Offer
Gibson v Manchester Council (1979 HL) – objective test
•
Facts
•
•
•
•
•
•
Issues
Held
•
Manchester CC wrote to Gibson proposing to sell council
housing
Gibson completed the application form and returned the form to
the Council
Local government election - new local council stopped all
proposed sales, including that to Gibson
Gibson sought to enforce the sale (by specific performance)
Was there a contract? Was there offer and acceptance?
Trial Judge — for Gibson
Court of Appeal—for Gibson (2:1)
– Denning: “look at the correspondence as a whole and at
the conduct of the parties and see therefrom whether
the parties have come to agreement on everything that
was material” (departed from conventional approach of
offer and acceptance)
House of Lords—for Council (unanimous) - Lord Diplock:
– No reason here to depart from conventional approach of
construing the documents to identify a clear offer and
acceptance (though refers to the possibility of
exceptional types of contracts” “which do not fit easily
into the normal analysis of offer and acceptance”).
– “may be prepared to sell” and request for “formal
application” were fatal and make it impossible to
construe this letter as a firm contractual offer that will
be binding on the acceptance.
Carlill v Carbolic Smoke Ball (1893 UK CA) – UNILATERAL CONTRACT
Facts
•
•
•
Mrs Carlill used (or at least claimed to have used) the smoke ball as
directed for four weeks. She contracted the flu
Claimed £100 reward. Carbolic refused to pay
Mrs Carlill sued for breach of contract
Advertisement in Pall Mall Gazette, 1891 read:
• “£100 reward will be paid by the Carbolic Smoke Ball Company to any
person who contracts the increasing epidemic influenza, colds or any
disease caused by taking cold, after having used the ball three times
daily for two weeks according to the printed directions supplied with
each ball. £1000 is deposited with the Alliance Bank, Regent St,
showing our sincerity in the matter”.
Issue
Held
How did Mrs Carlill argue that there was a contract? – unilateral
contract.
Carbolic Co argued that there was no contract:
• No offer made – 3 arguments:
– advert was not a promise (or offer); was mere puff:
•
•
•
Held: Objective test: would it appear to a
reasonable member of the public that an offer
was intended? Clearly an offer; not a puff (why
else the £1000 deposit, ‘sincerity in the matter’
indicates they are serious about the matter, thus
intentional)
– no offer can be made to the world at large (it was not
made to anyone in particular):
• Held: It is possible to make offer to the public at
large
– Too vague and uncertain to be an offer - no time limit:
• Held: advert was not too vague or uncertain:
time limit would be by reference to a reasonable
time
Mrs Carlill did not communicate acceptance:
– Held: acceptance occurs by performance. Acceptance
need not be notified before performance. (reading the
ads, the Smoke Ball Company had waved the
requirement of communication)
No consideration moved from Mrs Carlill
– Held: consideration was:
• advantage to Carbolic gained by use of the ball
to promote sales, and
• detriment to Carlill in her inconvenience in using
the ball
Pharmaceutical Society v Boots Chemist (1953 UKCA) – goods displayed in shops
Facts
Issue
Held
•
Pharmacy and Poisons Act made it illegal to sell drugs except
under supervision of a registered pharmacist.
• Pharmacists were present at check-out.
Was having the goods on the shelf an offer capable of acceptance by
taking them off the shelf? If so, Boots would have been in breach of the
legislation.
• The goods being displayed on the shelves was an invitation to
treat
• Customers make an offer to buy the goods at the checkout
• Pharmacists could either accept or reject the offer
• Boots therefore not in breach of the legislation
AGC v McWhirter (1977 NSWSC) – Auctions
Facts
Held
Mortgagee auction - vendor (mortgagee) rejected highest bid from
mortgagor.
Vendor had not made an offer to sell despite auctioneer declaring that
property was “on the market”.
Harvela Investments v Royal Trust Co (1986 HL) – request for tenders
Facts
•
Royal Trust sent telex to two other shareholders “inviting” them
to make a “single offer” for its shares in A Harvey & Co Ltd
•
Issue
Held
“if any offer made by you is the highest offer received we bind
ourselves to accept... provided [it] complies with the terms...’
• Harvela submitted an offer of $2,175,000
• Outerbridge’s offer was for “$2,100,000, or $101,000 in excess
of any other offer”
Was this an offer?
• The “invitation” telex was an offer (‘’we bind ourselves to
accept..’’)
• Harvela accepted the offer by making the highest fixed price bid
(Outerbridge’s “referential bid” did not contain the highest fixed
price bid)
Hughes Aircraft Systems v Airservices Australia 1997 FC
Facts
Held
Hughes unsuccessfully submitted tender for air traffic control services –
claimed that tendering process was not complied with.
Finn J (read pp 183-187)
• There were 2 valid tender process contracts governing the
tender process.
– CAA letter describing tender process and evaluation
criteria (offer; not invitation to treat) – accepted by
Hughes signing
– Formal request for tenders with similar terms (offer),
accepted by Hughes lodging its tender
• CAA was in breach of contract:
– failing to evaluate tenders in accordance with criteria
– Confidentiality not enforced
– Accepted late change by other tenderers
• Based on the particular facts of this case
Dickinson v Dodds (1876 UKCA)
Facts
•
•
•
•
Issue
Held
10 June: Dodds made an offer to sell land to Dickinson (to be left
open until 9am on 12 June).
11 June: Dodds sold the land to Allan.
Evening of 11 June: Dickinson’s agent, Berry, told Dickinson
about Dodd’s sale to Allan.
Before 9am on 12 June: Dickinson accepted Dodd’s offer.
Was there a binding contract?
Dodds revoked the offer by selling the land to someone else. This
revocation had been communicated to Dickinson before acceptance
(Berry was a reasonably reliable source). There was no contract.
Goldsborough Mort v Quinn (1910 HCA)
•
Goldsbrough paid 5 shillings for the right to purchase land at Bena Billa for 30s per acre
“calculated on a freehold basis” within a week.
• Quinn purported to revoke the offer. Goldsbrough accepted within the week and sought specific
performance (ie the land).
Held: Here, the offeree paid for the option to have one week to consider the offer. It was held that the
offeror could not withdraw before the expiration of the promised period.
The Judges analysed the arrangement in different ways:
• Griffith CJ/ O’Connor J - conditional contract
– There was a contract to sell the land subject to a condition (ie exercise of the option).
• Isaacs J – 2 separate contracts
– There were two separate contracts:
•
option was a preliminary contract to hold the offer open (ie an offer with a
promise not to withdraw); and
•
the exercise of the option created a second contract to sell the land.
On either analysis: An option contract (a promise to keep an offer open, for value) is binding, and specific
performance can be given.
Mobil Oil v Wellcome Intl Pty Ltd (FFC 1998) – unilateral contract
Facts
Issue
Held
•
Announcement by Mobil to franchisees that if scored >90% in
Circle of Excellence program for 6 years - entitled to 9 free extra
years on franchise
• Plaintiff proceeded to get such scores but offer revoked after 4
years and program cancelled
• 5 franchisees commenced action against Mobil Oil as test case
(over 150 affected)
Can unilateral contract be revoked?
Trial J (Wilcox):
•
Unilateral contract offer cannot be revoked once performance has
commenced.
Held FFC:
•
•
•
•
•
No offer - statement too vague and uncertain to be a contractual
obligation
Even if it were an offer, Mobil entitled to revoke unilateral offer although
performance had commenced.
There is no general proposition that an offeror can’t revoke the offer
once the offeree commenced the performance.
But there may be times where there is an implied ancillary contract not
to revoke the offer once the offeree commences performance (an
implied promise not to revoke given in return for consideration of
commencing performance) - in which case revocation is still effective
and offeror is liable to pay damages for breach of ancillary contract.
No such implied ancillary contract here because:
• “commencing” performance is too vague – after one
day? (6 years requirement to accept the alleged
contract)
• the franchisees did not suffer any substantial
detriment
• the franchisees were already bound to adhere to Mobil
franchisee standards
Stevenson, Jaques & Co v McLean (1880 UK) – mere inquiry
Facts
•
•
•
McLean offered to sell iron to Stevenson, Jaques & Co for 40s per
ton, offer open till Monday.
9.42am Monday Stevenson Jaques & Co telegraphed: “please wire
whether you would accept forty for delivery over two months, or
if not, longest limit you could give”.
McLean didn’t answer and sold the iron to someone else.
Issue
Held
• Stevenson, Jaques & Co sent a telegram accepting the offer.
Was there a binding contract to sell iron? Was this a rejection of the offer?
Not a rejection of the offer; not a counter offer but a mere inquiry. The
offer could have been revoked (but wasn’t) so it was still open and was
accepted. There was a binding contract.
Acceptance
Fitness First v Chong NSW SC 2008 – objective test
Facts
Issue
Held
•
Mrs Chong became a member of Fitness First and signed a
contract.
• After several weeks she was unable to continue exercising
because of health problems and terminated her membership.
• Under the contract she was charged a $200 termination fee.
• She argued she did not know about the fee and never agreed to it.
‘’But I didn’t know about the $200 early termination fee’’
Was Mrs Chong bound to pay the $200 even though the parties were not
ad idem? (of the same mind- subjective intent)
• A valid contract does not require the parties to be of the same
mind, or for each to fully understand the terms of the agreement.
• The general rule is that a person who signs a document which is
known by that person to contain contractual terms and to affect
legal relations is bound by those terms and it is immaterial that
the person has not read the document (citing Toll v Alphapharm:
Express Terms – Week 8).
• By signing the form, Mrs Chong behaved in such a way that a
reasonable person would believe she was assenting to the printed
terms. – (incorporation of expressed terms of a contract through
signature)
• Mrs Chong is bound by the contract, and to pay the $200 fee.
The Crown v Clarke (HCA 1927) – for unilateral contract – subjective intention of the offeree
Facts
Issue
Held
•
•
Two Policemen murdered
Reward of £1000 offered to anyone who gives information that
leads to successful prosecution
• Clarke was arrested and charged
• Clarke gave information that led to conviction of Coulter.
Admitted he did this to defend himself and not in response to the
reward.
• Clarke claimed the reward
Was there a valid contract between the Crown and Clarke?
• Clarke not entitled to the reward because the act of giving the
information was not done in response to the offer but for other
purposes.
•
By performing the act of acceptance, a presumption is generally
raised that it is done in response to the offer. However in this
case Clarke’s own admission rebutted that presumption.
• Isaacs CJ: The person accepting and performing must act on the
offer.
• Higgins J: Clarke did not act on the faith of, or in reliance on the
reward. Although the exact fulfilment of the conditions stated in
the reward would raise a presumption, that Clarke was acting on
the faith of, or in reliance upon, the reward, the presumption was
rebutted by his own express admission.
Starke J: Ordinarily it is true that the law judges the intention of a person
in making a contract by outward expression only by words or acts
communicated. The objective approach in determining whether there was
an agreement is usually applied. But, the position is different in a
unilateral contract where communication of acceptance is dispensed with.
In such a case, evidence of subjective intention can be taken into account
Latec Finance v Knight (1969 NSWCA)
Facts
Issue
Held
•
•
Knight signed hire purchase agreement for TV set.
Form specified that it was an “offer” from customer (Knight) and
not binding until signed by LF (not affected by any pre-payment or
delivery).
• LF processed and accepted the offer but did not communicate it
to Knight.
• Knight returned the TV because it was unsatisfactory (ie
purported to revoke the offer).
• LF sued for breach of contract and sought payment of instalments.
Had LF accepted Knight’s offer even though it had not communicated
acceptance?
Held (Jacobs JA)
• Qualifications: may be expressly or impliedly dispensed with by
an offeror, generally in one of two ways:
– Where an act is deemed effective acceptance (eg
unilateral contracts, Carbolic)
– Where acceptance deemed effective by dispatch of
communication in a particular way, regardless of whether
actually received (eg postal acceptance cases)
• Signing not acceptance here: LF argued that mere signing of form
was acceptance (ie first category above)
– NO – Clear language would be required to dispense with
requirement to communicate acceptance – otherwise LF
could retain form without signing and choose if and when
to be bound.
• No inference of acceptance: Nor could one infer that Knight
knew of the acceptance by LF. Knight did not retain the TV for a
significant length of time that it could be inferred from his
enjoyment that he knew Latec had effectively accepted (similar to
inference from conduct cases).
• There was no contract.
Adams v Lindsell (1818 UK) – postal acceptance rule
Facts
Issue
Held

2 Sep offer sent – the defendants wrote to the p: offer to sell wool
(requested that the p reply ‘ in course of post’)
 5 Sep offer arrived & acceptance sent – Letter of offer arrived (it
was sent to wrong address and arrived later than expected). The p
posted letter of acceptance that day.
 8 Sep Wool sold to third party – The d sold the wool to someone
else (they had expected to receive any letter of acceptance from
the p by then)
 9 Sep Acceptance received – Letter of acceptance was received two
days later than the d expected to receive it.
Had a contract of sale had been entered into?
• The offer had been accepted as soon as the letter had been posted.
So, there was a contract in existence before the sale of the wool to
the third party, even though the letter had not actually been
received by the defendant.
• [Note the parties had contemplated the mode of acceptance in the
offer].
Felthouse v Bindley (1862) – acceptance may not be inferred from conduct
Facts
Issue
Held
•
•
Negotiations between uncle and nephew over purchase of horse.
Uncle wrote to his nephew offering to buy the nephew’s horse and
said: “If I hear no more about him, I consider the horse mine at
£30 15s”.
• Nephew intended to accept the offer and instructed his auctioneer
that the horse had been sold and should be excluded from the
other stock, but never told uncle.
• Auctioneer mistakenly sold the horse.
• Uncle sued auctioneer for conversion (ie auctioneer had no right to
sell the horse because property had passed to the uncle).
Was there acceptance?
No agreement because acceptance had not been communicated to the
offeror/uncle. Contract cannot be forced on offeree by stipulating silence
as the prescribed method of acceptance.
Empirnall Holdings v Machon Paull (NSWCA 1988)
Facts
•
•
•
•
•
Empirnall engaged MP (architects) to draw plans, obtain approvals
and do other work in relation to a property development.
Empirnall then verbally engaged MP to be project manager for the
development. Work commenced.
MP sent an invoice for progress payments and submitted a written
contract for the works. Two progress payments were made but
Empirnall did not sign the contract because (Mr Jury) “does not sign
contracts”.
MP proceeded with works and wrote to Empirnall saying “we are
proceeding on the understanding that the conditions of the
contract are accepted”.
Further progress payments made and work continued but contract
never signed.
•
Empirnall became insolvent and MP sought to rely on contract
clause that its fees were secured by a charge over the land.
Did Empirnall accept MPs terms and conditions of the contract?
• Apply an objective test: Would a reasonable bystander regard the
conduct of the offeree, including silence, as signalling to the offeror
that the offer has been accepted?
• Silence in conjunction with other circumstances may indicate that
the offer has been accepted.
• It is a question of fact:
– “where an offeree with a reasonable opportunity to reject
the offer of goods or services takes the benefit of them
under circumstances which indicate that they were to be
paid for in accordance with the offer, it is open to the
tribunal of fact to hold that the offer was accepted
according to its terms” (McHugh).
• A contract had been concluded. Inferred by accepting benefit of
services with knowledge of the terms and conditions on which it
was offered.
Issue
Held
Brambles Holdings v Bathurst CC (2001 NSWCA)
Background:
•
•
•
•
•
Brambles operated the Council’s waste disposal depot. Brambles was paid a monthly fixed fee by
Council, and also collected and retained waste disposal fees from customers.
Dispute over the fees collected by Brambles for “liquid waste” between 1991 and 1995. Brambles
kept the fees, and Council argued that they should have been passed on to Council.
19 September 1991 letter from Council to Brambles: stating that it had resolved to increase the liquid
waste fees payable by customers and that the increased fees should be passed on to Council. Set out
details of specific fees and timetable for increases.
3 October 1991 letter from Brambles in reply to Council’s 19 September letter: denying that the
contract between the parties covered liquid waste.
Note: Much of the case deals with whether or not a 12 July 1990 contract covered liquid waste and
interpretation of the 19 September 1991 letter. That is an issue of construction and implication of
terms which you do not need to worry about at this stage.
Trial Judge held that Brambles was required to pass on all the liquid waste fees collected as a result
of a contract formed by:
• An offer contained in a 19 September 1991 letter from Council to Brambles stating that it
had resolved to increase the liquid waste fees payable to customers and that the
increased fees should be passed on to Council.
• Acceptance of that offer by Brambles by way of proceeding to charge increased liquid
waste fees according to the amounts and timetable proposed in the 19 September letter
(ie by conduct).
Brambles appealed.
• Issues on appeal:
• Were the terms of the 19 September letter accepted?
• Was the 3 October letter a rejection of the 19 September offer?
• Had the 19 September offer been accepted by conduct?
• Note: The facts of this case exemplify a typical scenario where
commercial parties operate without a clear contract (either in terms
of existence or content). This happens all the time. Contract law
does not neatly fill the gap.

Per Mason P and Ipp A-JA
-
The 3 October letter was not a rejection of the offer but merely part of the
posturing that often accompanies negotiation (citing Stevenson Jacques).
- Brambles accepted the offer in the 19 September letter by charging the
increased fees from October 1991.
 Per Heydon JA
- The 3 October letter was a rejection of the Council’s offer.
- However the general principle that a rejection of an offer brings it to an end is
not universal. A rejected offer may remain operative if it were repeated or
otherwise revived or if in the circumstances it should be treated despite its
rejection as remaining on foot, and available for adoption as the basis of mutual
assent manifested by conduct.
- By charging the higher fees according to the rates and timing in the 19
September letter, it would appear to a reasonable person that Brambles had
assented to those terms, despite its initial rejection.
 Per Heydon JA – discussed the limitations of offer and acceptance analysis in the classical
theory of contract formation and reviewed authorities:
- “ ..offer and acceptance analysis is a useful tool in most circumstances... But
limited recognition has been given to the possibility of finding that contracts exist
even though it is not easy to locate an offer or acceptance”
- “… it is relevant to ask: in all the circumstances can an agreement be inferred?
Has mutual assent been manifested? What would a reasonable person in the
position of the Council and a reasonable person in the position of the defendant
think as to whether there was a concluded bargain?”
The authority from Brambles is the possibility of there being acceptance by conduct as opposed an
expressed communication of acceptance, in relation to Heydon JA’s decision- an acknowledgement of the
possibility of agreement through identifying mutual assents without identifying any offer (and
acceptance).
Butler Machine Tool Co v Ex-Cell-O Corp
Facts
Issue
Held
•
•
Negotiations re sale of machine.
23 May - Seller’s quotation to sell machine included price variation
clause
• 27 May - Buyer replied with order and tear off slip for seller to sign:
– “Please supply on terms and conditions as below and
overleaf”. No price variation clause.
– Tear off slip for seller to sign: “we accept your order on the
terms and conditions stated thereon”
• 5 June - Seller signed and returned tear off slip with cover letter
that they would supply machine “in accordance with our ...
quotation”
• Seller supplied machine and attempted to apply additional charge
on basis of the purported price variation clause.
Did the seller’s price variation clause in its 23 May quotation apply?
Court was unanimous that the price variation clause did not apply but
applied substantially different reasoning.
•
Lawton and Bridge LJJ: Conflict approach – ie find a winner (“last shot”
approach)
• Applied the classic offer and acceptance approach.
• Seller’s 23 May quotation was an offer.
• Buyer’s 27 May order was a counter-offer (the effect of which
was “to kill the original offer”).
• Seller’s 5 June letter with signed tear off slip was acceptance of
the counter-offer.
•
The words “this being delivered in accordance with our..
quotation of 23 May” referred to the price and identity
of the machine, not the terms and conditions on the
back
• Therefore the price variation clause did not form part of the
contract.
Lord Denning – a “synthesis” approach – may be a combination of terms
– “In many ...cases our traditional analysis of offer, counter-offer,
rejection, acceptance and so forth is out of date... The better
way is to look at all the documents passing between the parties and glean from them, or from the conduct of the parties, whether
they have reached agreement on all material points – even
though there may be differences between the forms and
conditions printed on the back of them”.
– Described it as a “battle of the forms”
• In most cases the battle is won by whoever fires the last
shot – who puts forward the latest terms and, if not
objected to, the other party is taken to have agreed to
them.
But in some cases:
• the battle is won by whoever gets in first – whoever
makes an offer on certain terms ought not to be
disadvantaged if the other party places an order on their
own form with materially different terms unless the
different terms are specifically drawn to the offeror’s
attention.
• the battle depends on the shots fired by both sides –
terms and conditions of both sides are to be construed
together/reconciled to give a harmonious result (or
conflicting terms replaced by reasonable implication).
• Apply to facts -In this case, considering the documents as
a whole – the 5 June letter (with signed
acknowledgement slip) is the decisive document. It
makes it clear that the contract was on the buyer’s terms
which did not include a price variation clause.
The CONFLICT APPROACH is what prevails in court.
Mac Robertson v Commissioner of State Tax (WA) (1975 HCA) – conventional approach
Facts
Issue
Held
•
The airline’s passengers reserve a seat on flight, pay fare, and
then receive a ticket
• Ticket contained conditions giving the airline the right to cancel a
flight or a booking without incurring any liability
Whether airline ticket is an agreement (for tax purposes)? (In particular
whether the ticket was chargeable with stamp duty as an “agreement” or
a “memorandum of agreement”)
• Ticket did not record the terms of an agreement (but for different
reasons…)
Stephen J: - no – ticket is the offer
• Adopted “conventional analysis” - ticket constitutes an offer by the
airline capable of acceptance or rejection by the passenger when
he/she has had reasonable opportunity to read the condition.
• Thus ticket only records terms of an offer.
Barwick CJ: - no because of exemption clause
•
Sweeping exemption left no room for obligation to carry the
passenger
• In any case, passenger makes the offer by presenting at the airport,
and airline accepts by carrying (ie, no contract until passenger
provided with a seat on airplane). The ticket is a receipt of the
prepaid fare.
Jacobs J: - no – both of the above reasons
• Ticket is not a contract, based on reasons advanced by Stephen J and
Barwick J.
Consideration
Australian Woollen Mills – the bargain requirement
Facts
Issue
Held

