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LAW OF CONTRACT

LPAB – Summer 2017/2018

Week 9

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TodayDischarge

– Discharge by performance

• Text: Radan & Gooley, Chapter 22

• Cutter v Powell (1795) 101 ER 573 (R&G(C) [22.2C])

• Sumpter v Hedges [1898] 1 QB 673 (R&G(C)

• Hoenig v Isaacs [1952] 2 All ER 176 (R&G(C) [22.3C])

• Bolton v Mahadeva [1972] 1 WLR 1009

– Discharge by agreement


• *Crawford Fitting Co v Sydney Valve & Fitting P/L (1988) 14 NSWLR 438 (R&G(C) [23.2C])

• *Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 (R&G(C) [23.3C])

• *McDermott v Black (1940) 63 CLR 161 at 183-184 (R&G(C) [23.4C])

– Discharge by breach of contract


• Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 (R&G(C) [24.2C])

• Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 (R&G(C) [24.3C])

• Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26

• Stevenson, Jacques and Co v McLean (1880) 5 QBD 346

• Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115 (R&G(C) [24.4C])

• *Louinder v Leis (1982) 149 CLR 509 (R&G(C) [24.5C])

• *Sargent v ASL Developments Ltd (1974) 131 CLR 634 (R&G(C) [24.6C])

• Foran v Wight (1989) 168 CLR 385 (R&G(C) [24.7C])

• *Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 (R&G(C) [24.8C])

2

Today• Discharge

– Discharge by repudiation

• Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1979] AC 757

• Universal Cargo Carrier Corporation v Citati [1957] 2 QB 401

3

DISCHARGE

• Discharge can be effected by:

– Performance

– Agreement

– Breach

– Frustration

• Discharge means that one or both of the parties are excused from further performance.

4

DISCHARGE• Discharge by performance

– R&G, Chapter 22

• Does performance have to be exact?:

– Where the contract is divisible into discreet parts and a party completes part of it, she has rights in relation to the completed parts, even though she does not complete all parts. The contract may discharge.

– Where a party’s further performance is obstructed by the other party she may be able to bring a restitutionary claim against the other party (see R&G, Chapter 38).

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– R&G, Chapter 22


– Where breach of performance is considered trivial in the context of the whole agreement, less than complete performance may be allowed: de minimus curat lex (the law does not concern itself with trivialities).

• If a breach is of a trifling or negligible nature, the Court will not entertain it.

• The court will look at the nature of the breach and the nature and scope of the term, having regard to the presumed intention of the parties, based on a proper construction of the contract. (R&G, 22.36).

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– R&G, Chapter 22


– Where there is substantial performance, the defaulting party may still have rights. It depends upon construction. But unless the contract clearly makes exact performance a condition precedent to payment, if the plaintiff has substantially performed, he can recover the contract price minus a reduction for remedial work e.t.c. This will discharge the contract.

• Hoenig v Isaacs [1952] 2 All ER 176 (R&G(C) [22.3C])

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– R&G, Chapter 22

• Whether time is of the essence is a matter of interpretation. If time for performance is expressly stipulated, then failure to perform on time is a breach.

• If not, then there is an implication that it must be performed in a reasonable time unless there are indications to the contrary.

8


Exact performance

Cutter v Powell (1795) 101 ER 573 (R&G(C) [22.2C])

• Contracted to perform as second mate until the ship arrived at Liverpool. He did so until he died en route on 20 September 1793. The ship arrived at Liverpool on 9 October 1793. Powell refused to pay his widow at all. She sued for a proportional amount.

• Could she succeed, given that he had part-performed?

• No. The contract was an entire contract and had to be completely performed before payment was made. They held that there can be no quantum meruit claim for partial performance of an entire contract.

9


Exact performance


“10 days after the ship Governor Perry, myself master, arrives at Liverpool, I promise to pay to Mr T Cutter the sum of 30 guineas, provided he proceeds, continues and does his duty as second mate in the said ship from hence to the Port of Liverpool. Kingston, July 31, 1793.”

10


Exact performance


• The entire trip was a condition precedent of getting paid. Therefore no pay!

• If there had been no agreement, there may have been a quantum meruit claim, but you cannot resile from a valid agreement to claim quantum meruit.

• See R&G 22.28

• The courts have gradually been taking a less harsh approach to agreements since this decision.

11


Exact performance

• Circumstances where less than exact performance has been permitted:

– Where agreement is divisible and the party has completed a discreet part of it. The contract may be considered discharged even though the entire contract has not been performed.

– Where a party’s further performance is obstructed by the other party. The innocent party may be able to bring a restitutionary claim.

– Where the breach is regarded trivial.

– Where the doctrine of part-performance applies. See Hoenig.

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Hoenig v Isaacs [1952] 2 All ER 176 (R&G(C) [22.3C])

• Isaacs agreed to decorate and furnish Heonig’s flat for £750, ‘net cash as the work proceeds, and balance on completion’.

• Hoenig made two payments of £150. Isaacs said that he had finished and asked for the balance. Hoenig said that the work was faulty, but paid £100 more. Refused to pay balance (£350).

• Isaacs sued for the balance and Hoenig alleged incomplete performance and negligent work.

