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1. Introduction and Offer
1. Offer - Definition:
An offer is made when it would 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. This is irrespective of whether the offeror intended to
make an offer as the offeror’s intention is determined objectively (Carlill v Carbolic Smoke Ball)
An offer must take the form of a proposal which gives the offeree an opportunity to choose between acceptance and
rejection. (Brambles Holdings v Bathurst City Council)
1.1 The Negotiation Stage
 Contract made when acceptance is communicated to offeror: no general ‘cooling off’ period:
o But some statutory exceptions: Motor Dealers Legislation Qld: certain period after which offeree can
consider whether they want to accept the contract
1.2 Offers and Requests for Information
Harvey v Facey
Facts
- B telegrams S: will you sell me bumper hall pen. S replies lowest price 900 pounds.
- B responds: We agree to buy at 900 pounds
Held
- S’s response was not an offer. He was merely supplying information
- Objective approach: in complex sale of land, reasonable person would not regard mere supply of price in this
manner to be an offer.
Principle: A mere supply of information will not be an offer. An offer is something that was objectively intended to
be so (Harvey v Facey).
1.3. Offers and Invitations to ‘Treat’
- Offer – intention that promise should bind immediately upon acceptance
- Invitation to treat – statement in negotiations that is not meant to be an offer e.g. info, tentative proposals
- Look at objectively what was intended by words and actions e.g. intention to bind immediately upon accept?
1.3.1 Offers and Invitations to Treat – Advertisements
1.3.1.1 Shop Windows
Fisher v Bell
Facts
- Flick knife in shop window
- Legislation making offering of this good for sale an offence
Principle: A display/advertisement in a shop window is normally considered an invitation to treat, not an offer
(Fisher v Bell)
1.3.1.2 Self Service store
Pharmaceutical Society of Great Britain v Boots
Facts
- Legislative requirements: have to have pharmacist at point of sale when selling pharmaceuticals
- P claimed that D offending legislation because allegedly offering goods within store and when customer put
them in their basket, the purchase was complete (b/c the customer had accepted)
Principle: In self service store, customer makes offer to buy when they take goods to the checkout. Acceptance is
made by the checkout person. Hence contract made at checkout. Goods displayed on shelves are an invitation to
treat (Pharmaceutical Society of G.B. v Boots)
1.3.1.3 Newspapers
Principle: Newspaper ads are to be treated as an invitation to treat (Partridge v Crittendon).
1.3.1.4 Bait Advertising
Reardon v Morely Ford and Wallace v Brodribb
- To do with bait advertising – advertise that cars available at this price. But not enough cars available. When
customer comes into store, seller offers other cars.
- Judges held that newspaper ad was not an offer
Wallace v Brodribb
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Facts
- Ad inserted by D in newspaper that certain car available at certain price
- Prospective B comes in intending to buy advertised vehicle
- D refuses to sell to B b/c under genuine belief that B is backyard dealer and hence selling would be unlawful
- B claims that D violated bait advertising laws
Held (Spender J)
- Unnecessary difficulties from distinguishing b/w offers and invitations to treat – expression ‘offer to supply’
should be given its ordinary meaning
- D was offering to supply car in the advertisement
- However ad not directed at people who were intending to use vehicles for criminal purposes
- Since D genuinely intended to offer to supply these goods on terms advertised to class of lawful purchasers, he
was not committing an offence under bait advertising legislation
Competition and Consumer Act s35
- Seller mustn’t advertise G&S for supply at specified price if there are reasonable grounds for believing that the
person will not be able to offer for supply those goods at that price for reasonable period and reasonable
quantities. Have regard to nature of market and nature of ad.
- If seller does advertise in this way, must offer such G&S for reasonable period at reasonable quantities having
regard to nature of market and nature of ad.
1.3.1.5 Reward advertisement
Carlill v Carbolic Smoke Ball
Facts
- D (sellers of ball) issued ad where offered to pay 100 pounds to any person who contracted influenza after
using smoke ball in specified manner and for specified period
- Ad also said that 1k deposited in Alliance Bank showing D’s sincerity in the matter
- P bought ball. Used it in manner and for period specified but still contracted influenza.
Held
-
-
-
D argument 1: Ad was bet/mere puff – not intended to mean anything. But saying that 1k pounds had been
deposited with bank showed that it did intend to be a sincere promise rather than just a puff
D argument 2: not binding because not made with anyone in particular. Although offer made to world,
contract made with limited portion of public who come forward and perform condition (acceptance)
D argument 3: if performance is acceptance, then acceptance should be notified. Notification need not
precede acceptance. Furthermore, d had shown by nature of transaction that he didn't expect/require
notice of acceptance apart from notice of performance. Dispensed with need for notification. Bowen: In
advertisement cases, can infer that if person performs condition, notification is dispensed with.
D argument 4: Ad is too vague to be treated as a definite offer. When is ball to be used in order to get reward.
Lindley: reward offered to those who contract epidemic within reasonable time of using the ball. Bowen:
protection during epidemic or protection while smoke ball still in use.
Elements of the advertisement showed objectively that it was meant to be more than just a mere invitation to
treat. It was specific and directed to certain people. Also that statement that 1000 pounds were deposited in
the bank. This indicated that the statement was to become binding with those who performed the conditions.
IN this case there was an intention to be legally bound.
1.3.1.5 Advertisement – unilateral contract
- Unilateral contract is unilateral in the sense that because one party has performed his or her obligations by the
time of formation, only one party is ever under a contractual obligation (Australian Woollen Mills)
o Hence at the time of formation, the obligations of the offeror are executor, but the obligations of the
offeree are executed
- Reward advertisements which say that the performer will receive a reward upon performance of an action give
rise to a unilateral contract (Carlill)
- Acceptance of such offers is when the condition is performed (Carlill)
1.4 Offers and Auctions
1.4.1 Advertisement of Auction
Principle: Advertisement that an auction will take place is not an offer. It is merely an invitation to treat (Harris v
Nickerman)
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1.4.2 Offer and Acceptance in an Auction
Sale of Good Act 1896 (Qld) s59(1)
- (a) When good put up for sale, each lot is deemed to be subject of separate contract for sale
- (b) Sale by auction complete when auctioneer announces its completion by the fall of hammer or in other
customary manner: until such announcement is made, any bidder may retract their bid/offer
o Bid – offer; acceptance only takes place when auctioneer bangs hammer
- (c) when sale by auction not notified to be subject to right to bid on behalf of seller, it isn’t lawful for seller to
bid themselves or to employ someone to bid at such sale
- (d) sale by auction may be notified to be subject to a reserved price and seller may also reserve right to bid
1.4.3 Sale without reserve (sale without a minimum price)
1.4.3.1 Contract between seller and buyer
Principle: In a sale without reserve, the vendor is not bound to sell to the highest bidder. The general principle is that
there is no contract until the hammer falls (AGC v McWhirter - Aus).
1.4.3.2 Contract between auctioneer and buyer
Principle: By holding an auction without reserve, an auctioneer makes an offer to sell to the highest bidder and the
offeree accepts by making the highest bid. If the highest bid is not accepted, no contract arises between the bidder
and the vendor, but the bidder is able to use the auctioneer for damages under a separate, collateral contract; this
contract governing the process by which the auction is conducted (Warlow v Harrison – British, Ulbrich v Laidlaw –
Aus, Barry v Davis - Eng)
1.5 Offers and Tenders
1.5.1 Distinguish between invitation to submit a ‘tender’ and actual tenders
Principle: Circular invitation to tenders is not an offer. Only tenders themselves are offers, and the invitor is not
obliged to accept a particular tender. (Spencer v Harding)
1.5.2 Can an invitation to tender ever be an offer?
Principle: An invitation to tender will be held to amount to an offer when the vendor promises to accept the highest
bid, as acceptance will take place when the offeree submits the highest bid. This is regardless of the fact that the
tenders are described as ‘offers’, as the court will determine the character of the document (Harvela Investments v
Royal Trust Co of Canada)
1.5.3 Tender and Process Contracts
Blackpool & Fylde Case
Facts
- City council called for tenders for forming franchise – had to be submitted before 12pm
- Blackpool who previously had contract with council submits tender by 11am
- Council office fails to check letter box b/w 11am and 12pm – accepts tender of another party
Held
-
Call for tenders amounted to an offer which said that if the tenderer submitted a conforming tender, they
would have their tender opened and considered
Acceptance of that offer was held to be the submission of the conforming tender
Council had led Blackpool to believe that a process would be adopted – giving rise to process contract
Hence Council was liable for damages under process contract when it failed to consider P’s complying tender
Factors leading to conclusion that the invitation to tender was an offer
- Council approached small number (6) of parties to tender
- Club held concession for 8 years
- Council had standing orders i.e. rules that things have to be done in a certain way
o E.g. tenders submitted after deadline won’t be considered
- ‘Confident assumptions’ of commercial parties that the council would not:
o Open/accept before deadline
o Accept tender received late
- It was the clear intention on the part of both parties that all timely tenders would be considered – hence it was
intended that the offer of process be binding. It was specific and detailed and clearly intended to affect parties’
legal relations
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Principle: Where an examination of what parties said and did establishes a clear intention by the inviter to consider
timely tenders an invitation to tender will be considered to be an offer of process, where acceptance is the
submission of a tender that conforms to this process (Blackpool v Fylde).
Hughes v Aircraft Systems v Airservices Australia
Facts
- Civil aviation authority calls for variety of tenders – a lot of problems arise so authority decides to start whole
process again. Sends around letter detailing what process is going to be and everyone signs.
- Also sends around request for tender – document setting out obligations of parties.
- Authority later on allows one of the parties to alter its tender contrary to set of rules
Held
- Both the letter and the request for tender forms sent by the authorities held to be promises to the tenderers
that a certain process would be carried out. Tenderers accepted by submitting appropriate tender
- By not conforming to the particular process, the authority were in breach of the process contract
Ipex v State of Victoria
Facts
- State of vic issued request for tender – overview of whole process with terms and conditions (one term said
that they weren’t obliged to accept lowest tender)
- IPEX put in lowest bid – weren’t accepted
Held
- The request for tender created a promise/offer of conforming with a process. A process contract was created
when Ipex submitted a conforming tender.
- However all that the process contract required was that the parliament would act in good faith (act fairly and
reasonably). Since they had chosen their tender in good faith, they had not breached process contract.
1.6 Offers and Passenger Ticket Cases
Principle: The issue of a ticket to the passenger is an offer. The acceptance and resultant formation of a contract
doesn’t appear upon the offering of the ticket. It occurs after that event, either when the passenger has by actual
conduct intimated his acceptance of the offer or within reasonable time passed during which the passenger has had
the opportunity of reading conditions appearing on the ticket and has not rejected the offer. MacRobertson Miller v
Cmr. Of State Taxation, Stephen J)
Principle: Where the ticket is issued by a machine, the conventional analysis will not apply, because it is not possible
to negotiate with a machine. In such cases, when customer puts money in machine, they are making an offer and the
acceptance occurs when the machine dispenses the ticket. At point of acceptance, terms on the back of the ticket
are not known by the customer. Hence they are not part of the contract (Thornton v Shoe Lane Parking, Denning J)
Baltic v Dillon
Facts
- P made booking for cruise with shipping company and received booking acknowledgement and form: contract
of carriage made only at time of issuing tickets. 2 wks before cruise, she received ticket containing T&Cs
limiting liability of D. Ship sank. D argued that provisions in contract limited liability. Issue was whether the
provision was incorporated into the contractual relations between the parties when contract was made.
Held Kirby P: Contract of carriage (as said by D) only arose at the time of issuing tickets as said in booking form. But at
this time, P had not had reasonable opportunity to see/agree to T&Cs. She did not accept them just b/c she went on
cruise. Hence b/c didn't accept, these T&Cs were ineffective. Gleeson CJ: At time of acceptance (when ticket given to
P), D had not done all that was reasonably necessary to bring limitation clauses to P’s notice. Hence they were not part
of contract of carriage.
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2. Acceptance
2.1 Fact of acceptance
Fact of acceptance occurs when there is unqualified assent to the terms of an offer (Fitness First v Chong).
There is a binding contract at the moment that there is a mutual exchange of promises (offer and acceptance),
regardless of whether performance occurs later
2.1.1 Fact of acceptance – expressly or by conduct
2.1.1.1 Fact of acceptance – expressly via signature
Fitness First v Chong
Facts: P signed application form to join gym without first reading it. She was unaware that she would have to pay fee if
she left within first two months. Held: By signing the form, P had manifested her assent to the printed terms and it was
irrelevant that there was no true consensus ad idem between the parties. The mere fact that she didn't read the terms
is irrelevant because the signature objectively indicates that she accepted the offer.
Principle: An offeree will be held to have accepted an offer if they behave in such a way that a reasonable person
would believe he or she is assenting to the terms of an offer, even if there is no real consensus between the parties
2.1.1.2 Spoken or written words of acceptance – words indicating acceptance will be binding
2.1.1.3 Rejection and counter-offers
Hyde v Wrench
Facts: S offers to sell at price X. B replies that they will buy at price Y. S refuses price Y. B then ‘accepts’ price X.
Held: Proposal to buy at price Y by B was a counter-offer which rejected and destroyed S’s original offer.
Principle: If a counter-proposal is made, it will destroy the original offer which will no longer be open for acceptance.
(Principle affirmed in Harris v Jenkins).
2.1.1.4 Request for information
Stevenson v McLean
Facts: D offers to sell goods for cash price. P inquires if credit is available. No reply from D. P later accepts cash offer.
Held: P was entitled to accept – inquiry 2) was not a counter offer; so offer 1 was still open for acceptance
Principle: if a response to an offer is merely a request for information, then it will not be a counter offer and hence
will not destroy the original offer. Original offer will remain open for acceptance.
Rest Sea v APT
Facts: Offer to sell shares. Party accepts but with queries. Argued that queries = no acceptance. Held: acceptance.
Principle (obiter? – Allsop J): if there was doubt whether there was acceptance, it would then be neither a rejection
nor a counter-offer. The original offer would still be open for acceptance.
Oriolo v Wolfram (read specified readings)
Principles: 1) If a counter-offer is made, the person to whom it is made may either treat it as revoking the original
offer, or may ignore it and accept the counter-offer. 2) If the counter-offer merely goes to the machinery of working
out what is meant by the offer, it is in the same scope as a request for information.
2.1.1.4 Fact of acceptance – by conduct
Brogden v Metropolitan Railway
Facts: P ordered equipment – sent order with terms on it. Other party signed contract but kept it in their drawer and
didn't return it to P. However parties carried on with work and paid for goods by reference to terms in document.
Held: Actions of delivering, taking, paying for goods could only have been in reference to the written document. This
showed that party’s conduct was an acceptance of the offer in the document.
Held: despite the fact that an offeree does not expressly indicate that they have accepted the offer (i.e. don't return
document but just keep in drawer), if their conduct indicates that they are accepting the terms in the offer, then
they will be considered to have accepted the offer - hence binding contract.
Empirnall v Machon Paul
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Facts: Developer E requested work from architect M. M requested progress payment and execution of a contract. Told
to submit progress payments but to hold contracts b/c E doesn’t sign contracts. M sends claim with copies of standard
contract, asking E to sign. E paid but no signature. M writes to E: proceeding on understanding that conditions of
contract are accepted by you, and works are conducted in accordance. M continues to work and get payments. E
becomes insolvent.
Held [Kirby P]: Factors indicating assent to printed contract -> 1) unlikely that commercial relationship would enter
such an agreement involving large sums of money w/out settling in some detail terms of their relationship 2) progress
payments made over course of dealings were compatible with acceptance by E of written contract.
E did more than remain silent – took benefit of the service provided by M, knowing that they were to be paid for in
accordance with the offer and having had a reasonable opportunity to reject the offer. In these circumstances,
reasonable bystander would conclude that he had accepted offer on terms proposed. Hence acceptance of the work =>
acceptance of terms. Eric not signing => objection to the manner of acknowledging terms not objection to contents of
contract itself.
Principle [McHugh JA] Where an offeree with a reasonable opportunity to reject the offer of goods or services takes
the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it
is open to the tribunal of fact [reasonable bystander] to hold that the offer was accepted according to its terms.
Farmers’ Mercantile Union v Coade
Facts: D applied to buy shares in P company. P didn't communicate its acceptance w/in reasonable time but retained
money paid by D and entered their names in register. Intimated acceptance after reasonable time had passed by
making calls for further payments. Held (Knox CJ): Agreement to buy share could be inferred from respondent’s
inaction (failure to respond) once they became aware their names were on register of shareholders. An offeror in this
situation is required to make a prompt choice between condoning the delay and rejecting the contract.
2.1.2 Fact of acceptance – acceptance to be in exchange for offer
Fitch v Snedeker
Facts: Reward offered for information leading to the arrest of murderer. Someone gives information but without any
knowledge of the reward notice at all
Held: Giving of the information by P wasn't in exchange for the offer => hence no acceptance of the offer.
Principle: Acceptance must be in exchange for the offer. Cannot accept an offer of which you are ignorant of.
(however there can be acceptance by conduct later on)
R v Clarke
Facts: Murder occurs. Offer for reward put out: 2 components – 1) Reward given to anyone who gives information
leading to conviction of the murderers. 2) Free pardon for the accomplice if they give information. Clarke sees offer,
gives evidence and 2 other men convicted of murder => unilateral contract
Held: As matter of fact, Clarke didn’t give information in exchange (and hence in acceptance of) the reward offer. He
gave the information exclusively to avoid his own conviction. Hence treated as 2 offers, where P hasn’t accepted
reward offer.
Principle: Performance of requested act will not give rise to unilateral contract if evidence establishes that offeree
was not acting on the faith of the offer. Unilateral contract will only arise if offeree performs the requested acts in
reliance on the offer. There must be a consensus of minds or wills between the parties before a contract can exist.
Cf. Carlill – Irrelevant that reason for buying ball was for curing influenza. Provided that at least a cause of her buying
the ball was b/c of the offer in the advertisement, act of purchasing was enough to constitute acceptance.
2.1.3 Fact of acceptance – Acceptance of tenders
Single tender – offer to be accepted in the normal way.
Standing offers - offer to supply. Standing offer remains even when acceptance takes place; formation of contract
occurs at acceptance. Each order constitutes separate acceptance and hence separate binding contract.
Great Northern Ry v Witham
Facts: W offers to supply all Ry’s stores for 1 yr. Ry places ‘order’ for some stores. W accepts – contract 1. R places
another order. W accepts – contract 2. Held: W obliged to supply these stores, but could possibly revoke standing offer
for the future.
Principle: Under a standing offer, the offeree is bound by the orders that he accepts, but he may be able to revoke
the standing offer for the future
2.2 Communication of acceptance
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An acceptance generally has effect only when communicated to the offeror (Latec Finance v Knight)
2.2.1 Silence is not acceptance
Felthouse v Bindley
Facts: Offeror to nephew: want to buy horse. If I hear no more about it, I will consider the horse to be mine.
Principle: a contract cannot be forced on the offeree by stipulating silence as the prescribe method of acceptance.
Cf Empirnall: if offeree’s conduct objectively indicates acceptance, that may constitute acceptance by conduct.
Latec Finance v Knight
Facts: K signed hire purchase agreement – expressed to operate as offer by K which was not binding on HP Co until
signed by HP Co. Co’s acceptance of K’s offer was noted on the document but not communicated to K. After K returned
set (b/c didn't work properly), Latec sought to enforce the agreement.
Held: Contract is not made until acceptance of offer has been communicated. D keeping the tv for several weeks
didn't indicate that he knew offer was accepted by Latec. While the offeror can vary this rule with a waiver of
communication (in two ways as outlined below), clear language would need to be required to support such a
construction.
2.2.1.1 Consumer Protection Legislation
National Consumer Credit Protection Code
- S14(1): Credit contract must be in the form of written contract formed by debtor and credit provider
- S14(2): Offer may be accepted by debtor by drawing down credit or other act satisfying offer
o i.e. when start using finance, that is acceptance by conduct
Competition and Consumer Act 2010 (see case summary ss 39-43)
Property Agents and Motor Dealers Act 2010 (Qld)
S363: Cooling off period for residential property sales
S369: Cooling off period is for 5 days after the buyer receives copy of relevant contract from seller
2.2.2 Waiver of Communication
Communication of acceptance does not need to occur every single time.
Carlill –Also, In the case of a unilateral contract, it is the doing of the stipulated act that constitutes acceptance and
the offeror implicitly dispenses with communication of acceptance. Smoke Ball Co through words and conduct waived
right to have Mrs C communicate acceptance of reward offer.
Latec v Knight – offeror may [clearly] expressly or impliedly dispense with the need for actual communication by:
- offeror treating doing of certain act as effective acceptance (unilateral contracts, as in Carlill)
- treating giving of acceptance by particular method as effective, whether or not the acceptance is received by
the offeror.
2.2.3 Method of acceptance – communication
Manchester Diocesan Case
Facts: P invites tenders. [Acceptance by letter to tender address]. D tenders (offer). P acceptance sent to D’s surveyor
(another address). Held: acceptance still took place. There was not only one method of acceptance prescribed.
Principle: An offeree should normally accept in the mode which has been prescribed or set out by the offeror or in
any ‘not less advantageous mode’ to the offeror. [Advantage is not only determined by speed]
George Hudson Holdings Ltd v Rudder: if an offer prescribes an exclusive mode for the communication of acceptance,
hen only an acceptance communicated by that method will be effective.
Intent of offeror in prescribing certain method of acceptance: speed, security, reliability, record
2.2.4 No prescribed method of acceptance – instantaneous methods
Entores v Miles Far East
Lord Denning stated that where there is instantaneous communication, the general rule is that contract formed on
receipt of acceptance b/c if it was formed on sending acceptance could have problems e.g. telephone line going dead
Aus courts have followed Entores rule for telephone (Aviet v Smith) and telex (Express Airways v Port Augusta Air
Services)
Brinkibon v Stahag Stahl
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Facts: Case involved potential contract between English and Austrian companies using telex machines. Issue where
contract was made – in England where acceptance sent by telex or in Austria where received?
Principle: When using instantaneous methods of communication, contract is formed where and when acceptance is
received by the offeror (Principle based on Entores)
Lord Wilberforce: The rule stated above may not apply where the message is sent or received through a third party
(agent with limited authority), where it is sent out of office hours or is not intended to be read immediately. Such cases
must be resolved by reference to:
- 1.Presumed intent of parties: what is objectively thought to have been intended by these parties (especially
offeror)
- 2. Sound business practice: e.g. receipt only assumed to have taken place during office hours
- 3. Judgment of where risks ought to lie: look at balance of where risks currently lie
If come to problem that is not covered by case law, apply these general principles and then come to conclusion
2.2.5 The postal rule
Adams v Lindsell
Facts: D makes offer [receive your answer in course of post] to P, but there is delay in its arrival. P posted delayed
reply. D not knowing what had happened already sold goods.
Held: Acceptance occurred when [and where] the letter was posted. Offeror chose the method of acceptance (i.e.
using post), hence offeror had to bear any risks of difficulties with the post.
Principle: When using post, acceptance is effective as soon as the letter is posted by the offeree.
Household Fire v Grant – contract made when acceptance is posted even if received some time later or is lost in the
post.
Cowan v O’Connor – the postal rule applies when using telegrams b/c they work in same way as letters
Henthorn v Fraser – postal rule applies where the parties must have contemplated that acceptance must be sent by
post
Tallerman v Nathan’s Merchandise
Facts: Contentious issue being negotiated b/w two solicitors. Letter sent – acceptance?
Held (Dixon J): Highly contentious correspondence b/w solicitors. In such a correspondence, one would have thought
that actual communication would have been regarded as essential to the conclusion of the agreement.
