TABL 1710

Business and the Law

Week 6
Contract Law (Contd)
Vitiating Elements/Breach of contract/
Termination of contract/Remedies for breach of contract

2016 The University of New South Wales

Sydney 2052 Australia
The original material prepared for this guide is copyright. Apart from fair dealing for the purposes of private study, research, criticism or review, as
permitted under the Copyright Act, no part may be reproduced by any process without written permission.
Enquiries should be addressed to the Head of School, Taxation and Business Law, UNSW, Sydney

In-Class Exercise
on Lecture Topics 1 and 2
PLEASE SPEAK TO YOUR TUTOR IF YOU
MISSED THE IN-CLASS EXERCISE
Worth 5% of your mark
After week 7 students who have not done this
exercise will automatically receive 0/5 for this
assessment

MAJOR ASSIGNMENT
On Moodle now
DUE WEEK 10: Tuesday 4 October 2016
See Course Outline, Part 9 Course Resources,
see 9.2 further recommended materials, Part 17
Appendix A Style Guide and Written Submission
Guidelines
Note: Students should show evidence of research
beyond the suggested readings and beyond the
textbook

MAJOR ASSIGNMENT
ONLINE SUBMISSION ONLY
Check your plagiarism score and re-submit on
Turnitin as many times as you wish UNTIL the
deadline of 5pm on 4 October 2016
Word limit is 2000 words please observe the word
limit

Discussion Forum
Now available on Moodle
Separate Discussion Forum for EACH TUTORIAL
CLASS
Tutors will provide details about how to use the
Discussion Forum for your tutorial class
Access problems? Please email Margaret Connor
m.connor@unsw.edu.au

Lecture 3: Summary
Essential elements of a contract:

Intention to enter into a legally binding contract

Agreement
Offer
Acceptance

Consideration
Something of value (price)
Exception: Promissory Estoppel

Lecture 3: Summary
Other elements for a valid contract:
Legal capacity
Genuine consent
Legality of purpose
Any formal/procedural requirements must be satisfied

Lecture 4: Summary
Intention to create legal relations
Social/family/domestic/voluntary
Commercial/business
Historically the rebuttable presumptions
Now change in approach
Terms of a contract
Representation:
- Pre-contractual negotiations
Terms
- Express/Implied
- Condition/Warranty
- Uncertain/Meaningless/Ambiguous terms
8

Week 5: Summary
Exclusion Clauses

Notice to be given before contract made or at time of making

of contract (Chapelton v Barry Urban DC; Olley v
Marlborough Court; Balmain Ferry case)

Exclusion clause must be properly incorporated into the

contract (Curtis v Chemical Dry Cleaning; Causer v Brown;
Thornton v Shoe Lane Parking)

You are bound by what you sign (LEstrange v Graucob)

Rules of interpretation:
Negligence Rule (White v John Warwick)
Ambiguity (or Contra Proferentum) Rule
Four Corners Rule (Sydney County Council v West)
Natural and Ordinary Meaning Rule (Darlington Futures)
9

Week 5: Summary
Requirements for a valid contract (contd)
Capacity
Consent
Proper form
Privity of contract
Agency: the exception to Privity

10

Todays lecture

Vitiating elements
Restraint of trade clauses
Breach of contract
Termination of contract
Remedies available for breach of contract
Employment contracts

11

Overview - Week 6
Breach of Contract/Termination for breach of
contract/Remedies
On completion of this week you should be
able to:
Identify different vitiating elements and their effect on
a contract (eg mistake, misrepresentation,
unconscionable conduct etc)
Explain when a contract may be terminated or
discharged
Identify the remedies for breach of contract
Explain what is a statutory limitation period
Explain what time of the essence means
12

Mistake
If a mistake operates, it often renders a contract void
ab initio (from the very beginning)
Places the parties in the same position as if no
contract had ever been made

13

Types of mistake
Common mistake: both parties make the same
mistake as to the existence or identity of the subject
matter
Mutual mistake: parties are at cross-purposes
both parties have made a mistake but each party
has made a different mistake
Unilateral mistake: only one of the parties is
mistaken, and the other is, or should be, aware of
this and does nothing to correct the mistake

14

Representation
A representation is a statement of fact made
by one party to another, either before or at the
time of contracting, relating to an existing fact
or a past event, which induces the contract

15

Misrepresentation
In contract
In tort
Misrepresentation legislation
Australian Consumer Law