• Referee said some work needed to be done. Hoenig then argued that this was an entire contract and therefore Isaacs could not recover (except on quantum meruit basis). The Referee said substantial completion had taken place, and that Hoenig should pay the £350 minus the cost of fixing the work. Hoenig appealed.

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Hoenig v Isaacs [1952] 2 All ER 176 (R&G(C) [22.3C])

• Was entire performance a condition precedent to payment – could Hoenigrepudiate the agreement on the basis that the work, although complete, was not up to scratch (and therefore not in accordance with the agreement)?

• Held - that substantial performance had taken place, so the Referee’s award should stand.

• Whether entire performance is a condition precedent is a matter of construction. If its is a lump sum contract, Courts lean against construction that would deprive contractor of any payment simply because there are some defects.

• The promise to complete is construed as a warranty not a condition (if a condition, he could terminate). And only a breach of that term that goes to the root of the matter allows the employer to avoid paying. Otherwise he must cross-claim or reduce the price.

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Hoenig v Isaacs [1952] 2 All ER 176 (R&G(C) 22.3)

• The parties can specify that it is a condition precedent.

• Only the breach of a condition allows the promisor to refuse to pay the price. It must go to the root of the matter (abandoning construction half-done is an example).

• Here the balance could have been regarded as retention money (and therefore he needed to complete the performance to get it), but is was not 10% or 15%, but more like 50%, so it should be regarded as a lump sum agreement, which was substantially performed.

Denning LJ

• If it was a condition precedent, the result would have been the same, because the plaintiff waived the conditionN. This depends on the circumstances.

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Sumpter v Hedges [1898] 1 QB 673 (R&G(C) [38.4C])

• Sumpter contracted to build on Hedges’s land for a lump sum. Sumpter did part of the work and then abandoned the contract due to a lack of funds. Hedges completed the work. Sumpter sued Hedges for quantum meruit for the value of the work that he had completed.

• Quantum meruit may be available if there is some evidence of a new contract after the abandonment. This may be the case if the defendant has the option of taking the benefit of the work performed and does so. Where the work is done on land, the circumstances are that the defendant has no choice but to take the benefit (stuck with the land), so you have to look at other facts rather than the taking of the benefit in order to ground the inference of a new contract. The mere fact of possession of the land does not ground the inference.

• Does the other party have a real choice to accept or refuse the benefit??

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Sumpter v Hedges [1898] 1 QB 673 (R&G(C) 38.4)

• Another way of looking at this is that a party in breach of a contract for work for a fixed price may be able to bring a restitutionary claim for the work performed, provided that the other party has accepted the part performance.

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• If on the other hand, if the defect in performance is serious and substantial and the cost of rectification is high by comparison to the contract price, the Court will conclude that substantial performance has not taken placeN.

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Bolton v Mahadeva [1972] 1 WLR 1009

• The plaintiff agreed to install a central heating system for £560. It was a lump-sum contract, together with extras. The defence was that the Plaintiff had wholly failed to perform the main contract, and set out particulars of defects in the work.

• The Defendant contended that the consideration for the main contract had wholly failed. Alternatively, he claimed to set-off a sum in respect of making good the defects. The cost of the remedial work was £174.

“Assuming for the moment that the Judge is right on the figures, certainly it could not be said here that the defects could be regarded as being de minimis. But, in my view, that is quite a different test from the test of whether it can be said that the failure to complete was substantial. I do not think that the test can be based wholly on quantum. I think to some extent it depends upon the nature of the defects.”

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Bolton v Mahadeva [1972] 1 WLR 1009

“The main matters that were complained of in this case were that when the heating system was put on, fumes were given out which made some of the living rooms (to put it at the lowest) extremely uncomfortable and inconvenient to use; secondly, that by reason of there being insufficient radiators and insufficient insulation, the heating obtained by the central heating system was far below what it should have been.”

“For my part, I find it impossible to say that the Judge was right in reaching the conclusion that in those circumstances the contract had been substantially performed. The contract was a contract to install a central heating system. If a central heating system when installed is such that it does not heat the house adequately and is such, further, that fumes are given out, so as to make living rooms uncomfortable, and if the putting right of those defects is not something which can be done by some quite small amendment of the system, then I think that the contract is not substantially performed.”

•

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DISCHARGE• Discharge by agreement

• There are three or four ways to discharge a contract by agreement:

– Abandonment:

• Both parties must abandon the agreement

• It is a matter of fact to be inferred from an objective assessment of the conduct of the parties. It is not necessary to look at whether the parties had any intention of abandoning the agreement – does the conduct of the parties, when viewed objectively, manifest such an intention.

• Extrinsic evidence of conduct is admissible.

– Discharge pursuant a contractual term in the original agreement

• Condition precedent

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– Discharge pursuant a contractual term in a subsequent agreement

• Both parties enter into a subsequent agreement to vary or discharge the first agreement.

– Also a party can relinquish rights by waiver

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• An agreement can specify a time period after which it will automatically terminate.

• Or the contract may specify an event which causes it to terminate.

• But what if the contract operates for in indefinite period? When does a party have a right to terminate such a contract?.....

