Termination(, Pt 2

Contract Law 2021

 Termination part 1-from breach
 No termination clause(e.g. verbal contract)->implied
through common law
 1.Term breached is an essential term?(Expressly
stated/if no, lunar park)->Any breach of essential
term will allow an innocent party to terminate
 2.If not essential term and is an intermediary term,
has it been breached in such a fundamental way to
substantially deprive the other party’s rights?(High
Bar) breach?
 3.Repudiation: a series of minor breaches
cumulatively/if the refusal to perform comes before
the date of performance
 Overview
 Exercising a right to terminate for breach
 the basis for termination(when parties have different basis for
termination)
 doctrine of election
 unfair termination or affirmation(NOT EXAMINABLE)
 consequences of termination(What happens if the contract is
terminated?)
 Termination by frustration(when something happens after the
contract has been entered into and not the fault of the parties,
but sverely disrupts the interests of the parties)
 Termination by agreement
 Basis for termination
 Termination for breach may be justified by any available ground(=the breach that objectively exists at the time.
When being challenged by the other party on termination), whether known then to party trying to terminate the
contract or not(Common law adopted principle)
 Concut v Worrell (2000) 75 ALJR 312:
 1.Using company’s staff and property to build a house so the company wans to be able to say that that is a fundamental breach, even though the
company doesn’t know the breach at the time of termination of the contract
 2.Held: Yes, can terminate. Didn’t matter that the company didn’t know about the breach at the time. It is a valid point to raise in termination.
 Also, There was also no second contract. It was a variation.(see previous lecture)

 Exception:In a more recent decision,

 But if a party terminates on one basis (eg by giving notice), it cannot later terminate on a different basis (eg for
breach)
(=the termination has to be the same basis as the reason given later,e.g. in Concut: still on breach basis, just different
breaches)
 Melbourne Stadiums v Sautner (2015) 229 FCR 221:
1.Sauter tried to give notice to terminate his employment
2.He then discovered misconduct of the employment
3.Sauther said they had to terminate right now, without the money/compensation(for termination when giving notice).
4.Held:
Ratio:Once given notice to terminate, you cannot undo the termination and terminate on a different basis entirely.(so the employee
get the money/compensation)

Result:However, on the facts of the case, you didn’t go through the whole process yet, you can terminate. If Saunter went through the
whole process, cannot terminate.
 Doctrine of election-applies when the party
has conflicting and incompatible legal
rights,e.g.any breaches/repudiation
 Party with right to terminate must elect whether to terminate or
affirm(keep) contract+Once expressly or impliedly
terminate/affirm,you lose the other right immediately and
CANNOT change your mind later.
 Affirmation may be express(e.g.telling the party that you are
keeping/terminating), or implied from conduct(e.g. you keep
performing the contract instead of terminating it(You steal company
property, but I keep employing you->by keeping employment and
paying wages, taken to be affirmation)
 rarely implied from silence (=a mere failure to act)
 Exception to get around affirming:

