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LECTURE 1: VITIATING FACTORS AND
MISREPRESENTATION
Even if a contract is validly formLed it may not be enforceable. Instead, in certain situations, it may
be avoided. There are various broad grounds for vitiating a contract. These include:
1. Misrepresentation
2. Duress
3. Undue Influence
4. Unconscionability
5. Frustration
6. Mistake
1. TERMS AND REPRESENTATIONS
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Terms and representations
o Representation by A induces B to enter into a contract with A.
o Representation cf. Promise.
 Promises create contracts.
 A’s promise generates an expectation
 Failure to stick to that promise means that damages would be allowed
or other remedies.
 Representation is a statement of fact which induces the other party to enter
into a contract.
 Representation may be merely a statement of fact that is represented
as true
o Eg. If A represents that his vineyard can give X amount of
product but it does not, then you see the available remedies:
 why representations of fact? because only facts are true or untrue at
the time the statement is made…it is reasonbable to rely on
statements of fact but not other kinds of satemnets.
o mere puff are just sales talk and not to be taken seriously
o person’s opinion should not be relied on unless the person is
prepared to warrant its accuracy and give it contractual force
o statements of future intention cannot be wrong at the time
they are made but only become wrong or unfulfilled at some
future time
o statemnst of law : everyone is presumed to know the law and
/or have access to the law and legal adviace and so no-one
should rely on another persons’ statement as to what the law
is ALSO: the law may be too uncertain that no statement
about its content can be taken as anything more than an
expression of opinion.
 Goal is to see if a representation is made --> is this false? --> if so,
can the contract made upon that representation be set aside?
 The main remedy for representation rescission.
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o
o
o
o
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Hedley Byrne (remedies for negligent misstatement) allowed for
misrepresentation--> REMEMBER: there may be a remedy in the
law of torts not merely just in the law of contract.
o ie. Possible remedies allowed for misrepresentation for
negligent misstatement.
 Remedy for misrepresentation is to set the contract aside.
Whether representation was incorporated into the contract as a term? Representation
cf. term
STAGE 1: Is it a representation or a term of the contract?
 Sometimes, there are representations that are actually incorporated into the
contract
 Eg. A makes a statmenet ot B that the vineyard produces 200 bottles
of cheraz a year when in fact it only produces 100. If this
representation can be categorised as a contractual term, then if it isn’t
true, there is a breach of contract.
 THEREFORE: remember you can argue that the representation may
be a term of the contract and not just a mere representation -- >
DISTINGUISH THE TWO.
Representation that are neither terms nor representations = the statement has no
legal significance either
ie. representations/ statements that are NOT representations of fact:
 mere puffs
 They fail to have legal effect
 Eg. A staqtement that the UQ is the world’s finest university” may be
taken as a marketing statement = too vague to have legal effect.
 statements of opinion or future intent
 representations of law.
Mere puffs
o *Dimmock v. Hallett (1866) LR 2 Ch App 21
 FACTS: Pl. bid at an auction for a property where the sale was without
reserve but the competing bidders actually had interests in the property and
the Pl. sought to be relieved from his purchase. BUT the issue was that the
auctioneer stated also that parties interested in the estate would be at liberty
to bid.
 Farm property was described as ‘fertile and improvable’…’can be over time
considerably improved at a moderate cost’ (alleged misrep. 1).
 (alleged misrep 2 – misrep by silence) farm was described to have been
rented out to another person until recently BUT the truth was that the tenant
had not been in possession for nearly a year and a half and someone else had
been let the farm. This gave the Pl. the representation that the farm could be
let out at that high amount too. This was not true because in fact, the land was
only let out for 1pound in the first quarter.
 HELD: the two statements by the auctioneer can be read together. Pl. knew
that the parties interested had the liberty to bid and therefore, he cannot be
entitled to be discharged on the ground that they have bid against him.
 HELD: (misrep 1) Court said that the statement that the land was fertile
despite part of it being abandoned was not misrepresentation that entitles the
purchaser to be discharged. The terms” in course of time…improved at a
moderate cost” were too vague to amount to a misrepresentation --> Mere
puff.
 HELD: (misrep 2) Misrepresentation because it was not true that the farm
land had been lent out at that high rental price just recently which would have
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been more appealing for a Pl. who would expect to rent out the farm land at
that high price too.
o
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Carlill v. Carbolic Smoke Ball [1892] 2 QB 484
 FACTS: Advertisement that 100pounds would be paid to anyone contracting
influenza after using hte smokeball. Deposit was put in bank with assurance
to pay for people ewho came forward to claim. Mrs Carlil contracted
influenza and the smokeball company refused to pay.
 ISSUE: was the statement just advertising and therefore mere puff?
 HELD: not mere puffery because Carbolic Smokeball had included a bank
assurance note that a certain amount of money had been deposited in an
account --> the statement had legal effect.
o One factor that affects whether the statement was a puff is the audience to who it is
addressed to: see Mitchell v. Valherie [2005] SASC 350
 FACTS: D. had mislead P. about a property she had purchased when
describing it as “cosy – immaculate style” in the newspaper and upon
inspection, P. was handed a brochure stating ‘nothing to spend – perfect
presentation’. The house was later damaged due to soil movement and weak
foundations. D appeals.
 HELD: first question is whether the statements are representations of fact or
mere puff…D argues that the statements were of general promotional nature
and was mere puff…whether it is puff will depend upon the circumstances
surrounding the making of the statements and how the representations were
understood by the P. Layton J said that “Immaculate style” conveys an
opinion not a representation of fact BUT “nothing to spend – perfect
presentation” in the brochure connotes more than an opinion because the
brochure contained reference to heating and cooling and represented that no
major expenditure would be required in the immediate future.
 however, the represntatoin said nothing about hte house being
structurally sound.
 White J: the words “Nothing to Spend – Perfect presentation” cannot be said
to be respresentation of fact because:
 their true nature was a pithy promotion of htep roperty
 the words had to be read as a whole and was clearly a phrase of
puffery
 the words were used in circumstances where some hyperbole is
commonplace. “a reasonable purchaser would not understand the
words to convey a representation about the structural integrity of
the property”. THEREFORE, there was no misrepresentation.
o Pryor v Given: The statement “A wonderful place to live” contained an advertisement
for land was probably intended to be mere puffery BUT the court said that it
conveyed hte impression that hte land was zoned for urban use and that constituted a
statement of fact.
Is this statement a mere puff? If yes, then no legal consequences may flow.
 Look at requirements--> state whether or not it is possible.
o One could only get damages as opposed to rescission where the misrepresentation is
also a tort.
 Ie. Where it is also negligent or deceitful
o Cannot recover damages for an innocent misrepresentation
 Innocent misrepresentation, deceitful misrepresentation and negligent
misrepresentation, you can get rescission BUT in innocent misrepresentation,
you cannot get damages = only rescission
 There are some situations it would be in the plaintiff’s interests to getg
damages
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Terms
Assuming it is an oral statement not in the written contract, how does the courts distinguish
between innocent misrepresentation, deceitful misrepresentation and negligent
misrepresentation?
One of the key factors : the more important the statemnte it is to the person to whom the
statemtne was made, the more likely it is to be a term of the contract.
o Couchman v. Hill [1947] KB 554
 FACTS: Pl. purchased two young cows at an auction and in the vendor’s
catalogue was a condition that cows are sold with all faults, imperfections
and errors of description. Ie . no warranty was given as to the cow’s
condition. Another conditions said that the accuracy of the information was
not guaranteed and that the vendor was not liable for any compensation.
Before the sale, the Pl. asks the D whether the cow was pregnant and the D
responds “yes, the cows were unserved (ie. Not pregnant)”. Later, one of the
cows died in childbirth.
 Representation by D is that the cows being sold at the auction was
not pregnant.
 HELD: the conditions of the catalogue protected the vendor so the Pl. could
not succeed in suing based on the catalogue BUT the question and answer
amounted to an oral offer of warranty (ie. The statement was a temr of the
contract) which overrode the condition in the printed terms.
Dick Bentley Productions Ltd v. Harold Smith (Motors) Ltd [1965] 1 WLR 623 –
relevant to when a warranty was intended
 FACTS: during negotiations for the purchase of a second-hand Bentley the
seller said that it had done only 20,000 miles but this was wrong because the
true figure was nearer to 100,000. The seller could have discovered this by
asking the manufacturer and it was something that the buyer would have
found important before forming hte contract.
 Seller had even told B that he was “in a position to find out the
history of cars’ in response to B’s statement that B was looking for a
‘well vetted Bentley car’
 HELD: D. (seller) tried to argues that the representation, made for the
purpose of inducing the other party to act, was an innocent misrep. However,
court said that the statement was a warranty and not a mere
misrepresentation.
 when a warranty was intended looks at whether na imntellgient
bystander would reasonably infer that a warranty wqas intended; as
well as the words and behaviour and conduct of the parties.
 “It seems to me that if a representation is made in the course of
dealings for a contract for the very purpose of inducing the other
party to act on it, and it actually induces him to act on it by entering
into the contract, that is prima facie ground for inferring that the
irepresentation was intended as a warranty”
 “suffice it that the reprsenation was intended to be acted on and was
in fact acted on”
 “maker of the representation can rebut this inference if he can show
that it really was an innocent misrepresentation , ie. he was in fac t
innocent of fault in making it and it would nto be reasonable in the
cirucmsntqaces for him to be bound by it.”
Under ACL, there may be a remedy therefore may not need to argue that the
misrepresentation was a temr of the contract
o ACL deals with situation where hte contract is entered into in trade or commerce
o
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o Some of hte above cases would probably fall under that.
However, still consider whether or not the misrepresented statement was a term of the
contract.
o
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Ecay v. Godfrey (1947) 80 LI LR 286
 FACTS: Seller of a boat stated that the boat was sound but warned the buyer
to have it surveyed.
 HELD: if a party advises the other to verify a statement, then it is unlikely to
be a term.
Collateral warranties
Where there representation is not a term of the main contract but is a separate contract
o Eg. A enters into a contract with B and enters into another contract with B known as a
collateral warranty
It is a contract which guarantees the truth of hte statement in the main contract
It exists alongside the main contract
Only a collataeral warranty if the statement made is a guarantee
Collateral warranties are not as important.
o
JJ Savage & Sons Pty Ltd v. Blakney (1970) 119 CLR 435
 FACTS: Pl. wanted to buy a motor boat from the D. seller who deals with
motor boats. During negotiations, Pl. asked the D to place in writing his
views upon a variety of engines and the D. does so and writes down the
“estimated speed” for the selection of engines. The D. recommends one
particular engine out of the three which the Pl. buys but it turns out that the
preferred engine did not achieve the ‘estimated speed’.
 HELD: The statement, in order to be a collateral warranty, has to be relied on
as a promise and not merely as representation – in this case “estimated speed”
was merely representational and not a promise. Pl. needs to argue more than
“if not for such a statement constituting a warranty, the contract would not
have been made”.
o
Hoyt’s Pty Ltd v. Spencer (1919) 27 CLR 133
 FACTS: D and Pl. enter a contract for sale of land where written term was
that D. would be able to terminate the contract upon giving of 4 weeks’
notice but Pl. argues that D. had made a term that formed a collateral contract
that D. would not give such a notice of termination other than in certain
circumstances.
 HELD: collateral contract cannot alter the rights created by the main contract
– “collateral contract must alter the contractual relations of the parties but it
does not alter the contractual relations established by the main contract.
2. WHAT IS A MISREPRESENTATION?
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Misrepresentation is a :
o false statement
o made expressly or impliedly
o that acts as an inducement from the repersnetor to the representee to enter into
the contract
in order to obtain relief, the representee must show that he or she was misled by and relied on
a positive misrepresentation of fact.
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Remember to work out what the representation actually is = what the misrepresented fact is.
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A representation may be made by conduct:
o
Jones v. Dumbrell [1981] VR 199
 FACTS: shares were sold to D. on the basis that he would continue the
business for the benefit of himself and his family only –ie. That D. would not
sell the shares to someone else. Shares were sold undervalue. D. later forms
the intention to resell the shares at a profit but does not tell the Pl. Pl. then
sues for fraudulent misrepresentation.
 HELD: the representation by the D. was intended to induce the Pl. into
making the contract and was true when made but afterward,; the D. knew that
the statement has become false. If the D. continues the representation, he can
be liable as if the representation had been false when originally made.
o
Gordon v. Selico (1986) 798 EG 53
 FACTS: Pl. purchased a lease from the owner of the block of flats D1. D2
was the managing agent. The block of flats were already badly maintained
(had dry rot) at the date of purchase and Ds did not make any attempt to
operate the system of maintenance provided in the contract. D conceals the
dry rot from potential purchasers = does not reveal the dry rot to any potential
buyers.
 HELD: Ds were liable for breach of maintenance obligations under the lease.
The silence was misrepresentation by conduct. The misrepresentation was
that hte house did not suffer from dry rot.
Can a representation be made by silence?
o at common law (as opposed to s18 of ACL) the exceptions to the general rule below is
based on whether or not there was a statement of fact that can be found by the
conduct encompassing the silence or whether the rrealtionship between the parties
gives rise to a duty to disclose.
o s18 focuses on whether the silence is ‘misleading or deceptive’
General rule is that when parties enter into a contract, there is no duty to disclose material
facts known to one party but not to the other.
o Generally, silence is not misrepresentation.
o If there was such a duty, it would be difficult to know if the duty has been met in
every case. Difficult to draw a line what and when precisely the party has to disclose
to the buyer.
o general rule in tort law- law does not like to impose liability for omissions ie. failure
to act.
o Parties may be getting information for free if there was a duty to disclose everything.
o Business parties would have commercial freedoms hindered.
BUT: to that general rule, there are some exceptions.
o Always see if any of hte exceptions apply.
Exception 1: when the statement is partially true.
o Dimmock v. Hallett (1866) LR 2 Ch App 21
 FACTS: Pl. bid at an auction for a property where the sale was without
reserve but the competing bidders actually had interests in the property and
the Pl. sought to be relieved from his purchase. BUT the issue was that the
auctioneer stated also that parties interested in the estate would be at liberty
to bid.
 Farm property was described as ‘fertile and improvable’…’can be over time
considerably improved at a moderate cost’ (alleged misrep. 1).
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(alleged misrep 2 – misrep by silence) farm was described to have been
rented out to another person until recently BUT the truth was that the tenant
had not been in possession for nearly a year and a half and someone else had
been let the farm. This gave the Pl. the representation that the farm could be
let out at that high amount too. This was not true because in fact, the land was
only let out for 1pound in the first quarter.
HELD: the two statements by the auctioneer can be read together. Pl. knew
that the parties interested had the liberty to bid and therefore, he cannot be
entitled to be discharged on the ground that they have bid against him.
HELD: (misrep 1) Court said that the statement that the land was fertile
despite part of it being abandoned was not misrepresentation that entitles the
purchaser to be discharged. The terms” in course of time…improved at a
moderate cost” were too vague to amount to a misrepresentation.
HELD: (misrep 2) Misrepresentation because it was not true that the farm
land had been lent out at that high rental price just recently which would have
been more appealing for a Pl. who would expect to rent out the farm land at
that high price too.
 ie. the non-disclosure may imply falsely that htere are no other facts
that qualify the statement.
o
Keates v. The Earl of Cadogan (1851) 10 CB 591
 FACTS: D let a house to Pl. even though he knew that the house was ‘in such
a ruinous and dangerous state and condition as to be dangerous to enter,
occupy or dwell in and was likely to fall down”. Pl. argues that the contract
should be set aside because the D. should have warned him of the state of the
house before he agreed to rent it.
 HELD: There was no stated warranty (no misrep by silence) that the house
was fit for immediate occupation and not argued by the Pl. that any
misrepresentation was made. Pl. was not acting on any representations made
by the conduct of the D as to the state of the house. Pl. could have made
investigations before he began to reside in it. D. not liable.
o
With v. O’Flanagan [1936] Ch 575
 FACTS: D. had said truthfully that his income was 2000 pounds per annum
but in May, because he was ill, the monthly income had fell to only 5 pounds
per week. D. did not disclose his illness to Pl. who purchased the medical
practice.
 HELD: Silence was a misrepresentation. Contract rescinded because there
was a duty to point out changes to the circumstances where the representor
discovers that the statement is false. By remaining silent, a misrepresentation
has occurred.
 there is a duty to disclose when the facts change.
 Why? because one party has a clear opportunity to correct something that
they are in a better position to know about.
Jones v. Dumbrell [1981] VR 199
FACTS: D. represented to J. in September that he desired to purchase hsi shares in a
company in which they both held hsares.
 D indicated that he did not intend to resell the shares as he wanted to conduct
the copmany’s business fo hte benefit of his family
 Jones did not want to sell to an outsider
 J sells D. the shares at an undervalue
 D. did not disclose to J that from Nov until the completion of the sale, he
intended to purchase the share in order to resell them at a profit.
o
o
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o
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HELD: if a misrepresentation is true when made but becomes false to the knowledge
of hte representoir before the contract was made and the representor does not correct
it / remain silent, he is liable as if hte representation is false when the statement was
made. In such circusmtnances, silence counts as misrepresentation.
 THEREFORE: D. was liable for damages in deceit.
o McKenzie v. McDonald [1927] VLR 134
o FACTS: Pl was a widow with pressing fincnail and family problems
 Pl. engaged the defendant estate agent to sell her farm and to find her a
suitable ho mi nteh city
 agent knew of hte Pl’s circumsntaces
 agent was told by an experienced land valuer thath te farm was worth the
price asked but he suggested to the pl. to accepta a lower price for the farm
and suggested she exchange the farm for a dwelling he owned on terms that
were advantageous to him and disadvantageous to her.
 D. later sold the far for the increased price.
o HELD: where hte party is in a fiduciary relationship, there is a duty to disclose.
 fiduciary is a person who undertakes to act in the interests of another (the
beneficiary) and not in the interests of himself / herself.
 primary obligation is not to profit fro the position nof trust enjoyed by it.
 D. in this case was under a duty to the Pl. to make full disclosure of all that
he knew abou the farm
 not every agent stands in a fiduciary relationship with a principal, but this D.
did.
 he assumed a position of confidence towards her
 he had an intimate knowledge eof her financial positioand family needs
 he offered her counsel as to the value of hte farm and as to the obtaining of
finance.
 he had failed to discharge his duty of disclosure and had misled her.
Exception 2: Insurance contracts
Insurance Contracts Act 1984 (Cth) s 21:
With insurance contracts, there is automatically a duty to disclose. Another exception to the general
rule.
(1) Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of
insurance is entered into, every matter that is known to the insured, being a matter that(a) the insured knows to be a matter relevant to the decision (they cannot remain silent) of the
insurer whether to accept the risk and, if so, on what terms; or
(b) a reasonable person in the circumstances could be expected to know to be a matter so relevant.
(2) The duty of disclosure does not require the disclosure of a matter(a) that diminishes the risk;
(b) that is of common knowledge;
(c) that the insurer knows or in the ordinary course of his business as an insurer ought to know; or
(d) as to which compliance with the duty of disclosure is waived by the insurer.
(3) Where a person(a) failed to answer; or
(b) gave an obviously incomplete or irrelevant answer to, a question included in a proposal form
about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in
relation to
the matter.
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Exception 3: Guarantees
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contracts of guarantee do not require full disclosure of all material facts but a limited duty of
disclosure is imposed.
What is a contract of guarantee?
o when there is a contract between a guarantor and the creditor that the guarantor would
pay off any debts that the debtor owes the creditor ie. the creditor should therefore
confer a benefit onto the debtor because of the guarantor’s assurance.
Westpac Banking Corporation v Robinson
HELD: the bank was under no duty to disclose to a prospective guarantor of a customer’s
account that the account had been overdrawn.
o it is ‘naturally to be expected’ that hte bank is not satisfied with the customer’s credit
and that was why it would have reuiqred a guarantee.
Cf:
Goodwin v The National Bank of Australasia
o FACTS: Woman guarantees for son for mortgage of house. Bank did not disclose that
week before that son had become guarantee for 3rd party.
o HELD: Bank was bound to revenant anything ‘which was not naturally to be
expected’ or where ‘there are some unusual features’ in the particular case.
 The Bank was said to be bound to reveal to the guarantors that the overdrawft
limit given to the debtor was especially temporary and that the bank had
participated with the debtor in the selective dishonouring of hte debtor’s
cheques.
THEREFORE: the rule of the duty to disclose with relation to contracts of guarantees is that
misrepresentation would take place only if there was non-disclosure of circumstances which
were not naturally to be expected.
3. THE CONCEPT OF MISREPRESENTATION
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A misrepresentation is a false representation.
When is a statement false?
Whetehr or not a statement counts as false or not is to be determined apart from the intentions
of the representor.
o A statement is true or it is not
Where a representation is ambiguous (ie. you do not know how it was understood by the Pl.) -> the appropriate question ie whether the conduct ofhte represnetor was such as might
reaosnbly be relied upon by the representee.
o you look at “the sense in which a representation would be understood by a reasonable
person in the position of the representee” (Krakowski v. Eurolynx Properties Ltd )
FACTS: K agreed to purchase shop premises from E and before the contract was signed, K
made it clear to E that they were looking for a leased property as an investment from which
the rent would give a return of 10% per annum. K agreed to enter into a contract to buy the
shop premises so long as a ‘strong tenant’ had been organised. The contract proceeded on the
grounds that such a tenant had been arranged BUT E had entered into an additional agreement
with the tenant for three months rent free to ensure that its contract went ahead. The tenants
defaulted on the rent and subsequently vacated the premises. After the contract with the
tenants were made, only the instrument of lease was disclosed to K but the separate
agreement for reduced rent was not.
o One of the terms of the lease was an entire agreement clause.
HELD: the motive of the representor in making the representation is immaterial if fraud is
proved. Fraud is proved when the representee can show that the representor had no honest
belief in the truth of the representation in the sense in which the representor intended it to be
understood. Therefore, E had failed to disclose all material facts about the ‘strong tenant’ and
was enough to entitle K to rescission of the contract on grounds of misrepresentation.
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4. ACTIONABLE MISREPRESENTATION
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a. Those that are incorporated into terms of the contract OR are actionable as tort of
deceit / negligence OR gives rise to the remedy of rescission even if the
representation was innocent.
b. What is the reason for allowing rescission for innocent misrepresentation?
i. Redgrave v Hurd per Jessel MR: there isa ‘moral fraud’ and ‘moral
delinquency’ of a person who seeks to take advantage of a contract induced
by a statement made by that person and now known to be false. ALSO: the
person who innocently makesa false statement ought to find out the truth of
the matter before making the statement.
ii. Another reason is the economic explanation of equity’s intervention since the
representor is discouraged from acting carelessly and it is cheaper for him to
discover the truth.
In order to be actionable a misrepresentation must be: A misrepresentation of fact.
General rule: Statements of intention are not generally actionable.
Courts will try to present the statemnbt of intention as a statement of fact.
Exception 1: taht the statement of intention is the current intention, then the statemtn is
a statement of fact and the statement is actionable.
A statement or promise that something will happen in the future is not a misrepresentation
simply because that thing does not happen BUT, every promise whether contractual or precontractual implies a representation of fact that there exists a present intention to fulfil
the promise:
o if there is no such intention, a misrepresentation is established.
o *Edgington v. Fitzmaurice (1885) 29 Ch D 459
o FACTS: Director of company invited subscriptions from the public for debenchers
that hte money would be used to expand the business. As a result of the statement,
debenchers were purchased.
o ISSUE: the statement “if you subscribe to our debenchers, we would use the money
raised to expand the business” could be described as a astatemtn of intention. If so,
the statemtn would not be actionable.
o HELD: however, the courts argued that the statement was not a statement of intention
but a statement of fact because by misrepresenting that the current actual intention,
tehey were making a statement of fact.
o Ritter v. North Side Enterprises Pty Ltd (1975) 132 CLR 301
o HELD: Edgington applied and it was said that this was a statement of fact and that
the person making the statement was representing their current state of mind and was
therefore a statemtn of fact
Statements of opinion are not generally actionable.
Bisset v. Wilkinson [1927] AC 177
FACTS: vendor of a farm which had never been used for farming represented to the purchaser
that in his opinion, the farm could support two thousand sheep. The statement turned out not
to be correct.
HELD: this was merely an opinion (even if it was wrong) honestly held which is not
actionable.
o the statement of opinion was merely a statement of belief – both parties are ina
position to draw their own conclusions.
o The vendor was not a sheep farmer so he would not have known that the farm was not
suitable for rearing sheep. Judge said that “ a statement by one who knows teh fact
well involves a statement of fact because it is an assersion that the facts support his
opinion” --> ie. Wwhere the facts arer equally well known to both parties, if A makes
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a statemtn that the farm can support X amount of sheep, A (vendor) is asserting htat
facts back up his opinion and therefore is a staqtemnt of fact = excpetion.
Exception 1: turning the statement of opinion into a statement of fact
o person who states an opinion always implies that he or she in fact holds that opinion –
if that opinion is not held, there is a misrepresentation of fact.
Smith v. Land & House Property Corp. (1884) 28 Ch D 7
FACTS: vendor described a tenant as ‘a most desirable tenant’ when the tenant was in fact in
arrears of rent. The vendors statement implied that he had grounds that justified his opinion
when he did not have such grounds.
HELD: statement was a misrepresentation (misrepresenting that the vendor had grounds that
justified his opinion when in fact, he had not).
Statements of law are not actionable unless fraudulent.
the rule excluding misrepresentations of law appears to apply only to misrepresentations
about the general law. Representations as to private rights appear to be treated as
misrepresentations of fact.
Eaglesfield v. Marquis of Londonderry (1876) 4 Ch D 693
FACTS: Railway company had power under its Acts to issue 100,000 pounds of preference
shares and a large amount of ordinary shares. The Directors of the company (D.) was under a
bona fide belief that they had the power to raise the remaining 15,000 pounds of preference
shares and described the shares in the certificates as ‘No. 1 Preference Stock’. Some of the
stocks was purchased by the Pl. Pl. argues that the sale of the stocks should be rescinded
because of misrepresentation by the D.
HELD: Since the Pl. did not believe that they were purchasing part of the initial No. 1
Preference Stock but a new stock which ranked with the No. 1 Preference Stock, the Pl. had
not been deceived by any misrepresentation of fact THEREFORE, there was no fraud.
David Securities v. Commonwealth Bank of Australia (1992) 175 CLR 353
FACTS: David Securities sued Commonwealth Bank claiming that they had suffered
significant losses by reason of their entry into foreign currency borrowing arrangements. Pl.
argues that the Bank had engaged in misleading conduct and representations by breaching
either a contractual obligation or a common law duty to advise of hte dangers inherent in
foreign currency loans.
HELD: There is no rule precluding the recovery of money paid under a mistake of law – the
court allowed the issue to be remitted to the primary judge to determine whether the Pl.
should be allowed to call in evidence on the question of mistake and if there was such a
mistake, then it would show that there was no intention to transfer the money and the
recipient would have been unjustly enriched. There is no further requirement that the mistake
by causative and prima facie gives rise to an obligation for the D. To make restitution.
o If mistake of law provides a basis for a restitutioanry claim, a misrepresentation of
law should equally provide a basis for rescission.
o In estoppel, the distinction between assumptions as to law and as to fact ‘is artificial
and elusive...’
Public Trustee v. Taylor [1978] VR 289
FACTS: a piece of land was advertised as ‘zoned: special use 10 (ie. The land was advertised
as an office zone). Subject to road widening’. However, in fact, it was not zoned as stated and
the land was to be reserved for construction of a main road. The Public Trustee (vendor) knew
about this but still approved of using the words ‘zoned special use 10’. Auction was
conducted without disclosing the fact that the whole of the property was reserved for a
proposed main road.
HELD: The statement in the advertisement was knowingly false and was made for the
purpose of inducing prospective bidders to enter into a contract to purchase the
property...therefore, the defendant purchaser is entitled to be compensated as well as the
contract rescinded.
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The misrepresentation must be addressed to the misled party.
o 2 requirements:
i. Objective test: would a reasonable person have been influenced by teh
statement?
ii. Was the person actually induced to enter into the contract
What happens if the information is passed to a third party?
o It is only when the representor passes the information to a third party with the
intention that hte third party would pass it to hte party entering the contract
that the repressntaiton is actionable
o Ie. The represntaion must materially influence you to enter into the contract
o Ie. Would a reasonable person have been influenced by the statement?
Peek v. Gurney (1873) LR 6 HL 377
FACTS: directors of a company issuing a prospectus are bound to disclose every material fact
and if they do not, they have to indemnify any person who takes shares from the company on
the faith of the prospectus against any loss as a result of the concealed information. The issue
of the case is whether the prospectus was addressed to Peek or only to the original allottees of
the company?
HELD: the D. company was not liable to compensate P. For the loss because the Pl. had
purchased the shares upon the prospectus which was not sent from D. to P ...
o the P cannot by action upon it so “connect himself with them [the D.] as to render
them liable to him for the misrepresentations contained in it, as if it had been
addressed personally to himself.”
o The prospectus was for the purposes of inviting the public to apply for allotments of
shares --> there was no ‘direct communication’ whichj would have made the
defendants liable for misrepresentations.
Reliance by the representee
representee must establish a causal and not-too-remote link between the misrepresentation
and the reprsentee’s entry into the contract.
o ie. proof of reliance
o reliance includes actuality and materiality of the reliance AND the nexus between
the representor and the representee.
Materiality
o The misrepresentation must be material unless it is fraudulent. Materiality means that
a reasonable person would have been influenced.
o Need not be the only reason that hte person enters into the contract.
if a represntor intends that the representee should act on the representation and the represntee
does so act, it should not matter that a reasonable person would not have so acted -->
appears to be the case for fraudulent misreps. see Nicholas v. Thompson [1924] VLR 554,
565, 575-77
FACTS: Pls entered into contracts to purchase D’s interest in a speculative business venture.
During negotiations, D said he had been offered a ‘large sum of money’ for his interest but
had turned it down. Ps sought to rescind the contract because D had lied about that statement
during negotiations and had induced them to enter into the contracts.
HELD: the D. argued that the statements were not representations of fact because they could
not be regarded in law as material since it was not such as would induce reasonable person,
as distinct form the particular representees, to enter the contract.
o Even though the ‘large sum’ was not specified, it is a different issue from whether or
not that statement was material.
o “if the statement is intended to induce certain behaviour, and it does induce that
behaviour, then that is sufficient.”
o “it is not necessary that the representation in question should be of such a nature that
it would be likely to induce an ordinary reasonable person to enter into a contract...”
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“it is sufficient if the D. knew that it would be likely to induce the particular Pl. to
enter into the contract...”
 Cf: in the case of claims in respet of negligent misrepresentations, there is a requirement of
materiality.
o Shaddock v Parramatta City Council (Gibbs CJ) HELD: person is under a duty of
care to take reasonable care over advice or information he gives when he knows or
ought to know that the other relies on him to take such care and may act in reliance
on the information which he is given where it would be reasonable for that other
person to so rely.
 Actual inducement
 If Pl. has knowledge of hte falsity of hte repersntations, and the knowledge is accepted as true
so that hte false belief is wholly dissipated, tehn there is no misrepresentation.
 *Redgrave v. Hurd (1881) 20 Ch D 1
o FACTS: a perspective buyer queried the vendor’s statemtn about the turnover about
the law firm that hte seller was selling. The seller says “I have further documents
here, you can look at them”. Had the buyer looked at the documents, the true situation
would have been revealed.
o HELD: the fact that the opportunity was made to find out the truth ./ the opportunity
was provided to the buyer and that the buyer failed to take that opportunity with the
known consequence, it still amounts to a misrepresentation.
ISSUE: when then would there not be an inducement = ie. The reprenseation was not an inducement
at all?
Ie. Where the representee is unaware fo hte rpresetnation.
 If he doesn’t know about hte represtntion, he cannot be induced by it.
 Holmes v. Jones (1907) 4 CLR 1692
 FACTS: Owners of a farm offered it for sale and made false statements about the numbers of
stock upon the farm. The Purchaser refused the offer and afterwards, was informed of the
inaccuracy of the statements. The purchaser later negotiates for a sale with the owners upon a
totally different basis.
o Purchaser inspected the property and stock
o After inspection, decided to purchase and entered into the contract of sale upon this
new basis.
 HELD: “in an action to recover damages for fraudulent misrepresentation inducing a contract,
the plaintiff must prove that:
o The misrepresentation was fraudulent
o That hte contract actually entered into was in fact
o Induced by the misrepresentation
o And that he suffered actual loss by entering into the contract.”
o The purchasers had conducted inspection and was informed of the inaccuracy of the
original statements and hence, could not say that he relied upon the
misrepresentations made by the vendors = damages not allowed.
 If the reason that hte represnetee enters into the contract is solely for other reasons.
 In these situations, the onus of proof to prove that there was inducement but this will not
defeat a claim.
 Gould v. Vaggelas (1984) 157 CLR 215 – SEE CASE SUMMARY
o HELD: representation need not be the sole inducmenet
i. it is sufficient that it plays some part in contributing to the fomraiton of hte
contract.
ii. there is an evidentialry onus on the represtnor to rebut the factual inference of
inducement but the ultimate burden of proving inducmenet rests upon the
representee.
 Edgington v Fitzmaurice
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FACTS: Pl. advanced money on debenetures relying on a false statement in the defendant
directors’ prospectus as to how the money would be spent.
o the Pl. at the same time had also mistakenly thought he would have a charge on the
company’s assets.
HELD: rejected the D’s argument that it was hte Pl’s mistaken notion, not the misstaemnt,
which really induced the advancement of hte money.
o (Cotton LJ) “if he acted on that misstaemnt, though he was influenced by an
erroneous supposition, the D. will still be liable.”
If the represnetee makes his or her own investigations and relies solely on the results of that
investigation rather than the representor’s false staemnt, the representee’s claim wil be
defeated (Holmes v Jones).
Redgrave v Hurd
FACTS: Redgrave was a solicitor and stated that his business brought in 300 pounds pa.
o he produced summaries showing a business of about 2—pounds per annum.
o Hurd was interested in buying and asked how the difference was made up and R.
referred to papers which he said relate to other businesses but in fact, the papers
would have shown that the income was not 300 oounds.
o If H. had examined them, he would have discovered the trtuth.
HELD: in favour of H, just because H had an opportuntity to investigate and ascertain
whether the representation was true did not affect his rights.
If the representation is made to a class of persons, all the members ofhte class are
representees.
o BUT: what if the person who relies on the representation is not hte immediate
recipient of the representation but receives it indirectly through an intermediary.
o problem has not been explored in the cases
a fraudulent represnetor will be liable in deceit if he or she intended the other party to act on
the representation in the way that hte other party did even though the party may not be the
immediate recipient of hte representation. (Commercial Banking v RH Brown)
Esanda Finance v. Peat Marwick Hugerfords
HELD: “mere foreseeability of the possibility that a statement made by A to B might be
communicated to a class of which C is a member... is not sufficient to impose on A a duty of
care owed to Cin the making of hte statement”
o Common problem is whether an auditor who reports onthe financial state of a
company owes a duty beyond hte company itself to others who rely on the auditor’s
report in delaing with the company.
o (Brennan J) “necessary for hte Pl. to allege and prove that the D:
i. knew or ought to have known that the infomraiton or advice would be
communicated to the pl. either individually or as a member of an identified
class
ii. that hte info would be so communicated for a purposed that would be very
likely to lead the Pl .to enter into a transaction of the kind that the Pl. does
enter
iii. very likely tha hte Pl. would enter into such a transaction in reliance on the
information
iv. Pl. would therefore risk the incurring of economic loss if hte statement should
be untrue / the advice unsound.
Go through the statements in the question and to deal with misrepresentation issues, look at:
1. Is the rperesnetation a term?
2. Is the rerpresnetation actionable or is it a mere puff? Opinion? Statement of
intent?
3. Is the statement a misrepresentation in fact?
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i. Look at the facts and apply the rules above.
5. TYPES OF ACTIONABLE MISREPRESENTATION – and their remedies.
 Fraudulent – Can claim damages and rescission.
o fraud forms the basis of hte tort of deceit
o deceit = false represenatation of fact made by a representor without belief in its truth
with the intention that hte representee should act in reliance on the represnetaiton,
and which causes damage as a result of that reliance.
 Meaning of fraudulent misrepresentation --> Derry v. Peak (1889) 14 App Cas 337
o FACTS: Party wanted to go into business for steam powered trams. Company
produced a prospective which said that hte company was entitled to run steam
powered tram.
 Company honestly believed this.
 Fact is that the company required a licence to run a steam powered tram even
though the compay honestly believed that they were entitled to run the tram.
 The licence was denied to them.
 Peoepl who bought shares claim that there was a tort of deceit because during
that time,negligent misstatement was not actioanable unless they were
fradulant—fraudulent misstatemnets only were actionable.
o HELD: the statements were not actionable.
o HELD: in order to revcover in the tort of deceit, the person to hwom the statemtn is
made, the representee, needcs to prove one fo hte following:
 That hte representor knew that hte statement was false OR
 Where the reprresentor made the statement without believeing its true
OR
 Not necessary that he knew that itt was false
 Where the statement was made by the rpresentor recklessly/carelessly
without knowing whterh or not it was true or false.
 Recklessly careless is more difficult to prove than mere unreasonable
action --> ie. Higher burden.
 To prevent a false statement being fraudulent, there must always be an
honest belief in its truth.
 Fact that the person was a ‘good persno’ and had no intent to induce
is irrelevant.
 To determine whether or not there was a misrepresentation and where the representation is
ambiguous (ie. you do not know how it was understood by the Pl.) --> the appropriate
question ie whether the conduct ofhte represnetor was such as might reaosnbly be relied
upon by the representee.
o you look at “the sense in which a representation would be understood by a reasonable
person in the position of the representee” (Krakowski v. Eurolynx Properties Ltd )
(SEE ABOVE)
 BUT:the test is different for if hte representation was made fraudulently because for
determining whether hte representation was made fraudulently, “the sense in which the
representor intended the representation by understood is relevant”.(Krakowski).
