Contracts
1 TABLE OF CONTENTS
FORMATION OF CONTRACTS .......................................................................................................................................... 2
1.
AGREEMENT .......................................................................................................................................................... 2
2.
INTENTION TO CREATE LEGAL RELATIONS .............................................................................................. 9
3.
CONSIDERATION ................................................................................................................................................ 10
4.
EQUITABLE ESTOPPEL ..................................................................................................................................... 12
LIMITS TO ENFORCEMENT OF CONTRACTS.............................................................................................................. 15
1.
PRIVITY .................................................................................................................................................................. 15
2.
CAPACITY ............................................................................................................................................................. 17
3.
FORMALITIES ...................................................................................................................................................... 18
VITIATING FACTORS ....................................................................................................................................................... 22
1.
MISREPRESENTATION ...................................................................................................................................... 22
2.
MISLEADING OR DECEPTIVE CONDUCT .................................................................................................... 25
3.
UNCONSCIONABLE CONTRACTS .................................................................................................................. 27
4.
MISTAKE ................................................................................................................................................................ 28
CONTENTS OF CONTRACTS ........................................................................................................................................... 31
1.
ESTABLISHING THE TERMS OF THE CONTRACT .................................................................................... 31
2.
CONSTRUING THE TERMS OF THE CONTRACT ....................................................................................... 36
3.
RESTRAINT OF TRADE ...................................................................................................................................... 40
4.
UNFAIR TERMS .................................................................................................................................................... 42
These notes are a combination of the textbook, Wiki notes from previous years and the context provided in LLB202
2015. Any inaccuracies or mistakes are unintentional.
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FORMATION OF CONTRACTS
1. AGREEMENT
Offeror  Person who makes the offer (Promisor)
Offeree  Person who receives the offer (Promisee) (accepts)
If get confused think: Person who ‘accepts something’ is the offeree
Unilateral vs Bi-Lateral: Most contracts are bi-lateral. Each party undertakes to do or to refrain from doing something. In the event
of a parties failure to perform their side of the contract, the law provides the other party with remedy.
A unilateral contract is less common. In a unilateral contract only one party (the promisor) undertakes to do or to refrain from doing
something, IF the other party (the promisee) undertakes to do or to refrain from doing something. There is no immediate imposition of
obligation on either party. The obligation of the promisor to perform arises only if the offeree accepts the contract which is completely
executed by performing the required task.
A valid agreement based on offer and acceptance can exist between two or more parties.
Clarke v Dunraven [1847] AC 59
It may, though, be necessary to look at the whole of the relationship in order to determine whether there has been agreement, rather
trying to isolate an ‘offer’ and an ‘acceptance’.
Empirnall Holdings v Machon Paul Partners (1988) 14 NSWLR 523 per Kirby P
a. WAS THERE AN OFFER?
An offer is the expression to another of a willingness to be bound by the stated terms
Bilateral: “each party undertakes to do or to refrain from doing something. In the event of a parties failure to perform
their side of the contract, the law provides the other party with remedy” (United Dominions Trust (Commercial) Ltd v
Eagle Aircraft Services Ltd)
i. Was the subject matter an offer?
Invitations to treat are not construed as an offer (Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256)
Some examples of invitations to treat are:
(i) Advertisement of goods for sale in a catalogue or through a circular
Grainger v Gough [1896] AC 325
or in a newspaper or magazine or periodical
Partridge v Crittenden [1968] 2 All ER 421
(ii) Goods displayed in shops
Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401
Fisher v Bell [1961] 1 QB 394
(iii) Usually, an announcement inviting tenders unless the announcement indicates that the lowest tender
will be accepted.
Spencer v Harding (1870) LR 5 CP 651
Cf. Blackpool & Flyde Aero Club v Blackpool Council [1990] 1 WLR 1195
Thus each tender submitted is an offer.
However, each case must be determined on its facts: Hughes Aircraft Systems International v
Airservices Australia [1997] 146 ALR 1
(iv) An auctioneer's requests for bids
Payne v Cave (1789) 100 ER 502
AGC (Advances) v McWhirter (1977) 1 BPR 9454
and the advertisement of an auction sale
Harris v Nickerson (1873) LR 8 QB 286
Cf. Warlow v Harrison (1859) 120 ER 925 in relation to auctions without reserve.
For an examination of internet auctions, see Smyth v Thomas [2007] NSWSC 844
The following are construed as offers:
(i) Automatic vending machines
Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163
(ii) A notice at the entrance to an automatic car park
Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163
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A mere statement of the price of which someone would contract if they decided to sell does not amount to an
offer.
Harvey v Facey [1893] AC 552
One factor the courts will consider in determining whether an advertisement is an offer or an invitation to treat
is its likely effect upon the potential customer.
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
ii. Was the offer communicated?
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An offer can be made to the whole world and need not be directed to a particular person.
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
An offer is effective when and not until it is communicated to the offeree or his/her agent by the offeror or
his/her agent.
Taylor v Laird (1856) 25 LJ Ex 329
Within the terms of the offer the offeror may expressly or impliedly prescribe the method of communicating
acceptance. Failure to adopt that method is at the offeree's risk. However, in an appropriate case an equally
expeditious method of communication may be acceptable.
Tinn v Hoffman & Co (1873) 29 LT 271
Manchester Diocesan Council v Commercial and General Investments Ltd [1970] 1 WLR 241
An offeror can waive communication of acceptance. In such a case it must be shown:
 That there is an express or implied intimation from the offeror that a particular mode of acceptance will
suffice – and that the particular mode does not involve communication; and
 There must be some overt act or conduct on the part of the offeree which evidences an intention to accept
and which conforms to the mode of acceptance indicated by the offeror.
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
iii. If relevant, was the offer still on foot? Or was it terminated?
Standing offer
o An offer to supply goods for a period up to a certain amount as required is known as a standing offer.
The offer is accepted each time an order is placed, giving rise to a series of independent contracts. The
standing offer can be withdrawn or revoked at any time prior to an acceptance. Once revoked no further
acceptances are valid unless the offer is renewed.
Colonial Ammunition Co. v Reid (1900) 21 LR (NSW) 338
Great Northern Railway v Witham (1873) LR 9 CP 16
Termination of offer
o An offer can be terminated at any time before it has been accepted. Once an offer has been accepted, the
offer is irrevocable.
Great Northern Railway Co v Witham (1873) LR 9 CP 16
o Where the offer takes the form of an option (for example where there is consideration to keep the offer
open) then the offer cannot be terminated before the time of the option has expired.
Goldsborough Mort v Quinn (1910) 10 CLR 674
o An offer may be terminated in a number of ways, e.g.:
Withdrawal by the offeror
 An offer can be withdrawn at any time before acceptance
Goldsborough Mort v Quinn (1910) 10 CLR 674
 Revocation of an offer is ineffective until communicated by the offeror or his/her agent
and received by the offeree
Byrne v Van Tienhoven (1880) 5 CPD 344
 Before acceptance, an offer can be freely revoked unless a promise by the offeror to keep it
open for a fixed period is supported by consideration or under seal.
Routledge v Grant (1828) 130 ER 920
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
Compare Dickinson v Dodds (1876) 2 Ch D 463 where it was held that communication of
revocation by a reliable third party was sufficient.
 In the case of certain unilateral contracts, an offer may not be withdrawn after the promisee
has begun to perform the necessary conditions to enable acceptance of the contract to be
completed. This is because commencing to perform is acceptance of an implied offer not to
withdraw the express offer.
Abbott v Lance (1860) Legge 1283
 This means not withdrawn with impunity: if the offeror attempts to withdraw there will be
breach of the implied contract not to withdraw: see the decision of the Full Federal Court
in Mobil Oil Australia v Lyndel Nominees Pty Ltd (1998) 153 ALR 198 at 228.
Rejection by the offeree
 If the offeree rejects the offer, the offer is terminated. Rejection may be express or implied.
Stevenson Jaques & Co v McLean (1880) 5 QBD 346
 A counter-offer amounts to rejection by the offeree
Hyde v Wrench (1840)
By lapse of time
 An offer must be accepted within the time prescribed or, if there is no time prescribed,
within a reasonable time.
Ramsgate Victoria Hotel Co v Montefiore (1866) LR 1 Ex 109
 What amounts to a reasonable time is a question of fact depending on circumstances – the
matters that are taken into account are the nature of the subject matter and the means used
to communicate the offer.
Buckley J in Manchester Diocesan Council for Education v Commercial and General
Investments Ltd [1970] 1 WLR 241 at 247, 248
By failure of a condition subject to which the offer was made
 An offer can be mad which are expressly or impliedly subject to conditions. If the
condition is not complied with by the offeree, the offer will cease.
McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) SR (NSW) 122
By death

