick by
which this length of delay is to be measures is such delay as would frustrate the
charterparty.
There are two methods of anticipatory breach:
• Renunciation by either words or conduct where the party renouncing has acted in
such a way as to lead a reasonable person to the conclusion that he does not intend
to fulfil his part of the contract.
• Impossibility (to fulfil his part of the contract) created by his own act. A party who
says that he ‘would like to but cannot’ complete, repudiates the contract equally to
the one who simply says ‘I will not’.
The common characteristic is that the injured party is allowed to anticipate an inevitable
breach. Anticipatory breach means that a party is in breach from the moment his actual
breach becomes inevitable.

5.1.3 Requirement of seriousness

The promise must prove either:
(A) That the absence of readiness or willingness relied on extends to all the promisor’s
obligations. The difficulty is the relevant of the bona fides of the promisor.
(B) That it clearly indicates that the promisor will breach the contract in a way which gives rise to
a right to terminate for breach. The difficulty is the requirement of seriousness.

5.2 Repudiation based on words or conduct (lack of willingness)

5.2.1 Express refusal to perform

(A) Federal Commerce & Navigation Co Ltd v Molena Alpha Inc

Facts: Clause 9 of a charterparty provided that the charterers were to sign bills of lading
stating the freight had been correctly paid. After a dispute arose concerning deductions
made by the charterers, the shipowners withdrew this authority contrary to the terms of the
charter. The master was instructed not to sign bills of lading with the indorsement 'freight pre
paid' or which did not contain an indorsement giving the shipowners a lien over the cargo for
freight. This meant that the charterers were put in an impossible position commercially. The
charterers treated the owner's actions as a repudiation of the charter.
Held: For termination for repudiation, it is sufficient that it be clear that a breach will occur.

14
 • A prospective breach of a condition gives rise to a right to terminate.
• A prospective breach of an intermediate term must have prospects of ‘serious
consequences’ to justify termination.
Although the term broken was not a condition, the breach went to the root of the contract by
depriving the charterers of virtually the whole benefit of the contract because the issue of
such bills was essential to the charterers' trade. Therefore, the owner's conduct constituted a
wrongful repudiation of the contract.

5.2.2 Implied refusal to perform

A promise may establish repudiation if a refusal can be inferred from the promisor’s words or
conduct.

5.2.3 Erroneous construction of the contract

Where a promisor adopts an erroneous construction of the contact, a repudiation may occur if the
promisor acts on the construction by breaching on or more terms, or by evincing an intention to
perform only in accordance to his construction.

5.2.4 Wrongful termination

A wrongful termination of the performance of a contract constitutes a repudiation.

5.2.5 Bona fides

In circumstances of wrongful termination and erroneous construction, a court will be reluctant to infer
repudiation where there is a bona fide mistake of the promisor.
Bona fides can have no relevance at all where the promisor’s conduct involves a serious breach of
contract (Luna Park v Tramways Advertising).

5.2.6 Sale of Goods Act

34 Instalment deliveries
(2) Where there is a contract for the sale of goods to be delivered by stated instalments which are to be
separately paid for, and the seller makes defective deliveries in respect of one or more instalments, or the
buyer neglects or refuses to take delivery of or pay for one or more instalments, it is a question in each case
depending on the terms of the contract and the circumstances of the case whether the breach of contract is a
repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation
but not to a right to treat the whole contract as repudiated.

5.3 Repudiation based on inability (lack of ability)

5.3.1 Declared inability and disabling conduct

Declaration may be express or implied. Promise need not prove the promisor was in fact unable to
perform.

5.3.2 Inability in fact

Promise must prove that the promisor was in fact wholly and finally disabled from performing the
contract.

5.4 Acceptance

5.4.1 Repudiation accepted

Acceptance is necessary if the promisee wishes to terminate the performance of the contract. The
consequences of acceptance are the same as election to terminate for breach by failure to perform.

5.4.2 Repudiation not accepted

Repudiation continues to operate until it has been retracted by the promisor.
An unaccepted repudiation may absolve a promise from the consequences which would otherwise
attach to a failure on the promisee’s party to discharge contractual obligations.

(A) Bowes v Chaleyer

Facts: Bowes contracts to buy 1780 yards of tie silks from Chaleyer. “Goods to be shipped
per sailer/steamer. Half as soon as possible, Half two months later”. Soon after Bowes

15
 purported to cancel the contract. Chaleyer still shipped the goods: 340yd on 21/10; 800yd on
17/11 and 580yd on 13/12.
Issue: construction of the term (condition?); consequence of the attempt to cancel the
contract
Held: (Knox CJ) construction of the term: rejected the construction as “not more than two
months later”, “exactly two months later” or “as nearly as possible two months later” or “not
less than two months later”. Parties having expressed their agreement in plain words, it is
not open to the court to consider what their motives were or whether they may not have
meant to stipulate for something different.
Was the stipulation complied with: it is clear that Chaleyer did not comply with it. The first or
second shipment was not one-half of the goods order.
Did the failure entitle Bowes to reject the goods: a stipulation in a contract for the sale of
goods that the goods shall be shipped at a given time is, at least prima facie, a condition
precedent, the breach of which wold justify Bowes rejecting the goods when tendered.
Repudiation by Bowes: the repudiation by Bowes was never accepted by Chaleyer. A
repudiation gives the other party the option of treating the contract as at an end, or of waiting
till the time for performance has arrived before making any claim for breach of contract. If he
elects to wait, he remains liable to perform his party of the contract and enables the party in
default to take advantage of any supervening circumstances which would justify him in
refusing to perform it.

6. PROCESS OF TERMINATION

6.1 Election

6.1.1 Election to terminate

A breach of contract or repudiation of obligation does not automatically terminate the obligation of
the parties to perform. Termination is a matter of election, to be made by the promisee.

6.1.2 Alternative grounds for termination

(A) Rawson v Hobbs

Facts: Rawsons agreed to purchase property from Hobbs. Clause 12 of the contracted
provided for the Rawsons to obtain the consent of the Minister and conferred an option on
both parties to annual the sale if the Minister refused consent. Rawsons purported to annul
the sale on the basis that information indicated that the Minister would refuse consent.
Held: clause 12 was directed to an existing transfer, not to a future refusal. Rawsons cannot
rely on clause 12 to terminate.
But Rawsons could terminated because Hobbs is positively unable to complete.
Principle: The promisee may rely on any available ground to terminate even if they did not
actually rely on the valid ground.

6.2 Restriction

6.2.1 Affirmation
The right to terminate will be lost if the promisee elects to continue performance.
A promisee must have knowledge of at least the circumstances which in law give rise to the right to
terminate; and do some unequivocal act indicating a choice.

(A) Tropical Traders Ltd v Goonan

Facts: Goonan agreed to purchase land in Perth from Tropical. Under the contract, price
was payable by a deposit, four annual instalment payments, and a large final payment.
Clause 11 required strict adherence to payment schedule, and stated that all payments will
be forfeited by delay. Clause 11 also allowed Tropical to terminate without prior notice and to
take possession of the property. Clause 12 made time of the essence. The first 3
instalments were each a few days late and the 4th a few days early. Final payment due on 6
January, and was extended to 14 January. On 15 January Tropical terminated and forfeited
the deposit and instalments.

16
 Issue: whether by allowing further time to perform, Tropical affirmed the contract and lost
the right to terminate
Held: (Kitto J) acceptance of late payment of the first 3 instalments
Acceptance of a late payment operated as an election by the appellant not to terminate the
contract for non-payment of the relevant amount on its due date. But to read into the
acceptances something promissory or some inducement to a belief in relation to future
payments is to take an unwarranted step. It may be that repeated acquiescence by one
party to a contract in non-observance by the other of time stipulations may amount to an
assent to time being treated for the future as not of the essence; but it is not a valid general
proposition that wherever some instalments are accepted late without demur the party
accepting them is precluded in respect of later instalments from insisting upon the
agreement that time shall be of the essence.
Extension granted
A mere extension of time is only a waiver to the extent of substituting the extended time for
the original time, and not an utter destruction of the essential character of the time.
Extension was only a qualified and conditional waiver of the original stipulation. It means that
the appellant intended to refrain from electing to affirm or terminate until 14 January.
(Menzies J) a vendor becoming entitled to terminate for non-payment of purchase money
upon the stipulated date for payment, who does no more than give the purchaser the
opportunity within a limited time thereafter, is not thereby electing not to terminate for non-
payment on the due date, nor is he representing that time is not of the essence; rather he is
intimating that he intends to exercise his right to terminate unless payment is made within
the time of grace.

(B) White & Carter Councils Ltd v McGregor

Facts: McGregor and W&C signed an outdoor advertising contract. Contract was to run for
156 weeks. Payment was to be weekly, but if any payment was outstanding for more than 4
weeks, the total would become due immediately. McGregor purported to cancel the contract
(repudiation). W&C did not terminate the contract for repudiation and continued to place the
ads. W&C had performed for the full 156 weeks and claimed full price.
Held: (Lord Reid) it has never been the law that a person is only entitled to enforce his
contractual rights in a reasonable way.
It may well be that, if it can be shown that a person has no legitimate interest, financial or
otherwise, in performing the contract rather than claiming damages he ought not to be
allowed to saddle the other party with an additional burden with no benefit to himself. But
that is not this case. Here there is nothing in the findings of fact that the appellants had no
legitimate interest in completing the contract. It is impossible to say that the appellants
should be deprived of their right to claim the contract price merely because the benefit to
them, as against claiming damages and re-letting their advertising space, might be small in
comparison with the loss to the respondent.
(Lord Hodson) It is trite that equity will not rewrite an improvident contract where there is no
disability on either side. There is no duty laid upon a party to a subsisting contract to vary it
at the behest of the other party so as deprive himself of the benefit given to him by the
contract. To hold otherwise would be to introduce a novel equitable doctrine that a party was
not to be held to his contract unless the court in a given instance thought it reasonable to do
so.

(C) Clea Shipping Corp v Bulk Oil International Ltd (The Alaskan Trader)
Facts: ship owner chartered the Alaskan Trader for 24 months from Dec 1979. Ship had
serious engine breakdown in Oct 1980. Charterer said they had no use for the vessel.
Owner repaired it and fitted it out with a full crew and charged the charterer for remaining
hire.
Held: owner had no legitimate interest in pursuing their claim for hire. It was ‘wholly
unreasonable’ for the owner to continue to perform and claim hire. The charterers were
obliged to pay damages only (a lesser sum, taking into account the owners’ obligation to
mitigate).

6.2.2 Ready and willing to perform

In order to terminate for failure to meet a time stipulation, the promisee must be ready and willing to
perform.
17
 (A) Barrack Corporation Pty Ltd v Jaswil Properties Pty Ltd
Facts: Jaswil contracted to purchase land from Barrack. Completion specified to be 30 Jan
2015 Vendor served Notice to Complete in Feb 2015.
Held: a party who seeks to terminate a contract for breach of an essential stipulation, must
itself be ready, willing and able to complete. If a vendor wishes to issue a notice to complete,
it will only be able to do so if it is able to proceed to completion and deliver all the purchaser
is entitled to under the contract no later than the expiry of the notice to complete.

