THE LAW OF COMMERCIAL CONTRACT Remedies (Sweeney & O’Reilly 2 nd Ed. Chapter 9 pp 245 – 257 and pp 279 - 283)

THE LAW OF COMMERCIAL CONTRACT

Remedies

(Sweeney & O’Reilly 2nd Ed. Chapter 9 pp 245 – 257 and pp 279 - 283)


Types of Remedy Termination Rescission Recovery of Contract Price Damages Equitable Remedies

Specific Performance Injunction Rectification Restitution


Termination of a contractA contract can be brought to an end by:

1. Performance

2. Agreement

3. A Term of the Contract

4. Frustration

5. Breach

6. Operation of Law


Termination by Performance Where the parties wholly or substantially

perform their obligations under the contract, the contract is discharged

Hoenig v Isaacs (S&OR p269)


Termination by Agreement Parties to the contract agree to discharge

their obligations to one another This latter agreement will only be binding if:

There is consideration; or Promissory estoppel arises

The contract to terminate the earlier contract is subject to usual contractual rules e.g. economic duress


Termination by a Term of the Contract Parties may have agreed that the contract

would be terminated upon the happening or non-happening of a certain event

The term may be automatic or merely provide an option to terminate

Term may give only one party the option to terminate


Termination by Frustration Where:

An intervening event; Not contemplated by the parties; Makes performance

impossible; or Radically different to that originally

contemplated.


Termination by Frustration (Cont.) Examples (S&OR p246) Taylor v Caldwell (S&OR p247) Davis v Fareham United District Council

(S&OR p247) – compare with Codelfa Constructions v State Rail (S&OR p247)


Termination by Frustration (Cont.) Frustration does not apply where:

Contract makes specific provision for the event

The party seeking to rely on frustration foresaw the event

The event was caused by the party seeking to rely on the frustration


Termination by Frustration (Cont.) Frustrated Contracts Act 1959 (Vic)

Court may order a refund of monies paid under a

frustrated contract Compensation for any performance that

occurred prior to frustration


Termination for Breach of Contract Cannot terminate for any breach no matter

how slight Can only terminate for breach of a condition Other terms are called “warranties” Breach of conditions allows the innocent party

to terminate the agreement and sue for damages

Breach of a warranty only entitles the innocent party to seek damages


Conditions and Warranties Not all terms carry the same importance A condition is a core term of the contract

Goes to the essence of the contract Tramways Advertising v Luna Park (S&OR

p248) Associated Newspapers v Bancks (S&OR

p249) Warranties are non-core terms of the contract


Conditions and Warranties (cont) Intermediate terms will be conditions or

warranties depending on the seriousness of the breach A breach so serious as to deprive the

innocent party of substantially the whole benefit of the contract

Hong Kong Fir Shipping Co v Kawasaki (S&OR p252)


Termination by Breach Breach of a condition, or a serious breach of an

intermediate term, will allow termination

Condition Intermediate Term Warranty

Damages and\or Termination

Damages Only

If Serious Not Serious


Conditions and Warranties (cont) To determine if a condition, courts will examine

The way in which the term is expressed The likely consequences of a breach The objective importance of the term to the overall

contract Whether damages are likely to be an adequate

remedy (see Shevill v Builders Licensing Board – S&O p252)

The use of the word “condition” is not conclusive Wickman Machine Tool Sales v L Schuler AG

(S&OR p250) Parties can expressly state that it is an essential term


Conditions and Warranties (cont) Terms implied by statute are often expressly stated to

be conditions or warranties Time

In a mercantile contract the presumption is that it is a condition Bunge Corp of NY v Tradax Export SA Panama

(S&OR p250) In other contracts it is usually a warranty

Bettini v Gye (S&OR p251) Often made a condition by express words “time is

of the essence”


Termination for Repudiation Repudiation

One party indicates that they will not perform the contract

Must be substantial repudiation to entitle other party to terminate the contract

Anticipatory breach is a form of repudiation Examples – S&O p 254

If other party elects not to terminate contract then must remain able to perform contract


Termination by Operation of Law Bankruptcy Cooling Off Periods (e.g. Sale of Land)