1.Exception:Affirming party must at least know of circumstances creating right

to terminate(=when the employer didn’t know, then affirming DOES NOT
count/when the employer is going to take its time to make its mind,e.g. under
investigation/suspended)
2.Special circumstance:DOES NOT MATTR if Take its time to make
decision(BUT MUST expressly let the person not keep performing,e.g. if you
carry out investigation secretly and the employee still goes to work-
>affirmation)
3.New right of election: when varying term+breached that term again->new
breach and new right of election
 Khoury v Government Insurance Office (1984) 165 CLR 622 at 634
 Doctrine of election
 An affirmation means the right of
termination is lost
 But note possibility of new rights
arising
 Tropical Traders v Goonan (1964) 111 CLR 41
 Tropical Traders v Goonan
(1964) 111 CLR 41
 1. Contract for sale of land.
 2.The purchaser cannot come up with money to complete the
sale.
 3.The vendor gave the purchaser some extra time and extend
the date for completion/settlement.
 4.The vendor wanted to terminate later, which was a right.
 5.The purchaser argued that the vendor lost the right because he
affirmed the contract.
 6.Held:
 1.Did affirm:Yes, while the purchaser went default and the
vendor affirmed the contract and the earlier rights to terminate
were lost.
 2.Result:New right to election:However, when there’s a the new
date for settlement+personal fails to pay->new breach and
 Unfair termination
 Equitable relief against unconscionable termination (*not
examinable*)
 Estoppel:
Legione v Hateley (1983) 152 CLR 406
 relief against forfeiture of property interest(->grant interest in
the property when terminated contract. Test: have to show that
the owner has acted unconscionably.)
If I have a valid contract to purchase real property(land/buildings),
then I am taken to have an equitable interest in the land before the
contract is performed.)
 Tanwar v Cauchi (2003) 217 CLR 315
 Legione v Hateley (1983) 152
CLR 406
 The purchaser was having money to complete the sale. The
purchaser solicitor asked the vendor solicitor if they can
have more time. The vendor solicitor was out and the staff
in the lawyer firm , who handled a lot of work in practice,
said that ‘I think it will be okay, but I will have to check’.
 The purchaser went to the court seeking the specific
performance of the contract. The vendor was estopped to
terminate the contract because the staff of vendor’s solicitor
said yes.
 Held: Win if led the purchaser to believe and the purchaser
acted with the belief of the promise.
 Failed first hurdle, because the indication by the vendor
wasn’t clear enough. Told by staff of vendor’s solictir+’I will
have to check’.
 Unfair termination

 Can an implied duty of good faith

apply to the exercise of a power to
terminate? (e.g. constrain the
termination of contract)
 eg Burger King v Hungry Jack’s (2001) 69
NSWLR 558
 Bartlett v ANZ Bank (2016) 92 NSWLR 639

(*not examinable*)
 Burger King v Hungry Jack’s
(2001) 69 NSWLR 558

1.When Burger King tried to go into Australia’s market, they found out
tha there was someone who registered the trademark for ‘Burger King’s’
and had to pay money.
 2.They didn’t want to pay and used ‘Hungry Jack’s’ instead. They had
a contract with the company ‘Hungry Jack’s’ that ran the operation.
 3.They wanted to terminate the contract and run the business directly.
 4.If hungry Jack’s didn’t open up with certain no. of new outlets,Burger
king could terminate the arrangement.
 5.Burger King made sure that there aren’t new outlets by refusing
approval for Hungry Jack’s new outlets and later say Hungry Jack’s
breached the obligation.->created a breach
 6.Held: breaching an obligation of good faith. No right to terminate,
because they were only getting a right to terminate by failing to act in
good faith.
 Bartlett v ANZ Bank (2016) 92
NSWLR 639

 Ratio:If there is a provision under the

contract which involves
discretion/some element of judgement
involved, that judgement has to be
exercised in good faith.
 But doesn’t imply a right to terminate
 Unfair affirmation?
 If other party’s co-operation is not
required, innocent party may affirm
contract and insist on completing its own
performance(=one party wants to argue
that the other party is not being fair by
affirming the contract and not
terminating it)
 possible exception where there is no
‘legitimate interest’ in keeping contract alive
 White & Carter v McGregor [1962] AC 413