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*Crawford Fitting Co v Sydney Valve & Fitting P/L (1988) 14 NSWLR 438 (R&G(C) [23.2C])

Termination pursuant to an express or implied term in the agreement – in a commercial agreement for an indefinite period can a right to terminate be implied and if so on what basis?

• Plaintiff manufactured fittings. It appointed the defendant as exclusive distributor in NSW and a similar company as exclusive distributor in Victoria. Neither distributor could deal in other products. In 1984, it gave both of them six months notice of termination. Was this reasonable?

• The existence of an implied term allowing termination is a matter of construction. It involves not only a textual examination of the writing, but also consideration of the subject matter of the agreement, the circumstances in which it was made, and the provisions to which the parties have or have not agreed.

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*Crawford Fitting Co v Sydney Valve & Fitting P/L (1988) 14 NSWLR 438 (R&G(C) [23.2C])

• Although there is a presumption against implying a term that an agreement is terminable, ordinarily the nature of a commercial agreement will lead to the conclusion that the parties must have intended it to be terminable on notice.

• The reasonableness of the notice period depends upon the circumstances when notice is given.

• If during the contract, a party engages in extraordinary expenditure or effort, that should be taken into account when determining the reasonableness of the notice period.

• Once the business has existed for a reasonable period, the inability to profit from non-extra-ordinary work or expenditure is a part of the business risk.

25


Crawford Fitting Co v Sydney Valve & Fitting P/L (1988) 14 NSWLR 438 (R&G(C) [23.2C])

• The prospect of obtaining profits in the future is not a relevant factor except in so far as it is consequential upon the incurring of extraordinary expenditure within the scope of the agreement.

• The chief purpose of the notice period is to enable the parties to bring the relationship to an orderly end so that they will have a reasonable opportunity to enter into new arrangements and wind up the matters that arise out of their relationship: carrying out existing commitments, bringing current negotiations to fruition and recouping extraordinary expenditure.

• Here it was line-ball, but the distributors failed to prove that six months wasn’t enough. Therefore could be terminated with six months’ notice.

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• A contract may specify that that a nominated event must take place before termination can be effected.

• It may specify a condition precedent to a party’s performance.

• It may specify a condition precedent to the existence of the contract.

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Discharge where there is a condition precedent or subsequent

*Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 (R&G(C) [23.3C])

• Contract for sale of land in Cronulla. ‘This contract is entered into subject to the Perri’s completing the sale of their property in Lilli Pilli.’ The contract did not fix a time for the sale of the Lilli Pilli property, or any promise that this would occur.

• The Perris did not sell their property for a year. In the meantime the defendant issued a notice to complete and upon expiry, a notice of termination of the agreement. The Perris sued for specific performance – to force the sale to go ahead.

• Was the defendant entitled to terminate?

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• This was not a condition precedent to the formation of a binding contract (deposit had been paid etc.) but a condition precedent to the performance of some of the obligations, including that of the vendor to complete.

• If no time is specified for the completion of the condition precedent, then an

implication of a reasonable time is, in general, to be made unless there are

indications to the contrary.

• Where a conditional contract fixes the time for the completion of the condition, it can be terminated if the condition is not fulfilled when that date arrives, and it is unnecessary to give any prior notice of termination.

• The same goes for a condition precedent to an obligation to complete a contract for sale where the time is not specified and a reasonable time is implied.

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• When construing a condition precedent, Courts favour the construction that it is a condition precedent to performance of the contract and will only rule that it is a condition precedent to the existence of a contract where the contract, read as a whole, compels such a conclusion.

30


Discharge by release / subsequent agreement

• Contracts can be discharged by the parties agreeing to enter into a subsequent agreement.

• If the subsequent agreement is not in a deed, a party that has not completed its obligations under the initial agreement, must provide consideration for the subsequent agreement for it to be binding and to terminate the first agreement.

• This is often called “accord and satisfaction”

31



*McDermott v Black (1940) 63 CLR 161 at 183-184 (R&G(C) [23.4C])

• Prior to completion, Black claimed to have been induced to enter into a contract to buy 4000 shares by a number of fraudulent misrepresentations made by the vendor.

• In a subsequent letter, he withdrew all allegations conditional on being given more time to complete. The extension was granted, but he did not complete in time. McDermott terminated.

• Black commenced proceedings, claiming damages for the misrepresentations that he had previously withdrawn.

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• The withdrawal of the allegations constituted an accord and satisfaction and amounted to a promise not to sue or to a release of any cause of action in respect of them and was therefore a defence to an action in deceit.

• An accord and satisfaction takes place where the plaintiff accepts something in place of his cause of action. It may be a promise or contract or it may be the thing promised.

• Until it is provided and accepted, the cause of action remains alive and unimpaired. The accord is the agreement or consent to accept the satisfaction. Until the satisfaction is given, the accord remains executory and cannot bar the claim.

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• If the agreement is to accept the promise in satisfaction, the discharge of liability is immediate. If it is to accept performance in satisfaction, there is no discharge unless and until the promise is performed.