16

Misrepresentation
Statement of fact
Communicated to another
An inducement

17

Misrepresentation
Minor misrepresentation:
non-contractual or mere misrepresentation
no remedy for breach of contract but may be remedies under
other heads of law (such as tort/Australian Consumer Law)

Major misrepresentation:
Actionable misrepresentation
Voidable: allows innocent party to cancel/rescind the contract

18

Misrepresentation

Fraudulent Misrepresentation:
intention to induce a person to enter into a contract
voidable: rescission (and/or damages)

Innocent Misrepresentation:
misstatement of a material fact
lack of intentional deceit
not known to be false
rescission

Negligent Misrepresentation:
statement made innocently but carelessly
right to damages

19

Misrepresentation and legislation

Australian Consumer Law, see Schedule 2 to the
Competition and Consumer Act, 2010 (Cth)
s 18: misleading or deceptive conduct
s 29: false representations
** TO BE STUDIED IN WEEK 8 in CONSUMER LAW

20

Illegal contracts
Contracts will be illegal if they involve illegal
conduct
Contracts can be illegal or void:
- by statute
or
- at common law

21

Examples of Illegal Contracts

Contracts to commit a crime, a tort or a fraud on a third party
Contracts that are immoral
Contracts to the prejudice of public safety, or of good relations with
other countries
Contracts prejudicial to the administration of justice
Contracts which tend to promote corruption in public life:
Contracts to defraud the revenue
Contracts that involve a breach of duty
22

Inequality between the parties

Duress
Undue influence
Unconscionable conduct
Statute law dealing with unfairness or
unconscionability:
Australian Consumer Law, see Sch 2 to Competition and
Consumer Act 2010 (Cth)

23

Duress
Duress involves use of violence or illegal threats
against a person, their goods or economic interest to
force them to enter into a contract against their will
Lack of voluntary agreement

24

Duress
To the person
Actual or threatened violence to one contracting party, or
their immediate family or near relatives
To goods
Wrongful threats to seize, damage or destroy the goods
of one contracting party
Economic duress
Economic pressure beyond normal acceptable
commercial practice
25

Undue influence
Involves the improper use of a position of influence or
power possessed by one person over another in
order to induce that other person to act for their
benefit
Lack of genuine consent to the agreement

26

Unconscionable or Unfair Contracts

Contract will be set aside as unconscionable (unfair)
where the defendant has abused their superior
bargaining position in their dealings with the plaintiff
Case: Commercial Bank of Australia v Amadio
See Gibson & Fraser at pp 247 to 248

27

Unconscionable or Unfair Contracts

Key elements:
The plaintiff has to establish:
They were in a position of special disability or special
disadvantage
That substantially affected their ability to protect
themselves
The defendant knew, or ought to have known, of the
plaintiffs disability/disadvantage and should not have taken
advantage of it
AND
The actions of defendant were unconscionable
28

Unconscionable or Unfair Contracts

Examples of special disability/special
disadvantage include:
age
financial needs
illness
ignorance
inexperience
inability to understand the language
inability to read
29

Restraint of trade clauses

Clauses in restraint of trade are found in:
Contracts for employment
Contracts for sale of business
Contracts between manufacturers and traders
See Gibson & Fraser at p 262 and p 264

30

Restraint of trade clauses

Restraint of Trade clauses in contracts will generally
be unenforceable (ie: void as being contrary to public
policy) unless the restraint is reasonable

31

Restraint of trade clauses

What is reasonable is determined by:
The geographic extent
The time period involved
The nature of the business and the activity being
restrained
Whether the restraint is reasonable, both in the
interests of the parties and the public

32

Enforceability
Contracts classified by enforceability:
Valid - a contract which the law will enforce
Valid but unenforceable eg due to a formal
defect
Voidable - the contract remains valid and binding
unless and until it is rescinded (ie cancelled) by
the injured party
Void - no legal rights or obligations from the outset
(void ab initio)
33

Enforceability
Contracts classified by enforceability:
Illegal - the purpose of the contract contravenes a
statute or the common law, and generally treated
as void
See Gibson & Fraser at pp 121 to 123

34

Breach of contract
Remedies
(1) Common Law

Termination of contract

Damages
(2) Equity

Rescission

Restitution

Rectification

Specific Performance

Injunctions
(Also: Remedies under the Australian Consumer Law - to be
discussed in Consumer Law lecture)
35

At Common Law:
Termination of contract
When one party:
fails to perform their essential obligations (actual
breach)
or
indicates that they do not intend to perform their
obligations (anticipatory breach),
the other party is entitled to terminate the contract
36