Principle (Dixon J, Fullagar J): 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 offeror contemplated + intended that offer would be accepted by that act
2.2.5.1 Rebuttal of the presumption of the postal rule
Holwell Securities v Hughes
Facts: Offer set out. [Offerees must accept by notice in writing]. Notice => receipt
Held: Communication to be received – postal rule rebutted
Nunin Holidngs v Tullamarine
Facts: Land sale contract. B’s solicitor sent B’s signed contract: [the contract is forwarded on the basis that it will be
held by you on our behalf pending receipt by us of an identical contract signed by vendor company}
Held: Language indicated that offeror (B) had overridden postal rule, by saying that the offer will only be accepted
when the document is receive by them.
Principle: If the offeror indicates by their language that their offer requires receipt of acceptance, then the postal
rule will be rebutted.
Vienna Convention on International Sales Art 24
An offer or any other indication of intention ‘reaches’ the addressee when it is made orally to him or delivered by any
other means to him personally, to business or home address => underlying rule for international sales is receipt rule
2.2.6 New forms of communication
Reese v Hamon-Sobelco
Principle: Fax is considered an instantaneous form of communication, like a telex => receipt rule
Email, web purchases => subject to Brinkibonn rules where there is a defect
Olivaylle v Flottweg AG (obiter) => email should be treated like other forms of instantaneous communication
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Ebay v Creative Festival
Contract can be made electronically – however if a tickets to an event contain a term that was not displayed on the
ticketmaster page (when the contract was concluded) it will not be incorporated into the contract for sale of tickets.
2.2.6.1 General comments (from textbook)
Two ways of contracting via internet -> 1) via interactive websites. 2) via email
Interactive websites: contracting via interactive websites => virtually instantaneous and little reason to depart from
general rule that acceptance effective only when it is received
Email: analogous to post? Once message is sent, sender loses control of the message as it goes through intermediaries.
But also analogous to telex b/c person sending email is far more likely to be aware that attempt unsuccessful than an
intended recipient is to be aware of fact that attempt has been made. Likely that Brinkibonn rule would apply to email.
2.2.6.2 E-commerce legislation
Electronic Transactions Act 2001 (Qld)
S14 – allows electronic signature
S23 – Time of dispatch:
- (1) If electronic communication enters info system outside control of originator of communication, then unless
otherwise agreed b/w originator and addressee, dispatch of communication occurs when it enters the
information system
- (2) If an electronic communication enters successively 2 or more information systems then unless otherwise
agreed b/w originator and addressee, dispatch of communication occurs when it enters first of info system
S24: Time of receipt:
- (1) if the addressee of electronic communication has designated information system to receive electronic
communications then time of receipt of the communication is the time when it enters the information
system
- (2) If the addressee of an electronic communication has not designated an information system to receive
electronic communications, then unless otherwise agreed b/w originator of communication and addressee,
the time of receipt of communication is the time when it comes to attention of addressee
This gives guideline of when receipt [of acceptance] actually occurs.
UN Convention on the Use of Electronic Communications in International Contracts 2005
At designated address: Time of receipt of electronic communication => time when it becomes capable of being
retrieved by the addressee at an electronic address designated by the addressee. => this is not reflected in Qld ETA yet
At another address not designated by addressee: communication effective when i) the communication has become
capable of being retrieved by the addressee (has reached addressee’s electronic address) and ii) the addressee has
become aware that that electronic communication has been sent to that address => this is also not reflected in Qld ETA
yet
Electronic Transactions Amendment Act 2011 (SA)
- Unaddressed proposal on website is invitation to treat [not an offer]
- Contract formed automatically is not invalid, even if no human intervention
2.2.7 Acceptance communicated to/by agent
Agents can be used (authority – Brinkibonn?). Agent must have authority – either actual (given instructions by
principal) or apparent (principal has clothed A with authority in eyes of reasonable objective viewer)
2.3 Battle of the Forms
Where two parties exchange inconsistent standard forms during contract negotiations and reach agreement on the
principal without deciding whose standard form should prevail, this is a battle of the forms.
Hyde v Wrench: if the offeree attempts to vary the terms proposed, or to add additional terms, then the purported
acceptance will amount to a counter-offer which will only give rise to a contract if it is accepted by the original offeror.
Butler v Ex-Cell-O
Facts: 23 May: S makes offer to B => 1) any orders placed (acceptance) are subject to our conditions which shall prevail.
2) Terms contained price escalation clause. 27 May: B replies w/ order => 1) on terms below and overleaf. 2) Tear off
acknowledgement of order that said we accept B’s order on terms stated thereon. 5 June: S gets order, tears off slip
and returns it, with covering letter that says delivery ‘in accordance with our revised quotation of 23 May
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Held: Lord Denning: the documents passing b/w the parties have to be construed as a whole. Where terms b/w both
parties are contradictory, then conflicting terms have to be replaced by reasonable implication. In this case, as a matter
of construction, S’s acknowledgment of B’s order was the decisive document as it made clear that order on B’s (not S’s)
terms
Lawton and Bridge L.J.J. (apply this analysis): applied set contractual rules – counter offer by B destroyed original offer
by S. There was acceptance by S of the counter offer through their conduct of tearing off the slip. The reference in S’s
letter to the original quotation was taken to refer to the price and identity of machine and not to terms on back of
quotation.
Kriketos v Livschitz
Allsop P and MacFarlan JA: Not all contracts fit neatly into offer and acceptance model. The essential question is
whether the parties’ conduct reveals an understanding or agreement or a manifestation of mutual consent which
shows an intention to be legally bound to the essential elements of a contract.
Vienna Convention Article 19
An acceptance with additional conditions will be regarded as a counter-offer, unless the additional terms do not
materially alter the terms of the offer. Where the additional terms or alterations are non-material, acceptance will be
effective and the additional terms incorporated, unless the offeror objects without undue delay.
Material alteration of terms => Additional terms relating to price, payment, quality, quantity of goods, place and time
of delivery, extent of one party’s liability to the other or the settlement of disputes
2.4 Meeting of the minds
Under a Smith v Hughes principle, objective appearance of consent trumps party’s actual intentions whereas in R v
Clarke, the party’s actual intentions trumped the objective appearance of consent. Courts tend towards objective
approach.
Competition and Consumer Act (CCA) 2010
S39: Person must not send credit/debit card to another person, unless requested by that person, in renewal of another
card held by that person
S40: Person must not, in trade or commerce, assert a right to payment from another person for unsolicited goods
unless the person has a reasonable cause to believe that there is a right to the payment. Person must also not send to
another person an invoice/other document stating amount of payment/charge for supplying unsolicited goods or
services
S41: If a person in trade or commerce supplies unsolicited goods to another person, then the other person is not liable
to make payment for the goods and is not liable for loss/damage to the goods
Also, if person sends unsolicited goods, they are not entitled, after the end of the recovery period, to take action for
the recovery of the goods from the other person.
Recovery period => period of 3 months starting on the day after day when person receives goods or period on the day
after the day on which notice given from seller to receiver in respect of the goods
S43: Person must not assert a right to payment from another person of a charge for placing, in a publication, an entry
or ad relating to other person or other person’s profession
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3. Termination of Offer
3.1 General Rues of revocation
Byrne v Van Tienhoven
Facts: 1 Oct – D offers by letter. 8 Oct – D posts letter of revocation. 11 Oct – P receives offer and sends acceptance. 15
Oct – P confirms acceptance by letter. 20 Oct – D’s letter of 8th Oct (revocation) arrives
Held: Contract was formed on 11th or 15th – before the offer was revoked. Revocation had to actually be communicated
to the offeree for it to be effective.
Principle: Offer can revoke/withdraw offer any time before acceptance. Revocation must be communicated to the
offeree and the letter of revocation is only effective on receipt by the offeree.
3.2 Evidence of revocation
Dickinson v Dodds
Facts: D offered to sell house to P. P then hears from 3rd source that offeror has agreed to sell land to someone else.
After that, P writes note to D saying that he accepts offer.
Held: P ‘knew as clearly as if D had told him I withdraw’. Hence offer had been revoked when P knew about D’s
withdrawal.
Principle: Provided that there is reliable evidence indicating that an offeror has revoked an offer, that will be enough
to infer that the offeror has been revoked by the offeror.
3.3 ‘Firm’ offers and options
Dickinson v Dodds
Facts: D made an offer to P to sell a certain property, saying that the offer was to be open until a certain period of time.
But Before P accepted the offer, D went and sold the property to someone else.
Held: No binding agreement b/w P and D.
Principle: A promise to hold an offer open for a specified period is not binding unless there is consideration and
acceptance of that promise. Hence offeror can revoke an offer before the specified period for acceptance has
expired, provided the offer has not been accepted in the meantime.
3.3.1 Common law solution to firm offers – Collateral ‘offer’ contract
Using collateral contract analysis, can try and create two separate contracts – process agreement as well as underlying
contract (as in Blackpool).
3.3.2 Common law solution to firm offers – purchasing or creating an ‘option’
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A promise to hold an offer open is binding at common law if consideration has been given in return for that promise.
The agreement between the parties is then described as an option. An option is an agreement b/w an option holder
and a grantor under which the option holder is entitled to enter into a contract with the grantor on specified terms,
either at a specified time, or within a specified period. (i.e. B will say to S – I will give you 10k if you hold your price and
don’t sell to someone else).
Goldsborough, Mort & Co Ltd v Quinn
Facts: Grantor gave option holder an option to purchase certain land at a specified price at any time within one week of
the agreement in return for the sum of 5 shillings paid to the grantor. Grantor attempted to repudiate offer before
acceptance
Held: this attempt by the grantor was ineffective. The option holder exercised the option w/in the specified time –
hence was able to force the grantor to sell the land as agreed.
3.3.2.1 Option – part of contract for sale or 2 offers?
Option to purchase is either considered:
A single contract (for sale) which is conditional upon the option being exercised within the specified period
(Laybutt v Amoco, Orchard v Ross Neilson)
- As a preliminary (binding and irrevocable) contract to hold open a offer to sell the property
o The exercise of the option will then give rise to a separate contract of sale (O’Halloran v Williamson)
Does not make a difference to the contractual relationship because a grantor’s attempt to revoke the option will be
ineffective under both approaches.
3.3.3 Statute (civil) law solution to firm offers
Sale of Goods (Vienna Convention) Act 1986
Art16(1): Until a contract is concluded an offer may be revoked if revocation reaches offeree before he has dispatched
an acceptance
Art 16(2): However offer cannot be revoked if: - it indicates whether by stating a fixed term for acceptance or
otherwise, that it is irrevocable or if it was reasonable for the offeree to rely on the offer as being irrevocable and the
offeree has acted in reliance of the offer
U.S. Uniform Commercial Code (UCC) s2-205
Offer is binding if: (1) signed writing; (2) time stated, or (3) reasonable time (max = 3months)
3.4 Lock-out agreements
Walford v Miles
Facts: M agrees to negotiate with W for sale of business. Also agrees to not deal w/ other purchaser provided that W
confirms they are financially able to proceed w/ purchase (which they did). M later on sells to third party.
Principle/Held: a lock out agreement (i.e. buyer agreeing not to negotiate with third party) for a specified period
could potentially be enforceable. However a lock out agreement to negotiate for an unspecified period would not be
enforceable as it would be too uncertain.
3.5 Revocation and unilateral contracts
Abbott v Lance; an offer made in exchange for the doing of an act becomes irrevocable once the act has been partly
performed.
Errington v Errington followed this principle.
Daulia v Four Millbank (Goff LJ): offeror is subject to an implied obligation not to revoke the offer after the offeree has
started to perform.
3.6 Lapse of offer
Mobil v Wellcome
Facts: 1991-D makes statements to potential franchises that they were seeking to implement proposal whereby if
franchisees reach various performance levels (90%), franchise will be extended at no cost (9 yrs for 6). In statements
acknowledged that although proposal involved a lot of work, would find a way to implement it. D abandoned scheme.
P argued that D’s unilateral offer had been accepted by performing and achieving 90% levels and hence D couldn’t
revoke the offer after performance had begun.
Held: Offer? D had not made offer to franchisees. Commitment to ‘find a way’ to extend tenure = too vague/uncertain
to give rise to contractual obligation.
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Issue of whether D had successfully revoked offer they had made?
- Offeror in unilateral contract in some cases may be prevented from revoking offer by:
o Implied supplementary contract not to revoke – in such case revocation = breach of contract=offeror
liable
o Estoppel – where offeree has acted to their detriment on assumption that offer will not be revoked
- If no implied contract and no estoppel, offeror is free to revoke offer
- Hence no universal principle that offeror may not revoke once offeree begins performance of act of
acceptance
- Whether implied contract not to revoke exists – i.e. it is unjust for offeror to revoke offer once offeree has
commenced performance depends on:
o Whether the offeror knows that the offeree has commenced performance
 In this case: difficult to say when franchisee should be taken to have commenced
performance
o Whether the offeree understands that incomplete performance is at his or her risks
o Whether parties intended that offeror should be at liberty to revoke the offer
o Whether acts towards performance were of benefit to both parties and little/no detriment established
 This case: actions of franchisees were of benefit to both parties and little/no detriment
established
Hence no basis for implied contract not to revoke the offer. Even if D made offer, they were free to revoke it.
Principle: 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 when there is an implied contract not to revoke the offer or
an estoppel. Whether there is an implied contract not to revoke will depend upon the facts of the case.
3.6.1 Lapse of offer – how long does an offer last?
An offer which is expressed to be available for acceptance for a particular period of time will lapse at the end of that
period. If no period is stipulated offer will lapse after reasonable time has passed (Manchester Diocesan Case).
Reasonable period of time depends on the nature of the subject matter (car, property) and the form in which the offer
is made (verbal offers vs. written offers)
Bartolo v Hancock
Facts: Court case. One barrister made ‘here and now’ offer to other barrister to discontinue claiks against each other
before court case had begun. Other barrister didn't accept at that time. At day 5, they said they wanted to accept the
offer.
Held: Offer wasn't open for acceptance on the 5th day, after proceeding shad already commenced. This was a ‘here and
now’ offer, aim of which was to dispose of the case there and then.
Carter v Hyde – In the case of an option, the death of the option holder (offeree) does not prevent the option being
exercised by the offeree’s personal representatives. However if the offer is personal to the option holder (e.g. involves
particular skill/discretion of the offeree) then the option lapses when the offeree dies.
Fong v Cilli – where the offeror dies before acceptance, the offeree cannot accept the offer if he knew of the death
before the purported acceptance.
Laybutt v Amoco – Gibbs J suggested that since an option is essentially a conditional contract, it can be enforced
against the estate of a grantor, unlike an ordinary offer
3.7 Failure of condition and changed circumstances
Offer may be made subject to express or implied condition that must be fulfilled before offer can be accepted.
Alternatively, it may be made subject to an express or implied condition that it should lapse upon the happening of a
certain event.
Financings Ltd v Stimson
Facts: D signed offer to purchase car on hire-purchase terms from finance company, which was to be accepted by
finance company. Before co. signed agreement, car was stolen from dealer’s premises. Co., in ignorance of this fact,
then tried to accept D’s offer. Co. sued D in breach of hire-purchase agreement.
Held: D’s offer was subject to an implied condition that the car should continue in the condition it was in when the
offer was made and that, in failure of that condition, D’s offer lapsed.
3.8 Restitutionary Remedies
E.g. for when no acceptance has taken place but the offeror has incurred lots of costs in making the offer.
British Steel v Cleveland Bridge
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Facts: Goods delivered to D after letter of intent to buy – no formal contract concluded b/c P refused to D’s terms.
Terms never agreed upon. D refuses to pay for goods delivered.
Held: There is an obligation on D to pay a reasonable restitutionary sum (quantum meruit – reasonable amount for
service) for the value of work done, despite that no contract formed. Goods were benefit to D at P’s expense and
unjust to retain goods without giving compensation to P.
Principle: an unjust enrichment claim may lie where D requests P to incur expenses for a contract that is never made.
But no general right to receive expenses incurred before contract is formed
Peet v Richmond - P may able to recover to the extent of the amount which the work is worth to the defendant. The
action is to recover compensation for work which has been done, not to recover damages for the loss of opportunity to
undertake work which had an agreement have been reached might have been done, but in the circumstances, was not
done.
3.9 Agreement without offer and acceptance
Brambles v Bathurst City Council: a manifestation of mutual assent may be made even though neither offer nor
acceptance can be identified and even though the moment of formation cannot be determined. Where no offer or
acceptance can be identified, it is relevant to ask whether an agreement can be inferred, whether mutual assent has
been manifested and whether a reasonable person in the position of each of the parties would think there was a
concluded bargain.
4. Certainty and Agreements; Intention to be legally bound
4.1 Introduction
Requirement of contract formation that the agreement between the parties is certain and complete. The more certain
and comprehensive a contract is, the more likely it is that parties intended to be legally bound by the contract. In
interpretation of contracts, courts will hold the view that it is better for the contract to have effect than to be found
void (Hall v Busst).
Distinguish complexity and uncertainty - Upper Hunter v Australian Chilling
Facts: Term: supplier’s costs of electricity shall vary in some circumstances. Alleged: clause uncertain and
unenforceable.
Held (Barwick CJ): a contract for which there can be more than one possible meaning is not void for uncertainty. Just
because terms in a contract are complex to understand, that doesn’t mean contract is uncertain and therefore void.
4.1.1 Completeness
4.1.1.1 Essential Terms v. Meaningless Terms
No binding contract can be made unless parties have reached agreement on at least all of the essential terms of the
contract. (Thorby v Goldberg). An essential term is a term without which a contract cannot be enforced (Thomson v
White).
Whether a particular absent term will be regarded as essential depends on the nature of the contract and the
circumstances of the case (Vroon BV v Foster’s Brewing Group). In an agreement for a lease, commencement date is
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essential; hence agreement for lease that fails to stipulate commencement date will not be binding contract (Harvey v
Pratt). Rental to be paid is essential; so option to renew lease at ‘rent to be agreed’ will not be binding (Eudunda
Farmers v Mattiske).
In contract for sale of goods, failure to stipulate price may not be fatal - Sale of Goods Act
S11(2): when price not determined in contract, buyer must pay a reasonable price
May v Butcher
Facts: Contract said ‘price to be agreed from time to time’ (i.e. no offer and acceptance on issue of price)
Held: Too uncertain. Not certain what price was to be agreed upon from time to time and how agreement was to come
about. Hence too uncertain = incomplete negotiations. SOGA has no application where parties have deliberately
deferred agreement on price – i.e. implication of obligation to pay reasonable price would be inconsistent with
expressed intention of the parties
In a land sale, subject matter and price are regarded as essential terms (Hall v Busst)
Hall v Busst
Facts: contract gave seller the option to repurchase land. Contract provided formula for price -> sale price (3157
pounds) plus value of all additions and improvements less values of deficiencies and depreciation.
Held: Price too indefinite when the option exercised b/c many reasonable ways of measuring depreciation.
Principle: in a contract for sale of land, there will be no contract if the parties fail to stipulate a price or an effective
method or mechanism for determining a price as such a matter is an essential term of the contract.
Parties may make a valid contract dealing only with price and subject matter and court will fill in the details by
implication (Cavallari v Premier Refrigeration). Details e.g. obligation to take each step w/in reasonable time.
Thomson v White
Facts: simple joint venture between two individuals to build house for profit. One of the parties said that because this
was like a joint venture, must be complex documents and terms. Alleged that lack of such documents made contract
uncertain.
Held: Contract was enforced. B/c joint venture was simple it was possible for court to make implications as to how
profits calculated and how losses shared. There wasn't an omission of an essential term.
In more complex contracts e.g. mining joint venture, court may not be able to imply necessary terms (Coal Cliff v
Sijehama)
Ormwave Pty Ltd v Smith
Facts: P was chef on cruise boat. D claimed that no contract of employment b/c terms not settled – uncertainty.
Held: No uncertainty for pay – use published award rates. No uncertainty for hours and duties – see previous
employment experience. Previous experience between the parties will be a reason for holding that the agreement
isn’t uncertain.
Scammell v Ouston
Facts: Sale of car on ‘hire purchase terms’ – but many types of HP terms/credit agreements. Uncertain as to which
terms parties were agreeing upon. Held: Although apparent agreement of offer and acceptance, content is so
uncertain (i.e. uncertain as to what the hire purchase terms are) that contract cannot be enforced.
Geebung Investments v Varga Group Investments (Kirby P):
If essential terms have been agreed upon by parties, common law should uphold this agreement rather than rifling
through terms to find particular which hasn’t been agreed which party seeking to later renege relies upon in order to
escape the bargain. Courts should be upholders of bargains and not their destroyers. But if parties have raised a
specific issue in negotiations and deliberately left it undecided then it is more difficult to say that there is a certain
contract because there is a key issue that hasn’t been resolved
Fitzgerald v Masters
Facts: Usual conditions of sale in...shall so far as they are inconsistent (sic.) be deemed to be embodied herein. I.e.
problem – contract used the word inconsistent instead of consistent. Furthermore, there were no usual conditions of
sale existing.
Held: for error, inconsistent should be read as consistent to avoid absurdity. For reference to conditions of sale, this
part can be severed because cannot say that parties, having agreed on everything essential, intended that agreement
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should be nullified if effect couldn’t be given to cl.8, because no one knows what usual conditions of sale relating to
this are.
Principle: if there is a substantial agreement with a meaningless expression, the meaningless expression will be
severed/corrected. Words may generally be supplied or corrected in an instrument where it is clearly necessary in
order to avoid absurdity.
Laybutt v Amoco
Facts: Agreement said: deposit should be paid to ‘said agent..’ – agent’s name not filled in.
Held: Uncertainty of who is the agent who is going to be paid is not a crucial matter. Severable section b/c
meaningless.
4.1.1.2 Executed contracts
Courts are less likely to find agreement incomplete if it has been wholly or partly performed (Husain v O&S Holdings).
Foley v Classique Coaches
Facts: D agreed to buy petrol supplies from P at ‘price to be agreed upon from time to time’. Part of contract then
carried out and D purchased petrol for 3 years. D then wanted petrol from elsewhere - claimed that agreement not
binding b/c no agreement as to price had ever been made.
Held: Court implied term that petrol was to be sold at reasonable price. Previous experience, part performance of the
contract as well as the mechanism for resolving issues (arbitration clause) was held to make the contract not uncertain.
4.1.1.3 Machinery for settling an (essential) term
Parties may make a valid contract that defers agreement on an essential term if they provide an effective mechanism
for supplying the term in the event they fail to reach an agreement (Booker Industries v Wilson Parking).
Booker Industries v Wilson Parking
Reconsideration of Hall v Busst. This case held that parties are able to provide a procedure which allows even essential
terms to be determined by a 3rd party (e.g. arbitrator). Where a contract provides a mechanism to determine a
missing term (e.g. price/rent) then the contract will not be held to be uncertain.
George v Roach (Aus case) - When machinery specified by the parties fails (e.g. where arbitrator is unable/unwilling to
perform task required), the agreement will be held to be ineffective.
Sale of Goods Act – where there is an agreement to sell goods on terms that price to be fixed by valuation of third party
and third party cannot or doesn’t make such a valuation, then the agreement is avoided.
Sudbrook v Eggleton (English case)
Facts: contract required sale price to be determined by 2 valuers, one appointed by landlord; one by tenant. Landlord
refuses to appoint valuer. Hence not possible to operate contract and work out price b/c one party hasn’t appointed
valuer.