• Here the thing promised was an extension of time. The withdrawal of all allegations conditional on the extension amounts to an election to affirm the new contract and implies a promise not to revive the allegations.

• Although the words ‘withdraw allegations’ is inexact, the purpose of it was not that of social amenity but to conclude and close a business transaction.

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DISCHARGE• Discharge by breach

• R&G Chapter 24

• Breach can be actual or anticipatory:

– Actual: one party does not perform her obligations in accordance with the contract.

– Anticipatory: one party indicates an unwillingness or inability to perform her contractual obligations in advance of when they are due to be performed.

• Breach may give the innocent party the right to terminate if, as a matter of construction, the breach was of a condition or an essential term or an intermediate terms that justified termination. If it is a breach of an non-essential term (warranty) or a non-essential intermediate term, the innocent party may only have a right to damages, rather then termination.

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• R&G Chapter 24

• Condition (essential term) – innocent party can terminate

• Warranty (non essential term) – innocent party cannot terminate (can sue for damages or specific performance (in equity))

• Intermediate term (neither a condition nor a warranty, and falls somewhere in between) - the innocent party is entitled to terminate the contract if the breach deprives them of substantially the whole benefit they were intending to obtain by performance of the contract.

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– Condition v warranty

* Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286

• Luna Park contracted with Tramways Advertising to display advertising boards on the trams of 8 hours per day during each of 3 seasons. TA did not control the trams. At the end of the 2nd season LP terminated for breach and TA sued for the payment for the 3rd season.

• TA argued that "8 hours" referred only to an average time. But TA had stipulated as a term of the contract that "we guarantee that these boards will be on the tracks at least 8 hours per day throughout your season." LP said that the boards had not been displayed for 8 hours per day and that the term was a condition.

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HELD Latham CJ

• An interpretation based on average time is inconsistent with the natural meaning of the words. Thus TA has not performed the contract in accordance with its terms.

• Luna Park was entitled to determine the contract, (a) because of P's actual breaches (b) because of the intention to continue in the same way as in the past.

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• The provision was a term of the contract which was "so essential” to its very nature, that its non-performance may fairly be considered by the other party as a substantial failure to perform the contract at all. The breach of such a term by one party entitles the other not only to obtain damages but also to refuse to perform any of the obligations resting upon him (i.e. terminate).

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• The essential character of the clause appears from its own terms and from the circumstances in which the contract was made. "we guarantee" in a contract drawn up by lay people emphasises the importance of the term. Also, the payment was not to begin until ALL the boards were on display (53 in all). Thus if the advertising company were to display 52 boards throughout the season, it would not be entitled to ANY payment. Completeness of display was therefore an essential term of the contract - a condition and not a warranty.

• But should not see "eight hours per day“ as incorporating mathematical exactitude. It should be understood as meaning "substantially 8 hours per day".

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• Luna Park was therefore entitled to determine the contract on the basis of past breaches, and because TA led Luna Park to believe that in future the contract would not be performed according to its terms.

• It follows from the fact of breach that Luna Park had an automatic right to damages, but as they were unable to prove to the court the extent of their loss, they only got nominal damages without an order for costs. Latham took the view that if you come to court with the case badly prepared, then you should not be granted a retrial to deal with those matters and should suffer the consequences.

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• The 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 strict or 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 in general treat himself as discharged upon any breach of the promise, however slight".

42


• R&G Chapter 24

• Until the innocent party elects to terminate, the contract still stands. If its is a condition, she can proceed with the contract, terminate and/or claim damages.

43


Condition v warranty

Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 (R&G(C) [24.2C])

• Bancks agreed with AN that he would work for then exclusively for 10 years for a salary. His duties included preparing a full-page cartoon. AN agreed that the cartoon would be printed on the front page of the comic section of the paper.

• Two years later, AN decided to print the comic section in an insert in the regular colour magazine section of the paper. You had to ‘reverse fold’ the insert to turn the colour magazine into the front page of the comic section. In three editions in 1951, Bancks’s cartoon appeared on page 3 of the comic section.

• Bancks protested. AN said that if you folded the magazine, the comic appeared on the front page of the comic section.

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Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 (R&G(C) [24.2C])

• Bancks terminated.

• Whether termination was valid depended upon whether the term to place the cartoon on the front page of the comic section was a condition or a warranty.

• Does the stipulation go to the root of the matter, so that failure to perform it would render the performance of the rest of the agreement a thing of different substance or merely partially affects it?

• Applied Luna Park.

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Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 (R&G(C) 24.2)

• Bancks was not an ordinary employee. He was paid a lot just to produce the comic strip. His promise was clearly a condition. His promise to do so and the promise of AN to publish on the cover, were correlative. It would be strange if his promise to draw cartoons was a condition and AN’s promise was a warranty. It was impossible to attach different values to the Bancks’s obligation and the company’s undertaking.

• Further, Bancks would not have agreed to create the cartoon unless he was assured that his work would be published in a certain manner.

• The High Court likened this to a contract under which an actor is engaged by a theatre. It is not enough to pay a wage, but the theatre must also find him the kids of parts that he is contracted to perform.

• AN committed three breaches. Bancks could terminate.