An offeree cannot accept an offer after she or he has had notification of the death of the offeror Coulthart v
Clementson
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If the offeree dies, it appears that he or her personal representative cannot accept the offer
on behalf of her or his estate – the offer lapses automatically.
Reynolds v Atherton (1921) 125 LT 690
b. WAS THERE ACCEPTANCE?
i. Was the offer accepted?
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Acceptance of an offer is the expression, by words or conduct, of assent to the terms of the offer in the
manner prescribed or indicated by the offer HBF Dalgety v Morton
Acceptance must be unqualified and must correspond to the terms of the offer. Tinn v Hoffman & Co
Once offer is accepted it is final Great Northern Railway Co v Witham
The acceptance must be in reliance of the offer rather than for some other reason R v Clarke
There is no contract if two offers identical in terms, cross in the post. As there is no knowledge of the offer:
Tinn v Hoffman & Co
Counter offer
o Counter offer is not acceptance of original offer Brogden v Metropolitan Railway
o A counter offer causes the original offer to terminate. Original offer cannot be accepted unless it is
renewed Hyde v Wrench
o A purported offer that departs from the terms of the offer, in a minor, non-material way may be
effective Turner Kempson v Camm
o Courts may allow divergence from terms for benefit of offeror. Ex Parte Fealey
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ii. If relevant, was the acceptance effectively communicated?
General rule:
 The general rule is that an acceptance has no effect until it is communicated to the offeror or his or her
agent.
Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344
 Acceptance may be communicated only by the offeree or his or her agent.
Powell v Lee (1908) 99 LT 284)
 Silence is not acceptance.
Felthouse v Bindley (1862) 142 ER 1037
 However an offeror may waive the need for acceptance to be communicated.
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
 Where no particular method of communication is prescribed, the method to be adopted will depend upon
the nature of the offer and the method of communication used to make the offer. The court will look at
the surrounding circumstances to determine what a reasonable method is.
Quenerduaine v Cole (1883) 32 WR 185 (in this case, which does not appear in the text, the court held
that acceptance by post to an offer by telegram was not valid).
 The general rule that acceptance must be communicated and that it is incomplete until it is received by
the offeror applies to contracts made when the parties are in the presence of each other, or are using the
telephone or some other method of communication which is virtually instantaneous, e.g. email or fax.
Hampstead Meats v Emerson & Yates [1967] SASR 109
Entores Ltd v Miles Far East Corporation [1955] 2 QB 327
 However, this depends upon the circumstances since such communications may be sent and received
outside business hours: Brinkibon Ltd v Stahag Stahl GmbH [1983] 2 AC 34.
 Where a contract is formed electronically, for example, where offer and acceptance is sent by email, the
electronic transactions legislation is relevant to issues of contract formation. See Electronic Transactions
Act 2001 (Qld) ss 24 (Time of Receipt) and 26E (Application to Act in relation to contracts.)
Postal acceptance rule:
• Contract formed as soon as the letter is posted and is immaterial whether the letter was lost or destroyed in
post Henthorn v Fraser
•
Only applies where post might be acceptable communication, e.g. – offer made by post, or parties live a
distance away from each other Bressan v Squires
• Rule can be displaced if a time if set for acceptance to be communicated Holwell Securities Ltd v Hughes
iii. If relevant, was the agreement complete and certain?
1. Individual terms
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There can be no contract unless what the parties agreed can be determined objectively with a
reasonable degree of certainty.
Whitlock v Brew (1968) 118 CLR 445
Hall v Busst (1960) 104 CLR 206 at 222
However, the law is anxious to uphold a contract whenever possible and will make certain that which
is able to be made certain so that the mere fact that an agreement is capable of more than one meaning
does not make it void or uncertain.
Hillas & Co v Arcos Ltd (1932) 147 LT 503
2. Saving ambiguous, uncertain or meaningless contracts
A contract that is uncertain or contains uncertain terms may be upheld if the court is able to use some
mechanism to give meaning, or if severance is possible.
(i) Link to an external standard
A clause which appears uncertain may be enforceable if a meaning can be attributed to it by
reference to an external standard. This may be achieved by directly incorporating the standards
into the contract, or indirectly where the contract does not provide for that link. For example in
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(ii)
(iii)
(iv)
(v)
Hillas and Co Ltd v Arcos Ltd (1932) 147 LT 503 the House of Lords relied in part on certain
specifications agreed in a previous contract in order to determine the size and quality of timber to
be supplied.
However, in Biotechnology Australia Pty Ltd v Pace (1998) 15 NSWLR 130 the court was unable
to establish an external standard, thereby resulting in a senior research scientist being denied relief
when he sued to obtain employment benefits under his employment package.
Link to a reasonable standard
The courts are willing to adopt principles of reasonableness to make otherwise uncertain contract
certain. In Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503. the House of Lords was prepared to
uphold a clause relating to ‘softwood goods of fair specification’ on the basis that, if the parties
failed to agree, ‘the law can be invoked to determine what is reasonable in the way of
specification, and thus the machinery is always available to give the necessary certainty.’ Per Lord
Wright.
Severance
The uncertainty of one term does not necessarily mean the contract will be invalid. In certain
circumstances an uncertain term may be severed, thereby allowing the remaining contract to be
enforced.
In Fitzgerald v Masters (1956) 95 CLR 420 clause 8 in a contract for the sale of an interest in land
incorporated a set of non-existent conditions. Because the parties would have intended to be bound
in the absence of clause 8, the High Court severed the clause and upheld the contract. ‘Clause 8
was merely an appendage to the parties' declared agreement and there is nothing to show that it
was intended to serve any purpose beyond providing for possible contingencies the nature of which
they do not appear even to have contemplated.’ Per Mc Tiernan, Webb and Taylor JJ at 438.
The question will be whether the remainder of the contract, after the meaningless or uncertain
clause is severed, still reflects the actual intention of the parties.
Fitzgerald v Masters (1956) 95 CLR 420
However an uncertain clause which forms a pivotal part of the contract cannot be severed.
Whitlock v Brew (1967) 118 CLR 445.
Divisible Obligations
If a contract contains a number of different types of obligations and issues of uncertainty arise in
relation one of those obligations, it may in certain circumstances be possible to sever that particular
aspect of the contract.
The Life Insurance Company of Australia Ltd v Phillips (1925) 36 CLR 60.
Waiver or Removal of Uncertainty
If a clause is inserted into a contract for the benefit of one of the contracting parties that party may
waive the benefit of the clause and the contract will remain valid and capable of performance.
Whitlock v Brew (1967) 118 CLR 445, 461.
3. Incomplete agreements
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Parties must reach complete agreement on the essential aspects of the contract before they will be
regarded as having a valid contract.
Parties may reach agreement on many or most terms but attempt to leave further terms to be
determined either by both of them (an ‘agreement to agree’), or by one of them or by a third party (a
‘mechanism to complete’). Not all of these will result in a complete agreement.
a. Agreements to agree
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An agreement to agree in the future is incomplete.
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600.
May & Butcher v The King [1934] 2 KB 17
Whether an agreement to negotiate is regarded only as an agreement to agree and therefore
unenforceable will depend on its terms. If the terms are sufficiently certain, an agreement to
negotiate may be enforceable.
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1
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In that case it was contemplated by Kirby P (with whom Waddell A-JA generally agreed) that
if the parties provided good consideration and the terms of the agreement to negotiate were
sufficiently certain such agreements might be enforceable. It was suggested that one
mechanism to assist certainty would be to include a provision which refers matters of dispute
to a third party (see below).
This has been recently accepted by the Court of Appeal in United Group Rail Services Ltd v
Rail Corp of New South Wales (2009) 74 NSWLR 618. See the case note in your text book at
[4.168]
b. Agreements that contain a mechanism to complete
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Reference to a third party
Parties to a contract may leave terms, including essential terms, of the contract to be decided
by a third party.
Godecke v Kirwan (1973) 129 CLR 629, 645.
A contract may provide for a matter to be agreed by the parties themselves and if they are
unable to reach agreement, to be resolved by a third party, who is often an arbitrator.
Despite initially proving for future agreement by the parties to the contract, such agreements
are upheld by the courts because of the third party mechanism to resolve disputes.
Hawthorne Football Club Ltd v Harding [1988] VR 49.
Discretion retained by a contracting party
A contract that leaves essential matters for later determination by one of the contracting
parties is unenforceable.
May and Butcher Ltd v The King [1934] 2 KB 17,20.
However there is authority which suggests that some minor matters can be left to the
discretion of one of the parties.
Godecke v Kirwan (1973) 129 CLR 629.
Where a contract provides for discretion in relation to the performance of stated contractual
obligations to be left to one of the contracting parties, the contract may be enforceable
depending on how wide the discretion is. It may be the discretion conferred by the contract
on the party is so wide that the party cannot be regarded as making any promise at all.
However if the discretion merely related to the way the party carries out the contractual
obligation it may be enforceable.
In Yaroomba Beach Development Company Pty Ltd v Coeur De Lion Investments Pty Ltd
(1989) 18 NSWLR 398 the parties had agreed on basic matters and the fact the purchaser had
a latitude of choice as to the way certain stipulations were to be carried into effect, did not
make the contract void.
Traditionally the court will not rewrite an agreement where the parties have failed to agree on
all the terms. Similarly if the parties have established a mechanism for determining a term
and that mechanism fails, the court will not substitute its own view and complete the
agreement.
However the courts may be adopting a more relaxed approach and thereby be prepared to
substitute its own objective determination of a reasonable price or rent in order to uphold the
agreement.
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600.
A distinction is made between a clause where the manner of calculation was essential or
idiosyncratic to the parties and one where the mechanism was simply one by which the parties
could ascertain a reasonable price or rent. It is in the latter situation that the court may
substitute its own objective determination should the mechanism fail.
c. Implication of terms
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The courts may imply terms into agreements which would otherwise be incomplete.
Hillas and Co Ltd v Arcos Ltd (1932) 147 LT 503.
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In that case the contract did not specify the quality or price of certain timber or the dates for
delivery. Lord Wright noted that ‘there are appropriate implications of law as for instance the
implication of what is just and reasonable to be ascertained by the court as a matter of
machinery where the contractual intention is clear but the contract is silent on detail.’
Similarly the courts are prepared to imply a requirement that contractual obligations must be
performed within a reasonable time when the contract has not stipulated a date by which
performance should occur.
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537.
If the parties have failed to agree on essential terms or there are a number of terms not finally
agreed upon, the court will be less likely to imply a term or terms.
If it is clear the parties have gone beyond the stage of negotiation and intend to be
contractually bound, the court will be more minded to imply a term and enforce the
agreement.
Hillas and Co Ltd v Arcos Ltd (1932) 147 LT 503.
If the contract has been partly executed the court will seek to imply a term necessary for the
validity of the agreement.
d. Failure to specific a price
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The general principle is that a contract will only be regarded as validly constituted if the
parties have agreed on its essential terms.
The starting point is that there is no binding contract of sale without agreement as to price.
Hall v Busst (1960) 104 CLR 206.
Sale of goods
Where the contract involves the sale of goods the court are sometimes prepared to imply a
term that the purchaser will pay a reasonable price for the goods. This is particularly so where
both parties clearly intend to be bound by the agreement such as where the contract is partly
executed and property in the goods has passed.
Hall v Busst (1960) 104 CLR 206.
A contract for the sale of goods at a reasonable price is likely to be valid. ‘Reasonable price’
is an objective standard that can be determined without further agreement between the parties.
Sale of land
However the High Court has refused to imply a term for payment at a reasonable price into a
contract for the sale of land.
Hall v Busst (1960) 104 CLR 206.
4. “Subject to” agreements
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An agreement made that simply states it is ‘subject to finance’ is certain. There is no need to specify,
for example, the amount of finance or where the finance is to be obtained.
Meehan v Jones (1981-82) 149 CLR 571
In relation to agreements made ‘subject to contract’ Masters v Cameron (1954) 91 CLR 353 identified
three possible interpretations which depend upon the intention of the parties, determined by reference
to all the circumstances. Subsequent case law has now identified a fourth possible interpretation. The
interpretations – or ‘categories’ as they are known – are:
1. The parties have reached finality in arranging all terms and intend to be immediately bound to
perform those terms, but at the same time propose to have the terms restated in a form which will be
fuller or more precise but not different in effect – concluded agreement.
2. The parties have completely agreed upon all terms and intend no departure from or in addition to
those terms, but have made performance of one or more of the terms conditional upon the execution
of a formal document – concluded agreement.
3. The intention of the parties is not to make a concluded bargain at all, unless or until they execute a
formal contract – no concluded agreement.
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
In addition to these original three categories, discussed in Masters v Cameron, a fourth category was
subsequently recognised:
4. The parties are content to be bound immediately and exclusively by the terms that they have agreed
upon while expecting to make a further contract in substitution for the first contract containing, by
consent, additional terms – concluded agreement.
2. INTENTION TO CREATE LEGAL RELATIONS
a. STATEMENT OF RULE
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To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated
expressly or impliedly.
Rose and Frank Co v JR Crompton & Bros Ltd [1923] 2 KB 261 at 293
The test of whether the parties intended to create legal relations is objective. The court does not look into the minds of the
parties, but whether a reasonable person would regard the agreement as intended to be binding.
Ermogenous v Greek Orthodox Community of SA Inc. (2002) 209 CLR 95
The following factors are relevant in making an objective determination of the parties’ intention:
a. The subject matter of the agreement
b. The status of the parties to the agreement
c. The parties’ relationship to one another (if any)
d. The language used by the parties
e. The subsequent conduct of the parties
f. The context in which the agreement was made
Ermogenous v Greek Orthodox Community of SA Inc. (2002) 209 CLR 95
b. GOVERNMENT ACTIVITIES

The position regarding government contracts depends upon the type of activity being undertaken. There are two different
types of activity which should be identified. The first is where the government enters into commercial negotiations and
agreements with another party. The second is where the acts are carried out or statements are made by government
officials in the course of administering a government policy.
i. Commercial agreements

Entry into commercial agreements is part of the ordinary government process. The government regularly enters
into contracts to purchase vehicles, stationery or to construct buildings. The usual contractual principles apply in
the determination of contract formation where the government is a party. Generally intention will not be an
issue where the government enters into a commercial transaction.
ii. Policy initiatives

Where the government activity relates to a policy initiative a court may be less likely to find that the parties
intended to enter into contractual relations.
Administration of the Territory of Papua New Guinea v Leahy (1960) 105 CLR 6 where the government
initiated a policy of tick eradication.
Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 44.
c. CIRCUMSTANCES INDICATING AN ABSENCE OF INTENTION
i. Honour clauses
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The parties to an agreement can indicate by express words in their agreement that they did not intend the
agreement to have legal consequences. Such clauses are referred to as ‘honour clauses.’
ii. Promotional puff and free gifts
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Various techniques are used to promote the sales of products. It can be difficult to determine whether such
advertisements can give rise to legally enforceable contracts. In making that determination the courts will look
not only at the words used, but also at the entire context in which the advertising takes place. For example if the
language is used in a business setting or to promote a commercial end, a court may be persuaded that the
necessary intention existed.
Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All ER 117.
iii. Ex Gratia payments and “without prejudice” offers
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
Where parties are negotiating to resolve a particular matter, one party may offer to make an ex gratia payment to
the other. Alternatively one party (often a solicitor) may write a ‘without prejudice’ letter to the other in which
an offer is made to conclude the matter between the parties.
The words ‘ex gratia’ or ‘without admission of liability’ are used simply to indicate that the party agreeing to
pay does not admit any pre-existing liability on his part, but he or she is certainly not seeking to preclude the
legal enforceability of the settlement itself by describing the contemplated payment as ‘ex gratia’.
Edwards Skyways Ltd [1964] 1 WLR 349.
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iv. Letters of comfort
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A ‘letter of comfort’ is a letter provided by a third party to a lender which is intended to give the lender some
assurance that the debtor will meet its obligations under the principal contract. They are sometimes given by a
director or shareholder where an advance is made to a company, or by a holding company when an advance is
made to one of its subsidiaries.
Letters of comfort do not always give rise to binding promises. Ultimately it is a question of construction of the
agreement.
Kleinwort Benson v Malaysia Mining [1989] 1 All ER 785
Whether or not the letter of comfort is contractually binding so that the third party may be held liable pursuant
to the letter depends on whether a contract has been created between the writer of the letter and the lender.
Central to this is whether the parties intended to create legal relations by the giving and receiving of the letter.
The courts look at the construction of the document including whether the terms are promissory in nature, the
circumstances surrounding its sending, and whether this has been done in a commercial context. The wording
used in the letter will be carefully scrutinized. The knowing use of legal phrases and concepts may support a
promissory intent to be bound.
Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet Holding AG [2004] NSWSC 149.
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v. Letters of “intent” and “understanding”
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While the court will consider all the circumstances of the case to ascertain the parties’ intention, the use of
terms such as ‘letter of intent’ or ‘understanding’ may indicate something short of an intention to enter a
concluded agreement.
Coogee Esplanade Surf Motel Pty Ltd v Commonwealth of Australia (1976) 50 ALR 363.
The nature of the language used, whether one or both parties signed the letter and possibly whether one of the
parties is a Government Department may be relevant factors.
3. CONSIDERATION
a. RULES OF CONSIDERATION
i. Consideration must move from the promisee


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Consideration must move from the promisee, although it need not move to the promisor.
Tweddle v Atkinson (1861) 121 ER 762
Dunlop Pneumatic Tyre Co v Selfridge & Co [1915] AC 847
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Where a promise is made to joint promisees, it is enough if consideration is given by one on behalf of all
because it is then deemed to move from all.
Coulls v Bagot's Executor & Trustee Co Ltd (1967) 119 CLR 460
Third party must be in contract or no consideration
Tweddle v Atkinson
ii. Consideration must be bargained for

The act or forbearance must be done in reliance of the promise and not done for other reasons.
Combe v Combe [1951] 2 KB 215
Australian Woollen Mills Pty Ltd v The Commonwealth (1954) CLR 424
iii. Consideration must be sufficient
1. Something of value

To be sufficient, the consideration must be something of value in the eyes of the law.
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

Thomas v Thomas (1842) 2 QB 851 at 859
The court will not enquire into the adequacy of the consideration.
Chappell & Co v Nestles [1960] AC 87
A moral obligation or worthy motive does not constitute consideration.
Eastwood v Kenyon (1840) 113 ER 482
Thomas v Thomas (1842) 114 ER 330
White v Bluett (1853) 23 LJ (Exch) 36
2. Performance of an existing duty