(*not examinable*)
 White & Carter v McGregor
[1962] AC 413

1.Business has entered into an agreement

of giving an advertisement on rubbish
bins.
 Consequences of termination
 Effect of termination
 Recognition or enforcement of
accrued rights(what happens to
rights that have been accrued
under the contract)
 Restitutionary claims
 Effect of termination
 Future obligations discharged (=obligations which are not due
for performance, NO NEED TO undone the done obligations) —
compare rescission ab initio:different from termination. Recission
means cancelling a contract in such a way that it has never
existed->anything done under the contract has to be undone.
Voidable contract means contracts that are capable of being
rescinded or avoided.
 Explained by judge Dickson, in McDonald v Dennys Lascelles (1933) 48
CLR 457 at 476–7
 . . . but some terms may be intended to continue(requirement:if
that’s what the parties intend- can be express,e.g.
covenant/restrains on future,e.g. if you are no longer employed,
you can’t bring your old clients to your new salon/implied)
 eg Photo Production v Securicor [1980] AC 827
 Photo Production v Securicor
[1980] AC 827
 1.There was a contract to hire a guard in the factory.
 2.The guard decided to light fire to keep himself
warm and burned down the factory.
 3.The security firm that supplies the guard services
was sued for negligence and they wanted to rely on
an exclusion clause.
 4.Photo product said you can’t rely on exclusion
clause because we terminated your contract.
 5.Held: It is reasonably intended by the parties for
the term of exclusion clause to operate after the
breach and termination of the contract.
 Recognition/enforcement of
accrued rights
 Accrued rights to performance still enforceable:if one
party has accrued a right to sue the other party for a
breach of contract before the termination of
contract,that right can be exercised after the
termination. (e.g. I can sue for missing wages after the
termination of contract->action in debt.)
 Bot v Ristevski [1981] VR 120
 Note general understanding of deposit as a payment
designed to secure performance by payer
 Luu v Sovereign Developments [2006] NSWCA 40 at [24]
 Bot v Ristevski [1981] VR 120

 1.Contract for sale of land

 2.Term:The deposit to be payable
 3.The deposit was payable for two instalments. The second half
hasn’t been paid.
 4.The purchaser made it clear that they won’t go ahead with the
contract.
 5.The vendor terminated the contract and sued the second half
of the payment.
 6.Held: yes, the payment can be received. The right to that
payment came under existence(he is supposed to pay him
money/perform something at the time of termination) before
the termination of contract.
 Restitutionary claims-a claim to get
something back on the basis that it
shouldn’t be retained,e.g.if one party
has paid the money,can I get it back?
 Where a contract has been terminated,
one party may sue to recover
 money paid under the contract (=official
name: action for money had and
received(someone received money from
me).v.s. Action of debt: someone owes me
and haven’t paid me)
 reasonable remuneration for benefit of
services or property provided (quantum
meruit, quantum valebat)
 Money had and received

 For money paid under a terminated

contract, basis for recovery is
 Test: total failure of consideration/
basis
= obtaining no part of what the payer
bargained to receive in return for the
payment
 partial failure is not sufficient
 *Baltic Shipping v Dillon (1993) 176 CLR 344
 Baltic Shipping v Dillon (1993)
176 CLR 344
 1.A contract for passengers to go on a cruise on a ship.
 2.The ship gets too close to New Zealand and hit the sharp
coast. It sank.
 3.The passengers were rescued and sued for breach of contract
because they were not happy with their experience: 1.Damages.
2. Restitutionary claim:get their money of paying for the whole
cruise trio.
 4.Held: Couldn’t get restitutionary claim because of partial
failure of consideration: The customers already enjoyed the first
few days of the trip.
 Deposits and instalments-Money
is paid under the contract+the
service/good is not supplied
 Recovery of deposits on termination
 payer cannot recover if they are at fault(=payer’s breach)
 But the payer can recover if payee is at fault(=Payee’s breach,e.g.
wrongful termination), unless deposit operates as a penalty
 Luu v Sovereign Developments
 Recovery of instalments on termination(+not supplied the
service/good)
 Total failure of consideration->generally recoverable regardless of
fault(=purchaser’s breach)
 Unless penalty: payable ONLY when the person went default(Luu
case)
 unless contract validly provides for forfeiture(NOT
EXAMINABLE!)
 Difference between Deposit and
Instalment
 Luu v Sovereign Developments: 10% or less is a
reasonable sum for a deposit.
 Exception: Reasonable test:
 Contract is not determinative.(e.g. saying 50% is deposit-
>not deposit) Determined by court.
1.Amount:Can still be a deposit, IF reasonable. The closer to
10%, the more likely it is a deposit.
e.g.20% can be deposit, 40-50% is definitely instalment.
2.Purpose: securing the purchase(purchase paid
later?)/paying the first part->instalment.
 Termination by frustration-Something happened
outside control of each party+the obligations can’ be
performed,e.g. Rent a hall to you. The hall burns down
in a fire. Both relieved from the obligations to perform
from frustration.
 Contract will be frustrated (automatically
terminated) if
‘without 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’
- Lord Radcliffe, Davis Contractors v Fareham Urban
District Council [1956] AC 696 at 729
 Termination by frustration
 May cover situations where performance is not just 1.impossible
or2. illegal(MUST After the party entered into the
contract+Before the party performede.g. contract to purchase
goods from you and you are a Chinese company. A law is
passed on that it is not legal for contract to go ahead->frustrate
the contract.), but
 Special circumstances:3.Frustration also possible that when the
performance is possible.