6.2.3 Estoppel
The assumption arises from the representation or promissory statement made by the promisee who
enjoys the right of termination, and acted upon by the promisor.

(A) Legione v Hatley

Facts: Purchasers were not ready to complete and phoned the solicitors of the vendor. The
clerk said “that will probably be okay but I will get instructions”. Purchaser did not complete
in time, and vendor terminated for delay.
Held: on the facts the purchaser cannot claim estoppel because the representation was not
sufficient clear. In order to found an estoppel, the promise or representation must be clear
and unequivocal.

6.3 Effect of termination

Termination discharges the parties from the obligation to perform their respective contractual duties.

6.3.1 Extent of discharge

Discharge takes effect from the time of the promisee’s election. It is not retrospective to the time of
the breach or repudiation.

6.3.2 Accrued rights

Any rights that have unconditionally accrued to the time of termination still exist. Examples include
the right to recover payment for any part of the contract which has been performed, and the right to
claim damages for any breaches occurring up until the time of termination.
If the contract is for the sale of goods or land, the accrued right is presumed to be conditional and
exist only if ownership was transferred to the buyer before termination.

(A) Shevill v Builders Licensing Board

Facts: Shevills were guarantors of a lessee from Builders of land. Lease was 7 years; rent
payable by monthly instalments. Clause 9 of the lease conferred on the respondent a right to
re-enter the land if rent remained unpaid for 14 days. On 3 August 1977 two months’ rent
was outstanding and the respondent took proceedings for possession of land. Lessee paid
the overdue rent and gave up possession.
Held: (Gibbs CJ) the rights of the lessor are limited to the recovery of arrears of rent and
damgaes for breaches and other events that occurred before re-entry.

(B) McDonald v Dennys Lascelles (2)

Held: (Starke J) a purchaser not in default is entitled to recover any money paid; a vendor
not in default is entitled to the return of his land, but is bound to restore any money paid. A
deposit paid as security for the completion of the contract stands in an exceptional position,
because the intent of the parties is that if the contract goes off by default of the purchaser,
the vendor shall retain it.
(Dixon J) distinction between termination and rescission
When a contract is rescinded, the parties are to be rehabilitated and restored to the position
before contract was made. When the contract is terminated, parties are discharged from
further performance, but rights which have already been unconditionally acquired are not
discharged.
Unconditionally accrued rights
When a contract stipulates for payment in advance, the purchaser relying on the vendor’s
promise to give him a conveyance, the vendor’s title to retain the money has been
conditional upon the subsequent completion of the contract. The purchaser has a legal right
to the return of the purchase money already paid.
18
 The instalments are to be repaid to the purchaser as a legal right (no need to use equity)
and if an instalment was overdue for payment before the contract was terminated, the
vendor cannot demand that instalment now be paid.

6.3.3 Deposits
Deposit is paid by the purchaser in return for the vendor entering into the transaction. A vendor’s
right to retain a deposit following breach by the purchaser is not conditional upon the subsequent
completion of the transaction.

(A) Bot v Ristevski

Facts: Bot contracts to sell house to Risteviski and accepts partial deposit on execution with
the remainder payable within 7 days. Risteviski pulls out and refuses to pay the remainder.
Held: the primary purpose of deposit is a guarantee that the purchaser means business.
There is no failure of consideration if the land is not conveyed or transferred, for the
purchaser has had the benefit of the entry into the contract of sale by the vendor. Hence,
deposits are generally forfeited when purchaser refuses to complete (but not when vendor
refuses to complete).

6.3.4 Terms surviving termination

7. FRUSTRATION

7.1 Definition
Frustration occurs whenever the law recognises that without the default of either party a contractual obligation
has become incapable of being performed because the circumstances in which performance is called for
would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera
veni. It was not this that I promised to do. (Davis Contractors Ltd v Fareham UDC)

7.2 Grounds for frustration

7.2.1 Impossibility of performance

(A) Taylor v Caldwell

Facts: the defendants agreed to allow the plaintiffs the use of the music hall for 5 days for
the purpose of giving concerts. Before the concert, the music hall was destroyed by an
accidental fire.
Held: where, from the nature of the contract, it appears that the parties must from the
beginning have known that it could not be fulfilled unless when the time for the fulfilment of
the contract arrived some particular specified thing continued to exist, so that, when entering
into the contract, they must have contemplated such continuing existence as the foundation
of what was to be done; parties shall be excused in case performance becomes impossible
from the perishing of the thing without default of the contractor.
Here the music hall ceased to exist without fault of either party, both parties are excused
from performing their promise.

7.2.2 Frustration of purpose

(A) Krell v Henry

Facts: plaintiff let room above a road to view the coronation of Edward VII. Coronation was
postponed, so the defendant refused to proceed with the contract.
Held: in the present case, the use of the rooms was let and taken for the purpose of seeing
the coronation. The taking place of the coronation was regarded by both parties as the
foundation of the contract.
In each case one must ask oneself: (1) having regard to not necessarily the terms of the
contract, but, if required, to necessary inferences, drawn from surrounding circumstances
recognised by both parties, what was the foundation of the contract? (2) was the
performance of the contract prevented? (3) was the event which prevented the performance
of the contract of such a character that it cannot reasonably be said to have been in the
contemplation of the parties at the date of the contract?

19
 7.2.3 Frustration of the commercial venture

(A) Codelfa Construction Pty Ltd v SRA (NSW)

Held: (Mason J) a contract will be frustrated when the parties enter into it on the common
assumption that some particular thing or state of affairs essential to its performance will
continue to exist or be available, neither party undertaking responsibility in that regard, and
that common assumption proves to be mistaken. Mason J rejected the distinction between a
mistake of fact and mistake of law.
The critical issue is whether the situation resulting from the grant of the injunction is
fundamentally different from the situation contemplated by the contract on its true
construction in light of the surrounding circumstances. Mason J looked at the proposed
programme of work and cl S6 of the contract, and concluded that the contract contemplated
a method of three shift a day operation six days a week. Performance by means of a two
shift operation necessitated by the grant of the injunction s was fundamentally different.
(Aickin J) both parties proceeded upon the assumption that the works could be lawfully
completed within the specified time by continuous work on a three-shift basis for six days a
week. It is a different situation from shortage of labour or shortage of materials. Those cases
are not cases in which the completion of the work on time is rendered impossible because
injunctions prevented the work being done in a manner which both parties knew were
essential to completion on time. The fact that both parties had an understanding of the law
which led them to believe that injunction will not be granted does not prevent the application
of the doctrine of frustration.
(Brennan J, dissenting) the injunction limiting working hours did no more than enforce
judicially a limitation by which Codelfa was already legally bound.

7.3 Limits

7.3.1 Terms dealing with frustration

Question of construction of the contract – does the term deal with the event and what does it provide
or can the parties rely on the event to say contract has been frustration
Express provisions that indicate sufficiently the consequences to result from the event – construe the
clause and apply to state the consequences

(A) Bank Line Ltd v Arthur Capel & Co

Facts: BL chartered the vessel to AC under a 12 month time charterparty to be delivered
latest on 30 April.
Clause 26 provides that AC has the option to cancel if ship is delayed. If BL through
unforeseen circumstances cannot deliver the ship, AC shall within 48 hours after receiving
notice declare whether to cancel or take delivery. Clause 31 provides that AC has option of
cancelling if the vessel is commandeered by government.
Ship was delayed, but AC did not cancel. On 11 May, the government requisitioned ship for
a period. When it is returned in September BL wants to sell it. BL argues that the
government requisition frustrated the charterparty contract.
Issue: whether clause 26 and 31 excluded the operation of the doctrine of frustration
Held: clause 31 means that if the government should requisition the ship, the charter may be
cancelled without waiting to see or having to show that its object is frustrated.
Clause 26 cannot be construed to mean that however long the interval may be, the
charterers can at any moment cancel the contract, and can hold them bound so long as they
choose to hold their tongues.
The requisitioning of the vessel destroyed the identity of the chartered service and made the
charter as a matter of business a totally different thing.

7.3.2 Foresight
The event relied upon as frustrating the contract must not have been foreseen by the parties.

20
 (A) Davis Contractor Ltd v Fareham Urban District Council
Facts: Davis entered into a contract with Fareham to build 78 houses in 8 months. Due to a
lack of skilled labour, the work took 22 months. Daivs sought payment for increased costs on
the basis that the contract had been frustrated.
Held: (Lord Radcliffe) the cause of the delay was not any new state of things which the
parties could not reasonably be thought to have foreseen. The contractor makes his tender,
and the tender must necessarily take into account the margin of profit that he hopes to
obtain upon his adventure and in that any appropriate allowance for the obvious risks in
delay.

(B) Simmons Ltd v Hay

Facts: plaintiff was employed as a printery engineer for 3 years, subject to 3 months’ notice
on either side. Plaintiff was ill and never returned to his work.
Issue: whether the illness was such as to put an end in a business sense to the contract and
would frustrate the object of the employment
Held: although the defendant knew that the plaintiff had suffered from a heart disease before
the contract was entered into, the subsequent and permanently incapacitating illness was a
new state of things which the parties could not reasonably be thought to have foreseen.

7.3.3 Self-induced frustration

Where the event relied on as frustrating the contract occurs because of blame, fault or default, the
contract is not frustrated because reliance cannot be placed on self-induced frustration.

(A) Maritime National Fish Ltd v Ocean Trawlers Ltd

Facts: vessel subject to charterparty was to be employed in the fishing industry. By statute,
the vessel required a licence. Charterer operated 5 trawlers, but was granted 3 licences.
Charterers decided to apply the licences to apply the licence to other trawlers and asked
owner to take vessel back on grounds of frustration.
Held: it was the act and election of the charterer which prevented the vessel from being
licensed. The essence of frustration is that it should not be due to the act or election of the
party. The charterer cannot rely on their own default to excuse them from liability under the
contract.

(B) J Lauritzen AS v Wijsmuller VC (The Super Servant Two)

Facts: Under the shipping contract the defendants were able to transport the oil rig using
one of either two ships known as The Super Servant One or the Super Servant Two. The
defendants decided to use the second ship. However, the Super Servant Two was sunk.
The defendants argued that the contract has been frustrated as they were incapable of
transporting the drilling rig and the claimants argued that the impossibility of performing the
contract had been self-induced and that therefore they should not be discharged of the need
to perform the contract.
Held: the real question is whether the frustrating event relied upon is truly an outside event
or extraneous change of situation or whether it is an event which the party seeking to rely on
it had the means and opportunity to prevent but nevertheless caused or permitted to come
about. A fine test of legal duty is inappropriate; what is needed is a pragmatic judgment
whether a party seeking to rely on an event as discharging him from a contractual promise
was himself responsible for the occurrence of that event.

7.4 Effect

7.4.1 Common law principles

When frustration occurs it automatically discharges the parties from the obligation to perform their
contractual duties.