Held: obligation to pay reasonable price was implied where machinery had failed and specified mode of ascertaining
value of subject matter couldn’t be regarded as essential. Court was able to operate machinery. (support for this view
in Booker)
4.1.2. Certainty
Contract may fail because particular term is so vague and imprecise that courts cannot attribute meaning to it. Courts
do not take narrow approach to requirement of certainty and will attribute meaning to language used by parties unless
it is impossible to do so (Upper Hunter County District Council v Australian Chilling). Where parties have been
performing contract without difficulty thus far, court won’t hold that contract is uncertain (Hillas v Arcos)
Hillas v Arcos
Facts: Potential exporter of timber from Russia to Europe. Parties contracted in 1930 for huge shipments of timber
from Russia. Agreement made via option for potential buyer to buy ‘100k standards [of timber] in 1931’. Russian seller
argued that no deal created b/c no indication of price, size etc – many things left open/uncertain.
Held: Whole course of dealing in 1930 that wasn't held to be uncertain – hence framework contract was not void for
uncertainty. Terms can be spelt out by looking at agreement in 1930.
4.1.2.1 Reasonableness
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Standard of reasonableness can often be employed to provide certainty/completeness. Valid contract can be made for
sale of goods at a reasonable price (Wenning v Robinson). But in other cases reasonableness standard won’t be certain
enough (Hall v Busst). Although a sale of goods at reasonable price is enforceable, the same doesn’t apply to sale of
land (Hall). However this is a more restrictive approach than is now applied by courts (Booker).
Whitlock v Brew
Facts: Sale deal where part of deal was that potential buyer bound to grant lease to Shell for mineral extraction when
they bought the land. B agrees to buy land from S. Clause: B to grant lease to Shell on such reasonable terms as
commonly govern such a case. Also, arbitration for disputes as to ‘interpretation or operation’. Was sale contract valid?
Held: Clause was void for uncertainty – period of lease and rent were uncertain and no formulae by which rent to be
calculated was provided. Arbitration point in clause was for meaning of terms that had been agreed; arbitrator not to
decide on terms that haven’t been agreed on. There were no set of terms in common use. The clause was important
and central in the agreement and couldn’t be severed. Hence whole agreement void for uncertainty.
Quarante v Owners Strata Plan
Facts: Property developer alleged that had verbal contract with owners of property where they agreed to refurbish
property. Nothing was produced in writing.
Held: even if there had been a conversation, key issues had not been resolved e.g. likely cost of the work, how costs
would be controlled, time frame etc. Because central issues hadn’t been resolved in the alleged conversation, court
held that contract was void for uncertainty.
Timmerman v Nervina
Facts: Alleged contract where obligation to repurchase at ‘cost’, ‘at auction’, or ‘fair price’.
Held: not uncertain because party is able to choose from one of these options in order to fulfil the agreement hence one party is able to have final say.
4.1.3 Implied term to negotiate in good faith
Walford v Miles
Facts: agreed in negotiations that one party was locked out w/ negotiating with anyone else. Yet they did. Implied
agreement to negotiate in good faith?
Held: no binding agreement b/c too uncertain e.g. how long is lock out agreement meant to operate. There is no
implied duty to negotiate in good faith. But D must not make false statements, misrepresentations etc.
In general, there is no implied duty to negotiate in good faith. Remedies for pre-contractual negotiations may be
provided through estoppel. Good faith also informs everything parties do in the law of contract. In general sense,
expect parties to do what they said they would and not make misrepresentations.
4.1.3.1 Express term to negotiate in good faith
Coal Cliff v Sijehama
Facts: 1980: heads of agreement signed, re: later coal mine joint venture agreement. Heads of agreement said: parties
to proceed in good faith to consult together upon formulation of a more comprehensive and detailed joint venture
agreement.
Held: Because of complexity of joint venture agreement, importance of outstanding issues and the absence of
machinery for resolving outstanding, relevant provision was too vague and uncertain to be enforceable. Maj: promise
to negotiate in good faith will be enforceable so long as promise is clear and part of undoubted agreement between
the parties.
Aiton Australia Pty Ltd v Transfield
Facts: clause of contract set out dispute resolution process including obligations to negotiate/mediate in good faith.
Held: promise to negotiate/mediate in good faith to resolve disputes arising under agreement was sufficiently certain
to be enforceable. Agreement would’ve been enforceable if parties had provided for remuneration of mediator.
4.1.3.2 Breach of express term to negotiate in good faith
Strzelecki Holdings v Cable Sands
Facts: memo of understanding (not contract) drawn up requiring parties to negotiate in good faith.
Held: there was an obligation to negotiate in good faith. But merely proposing something which the other party
considered unreasonable is not a breach of good faith => doesn’t indicate lack of honesty.
Principle: Good faith = act honestly ‘within the framework of fidelity to the bargain’. Not required to act in the
interests of the other or to give in to the other. Need to: subject themselves to the process of negotiation, keep an
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open mind in considering proposals, putting forward options for resolution of differences. However ultimately
parties must have freedom to engage in self-interested behaviour so long as do so honestly
4.1.3.3 Good faith internationally
Vienna Convention on international sales: in interpretation of convention, regard to be had to...observance of good
faith in international trade.
Draft European Common Frame of Reference: if break of negotiations contrary to good faith and fair dealing, liable for
loss caused.
4.1.4 Illusory Promises
Placer Development v Cth: a promise will be illusory (and thus unenforceable) if the promisor has an unfettered
discretion in relation to performance.
MacRobertson v Commissioner: promise may also be held to be illusory by an exemption clause which is so sweeping in
its effect that it effectively deprives promise of any force.
Godecke v Kirwan
Facts: land sale contract which said that the buyer would execute another document containing any other conditions
that the seller may reasonably require. One party argued that the uncertainty regarding conditions made the contract
uncertain.
Held: Not uncertain. B left conditions for S’s solicitor to decide (mechanism) and standard was reasonableness
(formula). Principle: contract that gives a choice to one party as to how contract is to be performed won’t necessarily
be uncertain. Fact that a formal contract when executed will include terms additional to those already expressed
won’t make the preliminary agreement not binding, provided that additional terms don't depend on further
agreement b/w parties.
5. Intention to be bound
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5.1 Intention to be bound presently
Condition => factual event upon which contract depends; not contract term.
Condition precedent: contract not binding until condition first satisfied i.e. conditional event first occurs.
Condition subsequent: binding contract now which might be ended by a condition (event) occurring.
Condition precedent to performance: binding contract now, but performance only triggered by condition (event)
occurring.
5.1.1 Subject to contract
Parties who have negotiated principal terms of transaction may enter into preliminary written agreement with
intention of recording their agreement in more formal way at some future time. Preliminary agreement may be
expressed to be subject to contract or subject to preparation of formal contract. Issue is then whether parties intended
to be bound immediately on the signing of the preliminary agreement or intended to defer legal commitment until
formal contract had been made. A preliminary agreement will be binding if it appears parties intended it to be binding
(Masters v Cameron).
Masters v Cameron
3 classes of cases that fall into ‘subject to contract’ category.
1. Parties intend to be bound immediately– have finalised all the terms of their bargain. Written record (restating
terms in more precise way but not different in effect) produced later.
Commercial Bank of Australia v Dean - a request to re-execute a deed with minor changes to conditions was held to be
immediately binding. A clean copy was required but the parties had already agreed on all the terms.
2. Complete agreement now but performance of it = conditional on execution of formal document - Niesmann v
Collingridge – parties intend to have binding agreement now but performance (payment) to happen at signing of
contract
3. No intention to have binding agreement unless or until formal contract drawn up
Masters v Cameron
Facts: B signed document saying will purchase farm from S, but subject to the preparation of a formal contract for law.
Held: not bound. Principles: Effect of preliminary agreement depends on intention disclosed by language used by
parties.
Using expressions e.g. ‘subject to contract’ and ‘subject to formal contract’ prima facie creates an overriding
condition so that what has been agreed upon must be regarded as the intended basis for a future contract and not
as constituting a contract in itself.
4. Intend to be bound now but present agreement will be superseded by later agreement
Anaconda Nickel v Tarmoola
Facts: Document ‘forms a head of agreement which constituted an agreement in itself to be replaced by a fuller
agreement not different in substance or form.’
Held: intention to be bound immediately by present terms – expecting later substitution with memo of agreement.
Strzelecki Holdings v Cable Sands: Binding MOU (w/ good faith obligation) w/ later sale if negotiations successful
5.1.2 Subject to finance
Meehan v Jones
Facts: sale contract: sale of refinery subject to purchaser receiving approval for finance on satisfactory terms. If not
satisfied by 31 July, then this contract shall be at an end. On 30 July B gives notice that condition for finance satisfied. S
refuses to perform saying that contract too vague and uncertain – ‘satisfactory’ left matters such as amount, term of
loan etc open
Held: Not uncertain. Binding contract now which may potentially be ended by B not getting satisfactory finance.
5.1.3 Other subjects
- subject to survey, subject to head office approval, subject to government approval
- need to look carefully to determine which Masters v Cameron class the case falls under
- Look at intention for condition precedent (e.g. class 3) or condition subsequent
- See whether subject has later been cleared or lifted e.g. finance is now okay hence not subject to finance
anymore
5.2 Intention to create legal relations in specific cases
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Issue is concerned with whether the parties manifested an intention to create legal relations, rather than whether they
actually intended to do so (Ermogenous v Greek Orthodox Community)
Air Great Lakes v K S Easter –Where a written agreement is alleged to form a contract, the court may look beyond the
terms of the document to determine whether the agreement was intended to create legal relations. A party (A) cannot
set up a subjective intention not to contract where a reasonable person in the position of the other party (B) would
assume that A intended to be bound.
Factors that are taken into account in determining whether parties intended legal relations may include the subject
matter of the agreement, the status of the parties to it, their relationship to one another and other surrounding
circumstances. Resolution of the question whether parties in particular case intended to create legl realtions requires
an objective assessment of the state of affairs between the parties. (Ermogenous v Greek Orthodox Community)
Shahid v Australasian College of Dermatologists
Facts: S made number of unsuccessful applications to College for training position in dermatology. College provided
process by which unsuccessful applicant could, on payment of fee, appeal against such a decision. Details of process set
out in training handbook published by the College. S lodged appeals against decisions made against her. Issue was
whether each time she lodged appeal and paid fee, S had entered into contract w/ college.
Held: Considering all the circumstances, parties manifested intention to create legal relations. Training program
regarded by College as subject of great importance, handbooks were detailed and comprehensive (formalities, parties,
grounds of appeal, power of appeals’ committee etc – language of contract). The book had all the characteristics of a
document which provided for the legal, and not merely for the informal, regulation of appeals. Commercial
relationship where S committed time and a lot of money for training programs– paid money in return for C’s promise
that there would be an appeal with certain specified characteristics. For parties in the present case, the context was a
businesslike one. For the college, training was a significant function and clearly one of the reasons why it existed. For A,
training was means by which she’d changed the way she worked. Furthermore where one party makes and another
accepts a money payment as consideration for promise by other to perform some service or give some benefit, obvious
that intention to have legal consequences.
Atco Controls v Newtronics – although conduct of parties after making the agreement may be taken into account in
determining whether parties intended to be bound, conduct which does no more than indicate the subjective
intentions of one of the parties is not likely to be of assistance
5.2.1 Presumptions
Ermogenous v Greek Orthodox Community of SA Inc
Facts: Archbishop sued Greek Orthodox Community for unpaid leave. Greek Orthodox Community that intention to
crate legal relations should not be presumed in relation to engagement of a minister of religion => no employment
contract.
Held: In the circumstances where employer had extensive rights of control over archbishop, there was a binding
contract.
Principle: should exercise caution in using presumptions in relation to intention to be legally bound.
In light of Ermogenous,
- Outside the commercial context, the onus is on the person alleging the existence of a contract to satisfy the
court that the parties manifested an intention to create legal relations.
o Whether parties have manifested intention to create legal relations must be decided on facts of each
case, taking into account circumstances such as subject matter of agreement and relationship b/w the
parties
o In the case, the onus was on the minister to demonstrate that there was a contract
- If transaction is a commercial one, context will usually indicate that legal relations were intended so party
denying existence of contract must convince court that parties didn't intend to create legal relations
5.2.2 Family Agreements
5.2.2.1 Family agreements not binding
Balfour v Balfour
Facts: husband to go abroad on work. Agreed orally to pay his wife per month for maintenance. Wife said binding
contract.
Held: This was said to be a friendly discussion – not intended to be binding contract. Arrangements b/w H and W
involving mutual promises and consideration are not contracts because parties didn't intend that they should be
legally binding.
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5.2.2.2 Family agreements that are binding
Family Law Act 1975 – pre/post nuptial financial agreements can be binding, including agreements providing for
distribution of property in event of divorce and for maintenance of one of parties during marriage or after. Agreement
made under this Act is binding if signed by both parties and includes certificate that both parties received independent
legal advice.
Merritt v Merritt
Facts: Agreement made b/w married couple after they’d separated. Man signed doc where agreed to pay wife per
month.
Held: when parties are separated or about to separate then it may be presumed that they intended to create legal
relations.
Domestic agreements where P places a degree of reliance on D’s promise will generally be held to be binding.
Wakeling v Ripley
Facts: old widower asks sis in England to come live with him. ‘I will keep you for all time and I trust with no worry for
the future’. Sister agrees and comes to live with him. Later get into fight.
Held: Language in alleged agreement was not casual language that would be expected in mere family agreement. Not
uncertain – there was a binding contract which D had breached. In this case, wording intended to create legal relations.
Todd v Nicol
Facts: D sends letter to sister in law and niece asking them to come live with her rent-free. D says intends to alter will –
‘if I die, yours for life’. P come from Scotland and then fall out w/ D.
Held: there was intention to create legal relations. D knew that permanent future arrangement would affect financial
security of P. Intended to be binding and D knew that P would rely upon it.
Popiw v Popiw
Facts: H and W living apart. H promises W – return and I’ll transfer house into joint names. Went to solicitor to talk
about it.
Held: Going to solicitor, language, wife not obliged to come back – H had induced her => intention to create legal
relations.
Riches v Hogben
Facts: son agrees to come to Aus to look after mother. She says she will buy house in his name. Doesn’t do so.
Held: Binding agreement – reasonable people would regard it so, S committed considerable expense by selling
possessions and giving up rent free house and journeying to distant country.
Where the whole setting of the agreement between family members is commercial rather than social or domestic (i.e.
parties acting in their commercial interest, intention requirement will be satisfied (Roufos v Brewster).
5.2.3 Social Agreements
The Satanita case
Facts: entry to big yacht race. When signing up, competitors agreeing to not sue if there is collision damage above
certain amount. Collision occurs and someone suffers injury. Contract limits amount for damages.
Held: despite that this was social agreement, the fact that this was a significant event with significant consequence =>
legally binding social agreement
Simpkins v Pays
Facts: D, her granddaughter and P, a paying lodger shared house. All contributed 1/3rd of stake in entering competition
in D’s name. Won prize but D refused to share prize.
Held: presence of outsider rebutted presumption that agreement was mere family one and not intended to be binding.
Mutual arrangement was a joint enterprise to which cash was contributed in expectation of sharing any prize.
Trevey v Grubb
Facts: Lotto coupons filled in by T and G. W (G’s mother) joined in. W selected winning square. When won, G failed to
pay.
Held: This went beyond casual arrangement – intended to be legally binding. Lot of money at stake, repeated
behaviour and statements about ‘more chance to win with more people’ suggested an intention to split proceeds of
any such win.
5.2.4 Commercial Agreements
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Carlill – company saying in their advertisement that they’d deposited money in bank clearly showed intention to be
legally bound – went beyond mere puff in the ad.
Edwards v Skyways
Facts: Pilot made redundant. Promised ‘ex gratia’ (i.e. not obliged to make it) payment. Company later refused to pay.
Held: Company not obliged to make offer, but having made it in business context, it was legally binding.
Principle: a person seeking to deny the enforceability of a commercial transaction bears a heavy onus in proving that
it was not intended to be binding.
5.2.4.1 Excluding ‘intention’ in commercial context
Rose & Frank v Compton: gentleman’s clause in agreement (parties bind themselves in honour but not legally) shows
intention not to have legal agreement. Hence contract not enforceable.
5.2.4.2 Expressions used in negotiations
Heads of agreement
Anaconda Nickel v Tarmoola – heads of agreement constituted agreement in themselves to be replaced by fuller
agreement in different substance or form. Hence parties intention was to be bound by current doc but agree to later
produce another.
Coal Cliff v Sijehama – head of agreement was full of uncertainty. Hence held not to be enforceable.
Factory 5 Pty Ltd v State of Victoria – head of agreement held to be binding although to be replaced by other
document.
Letter of intent: Pirt Biotechnologies v Pirtferm – one party starts negotiation to license a good. Produces letter of
intent saying that ‘parties at this stage do not seek a contractual obligation’. Court held that letter of intent along with
surrounding factual matrix indicated that parties didn't intend to be bound at the moment.
Letter of comfort:
Klienwort Benson v Malaysia Mining Corp – letter of comfort from a parent company stating that it was their policy to
ensure their subsidiary is in position to meet its liability was held not to be binding obligation b/c merely statement of
fact rather than promise. Where statement in a commercial document doesn’t appear to have been intended as a
contractual promise, the onus lies on the party alleging a contract to show that the statement was intended as a
contractual promise.
Norman; Re Forest Enterprises – letter of commitment provided by parent company saying that ‘parent company
hereby agrees to provide this commitment to the smaller company to others to meet its obligations from time to time.
Court held that language was not such that indicated that not binding. Language was one of commitment – hence
binding.
Banque Brussels v Australian National Industries – if statements given by parent company’s are appropriately
promissory in character, courts should enforce them when they are uttered in the course of business and there is no
clear intention that they are not intended to be legally binding. Letter of comfort in this case held to be binding.
Termsheets: Maple Leaf v Rouvray: private finance company providing finance to another company produced
termsheets saying that terms intended to crate legally binding obligation on part of both parties. Held to be binding.
5.2.5 Government Schemes
Australian Woollen Mills v Commonwealth
Facts: Govt enforced wool subsidy scheme in wartime to keep domestic wool market going. Later on government
pulled out from this scheme. P tried to enforce subsidy scheme as a contract. Held: No intention to make a contract
with P. Factors indicating no intention to create legal relations: 1) no statutory authority was sought for the making of
payments. 2)scheme was announced by persons who had no power to commit Crown to any expenditure. 3) Cth had
no commercial interest in the purchase of wool but was simply dealing with problem created by war. 4) Cth expressly
reserved right to vary amount of subsidy. Scheme was administrative rather than contractual; reflected statement of
policy rather than a contract obligation.
Administration of PNG v Leahy
Facts: Department of agriculture helped P with tick infestation on his property. P claimed this was a contract.
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Held: department simply providing gratuitous assistance in the execution of its policy. The work done by the
Administration was analogous to a social service which generally does not have its basis a legal relationship of a
contractual nature.
6. Consideration
Deed must be signed, sealed and delivered (Property Law Act ss45-47)
6.1 Essential elements of consideration
Two aspects to the definition of consideration
o 1. Promisee must incur detriment or confer benefit on promisor (benefit/detriment requirement)
o 2. Benefit or detriment must be given in return for the promise (the bargain requirement)
6.1.1. Benefit/detriment requirement
Currie v Misa: valuable consideration may consist either in some right, interest, profit or benefit accruing to the one
party or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the other
Therefore promisee must either confer benefit on promisor or incur legal detriment (i.e. giving something up or
undertaking an obligation). Mutual promises will provide good consideration for each other.
6.1.2. Bargain requirement
The benefit conferred on the promisor or the detriment suffered by the promisee must be given in return for the
promise.
The act relied on as consideration must be performed as the agreed price of the promise (Australian Woollen Mills v
Cth)
Australian Woollen Mills v Commonwealth
Facts: Aus Woollen Mills attempted to enforce promise made by the Cth to pay subsidies on wool purchased by Aus
manufacturers. AWM claimed that by purchasing wool, it provided consideration for Cth’s promises to pay subsidies.
Note: statements made by Commonwealth were policy announcements and no request to purchase wool was implied.
Held: although acts of purchasing wool = detriment to AWM and benefit to Cth, there was no relation of quid pro quo
(this for that) b/w the Cth’s promise and the acts relied on as consideration for that promise. Promisor hadn't
requested acts.
Principle: the acts of the promisee must be performed in return for the promise. This bargain aspect of consideration
will be satisfied if acts which are said to amount to consideration have been performed at the request of the
promisor. In the absence of this request it will be irrelevant that the promisee acted to their detriment in reliance on
promisor’s promise.
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Ballantyne v Phillot – it is possible for an act to satisfy the bargain aspect of consideration but not the
benefit/detriment requirement.
6.1.2.1 Bargains and conditional gifts
There is a distinction between a contract and a conditional gift (Australian Woollen Mills v Commonwealth). A promise
to pay $100 to someone if they perform a certain act (e.g. arriving in Sydney) is a conditional gift, whereas a promise to
pay $100 in return for performance of the act is capable of giving rise to a contract (e.g. B requests A to come urgently
and A will have to pay certain costs – in this case, can infer that A going to Sydney is in exchange for promise by B). The
necessary connection or relation b/w the announcement and the act is provided if the inference is drawn that B has
requested A to go to Sydney (Australian Woollen Mills v Commonwealth)
6.1.2.2 Bargains and reliance
Also must distinguish between an act performed as the agreed price of a promise and an act performed in reliance on a
promise. An act performed in reliance on a promise will not constitute good consideration, but may give rise to an
estoppel. Hence act performed in reliance on promise won’t constitute good consideration for that promise unless
those acts can be regarded as having been performed in return for the promise. (Beaton v McDivitt).
Beaton v McDivitt
Facts: M (promisor) owned 25 acres of land. Invited B to move on to land rent free and work it organically. Said that
when subdivided he would transfer ownership of land. B accepted offer – lived there 7 years rent free, but spent some
money. M and B get into fight. B then barred from property. B alleges that promise to him to transfer ownership
Held: (Kirby P) – bargain requirement not satisfied on facts since B made no promise which could be regarded as quid
pro quo for promise to transfer land. The benefits that D derived scarcely amounted to quid pro quo for substantial
promise as passing of title. B not giving anything up. No detriment to B or benefit to M. B’s actions in this case more for
own benefit. Bargain in this case was illusory/one sided and hence not enforceable. Furthermore, B’s promise to
maintain road was not offered in exchange for M’s promise b/c only brought that up after agreement made b/w
parties. McHugh and Mahoney JJA – B had provided consideration by working land at M’s request. B had suffered
detriment in acting upon the offer made by M in maintain the land. Hence binding contract (brought to end by
frustration)
Atco Controls v Newtronics
Facts: Atco provided letters of support to auditors of its subsidiary (N) confirming that it would provide fund to enable
N to meet debts. When N became insolvent, liquidator argued that letters = evidence of contract b/w A and N where A
undertook to provide financial support for N.
Held: N could be said to trade in reliance on A’s undertakings. But for consideration requirement to be satisfied, N
would have to show that A’s undertakings were offered as the price or quid pro quo for action of N in continuing to
trade. Hence would need to show that A requested N to continue to trade in return for the undertaking of continued
support.
6.2 Other requirements/features of consideration
6.2.1 Distinguish motive and consideration
Thomas v Thomas
Facts: executors looking after estate of dead husband produce agreement with wife that they’re going to give her
premises to live in. ‘In consideration of H’s desire, will convey premises to W for life provided W pay ..rent’. Issue of
whether contract b/w executors and the wife.
Held: executors saying ‘in consideration of H’s desire’ was to do with their motive – saying this did not constitute good
consideration. However, since rest of agreement made promise based on wife paying rent and keeping premises in
good consideration, either of those would be sufficient consideration.
White v Bluett
Facts: son owed father money. After son complained, father agreed to waive loan. Was promise enforcable?
Held: motive of father promising (love/affection etc) not consideration. No benefit to F; no detriment to S. Not
enforceable
6.2.2 Consideration must move from the promisee
It is a fundamental principle that consideration must move from the promisee (Thomson v Thomson).
