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90 hd notes for contracts 70211
Contracts (University of Technology Sydney)
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70211 Contract Notes
Table of Contents
0
Contents _________________________________________________________________________________________ 1
Part 1: Formation
1
Intro _____________________________________________________________________________________________ 9
1.1
Contract Definition ________________________________________________________________________________________ 9
1.1.1
1.1.2
1.1.3
1.1.4
1.1.5
2
Key elements of a contract ____________________________________________________________________ 9
Formation Requitements ______________________________________________________________________ 9
Key definitions ______________________________________________________________________________ 9
Relevance of equity _________________________________________________________________________ 10
Statutory obligations and regulation ___________________________________________________________ 10
Agreement ______________________________________________________________________________________ 10
2.1
3
Objective test of agreement _______________________________________________________________________________ 10
Offer Definition ___________________________________________________________________________________ 11
3.1
Offer Rules: Summary ____________________________________________________________________________________ 11
3.1.1
3.1.1.1
3.1.1.2
3.1.1.3
3.1.2
3.1.3
3.1.4
3.1.5
3.1.5.1
3.1.5.2
3.1.5.3
3.1.5.4
3.1.5.5
3.1.6
3.1.7
3.1.8
3.1.8.1
3.1.8.2
3.1.8.3
3.1.8.4
3.1.8.5
Rule 1: Must be definite _____________________________________________________________________ 11
Rule 1 a): Inviting of acceptance ____________________________________________________________ 11
Rule 1 b): Definite proposal certain in its terms ________________________________________________ 11
Rule 1 c): Voluntary assumption of legal intention ______________________________________________ 11
Rule 2: Made to a single person or a class of persons ______________________________________________ 11
Rule 3: Offers must be communicated __________________________________________________________ 12
Rule 4: All terms must be brought to the notice of the offeree_______________________________________ 12
Rule 5: May be revoked any time prior to acceptance ______________________________________________ 12
Rule 5 a): Revocation can be express or implied. _______________________________________________ 12
Rule 5 b): Revocation must be communicated _________________________________________________ 12
Rule 5 c): Offeree can be informed of withdrawal from reliable source. ____________________________ 12
Rule 5 d): Offers terminate upon rejection and cannot be accepted. _______________________________ 12
Rule 5 e) A counter offer is a rejection of the offer to which it relates ______________________________ 12
Rule 6: May have conditions of acceptance ______________________________________________________ 12
Rule 7: May lapse through non-acceptance ______________________________________________________ 13
Rule 8: Invitation to Treat v Offer______________________________________________________________ 13
Advertisements – generally offers to treat but depends on language _______________________________ 13
Brochure distribution _____________________________________________________________________ 13
Shop displays ____________________________________________________________________________ 13
Auctions ________________________________________________________________________________ 13
Tenders ________________________________________________________________________________ 13
3.2
Mere Puff v Offer ________________________________________________________________________________________ 13
3.3
Mere supply of information v Offer _________________________________________________________________________ 14
3.4
Options ________________________________________________________________________________________________ 14
3.5
Tickets _________________________________________________________________________________________________ 14
3.6
Unilateral contracts ______________________________________________________________________________________ 14
4
Acceptance ______________________________________________________________________________________ 15
4.1
Acceptance Rules Summary ________________________________________________________________________________ 15
4.1.1
Rule 1: Must be in response to an offer  consciousness of offer ____________________________________ 15
4.1.2
Rule 2: Must correspond with the offer _________________________________________________________ 15
4.1.3
Rule 3: Must generally be communicated – express or implied ______________________________________ 15
4.1.3.1
Rule 3a): Generally must be accepted in manner specified _______________________________________ 16
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4.1.3.2
Rule 3 b): Acceptance inferred by conduct ____________________________________________________ 16
4.1.3.3
Rule 3c): Communication Exception  Postal Rule _____________________________________________ 16
4.1.4
Rule 4: Can only be accepted by those person to whom offered _____________________________________ 17
4.2
Conditional Acceptance ___________________________________________________________________________________ 17
4.3
Key Cases_______________________________________________________________________________________________ 17
4.3.1
4.3.2
4.4
Carlill v Carbolic Smoke Ball Company (1893) ____________________________________________________ 17
Australian Woollen Mills Pty Ltd v Commonwealth ________________________________________________ 18
Auctions and E Bay _______________________________________________________________________________________ 19
4.4.1
5
E mail and Postal Acceptance Rule _____________________________________________________________ 19
Consideration - Definition __________________________________________________________________________ 20
5.1
Consideration Rules Summary ______________________________________________________________________________ 20
5.1.1
Rule 1: Bargain Requirement__________________________________________________________________ 20
5.1.1.1
Rule a): Must have legal value ______________________________________________________________ 20
5.1.1.2
Rule b): An Act in Return for a promise is good consideration but not an act in reliance of a promise _____ 21
5.1.2
Rule 2: Simple contracts without consideration are unenforceable ___________________________________ 21
5.1.3
Rule 3: Not required for formal contracts sealed by deed ___________________________________________ 21
5.1.4
Rule 4: Must flow from promisee but Need not flow to the promisor _________________________________ 21
5.1.5
Rule 5: Must be sufficient but need not be adequate ______________________________________________ 21
5.1.6
Rule 6: Must be Lawful ______________________________________________________________________ 21
5.1.7
Rule 7: Cannot be discretionary/illusory: Discretion as to performance ________________________________ 22
5.1.8
Rule 8: Must be definite _____________________________________________________________________ 22
5.1.9
Rule 9: May be executed, executory but cannot be past consideration ________________________________ 22
5.1.10 Rule 10: Part payment is not good consideration: Rule in Pinnel’s case ________________________________ 23
5.1.11 Rule 11: Existing obligations are not good consideration ___________________________________________ 23
5.1.11.1 Rule 11a): Acts done before at promisor’s request can be consideration ____________________________ 24
5.1.11.2 Rule 11b): Termination of existing agreement may allow past consideration _________________________ 24
5.1.11.3 Rule 11c): Taking on greater burden/risk even if technically existing burden _________________________ 24
5.1.11.4 Rule 11d): Bona-fide compromise may allow existing obligations __________________________________ 24
5.1.11.5 Rule 11e): Practical benefits bestowed on other party if existing obligations met _____________________ 25
5.1.11.6 Rule 11f): Use of existing obligations as a promise to a third party _________________________________ 25
5.2
Key Cases_______________________________________________________________________________________________ 26
5.2.1
5.2.2
5.2.3
5.2.4
5.2.5
6
Australian Woolen Mills Pty Ltd v Commonwealth (1954) __________________________________________ 26
Ballantyne v Phillott (1961) ___________________________________________________________________ 26
Beaton v McDivitt __________________________________________________________________________ 27
Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (in liq) [2009]Facts: ________________________________ 27
Shadwell v Shadwell (1860) ___________________________________________________________________ 27
Intention to Create Legal Relations __________________________________________________________________ 28
6.1
Objective Approach ______________________________________________________________________________________ 28
6.2
Surrounding Circumstances ________________________________________________________________________________ 28
6.3
Consideration as a test of Intention _________________________________________________________________________ 28
6.4
Implied Intention ________________________________________________________________________________________ 28
6.5
Express Intention ________________________________________________________________________________________ 28
6.6
Commercial contracts_____________________________________________________________________________________ 29
6.7
Domestic and family Arrangements _________________________________________________________________________ 29
6.8
Government Arrangements ________________________________________________________________________________ 29
6.9
Voluntary organisations ___________________________________________________________________________________ 29
6.10
Factors Suggesting of intention _____________________________________________________________________________ 29
6.11
Key cases _______________________________________________________________________________________________ 30
6.11.1
6.11.2
6.11.3
6.11.4
6.11.5
6.11.6
Ermogenous Greek Orthodox Community of SA Inc (2002) __________________________________________ 30
Cameron v Hogan (1934) _____________________________________________________________________ 30
Banque Brussels Lambert SA v Australian National Industries Ltd (1989) _______________________________ 30
Esso Petroleum v Commissioners of Customs and Excise (1967) _____________________________________ 31
Wakeling v Ripley (1951) _____________________________________________________________________ 31
Todd v Nicol [1957] _________________________________________________________________________ 32
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6.11.7
6.11.8
6.11.9
6.11.10
6.11.11
7
Jones v Padavatton (1969)____________________________________________________________________ 32
Coogee Esplanade Surf Motel Pty Ltd v Commonwealth (1976) ______________________________________ 32
Baldwin v Everingham (1991) _________________________________________________________________ 33
RICHES V HOGBEN [1986] 1 QD R 315 __________________________________________________________ 33
Roufos v Brewster (1971) ____________________________________________________________________ 33
Promissory Estoppel _______________________________________________________________________________ 34
7.1
Estoppels v misrepresentation/ misleading/ deceptive conduct __________________________________________________ 34
7.2
Limitations _____________________________________________________________________________________________ 34
7.3
Relief __________________________________________________________________________________________________ 34
7.4
Summary Rules Estoppel __________________________________________________________________________________ 35
7.5
Key Cases_______________________________________________________________________________________________ 36
7.5.1
7.5.2
7.5.3
7.5.4
7.5.5
7.5.6
7.5.7
8
Walton Stores (Interstate) Ltd v Maher (1988) ___________________________________________________ 36
Legione v Hateley (1983) – HC_________________________________________________________________ 36
Central London Property Trust Ltd v High Trees House Ltd (1947) ____________________________________ 37
Commonwealth v Verwayen (1990) HCA ________________________________________________________ 37
Guimelli v Guimelli (1999) HCA ________________________________________________________________ 37
Sidhu v Van Dyke ( ) HCA ____________________________________________________________________ 38
W v G (1996) ______________________________________________________________________________ 38
Privity __________________________________________________________________________________________ 39
8.1
Remedy for Third Parties where Privity applies ________________________________________________________________ 39
8.2
Justification for Privity & Consideration ______________________________________________________________________ 39
8.3
Rules Privity Summary ____________________________________________________________________________________ 39
8.3.1
Rule 2: Agency exception – Common Law _______________________________________________________ 40
8.3.1.1
Insurance Policies ________________________________________________________________________ 40
8.3.1.2
Exclusion Clauses and contracts of Carriage ___________________________________________________ 40
8.3.2
Rule 3: Equitable doctrine of trust _____________________________________________________________ 41
8.4
Key Cases_______________________________________________________________________________________________ 41
8.4.1
8.4.2
8.4.3
8.4.4
9
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) _____________________________________ 41
Coull’s v Bagot’s Executor and Trustee Co Ltd (1967) HCA __________________________________________ 42
Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd [1915] ______________________________ 42
INSURANCE CONTRACTS ACT 1984 - SECT 48 _____________________________________________________ 42
Capacity ________________________________________________________________________________________ 43
9.1
Minors _________________________________________________________________________________________________ 43
9.1.1
9.1.2
9.1.3
9.1.4
9.1.5
9.2
Presumptively binding categories ______________________________________________________________ 43
Meaning of “Benefit” ________________________________________________________________________ 44
Other Important Statutory Sections ____________________________________________________________ 44
Minors and the Common Law _________________________________________________________________ 44
Application to Problem Questions _____________________________________________________________ 44
Mental Incapacity ________________________________________________________________________________________ 45
9.2.1
Other Party knew of Incapacity ________________________________________________________________ 45
9.2.1.1
Leading High Court case Gibbons v Wright ____________________________________________________ 45
9.2.2
Intoxicated Persons _________________________________________________________________________ 45
10
Certainty / Completeness __________________________________________________________________________ 46
10.1
Incompleteness __________________________________________________________________________________________ 46
10.1.1
Agreements to Agree / Negotiate ______________________________________________________________ 47
10.2
Subject to formal contract _________________________________________________________________________________ 47
10.3
Illusory consideration/promise (see also consideration section) __________________________________________________ 47
10.4
Machinery and Formula Clauses ____________________________________________________________________________ 47
10.5
Conditional Contracts or those where are a term has more than one meaning are not automatically void for uncertainty __ 47
10.6
Results of Uncertainty ____________________________________________________________________________________ 48
10.7
Key Cases_______________________________________________________________________________________________ 48
10.7.1
WHITLOCK V BREW (1968) HCA _______________________________________________________________ 48
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10.7.2
11
Masters v Cameron (1954) ___________________________________________________________________ 48
Terms ___________________________________________________________________________________________ 49
11.1
Resolving Disputes about Contract Terms: Overview _________________________________________________________ 49
11.2
Express Terms ___________________________________________________________________________________________ 49
11.2.1 Objective Approach to Intention _______________________________________________________________ 49
11.2.2 Signed documents/contracts are presumptively Binding ___________________________________________ 49
11.2.2.1 Exceptions: When can the effect of signature be avoided? _______________________________________ 50
11.2.3 Incorporation of Terms by notice ______________________________________________________________ 50
11.2.3.1 What amounts to reasonable notice? ________________________________________________________ 50
11.2.3.2 Extra effort is expected for unusual terms_____________________________________________________ 50
11.2.4 Identifying terms in electronic contracts ________________________________________________________ 51
11.2.5 Incorporation of terms by a course of dealings ___________________________________________________ 51
11.2.6 The Parol Evidence Rule _____________________________________________________________________ 51
11.2.6.1 Evidence Excluded________________________________________________________________________ 52
11.2.6.2 Circumstances where the parol evidence rule has no application __________________________________ 52
11.2.6.3 The parol evidence rule and electronic contracts _______________________________________________ 53
11.2.7 When is a statement a term of the contract?_____________________________________________________ 54
11.2.7.1 Standards contracts qualitfed by later statements ______________________________________________ 54
11.3
Construing the Terms _____________________________________________________________________________________ 55
11.3.1 A reasonable commercial construction _________________________________________________________ 56
11.3.1.1 Different approach where clear words of contract would = ‘absurd’ as opposed to merely ‘unreasonable’ or
‘uncommercial’ results _____________________________________________________________________________ 56
11.3.2 Construing exclusion clauses __________________________________________________________________ 57
11.3.2.1 Contra preferentem ______________________________________________________________________ 57
11.3.2.2 Four corners rule _________________________________________________________________________ 57
11.3.2.3 Negligence ______________________________________________________________________________ 57
11.3.2.4 Deliberate Breach ________________________________________________________________________ 57
11.4
Key Cases_______________________________________________________________________________________________ 58
11.4.1
11.4.2
11.4.3
11.4.4
11.4.5
11.4.6
11.4.7
11.4.8
11.4.9
11.4.10
11.4.11
11.4.12
11.4.13
11.4.14
11.4.15
11.4.16
11.4.17
11.4.18
11.4.19
11.4.20
11.4.21
11.4.22
11.4.23
11.4.24
11.4.25
11.4.26
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) HCA ______________________________________________ 58
Fitzgerald v Masters (1956) HCA _______________________________________________________________ 58
Codelfa Constructions Pty Ltd v State Rail Authority (1982) _________________________________________ 59
Life Insurance Co of Australia Ltd v Phillips (1925) HCA _____________________________________________ 59
Brambles Holdings Ltd v Bathurst City Council (2001) NSWCA _______________________________________ 59
L’Estrange v Graucob [1934] KB _______________________________________________________________ 60
Curtis v Chemical Cleaning and Dyeing Co [1951] KB _______________________________________________ 60
Oceanic Sun Line Special Shipping Co Inc v Fay (1988) HCA _________________________________________ 60
Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1991) NSW CA __________________________________ 60
Causer v Brown [1952] SCVic __________________________________________________________________ 61
Interfoto Picture Library Ltd v Stiletto Visual Programs Ltd [1989] QB _________________________________ 61
Balmain New Ferry Co Ltd v Robertson (1906) ____________________________________________________ 61
Equus Corp Pty Ltd v Glengallan Investments Pty Ltd [2004] ________________________________________ 61
DJ Hill and Co Pty Ltd v Walter H Wright Pty Ltd [1971] ____________________________________________ 62
State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) ______________________________ 62
Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26 ___________________________ 62
Van den Esschert v Chappell [1960] ____________________________________________________________ 63
JJ Savage & Sons Pty Ltd v Blakney (1970) _______________________________________________________ 63
Oscar Chess Ltd v Williams [1957]______________________________________________________________ 63
Symthe v Thomas [2007] _____________________________________________________________________ 63
Hoyt’s Pty Ltd v Spencer (1919) _______________________________________________________________ 63
Appleby v Pursell [1973] _____________________________________________________________________ 64
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] __________________________ 64
Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234 __________________________________ 64
Darlington Futures Ltd v Delco Aust Pty Ltd (1986) ________________________________________________ 65
Quirke v FCL Interstate Transport Services Pty Ltd [2005] ___________________________________________ 66
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Part 2: Enforceability
12
Formal Contracts: Deeds ___________________________________________________________________________ 67
12.1
Simple Contracts Required to be In Writing : Focus Land Contracts _______________________________________________ 67
12.1.2 Consequences for Failure to Comply with Statute – Land Contracts = Unenforceable but not void __________ 70
12.1.2.1 Variation must be Written But Termination can be Oral _________________________________________ 70
12.2
Creation of Rights to Land Despite Non-Conformance – Doctrine of Part Performance (Equity) ________________________ 70
12.2.1 Summary Elements of Part Performance ________________________________________________________ 71
12.2.1.1 Element 1: Acts must be referable to the alleged contract _______________________________________ 71
12.2.1.2 Element 2: Must be the acts of the party seeking enforcement of the contract _______________________ 73
12.2.1.3 Element 3: Unconscionability _______________________________________________________________ 73
12.2.1.4 Element 4: Adequate Oral Evidence of Contract ________________________________________________ 73
13
Illegality ________________________________________________________________________________________ 74
Part 3 Proper Consent
14
Vitiating Factors Summary _________________________________________________________________________ 75
14.1
Recession  remedy for vitiation factor _____________________________________________________________________ 75
14.1.1
14.1.2
14.1.3
14.1.4
14.1.5
14.1.5.1
15
Termination verses Recession _________________________________________________________________ 76
Process/Requirements to Rescind _____________________________________________________________ 76
Bars and Restrictions to Rescission _____________________________________________________________ 77
Partial Rescision ____________________________________________________________________________ 77
Key Cases _________________________________________________________________________________ 77
Alati v Kruger (1955) HCA ___________________________________________________________________________ 77
Misrepresentation ________________________________________________________________________________ 78
15.1
Summary Elements of Misrepresentation ____________________________________________________________________ 78
15.2
Steps __________________________________________________________________________________________________ 78
15.2.1
15.2.2
15.2.2.1
15.2.3
15.2.4
15.2.5
15.2.6
Element 1: Precontractual statements by representor to representee ________________________________ 78
Element 2: Statement of Fact --> past or present not intent/prediction _______________________________ 79
Silence  generally not enough as generally need a positive act ____________________________________________ 80
Element 3 False Statement ___________________________________________________________________ 81
Element 4 : Intended to induce ________________________________________________________________ 81
Element 5 Did Induce Representee into contract - was acted upon - reliance ___________________________ 81
Element 6: Fraudulent --> representor had no honest belief ________________________________________ 82
15.3
No Obligation on Representee to Verify _____________________________________________________________________ 83
15.4
Remedy ________________________________________________________________________________________________ 83
15.5
Key Cases ______________________________________________________________________________________________ 83
15.5.1
16
Derry v Peek (1889) _________________________________________________________________________ 83
Duress __________________________________________________________________________________________ 84
16.1
Steps __________________________________________________________________________________________________ 84
16.2
Duress Summary Elements ________________________________________________________________________________ 84
16.2.1
16.2.2
Element 1: Illegitimate Pressure _______________________________________________________________ 84
Element 2: Impaired Consent of innocent  Causal in them Accenting _______________________________ 85
16.3
Remedies ______________________________________________________________________________________________ 85
16.4
Duress of Person ________________________________________________________________________________________ 86
16.5
Economic Duress ________________________________________________________________________________________ 86
16.6
Duress to Goods _________________________________________________________________________________________ 87
16.7
Key Cases ______________________________________________________________________________________________ 87
16.7.1
16.7.2
16.7.3
16.7.4
16.7.5
16.7.6
16.7.7
16.7.8
16.7.9
The Universe Sentinel [1983] UK ______________________________________________________________ 87
ANZ Banking Group v Karam [2005] ____________________________________________________________ 87
Skeat v Beale (1841) ________________________________________________________________________ 88
Crescendo Management Pty Ltd v Westpac Bank (1988) ___________________________________________ 88
Barton v Armstrong [1976] ___________________________________________________________________ 88
Equiticorp Finance Ltd v Bank of New Zealand (1993) ______________________________________________ 88
Hawker Pacific v Helicopter Charter (1991 _______________________________________________________ 89
North Ocean Shipping v Hyundai Construction (1979) _____________________________________________ 89
News Ltd v Australian Rugby League (1996 ______________________________________________________ 89
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Part 4 Discharge and Termination
21
Termination / Discharge __________________________________________________________________________ 111
21.1
Termination v Recession _________________________________________________________________________________ 111
21.2
Classification of Obligations ______________________________________________________________________________ 112
21.3
Termination by Performance _____________________________________________________________________________ 112
21.3.1 Entire Contracts ___________________________________________________________________________ 112
21.3.2 Divisible Contracts _________________________________________________________________________ 112
21.3.3 Exact performance _________________________________________________________________________ 112
21.3.3.1 Exceptions to Exact Performance ___________________________________________________________ 113
21.3.4 Quantum meruit – Claims for Partial Performance Post Termination ________________________________ 114
21.3.5 Effect of Performance - Summary _____________________________________________________________ 115
21.4
Termination by Agreement _______________________________________________________________________________ 115
21.4.1 Express Term Termination __________________________________________________________________ 115
21.4.1.1 Must terminate by Correct Procedure _______________________________________________________ 116
21.4.2 Termination by Subsequent Agreement ________________________________________________________ 116
21.4.3 Termination by Implied Power _______________________________________________________________ 117
21.4.4 Deposits _________________________________________________________________________________ 117
21.5
Termination for Breach __________________________________________________________________________________ 117
21.5.1 Express Right to Terminate for Breach _________________________________________________________ 118
21.5.2 Implied Right to Terminate under Common Law _________________________________________________ 118
21.5.3 Types of Breach ___________________________________________________________________________ 118
21.5.3.1 Actual Breach at Common Law ____________________________________________________________ 118
21.5.3.1.1 Time – Condition or Warranty?_________________________________________________________119
21.5.3.2 One type of Repudiation  Anticipatory Breach ______________________________________________ 119
21.5.4 Response to Breach  Elect to terminate or affirm ______________________________________________ 121
21.6
Frustration  not easily proven ___________________________________________________________________________ 122
21.6.1 Summary Elements of Frustration ____________________________________________________________ 122
21.6.1.1 Element 1: Supervening Event caused radical change __________________________________________ 122
21.6.1.1.1 More Onerous or More expensive Not enough_____________________________________________124
21.6.1.2 Element 2: Not self-induced _______________________________________________________________ 124
21.6.1.3 Element 3: Not contemplated _____________________________________________________________ 125
21.6.2 Effect of Frustration  Common Law _________________________________________________________ 125
21.6.3 Effect of Frustration  Statute _______________________________________________________________ 125
21.7
Key Cases _____________________________________________________________________________________________ 126
21.7.1
21.7.2
21.7.3
Foran v Wight (1989) 168 CLR 385 ____________________________________________________________ 126
Sargent v ASL Developments Ltd (1974) ________________________________________________________ 126
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) _____________________________________________ 127
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1 Intro
1.1 Contract Definition
1.
2.
3.
4.
Is a legal expression of agreement between parties
The parties make the rules
Enforceable at law
A mechanism to define, arrange and regulate a transaction
1.1.1 Key elements of a contract
1.
2.
3.
4.
Promise
Capable persons - age, mental state
Obligation
Enforcement - key boundaries of the law
1.1.2 Formation Requitements
1.
2.
3.
4.
5.
6.
Agreement – offer and acceptance
Consideration – exchange of promises
7. Certainty
Intention to be legally bound
Legal capacity to enter
Genuine consent
Legality
1.1.3 Key definitions
•
•
•
•
•
•
Validity/enforceability
 Valid: the essential elements present
 Void: no legal validity  one of the elements does not exist
 Voidable: validly formed but inherent defect through undue influence etc
It is only voidable on the behalf of the offeree
i.e. right to void a contract
 Unenforceable: validly formed à but with a technical defect
E.g. failure to pay stamp duty
 Illegal: “the court will not lend its aid to a man who founds his cause of action in an immoral or illegal act”
e.g. a contract to sell heroin
Performance
 Executed: where one party has performed their promise
 Executory: where all the parties have done is exchange promises
Neither party has performed anything
Content
 Express: by written or spoken word
 Implied: by conduct
Formal: some must be in writing
Simple: six essential elements (can be both written or oral or both)
Unilateral/bilateral
 Unilateral: the offeree does not undertake to perform anything  but accepts the offer by performing their
side of the bargain
E.g. Carlill (1983): the plaintiff accepted the offer by using the smoke ball
In a reward cases, the finder accepts the offer by returning the dog
In a unilateral contract à the obligation of the offeree is executed
 Bilateral: where at the formation there is an exchange of promises and the obligations of both parties remain to
be performed
Executory
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1.1.4 Relevance of equity
1.
2.
3.
4.
5.
Used Where inadequate consideration  promissory esptopple
Some remedies such as equitable stop are so closely connected they are regarded as part of contract law
Remedies supplement common law damages eg specific performance and injunction
A contract will be set aside or rescinded in equity where there has been unconscionable conduct
Equity will rectify where document mistakes have been made
1.1.5 Statutory obligations and regulation


Key Legislation  Australian Consumer law (ACL Competition and Consumer act 2010 (Cth) (CCA) schedule 2
Financial services however  Australian Securities and Investments Commission act (2001) (Cth) (ASIC Act)
1. Misleading or deceptive conduct
2. Unconscionable conduct
3. Unfair contract terms
4. Consumer guarantees
2 Agreement
2.1 Objective test of agreement
 Court will assess what has gone on between the parties objectively
Need an outward manifestation of intention to be bound
Taylor v Johnson (1983)
HCA
 All the circumstances will be assessed
traditional offer and acceptance is not always required.
In this case Brambles conduct showed it had accepted the council terms – even
though it sent a letter back saying it didn’t accept
Brambles v Bathurst City
Council (2001) NSWCA
 “sometimes… having discussed the commercial essentials and having put in place
necessary structural matters, the parties go about their commercial business on the
clear basis of some manifested mutual assent, without ensuring the exhaustive
completeness of documentations”
 essential question is whether the parties’ conduct (including what was said and
not said) reveals an understanding or agreement (mutual assent) which bespeaks
an intention to be legally bound to the essential elements of a contract
 Need a meeting of the minds – consensus ad idem
Buyer thought he was getting old oats not new
 “It is not the subjective beliefs or understandings of the parties about their rights and
liabilities that govern their contractual relations What matters is what each party by
words and conduct would have led a reasonable person in the position of the other
party to believe”
 ‘The meaning of the terms of a contractual document is to be determined by what a
reasonable person would have understood them to mean. That, normally, requires
consideration not only of the text, but also of the surrounding circumstances known to
the parties, and the purpose and object of the transaction.’
However, the courts have tended towards objective standards because it is very difficult to
investigate or rely upon private intentions:
 Chong signed an application to join a gym on a 12-month contract without reading
she was liable to pay a $200 free if she cancelled within the first two months
 Held: A valid contract does not require the parties to have consensus ad idem in
that each full know and understand the terms of their agreement
 By signing the form, Chong had manifested her assent to the printed terms. It was
irrelevant that there was no true consensus ad idem between the parties she
accepted through her conduct without a meeting of the mind à not necessary
Branir Pty Ltd v Owston
Nominees (No 2) Pty Ltd
(2001)
Smith v Hughes (1871)
Toll (FGCT) Pty Ltd v
Alphapharm Pty Ltd
(2004) HCA
<-- move this to terms
Fitness first v Chong
(2008)
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3 Offer Definition
Offer is an expression of willingness to enter into a contract on specified terms
Carter contract law in
Australia 6th edition
2012 3 - 07
3.1 Offer Rules: Summary
1. Must be definite
An offer capable of being accepted/inviting acceptance  but not a command
Definite proposal certain in terms
c)
Statement of present intention to be bound
Must be made to a single person or a class of persons
Must be communicated  cannot be accepted without knowledge of existence
All terms must be brought to the notice of the offeree (prior to acceptance)
May be revoked any time prior to acceptance
a) Revocation can be express or implied.
b) Revocation must be communicated – at least when to a specific person
c)
Offeree can be informed about the withdrawal from a reliable source
d) Offers terminate upon rejection and cannot be accepted.
e) A counter offer is a rejection of the offer to which it relates
May have conditions of acceptance
May lapse through non-acceptance
Must be distinguished from an invitation to treat
a)
b)
2.
3.
4.
5.
6.
7.
8.

Reasonable person test: would it appear, to a reasonable person in the position of the
offeree, that an offer was intended and that a binding agreement would be made upon
acceptance
3.1.1 Rule 1: Must be definite
Non-committal and ambiguous language likely only offer to treat
 Notice to residents in council houses saying council may be interested in selling and
inviting residents to complete and ‘application to buy a council house’
 Held not a contractual offer to sell  residents were making an offer that council
could accept or reject
3.1.1.1
Gibson v Manchester
City Council [1979] UK
Rule 1 a): Inviting of acceptance
 Offer must take the form of a proposal for consideration which gives the offeree an
opportunity to choose between acceptance or rejection (Orbiter)
 Communication which uses “the language of command” and “peremptorily
requests” the other party to adopt a particular course of action may not be
regarded as an offer i.e. there needs to be a choice
 Given the context in which the documents arose there was no offer capable of
acceptance by the act of purchase. The subsidy was not a request, invitation or an
inducement to purchase wool... suggesting that ‘payment of subsidy and the
purchase of wool were regarded as related in such a way that the one was a
consideration for the other.’ There was no quid pro quo.
3.1.1.2
Rule 1 b): Definite proposal certain in its terms
3.1.1.3
Rule 1 c): Voluntary assumption of legal intention
3.1.2 Rule 2: Made to a single person or a class of persons
Brambles v Bathurst City
Council (2001) NSWCA
Australian Woollen Mills
v Commonwealth (1954)
HCA
Australian Woollen Mills
v Commonwealth (1954)
HCA
Australian Woollen Mills
v Commonwealth (1954)
HCA
Carlill [1893] 1 QB
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3.1.3 Rule 3: Offers must be communicated
 An offer must be communicated to the offeree before it can be accepted. A man arrested
on suspicion of murder gave evidence that let to a conviction. Court held he was unable to
claim the reward
 Cannot accept an offer unless you know of its existence,  cannot accept it without
intending to do so + cannot intend to accept an offer of which you are not aware.
 Must be some sort of quid pro quo and a correspondence between an offer and
acceptance
Fitch v Snedaker (1886)
Australian Woollen Mills
v Commonwealth (1954)
HCA
3.1.4 Rule 4: All terms must be brought to the notice of the offeree

prior to acceptance
3.1.5 Rule 5: May be revoked any time prior to acceptance
3.1.5.1
Rule 5 a): Revocation can be express or implied.
3.1.5.2
Rule 5 b): Revocation must be communicated
3.1.5.3
Rule 5 c): Offeree can be informed of withdrawal from reliable source.
3.1.5.4
Rule 5 d): Offers terminate upon rejection and cannot be accepted.
 Plaintiffs (P) were iron merchants Defendant (D) was the holder of quantities of iron. By
telegram D offered to sell iron to P for “40s., nett cash, open till Monday”. On Monday
morning P sent telegram to D asking whether D would “accept forty for delivery over two
months, or if not, longest limit you would allow”.
 Held this was a request for information and not a counter offer so P was still able to
accept the original offer.
3.1.5.5
Rule 5 e) A counter offer is a rejection of the offer to which it relates
 Seller in Wales negotiated with buyer in Canada for the sale of aircraft “Confirming sale of
Grummond Mallard aircraft.. Please remit £5,000’ Buyer replies ‘This is to confirm your
cable and my purchase of Grummond Mallard aircraft set out your cable…£5,000 sterling
forwarded to our bank to be held in trust for your account pending delivery…Please
confirm delivery to be made 30 days within this date’. Seller did not reply and sold aircraft
to a 3rd party at a higher price.
 Held, Buyer telegram was not an acceptance of offer because it introduced two new
terms, one as to payment (payment in advance with this sum to be released by Bank
on delivery) and the time of delivery. = Counter offer, original offer lapses
Byrne v Van Tienhoven
1880
Dickinson v Dodds 1876
Stevenson Jacques & Co
v McLean (1880)
Hyde v Wrench (1840)
UK
Northland Airliners Ltd v
Dennis Ferranti Meters
Ltd, 1970. (Canadian)
3.1.6 Rule 6: May have conditions of acceptance
Offer Condition Subsequent
 Court held a car being in same condition as when sold was a condition subsequent and
once stolen and damaged by a thief offer terminated
Financings Ltd v Stimson
(1962) UK
Offer condition precedent
 held ‘Subject to apprvoal by my solicitor’ offer not effectively made until condition was
fulfilled
Buhrer v Tweedie [1973]
NZ
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3.1.7 Rule 7: May lapse through non-acceptance
Effluxion of Time : If no time limit is set the offer expires after a reasonable time.
 Offer was made at the beginning of a five day trial to settle the litigation on the basis the
parties would discontinue their claims against each other
 here and now offer could not be accepted on 5the and final day of trial
 16 months too long to exercise an option to purchase deceased partners business interest.
 What is reasonable varies with the nature of the contract per Dixon CJ
Death : Generally: Death of either party will terminate the offer BUT This can be unworkable and
may not suit the parties.
 Blackburn J urged avoidance of generalisations.
 Depends on which of the parties has died and whether the death has any bearing
on the continuation of the offer, the subject matter of the contract (personal
services /property),
 Knowledge of the death and whether there was an option (which can be exercised by
the personal representatives).
Bartolo v Hancock
(2010)
Ballas v Theophilos
(1957) HCA
Fong v Cili (1968) (Aus)
3.1.8 Rule 8: Invitation to Treat v Offer
3.1.8.1
Advertisements – generally offers to treat but depends on language
 Advertisement of selling a fur coat for $1 to first 3 customers held to be an offer
3.1.8.2
Brochure distribution
3.1.8.3
Shop displays
 Displaying drugs for customers to pick up and bring to counter an offer to treat not an
offer
 Flick knives on display in window did not contravene prohibition on offering knives for
sale
3.1.8.4
Partridge v Crittenden (1968) UK
Lefkowitz v Great Minneapolis
Surplus Stores (1957) US
Grainger and Son v
Gough (1896) UK
Pharmaceutical Society v
Boots Chemists (1953) QB
Fisher v Bell (1961) QB
Auctions
 Traditionally no legal relationship prior to fall of hammer – when you bid you make an
offer. And Auctioneer is free to accept or reject
 Without Reserve: No difference whether there is or is not a reserve (however there
may be a claim against the auctioneer Warlow v Harrison (1859) UK
Payne v Cave (1789) UK
 Internet Auctions:,Ebay auction site is like the auctioneer with them acting as both the
agent seller and buyer
AGC (Advances) Ltd v
McWhirter (1977) (Aus)
 No Claim if the action is cancelled – although auctioneer may be at risk
 Sale of Goods Act 1923 (NSW) s 60
A sale of goods by auction is complete when the auctioneer announces its
completion o
Until such announcement, a bid may be retracted
3.1.8.5
Smythe v Thomas 2007
NSWCA
Harris v Nickerson (1873) QB
Tenders
 in general, an offer to treat and not an offer
Spencer v Harding (1870) (NSW)
 Wording important: Eg If the wording indicates the highest or lowest bid may be
accepted could be interpreted as an offer
Harvela .. v Royal Trust
of Canada (Ci) Ltd (1986)
 Failure to comply with the agreed tendering process. The promise to give proper
consideration to complying tenders.
Blackpool and Fylde v
Blackpool Council (1990) UK
 There is a preliminary process contract which includes an implied term to act in good
faith and engage in fair dealing.
Hughes Aircraft Systems
… Airservices Australia
HCA (1997)
Leonard v Pepsico Supp
Carlill [1893] 1 QB
3.2 Mere Puff v Offer
 Not enough
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3.3 Mere supply of information v Offer
 Providing information on price he would sell property in Jamaica not amount an offer
 Plaintiffs (P) were iron merchants Defendant (D) was the holder of quantities of iron. By
telegram D offered to sell iron to P for “40s., nett cash, open till Monday”. On Monday
morning P sent telegram to D asking whether D would “accept forty for delivery over two
months, or if not, longest limit you would allow”.
 Held this was a request for information and not a counter offer so P was still able to
accept the original offer.
Harvey v Facey 1893
Stevenson Jacques & Co
v McLean (1880)
3.4 Options

A form of offer which also contains a promise not to withdraw it for a certain time.
 Have to pay / give additional consideration
 Traditional interpretation you have 1 contract and 1 offer afoot
 Technically if you revoke/breach an option  remedy in contract law would be
for breaking the option contract  but this is pointless
 High court merged the two
 Preferred Interpretation: A contract for sale of the property conditional upon the
option being exercised. Remedy specific performance. Griffith CJ & O’Connor J
Goldsbrough Mort & Co
Ltd v Quinn (1910) HCA
3.5 Tickets
If ticket handed out by a person: ‘If the customer took it and retained it without objection, his act
was regarded as an acceptance of the offer.’
If from an automatic machine: ‘The offer is made when the proprietor of the machine holds it out as
being ready to receive the money...The acceptance takes place when the customer puts his money
into the slot. Denning MR
Example of the difficulty of applying the offer /acceptance model
Airline Tickets: Stephens J says an offer ( 3 High Court judges used entirely different reasoning
concerning offer and acceptance in determining whether the ticket was an agreement. Ultiamtely
not but at most a voucher.
Thornton v Shoe Lane
Parking Company [1971]
MacRobertson Miller
Airline Services v
Commissioner Of State
Taxation (WA) 1975 HCA
3.6 Unilateral contracts
Revocation in unilateral contract scenario
• Prior to performance:
 May be withdrawn prior to performance so long as publicised as prominently as the
original offer
 Reward for location of criminal revoked via newspaper ad in same way it was
advertised. Months alter someone tried unsuccessfully to claim it
•
Partly performed:
 It has been held a unilateral offer cannot be withdrawn once the offeree has partly
performed the requested act.
BUT
 The notion that there is a general principle preventing revocation of offers in
exchange for acts (unilateral contracts) has been rejected by the Full Federal Court.
 An offer made in return for performance of an act is, like any other offer,
revocable at any time
 The offeror will only be prevented from revoking the offer where there is an
implied contract not to revoke or an estoppel
 An estoppel will arise only where the offeree is induced to adopt the assumption
that the offer will not be revoked and relies on that assumption in such a way
that he or she will suffer determinant if the offer is revoked
Shuey v United States
(1875)
Daulia Ltd. v. Four
Millbank Nominees Ltd
(1978) UK,
Veivers v Cordingly (1989
QLD)
Mobil Oil Australia Ltd v
Wellcome International
Pty Ltd(1998).
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4 Acceptance

Definition: unqualified assent to the terms of an offer à made in the manner specified or
indicated by the offeror
 Acceptance is the moment of contract
 Acceptance determines when and possible where a contract comes into being
4.1 Acceptance Rules Summary
1. Must be response to an offer  consciousness of offer
2. Must correspond with the offer
3. Must generally be communicated - express or implied
a) Generally, must be accepted in manner specified
b) Communication Exception  Postal Rule
c) Acceptance inferred by conduct
4. Can only be accepted by those person to whom offered (Generally)
4.1.1 Rule 1: Must be in response to an offer  consciousness of offer

Usually only an issue with unilateral
a) unilateral contract only arises if offeree performs requested act in reliance of offer
b) offeree must be aware of the existence and terms of the offer before they can accept
c) An act done in ignorance of the offer cannot be acceptance of the offer.
d) The offer must be present in the mind of the acceptor when the acceptance occurs.
 Reward offered for information leading to the arrest and conviction of the murderer.
Clarke gave a statement leading to his own release and the arrest of another. Clarke
therefore claimed the reward but the crown refused to pay it on the basis that he did not
make the statement with a view of claiming the reward
 held that while offeree’s conduct normally assessed by reference to external
manifestations (objective) performance of requested act will not give rise to a
unilateral contract if evidence establishes offeree was not acting on faith of the offer
R v Clarke (1927) HCA
4.1.2 Rule 2: Must correspond with the offer
See notes on 3.1.5.5 Rule 5 e) A counter offer is a rejection of the offer to which it relates
Conditional acceptance is not acceptance
Battle of the forms
 Suggested two different approaches are available Conflict or synthesis.
 Held: In this case the Conflict approach used : last shot (the counter offer of the
buyer) prevails = on buyers terms
 Macready M stated that the Court looks to interpret the terms using the ‘global
approach’ in such a manner‘[s]o as to give a “harmonious result” when construed with a
“commonsense and practical approach” which takes account of the “realities of
commerce” ... and reflects the general trend of modern contract law.
Butler Machine Tool Co.
Ltd v Ex-Cell-O Corp
(England) Ltd (1979)
In Goodman v Cospak
[2004] NSWSC 704 at
[46]-[53],
4.1.3 Rule 3: Must generally be communicated – express or implied
 Knight signed a hire-purchase agreement relating to a television. Company accepted and noted
on the document but not communicated to Knight. Knight returned the TV set to the dealer
before any instalments were paid  company sought to enforce the agreement
 Held: no contract was formed .
Ordinarily, a contract is not made until acceptance is communicated. An offeror
however, may expressly or impliedly decide to not actually communicate, as
1. The offeror may agree to treat the doing of an act as an effective acceptance
2. The offeror may treat the despatch of an acceptance by a particular method as
effective, whether or not the acceptance is received by the offeror
Latex argued this fell into the first category  with the act of signing the
document treated as an effective acceptance. Court disagreed
Latec Finance Pty Ltd v
Knight (1969)
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4.1.3.1
Rule 3a): Generally must be accepted in manner specified
An objective test, failure to comply with the stipulation may not be fatal especially if it is to the
advantage of the vendor.
 'I am of the opinion that acceptance communicated to the offeror by any other mode
which is no less advantageous to him will conclude the contract.‘
4.1.3.2
Manchester Diocesan
Council for Education v
Commercial and General
Investments (1970)
Rule 3 b): Acceptance inferred by conduct
Silence – generally not good enough
 "If I hear no more about him, I consider the horse mine at £30 and 15s.“
 Held: Silence cannot amount to acceptance.  nephew had not accepted sale of
horse
BUT
Acceptance can be implied by conduct
 There may be circumstances where it is incumbent on the party who has received an
offer to reject it explicitly or be bound. Major modification to Felthouse v Bindley .
 A developer declined to sign an architects contract, but let the work proceed and
received the benefit of the work. The offer made by the builder by proffering the
contract had been accepted by the developer by its conduct, and that there had been
an acceptance of the work on the terms and conditions offered by the builder.
 McHugh J.…. “where an offeree takes the benefit of a contract in circumstances
indicating that the offeror will be paid for his services in accordance with the offer,
the inference is open that the offer was accepted according to its terms; and, in
the present case, I find such an inference to be irresistible.”
Felthouse v Bindley
(1862)
Empirnall Holdings Pty
Ltd v Machon Paull
Partners Pty Ltd (1988)
PRA Electrical Pty Ltd v Perseverence Exploration Pty Ltd [2007]
Waldorf Apartment Hotel, the Entrance Pty Ltd v Owners Corp SP71623 [2010]
4.1.3.3
Rule 3c): Communication Exception  Postal Rule
 When offeree has placed his acceptance in the post there is a fictional meeting of minds
Adams v Lindsell (1818)
which concludes offer and gives effect to acceptance ((even if received later/lost)
 “A finding that a contract is completed by the posting of a letter of acceptance cannot be
justified unless it is to be inferred that the offeror contemplated and intended that his offer
might be accepted by the doing of that act”