(A) Accrued liabilities

Right to recover damages for breach of contract before frustrating event enforceable

(B) Recovery of money paid

If the impact of frustration is to cause a total failure of consideration, the payer will be entitled
to restitution.
21
 (1) Fibrosa Spolka Akcyjna v Fairbairn Lawson ombe Barbour Ltd
Facts: English company Fairbairn agreed to suuply machinery to Polish company
Fibrosa. Fibrosa paid an initial payment in July 1939. War was declared in
September. Fibrosa sought return of the initial payment.
Held: the claim for repayment is not based on the contract which is dissolved on the
frustration, but on the fact that the defendant has received the money had has no
right to keep it on the events which have supervened. Fibrosa can claim restitution
on an action of assumpsit because consideration had totally failed.

(2) Baltic Shipping Co v Dillon (The Mikhail Lermontov)

Facts: Dillon booked a cruise from 7 Feb to 21 Feb. Cruise sank on 16 Feb.
Held: if incomplete performance results in the innocent party receiving and retaining
any substantial part of the benefit expected under the contract, there will not be a
total failure of consideration.
Look only to the bargained for benefit, not to any incidental benefit which might have
been received. Eg: I buy a car and take delivery, and drive it for a week, but then I
have to return it because the seller could not give good title. The use of the car for a
week was not a benefit contemplated by the contract, so I may still recover on a total
failure of consideration.

7.4.2 Frustrated Contracts Act

7 Promise not performed

(1) Where a promise under a frustrated contract was due to be, but was not, performed before the time of
frustration, the promise is discharged except to the extent necessary to support a claim for damages for
breach of the promise before the time of frustration.
(2) Subsection (1) does not affect a promise due for performance before frustration which would not have
been discharged by the frustration if it had been due for performance after the time of frustration.

8 Damages assessed after frustration

Where a contract is frustrated and a liability for damages for breach of the contract has accrued before the
time of frustration, regard shall be had, in assessing those damages after that time, to the fact that the
contract has been frustrated.

9 Definitions
In this Division performance in relation to a contract does not include:
(a) performance, wholly or in part, of a promise in the contract to pay money, or
(b) fulfilment, wholly or in part, of a condition of or in the contract that money be paid.

10 Adjustment where whole performance received

Where a contract is frustrated and the whole of the performance to be given by a party under the contract
has been received before the time of frustration, the performing party shall be paid by the other party to the
contract an amount equal to the value of the agreed return for the performance.

11 Adjustment where part performance only received

(1) In this section:
attributable cost, in relation to performance received under a frustrated contract, means:
(a) where there is no incidental gain to the performing party, and except as provided by paragraph (c)—an
amount equal to the reasonable cost of the performance,
(b) where there is an incidental gain to the performing party, and except as provided by paragraph (c)—such
part of the reasonable cost of the performance as is equal to an amount calculated by deducting from the
reasonable cost of the performance the value of that incidental gain, or
(c) where the amount referred to in paragraph (a) or (b) exceeds the proportionate allowance for the
performance—such part of the reasonable cost of the performance as is equal in amount to that
proportionate allowance.
attributable value, in relation to performance received under a frustrated contract, means an amount equal
to the value of the proportionate allowance for that performance reduced by the lost value of that
performance.
incidental gain, in relation to a party to a contract who suffers a detriment referred to in the definition of
“reasonable cost”, means any property or improvement to property acquired or derived by that party as a
consequence of doing or suffering the acts or things that caused that party to suffer the detriment, except to
22
the extent that the property or improvement so acquired or derived is comprised in any performance given by
that party under the contract or is expended or disposed of in giving any such performance.
lost value, in relation to performance received under a frustrated contract, is a reference to the amount (if
any) by which the value of that performance was reduced by reason of the frustration of the contract, that
value being assessed as at the time immediately before the frustration of the contract and on the basis that
the contract would not be frustrated.
proportionate allowance, in relation to performance received under a frustrated contract, means such part
of the value of the agreed return for complete performance of the contract by the performing party as is
appropriate to be charged to the other party for the performance received, having regard to the extent to
which the performance received is less than the whole of the performance contracted to be given by the
performing party.
reasonable cost, in relation to performance received under a frustrated contract, is an amount that would be
fair compensation to the performing party for any detriment suffered by that party in reasonably paying
money, doing work or doing or suffering any other act or thing to the extent to which the detriment was
suffered for the purpose of giving the performance so received.
(2) Where a contract is frustrated and part, but not the whole, of the performance to be given by a party
under the contract has been received before the time of frustration, the performing party shall be paid by the
other party to the contract:
(a) an amount equal to the attributable value of the performance, except where the attributable cost of the
performance exceeds its attributable value, or
(b) where the attributable cost of the performance exceeds its attributable value—an amount equal to the
sum of:
(i) the attributable value of the performance, and
(ii) one-half of the amount by which the attributable cost of the performance exceeds its attributable value.

12 Return of money paid

Where a contract is frustrated and a party to the contract has paid money to another person (whether or not
a party to the contract) as, or as part of, an agreed return for performance of the contract by another party
(whether or not that other party is the person to whom the payment was made and whether or not there has
been any such performance) that other party shall pay the same amount of money to the party who made the
payment.

13 Adjustment of certain losses and gains

(1) Where a contract is frustrated and, by reasonably paying money, doing work or doing or suffering any
other act or thing for the purpose of giving performance under the contract (not being performance which has
been received) the performing party has suffered a detriment, the performing party shall be paid by the other
party to the contract an amount equal to one-half of the amount that would be fair compensation for the
detriment suffered.
(2) Where a performing party referred to in subsection (1) has, as a consequence of doing or suffering the
acts or things that caused that party to suffer the detriment so referred to, acquired or derived any property or
improvement to property, the performing party shall pay to the other party so referred to one-half of the value
of the property or improvement so acquired or derived.

14 Recovery of money as a debt

A person entitled under Division 1 or 2 to be paid an amount of money by another person may recover the
amount from that other person as a debt in a court of competent jurisdiction.

15 Adjustment by court
(1) Where the court is satisfied that the terms of a frustrated contract or the events which have occurred are
such that, in respect of the contract:
(a) Divisions 1 and 2 are manifestly inadequate or inappropriate,
(b) application of Divisions 1 and 2 would cause manifest injustice, or
(c) application of Divisions 1 and 2 would be excessively difficult or expensive,
the court may, by order, exclude the contract from the operation of Divisions 1 and 2 and, subject to
subsection (8), may, by order, substitute such adjustments in money or otherwise as it considers proper.
(2) Orders which the court may make under subsection (1) include:
(a) orders for the payment of interest, and
(b) orders as to the time when money shall be paid.
(3) In addition to its jurisdiction under subsections (1) and (2), the Supreme Court or the District Court may,
for the purposes of this section, make orders for:
(a) the making of any disposition of property,

23
(b) the sale or other realisation of property,
(c) the disposal of the proceeds of sale or other realisation of property,
(d) the creation of a charge on property in favour of any person,
(e) the enforcement of a charge so created,
(f) the appointment and regulation of the proceedings of a receiver of property, and
(g) the vesting of property in any person.
(4) Sections 78 and 79 of the Trustee Act 1925 apply to a vesting order, and to the power to make a vesting
order, under subsection (3).
(5) Section 78 (2) of the Trustee Act 1925 applies to a vesting order under subsection (3) as if subsection (3)
were included in the provisions of Part 3 of that Act.
(6) In relation to a vesting order of the District Court, sections 78 and 79 of the Trustee Act 1925 shall be
read as if “Court” in those sections meant the District Court.
(7) Subsections (2) to (6) do not limit the generality of subsection (1).
(8) This section does not authorise the Local Court to give a judgment otherwise than for the payment of
money.

24
1. WHAT ARE THE TERMS OF THE CONTRACT
1.1 Express terms

1.1.1 Is the agreement wholly in writing

(A) Is there an entire agreement clause

If so, what does the entire agreement clause cover? Question of construction.

Such clause will generally be taken as conclusive evidence that the writing represents the
entire agreement between the parties (Hope v RCA Photophone1).
(B) Does parol evidence rule apply

Flexible approach: the parol evidence rule has no operation until it is first determined that the
terms of the agreement are wholly contained in writing (SRA v Heath Outdoor2).

Where the contract is recorded wholly in writing, extrinsic evidence cannot be used to add
to, vary or contradict the terms in the written document; and the parol evidence rule prevents
the use of extrinsic evidence, or outside evidence, as an aid to explain the meaning of the
terms of the written contract. (Goss v Nugent)
(C) If parol evidence rule applies…

(1) Parole evidence rule and entire agreement clause do not exclude a pre-contractual
promissory estoppel (Saleh v Romanous3)

(2) Collateral contract

1.1.2 If there are pre-contractual statements,

(A) Are they terms of the contract, or

Mere puff and of no contractual effect (Carlill; Leonard v Pepsico); or

Representation: a statement made to induce entry into the contract but not a term of the
contract.
(1) General test

Whether a reasonable person in the position of the person to whom statement was
made would conclude that the maker of the statement intended to guarantee its truth
(Hospital Products)

1
Hope v RCA Photophone of Australia
Facts: RCA and Hope entered into a contract for the hire of “electrical sound-reproduction” equipment. No reference was
made to whether it was to be new or secondhand. Clause 27 entire agreement.
Held: clause 27 makes it unnecessary to discuss whether the defendant might be allowed to allege and prove the existence of
a supplementary term that the equipment was to be new equipment.

2
State Rail Authority of NSW v Heath Outdoor
Facts: Heath Outdoor entered into a number of contracts with the State Rail Authority. Contract provided that SRA may
terminate at any time upon one month’s notice. Defendant orally assured that the clause will only be invoked for non-payment
of rent or objectionable advertising content.
Held: The discussion between plaintiff and defendant did not add to the terms of the contract. Oral assurance does not
amount to a collateral contract because it contradicts the main contract.

3
Saleh v Romanous
Facts: Vendor of land purports to sell to plaintiff, on the promise that vendor’s brother (owner of neighbouring land) will agree
to a joint venture development of the plots.
Held: A promissory estoppel is not enforced as a contract, but as an equitable restraint on the exercise or enforcement of the
promisor’s rights. Equitable doctrine is not subject to common law parol evidence rule or entire agreement clause.