Coulls v Bagot’s Executor and Trustee
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Facts: Coulls (H) gave co right to quarry stone from his property in return for royalties. Under agreement H authorised
co to pay royalties to him and wife as joint tenants. When H died dispute arose as to whether co obliged to pay
royalties to W or to executor of H’s estate. Held: the promise made to H and W was supported by consideration b/c H
had provided consideration on behalf of both of them. Action failed b/c wife wasn't party to contract. Principle:
Where 2 or more parties to contract are regarded as joint promisees, consideration may be provided by 1 of them on
behalf of both or all of them
Trident General Insurance v McNiece - a party to a contract who has not themselves provided consideration will be
able to enforce a promise only if they can be regarded as a joint promisee with the person who has provided
consideration.
6.2.4 Consideration must be sufficient
Consideration must be sufficient (i.e. something law requires as valuable), but doesn’t have to be adequate. Hence
provided that consideration meeds threshold of sufficiency, courts will not inquire whether value of the consideration
is equal or even proportionate to that of the promise it supports (Woolworths v Kelly).
Thomas v Thomas – W’s promise to pay 1 pound rent and keep house in good shape held to be good consideration for
promise by H’s executors to let her keep the house for life.
6.2.4.1 Some ‘commercial’ value
Chappel v Nestle
Facts: D saying that if people send in wrapper of bar of chocolate, will get latest hit record. Issue was how much D
needed to pay copyright owners of star hit. D entitled to % of intellectual property rights by virtue of total price paid.
Sub issue was whether wrappers sent in by people along with money was part of consideration such that it was part of
price of which P received a portion. Held: Despite the fact that wrappers thrown away, they formed some value. Hence
they were part of the consideration given by people, and therefore part of the total price paid.
6.2.4.2 Discretion as to performance
Placer v Commonwealth
Facts: Written agreement where Commonwealth promised to pay subsidy of ‘an amount or at a rate determined by the
Cth from time to time’.
Held: agreement imposed no obligation on Cth to pay any subsidy. Hence Cth’s promise was illusory consideration.
Principle: promise will not constitute good consideration if promisor retains an unfettered discretion as to
performance.
6.2.4.3 Past consideration
6.2.4.3.1 General rule
Past consideration is not considered sufficient consideration. Something given before a promise is made cannot
constitute good consideration for the promise.
Roscorla v Thomas
Facts: sale of horse. Later S makes ‘warranty’ about soundness of horse. B sought damages for breach of contract b/c
horse not in fact sound.
Held: Promise as to soundness not enforceable b/c P hadn't given consideration. Payment of price was past
consideration which did not support the later promise.
Distinguish b/w past consideration and executed consideration
Executed consideration is given as part of the same transaction as the promise. In case of unilateral contract,
consideration given by offeror has been provided or executed by the time the contract is made.
6.2.4.3.2 Exception to general rule – promise to pay for past services
Lampleigh v Brathwait
Facts: D asks P to do all he can do to secure pardon from King for murder committed by D. P expended considerable
effort in travelling to see King. D later promised to pay P for his services. P tries to enforce promise.
Held: promise by D held to be binding.
Principle: Where services are performed at the request of the promisor, in circumstances that raise an implication
that they are to be paid for, then performance of the services by the promisee will constitute good consideration for
a subsequent promise to pay for them. Promisor’s promise is linked to the earlier request.
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Ipex Software Services v Hosking
Facts: R transferred business of which he was part owner on understanding that he’d receive shares in restructured
group. Held: R’s transfer of business held to be good consideration for subsequent promise to transfer shares in group
to R.
Pao On v Lau Yiu: good consideration if: 1) promisee acts on promisor’s request. 2) parties understood at start that act
was to be remunerated => in such a case, payment will be legally enforceable.
6.2.4.4 The existing legal duty rule
6.2.4.4.1 The general rule
Neither the promise to perform an existing legal duty, nor the performance of an existing legal duty is regarded as
sufficient consideration to support a contract (Wigan v Edwards).
Collins v Godefroy
Facts: P asked to give evidence at trial. D says he will pay P for their trouble. D’s promise enforcable?
Held: Witness obliged by law to tell the truth anyway; hence not good consideration
Stillk v Myrick
Facts: Voyage. Some crew members deserted. Master of ship agrees to pay remaining crew extra if they stay on.
Held: Crew had not provided good consideration for master’s promise to pay extra – crew had an existing contractual
duty to stay on board in emergencies (e.g. other crew deserting) and hadn't given anything extra.
Principle: performing an act for which the promisee already has an existing contractual duty to perform will not be
good consideration for a promise to pay extra by the promisor.
6.2.4.4.1.1 Part payment of a debt
Pinnel’s case – if a debtor owes creditor $x, and creditor agrees to accept half of that sum, agreement will not be
binding and creditor will be entitled to recover the remaining sum of money because the promisor’s promise isn’t
supported by consideration. In paying the reduced amount of the debt, the debtor is simply performing (part of)
their legal obligation.
Foakes v Beer (followed Pinnel’s case)
Facts: judgment occurred with result of ordering F to pay B certain sum of money. B agreed that she wouldn't take
proceedings on the judgment if F paid certain amount of total sum each year until total sum paid. This had effect of
waiving interest that she was entitled to by judgment. Later she attempted to force F to pay the interest.
Held: There was no consideration for B’s promise to not seek interest. All F was doing was partly paying an existing
debt – this didn't confer additional benefit on B over and above what she would’ve received from F fulfilling obligations
under judgment. Hence under the new agreement F provided no extra value to B that would be consideration for her
promise.
Rule in Pinnel’s case has no application where debtor pays before due date or in different form, where several creditors
jointly agree to forgo part of each of their debts (Couldery v Bartrum), where payment is made to creditor by third
party (Hirachand v Temple), or where debtor gives something other than money in addition (Pinnel’s case – robe, haw,
tomtit)
If an agreement where creditor prepared to accept less sum of money in full satisfaction of debt is made in the form of
a deed, it will be binding despite the absence of consideration (Larkin v Girvan).
6.2.4.4.2 Exception 1 – Fresh Consideration
Glasbrook v Galmorgan County Council
Facts: strike at coal mine. Miners asked for 70 extra police to be put at pit. Miners said didn't have to pay police
Held: since more policemen were asked for and they were doing more than they were obliged to do, this was good
consideration. Principle: if promisee does more than what they are obliged by law to do (i.e. more than their existing
public/statutory duty), then this will constitute good consideration for the promise.
Ward v Byham (Denning J): to make a promise to perform a legal duty enforceable, there must be consideration over
and above any statutory duty.
Popiw v Popiw
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Facts: H asks W to come back and live with him. Then alleged that not good consideration b/c she was obliged to live
with him anyway. Held: W had done more than what she was obliged to do as a wife; hence good consideration.
Hartley v Ponsonby: ½ crew had deserted ship; dangerous to continue. Remaining crew under no obligation to go to
sea in those conditions. Provided fresh consideration by agreeing to continue the voyage. Promise of more wage
enforceable. Principle: if promisee does more than contractually obliged to do, that is good consideration for
promise to pay more.
6.2.4.4.3 Exception 2 – Practical benefit
Existing legal duty rule inapplicable where promisee gets practical benefit from promisor’s promise to perform existing
duty.
Williams v Roffey
Facts: Sub contractor working for R asks R for more money. In order to avoid trouble/expense of finding replacement
SC and incurring financial penalties under head contract for late completion R agrees to pay W extra. Doesn’t pay.
Held: SC’s promise to continue to work was good consideration for R’s promise to pay extra b/c W’s promise provided
R with practical benefit or avoidance of disbenefit.
Principle: An exception to the legal duty rule should be recognised where promise to perform confers practical
benefit (or obviates disbenefit) on the promisee and no economic duress is involved in promisee’s promise to pay
more.
Musumeci v Winadell
Facts: Landlord (W) accepts reduced rental from M b/c suffering financial difficulties when W leases units in centre to
competitor. Later W insists that they can terminate offer of rent reduction. Consideration for reduced rent promise?
Held: M’s act of staying within the centre provided practical benefit to W – W avoided having to pay damages to main
contractor to refurbish and avoided trouble/expense of finding replacement for M. Hence M’s promise to reduce rent
was supported by good consideration.
Elements: 1. A and B have contract. 2. B has reason to doubt whether A will complete obligations under contract. 3.
B then promises A additional payment or concession (reducing A’s current obligation) in return for A’s promise to
perform current contractual obligation. 4. As a result of promise, B obtains practical benefit (or avoidance of
disbenefit) and this practical benefit is capable of being regarded by B as greater than any likely remedy against A.
Furthermore, A must suffer a detriment (i.e. staying within contract is worth less than leaving contract). 5. B’
promise not given as a result of economic duress. Then  benefit to B/detriment to A is capable of being
consideration for B’s promise.
6.2.4.4.4 Exception 3 – Promises made to third parties
A promise to perform an existing contractual obligation amounts to good consideration if it is made to a person who
was not a party to the original contract (Scotson v Pegg). Existing duty rule doesn’t apply b/c promisor incurs additional
legal obligation and confers additional legal right on new promisee.
Pao On v Lau Yiu
Facts: P agreed to acquire shares in public company under contract requiring them not to sell certain shares for 12
months. Entered into second contract w/ shareholders of the company. In return for P performing their obligations
under first contract, shareholders agreed to indemnify P against any loss resulting from fall in share price.
Held: P’s promise to perform the act which they were already under an existing obligation to perform to third party
will constitute good consideration.
6.2.4.4.5 Exception 4 – Compromise and forbearance to sue
A promise to perform an existing legal obligation will also constitute good consideration where it is made by the
beneficiary as part of a bona fide compromise of a disputed claim.
Wigan v Edwards
Facts: E entered into contract to purchase property from W. After discovering defects, E said wouldn't complete
transaction unless defects rectified. Although E had no legal right to refuse to refuse completing purchase, their claim
was made honestly. W signed document agreeing to rectify listed defects – didn't rectify all however.
Held: Although all E had done in return for W’s promise was agree to perform existing legal duty to pay price and
complete transaction, HC held that promise made as part of bona fide compromise constituted exception to existing
legal duty rule. IN order to fall w/in exception, not necessary for E to establish that they had a valid legal entitlement to
refuse to perform contract. Enough that the intimated that they didn't consider themselves bound to perform and their
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claim was honestly made. Principle: provided that parties don't have a frivolous or vexatious claim, forbearance of a
claim will be considered good consideration.
Musumeci – In this case, there was no consideration in relation to the forbearance because evidence demonstrated
that the promise abandoned claim was maintained after D said he would reduce rent. Hence forbearance was not
given in exchange for the offer to reduce rent.
6.2.4.4.6 Exception 5 – Termination and replacement
Existing legal duty rule will have no application where parties have terminated their original contract and entered into a
new contract. This exception to the existing legal duty rule will only operate where parties intended to terminate and
replace, rather than modify, their original contract.
6.2.4.4.7 Exceptions subject to economic duress
Sundell v Yannoulatos – if promisee only obtained promise to pay more through economic duress, promise isn’t
enforceable. Threatening to break a contract is a form of economic duress.
North Ocean Shipping V Hyundai Construction
Facts: Ship builders ask owners for more money. Owners agree to pay more money but then refused to pay.
Held: Consent by ship owner only obtained by economic pressure (i.e. threat to break the contract). Not enforceable
Pao: In circumstances where there is consent brought about by illegitimate pressure, the contract may be set aside
7. Estoppel
7.1 Common law estoppel
Where representor leads relying party to adopt assumption of fact and relying party acts on that assumption in such a
way that the relying party will suffer detriment if the representor subsequently denies that it is true representor is
‘estopped’ from denying the truth of the representation. Effect=> rights of parties decided on basis of the assumed
state of affairs.
7.2 Equitable estoppel
Proprietary estoppel – where relying party acts to their detriment on faith of assumption that they will be granted
interest in land. Promissory estoppel – any application of equitable estoppel that doesn’t relate to an interest in land.
7.2.1 Proprietary estoppel
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Riches v Hogben - P able to claim interest in land on basis that they had relied on an assumption, induced by conduct of
D that they had been or would be given an interest in the land. (Giumelli v Giumelli similar reasoning)
7.2.2 Promissory estoppel
Hughes v Metropolitan Railway
Facts: L leased property to T. T had obligation to repair property. L said that if T didn't repair property w/in 6 months, L
would forfeit whole lease. L and T then get into negotiations for T to purchase building from L. Nothing resolved in
negotiations. After 6 months, L sued T for breach of contract and tried to evict T.
Held: With the initiation of the negotiations there was an implied promise by L not to enforce their strict legal rights
with respect to the time limit on the repairs and T had acted on this promise to their detriment.
Birmingham v District Land Case
Facts: T under building lease bound to build, within specified time. L requested T not to build until the result of certain
negotiations was known. L then sues for T breaching lease.
Held: L could not afterwards insist on the strict contractual time until notice was given to the tenant giving him
reasonable time to complete the building. Bowen LJ: if persons who have contractual rights against others induce by
their conduct those against whom they have such rights to believe that such rights will either not be enforced or will be
kept in suspense for a particular time, those persons will not be able to enforce those rights until such time has
elapsed.
High Trees Case
Facts: 99 year lease of block of flats beginning from 1937. In Jan 1940 threatened bombing of London => tenant
couldn’t get subtenants to rent flat. Landlord agrees to accept half rent. In Sept 1945, all flats full – landlord claims
arrears and full rent in future. Tenant argues that agreed contractual variation (half rent) now binding.
Held: Denning used principles in Hughes and Birmingham to say that L was estopped from going back on his promise. L
was stopped from saying he wanted full rent until it would no longer be inequitable to do so (i.e. when WWII ended).
L’s right to receive full rent was suspended either until war finished or when he had given reasonable notice to tenant
that wanted to return to strict legal rights. Principle: Where person has made a promise (as to the future) which was
intended to affect the legal relations b/w the parties [representor says either will or won’t insist on strict legal
rights] was intended to be acted upon and was in fact acted upon, the representor is prevented from acting
inconsistently with the promise.
7.2.2.1 Promissory estoppel – suspension of rights or independent cause of action?
High Trees, Equitrust v Franks – estoppel in this case operated merely as a suspension of rights. Promisor could return
to strict legal rights to have full rent/interest rate provided they had given reasonable notice to the other side.
W v G - D agreed to share responsibility for welfare of children w/ P and assisted P in having children. P and D later
separated and P sought compensation by way of estoppel for loss of promised financial support. Estoppel upheld in this
case resulted in the enforcement of the D’s promise to assist P in raising the children and cannot be seen as supporting
any other cause of action. Equitable estoppel can be held as a cause of action (i.e. an independent source of rights) in
cases outside the proprietary estoppel context. Estoppel here was held as cause of action where no cause of action
available.
7.2.3 Elements of estoppel
Three elements required: 1. Relying party adopted an assumption (assumption). 2. Assumption must have been
induced by the conduct of the representor (inducement). 3. Relying party must have acted on assumption in such a way
that they will suffer detriment if representor doesn’t adhere to assumption (detriment).
Three elements that should be considered: 4. Court must be satisfied that relying party has acted reasonably in
adopting and acting upon relevant assumption (reasonableness). 5. It must be unconscionable in the circumstances for
representor to depart from assumption (unconscionability). 6. Representor must depart or threaten to depart from
assumption adopted and acted upon by the relying party (departure or threatened departure).
Waltons v Maher – general principles
Facts: 1983 lease negotiations. LL (Maher) negotiating with stores. LL wanted to demolish building and build new one.
Draft contract sent by T (Walton). LL suggests amendments. 7 Nov - LL’s lawyer to T: Need agreement on amendments
quickly so can finish work by January. T’s lawyer sends redraft back to LL: no specific instructions from T to
amendments. We believe that approval will be forthcoming. We shall let you know tomorrow if any amendments were
not agreed to. 18 Nov: T changed mind – didn't want to pursue contract anymore. 10 Dec: T learns of demolition – does
nothing. LL under impression that exchange of contracts was just a formality and everything was ok. 19 Jan: Building
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half complete – T told LL no contract. Hence this was not in context of binding contract in existence – representation as
to future by words and conduct.
Held: T estopped from denying existence of contract. Estoppel can be enforced in the absence of a pre-existing
relationship of any kind in respect of a non-contractual promise on which the representee has relied upon to his
detriment. P believed that contract had been formed but not that they had been exchanged – thought that exchange
of contracts would take place as a matter of course. (Brennan J): To establish equitable estoppel necessary for P to
prove:
- 1. P assumed that particular legal relationship then existed b/w him and d or expected that particular legal
relationship would exist b/w them and that D wouldn't be able to withdraw from relationship (assumption)
- 2. D induced P to adopt that assumption or expectation (inducement)
o D’s retention of deed and absence of any objection as to finishes = promise by W that it would
complete the exchange
- 3. P acts or abstains from acting on reliance on assumption/expectation (reasonableness in acting)
o P began work in expectation that D would execute and deliver original deed
- 4. D knew or intended him to do so
o As D knew that P had said he would commence work only if agreement was concluded, D must have
known that P either assumed that contract had been made or expected that it would be made and D
wouldn't be free to withdraw
o D intended that P should continue to build store on reliance on assumption/expectation
- 5. P’s action or inaction will occasion detriment if assumption/expectation not fulfilled (detriment)
- 6. D failed to act to avoid detriment whether by fulfilling assumption or otherwise
(departure/unconscionability)
o It was unconscionable for D subsequently to seek to withdraw after a substantial part of work was
complete, leaving P to bear the detriment which non-fulfilment of the expectation entailed
7.2.3.1 Required element 1 - Assumption
Assumption must be either to existing fact (common law estoppel) or to future conduct (equitable estoppel).
Waltons v Maher (Brennan J): It is necessary for a plaintiff to prove that he or she assumed that a particular legal
relationship existed or would exist b/w the P and the d and the D would not be free to withdraw from that relationship
Mobil Oil Australia v Wellcome: However in some cases, the expectation of an interest in land is taken to constitute an
exception to the rule stated by Brennan J in Waltons v Maher. It is a necessary element of the principle of equitable
estoppel that the D has created or encouraged an assumption that ‘a particular legal relationship’ or ‘an interest’
would arise or be granted => not satisfied in this case b/c D had just made generalised commitment – did result in the
P assuming that legal relationship would come into existence or interest would be granted.
Austotel v Franklins – equitable estoppel can operate in relation to ‘an assumption that a contract will come into
existence or a promise be performed or an interest granted to the plaintiff by the defendant’ => broader principle
7.2.3.2 Required element 2 – Inducement
The assumption adopted by the relying party must have been induced by the conduct of the representor. The
assumption may take the form of an express promise/representation (e.g. Saleh v Rohmanous), but does not have to
be so – it can also be through conduct or inaction (Waltons v Maher – W’s inaction induced M to continue to act on
basis of the assumption they had made). The promise can also be implied (Hughes v Metropolitan Railway).
An estoppel may only arise from a clear ‘promise’ or ‘representation’ made by the representor (Legione v Hateley).
Legione v Hateley
Facts: Contract for sale of land. B failed to pay purchase price on due date. S then served notice of intention to rescind
agreement if purchase not completed by 10 August. On 9 Aug, B’s solicitor phoned S’s solicitors and told secretary that
B would be able to complete purchase on 17 Aug. Secretary: I think that will be alright but I will have to get
instructions. As a consequence of secretary’s assurance, B didn't make further attempts to obtain finance in time to
complete purchase before notice expired. Held (2 judges): Estoppel didn't arise b/c no clear representation as to future
conduct of person making representation. Secretary didn't, by words or conduct make a clear and unequivocal
representation as to effect that purchasers could disregard time fixed by notice of rescission. Brennan J: S’s solicitors
had no implied/actual authority to vary effect of the notice to revoke. Since B’s solicitors must be taken to have known
about limit of secretary’s authority, no promise or representation that time for completion to be extended could be
inferred from secretary’s conduct.
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However this view is inconsistent with later decisions: Murphy v Overton Investments – since Walton and
Commonwealth v Verwayen, preferred approach is to ask whether relying party was induced to adopt an assumption
as to the future conduct of the representor, rather than to ask whether promise or representation has been made.
Thorner v Major: although clear promise no longer requirement in itself, nature of inducing conduct is important factor
to consider in determining whether reliance was reasonable.
7.2.3.3 Required element 3 – Detrimental reliance
Relying party must have acted on the assumption in such a way that they will suffer detriment if the representor is
allowed to depart from the assumption (Thomson v Palmer). Furthermore, the defendant must know or intend that the
relying party will act or abstain from acting in reliance on the assumption that they induced (Waltons v Maher, Brennan
J).
Distinguish b/w expectation loss and reliance loss. Expectation loss – loss of benefit relying party assumed she had or
expected to receive. Reliance loss – loss actually suffered as a result of the relying party’s reliance on the relevant
assumption when the representor acts inconsistently with the assumption.
7.2.3.3.1 Types of detrimental reliance
Detrimental reliance often involves wasted expenditure of money either on improvements to representor’s land
(Dillwyn v Llewelyn) or in preparation for a contract with the representor (Waltons Stores v Maher). Inactivity can also
be detrimental here it results in the loss of an opportunity to obtain a benefit or avoid a loss – e.g. failing to exercise
contractual right such as option to renew a lease (Tobin Brothers). But inactivity will not be regarded as detrimental
when there is nothing the relying party could have done to improve its position (Thompson v Palmer).
Je Maintiendrai v Quaglia
Facts: tenants rented shop in L’s shopping centre. L promised to accept reduced rent b/c T having difficulties and L had
trouble finding new tenants. L accepted reduced rent for period of 18 months until T sought to leave premises, at
which time L then demanded amount unpaid.
Held: it would be detrimental to tenants to be forced to pay arrears in lump sum. Until L attempted to resile from
assumption that full rent not payable, T actually received benefit – but this benefit would have become detriment if L
had been able to claim unpaid amount in lump sum (payment in lump sum worse than periodic payments). Also, in
reliance on L’s promise T remained in the premises and gave up other choices available to them.
Principle: detriment must be assessed at the time representor seeks to resile from the relevant assumption.
Commonwealth v Verwayen
Facts: V suffered injuries as a result of collision of 2 naval vessels. V later claimed against Cth for negligence. Cth didn't
plead defence under limitation Act – made representations that policy decision not to plead defence in actions brought
by survivors of the collision. In reliance of representation V continued to prosecute his action against Cth. Later on Cth
changed policy and sought leave to amend its defence to plead the relevant defences.
Held: 2 judges relied on estoppel to prevent Cth from going back on its promise. Deane J: Verwayen continued action
on faith of assumption induced by Commonwealth and suffered increased stress etc. Relevant detriment to V would
extend far beyond any legal costs. Dawson J: Cth’s conduct led V to continue the litigation thereby subjecting him to
stress.
Principle: Detriment can be of a non-financial nature.
Hawker Pacific v Helicopter Charter
Facts: representor induced relying party to believe that representor would pay certain sum of money to RP in
settlement of disputed claim. On faith of assumptions, employees of RP made trips to R’s premises to collect cheque in
payment of sum.
Held: detriment resulting from these fruitless visits didn't constitute a material or significant disadvantage.
Principle: detriment suffered or to be suffered by relying party as a result of reliance on assumption must be
material.
In common law, it is not required that detriment has actually been suffered by the relying party at the time estoppel is
sought to be established (e.g. High Treees). Important in cases where the representor has not yet departed from the
assumption in question but has merely threatened to do so – where representor hasn’t actually departed from the
assumption, relying party won’t have suffered any detriment.
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7.2.3.4 Considered element 4 – Reasonableness
Two related questions –
1. Did the relying party act reasonably in adopting the relevant assumption?
Murphy v Overton Investments
Facts: Operator of retirement village gave prospective tenants an estimate of maintenance expenses for which they
would be liable on ‘present budget figures’.