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Where a public duty is imposed upon the plaintiff by law, performance of that duty is insufficient
consideration for the defendant's promise.
Collins v Godefroy (1831) 109 ER 1040
It is otherwise if the public duty is exceeded
Glasbrook Bros v Glamorgan County Council [1925] AC 270.
Where the plaintiff is bound by an existing contractual duty to the defendant, performance of that duty
will not amount to sufficient consideration to support a further promise made by the promisor.
Stilk v Myrick (1809) 170 ER 1168
It is otherwise if the contractual duty is exceeded
Hartley v Ponsonby (1857) 119 ER 1471.
In a rare case performance of an existing contractual duty may be sufficient if it confers a benefit on
the promisee.
Williams v Roffey Bros [1990] 1 All ER 512
Performance of an existing contractual duty owed to a third party, is sufficient consideration for the
defendant's promise. The promise of such performance is also sufficient.
New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154
3. Part-payment of debt


Part-payment of a liquidated debt cannot in itself be consideration for a simple promise to forgo the
balance.
Pinnel’s Case (1602) 77 ER 237
Foakes v Beer (1884) 9 App Cas 605
However there are a number of exceptions:
a. ‘Composition’ with creditors, whereby the creditors collectively agree to each take a lesser
sum than they are owed in full satisfaction of the debts (normally expressed at X number of
cents in each dollar)
b. Part-payment by a third party.
Hirachand Punamchand v Temple [1911] 2 KB 330
c. Introduction of a new element by the debtor, such as payment different in kind or at a different
place or time.
Pinnel’s Case (1602) 77 ER 237
The new element must be introduced with the agreement of the creditor eg payment made at a
different place for the debtor's convenience does not evade the rule.
4. Forbearance to sue

A forbearance to sue or to refrain from exercising some legal right may constitute consideration, even if
the plaintiff would have failed in the original claim, provided:
a. The claim was reasonable and not vexatious or frivolous;
b. The plaintiff honestly believed the claim would succeed; and
c. The plaintiff did not conceal from the defendant any facts that to the plaintiff's knowledge
might affect the validity of the claim.
Hercules Motors Pty Ltd v Schubert (1953) SR (NSW) 301
iv. Past consideration

The general rule is that past consideration is not good consideration.
Roscorla v Thomas (1842) 3 QB 234
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
In some cases however it is possible to infer that a certain sum would be paid, and a subsequent promise merely
fixes the amount of payment. Three elements must be shown:
a. The act or promise must be done at the promisor’s request;
b. The parties must have understood that the act or promise was to be remunerated either by a payment or
the conferment of some other benefit; and
c. Payment, or the conferment of a benefit, must have been legally enforceable had it been promised in
advance.
Re Casey's Patents [1892] 1 Ch 104 (requested act)
Pao On v Lau Yiu Long [1980] AC 614 (requested promise)
4. EQUITABLE ESTOPPEL


In Australia up until 1988, the law would not enforce a gratuitous promise, i.e. a promise not supported by sufficient
consideration. In 1988 a majority of the High Court held that a promise not supported by consideration could give rise to rights in
circumstances where it would be unconscionable conduct for the promisor to renege on the promise. The doctrine that emerged
from these judgments is known as ‘equitable estoppel’.
For equitable estoppel to apply there must be unconscionable conduct by one party.
Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387
a. ELEMENTS OF EQUITABLE ESTOPPEL
i. Assumption or expectation



A clear and unambiguous assumption or expectation by party A that a particular legal relationship existed
between them from which party B was not free to withdraw
Waltons Stores (interstate) Limited v Maher
If the assumption or expectation is ambiguous it is insufficient
Legione v Hateley (1983) 152 CLR 406
While a promise will not be clear and unambiguous if important information is omitted, it may be possible in
an appropriate case to imply a reasonable requirement. Such an objective will not be uncertain.
Wright v Hamilton Island Enterprises Limited [2003] QCA 36
Australian Crime Commission v Gray [2003] NSWCA 318
1. Future state of affairs
Assumption or expectation regards a future expectation
2. Clear and ambiguous

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
The assumption or expectation acted upon by the plaintiff must have been clear and unambiguous
Legione v Hateley (1983)
A representation cannot be said to be clear and unequivocal if important information is omitted
Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998)
HOWEVER It has been recognized that a promise may be definite in the sense that there is a clear
promise to do something even though that something is not precisely defined
Flinn v Flinn (1999)
Representation capable of more than one meaning may be regarded as clear if in circumstances it is
reasonable for the representee to have interpreted the representation in a particular way being one of
meanings. Galaxidis v Galaxidis
3. Assumptions may be of fact or law

Estoppel applies to mistakes of fact or law
Lorimer v State Bank of New South Wales
ii. Encouraged or induced

Encouraged or induced by party B (perhaps by way of a promise)
Waltons Stores (Interstate) Ltd v Maher
1. Words or conduct

Essential part of unconscionable conduct is that the defendant played a part in the other party adopting
the assumption or expectation
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Lorimer v State Bank of New South Wales
HOWEVER this does not need to be expressly stated, can be induced from failure to speak, where
there was a duty to speak, or from conduct
Legione v Hateley (1983)
Sometimes silence may be sufficient
Thompson v Palmer (1933) 49 CLR 507 at 547
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
HOWEVER, silence will be unconscionable ONLY where there is an attempt to afterwards assert a
legal relationship different from the one which, to the knowledge of the silent party, the other party
assumed or expected.
Moratic Pty Ltd v Lawrence James Gordon (2007)
A person who knows, or intends that the other should conduct his or her affairs on the basis of the
assumption or expectation has two options open to him or her:
i. Warn the other that they deny the correctness or assumption of the expectation when they
know that the other may suffer detriment by acting on the basis of the assumption or
expectation
ii. To act so as to avoid any detriment that the other may suffer in reliance on the assumption or
expectation
It will be unconscionable to refrain from making a denial and then to leave the other party to suffer
whatever detriment is occasioned by the non-fulfilment of the assumption or expectation
Walton Stores (interstate) Ltd v Maher
It is essential that the plaintiff knows or ought to know of the mistake being made by the plaintiff
Ampol Ltd v Matthews
2. Mere hope


The defendant must have played such a part in the adoption of the assumption that it would be unfair or
unjust if he were left free to ignore it
Walton Stores (interstate) Ltd v Maher
Neither hope nor confident expectation will give rise to equitable estoppel
DHJPM Pty Ltd v Blackthorn Resources (2011)
3. Unauthorized representations

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Even an unauthorised representation may suffice in certain circumstances
Corpers (No 664) Pty Ltd v NZI Securities Australia Ltd (1989) ASC 58,402
No estoppel will arise if a representation is made by an agent who has no actual or ostensible authority
to bind his or her principal, and this fact is known or ought to be known to the party claiming estoppel
State Rail Authority (NSW) v Health Outdoor Pty Ltd (1986)
HOWEVER: there mere fact a representation is unauthorized will not necessarily prevent an estoppel
being established
An estoppel may arise not on the basis of the initial unauthorized statement by the agent, but rather
upon the later encouragement by the principal (in the form of his or her failure to denounce the
statement when he or she had the opportunity to do so). This unconscionability lies in the principals
failure to disabuse the party acting in reliance of the statement, when combined with knowledge of that
reliance and failure to avoid the consequential detriment
Corpers (No 664) Pty Ltd v NZI Securities Australia Ltd
iii. Reliance
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Megan Dwyer
Party A acts or abstains from acting in reliance upon the assumption or expectation
Wakelam v Boardman
The reliance must be reasonable
Walton Stores (Interstate) Ltd v Maher
The plaintiffs characteristics may be relevant, including whether they have business experience or were advised
by solicitors at time are relevant
Diakos v Mason (2010)
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Contracts, semester 2 2015
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Reliance by the plaintiff that is unforeseen, unexpected or simply foolish, will usually indicate that it is not
reasonable
Summer Hill Business Estate Pty Ltd v Equititrust
Only the plaintiffs actual knowledge is relevant
Standard Chartered Bank Aust Ltd v Bank of China
iv. Knowledge or intention

The party who induces the adoption of an assumption or expectation must know or intend the other party to act
or abstain from acting in reliance on the assumption or expectation
Walton Stores (Interstate) Ltd v Maher
v. Detriment
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Party A will suffer detriment if assumption or expectation is not fulfilled
Must be a link between assumption or expectation created or encouraged and the detriment suffered
Thompson v Palmer
Detriment need not be substantial
Collin v Holdin
Detriment is determined at the data defendant seeks to resile from assumption or expectation NOT from the time
assumption or expectation was induced
Lorimer v State Bank of NSW
No estoppel if plaintiff suffers detriment after learning assumption or expectation they relied on was without
basis
Milchas Investments v Larkin
Detriment must be suffered by plaintiff, not associated party
Milchas Investments v Larkin
vi. Failure to avoid detriment

The object of the equity is not to compel the party bound to fulfil the assumption or expectation, it is to avoid
the detriment which, if the assumption or expectation goes unfulfilled, will be suffered by the party who has
been induced to act or abstain from acting on it
Milchas Investments v Larkin
b. EFFECT OF EQUITABLE ESTOPPEL
The correct approach to determining the proportionate relief seems to be to make good the assumption unless in the
circumstances of the case that would be inequitably harsh to the defendant, in which case a lesser remedy will be
appropriate
Giumelli v Giumelli
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LIMITS TO ENFORCEMENT OF CONTRACTS
1. PRIVITY



Can Party C enforce contract between party B and party A?
General rule: a third party to a contract is unable to acquire rights or benefits under the contract
Wilson v Darling Island Stevedoring and Lighterage Co Ltd
Where parties A and B enter into a contract, they cannot by their bargain impose a liability of third party C
a. STATUTORY EXEMPTIONS TO THE RULE
i. Property Law Act 1974 (Qld)

A promisor who, for a valuable consideration moving from the promisee, promises to do or refrain from doing
an act or acts for the benefit of a beneficiary shall, upon acceptance by the beneficiary, be subject to a duty
enforceable by the beneficiary to perform that promise (s 55 (1) PLA)
 Basically – a beneficiary, upon acceptance, can enforce a promise to confer a benefit upon him.
1. Definitions;
 Promisor – person who actually makes the promise for the benefit of the beneficiary. Where a
promise is made by a trustee of a trust who is subsequently replaced by a new trustee, the promise
will not be binding on the new trustee (Davies [1989])
 Beneficiary – clear who it is if named in the contract as receiving the benefit of performance of work
under a contract (Eagle Star Trustees Ltd). Incidental beneficiary cannot rely on this section
(Northern Sandblasting v Harris)
 Promise – a promise is a promise which is or appears to be intended to be legally binding and which
creates or is intended to create a duty enforceable by a beneficiary (s 55 (6) PLA)
 Acceptance – an assent by words or conduct communicated by or on behalf of the beneficiary to the
promisor – or to a person authorized on their behalf – in the manner (if any) specified in the promise
and within the time specified in the promise (or, if no time is specified, within a reasonable time of
the promise coming to the notice of the beneficiary (s 55 (6) PLA)
Defences
 Any matter that would otherwise be relied on as rendering a promise void, voidable or unenforceable will be
available by way of defence in proceedings for the enforcement of a duty (s 55 (4) PLA)
Variation or rescission of promise:
 Parties to the contract may vary or rescind the promise BEFORE acceptance. s55(2) Property Law Act 1974
(Qld)
 After acceptance the terms of the promise may be varied or discharged only with consent of promisor and
beneficiary s(3)(d) Property Law Act 1974 (Qld)
Imposition of burdens
 An obligation may be imposed upon the beneficiary, but only as part of a promise that confers benefit upon him
or her. s56(3)(b) Property Law Act 1974 (Qld)
Common law is still applicable
 PLA does not affect any right or remedy that exists or is available apart from the section Common law is
applicable (s 55 (7) PLA)
ii. Insurance Contracts Act 1984 (Qld)
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Megan Dwyer
The Privity rule applies to insurance policies that are expressed to be for the benefit of persons who were not
parties to the contract – persons who were named as beneficiaries under the insurance policy, but who were not
actual parties to the policy, were unable to claim coverage under the policy (Vandepitte v Preferred Accident
Insurance Corporation of New York)
Marine Insurance – provides that a mortgagee, consignee or other persons having an interest in the subject
matter of a marine insurance contract may insure not only on his or her behalf but also on the behalf of, and for
the benefit of, other persons who may be interested (s 20 (2) Marine Insurance Act 1909 (Cth)
Compulsory Third Party Motor Vehicle Insurance – Australian legislation dictates that any owner of a motor
vehicle, on registration of the vehicle, must insure against death or personal injury, and provides that the insurer
must indemnify not only the owner of the vehicle but also any person using it – with or without the owners’
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Contracts, semester 2 2015

permission – even though that person is not a party to the contract of insurance entered into between the
insurance company and the owner (Sched cl 2 Motor Accident Insurance Act 1994 (Qld)
Insurance in general – all contracts of insurance entered into after January 1t 1986 confers upon a person
named as an insured under a policy, such as a sub-contractor in a policy taken out by a building contractor, a
right to recover the loss or liability covered by the policy. This right is not affected by an absence of any act by
the sub-contractor to authorize the builder to include the sub-contractor as an insured under the policy or to
ratify its inclusion as an insured in the policy or to otherwise engage the policy (s 48 Insurance Contracts Act
1984 (Cth). At common law – a third party is able to claim the benefit of an insurance policy which names him
or her as a possible beneficiary
iii. So called exceptions

Where there is no statute abrogating (repealing) or modifying the Privity rule, or where there is a statutory
provision, but its preconditions have not been met, a beneficiary seeking to enforce a promise for his or her
benefit will need to rely upon one of the so-called exceptions to Privity.
1. Agency (benefit and burden)
• Generally, where A has entered into a contract with B, who is acting as an agent on behalf of C, then
the contract is actually between A &C. C can sue and be sued, and can enforce benefit where B was
acting with authority, or where C ratifies unauthorised behaviour. Trident General Insurance v
McNiece Bros Pty Ltd
Exemption Clauses:
•
May be drafted to effectively protect third parties but only if
1. The relevant bill of landing must make it clear that the stevedore (Independent contractor) is
intended to be protected
2. The bill of lading must also make it clear that the carrier is contracting not only to its own behalf
but also as agent for stevedores (independent contractor) in relation to exemption
3. The carrier was so authorised by the stevedores although later ratification by the stevedores will
do and
4. Any difficulties concerning consideration moving from the stevedores are overcome Scruttons
Ltd v Midland Silicones Ltd
2. Trust (benefit)