‘the parties enter into [the contract] 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, * Codelfa Construction v State Rail Authority (1982) 149 CLR 337 at 357
 Codelfa Construction v State Rail
Authority
 1.Contract for construction work to go on day and night.
 2.When the contract was negotiating, the state gives the advice that the residents could not
get an injunction to stop the construction in nuisnace.
 3.The advice was wrong. The court granted injunction and that means the construction plan
is lengthened.
 4.The P incurred a lot of expense sand sued the state rail authority.
 5.Held:
 ->1st agreement: without strict compliance of the term that the construction plan is
lengthened. They will discuss it and still probably will enter.
 ->Succeded 2nd argument:
 The contract was so radically changed for the circumstances in which the contarct was to be
performed. The contract was terminated from frustration.(Ratio:Test:Sufficient change in
context to make the contract radically different from what the parties assume)

 ->Remedy: Quantum Meruit:

 They kept working though. So they are entitled to be paid a reasonable amount.(Not just
the original sum of amount)
 Termination by frustration
 Exception:
 But a contract is not frustrated where
 1.frustration was ‘self-induced’(have to happen outside the
control of the parties)
 eg Maritime National Fish v Ocean Trawlers [1935] AC 524
 2.or risk of the relevant change in circumstances has been
addressed or allocated under the original contract(Measures to
counter it/reasonably apparent that one party bears the risk of
the event)
 either expressly (eg ‘force majeure’ clause: say what to do when
something unexpected happens,e.g. when there is an Earthquake-
>evacuate)
 or impliedly – obvious risk that should have been dealt with by
the contract, see eg Ooh! Media Roadside v Diamond Wheels (2011) 32
VR 255
 Maritime National Fish v Ocean
Trawlers [1935] AC 524
 1.The defendant chartere trollers and it was
understood that they were going to use the troller for
fishing purposes. But they need a license to do so.
 2.They get a smaller number of licenses and they
have to choose which troller to use licenses.
 3.They chose the P’s trollers.
 4.They argued that the contract is frustrated.
 5.Held: Not frustrated. You had a choice: which
troller to use the license on?. You chose to not use it
on P’s troller.
 Ooh! Media Roadside v Diamond
Wheels (2011) 32 VR 255
 1.Contract for advertisement in Melbourne for billboards in
major roads
 2.After the contract had been made, another building was built
to block the view of the billboard from the road(that was meant
to be visible from)
 3.Argued that there is frustration because circumstances
happened which made the original purpose impossible to
perform
 4.Held:
 Ratio:Obvious Risk that the plaintiff should have dealt with in
the contract. (NOT subjective)
 UNLESS the party absolutely did not turn their mind to the
risk(e.g.Codelfa)
 The fact that the client has not included any clause preparing
for this situation->means the client has accepted it
 Termination by frustration

 Consequences of frustration
 Frustrated Contracts Act 1988 (SA)
 Just state:The conseuqneces of frustration
would be dealt with Frustrated contracts Act
1988(SA)
 enough to know this Act exists, detailed
knowledge not required
 Termination by agreement

 Parties may make a contract, then

subsequently agree to end it
 note requirement of consideration from
each party
 distinguishing between termination and
variation – see Variation
 Termination by agreement
 Where agreement deals with same subject
matter as earlier agreement, but in
different terms, intention to terminate
earlier agreement may be inferred
 Hillam v Iacullo [2015] NSWCA 196
(describing this as another sort of ‘novation’)
 Note also possibility of inferred
‘abandonment’
 DTR Nominees v Mona Homes (1978) 138 CLR
423