Held: if tenants assumed that estimate took into a/c all expenditure likely to be incurred in future budget periods it was
unreasonable for them to have done so. In life of retirement village, new expenditure would be likely to arise.
2. Did the relying party act reasonably in taking the relevant detrimental action on the faith of the assumption?
7.2.3.5 Considered element 5 – Unconscionable conduct
For an estoppel to operate, there must be an induced assumption and reliance on that y the plaintiff, in circumstances
where departure from the assumption by the defendant would be unconscionable (Silovi v Barbaro). However failure
to fulfil the promise of itself wil not be unconscionable (Waltons) – it is the effect on the plaintiff (i.e. their reliance)
that is key.
Commonwealth v Verwayen (Deane J): the question whether departure from the assumption would be unconscionable
must be resolved by reference to al the circumstances of the case, including the reasonableness of the conduct of the
other party in acting upon the assumption, representor’s knowledge of RP’s assumption, representor’s intention to
induce reliance and the nature and extent of the detriment which RP would sustain by acting upon the assumption if
departure from the assumed state of affairs were permitted.
Waltons v Maher – D in the case, knowing M to act detrimentally to itself on the basis of a false assumption, adopt a
course of inaction (i.e. inaction by retaining lease and not telling M that exchange wouldn't occur) which encouraged M
in their act.
Portland Downs Case
Facts: Property arrangement. P decides to do up apartment to higher specification thinking they have interest in it on
the basis of representation made by D’s agent. P argued that D couldn’t go back on this representation b/c suffered
detriment (expenses) in creating the property. Held: In this case, because P and agent were friends and D knew nothing
about the relevant conversation that took place between them, it was not unconscionable for D to deny
representation. No estoppel.
Principle: Basis of unconscionability is about looking at the subjective conscience of the particular defendant.
7.2.3.6 Considered element 5 - Departure or threatened departure
For an estoppel to arise, there must be an unjust or unconscionable departure or threat to depart from the assumption
adopted and acted upon by the party seeking to assert the estoppel (Ashton Mining v Commissioner of Taxation).
There is now very strong support in case law for the view that estoppel comes into effect once assumption has been
induced and reasonably relied upon (Sarkis v Deputy Commissioner of Taxation).
7.2.4 Effect of establishing equitable estoppel – remedy
Effect of equitable estoppel is to raise an equity in favour of the relying party which the courts must satisfy.
Relying party has two interests:
1. Interest in protection from harm resulting from his or her reliance on promise – means of protecting this interest is
for court to pay monetary compensation for detriment suffered by relying party in reliance on relevant assumption.
2. Interest in receiving the benefit that they expected to or were led to believe that they would receive – this interest is
protected when court orders specific performance of an unexecuted agreement (Waltons v Maher). Also protected
when court refuses to allow representor to depart from representation as to future conduct (Commonwealth v
Verwayen), orders representor to transfer to RP promised/expected interest in land (Dillwyn v Llewelyn) or orders
representor to pay monetary compensation to relying party calculated by reference to value of expected interest
(Giumelli v Giumell).
Usually protection of the expectation interest will usually also protect reliance interest.
7.2.4.1 Development of approach to remedies
Waltons Stores v Maher – Brennan J: Minimum equity that should be awarded to relying party is the minimum
necessary to prevent detriment being suffered by the relying party as a result of their reliance. In Waltons, remedy
granted was equitable damages in place of specific performance of the lease M assumed W had signed or would sign.
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Effect of estoppel was preclusionary – prevented W from denying existence of contractual rights which M were
induced to believe they had or would have.
Commonwealth v Verwayen – estoppel that arose against the Commonwealth was to be satisfied by fulfilling V’s
assumption and preventing Cth from pleading its defences. Deane J: relevant assumption should be made good unless
to do so would
be unjust to the estopped party. Dawson J agreed with Brennan J’s view in Waltons but found that V had suffered
substantial detriment as a result of his reliance on the assumption, which couldn’t be measured in terms of money.
Therefore equity raised by Cth’s conduct could only be satisfied by fulfilment of V’s assumption. Mason CJ (with
McHugh J agreeing): there must be proportionality between the remedy and the detriment which its purpose is to
avoid. Hence court may do what is required, but no more to prevent the relying party from suffering detriment as a
result of their reliance on the assumption. Held that as there was no evidence of non-financial loss, and order for costs
would be sufficient compensation for financial detriment, estoppel that arose didn't prevent Cth from pleading
relevant defences. Brennan J applied his own principle from Waltons – to hold Cth to its promise to admit liability in
negligence would be to go beyond the minimum equity needed to avoid the relevant detriment.
7.2.4.2 Current approach to remedies
Starting point in giving effect to equity raised by estoppel is that relying party has a prima facie entitlement to have
relied-upon assumption made good (Anaconda Nickel v Endensor Nominees). There are then two reasons as to why this
prima facie entitlement might give way to some other form of relief:
Consideration 1: May be impossible, impractical or inappropriate in the circumstances to fulfil the relying party’s
expectations. E.g. Giumelli – not appropriate to require parents to give R interest in land he expected to receive b/c S
had improved property and now lived there with his family.
Giumelli v Giumelli
Facts: Promises made by parents to R (partners in family business): 1) R would be given part of property (promised lot)
to compensate him for working w/out wages. 2) R intending to marry – parents told him that if R built house, house
would be his. 3) Larger property would be subdivided to create promised lot if he stayed on property and didn't accept
offer to work elsewhere. Later relationship b/w R and parents break down. Parents tell R to choose b/w new wife and
property. Third son S lived with his family on land and improved it. R argued that he owns the promised lot based on
parent’s promises.
Held: Majority agreed w/ Deane J in Commonwealth – relying party has entitlement to relief based on the assumed
state of affairs which will be qualified if that would exceed what could be justified by the requirements of conscientious
conduct and would be unjust to the estopped party. Considering all the circumstances of the case (pending partnership
action, improvements to lot by family members other than R, breakdown in family relationships, continued residence
on promised lot of S and family), monetary relief rather than actual lot was more appropriate – parents to pay R sum of
money = value of promised lot + interest + charge on whole property + R’s lost profits for 12 years on lot and rent on
house – S’s improvements. Court fixed money sum to represent value of the equitable claim of R to the promised lot.
EK Nominees v Woolworths – followed Giumelli. Woolworths pulled out of deal before it was finalised. Court said
wouldn’t be appropriate to order specific performance b/c didn't know terms of ultimate lease. Equitable
compensation awarded for expenditure which Woolworths encouraged landlord to incur prior to the lease. Hence
compensation for reliance loss (rather than fulfilling the promise) was the only remedy that was sought.
Ronowska v Kus
Facts: man asks relative to come and live with him and look after him – in return he promises her the house for life
along with sons who are living there. She comes from Poland. Man becomes ill – sons want to sell house. P says she is
entitled to half the value of the house.
Held: P not entitled to fulfilment of the promise. Given circumstances, i.e. that P now has to rent property for rest of
her life (calculated at approx 260k for rest of her 21 years), and fact that she wasn't looking after the man anymore,
and would’ve had to share house with son before, court decided that just and conscionable satisfaction of her
expectation was 200k.
Consideration 2: consideration of principal or justice b/w the parties – minimum equity principle or proportionality
requirement. Where value of expected benefit is disproportionate to the harm that has or would be suffered by P as a
result of their reliance on relevant assumption, then court will grant relief that is the minimum necessary to ensure
that relying party suffers no harm as a result of their reliance.
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Delaforce v Simpson-Cook – maj said that since Giumelli, minimum equity principle is probably no longer the law in the
country. Allsop P: where relief is sought by reference to the detriment suffered by a plaintiff, relief is not to be
measured by weighing detriment too minutely.
Verwayen principle: doctrine of equitable estoppel enables a court to do what is required to avoid detriment to the
party who has been induced to act upon an assumed state of affairs and thus that the relief required in a given case
may be less than making good the assumption. But where detriment cannot be quantified, the only way to ensure that
relying party doesn’t suffer loss as a result of their reliance is by requiring representor to perform the promise/adhere
to representation.
Donis v Donis: detrimental reliance included life changing decisions of a personal nature. Held that detriment was
beyond the measure of money and could only be accounted for by substantial fulfilment of the assumption on which
relying party’s assumptions were based.
Minimum equity principle (giving rise to compensatory remedy) can be useful where: 1. detriment can accurately be
quantified and is clearly disproportionate to the value of the expected benefit (Young v Lilac)
Young v Lilac – RP contributed 50k towards construction of house on land owned by prospective mother-in-law in
expectation of interest in land worth around 400k. Marriage fell apart and detriment was only the financial
contribution. Held that it would be disproportionate to grant RP expected interest in the property and equity satisfied
by charge for amount of her contribution, plus interest.
2. Even where detriment resulting from reliance can’t be quantified, court may decide that it is disproportionate to
expected benefit (Jennings v Rice).
Jennings v Rice – RP worked unpaid for some years nursing elderly representor in expectation of receiving property
worth over 400k pounds. Proportionality principle required that he be awarded compensation for sum of 200k pounds.
3. When harm can be prevented by some other means (Sullivan v Sullivan)
Sullivan v Sullivan – RP gave up subsidised public accommodation for which she waited 7 yrs on faith of representor’s
promise of home for life. Effect of estoppel was to allow RP to remain in promised house for further 7 years in order to
give her an opportunity to return to public housing. R’s right to possession suspended for that period in order to allow
RP an opportunity to return to her original position.
7.2.5 Estoppel and contract
7.2.5.1 Formation
Equitable estoppel may arise if offeror leads offeree to believe that offer will not be revoked and offeree acts to their
detriment in reliance on that assumption (Mobil Oil v Wellcome). Where RP acts on assumption that contract has been
signed, CL estoppel may prevent representor from denying that contract exists. Where RP acts on assumption that
contract will be signed, RP may be able to obtain relief by way of equitable estoppel.
It is difficult to establish estoppel in the context of pre-contractual negotiations because firstly parties negotiating to
enter contracts should reasonable expect that they cannot safely rely on transaction until contract has been formally
concluded.
Courts are also reluctant to find estoppel arising unless all terms of contract have been settled.
Austotel v Franklins Selfserve
Facts: A negotiating to lease premises to F for use as supermarket. F issued letter setting out terms on which it was
prepared to lease premises but refused to finalise terms of lease. Parties later agreed to 9% increase in area to be let to
F but didn't negotiate additional rental to be paid for area. In mean time, store being built to F’s specifications and F
incurred expenses to third parties in preparation for fitting out the store. Before terms finalised, A sought to withdraw
from deal.
Held: Parties’ failure to agree on rent to be paid stood in the way of an estoppel being established. The parties were
substantial enterprises involved in a commercial transaction who had failed to reach agreement on a crucial element of
the transaction. Each of the parties were deliberately trying not to commit themselves. In such circumstances, not
unconscionable for one party to withdraw from the transaction.
EK Nominees v Woolworths
Facts: W/ W’s encouragement E proceeded with costly preparatory work for retail and residential development on
faith of in principle agreement that W would enter into lease as anchor tenant for development. W then decided to
withdraw.
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Held: It was unconscionable for W to withdraw from agreement b/c W had not only encouraged E to proceed w/
development but had threatened to hold E responsible for W’s costs if E didn't take necessary preliminary steps.
7.2.5.2 Formalities
Statutory requirement of having contract in writing does not affect the operation of estoppel because the action is
brought on the equity raised by estoppel and not on the contract itself (Waltons v Maher).
Furthermore, estoppel can arise from reliance on the assumptions induced by the making of an unenforceable oral
agreement (Riches v Hogben).
7.2.5.3 Contract variations
Anaconda Nickel v Edensor Nominees - Court held a buyer to its pre-contractual promise to complete the purchase of
shares in a company.
Estoppel by convention operates where parties to an agreement have adopted a particular state of affairs as the basis
of their agreement or relations. The estoppel holds the parties to the agreed or assumed facts for the purposes of the
transaction or relationship in question.
Whittet v State Bank of NSW
Facts: Transaction entered into b/w P and bank to secure repayment of overdraft. Pre-contractual verbal assurances
given by bank that mortgage would secure repayment of 100k. Mortgage in fact was unlimited mortgage which was
expressed to secure repayment of all P’s debt to the bank. Held: Estoppel by convention arose which prevented bank
from recovering more than amount which parties understood to be secured by the mortgage.
7.2.5.3.1 Entire agreement clauses
Promissory estoppel operates to trump legal rights, including those protected by the parol evidence rule.
Saleh v Romanous
Facts: Written sale contract for property A– involved B also wanting property B next door which was owned by seller’s
brother. Contract didn't say anything about property B. S to B (pre-contract): I’ll sort Eddie out and you’ll get money
back if E doesn’t comply. B unable to negotiate w/ E. B didn't want A anymore and sought to recover deposit.
Held:. Promissory estoppel prevented S form enforcing contract of sale despite that contract included entire
agreement clause. But promissory estoppel itself didn't provide basis for recovery of deposit. Principle: estoppel won’t
be denied just because contract contains an entire agreement clause. Hence an estoppel remedy can be available for
pre-contractual agreements, even in circumstances where the written agreement might conflict with the earlier
promise.
7.2.5 Examples of estoppel in Australia
Equitrust v Franks: D told P that wouldn't insist on high interest rate, so no need for P to refinance loan. ‘Look Phil..’
This phrase by the D was used to estop/prevent D from then saying that the higher interest rate was now payable b/c
led P to believe that higher interest rate would not be payable.
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8. Express Terms
8.1 Introduction
Conditions – if these terms are broken, the plaintiff can terminate the whole contract
Warranties – if these terms are broken, the plaintiff will get be able to get damages
Clause –neutral language; simply a numbered provision
8.2 Formalities – exceptions to the common law rule that contracts can be made informally (without signature)
Except for where required by statute terms of a contract do not need to be recorded in a formal written contract.
Property Law Act – s56: no action can be brought upon a promise to guarantee any liability of another unless promise
upon which action is brought is in writing and signed by the party to be charged. S59: no action may be brought upon
any contract for sale of land/interest in land unless contract upon which action is brought is in writing + signed by party
charged.
However equity might assist plaintiff where these requirements are not satisfied
Copyright Act, Corporations Act, National Consumer Protection Act, Property Dealers and Motor Agents Act (real estate
agent must be appointed in writing, Domestic Building Contracts Act (building contractor must have contract in writing
which is signed by both building contractor and building owner), Powers of Attorney Act (instrument creating power of
attorney must be signed by the principle)
Electronic Transactions Act
S8: a transaction is not invalid just because it took place by electronic means
S14: if under state law signature required then requirement is met for electronic communication if: a) a method is used
to identify person and their approval of information b) method used was reliable and appropriate c) person to whom
signature is required consents to requirement being met by using method in a)
Specht v Netscape Communications: clicking may not amount to signature where consumers would reasonably have
understood that act to have significance other than as acceptance of trader’s standardised forms e.g. as authorising
download of software.
8.3 Signature
8.3.1 Signature: general rule
L’estrange v Graucob:
Facts: P bought machine from D. P signed form containing printed terms of sale. When machine delivered, it didn't
work satisfactorily. P brought action for damages for breach of implied warranty that machine reasonably fit for
purposes for which it was required. Contract said that it contained all T&Cs upon which P purchased machine and any
express/implied condition, warranty hereby excluded. Held: P, having but signature to document, and not having
induced to do so by fraud or misrepresentation, was made bound to terms of document eve if she didn't read them.
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Principle: if a contract is signed, then in the absence of fraud, misrepresentation or duress it will be binding,
regardless of whether the party has read or understood the terms.
Toll v Alphapharm (followed L’estrange)
Facts: P distributors of vaccine. D road haulier carrying vaccine. Huge damages if temperature not maintained. P’s
operators manager signed D’s standard form: please read conditions of contract prior to signing. Contract contained
exclusion clauses.
Held: Despite the fact that P hadn't read document, they were bound by its terms because they had signed it.
Extended principle from L’estrange: In the absence of any vitiating element (e.g. misrepresentation) and no claim for
equitable or statutory relief, 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. Immaterial that the P hasn’t read the document. There is
no obligation to otherwise give notice of the terms of the contract. Furthermore, the representation that the person
who signs intends to be bound by the terms of the contract is even stronger where the signature appears before a
perfectly legible request to read the document before signing it.
8.3.2 Exceptions to signature rule – misrepresentation
8.3.2.1 Misrepresentation
Curtis v Chemical Cleaning
Facts: wedding dress cleaning. D asks P to sign receipt, saying that it excludes liability for beads and sequins. Clause on
receipt in fact gave complete exclusion. Held: D had misrepresented the breadth of the exemption clause and as a
result, the clause didnt become part of the contract. Principle: misrepresentation of the effect or extent of a
document may result in the signature not being complete assent to everything in the document.
8.3.2.2 Non-contractual documents
The signature rule will not apply where the document in question could not reasonably be considered a contractual
document (Hill v Wright). A person will not be bound by signing a document that reasonably appears to be a timesheet
(Grogan v Robin Meredith Plant Hire) or a receipt or voucher (Chapleton v Barry Urban District Council, Hill v Wright).
Hill v Wright – terms appearing on a delivery receipt (non-contractual document) were not capable of being relied
upon by D as part of the contract, despite the fact that P signed the document. Hence P not bound by signature on
receipt.
8.3.2.3 Doctrine of Non est factum
Petellin v Cullen
Facts: P (couldn’t read, spoke little English) – granted option to D for $50 to buy land. D’s agent sent letter extending
option period. P signed document and later claimed that thought document was a receipt for $50.
Held: P’s claim upheld – document not binding. P’s belief that the document was a receipt was inspired by D’s
representation that the document acknowledged the payment of the sum of $50. No carelessness on P’s part.
Principles: Requirements to prove Non est factum: 1) Disability (unable to read and/or have any understanding of
meaning of document through no fault of their own) 2) Signature was on belief that it was radically different from
what it is 3) Failure to read and understand not due to P’s own carelessness. Negligence/carelessness in such a case
refers to a mere failure to take reasonable precautions in ascertaining the character of a document before singing it.
Furthermore, if there is no innocent third party, and D knows of P’s misapprehension as to the document’s
character, then there is no need for P to satisfy duty of care.
Saunders v Anglia Building Society
Facts: Mrs G signs transfer of house to L (nephew’s friend). Mrs G’s glasses broken and she thought it was transfer to N,
with her still living in property. Held: P knew it was a legal document about property intended to raise finance for N.
Actual document not radically different enough to what she thought it was. She didn't ask anyone to read document to
her and was not physically or mentally incapable. Her signature was held to be binding. Principles: generally not
enough that too lazy, too busy or relied on trusted person. Furthermore need some attempt to find effect of
document.
Ford v Perpetual Trustees Victoria – P must take reasonable precautions to understand document. Whether reasonable
precautions have been taken is to be assessed by reference to circumstances of the signer.
8.4 Terms and representation
Need to distinguish between terms for which a breach will result in damages, as opposed to a mere representations
that are made before the contract is concluded and of which a breach will not result in damages. The court will assess
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whether or not a person in the circumstances of the parties would reasonably have considered the statement to be a
contractual promise (Oscar Chess v William).
8.4.1 Misrepresentation
Competition and Consumer Act s18: person must not engage in misleading or deceptive conduct
8.4.2 Pre-contractual statement intended to be a term?
Question is whether the parties intended a statement to be an express term of the contract (of which a breach will
result in damages), or merely part of negotiations i.e. not intended to have legal effect.
Shepperd v Municipality of Ryde - starting point is that the person who is alleging that a statement in negotiations is
part of the contract has a burden in showing this and in demonstrating why the term wasn't included in the main
contract.
8.4.2.1 Factors indicating statement was meant as a term?
Whether statement intended to induce P to enter into contract
Knowledge of parties – Oscar Chess Ltd v Williams – should have been obvious to car dealer that W had no personal
knowledge of car’s details. Smythe v Thomas – statements by seller of airplane about airplane’s capabilities held to be
promissory b/c statements matters upon which seller alone had relevant information. Esso v Mardon (held that
promisor professed special knowledge and had this knowledge => hence his statement was a term)
Time of statement – Hospital Products v US Surgical Corp (representations made about a month before parties
concluded agreement – followed up by further discussions in which no reference made to them  not term)
Importance of statement – a statement that circumstances show was highly significant or important to the transaction
is more likely to be regarded as a promise than a statement of lesser significance (Van den Esschert v Chappell – issue
of presence of white ants very important for purchase of house)
Frequency of statement – more repeated, more likely to be a term
Content of statement (precision and commitment) – Savage v Blakney: statement of speed was expression of opinion
rather than one of guarantee (indicating term).
Reliance by P on statement - Savage v Blakney (reliance may not be enough)
Relationship to written contract (i.e. intent to have whole agreement in document – Parol evidence rule) – i.e. if
parties have recorded their agreement in a formal written contractual document, often suggests that any statement
made by parties during negotiations and not included in written contract were not intended to be part of final contract
(Equuscorp v Glengallan Investments Pty Ltd)
8.4.2.2 Term or mere opinion?
Savage v Blakney
Facts: sale of cruiser. P asks about engine. D to P – 4/53 series GM diesel..estimated speed 15mph. Engine doesn’t do
this speed. No express term in contract which says that engine will reach this speed. P argues that repn intended to be
term.
Held: Not enough that P intended to rely and did rely on statement to enter into contract. There was no promise in this
case that the vehicle would attain this speed – mere statement of opinion (approximate calculation). P could have
inserted speed as requirement in contract, asked D to guarantee speed prior to ordering or form own judgment from
outside expert.
Principle: To be held to be a term of the contract, the relevant statement must be promissory and not merely
representative. Where P could’ve have taken own measures to determine the validity of a statement and protect
themselves, a mere statement of opinion, despite that P relies on it, will not be held to be a term of the contract.
Ross v Allis Chalmers
Facts: P wants harvester doing certain acreage per day. P puts forward estimation: ‘is that feasible’. D to P: my own
experience is you should budget on 90 acres/day. Circumstances of case: P’s question was request for firm assurance
about capacity of machine, clear that performance of machine was critical factor on which capacity to purchase
depended.
Held: Not couched in language of contract. D merely repeating own experience. Not intended to be promissory –
merely a statement of opinion based on his own experience with his machine in order to help P with calculations.
8.5 Parol Evidence Rule
Codelfa v State Rail NSW - starting point: no evidence may be cited to subtract from, add to, vary or contradict the
language of a written instrument.
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The rule limits the extrinsic evidence that may be given in identifying the terms of the contract. Ultimately the question
of parol evidence rule is a question of interpretation and ascertaining what the parties intended. Is contract intended
to be: wholly in writing in a single document, found in a number of documents or part oral/part written?
The evidence that may be excluded by the parol evidence rule when determining the meaning of the contract includes
oral statements made by the parties when negotiating their contract, as well as written materials relating to the
negotiations or earlier drafts of the written record of the contract being brought in evidence to explain the scope of the
contract or the meaning of its terms.
8.5.1 Earlier cases
Gordon v McGregor: legal presumption that document is a binding record of the contract.
Thorne v Borthwick
Facts: P (buyer) has sample of D’s oil tested for specification (cloud point temperature of oil). Later standard form
contract signed. Contains price and description but no mention of temperature. P argues that there is assumption that
there is a term that oil has certain cloud point temperature.
Held: Document was clear and complete on its face. Not a sale by sample.
8.5.2 Later cases
Stoddart Tiles v Alcan: intention of whether written document is to be the whole contract can be found from outside
the document as well.
Nemeth v Bayswater Road: the force of the presumption that a written document is intended to be the whole contract
(i.e. PER) will vary according to a variety of circumstances, including the nature, form and content of the written
instrument concerned. It will be more difficult to displace the presumption when the instrument is one which, in
appearance and detail, itself suggests that the parties intended it to be the exclusive record of their contractual rights
and obligations.