‘option to be exercise by notice in writing addressed to me…on or before 20 December’
Posted 18 December, received 21 December
 HELD could be a concluded contract as Postal Rule could apply but in this case under
the circumstances was that actual notice was required. “ Highly contentious
correspondence” … under the circumstances ”actual communication Would be
regarded as essential” Bowen. J
 Hedigan J held hat for the 'postal rule' to have effect, it must be reasonably inferred
that the offeror contemplated and intended for acceptance to come about through the
act of posting.
 Postal rule was extended to telegrams à as telegrams were given to the post office and
delivered to the recipient in essentially the same way as posted letters
 The postal rule does not apply to instantaneous forms of communication (telephone or
telex)
 facsimile are treated as instantaneous communication  therefore acceptances sent by
fax are governed by the general rule that an acceptance is only effective when received by
the offeror
 Buyer sought to enforce a contract made by an exchange of telex in the English courts
between themselves and an Austrian seller.
Tallerman v Nathan’s
merchandise (1957) Aus
Bresson v Squires (1974)
Aus
Nunin Holdings Pty
Ltd v Tullamarine
Estates Pty Ltd [1994]
Aus,
Cowan v O’Connor
(1888)
Entores v Miles Far
Eastern Corp (1955)
Reese Bros Plastics Ltd v
Hamon-Sobelco Australia
Pty Ltd (1988) (Aus)
Brinkibon Ltd v Stahag
Stahl und Stahl (1983)
UK
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 Held: Contract was made in Vienna  as this is where the acceptance was received
 The postal rule does not apply because telex is considered instantaneous
communication  therefore a contract is formed when acceptance is communicated
to the offeror
 The situation may differ where:
o the message is sent or received through a third party
o where it is sent out of office hours
o where the message is not intended to be read immediately
•
Australian courts have maintained the discussion on the distinction regardless of the
limitations that have otherwise been placed on the ‘postal rule’. Suggests communication over
the internet should be treated the same as instantaneous communication. That would cover
websites but what about email?
•
Statute now governs time of receipt. See text on discussion of ‘designated address’ p 81
Olivaylle Pty Ltd v
Flottweg GMBH & Co
KGAA (No 4) [2009]
Electronic Transactions
Act, 2000, (NSW), s13
The postal rule Can be negated by requiring actual communication instead of constructive
(postal) communication.
 ‘deemed duly served if mailed by registered or certified letter….’service deemed to
occur…on the third business day next following on which it was posted.’
 Exchange by post but earlier correspondence clearly stated contract would be formed
upon receipt.
Elizabeth City Centre v
Corralyn (1994) AUs
Nunan Holdings Pty Ltd v
Tullamarine Estates Pty
Ltd [1994]) Aus
4.1.4 Rule 4: Can only be accepted by those person to whom offered
 Buyer unaware that business had been sold and bought goods thinking he was buying
off old owner who owed him money (ie goods would not be charged)
 Held o valid contract: ‘ where a contract is made, in which the personality of the
contracting party is or may be of importance… not other person can interpose
and adopt the contract’
More than one person may accept an offer regardless of whether there is only one subject
matter
 Where the offer can be accepted by more than one (even though there can be only
one contract) the liability will depend on the ways the terms are construed.
Boulton v Jones (1857)
Patterson v Dolman
(1908)
4.2 Conditional Acceptance
1. The parties have reached finality in arranging all the terms of their bargain and intend
to be immediately bound but wish to have their terms restated in a form that is more
full or precise.
2. The parties have agreed to all the terms and plan no departure from the terms but
have made performance conditional upon the execution of a formal document.
3. The intention of the parties is not to make a concluded bargain at all unless they
execute a formal contract.  Held Bound by this type
Masters v Cameron
(1954):
4.3 Key Cases
4.3.1 Carlill v Carbolic Smoke Ball Company (1893)
o
Facts:
§
§
§
The defendants, owned a medical preparation called "The Carbolic Smoke Ball“.
Advertisement offered to pay £100 to any person who contracted the influenza after having used one of their smoke
balls in a specified manner and for a specified period.
The plaintiff, Mrs Carlill (pictured left, at the age of 87), on the faith of the advertisement bought one of the balls, and
used it in the manner and for the period specified à contracted the influenza.
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o
Procedural history: defence argued:
§ No intention
§ No offer or acceptance
§ No consideration
§ Too uncertain as no time stipulated
§ Illegal as based on a wager
o
Defense: refused to pay, claiming:
1. No promise was intended à the advertisement was a ‘mere puff’
2. No offer had been made to any particular person
3. The plaintiff had not notified her acceptance of any offer
4. The agreement was uncertain because it failed to stipulate a period within which the disease might be contracted
5. The plaintiff has supplied no consideration for the defendant’s promise
Held: rejected all defence arguments
§ Claimed a contract had been formed
§ First argument: the statement relating to the bank deposit à made it clear that a promise was intended
• Court looked at the advertisement objectively, according to what an ordinary person reading the document
would think was intended à rather than a reference to what the defendant actually intended
o
4.3.2 Australian Woollen Mills Pty Ltd v Commonwealth
o
o
o
o
o
This case highlights the inextricable connection between the requirement of offer and acceptance, intention,
consideration and certainty
Facts:
§ The plaintiff claimed that a unilateral had arisen out of the Commonwealth Government’s wools
subsidy scheme à wool scarce after WWII à therefore Commonwealth subsidised purchases of wool by
manufacturers of woollen products to enable the manufacturers to supply the products at low prices
§ Commonwealth sent the plaintiff a letter to subsidised the woold they purchased
§ The stockpile of wool of the plaintiff exceeded the amount the Commonwealth claimed it would pay à
requiring the plaintiff to repay the subsidy paid on that excess
Procedural history:
§ Plaintiffs claimed that each of the announcements by the govt. constituted a contractual offer to pay
the subsidy in return for them purchasing wool à this is a unilateral contract
§ Plaintiffs claimed that each purchase constituted acceptance of the offer and consideration for the
promise to pay the subsidy
§ Unilateral contract because they accepted it on the basis of the offer
Held: no contract (no consideration or intention)
§ For a unilateral contract to arise à the promise must be made à in return for the doing of the act
§ Consideration: There must be a relation of quid pro quo (this for that) between the offeree’s act and
the offeror’s promise à the doing of the act must be based upon the promise – not merely coinciding
with it
• Tests for determining this:
o Whether the offeror has expressly or impliedly requested the doing of the act by the
offeree
o Whether the offeror has stated a price which the offeree must pay for the promise
o Whether the offer was made in order to induce the doing of the act
• This differs from a conditional gift à therefore an offeree must establish that money was to be
paid by the offeror in return for the offeree travelling to Sydney
§ Intention: It is government policy à not an offer
• They needed to have said something much more contractually binding
• There must have been a voluntary assumption of a legally enforceable duty à so that the offer
would have given rise to a legal obligation
• E.g. through statutory authority
Commentary
§ An offer is effective only if it identifies a valid consideration and manifests intention to create a legal
obligation
§ Second argument: the offer was made to the whole world à could be accepted by any person who
performed the conditions on the faith of the advertisement
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§
o
Held:
§
§
o
Fifth argument: the use of the smoke ball by the plaintiff constituted both a benefit to the defendant
and a detriment to the plaintiff, either of which would have been enough to constitute consideration
for the promise
The court had to decide using the ‘rules’ (see flowchart) was there an offer, acceptance, consideration,
intention and in this case was it legal?
The court adopted an objective approach à held it was a valid contract
‘It seems to me that in order to arrive at a right conclusion we must read this advertisement in its plain
meaning, as the public would understand it. It was intended to be issued to the public and to be read by the
public. How would an ordinary person reading this document construe it? ’ Carlill [1893] 1 QB 256 at 266 per
Bowen LJ
4.4 Auctions and E Bay
This case was mentioned in the lecture. If you are interested there is more information here. This is not compulsory reading
Smythe v Thomas [2007] NSWSC 844. Thomas listed a rare and valuable Wirraway aircraft on eBay, with an auction duration of 10
days and a minimum price of $150k. There was a phone call, the contents of which were disputed. Smythe placed a bid for $150k
and, there being no other bidders, 'won' the auction. Thomas wanted $250k for the aircraft. He refused to complete the
transaction. Smythe sued. Thomas' defence was:
1. Privity : The contract was the eBay User Agreement between Thomas and eBay, and between Smythe and eBay, but
there was no contract or agreement between Thomas and Smythe;
2. The eBay listing was an invitation to treat;
3. Even if there was offer and acceptance, the contract was uncertain and incomplete as the time for payment was to
be negotiated
4. Smythe waived his right to bid on the auction, based on the content of the disputed phone call.
Rein AJ referred to a number of overseas cases in which online auctions have been discussed, the relevant provisions of the Sale of
Goods Act 1923 (NSW), rejected each of Thomas' defences, and concluded that there was a valid and enforceable contract for the
sale of the aircraft, Remedy: Specific performance (can you think why this would be a remedy and not damages?) If Thomas had
succeeded the whole concept of Ebay would have been problematic.
See
Kariyawasam, Kanchana; Guy, Scott --- "The Contractual Legalities of Buying and Selling on eBay: Online Auctions and the
Protection of Consumers" [2008] JlLawInfoSci 4; (2008) 19 Journal of Law, Information and Science 42
This case removed some of the uncertainty relating to applicable law in Australia and ruled that an eBay sale essentially constitutes
an auction and, therefore, a sale of goods. Specifically, the Wirraway Plane case has clarified the law relating to online auctions —
via the process of eBay — in Australia and confirms that transactions thus made via eBay constitute legally binding and enforceable
contracts. Hence, the decision in this case reinforces the point that the ordinary laws of contract and, more specifically, those
relating to auctions, do govern transactions for the sale of goods on eBay. The case is undoubtedly a welcome one since it will
enhance consumer confidence in the sales processes underpinning eBay and ensure henceforth that vendors and purchasers will
be legally bound by their respective offers and acceptances. The court upheld this reasoning. It noted that the eBay sale is a sale
and a bid on eBay is binding and legally enforceable: ‘It follows that, in my view, a binding contract was formed between the
plaintiff and the defendant and that it should be specifically enforced.’ The judge concluded that ‘an online auction created a
contract in the same way as a traditional auction — the auctioneer is the agent of the seller and the agent can accept a bid on
behalf of the seller — which is what occurs in an eBay auction’
4.4.1 E mail and Postal Acceptance Rule
•
electronic transactions act sectionsdoc.doc (32.5 KB)
•
Formation of Contracts by Email ? Is it Just the Same as the Post? (88.113 KB)
Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 4) [2009] 'email is often, but not invariably, a form of near instantaneous
communication … I consider that there are analogies to be drawn with the way the law developed in relation to telex
communications in an earlier era where what I have termed “the instantaneous communication rule” came to be adopted … Thus,
by analogy with cases concerning the position with what were, or were treated as, other forms of instantaneous communication, I
consider that the contract was made where the acceptance was received'.
Finally some clarity but still somewhat perplexing. Is an email truly instant?? What happens if you are travelling from Sydney with
an international simcard in your phone and you receive the email on your Blackberry when you arrive at Houston airport.Was the
contract formed in Texas and governed by the laws of Texas?
See also extracts from ElectronicTransactions Act, 2000, NSW . The legislation provides a sense of clarification but only seems to
operate as technical guidelines. The potential for application is quite ambiguous.
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5 Consideration - Definition
Doctrine of Consideration: A promisor’s promise must be paid for to be enforceable and the
payment must proceed from the promise.
Coulls v Bagot’s Executor
& Trustee Co Ltd (1967
Definition: the promise, price, detriment or forbearance given as value for a promise
An agreement without consideration is “nudum pactum” a naked agreement and unenforceable
‘A valuable consideration in the sense of the law may consist either in some right, interest,
profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility
given, suffered or undertaken by the other.’



•
•
Currie v Misa (1875) UK
It must consist of a detriment to the promisor or a benefit to the promisee.
Bilateral contract involves an exchange of promises which is sufficient.
Unilateral contracts, consideration is provided for the promise of reward by an act,
rather than a promise.
Promisor: the person making the promise sought to be enforced
Promisee: the person seeking to enforce the promise
5.1 Consideration Rules Summary
1. Bargain requirement - must consist of detriment to promisor or benefit to promisee.
a) Must have legal value
b) Act in Return for a promise but not act in reliance
c) Exchange of promises is good consideration in bilateral contracts
d) In unilateral contracts provided by a requested act for the promise of a reward
2. Simple contracts without consideration are unenforceable
3. Not required for formal contracts sealed by deed
4. Must flow from promisee but Need not flow to the promisor
5. Must be sufficient but need not be adequate
6. Must be Lawful
7. Cannot be discretionary/illusory
8. Must be definite
9. May be executed, executory but cannot be past consideration
10. Part payment is not good consideration
11. Existing obligations are not good consideration
a) Acts done before at promisor’s request can be good consideration
b) Termination of existing agreement may allow past consideration
c) Bona-fide compromise may allow existing obligations
d) Taking on greater burden even if technically existing burden
e) Practical benefits bestowed on other party if existing obligations met
f) Use of existing obligations as a promise to a third party
5.1.1 Rule 1: Bargain Requirement

‘Quid pro quo’ In this case it was maintained that the necessary connection or
relation between the announcement and the act is provided if the inference is
drawn the that promisor has requested the promisee to do the act.
 ‘Consideration, offer and acceptance are an indivisible trinity, facets of one
identical notion which is that of bargain.’
The modern or bargain doctrine of consideration as opposed to a reliance approach. See:
 … ‘The triumph of the bargain theory of consideration necessary for a contract
amounts to a rejection of the theory of contractual obligation based on reliance.’
Kirby P
5.1.1.1
Australian Woollen Mills
Pty Ltd v The
Commonwealth (1954)
Beaton v McDivitt
(1987) HCA
Rule a): Must have legal value
 Lord Somervell ‘A contracting party can stipulate for what consideration he chooses.
A peppercorn does not cease to be good consideration if it is established that the
promise does not like pepper and will throw away the corn’
Chappell & Co Ltd v
Nestle Co Ltd [1960] UK
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5.1.1.2
Rule b): An Act in Return for a promise is good consideration but not an act in
reliance of a promise
 Beaton moved his family onto McDivits land on a promise when subdivided he would be
given it. After 7 yrs a dispute arose and he was ordered off

Kirby found that the bargain requirement was not satisfied on the facts à since
Beaton made no promise which could be regarded as a quid pro quo for a promise
to transfer the land
 On the other hand, McHugh and Mahoney JJA found that Beaton had provided
consideration by working the land at the McDivitt’s request à Beaton’s performance
of the requested acts therefore gave rise to a unilateral contract
Beaton v McDivitt
(1987) HCA
 Atco provided a series of annual ‘letters of support’ to the auditors of its subsidiary
(Newtronics) confirming it would not seek to recover debts owed by Newtronics to the
detriment of other creditors + confirmed that it would provide sufficient funds to
Newtronics to enable Newtronics to meet its trading debts.
 Newtronics became insolvent liquidator claimed the letters of support were evidence of
a contract between Atco and Newtronics under which Atco undertook to provide
financial support for Newtronics
 Hed: At most Newtronics had continued to trade in reliance on Atco’s undertakings
 For the consideration requirement to be satisfied Newtronics would have to show
that Atco’s undertakings were offered as the price or quid pro quo for the action of
Newtronics continuing to trade
 “In this case, that required Newtronics to show that Atco in effect requested
Newtronics to continue to trade in return for the undertaking of continued
support and that Newtronics was moved by that request”  no such request was
implied because “atco for all intents and purposes ran Newtronics and had no need
or intention of requesting it to do anything”
Atco Controls Pty Ltd (in
liq) v Newtronics Pty Ltd
(in liq) [2009]
5.1.2 Rule 2: Simple contracts without consideration are unenforceable
 A person who wants to enforce a promise must have paid for it. Only by providing
consideration can one establish a right to have it enforced.
 Consideration essential for every simple contract.
Coulls v Bagot’s Executor
& Trustee Co Ltd (1967)
Dunlop Pneumatic Tyres
Co Ltd v Selfridge and Co
Ltd [1915] UK
5.1.3 Rule 3: Not required for formal contracts sealed by deed
 if the plaintiff had overcome his prejudice against solicitors, then a seal would have been
affixed to the agreement and the consideration point would not be available to him Dixon Cj
5.1.4 Rule 4: Must flow from promisee but Need not flow to the promisor
 ‘if a person with whom a contract not under seal has been made is to be able to
enforce it consideration must have been given by him to the promisor or to some
other person at the promisors request’
Ballantyne v Phillott
(1961)
Dunlop Pneumatic Tyres
Co Ltd v Selfridge and Co
Ltd [1915] UK
5.1.5 Rule 5: Must be sufficient but need not be adequate
 Woolworths Limited v Kelly (1991) Kirby P.
 a woman’s promise to pay 1 pound towards the ground rent and to keep the house
in good repair in exchange for a promise by her husband’s executors to give her the
right to occupy the house for life
 Held: this was good consideration - “Consideration means something which of
some value in the eye of the law, moving from the plaintiff”
Thomas v Thomas
(1842)
5.1.6 Rule 6: Must be Lawful
 P gave D (charity) 3000 pounds in return for a promise that he would receive a
knighthood. The knighthood did not eventuate and P sued for the return of the money.
 Court refused to make the order.The consideration was a promise to do something
to promote public corruption and this was illegal as it was against public policy.
 Court held: Not allowed to restrict trade = not good consideration.
Parkinson v College of
Ambulance (1925)
Wyatt v Kreglinger
[1933]
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5.1.7 Rule 7: Cannot be discretionary/illusory: Discretion as to performance
 P entered into a contract with D (Commonwealth) to establish a timber company in
Papua New Guinea to produce plywood for import to Australia. Agreement stated
that D would subsidise the cost of import customs duty into Australia in “an amount
or at a rate determined by the Commonwealth from time to time”. The subsidy was
paid for some years and then later withdrawn
 The agreement imposed no obligation on the Commonwealth to pay any
subsidy. Therefore, the promise was illusory consideration if they could
determine whether they wanted to perform the promise  bad consideration
 clause not enforceable
“The general principle… is that wherever words which by themselves
constitute a promise are accompanied by words showing that the promisor
is to have a discretion or option as to whether he will carry out that which
purports to be the promise, the result is that there is no contract on which
an action can be brought at all.”
‘A promise cannot constitute consideration if it is too uncertain to be
enforced, or if the promisor has reserved an absolute discretion on whether
or not to perform that promise.’
Placer Development Ltd
v The Commonwealth
(1969)
 Mason J noted that the existing legal duty rule is conceptually justified by the fact
that a promise to perform an existing contractual duty is an illusory consideration à
the promisor incurs no new burden and the promisee receives no benefit he or she
did not already enjoy
Wigan v Edwards (1973)
 An employment contract that provided for the employee getting an ‘option to
participate in the company’s senior staff equity sharing scheme was too vague as
there was no scheme in place
Biotechnology Aus Pty
Ltd v Pace (1988)
NSWCA
5.1.8 Rule 8: Must be definite
 A son was disappointed about the way his father had distributed some property, and
White v Bluett (1853)
made repeated complaints about this distribution to his father. The son and father
agreed that if the son ceased complaining the son would not have to pay money owing
to his father.
 An English Court held that the son had not provided good consideration for the
father’s promise too vague to have a legally recognised value.
 Pollock CB noted that the son had no right to complain. The son promising not to do
what he had no right to do could not constitute consideration.
 NB: A promise made because of the love and affection that the promisor and
promise have for each other, or that the promisor has for the promise, is not legally
recognised.
 P said that they would look after their father (D). with Property to be given to the
daughter which didn’t’ happen.
 Court held that the consideration was too vague to be enforceable
Shiels v Drysdale (1880)
5.1.9 Rule 9: May be executed, executory but cannot be past consideration
Past consideration occurs where the act or forbearance pre dates the promise.
 P (Roscoria) purchased a horse from D (Thomas). After the sale was concluded, D
promised P that the horse was in good health and was not vicious. The horse was
vicious and P sued for breach.
 The court held that the promise was not binding as it was made independently
of the sale (i.e. after the sale concluded).
 D’s subsequent promise was not supported by a return promise from P (i.e. no
consideration by P) à and therefore it could not be enforced.
Roscorla v Thomas
(1842) UK
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5.1.10 Rule 10: Part payment is not good consideration: Rule in Pinnel’s case

Payment of a lesser sum than the amount due, cannot normally be treated as a
satisfaction for an existing debt.
Exceptions:
a) Settlement of a dispute HBF Dalgety Ltd v Moreton (1987)
b) 'Composition' agreements : precludes the creditor from going behind the agreement
as this would amount to a fraud on other creditors. (Bankruptcy Act 1966 (Cth).
Where several creditors jointly agree to forego part of each of their debts
(composition’) (Couldery v Bartrum 1881)
c) 3rd party payment
Hirachand Punamchand v Temple (1911)
d) Something other than money: eg ‘the gift of a horse, hawk or robe.. might be more
beneficial to the creditor’ Pinnel’s case
e) Material alteration in the mode of payment : pay earlier or at a different place
f) The use of a deed
g) Equitable Estoppel
 Pinnel loaned money to Cole, who said that he didn’t have all of it, so asked if Pinnel
could accept half. Pinnel agreed. He then sued for the remainder of the money
 Court said that part payment of a debt is not good consideration. Even if a
creditor will agree to accept something less, they can still have a go at the
debtor for the rest of the payment

D (Foakes) owed P (Beer). P agreed to allow D to pay off the debt by an immediate
payment of 500 pounds and the balance of instalments, and in return gave a
promise not to commence debt recovery proceedings against D. D made all the
instalment payments as agreed. P later demanded an additional 360 pounds as
interest on the debt and D refused to pay.
 The court held that the interest was payable.D had a pre-existing obligation to
pay the whole debt, and the mere payment by instalments of the debt was not
sufficient consideration.
Exception if third party involved
 P lent D money. When D could not repay the loan, his father agreed with P to pay a
lesser amount in full settlement. D’s father paid and P then sued for the balance.
 The court held that the debt owed by the D had been extinguished and stated
that “it would be fraud upon a stranger who pays part of a debt in discharge of
the whole, than an action should be brought for the debt”.
Practical Benefit and Part Payment of Debt  Not Yet.
 ‘… if the principle of Williams v Roffey Bros Ltd is to be extended to an obligation to
make payment, it would in effect leave the principle in Foakes v Beer without any
application.’
 Although Santow J in has certainly thrown out a challenge to the rule in Pinnel’s case
by holding that a landlord was bound by a promise to accept reduced rent payments
on the basis of consideration.
Pinnel's Case (1602)
Foakes v Beer (1884)
Hirachand Punamchand
v Temple (1911)
In Re Selectmove Ltd
[1995]
Musumeci v Winadell
Pty Ltd
5.1.11 Rule 11: Existing obligations are not good consideration


Existing legal duty is not good consideration Traditionally it has been said that merely
performing an existing duty - doing what you are obliged to do - cannot be a good
consideration.
A promise to perform a contractual duty already in existence is generally not valid
consideration.
 Colliery requested police protection during a strike. Police only had the resources to
make visiting patrols, but agreed to stay on site for payment.
 HELD performing a statutory duty could not normally be sufficient consideration
but as this was beyond statutory requirements payment could be claimed
Glasbrook Bros Ltd v
Glamorgan County
Council [1925] UK
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 During ship voyage, two crew members deserted and D (captain) promised to divide the
deserters wages among the remaining crew. D failed to honour his promise P sued.
 The court held there was no consideration for the promise to pay the extra wages.
 Under the original agreement, P and the other crew members contractually
promised “to do all they could under all emergencies of the voyage”.
 The desertion of the 2 crew members as an emergency and therefore P was already
under a contractual duty to help bring the ship back.
Stilk v Myrick (1809)
5.1.11.1 Rule 11a): Acts done before at promisor’s request can be consideration
 If there’s initial discussion and no price is mentioned, and later discussion mention price à it
may be argued that the later discussions were making definite the terms of the contract, not
being part of the past consideration rule.
 Court held subsequent promise to pay can be construed as an admission of the act or as
a means of making definite or fixing the terms of the contract (through fixing the
amount of reasonable remuneration for the act).
Re Casey’s Patents:
Stewart v Casey [1892]
An act done before a promise can be good consideration if:
1. The act was done at the promisor’s request.
2. The parties understood that the act was to be remunerated by the conferring of a
benefit such as a payment. (The act must have required some performance and
can’t be an act done out of friendship or generosity)
3. The payment, if promised in advance, would have been legally recoverable.
 D He asked P (Lampleigh) to obtain a pardon for him from the King for murder.
P agreed and in the process incurred considerable expense.
Subsequently, D promised to P 100 pounds to cover costs.
D failed to make the payment and the P sued.
D argued that the subsequent promise was unsupported by consideration.
 The court disagreed and held that D’s request for assistance included an implied promise
that P would ultimately be paid for his services.
 The request for assistance & the promise to pay were part of the same transaction.
 respondent transferred to a corporate group a compute software business of which
he was part owner on the understanding that he would receive shares in the
restructured group
 Held: the transfer was good consideration for a subsequent promise to transfer
5% of the equity in the group to the respondent
Lampleigh v Brathwaite
(1615)
Ipex Software Services
Pty ltd v Hosking (2000)
5.1.11.2 Rule 11b): Termination of existing agreement may allow past consideration
5.1.11.3 Rule 11c): Taking on greater burden/risk even if technically existing burden
Where additional risks undertaken or the promise provides some additional act or forbearance
 D (captain) promised P an additional payment if he helped sail the ship back to port
after crew deserted. P agreed and D later reneged on the promise. Unlike in Stilk v
Myrick, nearly half the 36 crew members had deserted the ship when it was docked
en route. Stilk was one of only a handful of trained seamen left
 The court held that P had done more than he was contractually bound to do
and, therefore, had provided consideration
 The remaining crew were under no obligation to go to sea in dangerous
conditions  therefore fresh consideration by agreeing to continue the voyage
 The captain’s promise of extra wages was therefore enforceable
Hartley v. Ponsonby
1857
5.1.11.4 Rule 11d): Bona-fide compromise may allow existing obligations

Deliberately not doing something or not exercising some right, usually at the request of
another can constitute good consideration.
General requirements
1. Claim must be reasonable.
2. There is an honest belief of a good chance of success.
3. No concealment of a fact that could affect the validity of the claim.
4. The promise must be bargained for.
Callisher v Bischoffsheim
(1870)
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 Edwards refused to complete contract to buy a house unless defects rectified.
Wigan then promised to repair defects and repair any major faults for five years.
 HELD promise given by way of bona fide compromise of a disputed claim can
be good consideration  exception to the existing legal duty rule
 To fall within this exception, it was not necessary for the Edwards to establish
that they had a valid legal entitlement to refuse to perform the contract à it was
enough that the intimated that they did not consider themselves bound to
perform and that their claim was honestly made

Note, Mason J concluded that Wigan was not in breach of contract when
proceedings had commenced, and that the Edwards therefore had no cause of
action at that time à appeal dismissed. <check this>
Wigan v Edwards (1973)
5.1.11.5 Rule 11e): Practical benefits bestowed on other party if existing obligations met
 Willimas carpenter on contracting job of. Williamsn had underquoted and indicated
he needed more money to finish job which Roffey agreed to as if Williams breached
he was in jeopardy of not meeting his contractual duties
Because of this promise Roffey obtain a benefit or obviates a disbenefit (didn’t
have to go to court, didn’t have to find other carpenters, met deadline etc).
 The court held that the general rule will not apply if the promisor benefits from
the promise or its performance (of the existing obligation).
 General rule will also not apply if ‘the promisor avoids a disbenefit’ which might
have resulted from the promisee’s failure to perform the existing obligation.
 Williams had provided good consideration even though he was merely
performing a pre-existing duty.
 Needs to be a good reasons why additional payment is sort
Williams v Roffey Bros &
Nicholls (Contractors)
Ltd [1991] UK
 Fruit and vege shop owner agreed to stay on at reduced rent after centre owner
allowed a competitor to open up. Later centre owner sued for rent.
 Musumeci suffered detriment staying on and fcing competition and gave up the
option of walking away from the lease an action that could have resulted in
proceedings for a defendable breach.
 Held had suffered a detriment staying on and centre had received practical
benefits of a fully let shop.
 Santow J applied the W v R considerations to the facts.
Musumeci v Winadell
Pty Ltd (1994)
Santos J in Musumeci Accepted and expanded WvR
1. benefit needs to outweigh benefit of another remedy eg: suing for
breach.
2. The promise is not given by way of economic duress or fraud or undue
influence or unconscionable conduct nor as result of any unfair pressure
5.1.11.6 Rule 11f): Use of existing obligations as a promise to a third party
 Pao agreed to sell shares to Fu (controlled by Long) in consideration 4 other shares.
Pao agreed to retain 60% of acquired shares for 12m. Pao On refused to proceed
unless Long agreed to guarantee & indemnify him against loss from the fall in share
prices. Long agreed, the sale proceeded. Pao On sought to enforce indemnity.
 ISSUE The consideration for promise of indemnity, was promise by Pao to Long
to perform original contract with Fu i.e. a pre-existing contractual obligation.
 HELD the promise to perform an act under which the plaintiff was already under
an existing obligation to third party can be good consideration. The
shareholders had obtained the benefit of a direct obligation they could enforce.
 Lord Scarman noted the following requirements for the exception to apply:
1. The act must have taken place at the promisor’s request;
2. Objectively, the parties must have understood that the act was to be remunerated
or compensated; and
3. The remuneration or compensation must have been legally enforceable.
 When the uncle died, P sued the estate to recover outstanding payments promised to
him for getting married. D (estate) argued there was no consideration for the promise
because P had already promised to marry his now wife.
 Held : a contract to do something which the promisor is under an existing obligation
to a third party to do (i.e. get married) can be good consideration.
Pao On v Lau Yiu Long
[1980]
Shadwell v Shadwell
(1860)
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5.2 Key Cases
5.2.1 Australian Woolen Mills Pty Ltd v Commonwealth (1954)
o
o
Facts:
• The plaintiff claimed that a unilateral had arisen out of the Commonwealth Government’s wools subsidy scheme à wool
scarce after WWII à therefore Commonwealth subsidised purchases of wool by manufacturers of woollen products to
enable the manufacturers to supply the products at low prices
• Commonwealth sent the plaintiff a letter to subsidised the wool they purchased
• The stockpile of wool of the plaintiff exceeded the amount the Commonwealth claimed it would pay à requiring the
plaintiff to repay the subsidy paid on that excess
1. AWM claimed that by purchasing wool à it provided consideration for the commonwealth’s promises to pay the subsidies
Held: no contract (no consideration)
§ For a unilateral contract to arise à the promise must be made à in return for the doing of the act
§ There must be a relation of quid pro quo (this for that) between the offeree’s act and the offeror’s promise à the doing of
the act must be based upon the promise – not merely coinciding with it
• i.e. the act must be performed as a result of the promise
• Tests for determining this:
o Whether the offeror has expressly or impliedly requested the doing of the act by the offeree
o Whether the offeror has stated a price which the offeree must pay for the promise
o Whether the offer was made in order to induce the doing of the act
• This differs from a conditional gift à therefore an offeree must establish that money was to be paid by the offeror
in return for the offeree travelling to Sydney
§ The acts of purchasing wool à satisfied the test outlined in Currie v Misa (1875):
• Legal detriment to AWM
• Benefit to the Commonwealth
§ HC held: “No relation of quid pro quo between a promise and an act can be inferred”.
• At best it was a conditional promise of a gift that could not be legally enforced à no bargain; government should
have requested something to be done. Woollen relied on government scheme and suffered reliance = not good
consideration. Bargain would have occurred if a request was made by the Commonwealth.
• PC: Simply an administrative arrangement.
§ è Therefore, the “bargain” aspect of consideration will be satisfied if the acts which are said to amount to consideration à
have been performed at the request or implied request of the person making the promise
• In this case, the statements by the commonwealth were in the nature of policy announcements à no ‘request’ to
purchase wool could be implied
• It was therefore irrelevant that AWM had acted to their detriment in reliance on the commonwealth’s promise
฀
It is possible for an act to satisfy the bargain aspect of consideration (i.e. the act is done as a result of a express/implied
request or price) à but not the benefit/detriment requirement:
5.2.2 Ballantyne v Phillott (1961)
o
Facts:
§
§
§
§
§
Phillot had commenced proceedings against Ballantyne (his formed mistress) à to recover a substantial sum of money
he had lent to her
Some evidence that Ballantyne had asserted that she had lent money to Phillot and had claimed she could sue him
for defamation à although it seems doubtful that she had, or even believed she had, an enforceable claim against him
on either ground
At the instigation of a third party à the two signed a written document in which Phillot agreed to discontinue the
proceedings and release all claimed he may have had against her
Ballantyne then relied on the agreement to institute fresh proceedings to recover the debt
As consideration for Phillot’s promises (i.e. to discontinue proceedings) à Ballantyne relied on a statement in the
signed document that she had no right or claim against Phillot in respect of the action for debt or otherwise
o
1.
Held:
§ Ballantyne had not given consideration for Phillot’s promises
§ Ballantyne did not promise to give up a claim against Phillot and no promise could be implied in the circumstances
§
Even if Ballantyne’s admission could be regarded as the price of Phillot’s promise à the making of the admission did not
constitute a detriment to Ballantyne or a benefit to Phillot
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5.2.3 Beaton v McDivitt
฀
฀
฀
฀
฀
o An act performed in reliance on a promise: will not constitute good consideration à may give rise to estoppel:
Facts:
o McDivit (respondent) owned a large block of land which he feared he would not be able to afford to keep when it was
rezoned by the local council.
o With this in mind, he promised to transfer part of the land to Beaton if he would move onto the land and cultivate it.
o Beaton did this – he built a house on the land and cultivated it as McDivit had prescribed.
o After 7 years, a dispute arose and McDivit ordered Beaton off the land.
Procedural history:
o Dillwyn v Llewelyn à represented “an exception to the modern requirement that a contract should be a bargain
supported by consideration in the nature of quid pri quo” à Young J held that the plaintiff’s reliance on the
defendants’ promise amounted to consideration and gave rise to a dillwyn type contract
Held:
o Court argued there was no contract, and that a promise does not constitute consideration for the purposes of simple
contracts.
o McHugh JA and Kirby P made it clear that there was no exception to the bargain concept of consideration (i.e.
something for something)
o They said that the Dillwyn type cases involved the enforcement of promises by way of estoppel and not by way of
contract
o Kirby found that the bargain requirement was not satisfied on the facts à since Beaton made no promise which could
be regarded as a quid pro quo for a promise to transfer the land
o On the other hand, McHugh and Mahoney JJA found that Beaton had provided consideration by working the land at
the McDivitt’s request à Beaton’s performance of the requested acts therefore gave rise to a unilateral contract
o However, Beaton was unsuccessful because Mahoney JA found that the contract had been brought to an end by
frustration à because the land had never been subdivided (Plot B didn’t exist so Beaton didn’t have a claim to it)
An act performed in return for a promise: is regarded as good consideration
5.2.4 Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (in liq) [2009]Facts:
฀
฀
฀
฀
฀
฀
฀
฀
฀
Atco provided a series of annual ‘letters of support’ to the auditors of its subsidiary (Newtronics) à whereby Atco confirmed it
would not seek to recover debts owed by Newtronics to the detriment of other creditors + confirmed that it would provide
sufficient funds to Newtronics to enable Newtronics to meet its trading debts
This support was needed for Newtronics to remain solvent and to continue to trade à the provision of these letters allowed
Newtronics to be presented in its audited accounts as a solvent, going concern
Newtronics became insolvent à liquidator claimed the letters of support were evidence of a contract between Atco and
Newtronics under which Atco undertook to provide financial support for Newtronics
Procedural history: by continuing to trade à Newtronics provided consideration for Atco’s undertakings
Held:
The most that could be said was that Newtronics had continued to trade in reliance on Atco’s undertakings
For the consideration requirement to be satisfied à Newtronics would have to show that Atco’s undertakings were offered as
the price or quid pro quo for the action of Newtronics continuing to trade
“In this case, that required Newtronics to show that Atco in effect requested Newtronics to continue to trade in return for the
undertaking of continued support and that Newtronics was moved by that request”
no such request was implied because “atco for all intents and purposes ran Newtronics and had no need or intention of
requesting it to do anything”
5.2.5 Shadwell v Shadwell (1860)
Facts:
•
•
•
•
•
P wrote to his uncle informing him of his engagement to marry.
•
The court held that a contract to do something which the promisor is under an existing obligation to a third party to do
(i.e. get married) can be good consideration.
•
The late uncle obtained a real benefit (having his nephew married) and P had materially altered his position.
His uncle then promised to make certain payments to P once the marriage took place.
P subsequently married and his uncle made some of the agreed payments.
When the uncle died, P sued the estate to recover outstanding payments.
D (estate) argued there was no consideration for the promise because P had promised to marry his now wife.
Held:
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6 Intention to Create Legal Relations
6.1 Objective Approach
‘In all these cases the court does not try to discover the intention by looking into he minds of the
parties. It looks at the situation in which they were placed and askes itself Would reasonable
peole regard the agreement as intended to be binding ‘ Per Lord Denning
 Sales of airline – Terms of agreement document. After signed Easter tried to pull out
Elements suggesting Not a contract - future type language intend to acquire
suggesting future language; proposed agreement
But also Contemplated additional terms and Contended further agreement
suggesting agreement reached
While court used an objective approached they noted Subjective intention may
be relevant if the other party knew and there was evidence of it/ Particualry
swaying was evidence of Easter wanting to wrap up the agreement quickly
 Courts found offer acceptance and also an intention to be bound
Merritt v Merritt (1970)
Air Great Lakes Pty Ltd v
Ks Easter (holdings Pty
lTd (1985)
 Pacific Carriers v BNP Paribas (2004)
 Atco Controls Pty LTd Newtronics Pty Ltd (2009)
 Oliveylle Pty Ltd v Flottweg (2009)
6.2 Surrounding Circumstances
 The assessment will take into account ‘the subject-matter of the agreement, the
status of the parties to it, their relationship to one another, and other surrounding
circumstances’
 Correspondence between the parties may be referred to, as well as their conduct, in
order to determine whether there was an intention to contract
 Held there was evidence of an intention to be legally bound at some point but
could not confirm that a concluded bargain had been reached  no intention to
be currently contractually bound
Ermogenous
ABC v XiVth Cth Games
(1988) NSWCA
6.3 Consideration as a test of Intention
 “the better view may be that the rules as to consideration supply the answer as to
whether parties intended to enter into a legally binding bargain’
Atco Controls Pty LTd
Newtronics Pty Ltd
(2009)
6.4 Implied Intention
 Property settlement after husband conduct implied they intended to be bound
 Words ex gracia in agreement did not overcome legal intention in commercial
negotiation of payments for redundant pilots
 Those trying ‘to argue no intention in a commercial setting bears a heavy
onerus’
Merritt v Merritt (1970)
Edwards v Skyways Ltd
(1964)
6.5 Express Intention
 D tissue manufacturer sued by P distributor after D cancelled an agreement for P to
be sole distributor in US after 3 years
 Clause in agreement stating the intention for it not to be legally binding  court
agreed
* Note: This was a technically illegal agreement as it ousted the jurisdiction of the
courts
 Man won lottery but lost his ticket.
 Honour clause stated participation did not create a legal relationship  held no
intention
Rose and Frank Co v J R
Crompton and Bros :td
(1923)
Jones v Vernon’s Pools
Ltd (1983)
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6.6 Commercial contracts

Strong presumption of intention  possible but difficult to displace
 Burden of proof on party claiming no intention
Letter of Intent  contract in the future but not now
 Negotiations for sale of hotel to Government. Department head sent a pretty
strongly worded letter but due in part to them being government 2/3 held
Correspondence not evidence of a concluded contract.
Esso Petroleum v
Commissioners of
Customs and Excise
(1967)
Coogee Esplanade surf
Hotel Pty Ltd v
Commonwealth (1983)
Heads of Agreement  generally no binding unless specifically expressed to be so
 Wording such that court found intention to be bound
 Solicitors letter outlining “our understanding”  no intention
 Holding deposit held not to show binding intention
Letters of Comfort  generally no intention but depends on the language
 Letter from TLI indicating it intended to take over Hover travel Australian and would
be in a position to repay a temporary credit facilities the bank was going to extend.
When this didn’t happen CBA sued
 TLA defended on basis it was a letter of comfort and no intention to be legally
binding with CBA
 Wording too promissory so specific that although usually letters of comfort are not
usually binding in this case it was
LMI v Baulderstone
(2001)
JH Milner and Son v
Percy Bilton Ltd (1966)
Allens Group v Arena
Meetings Convensions
and Exhibitions (1977)
CBA v TLI Management
Pty Ltd (1990)
Banque Brussels
Lambert SA v Australian
National Industries Ltd
(1989)
6.7 Domestic and family Arrangements


Weak presumption of no intention  easily displaced
 Burden of proof on party claiming intention
Where it’s beyond a domestic relationship, presumption will be dispelled
Balfour v Balfour [1919]
Wakeling v Ripley
6.8 Government Arrangements

Do not generate contractual relations  except ordinary government contracts
 increased formality is require to show legal intention
 Unlikely to find intention where issue related to policy initiatives
Coogee Esplanade Surf
Motel Pty Ltd v
Commonwealth (1976)
Australian Woolen Mills
Pty Ltd v Commonwealth
(1954) HCA
6.9 Voluntary organisations