 A disclaimer of responsibility by a represntor, even though communicated to the representee,
will not be effective in respect of a fraudulent misrepresentation.
 Only until Hedley that teh courts allowed negligent misstatements that were not fraudulenbt
to be actionable.
 Negligent – rescission and damages allowed.
 The Pl. has to establish that the D. owed him or her a duty of care – breach of the duty caused
damage.
 duty = the duty to take reasonable care taht information provided is accurate and that
advice given is sound.
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Negligent misrepresentation may be found in statents of fact AS WELL AS statements of
opinion and advice or information about the future.
o Hedley Byrne v. Heller [1964] AC 465
o HELD: negligent misstatement were actionable in tort. Not wholely clear what the
requirements are beforea DOC is owed. However, where the parties are in a
contracutaly relationship, it is more likely that there is a duty of care owed not to
make negligent misstatements.
o Mutual Life & Citizens’ Assurance Co Ltd v Evatt
o HELD: (Barwick CJ) enunciated the elements of hte special relationship between the
makre of the satemnet and the recipeient of it before a duy will be owed
 ie. “where the speaker realsises or ought to ralise that hte recipient intends to
or is likely to ac onthe statement in respect of a matter of consequence and it
is reasonable for the recipient to so act...relevant cirucmsntaces would
include the nature ofteh subject matter, the poccasion of hte
interachange, and the identity and relative positions of hte parties as
regards knowledge and capacity.”
 “maker of hte statement must know of or foresee the type of purpose for
which the recipient intends ot use the information or advice”.
o *Shaddock v. Parramatta City Council (1981) 150 CLR 225
o HELD: (Gibbs CJ) duty should extend to “persons who, on a serious occasion, give
considerd advice or information concerning a business or professional transaction.”
 NB: special skill is no longer a separate requirement BUT it remains a
factor whether or not the receipient’s reliance on the infomraiton was
reasonable.
o Esanda Finance v. Peat Marwick Hugerfords (1997) 188 CLR 241
 There is a discussion on htis case on when there is a duty of care in these
circumstances and discussions on proximity and reliance.
THEREFORE: consider also if the representation was a negligent misstatement --> if you
cannot argue that there was a statement of fact that was misrepresented.
Maker of a statement may effectively disclaim responsibility for the statement at the time of
making it and avoid a DOC BUT a disclaimer is likely ot be read restrictively in much the
way as an exemption clause would be. (Hedley Byrne v Heller).
Damages are only available for fraudulent or negligent misstatement. NOT innocent
misstatements.
o available at common law only if a tort is established:
 ie. deceit and negligence.
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Wholly innocent – damages NOT AVAILABLE
o BUT: rescission is still allowed for all three.
Damages
o requires proof of other elements including : reliance and actual damage.
o If the represnetor sues the representee and seeks specific performance, then the
representee may rely on the misrepresentation as a defence.
6. RESCISSION FOR MISREPRESENTATION
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Rescission
o the principlal remedy for misrepresnetaiton
o means the contract is set aside ab initio (from the beginning)
o parties are restored to the status quo = the position they were in before htecontract
was entered into
o there are limits to thois form of relief
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ie. where substantial restoration nof the parties to their pre-contracctual
positions may be impossible OR
 ie. a third party may have acquired property rights in the subject matter fothe
contract
o BUT: rescission is not termination for breach of contract
 termination fo a contract for breach absolves the parties from future
obligations
 BUT: when the contract is rescinded “there can be no claim for damges for
breach of contract because there is no contract..if a claim is made by the
vidctim for damages for breach of contract, ther can be no rescission.
o Rescission is not confined to misrepresentation. It is also available in cases of duress,
undue influence, unconscionable dealing, and mistake.
o It is available to ALL types of misrepresentations – even innocent misrepresentations.
ELEMENTS:
1. Elect to rescind
 Who rescinds? (Alati v Kruger) “rescission for misrepresentation is always
the act of hte party himself...The function of a court is to adjudicate upon the
validity of a purported disaffirmance as an act avoiding the transaction ab
initio...and to make appropriate consequential orders.”
 ALthoguh rescission is the act of the party, the effectiveness of the rescission
depends onthe abilty of either hte party or the court to make the neceeessary
restoration.
 ie, the party has to elect but how effective it is may rely on the
party’s abilities or of hte court’s orders.
 if restoration can only be achieved with hte aid of hte court, then the
possibility of restoration has to be detrmined at the time o hte court’s order,
and not at the time of hte party’s notice of rescission.
2. Reasonable time
3. communication
o
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o
o
o
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Election must take place within a reasonable time and be communicated to the
representor,
see Ivanof v. Phillip Levy [1971] VR 167;
If a guilty party deliberately puts it out of hte power of hte victim to communicate an
intention ot rescind,the victim may evince an intention nto rescind by some overt
means falling short of communication. see Car Financing Ltd v. Caldwell [1965] 1
QB 525
FACTS: Caldwell was phoned by a rogue who bought the car on a cheque which was
dishonoured. Caldwel told the police and the Automobile Association straight away
but the car had been sold on again and again to Car and Universal Finance. Financing
had bought the car in good faith without any notice. ISSUE: can Caldwell validly
rescind the contract before the car was acquired by a bona fide purchaser?
HELD: by asking the police to recover the car, the title to the car was vested in C.
Since he had rescinded the contract4 of sale at that point.
*Alati v. Kruger (1955) 94 CLR 216
Bars to rescission = certain situations where the law will not allow the representee to rescind
EVEN IF there has been a misrepresentation.
Affirmation – once the represnetee has affirmed the contract, they cannot argue that they
want to rescind the contract. Ie. Instead of electing ot rescined the contract, the representee
elects to affirm, then the contract cannot be rescinded.
a party seeking to establish a case of affirmation must prove that the other party (representee)
either elected not to avoid the contract or became estopped from asserting his or her right to
aovid the contract.
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Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd
FACTS: helicopter owner signed a contract under duress of goods. He then fobbed off the
other party in respect of moneys owing under the contract. During the fobbing off of the pther
party, the helicopter owner had not exercised his right to elect to rescind but at the same time,
he was not estopped from rescinding nor had he affirmed the contract.
o a person who has the right to election is not bound to elect immediately but may
keep the question open so long as the delay does not cause prejudice to the other
party
HELD: (Priestley JA) where election does not apply because the party with the right of
election is ignorant of that right, an estoppel may operate
o ie. the party with the right of election may act in such a way as to represent to the
other party that the contract was being affirmed and the other party may act in
detrimental reliance.
What happens when you affirm by accident?
No, you cannot affirm by accident because in order to affirm, you must know that you have
the right to rescind.
o Not only that hte facts know that you have the right to rescind
o In law, you must also know tthat you have the right to rescind
o You cannot affirm a contract in ignorance
 A conscious choice must be made with knowledge of hte facts that you have
affirmed the contract rather than rescind it.
BUT: how much knowledge of the right to rescind is in contest:
o Re Hoffman per Pincus J said that knowledge of the facts giving rise to the right to
elect is all that needs to be proved.
o
Lapse of time – case law is not clear if
o Robertson v Duke at p763: may be a factor (time) whether hte court will allow you to
rescind after a certain time has passed --> at least when the misrepresentation is
innocent, a lapse of time may remove your right to elect to rescind.
Restitution impossible
Rescission is about putting the parties in the position they were in before htey had entered
into hte contract.
Both parties must have to be able to be put back into that position in order for rescission to be
possible
o Ie. The parties have to be able to be put in the position that the parties were in before
they entered into hte contract.
o Under strict common law, rescission is only allwod in cases of fraud and certain
instances of duress where precise restoration is possible cf. equity: recognises
rescission not only for fraud dand duress but also for innovent misrep, mistake, undue
influence, breach of fiduciary duty and unconscionable dealing.
in equity, the courts have more discretion. The contract can still be rescinded even f
restitutionwas not strictly possible – provided substantial restoration is possible. See *Alati v.
Kruger (1955) 94 CLR 216
HELD: in suing for fraudulent misrepresentation, the purchaser had a choice of three courses
open to him:
o first, he could sue for damages for breach of contract (the warranty that the average
takings of hte business were 100 pounds per week) --> he cannot do this and rescind
the contract as well.
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second, sue to recover as damages for deceit the difference between the price he had
paid and the fair value of hte property at the time of the contract --> again, if he does
this, it would mean affirming hte contract and not being able to rescind it.
o Third option (the option the Pl. took) was to rescind the contract so long as he could
restore to the seller substantially what he had received.
o Issue for the court was then whether the rescission was valid – ie whether restitio in
integrum was possible.
HELD: restitio in integrum was possible
o equity demands only substantial, not precise restoration.
o although the purchaser had taken possession of hte premises, in equity ,a money
payment could copmeasnte for any difference between nthe rental value of the
premises and the rent paid by hte purchaser
o title to the lease would revest in equity when the purchaser elected to rescind
o although the purchaser had rtaken over stock and could not return it to the seller, he
could pay its value
o business itself had deteriorated but this was not de to any fault on the purchaser’s part
o even at commo nalw, it was not necessary to return the property in its original
condition if changes occurred as a result fo the inherent nature ohte peroperty
or by reason of hte purchaser’s exercise of contractual rights.
o Pl. did not lose his right to rescind by discontinuing the business and leaving the
premises before judgment was given.
o Furrther, the seller could have applied to the court for hte appolintment of a manager
to preserve the property and he did not offer to take ht property back – Pl. was not
under a duty to go on indefinitely and incurring loss.
o if the property that is the subject matter of a contract has been wholly or
substantitally destroyed by the party seeking rescission, there can be no
rescission.
Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 130 ALR 570
FACTS: V. Executed a guarantee to pay ‘all monies which now or may at any time until we
are released be owing’ by his company to Pioneer Concrete – supplier of V’s concrete. P
continued to supply concrete to V and V continued to be in debt. V went bankrupt and was
sued for the total indebtedness of V. He claimed that the guarantee was unenforceable
because P had misrepresented that the guarantee would relate only to debts incurred after the
date of the guarantee. V therefore succeeded in the misrepresentation but was seeking to be
exonerated from all liability even though further debts had been incurred after the date of the
guarantee.
HELD: courts will look at what was ‘practically just’ for both parties and V, as the guarantor,
is bound by the maxim ‘he who seeks equity must do equity’. THEREFORE, even though V
had been granted rescission and restitution should follow, flexibility is allowed and complete
restitution was not required by equity.
o had complete restitution be allowed, it would have ivolved not only a cancellation of
V’s obligations under the guarantee but also either a return of the concrete
subsequently supplied to his company or the actual payment of an amount equivalent
to the vavlue of that concrete.
o Instead, V was ordered to hold his guarantee as to future indebtedness since it was
what he was prepared to undertake independently of any misrepresentation – ie. he
was exonerated of the debts incurred prior to the contract.
o Reasons for partial rescission – limiting the obligation to pay only to future debts
and setting aside of the obligation to guarantee existing debts:
 could not be maintained that V would not have entered into the guarantee had
P said that hthe guarantee was only to cover future debts – evidence showed
that he would have entered into the contract so that he had future supply of
concrete.
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If V wre given complete relief from obligations under the guarantee, he
would enjoy the benefits of the transaction without accepting its burdens.
 the notion of unconcsionability provides a justification for setting aside the
transaction and also for not setting aside it entirely “so as to prevent one
paraty obtaininig an unwarranted benefit at the expense of the other”.
Principles flowing from vadasz:
o Where a case has been made out for a contract to be set aside in equity, the court must
consider what would have happened in the absence of the vitiating factor.
o court should set the contract aside in its entirety only if had it not been for the
vitiating factor, the victim would not have entered into the contract at all.
o if the victim would have accepted some obgliation in the absence of the vitiating
factor, then partial rescission should be granted and that obligation upheld.
BUT: the scope of the equity for rescission may be determined by the nature and extent of
the conduct giving rise to the equity for rescission…ie for breaches of fiduciary duties, partial
rescission is not an appropriate form of relief – equity would have the whole contract
rescinded. (Maguire v Makaronis)
Issues flowing from Vadasz:
o Equity’s jurisdiction is concurrent with common law ie. it would follow the law in
affirming or denying the valididty of the act of rescission but waqs more
accomodatging in recognising the possibility of restitution in integrum (ie. allows
partial compensation / monetary compensation) but equity also has an ‘exclusive’
jurisdiction:
 ie. in cases of innocent misreps, rescission is effected not by the representee
but by the decree of the court.
 BUT: Vadasz ruling rejects this dichotomy and reflects a more flexible
approach to equitable relief in cases of fraudulent misreps – equity may by its
own decree and its own discretion, effect rescission, assessing the rights of
litigants according to standards of practical justice and good conscience.
o The fact that the courts question what the victims would have done absent the
vitiating factor is a question of causation nthat is inconsistent with the well
established approapch to causation at the earlier stage of establishing whether or not
the Pl. had relied on the misrepresentation when entering the contract
 by asking questions of this kind at a remedial level, the innocent party’s
entitlement is thrown into doubt.
o court’s emphasis on the fact that V had received a benefit from the transaction with P
thorugh the continued supply of concrete shows a problem because it means that the
amount of partial rescission is based on some tangible benefit – such an approach
works well in this case (since it is easy to see what V would have done had the
misrepresentation not occurred) but would give the wrongdoer in other cases the right
to speculate and potentially reduce the remedy that the victim is entitled to.
Third party rights
eg. Vendor makes a misreprestntion for buyer to buy the car. Buyer buys and then sells the
car to a third party. If the contract was rescinded, the car wouldgo back to the first vendor and
the buyer would get their money but this would be hard on the third party who has bought the
car afterwards and this third party can sue the buyer. Courts said tqht hte consideration given
by the third party buyer, without notice that the buyer can rescind the contract, then the
contract canot be rescinded = the thired party buyer is protected.
ie. rescission has traditionally been barred where a bona fide third party has acquired
rights n the subject matter of a voidable contract.
Hartigan v International Society for Krishna Consciousness Inc
FACTS: Pl. donated ar ural property to the D. in circumsntaces of undue influence. Property
was sold by the D. before the Pl. sought rescission and proceeds used to reduce the D’s bank
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debts. D. argued tha the Pl. should be denied rescission on the gorund that the property was
already sold and restitution in integrum was no longer possible
HELD: (Bryson J) the remedies available for undue influence are not limtited to remedies
against specific assets…the appropriate remedy was to order the D. to pay to the Pl. an
amount equal to the proceeds of sale of the farm.
Execution of contract
o Started out as a bar only for sale of land property: a contract for the sale of land that
is induced by a misrepresnetaiotn and has been completed by a conveyance of the
land cannot be rescinded unless the misrepresentation is fraudulent.
 ie. innocent misrepresentation will not suffice as a basis ofr rescinding such
an executed contract.
Wilde v Gibson
HELD: as a result of misrepresentation, if hte buyer of a property has completed the contract
(ie. Whre everything required to be done under the contract is done and the buyer has the land
and the seller has the property) the contract cannot be set aside.
o This bar does not apply where the misrepresentation is fraudulent BUT may be
significant for cases of sale of land.
Rationale of the rule is that the purchaser has the fullest opportunity to investigate title and
conduct surveys of the land so that the vendor’s representations can be tested.
Position of this bar in Australia is not clear because the rule (ie. that executed contract for sale
of land can be rescinded where the misrepresentation was fraudulent) has been applied to
contracts other than contracts of land where the meaning of ‘executed’ is not clear.
There are some Australian cases that suggest that this rule does not apply to Aus. (ie. in cases
such as Leason, even though the misrep was not fraudulent, rescission was allowed and not
restricted to fraudulent misreps only)
Svanosio v. McNamara (1956) 96 CLR 186 – bar to rescission applied after execution of the
contract for sale of land – innocent misrep will not enable the court to grant rescission for
executed contract where there has been no total failure of consideration.
o Other statements of the general rule extend the scope of the exception beyond cases
of fraud… correctly stated by saying that there must be a total failure of consideration
or what amounts practically to a total failure of consideration.
cf. Leason Pty v. Princes Farm Pty. [1983] 2 NSWLR 381
o HELD: the contract for a sale of horse was excuted but it could still be rescinded.
Most States in Australia (but not clear in Queensland) if this bar still applies.
When it is said that a contract for the sale of land can be set aside for fraud, ‘fraud’ may be
given its wide equitable meaning including ‘unconscionable dealing’ --> ie. even if the
contract has been executed, the rule may not apply to prevent rescission because there were
‘unconscionable dealings’.
7. DAMAGES FOR MISREPRESENTATION
a. Only misrepresentation of deceit and negligence are allowed damages
b. Damages are designed to put people in the positions that they would have been in if
the contract had not been formed / had the tort not occurred.
a. Damages for fraudulent misrepresentation – the tort of deceit.
a. Damages for deceit are quite broad
b. Courts do not like deceit in any guise
 Toteff v. Antonas (1952) 87 CLR 647
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HELD: Damages in the tort of deceit can be awarded for all of those losses that flow directly
from the deceit. It is not that the damages need to be reasonably foreseeable – the test is
broader: its losses that flow directly from the deceit.
o Consequential damages are recoverable for the tort of deceit.
*Gould v. Vaggelas (1984) 157 CLR 215
Professional Services of Australia Pty Ltd v. Computer Accounting & Tax Pty Ltd (2009) 261
ALR 179
HELD: the baassis of the damages was that because we’d entered into a contract, as a result
of the deceit, we miss out on alternative investment opportunities. Ie. An opportunity was
lost. Damages can be awarded on the basis that an opportuiniy was lost = the money that they
would have made by investing elsewhere which they failed to make because of the deceitful
contract, could be recovered.
Archer v. Brown [1984] 2 All ER 267
FACTS: Pl. Entered into contract with defendeaant as a result of the deceit. This deceitful
contract caused serious fiunancial damage to the defendant and as a result, they were forced
to take a bank loan with interest charged.
HELD: shows how wide damages are in this context. The interest accruing on the bank loan
could be recdovered.
So long as the loss flowed directly from the deceit can be recovered from the deceit.
b. Damages for negligent misstatement
a. Designed to put hte pl. In the position he would have been in had the tort not
occurred.
 South Australia Asset Management v. York Montague Ltd [1997] AC 191
 *Kenny & Good Pty Ltd v. MGICA (1992) Ltd (1999) 199 CLR 413
 FACTS: real estate valuer contracted with a bank to value a residential property in order for
hte bank to determine whether it should provide mortgage finance to hte owner.
o the bank instructed that the valuation could be relied on and so the insurers did rely
onthe valuation.
o the report stated that he property was “suitable security for investment ...”
o the loan was secured and hte mortgage insurer provided insrance to the bank (in case
the owners could not pay)
o the true value of the property was less than the valuation and when the owner
defaulted, the property was sold substantially lower than that of hte valuation as a
result of the fall in the property market = the bank lost nearly $2million which was
paid by the insurers.
o the insurers sued the valuer and the trial judge held that he valuation was negligent
and hence, the bank valueer was liable for the whole of hte $2million loss. The
valuer appeals and was unsuccessful:
 HELD: the amount that the bank could recover was the full amount paid under the insurance
policy. Ie. Not simply the real difference between nthe real value and the negligent vvalue but
it was all the money that the insurers had paid out.
o WHY? Because if not for the negligent misstatement, the insurer would not have lent
the money.
o (Gaudron J) the valuer was under a duty of care because of a foreseeable risk that in
the event of default, the mortgagee might not be able to pay the interest, as well as the
foreseeable possibility of a decline in market value...
o (McHugh J) the mortgage insurer’s loss flowed directly from the negligent
representation in the valuer’s report.
o (Gummow J) mortgage insurer would not have entered into the transaction but for hte
negligent valuation.
o (Kirby and Callinan J) loss sustained by the mortgage insurer was caused by the
valuer’s negligence. Loss was readily foreseeable.
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In both the tort of deceit and the tort of negligence, damages are valuated on what hte
positions of the party would have been had the tort not occurred.
o In making that valuation, a variety of factors come into account.
If you are faced with a problem question and you want to recover damages, they way that the
damages are assessed are quite generous – particularly for deceit.
c. Damages for a negligent misstatement that is also a term of the contract
 Damages under this head can only be claimed if the contract is not rescinded.
 Alati v. Kruger (1955) 94 CLR 216 – CASE SUMMARY.
8. EXCLUSION OF LIABILITY
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It is possible to exclude liability for non-fraudulent misrepresentation and other types of
representations other than deceitful ones
You can never exclude liability for fraud
o You can exclude liability for innocent misrepresentation and negligent
misrepresentation BUT never fraudulent.
Check in the problem question whether or not the basis of hte claim was on deceit--> if it is,
any exclusion clause cannot apply.
Commercial Banking Co of Sydney v. RH Brown (1972) 126 CLR 337
READING
Paterson, Robinson and Duke, Principles of Contract Law, Chs 32, 39.
Carter, Peden and Tolhurst, Contract Law in Australia, Ch 18.
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LECTURE 2: MISLEADING AND DECEPTIVE CONDUCT
The law in this area is contained in statute in this area in the form of the Australian Consumer Law
(ACL) (Sch 2 Competition and Consumer Act 2010) which replaced the earlier Trade Practices Act
1974 and the various State and Territories legislation such as the Fair Trading Act 1989 (Qld) . The
new legislation is applied by both State/Territory and Commonwealth courts.
 ACL runs in parallel with common law liability
 Consider common law liability first then thee ACL.
 Much of hte language of hte ACL was the language of hte TPA
 ACL applies to all states and territories
 NB: the general law of misrepresentation remains important for at least 3 reasons:
o legislation only applies where the person who engaged in misleading conduct did so
‘in trade or commerce’ – s18 of ACL
o concepts formed in general law are often adopted by judges in interpretation of
legislative provisions
o general law misrepresentations is routinely relied upon by litigants – relief may be
granted under the general law even where the ACL applies.
 The key provision is ACL 2010 s18 (1):
A person must not, in trade or commerce, engage in conduct that is misleading
or deceptive or is likely to mislead or deceive.
o What does ‘in trade or commerce’ mean?
o What does ‘misleading or deceptive’ mean?
o What damages can one recover for breaches of hte legislation? How are damages
assessed?
 Damages at common law for contract breaches is assessed on tort principles
 Ie. Putting hte person back to the position he had been had the tort
not occurred.
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This replaces the old TPA s 52 (1):
A corporation shall not, in trade or commerce, engage in conduct that is misleading
or deceptive or is likely to mislead or deceive.
S 18 lays down a standard of conduct which if breached gives rise to remedies as set down in
ss 236, 237, 243 ACL 2010
NB although the legislation defines consumers in S 3 ACL 2010 this part of the legislation
applies whether the victim is a consumer or not.
1. THE IN TRADE OR COMMERCE LIMITATION
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Despite hte name of hte legislation, it is not necessary for hte pl. To be a consumer.
Ie. The leiglsaiton applies between businesses as well as between a business and a consumer
BUT: the D nevertheless has to be acting in trade or commerce.
Various attempts have been made to bring cases that, at first sight do not really look like it
would fall within thte legilsaiton, because of hte remedies available under it.
S 2 ACL 2010
Trade or commerce means:
(a) trade or commerce within Australia; or
(b) trade or commerce between Australia and places outside Australia;
and includes any business or professional activity (whether or not carried on for a profit).
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Concrete Constructions (NSW) Pty Ltd v. Nelson (1990) 169 CLR 594
FACTS: Pl. Was a worker on a building site. Pl. Was injured when he fell down an air
conditioning shaft. Pl. Removed the grate at teh entry to the shaft and fell down it. Pl. Had fallen
down because the foreman had told himthat it was safe to remove the bulks on the gate when it
was not het case in fact and he fell down the shaft.
o Doesn’t really look liek a contracts case – merely an accident at work?
o But the Pl. Tries to argue that it was under the TPA because by this method, he would
have gotten more compensation than un der the workplace safety act.
ISSUE: was the Pl. Covered under the legislation in that wr er the D. The company putting up the
building – were they acting in trade or commerce for hte purposes of hte legistlation?
o the misleading or deceptive conduct was that the foerrman had said that it was safe to
remove the bulks from the gate.
ISSUE: were these statements made during hte progress of trade or commerce?
HELD: no. A misleading statement by one of hte company’s own employee to another employee
in the course of their ordinary activities is not conduct in trade or commerce
o The HC was worried about people bringing all sorts of claims within the TPA
o HC: “deception isnt’ intended to overlay commonwealth law in every field of legislation.
Something done by one employee to another employee during hte course of building
work was no within ‘trade or commerce’”. “such a meaning wass unnatural”.
o “not simply that the building was engaging in commercial activity by buildinga building –
that was not enough”.
 Not entirely clear what instances falls within the legsaitonsince there’s no clear
list but the HC was concenred about widening the ‘trade or commerce’ activity
definition too broadly.
o distinction was drawn by the judges between conduct that is of the essence of a
corporation’s trade or commerce and conduct that is merely incidental to it.
 in this case, the conduct was internal comunciation by one employee to another in
the course of their ordinaray activities in hte construction fo hte building = the
conduct was not an aspect of activities which of their nature bore a trading or
commercial character.
 it was undertaken merely in the course of or incidental to the carrying on of a
trading or commercial business.
o the word ‘in’ in the phrase ‘in trade or commerce’ means that he conduct must be directed
towards persons with whom the corporation had dealings of a trqading or commercial
character
 eg. consumers.
o (Toohey J) “the question is not whether the conduct engaged in was in connection with
trade or commerce or in realtion to trade or commerce. It must have been in trade or
commerce.”
O’Brien v. Smolonogov (1983) 53 ALR 107 – ‘in trade or commerce’ excludes conduct of those
who act not in a business capacity but in a purely private capacity concerning domestic
transactions.
FACTS: D. Advertsised for sale of land in a newspaper.one of the Pl. Spoke to the D. By
telephone. Pl. Alleges that the D. Made certain statements about hte land which were false and
misleading.the question was whether the statements were made in ‘trade or commerce’?
HELD: No, the statemsnt were not made in ‘trade or commerce’. WHY? Because the land was
not used for any business activity – it was domestic land and was not used for farming or grazing.
o Pl. Tried to argue that the fact that the land was advertised in a newspaper and that
negotiations were conducted in telephone was a commercial way of dealing – Pl. Tries to
argue that hte way the sale was conducted owul,d have put it as a ‘trade or commerce’
activity.
o HC said NO: it was not in trade or commerce.
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In determining whether the activity is in ‘trade or commerce’ , it is not necessarily that
hte activities were carried out in ways that commercial parties would have done it – does
not change it intgo an activity that would be classified as uinder ‘trade or commerce’.
 BUT: if the vendor engages a real estate agent, the agent’s conduct may well
cocur ‘in trade or commerce’ – Havyn Pty Ltd v Webster.
 HELD: sale of a block of six units that had been let out by the respondent
occurred in trade or commerce because the property was used for a business
activity.
Courts have since extended the definition of ‘trade and commerce’:
Houghton v. Arms (2006) 225 CLR 553
FACTS: Two employees of a website design company who had mislead the Pl. By telling Pl. That
he could set up an online purchasing system for his wine business but this was not possible – the
system that they were proposing just could not work. As a result, the Pl. Had to restructure his
business and lost money.
o Instead of suing the employer of hte website designers, teh owner decided to sue the
employees.
o Employees argued that htey were just employees and they did not own the business since
they were just workers – it was the company that was acting in ‘trade or commerce’ and
not them.
HELD: the workers’ arguments were rejected and teh employees were liable for deceitful conduct
in ‘trade or commerce’.
o Merely an employee could themselves be liable under the ACL legislation.
o “it is not to the point that [the employees] were not business proprietors...nevertheless
engaged in conduct in the course of trade or commerce”.
o
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Cases where broad view of ‘trade and practices’ was taken = ie. no need to show that hte
conduct is part of hte corporation’s ordinary business activities.
Bevanere Pty Ltd v. Lubidineuse (1985) 59 ALR 334
FACTS: the D, sold a beauty clinic to hte Pl. It was the one capital asset of hte D. The D. Wanted
to retire. As part of hte sale, the D. Had represented that a key employee would stay with the
beauty clinic. The D. Knew that hte employee was going off to set up his own business.
ISSUE: was the sale of the beauty business in ‘traade or commerce’?
ARGUMENTS: D ssaid that because he had been selling tohe clinic – it was not in ‘trade or
practices’.
HELD: even if thesale was their only remaining capital asset, it is within trade or commerce. You
have to look at their activities as a whole.
o The fact that it was their only business asset did not deprive it of the character of hte sale
as in ‘trade or commerce’.
o even thought hte slae of a cosmetic clinic by a company that waws not in the business of
selling such capital assets was a transaction ‘in trade or commerce’.
TCN Channel Nine Pty Ltd v. Ilvariy Pty Ltd [2008] NSWCA 9
FACTS: Channel Nine wanted to , kin order to gain access in builder’s premises, pretended that
htey were interested in the builder in the building work. What channel nine wanted was access to
the building director. Once they got their foot in the building, they wanted to expose the managing
director’s practices. The director sued channel nine for makinga misleading statement that they
wanted building work done and were, in that process, acting in trade or practices so that he could
get damges.
ISSUE: was teh activity of channel nine in pretending that they wanted building work done
activity in ‘trade or commerce’ of channel nine.
ARGUEMNTS: Channel nine argues that they wer not in the building business - their trade or
commerce is to make television programs and therefore was not a ‘trade or commerce’ activity.
HELD :Channel Nione was acting in trade or commerce because while the conduct occurred in
relation to hte trade of commerce of hte builders ie. The conduct was trying to get some building
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work done and even if that was not the main purpose of hte person making the representation, this
statemtn to the builders was part of ‘trade or commercial’ practice.
o The party to whom the statement is made is also relevant in considering whether the
person acting in deceit was acting in ‘trade or commerce’.
o Regardless of whether hte person making hte statement was in ‘trade or commerce’.
 ie. in this case, the statements were made in the ‘trade or commerce’ of hte
representee.
Is professional advice within ‘trade or commerce’ or not?
Bond Corporation Pty v. Thiess Contractors Pty Ltd (1987) 14 FCR 215
Prior to the case: professional advice was not acitivty in ‘trade or comeerce’ – ‘trade and
omcmerce’ was different from professional advice. BUT:
HELD: YES.professional advice was in trade or commerce. Now, s2 of hte ACL (b) says that
“includes any business or professional activity” which shows that whislt therer was no clear
guidelines / criteria as what would constitute ‘trade or commerce’. There is a fair bit of discretion
under the courts.
o Mere “I sell my house to you” is not ‘trade or practices’ (O’Brien)
o the definition of the phrase ‘in trade or commerce’ is wider than the definition previously
contained in s4(1) of the TPA because the words in s2 – “inclues any business or
professional activity were not included in s4(1).
Shahid v Australasian College of Dermatologists – HELD: (Jessup J) expression ‘any
professional activity’ does not = everything done by a professional.
o purely instrumental or administrative functions...will continue to fall outside the
defintiioin of ‘trade or commerce’ BUT once oconduct is classified as ‘professional
activity’ , it is not necessary to show tha the professional activity bears a trading or
commercial character.
FIRSTLY: work out if the person engaging in the deceptive conduct was engaging in activity of
‘trade or commmerce’ nature.
2. MISLEADING OR DECEPTIVE CONDUCT
a. The audience: identify the likely audience tto whom the conduct is directed -> in order to
asses whether conduct is misleading or deceptive, it is necessary to identify the likely effect
nthe audience to whom hte ocnducct is directed.
a. WHY? because: there are two points of view in assessing the standard of how the
conduct was perceived by the representee: (Butcher v Lachlan Elder Realty)
“members of a class to which the conduct in question is directed in a general sense
OR identified individuals to whom a particular misrepresnetaiton has been made or
from whom a relevant fact, circumstance or proposal has been withheld.
 Courts will firstly, identify the audience
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If the audience is the public or part of the public, then the conduct is what a reasonable
person fo hte public would believe.
o Campomar Sociedad Limitada v. Nike International Limited (2000) 202 CLR 4
o FACTS: the D. Began selling a sport fragrance labelled ‘Nike Sports Fragrance’.
Nike were very annoyed (there were other issues about copyright) and argued that he
conduct of C. Was misleading or deceptive. They were misleading and deceiving the
public into thinking that Nike had produced this ‘sports fragrance’.
o HELD: Was anyone mislead by it? Because in order ot be liable ,there has to be
somebody who was mislead or deceived.
 HC said that the conduct was directed at teh public – what would an
ordinary reasonable member fo hte public think?
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An ordinary reasonable member of the public would believe that Nike had
either made that product themselves or had consented to it being marketed
under its name
 “where the persons are not identified individuals to whom a particular
misrepresentation has been made...but are members of a class to which hte
conduct in question was directed in a general sense, it is necessary to isolate
by some criterion a representative member of htat classs
 this involves an objective attribution of certain characteristics
 ordinary or reasonable member is expected to take reasonable care of
his or her own interests
 extreme or fanciful reactiosn to hte conduct will not be attributed to
the ordinary or reasonable member.
o Hansen Beverage Company v Bickfords (Australia) Pty Ltd
o FACTS: Hansen released an energy drink called ‘MONSTER ENERGY’ in the US.
 marketed product by sponsoring atheletes in the field of eextreme sports
 Bickfords decided to launch a similar sports drink in Australia
 B asked H to discuss licecnsing arrangements BUT no such agremenet was
mae.
 B then started to sell an energy drink also called MONSTER ENERGY in
packaging very similar to that of hte Hansen drink.
 H claims that B had engaged in misleading or deceptive conduct by
realeasing an energy drink with teh same name and similar ‘get-up’.
o LITIGATION: trial judge said that the relevant class of audience were males aged
between 18 and 30 years of age (those targetd by Bickford’s advertising – then asked
whether a reasonable member of this class would be mislead.
o HELD: the relevant class for mass-marketed products is the public at large (and not
the segment of hte population to whom the goods are marketed which Campomar
seems to be saying since the court said to look at the audience as ‘members of a class
to which hte conduct in question was directed at...”
 ie. trial judge asked the wrong question.
If not, then look at hte specific individual ie. you look at the particular individual that hte
conduct was directed at and decide if htat conduct was misleading or deceptive in
reference to that particular person.
Butcher v. Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592
FACTS: D. Real estate agent had included a guard ramp on the brochure of hte property
which gave a false notion of the area of hte boundaries of hte property. A disclaimer in hte
brochure said that they give no guarantees to hte accuracy of hte brochure and anyone who
wants infomraiton should contac them through enquiries.
o disclaimer said :”All information herein is gathered from sources we believe to be
reliable. However, we cannot guarantee its accuracy and interested parties should
rely on their own enquiries.”
o D. Was only putting information that he was told by the owner to include in the
brochure. ISSUE: whether Pl. Purchaser of hte property were mislead or deceived.
HELD: (majorty) “in order to determine whether the conduct was misleading, it was
necessary to consider:
 the nature of the parties
 the character of the transaction and
 what each party knew about the other as a result of hte dealings...”
o the D. Were merely a small firm of real estate agents and the purchasers were
wealthy and intelligent. The property was a waterfront property. The purchasers were
legally advised and actually employed solicitors. The matters were complex and
should be dealt with by specialists.
o The D. Did not talk themselves up as legally qualified or able to verify the
boundaries.
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o
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The D. Had included a disclaimer
All hte D. Had done was pass on information supp;lid by the owners.
When one consiuders who the Pl.s were, the HC said that they were not mislead or
deceived.
o (McHugh J in dissent but took a different approach)
 asked whther the conduct was likely to mislead “persons in the lcass
identified as reaonssble potential purchasers of waterfront properties in the
price range of over $1 million”.
 NB: McHugh stil implied many of Butche’rs subjective characterstics to
members of hte lcass he identified.
 he concluded that such members would have benefit of professional advice
and be aware that it waws not part of a selling agent’s function to obtain or
verify a survey plan –> not that different from the position of the other judges
in majority.
 BUT: McHugh J dissented because he said htqat herlevant conduct that was
misleading was not merely the inaccurate diagram in the brochure BUT the
conduct of the D. during inspection:
 B had a conversation with his architect about the possibility of
moving hte pool to create al larger entertainment area
 E overheard this conversation and B made it clear that he was relying
on the accuracy of hte survey diagram
 E said he was sceptical about hte renovations BUT still continued the
conversation premised on the pool being within the freehold land.
 McHugh J says that in order for the disclaimer to be effective, it had
to modify the effect of all the conduct engaged by E including the
conduct at the inspection and the disclaimer did not operate as such.
o (Kirby in Dissent) the fact that the Pl. Were wealthy and intelligence – they had no
knowledge of land law – why should this be a factor -> he seemed to accept that B
was intelligent and self-reliant BUT these characteristics would not have made B alert
to the nuances of land law.
 Because hte majority placed some weitght on the disclaimer on the brochure,
that anybody wanting to escape liability would start putting disclaimers
anywhere.
 “this strikes a blow at the Act’s intended operation”
 “many corporations will be encouraged vby this decsiison to believe
that they can avoid liability of the act by a miniscule font that a
disclaimer is now effective...this is contrary to the language and
purpose of parliament”
 Kirby was concenred that hte majority, though not hte whole weight, that
there was a disclaimer and that a reasonably and intelligent person like the
Pl., though legally advised,knows what hte disclaimer means. --> just
because there was a guarantee that it was not accurate does not mean that it is
immediately not deceptive conduct.
 ALSO: E’s gave no oral reinforcement of hte disclaimrer at hte
inspection = misleading conduct.
 disclaimer waa miniscule in size and therefore should not have the
effect of excluding liability.
First: who are the audience.
Second: What does ‘misleading or deceptive’ mean?
b. What is misleading and deceptive conduct?
S 18 ACL 2010
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A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or
is likely to mislead or deceive.
 conduct is misleading if it has the capacity of leading into or causing error.
 error occurs whne a person is led to believe things that are not true or correct.