46


Intermediate term

• Traditionally there were only conditions and warranties. But now the common law recognises a third type of termN

47


Intermediate term

Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 (R&G(C) 24.3)

• HFS Co Ltd chartered a ship for two years to Kawasaki. The agreement said that ‘it was in every way fitted for ordinary cargo service’ and that the owners were to maintain the vessel in a ‘thoroughly efficient state in hull and machinery during service.’

• After a 8.5 week coal delivery trip, the ship was in repairs for five weeks and then berthed in Osaka for an other 15 weeks to render it seaworthy. Kawasaki repudiated the contract because of the delays, and claimed damages. FFS Co Ltd sued for wrongful repudiation.

• Was the seaworthiness terms a condition or warranty?

48


Intermediate term

Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 (R&G(C) [24.3C])

• HFS Co Ltd chartered a ship for two years to Kawasaki. The agreement said that ‘it was in every way fitted for ordinary cargo service’ and that the owners were to maintain the vessel in a ‘thoroughly efficient state in hull and

machinery during service.’

• After a 8.5 week coal delivery trip, the ship was in repairs for five weeks and then berthed in Osaka for an other 15 weeks to render it seaworthy. Kawasaki repudiated the contract because of the delays, and claimed damages. HFS Co Ltd sued for wrongful repudiation.

• Was the seaworthiness term a condition or warranty?

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Intermediate term


• Held: Not a condition – repudiation (purported termination) was wrongful.

Sellers LJ

– Breach was not such as to make the performance of the agreement different from that intended - warranty

Upjohn LJ

– Breach did not go to the root of the agreement - warranty

50


Intermediate term


Diplock LJ

– Many contractual undertakings cannot be characterised as conditions or warranties. Some will and some won’t deprive the innocent the innocent party of substantially the whole benefit which it was intended she would obtain from the contract.

– Legal consequences for breach of such a term depend upon the nature of the event to which the breach gives rise and do not follow automatically from the classification as a condition or warranty.

51


Intermediate term

• Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 (R&G(C) [24.3C])

• Diplock LJ

• Judge should have looked at the events which occurred as a result of the breach at the time which Kawasaki purported to rescind the charter, and decide whether the occurrence of those events deprived Kawasaki of substantially the whole benefit which it was the intention of the parties, as expressed in the charter, that Kawasaki should have from further performance of the agreement.

52


Intermediate term


Diplock LJ

• On the date that Kawasaki purported to rescind, was the delay which had already occurred as a result of the incompetence of the engine room staff, and the delay which was likely to occur in repairing the engines – taken together – such as to deprive Kawasaki of substantially the whole benefit which it was the intention of the parties, as expressed in the agreement, that Kawasaki should obtain?

53


Intermediate term


• The dissenting judgment if LJ Diplock was approved in Australia inN.

54


Intermediate term

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115 (R&G(C) [24.4C])

• Koompahtoo Local Aboriginal Land Council entered into a joint venture agreement with Sanpine Pty Limited for the development of land. Sanpine was responsible for the management of the project, and agreed to do various things, including to engage book-keeping and accounting services for the joint venture and the development and maintain all records and documents of the joint venture.

• There was no express term regarding the circumstances in which either party could unilaterally terminate.

55


Intermediate term


• Six years later an administrator was appointed to Koompahtoo. The administrator attempted to determine the true financial position of the joint venture, and discovered that Sanpine had failed to keep proper books and accounting records. The administrator requested certain information and documents from Sanpine, but the request was not complied with.

56


Intermediate term


• The administrator, on behalf of Koompahtoo, purported to terminate the joint venture agreement on the basis that Sanpine's breaches of the joint venture agreement evinced an intention not to be bound by it (amounting to repudiation). Sanpine commenced proceedings, seeking a declaration that the purported termination was invalid and that the joint venture agreement was still on foot.

• Did Sanpine’s actions amount to a breach which allowed the administrator to terminate?

• The High Court confirmed that the common law right of a party to terminate a contract will arise where the other party has repudiated the contract, breached an essential term of the contract, or committed a serious breach of an intermediate term. The focus should be the nature and seriousness of the breaches. Here Sanpine committed serious breaches of an intermediary term.

57


Intermediate term


• An intermediate term is neither a condition nor a warranty, and falls somewhere in between conferring an absolute right to terminate and not conferring any right to terminate at all. A breach of an intermediate term must be sufficiently serious to justify termination.

• In the case of an intermediate term, the innocent party is entitled to terminate the contract if the breach deprives them of substantially the whole benefit they

were intending to obtain by performance of the contract.

• How will a court determine whether there has been a substantial deprivation? This will require a consideration of the seriousness of the events that flow

from the breach of the term.

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Intermediate term


• In Koompahtoo, the High Court found that the breaches in issue deprived Koompahtoo of a substantial part of the benefit for which it had contracted with Sanpine (ie. the capacity to make informed decisions), and that those breaches justified the termination.

• Given the nature and purpose of the joint venture, maintaining books was an important matter. The inability of Sanpine to provide books or financial information was a gross breach and led to serious consequences.

Kirby J - Diss

• Intermediate term is dumb – the classification does not rest on anything inherent in the term, just the judicial view of the consequences of breach.