1
 (2) Secondary guide (Ellul v Oakes)

The time which elapsed between the time of making the statement and the final
manifestation of agreement. If the interval is a long one, this points to a
representation.
The importance of the statement in the minds of the parties; as statement which is
important is likely to be classed as a term of the contract (Couchman v Hill4)

If the statement was followed by the execution of a formal contract in writing, it will
probably be regarded as a representation should it not be incorporated in the written
document (Hospital Products; Equuscorp5)

Where the maker of the statement is in a better position to ascertain the accuracy of
the statement, the courts will tend to regard it as a contractual term (Oscar Chess6;
Dick Bentley7)

(B) Do they give rise to a collateral contract

(1) General test

The statement must have been intended to be relied upon

The party to whom the statement was made relies upon it
The maker of the statement intends to guarantee its truth
(J J Savage8)

4
Couchman v Hill
Facts: the plaintiff purchased at an auction sale a heifer belonging to the defendant which was described in the sale catalogue
as “unserved.” The catalogue stated that the sale would be subject to the auctioneers' usual conditions and that all lots must
be taken subject to all faults or errors of description. At the sale the plaintiff asked both the defendant and the auctioneer
whether they could confirm that the heifer in question was unserved and received from both the answer “Yes.”
Held: it was open to Couchman to intimate to the vendor that he was not willing to bid for the heifers unless the vendor
modified the terms of the sale in some way specified by him. Couchman sought a promise that the heifers were unserved,
which the seller agreed to, and it was on that basis that the contract was entered into.

5
Equuscorp v Glengallan Investments
Facts: a group of investors entered into written loan agreements with lenders. Investors purport to rely on an oral agreement
(with a pre-contractual promise that their liability to loss is limited to a certain sum). They alleged that the “operative” contract
was not the written contract (upon which they intended to claim tax deductions).
Held: the legal rights and obligations of parties turn upon what their words and conduct would be reasonably understood to
convey, not upon actual beliefs or intentions.

6
Oscar Chess Ltd v Williams
Facts: the defendant’s car was in fact a 1939 model but the registration book said it was 1948 and the defendant believed so.
Plaintiff car dealer bought the car and discovered that it was a 1939 model.
Held: the statement is only an innocent misrepresentation.

7
Dick Bentley Productions Ltd v Harold Smith (Motor) Ltd
Facts: Dick Bentley purchased a second hand Bentley from Smith (a car dealer). Smith told Bentley that the car had done
20,000 miles. The mileage was untrue.
Held: if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act
on it, and it actually induces him to act on it by entering into the contract, that is prima facie ground for inferring that the
representation was intended as a warranty. The maker of the representation can rebut this inference if he can show that it
really was an innocent misrepresentation.

8
J J Savage & Sons Pty Ltd v Blakney
Facts: Blakney contemplated buying a motor boat from JJ Savage. JJ manager expressed his views about different engines
and recommended a particular that could achieve certain speed.
Held: plaintiff could have required the statement to be inserted in the specification as a condition of the contract; he could
have sought from the appellant a promise; or he could be content to form his own judgement relying upon the opinion of the
appellant. Only the second course would give rise to a collateral warranty.

2
 (2) Courts will be reluctant to find a collateral contract if the terms would be naturally
expected to be in the main contract (Shepperd9)

(3) Collateral contract cannot impinge on the main contract, or alter its provisions or the
rights created by it (Hoyts v Spencer10)
(4) Terms of a collateral contract must be certain (Crown Melbourne11)
1.1.3 Have any terms been incorporated by…

(A) Signature

When a document containing contractual terms is singed, in the absence of fraud or

misrepresentation, the party signing it is bound, and it is immaterial whether he has read the
document or not (L'Estrange12; Toll v Alphapharm13)

(1) Nature of the document: whether document might reasonably be understood to be

only a voucher without reasonable notice (Curtis14)
(2) Vitiating factors: misrepresentation (Curtis)

(B) Reasonable notice

Where the offeror is able to show that he has done all that is reasonably necessary in the
circumstances to bring the conditions to the notice of the offeree, the offeree will be bound
(Causer v Browne15)

9
Shepperd v the Council Ryde Corporation
Facts: Shepperd purchased land from defendant council. Plaintiff alleged that prior to entering into the contract he was
informed by the defendant that an area opposite to his land would be created and maintained as a park.
Held: this was a collateral contract: promise to retain parklands induced entry into the sale contract.

10
Hoyts v spencer
Facts: Spencer entered into a lease with Hoyts. The lease provided that Spencer may terminate with 4 weeks’ notice.
Spencer agreed that he would not give notice unless requested by the head lessor.
Held: its (alleged) terms were inconsistent with the main contract.

11
Crown Melbourne v Cosmopolitan Hotel
Facts: Pre-contractual statement made ahead of a lease which required substantial refurbishment at the expense of the
tenant: “we will look after you at renewal time”
Held: the statement was too uncertain, vague or illusory to be a term.

12
L'Estrange v Graucob
Facts: plaintiff signed a form headed “Sales Agreement” for a cigarette vending machine without reading. There was an
exclusion clause in the agreement.
Held: her signature was determinative, and it didn’t matter that she hadn’t read the document.

13
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd
Facts: Finemores requested Richard Thomson to complete a credit application form, and above the place for signature it
provided “please read conditions of contract”. RT signed without reading. There was an exclusion clause.
Held: RT was bound.

14
Curtis v Chemical Cleaning & Dyeing
Facts: Curtis took a dress to Chemical Cleaning & Dyeing for cleaning. She was handed a paper headed “Receipt” and asked
to sign. She asked why signature was required and was told that it was because the cleaners would not accept liability for
certain specified risks. The receipt in fact excluded any liability for damage
Held: By failing to draw attention to the width of the exemption clause, the assistant created a false impression amounted to a
misrepresentation. If nothing was said, the document might reasonably be understood to be only a voucher for the customer
to produce when collecting the goods, and not understood to contain contractual conditions.

15
Causer v Browne
Facts: Causer’s husband took her frock to the defendants’ dry cleaning business. He received a docket at the foot of which
were certain terms.
Held: The receipt was quite reasonably treated as no more than a voucher.

3
 Notice of clauses must be brought to party’s attention before the contract is formed
(Oceanic16)
(C) Ticket

In determining whether a person is bound by conditions printed on the ticket, 3 questions are
relevant: objectively,

• Did person who receive ticket know there was writing on ticket?

• Did that person know that the ticket referred to terms?

• Did the party relying on the terms do what was reasonable to bring notice of the
existence of the terms sought to be relied on to attention of the other party?
(Parker v SER17)

(1) How much is required to be ‘reasonably sufficient to give the plaintiff notice of the
condition, depends on the nature of the restrictive condition. If the term is wide and
destructive of rights, a person will not be bound by it unless it is drawn to his
attention in the most explicit way (Thornton18).
(2) Where there is a ticket machine, the customer is bound by the terms so long as they
are sufficiently brought to his notice beforehand. He is not bound by the terms on
ticket if they are different from the notice, because the ticket came too late
(Thornton).
(D) Course of dealing

Did each party, by his words and conduct, lead the other party to believe that he intended
that the rights and liabilities towards one another which would otherwise arise by implication
of law from the nature of contract should be modified in the manner specified in the written
document (Hardwick Game Farm)
Factors of relevance in determining whether the alleged term was incorporated include the
number of prior dealings, how recent they were, and the consistency in the prior dealings
and the dealing in question (La Rosa)
The course of dealing must be consistent and sufficiently long. It is not however necessary
to show the other party had actual knowledge of the term (La Rosa)

16
Oceanic Sun Line Special Shipping Company v Fay
Facts: Fay made a booking for a cruise with the defendant. Upon payment he was handed an exchange order to be
exchanged for a ticket when he boarded the vessel. On the ticket there was a condition on jurisdiction of any action against
the defendant.
Held: In this case the only step the defendant took was the note in the brochure that conditions were printed in the unavailable
passenger ticket contract. It is insufficient to make the conditions terms of the contract. As the contract was made when the
exchange order was issued, and insufficient was done to bring the cause to the plaintiff’s attention, the exclusion clause was
not incorporated into the contract, and could not be subsequently incorporated by insertion in the ticket.

17
Parker v South Eastern Railway Co
Facts: On the deposit of articles at the cloak-room at a railway station, a charge is made of 2d. for each, and the depositor
receives a ticket, on the face of which are printed words “See back,” and on the back there is a notice that the company will
not be responsible for any package exceeding 10l. A placard upon which is printed in legible characters the same condition is
also hung up in the cloak-room.
Held: Ticket was treated as an offer to the passenger, who accepted by paying for the ticket.

18
Thornton v Shoe Lane Parking Ltd
Facts: Thornton parked his car the car park owned by the defendant. There was a notice outside. As Thornton drove in, a
ticket was pushed out from a machine. Ticket provided that it is issued subject to conditions as displayed inside the car park.
Held: the ticket cases did not apply, because any person who received the ticket could not negotiate with the machine.

4
 Illustrative cases:

Henry Kendall & In more than 100 regular dealings over a course of Incorporated
Sons v William 3 years, the seller of meal provided a ‘Sold Note’
Lillico & Sons Ltd containing ‘Conditions of Sale’.

La Rosa v Nudrill Parties entered into a contract cartage contract Not incorporated
Pty Ltd over telephone. The drill rig was damaged while because the invoices
being transported. From time to time, the appellant were not a contractual
carried on the cartage business under various document
names. After performing each job for the
respondent, the appellant sent an invoice to the
respondent. Both parties accepted that a telephone
conversation between them gave rise to a cartage
contract and was confined to matters of price,
destination, pickup and time. The contract was oral
and the only written component was the invoice
claiming payment for the service already provided.

Rinaldi & Patroni v On 9 or 10 previous occasions, parties would agree Not incorporated
Precision Mouldings orally on the cartage of a boat. A cart note (for because the cart note
signature by the consignee) would be stapled to an was not contractual
invoice and sent to the respondent for payment. On document
the note printed a list of conditions.

Balmain New Ferry Plaintiff travelled on many occasions backward and Incorporated
v Robertson forward by the company’s boats

Hardwick Game There were three oral contracts between Grimsdale Incorporated
Farm v SAPPA and SAPPA and there had been frequent prior
transactions (three to four per month for several
years). For each transaction Grimsdale would send
a contract note to SAPPA after the oral contract.
The back of the note contained terms or conditions
of which SAPPA was aware (although they had not
read them).

(E) Reference

The document signed by the parties has minimal terms in it, but says the contracting parties
agree to the terms as stated in some other document – such as a standard form issued by a
trade association, or of one of the parties or even to another contract relating to the
transaction
1.2 Have any terms been implied…

1.2.1 In law

(A) Novel case

Such obligation should be read into the contract as the nature of the contract itself implicitly
requires, no more, no less: a test of necessity (Irwin)

“Necessity” which will support an implied term in law is demonstrated where, absent the
implication, the enjoyment of the rights conferred by the contract would or could be rendered

5
 nugatory, worthless or seriously undermined, or the contract would be deprived of its
substance, or drastically devalued (Barker19; Reid v Rush Tompkins20)
(B) Established category

(1) Landlord’s duty to maintain the common area: the subject matter of the lease and
the relationship created by the tenancy demand, of their nature, some contractual
obligation on the landlord (Irwin21)

(2) where a contract of employment, negotiated between employers and a

representative body, contained a particular term conferring upon the employee a
valuable right contingent upon his acting as required to obtain the benefit, of which
the employee could not be expected to be aware unless the term was brought to the
attention of the employee, there was an implied obligation on the employer to take
reasonable steps to publicise the term (Scally v SHB22)
(3) Duty to cooperate: as a general rule, Where in a written contract it appears that both
parties have agreed that something shall be done, which cannot effectually be done
unless both concur in doing it, the construction of the contract is that each agrees to
do all that is necessary to be done on his part for the carrying out of that thing,
though there may be no express words to that effect (Mackay v Dick)
(4) Duty of reasonableness and good faith in the exercise of powers and discretions,
and not to exercise powers in a capricious or arbitrary manner or for an extraneous
purpose (Burger King v Hungry Jack’s23; SIRE v St Martins24)

19
Commonwealth Bank of Australia v Barker
Facts: employment of Barker was terminated for redundancy. He was not informed about an alternative position because the
recruitment consultant was not aware that he no longer had his Bank mobile or email address.
Held: court refused to imply a term of mutual trust and confidence in law.