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Henjo Investments Pty v. Collins Marickville Pty Ltd (1988) 79 ALR 83, 92-93 (Lockhart J):
The two words, “misleading” and “deceptive”, are plainly not synonymous. That is not to say
that each word may not catch some of the same conduct and that there may not be some
degree of overlap. “Mislead” does not necessarily involve an element of intent and it is a
word of wider reach than “deceive”. However, it is difficult, in my opinion, to read the
word “deceive” in s 52 other than as involving some degree of moral turpitude as it does in
ordinary English usage. Trickery, craft and guile, though not essential elements of
liability, are typically at the heart of this second element of the statutory provision directed to
the protection of the public from unfair trading practices.
o Seems to be saying htat one has to be active in deceptive conduct but meisleading
may not be something that one intended to do.
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Context in which the representation is made will also be important to detrmining hte
appropriate level of analysis expected of hte persons to whom the ocnudct was directed:
Parkdale Custom Built Furniture Pty v. Puxu Pty Ltd (1982) 149 CLR 191, 197
FACTS: manufacturer of a couch was very similar in design to a more expensive couch
distributed by the manufacturer.
HELD: the manufacturer had not engaged in misleading or deceptive conduct because the
price of hte product in question with reference to the fact that hte product is of a higher value
means that the ordainry or reasonable ember would have paid closer attention to the labels
and therefore, the reasonable consumer would have paid close attention to teh brand of hte
couch and any labels attached = no deceptive or misealding conduct.
o the ocnudct has to be viewed as a whole...
o “would be wrong to select some words or act wich , alone , would be likely to
mislead if those awords or acts, when viewed in their context, were not capable of
misleading”
o (Gibbs CJ): The words of s 52 have been said to be clear and unambiguous…
Nevertheless they are productive of considerable difficulty when it becomes
necessary to apply them to the facts of particular cases. Like most general precepts
framed in abstract terms, the section affords little practical guidance to those who
seek to arrange their activities so that they will not offend against its provisions. It has
been held that the section is not confined to conduct that is intended to mislead or
deceive.. There is nothing in the section that would confine it to conduct which was
engaged in as a result of a failure to take reasonable care. A corporation which has
acted honestly and reasonably may therefore nevertheless be rendered liable to be
restrained by injunction, and to pay damages, if its conduct has in fact misled or
deceived or is likely to mislead or deceive.
 ie. no requirement for the misleading conduct to be culpable in the sense
of being fraudulent, reckless or negligent.
 ie. perfectly innocent misrepresentation may contravene s18.
 NB: culpability is sometimes relevant
 ie. promises, statements of opinion or statements as to the future, the
speaker’s state of mind may be relevant in establishing misleading
conduct.
 s4 - representation as to future matter will be taken to be misleading
or deceptive unless the represnetor leads evidence that he or she had
reasonable grounds for making the represtnation”
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individuals are only taken to be ‘ionvolved in a contravention’ if they
have knowledge of all the relevant circumstances – including the
falsity of the representations.
Pacific Dunlop Ltd V Hogan
FACTS: D. appeared in ‘crocodile dundee’ and became widely identified with the character
he played inthe film. Pl. was entitled to ‘merchandising rights’ of the film.
o Pl. televised an advertisement which used a striking scene – the knife scene- in the
film, to advertise his shoes as something that D. had commercial associations with.
HELD: reasonable mmber of hte public is unlikely to pay close attention to the details of the
advertisement...courts should focus on the general impression the aedvertisemtn is likely to
leave with the viewer and not the details of hte advertisement. BUT: tin this case, the
advertisement was misleading because of its overall impression
o even though line-by-line analysis said nothing that was literally false.
Cf. Butcher v Lachlan Elder: where the brevity of the information in the brochure meant that
reasonable person in the position of hte purchaser would have paid close attention to the
details of hte brochure and read it in its entirety.
Where the statement is innocent – there are no damges at common law allowd but they are
allowed damages under ACL.
 Silence
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At Commpon law, there is no liability for when people are silent (to which there are
exceptiosn) but is silence actionable under ACL? ie. there is no duty to disclose material
facts to the other prior to the contract.
o silence is not a basis for relief.
o BUT: the duty to disclose may arise by virtue of the special relationshisp between the
parties or by virtue of hte nature of the proposed contract.
o ie. failure to disclose information will sometimes constitute misleading conduct OR
 failure to disclose an alteration of circumstances after a statement has been
made
 failure to correct a sstatement where the maker later acquires knowledge
which shows that the statement was inaccurate.
o Seems to be that under ACL there is liability for silence – depends on the manner in
which the representation was perceived.
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Henjo Investments Pty v. Collins Marickville Pty Ltd – Reasonable expectation of disclosure
FACTS: Pl. Was wanting to buy a restaurant and he saw all this people in a bar area drinking
merrily away. Pl. Thought that this was a ‘gold mine’ and wanted to buy the restaurant. The
D. Failed to disclose that the drinking in that area was forbidden under the terms of hte
licence. The existing owner was actually contravening its liquor licence ( had too many seats).
ISSUE: was there a duty to disclose the limits on the liquor licence?
HELD: in deciding whether or not there was liability under the legislation for remaining
silent, the question that hte court asked was whether there was a duty on the facts to disclose.
o Duty to disclose was taken broadly by the federal court
o Leiglsaiton has a broad reach
o Whether there is a duty depends on the facts of the case.
o A duty is not confined to certain relationships nor is the duty negated by the fact that
hte person to whom thte statement was made could have found oiut that iut was
untrue.
o On the facts of this case: YES: there was a duty to disclose the limits on the liquor
licence.
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Pl. Had asked others to check the details of hte licence -> but this fact was
not relevant.
NB: law has moved on from the duty to disclose approach – the current test is the
reasonable expectation test see Demagogue v. Ramensky (1992) 110 ALR 608 - the
court put in place a different test to determine whether or not there should be liability on a
defendant who remains silent. Courts did not like the ‘duty to disclose’ test. Instead, what
matters is whether or not the facts of the case give rise to a reasonable expectation that
the facts that the D. Remained silent about should be disclosed.
NOTE: the case has been reversed.
FACTS: Mrs Ramensky entered into a contract with D to purchase a unit. R asked about
access to hte property and were informed by D that “of course, there would be access”.
o later, R was also shown a plan of development that wshowed a driveway that ran
between their property and the road.
o D failed to inform R that the driveway was ap ublci road adn that R would be
required to obtain, at a fee, a licence in order to be able to use thte driveway
HELD: “ the significance of silence falls upon the facts of the circumsnatces of the case...in
any event, the test seems to be whether in teh light of all the circumstances constituted by
acts, omissions, statements or silence, there has been conduct which is...misleading or
deceptive
o whether the facts give rise to a reasonable expectation that the facts that the D.
Remained silent about should be disclosed.”
o in this case, failure to disclose the licence requirement was misleading.
Reasonable, expectation test should be determined by teh expectations of the ordinary and
reasonable members of the class of possible victims or, where the conduct is directed at an
individual, the exepcations of that individual.
whether there is a reasonable expectation of disclosure is very much a matter of context –
General Newspapers v Telstra corporation:
FACTS: General Newspapers approached Telstra and expressed interest in tendinring for hte
printing of Telstra’s telephone directories.
o T had no definite plans to put hte printing contracts out for tender
o P told GN that it was continually evaluating its approach to future printings and that
GN would be placed on a list of potential tenderers
o T then employs its current rinter and renewqed the printing contracts with that
company
o GN arued that T ‘s failure to disclose hte fact that it was negotitinbg with teh
company currently responsible for printing hte directories constituted misleading
conduct – HELD: NO.
HELD: “the particular facts of hte case must be considered in light of the ordinary incidents
and character of commercial behaviour.”
o in this case, not misleading or deceptive conduct because T had not consducted itself
in a way that suggested it would keep GN informed about the neogitation process.
If the parties are commercial parties engaging in negotiations where full disclosure may
change the stance that the party in negotiations will take, this does not impose an obligation
on the party to bring infomraiton to the attention of hte other party BUT may be imposed IF
some feature fohte relationship between the parites, or because previous communications
between them gave rise to a duty to add to or correct earlier information. – Lam v Austotel
Investments Australia Pty Ltd ALSO:
Miller & Associates Insurance Broking Pty v. BMW Australia Finance Ltd (2010) 241 CLR
357
FACTS: Miller was an insurance broker. it negotiated an insurance premium fuding loan with
BMQ Austalria on behalf of its client CTH.
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o
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BMW had been given a copy of the policy.
CTH defaulted and BMQ Finance sought to recover its losses from Miller
BMW claims that the memorandum nad certificate given by Miller was misleading or
deceptive as it conveyed the misrepresentation that he policy covered property and
was assignable and cancellable when it was not.
o BMW also claims that Miller’s failure to disclose was misleading and deceptive
conduct.
HELD: expectatiosn of disclosure depends on the nature ofhe parties. An expectation does not
arise merely because one party knows about the matter by which they remained silent which
was liely to be important to the other. It depends on the nature of hte parties.
o The parites were two large commercial parties and therefore, the legislation must be
sensitive to them.
o the prohibition against misleading or deceptive conduct in trade or commerce deos
not require a party to commercial negoaitionts to volunterr informaiotn which wil be
of assistance to the decision-making of hte other party...
o party is not required to volunteer information in order to aovid the consdequences of
careless disregard of aother party of equal bargaining power and competence.
o “reasonable expectation of disclosure dos not arise merely because one party knows
that a particular matter is likely to be of importance to the other party.
o HC THEREFORE rejected BMW’s argument that M had engagedin misleading
conduct.
Nagy v Masters Dairy Ltd
FACTS: milk supplier did not give notice to N, a party who it was in negoitaations with to act
as its supplier, that it had entered into a distribution relationship with another party.
o there were extended negotiations
o supplier did not specify a deadline by which N was to decide whether it wished to act
as a distributor
HELD: the failure of M to inform N that it had entered into arrangements wit another
distrtibutor was held to be misleading or deceptive.
The cases above are about wher eth D. Had purposely remained silent BUT can
you be
silent because you forgot something? ie. does it have to be deliberate?
o There is confusing authority
Accidental non-disclosure may not give rise to liability because s2(2) refers to doing or
refusing to do the act --> this sort of suggests some kind of deliberation reather htan just
doing something by accident – seems to suggest that it has to be deliberate and that
accidental non – disclosure would not give rise too liability.
o Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd per Bowen CJC:
“an omission to do an act may constitute ‘engaging in conduct’ that will only be so
where there hass been adeliberate refraining from doing the act...
 ‘refuse’ and ‘refrain’ clearly connote that he omission to do an act must be
deliberate
 conclusion is reinforced by the phrase in s2(2)(c) (i) ‘otherwise than
inadvertently’.
o Demagogue Pty Ltd v Ramensky per Gummow J: “conduct” includes refusing to do
an act...includes a reference to ‘refraining’ (otherwise than inadvertently) from doing
that act”...where a failure to speak is relied upon, the question must be whether in the
particular circusmtnaces the silence constitutes or is part of the misleading or
deceptive conduct.
o Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd
o FACTS: farmer suffered the loss of his tomato crop after hte crop was spratyed by an
agricultural spraying company. Loss was caused by a small concentration of a
harmful chemical left in the spraying rig and hoses. farmer argued that he misleading
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condut was teh failure to inform the farmer that the rig had been used to spray the
chemcical on occassiojns prior to spraying the tomato crop.
o HELD: the farmer hd expressed concerns baout he use of chemicals = reasonable
expectation that if relevant facts existed, they would be disclosed. BUT (Finkelstein
J) prohibition against misleading or deceptive conduct in trade or commerce had not
been breached because hte information had not been deliberately withheld.
Cf. in Nagy v Masters Dairy Nicholson J cited Gummow J in Demagogue v Ramensky
(above) as indicating that silence need not be deliberate.
o `Johnson Tiles Pty LTd v Esso Australia per Merkel J : silenfce has been recognised
as justifying a claim of misleading or deceptive conduct in two situations:
 1) where the silence is an element which, together with other
circumsntacnces of hte case, renders other conduct engaged in misleading or
deceptive.
 ie. the silence need not be deliberate -> it is simply part of a broader
range of conduct which may become misleading because of the nondisclosure.
 2) where silence alone constitutes the misleading or deceptive conduct
 ie. in this case, the silence must be deliberarte as it alone is the
misleading or deceptive conduct that gives rise to an action.
 NB: the above distinction is inconsistent with Black CJ’s observation
in Demogogue Pty Ltd because he said “thjere is in truth no such
thingas ‘mere silence’ because hte significance of the silence always
falls to be considered in the context in which it occurs”.
o Merkel J’s two category approach was adopted in Noor Al Houda Islamic College Pty
LTd v Bankstown Airport Ltd
o FACTS: College sued the Bankstown Airport that there was milsleading or deceptive
conduct because the land that it had leased to the college was contaminated.
 throughout negotiations, the respondent endeavoured to point out the
disadvantages of the proposed leased site so as to enable the college to make
an informed choice.
o HELD: a reasonable person would therefore have expected that if htere werew
problems associated with the site, such as conbtamination ,they would have been
disclosed.
 (Hoeben J) this was not a case oif silence alone...ratehr, teh college alleged
hat hte combiantio nof full disclosure combined with the failure to mention
the risk of contamination was misleading.
EK Nominees Pty Ltd v Woolworths
FACTS: W was interested in opening a supermarket in the Auburn area
o negotiatsion for the Queen St store that it initially wanted to open in had failed and
therefore, W started to negotiate with EK who were owners of the Auburn site.
o EK was aware that W had been interested in opening hte Queen St site and sought an
assurance from W that its interest in the Auburn Rd site was genuine
o W gave this assurance
o W made an offer to take a lease of a supermarket to eb constructed at the Aurburn Rd
site subject to W’s board’s approval
o W expected EK nominees to commit itself to the project
o EK then spends significant amonunts of money developing the site under the plans
and specifications that W gave.
o solicitors of both parties began to negotiate the terms of the lease
o W became aware htat hte Queen st site was being developed and entered into
confidential negotiations with the new owner of hte Queen St site
o W did not inform EK nominees and continued to negotiate with htem
o EK then asks whether W was going elsewhere but was informed that no decision had
bee made whether to open a supermarket at the Auburn Rd site or the Quen st site.
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EK stops work o nteh project
W resolved not to proceed with the agreement for lease fo the Auburn Rd site
EK sues W fofr engaging in misleading or deceptive conduct by failing to disclose its
ngotiatisn with hte owners of hte Queen st site.
HELD: (White J) Woolworths’ failure to disclose that it was negotiating with another
potential landlord constituted misleading conduct.
o W had encouragaged EK to spend substantial moneys
o EK oculd reasonably have expected that if a new proposal arose in lreaiton to hte
Queen St site, ti would be told babout it or tolkd that W was reconsidering tis
decision to open a site in Auurn Rd,
o negotiatiosn with the owner of the Queen St site were confidential BUT W could
have disclosed that it was reconsidering its decision to continue with the Auburn Rd
site without bereaching confidene
o THEREFORE. W had engaged in misleaingor deceptive conduct and liable for EK’s
wasted expenditure on the project.
Situations of mere puff? Are they within the ACL?:
o simply proving that the statement was exaggerated does not mean that it will not
constitute misleading or deceptive conduct
o effect of exaggerated claims depends on whether hte statement was capable of
leading the reprsetnee into error.
o ie. whether or not the representatison are actionable dependso nthe particular facts of
hte case considered in the light of the ordinary incidents and character of commercial
behaviour. (General Newspapers v Telstra)
FIRST: identify the nature of hte audience
then, look at teh effect of hte represntaiton on an ordinary and reasonable member of that
class
Byers v. Dorotea Pty Ltd (1986) 69 ALR 715
FACTS: there was a statemtn by the D. That hte aparmtnt would be “bigger and better” than
those close by. It was said that what mattered under the leiglsaiton was the particular audience
to whom it was directed and the particular facts.
HELD: the particular statemtn was not mere puff because it was specifically comparing
apartment with paaarrtments close by.l It is possible that cases that fail as ‘mere puff’ and
therefore non-actionable at common law maybe actionable under the ACL.
o “bigger and better” conveyed a clear nad false impression that the units were on a
grander scale than those located in the other building.
o NB: if the statement was “bigger and best” = not comparing the units to another
specific building, the court may have been more willing to dismiss the statement as
mere ppuff because it would have been a general statement.
Petty v Penfold Wines Pty Ltd: HELD: statement that Petty was getting Penfold’s ‘best
discount’ was held not to be mere puff but a stateemnet of specific fact.
c. Representations about future matters – special provisions in ACL(s4) : where
something is a representation about a future matter, the question of whether there is liability
for making such a representation, rather than a repsresntation about a future occurrence, is
whether the person has reasonable grounds for making the representation. If not, then the
conduct can be ‘misleading or defceptive’.
a. ISSUE about s4: burden of proof – who has the onus of showing proof?
b. “the onus of establishing reasonable grounds for making a representation about a
future matter is on the representor…
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S 4 ACL 2010
Misleading representations with respect to future matters
(1) If:
(a) a person makes a representation with respect to any future matter (including the doing of,
or the refusing to do, any act); and
(b) the person does not have reasonable grounds for making the representation;
the representation is taken, for the purposes of this Schedule, to be misleading.
(2) For the purposes of applying subsection (1) in relation to a proceeding concerning a
representation made with respect to a future matter by:
(a) a party to the proceeding; or
(b) any other person;
the party or other person is taken not to have had reasonable grounds for making the
representation, unless evidence is adduced to the contrary.
(3) To avoid doubt, subsection (2) does not:
(a) have the effect that, merely because such evidence to the contrary is adduced, the person
who made the representation is taken to have had reasonable grounds for making the
representation; or
(b) have the effect of placing on any person an onus of proving that the person who made the
representation had reasonable grounds for making the representation.
(4) Subsection (1) does not limit by implication the meaning of a reference in this Schedule
to:
(a) a misleading representation; or
(b) a representation that is misleading in a material particular; or
(c) conduct that is misleading or is likely or liable to mislead;
and, in particular, does not imply that a representation that a person makes with respect to
any future matter is not misleading merely because the person has reasonable grounds for
making the representation.
EXAMPLE
Anne makes a representation about a future matter to Bill. If Anne does not have reasonable grounds for making the
representation it will be misleading s 4 (1). But she can show that she had reasonable grounds to make the representation
under s 4 (2).
Suppose Anne provides no evidence under s 4 (2) then the representation will be deemed to be misleading.
Suppose Anne provides some evidence that she had reasonable grounds for the representation that does not mean that she did
have reasonable grounds under s 4 (3) (a) it is for Bill to show that she did not have reasonable grounds.
The section creates an evidential onus on Anne. She must produce evidence. It does not reverse the burden of proof. If she
discharges the evidential onus the burden of proof is still on Bill to show that Anne did not have reasonable grounds and
therefore that the representation was misleading
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Process of dealing with s4:
o Start with s4(1) --> representation as to a future matter is misleading unless
representor had reasonable ground.
o Then, got to s4(2) where hte representor can adduce evidence of reasonableness
o if no, then the reprenstation as to the future will be taken as misleading.
o If the rerpesentor can lead ‘some’ evidence that it had reasonable grounds, he or she
will have discharged hte evidential onus imposed by s4(2).
o matter will thereafater be deal ith under subsection 4(1) --> ie, back to the original
definition and the obligation will be on the representee to establish that hte
representor did not have reasonable grounds for making the representation.
Just because a statement has a future element to it does not mean that itwill automatically be
treated as a represnetaiotn as to teh future...
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d.
whether a statement is with respect to a future matter dpeneds on its proper characterisation in
the context in which it is made:
Miba Pty Ltd v. Nescor Industries Group Pty Ltd (1996) 141 ALR 525
FACTS: a arpresnetaion was made about the likely takings of a franchise business that the D.
Were selling. A letter was sent by the D. With figures of various other similar businesses and
this was presented to hte Pl. The question was wwheterh it was a rerpresnetation aqbout the
future ie. The future takings.
o If it was, it was necessary that the representation had to be made on reasonable
grounds otherwise, it would be taken as miseleading or deceptive conduct.
ARGUEMNTS: Pl. Argued that it was a representation into the future (future takings).
HELD: No, it was not a representation to the future because it was a merely statement of
present belief. The statement was merely suggesting that it was a present belief that the
person making the statement held that these were the takings that would be received.
o Whilst there was a future element / prediction of future takings, it was however a
statemtn of present belief.
o Crucial in the case was the way the statement was framed – it was expressed as ‘it is
our current belief that hte franchise would make X amount of money”
NOTE: Miba’s approach was firmly rejected in Digitech: the Court did not accept that the
statement of hte grounds on which a forecast was based meant that it was not a statement of
future matters..
o Court said that even a statement explicitly made as an expression of belief may
nevertheless be a representation as to a future matter:
Digi Tech (Aust) Pty Ltd v. Brand [2004] NSWCA 58
FACTS: similar statement of forecast as Nescor case.
HELD: the way that the statement was framed “ie. It is our belief that in the future, the
business would have X amount of income” did not prevent it from being a statement of the
future.
o “it all dependso nthe words used and the general context”
o “The expression of a belief involves the expression of a state of mind. There is no
reason why a person's state of mind should not relate to future matters. Thus, in
determining whether an xpressed belief relates to future matters, regard must be had
to the words used and the context: Sydney Harbour Casino Properties Pty Limited v
Coluzzi & Anor [2002] NSWCA 74 at [24] per Mason P.”
Promises – there is a distinction between a promise and a representation at common law.
The legislation ACL also applies to promises as well as representations.
a.
Promise can be viewed as containing two representations:
i. that the promisor currently intends and is able to perform the promise or
honour the commitment
ii. the promise or commitment will be honoured in the future.
S 2 (2) (a) ACL 2010
A reference to engaging in conduct is reference to doing or refusing to do any act, including:
(i)
The making of, or the giving effect to a provision of, a contract or arrangement; or
(ii)
The arriving at, or the giving effect to a provision of, an understanding; or
(iii)
The requiring of the giving of, or the giving of, a covenant.
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Holt v Biroka Pty Ltd per Kearney J: definition of ‘engaging in conduct’ envisaged acts of a
contractual nature as being capable of constituting misleading conduct.
THEREOFRE: parties can rely on the ACL to enforce both a contractual and noncontracutal promise if htat promise is unenforceable
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a contractual promise may purport to affirm a presently existing state of affairs = a contractual
promise as to an existing fact AKA a warranty.
o THEN, if the promised state of affairs does not exist, the making of he promise may
result in liability for misleading conduct:
Accounting Systems 2000 (Developments) Pty Ltd v. CCH Australia Ltd (1993) 42 FCR 470
FACTS: A entered into a contract with Castle Douglas underwhich copyright interests in
software were assigned. A. Gave a warranty to Castle Douglas that they were owners of the
copyright and Castle Douglas sold to CCH the licence to use the software. In fact, A did not
own the copyright. CCH said that they were mislead and sought to recover money that it hass
spent on the licence from Castle Douglas.
ISSUE: CCH was not the party to the original contract therefore, whilst there was a warranty
in the contract between A and Castle Douglas, privity of contract applies and CCH is banned
from suing under contract for misleading conduct of A.
o Privity of contract = one cannot sue under contract for which one was not a party
HELD: even though the parties were in a contractual relationship and even though the
warranty was included in the contract and had taken the form of hte promimse, CCH had no
remedy in contract and hence, sought for remedies under the legislation.
o Under legislation, CCH was allowed to recover.
o (Lockhart and Gummow J) s2(2) provides significant support for the general
proposiation that the making of a statement as to a presently existing state of affairs
may be engaging in misleading or deceptive conduct where the statement is embodied
as a provision of a contract.
Futuretronics Pty Ltd v. Gadzhis [1992] 2 VR 217
FACTS: under the statutes of fraud, the contract could not be enforced and hence Pl. Could
not have remedy under contract law. Issue was whether Pl. Could then recover under the
legislation?
o The D. Bid for the Pl. Property at an auction
o For some reason, as required for the condition under the auction, D. Decides that they
did not want uit and refuses to pay.
o Pl. Could not sue in contract because of Victorian Statue of frauds.
o Pl. Then argues that the D. Had engaged in misleading or deceptive conduct by
bidding at the auction and that was misleading because it was a representation that he
bid was genuine and they intended to be bound by the conditions of sale.
HELD: on what basis was the liability? It is not necessary for the Pl. On the facts here to
show that the D. Had no intention of performing the promise(ie. s4 is not limited to whether
or not there was an intention nor ability by hte D to perform the contract at the time the
promise was made – the promise here being implied by their behaviour – rather, the
representation that D. would complete the contract shows that there was an implicit promise
on the part of hte D. To perform and if you implicitly promise to perform nad you fail to
perform, that conduct is misleading and decepetive.
o BUT: in this case, the Pl .cannot be said to have suffered loss because there was no
competing genuine bidder at the auction.
Concrete Constructions Group Ltd v. Litevale Pty Ltd (2002) 170 FLR 290 – demonstrates a
more restrictive approach.
FACTS: implied promise was that we would perform the act and was bound by the contrac
and would complete the sale
HELD: failure to keep a promise was not enough to be a deceptive conduct. Instead, a
narrower view was taken.
o It is necessary that you have the capacity to perform more than just the intention to
perform in order to be aa promise that was deceptive conduct.
o Not enough that D. Impliedly or exdpressly represented that he would perform in the
future.
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Contractual promises fall within the legislation – liability can be imposed by implication,
but it is not simply that we are in a contractual relationship and one does not perform,
there has to be a representation that a prmomise was made, whether implicidly or
expressedly, that at that time, i have the capcity to perform.
e.
Opinions :
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f.
a. statement of opinion may constitue misleading or deceptive ocnudct but will not be so
simply because subssequenty events show that teh opinion was incorrect.
b. courts focus on whether representations of fact were impliedly made by the giving of
hte opinion and whether any such representations of fact were false.
some authority that opinions are covered in the legislation - S 4 ACL 2010
Global Sportsman Pty Ltd v. Mirror Newspapers Pty Ltd (1984) 2 FCR 82
HELD: an opinion can amount to deceptive and misleading conduct BUT an opinion is not
misleading and ddceptive merely because it was incorrect
o “an expression of opinion conveys no more than the opinon is held and perhaps that
here is a basis for the opinion..howevere erroneous, misrepresents nothing”
o There has to be within the opinion an implied statement of fact that there is a basis
for the opinion.
In Global, conduct was held to be misleading only if it contains a misrepresentation -->
Court later said that this was too narrow.
o may be possible to establish that an opinion was misleading without hte need to look
for implied representations htath e opinion is held and had a solid basis.
Failure to qualify the statement at the time the statement was made may be misleading evne
though it was an opinion about a future matter that has not been fulfilled yet: Wheeler Grace
and Pierucci Pty Ltd v Wright (1989) 16 IPR 189
o HELD: “a positive unqualified prediction by a corporation may be misleading
conduct in trade or commerce if relevant circumstances show the need for some
qualification to be attached to that statement as a requirement of trading.
o “the fact that the corporation believed or had reasonable grounds tha the prediction
would be fulfilleld would not answer the question as to whether hte conduct was
misleading or deceptive in trade or commerce. The misleading or deceptive conduct
may be found tin the failure to qualify the statement”
Courts analyse statements of belief by deriving implied statements of fact that the statement
of belief is genuine and has a reasonable foundation:
Havyn Pty Ltd v. Webster [2005] NSWCA 182
FACTS: purchaser of a block of six flats alleged that a statement in a brochure that each flat
was approximately 63 square metres in area.
HELD: a represnetaiotn of opinion was misleading and deceptive if the person making it
lacked belief in the opinion or there was no adequate foundation upon which hte belief could
be held.
o It is not merely stating an opinion that turns out to be untrue.
o Misealding or deceptive = D. Presents the opinion as genuine OR that it has
reasonable foundations when he lacked belief in the opinion or there was no
adequate foundation upon which the belief could be held.
o in this case, the statement in the brochure was misleading.
o the real estate agent had arrived at hte estimation by ‘pacing out’ the unit
o such a method of estimation was so cruedde that htere was no adequate foundation
upon which the freal estate agent could have had a rational belief that each flat was
approximately 63 square metre in area.
Statements of law : question is whether hte person making the statement holds
himself out tohave expertise.
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a. At common law, there is no liability for statements of law
b. BUT: under legislation, there can be liability under legislation for statemntes of law
where the person making the statemne holds himself out as having expertise. :
Inn Leisure Industries Pty Ltd v. DF McCloy Pty Ltd (1991) 28 FCR 151
FACTS: a astatement was made that hte sale would not be taxable under the sale tax. an audit was
done yb the ATO resulting int he vendor being obliged to pay tax and a penalty.
HELD: This was not misleading or deceptive conduct because hte person making the opinion did
not represent himself as having legal expertise – the purchaser gave evidence that its statement
was based on advice it received fomr its accountants.
 there was nothing to suggest htat the opinon was not honestly held or that the
advice had not been given.
o “a representation of law...may do no more htan convey what is, on the facte of it, the
untutored opinion of hte representor. As such, evne if it was wrong, it is unlikely to
constitute misleading or deceptive conduct.
o “the situations in which advice, expert or toher wise as to the law may be misleading will
depend upon the context and circumstances in which it is proffered and the
representations implied or expressed that accompany it.”
BUT contrasting case:if the party holds itself out a shaving expertise, statements about the law are
more likely to be viewed as misleading:
SWF Hoists and Industrial Equipment Pty Ltd v. State Government Insurance Commission [1990]
ATPR ¶ 41-043
FACTS: whether the policy that the Pl had taken out worked interstate or whether it works only in
that state. Pl. Asked the Commision if they wouild be covered by the insurance policy if one of
their employees were injured. The commission is held out as having knowledge of the insurance
industry.
HELD: the statmente was made by someone holding themselves out to have expertise.
o The Commission was liable for satetment of law.
o the statement is one of fact as to hte content of packages of insurance offered to the Pl.-->
note, even if it was characterised as statements of law, the advice would still have been an
actionable form of misleading or deceptive conduct.
Cf: Commonlaw: unless courts twist them to make them [statements of law] statements of fact.
3. REMEDIES
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where the conduct is misleading / deceptive, a greater range of remedies than in common
law allows.
innocent misrepresentation allows rescission which is problematic in common law.
3 groups of remedies in ACL: (s232; 236 and 237)
in order to be entitled to a remedy under s236 or 237,has to show that there has been:
o a breach of s18 (dealt with above)
o “loss or damage” has been (or is likely ot be suffered) consideration of s236 & 237
and
o there is a causal connection between the ‘loss or damage’ suffered or likely otb
suffered and teh breach.
 Measures of loss or damage
o
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s232 : courts have power to award an injunction
 injiunction is something that prevents / stops something
 s232 allows injunction in the wider sense as what might be termed
‘performance injunction ‘ --> ie. requiring the person to do something as
opposed to just refrain from doing something.
s236: power of the courts to award damages.
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s 236 If:
(a) A person (the claimant) suffers loss or damage because of the conduct of another person; and
(b) The conduct contravened a provision of Chapter 2 or 3;
The claimant may recover the amount of the loss or damage by action against the other person, or
against any person involved in the contravention.
 (involved in a contravention is defined in s2(1) – eg. aiding, abetting, counselling and
conspiring)
 ‘Loss or damage’ has to be direct result from the respondent’s conduct
 in most cases ,the requisite caual connection is established by showing htat he claimant
suffered loss because he or she acted or failed to act in reliance on the misleading
conduct.
 ‘loss or damage’ is often calculated on a reliance basis by drawing anlogies with damages
that would have been available in an action for deceit or negligemtn misstatement.
o Debate about s236 is how that compensation is worked out.
 “the claimant may recover the amount of hte loss or damage”  how are
damages assessed under the section? what kind of damages
can be recovered under s236?
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under common law, where damages are awarded for negligent / fraudulent
misrepreseatntaitoin, the principle it based on is in tort law BUT its uncertain
if losses for expectation losses are allowed under ACL.
 why might difference between damages in tort law (based on
reliance) or damages on expectation standards be relevant?
 because: for example Ann persuades Bill to buy business from
misrepresenatiotn that the profit is $100,000 a year when in fact, the
profit is $50,000 a year. The business is sold to Bill for $1mill.
Suppose that the business is actually worth $1mill. If Bill wants to
recover and we apply the tort principles, the damages Bill would
receive is 0 because he got what he paid for it (sold for $1million
when it was worth $1million) THERFORE< he has suffered no loss.
If the damages were assessed on a contracts measure, teh law looks
to expectations. Ann promises a profit of $100,000, the actual profit
is $50,000, on that measure, B can recover $50,000. Bill will
therefore want to argue for measure of damages based on contracts
principle. What do the courts say about this?
 there is a fair bit of authority on this question:
IN EXAM :TALK ABOUT: when you get to remedies, what would be the measure under contract oif
it applies, what would be the measure under tort, wouhat ould be the measure under Gaudron:?
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(Gates v City Mutual Life Assurance Society) “The Act does not prescribe the measure of
damages recoverable by a pl. for contravention of the provisions of Pts IV and V…it is for the
courts to determine what is the appropriate measure of damages recoverable by a pl. who
suffers loss or dmamage by conduct done contravension of the relevant provisions. [11]
[11-12] contract basis of measurement: damages are awarded with the object of placing
the plaintiff ihn the position in which he would have been had the contract been
performed.
o therefore, he is entitled to damages for loss of bargain (expectation loss) and
damage suffered including expenditure incurred (reliance loss) in reliance of the
contract.
tort basis : damages are awarded with the object of placing the pl. in the position in which
he would have been had the tort not been committed.
Tort analogy: reliance loss
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damages awarded in cases for deceit will be the difference between the price paid and the
‘fair’ or ‘real’ value of te business or asset, plus damages for consequential loss if directly
attributable to the misleading conduct.
o in assessing the ‘real’ value, subsequent events may be looked at to the extent theat
they revela the value of the business at teh date of acquisition.
o there is no need to show that he consequential losses were related to teh subject
matter of the alleged misrepresentation :North East Equity Pty Ltd v Proud Nominees
Pty Ltd:
 FACTS: Pl. purchased equipment form the D. misreprestantions wer emade
to induce the Pl. to purchase the equipemetn and the Pl. claiomed damages to
compensate for the additional power costs incurred in operating the new
machinery.
 HELD: trial judge ought to have brought hte additional power costs to
account because those costs arose directly ouit of the operation of hte
equipment acquired in reliance the D’s mirepresentations even though none
of these misrepresentations related to power costs.
Gates v City Mutual Life Investments Pty Ltd (1986) 160 CLR 1
FACTS: Pl. had been induced by an agent of hte D. to take out total disability cover on his
insisting insurance policy. Pl. claimed that he did that because of a representation by the D.
that he was entitled to the full amount of the insurance should he be injured and unable to
carry out his current occupation as a carpenter.
o in fact, what the policy entitled him to was that he could not recover the full amount
under the full amount under the policy if he could carry on any sort of employment.
ie. whilst he could not work as a carpenter but can work as something else, then the
policy would preclude him from recovery.
ISSUE: there was a problem in terms of recovering for damages – it was said that if the tort
measure applied, he would have gotten what he paid for.
o Pl. had paid for a policy that covered if he could not work at all – appolying the tort
measure, this was what he got therefore damges = 0.
HELD:
o Gibbs CJ: when deciding what damages you get, you always go for hte tort
measure.
o Mason, Wilson and Dawson JJ: unnecessary to make a definiticve choice
between contract measure and torts – they won’t rule out a contrafcct measure.
BUT in cases where there is a making of false statements of making of
misleading /defceptive conduct, then the tort measure applies.
o Under the tort measure, Pl. got what he paid for even though there had been
misleading and deceptive conduct = no loss. He had not gottten what he had expected
so under a contract measure, he could have recovered but under the tort measure,
there was no recovery.
o the claim for damages under s236 of the ACL failed as there was no evidence that hte
cover was not worth wahat he paid for it.
o NB: another way of giving relief would have been to rescind the contract BUT the Pl.
did not plead it that way..he tried to claim the benefits that were payable according to
the representation = Pl. tried to claim expectation loss but the court said tahat this
was not a method appropriate for loss in such a context.
Marks v. GIO Australia Holdings Ltd (1998) 196 CLR 494 *LOOK AT CASE SUMMARY*
o HC said that the recovery under the statute was not the same as common law and
therefore common law rule should not be as readily applied to qualify the remedy
under statute.
Murphy v. Overton Investments Pty Ltd (2004) 216- CLR 388
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FACTS: Pl. takes out a 99 year lease over a unit in a retirement village owned and managed
by the defendant. as part of the package, the Pl. was required to contrtibute to ‘outgoings’ (eg.
service charges for maintaining the property). Pl. asked what the ‘outgoings’ would be and
the D. gave an estimate but saying that it could vary from time to time. The estimate was
inaccurate and the Pl. was lumbered with a large bill. Pl. alleged misleading and deceptive
conduct and sought damages.
ISSUE: the property thath thePl. had paid for was worth what they paid and the money that
htey paid for maintenance was perfectly reasonable – Pl .was getting good value for what they
were paying. question was then what loss has the Pl. suffered?
HELD:the court took a broad view of ‘losses suffered’. Court stressed that what the Pl. had
lost was a loss of opportunity to enter into a contract with at third party because they had
relied on the defendant’s misleading and deceptive conduct.
o this is a clever ruling because it gets around the expectations issue – they did not
characterise the loss as an expectation but aas a lost opportunity in the sense of
reliance THEREFORE evading the question.
o the court characterised the loss as a lost opportunity = the loss of an opportunity to
enter into an alternative contract, the court allowed recovery.
 in Gates: the Pl. would have been able to claim damages for loss of
opportunity if he was able to prove that had it not been for the agent’s
misrepresentation , he could and would have entered into a contract of
insurance that would have covered him in the event that he could not work in
his profession.
o the court said that the lost laid in the continuing financial obligation undertaken under
the lease to the extent they were larger than what they were led to believe.