Where the promisee is a trustee for the beneficiary, the beneficiary may enforce the promise by
bringing an action against the promisor and be a joint promisee
Trident General Insurance v McNiece Bros Pty Ltd
3. Estoppel (benefit)

Estoppel may be an available recourse where the promisor A’s promise has induced a third party C to
act or reframe from acting in reliance such that he or she will suffer detriment if A is allowed to resile
from the promise Trident Insurance v McNeice Bros Pty Ltd
4. Unjust enrichment (benefit)

A 3rd party may in some circumstances bring an action of unjust enrichment where the promisor has
received consideration for the promise to perform an act for the benefit of a third party, but then
refuses to perform the act Trident General Insurance v McNiece Bros Pty Ltd

Remedies
Where the promisor does not confer the benefit upon a 3 rd party beneficiary, the promisee may bring an action for
nominal damages only West v Houghton
Alternatively, the promisee can bring an action for specific performance Beswick v Beswick
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Liability on a third party
At common law, contract cannot impose liability on third party
UNLESS
Where a purchaser of land is subject to a restrictive covenant Tulk v Moxhay
Charter of ship or aircraft Lord Strathcona SS Co v Dominion Coal Co

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2. CAPACITY
a. MINORS
In Australia, a minor is a person under the age of 18 (Law Reform Act 1995 (Qld) s 17)
i. Contracts that are binding
1. Contracts for necessary goods and services

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Contracts for necessaries (goods or services) will be binding on both parties and normal remedies for
breach of contract will apply where the minor fails to carry out his or her promise
Under the common law what constitutes necessaries involves a two-tier test:
o Whether the subject matter is capable of being a necessary.
This is a question of law determined by the judge by reference to the minor’s position or
‘station’ in life. In other words it varies according to the minor’s social and economic
circumstances. It can include such items as food, clothing, lodging and services.
o (2) Whether the subject matter is actually a necessary in the circumstances.
This is a question of fact that depends on the actual needs of the minor at the time.
Nash v Inman [1908] 2 KB 1
In the case of goods the relevant law in Queensland is stated in Sale of Goods Act 1896 (Qld) s 5.
Under that section a minor is obliged to pay a reasonable price for necessaries, which are goods that
are both:
o Suitable to the ‘condition’ (that is station) in life of the minor and
o Suitable to his or her actual requirements at the time of sale and delivery.
In Nash v Inman [1908] 2 KB 1 it was held that 11 fancy waistcoats purchased by an undergraduate
student at Cambridge from a Saville Row tailor were (1) as a matter of law, suitable to the station in
life of an undergraduate student (since such a person needed clothes of that kind) but (2) as a matter of
fact not his actual requirements because he already had sufficient waistcoats to wear.
Similarly, if the minor were a student then as a matter of law a computer might be suitable to his or her
condition in life, but not if the minor was an apprentice boilermaker. Even if the minor is a student, as
a matter of fact it might not be suitable to his or her actual needs if he or she already has a sufficient
computer.
2. Contracts for employment and apprenticeship

These contracts are binding on a minor provided the contract is for the minor’s benefit. When making
the assessment of whether the contract is for the overall benefit of the minor, the contract as a whole
will be considered.
Sultman v Bond [1956] StRQd 180
McLaughlin v Darcy (1918) 18 SR(NSW) 585
De Francesco v Barnum (1890) 45 ChD 430.
Hamilton v Lethbridge (1912) 14 CLR 236
ii. Contracts that are voidable by the minor

These contracts are either binding unless repudiated or not binding unless ratified.
1. Contracts that are binding unless repudiated


This category concerns contracts under which a minor acquires property of a permanent nature, or to
which continuing obligations are attached such as contracts for an interest in land, the purchase of
shares, the purchase of the goodwill of a business or joining a partnership.
These contracts are voidable. Initially the contracts are binding upon both parties, but the minor can
repudiate his or her obligations during the period of minority or within a reasonable time of reaching
majority. The minor is not liable for future obligations under the repudiated contract, but liabilities
incurred prior to the repudiation are enforceable against the minor
2. Contracts that are not binding unless ratified

Megan Dwyer
Contracts which do not fall into any of the above categories fall into this category. These contracts will
not be enforceable against the minor unless they are ratified by the minor within a reasonable time of
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Contracts, semester 2 2015

attaining majority. If the minor does not take a positive step to ratify or affirm the contract, he or she is
not bound by it.
Nonetheless, the minor can still enforce the contract against an adult party to the agreement. In addition
property can still be transferred under the contract and cannot be recovered unless there is a total failure
of consideration (nothing is received in exchange) and restitution is possible (the property can be
transferred back).
iii. Contracts concerning guarantees



iv.

At common law, where an adult guarantees the credit of a minor and the minor’s contract is voidable at the
minor’s option, the guarantor will not be liable if the minor repudiates the principal contract.
R Leslie Ltd v Sheill [1914] 3 KB 607
The guarantor will be liable if the contract is one of indemnity rather than guarantee.
However statutes such as the National Credit Code have altered the position at common law in some
circumstances.
Tortious liability
A minor cannot be liable in tort where it would indirectly give effect to a contract to which they are not bound.
R Leslie Ltd v Sheill [1914] 3 KB 607.
b. MENTAL INCAPACITY



Mental Incapacity includes being so intoxicated by drugs or alcohol that the person doesn’t know what they’re doing.
Prima facie a contract made by a person who lacks mental capacity to contract is valid. However it may be avoided if
two conditions are satisfied:
i. Where the person entering into the contract was, at the time, incapable of understanding the nature of the
transaction and
ii. The other party was aware of the incapacity.
Hart v O’Connor [1985] 1 AC 1000
The onus of proof is on the person alleging a lack of capacity. However even if both conditions are satisfied, the contract
will remain valid unless rescinded (withdrawn) by that person.
Gibbons v Wright (1954) 91 CLR 423
c. BANKRUPTS



A bankrupt is a person who, as a result of being unable to repay their debts, has had their property taken over by the state
through the Official Trustee in Bankruptcy or a trustee registered under the Bankruptcy Act 1966 (Cth).
At the time of bankruptcy, the property of the bankrupt (which includes contractual rights) vests in the trustee in
bankruptcy. Bankruptcy Act 1966 (Cth) s58(1). A trustee can elect to avoid any contract entered into by the bankrupt
prior to bankruptcy which is unprofitable or with the court’s consent.
Bankruptcy Act 1966 (Cth) s133.
A person who has accrued a right (to damages) under the contract prior to the other person becoming a bankrupt becomes
a creditor in the bankruptcy.
Bankruptcy Act 1966 (Cth) s 133.
d. GOVERNMENTS AND THE CROWN


The Crown (Commonwealth and State) has the power to enter into contracts and in most instances, can be liable under
those contracts.
The government can, in certain circumstances, be held liable for contracts entered into by a previous government.
New South Wales v Bardolph (1934) 52 CLR 455.
3. FORMALITIES
a. GUARANTEES


In most Australian jurisdictions, there is a statutory requirement for a contract of guarantee to be in writing and signed by
the party to be charged in order to be enforceable (s 56 (1) PLA)
“No action may be brought upon any promise to guarantee any liability of another unless the promise upon which such
action is brought, or some memorandum or note of the promise, is in writing and signed by the party to be charged, or by
some other person by the party lawfully authorized.”
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i. Nature of the guarantee
 Definition: “a contract to answer for the debt, default or miscarriage of another who is to be primarily liable to
the promise” (Yeoman Credit Ltd v Latter (1961))

For situations such as: loan to a person to buy a house for personal use, with the guarantee given by that
person’s parents.
ii. Transactions that are not guarantees:
1. Contract of indemnity
 Contracts of guarantee involve a primary liability being imposed on the debtor from the lender, and a
secondary liability being imposed on the guarantor from the lender in the event the debtor is unable to
repay them. This means that if the primary contract between the debtor and lender is unenforceable, the
secondary contract is also unenforceable.

Contracts of indemnity instead impose a primary liability on the guarantor and therefore even if the
primary contract between the debtor and lender is unenforceable, the lender may be able to uphold the
contract between the guarantor and the lender. (Yeoman Credit Ltd v Latter (1961))
2. Promise of guarantee made to the debtor

Promises of guarantee made by the guarantor to the debtor/borrower (rather than the creditor/lender)
that the guarantor would pay the debt of the debtor.
Eastwood v Kenyon (1840) 113 ER 482
3. Person agrees to take over the debt of another

The situation where one agrees to take over the debt of another.
Gray v Pearson (1877) 3 VLR 81
4. Agreement that imposes no personal liability

Where the agreement or arrangement imposes no personal liability upon the guarantor but instead
proffers his or her specific property as security to the promise under the principal transaction.
Harvey v Edwards Dunlop (1927) 39 CLR 302.
5. Letter of comfort


Some letters of comfort. Where third parties are not prepared to provide a guarantee they may
compromise by providing the lender with some assurance about the likelihood of the debtor meeting the
obligations under its contract of loan. The letter will generally advise that the third party is aware of the
facility the lender is providing to the debtor; the terms of the facility are accepted with the consent and
knowledge of the third party; and, if the third party is a holding company and the debtor is a subsidiary
of that company, that it is the policy of the third party to ensure the debtor is in a position to meet its
liabilities at all times.
Whether the letter of comfort is contractually binding will depend on the intention of the parties.
Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502
iii. Requirement of writing: content

The promise of guarantee must be evidenced in writing or some memorandum or note of the promise must be in
writing and must contain all the essential terms of the agreement
1. Information particular to the guarantee (essential terms)


The guarantee must contain the names of the relevant parties – the lender, the debtor and guarantor
 The guarantee may refer to a party without expressly identifying who that party is – a
description of the party is sufficient
Williams v Byrnes (1863)
The relevant terms must be stated – including the amount of debt being guaranteed to be specified
(S 56 (2) PLA)
2. Acknowledgment of the agreement

The guarantee must indicate that the guarantor has undertaken the obligation to guarantee
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iv. Requirement of writing: signed by the party to be charged or agent

The promise or note or memorandum of the promise must be ‘signed by the party to be charged, or by
some other person by the party lawfully authorized’ (s 56 PLA)
b. CONTRACTS RELATING TO LAND

In most Australian jurisdictions, there is a statutory requirement for a contract of guarantee to be in writing and signed by
the party to be charged in order to be enforceable (s 56 (1) PLA)
i.

ii.


Nature of the contract needing writing
Contract need be evidenced in writing
Requirement of writing: content
The statutory provision does not give guidance as to the required content of the contract
Must contain all the relevant essential terms to the agreement (Harvey v Edwards, Dunlop & Co Ltd)
1. Information particular to the guarantee

Must contain four matters: (Twynam Pastoral Co Pty Ltd v Anburn Pty Ltd)
o Contain the parties to the contract (Williams v Byrne)
o Property must be adequately described (South Coast Oils Pty Ltd v Look Enterprises Pty Ltd)
o Consideration for the promise, namely the price, recorded (Wain v Warlters)
o Any other principal terms of the contract i.e. if require time to be of essence (Cohen v Mason)
2. Acknowledgement of the agreement
 The writing must contain an acknowledgement of the agreement as well as the terms of the agreement,
such acknowledgement can be express or implied (Duncan Properties Pty Ltd v Hunter)
iii. Requirement of writing: signed by the party to be charged or agent
 To satisfy the statutory requirements, the document must be signed by the party to be charged
 If the name of the party is placed on the document, and that party expressly or impliedly indicates that he or she
recognizes the writing as being an authenticated expression of the contract, that is likely to be sufficient to
satisfy the statutory requirement (Pirie v Saunders)
c. JOINDER DOCUMENTS

The note or memorandum need not be a single document. Several documents may be joined to form a single
memorandum where one expressly or impliedly refers to the other.
Elias v George Sahely & Co [1983] AC 646
Harvey v Edwards Dunlop & Co Ltd (1927) 39 CLR 302
i. Reference to a document


Where the writing signed by the party to be charged refers to another document, that document may be joined
to the writing signed by the party to be charged.
Tonitto v Bassal (1992) 28 NSWLR 564.
However, that other document purported to be joined must be in existence at the time the party to be charged
signs the writing containing the reference.
Toddrell v Finch [2007] QSC 363
Reference to a transaction
ii.