Notwithstanding the trend of recent authority, the HC decision in Cameron v Hogan remains
important = in the absence of any property, income or reputational interests being involved,
which may give rise to the possibility of non-contractual remedies, the court has no
jurisdiction to decide issues arising out of a consensual BUT non- contractual relationship.
6.10 Factors Suggesting of intention
1. Informality of agreement (where significant commercial contract is involved)
2. Uncertainty of identify of who is bound
3. Uncertainty as to what they are bound to do (price/ timing / subject matter”
 ‘the more numerous and significant the areas in respect of which the parties
have failed to reach agreement. The slower a court will be to conclude that they
had the requite contractual intention’
Industry Standards
Who party are (difficult to bind government)
Use of lawyers
Serious Consequences
ABC v XiVth Cth Games
(1988) NSWCA
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6.11 Key cases
6.11.1 Ermogenous Greek Orthodox Community of SA Inc (2002)
Facts:
•
E was employed by the Greek orthodox community as its Archbishop for 23 years.
•
During this period he received a stipend but nothing for annual or long service leave.
•
The church argued that their relationship with E was religious, and therefore domestic – this raising the presumption
that their ‘contract’ was not legally binding.
•
Although the relationship was spiritual, there was an employment relation between E and the Church, and this
rebutted the weak presumption.
•
The use of presumptions although still upheld in England, were rejected by the Australian HC in Ermogenous.
•
The majority suggested it was difficult to formulate rules about intention because the context in which the agreement
was made (i.e. the personal/commercial relationship) was just one factor that is relevant to an assessment of
intention. The presumptions did no more than ‘invite attention to identifying the party who bears the onus of proof’.
•
In other words, the correct approach is to look at ALL of the circumstances, including the context in which agreement
was formed, and assess whether, from an objective perspective, the parties can be regarded as intending their
agreement to have legal consequences.
Held:
6.11.2 Cameron v Hogan (1934)
Facts:
•
P (politician) lost an election, but believed that he was wrongfully expelled from the Labour Party for Victoria
•
P took Labour Party to Court, arguing that they didn’t follow pre-selection rules.
•
Court held that constitutional rules were not contractual in nature and not enforceable with membership because
membership had never intended to enforce it as a legally binding relationship.
Held:
6.11.3 Banque Brussels Lambert SA v Australian National Industries Ltd (1989)
Facts:
•
A document (claimed by ANI to be a letter of comfort) was given to the bank in which ANI assured the bank that
“Spedley” was a good company and that it would notify the bank if it intended to sell its shares. This suggested Spedley
were investment worthy.
•
Spedley shares were sold, the bank was not notified and the company went under.
•
The Bank (P) instituted proceedings against ANI (D). ANI argued it was merely a letter of comfort and that they did not
intend to be bound.
•
Typically, a letter of comfort is not binding; it is merely passed around in commerce to establish the validity of the
business.
•
Court ruled in favour of P.
•
There were promissory statements made by D to P that turned the letter of comfort into a legally binding document.
Held:
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6.11.4 Esso Petroleum v Commissioners of Customs and Excise (1967)
Facts:
•
For promotional purposes, Esso Petroleum distributed millions of coins to petrol stations that sold Esso petrol for
promotional purposes.
•
Each featured one of the members of the English soccer team.
•
It was advertised to the public that for every 4 gallons of petrol they bought, they would receive one of those coins.
•
Advertisement indicated these were a ‘free gift’.
•
Issue for the court was whether the coins were being ‘sold’ (and therefore liable for purchase tax).
o One of the issues crucial to the determination was whether the parties had the necessary intention to form a
contract of sale.
Held:
•
House of Lords was split 3:2 – majority held that the parties possessed the requisite legal intent in relation to the
provision of coins upon a customer buying 4 gallons of petrol.
•
Lord Simon stated:
o The promotion took place in a business setting - it was intended the sales would be promoted as a result of
the coins;
o This scheme had a potential commercial benefit to Esso; and
o This view was supported by authority.
•
The purpose of the scheme was to promote the sales of Esso petrol. It was a business decision to offer the coins in
exchange for the sale of petrol. It follows that it was a business transaction, despite the small intrinsic value of the
coins.
•
It is further submitted that in any future case of this kind, the broader approach to what constitutes a commercial or
business setting will be adopted.
6.11.5 Wakeling v Ripley (1951)
Facts:
•
D was an elderly man of considerable wealth who lived in Australia.
•
He invited his sister and her husband (Ps) to come to Australia to live with and care for him until his death.
•
Ps agreed, H gave up stable employment in England. Dispute arose. Ps sued D for breach of contract.
•
NSW Court of Appeal found in favour of Ps.
•
It was held that, in these circumstances, the agreement was something ‘very much more than a mere family or social
agreement’.
•
Relevant to this finding was the serious consequences of the arrangement for the Ps, namely H giving up his salaried
position and pension, and both of them moving permanently to Australia.
•
The intention to be bound was irrelevant. The consequences of the act (moving) were serious. Their economic loss
both in moving and in H giving up job was held to be beyond ordinary domestic arrangements.
Held:
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6.11.6 Todd v Nicol [1957]
Facts:
•
Elderly woman living in SA invited her sister-in-law and niece to move from Scotland to live with her.
•
In consideration for their move, they were permitted to live with her until her death, or until the niece married.
•
Relationship deterioration saw her kick them out sometime after they moved in.
•
SA Supreme Court found that the parties had the requisite legal intention when they entered the contract.
•
Found that promise to leave house to relatives in will was a non-binding contract; instead, the contract that all parties
would have to be bound to is that expectation that all would live together in satisfactory home conditions.
Held:
o Court found there was an implied agreement that carer would behave ฀฀ D breached this contract.
6.11.7 Jones v Padavatton (1969)
Facts:
•
A mother (in England) invited her daughter (living in US) to move to England to study for the bar. The mother promised
to provide her with maintenance of $200 a month. Daughter agreed.
•
Later, M & D altered their arrangements so that, instead of being paid, D was able to live in her mum’s house.
•
Dispute arose. M brought an action to evict D from the house.
•
English court of appeal found for the mother on the basis that there was no legally binding agreement between the
parties regarding the provision of maintenance.
•
Relying on the presumption that family members do not intend to enter legal relations, it was held that there was
merely ‘one of those family arrangements which depend on the good faith of the promises which are made and are
not intended to be rigid, binding agreements.
•
This was the case notwithstanding the seriousness of the actions of D, taken in reliance on mother’s promise, and the
obvious expense involved.
Held:
6.11.8 Coogee Esplanade Surf Motel Pty Ltd v Commonwealth (1976)
Facts:
•
Coogee ESM had entered into a contract to sell the motel to the commonwealth (or so it was contended).
•
No contract had been executed, but there were negotiations followed by a contract being forwarded to the relevant
commonwealth department for approval.
•
Head of Department advised the director of the motel that approval had been given and funds authorized, and that the
‘transaction’ would be settled in July.
•
A ‘letter of intent’ was sent to the motel. The contracts, however, were never exchanged.
•
In an action by the motel for specific performance of the contract, court held that the parties had not formed the
requisite legal intent to contract.
•
Where one of the contracting parties is a government, increased formality is required to demonstrate the necessary
legal intent.
Held:
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6.11.9 Baldwin v Everingham (1991)
Facts:
•
Member of the Liberal Party (QLD) brought an action against various members of the executive claiming breaches of
the constitution in relation to endorsement procedures.
•
Question of whether a political party is a voluntary association?
•
Court found that disputes concerning the rules of political parties registered under the Commonwealth Electoral Act
are also justiciable.
•
The court will not avoid enforcing rights just because it is a club. Since some clubs are so huge it’s like an institution the
Court made a declaration to give the member’s rights.
•
Differs from Cameron v Hogan because the Commonwealth Parliament, in conferring legislative recognition upon
political parties has taken them beyond the ambit of mere voluntary associations.
Held:
6.11.10
6.11.11
RICHES V HOGBEN [1986] 1 QD R 315
•
An old widow living alone in Australia contacted her son in England (her son was at the time living in a rent- free
house).
•
Her son and his family move from England to Australia so they might take care of his mother – in return the son
gets title of the house.
•
There was a big dispute, the son and his family moved out, and they go to court.
•
The court found in favour of the son.
•
Problem was that under statute in NSW and QLD, land agreements had to be in writing, thus court could not
enforce this.
•
Son then argued on grounds of promissory Estoppel.
•
The title transferred to the son’s name under the doctrine of promissory estoppel and the mother stayed in the
granny flat.
•
Oral contract where the mother said she would buy a house in Australia for her son if they migrated to Australia
with her. Rebutted due to them relocating to a different country due to her promise.
Roufos v Brewster (1971)
Facts:
•
Brewsters ran a motel, son-in-law Roufos ran a store.
•
Roufous took Brewsters truck to Adelaide for repairs, on the agreement that he would be able to load his goods on the
way back on the truck.
•
Truck damaged en route. Brewsters sued for damages and breach to cover cost of repairs
•
Court held it was a commercial agreement, even though he was the son in law – separate commercial interests.
•
Presumption for commercial agreements upheld, especially given the hostility between the parties.
Held:
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7 Promissory Estoppel

‘an equitable claim that prevents a party from denying the existence of an assumption as
to a state of affairs (which assumption the other party has relied and acted upon) in
circumstances where the denial would be unconscionable’
 ‘For equitable estoppel to operate there must be the creation or encouragement by
the Defendant in the Plaintiff of an assumption that a contract will come into
existence or a promise be performed or an interest granted to the Plaintiff by the
Defendant, and reliance on that by the Plaintiff, in circumstances where departure
from the assumption by the Defendant would be unconscionable’ Priestley JA
Austotel Pty Ltd v
Franklins Selfserve Pty
Ltd (1989) NSW
A promissory estoppel arises where a party reasonably relies to its detriment on anther
representations and it is unconscionable for the representor, knowing of the reliance, to resile.
7.1 Estoppels v misrepresentation/ misleading/ deceptive conduct


Estoppel is only concerned with inconsistent conduct.
Misrepresentation and misleading or deceptive conduct also involves loss arising from
reliance upon representations but the protection arises from the representation proving
untrue.
7.2 Limitations
Estoppel as a cause of action:
 Does not override consideration
If consideration is in place, can’t move to estoppel because common law will give
you a remedy - if there is a contract then pursue contractual remedies.
 We no longer need to rely on estoppel supporting another cause of action; it can create
an independently enforceable right.
7.3 Relief

gives rise to an equity in favour of the relying party. This simply means that the relying
party is entitled to some equitable relief.
 The relief is not based upon there being a promise or representation, but rather upon
the expectation that the promise or representation generated: A unanimous High Court
in Giumelli said there was nothing in earlier cases that precluded a court from granting
relief in equitable estoppel cases on the basis of making good the relying party’s
assumption or expectation.
Giumelli v Giumelli
(1999)
 The unconscionable conduct is the element which ‘shapes the remedy’ and this controls
the wider objective of avoiding detriment. Brennan J
 The equity could only be satisfied by ‘treating Waltons as though it had done what it
had induced the Mahers to expect that it would do, namely, by treating Waltons as
though it had [entered a binding agreement].’
Walton Stores
(Interstate) Ltd v Maher
(1988)
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7.4 Summary Rules Estoppel
1. Some form of pre-existing relationship
Generally, some form of pre-existing legal relationship
But it is not required  Can be an expectation that it would exist.. (Waltons (1988),
W v G (1996), Acc v Gray (2003))
Inducement by the defendant for the plaintiff to adopt the assumption
Need a direct link between inducement and action (Varwayan)
Waltons stores gave no indication that they were going to withdraw
Plaintiff acted/abstained from acting in reliance on assumption / expectation
Waltons knocked down existing building
Defendant knew of or ought to have known of plaintiff’s actions or intended them to
take the action
Waltons current store across the road and the manager watched the demolition
An element of detriment
It is probably safe to assume that in Australia the courts require detrimental reliance
It need not consist of expenditure of money or other quantifiable financial
disadvantage so long as it is something substantial. ‘Such material disadvantage
must be substantial, although it need not be quantifiable’
Defendant failed to act to avoid detriment
whether by fulfilling promise or otherwise
-
Legione v Hately (1983) HCA
-
2.
3.
4.
5.
6.
Brennan J’s
6 Probana
Walton Stores
(Interstate) Ltd v
Maher (1988)
Commonwealth v
Verwayen (1990) HCA
Ashton v Pratt [2015]
7. A promise by one party that they will not insist on their strict legal rights
A person promised that contractual rights would not be enforced and that promise
was relied upon by the promisee
The effect of the estoppel was to prevent the promisor from asserting those rights.
8. An adopted assumption
An adopted assumption (can be of fact or future conduct, may be of fact or law)
(Waltons; Silovi (1998)), but note Austol (1989) can apply even if the precise terms
of the agreement could not be ascertained.
Assumption must be clear and unambiguous. Important information cannot be
missing but does not necessarily need to be precise but has to be constrained by
reasonableness (ACC v Gray (2003)).
There is a failure to fulfil the assumption.
9. An actual reliance by the other party on the promise
An actual reliance by P on the assumption (Waltons; Austotel (1989)).
Wishful thinking is not good enough. Mere hope rather than a consequence of
words or conduct will not create an estoppel (Lorimer v State Bank NSW (1991)).
10. Reasonable reliance
Reliance needs to be reasonable (Murphy v Overton (2001), Ausotel (1989)).
Wishful thinking is ot enough. Mere hope rather than a consequence of words or
conduct will not create an estoppel (Lorrimer v State Bank NSW (1991)
11. Unconscionability
D of or intended the reliance (Ampol v Mathews (1991)).
A degree of unconscionability by D – the behaviour must be unfair (Waltons).
Departure would be unconscionable à needs to be unfair to move away from
alleged promise (Waltons).
 Ausotel (1989) involved a ‘fair fight’ between two large corporations where
there was no real risk of unfair advantage being taken by one over the other.
12. Representation needs to be sufficiently promissory in nature
‘may be prepared to grant a further franchise’ Mobil Oil (1998) (not sufficiently clear
to find estoppel)
13. Unauthorized representations
Representations that are not authorized generally do not create an estoppel but if
the principle knew or should have known of the representation and fails to deny,
may create an estoppel (Corpers v NZI (1989))
14. Failure to fulfil assumption/promise
-
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7.5 Key Cases
7.5.1 Walton Stores (Interstate) Ltd v Maher (1988)
o
Facts:
§
§
§
§
o
P owned a commercial property that D commenced negotiations to lease. As part of their agreement, P was to
construct a building according to D’s plans and specifications.
An existing building had to be demolished before construction of the new store could commence. On 21 October, a
draft agreement for lease was sent to P’s solicitors. They requested amendments. On 7 November, P’s solicitors
informed D’s solicitors that P needed the agreement signed, otherwise they could not build the new store within the
time required. P did not want to demolish the existing building until it was clear there were no problems with the
proposed agreement.
D’s solicitors forwarded a new agreement incorporating the requested amendments with a letter stating “we have
not yet obtained our client’s specific instructions to each amendment…but we believe approval is forthcoming…we will
let you know tomorrow if any are not agreed to”. The agreement was signed by P and returned to D’s solicitors by
way of exchange. P heard nothing further – assumed nothing wrong – commenced work by demolishing the existing
building (fact known by defendants).
D changed their minds – instructed solicitors to “go slow” and chose not to execute the agreement. In early January
the following year, P began constructing the new building. 19 January, 1984 (building 40% complete) – D finally
informed P they would not be proceeding with the agreement. P sought, inter alia, a declaration that a binding
agreement existed.
Held:
§
HC allowed promissory estoppel to be used as an offence rather than just a defence. The result was that now
promissory estoppel can be used as a sword, to commence a course of action in Australia in limited circumstances
(this is not the case in England).
§ Brennan J:
฀ P assumed a legal relationship existed or would come to exist between P and D.
฀ D induced P to adopt assumption/expectation.
฀ P acted/abstained from acting in reliance on assumption/expectation.
฀ D knew of P’s action, or intended P to do so.
฀ P action/inaction will cause P to suffer detriment if assumption/expectation not fulfilled.
฀ D has failed to act to avoid detriment, whether by fulfilling promise or otherwise.
§ Remedy (per Brennan J):
฀ The unconscionable conduct is the element which ‘shapes the remedy’ and this controls the wider objective of
avoiding detriment.
฀ The equity could only be satisfied by ‘treating Waltons as though it had done what it had induced the
Mahers to expect that it would do, namely, by treating Waltons as though it had [entered a binding
agreement].’
o Commentary: Principles abstracted from this case:
§ Allowed promissory estoppel to be used as a sword;
§ Recognised promissory estoppel as a general principle which could operate in any
2. circumstances of legal relations, not just existing contractual relations.
§ Remedy should meet the equity.
§ The HC also attempted to draw together the various strands of estoppel into one overarching doctrine.
7.5.2 Legione v Hateley (1983) – HC
฀
Facts:
o
o
o
o
o
o
฀
Held:
o
o
Written contract for the purchase of land stipulated the date that the parties were to settle the contract.
Clause in contract stated that if not settled on that date notice to complete would be issued.
The day before the date arrived the solicitor of the purchaser called the vendor and stated that they were having
difficulties and the contract would be settled a few days late.
Spoke to the secretary who stated ‘I think that’ll be alright but I’ll have to get instructions.’
A few days later the contract was rescinded by the vendor on the basis that settlement was late.
This went to the High Court where the question was whether the comments by the secretary estopped the purchaser
from doing this.
Held that the secretary’s statement did not raise an estoppel for P, as it was not a clear representation or promise.
Mason and Deane JJ stated that there are 2 conditions for promissory estoppel to apply:
§ Promise must be clear and unequivocal (this can be express or implied from conduct).
§ There must be a material loss through reliance on the promise if there is a departure from the promise.
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7.5.3 Central London Property Trust Ltd v High Trees House Ltd (1947)
o
Facts:
§
§
§
§
§
o
o
P (central) leased a block of flats to D (High trees) in 1939 for 99 years at an annual rental rate of 2, 500 pounds.
The outbreak of the war made it difficult for D to find enough tenants and therefore pay the rent due to P.
In early 1940, P agreed to reduce rent by 50% = did not stipulate the period the reduced rent would apply. D paid
reduced rent for 5yrs.
Early 1945, flats began to fill again (end of WW2).
P (in a test case) sued D for 625 pounds, this being the difference due in the agreed rent for the last 6months of 1945
(i.e. from the time flats were fully occupied).
Held:
§
Denning concluded that the parties intended the rent reduction to be temporary only so that the full rent could be
claimed once the flats were full, therefore Central’s claim succeeded.
§ The 1940 agreement was only valid for the duration of the war and therefore P was entitled to the originally agreed
rent.
§ HOWEVER, Lord Denning’s obiter stated that, had P sued for the rent in the period between 1940-45, it would have
failed. The 1940 agreement would act as an estoppel (i.e. a defence) to any claim for unpaid payments, notwithstanding
that D had not provided any consideration for P’s promise to accept the lower rent.
Commentary:
§ This case formed the basis of promissory estoppel
§ It operated where a person made a promise which was:
฀ Intended to affect the legal relations between parties
฀ Intended to be acted upon
฀ Was in fact acted upon
§ Did not provide a cause of action for damages for breach of the promise à but operated to prevent the representor
from acting inconsistently with the promise
§ i.e. if a landlord promised to accept a reduced rent from a tenant, and the tenant acted on that promise à promissory
estoppel would prevent the landlord from claiming the amount of rent foregone
§ After the case, it was thought that promissory estoppel could arise only where the parties were in a pre-existing legal
relationship à therefore the principle only applied to a suspension of existing contractual rights
§
The English courts were reluctant to allow promissory estoppel to be used for the positive enforcement of a promise
à fearing that the enforcement of relied-upon promises would undermine the doctrine of consideration and thus the
law of contract
7.5.4 Commonwealth v Verwayen (1990) HCA
 Commonwealth being sued for collision of warships many years ago. Commonwealth had made statements that
they would not rely on a statute of limitations defence nor contest its liability but changed it’s mind after the
plaintiffs incurred significant cost in developing their case.
 Held that they could not raise these defence with 2 judges basing this on estoppel
7.5.5 Guimelli v Guimelli (1999) HCA
•
•
•
•
•
•
Robert Giumelli and his parents were partners in a family orchard business.
Robert lived in a house he had built on one of the properties used by the partnership, which was owned by his parents.
Robert’s parents promised him that, if he stayed on the property, it would be subdivided and a portion including the
house and an orchard would be transferred to him.
On the faith of that promise, Robert gave up an opportunity to pursue a different career and continued to work the
property.
The son married someone the parents didn’t approve ฀฀ Parents kick him off the property.
But son relied on promise ฀฀ Son claimed for promissory estoppel.
Held:
•
Remedy was not granting house/land. Monetary compensation was more appropriate because it was beyond reversal
of detriment since the relationship between parent and son had broken down. The court substituted expectation relief
in monetary form.
Therefore, relief is flexible
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7.5.6 Sidhu v Van Dyke ( ) HCA
1.
2.
3.
Facts:
In 1996, Ms Van Dyke and her then husband moved into a house known as Oaks Cottage, which was located on a block of land
known as the Homestead Block owned by Mr Sidhu and his wife. Towards the end of 1997, Mr Sidhu and Ms Van Dyke
commenced a relationship, during which Mr Sidhu gave assurances to Ms Van Dyke to the effect that he would subdivide the land
and transfer Oaks Cottage to her once the site had been subdivided. Ms Van Dyke continued in her relationship with Mr Sidhu,
performed unpaid work on the Homestead Block and Oaks Cottage and did not pursue gainful employment elsewhere. She also
did not seek a property settlement from her husband when they divorced in 1998. In 2006, the relationship between Mr Sidhu
and Ms Van Dyke came to an end and Mr Sidhu refused to transfer the property on which the Oaks Cottage sat ("the Oaks
property") to Ms Van Dyke.
Held:
High Court unanimously dismissed an appeal from the Court of Appeal of the Supreme Court of New South Wales, which had held
that Mr Sidhu was precluded from departing from his assurances that he would transfer certain real property to Ms Van Dyke.
The Court held that the Court of Appeal erred in proceeding upon a presumption that Ms Van Dyke had acted to her detriment in
reliance on Mr Sidhu's representations. Ms Van Dyke bore the onus of proof in relation to detrimental reliance. Nevertheless, the
Court concluded that Ms Van Dyke's evidence at trial established that she had acted to her detriment in reliance on Mr Sidhu's
representations. On that basis, Ms Van Dyke was entitled to equitable compensation in an amount to be assessed by reference to
the value of the Oaks property.
7.5.7 W v G (1996)
Facts:
•
•
•
•
P + D lived in lesbian relationship > 8 yrs
P told D she wanted children, D agreed to share responsibility for children’s welfare and assisted P in artificial
insemination process
P bore two children
P + D later separated; P sought compensation by way of equitable estoppel for the loos of the promise financial support
Held:
1. D created/encouraged P to assume D would act with P as parents of 2 children
+ assist/contribute to raising children for as long as necessary
2. P relied on assumption in deciding to have both children and D knew/intended P would do so
3. P entitled to equitable relief based on equitable estoppel
4. Assumption by P did NOT relate to any existing/expected legal relationship (unless co habitation is considered such for
these purposes)
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8 Privity

The Doctrine of Privity: Only an original party to a contract may sue or be sued. The
doctrine does not prevent a contract from conferring a benefit on a third party, but
simply prevents the party from enforcing the contract.

Under the traditional law if a third party is specifically intended to benefit from a
contract he or she cannot sue to enforce that benefit  because there is no
consideration passing form the 3rd party.

No true exceptions but only applications of other legal rules.
 Brennan and Deane JJ in said the main “exceptions” are agency, trusts and estoppel.
 Gaudron J in that case added unjust enrichment.
Trident General
Insurance Co Ltd v
McNiece Bros Pty Ltd
(1988)
8.1 Remedy for Third Parties where Privity applies



If the promisee sues the promisor to enforce a contract that benefits a third party
the remedy may not result in a third party benefit unless you can get an order for
specific performance (unusual order)
Nominal damages for the promisee as no loss.
8.2 Justification for Privity & Consideration
1. To prevent double recovery. i.e. both the promisee and third party seeking damages
and/or specific performance.
2. To prevent liability on the part of a contracting party to a vast range of potential
plaintiffs. E.g. in the case of government contracts.
3. To provide freedom in contracts. Without the privity rule, third parties may simply be
left out of contracts.
Per Mason CJ and Wilson J
Trident General
Insurance Co Ltd v
McNiece Bros Pty Ltd
(1988)
8.3 Rules Privity Summary
1. Only parties to a contract can acquire rights and liabilities under it  Only parties to
2.
3.
4.
5.
6.
a contract can enforce or sue on it
Exception 1: If a party was acting as an Agents for another
Exception 2: Beneficiaries of Insurance policies
Exception 3: Trusts
Exception 4: Exclusion Clauses and contracts of Carriage
Exception 5: Promissory Estoppel
7. Exception 6: Unjust enrichment – restitution law Gaudron J in Trident
8. Exception 7: Tort
9. Exception 8: Novation: Substituting a new party to undertake obligations
10. Exception 9: Assignment: Where contractual rights have been transferred
11. Exception 10: Misleading and deceptive conduct  = beneficiary may be entitled
to claim damages for misleading or deceptive conduct
Not
Examinable
Prohibited by s 18 of
the Australian
Consumer Law (Cth)
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8.3.1 Rule 2: Agency exception – Common Law

Where there is an agent, then in any contract made between the contracting party and the
agent on behalf of the principal, the principal can enforce the contract against the
contracting party and the contracting party can enforce the contract against the principal.
International Harvester
Co of Australia Pty Ltd v
Camgan’s Hazeldene
Pastoral Co (1958)

No formalities required just consent to the relationship between the principal and the
agent
Pola v Commonwealth
Bank of Australia (1997)

Where the principal is not disclosed provided the agent has actual authority the
undisclosed principal can confirm (ratify) the actions of the agent and sue and be sued
upon the contract:
Teheran-Europe Co Ltd v
ST Belton (Tractors) Ltd
(1968)

Whether someone is an agent is the reasonable person test
Pola v Commonwealth
Bank of Australia
Agent must not be acting for their own benefit / on their own
Carminco Gold &
Resources Ltd v Findlay
& Co Stockbrokers
(Underwriters) Pty Ltd
[2007] FCAFC

8.3.1.1
Insurance Policies
 Mason CJ and Wilson and Toohey JJ: neither the privity nor consideration rule apply
to insurance policies because reliance on insurance policies by third parties is so
great. Both rules have the capacity to cause injustice.
Statue
 Person not a party to an insurance contract but specified in it may recover loss or
benefit from the insurer
 Motor vehicle
Limitations of Common Law
 Trident could not be used to get around the general problem of privity the case is
restricted to particular facts and the law of insurance
Trident General
Insurance Co Ltd v
McNiece Bros Pty Ltd
(1988)
Insurance Contracts
Act 1984 (Cth) s 48
Motor Vehicles (Third
Party Insurance) Act
1942 NSW s 10(7)
Winterton v Hambros
(1991)
 no application in indemnity insurance cases (in the case the insurer indemnified the
employer for any loss the employer might become liable for if there was a successful
claim against the insured. Employee claimed against the insurer = trident did not apply
Hickey v Australian Rope
Works Pty Ltd (1998)
 to the extent that Trident is authority for the proposition that in defined circumstances a
stranger to a policy of liability insurance may sue at law to enforce a promise given for its
benefit, it is not authority for a wider proposition that a stranger to any contract may sue
at law to enforce a promise in the contract given for its benefit.
Rail Corporation of New
South Wales v Fluor
Australia Pty Ltd [2008]
8.3.1.2
Exclusion Clauses and contracts of Carriage
May be designated to protect the servants and agents of a benefiting party
 Lord Reid said the following criteria should be applied to circumvent privity:
1. The exclusion / limitation clause is intended to protect the stevedore
2. The primary contracting party (carrier) contracts on its own behalf and "is also
contracting as agent for the stevedore"
3. The carrier must have authority to do this from the stevedore (later ratification is
sufficient)
4. Any difficulties about the need for "consideration moving from the stevedore are
overcome“
 NZ Shipping Co Ltd v Satterthwaite and Co Ltd (the Eurymedon)
 Port Jackson Stevedoring Pty Ltd v Salmond and Spaggon Pty Ltd (the New York Star).
 Carriage of Goods by Sea Act, 1991, C’lth
 Sea Carriage Documents Act, 1997, NSW.
 Life-Savers (Australasia) Pty Ltd v Frigmobile Pty Ltd
Scruttons Ltd v Midlands
Silicones Ltd
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8.3.2 Rule 3: Equitable doctrine of trust

If a trust exists + trustee enters contract on behalf of third party beneficiary the beneficiary
acquires an equitable interest in the subject matter of the contract.
Although the beneficiary at law cannot directly enforce the contractual promise it can
indirectly enforce the promise by making the trustee sue on its behalf (by joining the trustee
as a defendant).
 For beneficiary to sue it must prove intention by the contracting parties to create a trust.
 Easy to prove if there is an express reference to the trust
 Implied trusts are allowable

 “In the context of such a contractual promise (to benefit a third party), the requisite
intention (to create a trust) should be inferred if it clearly appears that it was the
intention of the promisee that the third party should himself be entitled to insist upon
performance of the promise and receipt of the benefit … an intention to create a trust
will be at least prima facie satisfied if the terms of the contract expressly or impliedly
manifest that intention as the joint intention of both promisor and promisee.” Deane J
Trident General
Insurance Co Ltd v
McNiece Bros Pty Ltd
(1988)
8.4 Key Cases
8.4.1 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988)
Facts:
•
•
•
•
Trident contracted with Blue Circle to provide insurance cover against liability to the public.
The policy was expressed to extend to that company, all subsidiary, associated and related companies, all contractors,
subcontractors and suppliers.
The respondent, as principal contractor at the plant, was held liable for injuries sustained by a workman employed by
one of its subcontractors at the plant.
The appellant declined to indemnify the respondent under the policy of the grounds that it was not a party to the
contract of insurance and had given no consideration.
Held:
•
•
•
•
•
•
•
•
•
-
It was established that the intention of the contracting parties had been that a third party should benefit from
performance of the contract.
The common law rule as to privity operated unsatisfactorily and unjustly in this case, especially in the light of changes
to the law by the Insurance Contracts Act 1984.
o Exception to doctrine of privity exists in insurance contracts, agency, trusts etc.
Mason CJ and Wilson J : Highlighted t that both the privity rule and the rule that only a party who has provided consideration
for a promise can enforce it “have been under siege throughout the common law world”. EG:US courts,legislation in
Western Australia,Queensland and New Zealand.
Mason CJ and Wilson J suggested that the privity rule can be overcome through the use of trusts.
Mason CJ and Wilson and Toohey JJ: neither the privity nor consideration rule apply to insurance policies because reliance
on insurance policies by third parties is so great. Both rules have the capacity to cause injustice.
Gaudron J: found for McNiece on the basis of unjust enrichment ฀฀ this approach questioned in subsequent cases e.g. Rail
Corporation of New South Wales v Fluor Australia Pty Ltd
Deane J: held that the terms of the contract in question indicated Blue Circle held is rights against Trident on trust for
non-party beneficiaries, including McNiece ฀฀ Deane J would’ve given leave to McNiece to plead a trust to join BC as a
party to the action so that any such trust could be enforced
Brennan J: held there was no basis in policy or logic for any special principles allow third parties to enforce contracts of
insurance + no basis for overruling doctrine of Privity ฀฀ should’ve turned to law of trusts, estoppel and damages
Dawson J: doctrine of Privity inescapable (agreeing with Brennan J)
Does Trident throw doubt on the continued validity of privity?
o Mason CJ & Wilson J: yes! (and Toohey J: seems to agree!)
o Deane J: privity still important but trust easily inferred
o Gaudron J: applied unjust enrichment
o Brennan & Dawson JJ: privity lives!
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8.4.2 Coull’s v Bagot’s Executor and Trustee Co Ltd (1967) HCA
Facts:
•
•
•
•
•
•
Arthur Coulls granted the right to quarry stone from his property to a company in return for the payment of certain
royalties
Agreement was headed: ‘Agreement between Arthur Leopold Coulls and O’Neil Construction Proprietary Limited”
Signed by Arthur Coulls and his wife, Doris Coulls, and L O’Neil on behalf of company
Royalties stipulated
Agreement provided that Coull’s “authorised” the company to pay all moneys connected with the agreement to
himself and his wife as “joint tenants”
Coull’s died ฀executor sought directions from court as to whether company entitled or bound to pay the royalties to
Doris Coulls
Held:
•
•
•
•
•
•
•
•
Majority of HC = company owed no contractual obligation to Coulls because she was not a party to the agreement
Principal indication: contract expressly purported to be made between Arthur Coulls and the company
Moreover, co.made no express promise to pay royalties to Coulls & was not possible to imply such a promise
Signing the agreement did not make Doris a party to it
The authorisation clause took effect as a revocable mandate to the company to pay the royalties to Arthur and Doris
Coulls, and that mandate lapsed upon Arthur’s death
Barwick CJ and Windeyer dissented ฀฀ considered Doris should be regarded as a party to the agreement
Mason CJ and Wilson J asked the question: ‘whether the old rules apply to a policy of insurance”  Found that they
DO NOT. If the old rules applied to insurance contracts injustice b/c likelihood of reliance on insurance policies by
3rd parties is so great. 3rd parties like McNiece order their affairs and restrain form making their own arrangements in
the knowledge that another person has insured against a particular risk
Toohey J: similar reasons, found that neither the Privity rule nor the consideration rule (moving from promisee) should
stop the enforcement of a contract of insurance by a 3rd party in these circumstances
8.4.3 Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd [1915]
Facts:
•
•
P entered into a contract to sell tyres to a dealer.
The contract provided that the dealer would not sell tyres below P’s list price and would obtain a similar undertaking
from any retailer they sold to.
• The dealer subsequently sold tyres to D (Selfridge).
• D later sold tyres to a customer below the list price, and P sued for breach of the undertaking.
Held: Viscount Haldane identified three fundamental principles in law.
1. doctrine of privity requires that only a party to a contract can sue.
2. doctrine of consideration requires a person with whom a contract not under seal is made is only able to enforce it if
there is consideration from the promisee to the promisor.
3. doctrine of agency the principal not named in contract can only be sued if the promisee was contracted as an agent.
• No consideration between Dunlop and Selfridge,
• No agency relationship between Dew and Selfridge.
• Dunlop's action must fail.
8.4.4 INSURANCE CONTRACTS ACT 1984 - SECT 48
Contracts of general insurance--entitlements of third party beneficiaries
(1) A third party beneficiary under a contract of general insurance has a right to recover from the insurer, in accordance with the
contract, the amount of any loss suffered by the third party beneficiary even though the third party beneficiary is not a party to the
contract.
(2) Subject to the contract, the third party beneficiary:
(a) has, in relation to the third party beneficiary's claim, the same obligations to the insurer as the third party beneficiary would
have if the third party beneficiary were the insured; and
(b) may discharge the insured's obligations in relation to the loss.
(3) The insurer has the same defences to an action under this section as the insurer would have in an action by the insured,
including, but not limited to, defences relating to the conduct of the insured (whether the conduct occurred before or after the
contract was entered into).
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9 Capacity





The basis of contract is consensus so it is assumed the parties are capable of entering an
agreement – i.e. law assumes the party is sui juris (an adult of sound mind).
Some ‘persons’ have either no capacity or limited capacity to contract. This can lead to an
ostensibly valid contract being rendered void  need to protect vulnerability.
This occurs when the person who lacks the capacity rescinds the contract. These contracts
are described as voidable.  NOT Void
Contracts may still be valid if person who lacks capacity wishes to proceed
Classes (considered) where capacity might be an issue in contract formation include:
• Minors
• Mental incapacity
• Intoxicated persons
9.1 Minors
1. Statutory law in NSW There are numerous statutes that refer to minors including
2.
Insurance and Property related legislation. Main one being ---------------------------------
Purpose of the Act – modify the narrow common law position (the categories of
binding contracts under the Act are very wide). Common law
Statute is informed by the Common Law but is not covered in depth in this course. It is
very relevant for jurisdictions that do not have statute.
•
Elements for the Act to apply
1. Transaction is a “civil act” (s6)
2. minor is <18 years old (s 8)
3. minor understands (s 18)

If Act applies, then the minor may be presumptively bound can still argue other
means to defeat the contract (those available to an adult e.g. mistake,
misrepresentation, unconscionability etc.)
Minors (Property and
Contracts) Act, 1970,
NSW
Homestake Gold of
Australia v Peninsula
Gold
9.1.1 Presumptively binding categories
•
Meaning of Presumptively bound : removes the defense (disability) of minority
1.
2.
3.
4.
5.
6.
7.
8.
s 19: contract for his/her NET benefit
s 20: for disposition of property (buying or selling) and consideration ‘OK’
s 21: minor makes a reasonable gift
s 23: invest in government securities
s 26: Supreme Court says yes
s 27: Local Court says yes (<$10K) + minor’s benefit
s 28, 29: solicitor/public trustee certifies minor knows
s 36: Court affirms contract
Minors (Property and
Contracts) Act, 1970,
NSW
If the transaction does not fit into any of the presumptively binding categories from 19 through to
29, then ‘prima facie’ the transaction is not binding on the minor – section 17.
To stay in
• Minor can ask court to affirm on his/ her behalf – s30
• Minor can affirm upon reaching 18 years (affirmation can be by notice or conduct) - s30
To get out:
• Minor must repudiate transaction – s31
• How to repudiate
– by notice in writing (s33)
– court can repudiate while minor <18 (s34)
when to repudiate
– while a minor (s31)
– before minor’s 19th birthday (s31)
If fail to repudiate  contract automatically becomes binding on minor’s 19th birthday (s 38)
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9.1.2 Meaning of “Benefit”
Section 19 – for the minor’s benefit.
Not defined in the Act.
2 aids to interpretation
1. Other sections of the Act which hint at the intention of the legislature
2. Common law (precedent)
•
•
•
Minors (Property and
Contracts) Act, 1970,
NSW s 19
Other sections of the Act: e.g., sections 20, 28, 29 mention adequacy of consideration –
the concept of fairness, reference to parent for advice (sections 26, 27)
Common Law : cases where under the common law minors have been held to be bound
by their contract. For example: contract for necessaries and employment contracts.
Section 19 means net benefit –weigh up the disadvantages for the minor in entering into
the contract against the advantages.
9.1.3 Other Important Statutory Sections




Adjustment of rights - Court has the power to adjust the rights following repudiation (s 37)
Binding of adults connected with the contract - An adult guarantor of a minor’s contract is
legally bound (s 47) despite the minor being able to get out of the contract.
Responsibility of Minor for Tort. - minor may be liable for tort connected with contract (s48),
e.g., fraud by lying about his / her age to convince the other party to contract with them.
Protection of Third parties -Section 24 gives protection to a third party who acquired the
subject matter of the contract in good faith and without notice of the problem of minority.
Minors (Property and
Contracts) Act, 1970,
NSW s 19
9.1.4 Minors and the Common Law
General Rule = minor is not bound by her / his contract if entered into while a minor

-
Exceptions to the general rule when a valid contract is created with a minor:
• supply of ‘necessaries’
• beneficial contracts of service
Common law helpful in determining if something is of a ‘benefit’ under our statute (s 19)
Valid Contract/Supply of Necessaries
- What are ‘necessaries’? Ask two questions:
• Are the goods or services suitable to the minor’s station in life? (question of law)
• Were the goods or services in the fact necessary at the actual time of delivery? (question
of fact)
 ordered 11 tailored suits : not necessary not enforceable
 diamond and ruby cufflinks and a silver goblet. Held that the goods in the particular case
could not be necessaries as the supplier could not prove that the ornamental goods
were especially necessary for the minor in question.
 contract as a professional stage dance not binding as too many negatives (not marry,
not work with another company, low salary, limited opportunities)
 The court held the contract was valid as bike was necessary for youth to get to work.
Court balanced benefit received (obtaining a bicycle) with the detriment of having to
make regular payments. In any situation where a minor is taking on a debt, the court
will look at whether repayments are out of proportion to the minor’s income.
Nash v Inman (1908)
Ryder v Wombrell [1868]
De Francesco v Barnum
(1890)
Scarborough v Sturzaker
(1905)
9.1.5 Application to Problem Questions
If client undertook a valid civil act (s6) and is under 18 (s8) then ask
1. Did client understand what he was doing (s18)
2. If Yes  is contract presumptively binding (ss 19,20,21,23,26,28,29) looking at
common law to determine beneficial
3. If not presumptively binding is it binding becaue of ratification/affirmation (s31) or
lack of repudiation (s38)
4. If the contract is not valid does there need to be an adjustment of risghts (s37) ie if
rights have been repudiated
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9.2 Mental Incapacity

Impaired mental capacity = contract may be voidable at option of party with reduced
capacity brain injury, dementia, intellectual disability
A contract is voidable if one of the parties can establish
1. They were not able to understand the nature of the contractual situation and
2. The other party knew or ought to have known of the mental incapacity of the party
seeking release
 Burden of proof is on party wanting to recind contract – usually person with
mental incapacity
3. Must be done within a reasonable time – ratify or voidable (repudiate)
-
Note: if fail to prove mental incapacity or incapacity through intoxication facts may still
provide remedy if argue unconscionability –

Person lacking mental capacity will be obliged to pay for necessaries supplied to
him/her/spouse. But only required to pay reasonable as opposed to contract price for
necesissities:
Imperial Loan Company
v Stone [1892] QB
Hart v O’Connor [1985]
UK
Blomley v Ryan
Supply of Goods Act
1923 (NSW) s 7
9.2.1 Other Party knew of Incapacity

The incapacitated person will be precluded from relying upon their incapacity if the
person with whom they were dealing believed them to be entirely of sound mind
Imperial Loan Company
v Stone [1892] QB
 ILC brought an action against Stone who was a guarantor. Stone argued that at the time
of signing guarantee he was insane and did not understand what he was signing.
 Court held that as ILC did not know or think that he was insane at the time of the
signing of the contract then he was bound by it.
 Court confirmed that the defendant bears the burden of proving ‘not merely his
incapacity, but also the plaintiff’s knowledge of that fact’.
* ‘A contract by a person of unsound mind is not voidable if the other party
thought that at the time if making the contract they were of sound mind’.
9.2.1.1
Leading High Court case Gibbons v Wright
 Three sisters owned a property as joint tenants but 2 signed a contract changing it to
tenants in common. Surviving sister tried to change it back arguing they were
incapacitated at time of signing
 Court held that there was evidence of incapacity thus creating a voidable not a void
contract
* The sisters did not repudiate when they regained capacity however  hence
the surviving sister’s action failed.
Gibbons v Wright (1954)
HCA
9.2.2 Intoxicated Persons