At Common Law:
Termination of contract
Breach of contract may be either:
Total breach: where one of the parties does not
perform the contract at all
OR
Partial breach: where one of the parties does not
perform the full requirements of the contract

37

At Common Law:
Termination of contract
A contract may also be terminated or discharged:
by performance
by agreement
by operation of law (eg bankruptcy)
by lapse of time
by frustration
See Gibson & Fraser at pp 316 to 330

38

At Common Law:
Termination of contract
By performance: contract usually ends when each
party has performed its contractual obligations
Obligations under a contract must be performed
exactly
Near enough is not good enough
Case: Re Moore & Co Ltd and Landauer & Co
See Gibson & Fraser at p 318
39

At Common Law:
Termination of contract
By performance:
Entire or divisible contracts
- If a contract does not provide for pro rata
recovery expressly or by implication then this
equals an entire/lump sum contract
See Gibson & Fraser at pp 318 to 319

40

At Common Law:
Termination of contract
By performance:
Entire or divisible contracts
- If the contract is to be delivered by instalments
which are to be separately paid for, then the
terms of the contract will show whether the
breach is a repudiation of the whole contract
OR whether the breach is severable (ie
referable to the particular instalment only)
Case: Cutter v Powell
See Gibson & Fraser at pp 318 to 319
41

At Common Law:
Termination of contract
By agreement: contractual obligations can be
discharged by agreement between the parties
By operation of law: bankruptcy, death, material
alteration of a written document without consent,
merger of contract terms into one document
See Gibson & Fraser at p 331

42

At Common Law:
Termination of contract
By lapse of time: when contract stipulates a time
period after which it will expire and parties allow this
time to lapse or expire
See Gibson & Fraser at p 332

43

Time of the essence

Performance of the contract must take place in the time
specified
Or, within a reasonable time if no time is specified

If performance at certain time is essential, contract may contain

a time of the essence clause
If time not of the essence, serving a notice to complete will fix
the time for performance/completion of the contract
Non-compliance will become a breach

44

Loss of the right to sue:

Statutes of Limitation
Statutes of Limitation protect a person from being forced to
defend a case after a certain number of years (when the case
becomes statute barred)
Period of limitation begins to run as soon as a cause of action
arises (so when the breach of contract first occurs)
Statutory limitation period: 6 years (or 12 years for formal
contracts)
See Gibson & Fraser at p 360

45

At Common Law:
Termination of contract
By frustration:
After formation of the contract, performance may
become impossible if something unexpected
happens over which neither party has any control
See Gibson & Fraser at pp 325 to 330

46

At Common Law:
Termination of contract
Case:
Codelfa Constructions Pty Ltd v State Rail Authority(NSW)
See Gibson & Fraser at p 329

47

At Common Law:
Termination of contract
Frustration can arise if:
There is some significant or radical change to
nature of contractual rights and obligations by an
unexpected event
Neither party caused the unexpected event
Neither party contemplated the unexpected event
when the contract was entered into
In the new circumstances, it would be unjust to hold
the parties to the originally agreed contract
48

At Common Law: Damages

Every breach of contract gives the innocent party a
right to claim damages
Main purpose of damages is to enable the innocent
party to receive (monetary) compensation for injury or
loss suffered because of the breach

49

At Common Law: Damages

Damages are calculated on the basis of looking at
what the position of the plaintiff would have been if
the contract had been properly performed

50

At Common Law: Damages

Key issues:
Causation
Remoteness
Case: Hadley v Baxendale
See Gibson & Fraser at p 345

51

At Common Law: Damages

Causation and Remoteness:
The plaintiff must show that the breach of contract by
the defendant was the cause of the loss
Must be a connection between the breach and the
loss suffered

52

At Common Law: Damages

Causation and Remoteness:
ASK:
Is the loss suffered by the injured party a usual
and reasonably direct consequence of the breach of
contract?