When the writing signed by the party to be charged expressly refers to a ‘transaction’ (rather than a
document) – such as ‘our deal’ or ‘my purchase’ – the express reference to the transaction is an implied
reference to any document recording that transaction. Parol (that is, oral) evidence can be given to explain the
transaction and to identify any document relating to it.
Harvey v Edwards Dunlop & Co Ltd (1927) 39 CLR 302
iii. Implied reference
 The document that is signed by both parties, if connected to other documents by staple or paperclip can be
implied reference
d. EFFECT OF STATUTORY NON-COMPLIANCE: COMMON LAW
i. Contract is unenforceable
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
A contract of guarantee or a contract in relation to land which does not satisfy the requirements of the Property
Law Act will not be void. The contract is still valid (ie there is agreement, intention to create legal relations and
consideration). However, it will not be enforceable by a court where it is necessary to rely on the contract to
make a claim. This means that, for example, a claim for damages may not be instituted where one of the parties
has breached the contract.
ii. Contract valid to pass title

As the oral contract is valid and effective as a binding arrangement, it would be effective to pass title if the
buyer were to on-sell to a third party.
Maywald v Riedel [1927] SASR 345
iii. Recovery of money paid under unenforceable contract


If the purchaser breaches the contract and refuses to complete the purchase, any deposit paid may be forfeited.
However, it is likely that the buyer could recover an amount paid to the seller over and above the deposit.
Freedom v AHR Constructions Pty Ltd [1987] 1 Qd R 59
Other restitutionary claim may be available
If the contract is unenforceable, it will not usually prevent a claim in restitution for recovery on a quantum
meruit basis.
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
e. EFFECT OF STATUTORY NON-COMPLIANCE: EQUITY
i. Doctrine of part-performance




In equity, a plaintiff may obtain the remedy of specific performance of the oral contract if the plaintiff can show
sufficient acts of part performance.
The following must be shown:
a. The acts relied upon by the plaintiff must unequivocally refer to some such agreement as that alleged
(Regent v Millet (1976) 133 CLR 679); and
b. The acts must be done in reliance on the agreement and with the knowledge of the other party; and
c. The acts must be done by the party to the contract seeking to enforce it (the plaintiff); and
d. The agreement must be concluded so that if the contract were in writing it would be specifically
enforceable.
McBride v Sandland (1918) 25 CLR 69 at 78-79
Cooney v Burns (1922) 30 CLR 216 at 222-223
Regent v Millet (1976) 133 CLR 679
NB: in Regent v Millet (1976) 133 CLR 679 the High Court referred to the taking of possession as sufficient to
satisfy element (1) in the case of a purchase contract. However, the taking of possession is equivocal – it can be
explained on other terms. There were other circumstances in that case that combined with taking possession (ie
taking over at the vendor’s mortgage repayments and making improvements to the property) would satisfy the
requirement.
Compare the more liberal approach in England, where the Steadman v Steadman [1976] AC 536 held it is
sufficient for the acts to be merely consistent with the contract alleged.
Remedy: only remedy is the equitable remedy of specific performance
ii. Estoppel



If there are no sufficient acts of performance, see whether it is a case where estoppel applies.
Alternatively, in appropriate circumstances a party may be estopped from relying on the Property Law Act.
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
To be successful, however, the assumption or expectation (element #1) must be more than the mere assumption
that a contract exists. It must be that an ‘enforceable’ contract exists, for example, a representation that the
defendant will execute a formal contract.
Powercell Pty Ltd v Cuzeno Pty Ltd [2004] NSWCA 51
iii. Constructive trust
 In an appropriate situation, a person can claim an interest in land on the basis of creation of a constructive trust
although there is no writing (Baumgartner v Baumgartner (1987) 164 CLR 137)
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VITIATING FACTORS
1. MISREPRESENTATION


A false statement of past or existing fact made by the representor to the representee, at or before the contract was entered into, which
induced, and was intended to induce, the contract
A false statement made to induce a party to enter into a contract (although not a term of the contract) may still give rise to rights
and remedies.
a. ELEMENTS OF MISREPRESENTATION (Gould v Vaggelis (1984))
i. False statement of past or present fact

The statement must actually be false in fact, which is determined objectively (John McGrath Motors (Canberra)
Pty Ltd v Applebee)
1. Statement of future intent, promise or assurance


A representation about a person’s intention or a future state of affairs will not amount to
misrepresentation. This is true where the statement amounts to a promise or assurance not to do a
certain act in the future (Civil Service Co-Operative Society of Victoria Ltd v Blyth)
Intention can result in misrepresentation. Example: “I will repay the debt in six months’ time” = a
statement about their intention and impliedly stating a present intention to repay the debt in the future.
If the person doesn’t presently hold that intention, it will be fraudulent misrepresentation. (Edgington v
Fitzmaurice)
2. Statement of opinion



A statement of opinion is distinguishable to a statement of fact (Fitzpatrick v Michael)
Whether it is fact or opinion ultimately depends upon the relevant circumstances known to the
representee, including the form in which the statement was made, the personal knowledge of the
person making the statement and the subject matter of the statement (Middleton v Aon Risk Services
Australia)
To determine is a statement of opinion is a misrepresentation, the following applies:
o The relative knowledge and position of each of the parties
o The actual words used and the meaning conveyed
o Whether fraud is established. Did the person giving the opinion have a genuine belief in his or
her opinion no matter how erroneous (mistake)? (Smith v Land and House Property
Corporation)
3. Statement of law
 Generally – statement of law is not a misrepresentation due to a statement of law being merely a
statement of opinion until adjudicated on by a court

This will not protect the representor from being liable for misrepresentation where:
o The statement of law is made fraudulently (without believe in the truth of the statement)
(Eaglesfield v Marquis of Londonderry)
o The statement of law is given in a situation where the representor owes the representee a duty
of care to ensure that any advice or information given is accurate, and it is reasonable for the
representee to rely on it (for example where the representor is a legal practitioner advising his
or her client) (L Shaddock & Associates v The Council of the City of Parramatta)
o It would be unconscionable in all the circumstances to allow the representor to escape
liability, such as where an estoppel is created (Lorimer v Bank of New South Wales)
4. Puff


Sales talk/etc are not typically enough to constitute statements of fact and therefore are not
misrepresentations
Can sometimes be misleading or deceptive conduct under the ACL (further ahead if applies)
5. Silence
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


Misrepresentation requires an actual statement to be made by one party to another, only in certain
circumstances will silence be construed as misrepresentation of fact
A special relationship must exist between the parties that imposes an obligation to disclose
Common law will provide a remedy for misrepresentation by silence in the following circumstances:
a. Half truths
 A half-truth is a statement that, although is literally true, creates a false impression in the
mind of the representee because essential facts are not disclosed (Tipperary Developments Pty
Ltd v State of Western Australia)

Despite the fact that every word of the statement may be true, if something is left out that
would have qualified it, a false statement will have been made (Arkwright v Newbold)
b. Statement that becomes false prior to contract


A statement that originally was correct but later becomes false may give rise to
misrepresentation
A representor owes a duty to the representee to correct any untrue statements prior to a
contract being executed (With v O’Flanagan)
c. Duty of disclosure


Parties who are contracted with one another are entitled to remain silent in respect to salient
facts where no duty of disclosure is imposed by law
Duty to disclose arises when – a fiduciary relationship exists between the parties, where a
contract is uberrimae fidei (a contract of ‘utmost good faith’ (McKenzie v Mcdonald, Khoury
v Government Insurance Office of New South Wales)
ii. Addressed to the representee by the other party


The representation that induces a contract should be made by the other party or an authorized agent
A representation that induces the representee to enter a contract with a third party will not allow the representee
to rescind the contract unless the representor was acting on behalf of the third party (MacCormick v Nowland)
iii. At or before the time when the contract was made

Only representations made prior to the time of the contract, and intended to induce the contract, can be
misrepresentations
iv. Intended to, and did, induce representee to make the contract
1. Intention to induce
 If the statement is made in the course of pre-contractual negotiations, the representor intends to induce
the contracts by the statement (Edgington v Fitzmaurice)

If a statement is made innocently and with no intention to induce the contract in circumstances where it
would be unreasonable for the representee to rely upon the statement, inducement may not be
established
2. Reliance by the representee
 The representee must rely upon the statement made by the representor. The onus of proving the
representee relied upon the statement rests with the representee (Gould v Vaggelas)



Need not be the sole or decisive inducement – it suffices if it was a material inducement (Edgington v
Fitzmaurice)
The representee is not obliged to conduct his or her own enquiries and instead is entitled to take the
representor at his or her word (Redgrave v Hurd)
The rules of inducement were fully stated by Wilson J in Gould v Vaggelas (1985) 157 CLR 215 at
236:
o Notwithstanding that a representation is both false and fraudulent, if the representee does not
rely upon it, he has no case.
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o

If a material representation is made which is calculated to induce the representee to enter into
a contract and that person in fact enters into a contract there arises a fair inference of fact that
he was induced to do so by the representation.
o The inference may be rebutted, e.g. by showing that the representee, before he entered into the
contract, either  Was possessed of actual knowledge of the true facts and knew them to be true or  Alternatively, made it plain that whether he knew the true facts or not he did not rely
on the representation.
Wilson J went on to confirm that the onus of proof of inducement rests on the representee but, as can
be seen from rule 2 above, that onus may be discharged in circumstances where, as a matter of
common sense, an inference can be drawn that the statement did induce if it was calculated to induce.
An evidentiary onus may then shift to the representor, as shown by rule 3.
Peek v Gurney (1873) LR 6 HL 377
a. Statement is ignored by the representee

If statement made to representee but they still choose to enter contract = no misrepresentation
(Holmes v Jones)
b. Representee has knowledge of the true state of affairs

If at the time of contract the representee has knowledge of the fact the statement made by the
representor is untrue, no claim for misrepresentation available (Holmes v Jones)
c. Representee has the means of discovering falsity

A person can be still claim misrepresentation even if they had the capacity to find out the truth
and chose not to (Redgrave v Hurd)
b. INNOCENT MISREPRESENTATION





Innocent misrepresentation occurs where the representor has been neither fraudulent nor negligent
Must be no evidence of fraud (Derry v Peck)
The maker of the statement must not be under any duty of care to the other person
Onus lies on the representee to allege and prove either fraud or negligence (Dorotea v Christos Doufas Nominees Pty
Ltd)
The four elements above must be proven to be innocent misrepresentation and if proven then the representee may
choose to rescind the contract, damages are not available for innocent misrepresentation
c. FRAUDULENT MISREPRESENTATION




Fraudulent misrepresentation = all four elements + acted fraudulently (Derry v Peek)
Statement will be fraudulent where a false representation has been made:
o Knowingly; or
o Without belief in its truth; or
o Recklessly, carelessly whether it be true or false
With the intention that it should be acted upon by another party who is thereby induced to act upon it
To determine if someone acted fraudulently a subjective test is used – present evidence regarding the state of mind of the
particular person (Derry v Peek)
d. NEGLIGENT MISREPRESENTATION
i. Requirements
 Negligent misrepresentation requires a special relationship between the parties
 Also requires: proof of elements above (other than requirement that the statement be one of fact)
o That the representor owed the representee a duty to take reasonable care that the statement made by
the representor was true and reliable
o That the representor breached that duty
o The false representation led to the representee’s suffering loss or damage
(Hedley Byrne v Heller & Partners)
ii. What is a special relationship?
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
Whenever a person gives information or advice to another upon a serious matter, in circumstances where
the speaker realizes or ought to realise that he is being trusted to give the best of his information or advice
as a basis for action on the part of the other party and it is reasonable in the circumstances for the other part
to act on that information (MLC Assurance v Evatt)
e. REMEDIES


A misrepresentation or any type = rescind on contract
Damages = available to fraudulent and negligent
f. RESCISSION
i. Effect on the contract


Rescission will only be granted if the parties can be returned substantially to their pre-contractual positions
(Maguire v Makaronis)
Neither parties will be able to enforce obligations owed in the contract and the contract will be void
ii. Limits on right to rescind
1. Affirmation of the contract
 If representee decides to affirm the contract, the right to rescind will be lost.
2. Lapse of time

The right to rescind must be exercised within a reasonable time from discovering the falsity of the
statement or the representee will risk affirming the contract through conduct (Leaf v International
Galleries)
3. Impossibility of restitutio in integrum
 If the parties cannot be returned to their pre-contractual positions, rescission cannot be granted
4. Where third party rights have intervened
 Where a third party acquires an interest in property, the subject of the contract, the court will not grant
rescission as the parties cannot be returned to their pre-contractual positions (McKenzie v Mcdonald)
5. Contract is completely performed
 Only applies to innocent misrepresentation (Seddons)
 Where contract is executed – cannot rescind
g. DAMAGES (pg 482)
i. Measure of damage
 Damages can be sought for negligent and fraudulent misrepresentation in addition to or instead of rescission
ii. Requirements of causation and remoteness
 Must prove that the loss was caused by the misrepresentation
2. MISLEADING OR DECEPTIVE CONDUCT
Misleading or deceptive conduct – Australian Consumer Law s 18
The Australian Consumer Law is found in Schedule 2 of the Competition and Consumer Act 2010 (Cth). While it is a law of the
Commonwealth, it also is applied in the states and territories, creating one national law dealing with consumer protection. Fair
Trading Act 1989 (Qld) s 16 now applies the ACL as a law of Queensland (which may be designated the ACL(Q)).
6.1.
Australian Consumer Law s 18
Section 18 of the ACL provides:
‘A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or
deceive.’
While the section is part of the Australian consumer law, it is not limited by its terms to consumers. Instead of the section may have
application in a wide range of situations if its elements are established.
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6.2
Elements of an action pursuant to ACL s 18
‘Person’ has a different meaning under the ACL and ACL(Q).
The Commonwealth has limited constitutional power to make laws. Just like its predecessor, s 18 of the ACL (Cth) is limited
to conduct engaged in by corporations (see s 131 of the CCA) but is extended to certain natural persons by s 6 of the CCA,
namely persons who use television, radio or post, or who are engaged in trade between countries, between states or within a
territory. By contrast, the States have wide constitutional power to make laws, so the ACL (Qld) is not restricted in its
application to corporations. As a result section 18 of the ACL (Qld) applies generally to persons and therefore will catch
conduct by corporations, partnerships and individuals.