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Intermediate term


• There is debate as to the future of the tri-partite classification. Carter argues that this effectively means that warranties have disappeared.

• But this tri-partite classification has been included in the Sale of Goods Act 1923 (NSW), s 4

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Time stipulations

• Time stipulations are important terms in agreements. So there is often argument as to whether a party can terminate if the other party breaches a time stipulation.

Common law

• At common law the historical position is that time stipulations in contracts were always “of the essence”. That is, if a time was not met then this amounted to a breach of an essential term of the contract allowing the non-defaulting, or innocent, party to terminate for breach and claim damages.

Equity

• As is often the case, equity took a different view and regarded stipulations as not being “of the essence”, and thus a breach did not allow an innocent party to terminate unless time had been made “of the essence”, either in the contract, or by a subsequent notice.

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Time stipulations

Equity

• Equity will termination if:

– There is an express terms that says that time is of the essence.

– There is an implied terms that says that time is of the essence.

– If time was not of the essence, a notice to complete was served.

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Time stipulations

Completion “of the essence”

What does this phrase mean?

• If the standard time provision is not “of the essence” then a failure to complete may be a breach of contract, but what remedy does the innocent party have?

• In real estate contracts, the innocent party must serve a notice to complete to make time essential before being able to terminate the contract for breach and forfeit the deposit and exercise the other remedies available for breach.

63


Time stipulations

Completion “of the essence”

• A contract in which time is essential allows an innocent party to terminate for breach immediately after the defaulting party has failed to complete in accordance with the terms of the contract. Time can be essential either:

– because the contract provisions say so, or

– because the innocent party has served a notice to complete making time essential.

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Time stipulations

*Louinder v Leis (1982) 149 CLR 509 (R&G(C) [24.5C])

• Louinder, was selling property to Leis. No date was fixed for completion, and there was no time of the essence clause. However, there was a 28 day limit for the purchaser to 'tender a transfer'.

• Louinder sought an extension for the settlement. Leis agreed, but then the Lounder changed his mind and demanded settlement within a week.

• After no tender of transfer was made, Louinder gave notice to Leis that he must complete the contract within 21 days or it will be terminated.

• Leis did not comply, and Louinder terminated. Leis sued for wrongful termination.

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Time stipulations


• Was Louinder’s notice to complete valid? NO

• If the contract does not fix a day for completion and a reasonable time is expressed or implied, time is not of the essence at law. And no date is contractually fixed when a legal right to rescind will arise.

• A notice to complete cannot shorten this time period by fixing it in accordance with the notice

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Time stipulations


• In his judgement, Mason J said:

“The principal issue in the appeal is: in what circumstances is a party to a contract for the sale of land entitled to give a notice to complete making time the essence of the contract? ...

At the outset we need to keep in mind (a) the difference between a contract which does not fix a time for completion and one which does, though not making time of the essence; and (b) the difference between a breach of an obligation to complete the contract on a stipulated date or within a reasonable time, as the case may be, and a breach of some other obligation imposed by the contract, for example cl. 4 of the instant contract. The entitlement to give notice having the effect of making time of the essence varies in these situations. ...

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Time stipulations


• In his judgement, Mason J said:

In the event the appeal fails. There was no foundation for the vendors giving a notice to complete on 8 February as the contract did not fix a time for completion. The existence of unreasonable delay on the part of the purchaser was an essential qualification for the giving of a notice. The findings of fact made by the primary judge negated the existence of such delay.

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Contractual right to terminate

• A contractual right to terminate usually requires notice of termination to be given. If a stipulated notice provision is not complied with, the termination will not be valid.

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*Sargent v ASL Developments Ltd (1974) 131 CLR 634 (R&G(C) [24.6C])

• Three vendors contracted to sell to ASL. Contract included a clause giving either party a right of rescission if the property was affected by a planning scheme – zoning restriction. By “notice in writing to each other"

• Each of the properties was affected by such a scheme. The vendors were deemed to know this. However they didn’t realise until late that the contract allowed them to rescind. They received payments under their contracts and then rescinded. ASL sued for specific performance.

• Did they have a right to terminate? Did their conduct amount to waiver?

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• Yes and Yes.

• They had a right to rescind but had to elect whether they would do so or accept the contract.

• Election occurs where there are two inconsistent legal rights. For it to exist there must be an element of knowledge and words or conduct sufficient to amount to making an election as between two inconsistent rights.

• Knowledge only requires knowledge of the facts giving rise to the inconsistent rights – they are taken to know of their right to rescind and to enforced the agreement.

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• Here they knew of the existence of the planning scheme affecting the land –that is enough to invoke the doctrine. Their own interpretation of the agreement is irrelevant – as in the fact that they didn’t purport to understand that they had a right of rescission.

• The words or conduct constituting an election must be unequivocal –consistent with the exercise of one of the rights and not the other.

• However less unequivocal conduct, coupled with an actual knowledge of a right of election may suffice. There need be no expressed intention to elect.

• Here they accepted quarterly interest payments for 32 quarters which is consistent only with their right to affirm the contract not bring it to an end.