June 1946 - Commonwealth announced a “subsidy” would be paid
to manufacturers on wool purchased and used for manufacture in
Australia after 30 June 1946
 AWM, a manufacturer, purchased large quantities of wool for local
manufacture in 1946, 1947 and 1948, and received large subsidies
from the Commonwealth
 June 1948 – Commonwealth announces an end to the subsidy
program
 AWM had large stockpile of wool affected by the cancellation (they
had expected the subsidies paid for these wool)
 AWM claimed to recover subsidies on all wool they had purchased
prior to the cancellation - £176,153 in total
Was the promise given in return for AWM purchasing wool and vice versa?
Held - principles: (HCA):
– This is a purported ‘unilateral’ contract (which they described as
an ‘unscientific and misleading’ term)
– The bargain requirement – the promise must be in return for
the acts to be performed; and the acts performed must be done
in consideration of the promise:
• ‘In cases of this class it is necessary, in order that a
contract may be established, … that the statement
or announcement which is relied on as a promise
was really offered as consideration for the doing of
the act, and that the act was really done in
consideration of a potential promise inherent in the
statement or announcement. Between the
[Commonwealth’s] statement or announcement,
which is put forward as an offer capable of
acceptance by the doing of an act, and the act
which is put forward as the executed consideration
for the alleged promise [AWM purchasing the
wool], there must subsist … the relation of a quid
pro quo’ [i.e. “this for that”]
Held – principles cont (HCA):
•
Need to distinguish between promises which are conditional gifts
and enforceable promises. In the absence of an express or implied
request from the promisor, the promise is likely to be a conditional
gift:
– Review the example mentioned in the case – if A offers B
£1,000 on Bs arrival in Sydney – this is a conditional gift and
there is no binding contract. However, if A requests that B
go to Sydney (so as to help A in Sydney) the request
indicates that the promise to pay is given in exchange for
the act of B going to Sydney.
Held – application to facts:
• No enforceable promise to pay the subsidy because of lack of
consideration/ no quid pro quo
• In this case, statements made by the Commonwealth were in the
nature of policy announcements and no request to purchase wool
could be implied. Nothing said by the Commonwealth suggested
that payment of the subsidy was promised in return for AWM
purchasing wool.
Held - Privy Council:
• No offer: no contract existed because there was no offer made, on
the basis of:
– lack of intent (a mere policy statement – scheme was not
contractual but administrative) and
– lack of certainty (the “scheme” was somewhat
arbitrary/illusory, the Commission able to determine the
amount of the subsidy and other key aspects of operation).
• On consideration: even if there was an implied request to purchase
wool (so that there would be woollen goods on the home market)
this does not assist the respondent (AWM). The Aus High Court
overstated the importance of a request. There may be cases
where the absence of a request negatives the existence of a
contract, but the presence of a request does not in itself establish a
contract. (request is not decisive)
Beaton v McDivitt 1987 NSWCA
Facts
•
•
•
•
McDivitts owned 25 acres of land but farmed only a portion of it.
McDivitts feared the Local Council would rezone the land, meaning
higher rates would have to be paid. Fearing they would be unable
to pay the higher rates, the McDivitts divided the land into 4 blocks.
3 blocks would be retained by the family; the 4th would be made
available to someone interested in permaculture.
Eventually, the 4th block was made available to Mr Beaton rent-free
on condition he employ permaculture cultivation techniques. At
the time, Mr Beaton was having difficulties with his landlord. Mr
McDivitt said he would transfer title to the block to Mr Beaton
when the rezoning took place (thought to be in 2 or 3 years).
Beaton accepted the proposal and worked the land for 7 years (the
rezoning never took place); spent money planting trees/shrubs;
helped build and maintain a road on the property.
•
Issue
Held
The relationship then soured (over a Tai Chi seminar held in Mr
Beaton’s house). The McDivitts reneged on the deal.
Was there a contract between the McDivitts and Beaton? Had Beaton
provided consideration for the promise to transfer the land?
Trial Judge held:
• There was a contract.
• Although there was no consideration in the traditional
sense (ie quid pro quo), Beaton’s reliance on the
McDivitts’ promise amounted to a form of
consideration (following Dillwyn v Llewellyn (1862))
• But the contract was frustrated because the rezoning never
happened- (frustrated- due to a change in circumstances, a
contract will come to an end and not be enforceable)
NSW CA held:
• Dillwyn v Llewelyn and the cases that followed were based on
estoppel, not contract law, therefore did not provide an
exception to the bargain requirement. Contract does not protect
a reliance interest.
• This meant that detriment suffered in reliance (e.g.
maintaining the road) was not relevant. Need to
assess whether working the land using permaculture
(as foreshadowed by the offer) was good
consideration provided in exchange for the offer.
McHugh and Mahoney JJ – good consideration:
• Beaton’s working of the land at the McDivitt’s request
was sufficient consideration, giving rise to a unilateral
contract
Kirby J – no consideration:
• the bargain requirement was not satisfied on the
facts, as Beaton had made no promise that could be
regarded as a quid pro quo for the exchange of land
BUT
• Mahoney JA: found that the contract had been
frustrated by the failure of the Council to rezone the
land. [frustration is covered in Contract B]
• Therefore Beaton was not able to enforce the promise
(McHugh in minority)
why should the law hold a party to such a promise of a gift unless it can be
demonstrated that, in return for such a promise, the promisor received some
bargain from the promisee by way of a quid pro quo? – Kirby J
Woolworths v Kelly (1991) (Kirby J) NSWCA
Reasons why the common law will not inquire into the adequacy of consideration for the
purposes of determining if a legally enforceable contract exists:
1. Different people will put different values on the bargain they are getting for
different reasons. It is therefore impossible for the courts to indulge in an evaluation
of the equivalence of promises.
2. Judges are not qualified to give opinions about the wisdom of certain bargains. They
have legal expertise; not expertise in economic evaluation.
3. If courts were to assess the adequacy of consideration, litigation could involve a vast
amount of evidence on this issue. Different judges would reach different conclusions
on the same evidence.
4. This would then lead to great uncertainty in the enforceability of contracts.
Certainty has great economic importance in society.
5. The law provides other means to challenge an unjust bargain (e.g. where no
intention to create legal relations; also equity, statutes prohibiting unconscionable
conduct).
6. Economic freedom of parties to make their own deals ‘untroubled by the
paternalistic superintendence of the courts as to the adequacy of their bargains’.
Roscorla v Thomas 1842 – past consideration
Facts
Issue
Held


Roscorla bought a horse from Thomas.
After the sale was completed, Thomas (the vendor) promised that
the horse was “sound and free from vice”- meaning it’s a good
horse
 But the horse was not, and Roscorla sued relying on the payment
of the purchase price as good consideration for the subsequent
promise.
Was payment of the purchase price good consideration for the subsequent
promise?
 As a general rule, a promisor’s promise must be coextensive with
the promisee’s consideration.
 Consideration past and executed will not support any further
promise made by the promisor. Accordingly, there was no
consideration provided for Thomas’ subsequent promise.
 [There was no implied promise at the time of sale that the horse
was free from vice.]
Lampleigh v Braithwait (1615) – past services
Facts
Issue
Held


Brathwait had murdered Patrick Mahume.
Brathwait asked Lampleigh to help him secure a pardon from the
King.
 Lampleigh agreed to undertake the task and did so. This involved
significant travel and expense.
 Upon his release, Brathwait promised to pay Lampleigh £100 for
his trouble but then changed his mind.
Was L’s work good consideration for the later promise from B for payment?
Where:
 A makes a request to B that he perform services; and
 B then performs the services requested of him; and
 A then promises to pay B for the performed services,
 B’s performance of the services is good consideration for A’s
promise.
o Accordingly, Brathwait was legally bound to pay the £100.
o [Note: the requirement that there was an understanding
that the services would be paid for was only later
developed by the common law]
Ipex Software Services v Hosking 2000 VicCA
Facts
Issue
Held



Hosking was part-owner of a computer software services business.
Hosking’s business was to be acquired by Ipex.
Hosking assisted in the transfer of the business (involving
transferring all clients) believing that, in return, he would receive
shares or units in the restructured corporate group - the evidence
suggested this was everyone’s understanding.
 After Hosking’s “services” of transferring the business had been
performed, an agreement was formally entered into which
specified Hosking would have a 5% stake in the restructured group.
 Ipex, however, failed to transfer to Hosking a 5% stake in the
restructured corporation.
Had Hosking provided good consideration for the promise to provide him
with a 5% stake in the restructured corporation?
(Callaway JA):
o ‘The [transfer of the business] was not, however, intended to be
gratuitous, nor was it an example solely of detrimental reliance. It
was more like the performance of a service on the basis that it
would be paid for, followed by a promise which fixed the amount of
the payment. As Bowen LJ said in Re Casey’s Patents:
 “Even if it were true, as some scientific students of law
believe, that a past service cannot support a future
promise, you must look at the document and see if the
promise cannot receive a proper effect in some other way.
Now the fact of a past service raises an implication that at
the time it was rendered it was to be paid for, and, if it
was a service which was to be paid for, when you get in
the subsequent document a promise to pay, that promise
may be treated either as an admission which evidences or
as a positive bargain which fixes the amount of that
reasonable remuneration on the faith of which the service
was originally rendered....”’
o ‘In my opinion, the transfer of the business was not past, but
executed, consideration and it was capable of supporting the
promise on which the respondent sued [to give him a 5% stake].’
Stilk v Myrick (1809) – contract variation example
Facts
Stilk and 10 other sailors agreed to work on a ship owned by Myrick. The
terms of the original employment contract included:
o Myrick promised to pay each sailor £5 a month for
the length of the voyage.
o The sailors promised to work on the ship and to do
all that they could under all the emergencies of the
voyage until the voyage had been completed
 2 sailors deserted after the ship docked at Cronstadt, leaving only 9
to man the ship for the journey back.
 The ship’s captain could not find replacements so he promised the
9 men that the wages of the 2 deserters would be divided between
them if they fulfilled the duties of the 2 missing crewmen as well as
their own.

Issue
Held
The sailors agreed but Myrick refused to pay the additional wages.
Was there a valid contract for the distribution of the deserters’ wages?
There was no consideration for the promise to pay extra wages to the
sailors who remained on the ship because:
 Before they sailed, the sailors had undertaken to do all that they
could under all the emergencies of the voyage until the voyage had
been completed
 The desertion of the 2 sailors is to be considered an emergency of
the voyage
 The 9 sailors who remained were bound by the terms of their
original contract to exert themselves to the utmost to bring the ship
safely back to London
There was no valid consideration and therefore no legally enforceable
contract
Foakes v Beer (1884) HL – existing legal duty
Facts
o On 11 August 1875 Beer obtained a court judgment against Foakes
for £2,090 19s
o Foakes was legally obliged to pay the judgment debt immediately
o But on 21 December 1876 Foakes and Beer entered into a written
agreement whereby:
 Foakes promised to pay the judgment debt off in
instalments (£500 upfront and then £150 every six
months until paid); and
 Beer promised to give him time to pay off the judgment
debt in this way (i.e., she would not seek to enforce the
judgment debt immediately)
o The judgment debt was eventually paid off in this way
o Beer then sued for the interest on the judgment sum calculated
from the date it was ordered
Issue
Held
Was the promise by Beer in the December 1876 agreement not to sue on
the judgment debt enforceable?
 Foakes was already under a pre-existing obligation to pay the whole
judgment debt (and, necessarily, interest that accrues on that debt
until it is paid)
 Payment of the judgment debt by instalments is not consideration
for the relinquishment of interest on the judgment sum and
discharge of the judgment debt
 Payment of a lesser sum [i.e. instalments on the judgment debt
without interest] in satisfaction of a greater sum [i.e. judgment sum
with interest owing and due] cannot be any satisfaction for the
whole
 There is no good consideration and Beer can enforce the original
judgement debt including interest on it
 How could this agreement have been made binding?
Hartley v Ponsonby (1857) – fresh consideration
Facts
Issue
Held
•
Hartley and 35 other men were contracted to crew a ship owned by
Ponsonby for a voyage of up to 3 years (or earlier return to the UK).
• The terms of Hartley’s agreement with Ponsonby:
– Hartley promised to work on the ship.
– Ponsonby promised to pay him £3 per month.
• During the course of the voyage, 17 crew refused to work and were
imprisoned (in Port Philip Australia). Only 4 or 5 of the 19 remaining
crew were qualified sailors, making it dangerous to continue the
voyage without a full crew aboard.
• To induce the remaining crew to continue in such circumstances,
Ponsonby then agreed in writing that he would pay Hartley (and
other crew members) an extra £40 provided they assist in taking the
ship to Bombay with the reduced crew.
• Upon arrival, Ponsonby refused to pay the extra money.
Did Hartley provide good consideration for the promise of extra wages?
Held (Campbell CJ):
– Because it was dangerous for Hartley (and the others) to
proceed with so few hands on the ship, he could not have been
required to perform the work under the terms of the existing
contract and was a “free man”.
– Therefore, continuing on in that situation of danger was
something more than Hartley and the others had agreed to
under the original contract
– Accordingly, agreeing to continue the voyage in this new and
dangerous situation was fresh consideration given by Hartley for
the additional payment. Ponsonby was obliged to pay it.
Held (Coleridge J):
– Hartley and the others were not obliged to continue on in that
situation under the terms of their original contracts.
– They were therefore free to make new contracts with Ponsonby
(which they did).
– Change in circumstances (a more dangerous situation) – a new
contract is established
Willams v Roffey Bros & Nicholls (Contractors) Ltd (1991) (UKCA) – Practical benefit
Facts
•
•
•
•
•
•
Roffey Brothers had a head contract to refurbish 27 flats.
Roffey Brothers entered into a sub-contract with Williams to do the
carpentry work on the flats for which he would be paid £20,000
(payable in instalments).
Williams commenced work on the flats but because the agreed price
was too low, he got into financial difficulties
Roffey Brothers were concerned Williams might not complete the
work on time which would expose them to liquidated damages (i.e.
penalty fees for being late) under the head contract for late
completion.
Roffey Brothers promised to pay Williams a further sum of £575 for
each flat he completed (total £10,300) on top of the £20,000 already
contracted.
Williams competed eight more flats but had received only one
payment of £1500.
•
Issue
Held
Williams ceased work; Roffey Brothers engaged other carpenters to
complete job.
• Williams sued for the money owing to him; Roffey Brothers countersued for breach of contract.
Had Williams (promisee) given good consideration for the promise to be paid
extra?
Held(Glidewell LJ):
– ‘… the present state of the law … can be expressed in the
following proposition:
I.
If A has entered into a contract with B to do work for, or to supply
goods or services to, B in return for payment by B; and
II.
at some stage before A has completely performed his obligations
under the contract B has reason to doubt whether A will, or will be
able to, complete his side of the bargain; and
III.
B thereupon promises A an additional payment in return for A’s
promise to perform his contractual obligations on time; and
IV.
as a result of giving his promise, B obtains in practice a benefit, or
obviates a disbenefit; and
V.
B's promise is not given as a result of economic duress or fraud on
the part of A, then
VI.
the benefit to B is capable of being consideration for B's promise, so
that the promise will be legally binding.’
Held (Glidewell LJ):
– Applying this proposition to the facts of the case (i)
Williams had entered into a contract with Roffey Brothers to do
work for Roffey Brothers in return for payment of £20,000 by
Roffey Brothers; and
(ii)
before Williams had completely performed his obligations under
the contract Roffey Brothers had reason to doubt whether
Williams would be able to complete his side of the bargain
(because he was in financial difficulties); and
(iii)
Roffey Brothers promised Williams an additional payment of
£575 per flat in return for William's promise to perform his
contractual obligations on time; and
(iv)
as a result of giving his promise, Roffey Brothers obtained the
following benefits and/or obviated the following disbenefits:
(a) Williams continued his work;
(b) Roffey Brothers would avoid any
liquidated damages for delay;
(c) Roffey Brothers would avoid trouble /
expense of engaging others; and
(v)
there was no evidence of economic duress / fraud on the part of
Williams, then
(vi)
the benefit to Roffey Brothers was good consideration for Roffey
Brothers' promise, so that the promise will be legally binding.
Held (Russell LJ):
- ‘A gratuitous promise, pure and simple, remains unenforceable
unless given under seal. But where, as is the case, a party
undertakes to make a payment because by so doing it will gain an
advantage arising out of the continuing relationship with the
promisee, the new bargain will not fail for want of
consideration …’
Musumeci v Winadell Pty Ltd (1994) NSWSC – Practical Benefit in Australia
Santow J held
i. Musumecis had entered into a contract with Winadell - Musumecis promised to
pay rent in return for Winadell letting them occupy premises.
ii. Before the expiry of the lease, Winadell had reason to doubt Musumecis would
be able to continue paying their rent.
iii. Winadell then promises to reduce the rent in return for Musumecis staying on as
tenants and see through the lease; and
iv. a) As a result of giving his promise, Winadell obtains a practical benefit by
maintaining Musumecis as viable tenants (the less attractive alternative is finding
another tenant and suing Musumecis for the shortfall);
b) As a result of giving their promise, the Musumecis suffer practical detriment
by staying on and risking their capacity to survive against the stronger
competitor.
v. No evidence of fraud, economic duress, undue influence; unconscionability, etc.
vi. As a result, the benefit to Winadell and the detriment to the Musumecis’
constitutes good consideration for Winadell’s promise to accept less rent.
Pao On v Lau You Long (1980) PC – the third party rule
Facts
•
•
•
•
•


On 27 February 1973, Plaintiffs (Pao On and others) and the Fu Chip
company entered into an agreement (‘main agreement’) pursuant to
which:
– the Plaintiffs agree to sell the Shing On company to Fu Chip; and
– Fu Chip agreed to pay the Plaintiffs HK$10.5 Million for Shing On
(payable in 4.2m shares in Fu Chip valued at HK$2.50 per share).
– Plaintiffs agree not to sell 60% of the Fu Chip shares for 12
months
Plaintiffs were concerned that the Fu Chip shares might be worth less in a
year, so it entered into a subsidiary agreement at around the same time
with the Defendants (Fu Chip’s majority shareholders) which included the
following terms:
– Plaintiffs to sell 60% of the Fu Chip shares to Defendants on or
before 30 April 1974 at a price of HK$2.50 per share.
Plaintiffs then realised if the share price increased a year from now, they
would not get the benefit as they had to sell them for $2.50.
Plaintiffs said they would not go through with main agreement if the
subsidiary agreement was not cancelled and replaced by a guarantee and
indemnity.
Defendants eventually acquiesced. The new guarantee and indemnity had
the following terms:
 Plaintiffs promised to carry out terms of main agreement.
 Defendants guaranteed the share price to be $HK2.50
immediately after 30 April 1974.
 Defendants would indemnify Plaintiffs for any losses if
share price was below HK$2.50 on that date.
On 30 April 1974 Fu Chip shares were 36 cents per share.
Plaintiffs sought to enforce the guarantee and indemnity.