‘Engage in Conduct’ is defined in the ACL s 2(2) and includes doing or refusing to do any act. This includes refraining
(otherwise than inadvertently) from doing an act. This means that conduct will include silence.
Demagogue Pty Ltd v Ramensky (1992) 110 ALR 608

‘Trade or Commerce’. The Act will only apply if the person is acting in trade or commerce. The meaning of ‘trade or commerce’
was fully canvassed by the Full Court of the Federal Court in O'Brien v Smolonogov (1983) 53 ALR 107 and Concrete
Constructions (NSW) Pty Ltd v Nelson (1990) 64 ALJR 293 at 295. It has been given a wide interpretation and covers most
commercial transactions.
However, the sale of a private dwelling even through an agent is not in trade or commerce
O'Brien v Smonologov (1983) 53 ALR 107
The one-off sale of any business will be in trade or commerce
Bevanere Pty Ltd v Lubidineuse (1985) 7 FLR 325

‘Misleading or Deceptive’. Conduct is misleading or deceptive if it has a tendency to lead a person into error.
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
This is an objective test to be determined in the context of the facts and surrounding circumstances.
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
It is not necessary to show an intention to mislead or deceive
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 .
Where misleading conduct is directed at a particular person, whether the conduct is misleading should be viewed from the
perspective of that particular person taking into account what the person knew and did not know and the nature of the
transaction
Butcher v Lachlan Elder Realty Pty Ltd (2004) 21 ALR 357.
Whether silence is misleading or deceptive will depend on whether having regard to all the facts and circumstances, there is a
reasonable expectation that, if a particular matter existed, it would be disclosed
Demagogue Pty Ltd v Ramensky (1992) 110 ALR 608.
Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357
The person failing to disclose a fact must have knowledge of that fact due to the definition of conduct in s 2.
In contrast to the common law, which is limited to representations of past or existing fact, in an appropriate case predictions
may be misleading or deceptive, not if the prediction does not come true but rather if the person making the prediction either
knew it to be false or made it with reckless disregard for whether it was true or false.
Thompson v Mastertouch TV Service Pty Ltd (No 1) (1977) 29 FLR 270
Mr Figgins v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23 (prediction that shopping centre would open on
particular date and have at least two restaurants).
Indeed depending on the context even some (but not all) puffs may be misleading or deceptive.
Byers v Dorotea Pty Ltd (1986) 69 ALR 715 (units on the Gold Coast were ‘bigger and better’ than any others
nearby was held to be misleading)
Mr Figgins v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23
6.3
Associated sections
In addition to the general prohibition, ACL s 29 prohibits the making of false representations in connection with the supply of goods
or services. Note too ACL ss 30, 33 and 37.
ACL s 4 applies to representations as to the future. The section provides that the person making the future representation has an
evidentiary burden to show evidence of reasonable grounds for making the statement. If evidence is not provided, the representation is
deemed misleading. Even if the respondent leads evidence of reasonable grounds, the applicant may still dispute this evidence by
showing otherwise. In this case, the court will be required to consider the competing claims and determine the matter. The presumption
applies not only to representations by the respondent but also to a representation made by a person involved in a contravention.

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6.4
Remedies under the ACL
The ACL provides extensive remedies for misleading or deceptive conduct.
Section 232
injunctions to prevent the conduct from continuing;
Section 236
damages; and
Sections 237 and 243
the court has a discretion to make other orders including rescission of the contract and compensation.
A remedy may be sought against the person engaging in the conduct and any person ‘involved in the contravention’. ‘Involved’ is
defined in s 2.
The person must have knowledge of the essential facts of the contravention
Yorke v Lucas (1983) 68 FLR 268.
A claim for a remedy pursuant to ss 236 and 237 must be brought within 6 years of the date the cause of action accrued.
6.5
Relationship between ACL s 18 and common law misrepresentation
An action for misrepresentation under the common law will still have its place where the parties do not come within the ambit of the
ACL. For example, where the representor has not engaged in trade or commerce, such as the private sale of a motor vehicle by one
individual to another individual.
It should be noted that it is necessary to have recourse to a court for a remedy for a breach under the Australian Consumer Law. This
is not the case if a party wishes to rescind a contract under the common law. Rescission in this case, may be done without recourse to
the courts.
3. UNCONSCIONABLE CONTRACTS
a. UNCONSCIONABLE CONDUCT IN EQUITY
 Equity may grant relief for unconscionable conduct where:
o One party is in a position of special disadvantage
o The other party knows or ought to know of that special disadvantage and takes unfair advantage of his or her
position
Commercial Bank of Australia Ltd v Amadio
i. Elements


Special disadvantage = one which seriously affects the ability of the innocent party to make a judgement as
to his own best interests, when the other party knows or ought to know of the existence of that condition or
circumstance and of its effect on the innocent party (Commerical Bank of Australia Ltd v Amadio)
o Age, knowledge, limited English, understanding of legal concept, sickness, sex, drunkness, illiteracy,
lack of education (not exhaustive list) (Australian Competition and Consumer Commission v CG
Berbatis Holdings Pty Ltd)
Onus = weaker party must prove two elements, stronger party must then prove the contract was fair, just and reasonable
(Commercial Bank of Australia Ltd v Amadio)
ii. Remedies
 The remedy will be designed to prevent the stronger party from acting against equity and good conscience by
attempting to enforce or retain the benefit induced by the conduct (Commercial Bank of Australia Ltd v
Amadio)

Main remedy = rescission, partial rescission is available in some cases (Commercial Bank of Australia Ltd v
Amadio)
b. STATUTE
i. Expanded remedies under the ACL


A corporation must not, in trade or commerce, engage in ‘conduct that is unconscionable within the meaning
of the unwritten law from time to time’ (s 20 ACL)
Objective of provision = make available extensive and flexible remedies so court can grant damages, an
injunction and any other order (s 236, s 323, s 237 ACL respectively)
ii. Unconscionable conduct in connection with goods or services
 Section 21 of ACL prohibits Unconscionable conduct in trade or commerce in connection with:
o The supply of goods and services or possible supply of goods and services to a person (not being a
listed public company) or;
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o The acquisition of goods or services or possible acquisition of goods and services by a person (not
being a listed public company)
4. MISTAKE
a. TYPES OF MISTAKE
 Three types: common, mutual, unilateral
 Common: occurs where both parties make the same mistake.
 Mutual: occurs when both parties are mistaken, but each makes a different mistake
 Unilateral: occurs when only one party is mistaken and the other party knows, or ought to know, of the mistake.
(Havtog v Collin & Shields)
b. EFFECT OF MISTAKE
i. Common law
 A mistake may operate to negative or nullify contractual assent (Bell v Lever Bros Ltd)
 This results in the contract being void ab initio (void as from the beginning), therefore any money or property
transferred must be returned
ii. Equity
 More flexible approach. Mistake renders contract voidable not void. The contract can be rescinded by the
mistaken party or the contract may be set aside by a court on such terms as it sees fit

Where restitution in integrum is no longer possible and other limits prescribed in misrepresentation (above),
may apply
c. COMMON MISTAKE
i. Common law
 Five elements are required for common law to grant a remedy for common mistake
 There must be a common assumption as to the existence of a state of affairs
 There must be no warranty by either party that the state of affairs exists
 The non-existence of the state of affairs must not be attributable to the fault of either party
 The non-existence of the state of affairs must render performance of the contract impossible
 The state of affairs may be the existence, or a vital attribute, of the consideration to be provided or
circumstances which must subsist if performance of the contract is to be possible
Australia Estates Pty Ltd v Cairns City Council
1. Mistake as to existence: res extincta
 At common law, the contract is void if the specific subject matter of the agreement is non-existent,
includes sale of goods (Couturier v Hastie) (Sale of Goods Act 1896 (Qld))
2. Mistake as to title: res sua

The principle, which applies to the non-existence of a subject matter, also applies to contracts where,
unknown to either party the purchaser is in fact buying his/her own property (Bell v Lever Bros Ltd)
3. Mistake as to subsisting circumstances
 A contract will also be void if it has been made on the basis of a common mistake that the
circumstances forming the basis of the contracted have continued to subsist when in fact they have
changed (element #5 above) (Griffith v Brymer (1903))
ii. Equity


Contracts that are declared void for mistake at common law will also be void in equity (Bell v Lever Bros Ltd)
Equity will intervene only in two circumstances;
 It may declare the contract voidable where the common mistake relates to the fundamental nature or
quality of the subject matter and the party alleging mistake is not at fault (Solle v Butcher)
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
It may order rectification of an agreement because the written instrument does not accurately reflect
the agreement (Maralinga Pty Ltd v Major Enterprise Pty Ltd)
1. Rescission
 In order for a contract to be set aside for common mistake, three elements must be shown:
o A common misapprehension as to facts or as to the parties rights
o Which is of a fundamental nature
 Fundamental if it concerns the nature or quality of the subject matter
o An absence of fault on the part of the party seeking to have the contract set aside
2. Rectification
 If there is an error in the recording of the contract that results in unfairly faouvring one party,
rectification is available as a remedy

In order to rectify a common mistake, two elements must be shown:
o A prior concluded contract – or at least a common intention that continued unaltered until the
execution of the document; and
o ‘convincing proof’ that the written document does not embody the final agreement
(Pukallus v Cameron)
3. Withhold specific performance
 Even where the circumstances do not involve a common mistake of a fundamental nature, the court
may, in its discretion, refuse a decree of specific performance where it would be a hardship on the
promisor to specifically enforce the contract
(Dell v Beasley)
d. MUTUAL MISTAKE
i. Common law
 Where the parties are at cross-purposes, each making a different mistake, the position at common law depends
upon whether any meaning may be objectively ascribed to the parties’ apparent agreement. If it’s not possible
for a reasonable third party to prefer one meaning over another, the mutual mistake will render the contract void
(Raffles v Wichelhaus)

Objectively if the parties agreement may bear a particular meaning, that will be the meaning imputed to it
(Houlahan v Australian and New Zealand Banking Group Ltd)
ii. Equity
 There is no unconscionability to justify relief in equity by default (Riverlate Properties Ltd v Paul) (i.e. neither
party should know of the other parties mistake)
e. UNILATERAL MISTAKE
i. Common law

Appropriate test is objective and as a consequence, generally contracts will not be void for unilateral mistakes
(Taylor v Johnson)
1. Mistakes as to identity
 Unilateral mistakes will sometimes arise as to the identity of the other contracting party. Where one
party claims to be mistaken as to the identity of the other party such agreement will be void if:
 At the time of the apparent agreement the identity of the other party was material;
 There was an intention to contract, not with the other party, but with a separate entity; and
 This intention was known or ought to be known to the other party
(Cundy v Lindsay, Shogun Finance v Hudson)
2. Mistakes as to the nature of the contract: non est factum


Megan Dwyer
In certain circumstances, a particular kind of mistake concerning written contracts, where one party
alleges that the document signed was of a wholly different nature to that which he intended to sign. In
such case = contract is void (Petelin v Cullen)
Three conditions are necessary
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

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The claimant belongs to the relevant class;
The claimant signed the document in the belief that it was radically different from what it was
in fact
 At least as against innocent persons, the claimants failure to read and understand the document
was not due to carelessness on his part
(Petelin v Cullen)
Onus on the party seeking to rely upon the plea (Petelin v Cullen)
ii. Equity (pg 577)
 Unilateral mistake can result in voidable contract, rectification or withholding the specific performance
1. Voidable contract
2. Rectification
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CONTENTS OF CONTRACTS
1. ESTABLISHING THE TERMS OF THE CONTRACT
a. INCORPORATING WRITTEN TERMS


Most contracts – especially commercial – will involve some element of writing
Whether a party as assented to the terms is examined below
i. Incorporation by signature
1. General rule


If a written contract is formalized by reducing the agreement to writing and the document is signed by
both parties – the parties will generally be bound by all the terms contained in the agreement,
regardless of whether the document was read or the parties were aware of the existence of the terms
contained in the agreement
Simple: When a document containing contractual terms if signed, in the absence of fraud or
misrepresentation, the party signing the document is bound by its terms. It is immaterial whether the
signing party has read the document or not
L’Estrange v F Graucob Ltd
2. When the rule is displaced
 The rule can be displaced where the signature does not signify assent to the terms. This generally
occurs when there is a need to protect the signing party that outweighs the desire for contractual
certainty. This can occur in the following ways:
o Misrepresentation of the effect of the clause – general rule will not apply where a person
has been induced to sign by fraud or misrepresentation
Curtis v Chemical Cleaning and Dyeing Co
o The document signed is not contractual in nature – if a person signs a document believing
it is something other than a contractual document, the rule can be displaced as it does not
signify assent to the terms of the contract
DJ Hill and Co Pty Ltd v Walter H Wright Pty Ltd
o Defence of non est factum – the person signing the document did not know what they were
signing. The person must show that the document they signed was radically different to the
document they believed they were signing. The person using the defence must be unable to
read owing to – blindness, illiteracy etc, and must rely on advice from others as to what they
are signing.
Petelin v Cullen
ii. Incorporation by notice: unsigned document





Some contractual agreements don’t require a signature to be contractually binding
Examples include:
 Transport ticket (bus/train/ferry)
 Parking ticket for car park
 Amusement park ticket (entry)
 Brochures given to bidders at auction
 Document signed by one party (party wishing to enforce contract) – e.g. tradesperson quote
Typically these documents contain clauses excluding one party from liability should harm, injury or loss occur in
the course of the contractual agreement
For the terms to form part of the agreement – it must be evidenced that both parties assented to the terms
Petelin v Cullen
Generally if reasonable notice of the existence of terms is given, and this notice was given before or upon contract
formation – then the party will be considered to have assented to the terms
1. Reasonable steps taken by defendant (person relying on the written terms)
 Whether the defendant took reasonable steps to draw the written terms to the attention of the plaintiff is
a question of fact
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