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Anticipatory breach

• Foran v Wight (1989) 168 CLR 385 (R&G(C) [24.7C])

• Wight entered in to agreement for sale of land to Foran, including a 10% deposit and the requirement of registering a right of way prior to completion. Time was of the essence for completion. Some days prior to the completion date, the Wightsrepresented that they would not be able to register the right of way and therefore complete on time. The Forans abandoned their efforts to secure finance and therefore at the completion date they did not have enough finance to purchase the house. Neither party acted on the completion date. Two days later the Foranspurported to rescind the contract, and seek their deposit back.

• The Wights denied the validity of the termination notice on the ground that the Forans weren’t in a position to complete.

• The Wights then registered the right of way and tried to enforce completion, but were unsuccessful. They then terminated and sold the property to someone else.

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Anticipatory breach

Foran v Wight (1989) 168 CLR 385 (R&G(C) [24.7C])

• The issue was whether the Forans validly terminated the agreement and could therefore get back their deposit from the Wights.

• The majority held that the Forans validly terminated the agreement and ordered restitution in the amount of the deposit.

• Did the purchasers need to show they were ready and willing to perform? (No) If so, at what time? Was an estoppel created by the vendor's representations? (Yes)

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Anticipatory breach


• When one party, A, purports to repudiate the contract, the other party, B, may either:

– (i) accept the repudiation, and rescind the contract or

– (ii) allow the contract to remain on foot.

• There is no third option. If the contract remains on foot, it does so for the benefit of both parties.

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TERMINATION• Discharge by breach

Anticipatory breach


• In this case, the Wright’s repudiation was not accepted (i.e. it was an action for actual breach), but (per Brennan, Deane, Dawson) the Wrights’ representation estopped them from arguing that the Forans needed to be ready and willing to complete on time.

• To rely on the estoppel, the Forans had to show that they were ready and willing to complete as at receipt of the repudiation (the representation). They discharged this onus. And because the vendor's consideration totally failed (no transfer of property), the purchasers were entitled to the return of the entirety of the deposit (Fibrosa).

• Where the respective obligations of parties to a contract are mutually dependent and concurrent, the primary rule is that neither party who fails to perform his obligation when time for performance arrives can rescind for the other party's failure at that time to his obligation.

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Anticipatory breach


Brennan J

• For one party to sue for the other's breach under contract they must show that, under ordinary contract principles, they were ready and willing to perform their obligations under the contract as at the time of the other's breach.

• Where A represents to B that B needn't perform B's obligations under an executory contract (i.e. one to be performed in the future), or that it would be pointless for B so to do, B is released from the performance of those obligations until such time as A gives notice that he is ready and willing to perform.

• If B wishes to sue under the contract for A's failure, B must be able to show that they were ready and willing to perform their obligations as at the receipt of A's representation. The onus of this is discharged if they can show they were "not

incapacitated from [performing their obligations] and were not decided against doing

so".

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Anticipatory breach


• Each party's obligation is conditional on performance by the other; neither can complain of non-performance by the other when the condition governing the other's obligation goes unfulfilled. But if one party intimates to the other that it is useless for the other to fulfil his obligation and the other acts on the intimation, the party to whom the intimation is given is dispensed from a nugatory tender of performance.

• A purchaser who is thus dispensed from his obligation to pay the price at the time stipulated for completion is not thereby discharged from his obligation to pay the price at some later time.

• But a party to an executory contract is entitled to rescind not only if the other party announces his intention not to perform his essential obligations but also if the other party is incapable of performing his essential obligations under the contract.

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Anticipatory breach


Gaudron

• Not based on estoppel. The vendor's representation waived their benefits under the "essentiality of time" clause, thereby removed the need for the purchasers to complete on time.

Deane

• Readiness and willingness is only relevant where the plaintiff is attempting to recover damages for breach. It is not necessary to rescind a contract.

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Anticipatory breach


In Foran Wright, the High Court held that the Wright’s anticipatory breach was converted by repudiation into an actual breach entitling the Forans to terminate. Brennan J – an intimation of non-performance of an essential term amounted to repudiation, which releases a party who relies upon this from performance. This party does not have to terminate.

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Relief against forfeiture

*Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 (R&G(C) [24.8C])

• Relief against forfeiture is an equitable remedy available to prevent a party from exercising legal rights which arise as a result of mistake, accident or surprise or where the exercise of the rights is otherwise unconscionable in all the circumstances.

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• Tanwar entered into contract for 3 separate pieces of land for $4.5. Tanwarpaid $450,000 deposit for all three. Each contract specified 28 February as the date for completion (but not of essence). Later there were amended to August.

• Tanwar was not in a position to complete, so the vendors issued termination notices. Negotiations ensured and a new (but essential) completion date was agreed by deed. The deed said that failure to complete would lead to a forfeiture of deposit.

• At new date of completion, Tanwar’s mortgagee said that it was not ready. On the next day, Tanwar said that it was ready to complete. Cauchiresponded by issuing notice of termination.

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• Tanwar sued seeking relief against forfeiture.

• Did Cauchi validly terminate? Was Tanwar entitled to relief?