Defendants argued Plaintiffs gave them no consideration for the
guarantee and indemnity – Plaintiffs’ were already contractually obliged
to carry out the terms of the main agreement.
Issue
Was there valid consideration for the guarantee and indemnity?
Held
Lord Scarman held:
–
•
The real consideration given by the Plaintiffs for the guarantee and
indemnity was the promise to perform their pre-existing contractual
obligations to Fu Chip.
– A promise to perform a pre-existing contractual obligation to a
third party can be valid consideration because the promisee obtains
the benefit of a direct obligation.
– The Plaintiffs’ promise imposed upon them an obligation now owed
to the Defendants to do what they had agreed with Fu Chip to do.
– The benefit of this contractual obligation to the Defendants is that, if
the Plaintiffs breached the main agreement with Fu Chip, the
Defendants could sue them for the breach – ordinarily only Fu Chip
could have sued for a breach of the main agreement.
[It was also held that there was valid consideration according to the rule in
Lampleigh v Braithwait – ie on the basis that the promise not to sell 60%
shares was requested by the defendant, and it was understood that it would
be compensated by a guarantee in relation to any price drop.]
Wigan v Edwards 1973 HCA – Bona fide compromise of legal claim
Facts
Issue
Held

On 15 April 1969, Edwards entered into a contract to buy a house from
Wigan. There was nothing in the contract concerning the quality of the
house or it being free from defects.
 Shortly after the contract was signed, Edwards presented Wigan with a
list of defects which he said he required to be fixed before he would
complete the transaction.
 On 22 April 1969, Wigan signed a document in which he promised to
remedy the listed defects.
 The transaction was completed but Wigan failed to remedy the
defects.
 Edwards sued Wigan for the costs of repairing the defects ($6000).
Was there consideration for the promise to fix the defects?
• Held (High Court):
– General rule is that a promise to perform an existing duty is no
consideration
– “An important qualification to the general principle is that a
promise to do precisely what the promisor is already bound to
do is a sufficient consideration, when it is given by way of a
bona fide compromise of a disputed claim, the promisor (is the
promisee in providing consideration for the extra promise
here- the remedy of the defects)having asserted that he is not
bound to perform
– Bona fide (good faith)
In this case, the issue is- whether or not the purchaser generally
believed they had a complain about the defects when they
refused initially to settle.
The existing legal duty rule does not apply here because there was actually a
dispute, an allegation that the existing legal duty is not enforceable.
– It is no objection that the claim would not have succeeded.
– Disputed claim – does not require litigation or the threat to
bring litigation. Enough if there is a claim that the contracting
party is not bound by the contract. Edwards claim was of this
kind.
– Therefore, valuable consideration (by the purchaser in relation
to the promise to remedy the defects) was provided in support
of the 22 April 1969 agreement.
- However, the purchaser ultimately failed because the particular
defect they wanted to recodify didn’t fall within the promise of
repair but as for the consideration issue, it was clearly held that
there was sufficient/ good consideration.
- The existing legal duty is disputed, by agreeing to perform and go
ahead, they have given up that right to complain about the existing
legal duty. That’s why they are doing something more than just
performing an existing legal duty.
Intentions
Shahid v Australasian College of Dermatologists (2008; Full FC) – objective test
Facts
o
o
o
o
Shahid applied each year between 2000 and 2004 to the College for a
supervised training position at the Royal Perth Hospital. She was
unsuccessful on every occasion. (She needed to do such training to qualify
as a dermatologist).
Shahid appealed the last 3 decisions (unsuccessfully) in accordance with the
process set out in the College's training handbook and paid a substantial fee.
Shahid sued the College, arguing that a contract between her and the
College was created each time she lodged her appeal and that those
contracts had been breached by the appeal process not being genuine and
effective. (The appeals were never actually heard).
The College argued there was no intention to create legal relations.
Issue
Was a contract created each time Shahid appealed and paid the appeal fee? Did the
College intend to be bound by its training handbook?
Held
Held (Trial Judge) – no intention- in favour of the College.
– No intention on the part of the College or Shahid to enter into legal
relations
Held (Full Federal Court, per Jessup J) – relevant test:
– Apply an objective test to determine whether there was an intent to
create legal relations – would a reasonable person regard each party
as intending to be bound
• The uncommunicated subjective intentions of the parties are
not relevant
•
The Trial J erred in attaching importance to the
finding that the College “regarded itself as so
unfettered by any contractual concerns"
Held – intention - application to facts:
• On an objective assessment the facts and circumstances indicate a mutual
intention to create legal relations. Relevant factors were:
– The context was business like involving weighty subject matter for
both parties (training was the means by which the College
established and maintained professional standards; and for trainees
was demanding and the process for embarking on their career).
– Payment of (substantial) fee for services –
• “Where one party makes, and the other party accepts, a
money payment as consideration for a promise by the other
to provide some service or to bestow some benefit, the
proposition that each intended the promise to be taken
seriously and to carry the conventional legal consequences
does seem rather obvious.”
• i.e. If someone pays a substantial money for servicesstrongly suggests that they both intend to be bound.
– Detail of the handbook appeal process (the level of details)- had the
hallmarks of a formal regulated appeal process and followed what
would be appropriate for a quasi-judicial tribunal.
– The parties were at arm’s length – the parties are independent from
each other, e.g. they are not in a social/ domestic relationship, acting
in their best interests.
• Accordingly, it is quite improbable that the parties to an agreement made in
these circumstances would not intend their agreement to be legally binding.
The result:
• Plaintiff awarded approx $10k damages for breach of contract to cover out of
pocket expenses (because she could not prove that she was the best applicant
and was deprived of a training position that she could have got). No
contractual damages available for anxiety and distress, but $2,500 for anxiety
and distress on basis of successful misleading and deceptive conduct claim.]
Ermogenous v Greek Orthodox Community of SA Inc (HCA, 2002)
Facts
Issue

Ermogenous served as the Archbishop of the autocephalous Greek
Orthodox Church in Australia for more than 23 years.
 The Church (incorporated as the Greek Orthodox Community of South
Australia, Inc) was founded to foster Greek culture and the Greek
orthodox faith.
 For the 23 years, the Church paid Ermogenous a salary or stipend and
treated him as an employee – including controlling the way he discharged
his duties.
 Upon his resignation, Ermogenous claimed the Church owed him for
unpaid annual and long service leave.
Was the Church bound to pay Ermogenous for unpaid annual / long service leave?
– Ermogenous – yes, he was an employee (legal relationship with
Church)
–
Held
Church - the relationship with Ermogenous was “of a preeminently spiritual character” and therefore there was no
intention to create legal relations
Held (Industrial Magistrate):
– Employee–employer (legal) relationship – there was a contract
Held: (Full Court of the Supreme Court of South Australia):
– No intention to create legal relations- there was a presumption
against an intention to create a legal binding relationship between
church and clergy.
Held (High Court) overturned the decision in appeal case in Supreme Court – objective
test:
–
–
–
–
–
The search for the “intention to create contractual relations”
requires an objective assessment of the state of affairs between
the parties (not subjective motivations or intention), which may
take account of:
• the subject matter of the agreement;
• the status of the parties to the agreement;
• the parties’ relationship with one another; and
• other surrounding circumstances.
The circumstances which might properly be taken into account
are so varied as to preclude the formation of any prescriptive
rules- you need to look at all circumstances, because they may be
relevant
Doubted the utility of presumptions (principle issue to be
determined) – ‘detract attention from the more basic and
important proposition’ – that intention is to be determined
objectively based on the facts and circumstances of the particular
case
At best, presumptions go to onus of proof – in this situation, it
was for Ermogenous to establish the requisite intention
In this case, all the objective circumstances lead to the conclusion
that the parties intended to make a contract, as distinct from an
arrangement binding in honour.
• Church deducted PAYE amounts for tax from
Ermogenous’s pay, issued him group certificates and
described him as “employee” and itself as “employer”.
• The Church controlled the way Ermogenous went about
his duties (i.e., organisation of basic things such as church
property, finance, consecration of priests, discipline over
other clergy) – element of control
• The Church employed other clergy and treated them as
employees.
Conclusion: Intention to create legal relations - legally binding
agreement reached between the parties
Ashton v Pratt (2015) NSW CA
Facts
o
o
Between about 1995 and 1997, Madison Ashton from time to time provided
escort services to the late Richard Pratt
This ended when Ashton married someone else in April 1997
o
o
Issue
Held
Contact between Ashton and Pratt resumed in October 2003. Ashton
contended that Pratt promised her that, in consideration of her not
returning to the escort industry but providing services to him as his mistress,
he would:
 settle $2.5 million upon trust for each of her two children
 pay her $566,000 per annum
Ashton sued Mr Pratt’s widow, as the executor of his estate, on those
promises, in contract and alternatively equitable estoppel
Was there a binding contract?
o Was there an intention to create legal relations?
o Were the promises sufficiently certain?
There was no binding contract:
• No intention to create legal relations:
– Intention to create legal relations is to be determined objectively.
– Regard was had to the nature of the arrangement, the lack of any
language of obligation and the failure to delineate important terms
such as Ms Ashton’s obligations as mistress, the agreement’s
duration and the terms of the trust. It was also inherently
improbable that Mr Pratt would have bound himself to make
significant payments in return for a promise that was essentially
unenforceable.
– There is no presumption against an intention to create legal relations
in family or social arrangements: applied Ermogenous v Greek
Orthodox Community of SA. The relationship between the parties
and the circumstances in which the arrangement was entered into
form part of the surrounding circumstances from which it will be
determined whether the contract was formed.
• Terms uncertain: Ms Ashton’s duties as mistress are not specified, the
duration of the agreement is uncertain, and the terms of the trust are not
specified. These aren’t matters that a court can resolve by implying terms of
reasonableness.
• No estoppel: Ms Ashton did not suffer detriment.
• Another reason why Ms Ashton’s case failed- she had accepted payments
after their relationship ended as settlements for her claim
Todd v Nicol (1957) SA SC
Facts
o
o
o
o
o
Mrs Nicol invited her sister in law and niece to move from Scotland to
Adelaide to share her house and provide her with company after her
husband died.
Mrs Nicol promised (in a letter) that she would alter her will so the house
would be theirs until they died or until the niece (Grace) married. The
Todds accepted the offer which was “perfectly thrilling” for Mrs Nicol.
The Todds took the following steps in reliance on it:
 They sold their belongings.
 Grace quit her job in Scotland.
 They gave up the tenancy of their house.
 They moved to Australia.
They lived with Nicol for many years before the relationship soured and
the Todds were told to leave the house.
The Todds sued for breach of contract. Nicol argued the arrangement was
purely social with no intention to create legal relations.
Issue
Held
Was there an intention to create a legal relation?
o There was intention to create legal relations. There was no explicit
reference to the intention of the parties to create legal obligations.
However, the following factors were considered relevant:
 Travel by 2 people to Australia from Scotland is expensive. It was
not a visit (there was no contemplation of them returning to
Scotland).
 Expectation that certain belongings of Todds would be sold and
others contributed to the new home, indicated a combination of
resources of an apparently permanent nature.
 Provision of testamentary security (Nicol changed her will).
o [But Mrs Todd has breached the terms of the contract by failing to behave in a
reasonable and decent manner. Nicol was entitled to terminate. The Todds
failed in their action and were ordered to vacate the property.]
Roufos v Brewster (1971 SASC)
Facts
•
•
•
•
•
•
Held
Mr and Mrs Brewster owned a motel at Coober Pedy and also owned a
truck.
Their son-in-law, Mr Roufos was married to their daughter. Roufos owned a
store in Coober Pedy and a semi-trailer.
There was “intermittent hostility” between Mr and Mrs Brewster and their
son-in-law.
Roufos agreed to transport the Brewsters’ truck to Adelaide on his semitrailer for repairs and servicing, which he did.
They then agreed that:
– Roufos to organise a driver to drive Brewsters’ truck back to Coober
Pedy;
– then Brewsters will permit Roufos to load up the truck with goods
for his store.
The truck was damaged on the return trip. Brewsters sought to recover
damages from Roufos for breach of contract.
Intention to create legal relations existed. The whole setting (nature) of the
arrangement was commercial rather than social or domestic.
Australian Woollen Mills Pty Ltd v Commonwealth (1954) HCA
•
•
No intention to create legal relations – the scheme was administrative (policy) and not
contractual, the policy was administrative (both HCA and PC)
Factors (HCA): - applying objective test
– No statutory authority sought
– Scheme announced by persons with no authority re: government expenditure
– Commonwealth had no commercial interest in the purchase of wool but was dealing
with a problem created by war (implemented the policy with an intent to bring down
the price of Wool to domestic consumers)
– Commonwealth had discretion to determine the amount of the subsidy (not like a
legally binding obligation because they had a choice of the amount of money they will
pay)
Administration of Papua and New Guinea v Leahy (1961) HCA – Gratuitous services
Facts
Issue
Held
o
For many years, Leahy had unsuccessfully tried to cope with an infestation of
cattle tick by using equipment and sprays supplied by the Department of
Agriculture (free of charge).
o After a meeting with Department officials, and in accordance with the
Department’s tick eradication policy, it was arranged that:
 Department would take over the spraying of Leahy’s property
 Leahy would supply labourers to carry out the directions of the
Department officers, but the Department would pay for the
services of these labourers
 Leahy would arrange the mustering of the cattle
o Department officers performed their side of the arrangement inefficiently;
cattle died; and Leahy sued the Administration for damages for breach of
contract
Had the Department intended to enter into legal relations?
o The arrangement consisted of agreed promises but that is not enough to
make a contract, unless it was the common intention of the parties to enter
into legal relations
o There was no intention on the part of the Department officers to enter into a
contract
o They undertook to do no more than carry out their governmental or
departmental function
 Was an administrative arrangement by which the Administration
pursued its agricultural policy - analogous to a social service which
generally does not give rise to a contract and cause of action if the
services are performed inefficiently (McTiernan J)
 merely pursuing the policy adopted for the eradication of ticks (Dixon CJ)
 Department did no more than give effect to a general policy of
dispensing aid to individual cattle owners to cope with a menace to
the Administration’s economy - merely arranging the manner and
extent of gratuitous assistance it was willing to render in the
execution of government policy (Kitto J)
 Leahy’s attitude throughout was that of a private person appealing for
government assistance (Kitto J)
Placer Developments v Commonwealth (1969) HCA
Facts
o
o
o
o
Issue
Held
In 1952 the Commonwealth Government and Placer entered into a formal
written agreement whereby:
 Placer would form a company to produce timber products in PNG
 The timber products would be imported into Australia
 If customs duty had to be paid on the imported timber products, the
Commonwealth would pay to the new company a subsidy “at a rate
to be determined by the Commonwealth” to offset such duty
The Agreement was expressed not to be binding until approved by
Parliament (which subsequently was given).
The company was duly formed. From 1959 to 1963, it exported timber
products to Australia and paid the customs duty.
The Commonwealth did not pay subsidy; Placer sued for breach of contract.
Intention - Had the parties (esp. Commonwealth) intended to enter into legal
relations?
o The majority did not address this point as they held that the promise was
illusory
o Windeyer J:


o
The Commonwealth can sue and be sued for breach of contract
In the present case, Placer and the Commonwealth obviously
intended their Agreement to create legal rights and obligations,
having regard to:
 its commercial character (it was a joint venture agreement)
 its language - Agreement was not binding until approved by
Parliament
 Parliament's approval of the Agreement and appropriation
of funds
 Accordingly it was not a purely political arrangement and the parties
intended to create legal obligations by the Agreement
Menzies J:
 The Cth clearly intended to be bound having regard to:
 the fact that a formal written agreement had been
prepared
 the language of the promise to pay a subsidy (in
comparison to other clearly non-binding clauses)
Kleinwort Benson Ltd v Malaysia Mining Corp Bhd (1989) (UK CA) – letters of comfort
Facts
o
o
o
o
Held
KB agreed to provide MMC’s wholly owned subsidiary, MMC Metals
Ltd (“Metals”) with a loan facility of up to £10 million
As part of the arrangement, MMC gave KB two “letters of comfort”
which stated:
 “It is our policy to ensure that the business of Metals is at all
times in a position to meet its liabilities to you under the
[loan facility] arrangements”.
Metals went into liquidation owing KB close to £10 million
KB sued MMC for breach of contract. Successful at trial.
UK Court of Appeal
– The letters of comfort from MMC to KB did not have contractual
effect.
– The letters contained a statement of policy which was merely a
statement of present fact regarding MMC’s intentions and not a
contractual promise as to MMC’s future conduct.
– Accordingly, they were not intended to be anything other than a
representation of fact giving rise to no more than a moral
responsibility on the part of the MMC to meet Metal’s debt (ie.
they did not give rise to a legal liability).
– Relevant that KB had initially requested a guarantee from MMC,
and had agreed to accept a letter of comfort on basis of
charging higher commission.
– [Note – parties accepted that another clause in the letter of
comfort promising not to reduce shareholding (ie similar to
clause in Banque Brussels) was binding.]
Commonwealth Bank of Australia v TLI Management Pty Ltd 1989 Vic SC
Facts
•
Hovertravel Australia Pty Ltd had overdrawn its account with the CBA.
•
Issue
Held
TLI was negotiating and expecting to take over (ie acquire the majority
shares of) Hovertravel Limited (the parent company of Hovertravel Australia
Pty Ltd).
• CBA was not prepared to honour cheques made out by Hovertravel Aus
without additional security.
• After discussions between CBA, Hovertravel Aus and TLI, TLI provided a
letter “confirming” that the takeover would proceed “as soon as legally
possible” and the arrangements would involve an injection of capital into
Hovertravel Aus that would enable CBA to be repaid.
• CBA honoured the overdrawn cheques. The takeover was completed but TLI
did not inject capital into Hovertravel Aus and CBA was not repaid.
Was the letter of comfort intended to be legally binding?
(Tadgell J)
• Tadgell J closely scrutinised the wording of the letter.
• The letter was not intended to be legally binding. It did no more than
state TLI’s intention to proceed with the takeover and inject capital and
did not amount to a promissory obligation.
• Relevant factors:
– The letter did not use promissory language (eg “we agree”, “we
undertake”, “we promise”). “We confirm that we will...” did not
indicate a promise. – lack of promissory language
– Many aspects vague and ambiguous – “complete”, “takeover
arrangements”, “as soon as legally possible”, “injection of
sufficient capital”, “sufficient capital to repay the temporary
facility”.
TLI not in a position to commit to takeover as it was subject to shareholder
approval
Banque Brussels Lambert SA v Australian National Industries Ltd (1989) NSW SC
Facts
o
o
o
o
Issue
Held
ANI owned 45% of Spedley Holdings Ltd. Spedley Holdings wholly owned Spedley
Securities Ltd.
BBL, a bank, entered into a contract with Spedley Securities whereby BBL agreed to
grant Spedley Securities a loan facility of $5m.
BBL entered into this loan agreement only after it obtained a strongly worded ‘letter
of comfort’ from ANI (after negotiations and exchange of drafts). In that letter, ANI
stated:

ANI would give BBL 90 days notice if it decided to sell its
shareholding. BBL could call for repayment of loan within 30
days.