20
Reid v Rush Tompkins
Facts: plaintiff suffered injuries while driving on a road in Ethiopia in the course of his employment by the defendant.
Held: court refused to imply a term in law that the defendant would give the plaintiff necessary advice because it would
require employers without little resources to obtain information about foreign legal and social system.

21
Liverpool City Council v Irwin
Facts: defendants were lessees of a maisonette. They refused to pay rent because of defect in the common parts of the
building, including continual failure of the lifts, the absence of lighting on the stairs etc. defendant counterclaimed for damages
for the breach of an alleged implied term that the plaintiffs would keep the common parts in repair.
Held: the subject matter of the lease and the relationship created by the tenancy demand, of their nature, some
contractual obligation on the landlord.
22
Scally v Southern Health Board
Facts: Changes to a contributory pension scheme required employees to make an election, but the employees did not know
this and missed out on valuable benefits.
Held: there was an implied obligation on the employer to take reasonable steps to publicise the term

23
Burger King v Hungry Jack’s
Facts: HJ and BK entered into a Development Agreement. Under the Agreement, HJ was required to develop at least 4
restaurants per year. For each restaurant HJ need to obtain approvals, which is at the ‘sole discretion’ of BK.
Held: BK may regard only its own legitimate interests, but it cannot exercise its discretionary powers for purposes extraneous
to the contract.

24
Secured Income Real Estate v St Martins Investments
Facts: Vendor of office block is owed $170K of purchase price, to be paid only if certain rental returns are confirmed. Vendor
offered to lease so much of the space from purchaser to raise rents to the required level, but purchaser refused to let space to
vendor (and hence did not have to pay the $170K).
Held: a refusal on the ground that there were doubts that the appellant could or would pay the rent promptly would not be
capricious or arbitrary.

6
 (5) Duty of good faith
(a) High Court declined to take the opportunity to consider the boundaries of the
duty of good faith and to lay down a framework in Royal Botanic Gardens25

(b) The conclusion (in respect of no implied term of mutual trust and
confidence) should not be taken as reflecting upon the question whether
there is a general obligation to act in good faith in the performance of
contracts, or whether contractual powers and discretions may be limited by
good faith (Barker)

1.2.2 In fact

(A) Formal contract (BP Refinery)

(1) It must be reasonable and equitable;

(2) It must be necessary to give contract business efficacy, so that no term will be
implied if the contract is effective without it;
(3) It must be so obvious that it ‘goes without saying’;

(4) It must be capable of clear expression; and

(5) It must not contradict any express terms.
There is only one question: Is that what the instrument, read as a whole against the relevant
background, would reasonably be understood to mean? (Belize)
Illustrative: implied duty to cooperate (Servcorp26); duty of reasonableness (Renard27, but
only Priestley JA)
(B) Informal contract

Where it is apparent that the parties have not attempted to spell out the full terms of their
contract, a court should imply a term by reference to the imputed intention of the parties if,
but only if, it can be seen that the implication of the particular term is necessary for the
reasonable or effective operation of a contract of that nature in the circumstances of the
case (Hawkins v Clayton; Byrne28)

25
Royal Botanic Gardens and Domain Trust v South Sydney City Council
Facts: Trustees of the Domain and Council entered into a lease for a term of 50 years. The lease provides that the yearly rent
during each subsequent 3 year period may be determined having regard to additional costs and expenses in maintaining
grounds above the subterranean carpark.

26
Servcorp WA v Perron Investments
Facts: parties entered into a lease included a renewal clause. If parties cannot agree on the renewed rent, the new rent will
be determined at current market rent by reference to external valuation experts appointed by parties. The lessee refused to
agree to appoint the expert and claimed an entitlement to continue on the old rent.
Held: A term should be implied that the Lessee cannot unreasonably refuse to appoint the expert.

27
Renard Constructions v Minister for Public Works
Facts: Renard, the contractor, and the Minister, the principal, entered into a contract for the construction of pumping stations.
The contracts provides that if the contractor fails within the period specified in the notice in writing to show cause to the
satisfaction of the principal, the principal may take over the work or cancel the contract. Senior officer of the principal was not
aware of the contractor’s submissions to show cause and decided to take over.
Held: (Priestley JA) a reasonable person would assume that the principal would have to give reasonable consideration to the
question whether the contractor had failed to show cause and then, if the principal had reasonably concluded that the
contractor had failed, that reasonable consideration must be given to whether any power and if any which power should be
exercised.

28
Byrne v Australian Airlines
Facts: the appellants were employed by the respondent as baggage handlers at Sydney airport. They were dismissed from
their employment for pilfering.
Held: there is nothing to suggest that the contracts of employment were not workable and effective before the introduction of
the provisions. This is not a case where such provision is necessary lest the contract be deprived of its substance, seriously
undermined or drastically devalued in an important respect.

7
 1.2.3 By custom and usage

(A) The existence of a custom or usage that will justify the implication of a term is a question of
fact
(B) There must be evidence that the custom relied on is so well known and acquiesced in that
everyone making a contract in that situation can reasonably be presumed to have imported
that term into the contract. It is not necessary to be universally accepted.
(C) A term will not be implied into a contract on the basis of custom where it is contrary to the
express terms of the agreement.
(D) A person may be bound by a custom notwithstanding the fact that he had no knowledge of it.
(E) It is necessary to establish a clear course of conduct.
(Con-Stan29)
1.2.4 By statute
(A) Sales of Goods Act

13 Reasonable price

17 Condition: seller has a right to sell;

Warranty: buyer can enjoy quiet possession; goods free from encumbrance

18 Condition: goods correspond with description; if there is description, compliance with sample
is not sufficient

19 No implied condition to quality or fitness except:

• (1) Condition of fit for purpose:
o the buyer expressly or by implication tells the seller the purpose for which the
goods were acquired
o the buyer relies on the seller's skill and judgment
o goods are of a description which is in the course of seller’s business to supply
• (2) Condition of merchantable quality:
o sale by description
o seller deals in goods of that description:

20 Correspondence with sample

32 The place of delivery is the seller’s place of business

Where goods are in the possession of a third party, no delivery until the third person
acknowledge to buyer that he holds the goods on buyer’s behalf.

(B) Australian Consumer Law

51 Guarantee as to title by supplier

52 Guarantee as to undisturbed possession by consumer

53 Guarantee that the goods are free from encumbrance

54 Guarantee that goods are of acceptable quality (fit for purpose; free from defects; safe and
durable)

29
Con-Stan Industries of Australia v Norwich Winterthur Insurance (Australia) Ltd
Facts: Con-Stan engaged Bedford as its insurance broker to secure various insurances. Norwich was selected. Premiums
were paid by Con-Stan to Bedford but Bedford didn’t pass on to Norwich. Bedford was wound up and Norwich sued Con-Stan
to recover the premiums.
Held: the custom alleged has not been proved to the high standard which the law requires
8
55 Guarantee that goods are reasonably fit for any disclosed purpose and any purpose the
supplier represents

56 Guarantee that goods correspond with description (auction excluded)

60 Guarantee to sue due care and skill

61 Guarantee as to fit for a particular purpose

64 Exclusion clause restricting the above is void

9
2. WHAT DO THE TERMS OF THE CONTRACT MEAN

Objective test: The meaning of commercial documents should be determined objectively. The construction of
the letter of indemnity is to be determined by what a reasonable person in the position of Pacific would have
understood them to mean. (Pacific Carriers v BNP30)

2.1 Is the agreement wholly in writing

Where the contract is recorded wholly in writing, the parol evidence rule prevents the use of extrinsic
evidence, or outside evidence, as an aid to explain the meaning of the terms of the written contract. (Goss v
Nugent)
2.2 Can we use surrounding circumstances to construe the terms

2.2.1 The true rule is that evidence of surrounding circumstances is admissible to assist in the
interpretation of the contract if the language is ambiguous or susceptible of more than one meaning
(Codelfa, followed in Royal Botanic Gardens)

2.2.2 Construction will require consideration of the language used by the parties, the surrounding
circumstances known to them and the commercial purpose or objects to be secured by the contract
(EGC v Woodside, endorsed by Ecosse)
2.2.3 In NSW, courts tend to allow use of surrounding circumstances (Angas Securities; WIN Corporation;
Zhang)

2.2.4 Genesis of the contract; market at the time; circumstances known to the parties at the time
2.3 If there is an exclusion clause

2.3.1 General test: an exclusion clause is to be determined by construing the clause according to its
natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight
to the context in which the clause appears including the nature and object of the contract, and where
appropriate, construing the clause contra proferentem in case of ambiguity (Darlington Futures31)
2.3.2 Secondary rules
(A) If the contract is for carriage of goods, consider the deviation rule

A carrier of goods who deviates from the agreed voyage thereby loses the benefit of
exclusion clauses in the contract which would otherwise apply.

• (Q1) what did the party who relies upon the exclusion clause do?

• (Q2) is this a radical breach of the contract – was a route agreed and this is a
departure from it; or if not an agreed route, this was a deviation from the usual and
customary route?

30
Pacific Carriers v BNP Paribas
Facts: purchaser bought a cargo from seller, cargo to be shipped by Pacific. Pacific was asked to take a risk to deliver cargo
to people who could not produce a bill of lading. Pacific refused to take the risk and sought indemnity in respect of loss or
damage. Seller asked BNP to sign a letter of indemnity without the disclaimer. BNP officer signed the letter but was not
authorised to bind BNP to any indemnity.
Held: Pacific had limited knowledge of the financial capacity of seller. There was nothing in the terms to indicate that BNP was
merely authenticating the execution by seller, and there was nothing in the surrounding circumstances to suggest that Pacific
would accept such authentication only.

31
Darlington Futures Ltd v Delco Australia Pty Ltd
Facts: Darlington was a broker dealing on the commodity futures market. It entered into a written contract with Delco to
engage in day trading. Without authority of Delco, Darlington left the futures contracts being traded open for a longer period
than one day and heavy losses sustained. Darlington sought to rely on the exclusion clause in the contract: not responsible for
any loss arising out of trading activity on behalf of plaintiff (clause 6); liability cap for loss arising in connection with the
relationship by the agreement (clause 7).
Held: clause 6: parties did not intend to exclude liability for losses arising from trading activity when Darlington had no
authority to do so. Clause 7: a claim for an unauthorised transaction is in connection with the relationship.