Procedure for Termination Terminating party must not affirm contract Once terminated, terminating party cannot

change mind Termination means that the parties are

relieved from all future obligations. Termination does not affect rights and

obligations that have already accrued If not terminated, other party must continue to

be able to perform contract


Rescission Available for:

Misrepresentation Undue influence Unconscionable conduct Duress


Rescission (cont.) Effect

Contract is terminated ab initio (i.e. it is as though there never was a contract)

Compared to Termination (e.g. for breach) Termination only cancels the contract from

the point of termination Procedure

Innocent party rescinds by giving notice to the other party


Rescission (cont.) Not possible if:

Contract has been affirmed by innocent party

parties cannot be restored to substantially the same position they were in prior to the contract (restitution)


Recovery of Contract Price Available where price, or mechanism for fixing price,

is stated in the contract Preferable to damages because there are no

problems with establishing the amount claimed Can claim if there has been substantial performance

of the contract unless there is a term in the contract to the contrary

If cannot sue for a contract price (e.g. because work substantially incomplete) must rely on “Quantum Meruit”


Damages Every breach of a contract gives a right to

damages The object of damages is to compensate for

loss actually suffered not to punish Addis v Gramaphone Co Ltd (S&OR p270)

The losses must be caused by the breach of contract Reg Glass v Rivers Locking Systems (S&OR

p271)


Agreed Damages The contract may provide for agreed

damages Saves an expensive assessment of

damages by a court Agreed damages must be a genuine pre-

estimate of damages Courts will not enforce a penalty


Mitigation of Damages Plaintiff has a duty to mitigate losses

Cannot claim losses which could have been reduced or avoided by the taking of reasonable steps


Remoteness of Damage Damages must not be too remote

Such losses “as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time the contract was made, as the probable result of the breach of it” - Hadley v Baxendale (S&OR p272)


Remoteness of Damage (cont.) A two part test

Losses that flow ”according to the usual course of things” from the breach Koufos c C Czarnikow Ltd (S&OR p273) Hadley v Baxendale (S&OR p273)

Losses within the actual contemplation of the parties at the time the contract was made Victoria Laundry v Newman Industries (S&OR

p274)


Calculating Damages The amount of damages should place the

innocent party in the same position that he would have been in had the contract been properly performed

The court cannot refuse to award damages just because they are difficult to calculate

Damages can include Expectation loses Personal injuries Disappointment, distress and discomfort


Expectation Losses If there is a market for the goods then the

expectation losses will be the difference between the market price and the contract price

If there is no market then specific performance is a better option


Expectation Losses (cont.) Expectation losses include loss of profits Loss of a promised chance or commercial

opportunity may be claimed Damages will be awarded by “reference to the

degree of probabilities, or possibilities, inherent in the plaintiff’s succeeding had the plaintiff been given the chance which the contract promised” – Sellars v Adelaide Petroleum (S&O p275)


Expectation Losses (cont.) If loss of a bargain cannot be calculated then

plaintiff can claim reliance expenditure McRae v Commonwealth Disposals

Commission (S&OR p275) Commonwealth v Amann Aviation (S&OR

p276)


Damages for Disappointment etc Courts have been reluctant to award

damages for disappointment, distress and injured feelings

Not awarded for breach of most commercial contracts


Damages for Disappointment (cont.) Two cases where may be awarded;

Distress flows from physical inconvenience Where enjoyment or entertainment or

freedom from molestation is an essential feature of the bargain

Cases Jarvis v Swann Tours (S&OR p277) Baltic Shipping v Dillon (S&OR p277)


Equitable Remedies Specific Performance

Court orders a party to carry out their contractual obligations

Only available if an order for damages would not be an adequate remedy

Usually restricted to sale of land Never awarded to enforce a contract for

the provision of personal services


Equitable Remedies (cont.) Injunction

Court orders a party to a contract to refrain from breaching their contractual duty

Only granted if necessary There must be evidence that the breach

will continue or will occur again

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THE LAW OF COMMERCIAL CONTRACT Remedies (Sweeney & O’Reilly 2 nd Ed. Chapter 9 pp 245 – 257 and pp 279 - 283)