It was ANI’s practice to ensure Spedley Securities will at all times
be in a position to meet its financial obligations (including
repayment of the loan)
ANI sold its shares in Spedley Holdings without giving 90 days notice. Spedley
Securities defaulted on the loan. BBL sued ANI in contract.
Was there an intention to create legal relations? Were the terms of the letter sufficiently
promissory in nature to be contractual?
New South Wales Supreme Court – Rogers CJ
•
Presumption in commercial transactions - an intention to create legal relations.
•
Onus of proving the absence of such intention rests with the party who asserts no
legal effect is intended (ANI)– and the onus is a heavy one.
•
Overriding test is that the intention of the parties are to be deduced from the
document as a whole viewed against the background of the practices of the
particular trade or industry – nothing turns on the words ‘letters of comfort’.
•
Statements made by businessmen, after hard bargaining and made to induce
another business person to enter into a business transaction, do not “reside in a
twilight zone of merely honourable engagement”.
It was made quite clear to both Spedley Securities and ANI that the loan facility was
subject to BBL obtaining a suitable letter of comfort or some other indication of
commitment from ANI.
If the statements are promissory in character, courts should enforce them when
uttered in the course of business and when there is no clear indication that they
are not intended to be legally enforceable.
Therefore, ANI was in breach of two enforceable contractual promises.
•
•
•
Masters v Cameron (1954) HCA – 3 categories of preliminary agreements
Facts
o
o
o
o
Held
o
o
o
Cameron and Mr and Mrs Masters signed a document whereby:
 Cameron agreed to sell her farming property to the
Masters
 Masters agreed to pay £17,500 for the said property
The agreement stated:
 “This agreement is made subject to the preparation of a
formal contract of sale which shall be acceptable to my
[Cameron’s] solicitors on the above terms and
conditions.”
The agreement was signed by the parties and the Masters paid a 10%
deposit to the real estate agent
Before the formal agreement was prepared and executed, Masters
encountered financial difficulties and refused to go through with the
transaction; said there was no binding agreement; and sought to recover
the deposit from Cameron.
In the present case the context provides no reason for holding that the case
is outside the application of this prima facie rule.
Not only was it expressed to be ‘subject to the preparation of a formal
contract’, it also had to be acceptable to Cameron’s solicitors. It was
evident from this that the contract was to contain not only the terms stated
in the signed document, but also whatever else the solicitors may fairly
have considered appropriate.
Therefore, no binding contract – it was a category 3 case and not binding.
Baulkham Hill Private Hospital v GR Securities (NSW SC 1986) – fourth category
Facts
Issue
Held
o
o
Parties negotiated for the sale of a private hospital for $4.3M.
3 letters were exchanged:
o From the purchaser containing an offer to purchase and
concluding: “In order to accept this offer, I would appreciate your
written response … and would expect that it would constitute a
legally binding acceptance until such time as it is superceded [sic]
by a formally binding agreement”
o From the vendor containing a counter-offer and concluding: “On
receipt of such written acceptance, our client would consider
there to be a legally binding agreement in principle between
yourself and it, until such time as formal Contracts were
exchanged as aforesaid.”
o From the purchaser accepting the counter-offer and stating: “We
have instructed our solicitors … accordingly and they will be in
contact with you concerning the formal contract.”
Was there a binding contract? Did the parties intend to be legally bound?
o There was a binding contract.
o
There was a clearly expressed intention to enter into an immediately
binding contract (to be superseded by a formal contract in due course):
 clear words “legally binding” prevailed over any other
suggestion by words “agreement in principle”.
CERTAINTY
Milne v Attorney-General (Tas) 1956 HCA – definition of an ‘essential term’
Facts
Held
•
Edward Milne was a WWII veteran eligible for land settlement under
Tasmanian post-WWII war service land settlement legislation.
• The government changed its policy in relation to rent valuation, and Milne
argued that the rent was to be determined in accordance with a pre-existing
contract (established by earlier government circulars) not the new
legislation.
• There was no contract:
– The circulars were not contractual documents - no offer, only
statements of present government intention or policy – no
intention to create legal relations.
– Any contract not complete – only some terms agreed – transaction
was very complex, and the terms left out were not “such as the law
will supply”.
 “Apart from the fact that the general purport of the communications in
question evinces anything but an intention to affect legal relations, those
documents deal with some only of the terms which must of necessity be
settled before a binding contract can exist. This is not really a case at all
where parties are negotiating with a view to contract, but, even if it be
treated as such a case, no contract is concluded until the parties negotiating
are agreed upon all the terms of their bargain – unless indeed the terms left
outstanding are “such as the law will supply”.... Here the transaction
ultimately contemplated was of a very complex character, and it is clear
that the law cannot supply its terms.”
1. Statement to what gaps can be filled- they can be filled if it turns
out that the law will not supply (incomplete contracts)
2. Where you have a complex or unusual transaction, the courts are
unlikely to fill in the gap.
ANZ v Frost Holdings (1989) Vic CA
Facts
Issue
Held
o
Negotiations between Frost and ANZ for Frost to produce and supply
calendars featuring Australian art.
o No specific agreement about the price, size, content, quality, layout or
number of calendars.
o ANZ pulls out. Frost sues for breach of contract.
Had the essential terms of the agreement been agreed? Could the Court fill the
gap?
(Kaye J):
• Essential terms required: “It is a first principle of the law of contracts
that there can be no binding and enforceable obligation unless the terms
of the bargain, or at least it’s essential or critical terms, have been
agreed upon. So there is no concluded contract where an essential or
•
•
critical term is expressly left to be settled by future agreement of the
parties”.
The subject matter on price, size, content, quality, layout or number of
calendars were not agreed in the contract – missing too much
information
Application to facts:
– The parties did not at any time reach agreement “upon all the
essential contractual terms of their bargain. In addition to the
means of fixing the price per unit, they had not agreed upon
matters of design, style, quality and size of paper, and the
content of the calendar, and the number of calendars to be
supplied by the defendant. These were not merely specifications
of the calendar. Apart from the quantity to be supplied, those
were matters which constituted the subject matter of the
negotiations”
– S.13 Goods Act 1958 (Vic) does not save the contract: s13 will
allow a term as to a reasonable price to be implied to an
agreement where the contract is silent as to price. But this
provision can only be relied upon where the parties have
reached agreement on all other essential contractual terms. .
Foley v Classique Coaches – 1934 UK CA
Facts
Issue
Held
•
Foley agreed to sell land in exchange for promise from CC to
purchase petrol exclusively from Foley’s petrol station on adjoining
land, for the term of Foley’s life at a price and on terms “to be agreed
in writing by the parties from time to time” (ie an “agreement to
agree”)
• Included arbitration clause – if any dispute arises under the
agreement, shall be resolved by arbitration “in the usual way in
accordance with the Arbitration Act 1889 (UK)”
• After 3 years, CC wanted to purchase cheaper petrol from another
source and tried to argue that the contract was not enforceable
because no price or terms of petrol supply were agreed.
Was there an enforceable contract to purchase petrol given that no price had
been agreed?
• The petrol agreement was a valid and binding contract.
• Each case to be decided on its own facts. Parties had obviously
believed the contract was binding and acted on it for three years. It
was a formal document. The petrol agreement was part of the
consideration for the transfer of the land.
• There is an implied term that the petrol shall be supplied at a
reasonable price and be of reasonable quality, and any dispute as to
what is reasonable is to be settled by arbitration.
Council of Upper Hunter County District v Australian Chilling & Freezing 1968 HCA
Facts
o
o
Council contracted to supply electricity to ACF, which it purchased from
a number of generating entities.
Council had right to increase charges under clause 5:
o “it is agreed that during the term of this agreement if the
supplier’s costs shall vary in other than has been herein
Issue
Held
provided the supplier shall have the right to vary the
maximum demand charge and the energy charge by notice in
writing to the purchaser”
o Council gave notice under clause 5 of increased charges. ACF argued
clause 5 void for uncertainty as it was unclear what the term “supplier’s
costs” meant.
Was the term “supplier’s costs” sufficiently certain? ACF argued that it was not
and the clause was void for uncertainty when Council sought to increase charges.
Not too uncertain. A robust approach taken to interpretation of unclear terms.
Held (Barwick J):
• A contract is not automatically void because it has more than one
possible meaning. As long as it is capable of meaning, it will ultimately
bear the meaning which the courts or in an appropriate case an
arbitrator will decide.
• That which is uncertain or ambiguous can be sorted out by
“construction.... ascertaining the intention of the parties, and applying
it” - ie it is all about intention.
• TEST: “so long as the language employed by the parties.... is not so
obscure and so incapable of any definite or precise meaning that the
court is unable to attribute to the parties any particular contractual
intention, the contract cannot be held to be void or uncertain or
meaningless. In the search for that intention no narrow or pedantic
approach is warranted, particularly in the case of commercial
contracts....”
• Generally speaking, the concept of a cost of doing something is certain
and can be determined by the courts.
Whitlock v Brew 1968 HCA – terms too subjective
Facts
Issue
Held
•
Contract for the sale of land that included a Shell petrol station.
Whitlock agreed to sell and Brew agreed to buy land for £165,000.
• Condition in contract (clause 5) that the land be leased back to Shell
“on such reasonable terms as commonly govern such a lease”.
– Disputes as to the interpretation/operation of this clause to be
referred to arbitration.
• Brew paid deposit of £16,500 but then declined to complete the
purchase.
• Brew then brought an action to recover the deposit on the basis that
the contract was void for uncertainty.
Was this clause too uncertain?
Held (4/1) (McTiernan J dissenting):
• Clause is too uncertain and not severable. The entire contract is void.
Held - Kitto J (majority):
• Cannot apply objective standard because too peculiar: Cannot rely on
“reasonable terms as commonly govern such a lease” here to fill the
gaps because there was no evidence of such terms because too
peculiar a contract (ie could have been saved if there was evidence).
• Contract incomplete: The clause is therefore incomplete in relation to
the essential terms of rent and term of the lease to Shell.
 Essential terms for leases
•
The clause could not be saved by the arbitration clause – because
arbitration was limited to “the interpretation and operation” of the
clause – ie the arbitrator would have to identify terms commonly
governing such a lease which did not exist.
• The clause could not be severed because it was not the intention of
the parties to convey the property as vacant land.
Held – Taylor, Menzies and Owen JJ (majority)
• “Such reasonable terms” NA to rent and term: The expression “upon
such reasonable terms as commonly govern such a lease” did not in
the context refer to the period or the rent payable, based on the intent
of the parties. The parties had therefore not agreed on the vital
questions of rent and the term of the lease.
• Arbitration clause NA to rent determination: The arbitrators power to
consider the “operation and intention” of the clause did not extend to
determination of the rent [rather pedantic].
• Clause not severable – useful test:
– “when a contract contains a number of stipulations one of
which is void for uncertainty, the question whether the whole
contract is void depends on the intention of the parties to be
gathered from the instrument as a whole. If the contract be
divisible, the part which is void may be separated from the rest
and does not affect its validity”
Dissent – per McTiernan J:
• Contract not void for uncertainty – damages available for breach of
contract. Specific performance not available.
– Commencement date and term could be inferred from the
circumstances
– Rent – parties had expressly agreed that the rent be
“reasonable”
Hall v Busst 1960 HCA
Facts
Issue
Held
•
Busst sold Bedarra Island to Hall. Busst retained a right to repurchase
the land (if Hall wanted to sell) for the initial sale price adjusted to take
account of improvements and depreciation:
– “The purchase price relating to such option shall be... to which
shall be added the value of all additions and improvements to
the said property... and from which shall be subtracted the
value of all deficiencies of chattel property and a reasonable
sum to cover depreciation of all buildings and other property
on the land”
 Hall sold the property to a third party without giving notice to Busst.
Busst sued. Hall argued clause 5 was void for uncertainty.
Was the option clause void for uncertainty because of uncertainty as to the
price?
Dixon, Fullager, Menzies JJ:
• The clause was too uncertain. There could be no external standard of
value of additions and improvements to the island (which is unique).
• Suggested it would have been different in a major city, where it would
be easier to determine price, but here there was no benchmark.
•
Implication of “reasonable” price for sale of goods is not applicable to
sale of land and improvements (per Fullager).
Held – Windeyer and Kitto JJ dissenting:
• “reasonableness” can always be worked out by the courts.
• If parties agree to sell for a “reasonable” price they have fixed a price
by a measure the law knows and can ascertain.
• Part performance also relevant.
[Note that majority decision reflects a more strict approach to certainty than
that which is now applied by the courts.]
United Group Rail Services v Rail Corp of NSW (2009) NSW CA
Facts
Issue
Held
•
Contract for the design and building of new rolling stock for a rail
network.
• Detailed dispute resolution clause included obligation that senior
representatives “meet and undertake genuine and good faith
negotiations with a view to resolving the dispute or difference” (before
litigating).
• A dispute arose and UGRS wanted to litigate immediately. They
argued that the dispute resolution clause was void for uncertainty.
Was this clause uncertain?
(Allsop J):
• Detailed review of authorities, and different approach in UK. This is
different to an agreement to agree which is unenforceable because of
lack of essential terms, not because of uncertainty or vagueness.
• The question is whether an agreement to negotiate is uncertain (it is
not incomplete).
• This agreement to “negotiate in good faith” is not too uncertain and is
enforceable.
Meehan v Jones (1982) HCA – “Subject to finance” clauses:
Facts
Held
•
•
Contract for the sale of oil refinery for $800K.
Special condition 1 – contract subject to purchaser receiving “finance on
satisfactory terms and conditions”.
• Vendor (Jones) found another buyer, and tried to avoid the contract by
arguing that the contract to sell to Meehan was void for uncertainty:
– Incomplete – the word “satisfactory” referred to satisfaction of
both the vendor and purchaser – an unenforceable agreement to
agree
– Uncertain - what is “satisfactory” finance is too vague and
imprecise
– Illusory - Subject to finance clause leaves it to the discretion of
Meehan whether he will perform
Held – re incompleteness
• “satisfactory” refers to the purchaser’s satisfaction only – no agreement to
agree
Held – re uncertainty
• Held that “satisfactory” finance was not too uncertain because the
purchaser must act honestly (if a subjective test) or honestly and
reasonably (if an objective test) in determining whether finance was
satisfactory (Mason, Wilson, Gibbs).
• Either way there is sufficient certainty for a court to assess whether or not
the purchaser has acted honestly, or honestly and reasonably.
Held – re illusoriness
• Mason/Wilson – The purchaser does not have unfettered discretion - must
act honestly, or honestly and reasonably (they can’t be dishonest- and
having to act honestly is a fettered discretion) in assessing whether finance
is on satisfactory terms.
• Gibbs/Murphy – Does not matter if illusory because discretion relates to
fulfilment of a condition on which the contract depends, and not to
performance of the contract. Analogous to an option contract. Here the
condition fulfilled, so the contract exists.
Godecke v Kirwan (1973) HCA – Discretion exercised by third party
Facts
•
•
Held
•
•
•
Contract for sale of land from Kirwan to Godecke (the purchaser)
stated that purchasers would, if required by vendor, sign a further
agreement to be prepared by the vendor’s solicitors “containing... such
other covenants and conditions as [vendor’s solicitors] may reasonably
require”.
Vendor refused to proceed with the transaction and argued that the
agreement was void for uncertainty.
There was a binding contract. Not too uncertain or illusory.
It is well accepted that a contract can leave essential terms to be
decided by a third party (here the vendor’s solicitors).
In this case the vendor’s solicitors could only add terms that were
consistent with those in the offer and were reasonable in an
objective sense (it was clearly stated in the fact under the further
agreement)
Biotech Australia v Pace (1988) NSWCA – Certainty and illusoriness
Facts
•
•
•
Issue
•
•
Held
•
•
•
•
Dr Pace took a research job with Biotech Australia.
Disputed clause of the letter stated: “I confirm a salary package of
$A36,000 per annum, a fully maintained company car and the option
to participate in the Company’s senior staff equity sharing scheme”.
No scheme existed (Dr Pace knew this), or was ever established. Dr
Pace sued for damages for breach of contract.
Trial Judge awarded damages. Reversed on appeal.
Was the disputed clause so devoid of meaning and so dependent upon
the initiatives and decisions of BA as to be illusory?
Was the disputed clause so uncertain that it cannot be enforced?
Maj – Kirby, McHugh JJ - The term was void for uncertainty. It was
both illusory, and too vague and uncertain in meaning.
Min – Hope J – The term was enforceable. BA was obliged to establish
a share equity scheme that was an honest one and reasonable in the
circumstances.
Kirby J – on the overlap between concepts of uncertainty and
illusoriness:
“The case law on ambiguous, uncertain and illusory contracts is
enormous. Some of it is difficult to reconcile because of the different
ways in which judges have classified disputed terms, for example as so
illusory as to deny a contract at all or so ambiguous or uncertain as to
deny enforcement of the contract, although clearly one was intended.
Some commentators urge that it is essential to maintain a “sharp
distinction” between terms which are vague, uncertain or ambiguous
and those which are illusory…. Others suggest that the concepts are
interchangeable or at least merge into each other along a spectrum
which begins with the vague, passes through the ambiguous and
reaches the uncertain and finally disappears into the illusory.”
Formalities
Yeoman Credit Ltd v Latter 1961 UKCA – guarantees vs indemnity
• Yeoman Credit leased a car to Latter who was a minor (underage of 18) at the
Facts
•
•
Held
•
•
time. The second defendant, Owen (an adult), signed a form headed “HirePurchase Indemnity and Undertaking” in which he undertook to indemnify YC
against any loss resulting from the hire purchase agreement with Latter.
Latter defaulted, and YC claimed against Owen under the Hire Purchase
Indemnity and Undertaking.
Owen argued that the indemnity, though so called, was really a guarantee,
and that since it guaranteed a void contract (capacity issue: because Latter
was a minor) it was unenforceable – that means the guarantee cannot be
enforceable since the primary contract fails
On the facts, the “indemnity” was an indemnity and a primary obligation to
YC. It was enforceable despite the contract between YC and Latter being
void.
Key factors:
– (Intentions) Obligations under the Indemnity and Undertaking were
different to those under hire purchase agreement such that the adult
was accepting a distinct and original liability; and
– (Surrounding circumstances) All the parties realised that the hire
purchase agreement was not binding on the minor, so they must
have intended the adult’s promise to be independently valid.
“Otherwise the whole transaction was a sham.”
Tonitto v Bassal 1992 NSWCA – Joinder
Facts
•
•
•
•
•
A written option agreement granting Tonitto an option to purchase
Bassal’s property was signed by Tonitto (purchasers) but not Bassal
(vendors).
Purchasers purported to exercise option on 29 June 1988. Vendors had
changed their mind about selling and refused to proceed with sale.
Various correspondence ensued.
23 September 1988 letter from Vendor’s solicitors argued that Purchasers
had not exercised the option properly on 29 June 1988:
– “this would not have constituted due exercise of the option to
purchase entered into in June 1987 which required [delivery of
signed contract of sale].... the provisions of the option agreement
are quite unambiguous and failure to conform to the mode of
exercise therein stipulated has the result that the option has not
been duly exercised”
Purchasers issued proceedings seeking specific performance of the
purported sale.
Vendors argued that they were not bound to proceed with sale because:
–
Issue
Held
Option agreement not signed by them – therefore
writing/signature requirement not satisfied under NSW Statute of
Frauds equivalent
– In any event, the option had not properly been exercised in
accordance with the agreement (purchaser’s solicitors had failed
to deliver signed contract of sale)
Do the option agreement and the 23 September 1988 letter together constitute a
sufficient memorandum or note to satisfy the Statute of Frauds requirements.
•
YES, the memorandum or note required to satisfy the [NSW Statute of
Frauds equivalent] do not need to be contained in one piece of paper.
• If words used in a document are capable of referring to another
document, parol evidence can be led to identify the other document.
• The expressions “option”, “option to purchase”, “the option agreement”
and “the mode of exercise therein stipulated” contained in the 23
September 1988 letter from the Vendor’s solicitors were capable of
referring to a written option agreement and parol evidence was available
to establish that the letter incorporated the terms of a written option to
purchase .... so that the two documents constituted a note or
memorandum which satisfied the [NSW Statute of Frauds equivalent].
[Note – purchaser unable to enforce against vendors because option had not been
exercised properly by purchaser’s solicitors. Solicitors found to have breached
their duty of care].
Pirie v Saunders (1961) HCA
Facts
Issue
Held
o
Saunders sought damages from Pirie and Cripps for breaching alleged
agreement to grant a lease of a shop.
o Pirie and Cripps admitted discussions took place about a possible
lease, but denied the existence of any agreement being entered into
(it was simply negotiations which did not lead to an agreement) .
o Pirie and Cripps further argued that if an agreement was formed,
there was no “note or memorandum” sufficient to satisfy the NSW
Statute of Frauds equivalent.
o During the course of the negotiations, Pirie’s and Cripps’ solicitor had
made notes containing their instructions (given by Cripps on behalf of
both of them). These written notes listed some of the terms of the
proposed lease. The notes had not been signed by the solicitor or by
Pirie or Cripps.
– Did the solicitor's notes constitute a “note or memorandum” of the
agreement?
– If yes, was it ‘signed’ by Pirie and Cripps?
(High Court):
– Solicitor’s notes are not a sufficient note or memorandum.
– Re signature - Approved the “authenticated signature fiction” test –
if the name of the party to be charged is on a document, it is to be
treated as a signature if that party expressly or impliedly indicates
that he recognises the writing as being an “authenticated”
expression of the contract
• Not applicable here because merely “standing by”
while the notes were taken by solicitors does not
constitute any inference that he impliedly recognised
–
–
the writing as an authentic record of any prior oral
bargain.
Re timing – The solicitor’s notes contained bare instructions for the
preparation of a formal lease. Notes are quite consistent with the
hypothesis that the parties had not made any prior binding contract
and that their rights and obligations were not to be affected until
the execution of a formal lease. (the note or memorandum has to be
subsequent after a binding contract is formed or established)
Re content – The solicitor’s notes did not contain all essential terms:
• they did not specify in sufficient detail the property
which is to be leased;
• they did not contain all the terms of the proposed
lease for it contemplated special conditions that would
be formulated at a later time.
Ogilvie v Ryan 1976 NSW Supreme Court – part performance (failed)
Facts
Issue
Held
o
In 1939 Ms Ryan commenced living in a cottage that adjoined a cinema in
which she worked.
o In 1955 Mr Ogilvie, the managing director of the company that owned the
cinema and cottage, moved into the cottage with Ms Ryan.
o In 1969 the company contracted to sell the cinema and the cottages to
developers.
o According to Ryan:
 Ogilvie proposed that he buy a house and that she live in
it with him and look after him for the rest of his life.
 Ogilvie stated that if she did this, the house would be
hers as long as she lived.
 she said she agreed to this proposal.
o This agreement was not in writing.
o In 1970, Ogilvie purchased a house in which he and Ryan lived.
o In 1972, Ogilvie died without any mention of Ryan in his will.
o Executor of Ogilvie’s estate sued Ryan to recover possession of the property.
where R’s acts (in moving in and looking after O) unequivocally referable to the
alleged promise?