Murphy v Overton shows that courts have not ruled on an expectation measure but they are
prepared to use a tort measure broadly by invoking the idea of a lost opportunity. Along with
the following cases demonstrating the same:
Wakefield Trucks v Lach Transport
FACTS: a ‘Western Star’ truck was purchased on the faith of representations that it would
achieve fuel consumption of 4.5 – 4.8 miles per gallon.
o truck did not achieve that fuel consumption
o buyer therefore lost teh opportunity to buy aonther truck then available that was able
to achieve that fuel consumption.
HELD: the ocst difference between the fuel consumption as represtned and that achieve was
recoverable as loss flowing from reliance on the representation.
Sellars v. Adelaide Petroleum NL (1992) 179 CLR 332
FACTS: Adelaid entered into parallel negotiations with two companies with the purpose of
persuading one of them to acquire the shares in A. Afterwards however, A decides not to
pursue the negotiations with one party so as to enter the contract with S. However, S had
exceeded his authority and the document was not authorised by the company that S
represented.
o A thought that meant htat S had repudiated the agreement (as a result of hte
misrepresentation) and reusmed negotiations with the first party in which a contract
was signed BUT the terms of htat contract were less favourable than the agreement
that would have resulted had A not decided to stop negotiations with it to negotiate
with S.
HELD: the court considered the problem of proof of damage and assessment of damages in a
case where hthe Pl. seeks to show that he had lost an opportunity to obtain a commercial
advantage BUT was based on hypothetical fact situation.
o HC said that it was not necessary for the Pl. to prove that on the balance of
probabilities a benefit would have been derived form the opportunity ahd it not been
lost.
 also not necessary to show the extent fo hte benefit.
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o
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sufficient for hte Pl. to show, by reference to the degree of possibilities and
probabilite,s that there was some prospect of deriving a benefit from the opportuntity
had it not been lost.
o court will ascertain the value of hte opportunity or benefit by reference to such
possibilities and probabilities.
Contract analogy : expectation loss
‘expectation damages’ are typically awarded for breach of contract.
Issue is whether s236 comprises expectation loss or is it limited by analogy to reliance-based
loss?
Marks v Gio Australia Holdings Ltd per McHugh, Hayne and Callinan JJ: “There is nothing
in s236 which suggests that hte amount htat may be recovered should be limited by drawing
some analogy with the law of contract, tort or equitable remedies....it is wrong to limit the
apparently cleara words of hte aAct by reference to wone or other of these analogies.
BUT: Gleeson CJ in Henville v Walker (decided after Marks): “common law anlaogies
represent an accumulation of valuable insight and experience which may be useful in
applying hte Act”
o Ie: even though the remedies under the Act are not strictly limited by analogies with
common law, common law still provides a good insight into how damages are to be
measured in each case.
Note also the aims of the ACL: fair trading and consumer protection
o THEREFORE: expectation loss may be allowed if it is necessary to recognise and
enforce legiimtate expectations.
o ie. the Pl. must show that the value of the performance of the promise should be
compensated by showing htat he Pl. was entitled to performance.
o NOTE: s236 does not confer such an entitlement
 it allows for a claim for loss or damage caused by being misled as to whether
a promise will be performed and not loss or damage caused by failure to
perform the promise.
o Henville v Walker per McHugh J: the loss that s18 prohibits is the making of not hte
failure to honour the false representation.
o eg. see also Murphy v Overton Investmnets : a case where the Corut was prepared to
depart form measuring loss on a reliance basis
 HELD: applicatnts suffer comcpensable loss hwen, as a result of misleading
conduct, he or she undertakes financial obligations which prove to be more
onerous than he or she had been led to believe.
 LITIGATION:
 (Trial judge) applicants did not establish that htey had suffered any loss or
damge as a result of hte misleading conduct --> there was no evidence of any
difference between the price they had padi and the value of the property
acquired (which is the reliance based approach)
 (Full Court of FC) applicants could have claimed damages if they had shown
that, had it not been for hte respondent’s misleading conduc,t they would hav
enetered intpo a less onerous transaction with another retirement village BUT
there was no evidence to support such a claim.
 (HC: allowing the appeal) the differncdeb between hte price and value will
often be an important element in assessing teh damage (acknowledging
relliacne based approach) BUT: the applicants may have suffered loass by
undertaking financial obligations that ‘proved to be larger than the
respondent’s misleading conduct led them to believe’.
 ie. the loss occurred whne the D. started to charge al lthe outgoings it was
entitled to charge.
 the amount of loss was not to be determined only by comparing hte financial
position fo hte Pl. according to whether they entered into this lease or took
other accommodation..Pl. suffered loss because the continuing finanicl
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obligations they undertook when they tok the lease proved to be larger than
they had been led to believe --> ie. was an expectation loss.
 Seems to contradict Marks v GIO per McHugh, Hayne and Callinan JJ: “the
bare fact that a contract has been made which confers rights and obligations
htat are different form what one party represented to be the case does not
demonstrate that hte party was misled has suffered loss or damage...unless it
is shown thath e party could have acted in some other way which would ahve
been of greater benefit or less detriment to it...” --> which is hte FC’s
approach.
 Murphy judges justified its approach based on earlier remarks by the same
judges in Marks that damages are not limited to anlaogies with common law.
RESULT: if you want to allow expectations loss, go with Murphy approach. As seen in these
cases:
o Dalecoast Pty Ltd v Guardian International Pty Ltd
o FACTS: Pl. purchased a graffiti removal franchise from the D. D misrepresented that
the Pl. would ha vena indefinite supply of a graffiti removal product when in fact the
Pl. only had the irhgt o an indefinite supply of a graffiti-coating product.
 there was no operating loss suffered.
o HELD: damages were awarded by referenfce to hte profits that would have been
amde form the distribution and application fo hte graffiti removal product on the bassi
that hte Pl. did not receive all that it bargained for.
 ie. this is an expectation measure of loss.
 judge justified based on Murphy and saying htat ther is a compensatory
element and a public interest element in the assement of damages for breach
of hte prohibiton against misleading or deceptive conduct in trade or
commerces.
o Callander v Ladang Jalong (Australia) Pty Ltd
o FACTS: D. represented that it would advance money to a businesss and the Pl .woud
lbe appointed CEO of theat business at a certain salary.
 Pl. then joins the company and worked in the excpectation taht he would be
paid that salary.
o HELD: damage was calculated by reference to hte amount the Pl. expected to be paid
less the amount he had received rather than on the basis of salary payments foregone
(which would have been teh reliance measure of damage).
Cases where courts distinguished Muprhy:
o Warwick Entertainment Centre Pty Ltd v Alpine Holdings
o FACTS: Pl. sued for loss of profits it had hoped to earn by conducting a business it
had been induced to purchase on the basis of misleading conduct.
o HELD:
 the loss that hte Pl. claimed had not actually been suffered because all that
had happened was that an expectation which it had been led to hold had
failed.
o Sumy Pty Ltd v Southcorp Wines Pty Ltd
o FACTS: Pl. bought a block of land that had been advertised as being 100 acres in area
when in fact it was only 80 acres in area.
 Pl. said that it would not have entered into athe contract at that price had it
known the truth.
o HELD: distingusihgi nfrom Murphy because the amount paid for the land was not
higher than the land’s real or fair value – reliance based.
 confining Murphy to its facts.
Exemplary damages and damages for distress
an award of damages under s236 is to compensate for ‘losss or damage’
exemplary damages for ‘punishgin’ the D. cannot therefore be awarded
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o
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because in common law, exemplary damages are not avialbel for breach of ccontract
but may be awarded for flagrant instances of deceit.
s236 does not limit recovery for distress caused by misleading or deceptive conduct: New
South Wales Lotteries Corporation v Kuzmanovski:
FACTS: ‘bathe’ and ‘swim’ lottery incident.
HELD: the temrs of the ticket misled consumers and compensation allowed for
disappointment, anger and frustration.
 Loss or damage under s237:
S 237
(1) A court may:
a. On application of a person (the injured person) who has suffered, or is likely to suffer loss or
damage because of the conduct of another person….
Make such order or orders as the court thinks appropriate against the person who engaged in the
conduct, or a person involved in the conduct.
 allows opportunity for judges to exercise discretion (cf. s236 which is the loss that the Pl. is
entitled to)
 s243 provides a non-exhaustive list of hte types of orders that can be made under s237.
(a) declaring a contract void in whole or in part
(b) varying a contract
(c) refusing to enforce all or any fo hte provision ofhte contract
(d) directing refund of money or return of property
(e) directing payment to hte person who suffered loss the amount of loss
(f) directing repair of or pvision of spare parts for goods
(g) directing hte supply of specified services.
(h) directing variation of or termination of an instrument creating or transferring an
interest in land.
 since s237 is discretionary, the court may decide to do nothing.
 BUT: also means that courts are not bound by common law analogies (Marks v GIO)
o courts are also not bound to limitations that apply to relief in teh form of rescission
such as bars to rescission.
o in exericinsg its discretion , the ocurt may however seek guidance from general law
principles (Chint Australasia v Cosmoluce Pty Limited)
 “Loss or likely loss” – a person may be induced to enter a contract by misleading conduct but
not suffer any loss or likely loss.
 Marks v GIO Australia: (treat with caution noting Murphy deciiosn in 2004 – Marks decided
in 1998) HELD: (HC) no relief was aivlabel under s87 or 82 --> ie. s236 or 237.
o “merely entering into a contract which is different form the one represented deeos not
demonstrate loss or damage. Such loss or damge will only be demonstrated if the
Pl.coudl have acted in some other way which would have bene of graeter benefit or
less detriment to the Pl. than the course adopted.”
o in the present case, there was no cheaper loan avialble evne with the increased margin
– no loss because given oporutniy to exit the AAA loan arrangement – ALSO: Pl.
didn’t say that even had the known of hte truth, they would not have entered into that
arrangement.
o NOTE: not all the judges said that htere was loss or damage
 (2) no loss or damage
 (2) yes, likely loss or damage BUT no causal link.
 (Gummow J and Gaudron J) “the exercised by one party of a
contractual power to increase hte legal obligations of another party
may be an injury to the second party which answer the description of
‘loss or damage’...
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cause of action could not have arisen until the expiration fo hte 90
days BUT because hte Pl. had been given an oprorunty to esacpe, teh
imposition fo hte higher rate of interest would have ben a result of
their own choice not to take up the d’s offer = no causal link.
Reconciling Marks with Murphy
Marks : Pl. were given opportuntiyy to withdraw BUT in Murphy: Pl. wasn’t given such an
oporutniy + if hte truth about hte outgoings had been revealed, Murphys would not have
entered into the lease --> preference towards Gummow J in Marks would allow the
conciliation of both cases
o the rest of hte majority in Marks said that there was no loss which, if followed, would
have prevented claimants in Murphy from recovery.
 Apportionment of damages
s 137B CCA 2010
If
(a) A person (the claimant) makes a claim under s 236(1) ACL in relation to economic loss, or
damage to property, suffered by the claimant because of the conduct of another person; and
(b) The conduct contravened s 18 ACL; and
(c) The claimant suffered the loss or damage as result:
i.
Partly of the claimant’s failure to take reasonable care; and
ii.
Party of the conduct of the other person; and
(d) The other person did not intend to cause the loss or damage and did not fraudulently cause
the loss or damage;
 The amount of the loss or damage that the claimant may recover under s 236 (1) ACL is to be
reduced to the extent to which a court thinks just and equitable having regard to the
claimant’s share in the responsibility for the loss or damage.
o BUT: s137B only applies to claims for damages in respect of economic loss or
damage to property --> does not apply where the D. has intentionally or fraudulently
caused the loss or damage.
 I & L Securiites v HTW Valuers (Brisbane)- litigation held prior to enactment of s137B
 FACTS: D. gave an incorrect valuation of a property owned by a third party
o Pl. lent monery to h e third party in reliance on the valuation
o third party dfaulted nad Pl. suffered a loss when the property was sold.
 LITIGATION
 (Trial Judge) there were two independent causes of the Pl’s loss:
o the D’s inaccurate valuation
o carelessness of hte Pl .in failing to make reasonable inquiries as to the third party’s
creditworthiness before making the loan.
o damages were therefore warded for 2/3 of the loss under s82.
 (Court of Appeal) upheld the ruling but based its decision on s87.
 (HC) apportionment of hte loss was not justified under either s82 or s87
o nothing in s82 sugests that a claimant’s carelessness may be taken into account to
reduce the maoutn of loss or damage --> ie. that s237(2) “the order must be an order
that the court considers will (a) compensate the injured person...in whole or in part for
the loss or damage” does not mean that he ocurt can award compensation for only
part of hte loss.
 RESULT: s137B enacted to follow the trial judge ruling: that losses can be reduced
proportionate to the Pl.’s responsibility in the loss.
o THEREFORE: in a case decided after I & L- Khoury v Sidhu:
o FACTS: D. corporations di not have reasonable grounds for representing that K’s son
was bankrupt which resulted in Mr and Mrs K taking up short term loans and mortage
to discharge hte son’s loans.
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HELD: compensation “ought to take into account the extent to which the Khourys
share in the repsonsibitliy for that loss.”
NOTE: since state and territories do not contain equivalent provisions of s137B
THEREOFRE: damges will nto be reduced in this manner in under application of their
laws...appliucants who are concerned with teh possibility of having damges reduced should
therefore be advised to bring a lcaim under state or territory laws.
Multiple wrongdoers and proportionate liability:
Pt VIA of CCA provides for apportionment of damges.
the Pl. can recover from each wrongdoer only the proportion of hte loss or damage for hwihc
hte wrongdoer was responsible.
o BUT: only applies fr economic loss or property damage and not for fraudulent or
intentional cause of loss.
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the menaing of the word ‘by’ in “loss or damage by conduct’ [s236 / 237] considered in
Wardley Australia Ltd v Western Australia: :the word clearly expresses the notion of
causation without defining or elucidating it...taking up the common law practical or common
sense concept of causation...”
Henville v Walker per Gaudron J: “common-sense approach requires no more than the act ..
should have materially contributed to the loss or injury suffered”
o common law concepts of causation apply but not rigidly
 ie. look at the terms and objects of hte ACL: supporting interpretation that
promotes fair trading and protection of consumers.
Reliance: causation is established by proving actual reliance.
Misleading conduct does not necessarily aease to have a causative effect merely because hte
applicant makes his or her own enquiries:
o Como Investments Pty LTd v Yenald Nominees: “making of independeitn equiries
which did not revela reason to doubth the truth of what had been represented, does
not require the conclusion that the representeation itself had ceased to have any
effect.”
o Also, fact that Pl. had doubts about the truth of what had been represented does not
mean thatthe representation has csased to have nay effect.
BUT: if the Pl. makes independent enquires and entirely discounts what the D. said, the nteh
misleading conduct may cease to have any operative effect: Elitegold Pty LTd v CM
Holdings:
HELD: evne htogh inquiries and independent investigations may not have been made but for
the representation, BUT does not mean that the transaction was entered into as a result of hte
inducement of the representation.
Inference of inducement:
applicant has the onus of proving causastion BUT the applciant’s burden maybe lightened by
an inference of inducement.
o Gould v Vaggelas: (Wilson J) “if a material represnetaiton is made which is
calculated to induce the representee to enter into a contracta and that person in fact
enters into the contract there arises a fair inference of fact that he was induced to do
so by the rperesntation”
o Como Investments Pty Ltd v Yenald Nominees: “where arepresentation is in its nature
persasive to induce the making of the decision, courts will hold that it had a causative
effect.”
Infernce may be rebutted BUT in the absence of rebuttal, the conclusion inferred will stand:
Campbell v Backoffice Investments Pty Ltd
FACTS: C sold B an interest in a ocpmany called Healthy Water.
o B calimed that C had provided him with information that overstated the sales revenue
and EBIT of HW
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B gave evidence that had he known both of the real figures of hte sales revenue and
EBIT, he would not have purchased the interest in HW.
ISSUE: Evidence of hte overstatement of hte EBIT was not proved – court then had to decide
if B would have proceedied with a purchase of shares had B known that sales revenue alone
had been overstated.
HELD: qualifying Gould:
o Gould dealt with the tort of deceit and the drawing of inference of reliance from the
material representations.
o distingusihign from other cases, the court said that Backoffice attached significance
to the knowledge of both of hte matters that were misrepresented --> THEREFORE,
teh court of Appeal should not have inferred that there was reliance since B did not
say that it would not have entered the share purchases based on the (only 1)
misrepresented fact that it was able to adduce evidence of .
Campbell adopted in MWH Austraia v Wynton Stone
FACTS: W contracted to provide consultancy services to MWH Austrliaa.
o W then merges with another company
o W then asks MWH to sign a ‘novation deed’ which released W from its obligations
under the consultancy contract:
 Cl 4 of the novation deed contained a warranty given by W that the services it
had performed prior to the date ofhte novation deed had been performed in
accordance with teh terms of hte ocnsultancy agreement.
o MWH sues to say that the warranty was misleading because it induced MWh to enter
into the vnovation ded and MWH suffered loss as a conseuquence BUT it led no
evidence that it had relied on the warranty in entering the novation deed.
o MWH argues based on Wilson J in Gould that the causative link could be inferred
from the materiality of the statement and teh fact htat MWH Australia actually
entered into the deed.
HELD: there was no causal link and a narrower approach to inferences was adopted in
Campbell and should be followed – ie. you look at all the evidence that is in front of the court
to see if inference is allowed.
The But for test of causation – “ Would the applicant have entered the contract with hte
respondent but for hte respondent’s misleading conduct?”
MArks v GIO: But for test no longer exclusive test.
o courts have been prepared to hold causative link evne whre the but for test has not
been satisfied:
o Abigroup Contractors Pty LTd v Sydney Catchment Atuhority (No 3)
o FACTS: P. contractor successfully tendered to construct a spillway for a dam for the
D. authority. Authority said htat no plans were avialbel for an outlet pipe BUT in fact,
plans were avialbel and if hte Pl. had seen those plans, it ouwld have known the the
project would require significantly more excavation work
 Pl. sues for additional costs
 Pl. argues that it would not have entered into the contract on the terms that it
did if hte D. had disclosed the relfvant plans.
 D. argued htat hte Pl. would neverthesless have entered into the contract
because it still would not have known tabotu he fuuter excagvation work that
would be required --> ie. But for test not satisfied.
o HELD: causative link between the Pl’s loss and the D’s misleading conduct
estbalisehd even though the ‘but for’ test was not satisfied on the facts.
 “s82 does not operate so simplistically”.
 teh approach to detemrinign causation is to be found it nthe purpose of hte
statute – ie. teh question of causation is answered not by asking what hte Pl.
would have done but for hte misleading conduct but to detmeirne what would
have had to occur for hte D. not to have to be said to have engaged in
misleading conduct.
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Causal link established because had the Pl. seen teh plans, it would have put
in a different tender that took account of hte need to do the additional
excavation work.
o Lockyer Investment Co Pty Ltd v Smallacombe
o FACTS: Pkl. were induced to purchase an irrigation system as a result of misleading
conduct by D. as to its suitabliltiy .Pl . suffers loss thorugh the D’s irrigation system
btu the D. argues htat even if Pl. had used an altenrative system of irrigation (which
would have occurred but for the D’s misreps), a similar loss would still have been
suffered.
o HELD: again, the but for test twould have failed BUT the corut said that the
compensation is not to be reduced by reference to other losses or expenses which
would have occurred if no such inducement had effect.
Failure of but for test – several inducing factors
misleading conduct may not be the only factor that influence s the Pl’s behaviour BUT it only
has to be a cause or factor : Henjo Investmnets v Marrickcville
HELD: “recovery is founded by hte Pl’s actual reliance upon the misleading or deceptive
conduct although taht conduct was not hte only factor in the Pl’s decision to enter a prticualr
contract”
o NB: the position is the same as in common law.
Must the misleading conduct be a significant inducing factor? Yes – must be “beyond the
trivial in inducing the Pl. to enter into hte contract. (Metcalfe v NZI Securities Australia Ltd
per Sackville J)
Cf. Gould v Vaggelas per Wilson J: sufficient if hte represntaiton ‘plays some part even if
only a minor part in contributing to teh fomraiton of hte contract”.
o ALSO: in Henville v Walker per McHugh J: “as long as the breach materially
contributed to hte damage, a causal connection will ordinarily exist even thoughthe
breach without more would not have brought baout the damage”.
Effect of subsequent discovery of misleading conduct
Pl. who learns of hte misleading conduct may not alwas be able to claim damages in respect
of hte losses: Baillieu Knight Frank (Gold Coast) v Susan Pender Jewellery because the Pl.
knew of the misconduct but nonetheless consciously chooses to continue in possession.
BUT: just because you have proceeded to settlemnmt of a contract after learning of the
misleading nature ofhte conduct does not mean that the causal connection is broken: Warwick
Entertainment Centre v Alpine Holdings
FACTS: Warwick Entertainemnt owned a Centre and advertised tenancies in the Centre.
during negotiaitosn between W and A contained misrepresentations that:
o the upper level of the Centre would include vaiorus restaurants and would attract
patrons to the Business
o construction of the Centre would include carparks for patrons
o there would be adequate signage advertising facilities including for A’s business
o tenants in the upper level would not be allowed to sell coffee and cappuccino on its
own because such sales would bne preserved for exclusive sales by A.
o In fact however, tehr was a ‘Candy Bar’ that W knew were going to be situated close
to the cinema and would be directly competing with A – W failed to disclose this fact.
o W also failed to disclose that the original restaurants wer drive through restaurants in
teh centre and the plans that A were given did ntot show other structures that might
have obstructed patrons from entering the caparkign facility to the centre.
ISSUE: A had noticed, after beginning to fit out the shop, that there were various differences
between the plans and the actual layout of hte centre BUT because of hthe large amount of
moen they had already spent on the business, the Pl.s decided that hey ‘had to work hard..and
hope for hte best’
o court therefore had to decide whether proceeding with teh transaction in question was
reasonable having known about the misrepresntaions.
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HELD: Pl. had expended a considerable sum in establishing the business and their decision to
complete the contract rather than terminate it did not sever hte causal connection between teh
loss suffered nadthe misleading conduct.
Failures of hte applicant – ie. to make appropriate investigations regarding the accuracy of
hte respondent’s misleading statement.
usually, this would not negate teh causal link (Harvyn Pty Ltd v Webster per Santow JA
“difficult to see how...because of some supposed carelessnesss by hte party in so relying” that
the causal link is cancelled out)
BUT: court suggested that Pl’s neglect may be so extrme taht it negates the causal link: Argy
v Blunts and Lane Cove Real Estate Pty Ltd- A’s diligence in inspection of the property and
the contract did not in this case neglect the causal link.
Circumventing the parol evidence rule
parol evidence rule prevents extrinsic evidence being giving to add to, vary or contradict te
temrs ofa contract as they appear in the written document
a party misleed by such a pre-contractual promise may be abel to seek a remedy under the
ACL if he is able to establish tha hte pre-contractual promise was misleading.
Italform Pty Ltd v Sangain Pty Ltd
FACTS: S entered into a contract to purchase two tower cranes from I.
o during contractual negotiations I assured S that the cranes could be supplied within a
period of eitght weeks BUT the resulting contract stated “Delivery : Approx. 90 – 150
days”.
HELD: the fact that a contractual remedy is denied to a pl. canont be determinative of
whether a remedy is avialble under s18.
o I’s manager was therefore held to have engaged in misleading or deceptive conduct.
4. EXCLUSION CLAUSES
Fair Trading Act 1989 (Qld) s 107:
This Act has effect notwithstanding that any provision in any contract or agreement purportedly
provides expressly or impliedly to the contrary.
 s107 is aimed that when party enters into a provision with an expressed or implied exclusion
clause, it will act to prohibit the exclusion of liability under the act.
 this means that htere is liabiltliy in the first place which is then excluded.
 so the parties have to accept that there is liability but because of hte excluision clause, one
party cannot sue the other.
o it is not the same as a clause that prevents liability from arising in the first place – a
disclaimer.
 The leiglsaiton was broadly worded which allows judges to behave flexibly.
 Campbell v. Backoffice Investments Pty Ltd (2009) 238 CLR 304.
 FACTS: Clause in the contract saying “we do not rely on any representation made by the
defendant” which was trying to show that htere was no causal link between the deceptive
conduct and the loss.
 HELD:
o (French CJ) it is a quesiotn of fact depending on the indiidvual case – how effective
the acknowledgement clause is.
o “whether conduct is misleading or deceptive is a question of fact to be decided by
reference to all of the relevant circusmtnaces of which hte terms of the contract are
but one.”
 NOTE: because s18 was a consumer protection provision aimed at protecting hte public from
misleading conduct, it would be contrary to public policy for an exclusion clause to preclude
its operation.
 Courts are likely to read down the effect of exclusion clauses : NEA Pty LTd v Magenta
Mining
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FACTS: D. stated htat crushing equipment it hired to the Pl. was fit for the purpose of
crushing ore stockpiled by the Pl.
o contract included an exclusion clause 8: “no warranty or condition expressed or
implied is given by hte owner as to the condition of hte plant or as to the suitability or
fitness ofthe plant for any purpose”.
o nothing else was said to the Pl .to dispel the misrep that hte equipemtn was fit for the
relevant purpose.
HELD: (Martin CJ) important to differentiate between a factual siautation wher one party
makes it clear to hte other party that information provided may not be reliable (ie. that there is
no liabitliy from the very beginning – a disclaimer effectively) vs. a situation in which there
is nothing more than a contractual provision which attempts to limit liability.
o in this case, clause 8 only worked to prevent any term from being incorporated into
hte contract realting to the condition of hte equipment
 did not negate the misleading or deceptive nature of hte representation made
by the respondent.
Disclaimer or contractual provision can only affect statutory liability if:
1. it has the effect hat teh relevant conduct cannot e properly characterised as
misleadindg or deceptive (ie. the conduct that is alleged to be misleading
encompasses the inclusion of the exclusion clause with teh result being that hte
conduct is no longer misleading)
 in this sense, the inclusion of hte exclusion clause means thath e ocnudct is
no longer misleading.
 Not so in: Havyn v Webster
 FACTS: brochure said that each flat was approximately 63 square
metres in area and included a disclaimer that said “the information
contained herein...has been supplied to us and we have no reasons to
doubt its accuracy, however, we cannot guarantee it.”
o the real estate agent had provided tha figure by ‘pacing out’
part of one of hte units in the block.
 HELD: the manner in which teh area was calculated was so
haphazardly done that the disclaimer ddi not negate the misleading
represtentation
o the disclaimaer that the agent had no reason to doubt its
accuracy was untrue.
2. OR it has the effect that he Pl.l cannot successfully establish that it reasonably relied
on teh misleading conduct. (ie. the conduct was misleading BUT because of the
exclusion clause, the Pl. cannot be said to have relied on it)
 Poulet Frais Pty Ltd v The Silver Fox Company
 FACTS: D. used a disclaimer at the itme of providing infomriaton that
required teh Pl. to sign an acknowledgment claused and included a merger
clause in the resulting contract.
 Multiple documents givne by the D. showed that it gave no guarantee
that the estimates it gave would be achived and that the Pl .should
make its own enquiries and seek legal and financial advice before
signing the franchise agreement.
 ultimately, the estimates of hte likely level of sales and profitability
of htee franchise were not met
 HELD: the Ds were not laible because it was “not easy to see how the D
oculd have made more clear than it did that it was making no
rperesntatations...even if hte methods used by hte D. did not negate a
misleaaidng impression, the Pl. could not have proved that it relied onthe
information provided by hte reposndents.
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for a disclaimer to negate potentially misleading concduct, it mnust be ( 3 requirements) :
o worded unambiguously
o feature prominently
o must be commmunciated to he reader that teh disclaimer is relevant othte information
it is seeking to qualify.
 one way to make hte disclaimer clear is to say that it was a mere ‘conduit’ = like in Yorke v
Lucas where the D., having acted honestly and reaosnbly , although engaged in conduct that
was misleading, it had made it clear that it was not the source of he information and was
merely passing it onf for what it is worth. HELD: disclaimer effective in preventing liability
from arising in the first place.
 Disclaimer was effective in Butcher v Lachlan Elder Realty
 FACTS: Disclaimer in the brochure said “all information contained herein is gathered from
sources we belive to be reliable. Hwoever, we cannot guarantee its accuracy and interested
parties should rely on their own enquiries”.
 HELD: important that he agent’s conduct be viewed as a whole = everything that hte agent
did up to the time when the purchasers contracted ot buy the land must be taken into
accocunt.
o court looked at:
 nature of hte parties involved
 short length and brevity of hte brochure
 the lciamants were sophisticated buyers who had access to legal and other
professional adviace whilst teh D. were small real estate agents.
o (McHugh J in dissent) took the conduct of hte D. to include its actions during the
inspection whereby it had told Butcher that it wos sceptical about the pool that it
wanted to build but whre it did not reinforce the disclaimer.
o (Kirby J in dissent) the disclaimer wqas in tiny font nad majority placed incorrect
emphasis on the relationship between the parties.
 Acknowledgment clauses: where one or both parties declare that in entering into hte
contract, no reliance was palced on any represnteatiosn made by the other contracting party.
 Campbell v Backoffice Investments summarising the effects of such clauses: “if a person
expressly declares in a contractual document that he or hse did not rely upon pre-contractual
representations, thatdeclaratoin may be evidence of no-reliance and of want of a causal link...
o BUT “in many cases, such a provision will not be taken to evidence a abreak in the
causal link.”
 eg. where the acknowledgment lcause was not enough to break the causal link between hte
representation and the contract formation: I00F Australia Trustees (NSW) Ltd v Tantipech
 FACTS: Pl. eneterd into a lease of a shop in a shopping centre and signed a separate deed of
acknowleedgment that stated in cl 1 that the Pl. confirmed that it had only relied on the
statements in Cl 2 and nothing else.
o Cl. 2 identified two represntaiotns – neither of which related to hte number or
proportion of leases which were likely ot be entered into by teh D. It also included an
indemnity clause that the Pl. agreed to indemnify hte D. against any calim he might
make in respect of statements other than those in Cl. 2 --> effectively, Pl. would not
be able to sue on other repsresntatiosn.
o the D. had misrepresented that hte centre had already leased out 80% of its shops.
 HELD: court made a finding in fact hat Pl. was induced by the misleading conduct to sign the
deed and did not understand that the ded related to represnetatison about the occupancy of
surrounding shops.
o deed was therefore not effective in barring the claim.
o ie. the exclusion clasue was part of the whole conduct of hte D. which was held tobe
misleading.
READING
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Paterson, Robinson and Duke, Principles of Contract Law, Ch 33.
NB The current edition of Carter, Peden and Tolhurst pre-dates ACL 2010 and should be treated with
caution.
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LECTURE 3: DURESS
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much more extensive a defence that it used to be.
in circumstances wher a contract is entered into or modified (ie. parties are already in a
relationship and hte contract is modified) where there i s duress, the contract is voidable = ie.
it can be rescinded
o note, the limits on rescission will still apply.
Party’s consent may be impaired when they had been a party to a contract: impairment results
from the abuse or exploitation of a position of influence or advantage by the D. at the expense
of hte Pl.
Person who is induced to enter into a contract by abusive conduct which falls within one or
more fo these categories can have the contract rescinded by the courts.
o WHY? because it would be unconscionable for hte D to retain any benefits obtained
under hte contract, given hsi or her imporper behaviour and the rersulteant
impairment of hte Pl’s consent.
distinction may sometimes be drawn in contract law between procedural unfairness and
substantive unfairness
o judge made law has genealrlly been concerned with procedural unfairness BUT: it is
clear hta substantive unfairness may be evidence of procedural unfairness.
o only when there is illegitimate pressure then there is impaired consent / compulsion
of will.
in the past, the courts were very reluctant to allow contracts to be set aside for duress – it was
very narrow.
There are 3 sorts of duress:
o duress to the person
o duress to the goods
o economic duress
 economic duress is a relatively new concept since the 1970s.
1. THE ELEMENTS OF DURESS in the defence of duress
 Universe Tankships Inc. v. International Transport Workers Federation [1983] 1 AC 366,
400 Lord Scarman:
 “[there are] two elements in the wrong of duress: (1) pressure amounting to compulsion of
the will of the victim; and (2) the illegitimacy of the pressure exerted. There must be
pressure, the practical effect of which is compulsion or the absence of choice.
 Compulsion is variously described in the authorities as coercion or the vitiation of consent.
 The classic case of duress is, however, not the lack of will to submit but the victim's
intentional submission arising from the realisation that there is no other practical choice
open to him. This is the thread of principle which links the early law of duress (threat to life
or limb) with later developments when the law came also to recognise as duress first the
threat to property and now the threat to a man's business or trade.”
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This breaks down into 2 elements in duress:
o Pressure that is illegitimate
 what is illegitimate pressure?business involves commercial pressure. the
difficulty is distinguishing between commercial pressure and duress.
o Pressure that causes the plaintiff to enter into the contract
Scarman L was trying to make the defence of duress more broad.
o in most of these cases, they are concsiocus that theey are consenting but they are
consenting because they are fearful.the victim intends to consent but it is just that hte
consent was made out of illegitimate pressure.
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These elements are applied differently depending on the type of duress. The courts are
generally more prepared to render contracts voidable for duress to the person and duress to
property than economic duress.
issue in duress is distinguishing between negotiating strategies that result in a valid contract
and illegitimate pressure that results in a contract liable to be set aside.
2. DURESS TO THE PERSON
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There is never a difficulty in saying that actual violence or threat of violence to a person or
close relative is illegitimate pressure.
Barton v. Armstrong [1976] AC 104
FACTS: B. and A. were major shareholders in a company. both wanted control of hte
company. A decides that he wants B to buy his shares in order to make quick returns on very
generous terms. A says that “if you don’t buy these shares on these terms, I will murder your
family”.
o B took the threats seriously BUT there were also good business reasons for executing
the deed.
HELD: Austrtalian trial judge: the threat was absolutely clear on the evidence but
nevertheless, they said that the reason B bought the shares was not because of the threat but
because B wanted control of the company.
o what was the required link between the illegimtiate pressure and tehcontract?
(element 2)
(Privy Council) were keen to allow duress as a defence – reversed trial judge decision.
o It is perfectly enough to hsow in cases of duress to the person that the duress only
needs to be a cause of the contract. There were other reaonss but once you can show
tha thte threat was a cause for entering into the contract (there’s not an issue about
the illegitimacy of the pressure), the onus is on the D. to show that the threats were
not a cause.
o Pl. should therefore succeed in obtaining relief even though he could not show that ,
but for hte threats whe would not have signed the deed.
ie. the position is very attractive in cases wher you want to show that there was a duress
(illegitimate) to a person and that the duress was a cause in entering into the contract
o the onus then goes to the other side to show that it was not a cause to enter into the
contract.
courts are willing to apply ‘duress to persons’ widely.
duress to the person need not be the sole cause, may be a tiny cause.
3. DURESS TO GOODS
 Duress to goods is also long established. Duress to goods involves taking someone’s goods
or threatening to do so. Initially it was possible to recover payments made under duress to
goods:
o ie. you have my goods, you demand payment from me before you return my goods
 Skeate v Beale
 FACTS: ther was a promise to pay money for the reutnr of goods detained nad threatened to
be sold because of alleged arrears of rent.
o promisor paid
o BUT promisor then argues that the payment was induced by duress
 HELD: the defence failed because (Lord Denman CJ) “an agreement is not void because
madae under duress of goods...the fear that goods maqy be taken or injured does not deprive
anyone of his free agency”.
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ISSUE with Skeate’s ruling is that it sit unsasily with the recognised right to recover
back money paid to prevent the unlawful seizure of goods or to obtain goods actually
seized --> ie. the doctrine of restitution.
 “leads to the absurd result that if A paid money under duress of goods, he
could recover the money paid but iif he eneterd into aa contract to pay money
under similar duress, he could not aovid the contract and would be oboligaed
to pay hte money due thereunder”.
NOW: it is accepted that threatened detention or seizure of goods, or threatened damage to
goods, is within the scope of duress in contract law
o Kerr J in Occidental Worldwide Investment Corps (The ‘Siboen’ and The ‘Sibotre’)
“if I should be compelled to sign a lease or some other contract... under immediate
threate of having my house burnt down...though without any threat of physical
violence to anyone, I do onot think the law should uphold the agreement.
Distinguish Skeate v Beale: on the basis that hte Pl. of the threat to sell the goods had a real
alternative to submission in the circumsntaces --> ie. he oculd have an action in court but he
chose not to pursue it.
Astley v. Reynolds (1731) 2 Str 915
FACTS: R said that A’s plate could not be recoverd unless A pays more interest.
HELD: the overpayment was recovered under duress to goods.
The duress to goods could be used to avoid a contract:
Hawker Pacific Pty Ltd v. Helicopter Charter Pty Ltd (1992) 22 NSWLR 298
FACTS: Pl. owned a Helicopter. Helicopter needed maintenance and the D. agreed to repaint
it. the cost of repainting was relatively high at $5,200. The work was unsatisfactory and
further work was done and theprice was increased to $5,550. The Pl. was still not satisfied but
the helicopter is returned again to the D. The Pl.’s employee goes to retrieve the helicopter
and the D. says that he can have his helicopter if the Pl. agrees to pay a further $4,300 and
release D. from any further liability – wanting to avoid litigation against D. for unsatisfactory
paint. Pl. signs the agreement, takes the helicopter but refuses to pay.
ISSUE: was the Pl’s entrance into the agreemnte a result of duress?
HELD: Duress can be used to avoid the contract ass well as compensation for the money paid.
The threat to withhold the helicopter need not be expressed, it oculd be implied. The way that
the D. went about making Pl. sign the agreement was in itself sufficient.
o Pl. believed that hte D. would prevent hte helicpopter being taken away unless the
document was signed.
o D. knew that hte helicopter was needed urgently for a charter that day.
o it would have been different if the Pl. had affirmed the contract in some way or where
there have been an estoppel BUT on the facts, neither of these were present.