10
 • (Q3) would same loss have occurred but for the deviation?
(TNT v May & Baker32)

(B) If the contract is for bailment, consider the four corners rule

A contractor who breaches the contract by stepping outside the four corners of the contract
will generally lose the protection of the exclusion clause (West33)
(C) If relevant act is negligence, consider whether the exclusion clause is wide enough

(1) An express exclusion of liability for negligence must be given effect and is sufficient
to exclude liability
(2) Where there is no express reference to negligence, the court must consider whether
the words used are wide enough, with any doubt (or ambiguity) being resolved
contra proferentem.
(3) If the words used are wide enough to cover liability for negligence it must be
considered whether the head of damage may be based on some ground other than
that of negligence. The other ground must not be ‘fanciful or remote’.
(Canada SS Lines34)

See also: Davis v Pearce Parking35

2.3.3 Can a third party benefit from the exclusion clause
(A) Elements (Scruttons Ltd v Midland Silicones Ltd)

(1) The contract makes it clear the third party is intended to be protected by the
exclusion clause
(2) The contract makes it clear that the contracting party, in addition to contracting on
his own behalf, is also contracting as agent of the third party that these provisions
should apply to the third party
(3) The contracting party has authority from the third party
(4) Any difficulties about consideration moving from the third party were overcome.

32
Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd
Facts: MB contracted with TNT for the carriage of goods. Pay was engaged by TNT to collect the goods for transport to TNT’s
depot. Pay collected the goods from MB and took the goods to his home stored in a shed because TNT’s depot was closed.
This was in accordance with TNT’s practice. The shed caught fire and the goods were damaged.
Held: it was not within the contemplation of the parties that an extremely valuable consignment of goods was to be kept
overnight by TNT’s servant or sub-contractor in the yard of a suburban cottage.

33
The Council of the City of Sydney v West
Facts: respondent parked his motor vehicle in the appellant’s parking station and received a parking ticket with exclusion
clause and words that “ticket must be presented for time stamping and payment before taking delivery of the vehicle”.
Respondent’s vehicle was taken from the parking station by an unauthorised person using a duplicate ticket.
Held: the exclusion clause does not contemplate or provide an excuse for negligence on the part of the Council's servants in
doing something which it is neither authorized nor permitted to do by the terms of the contract.

34
Canada SS Lines v R
Facts: Crown leases a shed on a dock to the company. The Crown’s servants come to repair the shed doors using a
blowtorch. Sparks set fire to goods (cotton bales) within.
Held: The contract as a whole included an obligation upon the Crown to keep the building in good repair. It could not be the
case that the Crown’s servants could be exempted from liability for damaged caused in doing that work.

35
Davis v Pearce Parking Station Pty Ltd
Facts: Davis parked her car at a motor car parking station owned by defendant. She received a printed document containing
two parts, a delivery ticket and a parking check. On the parking check were the words excluding “loss or damage of any
description”. Her car is stolen by an opportunistic thief.
Held: the bailee is making a very small charge for taking the custody of goods which are or may be of great value. He is likely
to intend, and the bailor would reasonably expect him to intend, to protect himself against a possibly very heavy liability arising
from the negligence of a servant.

11
 (B) In the Himalaya clause cases, the stevedore provided consideration by performance of
service (Port Jackson36)

(C) [then consider whether the clause covers what happened]

36
Port Jackson Stevedoring v Salmond & Spraggon (Aust)
Facts: 37 cartons of razor blades had been shipped from Canada to Sydney, where the stevedore unloaded them ad stored
them in its wharfside shed. 33 cartons were stolen. The shipment was covered by a bill of lading issued by the charterer to
consignor, and transmitted to and accepted by the plaintiff consignee. Clause 2 of the bill is a Himalaya clause and there was
a one year time bar provision.
Held: (Barwick CJ) the provisions constituted an agreement from the beginning with the stevedore. The essential
characteristic is to provide an agreed consequence to future action should that action take place: to attach conditions to a
relationship arising from conduct. The performance of the contemplated act both supplies the occasion for those conditions to
operate and the consideration which makes the arrangement contractual.
3. HAS THE CONTRACT BEEN TERMINATED

3.1 Is the party justified to terminate the contract…

The promisee may rely on any available ground to terminate even if they did not actually rely on the valid
ground (Rawson v Hobbs37)
3.1.1 By agreement

(A) Is there an express right to terminate

(B) Is there a subsequent agreement to terminate the original contract (consider formation rules)

(C) Has parties abandoned the contract

where an “inordinate” length of time has been allowed to elapse, during which neither party
has attempted to perform, it may be inferred to that the contract has been abandoned
(Fitzgerald38)

3.1.2 For failure of a contingent condition

(A) If the contingent condition is a condition precedent, the contract is void if the condition failed
(Lewes Nominees v Strang39)

(B) If the contingent condition is a condition subsequent, the contract is voidable if the condition
failed (Maynard v Goode40; Coolangatta41)
3.1.3 By performance
(A) Is the contract an entire contract or divisible contract

(1) An entire contract is one in which completion of performance is a condition

precedent to recovery of the contract price (Cutter v Powell42)

37
Rawson v Hobbs
Facts: Rawsons agreed to purchase property from Hobbs. Clause 12 of the contracted provided for the Rawsons to obtain the
consent of the Minister and conferred an option on both parties to annual the sale if the Minister refused consent. Rawsons
purported to annul the sale on the basis that information indicated that the Minister would refuse consent.
Held: Rawsons cannot rely on express terms to terminate, but can terminate because Hobbs is unable to complete.

38
Fitzgerald v Masters
Facts: Masters contracts with the deceased to purchase an interest in his farm. Masters pays a deposit and instalments, and
works in partnership with the deceased for some years. By 1931 he has paid more than half. Masters leaves the farm in 1932,
and has been contacting the deceased about the agreement since 1948.
Held: if he had at any time regarded he contract as at an end, the first thing one would have expected him to do was to
demand repayment of his money.

39
Lewes Nominees Pty Ltd v Strang
Facts: Strang granted Lewes an option to purchase land which had to be exercised by 11/11/80, and exercise must be by
notice accompanied by payment of 10% of the purchase price.
Held: notice and payment is a condition precedent to the exercise of the option.

40
Maynard v Goode
Facts: Goode agreed to buy land from Crosby, subject to a proviso that the transfer of land owned by Goode went through in
a reasonable time.
Held: the proviso is a condition subsequent in relation to the whole contract as a binding obligation. It was not necessary for
the sale of Goode’s land to be completed before the contract with Crosby was binding.

41
Perri v Coolangatta Investments Pty Ltd
Facts: Perri entered into contract with Coolangatta to purchase land. Special condition provided that the contract is subject to
Purchaser competing a sale of their property at Lilli Pilli.
Held: the special condition is a condition subsequent. A binding contract came into existence immediately upon signature, and
parties were from that moment subject to certain obligations. There was implied a promise by Perri that they would do all that
was reasonable to find a buyer for the Lilli Pilli property.

42
Cutter v Powell
Facts: Powell agreed to pay Cutter, as second mate, 30 guineas provided he proceeds, continues and does his duty on the
ship for a voyage from Jamaica to Liverpool. Cutter died before the vessel’s arrival at Liverpool.

13
 (2) A severable contract is one in which payment obligations are apportioned in
accordance with performance (Tardiani43)
(B) Is strict performance or substantial performance required

(1) In order for a contract or a party to be discharged by performance, the performance

must correspond exactly to the requirements of the contract (The Hansa Nord)
(2) The parties may alternatively express an intention that a performance which is not
exact is nevertheless to discharge a party (The Hansa Nord)
(3) Doctrine of substantial performance applies to entire contracts (Bolton)
(C) If strict performance required, is the breach trivial

Under the rule de minimis non curat lex, minute failures and insignificant defects in
performance will be excused (The Hansa Nord)
(D) If substantial performance required, has the party substantially performed

The contract price is recoverable if the plaintiff has substantially performed the contract
(Bolton; Hoeing).
It is irrelevant that the defendant prevented completion of performance (Automatic Fire
Sprinklers44).
(1) Test of substantial performance

The nature of the defects and the proportion between the cost of rectifying them and
the contract price (Bolton45)

There is no substantial performance if the work is defective for its primary purpose
(Bolton)

There is no substantial performance if the breach goes to the root of the contract
(Hoeing46)

Held: the common rate is 4 pounds per month. If there had been no contract between parties, Cutter would have recovered 8
pounds. He stipulated to receive the larger sum if the whole duty were performed, and nothing unless the whole of that duty
were performed.

43
Steele v Tardiani
Facts: Steele employed Tardiani to cut firewood 6 feet in length and 6 inches in diameter. Payment was 6s per ton. Tardiani
cut 1500 tons of timber split in diameters ranging from 6 inches to 15 inches.
Held: the contract in the present case is infinitely divisible. Payment for the proportion of the work done properly was allowed.

44
Automatic Fire Sprinklers Pty Ltd v Watson
Facts: Watson was wrongfully dismissed. He said he was ready willing and able to perform and argued that was sufficient to
enable him to be paid wages.
Held: by the agreement the consideration for the services is the actual performance of the duties undertaken by him. Watson
cannot sue for his work remuneration as debt in respect of complete performance of the agreement on his party relying on his
readiness and willingness to perform. He may sue for breach in wrongful dismissal but the damages is not the remuneration
agreed upon but the actual loss.

45
Bolton v Mahadeva
Facts: parties entered into a contract to supply and install a combined heating and domestic hot water system and to supply
and fit a bathroom suite. When heating system was put on, fumes were given out rendering the living rooms extremely
uncomfortable to use; the heating was far below the required level.
Held: (Cairns LJ) here the cost to repair is between 1/3 and 1/4 of the contract price. Considering the nature and amount of
the defects, the contractor had not been substantially performed. (Sachs J) there was no substantial performance because the
work was ineffective for its primary purpose.

46
Hoeing v Isaacs
Facts: parties entered into a contract to decorate the defendant’s flat and to supply certain furniture. Contract price 750. Cost
in remedying the defects assessed to be 55.
Held: there had been substantial compliance with the contract

14
 (2) Adjustment of contract price

Cost of cure (Bolton)

If the cost of cure is grossly and unfairly out of proportion to the good to be attained,
the measure is the difference in value (Jacob v Kent47)
(E) If not, can the party recover on a quantum meruit basis

In order to recover on a quantum meruit basis, the circumstances must be such as to give
an option to the defendant to take or not to take the benefit of the word done. In the case of
work done on land, the circumstances are such as to give the defendant no option whether
he will take the benefit of the work or not (Pavey & Matthews48; Sumpter49)
3.1.4 By breach
(A) (Construction of the term)

(B) Tripartite classification

Test of essentiality: whether it appears from the general nature of the contract considered as
a whole, or from some particular term or terms, that the promise is of such importance to the
promisee that he would not have entered into the contract unless he had been assured of a
strict or a substantial performance of the promise, as the case may be, and that this ought to
have been apparent to the promisor. (Tramways50)
Does the breach of the stipulation go so much to the root of the contract that it makes further
commercial performance of the contract impossible? If yes, the innocent party may
terminate. If no, his claim sounds only in damages. (HK Fir Shipping51)

Does the occurrence of the event deprive the party who has further undertakings still to
perform of substantially the whole benefit which it was the intention of the parties as
expressed in the contract that he should obtain as the consideration for performing those
undertakings? (HK Fir Shipping)

47
Jacob & Youngs Inc v Kent
Facts: plaintiff built a country residence for the defendant. Some of the pipe did not conform to specs but the only difference
with the pipe required is the brand name. Replacing pipe would require demolition of parts of the house.
Held: the measure of allowance here was not the cost of replacement but the difference in value of the two pipe brands.