Same elements as for mentally ill.
 P was so affected by drugs/alcohol that it affected their ability to understand what they
were doing (i.e. the contract they were entering into whilst in such a state). The other
party was aware of this at the time in which the contract was formed.
Molton v Camroux
(1849) UK
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10 Certainty / Completeness
If the contract isn’t certain, there may well be no contract. If there is no meeting of minds,
there is no contract.
If found to be too uncertain contract will be void and unenfoceable
Issues to look out for:
1. Incompleteness and Agreements to Agree.
-
An agreement to agree later on is not a contract. Courts will allow it to be a
contract if there is a clause in the event of failing to agree. Or sometimes where
there is a formula to raise rent.
2. Uncertain. Unclear/ambiguous terms and meaningless clauses
-
Courts to apply an objective test – reflect the intention of the parties
3. Illusory consideration or promise
-
•
It is illusory if a party is given unfettered discretion as to performance of a
promise,  promise cannot be said to give rise to any contractual obligation.
The courts less likely to find an agreement incomplete if wholly or partly performed
Foley v Classique
Coaches (1934))
10.1 Incompleteness
•
There is no contract unless the parties have reached agreement on all the terms or at
least all of the essential terms.
Factors to be taken into account
a. Importance of the term
b. Why the term has been left out: was it deliberate, did they deliberately defer (agree
to agree) or did it slip their minds?
c. Is the agreement executor or completely performed?
d. Can’t leave certain details out e.g. cost of rent
e. Lease agreement must have a start date, and must have rent – void otherwise
•
Principles from Biotechnology Australia Ltd v Pace (1968) by Kirby J:
1. The intention of the parties has to be ascertained objectively.
▪ Where there is suggested ambiguity or vagueness or where it is urged that a
term is illusory, it may sometimes be both necessary and appropriate to have
regard to extrinsic evidence in order to give meaning to that which the parties
have agreed.
2. The courts will, so far as possible, endeavour to uphold the validity of contracts.
3. The court will not get into the business of writing the contract for the parties.
▪ i.e. the court will not do so where it is asked to spell out, to an unacceptable
extent, that to which the parties have themselves failed to agree. The court will
also not clarify that which is irremediably obscure.
4. In dealing with uncertainty or illusory consideration issues the courts look to:
a. Whether a third party has been given power to arbitrate the issue; The
provision in question may be left in adequately clear terms to be settled by an
identified third party who is given power to settle ambiguities and
uncertainties.
b. Whether the issue can be resolved by one of the parties;
c. Whether there is an external and sufficiently certain standard which can clarify
the problem clause;
d. Whether the contract provides a range of possibilities.
Principles from
Biotechnology Australia
Ltd v Pace (1968)
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10.1.1 Agreements to Agree / Negotiate
•
Agreement to agree: agreement to enter into an agreement in the future  unenforceable
by courts
•
Agreement to negotiate: agreement to negotiate the terms of a contract in the future exists
in Australia and are enforceable by courts Aiton Australia Pty Ltd v Transfield (1999)

An incomplete agreement will only be enforceable if it is ‘sufficiently cohesive and
coherent to stand as a contract in its own right’
Aiton Australia Pty Ltd v
Transfield (1999)
Coal Cliff Collieries v
Sijhama Pty Ltd (1991)
LMI v Baulderstone
(2001)).
10.2 Subject to formal contract
•
Parties may reach agreement on a number of matters, but state that such agreements are
‘subject to contract [or] preparation of a formal contract’
•
Will be binding if the parties intend them to be binding.
Masters v Cameron.
10.3 Illusory consideration/promise (see also consideration section)
•
Illusory consideration: A propounded consideration that is impossible to enforce.
Coghlan v S H Lock
(Aust) Ltd (1987) NSWLR
•
Consideration may be described as ‘illusory’ where it is: a promise, the performance of which
is at the sole discretion of the promisor
Loftus v Roberts (1982)
TLR
Examples include
A promise impossible to enforce for vagueness or uncertainty.
An illegal promise
A promise to perform a contractual duty already owed to the other party
A promise to perform a public duty imposed by law
A promise binding in honour only
A promise accompanied by an exclusion of all liability for any breach
Illusory agreement: makes the performance of a party’s promises entirely a matter for that
party’s discretion.
10.4 Machinery and Formula Clauses
•
•
Machinery provision: mechanism agreed upon by the parties to resolve the precise content of
a term sometime in the future  but not all will be allowable if they require the arbiter to
define the terms
The contract will not automatically be rendered void for words that have more than one
meaning. Courts/arbitrators should take a broad approach to interpretation
10.5 Conditional Contracts or those where are a term has more than
one meaning are not automatically void for uncertainty
 Contract for sales of land subject to purchaser reaching satisfactory agreement with
Ampol ((refinery on the land) and finance.
 Held not void for uncertainty as although satisfactory open to multiple
meanings in the context it was defined in terms of purchases subjective beliefs
Whitlock v Brew (1968).
Council of the Upper
Hunter County District v
Australian Chilling and
Freezing Co ltd (1968)
Meehan v Jones (1992)
HCA
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10.6 Results of Uncertainty
1. May give effect to the agreement
2. Divisible obligations
 Contract was for both a loan ‘on property’ (too uncertain) and insurance. Court
held the two could be severed as the loan contract could stand on its own
 Key question was whether remaining provisions could operate on their own
and were consistent with parties objective intentions
LIFE INSURANCE CO OF
AUSTRALIA LTD V
PHILLIPS (1925) HCA
3. Severance of clauses
-
The court may be able to sever the clause & leave the rest of the contract intact.
In determining whether the clause can be severed, the test is how central the
clause is to the contract as a whole.
 Property contract made reference to terms & conditions which did not exist
 Held contract could operate without non existed terms  severed clause
FITZGERALD V MASTERS
(1956) HCA
4. Waiver or removal of the uncertainty.
-
Party that inserted the term can waive it.
 The general rule is that if terms are unsettled, there is no contract. Equally,
there may be a binding contract although important matters are left to be
settled by a third party, or even by one of the contracting parties (so long as
it is not left to him to decide whether or not there shall be any contract at
all)
MACAULEY V GREATER
PARAMOUNT THEATRES
LIMITED (1922) NSW
5. Contract void if severance not possible
-
“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 instruments 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.”
 Stipulation, which was uncertain, was central to whole deal and therefore
the contract was made void.
WHITLOCK V BREW
(1968) HCA
10.7 Key Cases
10.7.1 WHITLOCK V BREW (1968) HCA
•
•
Written contract for sale of land containing petrol station
Contract provided purchases would grant a lease for that portion of the land used for the sale of petroleum by Shell
“upon such reasonable terms might as commonly govern such a lease
Contract did allow for a dispute mechanism  resolution by an arbiter to be appointed by Predidne tof the Law
Institute of Victoria
•
Held void for uncertainty  nothing in contract that allowed court to determine what reasonable terms where .
Arbitration clause ineffective as it was giving the arbiter power to determine terms which was what the parties
should do
Lease & sale could not be severed as the parties intended the sale to be subject to the lease being granted to Shell



10.7.2 Masters v Cameron (1954)
•
•
“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 condition.” Is there an enforceable contract before the formal contract?
3 Different classes/categories:
The parties have reached finality in arranging all the terms of their bargain and intend to be immediately
bound but wish to have their terms restated in a form that is more full or precise.
The parties have agreed to all the terms and plan no departure from the terms but have made performance
conditional upon the execution of a formal document.
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11 Terms
11.1 Resolving Disputes about Contract Terms: Overview
Identify Express
Terms
Construe:
Determine
meaning & legal
effect
(ie do the terms
apply to reslove
dispute)
What extrinsic
evidence is
admissible to help
Identify and
Construe the
terms
If express terms
are silent on
dispute, is this
intentional or a
gap --> courts may
fill --> imply terms
Effect of Statute
(out of scope)
11.2 Express Terms
-
Terms which the parties have expressly negotiated / agreed and intend to be bound
May be found in any communication through which the contract was made (email,
letters, telephone conversations)
may be partly oral and partly written
11.2.1 Objective Approach to Intention

Stated aim of courts to give effect to presumed intentions

Objective not subjective approach: see
Life Insurance Co of Australia Ltd v Phillips (1925) HCA;
Codelfa Constructions Pty Ltd v State Rail Authority (1982) HCA;
Taylor v Johnson (1983) HCA;
‘references to the common intention of the parties to a contract are to be
understood as referring to what a reasonable person would understand by the
language in which the parties have expressed their agreement’
Intention – ‘the intention which reasonable persons would have had if placed in the
situation of the parties’ Hospital Products Ltd v US Surgical Corp (1984) HCA [20]: per
GIBBS C.J. citing Reardon Smith Line v. Hansen-Tangen (1976) 1 WLR 989, at p 996.
Objective approach combined with PER means the subjective beliefs of parties are
generally irrelevant. Pacific Carriers Ltd v BNP Paribas (2004) HCA + Brambles Holdings
Ltd v Bathurst City Council (2001) NSWCA even sometimes if parties agree with each
other

11.2.2 Signed documents/contracts are presumptively Binding
General rule: a person who signs a contractual document will be bound by the terms in that
document, regardless of whether he or she has read of understood those terms - L’Estrange v
Graucob [1934] KB + Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA
 ‘The general rule … is that where there is no suggested vitiating element, and no
claim for equitable or statutory relief, 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.’ Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA
It Shows Legal intent:
 ‘To sign a document known and intended to affect legal relations is an act which itself
ordinarily conveys a representation to a reasonable reader of the document. The
representation is that the person who signs either has read and approved the contents of
the document or is willing to take the chance of being bound by those
contents…whatever they might be.’ Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA
Fitzgerald v Masters
(1956) HCA;
Toll (FGCT) Pty Ltd v
Alphapharm Pty Ltd
(2004) HCA
L’Estrange v Graucob
[1934] KB
Toll (FGCT) Pty Ltd v
Alphapharm Pty Ltd
[2004] HCA
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11.2.2.1 Exceptions: When can the effect of signature be avoided?
1.
2.
3.
4.


Misrepresentation
Non est factum
Equitable grounds u
Documents that look non-contractual. eg timesheet or a receipt or voucher:
‘If there is a claim of misrepresentation, or non est factum, or if there is an issue as to
whether a document was intended to affect legal relations or whether, on the other
hand, it was tendered as a mere memorandum of a pre-existing contract, or a receipt, or
if there is a claim for equitable or statutory relief, then even in the case of a signed
document it may be material to know whether a person who has signed it was given
sufficient notice of its contents.’
HCA in Toll suggested there would need to be some sort of ‘concealment’ to escape
liability but left open the possibility that UNUSUAL TERMS in a signed contractual
document might amount to a misrepresentation to render those terms non---binding
Chapleton v Barry Urban
District Council [1940]
Toll (FGCT) Pty Ltd v
Alphapharm Pty Ltd
(2004) HCA
11.2.3 Incorporation of Terms by notice

When a business does not rely on a signed contract  can incorporate terms through
the device of notice

Adequate notice given before contract is made  terms binding on both parties  even
if no contractual document has been signed

Notice is usually given through delivering a document containing the terms or displaying
a notice containing the terms
-
Particular care must be given to providing notice of exemption clauses.
Whether the terms are incorporated depends on:
1.
Time  MUST be available to party to be bound before contract formed; Oceanic Sun
Line Special Shipping Co Inc v Fay (1988) HCA; AND
2.
Knowledge  party to be bound knows or ought to have known (not read); Parker v
South Eastern Railway Co (1877) UK OR
3.
Notice  reasonable steps taken to bring terns to the notice of the party to be bound
Causer v Brown [1952] SCVic
-
Oceanic Sun Line Special
Shipping Co Inc v Fay
(1988) HCA
Parker v South Eastern
Railway Co (1877) UK
Causer v Brown [1952]
SCVic
If a delivered/displayed document is one a reasonable person would expect to
contain terms  the mere presentation is sufficient
11.2.3.1 What amounts to reasonable notice?
Notice must be in such a form that it is likely to come to the attention of the party to be bound
Terms must be readily available
-
Referring to inaccessible terms generally not sufficient
Ange v First Auction
Holdings Pty Ltd [2011]
-
Exclusion notice relied on by the car park operator referred to terms customers could
not read w/o getting out of their cars and going into the carpark to find the sign
containing the terms  THUS NOT BINDING
Thornton v Shoe Lane
Parking [1971] QB
-
terms contained in a ticket were, prior to the issue of the ticket, available to passengers
at the offices of the cruise provider ‘scarcely amounted to a sufficient compliance with
the appellant’s responsibility to bring unusual conditions at least to the notice of
passengers…before they would be bound by them.’
Baltic Shipping Co v
Dillon (The Mikhail
Lermontov) (1991):
11.2.3.2 Extra effort is expected for unusual terms
-

Prominence of notice displayed/delivered terms must be PROPORTIONATE to the
unusual nature
J Spurling Ltd v Bradshaw [1956] UK: ‘Clauses which I have seen would need to
be printed in red ink on the face of the document with a red hand pointing to it
before the notice could be held to be sufficient.’
J Spurling Ltd v
Bradshaw [1956] UK
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11.2.4 Identifying terms in electronic contracts
-
-
Clicking ‘I ACCEPT’ = usually same as signature
Electronic Transaction Acts 2000 (NSW) s 9 + Electronic Transaction Acts 1999 (Cth) s
10 (ETAs)  provide that where a law requires a person’s signature, that requirement
is taken to have been met if an appropriately reliable method has been used to identify
the person and show their intention in relation to the information communicated
Exception: if the purchaser would reasonable have understood the act to be
performing a different function e.g. price, quantity, delivery details, authorising
software download
Electronic Transaction
Acts 2000 (NSW) s 9
+
Electronic Transaction
Acts 1999 (Cth) s 10
Specht v Netscape
Communications
(2002)
11.2.5 Incorporation of terms by a course of dealings

-
Contractual terms introduced in earlier transactions may be incorporated into a
subsequent even though ordinary requirements for incorporation not met
By continuing to deal with party imposing terms evidenced willingness to be bound:
Henry Kendall & Sons v
William Lillico & Sons
Ltd [1969]
To be included transacting must be

Regular , course of dealings must have been REGULAR

Uniform terms document must be regularly considered a contractual documents
McCutcheon v David
MacBrayne Ltd (91964)

The document relied upon in previous transactions must also be reasonably
considered a contractual document
La Rosa v Nudrill Pty Ltd
o
rather than having the appearance of a mere receipt or docket
DJ Hill and Co Pty Ltd v Walter
H Wright Pty Ltd [1971]
11.2.6 The Parol Evidence Rule
 limits extrinsic evidence (evidence outside the written contract) that may be
brought to add to, or vary, the terms of the written contract
•


The meaning of the words used by the parties is assessed by reference to:
o The natural and ordinary meaning of the term/clause in question
o Any other relevant provisions of the contract
o The overall purpose of the clause and the contract
o The facts/circumstances known/assumed by the parties at the time the
document was executed, to the extent these surrounding circumstances are
admissible
o Commercial common sense, BUT
o Disregarding the subjective evidence of the party’s intentions
Written contract evidence available to court in construing contract = limited by PE rule
When applied, PE rule restricts use of extrinsic evidence in identifying the terms of a
written contract
Oral contract  court may consider all relevant evidence to identify terms
Written contract more limited admissible evidence for identifying/interpreting terms
Classic explanation

If there be a contract which has been reduced into writing, verbal evidence is not
allowed to be given of what passed between the parties, either before the written
document was made, or during the time that it was in a state of preparation, so as to
add to or subtract from, or in any manner to vary or qualify the written contract.
Denman CJ in Goss v
Lord Nugent (1833):
Parol evidence rule has 2 parts:
1. The rule prevents extrinsic evidence being given to add to, vary or contradict the
terms of the contract as they appear in a written document (including TERMS)
2. The rule limits the evidence that can be given to explain the meaning of the terms of
a written contract (i.e. interpretation)
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11.2.6.1 Evidence Excluded



PE applies to exclude evidence extrinsic to a written contract from being used to
explaining the MEANING of that contract
Extrinsic evidence = any evidence OUTSIDE the written contractual document, e.g.
statements in course of negotiating, written correspondence, and earlier drafts
PE rule excludes evidence extrinsic /outside of the written contract made by the parties
from being used to explain the SCOPE of the contract or the MEANING of its terms
oral statements made by parties when negotiating contract & written material relating to the
negotiations or earlier drafts of the written record of the contract
Harris v Sydney Glass &
Tile Co (1904)
11.2.6.2 Circumstances where the parol evidence rule has no application
1. Collateral Contract: no application where the parties have entered a collateral
contract
2. Estoppel: courts divided on whether extrinsic material can be admitted for
3.
4.
5.
6.
establishing an estoppel
Rectification: Courts have an equitable power to rectify a contract in writing where a
mistake is made in recording the parties’ agreement
Contract subject to a condition precedent: extrinsic evidence admitted to establish a
written contract is subject to a contingent condition that must be satisfied before
the contract will become effective – extrinsic material may also be admitted to show
that the parties did not intend to make a binding contract
The true consideration: in some circumstances, extrinsic evidence may be
admissible to prove the real consideration under a contract (where no consideration
or nominal consideration is expressed/expressed consideration is
general/ambiguous/substantial consideration is stated, but an additional
consideration exists ฀฀ can’t be inconsistent with the terms of the written
instrument/to prove the illegality of the consideration) Pao On v Lau Yiu Long [1980]
Implied terms: Court may have regard to extrinsic evidence when considering
whether a term should be implied in a contract: Codelfa Construction Pty Ltd v State
Railway Authority of NSW (1982). PE rule has two aspects: one relating to identifying
the terms, and the second relating to construing a contract. Neither aspect applies
to the implication of a term, which is a process that gives effect to what is already
implicit in the contract: Codelfa
11.2.6.2.1 Can extrinsic evidence be used to determine if contract is wholly in writing
 PE rule only applies to exclude extrinsic evidence of terms supplementing a written
contract where that contract is wholly in writing
 DOES NOT APPLY to exclude extrinsic evidence relevant to identifying the terms of a
contract that is only partly in writing
 A party who seeks to incorporate into a written contract terms based on oral
statements will accordingly attempt to argue the contract was only partly in writing
 In choosing between these arguments, the extrinsic evidence of what was said
during negotiations may often be extremely relevant
TWO APPROACHES TO USING EXTRINSIC EVIDENCE IN ASSESSING WHETHER A WRITTEN
CONTRACTUAL DOCUMENT IS WHOLLY WRITTEN:
1. STRICT APPROACH: primacy to written document
2. FLEXIBLE APPROACH: greater emphasis on ascertaining the presumed intentions of
the parties PE rule has no application until it is determined whether the parties
intended the document to be an exclusive record of their agreement or whether
they intended it to be supplemented/varied by promissory statements made during
negotiations/other extrinsic material
HC not conclusive on which approach to adopt – States show more flexible approach
11.2.6.2.2
Can evidence of the surrounding circumstances be admitted?
UNDECIDED The role of these  subject of great debate/uncertainty in Australia
 England = more open approach (Reardon Smith Line Ltd v Hansen---Tangen [1976];
 Australia = more restrictive approach to admitting evidence of the surrounding
circumstances  operation NOT clear
Reardon Smith Line Ltd v
Hansen---Tangen [1976]
Investors Compensation
Scheme Ltd v West
Bromich Building Society
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11.2.6.2.3 Statements made during negotiations
 if a statement made in negotiations proves false, the legal status of that statement may
prove to be an issue of great significance
 the status will determine whether the party to whom it was made can seek a remedy for
losses incurred because of the false statement in tort, contract or under legislation
 IF the statement was a term of the contract, sometimes called a warranty, and proves
false, there will be a remedy for breach of contract
 If the statement was not a term of the contract, sometimes described as a mere
representation, and proves false, a contractual remedy for breach will not be available
In some cases, relief may be sought under the law relating to misleading and deceptive conduct
Estoppel may prove relevant in some cases
In other cases, statutory remedies may be available


Two key issues when determining whether a statement is a term: parol evidence rule
AND whether the statement was intended by the parties to be a term if the contract
Also note: effect of contractual provisions that seek to exclude pre-contractual
statements having any contractual effect
11.2.6.2.4 Entire Agreement clauses
 Parties who have entered into a written contract may attempt to ensure any precontractual statements are NOT treated as contractual terms by including in their
contract a MERGER or an ENTIRE AGREEMENT CLAUSE
 Entire agreement clause = a term stating that the written document contains the
‘entire agreement’ of the parties and that no other ‘extrinsic’ statements are to be
treated as incorporated into that contract

“The purpose of an entire agreement clause is to preclude a party … threshing
through .. and finding in the course of negotiations some (chance) remark or
statement (often long forgotten or difficult to recall or explain) on which to found a
claim…The entire agreement clause obviates the occasion for any such search and
the peril to the contracting parties posed by the need which may arise in its absence
to conduct such a search. For such a clause constitutes a binding agreement between
the parties that the full contractual terms are to be found in the document
containing the clause and not elsewhere, and that accordingly any promises or
assurances made in the course of the negotiations (which in the absence of such a
clause might have effect as a collateral warranty) shall have no contractual force,
save insofar as they are reflected and given effect in that document”

The effect of an entire agreement clause depends on the words actually used
Australia: entire agreement clauses generally taken to be conclusive
a ‘reasonable observer would conclude’ from the entire agreement clause that the
parties did not intend earlier correspondence to influence the meaning of the
concluded contract



Entire agreement clauses may not preclude other types of legal liability arising from
statements/representations made during negotiations
a) in Australia, contrary to the view expressed in Inntrepreneur Pub Co v East
Crown, it has been suggested that entire agreement clauses may not be
effective to preclude the parties from establishing a collateral contract
(McMahon v National Foods Milk Ltd [2009])
b) OR evidence relevant to establishing an estoppel
c)
OR the implication of terms
d) OR if in a standard consumer contract – may be void as unfair under the
Australian Consumer Law
Lightman J in
Inntrepreneur Pub Co v
East Crown [2000]:
Hope v RCA Photophone
of Australia Pty Ltd (1937)
Franklins Pty Ltd v
Metcash Trading Ltd
[2009
McMahon v National
Foods Milk Ltd [2009]
Saleh v Romanouse 2010
Hart v MacDonald (1910)
11.2.6.3 The parol evidence rule and electronic contracts

If terms are recorded electronically but are capable of being retrieved and
converted to a readable form, they should be treated as being in writing for the PE
rule
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11.2.7 When is a statement a term of the contract?
A party seeking to show a statement made in negotiations forms a term of the parties’
contract must next (post-PE rule) establish that the statement was intended to be
contractually binding
THEREFORE, TWO STAGES OF ARGUMENT:
1. Whether extrinsic evidence of a term supplementing a written contract can be
admitted
2. Whether that evidence establishes the existence of the term being alleged
 For an oral/other form of extrinsic statement to constitute a term of a written
contract, as opposed to being a mere representation, the statement must have
been intended by the party making it to be a promise and to form part of the
written contract
 Intention is judged OBJECTIVELY: would a person in the circumstances of the
parties have reasonably considered the statement to be a contractual promise
 The question whether a warranty was intended depends on the conduct of
the parties, on their words and behaviour, rather than on their thoughts. If
an intelligent bystander would reasonably infer that a warrant was
intended, that will suffice.
 The answer depends on the particular circumstances – but the case above
identified a no. of factors that may prove relevant in making this determination
a) The existence of a formal written contract
b) Where the parties have recorded their agreement in a formal written
contractual document, this fact will usually suggest that any statements
made by the parties during negotiations and not included in the written
contractual document were not intended to be part of the final contract
c)
If the parties had intended those statements to form part of the contract,
presumably they would have included them in the written contractual
document
d) The very purpose of writing a contract is to record mutually agreed
obligations from the earlier discussions – inference even stronger where the
alleged oral terms are INCONSISTENT WITH THOSE CONTAINED IN THE
WRITTEN CONTRACT

Chess Ltd v Williams
[1957], Lord Denning:
11.2.7.1 Standards contracts qualitfed by later statements
Another example of where it may be argued an oral contract supplements a written contract =
where a standard form contract prepared by one of the parties, is qualified by statements made
in subsequent negotiations between the parties


as with the case of statements made prior to drafting, those made after can be met
with same line of argument: if they were so important they were intended to be
binding, why were they not included in an amendment to the written contract
before it was executed by the parties
Such a failure might suggest the oral statement was not in fact intended to qualify
the written contract
11.2.7.1.1 Importance of the statement
 A statement that the circumstances show was highlight significant/important to one
party’s decision to enter into the transaction is more likely to be regarded as a
promise than a statement of lesser significance:
11.2.7.1.2 Words Used
 More likely to be a promise where the party making statement uses words
suggesting promissory intent
 Examples: promise/agree/guarantee/warranty
 NOT merely expression opinion/hypothesis (then it is just a mere representation):
estimate/guess
Equus Corp Pty Ltd v
Glengallan Investments
Pty Ltd [2004]
Van den Esschert v
Chappell [1960]
JJ Savage & Sons Pty Ltd
v Blakney (1970)
11.2.7.1.3 Doctrine of Promissory Estoppel
 may provide relief to the party who has relied on the assumption that the other
party would modify or refrain from enforcing the terms of a contract in writing
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11.2.7.1.4 The relative expertise of the parties
 May be relevant in assessing whether a statement was made as a promise or mere
representation
 Statement made by party with expertise to a person inexperienced = more likely to
be promissory than a statement made by a party known to be inexperienced
11.2.7.1.5 Collateral contracts
Even if an oral statement made in negotiations does not form a term of the written contract
agreed between the parties, there are several doctrines that may give legal affect to that
statement when one party makes a promise, connected to, but independent, of a main contract
and, as consideration for that promise, the other party agrees to enter the main contract:
1. for a pre-contractual oral statement to take effect as collateral contract, the
2.
3.


statement must be ‘promissory and not merely representational’:
it must be intended to induce entry into the contract:
consistent with the terms of the main contract:
Oscar Chess Ltd v
Williams [1957]
Symthe v Thomas [2007]
Heilbut Symons & Co v
Buckleton [1913]
JJ Savage & Sons Pty Ltd
v Blakney (1970)
Hoyt’s Pty Ltd v Spencer
(1919)
PE rule does not apply to preclude evidence of a statement forming a collateral
contract
BUT the rule that a collateral contract must be consistent with the main contract
means that the collateral contract has a relative narrow operation as a means of
giving contractual force to an oral representation varying a contract in writing.
11.2.7.1.6 Consumer Protection
 A P induced to enter a contract or who has relied on a pre---contractual statement
that does not form a term of the contract may have claims in misrepresentation
 or under consumer protection legislation, claims for misleading or deceptive
conduct, or for failure to comply with an express warranty
 These claims are independent of contract and PE rule has no application
11.2.7.1.7 Ambiguity
The word itself has many meanings
a) PATENT AMBIGUITY: Meaning not readily ascertainable:: evidence admissible to
ascertain meaning of a fabric labelled ‘Matchless 2475 39/40 White Voile – words
not well known or significant in the tradeneeded evidence to explain the meaning
b) LATENT AMBIGUITY: Where words in a contract appear to have a clear meaning but
in fact could refer to two or more subjects w/o providing a way of distinguishing
between them:
 e.g. given of owning two paintings by same artists, not indicating which is being
offered for sale
c)
INHERENT AMBIGUITY: wider meaning of ambiguity
 any situation in which the scope/applicability of a contract is, for whatever
reason, doubtful  but Royal Botanic Gardens case = suggests that ambiguity
sufficient to justify the admission of extrinsic evidence may be found where
there are plausible, as opposed to fanciful, competing interpretations of the
term in question
Cameron v Slutzkin
Mainteck Services Pty
Ltd v Stein Heurtey SA
Manufacturers’ Mutual
Insurance Ltd v Withers
(1988)
11.3 Construing the Terms


the process by which courts determine meaning and legal effect of contractual terms
parties cannot foresee all events that may affect performance
in construing a contract, courts aim to identify the intention of the parties by reference to ‘what a
reasonable person having all the background knowledge which would have been available to the
parties would have understood them to be using the language in the contract to mean.’
Chartbrook Ltd v
Persimmon Homes Ltd
[2009]
Courts primarily guided by reference to words used by the parties and, insofar as the evidence is
admissible, the factual and commercial context of the contract
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The objective approach
Give effect to parties’ intentions, which are determined OBJECTIVELY
 Primarily based on words used in their contract:
Courts DO NOT consider what the parties privately intended the terms of the contract to mean,
but rather what the words used would convey to a REAOSNABLE PERSON IN THE POSITION OF
THE PARTIES
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd: HC said, ‘references to the common intention of the
parties to a contract are to be understood as referring to what a reasonable person would
understand by the language in which the parties have expressed their agreement.’
Objective test = based on practical policy considerations: Investors Compensation Scheme v West
Bromwich Building Society [1997]
ensuring certainty among the contracting parties (Pacific Carriers case) and keeping litigation
within reasonable bounds (Codelfa)
Equuscorp Pty Ltd case: confirmed approach of upholding obligations in written agreements
Pacific Carriers Ltd v BNP
Paribas [2004]
Toll (FGCT) Pty Ltd v
Alphapharm Pty Ltd:
Investors Compensation
Scheme v West
Bromwich Building
Society [1997]
Making use of the surrounding circumstances
In some cases of ambiguity, courts have been prepared to acknowledge the
importance of construing a contract in light of ‘surrounding circumstances’
To understand ‘surrounding circumstances’, reference is usually made to Reardon
Smith Line v Hansen-Tangen, where Lord Wilberforce stated that
In a commercial contract t is certainly right that the court should know the
commercial purpose of the contract and this in turn presupposes knowledge of the
genesis of the transaction, the background, the context, the market in which the
parties are operating.
The meaning of language = best understood when considered in the context in
which it is used: Investors Compensation Scheme Case
Often context will support the ordinary meaning of the words used, but not always
Investors Compensation Case: ‘The meaning of words is a matter of dictionaries and
grammars; the meaning of the document is what the parties using those words
against the relevant background would reasonably have been understood to mean.’
Limits to which the surrounding circumstances can be used as a legitimate aid in
construing a contract: Newey v Westpac Banking Corporation [2014]
Surrounding circumstances CANNOT be used to ‘depart from the ordinary meaning
of the words used by the parties merely because the court regards the result as
inconvenient or unjust.’ McGrath v Sturesteps
11.3.1 A reasonable commercial construction
Courts favour an interpretation that avoids unreasonable or uncommercial constructions
If the language is open to two constructions, preferred 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.
Court entitled to approach interpretation with assumption that the parties intended to
produce a commercial result: Electricity Generation Corporation case
similar principle recognised in England  Investors Compensation Scheme case
Australian Broadcasting
Commission v
Australasian Performing
Right Association Ltd:
CLEAR LIMITS to this principle
Commercial aims and purpose will often be found in the document itself:
And the need to promote a commercial approach is not an invitation for the court to
rewrite the contract to give it more commercial sense: Alysun Py Ltd v Cregan
If contractual terms are clearly expressed, courts consistently reiterated effect should be
given to terms even though despite unreasonable result or lack of commercial sense
Australian Broadcasting case: ‘if the words are unambiguous the court must give effect
to them, notwithstanding that the result may appear capricious or
Onsteel Manufacturing
Pty Ltd v Bluescope
Steele (AIS)
11.3.1.1 Different approach where clear words of contract would = ‘absurd’ as opposed to
merely ‘unreasonable’ or ‘uncommercial’ results
question is whether ‘something must have gone wrong with the language’  an expression used
in Investors Compensation Scheme  prompts inquiry into whether the relevant provision would
have an absurd meaning if construed in accordance with the literal meaning of the words used
Maggbury Pty Ltd v
Hafele Australia Pty Ltd:
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11.3.2 Construing exclusion clauses


Exclusion clauses aim to reduce/exclude a party’s liability for conduct that would
otherwise be in breach of contract or constitute a tort such as negligence
Freedom of contract: affects differ according to equality of bargaining power (i.e. large
companies taking advantage of smaller companies or consumers)
Legislative restrictions on exclusion clauses
Legislation addresses some concerns re misuse of in consumer contracts  Australian
Consumer Law – regulates exclusion clauses for supply of goods & services
The common law approach to exclusion clauses; 3 questions to be asked in determining whether
an exclusion clause applies to reduce/exclude liability (where not regulated by legislation)
1. whether the exclusion clause was properly incorporated into the contract
2. whether person seeking to rely on protection of the clause was a party to contract
3. whether, the clause applies to exclude or reduce the liability in dispute
Ordinary principles of construction and contra proferentem
 HC stresses that the meaning and effect of an exclusion clause is to be
determined by the ordinary processes of construction of a contract: Insight
Vacations Pty Ltd v Young [2011]
 Darlington Futures Ltd v Delco Aust Pty Ltd AND Nissho Iwai Australia Ltd v
Malaysian International Shipping Corp, Berhad, HC stated an exclusion clause is
to be construed:
 According to its natural and ordinary meaning, read in 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.
High Court Approach
1. construe the clause in accordance with its natural and ordinary meaning;
2. read the clause in light of the contract as a whole to give weight to the context in
which the clause appears; and
3. in the case of ambiguity, apply the doctrine of contra proferentum.
11.3.2.1 Contra preferentem
-
-
Contra proferentum is one of the canons of construction used in contractual
interpretation where there is an ambiguity, that is, where a particular term of the
contract is capable of more than one meaning.
When an ambiguity arises in a commercial contract, under the doctrine of contra
proferentum, the preferred meaning of the ambiguous clause should be the one
that works against the interests of the party who provided the wording.
11.3.2.2 Four corners rule
-
Historically, courts not willing to construe an exclusion clause as excluding liability
for acts that were not authorised by or outside of, the main object or ‘four corners’
of the contract: Council of the City of Sydnet v West; Thomas National Transport
(Melbourne) Pty Ltd v May and Baker (Australia) Pty Ltd
-
Nisso Iwai Aust Ltd v Malaysian International Shipping Corp, Berhad (1989): HC
stated a clearly worded exclusion clause may apply to exclude liability, even for
events occurring in circumstances that would defeat the main object of the contract
Council of the City of
Sydnet v West;
Thomas National
Transport Pty Ltd v May
and Baker (Australia) Pty
Ltd
Nisso Iwai Aust Ltd v
Malaysian International
Shipping Corp, Berhad
(1989
11.3.2.3 Negligence


Traditionally courts states: ‘clear words are necessary to exclude liability for
negligence’
BUT Darlington case  requires scope of any exclusion clause will be determining
by construing the clause according to its natural and ordinary meaning
11.3.2.4 Deliberate Breach

Courts tend to require clear words before an exclusion clause will be construed as
excluding liability for a deliberate breach of contract:
Davis v Pearce Parking
Station Pty Ltd
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11.4 Key Cases
11.4.1 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) HCA
 ‘references to the common intention of the parties to a contract are to be understood as referring to what a reasonable
person would understand by the language in which the parties have expressed their agreement.’
 “The general rule, which applies to the present case, is that where there is no suggested vitiating element, and no claim
for equitable or statutory relief, 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.”
 “To sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a
representation to a reasonable reader of the document. The representation is that the person who signs either has read
and approved the contents of the document or is willing to take the chance of being bound by those contents…whatever
they might be.”
•
•
•
•
•
•
•
•
•
•
•
•
•
HC left open the possibility that UNUSUAL TERMS in a signed contractual document might amount to a
misrepresentation to render those terms non---binding
In this case: exclusion clause relating to transport of goods that was contained in a signed document headed
‘Application for Credit’
Affected party argued the term was unusual in this type of contract and should not be binding in the absence of
notice being given to it before signing
Argument rejected by HC ฀฀ Court noted that the document ‘invited’ the person signing to read the terms it
contained
Court also strongly reaffirmed the general rule that signature is binding regardless of whether the party signing had
read the relevant terms
Consequently: the scope for arguing the signature rule does not apply in a case to bind a party signing a contract
containing unusual terms based on misrepresentation must be very narrow and viable only in extreme
circumstances ฀฀ Court said there must be some element of ‘concealment’
HC reaffirms significance of signature in committing contracting parties
Question of notice only relevant in cases where there was an issue of misrepresentation, which might displace
signature as binding the parties to contract:
The general rule, which applies in the present case, is that where there is no suggested vitiating element, and no
claim for equitable or statutory relief, 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.
Court dismissed the role of notice as a standard requirement for incorporating terms in a signed contract: When an
attempt is made to introduce the concept of sufficient notice into the field of signed contracts, there is a danger of
subverting fundamental principles based on sound legal policy.
HC also acknowledged a wide role for misrepresentation as an exception to the signature rule ฀฀ the court stated
there ‘may be cases where the circumstances in which a document is presented for signature, or the presence in it
of unusual terms, could involve a misrepresentation.’
Given the court’s strong affirmation of the signature rule, these circumstances are likely to be exceptional
‘references to the common intention of the parties to a contract are to be understood as referring to what a
reasonable person would understand by the language in which the parties have expressed their agreement.’
11.4.2 Fitzgerald v Masters (1956) HCA
Facts:
Contract for the sale of land – One of original party had since died and plaintiff sort specific performance against defendant’s
executors. Final clause was invalid (referred to conditions which did not exist and it was clear from a reading of the whole
document the word inconsistent was written instead of consistent – literally meaning would have the effect to make the
agreement uncertain).
Outcomes/Authorities
 the parties had the intention to be bound regardless if clause 8 should fail and this upheld the contract.
A contract may comprise many terms, only one of which is invalid for uncertainty. In such a circumstance, it may
be possible to sever the invalid term and retain the rest of the contract.
‘the intention of the parties is to be ascertained from the instrument as a whole and that this intention when
ascertained will govern its construction’
Severance: the court may be able to sever the clause and leave the rest of the contract intact.
“From the parties' clear intention… “inconsistent” must be read “consistent”, and as there was otherwise a concluded contract the
final clause was severable, any missing details being such as the law would supply.
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11.4.3 Codelfa Constructions Pty Ltd v State Rail Authority (1982)
Facts:
-
SRA constructing the Eastern Suburbs railway line and hired a contractor. The contractor had won a tender on the
basis that they would be able to work 24 hours per day, and had factored this into its price calculations.
They assumed that as they were acting on the behalf of Government they would not be subject to noise restrictions.
Residents allowed only 2 shifts a day and won injunction. This caused costs to blow out. C went to court to try and
change the terms of the contract.
Held:
-
High Court held that it could not imply a term into the contract as it was impossible to state what such a term would be
- i.e. this was too vague a notion in a very complicated agreement.
Affirmed Lord Simons test in BP.
Implied terms: Court may have regard to extrinsic evidence when considering whether a term should be implied in a
contract
PE rule has two aspects: one relating to identifying the terms, and the second relating to construing a contract. Neither
aspect applies to the implication of a term, which is a process that gives effect to what is already implicit in the
contract:

Mason J: ‘the true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of
the contract if the language is ambiguous or susceptible of more than one meaning’
 One interpretation: recourse to evidence of the surrounding circumstances in construing a contract is
permissible only in cases of ambiguity – which must be identified w/o regard to those circumstances
 Another interpretation: Mason J was merely confirming that ‘there are very real limits to the extent to which
the grammatical meaning can be displaced by contextual considerations.’ ฀฀ Mainteck Services Pty Ltd v Stein
Heurtey SA [2014]
 On this view ^ the surrounding circumstances can influence the interpretation of a contract but cannot be
used to improve on or contradict the written terms of that contract
11.4.4 Life Insurance Co of Australia Ltd v Phillips (1925) HCA
Facts: The insurance company, in addition to life insurance, offered clients the service of borrowing money from the
company. The insured, Mr Philips, claimed the life insurance was void on the basis that the terms of the loan arrangement
were ambiguous.
Held: The HCA found in favour for the insurance company- that even if certain clauses were void for uncertainty, they
could be severed and the remainder of the policy remained valid. The court held it was a divisible obligation which could
be severed.
11.4.5 Brambles Holdings Ltd v Bathurst City Council (2001) NSWCA
Facts:
•
D (Brambles) expressed dissatisfaction with the low fees offered by P (Bathurst council) for disposing of the city’s
liquid waste. Under successive agreements with a council a contractor managed the council's depot, which, though
known as a solid waste disposal depot, was also used for the depositing of liquid waste. In the course of managing
the depot the contractor charged and retained fees for accepting liquid waste. In 1995 the council asserted that the
contractor was obliged to pay to it part of the fees it had collected in respect of liquid waste since October 1991.
This obligation was claimed to stem from a contract entered into by the parties in July 1990 (governing the receipt
of liquid waste), as varied by an offer contained in a letter written in September 1991 to the contractor by the
council, which the contractor accepted by its conduct in October 1991. The letter raised the fees the contractor
might charge for the disposal of liquid waste above the level set in previous non-contractual correspondence, but
stipulated that part of the fees should henceforth be remitted to the council for the construction of a liquid waste
treatment plant. In an action against the contractor the council was awarded damages for breach of contract. The
contractor appealed, claiming inter alia that the offer contained in the letter of September 1991 had been rejected
in a letter it wrote in reply to the council in October 1991, seeking “adequate tip fees” for the work involved in
providing for liquid disposal and stating that the present rates did not make it viable to continue a liquid disposal
service.
Held:
-
the NSW Court of Appeal held that this dissatisfaction was not a rejection as subsequent performance of the contract
by the defendant for the low fees confirmed it had accepted the plaintiff’s offer.
Also interestingly court held even the mutual agreement that the contract did not cover liquid waste was held to be
irrelevant as an objective interpretation of the interion of the stated terms was that general commercial waste wold
include liqud waste
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11.4.6 L’Estrange v Graucob [1934] KB
Facts:
L’Estrange (Plaintiff) purchased cigarette machine from Graucob (Defendant). P signed a form headed ‘Sales
Agreement’ which contained printed terms of the sale. Machine did not function properly
P brought action for breach of implied warranty that machine was reasonably fit for purposes
Agreement had ‘exclusion clause’ stating ‘The agreement contains all the terms and conditions under which I agree to
purchase the machine specified above and any express or implied conditions, statement or warranty, statutory or
otherwise not stated herein is hereby excluded.
Outcome
Trial judge gave judgement for P  P had no knowledge of contents except for price, instalments and arrangements
when signing + type face used unreasonably small etc + D did not do what was reasonably sufficient to give P notice of
the terms contained in it
Appeal found : ‘the plaintiff, having put her signature to the document and not having been induced to do so by any
fraud or misrepresentation, cannot be heard to say that she is not bound by the terms of the document because she has
not read them.’
 On appeal found for D  P was bound
 Followed in Australia by HCA in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) HCA
-
11.4.7 Curtis v Chemical Cleaning and Dyeing Co [1951] KB
Facts:
Curtis took dress to D for cleaning. D’s shop assistant handed Curtis a paper headed ‘Receipt’ which she was asked to
sign. Before signing, Curtis asked why signature was necessary, told it was because D would not accept liability for
certain specified risks, including risk of damage to beads and sequins of dress.
Paper contained a term excluding D from liability for any damage ‘however so arising’
Dress returned with stain on it  Curtis claimed damages
Outcome
English Court of Appeal  D was not able to rely on the exemption clause to exclude liability for damage as D’s
assistant had misrepresented the breadth of the exemption clause in the document and thus the clause was not part
of the contract
-
11.4.8 Oceanic Sun Line Special Shipping Co Inc v Fay (1988) HCA
Facts:
P booked cruise to Greek islands and given ‘exchange order’ for a ticket upon boarding the cruise ship. Ticket
contained condition that the courts of Greece would have exclusive jurisdiction in any action against the owner.
Passenger injured on cruise sued owner for negligence in Supreme Court of NSW
Outcomes
Held: contact for the cruise had been made when the cruise was booked  conditions on ticket issued later so not
part of contract
-
11.4.9 Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1991) NSW CA
Facts
P paid deposit for holiday cruise. P 10 days later received a booking form stating a contract of carriage with the
shipping company was made ‘only at the time of issuing tickets’ + contract of carriage would be subject to the
conditions printed on the tickets, available at the office
P paid full fare, received ticket 2 weeks before commencement of cruise
Conditions on ticket included conditions limiting shipping co’s liability for personal injury and damages to personal
effects
Ship sank during cruise  P sought damages for losses suffered as a result
Outcome
Held P was not bound by the conditions limiting the shipping co’s liability
While the court accepted that the contract of carriage was made at the time of the issue of the ticket For the
conditions printed on ticket to have been incorporated in the contract, the passenger must have been given notice
The information contained in the booking form may have been sufficient notice of many of the conditions on the ticket
BUT mere availability of those conditions at the co’s office was not adequate notice of the term, when those terms
were likely to be unusual or unexpected in the kind of transaction in question, such as those significantly reducing the
co’s liability
-
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11.4.10
Causer v Brown [1952] SCVic
Facts:
Causer’s dress damaged by drycleaners. Defendant Brown sought to avoid liability by relying on an exclusion clause
printed on docket handed to Causer when dress left
Outcomes
Held by Herring CJ : D not entitled to rely on the clause, as the docket handed to Mr Causer ‘was one that 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 defendants from their own common law liability.’
Ds should have drawn P attention to exemption clause
-
11.4.11
Interfoto Picture Library Ltd v Stiletto Visual Programs Ltd [1989] QB
Facts:
Stiletto borrowed photographic transparencies from library run by Interfoto. With the transparencies was a delivery
note setting out the date of dispatch and of return plus ‘Conditions’ printed in prominent capitals incl an excessive
holding fee if kept longer
Stiletto retained transparencies for an additional two weeks and was charged a fee of 3783.50 pounds
Outcome
 Held Stiletto not liable to pay the fee
Despite: Contract not made until Stiletto opened the bag with the transparencies
Despite: Once delivery note taken out, Stiletto would recognise it as a document reasonably likely to contain
contractual terms and would have seen the terms printed on the document
Despite: the terms being common
 Lordships considered that Interfoto did not do what was reasonably necessary to draw the clause in question, which
was ‘unreasonable and extortionate’, to the attention of Stiletto
 Interfoto was under a ‘duty in all fairness to draw Stiletto’s attention to the price payable if the transparencies were not
returned in time’
BUT Bingham LJ: good faith is used in a piecemeal fashion, not an overriding principle
 ‘To look at the nature of the transaction in question and the character of the parties to it; to consider what notice the
party alleged to be bound was given of the particular condition said to bind him; and to resolve whether in all the
circumstances it is fair to hold him bound by the condition in question.’ Per Bingham LJ
-
11.4.12
Balmain New Ferry Co Ltd v Robertson (1906)
Facts
Ferry co uses a private wharf in course of business of running a ferry from City of Sydney to Balmain
2 turnstiles on wharf
passengers entering/leaving pay 1 penny to the officer at the turnstiles
notice board near turnstiles on which was printed the words ‘Notice. A fare of one penny must be paid on entering or
leaving the wharf. No exception will be made to this rule, whether the passenger has travelled by ferry or not.’
Robertson paid fare and stepped onto wharf
Missed the ferry ฀฀ wanted to leave wharf, asked to pay another penny
Robertson refused
Outcome
HC held Robertson bound by term of contract requiring the payment of one penny to leave the wharf
Having travelled on many occasions on the co’s ferries, and paid his fare, Robertson must have known of the terms
upon which the ferry company conducted its business
-
11.4.13
Equus Corp Pty Ltd v Glengallan Investments Pty Ltd [2004]
Facts
The parties had executed a written loan contract
The borrowers subsequently argued that the transaction was governed by an earlier oral agreement made on different
terms
Outcome
Argument dismissed by HC
Influencing factor: existence of written contract, which were contradicted by alleged oral terms
Court considered that execution of formal written document discharged prior oral agreement
-
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11.4.14
DJ Hill and Co Pty Ltd v Walter H Wright Pty Ltd [1971]
Facts
D agreed to carry valuable machinery for P and in doing so it was damaged.
The contract was agreed by telephone, and the documents were signed on delivery.
They said that the carriage was subject to terms which excluded liability for damage.
Previous work of this type had been done on about 10 occasions, and similar forms had been signed.
There was no evidence to say that the terms had actually been read.
Outcome
HELD: On the first occasion, it was an oral contract, made before performance had been completed. So, the
documents could not be contractual.
The same applies to all the subsequent transactions.
In the later transactions, P did know of the existence of the forms but did not know the content of the terms and
conditions as the documents were seen as acknowledgment of delivery.
Here, there was no evidence of any “course of dealing” being established. Even though the parties had contracted on
several previous occasions they had not done so by incorporating terms as are now sought.
Spurling and Hardwick distinguished as the documents there were plainly accepted or treated as being contractual.
[This is often regarded as a poor decision --- after all both were commercial parties, and should have known that such
documents incorporate terms. It was clearly said here that previous dealings could not cure the "post---contractual"
problem, whereas in Hardwick the House of Lords had clearly said that it could].
-
11.4.15
State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986)
Facts
Contract between Heath Outdoor and State Rail Authority to place advertising on land the property of the State Rail
Authority
Written contract: granted the State Rail Authority the power to terminate the contracts at any time with one month’s
notice in writing
Heath Outdoor then contracted with a cigarette manufacturer to display cigarette advertising on the hoardings for a
period of five years
Following a government decision to phase out cigarette advertising in gov property, the State Rail exercised its right to
terminate the contract with Heath Outdoors
Heath argued that the right to terminate in the written contract had been qualified by statements made before the
contract was signed, by an officer of the State Rail, to the effect that the right to terminate would only be executed by
the Rail Authority in exceptional circumstances and would not affect the contract with Heath
The officer also stated it would be difficult for him to have the standard form contract changed
Outcome
HC: PE did not exclude the court from evidence relating to the oral conversations to assess the nature of the contract
BUT the submission that the contract was partly oral and partly in writing should be rejected ฀฀ the written contract
conferred an unfettered right to terminate the contract with Heath ฀฀ the officer of State Rail had made it plain that
he had no authority to change any condition of the written contract
-
11.4.16
Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26
Contract – Collateral contract – Where tenants held five year leases under which they operated two restaurants –
Where clause of leases required landlord to give notice that leases were to be renewed or continued or the
premises were to be vacated – Where in course of negotiations for further leases landlord made statement to
tenants that they would be "looked after at renewal time" – Where landlord required tenants to vacate premises on
expiration of leases – Whether statement gave rise to collateral contract – Whether statement promissory in nature
– Whether obligation uncertain.
Estoppel – Whether statement to tenants that they would be "looked after at renewal time" could give rise to
estoppel – Whether statement capable of conveying to reasonable person that tenants would be offered further
lease – Whether expectation acted upon by tenants.
Appeals – Procedure – Where question whether statement amounted to binding contractual promise – Whether
question of fact or question of law.
Words and phrases – "certainty", "collateral contract", "oral contract", "promissory estoppel", "proprietary
estoppel", "question of fact", "question of law", "reasonable correspondence", "remittal".
Outcome
A majority of the Court (French CJ, Kiefel and Bell JJ, Keane J, Nettle J) allowed the appeal and dismissed the crossappeal in three judgments. The plurality held that the VCA correctly concluded there was no collateral contract:
Crown’s statement that the tenants would be ‘looked after at renewal time’ could not be understood to bind Crown to
offer a further five year lease because ‘[i]t did not have the quality of a contractual promise of any kind’ (at [28]).
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11.4.17
Van den Esschert v Chappell [1960]
Facts
purchaser of a house, before signing written contract of sale, asked vendor whether the house had any white ants
vendor assured purchaser there were none
Outcome
Full Court of WA held the statement was a term of the contract:’…on the purchase of a house in this country an inquiry
regarding the presence of white ants was most important: when (as in this case) the prospective purchaser
immediately before signing a contract makes a specific request to be informed about that matter and gets an
affirmative answer such as the purchaser got in this case it was intended to be made a part and parcel of the contract
and was to be regarded as a term.’
-
11.4.18
JJ Savage & Sons Pty Ltd v Blakney (1970)
Facts
Purchaser of motor boat sued in respect of a statement made by the seller in a letter that the ‘estimated speed’ of the
boat was 15 miles per hour
The written record of the contract did not contain any reference to the boat’s capacity to achieve any particular speed
Outcome
HC: concluded that the statement about the speed was not a promise but a mere representation
Words used indicated ‘an expression of opinion’ only
-
11.4.19
Oscar Chess Ltd v Williams [1957]
Facts
Williams had offered his mother’s car to a dealer as part payment for a new car
Williams described the car as a 1948 model, which was shown in the car’s rego book
Car dealer paid Williams 290 pounds for the car
It turned out that the car was a 1939 model and only worth 175 pounds
Car dealer claimed damages representing the difference in the value of 115 pounds, on the grounds it was a term of
the contract that the car was a 1948 model
Outcome
Court rejected this claim
It should have been obvious to the car dealer that Williams had no personal knowledge of the year the car was made
and was relying on the date in the rego book
-
11.4.20
Symthe v Thomas [2007]
Facts
Statements by a seller of an airplane listed on eBay that the plane would could fly from Albury to South Australia and
would have a current airworthiness certificate in completion of the 100-hour inspection were promissory in nature
Outcomes
‘The statements were matters upon which the seller alone had the relevant information and would in my view
objectively be regarded as important by a purchaser, particularly where it was intended to fly the aircraft from Albury
to South Australia.’
-
11.4.21
Hoyt’s Pty Ltd v Spencer (1919)
Facts
The requirement for consistency is known as the rule in Hoyt’s Pty Ltd v Spencer (1919)
A written lease provided that the lessor might at any time terminate the lease ‘by giving the lessee at least four weeks’
notice in writing of his intention to do so
The lessor later gave notice to terminate the lease
The lessee alleged that, in consideration of his taking the lease, the lessor agreed not to give such notice except in
certain circumstances
Outcome
HC held alleged collateral contract was not binding on the lessor because it was inconsistent with the main contract
HC explained that the requirement of consistency means that while a collateral contract may add to the main contract,
it must not alter the provisions of the main contract
The two contracts must be able to stand together
HC said rationale for this rule = collateral contract must be supplementary only to the main contract
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11.4.22
Appleby v Pursell [1973]
Facts
Concerned contract for lease of land which obliged lessors to ‘push and stack’ the timber on the land
Lessors left base of trunks standing
Lessee complained lessors had breached the terms of the lease b/c this method left the land unsuitable for farming –
consequent dispute about meaning of ‘push and stack’
Outcome
First instance: found in favour of lessee  used evidence from advertisements for the land and from conversation
between the two parties
NSW Court of Appeal dismissed the appeal  ‘push’ and ‘stack’ have a dictionary meaning BUT in circumstances
where the phrase had a particular meaning in trade/industry, evidence was admissible to establish that usage
Their Honours stated the evidence of the advertisements and the conversation between the parties was admissible to
establish the background against which the parties had been contracting
-
11.4.23
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002]
Facts
Lease for a term of 50 years
An area containing a parking station and footway
Between Trustees of the Domain (lessor) and the Council of the City of Sydney (Lessee)
Contract provided for the rental to be varied by the lessor at regular intervals
Clause 4(b) in determining the new rental payable the lessor may have regard to additional costs and expenses in the
area which arise
Property proved to be commercially valuable, lessor sought to increase the rent by a significant amount to reflect this
value
Lessee argued that in determining new amount, lessor was only to have regard to considerations mentioned in the
clause (i.e. costs and expenses to the lessor associated with the parking station and footway) NOT to other
considerations like value of land
Outcome
Majority found lease ambiguous because it did not make clear whether the specified considerations were the only
considerations that could be considered
Majority judges referred to circumstances of transaction to solve ambiguity:’…the concern of the parties had been to
protect the lessor from financial disadvantage suffered from the transaction, namely additional expense which the
lessor would or might incur immediately or in the future.’
-
11.4.24
-
-
Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234
The following is what Campbell JA had to say (Allsop P and Basten JA agreeing) in Masterton Homes Pty Ltd v Palm
Assets Pty Ltd [2009] NSWCA 234 on how the court decides whether a contract is oral, written or both (I have cut out
all the case citations as there are so many that they obscure the actual judgment):
"[90] The principles that are applicable in deciding whether an agreement that parties have entered is one that is
wholly in writing, or partly written and partly oral, include the following:
1. When there is a document that on its face appears to be a complete contract, that provides an evidentiary basis
for inferring that the document contains the whole of the express contractual terms that bind the parties: … .
2. It is open to a party to prove that, even though there is a document that on its face appears to be a complete
contract, the parties have agreed orally on terms additional to those contained in the writing: … . Conversely, it is
open to a party to prove that the parties have orally agreed that a document should contain the whole of the
terms agreed between them ... .
3. The parol evidence rule applies only to contracts that are wholly in writing, and thus has no scope to operate until
it has first been ascertained that the contract is wholly in writing … .
4. Where a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole
of the circumstances as a matter of fact: … . Similarly, finding the terms of a wholly oral contract is a question of
fact: … .
5. In determining what are the terms of a contract that is partly written and partly oral, surrounding circumstances
may be used as an aid to finding what the terms of the contract are: … . If it is possible to make a finding about
what were the words the parties said to each other, the meaning of those words is ascertained in the light of the
surrounding circumstances: … . If it is not possible to make a finding about the particular words that were used (as
sometimes happens when a contract is partly written, partly oral and partly inferred from conduct) the
surrounding circumstances can be looked at to find what in substance the parties agreed: … .
6. A quite separate type of contractual arrangement to a contract that is partly written and partly oral is where there
is a contract wholly in writing and an oral collateral contract: ….”
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11.4.25
Darlington Futures Ltd v Delco Aust Pty Ltd (1986)
Facts
interpretation of exclusion and limitation of liability clauses in commercial contracts.
The appellant, Darlington Futures Ltd, and the respondent, Delco Australia Pty Ltd, entered a contract on 12 June 1981
under which the appellant was to provide the respondent with brokerage services (“Contract”).
The front page of the Contract contained several questions. One of the questions was “do you wish this account to be
traded at the discretion of Darlington Futures Limited?” – the respondent’s answer was “no”. Accordingly, a provision
in the Contract authorising the appellant to operate a discretionary account on behalf of the respondent was struck
out. Clause 9 of the Contract expressly provided that unless the respondent’s account was to be traded as a
discretionary account by the appellant, the respondent would be solely responsible for operating and controlling it.
The appellant recommended that the respondent engaged in transactions known as tax straddles which are intended
to help avoid exposure to trading losses. This is achieved by matching contracts to sell and buy the same quantity of
the same commodities. In July 1981, the respondent instructed the appellant to enter into such transactions and
engage in day trading, which leaves the respondent exposed to the market for one day only.
Throughout August and September 1981, the appellant engaged in such transactions on behalf of the respondent in
three instances and in each instance, left the respondent exposed to the market for more than one day. In increasing
the respondent’s exposure in the market, the appellant generated heavy losses and the respondent sought to recover
$279,715.36 in damages from the appellant.
Consideration of the damages payable in this case required an interpretation of clauses 6 and 7 of the Contract.
Clause 6 (referred to as “the Exclusion Clause”) states:
‘… The Client finally acknowledges that the Agent will not be responsible for any loss arising in any way out of any
trading activity undertaken on behalf of the Client whether pursuant to this Agreement or not, and that the Agent shall
not be liable to account to the Client for any profit made by the Agency in any of the circumstances set out in clause 9
whether or not such circumstances result in a loss to the client.’
Clause 7(c) (referred to as “the Limitation Clause”) states:
‘Any liability on the Agent’s part or on the part of its servants or agents for damages for or in respect of any claim
arising out of or in connection with the relationship established by this agreement or any conduct under it or any
orders or instructions given to the Agent by the Client, other than any liability which is totally excluded by paragraphs
(a) and (b) hereof, shall not in any event (and whether or not such liability results from or involves negligence) exceed
one hundred dollars.’
Outcomes
Exclusion Clause
The approach of the House of Lords is that ‘exclusion clauses should be simply construed in accordance with their
language and that they should not be subjected to a strained construction in order to reduce the ambit of their
operation’[2In Photo Production v Securicor Ltd,Lord Diplock held that the courts were not entitled to reject an
exclusion clause ‘however unreasonable the court itself may think it is, if the words are clear and fairly susceptible of
one meaning only’
the High Court followed its previous applications of the principles of contractual interpretation, and essentially
rejected the House of Lords’ approach.
Other principles of strict construction
The High Court stated, in Australia, ‘the interpretation of an exclusion clause is to be determined by construing the
clause according to its natural and ordinary meaning, read in 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 proferentum in case of ambiguity’.
Using this approach, the High Court considered the natural and ordinary meaning of the Exclusion Clause and found
that the words refer to ‘trading activity undertaken by the appellant for the respondent with the respondent’s
authority’. The High Court found that the actions of the appellant to leave the exposure for over a day, were
unauthorised, and when the clause was considered considering the context, it could not be supposed that ‘the parties
intended to exclude liability on the part of the appellant for losses arising from trading activity in which it presumed to
engage on behalf of the respondent when the appellant had no authority to do so’. Accordingly, the Exclusion Clause
could not be upheld.
Limitation Clause
In Alisa Craig Fishing Co. Ltd v Malvern Fishing Co. Ltd, the House of Lords observed that ‘the principles applicable to
exclusion clauses do not apply in their full
rigour to conditions which merely limit liability, thought such conditions will be read contra proferentum’.
This was rejected by the High Court in Darlington v Delco where it concluded that the Limitation Clause was to be
construed in the same manner as the Exclusion Clause. In following the same approach and applying the same
contractual principles, the High Court held that the claim by the respondent did, in fact, arise ‘out of or in connection
with’ the relationship between the appellant and the respondent as an agent and client, and clearly fell within the
scope of the Limitation Clause.
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11.4.26
Quirke v FCL Interstate Transport Services Pty Ltd [2005]
Facts
FCL transported fruit for a company
FCL required a guarantee from a director of the company for a payment of its services
The guarantee only referred to the goods sold by FCL when in fact FCL only provided services
Outcome
Full Court of Supreme Court of SA: effect must be given to the plain meaning of the words used in the contract ฀฀
accordingly, guarantee did not apply to the services provided by FCL
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12 Formal Contracts: Deeds
Must be in writing and comply with legislation
Eg : Conveyancing Act
1919 (NSW), s 38
Consideration not required –formalities make the deed binding (“signed, sealed and delivered”)
Can be made by 1 person (“deed poll”)
1. Formalities now governed by s38 Conveyancing Act 1919 (NSW):
1.
2.
3.
4.
5.
Signature
Name of parties
Date
Witness
Expressed to be sealed and delivered.
12.1 Simple Contracts Required to be In Writing : Focus Land Contracts
▪
▪
Common law does not require contracts to be in writing → although it’s prudent
Obligation to record simple contracts in writing is statutory.
 Contracts for the sale of or transfer of an interest in land
54A Contracts for sale etc of land to be in writing
(1) No action or proceedings may be brought upon any contract for the sale or other
disposition of land or any interest in land, unless the agreement upon which
such action or proceedings is brought, or some memorandum or note thereof, is
in writing, and signed by the party to be charged or by some other person
thereunto lawfully authorised by the party to be charged.
(2) This section applies to contracts whether made before or after the
commencement of the Conveyancing (Amendment) Act 1930 and does not
affect the law relating to part performance, or sales by the court…
Conveyancing act 1919
No 6 (NSW), s 54A
Interpretation of s 54A and Common Law
> “sale or other disposition of land or any interest in land” – jurisdictional issue
Applies where there is
a. sale or other disposition;
b. Land (itself) or interest in land
But
c. Generally not a mere licence to use land
>
“unless the agreement upon which such action or proceedings is brought, or some
memorandum or note thereof, is in writing” – evidential issue
Could include:
a. An unsigned contract
b. Correspondence between parties discussing the agreement
c. Cheques, forms, etc filled out by the parties
d. Any combination of the above
Memorandum/note must contain:
1. All the ‘material’ terms of the contract (Sinclair Scott and Co Ltd v Naughton
(1929))
o Material terms = essential terms (Harvey v Edwards Dunlop and Co Ltd
(1927))
Sale
i.
ii.
iii.
iv.
Parties (Rosser v Austral Wine and Spirit Co Pty Ltd (1980))
Price (Ram Narayan v Rishad Hussain Shah (1979))
Property (Pirie v Saunders (1961)).
Other key promises
Notes for Contracts
Sinclair Scott and Co Ltd
v Naughton (1929)
Harvey v Edwards
Dunlop and Co Ltd (1927)
Twynam Pastoral Co Pty
Ltd v Anburn Pty Ltd
(1989)
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Lease
i.
ii.
iii.
iv.
v.
a)
b)
c)
Parties
Property
Rent
Term
Other key Promises
Essential terms must be evidenced in writing with sufficient certainty
Sometimes a description will suffice when identifying parties
Parole (extrinsic) evidence can be used to precisely identify party /
property provided court does not have to ask / clarifying intention with
parties
“signed by the party to be charged or by some other person thereunto lawfully
authorised by the party to be charged” – evidential issue
2. Signature of party to be charged
>
> "No action or proceedings may be brought“ – legal consequences
12.1.1.1.1 Identifying Parties
▪ If there is one owner: Parol evidence can be led to identify who the registered owner is – there
can be no controversy.
▪ If there is more than one owner: → inadmissible to lead parol evidence to identify to
whom the party intended to refer. Description likely to be too uncertain to enforce
❖ Guarantee expressed in favour of “each and every member of Wholesale Spirit
Merchants Association of …”
 Court held not to uncertain → just refer to membership list
12.1.1.1.2 Identifying Property
❖ “Part of Lot B Princes Highway”
 Held too uncertain
12.1.1.1.3
Pirie v Saunders (1961)
HCA
Signature of Party to be Charged
▪
Question of Fact → bare fact of a party’s name is not conclusive → just a starting point
▪
“Party to be charged” = party against whom the contract is being enforced
▪
Both signatures are not necessary.
▪
“Signature” is more than the everyday concept → Courts looking for an objective
indication by the party to be charged that they acknowledge that a certain document(s)
records the entire agreement and that they are bound by it.
•
Rosser v Austral Wine &
Spirit Co Pty Led [1980]
3 types of signatures (Thompson v McInnes (1911)):
1. Actual signature of the party;
2. Signed on behalf (amanuensis – i.e. clerk or secretary signing at your request
on your behalf);
3. Signed by agent (e.g. real estate agent given power to sign on your behalf).
 Requirement of signature interpreted broadly - authenticated signature fiction theory
(Durrell v Evans (1862)):
o f the name of the party to be charged is typed or written in the document then
it is his signature, no matter where in the document that it is found.
o A typed name (and forgetting to sign it) when dictating a letter is enough
12.1.1.1.4 Timing of Note Creation
• The note can come into existence any time before the commencement of litigation on
the contract but you can’t create a document when you’ve already started litigation
(Todrell Pty Ltd v Finch [2007]).
Notes for Contracts
Thompson v McInnes
(1911)
Durrell v Evans (1862)):
Todrell Pty Ltd v Finch
[2007]).
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12.1.1.1.5 Electronic Communication
• A transaction can be done through electronic communication
•
•
•
Printed emails constitute writing (Faulks v Cameron (2004))
No judicial decisions in Australia on if emails are considered ‘writing’ if not printed out.
o US authority supports the view that an electronic document will satisfy the requirement
of writing if it is capable of retrieval and reproduction in a visible form (Bazak
International Corp v Tarrant Apparel Group (2005)).
o In NSW legislation (Electronic Transactions Act 2000 NSW s8) considers it will be
considered writing if:
▪ It is accessible for future references;
▪ There is consent to use electronic means.
A signature through electronic transactions is considered valid if (Electronic Transactions Act
2000 (NSW) s9):
o Parties are identified;
o There is consent of the party to the information transmitted;
o In the context of the transaction, the signature is reliable and appropriate.
o Signing party consented to using electronic means.
Electronic Transactions
Act 2000 NSW s7
Faulks v Cameron (2004)
Bazak International Corp
v Tarrant Apparel Group
(2005) USA
Electronic Transactions
Act 2000 NSW s8
Electronic Transactions
Act 2000 (NSW) s9
12.1.1.1.6 Joinder Documents
▪ Joinder: reading several documents together
▪ Can join documents together to complete the picture, (ie satisfy section 54A) if there is a link
between them that is:
1. Physical
2. Temporal; or
3. Textual
❖ “What man has physically joined the law does not put asunder…the composite
document must be read and construed as a whole”
•
. BUT they must be connected, and when connected form a complete note (Thompson v
McInnes (1911)).
1. Narrow interpretation: signed document must refer to the other document – i.e.
internal referencing (Thompson v McInnes (1911)).
2. Broader view: reference can also be to a transaction through which another
document is identified:
Referencing enabling oral evidence to connect documents
Pang v Bydand Holdings
Ptu Ltd [2010] NSWCA
Thompson v McInnes
(1911)
Thompson v McInnes
(1911
Harvey v Edwards
Dunlop and Co Ltd (1927
-
❖ A letter referring to an option was sufficient to ‘join’ (Tonitto v Bassal (1992)).
❖ Physically connected – an envelope to a letter (Pearce v Gardner [1897]).
❖ Document signed at the time: cheque (Saunderson v Purchase [1958]).
❖ ‘When the same parties execute contemporaneously several instruments relating to
different parts of the same transactional must be considered together [citing Bruce LJ
in Shaw v Jeffery [1860])…these principles apply with added strength where one of the
instruments is physically incorporated in the other’
Notes for Contracts
Tonitto v Bassal (1992)
. Pearce v Gardner [1897
Saunderson v Purchase
[1958]
Pang v Bydand Holdings
Ptu Ltd [2010] NSWCA
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12.1.2 Consequences for Failure to Comply with Statute – Land Contracts =
Unenforceable but not void
A contract that does not comply with s 54A is unenforceable, not void. → “No action or
proceedings may be brought”
•
Therefore cannot sue for damages or get rights under the contract (Gray v Ellis [1925])
•
Although can still forfeit deposit upon default (Freedom v AHR Construction Pty Ltd
[1987]).
Freedom v AHR
Construction Pty Ltd [1987]
•
BUT if a contract can remain valid so that if it is performed by the parties, it will be
effective to pass good title (Watson v Royal Permanent Building Society (1888); Maywald
v Riedel (1927)).
•
Watson v Royal
Permanent Building
Society (1888) + Maywald v
Riedel (1927)
Where money paid under an unenforceable contract is recoverable, the action is based
on restitution, not contractual (Pavey & Mathews Pty Ltd v Paul (1986)).
Gray v Ellis [1925])
Pavey & Mathews Pty
Ltd v Paul (1986)
12.1.2.1 Variation must be Written But Termination can be Oral
❖ “…a distinction is drawn…between a mere praol variation of an original contract in
writing ….and on … a parol [termination] of an original contract in writing: the parol
[termination] may or may not be accompanied or followed by a new substituted
parol contract. In the ormer case the parol variation cannot be enforced, and the
original contract in writing stands unaffected. In the latter case the original contract
in writing is discharged’ Dixon and Fullagar JJ
Tallerman & Co Pty Ltd v
Nathan’s Merchansise
(Vic) Pty Ltd (1957) HCA
12.2 Creation of Rights to Land Despite Non-Conformance – Doctrine of
Part Performance (Equity)
 While the contract may be unenforceable at law, equity may be able order specific
performance to restrain unconscionable conduct
 Equity has discretionary principles that ameliorate strickt application of legal rules
that would lead to unjust outcomes → supplements the law to restrain
unconscionable conduct and prevent victimisation
 If a contract is no enforceable due to s 54→ part performance may order specific
performance
▪
Part performance will allow a party (“the plaintiff”) to enforce a contract that is not sufficiently
evidenced in writing when:
1. There is a proved contract that creates or transfers an interest in land, but which is
unenforceable under s 54A;
2. The plaintiff relies on the contract and takes positive steps to perform it / under it;
3. Where the defendant stands by and encourages or allows the plaintiff to act in reliance
on the unenforceable contract; and then
4. The defendant relies on his/her strict legal rights and insists that the contract is
unenforceable under s 54A.
❖ “when one of two contracting parties has been induced, or allowed by the other, to
alter his position on the faith of the contract, as for instance by taking possession of
land, and expending money in building or other like acts, there is would be a fraud in
the other party to set up the legal invalidity of the contract on the faith of which he
induced, or allowed, the person contracting with him to act, and expend his money”
Lord Cranworth LC
Note : S 54 A (2) recognises the equitable jurisdiction “This section ….does not affect the law
relating to part performance’
Notes for Contracts
Caton v Caton (1866) UK
Conveyancing act 1919
No 6 (NSW), s 54A (2)
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12.2.1 Summary Elements of Part Performance
1.
2.
3.
4.
The acts must be referable to the alleged contract
Must be the acts of the party seeking enforcement of the contract
Unconscionability
Adequate oral evidence to prove element of contract → must be a final agreement
McBride v Sandland
(1918) HCA
12.2.1.1 Element 1: Acts must be referable to the alleged contract
 Mere payment of money is insufficient
Narrow View
• Acts must be unequivocally and in their own nature referable to the alleged contract
(Lord Selborne)
❖ House keeping services for no wages not absolutely referable to alleged contract
Wide view:
Acts must point to a probable contract:
❖ Plaintiff (wife) agreed to give full ownership to defendant of their jointly owned home. In
return, the defendant agreed to pay maintenance to the wife and child. The wife refused
to sign the release and the husband successfully sued owing to acts of part performance.
 The following acts were referable:
1. Payment of arrears in spouse maintenance (£100).
2. Mentioning agreement to a court magistrate
3. Forgetting about paying further maintenance
4. Cost of preparing transfer by a solicitor.
❖ McBride agreed to lease house to his daughter and son-in-law and upon his death, to
sell the property to them. The lease was executed in 1906, and replaced by a deed in
1913. McBride sued for his daughter declaring that he owned the land only subject to
her tenancy. Sandland argued part performance based on: Entry into possession of
the property. o Payments of land tax. o Improvements to the property.
 Sandland lost because these acts were not referable to the alleged contract as
they could just be due to lease.
Notes for Contracts
McBride v Sandland
(1918) HCA;
Regent v Millett (1976)
MADDISON V ALDERSON
Steadman v Steadman
(1976) UK
McBride v Sandland
(1918) HCA
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12.2.1.1.1 Steps to Prove → Onus on Plaintiff to Prove Actions pursuant to contract
1. Identify the general agreement alleged (eg, “sale” or “lease”).
2. Prove actions taken “pursuant” to the contract.
3. Persuade that court that those actions “unequivocally” prove the existence of the contract
alleged at step 1.
 Most difficult part for plaintiff is proving his/her acts “unequivocally and in [their]
own nature” refer to “some such agreement as that alleged“
 Parol and written evidence and evidence of any oral agreement is inadmissible.
 The plaintiff’s actions must speak for themselves.
12.2.1.1.2
a)
b)
c)
Acts that do Show Part Performance
Taking possession of the land
Making improvements to the land
Note acts do not have to be require by the contract (ie terms) they only have to be
“pursuant’ to the contract
❖ ”Acts of part performance have been almost universally closely related to possession
and use or tenure of the land itself, such as where a purchaser is put into possession by
the vendor, or allowed to take possession by the vendor, or where the purchaser
carries out improvements….Act on the land can much more readily be seen as
unequivocally referable to the contract than payments of money” Bryson AJ
 But ultimately each case turns on their own facts
Khoury v Khouri (2006)
NSWLR
Khoury v Khouri (2006)
NSWLR
McBride v Sandland
(1918) HCA
Regent v Millet (1976)
HCA
Notes for Contracts
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12.2.1.1.3
Payment of Money not enough
Cooney v Burns (1922)
HCA
Steadman v Steadman
[1976] UK
12.2.1.1.4
Preparatory Acts not Enough
Cooney v Burns (1922)
HCA
12.2.1.2 Element 2: Must be the acts of the party seeking enforcement of the contract
McBride v Sandland
(1918) HCA
12.2.1.3 Element 3: Unconscionability
❖ “If one party to an agreement stands by and lets the other party incur expense or
prejudice his position on the faith of the agreement being valid he will not then be
allowed to turn round and assert that the agreement is unenforceable.” Lord Reid
12.2.1.4 Element 4: Adequate Oral Evidence of Contract
Notes for Contracts
Steadman v Steadman
(1976) UK
McBride v Sandland
(1918) HCA
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13 Illegality
Notes for Contracts
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14 Vitiating Factors Summary
▪
something that occurs at formation that vitiates (undoes, voids) the consent of one party.
▪
Allows a P to rescind a contract even though all formal elements of formation were present.
- contract may be rescinded (voided) → it never existed
- (as opposed to terminated for a breach)
- means the contract is set aside ab initio (from the beginning) – parties restored to
status quo ante the contract (position prior to contract)
-
Recognised vitiating factors:
> Misrepresentation
> Duress
> Undie influence
> Unconscionable conduct
> Third Party impropriety including special wives equity
> Mistake (only non est factum assessed in this subject)
Krakowski v Eurolynx
Properties Ltd (1995) HCA
Given v Pryor (1979) 39
FLR 437).
Australian Consumer
Law s 18(1)
14.1 Recession → remedy for vitiation factor
▪
▪
Voiding a contract due to a vitiating factor
Contract is entirely avoided or undone → as if it never existed
▪
Not automatic → innocent party must elect to rescind
Sargent v ASL
Developments
Two Types of recession
1. At common law: for
a) Fraudulent misrepresentation
b) Duress
c) Total failure of consideration
 Requires precise restitution in integrum (exactly same condition subject to nature
wear & tear)
 Parties have a right to rescission at common law
2. In equity: for
a) All types of misrepresentation
b) Duress
c) Undue influence
d) Unconscionable conduct including third party impropriety and special wives
equity
 More flexible than common law recession and → more widely used. Requires
only substantial restitution in integrum
 Equity has the power to partially rescind a contract; meaning a rescission can be


ordered on terms; takes account of diminution of value or order pecuniary
restation of disposed items that cannot be restored
No right to recession in equity → at discretion of court
Courts look to do ”what is practically just between the parties, and by so doing
retore them substantially to the status quo” Alati v Kruger
Who Can rescind → The innocent party rescinds, the court (at CL) merely confirms the
correctness of the decision to rescind and gives consequential orders - e.g. ordering return of
property
Alati v Kruger (1955)
HCA
+
Commercial Bank Ltd v
Ammadio HCA
Alati v Kruger (1955)
HCA
Simons v Zartom
Investments Pty Ltd
Cannot get contract damages
Notes for Contracts
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14.1.1 Termination verses Recession
Termination: contract ends due to
i.
Party breached or repudiated
ii.
Frustration
Abandonment
iii.
iv.
A contingent condition failed
v.
Exercising of contractual right
vi.
Agreement by parties
 Has a prospective effect
 May be continuing secondary obligations
 Rights / obligations already accrued have effect
 Damages can be claimed
 Can sue for breach if applicable
Rescind → contract ended due to vitiating factor
 Has a retrospective effect
 No secondary obligations
 Parties must be restored to status prior to contract → all legal acts are undone
 No rights to damages (but rights in other areas such as tort or equity may be available
 (Related to above) No ability to sue for breach
14.1.2 Process/Requirements to Rescind
1. Innocent party must elect to rescind or affirm
 Once a choice is made cannot be undone (note same for breach/termination)
 Conduct is judged objectively: → no need for P to subjectively intend to elect.
❖ The words or conduct ordinarily required to constitute an election must be
Sargent v ASL
Developments (1974)
HCA
unequivocal in the sense that it is consistent only with the exercise of one of the
two sets of rights and inconsistent with the exercise of the other … For an election
there need be no actual, subjective intention to elect … an election is the effect
which the law attributes to conduct justifiable only if such an election had been
made …” Stephen )
2. Actual communication usually required → contract rescinded from date of notification.
Exceptions include
 May be implied by conduct. Eg
- Sending item back to defendant (rescission/termination);
- Continuing to perform after knowledge of vitiating conduct/breach (affirmation);
- Taking no action after knowledge of vitiating conduct/breach (affirmation) .
 But must be unequivocal
Alati v Kruger (1955) HCA
North Ocean Shipping Co
v Hyundai [1976] QB
Sargent v ASL
Developments (1974) HCA
 guilty party absconds → may be waived → innocent must evinces intention to rescind
❖ Caldwell victim of a rogue who bought his car. Rogues cheque was dishonoured
he absconded. Went on to sell car to third party
C immediately informed police and auto association.
 Held C had rescinded before subsequent sale and title was revested to C
 Note: Fraudulent misrepresentation decided at Common law → at equity
due to the impact on the innocent third party it is uncertain courts would
take same approach for all vitiating factors
3. Establish that the party knew of the vitiating factor that gave rise to that right
Car and Universal
Finance Co Ltd v Caldwell
[1965] QB
Coastal Estates v
Melevende
4. Consider the bars to rescission which could eliminate the party’s right to rescind (below)
Notes for Contracts
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14.1.3 Bars and Restrictions to Rescission
1. Substantial restitution not available
Alati v Kruger (1955) HCA
2. Contract is affirmed- i.e. after an anticipatory breach
Sargent v ASL
Developments (1974) HCA
3. Equitable maxim – delays / laches
 Inordinate delay before rescission may make it unjust for innocent to rescind contract
 Relevant factorsa) The subject matter of the contract
b) The length of the delay
c) The nature of the act done in the interval between the learning of the true state of
affairs and adequate rescission
d) Whether any disproportionate injustice would be done to the representor
➢ Is a question of degree & an objective test
4. Unconscionable conduct
 the remedy will be denied if a purchaser seeking the order of rescind acts
unconscientiously during the pendency of action.
5. Innocent 3rd party
 Contract is valid until rescinded
 If rights that passed under a voidable contract are on sold before the voidable

contract is rescinded, the right to rescind is lost .
Substantial restitution: court may award monetary compensation to victim if subject
matter of contract cannot be returned
6. Executed contracts – innocent MISREPRESNTATION ONLY) – only applies to sale of land
 Can be recinded is induced my fraudulent misrepresentation
 Note has been applied to sale of shares, a lease & business in lower courts and UK
Leif v International
Galleries (1950)
Krakowski v Eurolynx
Properties Ltd (1955)
Cor & Universal Finance
Co Ltd v Caldwell (1965)
Hartigan v International
Society of Krishna
Consciousness
Wilde v Gibson (1848) UK
+
Svonosio v Mcnamara
(1956) HCA
14.1.4 Partial Rescision
▪
•
Equity has power to partially rescind a contract; ie rescission can be ordered on terms.
The aim of this is to –
 Do what is practical between the parties
 Compensate not punish
 Ensure that “he who seeks equity does equity”- that is, that the person who seeks
rescission is only compensated and does not receive a windfall gain
Partial restitution: if the victim would have accepted some obligation in the absence of vitiating
factor, then partial rescission should be granted (Vadasz).
Commercial Bank Ltd v
Ammadio
Vadasz v Pioneer
Concrete (1995) HCA
14.1.5 Key Cases
14.1.5.1 Alati v Kruger (1955) HCA
K bought fruit shop on basis on fraudulent misrepresentation of takings. As soon as discovered he began proceedings. Before case
finalised, business which was running at a loss had to close. Alati argue impossible to recind as nothing to restore
 Held Krugers recession was effective & substantial restoration possible by making orders to account for stock etc
that could not be retuned
 That business was run down not at problem as K had done his best – it was a lost cause – and “even at common law
the necessity to return property in its original condition is qualified so as to allow for incidents for which the buyer
was not responsible”
Notes for Contracts
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15 Misrepresentation
Pre-contractual reprepsentation
Elements
1. A Statement (oral or written) or conduct
1. Made by representor to representee
2. Not mere puff
2. Statement of Fact --> past or present not intent/prediction
Misrepresentation
3. Not mere opinion (but can be misrepresetnation if
representor knew otherwise)
4. Intended to induce
4. Can be incorproated as a term (usually not)
5. Did Induce into contract - was acted upon - reliance
allowing suit for breach
2.
3.
Statement must be made
before contract is entered
Statements which become
false after contract
formation are irrelevant
3. False Statement
6. Fraudulent --> representor had honest belief in truth
Fraudulent
Innocent
Negligent
Deliberate untruth
D thought it it was true
Negligent untruth
Recind and
Recind -
sue in Tort of Deceit
but no suit
for DAMAGES
NO DAMAGES
(if not affirmed)
(if not affirmed)
Recind and
sue in tort of
negligence
1.
Representee under no
obligation to verify
DAMAGES
(if not affirmed)
Innocent Misrepresentation is the default finding