Equuscorp v Glengallan Investments
Facts: Investors sign ‘tax efficient’ scheme involving loan. Later claimed oral promises, prior to loan, which limited
liability.
Held: parties bound by written document – objectivity is important. But there are recognised exceptions e.g. contract
part oral, part writing, collateral contracts, misrepresentation/mistake, rectification. Application of parol evidence
rule. A subsequent written contract supersedes a prior oral agreement. Document was intended to contain whole
contract.
8.5.3 Entire contract clauses
Entire agreement clauses will generally be taken as conclusive evidence that the writing represents the entire
agreement between the parties and that any statements made in negotiations or other extrinsic material do not form
part of the subsequent written contract.
Nemeth v Bayswater Road
Facts: Lease of aircraft. Written document said one thing. P wanted to rely on oral promise that certain min amt of
usage. Contract had entire agreement clause which said that the other party agrees that all terms of agreement b/w
parties contained in the written agreement and that no representation/warranty not specifically contained in the
written agreement will have any force or effect. Held: this entire contract clause indicated that the document was
intended to be entire and complete. Parol evidence rule applied – hence no extrinsic evidence was permitted.
8.5.3.1 Entire contract clause – sensible use
Skiwing v Trust Co
Facts: Contract relating to cafe in Sydney and work taking place on it. Contract had an entire contract clause which in
effect said that the proposed tenant acknowledged that in making any lease, not relying on any
representation/promise/warranty made by D other than those set out in certain list of documents. D then invites P to
list below all representations they have relied upon in reaching decision to accept D’s offer to lease e.g. repn relating to
sale projections etc. Tenant didn't fill out any representations made on the form. D attempting to avoid
misleading/deceptive conduct allegations.
Held: entire contract clause cannot exclude fraud but combined with no filling out of questionnaire => difficulty in P
saying the clear representation that was intended to be a term and was relied upon.
8.5.3.2 Entire contract clause – legal status
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Hope v RCA Robophone (obiter): Entire contract clause held to be conclusive evidence that parties didn't intend
document to be altered in any way. Agreement silent on the topic of whether goods for hire were ‘new’.
Nemeth v Bayswater Road: Not referred to as decisive by the High Court – just another factor indicating that
documents intended to be decisive.
MacDonald v Shinko Australia: entire contract clause cannot be used to protect rectification in equity of document for
errors and cannot prevent a misrepresentation allegation.
General view: an entire contract clause shows an intention that the document contains all the terms, but its
effectiveness is subject to a number of exceptions.
8.5.4 Parol evidence rule – exceptions
Extrinsic evidence is admissible in a number of well-known exceptions (Equuscorp v Glengallan)
8.5.4.1 Intention to have document part oral and part written i.e. document not entire
The Ardennes
Facts: Cargo of oranges. Oral promise that will sail direct from A to B. Document (bill of lading) later issued allowing
detour A-C-B. P alleges that D promised to go direct. D says written doc allows detour – argues parol evidence rule.
Held: Oral agreement was contract. Document was not contract but evidence of it. Document was not intended to be
the whole agreement because it was only issued when cargo was loaded and there must have been a contract in
existence before then which must have been oral. Hence contract must be part oral and part written.
County Securities v Challenger Group
Facts: complex sale of equity swaps involving transfer of equity swaps (written agreement – no attempt to vary this)
and separate but linked hedge agreement (not written).
Held: extrinsic evidence could be admitted of conversations. Overall contract partly in writing, partly oral and from
conduct.
Skyrise Consultants v Metroland – easier to say that contract is part oral/part in writing if prior oral agreement is
consistent with later document. If contradicts, parol evidence rule applies.
8.5.4.2 Invalidity – misrepresentation or ‘mistake’ – Curtis v Chemical Cleaning
8.5.4.3 Rectification – where document is inaccurate recording of earlier agreement, equity will intervene to correct
the error in the document and extrinsic evidence may be brought forward for this purpose.
8.5.4.4 Implied terms – a court may have regard to extrinsic evidence when considering whether or not a term should
be implied in a contract (Codelfa)
8.5.4.5 Attempts to exclude liability in consumer contracts – may be unfair under ACL (topic 12). Hence entire
agreement clause may not be allowed under ACL as they are unfair.
8.5.4.6 Variation of contract orally afterwards
8.5.4.7 Custom – term can be implied by custom as in Hutton v Warren (topic 9)
8.5.4.8 Condition precedent – Pym v Campbell: extrinsic evidence will be admitted for the purpose of establishing that a
written contract is subject to a contingent condition that must be satisfied before the contract will become effective.
Extrinsic evidence may also be admitted to show that parties did not intend to make a binding contract (Air Great
Lakes).
8.5.4.9 Collateral contract – giving effect to statement despite that it isn’t a term
A collateral contract is the name given to the contract made 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 into the main
contract (Van Den Eschert v Chappel)
Main contract: Sale of land contract. S to transfer land and B to pay price. Contract silent on condition of drains. Collateral
contract: If you enter main contract (consideration by B), I will promise that drains are in good condition (consideration by S).
Note that there is no contradiction of any clause in the main contract.
Hence buyer may show that there were two separate contracts – one will be the main contract, the contract of sale.
The
other is a collateral contract, consisting of the seller’s promise that the drains are in good order, given in return for
the buyer’s entry into the main contract.
For a pre-contractual oral statement to take effect as a collateral contract, the statement must be made as a promise
(Savage v Blakney), must be intended to induce entry into the contract (Savage v Blackney) and must be consistent
with the terms of the main contract (Hoyts v Spencer).
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Van Den Eschert v Chappel
Facts: P buying house. Asks if there are any white ants in house. D says no – ‘if there had been any I would have taken
steps to eradicate them’. P signs contract (nothing about ants). Ants were present – damage. P argues that this was
term.
Held: Extrinsic evidence from negotiations could be used to establish collateral contract. Promise re: ants intended to
be of contractual effect here; not just mere representation. Issue of ants was important with regards to the contract,
promise was made immediately before signing. Hence promise re ants formed collateral contract. No contradiction to
main contract.
Thorne v Borthwick (retrial): held that collateral contract was present – S had said to B that if they entered the main
sale agreement to buy oil, they would guarantee that it is the same quality as the sample.
8.5.4.9.1 Written contract contradicted by extrinsic evidence of collateral contract cf. Added to
Hoyts v Spencer
Facts: Lease said terminable on 4 weeks’ notice. LL promised beforehand that if P signed lease, LL would only terminate
if he was forced by head landlord to do so. Hence potential collateral contract contradicted main contract.
Held: parol evidence rule applied since two agreements in direct conflict. A collateral contract can add to a main
contract but if it alters/impinges on the main contract it cannot be applied.
Maralinga v Major Enterprises – if sign an agreement knowing it has inconsistent terms, cannot say that the agreement
doesn’t reflect common intent of the parties. Note; can still use estoppel.
8.5.4.10 The true consideration
In certain circumstances extrinsic evidence is admissible to prove the real consideration under a contract (Pao On).
8.5.4.11 Promissory estoppel
Saleh v Romanous
Facts: R agreeing to rescind and return of deposit when couldn’t negotiate purchase of house next door, which was
orally (pre-contract) promised by S. Oral promise contradicted written document.
Held: Promise couldn’t be enforced as collateral contract b/c contradicted main contract. But pre-contractual promise
could support promissory estoppel. Entitled R to restrain S from enforcing contract. Estoppel trumps common law
rights in written agreement including parol evidence rule and entire contract clauses. However need to show
uncionscionability.
8.6 Incorporation of Terms into contract by notice
A party who does not rely on a signed contract in its dealings with customers may instead attempt to incorporate the
terms it wants to govern the transaction through the device of notice. Contracting party may incorporate its standard
terms into the contract giving the other party to the contract reasonable notice of those terms before the contract is
made. Whether delivered or displayed terms are incorporated into a contract will depend primarily on two
issues/requirements: 1. Whether the displayed or delivered terms were available to the party to be bound by those
terms at a time before the contract was made and 2. Whether reasonable steps were taken to bring the terms to the
notice of the party to be bound.
8.6.1 Time at which terms are available
For delivered or displayed terms to be incorporated into a contract, the terms must be made available to the party to
be bound before the contract is made (Oceanic Sun Line Shipping v Fay).
Oceanic Sun Line v Fay
Facts: P made booking in NSW for Greek cruise. Brochure said that transportation of passengers and baggage governed
by T&Cs printed on passenger ticket contract which could be inspected at any office of cruise co. Upon paying fare, P
given an exchange order which stated that it would be exchanged for a ticket upon boarding ship. When issued, ticket
contained condition that courts of Greece would have exclusive jurisdiction over claims. P injured on cruise and sues in
NSW.
Held: contract for cruise had been made when the cruise was booked (exchange order given); hence the conditions on
the ticket issued later didn't form part of the contract. Notice of terms not given by brochure b/c not contractual in
nature.
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eBay International AG v Creative Festival Entertainment: tickets to music event issued after contract was concluded
contained term that wasn't displayed on webpage used by consumers to purchase tickets. Hence term not part of
contract.
Olly Marlborough Court Hotel – notice with terms on back of bedroom door. Held not to be incorporated because
contract already made at some point prior to this i.e. when at reception desk.
Butler v Excello – S adding own terms after contract had taken place was not valid. Terms didn't form part of contract.
Thornton v Shoe Lane - Automatic ticket machine. Acceptance by putting money in slot? Hence acceptance took place
before the ticket was issued. Terms on ticket thus not part of contract.
8.6.2 Knowledge or notice
Second requirement for delivered or displayed terms to be incorporate into a contract is that the party to be bound
must either have actual knowledge of the terms or have been given reasonable notice of terms.
8.6.2.1 Knowledge
Parker v South East Railway – P deposited goods in D’s cloakroom. D lost goods. P had actual knowledge that ticket
contained/referred to contractual terms. Held to be bound by those terms, regardless of whether read them or not.
Principle: a party who actually knows that a delivered document or a sign displayed before or at the time the
contract was made contains contractual terms will be bound by those terms, regardless of whether the party has
read the terms or not.
8.6.2.2 Reasonable notice of contractual documents
In the absence of actual knowledge, a party will be bound by delivered or displayed terms if the terms have been made
available in such a form that the party to be bound can be taken to have been given reasonable notice of them
(Thornton v Shoe Lane Parking). Correct question: not whether P with reasonable care should have read terms, but
whether D has taken reasonable steps to notify P of existence of terms (and where they may be considered).
8.6.2.2.1 Nature of referring document
If document is of a non-contractual nature (i.e. reasonable person wouldn't have expected that it contained terms),
then the party seeking to incorporate the terms must take reasonable steps to bring the terms to the notice of the
party to be bound.
Chapelton v Barry Council – deck chair receipt not contractual document. P not bound by its terms.
Causer v Browne – docket handed to P might reasonably be understood to be only a voucher for the customer to
produce when collecting goods, and not understood to contain conditions exempting D from liability.
Transport Workers’ Union v K&S – company handbook found to lack requisite detail and certainty to be of a contractual
nature. Terms such as ‘aspirational’, ‘descriptive’, ‘advisory’, informational, promissory assisted in getting to this
conclusion.
8.6.2.2.2 Access to incorporating document
Where a trader seeking to incorporate terms gives its customers ‘notice’ of terms in another document that is not
immediately or readily available to the customer, this is generally not sufficient to the requirement of reasonable
notice so
as to incorporate the terms into the contract b/w the parties (e.g. Baltic v Dillon)
Baltic Shipping v Dillon – fact that terms contained in the ticket were prior to its issue available to passengers at the
offices of provider of cruise didn't amount to sufficient compliance w/ D’s responsibility to bring conditions to notice of
passengers
Oceanic Sun Line v Fay – Greek holiday booked with NSW agency. Shipping line had no office in Australia. No access to
incorporating document with terms.
NSW Lotteries v Kuzmanovski – ticket containing statement ‘this ticket is governed by the Public Lotteries Act 1996, the
regulations and the rules. Court held that this statement unambiguously sought to incorporate the statutory
requirements of the Lotteries Act into the contract. By virtue of this clear notification, Court considered that the
lotteries Act, its regulations and its rules as being incorporated into the agreement b/w the parties.
8.6.2.2.3 Identification of applicable terms
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Need to look at whether D has taken reasonable steps to notify P of terms with sufficient precision. If just say ‘usual
terms incorporated’, that could be uncertain.
8.6.2.2.4 Nature of clause: is it unusual?
Where terms to be incorporated into a contract are unusual, special notice (such as will fairly and reasonably bring the
terms to the attention of the party to be bound), must be given (Thornton v Shoe Lane Parking)
Thornton v Shoe Lane Parking
Facts: Automatic ticket at car park entrance barrier. P injured inside car park. Notices inside car park.
Held: large notice at entrance (all cars parked at owners risk) – P might be aware, but probably not covering injury.
Ticket ‘subject to conditions..displayed on premises’ – in practice impossible to read in queue. Further notice inside
building saying that no liability for damage to vehicle/injury to customer – injury term would require greater notice.
General words of incorporation effective for car damage, not injury. Principle: general notice of unusual terms will not
be held to be reasonable notice on the defendant’s part.
J Spurling v Bradshaw (Denning J): clauses may need to be printed in red ink on face of document w/ red hand pointing
ot it before notice could be held to be sufficient.
Interfoto Picture Library v Stiletto Visual Programs Ltd – despite the fact that conditions set out in fairly prominent
capitals, it was held that D didn't do what was reasonably necessary to draw the liability clause in question, which was
unreasonable and extortionate, to the attention of Stilleto. Furthermore, principles of giving special notice apply to any
onerous clause, not just exemptions of liability.
Baltic Shipping v Dillon
Facts: P paid deposit for cruise and received booking acknowledgement. Later received booking form – said that
contract or carriage will be made only at time of issuing tickets and subject to conditions printed on tickets which were
available to passengers at any CTC office. 2 weeks before cruise P receives ticket, contains terms limiting D’s liability. P
injured on cruise. D claims entitled to limit liability Held: terms hadn't formed part of contract. Even assuming that
contract made when ticket received by P, P not bound by those terms on ticket b/c unusual limitation terms not drawn
to her notice and she wasn't given opportunity to decline to contract upon these terms. Mere availability of the
conditions at the company’s office was not adequate notice of unusual terms, such as those significantly limiting the
liability of the company.
Toll v Alphapharm: special notice is not required for terms in signed contracts; only unsigned contracts e.g. ticket cases.
Due notice of terms doesn’t have to be given to a party who signs a contract in the absence of elements such as
misrepresentation, duress, mistake.
8.6.2 Terms of contract in incorporation – principles
If sign document with all the terms in there, going to be bound. If sign document which says G’s terms are incorporated
by notice then that will be effective if the D has taken reasonable steps to bring to the P’s attention the terms that are
incorporated, and none of the terms are unusual. If any terms are unusual, then it needs to be flagged. If P hasn’t
signed anything at all, they can be bound by terms if d has expressly incorporated them before acceptance. (i.e. D says
Accept your booking subject to our terms on website).
9. Implied Terms
9.1 Implying terms v rectification
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Codelfa v State Rail NSW: rectification (equitable remedy)– asking court to change a document where it can be proved
that it doesn’t represent what the parties agreed upon. Implying a term: putting into the contract a term which the
court believes is necessary to make the contract work. Both are examples of a deficiency in the expression of
consensual agreement between the parties. Term should only be implied where it is giving effect to presumed (rather
than actual) intentions of parties.
9.2 Introduction
Terms will not be implied in law, in fact or by custom where they are expressly excluded by the parties or are
inconsistent with the express terms of the contract (Byrne v Aus Airlines). However implied terms will not necessarily
be excluded by an entire contract clause (Hart v MacDonald).
Hart v MacDonald: entire agreement clause excludes what is external to written contract; but it does not in terms
exclude implications arising on a fair construction of the agreement itself, unless implications are definitely excluded in
the contract.
Start off with claim that term should be implied in law (in contracts of this type). If that fails, attempt to imply term in
fact.
9.3 Types of implied terms inserted by courts
9.3.1 Implied by custom
Hutton v Warren
Facts: tenants lease comes to end but he has planted crops which haven’t yet come up. LL argues that when crops
come up, they are his. No express term in contract about who owns crops.
Held: in this place/area where the lease was agreed, there was a custom that the tenant is entitled to allowance for the
seed, work labour they put in planting the crop. However it was not enough to say that most landlords give an
allowance; needs to be an actual custom in the area that tenants get this allowance.
Con-Stan Industries v Norwich Winterthur
Facts: Insured C dealing with insurance company through broker. Insured paid broker amount he paid company. Broker
then becomes insolvent. Insurance company demanded premium from insured. C sought to imply term into contract by
custom that where contract of insurance arranged by broker, broker liable to pay premium to insurer (not insured)
Held: on facts no custom. Not enough that ordinarily in course of dealings premium is paid directly by broker, nor that
insurer makes first demand from broker. It was necessary to establish clear course of conduct under which insurers
didn't look to insured for payment of premium. But insurer showed evidence that it is not uncommon view in industry
that insurer entitled to look beyond broker => showed that not custom that payment to broker was enough.
Principles: while the term need not be universally accepted, there must be evidence that matters relied on are so
well known and acquiesced in that everyone making a contract in the situation can reasonably be presumed to have
imported that term into the contract. A person may be bound by a custom despite the fact that he had no
knowledge of it. But a term will not be implied into the contract where it is contrary to the express terms of the
agreement. As soon as party against allegation of an implied term brings forward evidence that indicates that it isn’t
done this way, custom cannot be relied upon as basis for implying term.
9.3.1.1 Terms implied by custom v course of dealings between parties
Distinguish terms implied by custom for all in the trade from incorporation of terms based on common dealings
between these parties.
McCutcheon v MacBrayne
Facts: P used D’s ferry service; got risk note when did so. Car ferry sank w/ P’s car. P claimed damages. D said not liable
b/c of risk note which excluded all of D’s liability. Risk note had 27 clauses. On 4 previous occasions on which P had
used D’s service, risk note not signed consistently. D argued that terms in risk note intended by parties to be part of
contract.
Held: B/c risk note had not been consistently signed, no consistent course of dealings. Therefore term not implied.
Principle: For a term to be implied as a matter of course of dealings, the party needs to show that there has been a
consistent course of dealings on the same terms and same subject matter.
Balmain New Ferry Co. v Robertson – charges on noticeboard near ferry turnstiles. Pay on entering/leaving wharf. Court
said that as R had travelled on many occasions on company’s ferries and paid his fare, R must have known of terms
upon which ferry company conducted its business. Even if P wasn’t aware of the term, D had given reasonable notice.
Hence P bound.
But for term to be incorporated by a course of dealings, that course of dealings must have been regular (Henry Kendall
v William) and uniform (McCutcheon v MacBrayne). The document relied upon in previous transactions must also
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reasonably be considered a contractual document, rather than having the appearance of a mere receipt or docket (Hill
v Wright).
9.3.2 Terms implied in fact
Terms implied in fact are based on the presumed intention of parties concerned (BP Refinery). In ascertaining parties’
presumed intentions and identifying appropriate term to be implied in fact, reliance placed on tests in BP Refinery.
B.P. Refinery v Shire of Hastings
5 factors needed to imply a term (approved in Codelfa):
1. Be reasonable and equitable
Reasonableness (or fairness) alone will not be a sufficient reason for implying a term (Codelfa, Liverpool v Irwin). But a
term that, although beneficial to one party imposes a significant burden or detriment on another party is unlikely to be
reasonable and equitable. A term won’t be reasonable if it doesn’t conform with the presumed intent of parties.
BP (Refinery) v Shire of Hastings
Facts: Shire had reduced rates with BP (Ref). Corporate restructuring of BP (Ref) to BP (Aust). Council starting charging
full rates to BP (Aust). So BP (Aust) leased refinery back to BP (Ref) so that BP (Ref) could then pay reduced rates. Shire
alleged implied term that reduced rates agreement only lasted while BP (Ref) occupied and maintained refinery, not
where it had lease like this.
Held: rating agreement contained implied term allowing right to preferential rates to be assigned to other members of
BP Group. Consequence: Having invested a lot in refinery to advantage of shire, BP would either have to accept being
locked into inconvenient corporate structure or foregoing preferential rating. Difficult to hold that BP would’ve
assented to term which would operate unreasonably and inequitably against itself. Proposed term not in line with
intentions of BP Refinery.
2. Be necessary to give business efficacy to contract – no term will be implied if the contract is effective without it
The Moorcock case
Facts: Contract b/w ship owner (P) and wharf owner (D). 3rd party owned river bed. Tide goes out and ship settles on
sea bed. Rock sticking out. Ship settles on rock and is badly damaged. No express term in contract as to safety. P alleges
that there is an implied term as to safety. Held: Cannot imply term guaranteeing safety by D to users b/c D didn't own
land. Term implied: D to take reasonable care to see whether berth is safe, and if not safe, to warn users. Breach of not
of guarantee of
safety, but that D hadn't warned P, knowing that there would be a risk in these circumstances. Principle: term should
only be implied if it is necessary to give business efficacy to the contract. I.e. absolutely necessary to make the
contract work.
Con-Stan Industries v Norwich Winterthur: Alternative argument presented by insured was that in order to give
business effect to the contract (i.e. make it work), need to imply term in fact that if pay broker, equivalent to paying
insurer. But court held that contract of insurance was capable of working without implying term that if insured paid
broker they were discharged from paying insurer.
Re Ronim Pty Ltd: while it is true that the contract could operate without such a provision, it could not in these
circumstances operate effectively, because the purchaser would be quite unable to determine important details
related to the contract for exchange.
Breen v Williams: contract b/w doctor and patient held not to contain implied term entitling patient to obtain her
medical records. HC said that term was not necessary for reasonable or effective performance of the contract.
3. Be so obvious it goes without saying (officious bystander test, Shirlaw v Southern Foundries)
Shirlaw v Southern Foundries: matters that are to be implied in contract are those terms which are so obvious that they
go without saying, such that if when parties were making their bargain and officious bystander were to suggest that
parties include some express provision for this matter in their agreement, parties would reply that it is so obvious that
it goes without saying. In such case, might be possible to imply term b/c giving effect to the presumed intention of the
parties.
A-G of Belize v Belize Telecom: the officious bystander test does not fail simply because the term being proposed is a bit
complex. Hence does not matter if parties had to ask officious bystander to ‘explain it again’.
Gwam Investments v Outback Health Screenings: contract for Gwam to design and construct health unit on truck
owned by D. Once health unit constructed, overall weight of truck exceeded the max loaded mass requirements
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allowable for truck and hence couldn’t lawfully be driven on road. Held that term should be implied into contract that
overall package of truck together with unit should be capable of being driven on public roads. Such term went without
saying and was reasonable.
Codelfa v State Rail Authority
Facts: major rail construction. Rail authority contracting for work with Codelfa. Both parties assumed continuous 24/6
working. Residents nearby obtained injunction restricting hours b/c nuisance. Contractor therefore had to complete
work in longer period. Asked for more payment. D said that no b/c fixed price contract which didn't say that P would be
able to get paid more if couldn’t work all the time. P said that implied term in contract that D would indemnify P if P
injuncted, stating that this was a common assumption between the parties.
Held: Common contemplation of maintenance of three 8 hr shifts a day for 6 days/wk not enough in itself to justify
implication of term. It must appear that the matter of common contemplation was necessary to give contract business
efficacy and that term sought to be implied is obvious that it goes without saying. Here, particular term was not so
obvious that it goes without saying i.e. didn't pass officious bystander test. Negotiations may have produced many
solutions and not certain that D would have been prepared to negotiate extra payment if P had been injuncted.
Furthermore contract could work without implying term. Both Mason and Aickin J held that because contract in this
case was not negotiated (terms determined by Authority), this was further evidence to show that Authority was only
prepared to contract on its own terms and have Codelfa bear risks, and a tender on the basis of other terms would be
rejected.
