Week 2

Termination for BreachTermination for Repudiation

Termination for Delay

2

Termination for Breach

Discharges the contract Only relevant where breach occurs before

performance of all the obligations of the contract

Party ‘elects’ to terminate or to affirm the contract

3

Termination for Breach

Breach of term expressly providing for termination

Breach of Condition Serious Breach of Innominate term Repudiation

4

Termination for Breach

Tri-partite Classification of Terms Condition Warranty Innominate (aka Intermediate) Term

5

Termination for Breach

Tri-Partite Classification of Terms Condition - any breach will justify termination Warranty - termination not allowed Innominate Term - only serious breach justifies

termination

6

Tri-partite Classification of Terms Test of Essentiality Structure of Term Structure of Contract Importance of term, consequences of breach Variety of breaches Are damages assessable? Nature of term, subject matter and contract Policy Factors - encouraging performance,

promoting certainty, providing flexibility

7

Tri-partite Classification of Terms

Express Agreement as to Character of Term Term may be called a ‘condition’ Not decisive - parties adopt language without

intending strict legal definition Term specifies that any breach allows innocent

party to terminate. Innocent party must comply with any

requirements outlined in term eg notice

8

Tri-partite Classification of Terms

Test of Essentiality - Luna Park v Tramways, Jordan CJ

‘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 substantial performance of the promise… and this ought to have been apparent to the promisor.’

9

Tri-partite Classification of Terms

Structure of Term Precise language Specific obligations Words such as ‘guarantee’

Support inference that term intended to be a condition

10

Tri-partite Classification of Terms

Structure of Contract If some terms expressly provide termination for

breach, then inference is that terms which don’t provide for termination are not intended as conditions

If a term specifies a sanction such as penalties, inference that term is not a condition

11

Tri-partite Classification of Terms

Consequences of Breach If every breach of a term is likely to be serious,

then it is probably a condition If a term could be breached in a serious way or

a trivial way, then probably not a condition

12

Tri-partite Classification of Terms

Breach can have variety of consequences If a term can be breached in a serious way or

in a trivial way, it is probably an innominate term rather than a condition

13

Tri-partite Classification of Terms

Are Damages Assessable If damages are difficult to gauge, then term

more likely to be a condition If damages not likely to compensate, then term

more likely to be a condition

14

Tri-partite Classification of Terms

Nature of term, subject matter and contract Term may have been interpreted by courts in

previous cases - eg template contracts

Certain types of contract or terms may have been classified as conditions or warranties in previous cases.

15

Tri-partite Classification of Terms Policy Factors

Promoting Certainty - defining a term as a condition promotes certainty because the parties know what response to breach is allowed

Encouraging Performance - defining a term as innominate or a warranty encourages parties to perform the contract rather than to terminate

Providing Flexibility - one reason the courts favour defining terms as innominate is that this provides greater flexibility in response to breach - ie the response to breach is proportionate to the actual or foreseeable consequences.

16

Termination for Breach Breach of express condition OR breach of term

expressly providing for termination Innocent party must follow whatever procedure is

required ie innocent party must comply with term if they want to

rely on it If innocent party fails to comply with term, they can still

argue under other grounds of termination such as breach of condition, serious breach of innominate term or repudiation

17

Termination for Breach

Breach of Condition Any breach justifies termination, even if the

actual breach or its consequences seem trivial When applying test of essentiality, do not

consider the actual breach

18

Termination for Breach

Breach of Innominate term Breach must be ‘serious’ Deprive party of substantially the whole benefit

of the contract Go to the root of the matter Seriousness includes actual breach, its actual

consequences and its foreseeable consequences

19

Termination for Repudiation

Repudiation Party is not willing and able to perform Must be serious Must relate to the whole of the contract May be before time for performance -

‘anticipatory breach’

20

Termination for Repudiation Anticipatory Breach

Innocent party may accept the repudiation, terminate and sue for damages

Innocent party may refuse to accept repudiation, affirm the contract and ‘wait and see’ what happens. Can only recover damages for actual breach.

Actual Breach Could include breach of condition (though

unnecessary) or non-serious breach of innominate term or breach of warranty.

21

Termination for Repudiation

Forms of Repudiation Express Statement Words and Conduct Actual Inability to Perform Erroneous Interpretation of the Contract Cumulative Breaches

22

Termination for Delay Contract may or may not contain time stipulations. If no time stipulated, courts will imply a term that

performance must be within a reasonable time If contract contains time stipulations, they may or

may not be conditions. “Time is of the essence” means that the time

stipulation is a condition. Delay may also amount to repudiation

23

Termination for Delay In absence of ‘time of the essence’ general

rule is that time stipulations are NOT essential.

Innocent party can NOT rescind unless they serve a valid notice to complete.

Can not serve a valid notice to complete until there has been a breach ie the non-essential time stipulation has been breached, or a reasonable time has lapsed.

24

Termination for Delay

Notice to Complete Must specify a time for performance Time must be reasonable Must convey right to terminate if time limit is

not complied with eg state that ‘time is of the essence’.

Innocent party must be ready willing and able to perform their contractual obligations