Plaintiff has onus of proving fraud or negligence
15.1 Summary Elements of Misrepresentation
▪
▪
To establish misrepresentation, the representee must show that the representor made an
untrue, statement of existing or past fact that misled them and induced them to enter
contract
These statements can be written, oral or implied by conduct
Krakowski v Eurolynx
Properties Ltd (1995) HCA
Given v Pryor (1979) 39
FLR 437).
Representor – party making the representation
Representee - party to whom representation is made
When to argue misrepresentation → to get out of a contract when
statement a warranty not a condition→ condition can terminate; warranty only damages
if not fraudulent and damages are not required
Misrepresentation may be express or implied
Misrepresentation is an equity issue rather than a common law contract issue per say
15.2 Steps
1. Clearly identify the misrepresentation → if implied clearly state the implied
misrepresentation and how it is implied from the circumstances
2. Determine is Misrepresentation → prove 5 elements
3. Determine Type of Misrepresentation → if fraudulent prove no honest belief
15.2.1 Element 1: Precontractual statements by representor to
representee
1. Pre-contractual
-
False statements made after formation are irrelevant.
Statements which become false after the contract is made are irrelevant.
Notes for Contracts
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2. By Representor to Representee – Representee must be INTENDED audience
Peek v Gurney (1873) UK
1. If a (mis)representation is received and acted upon by someone who is intended to
receive the representation, then that is actionable. Representations can be made:
i. Directly to an individual
ii. Directly to an intended class of people / audience
iii. Through an intermediary
Commercial Banking
Company of Sydney Ltd v
RH Brown & Co (1972) HCA
❖ Prospectus contained false facts. Months later P bought shares on the open market
 Failed to establish misrepresentation as not the intended audience of prospectus
Peek v Gurney (1873) UK
❖ Brown agreed to sell wool to an exporter. Worried about exporters ability to pay
Brown asked their Bank to get an guarantee from the exporters Bank. When the
exporter failed to pay Brown sued bank who argued the guarantee was intended for
Brown’s bank not Brown.
 Held it was misrepresentation
Commercial Banking
Company of Sydney Ltd v
RH Brown & Co (1972)
HCA
15.2.2 Element 2: Statement of Fact --> past or present not
intent/prediction
1. Honestly held opinions that are incorrect are not actionable.
 However, behind the literal statement of opinion may be implied statements of
past/present fact.
 Representor must honesty hold the opinion
 Representor has reasonable grounds for offering opinion
❖ Smith advertised hotel for sale saying it was leased a most desirable tenant who held
a long lease. Tenant was behind in paying rent and soon went into bankruptcy after
sale. Smith claimed “desirable” was an opinion.
 Court applied Wilkinson- guarantee amounts to an assertion that nothing has
occurred between the tenant and landlord to make the tenant undesirable→
misrepresentation – unjustifiable opinion.
 Bowen J held that this statement was a statement of fact as there was no way for
the purchaser to find out these details for themselves.
Smith v Land & House
Property Corp (1884) UK
 Strong, unqualified statements from someone with expertise may be taken as
statements of fact, even if they subjectively intended to provide an opinion.
❖ D (Bisset) while negotiating with P (Wilkinson) to sell farm, stated that it would
accommodate 2000 head of sheep, even though it had never been used to run sheep.
P later sought to rescind when he discovered this was not true
 Held not misrepresentation → merely an honest opinion + P could have
investigated.
2. Mere puffs → not actionable
 General rule –the more specific the words, the less likely they will be puff.
❖ However, the statement “a wonderful place to live” on an advertisement context
was held to be a statement of fact (although it was probably intended to be
mere puffery), because it conveyed the impression that land was zoned for
urban use.
Bisset v Wilkinson [1927] UK
Everready Australia v
Gillette Australia (no 4)
[1999] FCA
Pryor v Given .
 statements that a reasonable person would see as exaggerated sales talk, not
intended to be taken as literally true.
❖ The use of language, like ‘cosy – immaculate style’ and ‘nothing to spend – perfect
presentation’, was held to be puffery, and did NOT constitute a representation.
White J held words could not be held as constituting a representation of fact
because they were part of a “pithy promotion” used in a context where
hyperbole was commonplace -a reasonable person would not understand the
words to constitute a factual representation about the property’s structural
integrity.
Mitchell v Valherie
[2005] SASC
3. Promises to do something or statements of future intent → not actionable
 Like opinions, the literal statement may contain implied representations of
past/present fact:
Notes for Contracts
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 The representor must honestly believe that the thing will occur / honestly have the

intention to do the things. → not actionable
The representor has reasonable grounds for making the statement. → not actionable
❖ Society had power to refuse wirhdrawel of deposit but had represented to
depositors they would not use it. They did and were sued
 Held No misrepresentation as they honestly believe it when said
❖ P (Edgington) claimed he had been induced to invest in a company by the prospectus