Duress of goods which is a cause for the other party to enter into the contract allows the
contract to be avoided.
Duress of goods and duress to person allows the contract to be set asidewhere the duress is a
cause for entering into the contract.
4. ECONOMIC DURESS
 Economic duress is a much more recent development. It covers two main situations.
 In the first: a plaintiff has made a payment under economic compulsion in the absence of a
contract or where there is a contract without consideration.
 In the second situation there is a contract modification.
o One party threatens to breach an existing contract unless the other agrees to pay more
or accept less performance than was originally due. The question arises whether the
contract modification is valid.
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o
o
the contract is modified in a way that is attractive to a person exercising economic
duress.
when there is contract modification : first issue = whether or not the modification will
be supported by consideration -> second issue is wehtehr or not the modified contract
is voidable by virtue of duress.
a. Category 1: Recovery of payments in the absence of a contract or consideration.
 Smith v. William Charlick Ltd (1924) 34 CLR 38
 FACTS: Pl. was a miller. pl. needed wheat for his job and he bought his wheat from the wheat
harvest board as constituted by regulations. The Board ahd agreed to the price and that was
fine. The wheat was delivered and paid for at the agreed price. The Pl. was told that unless
they agreed to pay additional sums demanded by the board, the board may not supply the Pl.
with wheat any more. At the time, the Pl. was not able to purchase wheat from any one other
than the board.
o Pl. would not be able to continue his businesss as a miller unless he paid the money.
o Pl. paid and sought to recover his money back.
 HELD: Pl cannot recover his money because the pressure was not illegitimate.
 TA Sundell & Sons Pty Ltd v. Emm Yannoulatos (Overseas) Pty Ltd (1955) 56 SR (NSW) 323
o broader view was adopted of economic duress
 HELD: in Smith, the claimant had failed because hte threat not to deliver the wheat in teh
future did not infringe any fo the Miller’s existing rights – it was about future deliveries.
o that was not a legitimate limitation.
b.
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Category 2: Economic duress in the presence of a valid contract – can the contract
then be set aside?
o courts are reluctant to set the contract aside for economic duress because they do not
liek interfereing with contractual relationship unless they have to
 BUT: now its become more important.
o it is difficult to determine whether economic duress has been committed.
o Duress to goods and duress to persons are clearly identifiable BUT the problem with
economic duress is didentifying in what sense the pressue is illegitimate.
o How do we decide between legitimate commercial pressure and economic duress?
 courts do not find it easy to distinguish
o the only way to address the issue is to look at the way in which teh case is argued.
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd
FACTS: shipbuilding company contracted to buld a tanker for prospective owners at a fixed
price in US dollars.
o payments were to be made in instalments
o after hte owners had paid the first instalment, the US dol,ar was sdevalued by 10%.
o shipbuilder wanted to claim 10% more in the remaining instalemnets
o it declined to go to arbitration and said htat if hte owners did not agee to pay the
extrea moeny, it would terminate the contract and return the first instalment.
o owners had already entered into a lucratigve agreement to charter the tanker upon
completion therefore, they knew they were not obliged to pay but would do so “in
order to maintain amicable relationship and without prejudice to our rights”.
o at the owner’s request, the company increased an existing letter of credit.
o After paying hte final instalment “in full and final settlement” the owner took
delivery of hte ship BUT 8 months later, claimed return of hte 10 percent excess.
HELD:
o by increasing hte letter of credit, consideration was for hte promise to pay the extra
10 per cent BUT thee agreement to pay was made under duress int he form of
economic pressure
 ie. the threat by hte shipbuilder to break the orgiina lcontract
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shipbuilding company had been adamant in insisting on the cincrease and would have
been unreasonable to expect the owners to lciam damages in arbitration with all the
inherent uncertaintites of litigation.
o shipbuilding contract would therefore have been voidble because of hte illegitimate
pressure hte shipbuilding company had applied
 whether or not ti was in good faith or not is irrelevant.
o BUT: the oweners had affirmed the varied contract by their overt acts of :
 falilling to protest when final payment was made
 deleay of 8 months after delivery of htetanker in putting forward a claim.
o owners had no reason to believe that if they had made a proetest in the protocol of
delivery and acceptance, the shipbuilders woud have refused to deliver the vessel
 ie. it understood that it was under no obligation to produce that increase in
letter of credit.
The Siboen & The Sibotre [1976] 1 Lloyd’s Rep 293
FACTS: a ship was chartered and the charterers to the ship owners that unless teh charter
price was reduced,they would go into liquidation. ship owner had a problem because the
charter marketed at the itme was in a poor state – there wre other circumstances such as high
oil prices – difficult circumstance to ship owner. If ship owner had not agreed to lower price,
the charterers would have gone bust. The parties agreed to the modification and the ship
owner accepted a lower price.
o Ship owner then argues taht the modification was athe result of economic duress and
should be set aside.
HELD: economic duress was a ground for setting aside a contract.
o authority that if you can show economic duress, you can set the contract aside BUT
on the grounds of hte facts, there was no economic duress, there was only commercial
pressure.
many early authorities accept the principle ttaht a contract can be set aside for economic
duress but they do not actually do it.
Pao On v. Lau Yiu Long [1980] AC 614
FACTS: the Pl. agreed to sell a building under construction to the D. However, payment for
hte building was to be made by a share swap. Parties entered into a share swap agreement
which the building owners realise was not advantageous to them. The building owners said
that htey would terminate the contract unless the party was willing to pay the increased price.
ISSUE: was the contract a product of economic duress?
HELD: no, economic duress could in theory be used to set aside the contract but on the facts
,this was only commercial pressure.
o fear in losing out on buying the building was only commercial pressure – therefore
legitimate.
Pao On applies the overall theory that the courts used to adopt a view of duress that duress
occurs only when there was no consent BUT the narrow view aht th duress can only be used
where there is no consent has been rejected in the 1980s.
o in 1980s, the courts look whether th epressure was illegitimate instead of looking at
the will of the party being overborn by the pressure.
o moving away from the overborn will theory to the two fold test by Lord Scarman.
c. When is there economic duress? Australian definition of ‘economic duress’
 Crescendo Management Pty v. Westpac Banking Corp (1988) 19 NSWLR 40
 HELD: (McHugh J) in determining whether there is econoicm duress, there are 2 questions:
o did the pressure induce teh person into entering the contract?
o was the pressure beyond what the law would count as legitimate? ie. was it
illegitimate?
 McHugh J’s definition was very like Lord Scarman’s approach but questions arise as to:
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o What extent do the Pl. hve to be induced to enter into the contrac
and – pressure implied to induce contract.
o What extent tdo we consider teh pressur illegitimate?
What pressure is illegitimate?
d.
 What precisely the law is prepared to countenance as “legitimate” begs the question which
needs to be answered in characterising particular conduct as impermissible economic duress
(on the one hand) or the permissible (even necessary) operation of the market economy (on
the other). There is no doubt that in some circumstances commercial pressure may constitute
duress.
o Oen view may be to focus on whether hte threat coerced the Pl. to acceded to the
demand (ie. whether hte Pl’s consent was impaired by hte threat)
 impaired consent? = whent he pl’s will is so overborne that he or she is said
to be incapable of acting as afree and independent party.
 generally accepted that a contract procured by duiress is not void but
voidable at the discretion of the pl.
 impaired = the Pl’s will is not destroyed or negated.
 the pl. does consent but it was given because there is no other practical choice
open. Per McHugh J in Crescendo Management Pty Ltd v Westpac Banking
Corp “a person who is the subject of duress knows only too well what he is
doing. Buit he chooses to submit to thedemand or pressure rather than take an
alternative course of action.”
o other view : looking at hte issue of causation
 ie. whether or not there actually was a threat by the defendant in initiating renegotiation of a contract.
 the main question is whether hte illegitimate pressure was at least a factor in
influencing hte Pl’s decision to enter into the contract. (McHugh J in
Crescendo Management)
 in considering whether the illegitimate pressure caused the Pl. to enter into
hte contract, a number of factors may be relevant:
 did the pl. protest?
 did the pl. seek independent advice?
 Did the PL. take expeditious steps to set aside the contract after
entering into it? (Pao On v Lau Yiu Long)
 the more serious the threat, the less the pl. wil be expected to do by
way of protest and the fewer alternatives will be available to him or
her.
o ie. that the distinguishing between commercial pressure and economic duress is
flawed.
o different judges take different views on different facts.
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Crescendo Management Pty v. Westpac Banking Corp (1988) 19 NSWLR 40
HELD (McHugh J): pressure can be illegitimate if it is unlawful but not just if it is unlawful.
o “proper approach is to ask whether any applied pressure induced the victim to enter
the contract...whether that pressure went beyond wahat hte law is prepared to
countenance as legitimate? Pressure will be illegitimate if it consists of unlawful
threats or amounts ot unconscionable conduct....the categories are not closed.”
o this approach is vague enough to afford discretion to the judges – “did the applied
pressure induce the party into entering the contract” is a question of fact and “when is
the pressure illegitimate?” is not clearly defined at all.
Cases that say that duress may be confined only to cases where the pressure is unlawful:
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Equiticorp Finance Ltd v. Bank of New Zealand (1993) 32 NSWLR 50, 106 (Kirby
P.): the part of duress concerned with lawful acts might better be seen as an aspect of
the doctrtines of undue influence and unconscionable dealing.
 Kirby P says that it is terribly danagerous if the courts start replacing the
contractual agreements of the parties because courts are not equipped to do
so.
 Betwene commercial parties, commercial parties want certainty and to have
their terms to be able to be freely negotaiated and adhered to.
 Kirby P argues that economic duress might be better dealt under undue
influence and unconscionability.
 he argues that it is ridiculously uncertain when the court will say
thathte pressure was illegitimate.
 BUT note the advantages of the vague test gives judges a bit of leeway.
 economic duress can be used to set the contract aside.
 ISSUE: extent to which the econimc duress has to cause the contract relationship between duress and contract.
o Australian and New Zealand Banking Group v. Karam (2005) 64 NSWLR 149
 “’duress’ as limited to threatened or actual unlawful conduct. The threat or
conduct in question need not be directed to the person or property of hte
victim.”
 “if the conduct or threat is not unlawful, the resulting agremenet may
nevertheless be set aside where the weaker party established undue influence
or unconscionable conduct”
 “where the power to grant relief is engaged because of a contravention of a
statutory provisions, the court may be entitled to take into account a broader
range of circumstances than those considered relevant under the general law”.
 equally suggesting that undue influence and unconscionability are better
ways for dealing with economic duress in dealing with these cases BUT
because it is not a high court case, econimc duress still exists. (agreeing with
Kirby J in Equiticorp)
NOTE: the English approach is for economic duress cases to be placed under the doctrine of
‘unconscionability’.
BUT: indication that illegitimate pressure may not necessarily be confined to unlawful
conduct only - Crescendo per McHugh J: Even overwhelming pressure, not amounting ot
unconscionable or unlawful conduct will not necessarily ocnstitue economic duress.
Mitchell v. Pacific Dawn Pty Ltd [2007] QCA 74 [7] Keane JA:
Duress and unconscionable conduct are distinct doctrines with different bases and incidents:
they are not different ways of describing the same doctrine. The expression ‘illegitimate
pressure’ is not a synonym for ‘unconscionable conduct’.
[52] a threatened breach of contract is not always illegitimate – you have ot look if the person
has acted in good or bad faith.
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R Bigwood, ‘Throwing the Baby out with the Bathwater - Four Questions on the Demise of
Lawful-Act Duress in New South Wales’ (2008) 27 University of Queensland Law Journal
41.
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Is protest relevant?
o ie. there has been an economic dduress and parties have entered into a contract but
they have protested about it. The issue is whether the fact of the protest is a factor in
considering whether or not there was economic duress.
Mason v. New South Wales (1959) 102 CLR 108, 143
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FACTS: econocmi duress by payment
HELD: a protest is a factor “but there is no magic in the protest”.
Universe Tankships Inc. v. International Transport Workers Federation [1983] 1 AC 366,
400
Lord Scarman: the victim’s silence will not assist the bully if the lack of any practical choice
to submit is proved.
o ie the lack of practical choice is a factor for Lord Scarman.
The problem of commercial pressure:
o even if hte facts of the cases are quite similar, different results have been reached in
the court’s conclusion in whether or not there had been economic duress.
Smith v. William Charlick Ltd (1924) 34 CLR 38 cf White Rose Flour Milling Co Pty Ltd. v.
Australian Wheat Board (1944) 18 ALJ 324
o White Rose: difference in facts from Smith, is that the Wheat board said that they
would not deliver unless White Rose paid more even though the contract was a fixed
term contract. White Rose pays.
o Cf. Smith, the payments could be recovered.
o great weights were placed on the facts that he payment wre not voluntary but was
made to ensure continuous supply. since hte board controlled the supply of wehat in
the market at the time, the Pl. would have gone out of business had they not paid the
extra charge.
o Two cases that looked quite similara yet in Smith, it was found tha the money was
only pressured thorugh legitimate commercial means.
The Siboen & The Sibotre [1976] 1 Lloyd’s Rep 293 cf Atlas Express v. Kafco Ltd [1989] QB
833
o Siboen: the charter price was reducecd but that was said to be commercial pressure.
o Cf. Atlas: FACTS: A. was a courier company that delivered goods. A underquoted on
the contract for carrying K’s goods. A realised that he had made a mistake and said
that he would not deliverr K’s goods unless K agrees to pay double. K really has no
choice because the retailers that they wanted to deliver the goods to prior to
Christmas was their main market and other couriers were busy and unavailable.
 ISSUE: was this economic duress or commercial pressure?
 HELD: it was economic duress.
Can a refusal to contract ever be regarded as duress?
o courts have wisely not accepted any general principel that at hreat not to contract with
another may amount to duress BUT: there may be statutory remedies or the doctrine
of ‘unconcsioncable concduct’ that may provide relief.
e. What is the causal link?
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Crescendo Management Pty Ltd v. Westpac Banking Corp (1988) 19 NSWLR 40
HELD: the same tests that were used in establishing causal link in duress to goods and duress
to person is used – ie. Pl. only has to show that it was a cause and the other party has to prove
it was not.
o McHugh liberalises economic duress because of the low causal threshold that he
imposes.
News Limited v. Australian Rugby Football League Ltd (1996) 58 FCR 447
o present situation in Aus is unclear
o Lord Goff: in cases of economic duresss, it is not enough that he duress was a cause,
it has to be a significant cause.
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ie even if you can demonstrate tha the pressure was illegitimate, it is not
enough to show that it is a cause, you have to show tha it is a significant
cause.
Contrast the position in the UK where the causal threshold for economic duress is definitely
higher see DSND v. Petroleum Geo Services ASA [2000] BLR 530; Huyton v. Cremer [1999]
1 Lloyd’s Rep. 620 which hold that the economic duress must be a significant cause or but for
the economic duress the contract would not have been entered into.
5. REMEDIES
a. Rescission – economic duress is a ground to rescind the contract.
a. if there is evidnce of affirmation after the contract was lifted, then the contract cannot
be rescinded – general rule of rescission / bars to rescission.
b. particularly important in economic duress cases is where there is some duress but he
duress is lifted.
c. DIFFICULTY: Alati rescission in integrum – BUT equity wil allow various financial
allowances even ifvit was impossible to restore the parties to exact legal position.
b. Restitution – money paid under duress may be recovered.
a. BUT: if there is a contract, restitutuion is not avialbel for the claiming back of
benefits conferred under the contract
i. to claim back the benefits, the Pl. must first rescind hte contract.
c. Damages
a. The Universe Sentinel [1983] 1 AC 366, 385 (Lord Diplock); 400 (Lord Scarman)
suggesting htat duress was a tort which gave rise to claim in damages in tort.
i. BUT: no subsequent concurring view in Aus or England
6. Statute
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NOTE: under ACL s20 (1) “a person must not in ntrade or commerce engage in conduct that
is unconscionanble within the unwritten law from time to time”
o overlapping with the common law of duress
o NOTE: remedies under teh statute might be different – s236 ; 237 gives rights to
damages and various other orders = wider range of remedies than in common law
o common law is really confined to rescission and restitution of money paid.
There are limititions within the statute (iue. ttade or commerce limitation).
READING
Paterson, Robinson and Duke, Principles of Contract Law, Ch 34.
Carter, Peden and Tolhurst, Contract Law in Australia, Ch 22.
SA Smith, ‘Contracting under pressure: a theory of duress’ (1997) 56 CLJ 343
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LECTURE 4: UNDUE INFLUENCE AND UNCONSCIONABLE
CONDUCT
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Issues: relationship between the different doctrines.
o undue influence is relatively less important because of hte other two doctrines.
1. WHAT IS UNDUE INFLUENCE?
 is an equitable doctrine
 applies to contract but also applies to gifts too.
 where a gift or contract has been procured by undue influence, then the contract can be set
aside.
 courts have been keen to avoid in allowing undue in fluence for allowing bad bargains to be
set aside.
o eg. A sells B land and the sale is at a significant under value
o the law of contract : coursts generally don’t inquire into the value of consideration.
considerataion need not be adequate – freedom of contract.
 focus is on the exploitation of a realitonship of influence :
o wher prior to making the contract, the D exerted undue influence which preventd th
Pl. from making n independent judgment in enterintg into the contract.
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Difficulty in undue influence – defniitino? it is vague.
ther are not that many undue influence cases in Australia.
Allcard v. Skinner (1887) 36 ChD 145, 183,
FACTS: gift was given to religious body.
HELD: Lindley LJ: ‘no court has ever attempted to define undue influence’.
o WHY? because equity has always been more flexible than the common law. + given
strict definition of undue influence means that epopel will try to find ways around it.
o He did however give some indication of what undue influence involved:
o “some unfair and improper conduct, some coercion from outside, some overreaching,
some form of cheating and generally, though not always, some personal advantage
obtained by a donee placed in some close and confidential relation to the donor.”
 TWO MAIN FACTORS:
 some relationship between parties
 some sort of improper conduct
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Influence itself is not per se objectionable, Allcard v. Skinner (1887) 36 ChD 145, 157
HELD: (Kekewich J) “few, if any men, are gifted with characters enabling them to act, or
even think, with complete independence of others, which could not largely exist without
destroying the foundations of society.”
o there is a scale: at the one end, there is no influence between the parties entering into
the contract
o at the other end, there is a total loss of autonomy : eg. in cases of physical duress
where on the continuum, the question is where the courts draw the line.
o BUT: undue influence sits between those two extreme ends.
o Question is deciding where the line has to be drawn – it is a vague exercise.
At some point on the scale between no influence and loss of autonomy the law intervenes.
There is no fixed meaning of excessive. It will not generally be necessary to show a loss of
autonomy (Tufton v. Sperni [1952] 2 TLR 516)
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 What is improper or unconscionable use of influence?
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Royal Bank of Scotland v. Etridge (no. 2) [2002] 2 AC 773, 795 Lord Nicholls:
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Equity identified broadly two forms of unacceptable conduct. The first comprises overt acts
of improper pressure or coercion such as unlawful threats (ie. actual undue influence). Today
there is much overlap with the principle of duress as this principle has subsequently
developed.
The second form arises out of a relationship between two persons where one has acquired
over another a measure of influence, or ascendancy, of which the ascendant person then takes
unfair advantage. (ie Presumed undue influence.
Johnson v. Buttress (1936) 56 CLR 113, 119 (Latham CJ): The jurisdiction of a court of
equity to set aside gifts inter vivos which have been procured by (category 1) undue influence
is exercised where undue influence is proved as a fact, or where, undue influence being
presumed from the relations existing between the parties the presumption has not been
rebutted (Category 2). Where certain special relations exist undue influence is presumed in
the case of such gifts.
o eg. if A wants to get the contract set aside on teh bassi of uindue influence.
 in the first category, actual undue influence, A needs to show ahthte contract
was procured by actual undue influence
 the relationship between the parties area not important, it is similar
to duress but undue influence is much wider.
 ie. have to show thath e other party exercised undue influence over
them.
 in the second category, presumed undue influence, is that the presumption
can be rebnutted that as a result of hte relationship between the parties, one
party exerciswes undue influence over the other.
134 (Dixon J): The basis of the equitable jurisdiction to set aside an alienation of property on
the ground of undue influence is the prevention of an unconscientious use of any special
capacity or opportunity that may exist or arise of affecting the alienor's will or freedom of
judgment in reference to such a matter. The source of power to practise such a domination
may be found in no antecedent relation but in a particular situation, or in the deliberate
contrivance of the party. If this be so, facts must be proved showing that the transaction was
the outcome of such an actual influence over the mind of the alienor that it cannot be
considered his free act. But the parties may antecedently stand in a relation that gives to one
an authority or influence over the other from the abuse of which it is proper that he should be
protected.
 There are two main categories of undue influence:

Class 1 Actual undue influence: the pl can actually prove undue influence
o necessary to prove that undue influence was exercised.
o wider than duresss because more behaviour will be recognised as aa grounds for
setting the contract aside.
 Class 2 Presumed undue influence: there are two categories of presumed undue influence:
a. That they were within one of the classes of relationship of influence is automatically
presumed
i. where thereee are cetain classes of relationship where influence is automatically
presumed
ii. eg. parent and child.
iii. parties are in a relationship that the law automatiicaly presumes undee inlfuence
iv. BUT: may be rebutted.
OR
b. The relationship is not within the special class of relationship but in fact the relationship is a
relationship of influence can be proved.
i. actual undue influence need not have been proved
ii. here, merely trying to establish a presumption
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iii. once you can establish a relationship between the parties, there is a presumption that
undue influence applies.
iv. ie. you have to show that tit is a relationship of influence.
Issues with presumed undue influence – do you have to show taht the transaction was
disadvantageous to you?the law is unclear on this pointn.
2. ACTUAL UNDUE INFLUENCE – one has to prove that, not just a presumption, but there
was actual undue influence that the Pl.’s entry into the transaction cannot be said to be a free
act by the Pl.
 Summary of the requirements ot prove so: Bank of Credit and Commerce International SA v.
Aboody [1990] 1 QB 923, 967 (Slade LJ): a person relying on a plea of actual undue influence
must show that (a) the other party to the transaction (or someone who induced the transaction
for his own benefit) had the capacity to influence the complainant; (b) the influence was
exercised; (c) its exercise was undue; (d) its exercise brought about the transaction.
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Williams v. Bayley (1866) LR 1 HL 200
FACTS: a son was a dishonest individual and had forged his father’s signature on vaiorus
bank notes. son then spent the money carelessly on ‘loose living’.
o bank summoned the fathrer to see the bank manager.
o bank wanted the money returned.
o bank told father “Will you take over repsonisbiltiy for your son’s debts” Father
replies “I will.”
o the debt is secured overhte father’s business by waty of equitable mortgage.
ISSUE: whether the transaction that hte father agreed with the bank to pay out his son’s debts
was a result of undue influence.
HELD: on the facts, there was undue influence by the bank against he father.
o the only motive to inducve the father teo adopt the dad qwas the hope that by doing
so, he would relieve the son from the inevitable conseuqneces of his crime
o the bank said that if dad paid this money, the bank would nto go to the police for
fraud – under that presre, the father agreed.
o TEHREFORE: the bank had insinuated that hte son would pay criminal prosecution
unless the father paid the debt.
o Father therefore paid the debt because hte bank had threatened to go to the police =
undue influence.
o was said that perhaps had the faather had independent legal advice, the transition
would have stood as not being unduely influenced – but on the facts ,there were not
any.
Actaul undue influence can exist between husband and wife. IF you prove that hte hubsnd or
wife exercised undue influence over you, the nthe contract can be set aside.
Farmers’ Co-operative Executors & Trustees Ltd v. Perks (1989) 52 SASR 399
FACTS: wife transferred her interest as tenant in common in a farming property, jointly
owned by herself and her husband ,to the husband.
o evidence showed that there was a long history of brutal violence perpetrated by the
husband which ended in his murdering her.
HELD: a relationship of influence existed and the presumption that he wife transferred the
property as a result of her husband’s undue influence was not rebutted
o also,m the transfer was from actual undue influence.
o transfer was set aside.
Need to be able to show that one exercised:
o influence over the other
o the influene was undue
o adn teh exercise brought baout the contract
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
Not many undue influence cases becausesof doctrine of unconscionable.
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Overlap between actual undue influence and presumed undue influence?
Judges may differ in their interpretation of the conduct:
o (Johnson v Butteress) per Starke J: there was sufficient evidence ni that case to infer
that actual undue influence hasd been exercised; per Dixon J : that there was
insufficient evidence of actual undue influence but facts disclosed a realtinship of
influence sufficient to attract the presumption
Should actual undue influence and duress be traeated as one?
cases of presumed undue influence are conceptually quite distinct form duress because in
undue influence, court is concerned with teh stronger party’s explotitation of his or her
position of influence
o this may be quite subtle because of the operation of presumptions = the influence isof
a more indirect nature.
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
3. THE PRESUMPTION OF UNDUE INFLUENCE
a. Special relationship – you want toget into this category because of the advantage of
presumption.
 Once the relationship falls within one of these categories influence is automatically presumed.
The following have been recognised:
o Pl. need not prove that the undue influence wes actually exerted by hte D. or that
there was any intention on the part of hte D ot exploit the pl.
 Relationship of influence arises out of one party’s confidence in and dependence onthe other
which gives rise to a duty to acti nthe interests of hte Pl.
o (Johnson v Buttress) per Dixon J: “Whenever one party occupies or assumes towards
another a position natrualllly involving influence over that other, or a dependence or
trusto on his part, his duty is to use his position of influence in the interests of hte
man who is governed by hims judgment...”
 parent and child (Bainbridge v. Browne (1881) 18 Ch D 188, 196);
 guardian and ward (Powell v. Powell [1900] 1 Ch 243);
 solicitor and client (Westmelton (Vic) Pty Ltd v. Archer and Shulman [1982] VR 305);
 trustee and beneficiary (Wheeler v. Sargeant (1893) 69 LT 181);
 doctor and patient (Dent v. Bennett (1839) 4 My & Cr 269);
 religious adviser and advisee (Allcard v. Skinner (1887) 36 Ch D 145; Hartigan v.
International Society for Krishna Consciousness Incorporated [2002] NSWSC 810).
 FACTS: Pl. was a member of hte Krishna Consciousness Movement
o Pl. gave her house and farm to the D.
o Pl. had misunderstood the religious teachings of the Movement and wrongly thought
it required her to agive up all worldy prossessions
 HELD: (Bryson J) the transaction gave rise to a presumption fo undue influence by theD.
 the presumption was not rebutted.
o ther was nothing in the nature of a deliberate attempt by the D. or by anyone in the
Movemenet to get the better of hte Pl. BUT the improvidence of the gift emphasised
that hte pl. was ‘susceptible to be influeinced even by hte slightest and most subtle
indications appearing ot favour the donation”.
 NB the relationship of husband and wife does NOT fall into this category: Yerkey v. Jones
(1940) 63 CLR 649, 675.
o no presumption of undue influence in relationship between husband and wives.
WHY? because (Yerkey Jones per Dixon J) “there is nothing unusual or straantge in a
waife from motives of affection or even of prudence conferring a large proprietary or
pecuniary benefit upon her husband”.
o special rules apply in such cases
o no presumption of undueu influence automatically
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o
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you can show a relationship of influence between husband and wife BUT it is not one
of those ‘speical realtionsihps’ where influence is automatically presumed.
The categories are not closed: Louth v. Diprose (1992) 175 CLR 621, 628.
burden is on the other party to show hathe contract was not a result of undue influence.
b. Relationship of influence
 If a relationship of influence does not fall within the established categories it is necessary to
show that there is a relationship of influence. If this is shown then the burden is on the other
party to show that the contract was not procured by their influence.
o all you need to establish is that there si a relationship of influence – presumption that
the influence was undue.
o such a realtion hship si shown by evidence that help. placed sconfiddence and trust in
the D. and relied on the D. for guidance.
 Johnson v. Buttress (1936) 56 CLR 113, 134-5 – sets out Australian law of this category of
cases.
o NOTE: No mention of manifest disadvantage
 FACTS: a man gave his aldn adn cottage to the D. three years before he died because she had
been very good to his wife and he was very fond of her.
o administrator of his will challenged the transfer
 HELD: it should be set aside
o (Dixon J) although there was no positive proof that hte transfer was procdured by
improper exercise of an actual ascendancy gained byh te D. over hte deceased, there
was evidence of an antecedent relationship of influence over the deceased.
o deceased was illiterate, ignorant of affairsn and a person of strange disposition who
did not understand he had disposed of hte porpoerty irrevocably.
o D.(bank) knew him fr more than 20 years and had renedered assistance to his wife
before she died.
o the d. had the burden of rebutting a presumptio nof undue influence – she failed to
discharge this burden
o D. could not show that hte transfer was the result of the free exercise fo the donor’s
independent will.
 Lord Dennings in Lloyds Bank v. Bundy [1975] 1 QB 326 – FACTS: father took a loan and
mortagaged his farm to pay for his son’s debts.
o Dennings argued that hte unequal bargaining power of the bank - bank could not
rebut the presumption
 A one off transaction can also give rise to a relationship of influence (Tufton v. Sperni [1952]
2 TLR 516)
c. Disadvantageous – in additiona to showing that there is a realtioship of influence, is it also
necessary to prove that hte transaction is also disadvantageous?Is this an additional
reuqiremnt?
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There is some case law England (National Westminster Bank v. Morgan [1985] 1 AC 686;
CIBC Mortgages v. Pitt [1994] 1 AC 200; Royal Bank of Scotland v. Etridge (no. 2) [2002] 2
AC 773) that it is necessary to show that the transaction is manifestly disadvantageous as well
as a situation in which there is influence in order to raise the presumption of undue influence.
The position in Australia is not entirely clear.
BUT: Johnson v Butress: no mention of disadvantageous. – still unsettled.
Watkins v. Combes (1922) 30 CLR 180, 194 (Issacs J) – suggestion that you need to show
manifest disadvantage.
cf. Barburin v. Barburin [1990] 2 Qd R 101 – explicitly rejected that a transaction would
bnnto be set aside for undue influence unless it was manfiesteldy disadvantageous.
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d.
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Rebutting the presumption – evne if the relationship falls within a set category and
is one of influence, it is still oipen to teh other party to rebut the presumption and show that
htere wwas no undue influence.
o generally, this means that you have to show that hte Pl. ‘knew and understood what
he or she was doing, nad that he or she was acting indpenedently fo hte influence of
hte dominant party’.
 ie. whether hte Pl. was given competent advice by an independent nad wellinformed adviser
 whether there was adequate itme to reflect on that advice.
o BUT: ther is no rule that in order to reubtu a presunmption of undue influence, the
PL. msut be shown to have received such advice
i. other ways involve showing that thte Pl. exercised an informed judgment.
Burden of rebutting presumption: Westmelton (Vic) Pty Ltd v Archer & Schulman [1982] VR
305
FACTS: the Pl. was a solicitor who advised the D. development cmopmany
o hecontinued to do the company’s legal work after he was appointed as director and
chairman of hte board
o he presented a bill for $25,000 for legal feees but suggested to one fo hte directors
that it could be reduced in return for a share in the company’s profits
 he accepted the proposal that the bill should be reduced by $10,000 if he was
entitled to 7.5% of the D’s profits before tax
o D. paid the reduced bill but refused to pay the profits
HELD: the contract wasenforceable = presumption of relationship of influence – ie. it was a
special relatinsihp of client – solicitor – was rebuted by proof that hte solicitor had adveised
the directotrs to obtain separate legal advice on the natureof the proposed contract.
o the company had more expertise in tcmmercea nd finance ahtan most solicitors
o Pl. solicitor dealt fairly and honeslty with a well-informed and sophisticated corporate
client
o client asw in no way relying upon any confidencfe or expectation of legal advice
o therew as no duty to advise the client further.
In rebutting the presumptions:
o There are no set rules
o varies from case to case
o “pointless as well as unjustified to lay down any requiorements ...circusmtnaces of
any requirements will vary with the inifinite vaareity of human affairs.
o ISSUE also considered in case: whether transactions between solicitors and clients
(special relationship established) whether in order to rebut the presumption, it is
necessary to hsow by the solicitor that therew as also some independent legal advice.
o HELD: it may be a factor that there was external legal advice but it is not a
requirement to show that the resumption is presumpted.
 solciitr needs only to show taht the other party acted with their own free will.
Badman v. Drake [2008] NSWSC 1366
ISSUE: what srot fo factors do the courts take into account in order to allow the rpesumption
of undue influence to be rebutted.
o Westmelton says there is no rigid rule – simply look at the facts and whether or not
there was free will.
FACTS: D. befriended an 87 y-o woman. D. was in financial difficulties and woman
purchased a hosuee for them in return for looking after her.
o both sets of solicitors feared influence
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o
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question was whtehr the trsnaction in which they have been given a shouse could be
set aside.
o Solciitors on both side says steps needed to be taken to protect the woman from
being able to set the contract aside because there was undue influence but the D.
refused to take any of thee steps becaused they were in a hurry to tget their hands on
the house
o one of the steps was to bring hte Pl. a medical adviser so that the adviser would have
seen bot hte Pl. adn the D. workgin together and were both satisfied as to her capacity
to sing the contract independently.
HELD: there is no special relationship beut the transaction was a produce of influence and the
influence was undue.
o there was a failure to rebut eh presumption
o had the d. followed th advice of the solicitors, it would have been different and the
presumption maey have been rebutted.
4. THIRD PARTY TRANSACTIONS
 These cases concern the situation where the plaintiff is seeking to get a transaction set aside
against the defendant on account of improper conduct by a third person. This typically arises
where the plaintiff acts as a guarantor of a third party’s debts with the defendant.
 Husband and wife relationsbnips do not automatically bring up a presumption of undue
influence.
 What typically happens: Husband owes money to bank and wife acts as guarantor of his debts
such athat he relationship is between teh wife and the bank but hte queston of influence is
coming from the third person (not between the contract of guarantee)
o issue: can these transactiosn be set aside for undue influence by teh third party
(husband)?
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Yerkey v. Jones (1940) 63 CLR 649, 678 – situation described above in common scenario.
HELD: The proposition that, if a married woman’s consent to become a surety for her
husband’s debt is procured by the husband and without understanding its effect in essential
respects she executes an instrument of suretyship which the creditor accepts without dealing
with her personally, she has a prima-facie right to have it set aside.
o ie. where a wife acts as a guarantor fora husban’ds debts and teh bank accepts her as a
guarantor but does not deal with the wife personally – ie deals with the husband only
– the wife has a prima facie right to set aside the agreement.
ISSUE: how do banks ensure thathe agareemnet stands with the wife in that context?
HELD: in htis case, the wife only has a prima facie right ot have the agreement set aside BUT
on the facts, the agreement was not set aside because the bank believed that the wife
understood the transaction and the transaction had been explained to her by a solicitor in a
way taht a “person of average intelligence would understand”
o because hte transaction had been explained to her, the transaction wwas not set aside.
(Dixon J) Although the relation of husband to wife is not one of influence, yet the
opportunities it gives are such that if the husband procures his wife to become surety for his
debt a creditor who accepts here suretyship obtained through her husband has been treated as
taking it subject to any invalidating conduct on the part of her husband even if the creditor be
no actually privy to such conduct. It is evident, however, that it many cases, though it is the
husband who obtains his wife’s consent to act as guarantor or surety, yet the creditor or his
agents will deal directly with the wife personally. It must then be a question how far an
apparent or real comprehension on the part of the wife or advice or explanation received by
her will prevent any earlier improper conduct on the part of the husband from operating to
make the transaction voidable.
Garcia v. National Australia Bank Ltd (1998) 194 CLR 395
FACTS: similarly, wife guarantees husband’s debts
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ISSUES: is Yerkey still necessary because of the doctrine of unconscionability?
HELD: Yerkey is sstill a separate category – rule in that case can still be applied ie. what
matter is whether hte wife understood the transction.
o another factor is that in allowing the transaction to be set aside is that hte wife makes
no gain.
o you have to look upon teh facts whether the transaction should be set aside even
though there is a prima facie rule that it should.
 see if the wife understands the transaction
rationale of the transaction: based on the trust nad confidence between marriage partners
requires that the wife be relieved of her contractual obligations where the husband has been
dealing with the bank and not the wife.
Suggested that because of the prima facie rule between husband and wives, suggested in
Australia v Alirezai that hte Yerkey rule does not confine to husband and wives – may apply
to other relationships between parties with trust and confidence similara to hat of marriage
partners.
Australia and New Zealand Banking Group v. Alirezai [2004] QCA 6 McMurdo P [39]:
Special relationships of sufficient trust and confidence in which one party could abuse that
trust and confidence so as to invoke equitable relief for transactions entered into by the other
are not a closed category; they could, for example, arise in some parent child relationships or
perhaps in the relationship between a disabled person and a carer; many other potential
examples can be envisaged.
For a comparison of the English law see: Royal Bank of Scotland v. Etridge (no. 2) [2002] 2
AC 773
5. UNCONSCIONABLE CONDUCT
a. How is this different from undue influence?
a. focus is on the conduct of hte D. in attempting to enforce, or retain the benefit of, a
dealing with a person under a special disability of the Pl. in circumstances where it is
not consistent iwth equity or good conscience that he should do so. (Commercial
Bank of Australia Ltd v Amadio)
b. exploitation of the Pl. with a special disability may be by active conduct on the
exploiter’s part or a passiv acceptance of a benefit in unconscionable circumstances.