Part performance – (narrow test failed) – Holland J
– Ryan argued there should be specific performance of the
agreement on the basis that it had been partly performed. She
relied on the following acts:
(1) she gave up her tenancy at the cottage.
(2) she moved into Ogilvie’s house (as opposed to buying her
own house).
(3) she was his housekeeper / nursemaid without pay until
he died.
(4) she spent substantial money on the upkeep of the house.
– Court went through the narrow test (Maddison v Alderson) and
the broad test (Steadman v Steadman) of part performance.
– Applying the broad test, court concluded there could be no doubt
that the acts of part performance by Ryan were sufficient (they
postulated the existence of some contract and are consistent with
the contract alleged).
–
–
–
Applying the narrow test, court concluded that it could not be
postulated that Ryan’s acts were unequivocally referable to or
indicative of a promise to give her an interest in Ogilvie’s
property. Her acts were consistent with acts of love and affection,
or an expectation of some other reward.
Court considered it was bound to apply the stricter narrow test
because of prior High Court of Australia decisions that applied the
stricter narrow test.
Accordingly, Ryan would have failed to obtain specific
performance on the basis of part-performance.
Pipikos v Trayans 2018 HCA
Facts
Issue
Held
•
In 2004, two couples purchased property at Penfield Road together (Leon
& Sophie, and George & Velika – the men were brothers). The purchase
was financed by loan to all of them, and the deposit and balance of
purchase price of around $75K which was paid solely by Leon and Sophie.
• Leon & Sophie claimed that because Velika & George couldn’t afford to
contribute to the purchase expenses they orally agreed to transfer to Leon
& Sophie a half interest in a separate property owned by Velika (George
and Velika’s home – the Clark Road property), and that as the value of the
half-share in the Clark Road property was slightly higher than the amount
owed for the Penfold Road property that Leon & Sophie would pay them
$8000 in cash.
• In 2009, on Leon’s request, Velika signed a handwritten note:
"I Velika Trayans of Lot 2 – 119 Clark Road Virginia SA 5120, agree that Leon
Pipikos is the owner of half the land on the above stated property via an agreement
between George Pipikos and Leon Pipikos of the purchase of Penfield Road Virginia
property.”
• Leon argued he owned a half interest in the Clark Rd property and that the
doctrine of part performance should be relaxed to apply to acts not
unequivocally referable to the kind of contract alleged.
Did the doctrine of part performance apply?
• Principle – did not relax the doctrine of part performance – acts must be
unequivocally referable to some such agreement as that alleged.
• Application to facts – no part performance – Leon was not entitled to a
share of the property - The acts of part performance in this case were not
unequivocally referable to a contract for the sale of land – they were
consistent with a transaction other than a sale of the Clark Road property
(a loan or an unequal contribution to the brothers’ partnership that would
eventually be brought to account between them). There was no giving or
taking of possession of the property nor was there any other act indicative
of a change in the respective positions of the parties in relation to the
land.
PRIVITY
Coulls v Baggot – Joint promise
Facts
Issue
Held
•
A written agreement was entered into by Arthur Coulls and O’Neil
Construction Pty Ltd giving ONC the right to remove stone from his
property, in exchange for royalties to be paid to him and his wife Doris.
• Arthur Coulls died, and ONC sought declaration as to whether they had to
pay royalties to Doris, or to Arthur’s estate. (Arthur’s children from a
previous marriage stood to benefit if paid to Arthur’s estate.)
• Not clear whether Doris was a party to the agreement . The agreement
was expressed to be between Arthur and ONC, but on other hand,
royalties were payable to Doris, and Doris had signed the document.
• Was Doris a party to the agreement? Could she claim against ONC?
• Even if she was a party to the agreement, could she enforce it given that
she had not provided consideration? (property was Arthur’s)
Held – all judges – principles to be applied – who is a party:
• Whether or not Doris is a party depends on whether the promise was
made to her as a “joint promisee”.
• This is to be determined from ascertaining the intention of the parties in
all the circumstances, and in particular whether it was intended that she
could enforce the promise.
• If she’s a joint promisee, consideration may be provided by one joint
promisee on behalf of other joint promisees.
Applying these principles to the facts:
Held – majority – Doris not a party - Taylor, Owen & McTiernan JJ
• Doris was not a party and could not enforce the contract.
• The terms of the written document were critical:
– Fact that it was expressed as an agreement between Arthur and
ONC
– The clause “authorising” payment of royalties indicated a
“revocable mandate” which was revoked on Arthur’s death,
rather than a binding permanent direction
Held – minority – Doris a party - Windeyer & Barwick JJ
• Doris was a party to the contract and had contractual right against ONC.
• Doris’ signature on the document could only be explained by the fact she
was intended to be a party.
• Also clear from the wording (ie “joint tenants (or tenants in common?)
(the one which goes to the living partner)”) that they intended royalties to
go to her after his death.
Some latitude given because the document was prepared without legal assistance.
New York Star – Agency as a means of enforcing clause for benefit of third party
Facts
•
•
•
Schick Razor Company of Canada (the consignor) shipped 37 cartons of
razor blades valued at $14,684.98 from Canada to Sydney on the “New
York Star”, a ship owned by Blue Star Line Ltd (the carrier)
The bill of lading (which sets out the terms of the contract of carriage) was
issued by Blue Star Line Ltd to Schick. Schick, in turn, transmitted the bill
of lading to Salmond & Spraggon (Australia) Pty Ltd (the consignee)
The bill of lading contained contractual terms which included:
– Himalaya clause - a term that extended this protection from
liability, and any other defences or immunities the Carrier may
have had from liability, to servants and agents of the Carrier (a
“Himalaya” clause). (cl 2)
•
Issue
Held
In Sydney, the cargo was unloaded by Port Jackson Stevedoring (“PJS”).
PJS was 49% owned by the Blue Line, commonly acted as its stevedore and
was aware of the terms of the bill of lading
• After PJS unloaded the 37 cartons upon arrival of the goods in Sydney,
they misdelivered them and placed them in a shed, at which time 33 out
of 37 cartons were stolen
• The consignee sued the stevedore, PJS, in tort (more than 1 year later). PJS
relied on the bill of lading terms to protect it on the basis of the Himalaya
clause which extended the benefit of defences and immunities conferred
on the carrier to every independent contractor employed by the carrier
• PJS relied on this provision as affording a defence to the consignee’s
action on the basis that the carrier had entered into the contract as agent
for the stevedore
1. Privity issue: Whether the stevedore could take advantage of the
limitation clause as a matter of contract
– Held 3/2 that the stevedore could, on the basis of agency.
• By Barwick CJ because the relevant provisions of the bill
of lading constituted an agreement, rather than an offer,
for which the stevedore subsequently provided
consideration by discharging the goods
• By Mason and Jacobs JJ because the relevant provisions
of the bill of lading constituted an offer which the
stevedore accepted by discharging the goods (ie a
unilateral contract)
– Stephen and Murphy JJ held not enforceable by stevedores –
[largely on policy grounds]
2. Construction issue: Whether the limitation clause covered the facts
– Held 4/1 that it did not – the stevedores could not rely on the
limitation clause because the carrier’s obligations ceased when
the goods passed the ship’s rail and the limitation provision did
not apply to the subsequent negligence of the stevedore.
– Barwick CJ dissented
Barwick CJ – test – whether stevedore can rely on exemption clause in contract
of carriage - agency
1. The bill of lading makes it clear that the stevedore was intended to be
protected (conceded at trial)
2. The bill of lading makes it clear that the carrier was contracting as agent
for the stevedore as well as on its own behalf (conceded at trial)
– Terms of clause 2 of the bill of lading made it abundantly clear
that the carrier purported to contract with the consignor for
independent contractors it might engage to handle the
consignment.
3. Either the carrier was authorised to make the contract on behalf of the
stevedore or the stevedore subsequently ratified the carrier’s actions
(contested but satisfied)
– The carrier acted with the authority of PJS as its agent because
PJS knew about the bill of lading and its exemption clauses
– Cannot be doubted that the carrier acted, in its capacity as PJS’s
agent, to make an arrangement with the consignor for the
protection of PJS as an independent contractor participating in
the handling of the cargo
4. The stevedore provided consideration to the promisor (contested but
satisfied)
–
the performance by PJS of unloading the cargo satisfied the need
for consideration moving from PJS
Trident v McNiece: special exception for insurance contracts; trust; unjust enrichment; estoppel
Facts
Held
•
Typical public liability insurance contract between Trident (insurer) and Blue
Circle (insured) in relation to Blue Circle’s limestone crushing operations.
• Contract purported to extend insurance to Blue Circle’s contractors and
suppliers through definition of “Assured”.
– “The Assured” is indemnified against “all sums which the Assured shall
become legally liable to pay in respect of .... death or bodily injury to
or illness of any person” [other than an employee]
– “The Assured” is defined as “Blue Circle, all its subsidiaries, associated
and related Companies, all Contractors, and Sub-Contractors and/or
Suppliers”
• McNiece was a “contractor” of Blue Circle; Hammond was working for
McNiece as a contractor when he was injured.
• Hammond sued McNiece for damages; McNiece sought indemnity from
Trident under the contract.
• Trident denied liability on the grounds that McNiece was not a party to the
contract between Trident and Blue Circle and had not provided any
consideration for the promise to indemnify.
• The trial judge and NSW Court of Appeal found in favour of McNiece. Trident
appealed
Held – 5:2 that Mc Niece could enforce against Trident but for different reasons:
– Mason, Wilson & Toohey JJ – a special exception for insurance
contracts
– Deane J – on the basis of a trust
– Gaudron J – on the basis of unjust enrichment
Minority – Brennan & Dawson JJ
– The privity rule applied and there was no reason to depart from it
Mason CJ, and Wilson J: Special exception for insurance contracts
• This court has accepted that a third party who is a “mere stranger to the
consideration” cannot maintain an action at law upon the contract
• The privity requirement has been under siege throughout the common law
world Parliaments had found it necessary to legislate some exceptions, and
proposals for more general reform have been made
• “It is the responsibility of this court to reconsider in appropriate cases
common law rules which operate unsatisfactorily and unjustly. The fact that
there have been recent legislative developments in the relevant field is not a
reason for continuing to insist on the application of an unjust rule”
• The old rules do not apply to insurance policies because of the injustice likely
to be caused; allowing contractors like McNiece to sue Trident gives effect to
the presumed intention of Trident at the time it issued the insurance policy
• Prepared to create an exception to the privity rule relating to insurance
contracts
• They said that this argument has even greater force when it is applied to an
insurance against liabilities which is expressed to cover the insured and its
subcontractors. It stands to reason that many subcontractors will assume that
such an insurance is an effective indemnity in their favour and that they will
refrain from making their own arrangements for insurance on that footing
• Concluded that McNiece was entitled to succeed in the action
Toohey J: special exception for insurance contracts
• To allow McNiece to sue Trident is to give effect to the presumed intention of
Trident at the time it issued the insurance policy
•
Justice Toohey was also prepared to depart from the common law privity rule
to create an exception to insurance contracts. He said that the proposition
that the court should endorse may be formulated along the following lines [at
172]:
• “When an insurer issues a liability insurance policy identifying the
assured in terms that evidence an intention on the part of both
insurer and assured that the policy will indemnify as well as those
with whom the assured contracts for the purposes of the venture
covered by the policy; and
• it is reasonable to expect that such a contractor may order its affairs
by reference to the existence of the policy, the contractor may sue
the insurer on the policy, notwithstanding that consideration may
not have moved from the contractor to the insurer and
notwithstanding that the contractor is not a party to the contract
between the insurer and the assured.”
• Accordingly, McNiece (being the contractor) was entitled to sue Trident
[Note that the Insurance Contracts Act 1984 (Cth) effectively abolished privity in the
context of insurance contracts. This legislation was in force at the time of the Trident
decision, but was not applicable because it was not in force when the liability arose.
The decision on this basis is therefore largely redundant.]
ESTOPPEL
Waltons Stores Ltd v Maher (1988) HCA
• Waltons Stores were negotiating a lease of land from Mr and Mrs Maher.
Facts
•
•
•
•
•
•
•
Sense of urgency around negotiations. Mahers were to demolish a
building on their land and build a new building to Walton’s specifications
by 15 Jan 1984. Agreement still not finalised in November 1983. Maher
wanted to start work on demolition of existing building.
7 November – Mahers’ solicitors contacted Waltons’ solicitors. Said that
agreement needed to be finalised in next day or so to enable new building
to be built for January deadline. Maher did not want to commence
demolition until agreement finalised.
Later same day – Waltons’ solicitors forwarded lease for Mahers to sign
noting “you should note that we have not yet obtained our client’s specific
instructions to each amendment requested, but we believe that approval
will be forthcoming. We shall let you know tomorrow if any amendments
are not agreed to.”
No further communication either way from Waltons’ solicitor. Mahers
signed and forwarded ‘by way of exchange” signed copy of lease to
Waltons on 11 November.
21 November – Waltons has second thoughts about the lease so tells its
solicitor to “go slow” with completing the transaction (thinking it won’t be
bound unless lease is executed).
10 December – Waltons made aware that demolition had commenced,
but say nothing about second thoughts.
Early January 1984 – Mahers commence new building in accordance with
plans approved by Waltons.
•
Held
19 January – Walton’s solicitor writes to Maher’s solicitor advising that
Waltons no longer wants to proceed with the lease. By this stage, the
building works were 40 per cent complete.
• Note: Between 11 November 1983 and 19 January 1984:
• Waltons had not communicated with Maher (been told to ‘go
slow’)
• Walton’s solicitor retained the lease signed by the Mahers;
Waltons had not signed it.
Decision of HCA – outline
• Estoppel established – but on different grounds:
– Per Deane & Gaudron JJ – Maher had acted on assumption
that Waltons had signed the lease – an assumption of fact –
and were estopped from denying that fact (common law
estoppel)
– Per Mason CJ, Wilson & Brennan JJ – Waltons had induced
Maher to assume that they would sign the lease (promissory
estoppel)
– Equitable damages in lieu of specific performance awarded to
Maher.
Specific performance is an order that the actual obligations
being enforced – need future ongoing relationship
Legione v Hateley (1982) HCA
Facts
Held
•
Mr and Mrs Legione (Vendor) entered into a written contract with Mrs
and Mrs Hateley (Purchaser) whereby the Legiones agreed to sell their
land to the Hateleys for $35,000.
• Deposit of $6,000 was paid on the signing of the contract, with the
balance due 12 months later on 1 July 1979. Purchaser took possession
and built a house.
• Purchaser defaulted by failing to pay $29,000 on the due date.
• Vendor sent “cure” notice to Purchaser on 29 July requiring payment
within 15 days (ie by 10 August), failing which the contract would be
terminated. (Cure notice required under contract prior to exercising
termination rights).
• On 9 August, Purchaser’s solicitor phoned Vendor’s solicitors and spoke to
Miss Williams, the secretary of the partner in the firm who was handling
the matter. Purchaser’s solicitor said that his clients “would be ready to
settle on the following Friday which was 17 August”. Miss Williams said “I
think that’ll be all right, but I’ll have to get instructions”.
• On 14 August the Vendor purported to rescind the contract.
• On 15 August, Purchaser paid the balance which was rejected by Vendor.
• Purchaser sued for specific performance.
Held (Majority) – endorsed the general principle of promissory estoppel to
preclude enforcement of contractual rights but not made out on the facts of this
case:
 Per Mason and Deane JJ:
- Main objection was the actual representation made by Miss
Williams. They said that the representation needs to be “clear
and unequivocal”. The words “I think that’ll be all right, but I’ll
have to get instructions” were not enough for promissory estoppel
• Per Brennan J
–
•
Purchaser’s solicitor must have known the limit of Miss Williams’
authority so it was not reasonable that any promise or
representation could be inferred from her conduct. On the
contrary while saying she had to get instructions, she made it
clear that she did not have the authority to make a representation
for an extension of time.
Held (Minority) – Gibbs CJ and Murphy J - estoppel made out:
– Williams induced Purchaser’s solicitors to adopt assumption
• Williams’ statement was intended and likely to induce a
belief in the mind of the Purchaser’s solicitors that
Vendors would not enforce their strict legal rights until
they indicated their intention to do so.
– Vendor was bound by conduct of Miss Williams
– Purchaser acted on faith of the inducement (ie detrimental
reliance)
• Purchaser believed the matter was left in abeyance until
further communication was made (they could have paid
on 9 August if they thought the contract was going to be
rescinded).
– It would be inequitable to allow rescission (ie unconscionable):
• Inequitable to allow rescission without Vendor first
informing Purchaser and giving them a reasonable
chance to complete contract.
Crown v Cosmopolitan Hotel 2016 HCA
Facts
Issue
Held
•
Cosmopolitan was lessee of waterfront restaurant sites owned by
Crown in Southbank precinct which were due to expire in 2005.
• In negotiations for renewal of the leases, Crown offered a 5 year term.
The new leases were conditional on Cosmopolitan undertaking
extensive refurbishments.
• Cosmopolitan asked for an extra 5 years (ie 10 years in total) so that
they could recoup the expensive refurbishment costs.
• Crown was unwilling to offer any further term on the lease, but its
representative did say that the tenants “would be looked after at
renewal time”.
• Cosmopolitan entered into the new leases. After the leases expired,
Crown did not renew and the tenants vacated.
• Cosmopolitan sued Crown alleging that the precontractual
representations:
– Created a collateral contract (see Week 8); and/or
– Gave rise to an estoppel – and Crown was estopped from
refusing to offer a new lease
Was Crown estopped from refusing to offer a new lease at the end of the 5
year term?
majority 5:2:
• No collateral contract
– The representation “we will look after you at renewal time”
was not promissory, and was too uncertain (incomplete,
vague, illusory) to establish a contract.
• No estoppel
–
The representation “we will look after you at renewal time”
was not sufficiently “clear precise and unambiguous” to
establish an estoppel claim
Minority – Gageler and Gordon JJ
– held that a collateral contract was established.
– did not consider estoppel
Je Maintiendrai Pty Ltd v Quaglia (1980) SACA
Facts
Issue
Held
•
Quaglia (tenant) operated a hairdressing salon in a shopping centre
owned by Je Maintiendrai (landlord).
• Landlord agreed to reduced rent because business was slow.
• When tenant wanted to leave 18 months later, landlord claimed the
extra rent owing under the lease.
• Tenant argued estoppel as defence to claim for breach of contract.
Could the tenant rely on promissory estoppel to prevent the landlord from
enforcing its contractual rights? Had the tenant suffered any detriment?
King CJ:
• ‘Promise to reduce the rent has no contractual force because it was
made without consideration.’ (rule from Foakes v Beer)
• But, landlord was estopped from claiming the extra rent because the
tenant would suffer detriment if they had to repay it all at once as a
lump sum.
- The detriment was, the tenant had to make a lump sum
payment of 18 months, it would have been easier for them to
pay progressively.
• Detriment is assessed at the time representor (landlord) seeks to resile
from the induced assumption.
Decision of White J (part of maj with King CJ):
• Detriment was having to pay arrears in lump sum
• On detriment:
– Tenant had other options that they could have pursued if
landlord hadn’t accepted reduced rent, such as:
• Abandon shop and take chances of being sued for
breach of contract [controversial], or
• Assign the lease to a new tenant.
– The ‘opportunity costs’ of not pursuing these other options
amounted to detrimental reliance.
Cox J dissented because the detriment hadn’t been proven.
Sidhu v Van Dyke (2014) HCA – detrimental reliance
o Mr Sidhu had an affair with Lauren Van Dyke who lived in a cottage on
Facts
o
o
the property owned by him and his wife.
Mr Sidhu promised Van Dyke that he would subdivide the property and
transfer the cottage to her. He told her that she did not need a property
settlement when divorcing her ex-husband because she had the cottage.
Van Dyke spent time and effort maintaining and improving the cottage
and the Sidhu’s land, didn’t seek a property settlement from her divorce
and refrained from seeking full-time employment
o The relationship broke down and Mr Sidhu refused to transfer the
Held
cottage to Van Dyke.
• SC NSW:
– Estoppel not made out:
• reasonableness - not reasonable to rely on promises
because they were conditional on the subdivision of
the land, which required the consent of Mrs Sidhu
• detrimental reliance – no reliance other than giving up
property settlement - she may have maintained and
improved the property and given up the opportunity
for full-time employment in any event
• Court of Appeal:
– Shifted the onus of proof to Mr Sidhu to establish that Van
Dyke did not detrimentally rely on his promise
– Mr Sidhu ordered to pay equitable compensation of the value
of the promise (ie the land)
• Held – HCA – estoppel made out:
Detrimental reliance
– Principle: There is no shift in the onus of proof for detrimental
reliance. The person claiming the estoppel has the onus of
proving detrimental reliance.
– Application: However, the evidence showed that Van Dyke
had discharged the onus of proving that she detrimentally
relied on Mr Sidhu’s promise.
• The promises “were objectively likely to have a
significant effect upon the decision making of a person
in the respondent’s position”.
• To discharge the onus it is not necessary that that
Sidhu’s conduct was the sole inducement – it was
enough that it “played a part” in her actions.
• She made life changing decisions with irreversible
consequences: did not pursue a property settlement
from her ex husband; did not pursue employment;
improved the property
Cth v Verwayen – 1990 HCA – effect of estoppel
Giumelli v Giumelli – 1999 HCA
W v G (1996) NSW SC -- Estoppel as an independent cause of action
Facts
•
•
•
W and G lived together in a lesbian relationship; had two children through
artificial insemination - donor agreed to have no role in the children’s life.
W and G later separated. Children stayed with biological mother (W) who
sued her ex-partner (G) seeking ongoing child support.
W claimed:
– G made representations that she would accept the role of parent
and ongoing responsibility for the material and general welfare of
the children
– G knew or intended that W act in reliance on the representation
–
Held
W acted in reliance on them by carrying and conceiving the
children
– W will suffer detriment if the assumption or expectation is not
fulfilled (bear full costs of providing for the children until
adulthood)
– G’s resiling from the representation is unconscionable.
• G argued the three elements of estoppel not made out:
– Reliance on the assumption was not reasonable because of the
fragility of the relationship;
– There was no detriment because children could not be thought of
as a detriment
There was no proportionality between the remedy sought and any detriment.
(Hodgson J):
• Assumption: The defendant created or encouraged in the plaintiff an
assumption that she would act as parent to the children, accept
responsibility for their general welfare and provide for the needs of
their mother
• There was no emphasis that there be an existing or expected legal
relationship of any type
• Inducement: The inducement was that the defendant induced the
Plaintiff to adopt the assumption by encouraging the conduct and she
was quite closely involved in the artificial insemination concept
• Detriment: The task and expense of bringing them up on her own,
whereas if G had acted in accordance with that assumption, W would
have had her assistance in this task
• Reasonableness (in obiter): The Plaintiff’s reliance here was not
unreasonable so as to prejudice the finding that there was reliance
and that this was intended by G. But interestingly he said that he did
“not understand it to be an independent part of W’s cause of action
that she establish that her reliance was reasonable”
• Unconscionability: Justice Hodgson concluded that it was
unconscionable for G to make no contribution whatsoever to the
upbringing of the children
• Ordered that G provide approximately $150,000 to be paid to W for
the benefit of the children
EXPRESS TERMS
L’Estrange v F Graucob (1934; Divl Court, UK)
Facts
o L’Estrange placed an order with Graucob for a vending machine
to stock cigarettes in her café. She signed Graucob’s standard
order form which was headed “Sales Agreement”.
o This was accepted by Graucob’s sales representative (i.e.
contract concluded).
o The order form contained terms of the contract in small print
which included:

o
o
o
Issue
Held
o
o
o
o
o
“any express or implied condition, statement, or
warranty, statutory or otherwise not stated
herein is hereby excluded”
The machine did not work satisfactorily. L’Estrange sued for
breach of contract, claiming breach of an implied warranty that
the machine was fit for the purpose for which it was sold.
Graucob argued any implied warranty was excluded by the
express term.
L’Estrange had not read the terms, saying the print was too
small.
Did the exclusion clause form part of the contract?
When a document containing contractual terms is signed,
then, in the absence of fraud, or, I will add, misrepresentation,
the party signing it is bound, and it is wholly immaterial
whether he has read the document or not”
L’Estrange has signed a document headed “Sales Agreement”
which she admits had to do with an intended purchase (i.e. it
was a contractual document).
This document contained a clause excluding all conditions and
warranties.
Having put her signature to the document and not having been
induced to do so by any fraud or misrepresentation, L’Estrange
cannot be heard to say that she is not bound by the terms of the
document because she has not read them.
Accordingly, there can be no implied warranty (as alleged by
L’Estrange) as there is an express term excluding it.
Toll v Alphapharm 2004 HCA
Facts
•
•
•
•
•
Alphapharm was distributor of flu vaccine imported from the UK.
Alphapharm contracted with Richard Thomson to arrange for
collection, storage and regulatory approval of vaccine.
Toll (Finemores) was engaged by Thomson to collect and store the flu
vaccine pending its regulatory approval.
Finemores presented Thomson with a letter which asked Thomson to
complete a credit application form and sign a rate schedule accepting
certain rates and conditions.
On the credit application form – immediately above the place for
signature – was written:
– “please read ‘Conditions of Contract’ (overleaf) prior to
signing.”
Those conditions provided that:
– Agency – the customer entered into the contact on its own
behalf and also as agent for its “associates”, defined to include
persons “having an interest in the goods”
– Exclusion of liability - in no circumstances would Finemores be
responsible for loss or damage to the goods.
•
Held
The Thomson representative who signed the form did not read the
conditions.
• As a result of poor storage the first two consignments of vaccine failed
to obtain regulatory approval.
• Alphapharm sued Finemores for breach of duty as a bailee and in
negligence.
• Finemores relied on the exemption from liability in its agreement with
Thomson.
Held – application to facts:
• Incorporation of terms - Applying the general rule to the facts, the
terms and conditions on the reverse of the signed credit application
form formed part of the contract. Toll was successful.
• [Agency – Thomson contracted as agent for Alphapharm. “The
evidence compels the conclusion that Alphapharm authorised
[Thomson] to contract with [Toll] and agree upon rates of freight,
terms of payment, and such other standard terms and conditions of
the contract of storage and transportation as were required by [Toll]”]
Summary
 Adoption of the rule in L’Estrange v Graucob in Australia, which is that
there is no notice requirement in relation to incorporation of terms by
signature
 People are bound by the terms they signed despite they have not read
the terms unless there is vitiating factor
Incorporation by signature – exceptions:
Curtis v Chemical Cleaning 1951 UKCA
Facts
Issue
Held
o
Mrs Curtis took her white satin wedding dress to Chemical Cleaning
and Dyeing Co (a dry-cleaning shop) for cleaning.
o She was handed a paper headed “Receipt” by the shop assistant,
which she was asked to sign.
o Before doing so, Mrs Curtis asked why she had to sign it. She was told
that it was because the shop would not accept liability for certain
specified risks (including the risk of damage to the beads and sequins
on the dress).
o So Mrs Curtis signed the “receipt”.
o But the “receipt” in fact contained the following condition: “This or
these articles is accepted on condition that the company is not liable
for any damage howsoever arising, or delay”. [i.e. the exclusion
clause was much wider in scope that Mrs Curtis had been advised].
o The dress was returned with a stain on it. Mrs Curtis sued for damages
(in tort for negligence).
o The shop relied on the exemption from liability contained in the
signed receipt.
Was the exclusion clause incorporated into the contract?
Lord Denning)
• Not incorporated because of misrepresentation:
– “This case is of importance because of the many cases
nowadays when people sign printed forms without reading
them, only to find afterwards that they contain stringent
–
–
–
•
clauses exempting the other side from their common law
liabilities.”
“If the party affected signs a written document, knowing it to
be a contract which governs the relations between them, his
signature is irrefragable evidence of his assent to the whole
contract, including the exempting clauses, unless the
signature was obtained by fraud or misrepresentation.”
What amounts to misrepresentation?
• “… any behaviour, by words or conduct, is sufficient to
be a misrepresentation if it is such as to mislead the
other party about the existence or extent of the
exemption”.
• A fraudulent or innocent misrepresentation is
sufficient to disentitle the creator of it to the benefit of
the exemption clause.
Applying to the facts - In this case, by failing to draw attention
to the width of the exemption clause, the assistant created the
false impression that the exemption only related to the beads
and sequins (when in fact it covered the entire dress).
Held per Denning (Obiter)– not bound by signature if not a document
reasonably expected to contain contractual terms:
– In this case Mrs Curtis knew that the document contained
contractual terms (because she asked).
– However, had she not had actual knowledge, “the document
might reasonably be understood to be... only a voucher for the
customer to produce when collecting the goods, and not
understood to contain conditions exempting the cleaners from
their common law liability for negligence. In that case it would
not protect the cleaners.”
Timing – Oceanic Sun Line v Fay 1988 HCA
Facts
•
•
•
•
•
•
In 1983 Fay booked, through a Sydney travel agent, a Greek Island
cruise on the Stella Oceanis owned by Oceanic Sun Line (a Greek
company).
The brochure stated: “the transportation of passengers was governed
by the terms and conditions printed on the passenger ticket which
could be inspected at any Sun Line Office”. However, no such
conditions were available.
An “exchange order” was issued by travel agent at time of payment of
fare. It stated that it was to be exchanged for tickets when boarding
the vessel in Athens.
Fay exchanged the exchange order for their tickets on boarding the
vessel. Clause 13 of the ticket conditions stated that the courts of
Greece shall have exclusive jurisdiction in any action brought against
Oceanic.
Fay received serious injuries on the cruise while trap shooting. Fay
sued Oceanic for negligence in New South Wales.
Oceanic applied to have the proceedings stayed (ie discontinued)
relying on the clause stating that such proceedings can only be brought
in Greek courts.
•
Issue
Held
Material available to Fay at the time he paid the fare referring to the
“Sun Line passage contract” did not bring to the actual notice of the
passenger any exclusive foreign jurisdiction clause.
When was the contract formed? Was the exclusive jurisdiction clause on the
ticket incorporated into the contract?
Held – Brennan J:
o time of contract formation - conventional “ticket” analysis not
applicable
o Contract formed in NSW; terms on ticket not incorporated because
provided after contract formed
o No constructive notice of the terms
1. The notice must be given prior to formation of contract
2. If relying on constructive notice, it won’t be good enough unless it is
embedded in a contractual document.
Timing - eBay v Creative Festival 2006 FCA
Facts
•
•
•
•
•
Creative was the promoter of the Big Day Out.
Tickets were sold 4 different ways: Big Day Out website; Ticketmaster
website; over the counter from Ticketmaster offices and other retail
outlets.
Printed tickets included condition 6 (previous slide) that ticket would
be cancelled if resold for profit (the new condition).
Tickets sold out quickly. Scalpers active on eBay. Creative started
cancelling tickets for sale on eBay.
eBay sued Creative for engaging in misleading and deceptive conduct
under s52 of the Trade Practices Act (now s18 of the Australian
Consumer Law – Contract B) for including the term on the tickets and
representing that it was enforceable.
Issue
•
•
Was condition 6 incorporated into the ticket purchase contracts?
In order to answer this the Court needed to consider each
different purchase mode, and when the contract was formed.
Involved extensive review of “ticket” cases.
Held
•
Time of formation of contracts:
– Online transactions: at time of finalising purchase online (ie
before receipt of ticket)
– Over the counter transactions: at time of payment (ie before
opportunity to read ticket)
– Conventional ticket analysis not appropriate because it was
unrealistic to expect that a reasonable person would believe
they had a right to return the ticket (especially as tickets
specifically stated not refundable) – in this case, the retention
of tickets does not apply here
Incorporation of “new condition”
– Only incorporated where notice provided prior to contract
formation – (over the counter ticket sales after 16 November
2006 when signs were displayed on counters).
[Misleading or deceptive conduct – through inclusion of “new
condition” on printed ticket in circumstances where it was not
incorporated into pre 16 November 2006 purchases.]
•
•
Knowledge: Parker v SE Rail 1877 UK CA – where the traditional approach applies
Facts
Issue
Held
•
Parker left his bag in the cloak room of a railway station run by South
Eastern Railway Co.
• He was given a ticket upon depositing his bag and paying two pence.
• The front of the ticket said “see back”. On the back of the ticket was a
printed clause excluded liability for items worth £10 or more. (There
was also a sign to such effect displayed at the cloakroom).
• Parker did not read the clause as he thought the ticket was only a
receipt of payment (although he admitted that he saw that the ticket
contained writing).
• The bag was lost. Parker sued for the full value of the lost bag (greater
than £10).
Whether the terms printed on the ticket formed part of the contract.
Mellish J - whether terms printed on ticket are incorporated into the contract:
• The person receiving the ticket is bound by the conditions on the ticket
if:
– Actual knowledge that it contained conditions - he knew
there was writing and believed that the writing contained
conditions (irrespective of whether he has read them); or
– Reasonable notice that it contained conditions - if he knew
there was writing but did not actually know the writing
contained conditions, nevertheless he would be bound if the
delivering of the ticket to him in such a manner that he could
see there was writing upon it was reasonable notice that the
writing contained conditions.
• Ie – applied the “traditional” ticket analysis – acceptance by retention
without objection.
Not a contractual document: Causer v Brown 1951 VicSC
Facts
o
o
o
Held
Causer took his wife’s favourite frock to a dry-cleaning shop owned
by Browne.
Causer was given a docket on which appeared printed conditions,
including a clause purporting to exempt Browne from any liability
for damage to the dress.
Frock was returned damaged.
Herring CJ:
–
–
–
The docket was one which might reasonably be
understood to be only a voucher for customer to
produce when collecting the dress (as opposed to a
contractual document containing terms exempting the
shop from liability in negligence).
Onus was on the shop to prove customer was aware,
or ought to be treated as being aware, that the docket
was not merely a voucher or receipt and that it
contained special contractual conditions.
The shop failed to discharge this onus. Accordingly,
the exemption clause was ineffective.
Reference to terms not reasonably available:
Thornton v Shoe Lane Parking
Facts
• Thornton parked his car in Shoe Lane Parking’s multi-level automatic car
park. He had never been there before.
• Thornton took a ticket from the automated ticket dispensing machine at
the entrance and drove in.
• The ticket: Small print on the ticket (which Thornton had seen but not
read) stated: “This ticket is issued subject to the conditions of issue as
displayed on the premises.”
• The accident: When he returned to collect his car, Thornton went to the
office with his ticket and paid. He was severely injured in an accident
when he was putting things into the boot of his car. He sued for damages
in tort.
• The “conditions” – what? They included a condition which purported to
exempt Shoe Lane Parking Ltd from liability arising from personal injury to
the customer howsoever caused.
• The “conditions” – where were they? - The “conditions” were displayed
on a panel opposite the ticket machine and on panels in the paying office
(which were not immediately visible upon driving into the car park).
• Shoe Lane Parking asserted this condition to be a term of the contract
between itself and Thornton.
Issue
Were the terms displayed at the premises incorporated into the contract?
Held
Held (per Lord Denning) – even if we apply conventional ticket analysis – actual
or constructive notice of the particular condition required
• Referred to Mellish LJs test from Parker v SE Rail. That test needs to be
qualified so that sufficient notice is given of the particular “condition”
being enforced, rather than notice that “conditions” existed.
• “Telescoping the … questions [of Mellish LJ] they come to this: the
customer is bound by the exempting condition if he knows that the
ticket is issued subject to it; or, if the company did what was reasonably
sufficient to give him notice of it”.
Held (per Lord Denning) – applying to the facts (if conventional ticket analysis
were applied):
• Here, the company had not done all that was reasonably sufficient to give
Thornton notice of the exempting condition.
– “All I say is that it is so wide and so destructive of rights that the
court should not hold any man bound by it unless it is drawn to
his attention in the most explicit way. … In order to give sufficient
notice, it would need to be printed in red ink with a red hand
pointing to it – or something equally startling.”
Baltic Shipping v Dillon 1991 NSWCA – cruise ticket scenario
Facts
•
•
•
•
October 1985 – Dillon booked a cruise on Mikhail Lermontov through
travel agent and paid deposit. Given a “booking acknowledgment”.
9 November – Dillon received a “booking form” which stated that a
contract of carriage is made “only at the time of issuing of tickets and …
subject to the conditions … printed on tickets”, which were also available
at CTC Cruises offices.
December 1985 – Dillon paid balance owing for the cruise.
24 January 1986 – Baltic issued ticket which included:
– a condition limiting liability of damage expressed in terms of the
“units of account” defined by the International Monetary Fund
•
•
Issue
Held
7 February 1986 – The cruise set sail with Dillon on board.
On 16 February 1986 the ship sank. Mrs Dillon sued for damages. Posttraumatic stress. She escaped in last 10 minutes before it sank and lost all
her belongings including collection of letters from her recently deceased
husband.
Did the limitation of liability clause printed on the ticket form part of the contract?
Held – in favour of Mrs Dillon (Kirby and Gleeson JJ) (Mahoney J dissenting)
• Terms cannot be added after a contract is entered into without the
agreement of the passenger - they are contractually ineffective.
• When was the contract made? - At the time the tickets were issued – ie
not at the time the booking form was issued (cf. Oceanic Sun Line) –
because the booking form made it obvious that it was not the contract of
carriage and said the contract would arise “only at the time of the issuing
of tickets”.
• Insufficient notice of terms at time contract formed – terms not
reasonably available – terms unusual:
– But at the time Dillon received the ticket, unless Mrs Dillon had
taken active steps of her own, she still had no knowledge of the
ticket terms.
– The shipping company has a responsibility to bring unusual
conditions to the notice of passengers before they can be bound
by them. Availability at CTC Cruise offices was insufficient.
– Retention of ticket does not indicate acceptance of terms. Dillon
was entitled in law to take the view she would be issued with a
ticket which would contain no unusual provisions of which she
was not on notice. The limitation of liability conditions were such
unusual provisions. The shipping company took no adequate
steps to give her notice of these.
Onerous terms – extra steps required:
Interfoto Picture Library v Stiletto 1988 UKCA
Facts
• Interfoto ran a photographic transparency lending library business.
• Stiletto ordered 47 transparencies over the phone.
• The 47 transparencies were delivered to Stiletto in a jiffy bag. In the jiffy
bag was a delivery note containing 9 printed conditions. Condition No. 2
stated:
– all the transparencies had to be returned within 14 days of
delivery;
– otherwise a holding fee of £5 a day and value added tax would be
charged for each transparency retained thereafter.
• Stiletto had never used Interfoto’s library service before; nobody at
Stiletto read the conditions.
• Stiletto returned the transparencies four weeks later.
• Interfoto then sent Stiletto the bill for the late fee of £3,783.50 (15 days
late x 47 transparencies x £5 + interest).
• Stiletto refused to pay; Interfoto sued to recover the amount, alleging
Stilleto had breached that term of the contract (the late fee condition).
Issue
Was the late fee incorporated into the contract?
Held
• When was contract concluded? The contract was concluded after Stiletto
had received transparencies and delivery note –
– Offer = delivery of transparencies
–
•
•
Acceptance = opening the bag and checking and accepting the
transparencies.
Onerous terms – extra steps required:
– In the ticket cases including Parker v SE Rail and Thornton v Shoe
Lane Parking, the courts held that the common law required that
reasonable steps be taken to draw the other parties' attention to
the printed conditions or they would not be part of the contract.
– If one condition in a set of printed conditions is particularly
onerous or unusual, then the party seeking to enforce it must
show that that particular condition was fairly brought to the
attention of the other party.
Application to facts: In this case condition 2 was a very onerous – the fee
was exorbitant. Nothing was done by Interfoto to bring it to Stiletto’s
attention.
Balmain New Ferry v Robertson – 1906 HCA incorporation by course of dealings
Facts
o
o
o
o
o
o
o
Issue
Held
Balmain New Ferry Co placed a notice over the entrance to their
private wharf stating that a fare of one penny must be paid by all
persons entering or leaving the wharf, whether they had travelled by
the company's boats or not.
Mr Robertson was aware of these conditions as he regularly travelled
on the ferry.
On the occasion in question, he paid the fare of one penny and was
admitted to the wharf through a turnstile. But he missed his ferry.
He attempted to leave the wharf by another turnstile which was the
only means of exit (unless he elected to jump into the water and swim
to shore).
Mr Robertson refused to pay a second penny; Balmain’s employees
tried to detain him until he paid the penny, but Robertson eventually
escaped.
Robertson sued for false imprisonment and assault.
In its defence, Balmain argued he was contractually bound to pay the
penny and obliged not to leave the wharf until he had done so.
had these terms been incorporated into the contract?
Held – terms incorporated by prior dealings:
– It is immaterial whether Balmain did what was reasonable to
direct public attention to the notice.
– Robertson had entered the wharf with knowledge of the
conditions imposed by Balmain (having used the ferry service
many times before) which Robertson admitted in evidence.
– He must therefore be taken to have impliedly agreed [on this
occasion]:
• that he would not ask for egress from the wharf by land
without payment of another penny; and
• that he consented to the Balmain’s employees preventing
him from leaving in that way without such further
payment (they were therefore justified in using such
force as was reasonably necessary for that purpose).
State Rail v Heath Outdoor 1986 NSW CA – flexible approach
Facts
Issue
Held
•
State Rail Authority (“SRA”) entered into formal written agreement with
Heath under which Heath permitted to erect advertising billboards on SRA
property.
• The Agreement contained written terms:
– Right to terminate on notice - “[SRA] may terminate this contract
at any time upon giving to [Heath] one (1) calendar months’
notice in writing of its intention so to do, but such action shall not
give rise to any claim for compensation whatsoever on the part of
[Heath].” (Condition 6)
– Term - term of the agreement to be for 5 years “unless sooner
determined”.
• In January 1983, Heath entered into a 5-year agreement with Rothmans
(cigarette makers), under which Rothman’s rented advertising space on
the billboards.
• Heath then spent $138k installing signs at the locations in reliance on its
agreement with Rothmans.
• In March 1983, the NSW government announced a policy to phase out
cigarette advertising on state property (this included SRA’s property).
• SRA terminated the agreement with Heath arguing that Condition 6 gave
it an unfettered right to terminate before the 5-year period was up.
Were the oral assurances about the right to terminate incorporated into the
contract?
• Here, the oral assurances were not terms of the contract: - the contract
was wholly in writing
– SRA’s rep made it clear that he did not have authority to change
any condition of the contract. He said he would be unable to get
it changed.
• No collateral contract - The argument that there was a separate collateral
contract failed because the alleged term was inconsistent with the main
contract.
• No estoppel - An estoppel argument failed because it was not
unconscionable for SRA to enforce the term
Van den Esschert v Chappell – Collateral contract
Facts
o
o
Before signing a contract for the purchase of a house, purchaser asked
the vendor if there were any white ants (termites) in the house.
Vendor replied: “No, if there had been any, I would have taken steps
to eradicate them”. Purchaser then signed the contract, although the
written terms made no reference to white ants.
o
Held
After purchaser took possession, she discovered termites in the
house.
o She incurred costs in having them eradicated and repairing
A collateral contract existed (per Wolff CJ and D’Arcy J) (Jackson SPJ
dissenting):
– Timing: When a prospective purchaser immediately before
signing a contract makes a specific request to be informed
about a matter and gets an affirmative answer such as the
purchaser got in this case, it was intended to be made a term
of the contract.
– Importance: Furthermore, on the purchase of a house in this
country an inquiry regarding the presence of white ants was
most important.
Hoyts v Spencer - 1919 HCA – collateral contract must be consistent with …
Facts
Issue
Held
o
Lease: Cosens Spencer entered into a written agreement with Hoyt’s
whereby Spencer agreed to lease certain premises to Hoyt’s for 4
years.
o Right to terminate: The lease contained the following proviso in
writing:
 “Provided always that the said Cosens Spencer may at any
time during the currency of the term hereby created
terminate this lease by giving to the lessee [Hoyt’s] at least
four weeks’ notice in writing of his intention to do so.”
o Spencer purported to terminate the lease during the 4-year term
pursuant to the termination clause.
o But Hoyt’s argued that there was a collateral contract:
 prior entering into the lease agreement, Spencer had