4. Be capable of clear expression (i.e. term must be able to be clearly specified)
Ansett Transport Industries v Commonwealth - Gibbs J held that width and lack of precision of term proposed by
plaintiff to be implied was an argument against implying the term.
5. Not contradict any express terms
However BP test is not five separate tests which must each be satisfied – it is a binding starting point (A-G of Belize v
Belize)
9.2.3.1 Informal Contracts
The requirements set out in BP Refinery may not be so strict in cases where there is no formal contract. E.g. cases
where parties have clearly reached agreement but haven’t spelt out terms of contract in full.
Hawkins v Clayton: in a case where it is apparent that parties have not attempted to spell out the full terms of their
contract, the court should imply a term by reference to the imputed intention of the parties if, but only if, it can be
seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of
that nature in the circumstances of the case (statement approved by High Court). Term should also be obvious (Byrne v
Aus Airlines).
9.3.3 Terms implied in law
Terms implied in law are terms implied in all contracts of a particular class or description (Byrne v Australian Airlines).
Test to imply term in law: Implication of this particular term must be necessary incident of a definable category of
contractual relationship (Scally v Southern Health.) Term will be implied where it is necessary for the reasonable or
effective operation of a contract of that nature in the circumstances of the case (Byrne v Australian Airlines).
Liverpool City Council v Irwin
Facts: Council flats. Lifts, rubbish chutes defective. No express obligations towards the tenant binding Council LL.
Tenant sued, stating that need to imply term about the nature of properties in terms of the lease.
Held: cannot imply absolute b/c it is outside LL’s control to guarantee that properties are fine and goes beyond what is
reaosnable. But necessary for LL to have some obligation – LL to take reasonable care to keep properties in reasonable
repair and usability. Court implied term in law in class of contract in question i.e. tenancies in high rise apartment
blocks.
Lennon v State of SA
Facts: Senior executive in A-G department in SA. Found another way of dealing w/ accounts so that some money would
be rolled over – hence using money given to her in way not authorised. She was dismissed for doing this. Argued that D
had obligation of mutual trust and confidence implied in law in all employment contracts. In alternative, argued that
term was implied in fact i.e. this particular contract. Held: Term of mutual trust and confidence could be implied in fact
– parties would have intended for there to be protection of relationship b/w the, or else P’s position would have been
dangerously vulnerable to behaviour of government and also unstable and insecure. Protection of mutual relationship
of trust and confidence was so obvious that it goes without saying and necessary to give business efficacy to the
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agreement. Also reasonable and equitable term which is capable of precise articulation and not inconsistent w/ written
terms of contract (i.e. meets all the elements required from BP Refinery)
9.3.3.1 Terms implied in law – universal terms and good faith
This is a category of universal terms that are implied in all contracts e.g. duty to co-operate. Hence once we have a
contract, question is whether there should be an implied term that the performance of that contact should be in good
faith. Where there is an express term on good faith and performance, it will be given effect to.
Mackay v Dick: if both parties agree that something should be done and cannot effectively be done unless both
concur, construction of contract is that each agrees to do all necessary for the carrying out of that thing, even
though there are no express words stating this.
9.3.3.1.1 Implied term/obligation to cooperate in performance of contracts
Secured Income v St Martins: parties agree by implication to do all such things as are necessary on his part to enable
the other party to have the benefit of the contract –implication of general term to cooperate in good faith
ACT Cross Country Club v Cundy
Facts: Club engaging in Canberra marathon engaged sports company to run it. Falling out b/w them. One of the parties
refused to participate in getting ACT government’s approval in order to run marathon.
Held: It is in implied term that parties shall cooperate to perform the contract i.e. get the government’s approval. It
was part of the party’s obligation in facilitating the running that they would do what they could to get the
government’s approval. Implication of this term was necessary to make contract work – implying duty to cooperate.
Where performance of contract qualified by contingent condition requiring occurrence of specified event before
parties can perform contract, duty to cooperate may require party to do all that is reasonably necessary to satisfy
the condition. If both parties’
cooperation is needed in order to make the contract work, court will imply obligation for party to co-operate.
9.3.3.1.2 State case law implying good faith obligations
Implying term of good faith in performance (carrying out contract) is broader duty which limits extent to which parties
can rely on express terms in relation to contractual performance. Express terms in contract must be exercised in good
faith.
Renard Constructions v Minister for Public Works: court held that there is a duty of good faith and fair dealing or at the
least, powers should be interpreted to be exercised reasonably.
Cf. Service Station Association v Berg: Gummow J said it is a leap of faith to convert existing equitable doctrine and
remedies into a term as to the quality of contractual performance required by law.
Hughes Aircraft v Airservices – one party agreed that tender would be offered out and would abide by various terms.
Court held that there is an obligation to deal fairly in the performance of contracts
Burger King v Hungry Jacks: HJ got franchise to run in Australia. BK wanted to try HJ out. Started looking at small print
to see if there were ways in which they could restrict operation of HJ operation in Aus. Court held that there was an
implied term of good faith and reasonableness. Such a term more readily implied in standard form contracts,
particularly if such contracts contain a general power of termination. D in breach of term as had exercised discretion
for purpose extraneous to contract.
Royal Botanic Gardens v South Sydney Council: The issue about the extent to which good faith terms can be implied is
still open. However a good faith term cannot be implied if it contradicts an express term in the contract.
Good faith has been implied in types of commercial contracts, rather than generally all contracts – e.g. building
contracts (Renard), franchise contracts (Burger King), commercial leases (Alcatal v Scarcella) and loan contracts (CBA v
Renstel).
Vodafone Pacific – reasonably specific words may exclude an implied duty of good faith in performance.
9.3.3.1.3 Statutory alternative
ACL ss22: classifies bad faith conduct as subset of unconscionable conduct. Acting in good faith = one of factors to
consider
Part 2-3 deals with unfair terms. But good faith not concerned with fairness of agreed terms – deals w/ how parties
perform
9.3.4 Implied terms and evidence
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If a party wants to argue that there is an implied term, they will need to bring evidence to show this. Issue is how far
parties should be allowed to bring in evidence which varies or contradicts the written document if one is present. One
of the exceptions to PER was to do with implied terms. Courts have been restrictive about the extent to which evidence
of pre-contractual negotiations can be brought in order to demonstrate that a term can be implied.
Codelfa v State Rail Authority – implication of term is a process of construction. Evidence can be admitted of
surrounding circumstances to assist in interpretation if the language is ambiguous, or susceptible of more than one
meaning. Cannot contradict the express language where the meaning is plain. (i.e. cannot contradict express term of
contract).
9.4 Implied Terms inserted by Statute
9.4.1 Sale of Goods Act 1896
The Act applies generally to sale of goods contracts. They can be either business to business or business to consumer.
The Act doesn’t cover range of other non SOG contract e.g. hire, services. The provisions of SoGA cannot be excluded.
S15 Title: In contract of sale, unless circumstances of contract to show different intention, there is a) implied condition
that S has right to sell the goods b) implied warranty that B shall have/enjoy quiet possession of goods c) implied
warranty that goods shall be free from any charge to 3rd party not known/declared to B before or at time when
contract is made.
Nibblet v Confectioners Materials: S selling tins of food with label very similar to Nestle on them. S in breach of implied
term in SOGA because they were selling goods without right to sell them. Hence buyer entitled to reject contract.
S16 Sale by description: in contract for SOG by description, there is implied condition that goods shall correspond with
description. If sale is by sample and description, it is not sufficient that bulk of goods corresponds with sample if goods
do not also correspond with the description.
Grant v Australian Knitting Mills – court held that description can be general e.g. woollen underwear
Ashington Piggeries v Hill – description only with identity of the goods, not their quality
Harlingdon v Chistopher Hull - Paintings by Munter. One dealer (didn't know much about paintings) sold it to another
dealer. Parties assumed painting was by Munter. Court held that not sale by description b/c neither party relying on
seller’s label.
S17: Quality or fitness for purpose
No implied warranty/condition as to quality/fitness for particular purpose of goods supplied under contract except:
a) where B (express or implied) makes known to S particular purpose for which goods are required so as to show that B
relies on S’s skill or judgment and goods are of description which it is in course of S’s business to supply (regardless of
whether S is manufacturer), then there will be implied condition that goods shall be reasonably fit for such purpose
b) in case of contract for SOG under its patent or trade name, no implied condition as to fitness for any particular
purpose
c) when goods simply bought by description there is implied condition that goods shall be of merchantable quality
d) however if B has examined goods, no implied condition regarding defects which such examination ought to have
revealed
e) implied warranty/condition as to quality or fitness for purpose may be taken over by usage of trade if usage such to
bind both parties to contract
f) express warranty/condition doesn’t negative warranty/condition implied by Act unless inconsistent therewith
Fitness for purpose
Liability under s17 is strict – i.e. not based on fault. If goods from Harvey Norman not of merchantable quality or fit for
purpose, HN cannot allege that not their fault b/c manufacturer negligently manufactured television
Grant v Australian Knitting Mills
Facts: Woollen clothing contaminated. P gets dermatitis. Held: no answer that S not personally at fault (i.e. was
manufacturer’s fault), or that if P had washed jumper, contaminants would’ve washed out. Goods must be of
merchantable quality or fit for purpose.
Quality: Grant v Aus Knitting Mills – Clothing not merchantable as required by s17(c) b/c couldn’t wear it next to skin
Remedies:
S14(1): when contract of sale subject to condition of sale, B may waive condition or treat breach of condition as breach
of warranty. (2) breach of condition gives B right to reject contract/goods; breach of warranty gives B right to claim
damages (s3). Whether term is condition or warranty is matter of construction. (2A) term may be condition, even
though called a warranty. When contract of sale not severable and B has accepted (see s37) goods or when contract is
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for specific goods, the property in which has passed to B, breach of condition can only be treated as breach of warranty
i.e. can’t end contract.
When condition to be treated as warranty
S37: B accepted goods when B intimates to S that has accepted, when goods delivered to B and B does any act in
relation to them which is inconsistent w/ ownership of seller or after reasonable time if B retains goods w/out rejecting
them
S56: any implied right by law may be negatived or varied by express agreement or by course of dealing b/w parties
9.4.2 Australian Consumer Law
Statutory guarantees replacing implied terms in SOGA. First determine what the obligations are and then look at
whether they can be excluded.
9.4.2.1 Application of ACL
Act applies to conduct of corporations (s131 Part XI). Persons protected are consumers who are dealing with the
corporations. S3: Person is a consumer if: price of goods doesn’t exceed 40k or if higher price, goods were of a kind
ordinarily acquired for personal domestic use or consumption or good bought was a vehicle/trailer acquired for use on
public roads and P didn't acquire goods for re-supply or using/transforming them in trade or commerce for production,
manufacture or for repairing/treating other goods (or fixtures on land).
9.4.2.2 Statutory Guarantees: Goods
CCA 2010 Part 3-2, Division 1 (51-53 apply to all supplies of goods; others only apply if goods supplied in
trade/commerce). Hence others do not apply to goods sold by auction (but do apply for ebay sales – Smythe v Thomas)
• 51 Guarantee as to title, 52 Guarantee as to undisturbed possession, 53 Guarantee as to undisclosed
securities
• 54 Guarantee as to acceptable quality (extra warranty may give extra certainty to acceptable quality of goods)
– Goods are of acceptable quality if they are as
• Fit for all the purposes for which goods of that kind are commonly supplied and
• Acceptable in appearance and finish
• Free from defects and safe and durable
– As a reasonable consumer fully acquainted with state and condition of the goods (including any
hidden defects of the goods) would regard as acceptable having regard to:
• the nature and price of the goods, any statements made about the goods on packaging,
• any representation made about the goods by supplier/manufacturer of goods
• any other relevant circumstances relating to supply of goods
– Goods not of unacceptable quality w/ regards to defects caused by abnormal use, defects that
consumer should reasonably have become aware of in cases where they examined goods before
buying them
• 55 Guarantee as to fitness for any disclosed purpose etc.
• 56 Guarantee relating to the supply of goods by description
• 57 Guarantees relating to the supply of goods by sample or demonstration model
• 58 Guarantee as to repairs and spare parts
– Guarantee that manufacturer of goods will take reasonable action to ensure that facilities for the
repair of goods and parts for goods are reasonably available for a reasonable period after goods are
supplied unless manufacturer took reasonable action to ensure that consumer would be given written
notice
• 59 Guarantee as to express warranties – gives express warranty the status of a consumer guarantee
– Express warranty = any assertion in respect of quality, state, performance of goods which has the
effect of inducing persons to acquire the goods (e.g. pre-contractual representations may = consumer
guarantee)
9.4.2.3 Statutory Guarantees: Services
CCA 2010 Part 3-2, Division 1
• 60 Guarantee that services will be rendered with due care and skill
– Includes performance of work (cleaning) provision of facilities (parking), entertainment
• 61 Guarantees as to fitness for a particular purpose etc.
– If consumer makes known to supplier any particular purpose for which services being acquired by
consumer, there is guarantee that services, and any product resulting from services will be reasonably
fit for that purpose
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–
•
•
If consumer makes known the result that they wish services to achieve there is guarantee that services
(and any product resulting from the services) will be of such nature and quality, state or condition that
they might reasonably be expected to achieve that result
– Unless consumer didn't rely on, or unreasonable for them to rely on the skill/judgment of supplier
– Fitness for purpose doesn’t apply to supply of services by architect or engineer
62 Guarantee as to reasonable time for supply
63 Subdivision doesn’t apply to transportation or storage of goods for businesses or contract of insurance
9.4.2.4 Statutory Remedies
CCA Chapter 5-4 Remedies
• 259 Consumer may take action if supplier supplies goods to consumer and guarantee is not complied with
– If failure to comply with guarantee can be remedied and is not major failure
• Consumer may ask supplier to remedy failure w/in reasonable time
• If supplier refuses to comply, consumer may remedy themselves and recover costs
• Notify supplier that they reject goods
– If failure to comply cannot be remedied or is major failure
• Consumer may notify supplier that they reject goods
• Recover compensation for any reduction in value of goods below price paid/payable for goods
• 260 Major failure: if goods
– Would not have been acquired by reasonable consumer fully acquainted w/ nature and extent of
failure
– Depart from description or from sample/demonstration model if supplied by reference to one of
these
– Substantially unfit for purpose for which goods of same kind are commonly supplied and they cannot
easily, and within reasonable time, be remedied to make them fit for such purpose
– Unfit for disclosed purpose and can’t be remedied w/in reasonable time to make fit for purpose
– Goods are not of acceptable quality b/c they are unsafe
• 261 How suppliers may remedy failure to comply with guarantee
– Curing defect in title, repairing goods (if defect doesn’t relate to title), replacing goods, refunding
• 262 Consumers not entitled to reject goods when rejection period of goods has ended, goods have been lost,
destroyed, disposed by consumer, goods were damaged after being delivered to consumer for reasons not
relating to their state/condition at time of supply or goods have been attached to any property
• 263 Consequence of rejecting goods – consumer must return goods to supplier and supplier must refund or
replace
• 265 When services may be terminated – if consumer rejects good and supplier entitled to give consumer
refund and another person supplies services to consumer that are connected with the rejected goods,
consumer may terminate the contract for the supply of services and consumer can get refund of money paid
for services
• 266: if consumer acquires goods from supplier and gives to another as gift, other person may exercise any
rights/remedies which would be available to them if they had acquired goods from supplier, as a consumer
Other Acts implying terms – Building and Construction Industry Payments Act 2004 implies terms in construction
contracts to provide for adjudication of payment disputes under construction contracts.
10. Interpretation of Terms and Exemptions
Now that terms (express and implied) have been determined, need to determine what they mean.
10.1 Interpretation of terms – starting point
Pacific Carriers v BNP: in construing a contract, court aims to give effect to the parties intentions, which are
determined objectively – i.e. what words used would convey to a reasonable person in the position of the parties.
Harris v Sydney: the parole evidence rule excludes evidence extrinsic to a contract in writing from being used to
explain the meaning of that contract, including evidence of negotiations and earlier drafts of contract. But where there
is ambiguity, extrinsic evidence may be considered.
Codelfa general rule/starting point: Words should be construed according to their plain, ordinary and natural meaning.
Evidence of surrounding circumstances is admissible to assist in interpretation of contract only if the language is
ambiguous or susceptible of more than one meaning (wider view in ICS v West Bromwich). When the issue is which of
two or more possible meanings is to be given to a contractual provision, we need to look, not to the actual intentions,
aspirations or expectations of the parties before or at the time of the contract, but to the objective framework of facts
within which the contract came into existence, and to the parties’ presumed intention in this setting.
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10.1.1 Interpretation of terms – wider view
Investors’ Compensation Scheme v West Bromwich Building Society: wider approach than Codelfa to intepretation
Pacific Carriers v BNP Paribas and Toll v Alphapharm (High Court cited ICS v West Bromwich): interpretation of text
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 – objective test but involves considering circumstances of specific parties
Franklins v Metcash Trading (NSW) following HC cases: it is not necessary to find ambiguity in the words of a written
contract before the court can look to surrounding circumstances as an aid to construction. However the surrounding
circumstances have to be relevant to a fact in issue, and probative (i.e. having the quality of proving something)
Royal Botanic Gardens v South Sydney and Jireh and Byrnes v Kendle: Despite the wider view taken in Investors, (which
has been applied in Franklins) Australian courts are still bound to follow Codelfa. Codelfa is still authority for
intermediate courts to follow. Jireh rejected Franklins v Metcash approach which said ambiguity not required before
can use surrounding evidence.
10.2 Interpretation of Contracts – Queensland principles
Elderslie Property Investments No 2 v Dunn (QCA Summary of Principles)
10.2.1 Starting point
The Starsin: the object of contractual construction is to ascertain and give effect to the intentions of the contracting
parties
10.2.1.1 Intentions
Toll v Alphapharm: the intentions, to be determined objectively, are what a reasonable person would have understood
the words of the contract to mean. To ascertain these intentions requires consideration not only of the text, but of the
surrounding circumstances known to the parties and the purpose and object of the transaction.
Investors Compensation: such a reasonable person is one who has all the background knowledge which would
reasonably have been available to the parties in the situation which they were in at the time of the contract. Hence the
background (factual matrix) to be considered is anything which would have affected the way in which the language of
the document would have been understood by a reasonable person.
10.2.1.2 Factors to consider when interpreting commercial contracts considered in Elderslie
McCann v Switzerland Insurance: Commercial contracts should be given businesslike interpretation. Interpreting
commercial document requires attention to the language used by the parties, the commercial circumstances which
the document addresses, and the objects it is intended to secure. In Elderslie, court applied McCann principles to
deeds, holding that deeds were commercial contracts.
10.2.1.2.1 Effect of absurd result
Wickman Machine v L Schuler: the fact that particular construction leads to a very unreasonable result must be a
relevant consideration. The more unreasonable the result the more unlikely it is that parties have intended it and if
they did intend such a result, then it is even more necessary that they shall make that intention abundantly clear
Antaios Compania v Salen: if detailed semantic and syntactical analysis of words in a commercial contract is going to
lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense
Fitzgerald v Masters: Court read word ‘inconsistent’ as meaning the precise opposite. This is because there was a
superficial difficulty in the clause because it purported to incorporate a set of conditions so far as they were
inconsistent with what has specifically been agreed upon. Words may generally be supplied, omitted or corrected in
an instrument where it is clearly necessary in order to avoid absurdity or inconsistency.
10.3 Ambiguity in interpretation – evidence from surrounding circumstances that can be used
10.3.1 Subjective intentions
Pacific Carriers v BNP Paribas
Facts: bank manager signed a form to back up promise by seller that they would indemnify carrier in event of
something going wrong. She thought she was merely signing as a witness, rather than signing on bank’s behalf to
indemnify P.
Held: Reasonable person would have understood that bank was counter-signing in its own name. In shipping business,
known that banks back their merchants. P entitled to rely on what D’s conduct objectively indicated rather than on
what bank manager actually thought she was signing.
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Principle: It is not subjective beliefs or understandings of parties about their rights and liabilities that govern their
contractual relations. What matters is what each party by words + conduct would have led reasonable person in
position of other party to believe. References to common intention of 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. Hence evidence of surrounding circumstances doesn’t include parties’ subjective intentions.
Codelfa (starting point): when the issue is which of two or more possible meanings is to be given to a contractual
provision court needs to look not to the actual intentions of parties before or at the time of the contract, but to the
objective framework of facts within which the contract came into existence, and to parties’ presumed intention in this
setting. searching for objective intention of parties. Cannot use evidence from parties saying what they intended
because this
Franklins v Metcash (Allsop P): it is clear from a number of High Court cases that they are applying an objective
approach.
10.3.2 Pre-contractual negotiations
Prenn v Symmonds
Facts: P buys shares of company A and its parent company (RTT). S worked for A and P wanted to secure S’s services. P
and S contract to ensure S stays with A. S gets form of share option – S right to acquire 4% of parent company but
subject to the aggregate profits of RTT amounting to 300k pounds. Dispute about whether profits of RTT alone, or
profits of RTT and subsidiaries. S wanted to refer to negotiations to show that meant consolidated profits not just of
RTT alone.
Held: statements from negotiations cannot be used as evidence to interpret words and determine intention of
parties, because such evidence is unhelpful – intention may have changed over negotiation - only final draft indicative
of consensus. Court accepted that profits = consolidated profits b/c this was meaning which corresponded w/
commercial good sense in context of whole agreement. Principle: agreements shouldn't be isolated from matrix of
facts on which they are set.
Franklins v Metcash: Contracts may have a long life and lawyers involved in negotiations may disappear. Evidence from
negotiations shouldn't be used b/c might not always be available. Only way to resolve issue is to look at words
themselves.
Codelfa: evidence of negotiations leading to a contract is not admissible for the purpose of proving the subjective
intentions of parties. But evidence of prior negotiations will be admissible to establish objective background facts
which were known to both parties and the subject matter of the contract.
10.3.3 Subsequent conduct
Anything which parties said and did after the contract was made should not be used in order to interpret the contract
(Franklins v Metcash). However evidence of subsequent conduct can be used as an aid to deciding whether a contract
has been entered into (Sagacious v Symbion) and in order to identify the terms of the contract (County Securities v
Challenger)
10.3.4 Evidence of trade usage
Homestake v Metana Minerals: Where parties have used language in their written record of a contract that has a
special meaning in the parties’ particular trade or industry, extrinsic evidence of that meaning may be admitted.
However to be admitted as evidence, the trade meaning must be well-known, uniform and certain.
10.2.2 Finding intention – Factual matrix
Royal Botanic Gardens v South Sydney
Facts: lease for term of 50 years for area containing parking station and footway b/w lessor (Trustees) and lessee
(Council). Contract provided for rental to be varied by lessor at regular intervals. Property proved to be v commercially
valuable and lessor sought to increase rent by significant amount to reflect this value. Lessee argued that in
determining amount of yearly rent, lessor only to have regard to considerations mentioned expressly in clause (i.e.
costs and expenses to lessor) and not to other considerations such as commercial value of land.
Held: Clause was ambiguous b/c it didn't make clear whether specified considerations were the only considerations to
be taken into account. Existence of viable alternative argument as to what clause might mean was sufficient to
constitute ambiguity. Surrounding circumstances (e.g. concern of parties had been to protect lessor from financial
disadvantage suffered from transaction) reinforced the non-commercial nature of the transaction. Hence the clause,
read as a whole, contained a statement of the totality of the matters to be taken into account in fixing the successive
rent determinations.
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Reardon Smith v Hansen Tangen
Facts: Ship (Yard 354 at Osaka) being constructed in Japan. Osaka = yard responsible for building ship, although building
subcontracted to another yard – Oshima b/c Osaka yard couldn’t handle ship of that size. Hirer argued that ship didn't
correspond w/ description under SoGA. Claimed that ship wasn't 354.