Parker v The South Eastern Railway Company
If a reasonable person, upon receiving the document, would regard it as being a contractual document,
then the party will generally be bound by the terms.
Causer v Browne
By taking the document without objecting or discussing the terms, the plaintiff can be regarded as having
assented to the terms
Mendelssohn v Normand Ltd
Conversely, if the document is not one which a reasonable person would regard as being contractual,
and the defendant takes no extra steps to advise the plaintiff that the document is contractual, the plaintiff
would not ordinarily be bound by the terms
Causer v Browne
Effect of person being unable to read the terms or understand the terms – the defendant must do what is
sufficient to inform people in general that the ticket contains conditions, a person cannot then argue that
they are not bound by the terms due to their ‘exceptional ignorance, stupidity or carelessness.’ If
defendant appropriately informs about contractual terms – plaintiff will still be bound.
Parker v The South Eastern Railway Company
2. Reasonable steps taken before or upon contract formation
 Once the contract has been formed, new fresh terms cannot be introduced
 To be binding – the terms must be brought to the attention of the plaintiff before or at the time of the
contract formation
Thornton v Shoe Lane Parking Ltd
iii. Incorporation by notice: signs (pg 222)
 Some contractual agreements can be assented to without any exchange of documentation (e.g. signs/notices)
 Same steps required as above – did the defendant take reasonable steps to bring the term to the attention of the
plaintiff? If so, did this occur before or upon the contract formation?
iv. Incorporation by website (pg 224)
v. Incorporation by reference (pg 225)
b. INCORPORATING ORAL TERMS
 Before entering a contract, parties typically engage in verbal communication, it must be determined if the verbal
communication can form part of the contract
i. Mere puff
 Common advertising technique to exaggerate the qualities of a product – these statements are mere puffery as
they are not intended to be taken seriously
Byers v Dorotea Pty Ltd
 The ACL regulates this behavior by prohibiting misleading or deceptive conduct.
ii. Representation or term
 A statement will be a term of a contract if it is promissory in nature – and it will be promissory in nature if the
statement-maker warranties it’s truth
Smythe v Thomas



If the statement-maker cannot be found to have guaranteed the truth of the statement, then it will not be a term
of the contract and will not have contractual force
Wyllie v Tarrison Pty Ltd
The test for whether the parties intended the statement to be promissory in nature is determined objectively –
how would an intelligent bystander interpret the situation? Concerned with intention of the parties
Oscar Chess Ltd v Wiliams
There are various indicators as to help determine whether a party intended for the statement to be part of the
contractual agreement
1. Words or conduct by the parties
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
Words used by the parties is relevant.
If the words or conduct of the statement-maker indicate that they warrant the truth, this is a strong
indicator that they intend for it to be contractual in nature
Harling v Eddy
2. Knowledge or expertise of the statement-maker



The extent to which a statement-maker can be regarded are promising or guaranteeing the its truth will
depend on the knowledge of the statement-maker
Mihaljevic v Eiffel Towers Motors Pty Ltd
Where the statement maker professes to have personal knowledge of the relevant information, it is
more likely to be guaranteeing the statement
Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd
If the statement-maker is merely passing on relevant information of which they are aware, but has no
personal knowledge, it is less likely to be a promissory statement
Oscar Chess Ltd v Williams
3. Statement-marker has control in relation to information


Where the pre-contractual statements relates to subject matter that is, or should be, in the control of the
statement-maker
If the statement-maker is in control of the subject matter, they should be in more of a position to
guarantee the truth of the statements
Hospital Products Ltd v United States Surgical Corporation
4. Oral statement not reduce to writing
 If after pre-contractual statements the contract is reduced to writing and the statement is omitted, it
indicates that the parties did not intend the statement to be contractual in nature
Routledge v McKay
5. Interval of time



The time between the pre-contractual oral statement and the formation of the contract is relevant
Routledge v May
The greater the interval, the less likely it will be regarded as promissory
Routledge v May
This element is of subsidiary (less) importance
Routledge v May, Hospital Products Ltd v United States Surgical Corporation
iii. Collateral contracts
1. Nature of a collateral contract
 In some cases, instead of a pre-contractual statement forming part of the main agreement, it can instead
form the basis of a collateral contract
Shepperd v The Council of the Municipality of Ryde

A collateral contract is one in which the consideration for the promisor’s promise is the promisee’s
entry into the main contract

Consideration must not be past – a tenant cannot enter a contract to lease and then attempt to say he
will only move in if the drains are fixed. His consideration of moving into the apartment would be past
consideration
De Lassalle v Guildford

The following must be satisfied before a statement will give rise to a collateral contract:
JJ Savage & Sons Pty Ltd v Blakney
o A statement is made to induce entry into the contract
o The statement is relied upon; and
o The statement relied upon was promissory in nature – if the statement-maker intends to
guarantee the truth of the statement, it will be regarded as a contractual term
Smythe v Thomas
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2. Bipartite and tripartite collateral contracts
 Bipartite – the parties to the collateral contract are the same as those who enter the main contract
(Shepperd v The Council of the Municipality of Ryde)

Tripartite – the parties to the collateral contract are different to the main contract (Wells (Mersthan) Ltd
v Buckland Sand & Silica Ltd)
3. Consistency with the main contract
 In Australia the court will only recognize a collateral contract if it is inconsistent with the terms of the
main contract
Hoyt’s Pty Ltd v Spencer
4. Circumstances in which collateral contracts are likely to be pleaded (pg 239)
5. Remedy
 Damages only, the innocent party cannot terminate the main contract
c. PAROLE EVIDENCE RULE
i. Statement of the rule
 “Where a contract is reduced into writing, verbal evidence is not allowed to be given of what passed between
the parties either before the written agreement was made, or during the time that it was in a state of preparation,
so as to add or subtract from or in any manner qualify the written contract”
Goss v Nugent

Two aspects to the rule:
 To exclude extrinsic evidence so as to add or subtract from or qualify the written contract
 To exclude extrinsic evidence to assist in the interpretation of the written contract
ii. When the rule applies
 The parole evidence rule will not apply to all contracts that are evidenced in writing, it will only apply where
terms of the agreement are wholly in writing – i.e., contracts that were intended to be oral and written, rule
doesn’t apply
Gordon v MacGregor
iii. Exceptions to the rule (situations where the PER doesn’t come into play)

Even where the parties intended the contract to be wholly in writing, the court will sometimes admit oral or
other extrinsic evidence that may impact on the contractual obligations of the parties set out in writing
1. Evidence of collateral contract
 The PER does not apply to the collateral contract even if it applies to the main contract
De Lassalle v Guildford
2. Evidence that written contract is not yet in force

Even if the parties have signed the written agreement, if the contract has not yet commenced operation,
evidence is still admissible
Pym v Campbell
3. Evidence that the written contract was later varied or discharged

If a contract is wholly written, but is then varied or discharged and not written into the contract, the
PER does not apply
Narich Pty Ltd v Commissioner of Pay-roll Tax
4. Evidence to imply a term
Summers v The Commonwealth
5. Evidence necessary to rectification

When an error is made between the oral statements and the construction of a contract, the PER does not
apply.
Maralinga v Major Enterprises
d. IMPLIED TERMS
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
Terms can be implied to reflect the intention of the parties or for public policy
i. Term implied on the basis of business efficacy (intention)
1. Rationale of implication



When entering into a contract, there are some terms or issues that parties do not turn their minds to or
negotiate. Court can imply a term as a matter of fact for the purpose of business efficacy – i.e. to make
the contract workable in business
The Moorcock
Focus is on the facts of the circumstances – the issue is whether, on the facts surrounding the particular
contract (and not for contracts of that class in general), implication is necessary
Commonwealth v Ling
Should be acknowledged that the court is slow to impose a term on this ground and they will be
cautious to do so
Overlook Management BV v Foxtel Management Pty Ltd
2. Five-tier test
 Implication must be reasonable and equitable
 If the term is unreasonable and unequitable, a person cannot be regarded as having intended
the term to form part of the contract
BP Refinery (Westernport) Pty Ltd v Shire of Hastings

Implication must be necessary to give business efficacy to the contract so that no term will be implied
if the contract is effective without it


Term must be so obvious that it goes without saying


Would a bystander have concluded it was an obvious intention of the parties
BP Refinery (Westernport Pty Ltd v Shire of Hastings)
Term must be capable of clear expression


Whether the express terms of the contract are such that both parties, treating them as
reasonable men, must clearly have intended the term, or if they have not adverted to it, would
certainly have included it, if the contingency involving the term had suggested itself to their
minds
Scanlan’s New Neon Ltd v Tooheys Ltd
If a term is so obvious it goes without saying, it should be capable of being clearly expressed
Shell UK Ltd v Lostock Garage Ltd
Term must not contradict any express term of the contract

If an implied term is inconsistent to an express term, then the implied term cannot be regarded
as reflecting the intention of the parties
Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales
3. Impact of parole evidence rule
 In short – doesn’t apply to business efficacy. The objective background to the contract is admissible in
determining whether it is appropriate in the circumstances of the case to imply a term necessary to give
business efficacy to the transaction
Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales
4. Relevance of formality of contract
 Generally – the more formal and detail the written document is the less likely the court is to imply a
term on the basis of business efficacy
Ansett Transport Industries v Commonwealth
ii. Terms implied from custom or usage (intention)
 Terms can be part of the contract simply because parties in the particular trade or profession always contract on
the basis of those terms
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
Four propositions relevant to establish whether a term will be regarded as implied on the basis of custom or
usage
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd



The existence of a custom or usage that will justify the implication of a term into a contract is a
question of fact
There must be evidence that the custom relief on is so well known and acquiesced (agreed) in that
everyone making a contract in that situation can reasonably be presumed to have imported that term
into the contract
A term will not be implied into a contract on the basis of a custom where it is contrary to the express
terms of the agreement
 A person may be bound by a custom notwithstanding the fact that he or she had no knowledge of it
1. Impact of parole evidence rule
 PER will not operate to exclude evidence of a custom or usage. As a term is implied to reflect the
presumed intention of the parties, the parties must not have intended the writing to form the entire
agreement.
Hutton v Warren
iii. Terms implied to complete agreement (intention) (pg 261)
1. Impact of parole evidence rule
iv. Term implied as a legal incident of a particular class of contract (public policy)
 The court can imply a term regardless of the parties intention and instead because it should be an implied term
 Based on general considerations that apply to all contracts of that kind – as a matter of law
Liverpool City Council v Irwin

Examples:







Tenancy agreements
Contracts for the provision of goods and services
Contracts for the provision of professional services
Contracts of employment
Building contracts
Franchise agreements
Terms of this kind are implied on grounds of necessity
1. Impact of parole evidence rule
 PER not relevant
v. Term implied by statute (public policy)
 Terms can be implied into a contract by statute
1. Contracts for the sale of goods and services (pg 289)
2. CONSTRUING THE TERMS OF THE CONTRACT

Is the contract properly constructed?
 What is the meaning of the terms in the contract?
 What is the significance of those terms?
Life Insurance Co of Australia Ltd v Phillips
a. INTERPRETING THE MEANING OF TERMS
i. General approach
 An objective approach is taken to determining issues such as its construction and interpretation and the
determination of rights and liabilities under a contract
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd
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



When a court seeks to give effect to the meaning in a contract, it is obtained from a reasonable third party
perspective rather than the subject or actual intentions of the parties
Hospital Products Ltd v United States Surgical Corporation
The objective is to construe a document so as to produce a consonant whole, if possible
Hume v Rundell
In the process of construing a contract the court gives effect to the intention of the parties wherever possible
York Air-conditioning & Refrigeration (Australasia) Pty Ltd v Commonwealth
If two clauses are repugnant (inconsistent), the general rule is the first prevails and the latter is rejected unless
there is a special reason to do otherwise
Bateson v Gosling
ii. Admissible evidence
1. The parole evidence rule
 Where the contract has been wholly reduced to writing, the intention of the parties is to be gathered
from the ‘four corners of the instrument’

Where the written document is intended to be a complete record of the contract, extrinsic evidence is
not admissible to add to, vary, or contradict the language of the document
Goss v Nugent
2. Surrounding circumstances: ‘the factual matrix’
 When a court embarks upon the process of construing a document, it must place itself in thought in the
factual matrix as that in which the parties were
Reardon Smith Line v Yengvar Hansen-Tangen



When determining the parties intentions – the court must take into account the words recorded in the
document as well as evidence of the surrounding circumstances
Allen v Carbone
evidence of surrounding circumstances is only admissible to assist in the interpretation of a contract if
the language is ambiguous or susceptible to more than one meaning and is not admissible to contradict
the language of the contract when it has a plain meaning
Coldelfa Constructions Pty Ltd v State Rail Authority of New South Wales
Evidence of surrounding circumstances must be known to both parties generally
Coldelfa Construction Pty Ltd v State Rail Authority of New South Wales
3. Exceptions to the parole evidence rule
 The court can reference extrinsic material when there is;
o Ambiguity (Life Insurance Co of Australia Ltd v Phillips)
o They are trying to identify the subject matter (Cameron & Co v Slutzkin Pty Ltd)
o They are trying to identify the parties (Edwards v Edwards)
o They are trying to identity the real consideration (Pao On v Lau Yiu Long)
o Custom or usage (Thornley v Tilley)
o Rectification (Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co Ltd)
iii. Inadmissible evidence
1. Subjective intention
 Evidence of the actual, subjective intentions of the parties is inadmissible
 The court determines intentions objectively
Life Insurance Co of Australia Ltd v Phillips
2. Prior negotiations
 Evidence of negotiations that preceded the written document is not generally admitted
Prenn v Simonds
3. Subsequent conduct
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
It is not admissible evidence of the parties conduct after the construction was made.
Agricultural and Rural Finance Pty Ltd v Gardiner
b. TYPES OF TERMS
 Not all terms in the contract are that of a type that, if breached, give rise to a remedy for the innocent party
 Process = decide what type of term the parties intended and then consequences
Bunge Corporation New York v Tradax Export SA (Panama)
i. Promissory terms
 Promissory term = a party promises or undertakes to do or refrain from doing something, or that a state of
affairs will not exist. Where this does not occur – the party will be in breach of the term. The effect of the
breach depends if it is an essential term or an inessential term. Determining the appropriate classification is an
objective test of the parties’ intention, taking into account their words and conduct
Associated Newspaper Ltd v Bancks
1. Essential terms (conditions)
 A term that lies at the root of the contract and is so important that any breach of it entitles the innocent
party to terminate further performance of the contract and to claim damages for the breach
L Schuler AG v Wickman Machine Tool Sales Ltd