(Australian Competition and Consumer Commission v Radio Rentals Limited).
c. do the doctrines overlap? what is hte scope of the doctrines? Some discussion in:
 Commercial Bank of Australia v. Amadio (1983) 151 CLR 447, 474 (Deane J):
o The equitable principles relating to relief against unconscionable dealing and the
principles relating to undue influence are closely related. The two doctrines are,
however, distinct. Undue influence, like common law duress, looks to the quality of
the consent or assent of the weaker party…. Unconscionable dealing looks to the
conduct of the stronger party in attempting to enforce, or retain the benefit of, a
dealing with a person under a special disability in circumstances where it is not
consistent with equity or good conscience that he should do so.
 ie. if A exercise actual undue influence over B, the reason why hte law
intervenes is because of hte quality of B (the weaker party’s) consent – the
consent is faulty in some where.
 vs. unconscionsbale dealing looks to the conduct ofh te stronger party
 ie. if you wnat to set the contract aside because of unconscionability,
teh focus si on the other party
 Bridgewater v. Leahey (1998) 194 CLR 457 – approved Deane J’s judgment in Commercial
Bank of Asutralia.
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but did not look at the elements of unconscioanbiltiy – majority said that it depends
on a case by case basis whether or not there was unconsciaonbility.
o you don’t need to look at mental capability – emotional dependency is a disability.
Cf. Louth v. Diprose (1992) 175 CLR 621, 627 (Brennan J):
o Although the two jurisdictions are distinct, they both depend upon the effect of
influence (presumed or actual) improperly brought to bear by one party to a
relationship on the mind of the other whereby the other disposes of his property. Gifts
obtained by unconscionable conduct and gifts obtained by undue influence are set
aside by equity on substantially the same basis.
 ie the two categories are coming together.
o
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Development of unconscionability as a category? – advantages of keeping the categiries
distinct.
o advantage: there is a presumption in teh victim’s favour if there is a speiccal
relationship or where tehrei s a relationship of influence cf. preusmptison do not
apply in cases dealing with doctrine of unconscinoabiltiy
o you have to show instead taht he conduct was unconscionable.
NOTE: in Yerkey: seems possible that the traansaciton could be set aside even if there is no
uncsocnsionable conduct of any sort. Yerkey is a problem when arguing that the doctrines
should be merged
o Yerkey is easy to raise htat there is a prima facie rule EVEN without unconscionable
conduct on the part of hte husbnade or that knowledge by hte bank that the husband
has acted unconsciinoably.
Stirring of the debate for merging the doctrines: Blomley v. Ryan (1956) 99 CLR 362, 405
FACTS: Pl. tries to enforce specific performance but D. tries to argue that hte contract was
set aaside for unconscionability:
o D. agreed to sell Pl. a large plot a land. The D. refuses to perform.
o the sale was on significant undervalue on terms that were favourable to the Pl.
o ISSUE: why did the D. agree to the undervalue sale and then change his mind?
o D. was described as an ‘old man and an alcoholic’ and that when he entered into the
transaction, he was drunk BUT he was not so drunk that hte transaction could be set
aside onthe basis of drunkness.
 it was nott ttht he was too drunk to know what he was doing
o but he had a disadvantage and was old and addicted to rum. and on htatb basis, teh
transaction was unconscionable.
o not necessary to show htath e party disadvantaged actually suffered the loss
 ie. not necessary that hte transaction was at an ‘addvantage’ becuaase it was
under the value
HELD: duringhte course of hte negotiations for hte sale, the Pl. kept pouring runm down the
defendant ie. kept feeding D. rum. D. was in a disability and was in a position of disadvantage
, an unfair use was made of that = unconscionable conduct.
o case listed a number of a party’s disadvantages that made the Pl’s ocndut
unconscionable :
 age
 infirmity of body of mind
 drunkeness
 illiteracy etc.
(Fullager J):
The circumstances adversely affecting a party, which may induce a court of equity either to
refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily
classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body
or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where
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assistance or explanation is necessary. The common characteristic seems to be that they have
the effect of placing one party at a serious disadvantage vis-à-vis the other. It does not appear
to be essential in all cases that the party at a disadvantage should suffer loss or detriment by
the bargain.
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Adequacy of consideration?
a transaction may still be unfair and unreasonbahble form the point of view of hte person
under a special disability even though adequate consideration has moved fomr the D.
o (Blomley v Ryan) per Fullager J: “inadequacy of consideration will often bye
especially important element in cases of this type...firstly, as supporting teh inference
that a position of disadvantage existing, secondly, as tending top sow that an unfair
use was made of the occasion.”
b. Working out the elements of unconscionability This is sometimes broken down in different
ways. There are essentially five elements:
1. The party seeking relief must at the time of entering into the transaction suffer from a special
disability vis-à-vis the other party;
a. in Blomney, a hwole list of things were said to be possible disability.
2. The special disability must seriously affect the party’s capacity to judge or protect their
own interests;
a. Blomney: D. was an alcoholic and it seriously impacted his ability to protect his own
interest and therefore agreed to sell the land at avery low cost.
b. Often ,Age, or gender may not autcomaticlaly mean that hte person’s capacity is
affected. You have to show thahte special disability must SERIOUSLY AFFECT the
capcity to protect own interests.
c. Mason J in Commercial Bank of Australia Ltd v Amadio: disadvantage is not merely
“whenever there is some difference in the bargaining power fo the parties...the
disabling condition is one which seriously affects the ability of the innocent party to
make a judgment as to his own bests interests, whne the other party knows or ought ot
know of het existence fo that ocndiiton or circumsntace and fo the effect on the
innocent party.”
d. Mental disorder – (Gibbons v Wright) the disability cna be amental disorder if it is to
such a degree that he or she was incapable of iunderstanding the contract if the other
party was aware of the suspected disorder.
e. Drunkenness – Fullagar J in Blomney : mere drunkenness affords no ground for
resisintg a suit to enfoce a contract (through specific performance) unless “there is
real ground for thinign that hte judgment of one party was, to the knowledge eof hte
other, seriously affected by drink (alcohol)...equity will then refuse specific
performance at the suit of the other...”
f. Emotional dependence? Is this a disability?
i. ISSUE with emotional dependence – difficult to assess
1. how far is the gift or contract influenced by emotional dependence as
opposed to feelings of love, altruism or responsibility which are
qualities that do not really ustify legal intervention.
ii. Louth v Diprose – Yes. emotional dependence could create a disability for
purposes of hte unconscionable dealing rule.
1. ie. a person who is emotionally dependent on another may be
vulnerable to exploitation or abuse by that other.
 FACTS: D. gave $58,000 to L. D. was infatuated with L and gave L the
money so she oculd buy a house. L leads him on toget his money even
though she doesn’t like him.
 D was a solicitor and Louth was a single mother with two children
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
D gave L many gifts and bought a property in L’s name even after L
tried to leave him and said she was unable to see him again.
 D. is no longer infatuated and subsequently wants the house to
bereturned and teh contract set aside.
 ISSUE: was this an unconscionable (with respect of L’s conduct) gift?
 HELD: yes it was unconscionable gift.
 the disadvantage was the infatuation of D.
 L. threatendd to commit suicide and knew fully well about his
infatuation = unconscionable
o L therefore took advantage of D’s disadvantage.
 there is a presumption nof unconscionability that was not rebutted.
 DISSENT: (Toohey J) ‘unrequited love’ did not give a balanced picture ofhte
parties’ relationship, whichc was not one of complet emotional dependence
 D understood the unabalanced terms fothe relationship
 his dependence and improvidence were self-induced
 the evidnce did not support the conclousion that L had manuftured an
atmosphere of crisis.
 CRITICISM of Louth for the judges’ use of stereotypes:
 Louth is portrayed as a schemeing temptress determined to grasp all
that she ccan, while D appears as a susceptible but generous male .
 this view of the facts overlooks the influence that D. had over L: by
virtue of his superior wealth and higher education
 the dissenting view was not immune from this – L was portrayed as a
pitiful victim who should nbe able to keep the hosue given to her by
a benign romantic suitor evne though she hass done nothing to desrve
it. D was a grown profiessional man who should have known better.
iii. Bridgewater v. Leahey (1998) 194 CLR 457
iv. FACTS: farmer had substantial pastoral holdings.
1. made a will to leave certain property to his wife and his residuary
estate to his daughters BUT before the daughters could have the
residuary estate, an option was granted for all his pastoral holdings to
his nephew for $200,000.
2. property was in fact worth $695,000
3. farmer enjoyed a long working relationship with his Nephew in
partnership with both the nephew and his brother
4. farmer fully trusted the nephew and regarded him as the son he never
had
5. farmer encouraged nephew to sell his own land so that the nephew
could concentrate on the farmer’s land.
6. Nephew suggested to the uncle that he should sell to the nephew part
of his pastoral holdings to the nephew for $150,000 --> the land that
was worth approx. $700,000 was then put under a deed of forgiveness
to the extent of $550,000 so that the amount owing was $150,000
from the nephew.
7. there were no solicitors advising the farmer to obtain independent
advice but there was a medical examination to ensure that he was of
sound mind
8. evidence showed that even if the farmer had been advised by another
lawayer about the transactions, the end result would have been the
same.
v. LITIGATION: daughters challenged the deed of forgiveness on the basis that
the transaction resulted from undue influence – but this failed because
evidernce did not show that he newphew exercised influence over his uncle.
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1. daughters then challenged it on the basis that it was procured by
Neil’s unconscionable conduct.
vi. HELD: the deed of forgiveness should be set aside because:
1. the farmer waws in a position of disadvantage stemming from a
strong emotional dependence or attachment
a. ie. the farm’errs affection for the nephew, his aim to preserve
his holdings intact and his view that the newphew was a
reliable and experienced maanger were significant elements
in his emotional attachment.
2. nephew had taken advantage of his disadvantaged position to obtain
a benefit through a grossly improvident transaction
3. transaction was neither fair, just nor reasonable.
4. the fact that the uncle, knew what he was doing despite his age or
deteriorating condition and even though he would not have changed
his mind when advised independently – does not mean that the
nephew had not taken advantage of the uncle’s disadvantaged
condition.
5. where the complaint is of unconscionable dealing, the denial of
independent assistance rather than speculation as to what might have
happened if the advice had been obtained is an element in the
unconscientious conduct.
6. the nephew jhad initiated the transaction when his uncle was already
in teh disadvantaged position.
7. even though the nephew did not pursue this intiative to implement it,
equity is enlivened which meant that unconscionable conduct could
be found in the passive acceptance of a benefit.
vii. DISSENT: there was no special disability in this case
1. uncle had the requisite independence of mind and capacity for
judgment when he entered the transaction
2. transaction could only be understood in a wider context which is that
the uncle’s long held view was that his nephew should inherit his
pastoral interests
3. the nephew’s suggestions merely coincided with the uncle’s plans.
g. Is inequality of bargaining power a special disability?
i. Australian Competition and Consumer Commission v CG Berbatis Holdings
Pty LTd
ii. FACTS: Roberts conducted a business in a shopping centre and became
concerned at some of hte charges levied under the terms of their leases.
1. R claimed that she had paid an extra $50,000 under their leases.
2. R had told teh manager of the shopping centre that they wer anxious
to sell their business and that if they could negotiate a new lease
term, they could then assign that to the purchaswer which would
assist them
3. the owner of the shopping centre said that if they wanted to renew
their lease, they would have to consent t othe dismissal of any current
legal proceedings – ie. the overpaid leases.
4. R’s solicitor advised against consenting to his proposal
5. BUT R decided that they wouldagree and the business was
eventually sold
iii. HELD: lesseses were in a difficult bargaining position but there was no
special disadvantage on teh part of hte lessees nor unconscientious conduct
on the part of hte lessors.
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1. case merely concerned where a party had a bargaining advantage
which they used with the consequence tha the other party was
required to forego a financial interst
2. (Gleeson CJ) “all the people involved inthe transaction were business
people, concerned to advance or protect heir own financial
interests.The critical disadvantage from which the elssees suffered
was that they had no legal entitlement to a renewal or extension of
their lease...R were at a distinct disadvantage but there was nothing
‘special’ about it...good conscience did not require the lessors to
permit the lessees to isolate the issue of the lease from teh issue fo
the claims...everyday occurrence in negotaitons for settlemtn of legal
disputes that one party will be required to abandom claims...”
3. The other party must know of the special disability;
a. Blomney: Pl. was buying rum for him and therefore, not difficult to show ahtt Pl.
knew of the disability.
b. Amadio: “disability was sufficiently evident to [the defendant] to maek a prima facie
unfair or ‘unconscientious’ that he procure...the transaction”
c. Degree of knowledge required in establishing unconscionable dealing?
i. not entirely settled
ii. most straightforward way is through actual knowledge by the D. of the Pl’s
disability.
iii. wilful ignorance will also be sufficient – (Commercial Bank of Australia Ltd
v Amadio per Mason and Deane JJ) “wilful ignorance is not to be
distinguished in its equitable consequences from knowledge.”
iv. constructive knowledge arises where the D.is aware of facts which would
lead a reasonable person to know of the Pl’s special disability (Amadio per
Mason J) constructive knowledge would be sufficient to establish
unconscionable conduct if “instead of having actual knowledge, the D. is
aware of hte possibility htat that situation may exist or is aware of facts that
would raise the possibility in teh nind of any reasonable person”.
v. in Amadio: there was no proof tha the bank had actual knowledvg eof the
special disability of the A.
1. the special disability though would have been evident to any
reasonable person
2. “Mr Virgo (Bank’s representative who brought the contract to A’s
house to be signed) was aware that the As were Italians, that they
were of advanced years adn taht they did not have a good command
of English. he knew that the son had procured their agreement to sign
the mortgage guarantee. he had no reason to think that they had
received advice and auidance from anyone but their son...MR Virgo
also knew htat it was vital to the son to procure the parents’ signature
to the mortgage guarantee so that he company could continue in
business.
3. “It must have been obvious...as to anyone else having knwoledg eof
the facts, that hte transaction was improvident from teh viewpoint of
hte respondents...inconceivable that the possibility did not occur to
Mr V. that the A’s entry into the transaction was due to their inability
to make a judgment as to what was in their best interests, owing to
their reliance on their son.”
4. ALSO: when the documents were signed, A made comments
showing that there was misapprehension about hte duration of hte
agreement and should have indicated to V that hte tnrasaction had not
been properly explained.
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vi. in some cases, it may not be sufficient facts to show that hte reasonable preso
n inthe D’s position would have been aware of the special disadvantage on
the part of hte Pl.
vii. Australian Competition and Consumer Commission v Radio Rentals Limited
viii. FACTS: Pl. was both intellectually disabled and had schizophrenia.
1. he was in receipt of diabiltiy pension – his sole source of income
2. Pl. entered into 15 rental,two loan and 19 service agreements with
Radio Rentals and three rental agreements with Walker Stores
ix. LITIGATION:
1. ACCC brought proceedings against hte wo companies under the
TPA 1974 alleging that in entering into, and enforfcing the
agreements, the comaneis had engaged in unsconscionable conduct
(now in contravention of s20 and 21 of the ACL).
2. ACCC argued that Radio Rentals and Walker Stores knew or ought
to have knwon that the Pl. was unable to conserve his own interst and
that he agreements with thme would result in financial hardship pfor
hte consumer
x. HELD: the Pl. was ‘able to present himself in a mnner which did not
eimmeditately suggest he was markedly intellectually disabled”
1. the disaabiltiies of hte Pl. were not sufficientl edvident tothe
salespeople who dealt with him to give them knowledge of the Pl’s
disadvantage
2. items of information held by various employees of hte companies
could not properly be aggregated in the circumstnacecs where the
information fcame from unrelated transactions and interactions.
4. That party must take advantage of the opportunity presented by the disability; and
a. Blomenby: Pl. used the drunkness of D. to negotiate favourable contract.
b. ie. the unsconscionable dealing arises not merely where morally objectionable
conduct is at play but also where teh D. has proceeded ith a transaction knowing fo
htej Pl’s vulerabiltiy AND doing nothing to ensure that hte interests of hte Pl. are
protected. (Johnson v Smith per Allsop P) “what lies at the heart of hte doctrine is that
advantage is taken of hte special disadvantage...”
c. (Johnson v Smith per Young JA) “where a person who has no active intention of
doing another down may still be guilty of unsconscientious conduct if he or she
accepts
d. the benefit of an improvident bargain by an ignorant person acting, without
independent advice which cannot be shown to be fair.”
5. The taking of advantage must be unconscionable.

If these elements are established there is a presumption that the transaction was
unconscionable.
o NOTE: presumption does not work in the same way as undue influence.
o the presumption can apply in any sort of relationship so long as you can establish
jthat teh elements are rpesent, then it can be shown that the conduct was
unconscionable.
 The presumption can be rebutted by showing either:
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Steps were taken which negative the special disability
o eg, having an independent solicitor present to explain the transaction
OR
the receipt of independent advice),
OR
that the transaction was otherwise fair, just and reasonable.
o slighglty different from undiue influence
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o
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ie in Blomney, if they could show that in any event, the transaction was fair, just or
reasonbe, tthen the presumptison may be rebutted.
Commercial Bank of Australia v. Amadio (1983) 151 CLR 447
FACTS: parents gave a guarantee of a son’s debt. (not a husband and wife situation – not
Yerkey)
o Maybe if Yerkey had extended beyond hte case of husband and wife, the siaution may
follow the prima facie rule.
ISSUE: whether, as against the bank, the transaction could be set aside as unconscionable.
HELD:
“unconscionability doctrine extends generally to cicrumsntaces in which (i) a party was
undner a special disability in dealaing with the other party ...ther was an absence of any
reasonable degree of equality between them...(ii) that disability was sufficiently evidence to
the stronger party to make it prima facie unfair or ‘unconscientious’ that he procure the
weaker party’s asset to the impugned transaction in the circumstances...onus is cast upon teh
stronger party to show that the transaction was fair, just and reasonable.”
elements of unconscinoability:
o what was the disability?
 the party has to suffer a special disability:
 disability of the parents was their limited knowledge of English
 ALSO: they were totally reliant on their son and the son was
basically telling the parents what to do (disability 2)
 they were of ages 76 and 71.
 the parents did not know about the financial difficulties of their son’s
company and the bank had selectively dishonoured cheques drawn by the
company
 the parents relied on their son’s advice that the guarantee was only for
$50,000 for siz months when in fact, there was no such limit.
 bank went to A’s house to sign the relevant documents which were signed
without having read the document nor were they explained the terms of the
guarantee.
o seriously affecting party’s capacity?
 yes, parents were signnign documents they did not understand
o Didd the bank know about it?
 yes, the bank had met with the parents.
 the bank knew that hte transaction was ‘unwise’ and they also understood full
well that hte parents had limited comprehension of Englsih and that they
were reliant on their son.
 on the facts, the bank shoud be treated as being aware that hte parents, the
gauarntors, were at a special disadvantage or at least that the bank should
have been aware as a reasonable person atht they were at a disadvantage.
o bank needed the debt gurantee – presumption of unconscinoability by allowing
parents to take up the guarantor
o parents would not have executed the transaction if they had known of the financial
troubles their son’s company was experiencing.
o although there may have been adequate consideration, the contract was unfair
because there was no benefit from the contract to the As (consideration moving from
the bank to theier son) or because they would have never entered that contract if they
had been informed of its salient terms and the relevant circumstances surrounding it.
o NEXT: onus then lay onthe bank to rebut the presumption that hte transaction was
uncsoncionable and that it should nto be set aside
 the bank could have shown thath e paraents had indepenedent advice / that
hte transaction had been translated into Italian / that hte transaction was
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
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6.
otherwise fair, just and reaosnble – difficult to show on the fats because there
was no advantage on the paents by the transaction
the transction was to their disadvantage.
HERE: the presumption was not rebutted.
Unconscionable dealing and undue influence compared - Bridgewater v
Leahy: “there are conceptual nad practical distingtions between them..:
 presumptions that undue influence was exercised by teh defendant nad hthis
presumption, which must be rebutted by hte D., confers a forensic advantage on the
Pl.
 vs. unconscionable dealing whre the Pl. must prove the existence of exploitation on
an ad hoc (case to case) basis ie. at teh time pof hte particular transction
i. and not thorugh the lreaitonship between the parties
 Conceptually, Deane J in Amadio : “Undue influence, like common law duress, looks
to the quality of hte consent or assnet of hte Pl...unconscentious dealing looks t o the
conduct of the D.”
i. impaired consent in undue influence cases must be induced by arongful
conduct vs. exploitation in unconscionable dealing cases will elave the
victim’s consent impaired.
 Shoudl the two concepts be merged?
 Berbatis Holdings per French J argues that actual undue influence should be merged
with unsconscionable dealing because ther does not seem to be any substantial
difference between the two doctrtines.
 BUT: definitely, presumed undue influence, with its recognition of a quasi-fiduciary
element in the relationship of influence, and the presumption that attends that
relationship, should be kept separate.
o undue influence – looks at relationship – can be thorugh a period of time VS
uncsonciaonble conduct looks at that point in time.
o are they really distinct? the impact of the behaviour is usually the same.
o unconsciaonbiltiy has more flexaibility – look at Bridgewater from use and
cataloguing of facts.
7. UNCONSCIONABILITY AND STATUTE LAW
ACL 2010 ss 20-22 as amended by Competition and Consumer Legislation Amendment Act 2011
S 20 Unconscionable conduct in connection with goods or services
(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person (other than a listed public company);
or
(b) the acquisition or possible acquisition of goods or services from a person (other than a listed
public company);engage in conduct that is, in all the circumstances, unconscionable.
(3) For the purpose of determining whether a person has contravened
subsection (1):
(a) the court must not have regard to any circumstances that were not reasonably foreseeable at the
time of the alleged contravention; and (b) the court may have regard to conduct engaged in, or
circumstances existing, before the commencement of this section.
(4) It is the intention of the Parliament that: (a) this section is not limited by the unwritten law
relating to
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unconscionable conduct; and (b) this section is capable of applying to a system of conduct or pattern
of behaviour, whether or not a particular individual is identified as having been disadvantaged by the
conduct or
behaviour; and (c) in considering whether conduct to which a contract relates is unconscionable, a
court’s consideration of the contract may include consideration of:
(i) the terms of the contract; and
(ii) the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.
TEST: unconscionable? undue influence? Yerkey?
READING
Paterson, Robinson and Duke, Principles of Contract Law, Chs 35, 36.
Carter, Peden and Tolhurst, Contract Law in Australia, Chs 23, 24.
D Capper, ‘Undue Influence and Unconscionability: a Rationalisation’ (1998) 114 Law Quarterly
Review 479 – argues that there should be a merging of the two doctrines.
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LECTURE 5: PERFORMANCE AND AGREEMENT
Contracts are brought to an end or discharged in four ways:
1. Performance – most important way – ie. most contracts are performed and there is no
problem.
a. ISSUE: what amounts ot performance under the terms of hte contract?
2. Agreement between the parties
a. ie. we’re in a contractual relationship and we agree to end the contractual
relationship.
3. Breach
a. ie. teh right to claim damages is also allowed under breach.
4. Operation of law
a. ie. the doctrine of frustration
i. ie. where the subject matte rof hte contract is destroyed = the contract is
frustrated.
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We will discuss 3 and 4 in subsequent lectures. The main way in which the mutual obligations
under a contract are brought to an end is because it has been fully performed.
Performance must correspond to the contract subject to the rule de minimis non curat lex.
Failure to perform (without lawful excuse) will amount to breach of contract.
1. METHOD OF PERFORMANCE
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The general rule is that performance is due without a demand for performance.
o ie. a contract requires a certain thing to be done that is required without hte other
party demanding the first party to do it.
A owes B $50 then A must pay without a demand from B that he does so.
What if the contract contains: Alternative methods of performance?
o A contract may provide for performance in one of several ways without stating which
party is to have the power of choosing between them.
 eg. A owes B $50, Payment to B due on the 20 or 21st August.
Reed v. Kilburn Co-operative Society (1875) LR 10 QB 264
FACTS: The Pl. lent 50 pounds to hte D.at 6% pa for 6 OR 9 months
o ie. there were alternative methods of performance – 6 months OR 9 months.
ISSUE: Who is able to choose under that contract sincei t does not state whether or not its the
lender or hte borrower who selects the terms of hte contract. Uless you nkow who has the
right to choose, you don’t know if hte contract has been performed or not.
HELD: the period of hte loan depends on the choice of hte borrower – could choose if it was
6 months or 9 months. BECAUSE the alternative, whether to 6 or 9 monhts, was for the
borrower’s benefit.
o the borrower was the party who acted first by repaying the money.
o Essentially, where a contract provides alternatives and the contract does not state
which party can choose, then it is a mattere of interpretation as to which party can
choose.
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o
By determining which party can choose, it is then possible to see if the contract has
been performed.
a. Vicarious performance
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What happens if A enters wht B to do something but the contract is performed by someone
else other than A? The issue is whether vicarious performance by a third party is permitted?
A contract may be performed by a third party on behalf of the promisor.
RULE: performance by a third party is usually permitted UNLESS it is not permitted under
the terms of the contract OR performance is personal.
o Where performance of the third party is acceped by you, that sovles all difficulties
because the contract is then discharged.
o BUT it is not merely a question of accepting performaqnc,e the generala rule is that
you cannot object to a third party performing vicariously for the original contractee so
long as the contract does not specify who has to perform.
British Waggon Co. v. Lea & Co (1880) 5 QBD 149
FACTS: A contract was formed to prepare railway wagons. The contract was performed not
by the promisor but by a third party. Was that valid performance?
HELD: Yes it was vlid. it was irrelevant to the person who kept them in repair.
If you simply accept performance,e there is no problem.
BUT: is it every possible to object a performance by a third party?
o yes, if there was atemr in the contract precluding that to happen but what happens if
hte contract is silent?
Yes , you can object to third party performance if the contract is personal even where the
contract is silent.
o ie. where it matters to the promisee who performs the contract.
Where the contract says that the contract has to be performed by a certain person rather than
by a third party, then it must be done so.
Can a teerm be implied in a contract permitting vicarious performance?
Davies v. Collins [1945] 1 All ER 247
FACTS: There was an army officer who wanted to get hiss uniform cleaned by a cleaner.
Under a contract which stated:
o “Whilst every care is exercised in cleaning garments, all orders are accepted at hte
owner’s risk”
o Cleaner was over burdened with cleaning uniforms
o Cleaner delegated the task to a th3ird party
o contract does not expressly forbid performance by antoher party.
o With uniforms, it is not a person al contract liek a painting who does the cleaning.
o Third party loses the uniform.
o There were vaiours questions about exclusion of liability
ISSUE: can the contract be performed vicariously?
o there was no express termrs saying no.
o Can one be implied?
HELD: Yes the term can be implied because the wrds “Whilst every care is exercised in
cleaning” this was inconsistent with the right to perform vicariously.
Gnereal rule = contract can be performed vicariously by another person unless it is expressly
ruled out OR the court are prepared to imply a temr ruling out performance by a third party
OR the contrtact is a special ‘personal’ contract.
b. Variation of performance
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Can you vary the earlier contract in terms of performance?
Yes, The original contract may be varied by the parties without terminating it.
Tallerman v. Nathans (1957) 98 CLR 93 per Kitto J: Whether the variation of hte contract
actually discharges the obgliations under the contract is a matter of intention.
Yes you can vary the contract BUT the variation itself must be supported by consideration.
In duress cases ,there was aa contractual vaariaiton but the contract was vitiated because of
hte presence of duress BUT where there is consdierataion and no duress, then teh contract
can be said to be varied.
2. ORDER OF PERFORMANCE

The order which the parties must perform their obligations depends on the distinction
between condition precedent, concurrent conditions and independent promises. These
events make up the order of performance.
o Condition is also used to refer to a type of term.
 ie. condition vs. a warranty
a. Condition precedent
 Can be defined as : “Performance by A is a condition precedent to the liability of B.”
 Example: A agrees to work for B with payment at the end of the week. B’s liability to pay A
only accrues at the end of the week if A has done the work.
o ie. subject to A doing the work, B’s liability to pay will arise.
o THEREFORE: perforamnfce by A is a condition precedent to hte liability of B.
b. Concurrent conditions
 Main example involves contract for the sale of good
o ie. where both parties are liable to perform at teh same time.
 Performance by A and B is to take place at the same time.
 Eg. A agrees to sell a car to B. B cannot sue A for hte price unless B has already delivered.
Equally, A cannot sue B for hte car unless A is already ready to pay.
 Example: In the case of a contract for the sale of goods the buyer cannot sue unless she is
ready to pay and the seller cannot sue unless he is ready to deliver.
 Sale of Goods Act 1876 (QLD) s 30
Unless otherwise agreed, delivery of the goods and payment of the price are concurrent
conditions, that is to say, the seller must be ready and willing to give possession of the goods
to the buyer in exchange for the price, and the buyer must be ready and willing to pay the
price in exchange for possession of the goods.
c. Independent promises
 If the promises are independent then each party can enforce their promise even though they
have not performed their own.
o eg. A promises to do something for B. B promises to do something for A. A fails to
perform and B can sue A even though B himself has not performed his obligations
himself.
 The courts are reluctant to classify promises as independent unless their intentions are very
clear: BECAUSE it does not encourage perofmrance/ security of contract.
o undermines the notion that contracts are reciprocal = if one party performs, then the
other party should perfrom as well.
o there is no incentive on one party to perform his obligations.
 Kingston v. Preston (1773) Lofft 194
 HELD: there needs to be very clear intentions in the contract that performance is independent.
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o
it is otherwise quite difficult to hsow this.
3. TIME OF PERFORMANCE

Most of the time, this is not a problem because there may be a time fixed for performance
(time stipulation clauses: fixes a time for the performance and if the perfoamnrce is not
carried out within that time, there may have been breach) OR time may be fixed by an event.
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Where the contract does not specify the time?
A reasonable time is implied - Perri v. Coolangatta Investments Ltd (1982) 149 CLR 537
FACTS: a contract where the parties were not bound by a time stipulation clause. the contract
was for a sale of land.
o contract was made on the 7th April 1978
o No time was fixed for completion but there was a conditioin of cteh contract that the
contract was subject to the purchaser’s completion of the slae of another property.
 ie. they could not buy this land until they’ve sold another
o By July 1978, nothing had happened.
 presumably, purchaser had not managed to sell their other property.
o Vendor gave notice requiring the purchaser to complet the sale by 8th August 1978 –
this did not happen.
o On 10th August 1978, the Vendor gave notice rescinding the contract.
o On 29th September, Vendor brought an action aginst the purchaser.
o Purchaser had not been able to sell their other property until the 30th June 1979.
ISSUE: Whether time had urn out for the purchaser?
o contract remained silnet as to the itme they had to sell the property by.
HELD: In these situations, where there is no time specified, the court imply a requirement of
a rreaosnble time. And the condition in the contract that the purchaser sell their other property
was a condition that they sell their property within ar eaosnable time.
o had they sold the property in a reasonable time? No.
o A reasonable time had expired.
Therefore, if there is an issue of time:
o was there an expreseed time stipulation clause?
o If not, the court will imply one for a reaosnble time.
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4. GOOD FAITH IN PERFORMANCE
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Is there an additional requirement that not only must you perform in the right order, in due
time, but you miust alsos perform in good fasith?
Do you have to cooperate with the otherp arty to produce performance with the other party?
Yes. The courts impose a duty to cooperate – they see it as equivalent to good faith.
o There is an obligation on contracting parties to co-operate with each other or to do all
that is reasonably necessary to facilitate performance. Expectation Pty Ltd v. Pinnacle
VRB Ltd [2002] WASCA 160, [89]-[90].
ACT Cross Country Club v. Cudy [2010] FCA 782
FACTS: dispute arose between two parties responsible for organising a marathon. Litigaiton
ensued on the 1st March 2010 where the parties reached a contractual document (settlement)
to setllte the dispute.
o the temrs of the contract included a promise to desist in the litigation as well asa a
temr that Cudy sports would have the right to organise and administer the 2010
marathon.
o Marathons could not be held without permission fo the road authorities.
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the road authorities said that they were not willing to allow the marathon ot be held
unless the parties provde a writte nconfirmtion to the road authority that the dispute
had been settled.
o The cross country club failed to provide the written confirmation to the road
authority.
ISSUE: whether the settlement agreemtn had been breached by the behaviour of the club.
HELD: Yes therw as breach (held by the Federal Court of Appeal) because the club had failed
to cooperate with Cundy by communicating that he dispute was at an end to the road
authorities.
o there was a duty to cooperate within the contract.
Burger King v. Hungry Jacks [2001] NSWCA 187 – question arose whether beyond the duty
to cooperate, which if you don’t cooperate – there is a rbeach, are therer other terems that
can be implied in this area?
HELD: there was no argument in the case hat there wass a duty to cooperate (this was not
disputed, merely accepted through past authority) but the (NSW court of appeal) said htat a
teerm of good faith and reaosnableness could be implied in all contracts.
DIFFICULTy with this ruling: Can good faith and reaosnableness be implied in aill
contract?
There is a conflict with atuhoriites on this issue.
o Issue arose in Royal Botanic Gardens and Domain Trust v. South Sydney City
Council (2002) 186 ALR 289
o HELD: courts were not in the position to address that issue in this case.
o Vodafone Pacific Ltd v. Mobile Innovations Ltd [2004] NSWCA 15
o HELD: yes there is a duty of good faith and reaonsableness can arise in the
performance of contractual obligation and this could be implied as a matter of law but
only to be implied in commercial contracts.
 not every commercial contract would be open to such an implciaiton – this
would be too broad.
 first step is to look at existin g contracts of the sort as to whether the
oblgation has been implied.
 If authorities are not helpful, then you look if the obligations were necessary
within the situation of the case.
ie. there can be an implied duty to perform in good faith and reasonableness BUT where it is
implied dpeneds on the type of contract.
Contrast the position in relation to good faith in performance of a contract with the
enforcement of a promise to negotiate in good faith:
Courts seems to be unwilling to imply an oblgiatio nto negotiate in good faith
Walford v. Miles [1992] 2 AC 128 HELD: much too vague to imply an obligation to
negotiate in good faith.
Coal Cliff Collieries Pty v. Sijehama Pty Ltd (1991) 24 NSWLR 1
5. PERFORMANCE PROVISIONS UNDER THE ACL
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ACL 2010 ss20-22
6. ENTIRE AND SEVERABLE OBLIGATIONS
a. Entire obligations
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A contractual obligation is entire when the contract is required to be completely performed by
one party (A) before the other (B) is to pay or render counter-performance.
Example: A agrees to pay B $100,000 to build him a house. B is only bound to pay on
completion of the house.
ISSUE: can A recover the work that he has done before completion of the house – ie. if A
builds only half the house.
General rule: no, you cannot recover for the half done work – the contract is entire.
o since A has failed to perform, B is not required to pay.
Partial performance of your oblgiaitons under the contract is insufficient where the obligation
is entire. Cutter v. Powell (1795) 6 TR 320
FACTS: Sailor agreed to serve on a ship form Jamaica to Liverpool.
o he was to be paid 30 guinees (an enormous sum) 1 days after the ship arrived in
Liverpool provided he does nhis duties from hence to the port of Liverpool
o on August 2, ship set sail from Jamaica and arrived in Liverpool on October 9.
o There were vaiorus problems with sailors on the Jamaica-England loop – ie. they
would threaten ships’ captains that if they did not raise their salaries, they would not
work on the ship.
o Sailor had died on Sept 20th, question is hewehter his family oculd recoer forh te
work he had done before his death?
HELD: No, contract was entired, nothing was to be paid until the hwoleo f the dutuies had
been performed ie. when the sailor got to Liverpool.
Baltic Shipping Co. v. Dillon (1993) 176 CLR 344, 350
Phillips v. Ellinson Bros Pty Ltd (1941) 65 CLR 221
b. Severable obligations
 A contract imposes severable obligations if payment is due from time to time as performance
of a specified part of the contract is rendered.
 Example: A contract of employment will typically provide for payment and weekly or
monthly intervals even though it is expressed to be for longer periods.
 Steele v. Tardiani (1946) 72 CLR 386
 FACTS: Pl. were three Italians who had been in-temr because they had been in the war but
they had been realeased from in-termment to work for Steele. S had them chopping wood in
return for taking them out of hteir terms.
o S did not want to pay them.
o S claimed that the wood was not cut in specifications of the contract of interment.
 ISSUE: could the Pl. ecover for firewood that did meet the specifications because some of
the wood did nadsome did not.
 HELD: yes ,the contract was severable anda the pl. ocould recoer for the wood that met the
specification.
o the Pl. could recoveere to the extent that they performed the part of it.
 Cutter v Powell looks a little harsh – this has been addressed with the doctrine of substantial
performance.
7. THE DOCTRINE OF SUBSTANTIAL PERFORMANCE
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Where a promisor is in breach of contract but has substantially performed then the promisee
may still be liable to pay the contract price.
Exact performance is not necessary.
The promisee will also have an action against the promisor for breach of contract. In practice
this means that these damages are set off in an award of the contract price.
o Examples: Eg. A agrees to build ah ouse ofr B for which B is to pay $100,000. A
largely performs but leaves the doors undone. Because a has substantially performed
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in building the house, A can recover the contract price $100,000 from B BUT
deducation wll be made because B has an action against A for the defects in that
performance.
The contract IS entire and A substantially performs her obligations under the contract with B
then A will NOT be entitled to recover the contract price.
Where the contract is entire there is no recovery because it is a condition precedent that there
is exact and complete performance.
Where the contract is NOT entire and A substantially performs her obligations under the
contract with B then A will be allowed to recover the contract price minus a set-off.
The contract is made up of severable obligations. Where A substantially performs some of the
severable obligations under the contract with B she will be allowed to recover the contract
price for those obligations. It is not necessary to perform all of the severable obligations.
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ISUSE: does the substantial performance doctrine apply in cases like Cutter v Powell? Courts
in both Aus and England are uncertain.
o No, if we want to make the oblgiaiton entire, and because of that intention ,the sailor
was paid way above the premium, then the courts will apply it as it ias and laws will
not apply the doctrine of substantial performance because you’re in a sense
underming the notion that the contract is entire.
o Cf. Yes, it should apply: There is dicta in Steele v Tardiani: “the substantial
performance doctrine applies to entire contracts as well as every other types of
contract”.
 ie. if the Sailor had died the day before docking in Liverpool. On the entire
contract rule ,the sailor would recover nothing but if you apply the substantial
performance rule, the estate will recoer the 30 Guiness less onoe days’ worth.