which stipulated that invested debenture bonds would be used for capital and trade
improvement. The directors had always intended to use the funds to discharge exiting
liabilities.
 Held while statement appeared of future intention, → misrepresentation of an
existing fact, because D never intended to use funds as publicly indicated.
‘the state of a man’s mind is as much a fact as the state of his digestion… A
misrepresentation as to the state of a man’s mind is, therefore, a misstatement of
fact...’ Bowen LJ
4. Predictions that something will occur → not actionable
 Unless above no genuine belief
5. Representations of law
Civil Service Co-op Soc.
Vic v Blyth & Ors (1914)
HCA
Edgington v Fitzmaurice
(1885) UK
David Securities Pty Ltd v
CBA (1992
15.2.2.1 Silence → generally not enough as generally need a positive act
▪
Silence or failure to speak up is not misrepresentation
There is no obligation on parties to volunteer information that may assist the other –
there is only an obligation not to mislead with false statements.
the caveat emptor (let the buyer beware) rule applies:
Smith v Hughes (1871)
HOWEVER → CL recognises contexts where a defendant is obliged (has a duty) to speak.
1. Half truths
❖ ‘….each of these tenants had given a notice to quit, … The purchaser [was]… led to
suppose… that he was purchasing with continuing tenancies … whereas he would,
in fact, have to find tenants immediately … I refer particularly to this, because as
to some of the other farms it is stated …. that the tenants had given notice to quit;
so that the purchaser must have been led to believe that the tenants …. were
continuing tenants. This …. is a material misrepresentation.” Sir GJ Turner LJ
2. Representation by Conduct
❖ “An inspection with the cookers in situ, in my view, constituted a representation by
conduct that the cookers were lawfully there.” Bray CJ
❖ ‘mere nod, wink or smile” may amount to an implied positive misrepresentation
Dimmock v Hallett
(1866) UK
Jennings v Zilahi-Kiss
(1972) SASC
Walters v Morgan (1861)
3. Statements that become untrue (or the representor discovers are untrue) before
the contract is formed
 A representation which becomes untrue by the time contract is formed, is a
misrepresentation.
 If the representor becomes aware that the representation has become untrue before
the contract is formed they must inform the representee.
 The law allows a representee to assume that representations made by a representor
are true up until the contract is formed.
❖ Jones, who did not wish to sell to an outsider, sold to D at an undervalue because
❖
D indicated he did not intend to resell shares as he proposed to conduct the
company’s business for the benefit of his family
D did not disclose to J that he changed his mind before the completion of the sale
and he intended to purchase the share in order to resell them at a profit
 Held: D liable for damages in deceit
 Original statement not proved to be false but it had become false to his
knowledge by the time the contract was concluded
Notes for Contracts
With v O’Flanagan
[1936] UK
Jones v Dumbrell [1981]
VicSC?
Jones v Dumbrell [1981]
VicSC
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 Even if a representor does not know that new developments have falsified
an earlier statement, the court may be able to give relief to the representee
by implying a condition in the offer that there has been no change in the
situation: Financings Lt v Stimson
❖ Flanagan agreed to sell medical practice to With. By the time settlement
happened the takings were much diminished
 Held: With able to rescind as statement of takings became untrue
With v O’Flanagan
[1936] UK
4. Active Concealment
 If a defendant actively takes steps to conceal facts from the plaintiff, this is a
fraudulent misrepresentation.
❖ Ship advertised for sale to be taken with all faults. Vendor knew bottom and keel
were rotten so he took it out of dry dock and put into water to hide
 Held misrepresentation
Schneider v Heath
(1813) UK
5. Special Relationships
 Certain legal relationships impose an obligation to volunteer information and look
after the best interests of the other party:
i. Contracts uberrimae fidei (of utmost good faith) eg insurnace constracts
Statute deals with duties of disclosure owed by insured persons to insurers:
→ Must disclose all known material facts known
ii. Contracts of guarantee
a limited duty of disclosure is imposed (non-disclosure of which would
amount to a misrepresentation) would be "those circumstances which were
not naturally to be expected."
iii. Fiduciary relationships
Duty imposed on the fiduciary in favour of the person to whom the
obligations are owed
Insurance Contracts
Act (1984)
Westpac Banking Corp v
Robinson (1993)
15.2.3 Element 3 False Statement
15.2.4 Element 4 : Intended to induce
❖ If a material representation is made which is calculated to induce the representee to
enter into a contract and that person in fact enters into a contract there arises a fair
inference of fact that he or she was induced to do so by the representation.
❖ The representation need not be the sole inducement. It is sufficient as it plays some
part, even if only minor, in contributing to the formation of the contract. (Wilson J)
Gould v Vaggelas (1985)
HCA
15.2.5 Element 5 Did Induce Representee into contract - was acted upon
- reliance
1. Notwithstanding that a representation is both false and fraudulent, if the representee
does not rely upon it, he or she has no case.
Gould v Vaggelas (1985)
HCA
2. If a material representation is made which is calculated to induce the representee to
enter into a contract and that person in fact enters into a contract there arises a fair
inference of fact that he or she was induced to do so by the representation.
3. The inference may be rebutted, for example, by showing that the representee, before
he or she entered into the contract, either was possessed of actual knowledge or the
true facts and knew them to be true or alternatively made it plain that whether, he or
she knew the true facts or not, he or she did not rely on the representation.
4. The representation need not be the sole inducement. It is sufficient so long as it plays
some part, even if only a minor part, in contributing to the formation of the contract.
(Wilson J)
❖ Mr and Mrs Gould bought a resort, Veggelas has misrepresented the true value of the
resort and Gould’s couldn’t make the business a success.
 Held Gould’s could rescind the contract.
Notes for Contracts
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Ways to disprove reliance:
1. Representee ignored the representation
2. Representee knew of the truth prior to the contract
3. Representee relied on his/her own inquiries
❖ Jones wanted to buy Holmes land and cattle. Holmes gave a letter with a false no of
cattle. Jones got a report done → Holmes made another offer after with correct cattle
 Jones was unable to rescind based on the false statement as it had been
superseded so clearly he had not relied on it
Can’t be reliance if P did not know about the misrepresentation, or if he/she knew it was false
1.
Holmes v Jones (1907) 4
HCA
Gipps v Gipps:
15.2.6 Element 6: Fraudulent --> representor had no honest belief
▪
▪
Where the representor knows that the representation is false, or is recklessly indifferent
to the truth.
Remedy = rescission + damages (tort of deceit)
Magill v Magill (2006)
HCA
 The BURDEN OF PROOF is on the representee to prove the representor is fraudulent. The
representation will be fraudulent if:
1. the representor is intentionally dishonest in their act or omission and has knowledge of
this, OR
2. if the representor made it recklessly in that he did not care if it was true or false
▪
Derry v Peek (1889) UK
Haye v CML Assurance
Soc Ltd (1924)
High bar to allege & prove fraud → that a statement is false does not amount to fraud.
❖ “The modern tort of deceit will be established where a plaintiff can show five
elements: first, that the defendant made a false representation; secondly, that the
defendant made the representation with the knowledge that it was false, or that the
defendant was reckless or careless as to whether the representation was false or not;
thirdly, that the defendant made the representation with the intention that it be
relied upon by the plaintiff; fourthly, that the plaintiff acted in reliance on the false
representation; and fifthly, that the plaintiff suffered damage which was caused by
reliance on the false representation. Generally, the elements of the tort have been
found to exist in cases which concern pecuniary loss flowing from a false inducement
and the need to satisfy each element has always been strictly enforced, because fraud
is such a serious allegation.”
❖ ‘if fraud be proved, the motive of the person guilty of it is immaterial. It matters not
that there was no intention to cheat or injure the person to whom the statement was
made. In my opinion making a false statement through want of care falls far short of
and is a very different thing from, fraud, and the same may be said of a false
representation honestly believed though on insufficient grounds.” Lord Herschell
❖ When fraud is alleged against a defendant, it is not enough to prove that the
representation as pleaded was false. The words or conduct by which a
representation is made may be understood in different senses. The words or conduct
may be understood by a reasonable person in the position of the representee in one
sense, by the representee in a second sense and by the representor in a third sense.
Or the representee may understand the words or conduct in a sense which the
representor knew the representee might understand them, albeit not in the sense in
which a reasonable bystander would understand them. The differing senses in which
words or conduct are understood must be borne in mind in determining whether the
several elements of deceit are proved.’
❖ ‘The sense in which a representation would be understood by a reasonable person in
the position of the representee is prima facie the sense relevant to the question
whether the representation is false. The sense in which a representation is
understood by the representee is relevant to the question whether the
representation induced the representee to act upon it. And the sense in which the
representor intended the representation to be understood is relevant to the question
whether the representation was made fraudulently’. (Brennan, Deane, Gaudron and
McHugh JJ)
Notes for Contracts
Magill v Magill (2006)
HCA
Derry v Peek (1889) UK
Krakowski v Eurolynx
Properties Ltd (1995)
HCA
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15.3 No Obligation on Representee to Verify
❖ Redgrave solicitor wanted a partner. Gave Hurd books which showed takings $100
less thean he had represented. Redgrave said extra was from side business and
evidence was in papers which he gave to hurd. Hurd never checked
 Held was misrepresentation and P does not need to check. If you say it is true it
needs to be true
 it is not your fault if you do not undertake due diligence, however if you discover
the truth then you cannot pretend to not know the truth
➢ “the mere fact that a party has the opportunity of investigating and
ascertaining whether a representation is true or false is not sufficient to
deprive him of his right to rely on misrepresentation … The representation
once made relieves the party from an investigation, even if the opportunity is
afforded….. there may not be certain circumstances of suspicion, which might
put a person upon inquiry, and make it his duty to inquire but under ordinary
circumstances the mere fact that he does not avail himself of the opportunity
of testing the accuracy of the representation made to him will not enable the
opposing party to succeed on that ground.” Baggally LJ
Redgrave v Hurd (1881)
UK
15.4 Remedy
Result of finding misrepresentation → contract may be rescinded (voided) → it never
existed (as opposed to terminated for a breach)
Rescission = principle remedy → means the contract is set aside ab initio (from the beginning)
– parties restored to status quo ante the contract (position prior to contract)
CL no longer as influential → s 18(1) of the ACL prohibits misleading or deceptive conduct in
trade or commerce
▪
2.
3.
•
•
Effect of finding fraudulent misrepresentation:
o Innocent party can elect to rescind or affirm and continue.
o Affirmation does not exclude the victim from an award of damages – a right in the
tort of deceit is distinct from the right to continue with the contract
o BUT recission excludes damages for breach of contract since recission is ab initio
(from the beginning) and there is no contract existing on which to sue.
Effect of finding innocent misrepresentation:
o Representee can elect to rescind the contract or affirm and continue.
o No damages are available.
Australian Consumer
Law s 18(1)
Sibley v Gosvenor
(1916).
15.5 Key Cases
15.5.1 Derry v Peek (1889)
Facts:
•
•
•
•
•
•
Board of directors considering floating new steam trams co.
Tramway Co issues prospectus stating used steam trams not horses. had govt. approval and people have invested.
Use of steam by the company had not been approved by the board of trade. The investment money had gone.
P bought shares and the company folded.
P took the matter to court and claimed damages for the profits that he had lost.
He therefore had to prove that the statement had been made by the directors when they knew that this was false.
•
Court held: they hadn’t acted fraudulently- a fraud will be committed where a false representation is committed
knowingly, and it could perhaps be reckless, as to whether it is true or false.
Court found for the directors as at the time it was published, they honestly believed in the truth of it – there were
some elements of belief enough not to make it fraudulent
Unless you are deliberately lying, you are not a fraudster. I.e. innocent misrepresentation.
Held, company were not reckless enough and it was decided his was innocent misrepresentation. Fraud is proved
when representation had been made
o Knowingly;
o Without belief in its truth;
o Recklessly, careless as to whether it is true or false.
Held:
•
•
•
Notes for Contracts
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16 Duress
The law will allow a plaintiff to rescind (make contract voidable at discretion of innocent party) a
contract if s/he consent because of unfair pressure.
Doctrine of Duress: ‘threatened or unlawful conduct’ which involves ‘Illegitimate pressure
exerted by one party to force the other party to consent to a contract against that party’s will’
ANZ Banking Group v
Karam [2005] NSWCA
Two forms of unfair pressure recognised at general law:
1. Duress (common law)
2. Undue influence (equity)
16.1 Steps
1. Prove illegitimate pressure was applied → proof required by plaintiff
2. Once the presence of duress proven defendant must prove it did not cause the victim
to ascent (burden shifts to defendant)
16.2 Duress Summary Elements
1. Illegitimate pressure applied to compel innocent party into a contract.
2. Pressure caused innocent party to assent to contract.- (BvA does not need to be the only
or even main reason)
3. Duress limited solely to ‘threatened or unlawful conduct’ → ie not unconscionable
4.
5.
conduct (particularly for economic but not exactly clear for duress of person or goods)
innocent party in the circumstances had no alternative but to assent (only economic
duress)
Failure to rescind a contract obtained via duress within a reasonable timeframe will
amount to affirming
The Universe Sentinel
[1983] UK
ANZ Banking Group v
Karam [2005] NSWCA
North Ocean Shipping v
Hyundai Construction
[1979] QB
Types of Duress
1. Duress of person
2. Duress of goods
3. Economic duress
16.2.1 Element 1: Illegitimate Pressure
1. Duress limited solely to ‘threatened or unlawful conduct’ → ie not unconscionable (unfair)
2.
conduct (ie the BUT below is contentious→ might need Lawful-threat duress cases to seek
address via undue influence or unconsciousable conduct)
BUT
sometimes lawful threats are illegitimate (ie no good faith basis to make threat or
blackmail (Kaufman v Gerson [1904] ) and unlawful ones are not always duress → To
ascertain legitimacy: proportionality test between threat and demand
❖ K threated to report G’s husband for a crime he had committed
 Held duress + voidable despite reporting a legitimate crime as it was blackmail
3. Unlawful includes civil as well as criminal conduct (muscimeci ? Verve v Woodsie
4. Threats can be overt of implied
 And can be procured rather than directly applied by coercing party
❖ The ‘good faith’ or state of mind of a person may be relevant:
❖ it would not normally be illegitimate pressure for a creditor to threaten to bring
bankruptcy proceedings to persuade a debtor to pay UNLESS the creditor knows the
proceedings to be groundless – threat may enough to vitiate transaction
Notes for Contracts
ANZ Banking Group v
Karam [2005] NSWCA
Kaufman v Gerson
[1904] KB
Hawker Pacific Pty Ltd v
Helicopter Charter ty Ltd
(1991) NSWLR
Borelli v Ting
Smith v William Charlick
Ltd (1924) HCA
Beerens v Bluescope
Distribution
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16.2.2 Element 2: Impaired Consent of innocent → Causal in them
Accenting
1. McHugh J in ‘overbearing of will’ concept needs to be rejected → the person who is subject of
duress knows what she/he is doing, but chooses to submit to pressure/demand rather than take
alternative course of action
Crescendo Management
Pty Ltd v Westpac Bank
(1988)
2 Aspects
1. No real choice
2. Decision to enter contract must have been caused by duress
In considering causation, there are some relevant factors:
1. Did P protest?
2. Did P seek independent advice?
3. Did P take expeditious steps to set aside contract after entering? (Hawker v Heli (1991))
4. Were alternative courses of action available?
1.
2. The more serious the threat, the less P will be expected to do
 Threat to economic interests must be shown to be such as to leave P with no
practical/realistic alternative but to submit:
The Universe Sentinel
3.
The illegitimate pressure must have been a “MATERIAL CAUSE” of P entering the contract,
Need NOT have been the only cause
Cannot claim duress if you have a reasonable and practical alternative
News Ltd v Australian
Rugby Football League
(1996)
Crescendo Management
Pty Ltd v Westpac
Banking Corp
Barton v Armstrong
Eadie v Township of
Bradford
16.3 Remedies
▪
Main remedy for P = to have the contract RESCINDED (= set aside)
▪
Rescission may not be available if substantial restoration of the parties to their original position
is impossible or if P has chosen to ratify or affirm the contract post-illegitimate pressure being
lifted
▪
If a person actually pays money to another because of duress, an action in restitution may be
available to retrieve the money
▪
In this context, improper pressure is sometimes called compulsion
▪
Note that if there is a contract, restitution is not available for the claiming back of benefits
under contract
▪
To claim back the benefits the P must first rescind the contract: The Evia Luck [1992] ACL: s 20
= another form of relief prohibits corporations from engaging in conduct in trade or
commerce which is unconscionable within the meaning of the unwritten law
Notes for Contracts
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16.4 Duress of Person
1. Actual or threatened violence or actual imprisonment.
2. The act or threat must be both unlawful and directed towards the party (or a close
3.
relative/associate)
Duress does not need to be the only motivation for entering the contract
❖ Armstrong threatened to kill Barton and members of his family. Barton had entered into
a business agreement with Armstrong. It was a reasonable transaction for Barton
 Court found that duress formed part of the reason for entering into the contract
but wasn’t the sole reason. held that this was enough.
 Stated Would be an extraordinary circumstances where a threat of violence or
actual violence was not a reason for entering a contract ie was duress
4. Includes threats to prosecute
❖ D threatened to prosecute P’s father for alleged crime of forging previous guarantee →
would have put the health and liberty of P’s father at risk.-
Barton v Armstrong
[1976) Privvy Council
Mutual Finance Ltd v
John Whetton & Sons
(1937)
16.5 Economic Duress
▪
▪
▪
Threat was made by the dominant party to prejudice the innocent party’s economic interests
& the dominant party’s threat was made to procure an agreement w/ the other. Often
Threat to break a contract
Threat to not relaease funds to which victim has a lawful right
 Deliberate application of pressure → Active role of defendant is required → as
opposed to taking advantage
•
As long as you don’t create the economic worsening, you can take advantage of it
❖ As ‘ the perilous financial circumstances of the Company were “not the Bank’s
doing”, there is no basis for saying that the Bank, in a legal sense, subjected the
Karams to pressure. …The Bank was under no obligation to extend the credit
facilities already granted, nor to do so without securing its own position. ‘…
•
Mere commercial pressure, even an extreme kind, will not amount to duress
❖ ‘The proper approach … is to: ask whether any applied pressure induced the
victim to enter into the contract and then ask whether that pressure went
beyond what the law is prepared to countenance as legitimate? Pressure will be
illegitimate if it consists of unlawful threats or amounts to unconscionable
conduct. But the categories are not closed. Even overwhelming pressure, not
amounting to unconscionable or unlawful conduct, however, will not necessarily
constitute economic duress …..Although the pressure applied by Westpac to Mr
and Mrs Hilbrink was unlawful, I am of opinion that it played no part in the
execution of the mortgage which had occurred before the pressure was applied”
Often the threat is to actually break the contract and leave the weaker party hanging
Validity of the modification will depend on 2 factors
1. was it supported by consideration
2. Whether there was the modification the result of a genuine response to
changed circumstance OR PROCURED UNDE DURESS
❖ It could be argued that if D had faced unforeseen hardship which makes
performance of the contract more difficult or expensive than anticipated, the D
should be compensated at least partially for that hardship –
❖ On the other hand, it might be argued that D assumed the risk of such difficulties
when making the contract, and so should NOT be permitted to take advantage
of tis stronger bargaining position once work under the contract has
commenced to demand changes to the contarct .
Notes for Contracts
North Ocean Shipping v
Hyundai Construction
[1979] QB
Magnacrete v Douglas
Hill.
ANZ Banking Group Ltd v
Karam (2005)
News Ltd v Australian
Rugby League
Crescendo Management
v Westpac (1988)
Electricity Generation
t/as Verve Energy v
Woodside [2013] WASCA
Williams v Bayley
North Ocean Shipping Co
Ltd v Hyundai
Construction Co Ltd
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16.6 Duress to Goods
▪
One party unlawfully seizing, keeping or destroying goods of other or threatening to do so.
 Often situations where they have to pay an extraordinary price or give away for free
❖ HP repaired a helicopter and didn’t do a good job so were asked to fix again. Would only
return heli if HC signed a contract saying they owed HP money & agree to an exclusion
clause. HC needed the heli so signed but refused to pay citing duress
❖ Court held was duress due to confinement of plane and illegitimate pressure on HC
❖ Modern rule; any operative duress makes contract voidable
o Implied threats count
o Affirmation (if time passes, there comes a point where it is assumed that you
have agreed) clear indication needed or prejudicial delay
Hawker Pacific Pty Ltd v
Helicopter Charter ty Ltd
(1991) NSWLR
16.7 Key Cases
16.7.1 The Universe Sentinel [1983] UK
•
(ie Universe Tankships of Monrovia v International Transport Workers Federation)
Facts:
•
•
The ITWF blacked a ship, The Universe Sentinel, to prevent it from leaving port.
They made several demands in relation to pay and conditions and also demanded the ship owners pay a large sum of
money to the Seafarers International Welfare Fund.
The ship owners agreed in order that the ship could leave port and then sought to recover the sum paid to the welfare
fund
•
Held:
• The money had been extracted under economic duress and could be recovered.
Accordingly two elements of duress were identified:
“The authorities … reveal two elements in the wrong of duress:
1. pressure amounting to compulsion of the will of the victim; and
2. the illegitimacy of the pressure exerted.
❖ ‘There must be pressure, the practical effect of which is compulsion or the absence of choice. Compulsion is variously
described in the authorities as coercion or the vitiation of consent. The classic case of duress is, however, not the lack of
will to submit but the victim's intentional submission arising from the realisation that there is no other practical choice
open to him.’ Lord Scarman
“In determining what is legitimate two matters may have to be considered.
1. The first is as to the nature of the pressure. In many cases this will be decisive, though not in every case.
2. And so the second question may have to be considered, namely, the nature of the demand which the pressure is applied
to support.
❖ The origin of the doctrine of duress in threats to life or limb, or to property, suggests strongly that the law regards the
threat of unlawful action as illegitimate, whatever the demand. …” , Lord Scarman
16.7.2 ANZ Banking Group v Karam [2005]
•
•
Duress to be limited solely to ‘threatened or unlawful conduct’.
Unconscionable conduct to be dealt with under ‘undue influence’ and unconscionability in the sense of ‘special
disability.
o ‘The vagueness inherent in the terms “economic duress” and “illegitimate pressure” can be avoided by treating the concept of
“duress” as limited to threatened or actual unlawful conduct.’
• Karam approved of by QSC in Mitchell v Pacific Dawn Pty Ltd [2006] QSC 198
Notes for Contracts
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16.7.3 Skeat v Beale (1841)
Facts:
•
D threatened to set fire to the forest on the land of another unless a contract was entered into.
•
•
Court held that fear that goods may be taken etc does not amount to duress.
BUT Hawker Pacific v Helicopter Charter (1991) said distinction in this case between duress to the person being
sufficient and duress to goods being not sufficient is no longer the law.
Held:
TODAY: IT IS ACCEPTED THAT THE DETENTION/SEIZURE OF GOODS, OR THREATENED DAMAGE TO GOODS, IS WITHIN THE SCOPE
OF DURESS IN CONTRACT LAW
16.7.4 Crescendo Management Pty Ltd v Westpac Bank (1988)
Facts:
•
•
•
•
Mr and Mrs H owned a company in financial difficulty.
H wished to sell house and buy a new house (independent to the company).
Sold house and deposited money to the bank.
Bank scared they would be unable to pay loans on company said unless they could guarantee Upward Publishing
loans (their company) with family company (Crescendo Management), the bank would not give them loans to buy
their new house.
•
Court held it was duress but did not find in favour of H (they had decided to this agreement prior to the threat given
by the bank).
Description of duress by McHugh:
2 requirements of illegitimate pressure:
o Unlawful
o Unconscionable did not have the same meaning as ‘unconscionable’ in the Amadio case (i.e. special
disabilities). BUT see Karam case for NSW position.
If overwhelmingly business pressure is exerted it is not illegitimate – i.e. will not constitute as duress.
Onus lies on person applying the pressure (aggressor) that it did not cause victim to enter contract.
Held:
•
•
•
•
16.7.5 Barton v Armstrong [1976]
Facts:
•
Armstrong threatened the life of P on many occasions to make him enter into deeds to sign over Companies to him. P
argued that the contract was therefore voidable as it had been entered into under duress. Armstrong argued that this
was a good business decision (trial judge agreed). Matter was appealed to the Privy Council.
•
Privy Council held that duress does not need to be the only reason for entering into a contract and need only be one of
the factors, even though contract might have been entered into voluntarily
Also held that pressure must be illegitimate in that it is a threat to do an illegal act.
Onus is on accused party to proved that duress did not contribute to the innocent party’s decision to contract – after
innocent party proves that they were pressured and threatened into agreeing, onus shifts to stronger party to prove
that duress did not affect assent
Once duress is established, rescission is possible
Held:
•
•
•
16.7.6 Equiticorp Finance Ltd v Bank of New Zealand (1993)
•
Kirby criticised McHugh JA’s test in Crescendo on the grounds that judges should not impose their view (and are not
qualified to do it anyway) on what is legitimate or illegitimate commercial pressure especially in contracts between
businesses, particularly where there di not appear to be unequal bargaining power.
o Difficult for large corporations to claim duress as generally they are dealing on equal terms.
Notes for Contracts
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16.7.7 Hawker Pacific v Helicopter Charter (1991
Facts:
•
•
•
•
•
Helicopter put into repair and paint job at Hawker Pacific.
The paintjob had been inadequate. They left it there, when they went to pick it up the paintwork was again inadequate.
They left it again but found a letter asking them to sign a document stating that Helicopter Charter will pay Hawker
Pacific $4300 for paint job, and the payment releases HP of any liability regarding the paint job - threatening but did
not specifically say they would keep the helicopter.
They had another charter coming up.
However, Hawker Pacific breached the contract.
•
Court found it was not important whether the threat is written as long as it is communicated.
Held:
16.7.8 North Ocean Shipping v Hyundai Construction (1979)
Facts:
•
•
•
•
•
Hyundai was going to create an oil tanker for North Ocean as they have a large contract with Shell.
Payment was to be made in US dollars. However, the US government decided to lower its US dollar by 10%.
Hyundai did not like this as they would be paid less as they would be spending more money on raw materials as well.
They said pay us 10% more or you don’t get your oil tanker that you have a large contract with shell and your
reputation will be mud unless you get the tanker.
Remedy: breach of contract. Therefore, North Ocean Shipping could take them to court but that is a long process.
North Ocean made payment without prejudice and did not seek legal relief for 9 months. This meant that they had
affirmed the contract.
Held:
•
•
Court held that the second contract had been made under economic duress and was therefore voidable, so excess
money was recoverable. (However court also found length of time taken to bring matter to court did not allow
rescission).
Suggested you may be able to imply a clause into a contract where it is reasonable
16.7.9 News Ltd v Australian Rugby League (1996
Facts:
•
•
•
Murdoch creates own Australian Rugby League competition called Super League.
Under the original Australian Rugby League (ARL) competition, rugby clubs had to apply again each year for
admission.
A number of clubs in the ARL signed a ‘Commitment Agreement’ sought by the ARL as a defence to poaching by the
new ‘Super League’ competition.
o Murdoch’s league was meant to start in 2 years so if not in the ARL competition they would not be playing
for a year.
o ARL provided a 5 year guarantee membership.
Held:
•
•
Court held there was no duress clubs signed voluntarily.
o Murdoch alleged that those football clubs signing the commitment agreements were forced to sign under
threat that they would be excluded from the competition if they didn’t sign.
o The evidence showed however that the clubs did not fear expulsion from the competition, and consequently
the argument of economic duress failed as the alleged pressure had not been a motivator for entry into the
commitment agreements.
An example of extreme BUT legitimate pressure.
Notes for Contracts
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17 Undue Influence
Definition = Exploiting a relationship of interest → Occurs where a dominant party influences a
subservient party to gain consent of subservient party to enter into the contract.
▪
An equitable principle that may provide relief (recession = contract voidable) where duress
cannot be made out
Types of Undue influence
1. Actual undue influence
2. Presumed undue influence
i. Fiduciary relationships
ii. Relationships of trust and confidence
❖ “The jurisdiction of a court of equity to set aside gifts [and contracts] inter vivos which
have been procured by undue influence is exercised where undue influence is proved as
a fact, or where, undue influence being presumed from the relations existing between
the parties, the presumption has not been rebutted.’ Latham CJ
•
No requirement that the transaction has been disadvantageous to P, although this factor
is relevant when assessing whether there has been such influence:
Johnson v Buttress
(1936) HCA
Barburin v Barburin
[1990]
17.1 Undue Influence v Duress
•
•
Duress is sometimes seen as an extreme form of undue influence.
Both doctrines look to the quality of the consent of the victim.
Undue influence does not require threats and coercion can be influenced even if lawful
and well intentioned → far wider than duress with requires overt coercion.
a victim of duress → consciously coerced into a contract,
victim of undue influence → may be unaware of the influence.
-
Undue influence need not be overtly coercive or threatening or fraudulent; it can be
subtle and well-intended.
17.2 Actual v Presumed Undue Influence
Advantage of Actual is if proven in fact by plaintiff action is successful → as opposed to presumed
whereby the defendant has the chance to rebut
> Disadvantage of Actual is plaintiff must prove all elements
Presumed P does not need to prove the influence in fact caused the transaction
> Plaintiff proves instead the context of the transaction and raises a presumption that the
transaction was procured by undue influence.
> Onus then shifts to defendant to disprove undue influence caused the transaction.
❖ Found on actual undue influence: could easily have been argued on the basis of actual
undue influence.
Farmers’ Co-operative
Executors & Trustees Ltd
v Perks (1989) SASR
17.3 Actual Undue Influence
 Where no fiduciary duty and influenced party can prove there was in fact actual undue
influence that caused them to enter the contract.
• P must prove affirmatively that D exerted undue influence on P to enter the transaction
which is impugned:
o “necessary for P to prove affirmatively that the D exerted undue influence eon
the P to enter into the particular transaction which is impugned”
• Transaction must be outcome of such undue pressure/influence over P that entry into
transaction could not be considered a free act of P:
Notes for Contracts
Barclays Bank plc v
O’Brien [1994]
Johnson v Buttress
(1936) HCA
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17.3.1 Elements of Actual Undue Influence Summary
1. Influencing party had capacity to influence other
2. Influence was exercised
3. Its exercise was undue
Strength of character of influenced is relevant here (Allcard v Skinner)
Who is benefitting → it secured an unfair advantage; (Poosathurdi v Kanappa
Chettiar (1919) UK)
Undue influence was the cause of entering the contract;
-
4.
Credit and Commerce
International SA v
Aboody [1990] Court of
Appeal England and
Wales Slade LJ
5. Weaker party acted promptly to avoid agreement.
Plaintiff must prove all the above
17.3.1.1 Element 1: Capacity to Influence
Influential relationships very common, thus the capacity to influence is seldom difficult to establish
Often there will be unequal bargaining power.
Typically, the relationships involve close, personal relationships of trust, confidence or
reliance.
Dominance or authority
Ailing person reliant on relative or carer
Naive customer relying on bank manager/ adviser
Business partners where one has contrived to feed misinformation
Spiritual authorities
17.3.1.2 Element 2: Influence in Fact Exercised
‘Influence’ can take any form:
1. Persistent persuasion.
2. Overt threats.
3. Taking advantage of someone at an unusual time or place – eg if they’re distracted or
vulnerable.
4. Taking advantage of being in a position of authority.
5. Merely being a silent, but forceful, presence in the room.
6. Having others apply pressure or persuasion.
7. Withholding information
8. Making a requests from a position of authority / power
- What matters is the quality of the consent of the plaintiff.
❖
‘facts must be proved showing that the transaction was the outcome of such an
actual influence over the mind of the alienor that it cannot be considered his free act.’
(Dixon J)
❖ … the question is not whether, in the literal sense, there was the exercise of an
independent and voluntary will, but whether that exercise took place in an
environment in which the actors were able to form a proper judgment … . If the
conclusion arrived at negates that proposition, actual undue influence is made out …
(Olsson, Debelle and Wicks JJ)
❖ History of Domestic violence (he murdered her and was convicted) proved influence
even though no direct evidence of actual unlawful threat to enter this transactions ie
duress not proveable
 It was held that while the relationships of husband and wife was not one in which
influence was deemed to have existed, a special relationship of control and
dominance may exist in particular circumstances of a case sufficient to give rise to
a presumption of undue influence.
 Isolation & past abuse meant he had been able to exercise considerable influence
over & her she was afraid of him, &. This w→as sufficient to give rise to a
presumption of influence, + husband had not rebutted on the evidence.
Notes for Contracts
Johnson v Buttress
(1936) HCA
Micarone v Perpetual
Trustees (1999) SASR
Farmers’ Co-operative
Executors & Trustees Ltd
v Perks (1989) 52 SASR
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17.3.1.3 Element 3: Influence must be ‘undue’
 Looking for evidence that the victim did not freely and independently exercise his
judgement to agree to the contract
Influence must be proportional
❖ ‘The law does not exclude influence. Nay, it recognises influence as natural and right.
Few, if any, men are gifted with characters enabling them to act, or even think, with
complete independence of others, which could not largely exist without destroying the
foundations of society. But the law requires that, influence, however natural and right,
shall not be unduly exercised, that is, shall be exercised only in due proportion to the
surrounding circumstances and the strength of the person submitted to it. The more
powerful influence or the weaker patient alike evokes a stronger application of the
safeguard …’ (157-158, Kewich J)
No requirement that is be disadvantageous → however this is evidence of it being undue
Unfair personal advantage gained by influencer
❖ ‘more than mere influence must be proved…to render influence… ‘undue’. It must be
established that the person in the position of domination has used that position to
obtain unfair advantage for himself’
Characteristics of parties → weaker the greater the safeguards
Allcard v Skinner (1887)
UK
Barburin v Barburin
[1990]
Poosathuri v Knaooa
Chettiar (1919) Privy
Council
Allcard v Skinner (1887) UK
17.3.1.4 Element 4 Exercised Undue Influence Caused Entry into Contract
The undue influence must be a cause of the plaintiff agreeing to the contract. So P will not
succeed if:
1. The influence played no role (plaintiff independently agreed despite the influence) or
Credit and Commerce
International SA v
Aboody [1990] QB
2. Would have agreed irrespective of the influence
17.3.1.5 Element 5: Acted promptly to undue
17.3.2 Rebuttal of Actual Undue Influence
❖ :‘the donee must show (and the onus is on him) that the donor was either emancipated, or was
placed, by the possession of independent advice, in a position equivalent to emancipation’
•
•
•
•
•
•
Powell v Powell [1911] 1
Ch 723
Relationship between the parties: whether they lived together, length of relationship
etc.
Level of intelligence/ education/ business sense
Character/ personality/ age/ health of parties
Full disclosure of all materials
Whether weaker party got independent advice.
Adequate, fair, reasonable compensation.
Proving independence of will of donor:
•
•
•
•
Full disclosure of all material facts
Independent advice, i.e, receiving an explanation of the real effect of the transaction
Proving any advice would have been futile of disregarded
Adequate, fair, reasonable compensation
Notes for Contracts
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17.4 Presumed Undue Influence
2 classes of presumed undue influence
1. Fiduciary relationships
2. Relationships of trust and confidence
❖ The relations mentioned, however, do not constitute an exhaustive list of the cases in
which undue influence will be presumed from personal relations. Wherever the
relation between donor and donee is such that the latter is in a position to exercise
dominion over the former by reason of the trust and confidence reposed in the
latter, the presumption of undue influence is raised … . (Latham CJ)
Johnson v Buttress
(1936) HCA
17.4.1 Presumption in Law / Fiduciary Relationships
-
-
If the relationship between the parties is fiduciary, then the law will presume undue influence
on proof of that relationship without more.
Examples:
> Solicitor to client
> Doctor to patient
> Religious adviser to disciple
> Parent (or person in loco parentis) to child
> Guardian to ward
> Trustee to beneficiary
DOES NOT INCLUDE: Siblings; Child/Parent; Husband/Wife; Employer/employee;
Banker/customer
❖ Where certain special relations exist undue influence is presumed … These relations
include those of parent and child, guardian and ward, trustee and cestui que trust,
solicitor and client, physician and patient and cases of religious influence. … .
Johnson v Buttress
(1936) HCA
❖ ‘The critical feature of these relationships is that the fiduciary undertakes or agrees to
act for or on behalf of or in the interests of another person in the exercise of a power
or discretion which will affect the interests of that other person … The relationship
between the parties is therefore one which gives the fiduciary a special opportunity to
exercise the power or discretion to the detriment of that other person who is
accordingly vulnerable to abuse by the fiduciary of his position.’ (Mason J)
Hospital Products Ltd v
United States Surgical
Corporation (1984)
❖ ‘At the time of the gift the Plaintiff was a professed sister, and, as such, bound to
render absolute submission to the Defendant as superior of the sisterhood. She had
no power to obtain independent advice, she was in such a position that she could not
freely exercise her own will as to the disposal of her property, and she must be
considered as being … “not, in the largest and amplest sense of the term—not, in
mind as well as person—an entirely free agent.’
Allcard v Skinner (1887)
36 Ch D 145
17.4.2 Unusual Gift
❖ ‘Where a gift is made to a person standing in a confidential relation to the donor,
the court will not set aside the gift if of a small amount simply on the ground that
the donor had no independent advice. In such a case, some proof of the existence
of the influence of the donee must be given. The mere existence of such influence
is not enough in such a case … But if the gift is so large as not to be reasonably
accounted for on the ground of friendship, relationship, charity, or other ordinary
motives on which ordinary men act, the burden is upon the donee to support the
gift.’ (Lindley LJ)
❖ ‘In the case of an illiterate or weak-minded person it ill be more difficult for the
donee to discharge the prescribed onus of proof than in other cases. The burden
will be still heavier upon the donee where the donor has given him all or practically
all of his property … .’ (Latham CJ)
Notes for Contracts
Allcard v Skinner (1887)
UK
Johnson v Buttress
(1936) HC
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17.4.3 Disadvantage required?
-
-
-
In the United Kingdom, it is necessary to show that the influenced party was disadvantaged by
the transaction before the presumption will arise (National Westminster Bank Plc v Morgan
[1985] 1 AC 686)
Not clear if Australian law has a similar requirement:
> Gifts: typically disadvantageous as the plaintiff receives nothing in return.
> Contracts: ‘‘adequacy of consideration becomes a material question.’ (Johnson v Buttress,
Dixon J)
> ‘Disadvantage’ could be shown in many ways, not just in terms of money. (Powell v Powell
[2002] WASC 105 (8 May 2002))
Until a court of appeal holds that disadvantage necessary, assume it is not.
17.4.4 Rebutting Presumed undue Influence
Independent advice
that has been taken
Where all relevant information is given
❖ ‘It is necessary for the donee to prove that the gift was the result of the free exercise
of independent will. The most obvious way to prove this is by establishing that the gift
was made after the nature and effect of the transaction had been fully explained to
the donor by some independent and qualified person so completely as to satisfy the
Court that the donor was acting independently of any influence from the donee and
with the full appreciation of what he was doing; and in cases where there are no other
circumstances this may be the only means by which the donee can rebut the
presumption.’
❖ ‘… their Lordships are not prepared to accept the view that independent legal advice
is the only way in which the presumption can be rebutted; nor are they prepared to
affirm that independent legal advice, when given, does not rebut the presumption,
unless it be shown that the advice was taken.’ (Privy Council)
❖ ‘[The independent advice] must be given with a knowledge of all relevant
circumstances and must be such as a competent and honest adviser would give if
acting solely in the interests of the donor.” (Privy Council)
Adequacy of consideration
❖ ‘Further, when the transaction is not one of gift but of purchase or other contract, the
matters affecting its validity are necessarily somewhat different. Adequacy of
consideration becomes a material question.’ (Dixon J)
Show that influenced party knew what he was doing was acting independently
❖ ‘It must be affirmatively shown by the donee that the gift was (to use the words of
Eldon LC in the leading case of Huguenin v Baseley) "the pure, voluntary, wellunderstood act of the mind" of the donor.” (Latham CJ)
- ‘In the case of an illiterate or weak-minded person it ill be more difficult for the donee
to discharge the prescribed onus of proof than in other cases. The burden will be still
heavier upon the donee where the donor has given him all or practically all of his
property … .’ (Latham CJ)
- ‘… Further, when the transaction is not one of gift but of purchase or other contract,
the matters affecting its validity are necessarily somewhat different. Adequacy of
consideration becomes a material question.’ (Dixon J)
Notes for Contracts
Inche Noriah v Shaik Allie
Bin Omar [1929] AC 127
Johnson v Buttress
(1936) 56 CLR 113
Johnson v Buttress
(1936) 56 CLR 113
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17.5 Key Cases
17.5.1 Allcard v Skinner (1887) 36 Ch D 145
-
-
“What then is the principle? Is it that it is right and expedient to save persons from the consequences of their own
folly? Or is it that it is right and expedient to save them from being victimised by other people? In my opinion the
doctrine of undue influence is founded upon the second of these two principles.
Courts of Equity have never set aside gifts on the ground of the folly, imprudence, or want of foresight on the part of
donors. The Courts have always repudiated any such jurisdiction. …. On the other hand, to protect people from
being forced, tricked or misled in any way by others into parting with their property is one of the most legitimate
objects of all laws; and the equitable doctrine of undue influence has grown out of and been developed by the
necessity of grappling with insidious forms of spiritual tyranny and with the infinite varieties of fraud. (, Lindley LJ)
17.5.2 Farmers’ Co-operative Executors & Trustees Ltd v Perks (1989)
Facts:
•
•
•
A husband and wife lived alone on a remote farm.
There was a long history of alcohol abuse by the husband and of domestic violence towards the wife.
The wife executed a memorandum of transfer which transferred her share in the property to the husband.
•
It was held that while the relationships of husband and wife was not one in which influence was deemed to have
existed, a special relationship of control and dominance may exist in particular circumstances of a case sufficient to
give rise to a presumption of undue influence.
Here the isolation and past abuse meant both that she was afraid of him, and that he had been able to exercise
considerable influence over her. This was sufficient to give rise to a presumption of influence, which the husband had
not rebutted on the evidence.
Held:
•
17.5.3 Khan v Khan [2004]
Facts:
•
•
•
•
•
•
•
Vendors negotiated with purchasers for sale of a home.
Purchasers were allowed to go into possession while their own home was sold, for an agreed amount of rent.
This amount was later adjusted when it was found that certain works were needed to complete the house.
While in possession a dispute arose about responsibility to pay for house and water rates. Vendors no longer wished
to sell house to purchasers.
A meeting was arranged at vendors’ home attended by the parties, members of the vendors’ family and the local
mufti (all parties were Muslims) with a view of trying to convince vendors they should sell.
Mufti quoted various religious precepts about the significance of oral agreements and said words to the effect that if
vendor took the sale figure that they had settled on vendor would be ‘rewarded in the after life’.
Vendor signed the sale documents. Subsequently vendor sought to avoid contract on the basis of undue influence.
Held:
•
•
•
Claim of undue influence was not argued on the basis of a presumption of influence, despite mufti being involved as a
spiritual advisor.
Clear evidence of actual influence, since mufti had exercised his influence over the vendor. She regarded his words as
mufti to be ‘closer to God’ and saw his ruling as affecting her prospects in the afterlife.
She had no lawyer or other adviser present to confirm her feeling that she was entitled to reject the sale without the
need for any reason. Further, purchaser’s insistence that while under the mufti’s influence the vendors sign the
necessary memorandum on the spot rather than waiting for documentation to go back through the lawyers to
exchange was sufficient to make his reliance on the memorandum unconscientious in a way equity would not
countenance.
17.5.4 Barton v Armstrong (1973) – threatened to have P murdered
Facts- D pressured P to execute a deed between them by threatening to have P murdered if he declined.
Held- P was entitled to relief because the threat amounted to duress, or alternatively, actual undue influence
Notes for Contracts
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17.6 Undue Influence v Unconscionable Conduct
18 Unconscionable Conduct
Unconscionability: an agreement entered into against the dictates of good conscience. An act that
is so against conscience by the ordinary concepts of humanity that the court should intervene
Zoneff v Elcom Credit
Union [1990] UK
Kakavas v Crown
Melbourne [2013] HCA
 Conscious exploitation
Will specifically arise when D knowingly “exploiting the P’s position of special disadvantage”
. Such exploitation may involve “active conduct on the exploiter’s part or the passive acceptance of
a benefit in unconscionable circumstances”
Commercial Bank v
Amadio (1983).
18.1 Summary Elements of Unconscionable Conduct
1. SPECIAL DISADVANTAGE- weaker party under a special disadvantage vis a vis stronger
 Lead to UNEQUAL BARGAINING POWER- to the extent that there was no equality of
bargaining power between them; and stronger exploited this and was predatory
2. Affected the weaker party’s capacity to judge their own best interest
Gives rise to a presumption of unconscionability, but is not, in isolation, sufficient to establish this
vitiating factor; that is, it is essential, but not sufficient
3. KNOWLEDGE OF DISABILITY- the stronger party must have been aware to/had
KNOWLEDGE of the disability,
 Must be actual knowledge OR wilful ignorance –, the court rebutted the suggestion
that constructive knowledge (“ought to have known” standard) was sufficient
 Failure to take reasonable steps in the other party’s best interests
Amadio as in Kavanas
4. UNCONSCIENTIOUS - it must be unconscientious or unconscionable for the stronger party
to secure assent to the agreement in the circumstances. - i.e. is against conscience to let
title pass/contract stand  Defendant must prove it was ‘fair, just and reasonable’
The relationships between the parties is key (Kakavas)
5. Predatory mind required– Kakavas (at least
So In order to argue unconscionability, you need to prove:
1.
Special disability, thus inequality of bargaining power exists.
2.
Strong party knew (or ought to have known?) of the special disability
3.
Unfair that stronger party procured or accepted weaker party’s assent.
To determine of unconscionable behaviour, look particularly at:
•
Adequate consideration → good for evidence but not required → Blomley v Ryan
•
Independent advice. → again not determinative but good evidence
Notes for Contracts
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18.1.1 Element 1: Special Disadvantage → Essential
▪
▪
▪
A special disadvantage is something that affects the innocent party’s ability to make a
judgment as to his own best interests, seeing them FAIL to provide TRUE CONSENT.
The ONUS is on the weaker party to prove this
Commonwealth Bank v
Amadio
Any special disadvantage must affect the weaker party in their decision whether to enter
into the relevant transaction; an ongoing and general difficulty is NOT SUFICIENT
Two Broad Areas Recognised
1. Constitutional → characteristics inherent in the plaintiff
2. Situational → relationships/the context (eg Louth v Diprose)
Basis of Special Disadvantage
❖ ‘The circumstances adversely affecting a party, which may induce a court of equity
either to refuse its aid or to set a transaction aside, are of great variety and can
hardly be satisfactorily classified…..the common characteristic seems to be that they
have the effect of placing one party at a serious disadvantage vis-a-vis the other.’
Fullagar J
Fullagar J held the following could provide basis of special disability re unconscionable dealing
1. poverty, or need of any kind
2. sickness
3. sex → but subsequent courts have not mentioned this
4. Age Amadio
5. infirmity of body or mind
6. drunkenness (where not drunk enough to not understand makes capacity an issue
ie Bloomley)
7. illiteracy or lack of education
8. lack of assistance or explanation where assistance or explanation is necessary - as in
Amadio where they required assistance to understand the document ‘it was
apparent to [bank manager] that advice and assistance were necessary’ Deane J
9. emotional dependency– (mentioned in Louth v Diprose not Blomley v Ryan)
ACCC v CG Berbatis
Holdings [2003]
Blomley v Ryan
Louth v Diprose
18.1.1.1 Inequality of Bargaining power -> not in itself enough
▪
= disparity in information, experience, expertise and resources
▪
has not received general support as a principle for relief: it is not a special disadvantage
ACCC v CG Berbatis
Holdings [2003] HCA
‘One thing is clear … . A person is not in a position of relevant disadvantage,
constitutional, situational, or otherwise, simply because of inequality of bargaining power.
Many, perhaps even most, contracts are made between parties of unequal bargaining
power, and good conscience does not require parties to contractual negotiations to forfeit
their advantages, or neglect their own interests. Gleeson CJ
❖ ‘Unconscientious exploitation of another's inability, or diminished ability, to conserve his
or her own interests is not to be confused with taking advantage of a superior bargaining
position. There may be cases where both elements are involved, but, in such cases, it is
the first, not the second, element [“special disadvantage”] that is of legal consequence.
❖
18.1.1.2 Drunkenness
Notes for Contracts
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18.1.1.3 Gambling and other Ongoing Disadvantages
▪
If the defendant had a ‘problem’, i.e. a gambling addiction, this does not mean that they are
automatically at a special disadvantage.
Kakavas v Crown
Melbourne [2013] HCA
❖ held that while Kakvas was a problem/pathological gambler, these findings did not
demonstrate that he had a special disability, and thus, did not provide adequate grounds
for having the contract set aside as per unconscionable conduct.
 Kakavas had NOT presented himself as someone incapable of making worthwhile
decisions that were in his best financial interests.
 Instead, he had presented himself as a financial savvy businessman whose
finances were in good shape and appeared to be making his own choices about
when and where to gamble
 While the Crown knew that Kakavas had suffered gambling problem in the past,
they had been given a report by a psychologist that he was in control of his
gambling
 Was NOT been demonstrated that Kakavas was unable to control the urge to
gamble, which was the trigger of the losses incurred.
 He made the decision to enter the Casino when he could have make a different
decision
18.1.1.4 Mental Disability
▪
A person suffering from a mental disorder to such a degree that they are incapable of
understanding the contract may be able to have the contract set aside IF the other party was
aware of or expected the disorder
If the other party was aware, would be an instance of a person of limited capacity
being exploited by a person of full capacity –
However, there is legislation in all states/territories which provides that if
“necessaries” are provided to a person of limited mental capacity, these must be paid
for.
“Necessaries” are goods suitable to the condition in life of such a person and to his
use or actual requirements at the time of sale/deliveries
Gibbons v Wright
18.1.1.5 Emotional Dependence
❖ In Louth v Diprose, (manufactured ‘situations of crisis’) HCA accepted that emotional
dependence, in combination with other factors, could create a disability for the
purposes of the unconscionable dealing rule, as person who is emotionally dependent
on another may be vulnerable to exploitation or abuse by that other
 Consequently, Dirpose’s he was held to be under a special disability, as the
atmosphere of crisis manufactured by Louth- ( threatening suicide/ said she was
depressed and would commit suicide if evicted) meant he could not make
commercial decisions/transactions that were in his best financial interests
 Further, she was aware of/had knowledge of his special disability and, to a
significant extend, she created it and manipulated it to her advantage.
More than infatuation
❖ To establish emotional dependence, there must be “something MORE THAN MERE
INFATUATION and consequent foolish actions based on a clouded judgment”  THRESHOLD- must be shown plaintiff was “unable to make decisions in his own best
interests and was seriously affected as to amount to a special disability/disadvantage
Louth v Diprose
MacKintosh v Johnson
Louth v Diprose
Concealing feelings is not sufficient
❖ It is NOT exploitation for a woman with whom the donor was infatuated to conceal
her true feelings; “this is the stuff of ordinary human relationships”
Must be motivated by emotional dependence per se; cannot be by love/altruism
❖ feelings of love, altruism or responsibility- are qualities that DO NOT justify legal
intervention (where the victim man was infatuated with and gave a gift to a younger
woman*can be distinguished from L v D as a genuine emotional dependence was not
established)
Notes for Contracts
MacKintosh v Johnson
MacKintosh v Johnson
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Emotional Attachment
 A different variation of unconscionable conduct cases may be based on “emotional
attachment”
a) - Majority of Gaudron, Gummow and Kirby JJ
1. 80 YEAR OLD MAN/NEPHEW CASE)- P was an 80 year old man who signed his
property away to his nephew for $150,000 the property was worth $698,000 – did so
. because he had helped him for years on the farm. (had an established working
relationship with Neil and his father) P subsequently wanted his property back –
rescission granted in this case.
Bridgewater v Leahy
Held- P’s special disability consisted of an emotional dependence that was predicated
upon emotional attachment with his nephew his nephew appreciated/knew of the enormous
affection/trust his uncle had from him AND there was procedural unconscionability in his bargaining
conduct.
•
ELEMENTS OF EMOTIONAL DEPENDENCE: Specifically, the majority (of Gaudron,
Gummow and Kirby JJ) argued that significant elements of his emotional dependence
included Bill’s:
Bill’s affection for Neill
his desire to preserve his holdings intact
view that Neill was an experienced/reliable manager were
a) Neill, they argued, had TAKEN ADVANTAGE (not fair/just/reasonable) of Bill’s disadvantaged
position to obtain a benefit through a grossly improvident transaction – which was neither fair, just
or reasonable.
•
The fact that Bill, despite his age and deterioriating condition, knew what he was doing
and would not have changed his mind if he was advised independently was NO ANSWER
to the conclusion that Neill had taken advantage of Bill’s disadvantaged position- was
aware of his grandfather’s disadvantage and did nothing to protect his interests
•
When the complaint is of unconscionable dealing, the denial of independent assistance
rather than speculation as to what might have happened if the advice had been obtained
is an element of the unconscionable conduct – here, didn’t explicitly deny legal advice,
just speculation
Furthermore, Deal had INITIATED THE DEALINGS s leading to the transaction when he and
Bill were meeting on unequal terms - equity is enlivened to the passive acceptance o benefit
• Minority judgment – tried to argue that Neil’s initiation of deal coincided with Bill’s
interests AND the time that elapsed between the dealings beginning and actual closing
of the transaction gave him plenty of time to consider it/access indepdendent advice
18.1.2 Element 2: Inability/Diminished capacity to look after own interest
→ Essential (really part of element 1)
18.1.3 Element 3: Knowledge of Special Disadvantage
1. Does not have to be morally objectionable conduct: can be where D proceeds with transaction
Johnson v Smith
knowing P’s vulnerability & doing nothing to ensure vulnerable P’s interests are protected:
Degree of Knowledge Required – subjectively aware
1. Actual knowledge
2. Aware of the possibility
3. Wilful ignorance
❖ ‘… if A having actual knowledge that B occupies a situation of special disadvantage in
relation to an intended transaction, so that B cannot make a judgment as to what is
in his own interests, takes unfair advantage of his (A's) superior bargaining power or
Notes for Contracts
Commercial Bank of
Australia v Amadio
(1983) HCA
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position by entering into that transaction, his conduct in so doing is unconscionable.
And if, instead of having actual knowledge of that situation, A is aware of the
possibility that that situation may exist or is aware of facts that would raise that
possibility in the mind of any reasonable person, the result will be the same’ Mason J
❖ The bank cannot shelter behind its failure to make that inquiry. he case is one in which
"wilful ignorance is not to be distinguished in its equitable consequences from
knowledge’ Deane J
4. Constructive knowledge may be sufficient, but some criticism→ HC held that the
knowledge element must be ACTUAL KNOWLEDGE and not constructive knowledge.
❖ ‘The jurisdiction is long established as extending generally to circumstances in which
a party to a transaction was under a special disability in dealing with the
other party with the consequence that there was an absence of any
reasonable degree of equality between them and
that disability was sufficiently evident to the stronger party to make it
prima facie unfair or "unconscientious" that he procure, or accept, the
weaker party's assent to the impugned transaction in the circumstances in
which he procured or accepted it.
- Where such circumstances are shown to have existed, an onus is cast upon the
stronger party to show that the transaction was fair, just and reasonable: ’ Deane J
Will not aggregate all knowledge into Crown – typically rest on relationships of individuals
o
While in Amadio, Mason J implied that constructive knowledge was sufficient to
satisfy the knowledge requirement of unconscionable dealing, Kakavas v Crown
Melbourne LTD, the HCA held that CONSTRUCTIVE KNOWELDGE IS INSUFFICIENT
High Court held that the knowledge element of unconscionable dealing required the stronger party
to have “actual knowledge” NOT constructive knowledge of the other party’s special disadvantage
Agreed that actual knowledge extended to wilful ignorance
18.1.4 Element 4: Exploitation to Obtain a benefit
- can be active conduct or passive acceptance of benefit in unconscionable circumstances:
Predatory state of mind?
- Active decision to exploit the disadvantage
- BUT inconsistent with earlier judicial statements re active versus passive unconscionability
- HC’s statement→ applicable to arms length commercial transactions. Therefore, in different
sorts of transactions (private, between family/friends), it would probabaly not be necessary
for there to be a predatory state of mind for the granting of relief
❖ ‘ Equitable intervention to deprive a party of the benefit of its bargain on the basis that
it was procured by unfair exploitation of the weakness of the other party requires
proof of a predatory state of mind. Heedlessness of, or indifference to, the best
interests of the other party is not sufficient for this purpose. The principle is not
engaged by mere inadvertence, or even indifference, to the circumstances of the other
party to an arm's length commercial transaction. Inadvertence, or indifference, falls
short of the victimisation or exploitation with which the principle is concerned.’
Does not protect from undertaking risky transactions
❖ ‘… equitable intervention does not relieve a plaintiff from the consequences of
improvident transactions conducted in the ordinary and undistinguished course of a
lawful business. ….The plaintiff must be able to point to conduct on the part of the
defendant, beyond the ordinary conduct of the business, which makes it just to require
the defendant to restore the plaintiff to his or her previous position.’
Notes for Contracts
Kakavas v Crown
Melbourne [2013] HCA
Commercial Bank of
Australia v Amadio
(1983) HCA
Kakavas v Crown
Melbourne [2013] HCA
ACCC v Radio Rentals
[2005]
Kakavas v Crown
Melbourne [2013] HCA
Kakavas v Crown
Melbourne [2013] HCA
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18.2 Rebutting the Presumption
•
•
If a special disability is established (raising the presumption of unconscionability) the contract
may be enforceable if the stronger party can show there was no advantage taken of the
disadvantaged person.
This could occur where:
1. Show the terms are fair
2. There is adequacy of consideration (evidential only).
3. Independent advice:
o Though it will not necessarily save a transaction but absence of it may be fatal (Lloyds
Bank v Bundy).
o Consider the fullness of any advice (Inche Noriah v Shaik Allie Bin Omar).
In most cases of unconscionable dealing, there is inadequate consideration moving from the D.
o I.e. in Amadio, the weaker party (the Amadios) received no benefit from the
transaction; that is, the consideration moved directly from the bank to their son
o However, it is NOT ESSENTIAL that that this is present. – Blomley v Ryan
A transaction may still be unfair and unconscionable from the point of view of the person under a
special disability even if adequate consideration has moved from the defendant
o Nevertheless, the inadequacy of consideration may be important in supporting an
inference that a disability existed and in showing that unfair advantage was taken of it
– in Blomley v Ryan Fullagar J said that ‘inadequacy of consideration, while itself is
never grounds for resistant enforcement”, will often be a specially important element
in cases of this type, either by
o Supporting the inference that a position of disadvantage existed
o Tending to show that an unfair use was made of the occasion
18.3 Key Cases
18.3.1 1.1.1 Da Yun Xu v Fang Lin [2005]
Facts:
•
They had been seeing each other - she was looking to buy a house, he was looking to sell his house worth 700k.
•
She turned up at his solicitor’s office but did not have the 140k deposit.
•
Solicitor called Da, he said don’t worry about the deposit we’ll give it to her minus the 140k.
•
Da was ultimately rejected.
•
Christine was actually a prostitute.
Held:
•
Court said that Da had merely orchestrated the transaction to increase her affection for him therefore no special
disability.
Notes for Contracts
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18.3.2 COMMERCIAL BANK OF AUSTRALIA V AMADIO (1983)
Lack of knowledge and education - “special” disadvantage
Mr & Mrs A trusted their son, Vincent.
V controlled a company and had an overdraft account with the bank.
He had a good relationship with the Cth bank- they would allow or disallow particular cheques at his request.
I.e. bank manager agreed to dishonour some cheques.- tried to give impression that co. was still solvent, when really it was
insolvent.
A also had a temporary loan of $70k. Bank said they’d close account, unless V convinces Mr & Mrs A to mortgage their
house.
V approached his parents to go security for a loan - told them that this was loan of $50k for 6 months.
Parents signed documents and were not advised to seek independent advice from anywhere.
There is evidence that the manager knew of the ignorance of the parents – bank did not tell parents that in actual fact the
mortgage (guarantor)/loan was unlimited (only told them it wasn’t limited to 6 months) and didn’t tell them the true state
of the son’s business; business went bust, bank looked to house mortgage
Mr and Mrs A were successful in having the contract set aside.
Bank and V turned up to the Amadios house. A didn’t read it.
Was there a special disability: Yes
Age- 76 & 71
Limited grasp of written English
They didn’t know V was in financial trouble.
They didn’t know the bank was dishonoring cheques.
V told parents it was a mortgage for $50 000 for 6 months, when really there were no limits
The document wasn’t explained to them
Facts:
•
•
•
•
•
Amadio had an overdraft account with the bank.
He had a good relationship with the bank where the bank would allow or disallow particular cheques at his request.
A also had a temporary loan of $70k. A approached his parents to go security for a loan - told them that this was loan
of $50k for 6 months.
Parents signed documents and were not advised to seek independent advice from anywhere.
There is evidence that the manager knew of the ignorance of the parents – bank did not tell parents that in actual fact
the mortgage (guarantor)/loan was unlimited (only told them it wasn’t limited to 6 months) and didn’t tell them the
true state of the son’s business; business went bust, back looked to house mortgage.
Held:
•
2.
High Court: Mason, Wilson and Deanne JJ: Held that the Amadios were at a special disadvantage and the link between
their situation and the knowledge of the bank employee was unconscionable. The contract was held to be set aside
o Dawson was the lone dissenter in this case. He held that the facts did not point to the P’s being
disadvantaged and also stated that there was no misrepresentation.
o Gibbs J held it voidable on misrepresentation
o Deanne J: held there was no equality of bargaining power between them because neither parent could read
English; old; only husband could speak English; little business experience; total reliance on son
• Thus to argue unconscionability:
o Party to a transaction under a special disability in dealing with other party – absence of any degree of
equality between them
Mason J defined special disability as one that seriously affects the ability of the innocent party to make a judgement as to
his/her own best interests. Not just any disadvantage.
o Disability was sufficiently evident to the stronger party – actual/constructive notice (bank can’t plead
ignorance re special disability because there is a duty on creditor to seek out and assess the ability/disability
of the debtor)
o Unfair that stronger party procured or accepted weaker party’s assent
Notes for Contracts
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18.3.3 BLOMLEY V RYAN (1956)
“Poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of
assistance or explanation where assistance or explanation is necessary”
Facts:
•
•
•
•
Mr Ryan was considering selling his grazing property. Blomley went to negotiate with Ryan- an alcoholic.
Blomley brought a bottle of rum with the knowledge of Ryan’s infirmity.
They put a deposit of 5 pounds on the property which was to be sold at a 30% lower price. He would then pay off the
property at 4% when the interest rate at the time was 5%.
Ryan was drunk- mere drunkenness offers no relief –he was not incapacitated enough to not know what he was doing.
However, he was drawn to liquor- difference.
Held:
•
•
•
•
•
Court held in this case contract rescinded because Blomley was an alcoholic who was incapable of intelligent assent to
the contract. Contract for the disposition of his property was set aside.
Emphasised that there didn’t need to be deceit/fraud but must have actual or constructive notice of a disability
Court said great variety of circumstances that will indicate a disadvantage:
o “poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of
education, lack of assistance or explanation where assistance or explanation is necessary”
o That is, a serious disadvantage leading to a lack of true consent.
What of affirmation? It took Ryan 3 months to take the matter to court, Blomely said he must have affirmed the
contract.
o Court held he continued drinking and had a hazy memory, it was not until the liquor started wearing off that
he realised what he had done or that he could challenge the contract.
Mere drunkenness does not constitute relief, but there is more to this story = unconscionability
Special disability includes:
• Poverty or need of any kind
• Sickness
• Age
• Sex
• Infirmity of body or mind
• Drunkenness
• Illiteracy or lack of education
• Lack of assistance or explanation where assistance or explanation is necessary
18.3.4 Bridgewater v Leahy (1998) HCA:
Facts
•
•
Bill York gave 3 properties to nephew, Neil, with options to buy other properties at extremely favourable $ in will
In 1988, Neil suggested Bill sell him and his wife, Beryl, some of land specified in the option in Bill’s will, for the price of
selling his old land ($150 000)
• Bill agreed to proposal, and his solicitor drew up the contract of transfer The transfers took place in November 1988
• The solicitor did not advise Bill to obtain independent advice, but did have him examined by a doctor prior to
executing the transfers; Bill was of sound mind and capable of making decisions about his personal affairs
• Evidence presented at trial suggests, even if Bill had been advised by another lawyer, same result
• Bill dies in 1989. Neil subsequently exercises the option, paying $200 000 for the remaining properties The value of
the properties by this time totalled $696 811
• This figure was divided among Bill’s immediate family, who obtained $50 000 each
• Bill’s family sort to have transfer overturned on basis of unconscionable conduct by Neil, taken advantage of Bill’s trust
Held: unconscionable conduct
• Rescission of the contract is granted (3:2)
• Majority: the status quo cannot be restored; instead, the deed of forgiveness should instead be set aside but not the
transfers allowed to stand (thus, Neil is obliged to pay the remaining $546 811 of the purchase price)
Notes for Contracts
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18.3.5 LOUTH V DIPROSE (1992)
-
“Emotional” disadvantage due to emotional dependence
What was the emotional disadvantage?
Was the defendant aware of disadvantage AND exploit it?
Diprose was a twice-divorced middle-aged male solicitor. Had an affair with Louth
He becomes obsessed with her. She wasn’t interested – quite indifferent towards him.
Her and kids were being evicted. She went to him for help and said she wanted to kill herself.
To ‘save her’, he buys a $60,000 property in her name and pays for lots of other things.
He asked if he could move in with her, and she agreed
After he moved in, Louth’s boyfriend objected
She dumps him and he now wants property back
Court said Louth consciously manipulated Diprose (threat of suicide).
Equity said they had to also “protect his victimisation”
Alternative to Common Law unconscionability in situations of “wife” in loan transactions, consider wives “special equity”:
Facts:
• Mary Louth met Louie Diprose in Tasmania - her marriage was about to end so they started seeing each other.
• Louie had proposed which she rejected. She went to live in Adelaide with her sister’s family. Louie followed her there
but did not contact her but found her sister who said Mary was not interested.
• One day she contacted him and said that her sister’s marriage was about to end and that they had to sell the family
home and she would have no place to live and was depressed and suicidal.
• He decided he would buy her the house- sister’s family moved out.
• Louie had to move too and asked Mary if he could live with her she said yes. But Mary’s boyfriend objected to Louie
being there, Louie realised she was using him.
• He wanted the house back, she said no it was in her name and that it was in gift.
Held:
• High Court held: contract could be set aside on grounds of unconscionability – relationship between them was that
Diprose was under a special disadvantage – he was extraordinarily vulnerable and emotionally dependant on her.
Louth deliberately used that lover infatuation and deceit to deliberately get him to pay for the house
o Deane J: Diprose was utterly infatuated, she was indifferent. He was in a position of emotional dependence
and was under a “special disability”.
18.3.6 Kakavas v Crown Melbourne [2013] HCA
Facts
•
Kakavas was a problem gambler who had previously been excluded from Crown, but years later was permitted to
return after giving assurances he no longer suffered from a gambling problem. In the course of a little over a year he
turned over almost $1.5 billion.
The claim
•
Kakavas claimed Crown engaged in unconscionable conduct, first by exploiting his gambling problem and entrapping
him into becoming a regular visitor and second by unconscientiously allowing and encouraging him to gamble at
Crown while the knew - or ought to have known - he would be required to forfeit winnings by virtue of an interstate
exclusion order.
The trial judge
• Rejected both claims. Kakavas presented himself as a successful businessman who had overcome his addiction.
Crown was not, at the time, aware Kakavas was suffering any relevant disadvantage and there was no inequality of
bargaining power or exploitation of special disadvantage. On the issue of the exclusion order, his Honour found that
Crown had no knowledge of its operation against Kakavas and therefore could not have exploited his 'disadvantage' in
this respect; they also failed to withhold any of his winnings, so he suffered no loss as a result of the order.
On appeal to Victorian Court of Appeal
• Appeal unanimously rejected. There was no unconscientous taking advantage of any special disability.
On appeal to High Court
• Appeal unanimously rejected. →: did not accept that the appellant's pathological interest in gambling was a special
disadvantage which made him susceptible to exploitation. He was able to make rational decisions in his own interests,
including deciding from time to time to refrain from gambling altogether. Crown did not knowingly victimise the
appellant by allowing him to gamble at its casino.
Notes for Contracts
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18.3.7 ACCC v CG Berbatis (2003)
Facts:
•
•
•
•
•
•
•
Berbatis (B) owned a shopping centre. One of the shops was leased to Mr and Mrs Roberts (the R’s) who ran the
“Leeming Fish Supply” business from the shop.
The Robert’s were keen to get out of the business but to sell it as a going concern it was necessary that they secure a
new lease which was to expire in a few months.
A deal was struck for a purchaser to take over the business but required in a term that the new lease be obtained by
the Roberts and then assigned.
Due to apparent overcharging by Berbatis company a number of tenants had a court action pending. B would not
agree to assignment of the lease unless the R’s agreed to dismiss current claims pending against B & discharge them
for any future claims that may arise prior to signing lease. R’s thought they may be entitled to $50000
The R’s solicitor advised them not to sign the lease. But they had no choice and went ahead on Dec 2 1996.
When Supreme Court hearings were conducted in 1998 the R’s would have been entitled to $2,429 by way of refund
of management fee.
The ACCC instituted proceedings on behalf of R’s alleging a breach of s51AA – was there unconscionability within the
meaning of the written law. In particular that the B’s were knowing exploitation by a party with a special disadvantage
… a special disadvantage meaning a disabling circumstance seriously affecting the ability of the innocent party to
make a judgment in that party’s own best interest.’
Held:
•
•
•
•
•
•
•
•
Gleeson CJ (Gummow, Hayne Callinan agreed. Kirby dissented):
R’s had no choice – they had to sell and the leasor company was not obliged to grant then a lease.
A person is not in a position of relevant disadvantage constitutional, situational or otherwise simply because of
inequality of bargaining power...Unconscientious exploitation of another’s inability, or diminished ability to conserve
his or her own interests is not to be confused with taking advantage of a superior bargaining position.
The critical disadvantage from which the Roberts suffered was that they had no legal entitlement to a renewal or
extension of their lease. .. They made a rationale decision and suffered from no ability to judge or protect their
financial interest
Principles:
Lack of bargaining power is NOT a special disadvantage and is not actionable as an indicator of an inability to secure
your own financial well being.
Commercial arrangements will be viewed as that – not a rule – but recognizing right to seek what is in own interest.
A hard bargain does not overbear the will to prevent independent and voluntary decision making.
18.3.8 Aboody V Ryan [2012]
The respondent, Mr Leonard Ryan, was born in 1917. He saw active service in World War II. In 1979, he was granted a war
veteran's disability pension. At the time of the events in question in late 2006 and early 2007, his wife had died. He lived in a
home owned by him in Iluka, a small town on the New South Wales north coast. He had three children -­­ two daughters, Jennifer
and Lorraine, and a son, John. His daughter Jennifer, the first appellant, was married to Mr Anthony Aboody, the second
appellant. In the years prior to 2007, after her mother died, Mrs Aboody had spent time and effort caring for and assisting her
father,
and her father was fond of her. At this time, Mr Ryan had fallen out with John and Lorraine. John was a builder and had
constructed his parents' house on the land at Iluka, the purchase of which was funded through the Defence Services Corporation.
On 30 January 2007, Mr Ryan transferred the interest in remainder in his land at Iluka to Mr and Mrs Aboody for no consideration.
Two years later, he changed his mind and asked for a reconveyance. They refused. Mr Ryan commenced proceedings to set aside
the gift alleging undue influence and unconscionable conduct and also seeking relief under the Contracts Review Act 1980 (NSW).
The allegations of undue influence and the claim for relief under the Contracts Review Act were abandoned below. The primary
judge set aside the transfer as procured by unconscionable conduct. Mr and Mrs Aboody appeal. The appeal should be dismissed
Trial judge findings upheld UNCONSCIONABLE DEALING IN EQUITY
-­­
PRESENCE OF LEGAL ADVICE NOT SUFFICIENT TO ENSURE TRANSACTION WAS FAIR JUST AND REASONABLE
-­­
SOLICITOR GIVING THE ADVICE WAS NOT INDEPENDENT (ABOODY’S)
-­­
HE DID NOT KNOW OF RYAN’S IRRAITONAL MOTIVE
-­­
HIS ADVICE DID NOT EXTEND TO THE FINANCIAL CONSEQUENCES OF THE TRANSACTION, WHICH WERE OF CRUCIAL
IMPORTANCE TO AN ELDERLY MAN
Notes for Contracts
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19 Third Party Impropriety
Third-party impropriety is when a party has been induced to enter a contract by an improper
conduct of a third-party. The party who fell victim to third-party impropriety may obtain relief
if the following requirements are satisfied:
The conduct of the third-party was considered a improper or a vitiating factor. These include:
• Misrepresentation
• Misleading or deceptive conduct
• Duress
• Undue influence
• Unconscionable dealing
II. The other party to the contract should ought to be affected by the improper
conduct or vitiating factor. Parties will satisfy this requirement if:
The party relied on the third-party to procure the victim's acceptance.
b) The party knew of, or had reason to believe that, the third-party
was acting improperly or a vitiating factor exists.
a)
Most common instance of this sort of claim arises when the plaintiff enters into a guarantee
with a lender of a third party’s debt. – Textbook, 757.
to set aside a contract for third party impropriety, there must be some basis for showing
that the defendant was in some way tainted by the improper conduct.
Five possible types of claims:
1.
2.
3.
4.
5.
Agency
Unconscionable dealing
Notice of undue influence
Yerkey v Jones principle – s pecial wives equity
Under statute
Third party actual undue influence
Third Party presumed undue influence
Khan v Khan (2004)
Bank of NSW v Rogers
(1941) HCA
19.1 Special Wives Equity
Presumption: the wife who guarantees her husband’s loan (under certain conditions) is either
unduly influenced by him or is misled by him
Elements may include
1. Wife guarnatess husbands debt
2.6.2.1 Yerkey v Jones
(1940) HCA
Garcia v National
Australia Bank Ltd HCA
2. Wife did not understand the purport and effect of the transaction;
 The plaintiff must HAVE NOT UNDERSTOOD THE TRANSACTION; that is the wife/
surety must have failed to understand the nature and effect of the transaction
(or been mistaken as to the extent of its effect)
❖ Here, the P succeeded because she did not understand that the guarantee
was secured by “all moneys” mortgage and mistakenly believed her
husband’s claim that it was a guarantee of limited overdraft
accommodation to be applied only in the purchase of gold bullion.
❖ She thought that the transaction was “risk proof”
3. Wife did not gain any benefit;
 the benefit must be “direct” and “immediate”, it is NOT enough that the wife
Notes for Contracts
Garcia v National
Australia Bank Ltd HCA
Garcia v National
Australia Bank Ltd HCA
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supposedly received a modest benefit
❖ (even though she was a company director
4. No independent advice given.
5. The consent of the surety (“wife”) must have BEEN PROCURED BY THE DEBTOR (E.G.
HUSBAND)- trust/dependency relationship gives rise to the presumption of undue
influence
❖ consent obtained due to relationship b/w the debtor and surety e.g.
through physical bullying, misleading info as to nature of the risk,
sometimes mere pressure of from merely being in a situation of trust and
dependency especially w/ respect to business matters
Yerkey v Jones (1939)
Garcia v National
Australia Bank Ltd HCA
19.1.1 Application to other relationships
In Garcia, the HCA left open the possible future applicatiotion of Yerkey g Jones to other long
term, publically declared relationships short of marriage between members of the same or
opposite sense
Garcia v National
Australia Bank Ltd HCA
Different views have been expressed about the potential scope of the principle, which remains
uncertain.
Some courts have viewed it RESTRICTIVELY – holding the not to apply to d facto couples
View seems to be changing
❖ McMurdo held that there is “no sound reason” why should only extend to to wives
entering into guarantees on their husband’s liabilities. Human weaknesses are not
limited to heterosexual marriage relationships – should apply equally to all
vulnerable parties in personal relationships
❖ Court of appeal held that the principle should apply when the lender was aware of
the relationship of “relationships of trust and confidence” between the guarantor
and the borrower
 Murphy J held that it would not extend to there relationship with parent/child; was not
sufficiently synonymous with that of husband/wife- parents have a desire to assis their
children, which should no be the subject of legal scrutiny without evidence of other
factors to support undue influence
State Bank of NSW v
Hibbert
Agripay Pty Ltd v Byrne
Kranz v Natioanl
Australia Bank Ltd
Permanent Mortgages
Pty Ltd v Vandenberg
19.1.2 Yerky v Jones distingued from Garcia based on outcome
The issue whether it was unconscionable to enforce a guarantee given by a wife (Jones) in favour of
debts of her husband’s company, in circumstances where she didn’t understand the nature &
effect of the transaction.
Husband needed funds for his business and asked wife to sign guarantee on security
Business went down but she tried to argue that she didn’t understand etc when bank
tried to enforce contract.
 However, the contract wasn’t set aside though because there was no deception, she
got some advice from 3rd party & she was going to benefit too.--> therefore, she
wasn’t unduly influenced, and couldn’t argue she lacked understanding
 Decision important because it set up special equity in favour of married women who
supply guarantees for their husband’s debt.
Notes for Contracts
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19.2 Key Cases
19.2.1 Yerkey v Jones (1940) 63 CLR 649.
Special protection for a wife who enters into a guarantee of her husband’s debts without herself gaining any direct
benefit from the transaction and where, either, the wife’s entry into the guarantee was procured by the undue influence
of her husband or, alternatively, the wife lacked understanding of the transaction.
•
The principle only applies if the wife is a volunteer (does not benefit).
Two limbs of the principle:
1.
If wife’s consent is procured by the husband’s undue influence → entitled to have the guarantee set aside →
unless the lender can show that she received independent advice.
2.
If the wife fails to understand the effect of the document and the significance of giving the guarantee →entitled to set
aside contract → unless lender can prove they took steps to inform wife
 the contract wasn’t set aside though because there was no deception, she got some advice from 3rd party & she was
going to benefit too.--> therefore, she wasn’t unduly influenced, and couldn’t argue she lacked understanding
 Decision important because it set up special equity in favour of married women who supply guarantees for their
husband’s debt.
•
Held:
o It was not procured by deception
o Explanation given by 3rd party
o Wife in position to benefit
19.2.2 Garcia v National Australia Bank Ltd HCA (1998)
Facts:
•
Issue: whether it was unconscionable to enforce a guarrantee by a wife in favour of the debts of her husband’s
company, in circumstances where she did not understand the nature and effect of the transaction
•
Majority judgement affirmed. Majority held mortgage was unconscionable because:
o Appellant did not understand the purport and effect of the transaction
o Transaction was voluntary and the appellant did not gain from it
o Lender is assumed to have understood that the appellant relies on her husband in matters of business and
husband may not have fully explained the transaction
Minority judgement of Kirby J: that the classification of ‘married women’ as a special category was inappropriate.
Wanted to expand Yerkey to cover broader principles of emotional dependence creating an obligation on the credit
provider to advise the surety to get independent legal advice
Held:
•
Notes for Contracts
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20 Non Est Factum “not my deed!” unilateral mistake
Elements
1. Document signed by plaintiff
2. Plaintiff unable to read/understand instrument
 Incapacity may be temporary Saunders v Anglia Buidling Society [1971] UK
 Cannot be due to fault of plaintiff
a.
Blindness Saunders v Anglia Buidling Society [1971] UK
b.
Illiteracy Petelin v Cullen (1975) HCA
c.
mental Incapacity Ford v Petual Trustees (2009) NSWLR
3. Subjectively plaintiff was mistaken about egal effect is is different in substance to
what party thought he/she was signing → radically different
4. Where innocent party involved) Mistaken party was not negligent (careless)
5. The other party must known/ought to have known
Saunders v Anglia
Buidling Society [1971] UK
Petelin v Cullen (1975) HCA
Taylor v Johnson
6. It must be unconscionable for the other party to benefit from the mistake
20.1 Remedies
Void ab initio → not voidable → at common law
•
Refuse specific performance where
o No fault by P;
o Hardship amounting to injustice arises;
o Unreasonable to hold P to his bargain.
•
Setting aside the contract where
o Serious mistake about fundamental term or subject matter;
o Knowledge of the mistake by the non-mistaken party (may include wilful
ignorance);
o Non-mistaken party is guilty of unconscionable conduct;
o Third party rights not affected.
•
Rectification
o Mistaken party believed that the contract contained (or did not contain) a
particular term;
o Non-mistaken party was aware of the other party’s mistake;
o Non-mistaken party does not draw the mistaken party’s attention to the
mistake; and
o Non-mistaken party derives some particular benefit or advantage from the
mistake or the mistaken party suffers a detriment from the mistake.
o
NB: Taylor v Johnson requires an additional element of unconscionability
should rectification be sought in Australia.
Notes for Contracts
Webster v Cecil
Taylor v Johnson
Thomas Bates & Son v
Wyndam
Taylor v Johnson (not a
non est factum but
unilateral mistake)
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20.2 Key Cases
20.2.1 SAUNDERS V ANGLIA BUILDING SOCIETY (GALLIE V LEE) [1971] AC 1004
•
Gallie, a 78 year old woman wanted to transfer house to nephew. Lee- his bus. Partner.
•
Nephew wanted to keep it a secret as he was having marital problems
•
Sent friend round to give her the documentation to transfer her house into the nephew’s name
•
Friend (Lee) gave her documents to sign but actually transferred property to himself rather than the nephew.
•
Gallie signed but could not read it because she broke her reading glasses.
•
Lee then mortgaged the house to building society but didn’t pay all debts so they came to get house. She tried to argue
void due non est factum (not my deed – I didn’t mean to sign this)
 Court – this was still a transfer of land away from you to another party → not radically different
 She didn’t take care to look after her own interests
 Difference between not being able to read and not being able to find your glasses
 Court found her negligent and thus NO void contract and also innocent 3rd party.
20.2.2 PETELIN V CULLEN (1975) 132 CLR 355
•
•
•
•
•
Petelin could speak a little but not read English.
He signed an options agreement to Cullen in exchange for $50.
But asked to sign something else which was an extension but thought receipt
Later refused to transfer title so Cullen wanted specific performance.
Petelin pleaded non est factum and won.

