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

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Types of Remedy

 Termination Rescission Recovery of Contract Price Damages Equitable Remedies  Specific Performance  Injunction  Rectification  Restitution

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Termination of a contract

A contract can be brought to an end by: 1.

Performance 2.

3.

Agreement A Term of the Contract 4.

5.

6.

Frustration Breach Operation of Law

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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)

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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

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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

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Termination by Frustration

 Where:  An intervening event;  Not contemplated by the parties;  Makes performance  impossible; or  Radically different to that originally contemplated.

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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)

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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

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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

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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

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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

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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)

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Termination by Breach

Breach of a condition, or a serious breach of an intermediate term, will allow termination Condition Intermediate Term Warranty If Serious Not Serious Damages and\or Termination Damages Only

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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

THE LAW OF COMMERCIAL CONTRACT

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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”

THE LAW OF COMMERCIAL CONTRACT 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

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Termination by Operation of Law

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Bankruptcy Cooling Off Periods (e.g. Sale of Land)

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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

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Rescission

 Available for:  Misrepresentation  Undue influence  Unconscionable conduct  Duress

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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

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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)

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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”

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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)

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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

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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

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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)

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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)

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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

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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

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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)

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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)

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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

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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)

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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

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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