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Hoenig v. Issacs [1952] 2 All ER 176
FACTS: the Pl. agreed to redecorate and furnish the D’s unit for 750 pounds. the furniture
was defective in vaiorus ways.
o it would have costed the D 55 pounds to repair the defects.
o the question was wheter the Pl. could recover 750 pounds minus the cost of making
good the defects?
HELD: yes, the Pl. could recover 750 – 55 pounds because he substantially performed.
DIFFICULTY WITH: Bolton v. Mahadeva [1972] 1 WLR 1009
FACTS: the Pl. agreed to install a heating and hot water system in the D’s house for 560
pounds.
o Pl. claimed 560 pounds and the D refused ot pay.
o D. said that there were all these defets in the system.
ISSUE: could the Pl.recover?
HELD: No. Pl. cannot recover because there was not substantial performance on the facts
o because the heating system did not work properly and it gave out fumes.
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8. PART PERFORMANCE
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If the party substantially performs, they can recover subject to deductions – but what about
the situation where the paerson performs but it is not substantially performed?
A party who has part performed rather than exactly or substantially performed will not be
entitled to recover the price.
Possibel that the Pl. would be able to recover in restitution for the work done but no, they
cannot recover for part performance. Sumpter v. Hedges [1898] 1 QB 673
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FACTS: Pl. say sthat he wll build a house for D. but does not build the floor.
HELD: restiutation can be allowed where the other party (the D.) does not accept the
work.
 ther is no remedy for part performance.
Connor v. Stainton (1924) 27 WALR 72
FACTS: the Pl. agreed ith the D. to erect fencing.
o the fence consist of 5 plaid wires and 1 barbed wires with posts 50 feet apart.
o Pl. put the fences up but got the diwstances between the posts wrong.
 the distances were graater than it should have been.
o Pl. contended that with the assistance of droppers, the fence could be made effective
as if the posts were the right distance apart.
ISSUE: was there substantial perfroamance?
HELD: No, there was no substantial performance. there was part performance only and
therefore, the Pl’s action was not in accordance iwqth the terms of the contract.
o “it si not open to one who has undertaken the work off aa certain kind to say that he
has done something fo a certain nature but it is really as good as what he was
contracted to perform”
o ie. Pl. cannot argue that if you put something else in, the fence will be as good as
whata he was contracted to do.
9. AGREEMENT
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One way in which a contract is terminated is thorugh agreement (as well as performance as
dealt with before)
The original contract may include an express term providing for its termination or the parties
may subsequently enter into an express contract to terminate the original contract. Sometimes
an agreement to terminate will be implied.
termination is a self-help response – advantages of the nature of this response:
o may increase the other party’s incentive to comply with the terms of the contract
 because if the contract is terminated, the other party may lose the benefit he
or she expected to gain from performance of the contract and also any
expenditure incurred in preparing to perform the contract
o may be used as a useful bargaining chip
under common law, a right to terminate may arise from:
o agreement of the parties
o non-fulfilment of a contingent condition
o breach of a condition
o breach of an intermediate term that is sufficiently serious
o fundamental breach or repudiation.
Termination vs rescission
Termination has a prospective effect – any rights that have accured prior to termination
continue unaffected and may be enforced by the relevant party
Rescission is the remedy often granted where the contract is found to be vitiated by reason of:
o misrepresentation
o mistake
o undue influence
o unconscionable dealing
rescission has a retrospective effect = parties are restrored to the position they were in before
the contract was made.
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a. Expressed or Implied Term of Termination in original contract
 Parties can include an express term providing for when or how their contract may be brought
to an end.
o provision may say that the contract is to last for a fixed period of itme – afterwhich,
the contract wll automatically come to an end
o Parties may agree that one or both of htem will have the right t oterminate the
contract = given a broad discreiontary rfight to terminate the contract ‘at will’
o Party may be given a right to terminate after a specified period of notice
o party maqy be givne a right to terminate whichi s ‘triggereed’ by certain specified
events
 eg. breach of the contract
 eg. non-fulfilment of a contingent condition’.
 in some cases, courst have required precsise compliance with the termination procedure = the
express termination clause may be interpreted against the interest of the party wanting to
terminate the contract
 Pan Foods Company Importers & Distributors Pty Ltd v Australia and New Zealand Banking
Group
 FACTS: bank provided finance to P. in the form of a number of loans.
o loan said that if nay of a number of events of default occurred, bank could terminate
its obligations under the agreement and declare that any moneys owing immediately
due and payable
o bank was required to give P notice – notice had to be issued by an ‘authoirsed
represnetative’ of the bank I nwriting.
o bakn told its solicitors to prepare the notice and an officer of the bank, who was an
authorized representative, attendeed the premises of P anad handed the notice to it.
o P challenges the validity of the notice that it was made by the solicitors of the bank
and no t the bank itself.
 HELD: rejecting P’s argument
o requirements of commercial contracts should nto be construed in an overly technical
or restrictive manner
o (Kirby J) commercial contracts ‘should be construed practically,so a sto give effect to
the parties’ presumed commercial piurpsoes and so as tno to defeat the achievmenet
of such purposes by an excessively narrow and artificially restricted construction”
o would therefore not be fatal that a party did not comply with a strict construction of
the procedure for termination provided the apparent defect did not prejudice the other
party in any substantial way.
o agreement did not require the notice to be signed
o cirucmsntaces in which the notice was handed over made it clear that the notice was
from the bank.
 Impleid right to terminate a contract of otherwise indefinite duration
 where a contract is silent as to its duration, courts may be prepared to imply a right for one or
both of the parites to terminate the contract
 right wil be based on the inference that the parties would not have intended the contract to
continue indefinitely
 courts will usually require the party terminating to give reasonable notioce of termination to
the other party.
o appropriate period of reaosnble notice – Crawford Fitting co v Sydney Valve &
Fitting Pty Ltd:
o FACTS: under a distributorship contract, one party, the distributor, contracts to sell
the products of a manufacturer
 in performing the contract, the distributor may incur considerable expenditure
in establishing and hten expanding its distribution network.
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HELD: the period of six months’ notice prior to terminating the contract with the
distributor was sufficient.
 the courts want to ensure tha the relationship of the parties will continue for
long enough after the notice of termination to enable the distributor to recoup
any extraordinary expenditure or effort.
 BUT: the court also said that there is nevertheless going to be a certain
amount of effort going unrewarded because it is a business risk that a
distributor takes when he enters into an agreement terminatable at any time.
Crawford Fitting Co v. Sydney Valve & Fitting Pty Ltd (1988) 14 NSWLR 438 – implied
term of termination.
HELD: whether a commercial agremenet for an indefinite period may be terminated (ie there
is an indefinite agreement and ther was no express term) depended on whtehter a term could
be implied to that effect. How do you decide if the term can be implied or not?
o depends on the subject matter ofhe agreement and the circusmtnqaces in which it was
made and the other provisions of the contract.
o Are the courts liekl y ot imply a term that the parties have agreed to terminate the
contract?
o HELD: no, there is a presumption against such a term except where it is a commercial
contract
o in a commercial contract, it will ordinarly be of the nature of the commercial contract
that the partieds would intend it to be terminable upon notice.
b. Subsequent agreement
 ie. where the parties enter into a subsequent contract agreeing to terminate the original
contract - McDermott v. Black (1940) 63 CLR 161
 Parites may terminate a contract by making an expressed subsequent agreement to release
each other from the original contract.
 this is a normal contract and therefore requires the normal elements of contract formation –
including the requirement of consideration.
o residual obligations from non-completion of the contract from both parties is
sufficient consideration.
 Partly performed contracts and the issue of consideration
 issue of consideration is more difficult wher one party has fully performed the original
contract and the other party has not.
o performing party will be able to give god consideration because it will be releasing
the non-performing party from his or her obligations BUT the performing party has
no remaining obligations under the contract THEREFORE, it would not have
sufficient consideration.
 BUT: parties may be able to avoid that issue by executing a deed (does not require
consideration) to terminate the contract.
 ALSO: the non-performing party can provide some ‘fresh consideraiton’ eg. by paying extray
money.
o giving fresh consideration = accord and satisfaction = “accord is the agreement by
which the obligation is discharged…satisfaction is the consideration which makes the
agreement operative.” (British Russian Gazette)
 The consideration from the non-performign party can also be a promise to do something
o accord and satisfaction nwil be complete immediately upon the promise being made
o BUT: the fconsideraiton cannot be the rpomsied act – eg. actually paying the money –
because the contract will only have been said to have been constituted by sufficient
consideration only when that act is performed.
 Termination inferred from subsequent agreement
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parties may make a subsequent agreement without explaining how that agreement is to
interact with their original contract
two possible interpretations of the subsequent agreement between the parties:
o intended the subsequent agreement to replace and thus terminate eth original contract
OR
o the subsequent agreement merely to vary or supplement the original contract
an intention to termineate the original contract will be inferred where, because the obligations
in the seubsequent agreement are inconsistent with those in the original contract, the two
agreements cannot be supposed to have been intended to co-exist
VS: intention to terminate the original contract is unlikely to be inferred wher the parties
cannot be presumed to have intended to abandon their rights under the original contract.
Concut Pty Ltd v Worrell
FACTS: in 1980, employee commenced employment under an oral contract
o employee engaged in conduct that breached the terms of employment before the
parties executed a written employment contract in 1986.
o 1988: employer terminated the employment without notice
o employer defended this action on the ground that he employee had breached his
conditions of employment (which had occurred prior to the 1986 contract)
LITIGATION: Court of Appeal said that the written agreement was a new and discrete
contract which terminated and replaced the oral contract THEREFORE: there had been no
breach of the terms of the written agreement – employer had no right to terminate the
employment of the employee without notice.
HELD: (HC) allowing appeal = reversing court of appeal decision.
o the text of the written agreement indicated that the parties’ intention was not for the
written agreement to become the exclusive charter of the contractual rights and duties
of the parties.
o unlikely that the parties adopted the written agreement with the purpose of depriving
the employer of any accrued rights under the original contract.
o the employment relationship under the original oral contract continued and was
supplemented by the written agreenment
o employer was not precluded from relying on an earlier breach to dismiss the
employee.
Where a subsequent contract does not change the obligations under the original contract but
substitutes new parties, the subsequent contract is known as a novation
o it is a new contract discharging the original one. (Fitzgerald v Masters)
10.ABANDONMENT
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Where the parties have conducted themselves in a way which indicates that they mutually
agree that the contract should no longer be performed the contract can be treated as
abandoned.
Has the same effect as agreement but it is implied from the way in which the parties conduct
themselves.
courts are cautious about merely allowing people to just abandon the contract – you have to
look at he behaviour of the parties.
Mere lapse of time is not enough to indicate abandonment (ie. years past without he parties
doing anything and there was no time limitation does not mean that the contract has been
abandoned) - Fitzgerald v. Masters (1956) 95 CLR 420
FACTS: a contract to purchase some land to be paid for by instalments. Pl. paid some of the
instalments btu there was a lapse of 6- years between the contract and the litigation.
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HELD: nop the contract was not abandoned because more than half the purchase price was
already paid.
o if the contract had been abandoned, the legal title would have been retained by the D.
and he would also be allowed to keep the money.
Abandonment may be inferred where the parites to aq contract indicate that neither considers
the contract should be further performed: DTR Nominees Pty Ltd v. Mona Homes Pty Ltd
(1978) 138 CLR 423 – contract hat has been taken to have been abandoned.
FACTS:
o Parties adopted different interpretatiosn of the contract but both claimed that hey
wanted to terminate the contract because the other party had repudiated it.
o cleara evidence that the parties wanted to terminate and they tried to invoke a notice
of termination but for some technical reason, the notice had not been sent.
ISSSUE: could the contract be abandoned?
HELD: Yes, the contract can be abandoned.
o neither of the parties’ notices of termination wer effective.
o the way in which the parties conducted themselves showed that they really were
intending to abandon because they tried to terminate the contract
o (Stephen, Mason and Jacobs JJ, with whom Aickin J agreed) said that by the time the
proceedings were commenced, neither party regarded the contract as still being on
foot THREFORE, the parties should be regarded as having abandoned their contract.
o highly distinguished from Fitzgeerald v Masters.
NOTE: mere lapse of time is not enough- there has to be some behaviour that indicates that
they have abandoned.
o contract may also be inferred to have been abandoned where an ‘inordinate’ length of
time has been allowed to elapse “during which neither party has attempted to
perform, or called on the other party to perform’. (Fitzgerald v Masters)
BUT: where one party has already partly performed the contract, courts may be less likely to
concluded from a later period of inactivity that the contract has been abandoned.
READING
Paterson, Robinson and Duke, Principles of Contract Law, Chs 18,19.
Carter, Peden and Tolhurst, Contract Law in Australia, Ch 28.
E Peden, ‘Incorporating Terms of Good Faith in Contract Law in Australia’ (2001) 23 Sydney Law
Review 223.
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LECTURE 6: DISCHARGE FOR BREACH
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Sometimes the right to terminate for breach of contract is expressly conferred in the contract.
o it doesn’t actually matter – if the contract is breache,d then it can be terminated
More difficult question is whether the contract can be t4erminated in the absence of an expressed
term:
o whether or not it can be terminated in the eabsence of the express termination oclause
depends on the nature of the term breached.
There are three types of term.
The way in which a term is classified determines whether or not breach of htat term can be a
ground for terminating the contract.
Historically, it was simple – two types of tersm
o conditiiosn – breach of which allows claim in damages and a right to terminate.
o warrant – breach of which gave rise to a claim for damages but not a right to terminate.
There is now a third type of term – innominate term
o the right to terminate depends on the seriousness of the breach.
IF any term could give rise to a right ot terminet, would result in any minor breach allowing a
right to terminate THEREFORE, the type of term would determine whether or not the contract
can be discharged.
1. WHAT IS BREACH?
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There are two sorts of breach:
a. Failure to perform after the time for performance has expired.
b. An anticipatory breach prior to the time for performance falling due.
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Liabilty in tort depends on fault BUT in contract:
o Liability is generally strict i.e. no fault need to be proved.
 if you breach the contract, you are liable and it does not matter if you are at fault
or not.
o In some contracts a term that the contract must be performed with due care, skill or
diligence may be expressly provided for, or arise by implication.
 in this case, whether or not h te term is breached is a question of whether or not
you are at fault.
Statute can also impose a requirement of fault - ACL 2010 ss 60-61
o Supply of services – where a service is supplied in trade or commerce to a consumer,r the
services must be redered with due care or skill – S60
o general rule is that fault is irrelevant in contract.
2. WHAT IS TERMINATION?
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If a contract can be terminated (eg. if the breach is a condition):
 Termination is not the same as rescission.
o if you can rescind the contract ,it is as though the contract never existed = oen has a
fresh start
o Termination is different. DO NOT CONFUSE THEM!
 Where rescission is allowed (and their bars to rescission) the parties are put in position as if
they had never had a contract – this is not the same as termination.
 Where an innocent party elects to terminate for breach or there is a termination clause accrued
obligations are enforceable =Parties are only released from future obligations to perform
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contracat is not undone
obligations that arise prior to the termination daate are still in force.
 ie. the contract is not undone.
o eg. if A and B enter into a contract, A breaches a condition and B elects to terminate,
both parties’ obgliations prior to the termination daate have to be performed.
o rescission means that the contract never existed VS. termination means that the
obligations are at an end from the point at which the contract is termianteed.
o Failure to perform these is a breach of contract.
Termination is not automatic. Election is required.
o advantage – party can terminate as a means of self help – they don’t have to go to
court.
Photo Production Ltd v. Securicor Transport Ltd [1980] AC 827
HELD: (Lord Diplock) expelled the effects of termination – “termination discharages both parties
from future performance (after the termination).
o termination is a self held remedy – Party can end the contract without going to court.
o onus is on the other party (the party who breached) then has to challenge the
termination by going to court.
There may be situations wehre termination is advantageous to the Pl:
o eg. if they have entered into a bad bargain
The problem is that where a term is classified as a condition, it means that the contract can be
brought o an end by a timely breach – ie. the breach can be totally disproportionate if it is the
right sort of the term to bring the contract to an end.
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3. EXPRESS RIGHT TO TERMINATE FOR BREACH
Clause in the contract may say that any breach in the contract can give right to terminate
where there is an expfress right to teriante for breach of the term fo the contract, the character of
the term is not relevant
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Rawson v. Hobbs (1961) 107 CLR 466
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Le v. Qureshi [2003] QDC 442
FACTS: a contract for the sale of land. A clause said thqat “ if the buyer failed to comply with
any provision of this contrac,t they seller may terminate the contract”.
o it was a standard term that was breached
HELD: there was anb expressed right to terminate for breach.
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4. BREACH OF A CONDITION
The breach of a condition gives rise to a right to terminate irrespective of the seriousness of the
breach.
All is not lost if your term is not a condition – if it is an innominate term and the breach is
serious, then you may terminate.
It also gives a right to damages up to the point that the contract was terminated and beyond for
loss of bargain.
After the contract is terminated, the contrafct isat an end, there are no oblgiaitons beyond the
termination date.
In principle the parties can classify any term as a condition.
o The label attached to a term does not necessarily determine the classification.
 merely calling a term ‘condition’ does not necessarily make the term a condition.
o it is for the court to determine whether the term is a condition.
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 How do the courts determine whether or not the term is a condition?
a. Classification by the parties
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Luna Park (NSW) Ltd v. Tramways Advertising Pty Ltd (1938) 61 CLR 286
FACTS: Pl .ran an amusement park in Sydney. The D. was an advertising agent.
o D. in consideration of 20 pounds/week payment said that for 52 weeks it would distribute
advertisement boards on tram cars.
o Agreement consisted of a letter and a contract the terms of which were critical.
o Letter contained a statement that the average time that each tramcar is on the track is 8
hours a day and ‘we guarantee that these boards will be on the track at least 8 hours a day
throughout the seasons’.
o difficulty for the owners of the amusement park was that each and every board on the
tram was not displayed for at least 8 hours a day
o Pl. argued that the advertiser had breached a condition and therefore the contract was at
an end.
HELD: (majority in HC) agreed with Pl. that the term was a condition
o the undertaking that the board would be displayed for at elast 8 hours every day was a
condition
o T?HEREFORE, since it was not so, the contract could be terminated.
o Majority placed great weight on the fact that the contract said “we guarantee that the
boards will be on the track at least 8 hours a day”
 “a guarantee is a guarantee” (Latham CJ)
 “It is an undertaking that the board will be displayed for 8 hours a day”
(dissent per Dixon J) said htat the term was not a condition
o oyu have to look at the context of the subject matter.
o the majority are mistaken – they have focused on the single word
o in determining if whether or not the term is a condition or nto, you don’t just look at a
signle word ‘guarantee’
 the context matters more than thej prescsie grammatical construction
o the clause makes no sense if it is just viewed in isolation
 you have to look at the context.
L Schuler AG v. Wickman Machine Tool Sales Ltd [1974] AC 235 - support for the view htat you
don’t just look at the term used but you look at the context.
FACTS: the German Pl. gave the D. a sole right to sell their goods in UK.
o clause 7 of the contractwas labelled a ‘condition’ that two named sales reps of the D.s
should visit manufacatursrs each week to promote the P’s goods.
ISSUE: whether the named reps – when failing to visit particular manufacturers – was it a breach
of a codnition? was cl 7 a condition?
HELD: IT was labelled a condition (Lord Reid) the label attached to the term was a strong
indication BUT it did not determine the outcome
o doesn’t mean that because of its label, it is automatically a condition.
o where the particular construction of the words leads to unreasonable result, the nthis
cannot be what the parties intended.
o cl 7 was not a condition befccause this would lead to an unreasonable result
o it was unreasonable because under the contract, there wqas supposed to be 1400 visits –
where they failed to visit 1- there would bea breach of a condition? – this would be
unreasonable THEREFORe, the term was not a condition.
 the more unreasonable the result, the more unlikely the party intended it as a
condition.
o Key point is that simply labelling something a condition does nto make it onne.
Cf. Luna Park: where it was not labelled a condition.
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What determines whether a term is a condition if the label is nont enough? Courts consider
whether it is essential:
Luna Park (NSW) Ltd v. Tramways Advertising Pty Ltd (1938) 61 CLR 286
Associated Newspapers v. Bancks (1951) 83 CLR 22 – Leading authority on whazt factors courts
consider:
FACTS: D was an artist
o D. entered into a contract with the newspaper over a ten year period to devote the whole
of his time and attention nto the affairs of the newspaper and to use his best endeavours
for which he was swell enumerated.
o asa part of the agreent, he had the weekly cartoon that would be on the front page of the
weekly newspapers in their comic section.
o Initially, cartoon appeared on the front page of the comic section – all was well.
o Then, in 1951, there was a shortage of newsprint = the artist’s comic ddi not appear nthe
first page.
 it appeared at the back of the magazine
 this happened several times.
o the D. (artist) was dismayed and protested
o D claims that he was no longer bound by the contract because it was a condition of the
contract that his cartoon would appear on the front page of the comic section.
ISSUE: was the term of a otnract that it appeared on the front page of the comic section a
condition?
HELD: how do we determine wheterh it is a condition? IT depends on how essential the term is.
o does the term go to the root of the contract?
o in this case, the D. was not an ordinary employee of the Pl. – he was employed as a comic
artist and his true work was to produce his weekly drawings
 it was for htat htat he was paid a substantial salary
o “It would be strange if the artist was bound to the newspaper for 10 years and had to
produce his weekly drawings every week and that was a condition…It would be
ridiculuous if the d’s obligations were a condition and the Pl’s were not”
o “IT was of prime importance tpo the D that there should be continuity of the agreement
and the work should be published to a whole and not on ‘page 27 of the coloured
maagazine’”
o THEREFOPRE: the term was a condition
o What the court seems to be stressing are 2 things:
 how important the term was to the D? in this case – essential.
 relationship between the Pl. and the D.
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Shevill v. Builders Licensing Board (1982) 149 CLR 620 – recent authority on whether or not a
term is essential and is a condition or not:
 FACTS: the terms of the contract “if lessee does not pay for 14 days, the lessor may enter the
land…wtihotu the lessee having any other remedy in contract or optherwise”
o the lessee was in breach of the contract by constantly being late with the rent.
o LEssor re-entered – claiming damages.
 ISSUE: Was the failure to pay rent a condition?
 HELD: Applying Bancks: the term was not fundamental or essential .
o HC Was concerned that non payment for 14 days over long weeks could give right to
termination of the lease.
o IT was absolutely clear that they have a right of action for non-payment BUT nonpayment for 14 days may not necessarily give aright to terminate.
ie. you look at the context of the term and whether or not it is essential – in determining the nature
of the term = condition, warranty or innominate term.
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b. Classification by statute – statute can classify a term as a condition or a warranty and that
determines the outcome.
Sale of Goods Act 1876 (QLD):
S 3 (1) warranty means 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 14 When condition to be treated as warranty
(1) When a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may
waive the condition, or may elect to treat the breach of such condition as a breach of warranty, and not
as a ground for treating the contract as repudiated.
(2) Whether a stipulation in a contract of sale is a condition the breach of which may give rise to a
right to treat the contract as repudiated, or a warranty the breach of which may give rise to a claim for
damages but not to a right to reject the goods and treat the contract as repudiated, depends in each
case on the construction of the contract.
(2A) A stipulation may be a condition, though called a warranty in the contract.
(3) When a contract of sale is not severable, and the buyer has accepted the goods, or part thereof, or
when the contract is for specific goods the property in which has passed to the buyer, the breach of
any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a
ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the
contract, express or implied, to that effect.
(4) This section does not affect the case of any condition or warranty, the fulfilment of which is
excused by law by reason of impossibility or otherwise.
 S 54 Remedy for breach of warranty
(1) When there is a breach of warranty by the seller, or when the buyer elects, or is compelled, to treat
a breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason
only of such breach of warranty entitled to reject the goods; but the buyer may—
(a) set up against the seller the breach of warranty in diminution or extinction of the price; or
(b) maintain an action against the seller for damages for the breach of warranty.
(2) The measure of damages for breach of warranty is the estimated loss directly and naturally
resulting, in the ordinary course of events, from the breach of warranty.
(3) In the case of breach of warranty of quality such loss is prima facie the difference between the
value of the goods at the time of delivery to the buyer and the value which they would have had if
they had answered to the warranty.
(4) The fact that the buyer has set up the breach of warranty in diminution or extinction of the price
does not prevent the buyer from maintaining an action for the same breach of warranty if the buyer
has suffered further damage.
c.
Classification by the courts
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Whether a particulartype of term can be considered a condition
In this situation the courts look to see how the courts have previously classified terms of the
relevant sort.
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The Mihalis Angelos [1971] 1 QB 164
FACTS: if you have a charter party ie. you wish to charter a ship from the shipowner, it is
actually quite important is ready when the shipowner says it will be. this was a dispute
o background: charter market fluctuated massively – what the parties were trying to do to
bring a contract to an end so they ocudl get the contract cheaper elsewhere.
o clause stipulated date ofe expected readiness in the charter party – was such a term a
condition?
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HELD: a body of case law that says that terms of these sorts are conditions.
o (Dennings LJ) there is a significant body of case law that these sorts of temrs can be
classified as a condition – a clause stating that a ship is ready on a certain daate is a
condition
o ie. if you deliver a ship a day later or a month later, you are in breach.
 any breach of any sort gives a right ot terminate because it is a condition
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Ankar Pty v. National Westminster Finance (Australia) Ltd (1987) 162 CLR 549
HELD: (HC) you have to look , when determining whether or not the term is a condition, what the
context is and what previous courts had to say.
o it was a surety contracts and so, court has to look at previous cases and hwo the courts
have construed it.
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5. BREACH OF WARRANTY
There is no right to terminate for breach of warranty.
Breach of warranty only gives a right to damages up to the time of action but not for loss of
bargain since the contract continues.
Ellul v. Oakes (1972) 3 SASR 377
HELD: court treated the term “about sewering” as a warranty.
o because it is a warranty – it only gives rise to a right to damages where it is breached.
6. INTERMEDIATE TERMS
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Once upon a time there were only conditions and warranties.
o if it was a condition – terminate and or damages.
o warranty = only damages
In 1962 the English Court of Appeal recognised a third class.
Whether or not the breach of an innominate term gave rise to a right to terminate depended upon
the seriousness of the breach.
Hong Kong Fir Shipping Co. Ltd v. Kawasaki [1962] 2 QB 26
HELD: there are three types of terms
FACTS: there was a charterparty that was fitted out for ordinary cargo service.
o the owners of the ship under the contract were required to maintain in efficient shape
a certain ship.
o the ship is delivered.
o the ship steams out of port and keeps breaking down.
o chief engineer is drunk and keeps drinking – he was the only person competent in
fixing the engine.
ISSUE: is this a condition? can you terminate the contract?
HELD: (Court of Appeal) No it was not a condition entitling termination.
o BUT: the parties can terminate because the term is innominate.
o it was not a condition because the ship was not sea worthy.
o the fact that the ship was not seaworthy – was not a condition. (diplock LJ) because
there were minor things that prevented the ship from being seaworthy.
o If you’re going to claim that the contract can be terminated, then you cannot rely on it
being a condition – you have to the fact that it is an innominate term.
o where the breach is significant – then you are allowed to terminate.
ISSUE: is the breach here significant serious?
HELD: No.
o in order to allow termination because the temr is an innomiante term ,the threshold is
EXTREMELY high.
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you cannot terminate for the breached term being an innominate term easily.
(Diplock CJ) “it is only where the breach deprives the party of the subsntial old
benefit of the contract, that the temr is innominate.
 The charterers tried to fix a new engineer but it was a long charter and the
ship engineer was drunk.
This is a totally bizarre case – came out of the blue.
o was invented by the court of appeal
The Hansa Nord [1976] QB 44
FACTS: it was a contract for the sale of orange rind.
o There was a term of the contract that the shipment of the orange rind was a condition.
o ISSUE: is this term a condition?
HELD: if anything ,ti is an innominate term.
o the breach of contract would have to be substantial - did the breach go to the root of
the contract in thiscasse? No.
o Because the orange rind was actually used for animal feed – quality of it would not be
fundamental.
o Essentailly what happened is that the D. terminates and yet hey buy the very same
orange rind from a third party for a lower price.
When do we think that the term is an innominate term and then if the breach is sufficiently
serious? See:Bunge v. Tradax [1981] 1 WLR 711
HELD: (Lord Scarman) the default position in contract is to treat the term as innnominate – we
treat it as innominate unless the contract makes it clear either by express provisoin or necessary
implicaiotn that a term is a condition / warranty.
ie. the first approach is that the term is innominate unless there is reason to think that it is not.
FACTS: there was a contraafct to ship soya bean milk.
o buyer was required to nominate the time of shipment and give the seller 15 days
notice.
o seller would then nominate a port to load the goods at and the soya bean mill would
then float on the way to go to wherever it was going.
o problem: the buyers gave no notice
o they did not give at least 15 days notice
ISSUE: was it a conditional /warranty/ innominate term?
HELD: starting point is that you act like it is an inominate term
o on the facts, the term is a condition because looking ata prevous cases, terms
liketheses were treated as conditions.
o Parties in commercial contracts needed certainty.
o the problem with innominate terms is that they are very uncertain – it depends on the
seriousness fo the breach if the temr is an innominate term
 for a commercial party, you want certainty.
 you don’t get certainty with innominate terms because if something is an
innomiante term, you cannot know before you gobefore a judge whether the
breach will be sufficiently serious to terminate it.
o In this casae, the term is a condition.
Australian courts are not that interested in the English House of Lords – Look more towards
Australian authority!
Courts wanted to inventa third categtroy because the consequences of it not being an innomiatne
ter m are serious if it iss not a condition – the only remedy oyu get is damages
o therefor,e courts thought for hthe neeed to invent a new category
o BUT: actually, there are problems with thiscategory in that it is not certain.
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In Australia, is there such a term as an innomiante term?Is there a third category – not a
condition / warranty but the breach is sufficdently serious to allow termination: Koompahtoo
Local Aboriginal Land Council v. Sanpine Pty Ltd [2007] 233 CLR 115
HELD: (HC) yes, we have a third category called an ‘intermediate term’.
o (Kirby J in dissent) does not approve of intermediate term category.
Summary
 A contract can be brought to an end by performance (most important) but there are oter ways
in which a contract can be terminated
o there is an expressed tgermianation clause
OR
o there is abandonment (courts don’t like it) OR
o the contract has been breached – the consequences of htat breach, in realtion to
termination, but not a right to damages, depends on the classification of the term.
 a breach is a breach so far as damages is concern- any breach gives right to
damageswhatever the nature of the term.
 NEverthelss the natrure of the temr is important for the right to termination.
o if it is a condition = seen as essential = termination allowed
o if warranty = damages ONLY.
o if innominate --> you look at the type of breach – must be serious = damages.
 whether a term is innominate, the courts apply a high threshold
 only where the breach substia=nantially deprives the parties of athe contract.
 courts don’t like using the third category
 Aus courts : accept that there is a third category AKA intermediate terms.
READING
Paterson, Robinson and Duke, Principles of Contract Law, Ch 21.
Carter, Peden and Tolhurst, Contract Law in Australia, Ch 30.
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LECTURE 7: REPUDIATION AND ANTICIPATORY
BREACH – read document that Warren gives – likely to
be in exam
1. WHAT IS A REPUDIATORY BREACH?
 Recap: three categories of terms:
o conditions – breach = damages + termination
o warranties – breach = damages only
o intermediate terms – breach must be sufificnelty serious = termination + damages.
 ISSUE: whatprocedure to go through to terminate the contract.
 Where the term breached it does not automatically bring the contract to an end.
 Where the term breaches is a condition or an innomiante term (whre breach is sufficiently
serious) / immediate term then the innocent party has a right to terminate performance of the
contract (a repudiatory breach).
 They are not obliged to exercise this right to terminate the contract – they can do one of two
things:
o either terminate performance of the contract and claim damages OR
o affirm the contract and claim damages.
 General situation is that whether the breach brings the contract to an end, because the
breach is a condition or an intermediate term OR ithere is a termination clause with in the
contract, (ie. if hter is a breach, clause sxays contract will be terminated) – innocent party
must exercise their right to terminate – ie. ELECT TO TERMINATE.
 NOTE: Ther is a category of renunciation.
2. ELECTION TO TERMINATE
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Election is an active act by which the innocent party must unequivocally signal their
acceptance of the breach to the party in breach or elect to affirm the contract.
o election must be unequivocal
McDonald v. Denny Lascelles (1933) 48 CLR 457, 476-477 - explains where election occurs:
When aparty to a simple contract, upon a breach by the other contracting party of the
condition of the contract, elects to treat the contract as no longer binding upon him, the
contract is not rescinded as from the beginning, both parties are discharged from the future
performance of the contract
o ie. existing rights are not discharged.
o rights that have accrued prior to that point are still binding.
ISSUE: questions have arisen about what amounts to an election – ie. on the facts, has the
innocent party really elected? - Vitol SA v. Norelf Ltd [1996] AC 800
FACTS: there was a cargo of propane.
o on a CIF contract – the cargo was to be loaded on the vessel on specific dates.
o the sellers were to tender a bill of lading and the buyers were to pay 30 days late.
o problem was that on the fafcts, the loading was too slow – instead of loading the
canistersr by a certain date, by few days before the date that it was supposed to be
loaded , they were still loading the ship.
o buyers thought that the ship would not be able to load in time.
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buyers sent a telex and repudiated the contract because they thought that it would not
be loaded in time.
o the vessel was actually in fact loaded in time and sailed.
o Neither of the parties , neither buyer nor sellers, took further steps to perform the
contract – ie. propane was not delievered by sellers to buyers and buyers did not pay.
ISSUE: had the seller elected to accept the buyer’s breach?
o because the buyer had erroneously believed that the propane was not going tob e
loaded on time and whether or not the seller had accepted buyer’s repudiation?
o by failing to take further stpes to perform the contract – is this sufficiently
unequivocal as showing that you’d elected to terminate the contract
 ie. by simply refusing the perform after that date, doe sthat signify election?
HELD: (Steyn LJ) yes it was an unequivocal sign that theinnocent party has elected to
terminate the contract by failing to perform.
o election is something that can be done by conduct.
o in certain situations, failure by the innocent parties to perform their obligaiotns under
their contract amounts to an election to terminate.
o IT is then for the party in breach to challenge the terminateion.
When one terminates – oyu do not need to put forward real reason for terminating.
Provided there are good reasons. In justifying termination the innocent party may rely on any
good ground for electing to terminate even if they were not aware of it when they elected.
o ie. when the party in court challenges the termination , court will say even if the party
at the time fo termianteion, the party in time was not aware of that termination, then
that is valid termination.
o some times facts only come to light after the termination – this does not matter
provided that therew as a good reason to terminate and the facts were there – does
not matter that they have come to light later: see Shepherd v. Felt and Textiles of
Australia Ltd (1931) 45 CLR 359
The Mihalis Angelos [1971] 1 QB 164
FACTS: ther was an expressed termiatnio nclause in a charter party.
o the issue was whether or not the cancellation clause had been correctly exercised.
o this was na absolutely typical case – there was a charter party that was date
dependent (ie. dates were extremely important – because of shift and volatility in
charter market )
o the clause said that the charterers could cancel the contract fi the ship was not ready
to load on July 20.
o the ship was, on July 17 1965, clearly not ready to be loaded even by July 20.
o charterers claimed under the cancellation clause that they could cancel there and then
– it was not disputed on the facts that the ship would not be ready to load by July 20 –
the ship owners said that the charter parties had been premature Iin exerciseuing the
cancellation clause
 ie. that they could not cancel untiul July 20 since that was what the clause
stated.
HELD: (Lord Denning) it would be silly if it was clear that the vessel would not arrive in time
- it was obvious that it would not in this case.
o Lord Denning too kinto account commercial convenience
o “it would, be better for borth sides to allow the contract to be vancelled when it was
obvious that the vessel would not be ready in time.”
o ISSUE with Dennig reasonsing: it might be slower to engaged another vessel than it
would be to wait another couple of days – wher is the commercial convenience?
o conflicts with Shepherd and earlier authorities that you have ot wait until the date for
performance bfore you can elect to terminate.
o Even if the charterers had cancelled for the wrong reasons- that did not matter so long
as there were grouns to cancel
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The innocent party is not bound to elect at once but – if you are slow to do anything, the
innocent party runs the risk of affirming if they do not.
o what that period of time is is not clear.
o Generally, until an election to terminate is made, the contract remains alive.
o risk of not electing and leaving it, there is a risk that he focntract may be frustrated
and may be terminated by an operation of law – the consequences are very different
than if one fo the parites had elecdted to terminate the contract.
Stoczia Gdanska SA v. Latvian Shipping Company (No. 2) [2002] EWCA Civ 889
[87] Rix LJ
In my judgment, there is of course a middle ground between acceptance of repudiation and
affirmation of the contract, and that is the period when the innocent party is making up his
mind what to do. If he does nothing for too long, there may come a time when the law will
treat him as having affirmed. If he maintains the contract in being for the moment, while
reserving his right to treat it as repudiated if his contract partner persists in his repudiation,
then he has not yet elected. As long as the contract remains alive, the innocent party runs the
risk that a merely anticipatory repudiatory breach, a thing ‘writ in water’ until acceptance, can
be overtaken by another event which prejudices the innocent party's rights under the contract
— such as frustration or even his own breach. He also runs the risk, if that is the right word,
that the party in repudiation will resume performance of the contract and thus end any
continuing right in the innocent party to elect to accept the former repudiation as terminating
the contract.
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An election once made is final:
Ogle v. Comboyuro Investments Pty Ltd (1976) 136 CLR 444, 451
HELD: a contract is breached and the innocent party can elect to terminate or to continue
where by his words or her actions they elect to affirm – then that equally is final.