promised Hoyt’s that he would not terminate the lease
during its 4-year currency unless he was
requested/required to do so by the Head Lessors (and this
was not Spencer’s reasons for terminating);
 on the basis of this promise, Hoyt’s entered into the lease
agreement.
 accordingly, there was a collateral contract between Hoyt’s
and Spencer connected to the main lease.
Did the oral assurances form part of an enforceable collateral contract?
Held - application to facts – no collateral contract because of inconsistency
with main contract:
• the promise in the alleged collateral contract impairs the
contractual rights of Spencer in the main contract;
• but for the additional promise alleged in the collateral
contract, Spencer had the power (under the proviso in
the lease) to do exactly what he did (i.e. terminate the
lease on 4 weeks’ notice);
• Hoyt’s case is that, by the collateral contract, that power
to terminate was cut down almost to the point of
rendering it nugatory.
– Accordingly, the collateral contract is inconsistent with the main
contract. The collateral contract alleged is not legally
enforceable.
A formal agreement: Equuscorp Pty Ltd v Glengallan Investments Pty Ltd
o Investors had entered into written loan agreements (formally executed)
Facts
Issue
Held
with a lender to borrow moneys and pay the interest on certain terms
[a complex tax minimisation scheme which failed when the underlying
business failed]
o When a court proceeding was brought against them to recover
outstanding loan debts, the investors defended the action by trying to
rely on earlier oral loan agreements on different terms in order to limit
their liability (the “oral limited recourse loan terms”.)
o These oral limited recourse loan terms were inconsistent with the loan
documents (which required repayment of the full loans).
Were the earlier limited recourse loan terms incorporated into the loan
agreement?
Held – as to the significance of a signed document – binding unless established
exception applies:
– “The respondents each having executed a loan agreement, each
is bound by it. Having executed the document, and not having
been induced to do so by fraud, mistake, or misrepresentation,
the respondents cannot now be heard to say that they are not
bound by the agreement recorded in it.”
– The parol evidence rule, the limited operation of the defence of
non est factum and the development of the equitable remedy of
rectification, all proceed from the premise that a party executing
a written agreement is bound by it.
Held – as to the exceptions – not applicable here because of inconsistency –
subsequent formal agreement prevails
– “The conclusion that the respondents are bound by the written
loan agreements may leave open the possibility that an earlier
consensus reached by the parties was in each case a collateral
agreement (made in consideration of the parties later executing
the written agreement) but that has never been the
respondents’ case.
– In another case it may leave open the possibility that the
contract is partly oral and partly in writing. But that cannot be
so here. The oral limited recourse terms alleged by the
respondents contradict the terms of the written loan
agreement. If there was an earlier, oral, consensus, it was
discharged and the parties’ agreement recorded in the writing
they executed”.
Language - JJ Savage v Blakney 1970 HCA
Facts
•
JJ Savage (seller) stated in letter:
“Fuel consumption 6.5 Gals/Hr @ 2,400 RPM, Power output 120 HP, Estimated speed
15 MPH”.
Formal agreement for sale entered into. Speed not mentioned.
• Blakney (purchaser) sued for breach of warranty when boat would
not move faster than 12 MPH
Issue
Was the statement in Savage’s letter as to estimated speed a term of the
contract?
Held
Held – statement must be promissory to be a contractual term – importance of
language
– A statement relied upon as forming a term of a contract must be
promissory and not merely representational.
– In answering this question, the actual words used by JJ Savage in the
letter should be considered.
– “The words themselves tend, in our opinion, against the inference of
a promise that the boat would in fact achieve the nominated speed.”
– So far from being a promissory expression, “estimated speed 15
m.p.h.” indicates an merely expression of opinion as the result “of
approximate calculation based on probability”, to use the dictionary
equivalent of “estimate”. Accordingly, it was not a contractual term.
Oscar Chess Ltd v Williams 1957 UKCA – a non-expert selling to an expert
Facts
Issue
Held
–
–
Williams sold his second-hand Morris (car) to Oscar Chess (a car dealer) for £290.
The car had originally come into Mr Williams’ possession through his mother who had
purchased it in 1954 from a second-hand dealer. When she purchased it, the
registration book showed the car was a 1948 model.
– When Mr Williams sold the car to Oscar Chess, he honestly believed it was a 1948
model. He had told that to Oscar Chess and that is what Oscar Chess also believed
based on it seeing the registration book.
– Subsequently Oscar Chess discovered the car was in fact a 1939 model – the
registration book had been fraudulently altered by a third party well before the car
was sold to Mrs Williams.
– Oscar Chess sued Williams on basis it would have paid £115 less for the car if it had
known the true situation.
– The claim for breach of contract would succeed if the court was convinced it was a
term of the contract that the car was a 1948 model.
– No written contract.
Was the representation that a 1948 model a warranty/term of the contract?
• Held (Lord Denning with whom Hodson LJ agreed) – application to facts not promissory – key factors:
– (language) ‘[M]uch depends on the precise words that were used. If
the seller says “I believe it is a 1948 Morris. Here is the registration
book to prove it,” there is clearly no warranty. It is a statement of
belief, not a contractual promise. But if the seller says, “I guarantee
that it is a 1948 Morris. This is borne out by the registration book, but
you need not rely solely on that. I give you my own guarantee that it
is,” there is clearly a warranty. The seller is making himself
contractually responsible, even though the registration book is
wrong …”
– (relative expertise) It must have been obvious to the parties that
Williams had no personal knowledge of the year of manufacture. He
was relying on the registration book. It is unlikely in these
circumstances that the seller would warrant the year of manufacture.
– It is unlikely for a non-expert make a warranty about
characteristics of something to an expert.
Dick Bentley v Harold Smith (Motors) 1965 UKCA – an expert selling to a nonexpert
Facts
Issue
Held
•
•
Speedometer said 20,000 miles
Dealer said: It has only done 20,000 miles since the fitting of a
replacement engine and gearbox.
• But: Turned out to be a lemon and to have done many more miles.
• Dealer could have obtained detailed bio about the car from the makers
which would have revealed greater mileage and other problems, but
had not done so.
• Buyer (Bentley!) sues dealer for breach of warranty that car had only
done 20,000 miles.
Was the statement that car had only done 20,000 miles a contractual warranty?
Held – Lord Denning (others agreed) – statement was a term:
– Smith, a car dealer, was in a position to know, or at least to find
out, the history of the car. [ie had the expertise]
– He could have obtained that information from the car
manufacturers by writing to them (and discovered the true
situation with respect to the mileage).
– He did not do so at the time of the transaction – it was done
later. Smith ought to have known better.
– Accordingly, there was no reasonable foundation for making the
representation as to the car’s mileage (i.e., although Smith did
not make the representation fraudulently, there was fault on his
part for making it).
– Accordingly, he is bound by the representation (i.e. it is a term
of the contract, and it has been breached).
Royal Botanic Gardens & Domain Trust v South Sydney CC 2002 HCA
•
•
•
Facts:
– The Trustees (legal owners of the Domain) entered into a written lease agreement
with the Council whereby Trustees agreed to lease to the Council an area below the
surface of the Domain for the construction, operation and maintenance of an
underground car park and a footway for a term of 50 years.
– Clause 4(b)(iv) provided that yearly rent for each subsequent 3-year period “may be
determined by the Trustees at the commencement of each of the affected
periods ... provided that ... in making any such determination the Trustees may have
regard to additional costs and expenses which they may incur in regard to the
surface of the Domain above or in the vicinity of the parking station and the footway
and which arise out of the construction operation and maintenance of the parking
station by the [Council]”.
Issue:
– Were the Trustees constrained by clause 4(b)(iv) to have regard only to the matters
specified in that clause in determining the new rent, or could the Trustees have
regard to other things as well (e.g. market value of land)?
Held – ambiguity existed on the facts:
– In this case, the difficulty concerns the phrase “the Trustees may have regard to
additional costs and expenses...”:
• Does this mean they cannot have regard to other matters?
• If they can have regard to other matters, what are they?
–
–
•
The clause does not expressly state:
• that the additional costs and expenses are the only matters that the
Trustees may have regard to; or
• that the specified matters do not limit the generality of matters to which
regard may be had.
As a consequence, there is ambiguity as to the meaning of the term.
Held – as to the use of the surrounding circumstances:
– Resolution of the ambiguity requires the application of settled principles of
construction:
• appropriate to have regard to more than internal linguistic considerations
• consider the circumstances in which the words were used to work out the
objective which the parties had in mind
• appreciate the commercial purpose of a contract, the background, the
context, the market in which the parties are operating
– Their Honours then reviewed the circumstances relating to the dealings between
the parties and noted, inter alia:
• the parties were 2 public authorities and the purpose of the transaction was
the provision of a public facility (not commercial profit for one at the
expense of the other)
• Council was responsible for the construction of the car park and footway.
• The purpose of the clause was to allow the Trustee to recover from the
Council any “additional expenses” it may incur in the future as a result of
the construction of the car park - and no more.
– Accordingly, “additional costs and expenses” were the only matters permitted.
ABC v Australian Performing Rights Association 1973 HCA
Issue: Could a cumulative interpretation apply re CPI movements?
•
Facts:
–
–
–
–
–
–
–
•
On 8 December 1964 APRA licensed the ABC to use certain musical works for public
performance over the ABC’s radio and television network.
APRA is the owner or agent of the owners of the performing right in many musical works.
Agreement provided that the licence fee would be adjusted annually by a percentage
amount calculated by reference to movements in population numbers and CPI.
ABC paid licence fees by applying the percentage increase to the licence fee set in the base
year.
After a few years, APRA came to the view that the ABC was not paying the correct licence fee
– that they should be paying licence fees on a cumulative basis.
APRA sued to recover the extra licence fees they claim ABC should have paid.
Simplified example – assume licence fee in base year of $100:
Held (Gibbs J) – different approach for clear and unclear terms:
– ‘… the primary duty of a court in construing a written contract is to endeavour to
discover the intention of the parties from the words of the instrument in which the
contract is embodied. Of course the whole of the instrument has to be considered, since
the meaning of any one part of it may be revealed by other parts, and the words of
every clause must if possible be construed so as to render them all harmonious one with
–
•
another. If the words used are unambiguous the court must give effect to them,
notwithstanding that the result may appear capricious or unreasonable, and
notwithstanding that it may be guessed or suspected that the parties intended
something different. The court has no power to remake or amend a contract for the
purpose of avoiding a result which is considered to be inconvenient or unjust. On the
other hand, if the language is open to two constructions, that will be preferred which
will avoid consequences which appear to be capricious, unreasonable, inconvenient or
unjust, "even though the construction adopted is not the most obvious, or the most
grammatically accurate “…’
[although Gibbs J was in the minority, these statements have been accepted as
authoritative in relation to the applicable legal principles]
The result – applying these principles to the facts:
– Barwick J and Stephen J – no ambiguity – “cumulative” interpretation not possible
• “The parties were evidently anxious to provide in some way and to some extent
against the depreciation in the value of money. … It may be granted that the
computation of the amount of the annual figure according to the expressly
stated formula in cl. 2 may produce results which may not commend
themselves to a person seeking to achieve an actual or even approximately
constant value of the licence fee. But if that result is produced by the
application of the words in which the parties have expressed themselves, it is no
part of the function of a court by some process of divination as distinct from
construction of the language employed to attribute to parties an intention to do
something for which their express words do not provide.”
• “In my opinion, both the language which the parties used and the structure of
agreement which they expressed are plain and, to my mind, unambiguous.”
• “Thus this is not a case of resolving ambiguity for, in my opinion, there is none.
To accept [APRA’s] submission would require a radical change to be made in the
language chosen by the parties to express their intention.”
– Gibbs J – ambiguous – “cumulative” interpretation applies
Courts will give effect to clear words even if the result is unreasonable or unfair
Quirke v FCL – 2005 SA SCIssue: FCL provided services only and not goods. Did the guarantee cover the default on
payment for the transport services provided by FCL to Dayrise
•
Facts:
–
–
–
–
•
FCL is in the business of transporting goods by rail. Quirke was the director of a company
which was a packer of citrus fruit (Dayrise Produce Pty Ltd).
At FCL’s request Quirke and another director of the company executed a Credit Agreement
under which they guaranteed “the due payment for all such goods as may be sold (by FCL) to
Dayrise” – ie a guarantee to pay if Dayrise defaulted.
The guarantee was expressed to operate in respect of the provision of goods. The guarantee
on its terms did not operate in respect of services. FCL provided only services.
Trial decision – for FCL - The judge in the court below took into account the intention of the
parties and concluded that, notwithstanding the expression of the guarantee, the guarantee
was intended to apply to services and that as a consequence, Quirke was bound to pay under
the guarantee.
Held – not ambiguous – cannot substitute a reasonable or fair meaning:
–
–
–
–
The meaning of a contract is to be determined objectively. It is not the subjective beliefs
or understanding of the parties that govern contractual relations but a determination of
what a reasonable person would have understood them to mean.
Evidence of surrounding circumstances is admissible in order to interpret the contract if
the language is ambiguous or capable of multiple meanings. However, if the language of
the contract has a plain meaning extrinsic material will not be admissible (Codelfa
Construction Pty Ltd v State Rail Authority (NSW) (1982))
The guarantee on its face is in respect of the provision of goods to be sold. On its face
the guarantee does not apply to services. While it is plain that the surrounding
circumstances establish that FCL intended that the guarantee apply to services, the
meaning of the words used is plain and there is no ambiguity. The court is asked to
contradict the language of the contract when it has a plain meaning. The process of
construction is not one which entitles the court to substitute a reasonable or fair
meaning for the meaning of the words used, nor to construe a written agreement to
correct mistakes.
Therefore, Quirke is not bound by the guarantee.
Darlington Futures v Delco Australia (1986) HCA
Facts
Issue
Held
o
o
Contract between a futures broker and its client (Delco).
Contract contained the following 2 exclusion clauses:
 Cl 6 – Exclusion of liability - excluded the broker from
liability for ‘loss arising in any way out of any trading
activity undertaken on behalf of the client whether
pursuant to this agreement or not …’
 Cl 7(c) – Limitation of liability - limited the brokers'
liability to $100 in respect of ‘any claim arising out of or
in connection with the relationship established by this
agreement.’
o Broker engaged in day trading activity not authorised by the client – as a
result of which, the client incurred substantial losses.
o Client sued; claiming over $300,000. Broker sought to rely on the above
exclusion clauses.
Could DF rely on any of the exclusion clauses to avoid liability for the losses?
Held – as to the principles for interpreting exclusion clauses – natural and
ordinary meaning – contra proferentem if ambiguity
– ‘the interpretation of an exclusion clause is to be determined by
construing the clause according to its natural and ordinary
meaning, read in the light of the contract as a whole, thereby
giving due weight to the context in which the clause appears
including the nature and object of the contract, and, where
appropriate, construing the clause contra proferentem in case of
ambiguity”
Held – application of principles to the facts: (joint unanimous agreement)
– Re Cl 6 – did not protect the broker for unauthorised trading
• Clause only applied to activity undertaken on behalf of
the client - i.e., with the client’s authority – here the
trading was not authorised.
• Not intention for the clause to exclude the trader from
liability for unauthorised trades.
– Re Cl 7(c) – broad wording did protect the broker even against
unauthorised trading
•
•
Clause expressed to cover ‘any claim arising out of or in
connection with the relationship established by this
agreement.’
An unauthorised transaction has a substantial connection
with the relationship of broker and client established by
the agreement
Sydney City Council v West (1965) HCA
Facts
Issue
Held
•
•
West parked his car in the Councils parking station (the Domain Car Park).
West received a parking ticket on which was stated:
(1) this ticket must be presented for time stamping and payment
before taking delivery of the vehicle; and
(2) Council does not accept any responsibility for the loss or
damage to any vehicle however such loss, damage may arise or
be caused. “
• West’s car was taken by a person who falsely represented that he had lost
his original ticket and was given a duplicate ticket.
Could SCC rely on the exclusion clause to avoid liability?
Held (majority) – Council could not rely on the exclusion clause:
– Council was not exonerated from liability for the loss of West’s
car.
– Handing over the car was an unauthorized delivery of the vehicle
by him to that person and not a mere act of negligence in
relation to some matter authorised by the contract.
– Accordingly, the Council was not entitled to the protection
afforded by the exempting clause.
Davis v Pearce Parking Station Pty Ltd (1954) HCA
Facts
Issue
Held
o
o
Davis parked her car at a car parking station owned by Pearce.
Davis received a “parking check” on which was stated:
 (1) that the “parking check” must be exchanged at office
for a delivery ticket before the motor vehicle can be
obtained; and
 (2) the car is garaged “at the owner’s risk” and the
Parking Station will not be responsible for loss or
damage of any description...
o Davis’ car was stolen due to the negligence of Pearce’s servants – 1. left
the car with the keys in it at the entrance; 2. and did not respond
immediately upon theft.
o Pearce sought to rely on the exclusion clause.
Could Pearce rely on the exclusion clause to avoid liability?
• The exemption clause should be construed as excluding liability for
negligence.
• The clause was sufficiently worded to protect Pearce from liability for
negligence.
• Accordingly, Pearce was not liable for the theft of the car.
• There could not be implied into the contract a term that Davis’ car would
not be removed from the car park save on presentation of the "parking
check" and obtaining in exchange therefor a delivery ticket.
• The court noted that in such a case:
– “the defendant was making a very small charge for taking custody
of goods which are or may be of great value. He is likely to
intend, and the plaintiff would reasonably expect him to intend,
–
–
to protect himself against a possibly very heavy liability arising
from the negligence of a servant.
Either party can insure, and such a clause may reasonably be
taken by the plaintiff to mean that, if he wishes to be protected
against loss or damage at all, he must insure”
“Malicious damage is of course outside the contemplation of
either party.”
IMPLIED TERMS
The Moorcock – 1889 UKCA
Facts
Held
•
•
•
Defendants owned a wharf and jetty on the River Thames.
Plaintiff was the owner of the steamship Moorcock.
In November 1887, Plaintiff and Defendants entered into an
agreement whereby the Moorcock should be:
– discharged and loaded at the wharf; and
– for that purpose, moored alongside the jetty where she would
take the ground at low water.
• Whilst the Moorcock was lying moored at the jetty discharging her
cargo, the tide ebbed. When she ceased to be waterborne, she
sustained damage, owing to the centre of the vessel settling on a ridge
of hard ground beneath the mud.
• Plaintiff sued for breach of contract (claiming damages for cost of
repairs to steamship) on the basis that there was an implied term that
the Defendants take reasonable care to ascertain that the bottom of
the river was in such a condition as not to cause injury to the vessel.
Term implied in fact:
• Required for business efficacy - Honest business could not be carried
on between the parties in this case unless the Defendants had
impliedly undertaken to take reasonable care to ascertain (ie find
out) that the bottom of the river adjoining the jetty was in such a
condition as not to cause injury to the vessel (i.e. that the wharf was fit
for its purpose).
• Relevant circumstances of this case – (why necessary for business
efficacy to imply term):
– A vessel such as the Moorcock could not be moored to this
wharf without taking the ground at low water on every tide.
– Therefore, in order that the wharf may be used so that the
Defendant can make money, a vessel must be able to be
moored at the wharf so that she can take the ground at every
tide [i.e. without damage].
– The wharf owners and their wharf are always there. They have
the means of finding out what happens in front of it.
– Ships and their owners who come along to use the wharf have
no means of discovering what the state of the bed of the river
is until the vessel is moored and takes the ground for the first
time.
Re Ronim – 1999 Qld CA
Facts
Issue
Held
•
A contract for the sale of a parcel of land provided:
– “Completion shall be effected at such time and place as may be
agreed upon by the parties. The time for completion shall be
between the hours of 9.00am and 5.00pm on the Date for
Completion”.
• The contract expressly stated that “time was of the essence”.
• At 12.30 on the date fixed for completion, Purchaser’s solicitor could not
search the relevant property title because the Land Titles Office
computer in Brisbane was not working.
• She tried to get agreement from the Vendor to postpone the settlement