53

At Common Law: Damages

Causation and Remoteness
Compensation will NOT be awarded for damages
that are too remote
The plaintiff may not be able to recover if an
additional factor unconnected with the
defendants breach breaks the causal chain
between the defendants action and the plaintiffs loss
or damage
This is a question of fact

54

At Common Law: Damages

Losses which can be claimed are those that:

flow naturally from the breach of contract
are special losses made known to the
defendant when the contract was made

Case: Victoria Laundry (Windsor) Ltd v Newman

Industries Ltd
See Gibson & Fraser at pp 346 to 347

55

At Common Law: Damages

Damages for special losses cannot be awarded
unless:
the plaintiff made known the special
circumstances to the defendant, or the defendant
ought reasonably to have contemplated them, at
the time the contract was made
if so, the defendant will be taken to have
accepted the risk by default
Case: Victoria Laundry (Windsor) Ltd v Newman
Industries Ltd
See Gibson & Fraser at pp 346 to 347

56

Amount of damages
The aim of damages is to put the injured party back as
close to the position they would have been in had the
breach never occurred

57

Amount of damages
Damages are recoverable for economic loss as well
as for:
Distress and disappointment
Upset/anxiety
Discomfort
Mental distress
See Gibson & Fraser at pp 348 to 349

58

Mitigation of damages
The innocent party has a duty to take reasonable
steps to minimise or mitigate their loss. Failure to do
so can result in a reduction of damages
Mitigation is a question of fact
Onus of proof is on the defendant to show that the
innocent party (plaintiff) did nothing to mitigate the
loss
See Gibson & Fraser at p 350

59

Types of damages
The type of damages that will be awarded will be
determined by the seriousness of the breach and
whether the contract has specified the amount of
damages to be paid in the event of breach

60

Types of damages
General damages: compensation for loss suffered
by the plaintiff as a result of the breach
Nominal damages: defendant breached contract but
plaintiff has not suffered any actual loss
Exemplary damages: punitive and may be awarded
for non-economic loss
See Gibson & Fraser at pp 351 to 354

61

Types of damages
Liquidated damages: awarded where a plaintiff is
able to sue for a specified sum (specified in the
contract), which must be a genuine or bona fide preestimate of the actual loss that will flow from the
breach
Unliquidated damages: damages that have to be
calculated according to injured partys actual losses.
The party makes submissions as to quantum and the
court decides the amount.
See Gibson & Fraser at p 353

62

Types of damages
Penalty
Only enforceable if amount is a genuine preestimate of the loss from the breach of contract
Must not be extravagant or unconscionable
Must not be designed to apply pressure or
intimidate the other party
Must be transparent: based on reasonable criteria
and clear evidence/information as to how the
amount is calculated
See Gibson & Fraser at p 353
63

Equitable remedies

Restitution
Rescission
Rectification
Specific Performance
Injunction

These are discretionary remedies at equity and

only granted where damages are not an adequate
remedy
64

Equitable remedies
Restitution: The court orders the return of property
or the payment of money
Rescission: Setting aside an agreement and
restoring parties to their pre-contractual positions
Rectification: The court corrects a written document
See Gibson & Fraser at pp 355 to 356

65

Restitution
Based on the concept of some UNJUST
ENRICHMENT
Can be used where there has been:
a mistake of fact or of law
duress
some element of compulsion

66

Restitution
The plaintiff must establish:
Defendant obtained a benefit or enrichment;
Benefit was at plaintiffs expense
It would be unjust to allow defendant
to keep benefit or enrichment
and
Defendant has no defences (such as estoppel,
incapacity, illegality) to rely on

67

Rescission
Cancellation by right
Court order setting aside contract, to restore parties
to pre-contractual position
May be granted because of:
mistake
misrepresentation
undue influence
duress
unconscionability
68

Rectification
Court order requiring correction of mistake/error, to
bring document in line with correct agreement
between parties

69

Specific Performance
Court order requiring a party to specifically perform
their contractual obligations

70

Injunctions
Court order prohibiting a party from doing something
Court order requiring or compelling a party to do
something

71

Injunctions
Cases:
Lumley v Wagner
Curro v Beyond Productions Pty Ltd
See Gibson & Fraser at p 357

72

Employment Contracts
See Gibson & Fraser, Ch 16, pp 394 to 408 ONLY
Focus in this lecture is on the COMMON LAW ONLY
While there are several State and Federal statutes
which are critical to the employment relationship, we
are NOT focusing on any statute law in this course
Students interested in reading further will find a
discussion of relevant State and Federal
employment law statues in Gibson & Fraser, at
pp 409 to 426)

73

Employment Contracts
At Common Law:
Employee or independent contractor?
Outsourcing
Formation of contract of employment
Implied duties in the contract of employment (see
Gibson & Fraser, at pp 402 to 407)
Termination (with/without notice)/Redundancy

74

Next week
Property Law
Mr Paul Tuohy
Read: Gibson & Fraser Chapter 17

75