• Cauchi was entitled to terminate as it had not contributed to the breach. Relief was not available to Tanwar on the basis of accident, because the possibility of the breach was in its contemplation.

• Discusses principles of allowing relief against forfeiture.

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DISCHARGE• Discharge for repudiation

• Repudiation = renunciation.

• It is used in a number of ways, including conduct by a party which allows the other party to terminate the contract. The emphasis is on the conduct of the party who refuses to perform the agreement or is unable to do so.

• It is a serious matter, not to be lightly found.

• Occurs when a party evinces and intention to no longer be bound, or to fulfil it only in a manner substantially inconsistent with his obligations.

• Can also be the manifestation of the intention to perform the agreement only as and when suits.

• The intention to repudiate is not necessary – resolved objectively by reference to the effect that it would have on the reasonable man.

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• Can also result form anticipatory breach: – a party by words or conduct indicates an intention not to perform a promise before the promise falls due, commits an anticipatory breach.

• In *Ryder v Frohlich [2004] NSWCA 472, the Court cited with approval Heyman v Darwins Ltd in which it was said discharge can arise:

– Renunciation by a party of liabilities under the contract;

– Impossibility created by her own performance;

– Total or partial failure of performance.

• All of these acts can be described as repudiation, although that “expression is more particularly used of renunciation before the time of performance has

arrived.”

• In Citati, it was noted that the third of these is a case of actual breach and the first two are modes of anticipatory breach.

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• Repudiation can be shown by an intention not to be bound by the agreement at all, or that she does not intend to be bound by a term or terms which are of sufficient importance in the contract. This may be motivated by an impossibility of performance or by an unwillingness to perform.

• The party’s subjective intentions are irrelevant – it is how his conduct would appear to a reasonable person in the position of the other party.

• A party’s conduct must be evaluated in all of the circumstances.

• Repudiation can consist of:

– Refusal to perform because of an erroneous interpretation of the agreement

– Terminating the contract without justification (thereby allowing the other party to terminate)

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• Repudiation can also take place as a consequence of a party making an anticipatory breach of the contract. A party who by words or conduct indicates an intention not to perform a promise before performance falls due commits and anticipatory breach. This can occur expressly or by implication.

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• Types of repudiation giving rise to a discharge:

– Renunciation by a party of his liabilities under the contract.

– Impossibility created by a party’s own act.

– Total or partial failure of performance.

• The first two are types of anticipatory breach. The third of these is normally a breach.

• In Foran Wright, the High Court held that the Wright’s anticipatory breach was converted by repudiation into an actual breach entitling the Forans to terminate. Brennan J – an intimation of non-performance of an essential term amounted to repudiation, which releases a party who relies upon this from performance. This party does not have to terminate.

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Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1979] AC 757

• The charterers of three ships on time charter had made deductions from time charter hire payments which the shipowners regarded as unjustified. In retaliation the shipowners purported to revoke the authority of the Charterers (to be implied under the time charters) to sign bills of lading on behalf of the masters of the three vessels. Moreover, the shipowners ordered their masters to refuse to issue ‘freight pre-paid’ bills of lading if presented by the charterers. 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: 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.

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Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1979] AC 757

• A statement that a party will only perform something different from the contract is as capable of amounting to a renunciation as an express statement that a party will not perform the contract. To amount to a fundamental breach it must go to the root of the contract.If a party’s conduct is such as to amount to a threatened repudiatory breach, his subjective desire to maintain the contract cannot prevent the other party from drawing the consequences of his actions.

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Universal Cargo Carrier Corporation v Citati [1957] 2 QB 401

• Vessel chartered to load cargo of scrap iron at Basrah and to go to Buenos Aires. Arrived at Basra on 12 July but charterer unable to supply cargo. Owners decided charterer unable to perform and chartered vessel to 3rd party in 18 July. How long is a ship obliged to remain on demurrage before the owner can throw the towel in and reallocate the vessel? [demurrage -obligation to pay a fixed sum by way of damages for delay].

• Owners justify their action before the lay days expired because they held the charterer to have committed an actual or anticipatory breach. Charterer says not in breach of obligation until the expiry of the lay days - The vessel should be able to be loaded (with 6,000 tons) within the lay days remaining. Arbitrator found this could not be done. Although it cannot be a breach of an express term to load before the time expires, there must be an implied term that the party should not by act or omission put it out of his power to perform obligations within time and here the party in breach of that implied term.

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• So was the breach of a condition or warranty? Well accepted that the obligation to load within the lay days is a warranty only and not a condition. Breach does not entitle the owner to rescind but to claim damages only. Charterer may not keep ship indefinitely on demurrage. When the delay is such as to frustrate the contract, then owner can terminate.

“But a party to a contract may not purchase indefinite delay by paying damages N 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. What is the yardstick by which this length of delay is to be measured? Those considered in the arbitration can now be reduced to two: first, the conception of a reasonable time, and secondly, such delay as would frustrate the charter party N in my opinion the second has been settled as the correct one by a long line of authorities.”

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• A party to an executory contract is entitled to rescind not only if the other party announces her intention not to perform her essential obligations under the contract, but also of the other party is incapable of performing her essential obligations under the contract

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