Applicable test is that of essentiality – where a promisee would not have entered into the contract
unless assured of strict or substantial performance of the term, and that ought to have been apparent to
the promisor
Tramways Advertising Pty Ltd v Luna Park
That test will not be satisfied unless the parties would have intended for the innocent party to be able to
terminate for every single possible breach of the term – no matter how serious the consequences
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd
The fact a term is described by the parties in the contract as a condition is persuasive not conclusive
L Schuler AG v Wickman Machine Tool Sales Ltd
It may also be significant if damages are not an adequate remedy
Associated Newspapers Ltd v Bancks
The risk of an unreasonable result may also be significant
Associated Newspaper Ltd v Bancks
2. Inessential terms (warranties)
 A term subsidiary to the main purpose of the contract, breach of which gives rise to only a right to
claim damages. There is no right to terminate for breach of warranty
Bettini v Gye


There is a statutory definition also – “an agreement with reference to goods which are the subject of a
contract of sale but collateral to the main purpose of such contract, the breach of which gives rise to a
claim for damages but not to a right to reject the goods and treat the contract as repudiated” (s 3 SGA)
Definition may also apply to common law
Associated Newspaper Ltd v Bancks
3. Inessential terms: intermediate or innominate terms
 An intermediate term is an inessential term which is capable of a variety of breaches, some with serious
consequences and some with only trifling consequences
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd


The test for deciding the seriousness of the breach is whether the breach deprived the innocent party of
substantially the whole of the benefit of the contract
A range of factors may be taken into account
o Degree of performance up to the breach compared to the performance required under the
contract;
o Whether damages would adequately compensate the lost expectations of the innocent party;
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o Whether the expectations of the party in breach would be unfairly prejudiced by terminating

the contract;
o Attitude and conduct of the party in breach including the likelihood of the breach persisting.
Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26
A serious breach of intermediate term allows the innocent party to terminate and/or claim damages
while a trifling breach only yields a remedy in damages.
Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26
ii. Contingencies
 Definition: parties may wish to make to make the existence or the continued operation of the contract, or of an
obligation in the contract, conditional upon the occurrence or non-occurrence of an event.



Can be condition precedent or subsequent precedent
Contingencies are merely external events that may have an effect upon the existence or operation of the whole or
part of the contract
Non-fulfilment of a contingency does not result in a disappointed party being entitled to a remedy in the same
way that breach of a promissory term does.
1. Condition precedent
 A conditional precedent in a sense of a contingency is an event that must occur before a contract comes
into existence or an obligation under the contract arises.


2.


If the event fails there will be no contract or the obligation will not arise
Contingency or obligation in contract = court favours obligation
Condition subsequent
A condition subsequent is an event whose occurrence may give rise to a right to terminate further
performance of the contract
The party for whose benefit the condition subsequent was inserted will be the party who has the right
to terminate the non-occurrence
iii. Exemption clauses
 Not uncommon for parties to insert exemption/exclusion/limitation clauses
 Three main kinds:
o It may purport to exclude a party’s liability – for example “no responsibility will be accepted by the



carrier for any loss of, or damage to goods either in transit or in storage for any reason whatsoever”
Thomas National Transport (Melbourne) Pty Ltd v May & Baker
o It may limit the extent of liability to a particular maximum amount – for example “any liability on
[X]’s part or on the part of its servants or agents for damages arising out of the relationship established
by this agreement shall not in any event exceed $100.00”
Darlington Futures Ltd v Delco Australia Pty Ltd
o It may make liability subject to certain pre-conditions, such as the commencement of any suit or the
giving of notice of a default within a certain time – for example ‘the carrier [is] discharged from all
liability whatsoever in respect of the goods unless suit is brought within one year of their delivery or of
a date when they should have been delivered”
New Zealand Shipping Co Ltd v A M Satterwaite & Co Ltd
Regardless of which kind, the interpretation is the same
Exemption clauses may involve the determination of two separate issues:
o Whether the clause forms part of the contract; and
o Whether, on the true construction of the clause, it covers the liability that has arisen
Former issue is dealt with previously, the second outlined below.
1. General approach
 Interpretation determined by construing the clause according to its natural and ordinary meaning, read
in the light of the contract as a whole, thereby giving due weight to the context in which the clause
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appears including the nature and object of the contract, and where appropriate, construing the clause
contra proferentum in the case of ambiguity + four corners rule
Darlington Futures Ltd v Delco Australia Pty Ltd
2. Contra proferentum rule
 An exemption clause will be construed against the party for whose benefit it is inserted
Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd
3. Attempts to exempt negligence (pg 325)
An exemption clause will relieve a party of liability for their negligence if it expressly or impliedly
covers such liability (Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty
Ltd)

Exemption clauses are to be read in context and according to their natural and ordinary meaning
(Darlington Futures)
4. Four corners rule (pg 328)
3. RESTRAINT OF TRADE
Introduction
Restraint of trade is defined as where ‘one party agrees with any other party to restrict his liberty in the future to carry on trade with
other persons not parties to the contract in such manner as he chooses’
Petrofina Ltd v Martin [1966] Ch 146 at 180
While prima facie all restraints of trade are void, a restraint is valid if it can be shown to be reasonable in the interests of:
(i)
Both parties, having regard to the transaction as a whole, and
(ii)
The public.
Nordenfelt v Maxim Nordenfelt Guns Ltd [1894] AC 535 at 565
2.1
Reasonableness
The burden of proving reasonableness in the parties' interests usually lies on the covenantee (the party benefitting from the restraint).
The burden of proving unreasonableness in the public interest is usually on the covenantor (the party subject to the restraint).
Nordenfelt v Maxim Nordenfelt Guns Ltd [1894] AC 535
The validity of a restraint must be decided as at the date of the agreement
Lindner v Murdock's Garage (1950) 83 CLR 628
Bridge v Deacons [1984] 2 WLR 837
Cf. Shell UK. Ltd v Lostock Garage Ltd [1977] 1 All ER 481
If a restraint is to be reasonable between the parties it must be no greater, as regards time and area of operation or otherwise, than is
reasonably necessary to protect a legitimate interest of the covenantee which requires protection.
Nordenfelt v Maxim Nordenfelt Guns Ltd [1894] AC 535
All the terms of the agreement and all the circumstances including the quantum of consideration received by the covenantor in
exchange for the covenant(s), the duration, area, activities covered and relative bargaining positions are taken into account.
It is seldom that a restraint reasonable between the parties has been held to be contrary to the public interest, but they are nevertheless
separate issues
Walsh J in Amoco Australia Pty Ltd v Rocca Bros (1972-73) 133 CLR 288
2.2
Examples of contracts containing restraints on trade

Master and servant agreements
As between master and servant, interests which the master is entitled to protect are his/her trade secrets, including secret
manufacturing processes
Foster Ltd v Suggett (1918) 35 TLR 87
and his/her business connections, if any, of which the servant has knowledge
Herbert Morris Ltd v Saxelby [1916] 1 AC 688
The period and area of restraint are particularly relevant
Mason v Provident Clothing Co [1913] AC 724.
A restraint for life is not necessarily void
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Fitch v Dewes [1921] 2 AC 158

Contracts of exclusive service
A contract for exclusive service is not necessarily invalid
Warner Bros. Pictures Inc. v Nelson [1937] 1 KB 209
Warner Bros. Pictures Inc. v Ingolia [1965] NSWR 988
Cf. Macaulay v Schroeder Publishing [1974] 1 WLR 1308
An agreement between employers restricting the employment of each other's former employees may be void
Kores Co. Ltd v Kolok Co Ltd [1959] Ch. 108
Relief may be granted against both an employer and an association of employers
Eastham v Newcastle United Football Club Ltd [1964] Ch. 413
Buckley v Tutty (1971) 125 CLR 371
A restraint imposed upon rugby league players when transferring was considered justified and reasonable
Adamson & Others v New South Wales Rugby League Ltd and Others [1991] ALR 479

‘Solus’ agreements
A ‘solus’ (single source of supply) agreement may be in restraint of trade
Esso Petroleum Co. Ltd v Harpers Garage Stourport Ltd [1968] AC 269
Compare a trade tie contained in a contract for the sale or lease of land:
Quadramain Pty Ltd v Sevastopol Investments Pty Ltd (1975-76) 133 CLR 390
But see:
Amoco Australia Pty Ltd v Rocca Bros. Motor Engineering Co. Pty Ltd (1972-73) 133 CLR 288

Contracts for the sale of a business
A restraint imposed on the vendor of a business is more readily upheld by the courts than one imposed on a servant. Without such a
restraint the vendor would not get a fair price and the purchaser would not get the benefit of his purchase.
But there must be a genuine sale
Vancouver Malt Ltd v Vancouver Breweries Ltd [1934] AC 181
The purchaser is only entitled to protect the business bought
Nordenfelt v Maxim Nordenfelt Guns Ltd [1894] AC 535
Again, the area and duration of the restraint are relevant. A worldwide restraint is not necessarily void.
Nordenfelt v Maxim Nordenfelt Guns Ltd [1894] AC 535
2.3
Competition and Consumer Act 2010 (Cth)
Section s 45 of the Competition and Consumer Act 2010 prohibits corporations from entering into or giving effect to any contract
arrangement or understanding which is an exclusionary provision or which has the purpose or would likely to have the effect of
substantially lessening competition.
Section 51(2) contains exceptions to s 45 (note in particular ss (b), (d) and (e) which relate to contracts of employment, partnerships
and sales of businesses respectively). The effect of s 51(2) is that a restraint of trade provision will not breach s 45 unless it is an
unreasonable restraint of trade at common law.
3.
Severance
In appropriate circumstances, a void restraint of trade may be severed, enabling that which remains to be enforced.
There are three main forms of severance:
(a)
Severance of a transaction from associated transaction in a larger enterprise An associated transaction will also be
invalid if it is so closely associated as to be part of the one transaction
Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [No. 2] (1974-75) 133 CLR 331
(b)
Severance of an objectionable promise from a contract Severance will be allowed where the elimination of the invalid
promises changes the extent only of the contract and not the kind of contract
Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391
An illegal or void promise can be severed from a contract if it is not substantially the whole consideration given by the party
making it
Goodinson v Goodinson [1958] 2 QB 118
Bennett v Bennett [1952] 1 KB 249
Brooks v Burns Philp Trustee Co (1969) 121 CLR 432
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(c)
Severance of part of an objectionable promise without severing the entire promise from the contract. An illegal or void
part of a promise may be severed if the promise is divisible. The court will not rewrite the promise or destroy the substance
what was agreed
Attwood v Lamont [1920] 3 KB 571.
A ‘stair-step’ or ‘cascade’ clause, which sets a number of alternative restraints will not necessarily be void unless it
effectively abdicates to the court the task of deciding the extent of the restraint.
Lloyd's Ship Holdings Pty Ltd v Davros Pty Ltd (1987) ATPR para 40 769
4. UNFAIR TERMS
The Competition and Consumer Act 2010 (Cth) (‘CCA’) now also includes provisions relating to unfair contract terms. These
provisions are found in the Australian Consumer Law (‘ACL’) which is a schedule to the CCA. Mirror legislation has been enacted
in Queensland and the ACL therefore also applies as a law of Queensland. The ACL (Cth) applies if the supplier is a corporation.
There is no such restriction in relation to the ACL (Qld) which applies to corporate and non-corporate suppliers. You will study unfair
contract terms in some depth in units such as Commercial Remedies. The material set out below is the full extent that you will need to
know the purposes of this unit.
Under s 23(1) a term of a contract is VOID if the term:
(1)
Is in a consumer contract
(2)
Is an unfair term; and
(3)
The contract is a standard form contract
However, the contract will continue to bind the parties if the contract can still operate without the unfair term. ACL s 23(2)
2.1
Consumer contract
A ‘consumer contract’ is defined in s 23(3) and means a contract
 For the supply of goods/services or the sale/grant of an interest in land
 To an individual
 Who is acquiring the goods, service or interest wholly or predominantly for personal, domestic or household use or consumption
You should note that whether a contract is a consumer contract depends on the subjective purposes of the individual who acquired the
goods, service or interest.
2.2
Unfair term
(i)
What is meant by ‘unfair term’? See ACL s 24
An unfair term is one which, on the balance of probabilities:
(a)
Causes a significant imbalance in the parties’ rights and obligations under the contract; and
(b)
Is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
(c)
Would cause detriment (financial or otherwise) if it were applied or relied on.
All three elements above must be satisfied.
Examples of unfair terms can be found in ACL s 25. These are merely guidelines and are not presumptions, prohibitions or an
exhaustive list. Instead it is a ‘grey list’ of types of terms that warrant attention. The list includes, for example, exemption clauses.
The onus is on the person advantaged by the term to show that it is reasonably necessary to protect their legitimate interests. Note the
presumption in ACL s 24(4).
2.3
Standard form contract
The term, ‘standard form contract’, is not defined, but ACL s 27(2) says that, when determining whether a contract is a standard form
contract, a court MAY take into account such matters as it thinks relevant, but MUST take into account:
(a)
Whether one party has all or most of the bargaining power.
(b)
Was the contract prepared by one party before any discussion between the parties?
(c)
Was the other party effectively required to take it or leave it?
(d)
Was the other party given an effective opportunity to negotiate the terms of the contract?
(e)
Did the terms take into account the specific characteristics of the other party or the particular transaction?
Typical standard contracts may include

A telecommunications contract for a mobile phone,
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
A construction contract for a domestic building,

A contract with a gym,

A contract for a flight or a cruise and

A utilities contract for such services as electricity and gas.
If a contract is alleged by a party to be a standard form contract it is presumed to be so unless the other party proves otherwise. ACL s
27(1).
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