48
Pavey & Matthews Pty Ltd v Paul
Facts: Pavey & Matthews renovated a cottage belonging to Mrs. Paul. Contract was orally agreed.
Held: builders were able to recover reasonable remuneration on a quantum meruit basis.

49
Sumpter v Hedges
Facts: plaintiff builder contracted to build two houses and stables for the defendant. Plaintiff ran out of money and abandoned
the work.
Held: the plaintiff cannot recover the work done. The defendant is not bound to keep unfinished a building which in an
incomplete state would be a nuisance on his land.

50
Tramways Advertising v Luna Park
Facts: Luna Park contracts for Tramways to display advertising on the tops of 53 trams, for at least eight hours a day.
Held: Words: the words 'we guarantee' are particularly suited to emphasise the importance of the clause which they introduce.
Circumstances: Paying was only to begin after all 53 boards were all displayed at the same time. The term was a condition.

51
Hong Kong Fir Shipping v Kawasaki Kisen Kaisha
Facts: HK Fir chartered a vessel to KKK on a 24 month time charterparty, but the ship was unavailable for periods of time due
to machinery breakdowns.
Held: the seaworthiness clause is not treated as a condition because it is breached by the slightest failure to be fitted in every
way for service. But breach of the seaworthiness term deprived the charterer of substantially the whole benefit of the contract.

15
 (C) If condition, right to terminate
(Illustrative cases: Ankar v NWF52; Bancks53)
(D) If intermediate term, right to terminate if breach is serious

Requirement of seriousness: in order for the promisee to be entitled to terminate the contract
for breach of intermediate terms, the breach has to be sufficiently serious (Koompahtoo54)
The breach goes to the root of the contract (The Hansa Nord55); deprives the promise a
substantial part of the benefit for which it contracted.
3.1.5 By breach of time stipulations

Where no time for completion is specified in a contract, the law implies that it is to be performed
within a reasonable time (Canning v Temby56)
(A) Is time of the essence

Test of essentiality (Tramway)

The test of whether a time clause is a condition is: (1) what importance have the parties
expressly ascribed to this consequence; (2) in the absence of expressed agreement, what
consequence ought to be attached to it having regard to the contract as a whole (Bunge57)

• Nature of the contract: commercial contracts for sale of goods, charterparties etc –
time is presumed to be of the essence (Bunge)

• Nature of the term: promise to pay money on a particular date is ‘hardly ever of the
essence’

52
Ankar v National Westminster Finance (Aust)
Facts: Ankar entered into an agreement with NWF guaranteeing the performance of GE under a contract for the hire of
machinery. NWF agreed to notify Ankar if GE defaulted and assigned its interest, but NWF did not do so.
Held: The special characteristics of the suretyship relationship and the fact that it creates a liability strictissimi juris on the part
of the surety are enough to justify treating the relevant obligations as conditions.

53
Associated Newspapers Ltd v Bancks
Facts: Clause 5 of the contract provides that Bancks would provide comic strip and AN undertook that the drawing will be
presented on the front page of the comic section of the newspaper. Bancks’ drawing later appeared as the third page.
Held: the defendant would not have made the promise unless he was assured that his work would be published in a particular
manner. Defendant was not only contracting for money but also contracting for fame.

54
Koompahtoo Local Aboriginal Land Council v Sanpine
Facts: KLALC and Sanpine entered a joint venture for development of commercial land. Contracts provides that Sanpine shall
keep proper records of the JV. Sanpine kept no adequate records at all, and the joint venture collapsed.
Held: the benefit of the contract for KLALC in large part comprised the application of Sanpine’s expertise in management to
the joint venture project. The defaulst of Sanpine undercut that benefit to a significant extent.

55
Cehave NV v Bremer Handelgesellschaft mbH (The Hansa Nord)
Facts: Cehave agreed to buy goods from Bremer as an ingredient in animal feed. Clause 7 provided that ‘shipment to be
made in good condition’. Goods were damaged and buyer rejected the goods. The goods were eventually resold to buyer and
used as an ingredient in cattle feed.
Held: the condition cannot have been very bad seeing that all of them were in fact used for the intended purpose. The breach
did not go to the root of the contract.

56
Canning v Temby
Facts: Canning contracted to sell land to Temby. Payment is to be made when title documents are provided, but no time is
stipulated in the contract.
Held:
57
Bunge Corporation v Tradax Export
Facts: Tradax contracts to sell Bunge soya bean meal. Contract provides 15 days’ notice of readiness of the vessels. Notice
was given on 17 June for the June shipment (so that it would be a July delivery).
Held: In a mercantile contract, when a term has to be performed by one party as a condition precedent to the ability of the
other party to perform another term, especially an essential term, the term as to time for the performance of the former
obligation will in general fall to be treated as a condition.

16
 • Nature of the subject matter: perishable, fluctuating or wasting nature of the subject
matter

• Conveyancing Act s 13: time presumed to be not of the essence

(B) If time is of the essence, right to terminate

(C) If time is not of the essence, is notice procedure complied with

Where a contract contains a promise to do a particular thing on a specified day, and time is
not of the essence, the promise can terminate for non-performance if he has given a notice
requiring performance within a specified reasonable time, and there has been a failure to
comply with that notice (Louinder58)

(1) Requirement of notice

(a) Inform the promisor of the obligation which is to be performed
(b) Fix a period of time which is a reasonable time for performance
(c) Clearly indicate that time is of essence, or that failure to comply will give rise
to a right to terminate
(Laurinda59)
(D) Is the promisee ready and willing to perform

In order to terminate for failure to meet a time stipulation, the promisee must be ready and
willing to perform (Barrack v Jaswil60)
3.1.6 By repudiation

A contract may be repudiated if one party renounces his liability under it – if he evinces an intention
no longer to be bound by the contract or shows that he intends to fulfil the contract in a manner
substantially inconsistent with his obligations and in no other way. (Shevill)

Objective test. Question of fact.

58
Louinder v Leis
Facts: Louinder sold property to Leis by a contract dated 1 Nov 1979. No date was fixed for completion and times was not
stated to be of the essence. Parties agreed to settle in January 1980. Vendor sought to delay for 3 months but
later sought to settle within one week. Vendor issued a notice to complete within 21 days. On 4 Mar 1980 vendor
terminated the contract.
Held: purchaser was not guilty of unreasonable delay in these circumstances.

59
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd
Facts: lessor Capalaba and lessee Laurinda entered into a lease. The lease was not registered. Lessee wrote to lessor on 21
Aug 1986 pointing out the importance of registration, and required lessor to complete registration within 14 days. 5 Sep 1986,
lessee terminated the agreement
Held: based on lessor’s unwillingness to deliver a registrable lease to lessee, lessor’s intention was only to perform the
contract in a manner substantially inconsistent with its obligations, such as would allow lessee to treat lessor as having
repudiated the contract.

60
Barrack Corporation Pty Ltd v Jaswil Properties Pty Ltd
Facts: Jaswil contracted to purchase land from Barrack. Completion specified to be 30 Jan 2015 Vendor served Notice to
Complete in Feb 2015.
Held: If a vendor wishes to issue a notice to complete, it will only be able to do so if it is able to proceed to completion and
deliver all the purchaser is entitled to under the contract no later than the expiry of the notice to complete.

17
 (A) Identify repudiation

(1) Repudiation based on words or conduct

On the facts: refusal to perform; erroneous construction of the contract; wrongful

termination (Molena Alpha61)
[Erroneous construction of the contract; wrongful termination: what is the implication
of bona fide?]
(2) Repudiation based on inability
(Citati62)
(3) Anticipatory breach
If one party, before the day on which he is due to perform his part, shows by his words or
conduct that he will not perform it in a vital respect when the day comes, the other party is
entitled to treat himself as discharged (Hansa Nord)

(B) Requirement of seriousness

A prospective breach of a condition gives rise to a right to terminate. A prospective breach of

an intermediate term must have prospects of ‘serious consequences’ to justify termination
(Molena Alpha)
Satisfied if repudiation in relation to all the promisor’s obligations.

If repudiation in relation to part of the contract:

(1) (Construction of the term)

(2) Tripartite classification

(C) Has the promisee accepted repudiation?

A repudiation gives the other party the option of treating the contract as at an end, or of
waiting till the time for performance has arrived before making any claim for breach of
contract (Bowes v Chaleyer63)
(D) Is the promises ready and willing to perform?

If he elects to wait, he remains liable to perform his party of the contract and enables the
party in default to take advantage of any supervening circumstances which would justify him
in refusing to perform it (Bowes v Chaleyer)

61
Federal Commerce & Navigation Co Ltd v Molena Alpha Inc
Facts: Clause 9 of a charterparty provided that the charterers were to sign bills of lading stating the freight had been correctly
paid. The master was instructed by shipowner not to sign bills of lading, putting charterers in a commercially impossible
position.
Held: A prospective breach of an intermediate term must have prospects of ‘serious consequences’ to justify termination. The
breach went to the root of the contract by depriving the charterers of virtually the whole benefit of the contract because the
issue of such bills was essential to the charterers' trade.

62
UCCC v Citati
Facts: Citati chartered a vessel from UCCC to load a cargo at Basrah and to carry it to Buenos Aires. It was a voyage
charterparty. Charterer had difficulty finding a cargo. Lay time would expire on 21 July, charterer would then be obliged to pay
demurrage. On 18 July, shipowner chartered the vessel to a third party.

63
Bowes v Chaleyer
Facts: Bowes contracts to buy 1780 yards of tie silks from Chaleyer. “Goods to be shipped per sailer/steamer. Half as soon
as possible, Half two months later”. Soon after Bowes purported to cancel the contract. Chaleyer still shipped the goods:
340yd on 21/10; 800yd on 17/11 and 580yd on 13/12.
Held: the repudiation by Bowes was never accepted by Chaleyer. Chaleyer breached the contract.