until the following day. This was refused, and she then rushed to try to
make settlement by 5pm that day. This involved driving to the vendor’s
solicitors’ Gold Coast offices. She was delayed by thunderstorms and
traffic and arrived a few minutes after 5.
• The Vendor refused to settle.
Was there an implied term that an extension of time for completion would be
granted in such circumstances.
Held (Pincus JA, de Jersey CJ, Thomas JA):
• Re interpretation of the clause - Where parties have contracted in clear
terms, their apparent intent must be respected – it is not the court’s role
to engraft a generally desirable criterion of fairness on to what the
parties have agreed.
• If, as here, the parties have created an apparently rigid framework, then
the court must respect, not disregard, the underlying intent. [Therefore,
as a matter of interpretation, settlement deadline was 5pm].
• But implied term applies - But this was an unforeseen, unusual
situation. Applying the BP Refinery 5-point test, court concluded that the
following term should be implied into the contract:
– “Where, through no fault of their own, on the day for
completion, the parties cannot carry out the necessary
computer checks through the Land Titles Office to verify title,
because the relevant departmental computer is inoperative, the
obligation to complete is suspended until that can be done.”
• Such a term is reasonable and equitable, so obvious that it goes without
saying, is capable of clear expression, and is not contradictory of any
express provision of the contract.
•
As to the fifth requirement that the term be necessary to give business
efficacy to the contract:
– it is true that the contract could operate without such provision;
– however, in these circumstances the contract could not operate
effectively because the Purchaser, as a result of the Land Titles
Office computer not working, could not know whether the
promised title would be forthcoming
– it is inconceivable that the parties would have assumed that the
Purchaser would be obliged nevertheless to stumble on in the
dark, had the parties given consideration to the possibility of the
Land Titles Office computer not working on the completion date
– if they had turned their minds to the possibility, they probably
would have inserted an express term to the effect of the term
the court held to be implied.
Codelfa Constructions v State Rail NSW – 1982 HCA – unsuccessful (obvious)
• Codelfa contracted with the Authority to perform excavations for the
Facts
Held
construction of an underground railway. The company was required
to complete the work within a fixed period. It commenced work
operating three shifts seven days a week (ie 24/7).
• The work generated considerable noise and vibrations. Neighbours
brought litigation as a result and obtained an injunction preventing
work between 10 pm and 6 am.
• In settlement of the litigation, Codelfa agreed not to carry out work
above a certain noise level between 10 pm and 6 am, and not to
excavate on Sundays.
• Codelfa claimed from the Authority an amount in addition to the
contract price in respect of the additional costs incurred, and the
profit it lost, resulting from the change in working methods it had
been constrained to adopt.
• Codelfa argued:
– that there was an implied term in the contract that if it was
restrained by injunction from carrying out the work by the
shifts it had planned, the Authority would grant an extension
and indemnify it against additional costs incurred;
Held Mason J – applying to facts here – no implied term – not obvious
• “In this case the problem, as I see it, lies not so much in saying that
the implication of a term is necessary to give business efficacy to the
contract, as in concluding that the particular term to be implied is so
obvious that ‘it goes without saying’.”
• “Evidence was that the parties had contemplated that the work was
inherently noisy and was to be carried out close to residential areas;
and that they had concluded that no injunction would or could be
granted against the contractor in relation to noise or other nuisance
arising out of the work.”
• “[This is] not a case in which an obvious provision was overlooked by
the parties and omitted from the contract. Rather it was a case in
which the parties made a common assumption which masked the
need to explore what provision should be made to cover the event
which occurred. In ordinary circumstances negotiation about the
matter might have yielded any one of a number of alternative
provisions, each being regarded as a reasonable solution.”
Hawkins v Clayton – 1988 HCA
Facts
•
•
•
•
In January 1970 Ms Brasier executed a will which had been prepared
for her by Mr Hardwick, a member of the law firm Clayton Utz.
Mr Hawkins was the executor and residuary beneficiary. The will was
retained by the firm for safekeeping.
In 1973 Ms Brasier told Mr Hardwick of a row she had with Mr
Hawkins. Mr Hardwick suggested she make a new will. She said she
would think about it and be in touch, but she died in January 1975
before doing so.
The firm did not take any steps to inform Mr Hawkins of Ms Braiser’s
death or that he was her executor and residuary beneficiary, until
March 1981.
•
Issue
Held
Between 1975 and 1981 Ms Brasier’s house was permitted to fall into
disrepair and lay vacant. A substantial fine was also imposed on the
executor for the late lodgement of a death duty return.
• Negligence claim - Mr Hawkins sued the firm in negligence for failure
to take reasonable steps to inform him of his interest under the will
until some six years after Brasier’s death.
• Contract claim - In his capacity as executor of Ms Brasier’s estate, Mr
Hawkins also sued the firm for breach of the contract between
Clayton Utz and Ms Brasier.
Was there an implied term (in the contract between the solicitor and Ms
Brasier to safekeep her will) to inform the executor and beneficiaries of her
death?
• Re negligence (3:2) (Brennan, Deane and Gaudron JJ) (Mason, Wilson
JJ dissenting)
– Solicitors were negligent - the solicitors were under a duty to
take reasonable steps to find the executor and inform him of
the existence, contents and custody of the will; they were in
breach of that duty, and were liable in damages for the loss
flowing from the delay in the executor's taking possession of
the estate.
• Re breach of contract claim (per Deane J):
– Contract b/n Brasier and Solicitors existed - There was
clearly a contract between Ms Brasier and the firm pursuant
to which the firm:
• prepared and supervised execution of the will; and
• thereafter, kept the will in safe custody.
– Contract was informal - “… it would seem clear that the
contractual terms upon which the executed will remained in
the safe custody of the firm were left largely unarticulated by
the parties and must be so inferred or implied if the
agreement between them is to be given any relevant
content.” [i.e., informal contract]
Liverpool CC v Irwin (there was a new category implied in law)
Facts
•
•
•
•
•
In 1966 Leslie and Maureen Irwin (Tenants) leased a flat from the
Liverpool City Council (Landlord).
The flat was in an apartment complex, the common parts of which
included a staircase, 2 lifts and internal rubbish chutes.
A consistent history of trouble (partly Landlord’s fault) in the building
led to several tenants (including the Irwins) withholding rent. The
trouble included:
– the lifts often failed (sometimes both at one time);
– lack of lighting and dangerous unguarded holes in the
stairwell;
– frequent blockage of the rubbish chutes.
Council sued to take possession. Tenants counterclaimed for
damages for breach of contract.
Tenants argued Landlord was in breach of an implied term to keep
common parts in repair and properly lighted (there being no express
term in the lease obliging either Landlord or Tenant to carry out such
tasks).
Issue
Held
Was there an implied term in law that the Council (landlord) maintain the
common areas?
• There is a contract which is partly in writing - constituted by a
document setting out Tenant’s obligations, which is signed by the
Tenants but not the Landlord.
• To complete the construction of the contract involves a process of
“implication” in order to supply what has been omitted.
• After referring to the established categories of terms implied by
custom and terms implied in fact, continued – “another category of
implied term is where the court searches for what must be implied
because the nature of the contract implicitly requires it” (i.e. a
“necessity” test for terms implied in law).
• In contracts of this sort (a lease in relation to an apartment in a high
rise), there must be the following implied terms (i.e. implied in law):
– right of exclusive possession of the premises by the tenants
– a covenant for quiet enjoyment
– right for tenant and visitors to freely access and use the
stairwell and lifts
– right to use rubbish chutes
• They are essentials of the tenancy (necessary to the enjoyment of
the tenants). Landlord must of necessity also have a contractual
obligation as to the maintenance of the “common parts” in light of
the contractual relationship – an implied obligation to take
reasonable care to keep them in reasonable repair and usability – as
they are “essentials of the tenancy without which life in the
dwellings, as a tenant, is not possible”.
Breen v Williams 1996 HCA
Facts
Issue
Held
•
•
Julie Breen had Dow Corning implants inserted in 1977
She consulted Dr Williams in 1978 who performed some remedial
surgery
• Class action litigation in the US against manufacturer Dow Corning
• Australian plaintiffs could opt into settlement – needed to supply
their medical records
• Dr Williams refused to give her a copy of her medical records
Was there an implied term in the doctor patient contract that patient has
access to medical records?
Held – no such implied term in law or in fact
• [Judges were not always clear as to whether they were considering
an implied term in law or in fact. Unanimously held that there was
no implied term of a right to access records because no access
required for therapeutic purposes. Note overlap between both tests]
• Per Gummow J
– Not implied in fact – the term is not necessary for the
reasonable or effective operation of the contract [ie adopting
test from Hawkins v Clayton for informal contracts] because
access to records not necessary for any therapeutic reason.
[Dr Williams had offered to provide a summary of her file and
prepare a report which would be adequate for therapeutic
purposes]
–
Not implied in law – “it could not be said, ... that, unless the
term [of a right to access records] were implied as a matter
of law, the enjoyment of the rights conferred upon the
patient by the contract with the medical practitioner would,
or could, be rendered nugatory, worthless or, perhaps, be
seriously undermined” [citing Byrne v Aus Airlines].
Con Stan Industries v Norwich 1986 HCA
Facts
Issue
Held
Insurance arranged through broker:
• Con Stan paid insurance premiums to broker.
• Broker failed to pass them on to the insurer.
• Broker goes insolvent.
• Insurer seeks payment from Con Stan (who has already paid broker).
Was there an implied term by virtue of custom or usage in insurance
contracts that payment to the broker discharged the insured’s payment
obligation to the insurer?
Held – applying to facts – no term implied by custom – insufficient evidence
• In order to establish a custom to the effect that a broker is alone
liable to an insurer for payment of a premium on a policy of
insurance, it is not sufficient to show that in the ordinary course of
events:
– the premium is paid to the insurer by the broker, or
– that where a broker has failed to pay a premium the insurer
makes its first demand for payment from the broker.
Both circumstances are consistent with the continued liability of the assured.
• “It is necessary to establish a clear course of conduct under which
insurers do not look to the assured for payment of the premium. This
may be established by proving either an absence of claims by insurers
against assured, or the existence of claims directed exclusively to
brokers as a practice rarely if ever departed from. Having examined
the evidence of custom that was led in the present case, we do not
think this requirement is satisfied.”
Held – no term implied in fact – not obvious; not necessary for business
efficacy:
• Not obvious:
– For this argument to succeed, the term sought to be implied
must be necessary to make the contract work and must be so
obvious that it goes without saying.
– Neither term is so obvious that both the insurer and the
assured would clearly have agreed to its inclusion in the
contract of insurance had they directed their minds to it at
the time they concluded their bargain.
– This will commonly be the situation where the term sought
to be implied is adverse to the interests of one of the parties,
as they are adverse to the interests of the insurer here. An
implication which may be regarded as obvious to one party
may not be so regarded by the party detrimentally affected.
– Unless it can be said that both parties would have consented
to its inclusion, a term cannot be implied.
It was not obvious because it was in favour of the insured.
•
Not necessary for business efficacy: Nor is implication of the
suggested terms necessary to give business efficacy to the contract.
The contract is capable of sensible operation in the absence of the
implied terms.
Renard Constructions v Minister for Public Works 1992 NSW CA
• Renard (contractor) entered into written contract with the Minister
Facts
Issue
Held
(principal) to construct pumping stations as part of a sewerage project.
• Contract contained express stipulations:
– time for practical completion was 17 January 1986;
– if contractor defaults, principal may call upon contractor to
“show cause” why principal should not exercise any of the
following powers:
• take over the work and expel contractor from the work
site
• cancel the contract
– if principal not satisfied with contractor's explanation for default
(and contractor's reasons why principal should not exercise the
contractual powers), principal may exercise those powers (cl.
44).
• After construction started, contractor requested a number of extensions
of time to complete, which were granted.
• Project manager (of the principal) was not satisfied with delays and
workmanship of contractor's employees. On his recommendation,
contractor was “called upon” to show cause why principal should not
take over or cancel the contract.
• Contractor said it was ready and willing to perform and had increased its
manpower and working hours to do so.
• Project manager recommended cancellation of contract to the principal.
• Principal misunderstood true situation and was not made aware that
contractor had since increased its work efforts to meet the deadline.
• Principal accepted recommendation; contractor told to leave the work
site because principal was taking over.
Was the principal obliged to act fairly, reasonably or “in good faith” in exercising
the contractual power under cl 44 of the contract? [Did the principal need a good
reason to terminate?]
• 2/1 - Power had to be exercised reasonably. Per Priestley J – because of
an implied term in fact or in law; per Handley J – based on the
construction of the clause.
• [Meagher J agreed that the contract had been wrongly terminated but
on a different basis. He said there was no implied obligation of
reasonableness. However, as the principal was acting on incorrect
knowledge, they could not have been “satisfied” as required to exercise
the termination right.]
Hughes Aircraft Systems International v Airservices Australia 1997 FC
• Civil Aviation Authority (CAA) tendered for an advanced air traffic
Facts
•
system.
By letter dated 9 March 1993 it stated that it would conduct the
tender in accordance with detailed procedures and criteria.
Issue
Held
Prospective tenderers were asked to sign the letter signifying their
acceptance of its terms.
• In July 1993 CAA issues a formal Request for Tender (RFT). It
included similar terms to the March 1993 letter.
• Successful tenderer was Thomson Radar Australia.
• Hughes Aircraft Systems was the unsuccessful tenderer. It claimed
that the tender failed to comply with the defined procedures and
criteria and sued for breach of contract.
Could a term of good faith be implied into the tender process contract?
Held – Finn J - implied term of “fair dealing”:
• Implication ad hoc - There was an implied term in fact that CAA
would conduct its evaluation fairly and in a manner that would
ensure equal opportunity to Hughes and to Thomson.
• Implied in law – government tender contracts – There was an
implied term in law that CAA would deal fairly with the tenderers in
its contractual performance - see next page.
• Implied term in law – universal? - Supported statements of Priestley
J from Renard Constructions that it may be appropriate to apply a
universal standard of good faith and fair dealing into all contracts –
but did not need to decide that issue in this case. (Obiter)
Esso Australia v Southern Pacific - 2005 – Vic CA
Expressed concerns about implication of a duty of good faith as a universal term or in law
into commercial contracts
•
•
Per Warren J:
– “The current reticence attending the application and recognition of a duty of good
faith probably lies as much with the vagueness and imprecision inherent in defining
commercial morality. The modern law of contract has developed on the premise of
achieving certainty in commerce. If good faith is not readily capable of definition,
then that certainty is undermined.”
Per Buchanan J:
– “I am reluctant to conclude that commercial contracts are a class of contracts
carrying an implied term of good faith as a legal incident, so that an obligation of
good faith applies indiscriminately to all the rights and powers conferred by a
commercial contract. It may however be appropriate in a particular case to import
such an obligation to protect a vulnerable party from exploitive conduct which
subverts the original purpose for which the contract was made. Implication in this
fashion is perhaps ad hoc implication meeting the tests laid down in BP Refinery,
rather than implication as a matter of law creating a legal incident of contracts of a
certain type.
Secured Income Real Estate (Australia) Ltd v St Martins Investments 1979 HCA
Facts
•
•
•
•
Sale of office block with shops in Toowong Qld for $2,090,000.
$170,000 balance of purchase price conditional on vendor securing
tenants for the building with specified minimum gross rental.
All tenants to be approved by purchaser.
Vendor unable to secure tenants. Offered to lease the premises itself
to satisfy condition. Purchaser did not approve.
Issue
Held
Did purchaser breach an implied duty to co-operate by not approving the
tenancy?
Held – Mason J – principles to be applied - duty to co-operate
• Was the purchaser’s rejection of the vendor’s offer to take a lease of
the vacant space in the building a breach of contract?
• Duty to co-operate – performance – applies to all contracts: It is
common ground that each party to a contract agrees, by implication,
to do all such things as are necessary on his part to enable the other
party to have the benefit of the contract. This general rule applies to
the doing of acts which are necessary to the performance by the
parties or one of them of fundamental obligations under a contract.
• Duty to co-operate – benefit – imply ad hoc - However, where the
acts in question, though necessary to entitle the other party to a
benefit under the contract, are not essential to the performance of
his obligations and are not fundamental to the contract, the correct
interpretation of the contract depends not so much on the general
rule but on the intention of the parties manifested by the contract
itself. In this case, there was a duty on the purchaser to do all things
reasonably necessary to enable the leases to be granted.
Held – Mason J – refusal not arbitrary or capricious – genuine reason - duty
to co-operate not breached
• A refusal by the purchaser to grant a lease to the vendor so
as to deprive it of a benefit which would otherwise accrue to
it under the contract would be arbitrary and capricious. But a
refusal to do so on the ground that there were reasonable
doubts that the vendor could or would pay the rent promptly
would not.
• The vendor had the onus of proving that refusal was arbitrary
or capricious.
• The purchaser had not been motivated by a desire to deprive
the vendor of the balance of the price. It had doubts as to the
vendor's ability to pay the rent promptly and in accordance
with a lease.
• The vendor had not satisfied the onus of showing that the
doubts were unreasonable. Hence the purchaser was entitled
to refuse to grant it a lease.
CBA v Barker – HCA 2014
•
•
Facts: Barker argued that the CBA had breached an implied duty of mutual confidence and
trust (in his employment agreement) by failing to make genuine attempts to redeploy him in
accordance with its Redeployment Policy.
On duty to co-operate:
– Barker argued that under his employment contract he had a right to participate in
the Redeployment Policy, and the bank had breached the duty to co-operate by not
doing everything necessary to enable him to benefit from the policy.
– HCA (French, Bell Keane JJ) – argument fails because there was no contractual
entitlement to the benefit of the Redeployment Policy.
Garry Rogers Motors v Subaru 1999 FC
Facts
Clause 11.1 of Dealership Agreement - right to terminate on notice
“Notwithstanding anything contained in the Letter of Appointment and the
Terms and Conditions, either party may terminate this arrangement by giving
to the other notice in writing, forwarded by pre-paid post to the address
shown hereon, or in the case of Subaru to such other address as may be
notified to the Dealer in writing. Such termination shall be effective thirty-two
(32) days after posting as aforesaid, unless otherwise agreed between the
parties in writing.”
Issue
Held
Parties accepted implied duty of good faith.
Had Subaru breached the duty of good faith in exercising its termination right?
Held – implied term of good faith:
• Test: means must not act capriciously – but does not restrict acts to
promote legitimate interests - A term of a contract that requires a
party to act in good faith and fairly, imposes an obligation upon that
party not to act capriciously. It would not operate to restrict actions
designed to promote the legitimate interests of that party provided
the party exercising the power acts reasonably in all the circumstances.
• Application to facts: not breached on these facts – Subaru had good
reason to terminate:
– “… whatever the precise content of the restriction on the exercise
of a contractual power to terminate a contract is, it has not been
exceeded in this case. I say this for two reasons. First, [Subaru] did
have good reason to terminate the dealership when it served its
notice in June 1998. It had decided that its Six-Point Program was
an appropriate means of improving the position of its dealers in
the marketplace. It had requested the applicant to adopt the
program in full and the applicant had refused to do so. The first
respondent was entitled to treat this conduct as being contrary to
its own business interests and to act accordingly. The second
reason is that thirteen months' notice of termination was given …
this was a sufficient period of notice to enable the applicant to
reorganise its affairs to accommodate the loss of the dealership,
to the extent that it was able to do so.”
Burger King v Hungry Jack’s 2001 NSW CA
Facts
Issue
Held
Franchise agreement: Hungry Jack’s to open 4 new restaurants each year in
WA, SA and QLD. New restaurants subject to Burger King’s approval at its “sole
discretion.”
Was Burger King required to act in good faith when exercising its powers under
the contract?
Held – application to facts – extraneous purpose - breach of duty of good
faith
– Burger King used its discretion (to withhold operational and
financial approval of franchisees) for a purpose foreign to that
for which it was granted under the contract – ie “to thwart
Hungry Jack’s right to develop and ultimately to procure a
situation where the agreement could be terminated.”