Held: intention can be established objectively by looking at background facts. Relevant background facts – hirer
wanted ship of that particular category and type; where the ship was built was irrelevant. In these circumstances
although the tanker didn't meet the description in the literal sense, looking at the factual matrix (set of facts giving
context to agreement) court held that the ship met the description that the parties intended in the contract.
10.4 A reasonable commercial construction
In cases of ambiguity, courts will favour an interpretation which avoids an unreasonable or uncommercial
consequences.
ABC v Australian Performing Rights Association (1973): If wording is clear, then apply it – don't attribute intention
which express words don’t provide, even if applying clear wording will give an unreasonable result. But if language is
open to two constructions, then choose the construction that avoids a result which is capricious, unreasonable,
inconvenient, unjust, even if it isn’t the most obvious or grammatically correct. Select interpretation that gives effect
to the underlying purpose of the contract
10.4.1 Something gone wrong with the language
Where interpretation of clear words of contract would lead to absurd, rather than just unreasonable or uncommercial
result, courts may depart from the literal meaning of the words used.
The Antaios (1984)
Facts: ship hire. Owner can withdraw vessel ‘on any breach’. Literal reading = any (including trivial) breach.
Held: interpret in way that accords w/ good commercial sense. Breach = serious breach that goes to root of the
contract. Principle: Courts will reject a detailed semantic analysis of words in a commercial contract if it leads to a
result which flouts business common sense.
The Karen Oltman
Facts: Hire of ships. One party had option to give back ship ‘after 12 mths trading subject to 3 mths notice’. Ambiguity possible interpretations of when notice to be given: (1) after 9 months latest i.e. give ship back on expiry of 12 months,
(2): give notice at any time after 12 months i.e. give ship back after 15 months.
Held: Because of the ambiguity, courts looked at prior evidence from negotiations (telex communications) along with
context – this evidence supported the former view. First interpretation gave most appropriate commercial result.
McCann v Switzerland Insurance: Commercial contracts are to be construed with a view to making commercial sense of
them
10.5 Correction of Mistakes
10.5.1 Correction by rectification
Rectification occurs when there is a mistake in the document which results in the document not reflecting the common
intention of parties.
Franklins v Metcash: A rectification order should do no more than rewrite the contract to the minimum extent that is
necessary to express the common intention of the parties when the contract was entered into.
Elderslie Property Investments v Dunn: it may be necessary to rectify the contract if the same result can be achieved by
construction. Where wording is ambiguous, court, court may say rectification not necessary if wording can be corrected
as a matter of ordinary construction.
Argument: First argue that words are ambiguous and hence require different interpretation by looking at external
evidence. If wording is not ambiguous then argue that there has been a mistake in recording the words in the first
place – apply for rectification to get mistake corrected. In application for rectification, convince court that need to bring
in surrounding evidence that indicates that there is an error. One way to get around evidence issue.
10.5.2 Correction by construction
Chartbrook v Persimmon: in this case, something wrong with language; ordinary interpretation made no commercial
sense. Interpretation with common sense: what a reasonable person having all the background knowledge which
would have been available to the parties would have understood language in contract to mean. If words makes sense
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but there is a clear mistake nevertheless, interpret agreement in context to get to meaning which parties intended
(may be wider approach than HC would accept i.e. in ABC case)
10.6 Specific rules of interpretation
Expressio unios exclusion alterus: express mention of one thing excludes other similar things.
Hare v Horton: Sale of factory and 2 houses (along with fixtures in houses). Held: sale excluded fixtures in factory. B/c
seller had mentioned fixtures in the house (but not factory) presumably meant that didn’t intend to include fixtures in
factory.
Ejuisdem generis: general words following specific examples may not include examples different to specific examples
Tillman v Knutsford:
Facts: cargo delivery with exclusion of liability for ‘war, disturbance or ‘any other cause’. Port blocked by ice and hence
ships couldn’t go in there. Owners argued that excluded from liability b/c ‘any other cause’ included ice blocking entry
to port.
Held: saying ‘any other cause’ after war, disturbance indicates that ‘any other cause’ includes only clauses like the
specific examples given just before i.e. causes like war or disturbances. Hence natural causes not included in ‘any other
cause’.
10.7 General effect of interpretation
Fitzgerald v Masters: where there is a choice between saying no contract at all or one which would still be effective,
courts should give interpretation to make contract valid, rather than void for uncertainty.
The Starsin: where there is a conflict between pre-printed clause and a typed/printed addition, generally give effect to
addition b/c reflect later specific thoughts of parties.
Glyn v Margetson: Interpret contract so as to avoid defeating main purpose and intent of the contract.
10.9 Approach to exemption clauses
10.9.1 Standard form contracts generally
1. Commercial contracts – two businesses have relatively equal bargaining power
2. Contracts of adhesion – party with more bargaining power gives party with lower bargaining power (less choice)
contract
There are generally two types of clauses – primary obligation clauses (e.g. determining prices, services, goods) and
secondary obligation clauses (e.g. consequences such as damages).
Types of consequences clauses – exemption/exclusion clauses (D not liable for consequences of breach), indemnity
clauses (i.e. P to pay sums), limitation of liability clauses (max liability is 1k), time limit clauses (liability only accepted if
claim brought w/in 7 days), liquidated damages clause (pre-estimates of damages if liable), penalty clauses (P to pay if
5 min late). Genuine liquidated damages clause are generally enforceable; however penalty clauses are not.
10.9.2 Exemption clauses in Australia – Darlington principles
The meaning and effect of an exclusion clause is to be determined by the ordinary processes of construction of
contract
Darlington Futures v Delco
Facts: Client (Delco) and broker – tax avoidance scheme. Broker authorised to undertake day trading on commodity
futures market. Broker undertook some transactions w/ longer exposure w/out D’s authority. Lost a lot of money
which Delco liable to pay. Contract b/w P and D had exemption and limitation clause. Cl 6 (exemption): Client
acknowledges that agent will not be responsible for any loss arising in any way out of any trading activity undertaken
on behalf of the client. Cl 7 (limitation): any liability on agent’s part or on the part of its servants or agents for damages
of or in respect of any claim arising out of or in connection with the relationship established by this agreement ...shall
not exceed $100.
Held: Cl 6: read in context can only mean trading activity undertaken with client’s authority. B/c D had deliberately
disregarded instructions given by client, clause didn't cover their activities. Cl 7 effective b/c claim in respect of
unauthorised transaction may, and did have a substantial connection w/ the relationship of broker and client.
Principle: 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
contra proferentem in case of ambiguity. Principle is of sufficient generality to accommodate the different
considerations that may arise in interpretation of exclusion and limitation clauses in formal commercial contracts
where no question of reasonableness or fairness of clauses arises.
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Alisa Craig v Malvern: suggested less strict approach for interpretation of limitation clauses, but Darlington treats both
clauses the same way.
10.9.2.1 Exemption clause – ordinary natural meaning
Selected Seeds v QBEMM
Facts: insurance policy b/w S and insurer for property damage in connection with business.. S = seed merchant. Bought
Jarra seed and sold to farmer. In fact, was more like a weed. Broken term of sale by description. Farmer claimed
eradication costs and loss of land use from S who then tried to claim this amount of money from the insurer under
insurance contract. Insurer said that the efficacy clause in their contract excluded damages for failure of property (i.e.
the seeds) to fulfil intended use or function. S claimed that it was property damage in connection with business, which
was actually covered by the contract.
Held: application of Darlington. Liability to farmer was for what the seed did, not for its failure to fulfil intended use.
Hence on literal construction the efficacy clause didn't apply b/c contamination of seeds not to do with function that
property failed to perform. Rather talking about property damage in connection with business.
10.9.3 Exemptions and fundamental breach
10.9.3.1 Denning doctrine of fundamental breach
If breach is fundamental breach, then B cannot rely on exclusion (rule of law). Whether clause covers breach is
question of interpretation (rule of construction).
Karsales v Wallis: no matter how wide the exemption clause is, it can only apply when D is excluding liability resulting
from carrying out the contract not to exclude liability when D is guilty of breach going to the root of the contract.
Photo Production v Securior
Facts: Securior co had contract to guard factory. Factory guard lit fire. Burnt factory down. Company claimed against
securior for that loss. But S had clear exclusion clause – under no circumstances is co. liable for actions done by guard.
Held: Clause was clear. On interpretation, it applied. Principle: rejected doctrine of fundamental breach. Whether or
not an exclusion clause is a question of construction. If clause is clear, then it will be applied.
TNT v Baker (Australian): no separate rule of fundamental breach destroying exemptions. But as a matter of
construction, construe language that the parties used, read in context and with any necessary implications based on
their presumed intention. i.e. as a matter of interpretation, general words of exemption would not apply to ‘alien’
performance. More serious the breach the less likely it is that general words are intended to exclude it. Contra
proferentem rule = construe ambiguities against the person seeking to rely on the clause. i.e. if haven’t excluded
liability clearly, through the exemption clause, then D cannot use the clause
10.9.3.1 Exemptions for serious breach
Nisho Iwai v Malaysian International Shipping
Facts: Container of prawns from Malaysia to Sydney. Stolen after discharge and after placed in stack by stevedores
employed by carrier. Bill of lading clause said that in effect 1. no liability for any cause ‘carrier’ couldn’t prevent by
reasonable diligence 2. after delivery or when goods made available to merchant.
Held: Followed Darlington. No fundamental breach rule. 1st part could apply to non-delivery as a matter of
interpretation because any cause that couldn’t be prevented by carrier (i.e. company/senior management) included
failure to deliver. Hence clause could apply but mere discharge is not ‘delivery’ in order to conform with part 2 of the
clause. i.e. putting goods on board doesn’t amount to delivery. Hence clause didn't cover.
The Antwerpen
Facts: Container terminal allows thieves to collect whisky w/out bill of lading. Clause which excluded all loss howsoever
caused, including fundamental breach. Held: No restriction of liability in general terms would cover a deliberate
breach. But clear wording of exclusion clause in this case covered the breach, although it was serious and fundamental.
Photo Production v Securior: a strongly worded exclusion clause may exclude liability even for serious breaches.
10.9.4 Secondary rules of interpretation
Darlington is the set of principles from which interpretation of exclusion clauses begins. But these secondary rules are
still appropriate in terms of specific examples. If approaches produces result contrary to Darlington, then Darlington
prevails.
10.9.4.1 ‘Main purpose’ rule: interpret clause in way that gives effect to main purpose (Glyn v Margetson)
10.9.4.2 Contra proferentem rule: construe ambiguities against the person seeking to rely on the clause
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Wallis v Pratt
Facts: contract for sale of seed. Sellers provided different type of seed. Contract said that S gives no warranty, express
or implied. Implied term here from SOGA was implied condition – goods shall meet description. Word ‘warranty’ in the
clause could mean any term in contract or ma be used in strict legal sense to mean terms that are not conditions.
Held: court construed clause strictly to refer to warranty in legal sense. Hence clause didn't exclude liability for
breaches of terms that were classified as conditions such as the one in the present circumstances.
Beck v Szymanouswki – clause: goods delivered shall be deemed in accordance with contract unless complaint in 14
days of arrival. Did not apply to goods lost and never delivered.
Darlington v Delco: in cases of ambiguity (i.e. where on ordinary principles of construction the words of the clause are
capable of more than one meaning), an exclusion clause may be construed strictly against person seeking to rely on it.
This approach is also appropriate in cases of guarantee and indemnity (Ankar v National Westminster Finance).
10.9.4.2.1 Reading down Exemption clauses
Van der Sterren v Cibernetics
Facts: P selling resin made by D. ‘No D liability unless notify claim w/in 14 days of delivering goods’
Held: clause unambiguous and part of bargain. Hence it applied
Principle: exception clause must sometimes read down if can’t be applied literally w/out creating absurdity or
defeating main object of contract. But such modification by implication of the language which the parties have used
in an exception clause is not to be made unless it is necessary to give effect to what parties must be understood to
have intended
10.9.4.3 Excluding negligence
Canada Steamship Lines v The King
Facts: lease of cargo shed. Tenant shall ‘not have any claim..for damage to T’s goods’. Two possible claims – strict
liability of occupier or negligence. Held: exemption clause applies to strict liability only (unless fanciful) not negligence.
Principles: 3 rules governing exemption clauses that exclude liability for negligence: 1. An express reference to
exclusion of liability is sufficient. 2. Where there is no express reference, the clause can exclude liability for
negligence if the words in the clause are clear enough to apply to the circumstances which occurred and any doubt is
resolved by the application of the contra proferentem rule. 3. If the words used are wise enough to cover liability for
negligence, but there is some other basis of liability to which the clause can apply, the clause should generally be
applied to that other basis
Commissioner of Railways v Quinn: clause said ‘all liability (any loss) whatever its cause or howsoever caused. Court
applied rule 2 from Canada Steamship. Held ‘howsoever caused’ in clause was wide enough to cover negligence.
10.9.4.4 Four corners rule: protection of exemption clause exists only while B is performing contract
Sydney Council v West
Facts: W left car at council’s car park. Presented ticket which said ‘ticket must be presented before taking delivery of
vehicle’. Thief claimed to have lost ticket and obtained duplicate from car park attendant – then permitted to take
away W;s car. Clause in contract: council does not accept an responsibility for the loss or damage to any
vehicle...howsoever it may arise or be caused. Held: clause couldn’t be relied on. Action of attendant was an
unauthorised delivery of vehicle which was contrary to the terms of the car park’s own ticket.
Hence this rule says that exemption of liability only applies when D is doing in act within and authorised by the
contract, not when they are doing an act that is unauthorised by the contract (applied in Darlington, clause 6)
Nisho Iwai v Malaysian International: 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.
10.9.5 Summary of approach to exemption clauses at common law
1. Determine whether there is a contract and what its terms are (express/implied). 2. Determine whether there has
been a breach of any term. 3. Is there a possible exemption/limitation clause for liability for breach. 4. Was that
exemption clause incorporated (e.g. Thornton – special notice of unusual clause) 4. Interpretation of clause – does the
clause cover the action breach – i.e. only excluded implied warranties but this is implied condition? 5. Apply statutory
protection.
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11. Statutory Control of Unfair Terms
11.1 Sale of Goods Act
S56: when an right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or
varied by an express agreement or course of dealing or usage. Hence in B2B contracts, freedom of contract prevailed.
For consumers, better to rely on ACL.
11.2 ACL Control of exclusion of guarantees
S64: a term is void to the extent that it purports to exclude, restrict or modify a) application of provisions of part 3-2
(i.e. consumer guarantees, b) exercise of right conferred by such a provision (e.g. remedy), c) any liability for failure to
comply with guarantee. A term of a contract is not taken for the purpose of this section to exclude, restrict or modify
the application of a provision of the division unless the term does so expressly or is inconsistent with the provision (i.e.
matter of interpretation using Darlington). Exclude – e.g. no liability for not meeting description. Restrict – e.g.
guarantee only available for 7 days. Modify – e.g. fitness for purpose only if consumer specifies in writing.
S64A(1) Goods: term can limit liability to repair/replacement (or money equivalent) provided that guarantee for which
D hasn’t complied with is not covered by ss51-53 (title) and goods are not acquired for personal, domestic/household
use.
S64A(2) Services: term can limit to repeating supply of service (or money equivalent) provided that services not of a
kind ordinarily acquired for personal, domestic or household use or consumption.
S64A(3): Limits do not apply in relation to term if buyer proves that not fair or reasonable for supplier to rely on limit
S64A(4): In determining whether or not reliance on term is fair or reasonable, court to have regard to all the
circumstances of the case, and in particular:
- Relative strength of bargaining positions of supplier and buyer – take into a/c availability of equivalent
alternatives
- Whether B induced to agree to term or had opportunity to acquire G/S under contract not including that term
- Whether B knew or ought reasonably to have known of existence and extent of term – take into a/c custom of
trade and any previous course of dealings b/w the parties
- In case of supply of goods, whether the goods were manufactured processed/adapted to special order of B
11.2.1 Clauses covered by s64 and s64A
There are many clauses that have an exclusionary basis, but do not affect statutory guarantees e.g. time bars evidence,
unilateral variation. S64A only relates to exclusion of listed new ‘guarantees’, not to the exclusion of other express or
implied obligations e.g. indemnities, delivery, cancellations, interruptions of supply. Hence need to look at provisions
dealing generally with unfair contract terms
11.3 Unfair Contract Terms Provisions Part 2-3 ACL
If section 64 doesn’t apply, then deal with the unfair term under Part 2-3 of ACL.
11.3.1 ACL Unfair Contract Terms Overview ss23-28
- Term in a consumer contract is void if:
o Term is unfair and
o Contract is a standard form one (i.e. term not individually negotiated).
- Term shall be unfair if it
o Causes significant imbalance in rights and obligations
o Is not reasonably necessary to protect legitimate interests of D (company seeking to rely on clause)
o Causes detriment to consumer (if it were to be relied on)
- Factors
o Transparency
o Consider contract as a whole
- Indicative examples of unfair terms
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-
Effect of unfairness
11.3.2 Persons Regulated: Defendants
Corporations in interstate trade or commerce (ACL s130) and crown carrying on business (ACL s2A)businesses (ACLQ
s4A)– i.e. persons carrying on business within Queensland or persons ordinarily resident in this jurisdiction. Concerned
mainly with corporation – consumer contracts.
11.3.3 Persons Regulated – Plaintiffs
S23(3): Consumer contracts – a contract for
- A supply of goods or services or a sale or grant of an interest in land (e.g. grant of lease)
- To an individual whose acquisition of goods, services or interest is wholly or predominantly for personal,
domestic or household use/consumption
11.3.4 Contracts regulated
S23(1)(b): applies to standard form contract
S27 Definition of standard form contract
- Burden of proof – if consumer alleges contract is SFC, then it is presumed to be so unless D shows it isn’t.
- Court unfettered power to decide what is relevant to standard form contract
- Court duty to take into account list (must take these into account) (a) – (f)
o a) whether one party has all/most bargaining power
o b) contract prepared by one party before discussion (i.e. one party prepares and then passes it out)
o c) required either to accept or reject the terms in form presented
o d) parties given effective opportunity to negotiate
o e) whether terms take into a/c specific characteristics of party or transaction (i.e. if tailor made then
indicates less that it is SFC)
o f) any other matter prescribed by regulations
- If the contract is not a standard form contract, then ACL Part 2-3 (UCT) doesn’t apply. P needs to rely on
common law remedies. If contract is in standard form, not automatically void. Term needs to be unfair
S28: contracts that are excluded from application of part 2-3: contract of marine salvage of towage, or charter party of
a ship, or a contract for the carriage of goods by ship. Does not include passenger contracts e.g. Baltic. Also does not
apply to a contract that is a constitution of a company.
Does not apply to supply of financial services and insurance contracts
11.3.5 Protection given – unfairness
No express good faith obligation. No absolute prohibitions of certain clauses. Indicative list of examples in s25.
S23(2): The contract continues to bind the parties if it is capable of operating without the unfair term.
11.3.5.1 What is an unfair term?
Parties to show:
S24(1): Term of consumer contract is unfair if:
- It would cause significant imbalance in rights and obligations arising under the contract
- It is not reasonably necessary in order to protect the legitimate interests of D (who is relying on the term)
o S24(4): This is presumed unless D shows that term is reasonably necessary to protect legitimate
interests
- Detriment (financial or other) if term applied/relied on – causative effect. Actual rather than theoretical
detriment
Hence in order to prove that term is not unfair D must show that reasonably necessary to protect their legitimate
interest
Reasonably necessary in order to protect legitimate interests of D
- Legitimate interest will be satisfied by showing that term protects trader from business risks inherent in the
transaction, as opposed to being an attempt to appropriate gains not contemplated as part of original bargain
- Term will typically only be reasonably necessary where term represents a proportionate response to the risk
it seeks to address (Director of Consumer Affairs v Trainstation Health Clubs)
- Director v Trainstation: concerned termination clause in contract for gym membership, which allowed club to
terminate contract with members for any failure by members to comply with club’s rules and regulations. Held
that term not unfair b/c rules protected consumer by providing framework for efficient running of club
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Director of Consumer Affairs v AAPT: term allowing trader to immediately terminate contract where consumer
had breached contract or changed its address or contact details w/out notifying trader held to be unfair b/c it
was one-sided and too broadly drawn
S24(2): court can take into account any relevant matters but it must take into account the following:
- The contract as a whole
- Extent to which term is transparent – s24(3): a term is transparent if it is:
o In reasonably plain language – i.e. no specialist legal terminology
o Legible – i.e. in style and size of font, can easily be read
o Presented clearly – present in a way that facilitates rather than impedes the words being read
o Readily available to affected party
- Consequences if term is transparent: not automatically fair
- Consequence if term isn’t transparent: court cannot ignore it. But doesn’t mean automatically unfair.
S25: Examples of unfair terms
(a) permits one party (but not the other) to avoid or limit performance of contract
(b) permits one party (but not the other) to terminate contract
(c) penalises one party (but not the other) for breach/termination of contract
- Clause stipulating sum payable on breach will be penalty where sum is extravagant in comparison with
greatest loss that could be proved to have followed from the breach (Dunlop), rather than genuine preestimate of damage likely to be caused by the breach (Ringrow)
(d) permits one party (but not the other) to vary terms of the contract
(e) permits one party (but not the other) to renew/not renew the contract
(f) permits one party (but not the other) to vary upfront price payable under contract w/out right of other to terminate
(g) permits one party unilaterally to vary characteristics of G/S to be suppled or interest in land to be sold under
contract
(h) permits one party unilaterally to determine whether contract has been breached or to interpret its meaning
(i) limits one party’s vicarious liability for its agents
(j) permits one party to assign contract to the detriment of another party without other party’s consent
(k) limits one party’s right to sue another party
(l) limits the evidence one party can adduce in proceedings relating to the contract
(m) imposes evidential burden on one party in proceedings relating to the contract (i.e. produce expert evidence..etc)
(n) term of a kind prescribed by regulations i.e. government can add other examples
If a term falls within the list in s25, then it is not automatically unfair; but it may be unfair, depending on whether it
satisfies the three criteria in s24.
11.3.5.1 Which terms are regulated?
S26(1): s23 does not cover main terms i.e. which
- define the main subject matter of the contract or
- set the upfront price payable under the contract
- is a term required by Commonwealth/State statute
s26(2): The upfront price payable under a consumer contract is the consideration that:
- is provided or is to be provided for the sale, supply or grant under the contract
- is disclosed at or before the time the contract is entered into but does not include any other consideration
contingent on occurrence/non-occurrence of particular event
Hence consumers cannot complain that a price of car is too high, provided that they are notified at the start of the
upfront price, including future instalments. Transparency issue is relevant. Unfair provisions do however cover
additional future charges and unilateral variations of contract.
OFT v Abbey National – bank charges held to be defining main subject matter of the contract. Hence not subject to
review under EC Directive in UK.
11.4 ACL and Unfair Contract Terms – how to answer question
Preliminary common law matters
- Determine term – are they incorporated?
- Determine whether breach of a term – i.e. liability
- Is party trying to exclude liability?
- Is the exclusion of liability clause incorporated into the contract?
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Does the exclusion clause cover the breach as a matter of construction?
If clause covers the breach, then as a matter of common law it will apply
Legislation
- SOGA s56 allows exclusion of liability for breach of implied term
- ACL: If exclusion clause excludes, modifies or restricts one of the guarantees, then will be void (s64)
- ACL: if clause only limits, this is allowed in business-business transactions (s64A)
- ACL: If exclusion clause deals with a breach that isn’t a statutory guarantee then it may be covered by unfair
contract terms provisions (part 2-3). Look at: persons covered, contracts covered, terms covered, unfairness
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