18
 (E) NB: risky
Consider how the defaulting party might argue he or she was not disabled or incapacitated
and could perform at the time performance was required.
Termination for repudiation may result in wrongful termination which is repudiation on the
part of the promisee.
3.1.7 By frustration

Frustration occurs whenever the law recognises that without the default of either party a contractual
obligation has become incapable of being performed because the circumstances in which
performance is called for would render it a thing radically different from that which was undertaken
by the contract. Non haec in foedera veni. It was not this that I promised to do. (Davis Contractors)

(A) Grounds for frustration

(1) Impossibility of performance

Destruction of subject matter (Taylor v Caldwell64)

(2) Frustration of purpose

In each case one must ask oneself:

(1) having regard to not necessarily the terms of the contract, but, if required, to
necessary inferences, drawn from surrounding circumstances recognised by both
parties, what was the foundation of the contract?
(2) was the performance of the contract prevented?
(3) was the event which prevented the performance of the contract of such a
character that it cannot reasonably be said to have been in the contemplation of the
parties at the date of the contract?
(Krell v Henry65)

(3) Frustration of the commercial venture

A contract will be frustrated when the parties enter into it on the common
assumption that some particular thing or state of affairs essential to its performance
will continue to exist or be available, neither party undertaking responsibility in that
regard, and that common assumption proves to be mistaken (Codelfa66)

64
Taylor v Caldwell
Facts: the defendants agreed to allow the plaintiffs the use of the music hall for 5 days for the purpose of giving concerts.
Before the concert, the music hall was destroyed by an accidental fire.
Held: the music hall ceased to exist without fault of either party, both parties are excused from performing their promise.
65
Krell v Henry
Facts: plaintiff let room above a road to view the coronation of Edward VII. Coronation was postponed, so the defendant
refused to proceed with the contract.
Held: in the present case, the use of the rooms was let and taken for the purpose of seeing the coronation. The taking place
of the coronation was regarded by both parties as the foundation of the contract.

66
Codelfa Construction Pty Ltd v SRA (NSW)
Facts:
Held: both parties proceeded upon the assumption that the works could be lawfully completed within the specified time by
continuous work on a three-shift basis for six days a week. Performance by means of a two shift operation necessitated by the
grant of the injunction s was fundamentally different.

19
 (B) Limits

(1) Express terms

Does the term deal with the event and what does it provide or can the parties rely on
the event to say contract has been frustration: question of construction (Bank Line67)
(2) Foresight

The event relied upon as frustrating the contract must not have been foreseen by
the parties (Davis Contractor68; Simmons v Hay69)
(3) Self-induced frustration

Where the event relied on as frustrating the contract occurs because of blame, fault
or default, the contract is not frustrated because reliance cannot be placed on self-
induced frustration (Ocean Trawlers70; The Super Servant Two71)

(C) Effect

(1) When frustration occurs it automatically discharges the parties from the obligation to
perform their contractual duties.

67
Bank Line Ltd v Arthur Capel & Co
Facts: BL chartered the vessel to AC under a 12 month time charterparty to be delivered latest on 30 April.
Clause 26 provides if BL through unforeseen circumstances cannot deliver the ship, AC shall within 48 hours after receiving
notice declare whether to cancel or take delivery. Clause 31 provides that AC has option of cancelling if the vessel is
commandeered by government.
Ship was delayed, but AC did not cancel. On 11 May, the government requisitioned ship for a period.
Held: clause 31 means that if the government should requisition the ship, the charter may be cancelled without waiting to see
or having to show that its object is frustrated.
Clause 26 cannot be construed to mean that however long the interval may be, the charterers can at any moment cancel the
contract, and can hold them bound so long as they choose to hold their tongues.
The clauses did not exclude the operation of frustration.

68
Davis Contractor Ltd v Fareham Urban District Council
Facts: Davis entered into a contract with Fareham to build 78 houses in 8 months. Due to a lack of skilled labour, the work
took 22 months. Daivs sought payment for increased costs on the basis that the contract had been frustrated.
Held: the cause of the delay was not any new state of things which the parties could not reasonably be thought to have
foreseen.

69
Simmons Ltd v Hay
Facts: plaintiff was employed as a printery engineer for 3 years, subject to 3 months’ notice on either side. Plaintiff was ill and
never returned to his work.
Held: although the defendant knew that the plaintiff had suffered from a heart disease before the contract was entered into,
the subsequent and permanently incapacitating illness was a new state of things which the parties could not reasonably be
thought to have foreseen.

70
Maritime National Fish Ltd v Ocean Trawlers Ltd
Facts: vessel subject to charterparty was to be employed in the fishing industry. By statute, the vessel required a licence.
Charterer operated 5 trawlers, but was granted 3 licences. Charterers decided to apply the licences to apply the licence to
other trawlers and asked owner to take vessel back on grounds of frustration.
Held: it was the act and election of the charterer which prevented the vessel from being licensed. The charterer cannot rely on
their own default to excuse them from liability under the contract.

71
J Lauritzen AS v Wijsmuller VC (The Super Servant Two)
Facts: Under the shipping contract the defendants were able to transport the oil rig using one of either two ships known as
The Super Servant 1 or the Super Servant 2. The defendants decided to use 2. However 2 was sunk.
Held: the question is whether a party seeking to rely on an event as discharging him from a contractual promise was himself
responsible for the occurrence of that event. Defendant can still use 1 to perform the contract.

20
 (2) If the impact of frustration is to cause a total failure of consideration, the payer will
be entitled to restitution (Fibrosa72; The Mikhail Lermontov73)
(3) Frustrated Contracts Act

7 Promise not performed is discharged.

8 When assessing damages for liability accrued before frustration, courts shall have
regard to the fact that contract has been frustrated.

9 Performance does not include payment of money.

10 Where whole performance has been received, agreed return for performance shall
be paid.

11 Where party performance received, the party shall pay:

If AC <= AV: AV

If AC > AV: AV + 1/2 (AC-AV)

AC: reasonable cost of performance – incidental gain or proportionate allowance

AV: proportionate allowance – lost value

12 Where a party has paid money, the same amount shall be returned whether there
has been performance or not.

13 Where the performing party suffered detriment, 1/2 of the fair compensation for the
detriment shall be paid to the performing party.

Where a performing party acquired property or improvement to property, 1/2 of

such value shall be paid to the other party.

14 Money to be recovered as debt

15 Where manifestly inadequate, inappropriate, injustice or excessively difficult, court

may adjust as it considers proper.

3.2 Election

3.2.1 Terminate

Termination is a matter of election, to be made by the promisee.

3.2.2 Affirmation

Acceptance of a late payment operated as an election by the appellant not to terminate the contract
for non-payment of the relevant amount on its due date (Tropical Traders)
If the promisee elect to affirm, he remains liable to perform his part of the contract (Bowes v
Chaleyer)

72
Fibrosa Spolka Akcyjna v Fairbairn Lawson ombe Barbour Ltd
Facts: English company Fairbairn agreed to suuply machinery to Polish company Fibrosa. Fibrosa paid an initial payment in
July 1939. War was declared in September. Fibrosa sought return of the initial payment.
Held: Fibrosa can claim restitution on an action of assumpsit because consideration had totally failed.

73
Baltic Shipping Co v Dillon (The Mikhail Lermontov)
Facts: Dillon booked a cruise from 7 Feb to 21 Feb. Cruise sank on 16 Feb.
Held: if incomplete performance results in the innocent party receiving and retaining any substantial part of the benefit
expected under the contract, there will not be a total failure of consideration.

21
 A party does is not required act reasonably when deciding whether or not to terminate a contract
(White & Carter74)
(A) Does the promisee have legitimate interest to affirm

If a person has no legitimate interest, financial or otherwise, in performing the contract rather
than claiming damages, he ought not to be allowed to saddle the other party with an
additional burden with no benefit to himself (White & Carter; The Alaskan Trader75)

3.2.3 Grace period

By giving the promisor the opportunity within a limited time, the promisee intends to exercise his right
to terminate unless performance is made within the time of grace (Tropical Traders76)

Risky: if grace period is too long, the promisee risk being taken as affirmed or estopped.
3.2.4 Is the promisee estopped from exercising his right to terminate

The representation or promissory statement made by the promisee who enjoys the right of
termination, and acted upon by the promisor (Legione v Hatley77)

3.3 What are the consequences if the contract is terminated

3.3.1 Parties are discharged from further obligations to perform.

3.3.2 Any rights that have unconditionally accrued to the time of termination still exist (Shevill78; McDonald
v Dennys79).

74
White & Carter Councils Ltd v McGregor
Facts: McGregor and W&C signed an outdoor advertising contract. Contract was to run for 156 weeks. McGregor purported
to cancel the contract (repudiation). W&C did not terminate the contract for repudiation and continued to place the ads.
Held: W&C did not have an obligation to behave reasonably. The general obligation to mitigate losses did not prevent this
claim.

75
Clea Shipping Corp v Bulk Oil International Ltd (The Alaskan Trader)
Facts: ship owner chartered the Alaskan Trader for 24 months from Dec 1979. Ship had serious engine breakdown in Oct
1980. Charterer said they had no use for the vessel. Owner repaired it and fitted it out with a full crew and charged the
charterer for remaining hire.
Held: owner had no legitimate interest in pursuing their claim for hire. It was ‘wholly unreasonable’ for the owner to continue to
perform and claim hire.

76
Tropical Traders Ltd v Goonan
Facts: Goonan agreed to purchase land in Perth from Tropical. The first 3 instalments were each a few days late. Final
payment due on 6 January, and was extended to 14 January. On 15 January Tropical terminated and forfeited the deposit and
instalments.
Held: Extension was only a qualified and conditional waiver of the original stipulation. It means that the appellant intended to
refrain from electing to affirm or terminate until 14 January.

77
Legione v Hatley
Facts: Purchasers were not ready to complete and phoned the solicitors of the vendor. The clerk said “that will probably be
okay but I will get instructions”. Purchaser did not complete in time, and vendor terminated for delay.
Held: on the facts the purchaser cannot claim estoppel because the representation was not sufficient clear.

78
Shevill v Builders Licensing Board
Facts: lease conferred on the lessor a right to re-enter the land if rent remained unpaid for 14 days. Lessor took proceedings
for possession of land after 2 months’ rent was outstanding.
Held: the rights of the lessor are limited to the recovery of arrears of rent and damages for breaches and other events that
occurred before re-entry.

79
McDonald v Dennys Lascelles
Facts: purchaser of land defaulted in instalments.
Held: The instalments are to be repaid to the purchaser as a legal right (no need to use equity) and if an instalment was
overdue for payment before the contract was terminated, the vendor cannot demand that instalment now be paid.

22
 (A) Deposit is paid by the purchaser in return for the vendor entering into the transaction. A
vendor’s right to retain a deposit following breach by the purchaser is not conditional upon
the subsequent completion of the transaction (Bot v Ristevski80)

80
Bot v Ristevski
Facts: Bot contracts to sell house to Risteviski and accepts partial deposit on execution with the remainder payable within 7
days. Risteviski pulls out and refuses to pay the remainder.
Held: the primary purpose of deposit is a guarantee that the purchaser means business. There is no failure of consideration if
the land is not conveyed or transferred, for the purchaser has had the benefit of the entry into the contract of sale by the
vendor.
23