Court held that Petelin had clearly established the elements for non est factum.
i.
ii.
iii.
Radically different
ILLITERATE/DISABLED/BLIND
NOT CARELESS
Notes for Contracts
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21 Termination / Discharge
Definition: Ending a valid contract, determining, discharging, and cancelling. The contract is no
longer on foot. No further contractual obligations imposed upon the parties.
Contracts may be terminated by:
1. BY PERFORMANCE + attempted performance
2. BY AGREEMENT
Incl. Term in the contract
3. Lapse of Time / Abandonment
4. Operation of Law
5. DUE TO BREACH
DUE TO REPUDIATION
6. BY FRUSTRATION
While primary obligations are discharged, in certain circumstances secondary obligations may
continue to bind the parties: eg
exclusion clauses
confidentiality clauses
restraint of trade clauses
agreed damages clauses
dispute resolution clauses
force majeure clause
 Withholding payment is not a breach of contract but an ‘action for a debt’ or an ‘action for

a liquidated sum’ → it is not a breach but ‘the detention of a sum of money’.
Party against whom debt is being claimed bares onus of proving any defence of payment
Heymans v Darwins
[1942]
Young V Queensland
Trustees Ltd (1956) HCA
21.1 Termination v Recession
Termination:
for prospectively ending a contract due to breach, frustration, etc.
Contract effective up to the point of termination, e.g., if title already passed then new
owner gets good title.
Contract is not undone. It is a valid and enforceable contract that continues to bind the
parties. Parties are excused from performance of future, main obligations. But Acts of
past performance stand.
Discharged prospectively
Recession
for voiding contracts due to a vitiating factor. (NEVER FOR A BREACH)
contract is not discharged it is destroyed
Contract rendered ineffective from the very beginning, e.g., title cannot pass,
purchasing party not get good title (but innocent third party without notice may get
good title)
Contract is undone. Parties are to be restored to their pre-contractual positions by
handing back anything that was transferred under the contract. BUT subject to the
rules of rescission
Discharged retrospectively
❖ ‘When a party to a simple contract, upon breach by the other contracting party of a
condition of the contract, elects to treat the contract as no longer binding upon him, the
contract is not rescinded as from the beginning. Both parties are discharged from the
further performance of the contract, but rights are not divested or discharged which
have already been unconditionally acquired. Rights and obligations that arise from the
partial execution of the contract and causes of action which have accrued from its breach
alike continue unaffected. When the contract is rescinded because of a matter which
affect its formation, as in the case of fraud, the parties are to be rehabilitated and
restored, so far as may be, to the position they occupied before the contract was made.’
Dixon J:
Notes for Contracts
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McDonald v Dennys
Lascelles Ltd (1933) HCA
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21.2 Classification of Obligations
▪
▪
▪
Dependent → Obligation on Party B to perform an obligation is dependent upon Party A
performing a particular obligation (or particular obligations). Party A cannot call on Party B
to perform that obligation until Party A has performed.
Concurrent → The performance of the obligations of both parties is dependent upon the
other performing at the same time. eg, conveyancing.
Independent → Each party can call on the other to perform at any time, even if the calling
party has not performed anything.
21.3 Termination by Performance
▪
▪
Performance in accordance with the terms will discharge the contract. Entitled to
enforce the contract against the other side.
General rule is Performance should be exact except for insignificant defects.
Steps
1. Determine whether contract is entire or divisible → a question of construction
2.
3.
depending on the presumed intentions and circumstances
Determine what level of performance is required – exact, substantial, part….
Determine impact of performance level
21.3.1 Entire Contracts
-
One party must perform all obligations under the contract before being entitled to contract
price/performance from other party.
Likely where:
1. Contract specifies it is such → or it appears the parties intended only exact and
complete performance
2. The other party only gets the benefit from the contract when it is fully completed.
3. It is difficult to apportion the consideration (contract price).
4. Lump sum payments are used
Examples:
❖ Lump Sum building contracts
Hoenig v Isaacs [1952] UK
Philips v Ellinson Brothers
Pty Ltd (1941) HCA
Hoenig v Isaacs [1952]
Cutter v Powell (1765)
Sumpter v Hedges [1898] QB
Philips v Ellinson
Brothers Pty Ltd (1941) HCA
❖ Employment contracts for fixed periods
21.3.2 Divisible Contracts
▪
▪
Where contract price can be apportioned between obligations to be performed.
❖ Obligations in the contract = divisible. ie, each 5 miles laid down = Government obliged
to transfer 25,000 acres of land, irrespective of if rest of contract performed.
Each division may be entire or at least require substantial performance
The contract may be infinitely divisible.
❖ P employed to cut wood cut into specified dimensions (6feet by 6 inches diameter) to
be paid per ton. No particular amount was specified. P cut 1500 tons but dimensions
varied. D refused to pay at all and P sued to recover some payment.
 Held contract was ‘infinitely divisible’. P entitled to recover contract price for those
tons substantially compliant with specifications
21.3.3 Exact performance
 General rule → contract price is only payable after exact performance of the whole contract.
-
-
❖
Government of
Newfoundlands v
Newfoundlands Railway
Co (1888)
Steele v Tardiani (1946)
HCA
Cutter v Powell (1795) UK
Where a person agrees to do something for a lump sum, he/she can normally only sue
for payment if the work is substantially performed; No one should be entitled to claim
payment unless he has done what he has bargained to do.
the courts will not imply a contract in favour of a plaintiff who has made an express
agreement and failed to perform it.
Cutter paid 30 guineas as 2nd mate on ship for duration. Died 75% of journey.
 Cutter’s wife sued for payment of portion he completed but courts said he didn’t
perform ‘entire’ contract → therefore no payment at all.
Notes for Contracts
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21.3.3.1 Exceptions to Exact Performance
-
Consequences of exact performance can be harsh => court may prefer less strict requirement of
substantial performance.
❖ Where contract does not expressly provide for exact performance as a condition precedent
to payment of the price ‘the courts will lean against a construction which would deprive
the party of any payment’
1. Severable /Divisible Contracts
•
•
A contract may stipulate performance is to be completed in stages or segments and
consideration is apportioned to each stage→ performance of less than entire contract
may be sufficient to confer partial rights on the performing party
But Where a contract is capable of being divided into several obligations, each
obligation may require exact performance.
2. De minimus non curat lex - The law does not concern itself with trivialities.
❖ Sale of 4950 tons of wheat but 55pounds extra supplied at no charge
 Purchaser refused to accept consignment → court said trivial & had to accept.
Hoenig v Isaacs
Government of
Newfoundland v
Newfoundland Railway
Co
Steele v Tardiani (1946)
Shipton Anderson v Weil
Bros [1912]
3. Substantial performance
•
•
Uncertain area: depends on approach, modern indication is to adopt a global approach
and construe the obligations in the context of the contract.
How to Assess: A question of fact: nature of the defect ? Near completion?
Rectification <10%
❖ Isaacs interior decorated fitting out an apartment for Hoeing who refused to
pay citing incomplete shoddy workmanship. The price of rectification was just
£55 of a £750 contract. The rectification costs represented 7% of the contract
price and the court considered that the obligations had been substantially
performed.
 ‘When a contract provides for a specific sum to be paid on completion of
specified work, the Courts lean against a construction of the contract which
would deprive the contractor of any payment at all simply because there
are some defects or omissions. The promise to complete the work is
therefore construed as a term of the contract, but not as a condition. It is
not every breach of that term which absolves the employer from his promise
to pay the price, but only a breach which goes to the root of the contract, such
as an abandonment of the work when it is only half done. Unless the breach
does go to the root of the matter, the employer cannot resist payment of
the price. He must pay it and bring a cross-claim for the defects and
omissions, or alternatively set them up in diminution of the price. The measure
is the amount which the work is worth less by reason of the defects and
omissions, and is usually calculated by the cost of making them good… It is, of
course, always open to the parties by express words to make entire
performance a condition precedent.” Lord Denning
Hoenig v Isaacs [1952]
UK
‘…take into account both the nature of the defects and the proportion between
the cost of rectifying them and the contract price.’ Cairns LJ
❖ ‘…. if the putting right of those defects is not something which can be done by
some slight amendment of the system, then I think that the contract is not
substantially performed’ around 10% Cairns LJ
Bolton v Mahadeva
[1972]
❖
•
But rectification cost is not the only signifier of whether there has been substantial
performance. A relevant question is also: “Is what was provided actually what was
contracted for?”
❖ Where the work provided under a contract was of an entirely different character
from that agreed, it is not open to the plaintiff to say he or she had done
something different, but just as good
❖
… Whatever is the test for “substantial completion”, it must at least encompass
that the works said to have been completed substantially are reasonably fit for
their contemplated occupation and use. McDougall J
Notes for Contracts
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Connor v Stainton (1924)
Cordon v Lesdor [2010]
NSWSC 1073
ACN 002 804 702
(Formerly Brooks
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❖ It is relevant to ask what work would need to be done to bring about complete
performance; what would be the cost of that work; and what would be the
value of that work as a proportion of the contract price? But that is not the
only enquiry. It is also relevant to ask how significant is the breach and did the
owner receive substantially the whole of the benefit which the contract was
intended to provide? White J
Building) v McDonald
[2009]
4. Voluntary acceptance of partial performance
❖ Where one party freely agrees to accept partial performance, then a sum is payable for
the work completed. The main focus is on free acceptance:
Sumpter v Hedges [1898]
5. Obstruction of performance eg refusal to pay
•
Obstruction of performance discharges the other party from performance of the
contract when they have tendered performance in accordance with the contract
❖ Startup agreed to sell oil to McDonald, to be delivered within last 14 days of
March. Delivery arrived/occurred on 31 March → P refused to accept it.
 Held :an obstruction of performance. P tendered performance with the
agreed contractual period and was entitled to damages for non-acceptance.
Startup v McDonald
(1843)
6. Waiver/estoppel
•
A party under a contract is free to waive complete performance of an obligation that is
for his/her benefit. Once a party waives the need for the other to perform either at all
or to the level required by the contract the waiving party cannot then turn around and
insist that the waived party then perform.
21.3.4 Quantum meruit – Claims for Partial Performance Post Termination
▪
▪
▪
Quantum meruit – ‘as much as they are worth’
Specific restitutionary claim – not based in contract
Used where partial performance ie less than not substantial or where contract is entire
Elements
1. Unenforceable/terminated contract
2. Request by defendant for good(s)/service(s) Where
incontrovertible benefit bestowed on defendant
that is freely accepted
3. Defendant would be unjustly enriched at the expense of the plaintiff if a reasonable
amount is not paid by the defendant.
1.
Unenforceable/terminated contract
 No QM claim can be made while a valid and enforceable contract is on foot.
 While a contract exists, one party can’t escape his/her obligations to perform what
s/he’s agreed to and then insist on restitution.
2.
Request by defendant for good(s)/service(s) → Generally not controversial
3.
Incontrovertible benefit bestowed on defendant that is freely accepted
 Problematic with breached contracts:
Partial performance is generally not ‘beneficial’.
Often the innocent party has no choice but to accept.
❖ Builder (Sumpter) half finished buildings on Hedges land leaving behind building
amterial. Hedges had to bring in alternative trades people to finish and used the left
behind material. Sumpter sued for an amount of wrk actually done in quantum meruit
 Contractually no right to payment as parties intended contract was entire and not
even substantial performance rendered
 Observed Quantum meruit requires a right to be identified that springs separately
from the terminated contract. Claim for work done failed on this as Hedges was
left with half compelted buildings (no benefit) and he had no choice about taking
what had been constructed on his land.
 At first instance Sumpter was able to claim for the building materials as Hedges
could have rejected them
Notes for Contracts
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Sumpter v Hedges [1898]
Steele v Tardiani (1946)
Sumpter v Hedges [1898]
QB
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21.3.5
1.
2.
3.
4.
5.
6.
7.
Effect of Performance - Summary
Performance: entitled to the contract price
Failure to perform = Breach
Substantial performance: under a lump sum contract where obligation is not entire
contract price less set off for the cost of rectification. If contract is entire = no entitlement
to contract price
Substantial performance of a divisible contract = contract price for divisible part less set
off for rectification of defects.
Part Performance: Unlikely to succeed where work of no value , entirely different or
conduct constitutes a repudiation
Quantum meruit ? → partial performance post termination
NB: there may be other restitutionary not covered in this course
21.4 Termination by Agreement
1.
2.
3.
Express/implied term that
i.
automatically terminates the contract or
ii.
gives one party the right to do so.
An agreement between the parties – after the contract has commenced – to terminate it.
Novation, Waiver, Abandonment
21.4.1 Express Term Termination
▪
A contract may provide for its own termination either by
1. Fixed time period
2. “at will” (broad discretionary right to end at any time)
3. Contingent Conditions – subsequent and precedent
i. Condition precedent: is a term in an agreement that provides either that no contract
ii.
arises until a specified event occurs or that performance of the agreement must wait
until the specified event occurs
Condition subsequent: is a contractual term that specifies that the contract will end, or
be varied, upon the happening of a nominated event. (a sunset clause)
Perri v Collangatta
Investments Pty Ltd
(1982) HCA
❖ Contingent Condition - the sellng of another property - did not occur within a
reasonable time and held this gave both parties a right to terminate
❖ Meehan unable to find finance on reasonable terms. Jones sold refinery to someone
else after date for settlement had passed. Meehan moved to enforce contract after
Jones argued it was illusory because it gave Meehan total discretion
 Court found Meehan had a duty to act honestly (and arguable reasonably) in
sourcing finance but there was an implied right to terminate the contract if
reasonable finance could not be found. Not illusory. More like an option
Meehan v Jones (1982)
HCA
4. Broad discretionary right to end the contract by giving a fixed period of notice in situations
where there is:
i.
no existing problem with current performance (eg, employment contract); and
ii.
an existing problem with current performance (eg, the other party is in breach)
•
However, the decision of the HCA in Pan Food Company Importers and Distribution Pty Ltd v
Australian and NZ Banking Group Ltd [2000] HCA 20 – indicated that the requirements of
commercial contracts should not be construed in an overly technical or restrictive manner
o Kirby J stated that contracts should be “construed practically, so s to give effect to
the parties’ presumed commercial purposes and so as not to defeat the achievement
of such purpose by an excessive narrow and artificially restricted construction”
o On this approach, it would not be fatal that a party did not comply with a strict
construction of a specified procedure for termination, provided that the apparent
defect did not prejudice the other party in any substantial way
Notes for Contracts
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21.4.1.1 Must terminate by Correct Procedure
❖ Amann succesfuuly tendered to provide aerial coast watch services. It was clear they
would breach the required time to have service up and running and on the date this
was contracted to occur Cth served notice of immediate termination for breach on
basis of Common Law right to terminate for serious breaches / breaches of conditions.
❖ Clause in contracted however stipulated if service not satisfactory had to serve a notice
to show cause → Held Cth had repudiated not Amann and had to pay damages
 Common Law rght to terminate can be replaced by an express power
 Parties who do not terminate according to contracted process may be found to
have repudiated and liable to pay damages → even where other party is cleary
going to / is in breach
Amann Aviation Pty Ltd v
Commonwealth of
Australia (1990) FCA
21.4.2 Termination by Subsequent Agreement
1. Mutual / bilateral → contract performed, partially performed or not at all by both


Each party agrees to release the other from performing the rest of the contract to
discharged → it’s a new contract to release and the consideration is satisfied by the mutual
promise not to enforce unperformed obligations
No formal requirements to discharge, can orally discharge contract required to be in
writing ( but if only varying must comply with writing requirement) But if merely varied,
the variation must be in writing as well
Summers v
Commonwealth (1918)
Tallerman and Co Pty Ltd
v Nathan’s Merchandise
(Vic) Pty Ltd
2. Release/unilateral → contract not performed by one party → Accord and satisfaction
OR Deed of release
 Consideration required as must conform to ususal rules of contract formation
❖ “the purchase of a release from an obligation whether arising under contract or tort by
means of a valuable consideration, not being the actual performance of the obligation
itself. The accord is the agreement by which the obligation is discharged. The
satisfaction is the consideration which makes the agreement operative”.
•
The new contract → accord,; the new promise or performance → satisfaction.
•
Two types (determined by an objective assessment of parties intentions):
 The courts are more likely to say consideration was intended to be performance
rather than just a promise.
i.
Accord executory → sue on original contract if no satisfaction (new promise)
Original contract is not terminated until the released party provides the
satisfaction promised under the accord.
If the released party does not provide the satisfaction, the releasing party
can sue on the original contract. But, the releasing party cannot sue on
the accord executory.
ii.
Accord and immediate satisfaction → sue on accord (new contract) if no
satisfaction (new promise)
Original contract is immediately terminated as the releasing party accepts
the released party’s promise as full satisfaction.
If the released party does not perform the promise, the releasing party
cannot sue on the original contract – must sue on the new contract.
British Russian Gazette
and Trade Outlook Ltd v
Associated Newspapers
Ltd, [1933[
McDermott v Black
3. Novation → Substitution of a new contract in place of the original (between same or
different parties) where the new contract contains the same obligations as the original
4. Waiver → One party leads the other party who is in breach to reasonably believe strict
performance is not required – estoppel!
5. Abandonment → parties stop performing – imply by Conduct an intention to terminate ❖
❖
A strong indicator is when an inordinate amount of time has passed and neither party
has performed although obliged to
Both parties indicate that they don't consider the contract should be performed
further. → By the time they commenced proceedings it was apparent they didnt consider
the contract was in effect. The contract is deemed abandoned and thereby terminated
Notes for Contracts
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Fitzgerald v Masters
(1956) HCA
DTR Nominees Pty Ltd v
Mona Homes Pty Ltd
(1978)
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21.4.3 Termination by Implied Power
▪
Reasonable notice → will usually be acceptable to terminate a contract that does not have a
date for completion.
Contracts providing for ongoing, indefinite relationships:
❖ SV&FC had exclusive right to distribute products manufactured by Crawford. Informal with
no express terms giving either right to terminate
 Found a implied term to terminate but it was necessary to provide reasonable time to
allow parties to bring relationship to end in an orderly manner
 Must be clear that the implied term is not contrary to intentions of parties
*
“When a contract is terminable on reasonable notice, the period of notice must
be sufficiently long to enable the recipient to deploy his labour and equipment in
alternative employment, to carry out his commitments, to bring current
negotiations to fruition and to wind up the association in a businesslike manner.”
McHugh JA:
Not implied in every case of an open-ended contract that such a term is to be implied.
❖ Here, an agreement was made in 1931 between 2 banks. In 1982, the Cth purported to
terminate the agreement, arguing that the State Bank breached the contract.
 held when terminating a long term, serious, significant contract, the parties may not
terminated with a short period of notice → one year was not reasonable time.
Crawford Fitting Co v
Sydney Valve & Fittings
Co Pty Ltd (1988) NSWCA
State Bank of New South
Wales v Commonwealth
Savings Bank Ltd (1985)
21.4.4 Deposits


A deposit is security for the completion of the purchase.
“It is quite certain that the purchaser cannot insist on abandoning his contract and yet
recover the deposit, because that would enable him to take advantage of his own wrong.”
Howe v Smith (1884)
21.5 Termination for Breach
Breach = failure to fulfil a term / any contractual obligation. Breach can occur when a party does not
perform in accordance with the terms of the agreement (including to failing to perform on time), or
does not perform at all.
Breach of contract may give the non-breaching party a right to terminate a contract. If
a)
a provision of the contract permits discharge for breach in the circumstances (eg, it might
provide that in the event of failure to perform by a specific date the other party may
terminate the contract)
b) other party repudiates the contract - that is, renounces their obligations under it; or
c)
the breach is sufficiently serious → a condition or a serious breach of an intermediate term
Tramways test
Associated Newspapers v
Bancks (1951)
There are 2 ways a contract can be terminated by the Innocent party for breach
1.
Express right given by the contract
generally not necessary to consider a common law right where express right.
Express right does not exclude a common law right
Implied right under the common law
Common law right becomes important when there is no express right OR where the
aggrieved party is claiming loss of bargain damages that have not been allowed for
in the express term
-
2.
▪
▪
Shevill v Builders
Licencing Board (1982)
HCA
Innocent party must act quickly to terminate by unequivocal notice (specific or by conduct).
Innocent party may lose right to elect to affirm/terminate if:
1. Delay
2. Duty to mitigate damages
3. There is frustration
Notes for Contracts
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21.5.1 Express Right to Terminate for Breach
Construction Question. Must ask
1. Has the breach occurred?
2. Has the innocent party exercised its right to terminate in accordance with the requirements
of the express right in the contract?
Generally express right to terminate is construed strictly → re damages + process
❖ Commercial lease. The tenant was constantly late in paying the rent. Express
Termination clause invoked by landlord in the end terminated. Issue: whether the
landlord could claim the usual measure of contract damages following termination.
 High Court allowed only damages in arrears not future
Would have been entitled to claim future earnings terminate for breach
under implied right at common law. → But in this case held that such breach
was not of a condition or serious breach of an intermediate term, that is, the
time term was not essential
But court will not award damages under express clause for loss of bargain
unless the contract very clearly says so.
Industry now has standard express term to allow for payment of expectation
damages ( called a “Shevill’s clause”)
Shevill v Builders
Licensing Board (1982)
HCA
Commonwealth v Amann
(1991) FCA
 Held that the Commonwealth had wrongfully terminated the contract and
therefore the Commonwealth was in breach.
21.5.2 Implied Right to Terminate under Common Law
Implied right under common law to terminate if:
1. Breach of essential term (breach of a condition)
2. Serious breach of an intermediate term
3. Repudiation - showing an unwillingness / incapacity to continue with the contract
21.5.3 Types of Breach
Actual breach:
i.
Total breach
ii.
Partial breach → if serious enough can terminate → construction and intention
Defective performance
Late performance
Repudiation/Anticipatory breach:
i.
Express repudiation - no longer intended to be bound by the contract
ii.
Implied repudiation - by actions make it impossible to perform the contract
21.5.3.1 Actual Breach at Common Law
1. Breach of a Condition → Innocent party has right to elect to:
i.
ii.

Affirm and sue for damages; or
terminate and damages for lost benefit due to non-completion.
Test is whether party would have entered the contract if knew term would not be met
Tramways v Luna Park
(1938),
Associated Newspapers v
Bancks (1951)
2. Breach of a Warranty
 damages (only of an amount to fix the breach)
3. Breach of an Intermediate Term
 depends on seriousness of breach →may allow termination as well as damages.
❖ Charter of ship for 24 months but in dry dock for 7 months
 Held not a condition and could not terminate
❖ Very large number of small breaches resulted in Land Council being seriously financially
compromised
 Held Land Council could terminate
Notes for Contracts
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Hong Kong Fir Shipping
Co Ltd v Kawasaki Kishen
Kaisha Ltd [1962]
Koompahtoo Local
Aboriginal Land Council v
Sanpine Pty Limited
(2007)
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21.5.3.1.1 Time – Condition or Warranty?
 If time not specified then must be completed in a reasonable time. It is highly unlikely that time
will be viewed as being a condition.
At common law → especially at Comerical contracts
 Time was usually classified as a condition (treated as ‘time is of the essence’), however
At equity (typically intermediate in property dealings)
 Generally A warranty:
 NB: Equity does not indiscriminately render all time stipulations as warranties; if the
parties intend time for performance is essential to the contract, equity will respect this.
Conveyancing Act 1919 (NSW)
 Follows equity approach Section 13: Stipulations not of the essence of contracts
(Stipulations in contracts, as to time or otherwise, which would not before the
commencement of this Act have been deemed to be or to have become of the essence of
such contracts in a court of equity, shall receive in all courts the same construction and
effect as they would have heretofore received in such court.)
Perri v Coolangatta
(1982)
Bunge Corp v Tradex
[1981]
Legione v Hateley (1983)
Conveyancing Act 1919
(NSW)
Time is a condition where
1. Contract expressly says so
2. As a matter of construction it is what the parties intended. If the type of transaction
indicates parties intended time to be strictly complied with, e.g.,
❖
buying shares on stock exchange.
❖ Mercantile or similar contracts (where chain of dependant contracts)
Stickney v Keeble [1915]
Bunge Corp v Tradex
[1981]
3. Where the contract stipulates a time for performance, however time is not of the essence
and there is a failure by one party to perform their obligations under the contract by the
appropriate time,
 the innocent party may still gain a right to terminate making ‘time of the essence’
through giving defaulting party a ‘notice to complete’
❖ LL didn’t give them a registered lease after many months. Held not able to
successfully terminate but in the end found for tenant as there was LL repudiation.
Need to:
1. Identify breached time provision
2. Advise action now required to comply
3. Stipulate a reasonable time period to comply
4. Specify the right to elect to treat the contract at an end if there is no compliance
What is reasonable depends on
i.
Subject matter of the contract duty → didn’t in this case
ii.
What remains to be done at the date of the notice.
iii.
Expert advice about the time required to perform.--> 14 days was not long enough
iv.
Whether the aggrieved party has been continually pressing for performance.
v.
Any unnecessary delay by the party in breach before the notice was given.
Laurinda Pty Ltd v
Capalaba Park Shopping
Centre Pty Ltd (1989)
HCA
Louinder v Leis (1982)
4. Nb: where time not essential may gain a right to terminate if delay amounts to a
repudiation (to be considered later) or a serious breach of an intermediate term
21.5.3.2 One type of Repudiation → Anticipatory Breach
1. Distinguishing feature of a repudiation, as opposed to a breach of a condition is it may
occur before performance and give rise to a right to terminate before the actual breach
occurs.
 Repudiation results in the aggrieved party being entitled to elect to terminate the
contract.
Definition: By words or conduct indicates an intention not to perform a contractual obligation
(promise) before performance falls due → an anticipatory breach
 The expression ‘repudiation’ refer to conduct which evinces an unwillingness or an inability
to render substantial performance of the contract or ‘conduct of a party which evinces an
Notes for Contracts
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Koompahtoo Local
Aboriginal Land Council
& Anor v Sanpine Pty Ltd
& Anor (2007).
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intention no longer to be bound by the contract or to fulfil it only in a manner substantially
inconsistent with the party's obligations’
Progressive Mailing
House Pty Ltd v Tabali
(1985)
2. ‘Serious matter not to be inferred lightly’ → The repudiation must be of a condition or at
least multiple breaches of warranties (e.g. time)
3. Innocent party can terminate and sue for damages
❖ Gibbs CJ: ‘[A valid contract] may be repudiated if one party renounces his liabilities
under it – if he evinces an intention no longer to be bound by the contract … or
shows that he intends to fullfil the contract only in a manner substantially
inconsistent with his obligations and not in any other way … . In such a case the
innocent party is entitled to accept the repudiation, thereby discharging himself
from further performance, and sue for damages.’
4. Innocent party in order to terminate for anticipatory breach must be ready, willing and
Shevill v Builders
Licensing Board (1982)
Foran v Wight (1989)
HCA
able to perform their contractual obligations
❖ Land sale where time was of the essence. Technical issue meant vendor Wright unable
to settle and notified Foran. Neither turned up to the settlement. Foran terminated
contract 2 days after settlement and claimed back deposit. Vendor claimed Foran was
not ready willing and able as they had not secured all the finance
 Held → Foran were able to secure the extra financing just didn’t bother →
therefore able to terminate
5. No need to show an actual breach → does not need to wait
 but often proof of actual breaches is compelling evidence of repudiation; and
Universal Cargo Carriers
v Citati [1957]
6. The focus is the defaulting party’s conduct: has s/he behaved in such a way that a
reasonable person would conclude that s/he will not perform the contract as required?
Objective assessment: what would a reasonable person in the position of the plaintiff make of the
defendant’s conduct? Examples
❖ Failure to perform an essential term that had no time specified for performance
❖ Multiple breaches of warranties
❖ Terminating a contract without following the procedure provided in the contract
❖ Persisting in performance of a contract based upon an incorrect interpretation
❖ a party breaches a contract by unjustifiably interpreting the contract in an erroneous
way. Law not clear where one party erroneously interprets the contract.
Where a party has relied on an invalid ground for terminating, will be able to justify
i.
the termination by reference to other grounds that may be available.
ii.
Courts have looked to the ‘bona fides’ of the person relying upon an incorrect
interpretation to determine whether they have in fact repudiated
❖ ‘No doubt there are cases in which a party, by insisting on an incorrect
interpretation of a contract, evinces an intention that he will not perform the
contract according to its terms. But there are other cases in which a party, though
asserting a wrong view of a contract because he believes it to be correct, is willing
to perform the contract according to its tenor. He may be willing to recognize his
heresy once the true doctrine is enunciated or he may be willing to accept an
authoritative exposition of the correct interpretation. In either event an intention to
repudiate the contract could not be attributed to him.’
❖ ‘In this case the appellant acted on its view of the contract without realizing that
the respondents were insisting upon a different view until such time as they
purported to [terminate]. It was not a case in which any attempt was made to
Notes for Contracts
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Laurinda Pty Ltd v
Capalaba Park Shopping
Centre Pty Ltd (1989)
Progressive Mailing
House Pty Ltd v Tabali
(1985)
Amann Aviation Pty Ltd v
Commonwealth of
Australia (1990)
Luna Park (NSW) Ltd v
Tramways Advertising
Pty Ltd (1938)
DTR Nominees v Mona
Homes (1978)
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persuade the appellant of the error of its ways or indeed to give it any
opportunity to reconsider its position in the light of an assertion of the correct
interpretation. There is therefore n on which one can infer that the appellant was
persisting in its interpretation willy nilly in the face of a clear enunciation of the true
agreement.
 DTR had not repudiated – so Mona’s attempt to terminate was a repudiation.
 BUT DTR was not in a position to terminate as – by asserting an incorrect
interpretation of the contract – it was not ready, willing and able to perform
its own obligations.
 Neither party properly terminated: ultimately found → abandoned.
21.5.4 Response to Breach → Elect to terminate or affirm
▪
A breach of an essential term – or conduct amounting to repudiation – does not automatically
terminate the contract. The ‘innocent party’ must elect to bring it to an end or elect to affirm
the contract and continue.
Knowledge needed:
 know facts giving rise to right to elect
 know that the facts give legal ability to terminate
 if electing to terminate under express contractual right, knowledge of legal ability
assumed
 if electing to terminate under implied common law right to terminate, debatable
whether actual knowledge of legal ability is needed or only constructive
knowledge is needed
How to Elect to Terminate
 If under express right follow procedure under contract
Sergeant v ASL
Developments (1974)
Commonwealth v Amann
(1991) FCA
 If under implied common law right
✓
Give notice (unequivocal action) (actual or constructive communication)
✓
If time not of essence, give notice making time of essence, then terminate for noncompliance with notice
Restrictions on Right to Terminate
- Innocent Party must be Ready, willing and able to perform
 Breach : Where innocent party is not ready, willing and able to perform at the time of the
breach. Where obligations concurrent then innocent party needs to tender performance of
their own obligations e.g.: delivery of goods to the buyer (but unnecessary to be ready and
able if such would be futile).
 Anticipatory Breach: Where repudiation accepted . Innocent party is ready willing and able
to perform at the time of repudiation. Test less stringent than that for actual breach. Not
substantially disabled or incapacitated from performing at the time set for performance.
 Where repudiation not accepted may not be required to perform obligations that fall due
after repudiation. If later terminates for breach then usually only required to show willing
and ready to perform at the time of the anticipatory breach (as above). (Deane J used
estoppel created by the repudiation: raises an interesting question of damages)
- Foran v Wright (1989), DTR Nominees (1978)
Loss of right to terminate
- Equitable principles
 Estoppel (including waiver or affirmation)
 Delay : The right to terminate will be lost if exercised with undue delay – the failure
to terminate beforehand could be taken as affirmation.
 Relief against Forfeiture (not assessed in this course) There is an equitable
jurisdiction to restrain termination of the contract for a breach of an essential time
provision, where the breaching party stands to lose something of value if the
contract is terminated for their late performance. Tanwar Enterprises Pty Ltd v
Cauchi (2003)
Loss of right to affirm
 Further performance is impossible
 Duty to mitigate
 Frustration Avery v Bowden (1856)
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
Where cooperation of other party required or there is no legitimate interest
continuing with performance (see next slide)
Where cooperation of other party required or there is no legitimate interest continuing with
performance


Lord Reid: “it may be well that, if it can be shown that a person has no legitimate interest,
financial or otherwise, in performing the contract rather than claiming damages, he [or she]
ought not to be allowed to saddle the other party with an additional burden with no benefit
to himself [or herself].” (at 431)
❖ Employee ordered advertising to go on Council bins but was unaurhtorised. Owner
rang and cancelled same day but advertising agency went ahead anyway. They
afred cobtract and sued
 Held the innocent party adid not need antyhign further from the client and had
right to elect to to affirm
❖ Put ship in harbour with full crew for 8 months → found should have accepted
repudiation and sued for breach
Lloyd J: ‘there comes a point at which the court will cease, on general equitable principles,
to allow the innocent party to enforce his contract according to its strict legal terms. How
one defines that point is obviously a matter of some difficulty, for it involves drawing a line
between conduct which is merely unreasonable … and conduct which is wholly
unreasonable.’ (at 136-137)
White & Carter (Councils)
Ltd v McGregor [1962]
AC 413
Clea Shipping
Corporation v Bulk Oil
International Ltd [1984]
All ER 129
21.6 Frustration → not easily proven
•
Based on the view that a frustrating event changes the nature of performance to such an extent
that there is no longer a contract between the parties
•
non haec in foedera veni = it was not this I promised to do
❖ destruction of the subject matter excused both parties from the contract.
•
If further performance of a contract becomes impossible or futile by reason of a supervening
event, then the contract is terminated by that event and the parties are discharged from any
further performance (National Carriers v Panalpina).
❖ '[Frustration] takes place when there supervenes an event (without) the fault of either
party and for which the contract makes no sufficient provision which so significantly
changes the nature (not merely the expense or onerousness) of the outstanding
contractual rights and/or obligations from what the parties could reasonably have
contemplated at the time of its execution that it would be unjust to hold them to the
literal sense of its stipulations in the new circumstances. In such a case the law declares
both parties to be discharged from further performance' Lord Simon
Taylor v Caldwell
National Carriers Ltd v
Panalpina (Northern) Ltd
[1981]
National Carriers Ltd v
Panalpina (Northern) Ltd
[1981]
21.6.1 Summary Elements of Frustration
1. Supervening event causes a fundamental or radical change to the performance of the
2.
3.
contract (to the nature of the contractual rights and obligations)
Neither party caused /instigated the supervening event
Supervening event unforeseeable and not contemplated by the parties at contract
formation; it follows that there must be no term in the contract to deal with the event.
The important point is to look at the effect of the supervening event rather than the event
itself. So there 2 steps in determining if there is frustration:
1. what the contract is about – what are its terms? What is the object of the contract?
2. What is the effect / impact of the supervening event on the contract?
21.6.1.1 Element 1: Supervening Event caused radical change
▪
The HC held (4.1 Maj: Stephen, Mason, Aitken, Wilson JJ; dissenting → Brennan J) the
contract was frustrated. Majority held parties had contemplated performance on the
assumption of 3 shifts 7 days a week and situation post injunctions was fundamentally
Notes for Contracts
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Codelfa Construction Pty
Ltd v State Rail Authority
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different from that contemplated by contract. There had been a radical change in the
nature of the obligation so that the contract was now commercially unfeasible.
of New South Wales
[1982]
1. Change of law/illegality
❖ Fibrosa pays £1,000 deposit for Fairbairn to build a machine. Fairbarine spends a
lot of money constructing machinery and getting ready to deliver. Contract is
frustrated by WWII as government made it illegal to supply goods into enemy
occupied territory:
Lord Atkin: “… one party may have almost completed extensive work. He can
get no compensation. The other party may have paid the whole price, and if he
has received but a slender part of the consideration he can get no
compensation. That the result of the law may cause hardship when a contract
is automatically stayed during performance and any further right to
performance is denied to each party is incontrovertible.”
 Contract Frustrated→Held Fibrosa deposit recoverable; Fairbairn expenses
not
❖ P manufactured and installed neon signs on the exterior of buildings, D agreed to pay
monthly rent on the signs for a number of years part way through Australia as at war,
legislation prohibited neon signs.
 Held: The lessor did not promise that the sign would be illuminated, was a
contract for the supply of signs. Contract was not frustrated. Maybe this was
foreseeable.
Fibrosa Spolka Akeyjina v
Fairbairn Combe Barbour
Ltd [1943]
Scanlon’s New Neon v
Tooheys (1943)
2. Destruction of subject matter of contract
❖ Hall burn down before use → held contract was frustrated
Taylor v Caldwell (1863)
3. Failure of expected condition or triggering event
❖ P agreed to rent a room in London to the D, for king’s coronation. Both parties
understood this was the purpose, but not in agreement. coronation cancelled
 impossible to complete; radically different to what was agreed.
 This contract was frustrated. FUTILITY OF PURPOSE –the mutually understood
purpose of the contract has been frustrated, as where the foundation on which
the contract was based ceases to
Krell v Henry [1903]
❖ D hired the claimant’s steam ship for the purposes of taking passengers to view the
Naval Review (as part of King Edward’s coronation) AND!! Provide passengers with a
day cruise. D did not end up using steam ship
 While the contract was deprived of its sole commercial purpose, it was NOT
frustration as still could have taken day cruise.
Herne Bay Steamboat v
Hutton [1903]
❖ Wanted to have the land rezoned, Council said they rezone land and, in return, Group
would make substantial contributions – build infrastructure etc.. State Govert made
decision to resume all the land for the purposes of a school.
 Held. The contract was frustrated. There was a fundamentally different situation
from that entered into.
Brisbane City Council v
Group Projects).
4. Failure of a continuing contingency or underlying event (incl. contemplated method
of performance no longer possible)
❖ HC said contract had been frustrated as it was based on 6 days a week, 24 hours a
day. Residents getting an injunction caused a radical change in contractual terms
(Steven, Jason, Aitkin & Wilson – Majority) (Only Brennan J dissented)
❖ A sailor on a two year contract. War broke out and ship was captured. Ship unable to
make voyage- therefore, not serving/ doing duties as originally conceived
(army/fighting/ship serving duties no more – now sitting in cell; fundamentally
different). Seamans wife sued for half his wages she had been appointed
 Held: contract frustrated. The contract had been entered into on the assumption
that the ship was able to make its voyage.
Codelfa Construction Pty
Ltd v State Rail Authority
of New South Wales
[1982] HCA
Horlock v Beal (1916)
❖ Farmer invited someone on to the farm to lease property rent free, then to subdivide.
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 Held contract frustrated as the zoning never came into place.
Beaton v McDevitt
(1987)
5. Contract for personal services (death/incapacity/imprisonment): where a person is
engaged to perform a particular service and gets sick or dies the contract will
terminate by virtue of frustration
Horlock v Beal (1916)
❖ P died 75% into journey; could not complete obligations – frustrated
Cutter v Powell
6. Government intervention
❖ Engineering form to construct a reservoir. The Wartimes Statute said must cease
production and sell plant to war effort.
 Held: Contract is frustrated.
❖ The Sewer’s canal was closed and shipped was faced with having to make a
detour, that would add time to the trip and was dangerous. Contract did not state
a particular time for goods nor a particular route.
 Held contract could be performed using the alternate method. Although it
costs more, did not provide sufficient ground – not frustrated.
 Probably different if there were perishable goods on the ship
7. Radical Delay. Frustration only occurs when performance of the contract is
interrupted for so long that the purpose of the contract is defeated .
 Must seriously affect the intended performance of the contract.
 MERE DELAY IS NOT ENOUGH - where there is mere delay, as opposed to an
ongoing incapacity, it is NOT IMPOSSIBLE to fulfill the contract and there will
be no frustration in such circumstances.
 Do not need to wait for the delay to occur (see text Bank Line Ltd v Arthur
Capel and Co [1919])
21.6.1.1.1 More Onerous or More expensive Not enough
Lord Radcliffe: ‘Frustration is not to be lightly invoked as the dissolvent of a contract.’ (at 727) ‘… it
is not hardship or inconvenience or material loss itself which calls the principle of frustration into
play. There must be as well such a change in the significance of the obligation that the thing
undertaken would, if performed, be a different thing from that contracted for.’
Lord Denning: ‘The fact that it has become more onerous or more expensive for one party than he
thought is not sufficient to bring about a frustration. It must be more than merely more onerous or
more expensive. It must be positively unjust to hold the parties bound. It is often difficult to draw
the line. But it must be done. And it is for the courts to do it as a matter of law…’ (at 239-240)
Metropolitan Water
Board v Dick Kerr [1918]
Tsakiroglou v Noblee
Thorl [1962]
Morgan v Manster
(1948)
Davis Contractors Ltd v
Fareham Urban District
Council [1956] AC 696
The Eugenia [1964] QB
21.6.1.2 Element 2: Not self-induced
A party cannot rely upon a self- induced frustration in order to discharge a contract
❖ Both parties knew it was illegal, but said applying for liceneses, the Ministry provided
some liceneses, but the appellant chose to give the licenses to other boats. The act was
deliberate and self-induced, therefore no frustration.
The onus of proof rests upon the party alleging the self-induced frustration
❖ D chartered a ship to the P to carry cargo, just prior there was an explosion that
extensively damaged the ship – not caused by the parties
 The contract was frustrated.
 person bringing claim of frustration, needs to prove that it was not self induced
Notes for Contracts
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Maritime National Fish v
Ocean Trawlers (1935)
Joseph Constantine SS
Line v Imperial Smelting
Corporation (1942)
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21.6.1.3 Element 3: Not contemplated
•
No foreseeability – event not foreseen as a serious possibility
❖ Council engaged Davis to build a number of hosues, paid for work at a fixed price. Post
war shortages mena work took longer and COST WAS HIGHER. – but act being
performed was still the same (i.e. hammering, sawing wood etc).
 Held: There was no frustration, the job was simply more onerous but not of a
different kind that agreed.
*
‘The cause of the delay was not any new state of things which the parties
could not reasonably be thought to have foreseen. On the contrary, the
possibility of labour and materials not being available was before their
eyes’
•
No term in the contract
•
Force majeure clause: frustration will not apply if the parties did foresee the event and inserted
a term in the contract to cover the event
21.6.2 Effect of Frustration → Common Law
1. Contract discharged automatically (ie do not need to elect) by operation of law
Davis Contractors v
Fareham Urban District
Council;
Simmons v Hay
Codelfa Construction Pty
Ltd v State Rail Authority
of New South Wales
[1982]
Claude Neon v Hardie
Cutter v Powell
prospectively as at the date of the frustrating event.
BUT
2. parties can ignore the legal result of frustrating event and continue performance however.
Heytesbury v Subiaco City
Council
3. Generally → losses fall where they lie at Common law: Money paid in advance may be
recovered:
If the contract expressly indicates how prepaid money is to be dealt with in the event
of frustration, then the court will follow the contract.
-
-
If there is no express term in the contract dealing with the recovery of money the
payee must show a total failure of consideration to recover the payment
-
- i.e. no recovery of pre-paid money if partial performance).
Work done prior - if contract fully performed; no remedy
If a contract has been fully performed, then entitled to payment where there is no contractual
provision However, if only partly performed then there may not be any entitlement
Fibrosa Spolka
Taylor v Caldwell; Baltic
Shipping v Dillon
Cutter v Powell).
Work Done after
In order to receive payment for work done after a frustrating event the parties must establish a new
contract or make a claim in quantum meruit, this would be in equity for work and labour
completed. – because of the prospective nature of the discharge “from then on”
21.6.3 Effect of Frustration → Statute
 Statute more fairly apportions losses between parties
 No definition within legislation, cannot apply legislation until at common law you
Frustrated Contracts
Act 1978 (NSW)
determine that there has been a frustrating event that has changed contract.
-
-
Certain contracts excluded – s6: e.g. carriage of goods by sea, contracts of insurance.
s8: calculation of damages.
s7: an unperformed promise that was due to be performed before the frustrating event is
discharged, except to the extent necessary to support an action for damages for the breach
of the promise.
s10: allows that party to recover a sum ‘equal to the value of the agreed return for the
performance’.
s11: compensation for partial performance.
s12: all monies paid under a contract prior to the frustrating event are recoverable, but a
much more elaborate code for adjustment exists.
s13: apportionment of loss.
s15: court adjustments, if parties cannot self-adjust, courts will work it out.
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21.7 Key Cases
21.7.1 Foran v Wight (1989) 168 CLR 385
21.7.2 Sargent v ASL Developments Ltd (1974)
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21.7.3 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978)
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