3.
a.
b.
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RIGHT TO TERMINATE IS LOST The innocent party’s right to terminate will be lost when:
They affirm
They are not ready and willing to perform
If the innocent party themselves are in a breach of contract and they wish to terminate the
contract – is that right to terminate restricted?
o sometimes, the right to terminate is subject to the innocent party be ‘ready and willing
to perform’.
Foran v. Wright (1989) 168 CLR 385
FACTS: Contract for sale of land, prior to date due for completion, the vendor said that they
would not be able to compl,ete by that date.
o on failure to complete by the date, the purchaser terminated.
o ISSUE: the evidence shows that had the vendors been able to complete on that day ,
the purchasers were not in themselves in the position to complete that day – they were
desperate to geet finance to complete that property.
o question arises whether that fact precluded the purchasre’s right to terminate.
o it could be argued that the purchasers were not themselves wilign and ready to
perform at the date ofd copmeltion THEREFORE – they themselves would have been
in breach = opurchasers themselves could not have elected to terminate.
HELD: yes, purchasers were allowed to terminate.
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BARS TO TERMINATION:
when party elects to affirm
when party does not themselves have the right to terminate because of breach themselves.
NOTE: estoppel
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c. Estoppel
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ie.Where the innocent party ahs by their words or conduct led the party in breach to believe
that hteir right to terminate will not be exercised, and the party in breach relies on that
representation, the right to terminate is suspended.
o UNTIL the innocent party gives notice to the party in breach that he intends to rely on
his strict legal rights ie . the suspension is not permanent.
d.
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Relief against forfeiture
courts don’t have a general jurisdiction to protect a party in breach
ie.a court cannot change the obligations to perform by the parties.
Exceptions to the relief against forfeiture rule – applies only where we are dealing with a
proprietary right / possessory right – does not simply apply to contract
o eg. where there is a breacfh of a leasehold covenant and the landlord is trying to
forfeit the leaes, relief against forfeiture may give the tenant extra time to
perform.
Relief against forfeiture is also relevant for contracts for sale of land.
o Relief will not be granted usually for comemrcal parties
Legione v. Hately (1983) 152 CLR 406
FACTS: there was a sale of land and the balance was to be paid on the 1 July 1979.
o condition 5 of the contraction : time was of the essence
o BUT parties could not enforce their rights under the contract without written notice.
o Matters were moving slowly but on the 9th August 1979, the purchaser’s solicitor
telephones the vendor’s solicitors and stated that they would be ready to complete on
the 17th August – ie. later than the 1 July.
o Clerk at the solicitor’s said “I think that will be laright but I’ll have to get
instructions”
o On the 14th August, the vendor said that they had given notice and the contract was
terminated under condition 5.
ISSUE: could the defaulting purchaser get relief?
HELD: (HC) in very exceptional circumstances, yes they could.
o what were the exceptional circumstances?
 the way that the sale was set up meant that the purchasers have lived on the
land for many years and the balance to be paid was only the final instalment
 as a result, the purchasers had a beneficial interest on the land and they in fact
had a hosue on the land
 that in itself increased the value of hteland (the house) – the final price to be
paid was on 1Jiuly 1979 but for years before, the parites had been paying the
house for years before on the land
 vendors was try ing to ues condition 5 to bring the contract to an end
and reclaim the land and the valaue of the house.
o When you look at the statement made by the solicitors, the court said that relief
against forfeither could be granted = the parties were given more time to pay the final
instalment.
o Even where, as here, ther is a breach of an essential condition – the imte of the
essence clause- relief against forfeiture can be granted though only in exceptional
cirucmsntaces.
o Mason and Deane JJ goes through relevant factosr and stressed :”if the purchasers’
breach was trivial or slight , as here, it was not a very late date of completion, it was
just ovewr a month late, what would the magnitude of the pruchaser’s loss be and the
vendors’ gain if the contract had been terminated?
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the purchaser would have l;ost earlier investments and their house vs. the
vendors would get their land back.
e. Relief against unconscionable termination
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Stern v. McArthur (1988) 165 CLR 489
FACTS: Ther was contract for sale of land to be paid for by instalments over a number of years.
o husband and wife went into possession and built the house
o the vendors knew of so.
o in 1977, the marriage was ended and the wife still lived in the property and the
husband stopped paying the mortgage / instalments.
o the wife was unaware that he husband had stopped paying until a year or so
afterwards at which point the wife made up some of the shortfall.
o therew as a clause in the contract – “in default of any of the instalments, the balance
became due”.
o vendors tried to invoke that clause
HELD: relief aginst forfeiture was granted.
o what was stressed here is that he vendors had acted uncoinscionable:
they had known fo the default of the husband and had made nothing to inform the wife and the
wife had made up some of the shortfall.
o (Gaudron J) actually, all the vendors needed to do, rather than activate the clause,
they just had to make a lcaim for specific performance of the unpaid payments.
ie. the effect of the clause was so serious for the purchaser and the vendors oculd have gotten
their money by simply bringing a claim for the instalments.
o (Deane & Dawson JJ) wide notion of relief against forfeiture formed: “in those
situations where relief aginast forfeiture can be granted, iee for proprietary forfeiture
only,m relief could be granted in avoiding misjustice orf to relieve against
unconscionable or unconscientious conduct”. – NOTE: even they say that atsrong
case has to be made to depart from the general rule.
BUT: only in exceptional circumstances will relief aginst forfeiture be allowed & only applies
in property transactions – tend not to apply in contractual rights
o NOTE: wher it applied, the party seeking it was not a commercial party.
4. ELECTION TO AFFIRM
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Do the innocent party need to know the FACTS giving rise to the right to elect AND the
existence of the actual RIGHT to elect to terminate or affirm?
Sargent v. ASL Developments (1974) 131 CLR 634
HELD: (HC) where the person elects to affirm, they need to be aware of the facts giving rise
to the right to elect. Where the facts are not known to them ,they cannot elect in ignorance.
Khoury v. Government Insurance Office of New South Wales (1984) 165 CLR 622 - You
cannot affirm without knowing the facts that give you the right to terminate.

eg. A and B enters into a contract , B breaches a condition. What does A need to know? A
needs to know that the condition has been breached, as a matter of fact –they do not need to
know as a matter of law that the actually have a right to elect to terminate or affirm.
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Tropical Traders v. Goonan (1964) 111 CLR 41
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Electing to affirm is final:
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Sargent v. ASL Developments (1974) 131 CLR 634, 655-56
5. RIGHT TO AFFIRM IS BARRED
 White and Carter (Councils) Ltd v. McGregor [1962] AC 413
 FACTS: D. entered into a contract with the Pl. wher the Pl agreed to display advertisements
for the D’s garage for a period of 3 years on little plates attached to litter bins.
o They had enetered into this contract but later that same day, the D. wrote to the Pl
.saying that they no longer wished to continue with performance of the contract.
o Pl. had done nothing yet under the contract at this stage but had proceeded to display
the advertisements and then sued for the contract price.
 ISSUE: Pl knew prior to performance that the other party wanted to withdraw, could they
carry on with performance?
o did the Pl. have to accept the D’s breach OR could they simply affirm the contract
and carry on?
 HELD: (majority) yes, the Pl. could just carry on with prrfomrance of the contract.
o the Pl. were perfeeclty entitled to affirm and let the contract continue even though the
D. had signed themselves with an unwanted contract and would have wasted their
money.
o In most cases, this would not abe a problem where the damages have been incurred
because the Pl. was under a duty to mitigate the loss BUT by affirming the contract
before you started to perform, if this was a claim for damages, they woulid not be
mitigating their damages by continuing on with perfomraing and making the plates.
o the special fact in this case was that the lcaim was not a lcaim for damges but was a
claim in debt
 claim in debts and claims in contracts are distinct.
o There were also discussions on whether your rfight to affirm can be barred: general
rule is that if the innocent tparty wishes to affirm, they can do so – they do not have
to accept the breach to terminate.
 NOTE: there seems to be two qualifications of White:
o wehere the innocent party cannot continue their own performance without the
coopreration fo the party in breach – in such a situation ,you cannot affirm.
o (Lord Reid in White) second qualification – “although the usual rule is that the
innocent party need not accept the breach but can affirm, where there have no
legitimate interst, financial or otherwise in performing, rather htan simply claiming
damage sfor breach, then in that situation ,the right to affirm would be barred.”
 ie. you have to terminate and just claim damages whre they have no
legitimate interst, finanicla or otherwise
 this view is controversial but there is authority for this view: see Alaskan
Trader.
 The Alaskan Trader [1984] 1 All ER 129
 FACTS: Pl. chartgered a ship to the D. for 2 years. After a year, the ship required extensive
repairs and the D. told the Pl. that they no longer needed the ship.
o the shipowners told the charters that they no longer needed the ship BUT the ship
owner wnet ahead with a million pounds for repairs and kept the crew on the hip for
standby.
o the shipowners then sought to recover the losses in an actionfor breach of contract.
 HELD: the pl. had acted wholely unreasonably in refusing to accept the breach.
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General rule: where I am the innocent party, whether I affirm or terminate is up to me.
o I cannot be forced to terminate BUT there are eceptions.
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o
in any event, in most cases, where it is a contract claim rather than a claim in debt
(ie. if White was only a contract claim and not a claim in debt) then they should have
just terminated since they were under a duty to mitigate loss.
6. CONSEQUENCES OF ELECTING TO TERMINATE
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If the innocent party chooses to elect to terminate then:
Neither party has to perform the remaining obligations AND
The innocent party can receive damages for loss of their bargain for past breaches and
damages for unperformed future obligations.
What can the innocent party claim?
they can claiom damages for the breach
they also lose out for future obligaitosn / performance because the contract is at an end – they
fcan claim damage s for that too.
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What about rights arising prior to termination?
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ie. when the contract is terminated – does the deposit have ot be returned? McDonald v.
Denny Lascelles (1933) 48 CLR 457
HELD: where there is a contract for the sale of land payable by instalments,and the contract is
terminated, the vendors cannot retain the instalments – the instalments have to be repaid
o unless there was a lcause in the contract stating otherwise
o but in any event, equity may operate to return the instlamnets anway
o genrally, the deposit can be retained BUT the instalments have to be returned.
What if the deposit is due before the contract is terminated and is not being paid – the
contract is terminated, can the deposit be claimed?
o ie. buyer does not pay deposit – contract terminated- can seller recover deposit?
Bot v. Ristevski [1981] VR 120 – Yes, seller can claim the unpaid deposit.
Baltic Shipping v. Dillon [1992] 176 CLR 344
FACTS: ship sank part way through the voyage and the fare had been paid in advance – could
the fare be recovered?
HELD: the claim was in restitution – the claim failed because most of the voyage had been
complete ther was no need to return the consideration.
Instalments are prepayments on account THERFORE, they have to be seenin the context of
the whole contract hence, cannot be retained BUT deposits can.
o LOOK OUT IF THE MONEY PAID IS A DEPOSIT OR AN INSTALMENT.
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7. CONSEQUENCES OF ELECTING TO AFFIRM
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Affirming keeps the contract alive for the beenift of both parties.
ie. the innocent party still remains liable to perform their obligations - the contract just
continues.
There is a possible excpetion of the party in breach telling the innocent party that their
attempts to perform will be futile. Peter Turnbull v. Mundus Trading (1954) 90 CLR 235
8. RENUNCIATION AND ANTICIPATORY BREACH

possible to bring a contract to an end prior to the contract falling due? Yes.
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Renunciation occurs where one party by words or conduct evidences an intention not to
perform part or all of the contract PRIOR to the time that performance is due. Such conduct is
called ANTICIPATORY BREACH because it pre-dates the time for performance.
o consequences are that the other party can affirm or terminate
o conseuqnecess are the same – depends on the terms of the contract.
Koompahtoo Local Aboriginal Land Council v. Sanpine Pty Ltd [2007] 233 CLR 115, 135
with anticipatory breach : note what form the breach is in: ie. is it an express renunciation?
OR is it where a guilty party disables itself from performance?
o with express renunciation – there is the issue of disablement
a. Express renunciation
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Express renunciation occurs when there is a refusal to perform all of the contract.
Gives rise to a right to terminate even if it is an innominate term – refusal to perform the
contract at all ios a sufficiently serious breach.
Hochster v. De la Tour (1853) 2 E & B 678
If there is only a partial renunciation it will be necessary to determine if it was sufficiently
serious to justify termination. In such a case there can be repudiation even if there is no
express refusal to perform a particular term.
o consequence: depends on how seirous the renunciation is.
express renunciation is the most satisfactory because it signals very clearly that party wil not
perform.
b. Renunciation by words or conduct
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ie. you are not saying expressly “I willnot perform the contract”
Associate Newspapers Ltd v. Bancks (1951) 83 CLR 322
FACTS: cartoonist and newspaper case
ISSUE: whether the term breached was a condition or not. The conduct of the newspaper in
printing the cartoon inside the colour magazine, was not merely a breach of the condition at
the time of the performance – was it also a renunciation for future perfomrnace?
HELD: yes it was a renunciation of future performance.
Carr v. Berriman (1953) 89 CLR 327
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Larinda Pty Ltd v. Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 322
You can renunciate expressly – either in whole or in party- and you can renunciate more broadly in
words or conduct – it can then be inferred from the wordcs of conduct that there was renunciation.
c. Party disables itself from performing
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Where there is renunciation by words or conduct it is NOT necessary to show as a matter of
fact that the defendant was unable to perform.
o Universal Cargo Carriers v Citati: the party terminating,ie. on the basis that there is
an anticipatory breach, needs to show that performance would not have occurred.
 ie. before the time that performance is due, it has to be shown that in order to
argue that the party is disabled from performance and therefore there are
gorunds to terminate / claim damageso nhte basis of an anticipatory breach,
that the party is unable to perform at the time that performance fall due.
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It is more of a case that a reasonable person would believe that the innocent party was not
intending to perform.
Where the renunciation is by the defendant disabling themselves it is necessary to show that
the defendant was as a matter of fact unable to perform.
This category is difficult to prove.
ie. the party would as am atter of fact be unable to perform his or her obligations under the
contract = factual inability or impossibility = repudiation
very few cases directly addressing this issue of factual impossibility because an aggrieved
party whishing totermiante for repudiation wil usually be able to rely on the conduct of the
ohte party as incidcating inability to perform.
establishing repudiation on this basis is far more difficult than establishing repudiation
bwased on a party’s words or conduct
factual impossibility as a basis for repudiation “must be proved in fact not supposition”
o ie. the aggrieved party msut show that the repudiating party was “wholly and finally”
disable from performing in fact.
Express
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Foran v. Wight (1989) 168 CLR 385
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By conduct
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Bowdell v. Parsons (1808) 10 East 359
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Universal Cargo Carriers Corp v. Citati [1957] 2 QB 401
FACTS: charterparty of a ship – charterers were under an obligation to finish loading the ship
by a specified teime
o owner terminated the charter party before the expiry of this specified time on the
gorund that the charterers could not have loaded within the time remaining and so had
repudiated the contract
o arbitrator found that owners could have inferred that the charterer could nto have
performed within a reasonable time after the time for loading required by the contract
BUT could have perfofrmred before the delayt became so long as to frustrate the
purpose fo the contract.
ISSUE: had charterers disabled themselves from performing?
HELD: (Devlin J) findings precluded a conclusion that the charterers had repudiated by
conduct be cuase the test for repudtiaiton by conduct based on delay is not whether the delay
was unreaosnblae but whether it was sufficident to frustrate the commercial purpose fothe
contract.
o owners could justify termination on the grounds of impossibility if they could
establish in fact, as opposed to inference, that the charterer was, at the time of
termination by the owners, unable to find and to load a cargo in a shorter period of
time than was necessary (ie. where performance fell due) to frustrate the commercial
purpose fo the contract.
o have to really show that it was inevitable that the other party would not be able to
perform the contract at the time that the performance falls due.
Rowson v. Hobbs (1961) 107 CLR 466
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d. Where the defendant’s renunciation is based on an erroneous belief
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What about hwere the behaviour by the innocent party, to amount to renunciation, is actually
the behaviour that the party in breach does in good faith?
ie. is it possible to renunciate a contract erroneously?
a. ie. party genuinely believes that it does not need to perform under the contract
Renunciation is about intention objectively
The general rule is the fact that the defendant operated under an erroneous belief is not
relevant:
Luna Park (NSW) Ltd v. Tramways Advertising Pty Ltd (1938) 61 CLR 286
Nevertheless the honest or bona fides belief of the defendant may mean that the renunciation
has no legal effect because they are not really renunciating the contract:
Woodar Investments Ltd v. Wimpy Construction (UK) [1980] 1 WLR 277
FACTS: Pl agreed to sell land to the D.
o completion was to occur after gaining planning permission
o D. mistakenly thought that a lcause in the contract enabled them to withdraw.
HELD: the D. were in good faith – they genuinely believed the clause allowed them to
withdraw and therefore, there is no renunciation.
o THEREFORE: D did not intend to renunciatte
o an error in renunciation – ie. I renunciate believing that I didn’t need to perform
(though this was not correct) –generally, renunciation has legal effect.
o BUT: in this case, because the parties were acting in good faith, they did not
renunciate the contract
 this is an exceptional case – such cases only concern renunciation in cases
where the breach is anticipatory. Mmost renunciation cases occurs where the
breach is prior to performance of the contract.
 These exceptions NEVER apply to renunciation at the time of performance.
 BUT: how wide is this exception?
DTR Nominees Pty Ltd v. Mona Homes Pty Ltd (1978) 138 CLR 423
FACTS: contract for the sale of land that was to be subdivided by the seller.
o seller considered that he contract permitted it to subdivide the land in tewo stages –
this interpretation was incorrect.
o purchasers purported to terminate the contract on the gorund that he vendor had
shown unwillingness to perform the contract according ot its terms
 ie. purchasers were aattempting to terminate the contract on the ground that
the vendor’s misinterpretation of the contract & its conduct amounted to
repudiation
o Seller argues thath t e purchsers’ termination was wrongful and itself constituted
repudiation of the contract
HELD: netihre party had repudiated the contract
o seller had nto repudiated the contract because it had honestly believed in its
interpretation
o (Stephen, Mason and Jacobs JJ) “no attempt was made to persude the vendor of the
error of its ways or to give it any opporutntiy to reconsider its position in the light of
an assertion of the correct interpretation”
o “therefore, there is not basis on which one coan infer thath t vendor was persisting in
its interpretation wily nilly in the face of a clear enunciation of the true agreement”
o since the vendor was the party in error, the vendor could nto terminate on the basis of
htep purchaser’s wrongful termination.
o purchsers’ termiantino indicated no more than an inteniotn not to proceed on the
incorrect inteprpretation of the contract…parties were considered to have abandoned
the contractu.
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if there had to be a renunciation, then the other party would be entitled to terminate and
claim damages for anticipatory breach.
READING
Paterson, Robinson and Duke, Principles of Contract Law,
Carter, Peden and Tolhurst, Contract Law in Australia,
Those interested in a detailed discussion of anticipatory breach may wish to consult:
Q Liu, Anticipatory Breach (Hart Publishing Oxford 2010)
LECTURE 8: FRUSTRATION
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learn with breach
RECAP: Usual rule where a party are unable to perform occurs when the contract has been
terminated upon a breach – consequences ofhte breach depends on the nature of the term
breached
o ie. condition, warranty or intermediate term.
o contract can be terminated upon breach of a condition – damages allowed + loss of
profits after termination has occurred.
o where the term is an innominate term, breach is sufficiently serious, conseuqwences
as above
o where term is a warranty, only damages allowed.
Contract may not be able to be performed where the contract is frustrated.
Where the contract is frustrtated NOT THE SAME AS where the contract is breached –
consequences are different.
o in some situation, money paid prior o the tfrustrating event can be recovered back
BECAUSE obligaiotons prior to the furustrating event remain binding.
Where a frustrating event occurs after the contract has occurred subsequent to contract formation
then obligations arising after the frustrating event are extinguished.
BUT: Obligations accruing before the frustrating event remain binding.
o ie. may be preferable to claim that the contract is frustrated, then you will not be
liable to pay the damages – you will only be liable for events prior to the frustrating
events
 you won’t be liable for damages or for loss of profit
It is not just that an event makes performance more difficult or onerous. A frustrating event is
something exceptional.
o courts are very careful in finding that a contract has been frustrated – due to the
consequences of the doctrine.
o because it extinguishes the contract.
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the frustrating even is an event that occurs outside the contract BUT in particular,
(EXAMINABLE) an event which makes performance more difficult or onerous is unlikely to be
regarded in the courts as a frustrating event.
o because the consequence of frustration is that the contract is extinguished, the courts
tend to take a very narrow view about what amounts to frustration.

What is frustration? National Carriers Ltd v. Panalpina (Northern) Ltd [1981] AC 675, 700
(Lord Simon):
Frustration of a contract takes place when there supervenes an event (without default of either
party and for which the contract makes no sufficient provision) which so significantly changes the
nature (not merely the expense or onerousness) of the outstanding contractual rights and/or
obligations from what the parties could reasonably have contemplated at the time of its execution
that it would be unjust to hold them to the literal sense of its stipulations in the new
circumstances; in such case the law declares both parties to be discharged from further
performance.
Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales (1982) 149 CLR 337 –
Leading Australian Authority for frustration.
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1. WHAT IS THE JUSTIFICATION FOR FRUSTRATION?
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several theories of frustration has arisen in case law:
a. Implied term theory
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Simple theory – though not very convincing.
Frustration has been justified on the basis that there is an implied term in the contract that where
the frustrating event occurs that the contract will come to an end.
o this is entirely fictitious.
Taylor v. Caldwell (1863) 2 B & S 826
 FACTS: parties had entered into a contract ofr the use of a music hall for the purpose of
giving a serious of concerts and night fetes
o the contract was made but concerts had not been held yet – hall was then destroyed
by fire
o Pl. lost money paid by them in preparing for the concerts
o pl. sought to recover this expenditure – cliaimed that the D. had breached the contract
 HELD: the contract was frustrated
o owners of the hall were thererfofer not liable for breach of ontract for failing to make
ocontracted on the basis of the continued existence of the hall and the existence of
this ubsject matter was essential to the contract.
o (Blackburn J) there is an implied term that the parties should be excused from
performing if performance becomes impossible because the subject matter fo the
contract has been destroyed without fault of the D.
This view is seen as old fashioned but there is some support in UK by Lord Dennings in The
Eugenia [1964] 2 QB 226 BUT Australian court are not keen to adopt this (Codelfa).
o THIS VIEW IS IN ABEYANCE.
o (quoting Lord Radcliffe per Davis Contractors v Fareham) “logical difficulty in
seeing how the parties could even impliedly have provided for something which they
neither expected nor foresaw…”
b. Construction theory
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Frustration is justified on the ground that the contract on its true construction does not apply to the
new factual situation
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o
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ie the facts have changed and the original contract was not intended to apply to the
new factual situation.
Davis Contractors Ltd v. Fareham DC [1956] AC 696
 FACTS: builder agreed to build 78 houses ofr a fixed price
o work was to be completed in 8 months
 cost of contract was 94,000 pounds
o bad weather and a shortage of laboru and materials meant that the work took 22
months instead
o cost of the contractor was higher – 115,000 pounds.
o builder claimed that the contract had been frustrated and tried to claim 17,000
puonnds as reasonable remueartion for the work that had been done
o builder wanted to argue that the contract had been extinguished and this was a
restitution case – so that they could recover the costs quantum merits
 HELD: (house of lords) contract had not been frustrated
o the cause of the delay was reasonably foreseeable to the parties
 ie. the possibility of enough labour aand materials not being avialabe was
before their eyes and could have been the subject of special contractual
stipulation.
o there was a hardship and inconvenience but that was not frustration
 it is only where circumstances were such that the obligations were so
significantly changed that the thing, if performed, would, be different from
that which was contracted for.
o modern test : per Lord Radcliffe in Davis Contractors Ltd v Fareham UDC and
approved by the HC in Codelfa Construction Pty Ltd v State Rail Authority of NSW:
 “frustration occurs whenever the law recognized that twithout defuault of
either party a contractual obgliation has become incapable of being
performed because the circusntaces in which performance is called for would
reneder it a thing radically different form that which was undertaken by the
contractu…it was not this htat I promised to do.”
o Lord Redi in Davis contractors v Fareham UDC: task of the ocurt is to determine “on
the true construction of the terms in the contract read in light of the nature of the
contract and of the relevant surrounding cirucmsntaces…and whether the contract
which they did make is wide neoguh to apply to the new situation.
Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales (1982) 149 CLR 337
 FACTS:
o Commissioner let contracts for the performance of the work in stages
o contract required the excavation of two single track railway tunnels
o commissioner called tenders for the work – Codelfa submitted and commissioner
accepted.
o price to be paid for the works described in the contract, including all extra work,
additions, substitutions or variations ordered by the commissioner was to be
calculated as per schedule of rates in Codelf’a’s tender
 contracat price was payable for all work included in the schedule of rates
regaredless of its difficulty
o contractor was to provide at his own cost everything that was necessary for the proper
completion of the contract
 including labour, materials, plants, tools and equipment
o contractor was deemed to have informed himself fully of the conditions affecting his
carrying out of the works
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if he did not inform himself fully of those conditions, he was not thereby to be
relieved fo the responsbiltiy for satisfactorily performing the works as required
regardless of their difficulty”
o contract said that the work was to be completed within 130 weeks fo the date of the
notice to proceed
 time should be of the essence of the contract
o a clause gave a measure of protection to Codelfa cl. G.44(7) if it should be delayyd in
performing the contract.
 (a) commissioner shall not be entitled to cancel the contract or to take part of
the works out of the contractor’s hadnds or to recdover from the contractor
any liquidated damages because of any delays in the completion of the
works...owing to causes beyond the control or without the fault or negligence
of the contractor if:
 “the contractor shall notify the Engineer inwriting of the acuse of
delay and the engineer shall ascertain the facts and extent of the delay
and extend the time under the contract.
o notice to proceed was given on 7 March 1972
 Codelfa commenced work, operating three shifts a day.
o work generated considerable noise and vibration
o injunction was sought by a resident of Woollahra
 in the proceedings, C raised the defence in s11 of the City and Suburban
Electric Railways Act 1915 (NSW) which the SRA had power under to
contract out the railway construction :
 “Notwithstanding any provision in any Act to the
contrary…[Authority] shall not be liable to have an injunction issued
to restrain him from causing or continuing to cause nay nuiaance by
such blasting [of rocks] or by any other operation necessary or proper
in connection with the construction fo the said work.
 Injunctions were granted because C was outside the stautotry immunity
 C therefore coiudl not perform construction work on the site between
10 pm and 6 am each day.
o C was restrained from working during the times that the injunction ncame into effect
as well as on Sundays. C calimed fomr the Commissioner an amount additional to the
price payable under the contract in respecdt of the additional costs which it incurred
and htepprofit which it did not earn by reason fo the change in working mwethods it
was forced to adopt.
 LITIGATION:
o Claim was put in alternative bases
 warranty that should be implied in the contract for breach of which C should
recoer damages (argument related to contract construction) OR
 contract should be held to have beenfrustrated by the issue ofhte injunctions
and C should recover on a quantum meruit amount
 ie. for reasonable remuneration fo the work done.
 this amount would be more than the price payable under the contract
since C had incurred additional costs in complying with the
injunction.
HELD: majority applying the construction theory relying on Davis.
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in Davis, the contract was held not to be frustrated and the contract applied to the
new factual situation.
o LOOK AT CASE SUMMARY
o (Majority) contract was frustrated.
o doctrine of frustration applied widely here : (see Aickin J) the contract will be
frustrated when there has been a significant changes in the cirucmsntaces of the case
ass well as the cirucmstaces ofhte case
o (Brennan J in dissent) by holding that the contract was frustraiotn, the risk is taken to
fall o nthe railway authority because it would be liabel for the increased costs but
brennan J says that it should fall on the construction company.
 NOTE: only Mason and Brennan dealt with the allocation of risk issue
THEREFORE still open.
 GENEERALLY: courts ask : does the contract on its true construction cover the new
circusmtnaces, if it does, then it is not frustrated. If it does not, then the contract is frustrated.
 Tsakiroglou and Co Ltd v Noblee Thorl GmbH
 FACTS: a contract for the slae of Sudanese ground nuts to be shipped from the port of ssudan to
hamburg
o goods were to have been shippepd via a Canal but when hat Canal was shut
o sellers of the ground nuts therefore had to take the ship around South Africa which
took twi ce as long and hence more expensive.
o sellers argued that the contract was frustrated because the canal was closed.
 HELD: the contract was not frustrated becausest the alternative to the usual route was available
o courts were reluctant to alow a contract to be frustrated where the result fo the
frustrating event is that performance was merely longer or that performance was more
expensive.
o in this case, it is about the allocation of risk
o courts are fundamentally looking at where they think the risk should fall
o ie. does the contract, on its true construction, apply or not apply to the new factual
situation?
o greater cost fo the route was nto a ground for frustration
 court generally takes the view that the risk falls on the shipping company.
 Where the facts only mean a delay or increased costs, likely not to be frustration.
c. Third test: Total failure of consideration
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National Carriers Ltd v. Panalpina (Northern) Ltd [1981] AC 675 HELD: a contract was
frustrated where the foundation fo the contract was removed so that there was a total failure of
consideration.
o (Lord Simon in dissent) this test is unsatisfactory because it means that if the
contract is partly performed prior to the frustrating event, there is no total failure of
consideration.
2. FRUSTRATING EVENTS
on what facts have the courts said that the contract has been frustrated?
HC of Aus seems to say now that most of the tests give the same result but they now prefer true
construction test.
a. Impossibility
A contract may be frustrated if it is impossible to perform:
Taylor v. Caldwell (1863) 2 B & S 826 – subject matter fo the contract – music hall- was burnt
down. The contract was frustrated.
Cornish & Co. v. Kanematsu (1913) 12 SR (NSW) 83
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Tsakiroglou v. Noblee [1962] AC 93 (FACTS ABOVE)
HELD: rejecting the sellers’ arguments.
o (Lord Symmons) frustration is a narrow doctrine. A mere increase in expenses does
not mean that he contract was frustrated. The contract is not impossible to perform –
they had performed it. It is merely more expensive to perform.
 It might have been different if the contract had provided in its terms that the
ship must go via the canal. BUT on the facts, this was not so.
 otherwise, it would have been impossible to perform the contract by the
contracted method.
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What about temporary impossibility?
ie. for a short period of time, it is impossible to perform a contract.
Jackson v. Union Marine (1874) LR 10 CP 125
HELD: it can sometimes frustrate a contract BUT it depends on the duration of the contract.
eg. if there was a contract for carriage of goods for a short period and for that period the
contract is unable to be performred ,e g. if the contract is for 6 months and impossibility is for 5
months, the contract likely tobe frustrated)
o BUT: if the immpmossibility only lasts for a short amount of tiem relative to the total
time for the contract, un klikley that the contract wil be frustrated.
 NOTE: if the subject matter of the contract was perishable, then delay may indicate contract
would be frustrated.
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Increased burden of performance
ie. that the costs for performing has increased.
The Eugenia [1964] 2 QB 226
FACTS:Charterers took a vessel for a trip out to India thorugh the black sea. There was a war
clause in the contract forbiudding the ship to enter the dagneours zones without the owners’
consent.
o the ship entered the Canal at the time when entering the Canal was dangerous
o ship was trapped in the canal.
o on the release on the ship, the charterers said tha t the contract was frustrated.
Owners said that there had been a breach.
HELD: (Court of Appeal) ther had been a breach of the war clause and the contract was not
frustrated.
o the ship could have gone around the Cape of Guteau which would have made the
contract more onerous but did not frustrated it.
o weight was placed on the facts that the cargo was not something that was perishable
on the long voyage.
o (Dennings LJ) the contract was not time dependent – there was no special need for
the goods to be delivered within a particular time.
therefore, impossibility of performance can be permanent or temporary BUT it should not be
equated to performance that is more onerous, expensive or more time consuming.
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Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales (1982) 149 CLR 337
majority may be seen to have taken a wider view of the doctrine than in previous cases.
b. Illegality
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A contract may be frustrated if it becomes illegal to perform:
Fibrosa v. Fairbairn [1943] AC 32
FACTS: a contract was made between the sellers aand the purchasers for the sale of machinery
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in accordance with the contract, the purchasers made an intitial paymenttot the sellers
of 1000 fofr the total contract rpice of 4800 pounds.
o because of the war, parties could not engaged in commercial transactions with enemy
parties – Poland and German.
o Contract could have been performed BUT contract was found to be frustrated because
of the illegality of the act.
o Purchasers requested return of the money
o sellers sought to retain the money on the basis that it had done considerable work in
manufacturing the machinery
HELD: purchasers scould recover the 1000 pounds because there had been a total failure of the
ocnsideraation supporting the payment
o seller had although incurred considerable expenses in preparing for the contract, the
consideration in theis case aws the delivery of the machinery which had not taken
place.
o mere fact that a party has incurred expenses in preparing to perform a contract does
not prevent tere being a total failure of ocnidderation
o if no actual performance has been rendered = money paid for the performance
contracted cnnot be kept to cover expenses.

National Carriers v. Panalpina [1981] AC 675
c. Frustration of common purpose of the parties

A contract may (albeit rarely) be frustrated if the common purpose of the parties can no longer be
achieved:

Krell v. Henry [1903] 2 KB 740
 FACTS: Parites had entered into a contract for the hire of rooms on Pall Mall fn two dates
o for the purpose of coronation procession of the King but this was not expressly stated
in the contract.
o but the price paid for the hire of the rooms were much higher than usual.
o coronation was postponed
o party hiring the rooms declined to pay the hire for them
o D. argued that the Pl. could have used the rooms in questions – there was no physical
impossibiltity – nothing was stopping them from using it.
 HELD: the contract was frustrated and thus no hire was owing
o the procession was ‘regarded by both contracting parties as the foundation of the
contract’ and had disappeared.
o at the root of the contract was the fact that the room was hired to watch the coronation
procession.
Herne Bay Steam Boat Co. v. Hutton [1903] 2 KB 683
FACTS: (similar to Krell) Pl wanted to watch the King inspecting the fleet of ships. Pl. hires a
boat for this purpose.
o ISSUE: was the contract frustrated when thte king was too ill to inspect the ship?
o had Krell v Henry been applied, one might have thought that the contract was
frustrated because the common purpose was to watch the king inspect the ship
HELD: contract was not frustrated.
o key is what is the common purpose of the parties in the contract.
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Scanlan’s New Neon Ltd v. Tooheys Ltd (1943) 67 CLR 169
FACTS: contract for hire and installation of neon signs for which the D. paid a monthly rate.
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o WWII breaks out and government regulations forbid lighting of the neon signs.
o D argues that they wanted the signs and they wanted the signs lit.
HELD: (Latham CJ) contract can be performed and the owners of the signs gave no guarantee
under the ocontract that the signs could be illuminated.
Brisbane CC v. Group Projects Pty Ltd (1979) 145 CLR 143
 FACTS: GP owned land zoned ‘future urban’ which they wished to ddevelop as a residential
subdivision
o BCC agreed to make the necessary applciatoin to have the land zoned residential in
consideration of GP carrying out certain works if rezoningng was approved
 ie. construction of roads and infrasutraucture approapriate for a residential
subdivision.
o mucuh of the work GP agreed ot carry out were on sites other htan the land in
quesiotn
o rezoning was approved
o land was however resumed by the Crown for development as a school
o GP therefore no longer owned the land and oculd not proceed with the proposed
subdivision
o council argued that GP’s obligations eremained in place
 HELD: the judges who cconsiderd the question found that the contract had been frustrated
o however: note: thisz was not a case whre performance was rendered impossible
 bulk of hthe work was to be done off the lnad in question and was not
affected by the reszumption by the crown
o acquisition of htel and however had “wholly destroyed GP’s’ purpose in undertaking
any obligation at all.
o have to look at the common purpose of the parties.
3. LIMITATIONS ON FRUSTRATION
a. Limtiation 1: Self-induced frustration
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Maritime National Fish v. Ocean Trawlers [1935] AC 524
The Super Servant [1990] 1 Lloyd’s Rep 1
FACTS: the D. owned 2 ships.
o both ships were out on hire
o two contracts – one with Pl and one with third party
o one of the ships sank – D. decided to fulfil contract obligation only to third party and
not to both.
HELD: (Court of appeal) contract was not frustrated because the D. chose to perform the other
contract and as a result, the frustration was self-induced.
BUT: it is not always entirely clear where the frustration is self-induced: Joseph Constantine SS
Line v. Imperial Smelting Corp Ltd [1942] AC 154
FACTS: there was a ship under a charterparty which exploded.
o owners of the shipwere sued.
o owners argued that the contract was frustrated by the explosion.
o charterers said that if owners wanted to argue frustration, they’d have to show that it
was not their fault.
 HELD: rejected charterers’ argumemnts and said that there was frustration.
o it is not clear what caused the explosion – this was never explained.
 THEREFORE, whether this limitation applies is fact dependent.
b. Limitation 2 : Foreseen events
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It is usually said that in order to claim frustration the frustrating event must not have been
foreseen by the parties at the time of entering in the contract:
Krell v. Henry [1903] 2 KB 740, 751
BUT: Cf. Denninngs LJ in The Eugenia [1964] 2 QB 226 BUT: dn’t need to put too much weight
on his paproach because he adopted the outdated basis for frustration – impmlied term approach.
c. Limitation 3: Express provision
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Where the parties have expressly provided for the consequences that have occurred then the
contract will not be frustrated. Whether the frustrating event is catered for by the contract is a
matter of construction.
it might be helpful that in the negative sense, where a contract is silent on a particular matter, as
well as where a matter includes a provision for a particular even occurring it was said in Meriton v
Mclaurin that you can justify rejecting the argument that there was frustration on the basis that the
contract is silent and because the contract is silent, this determines where the risk falls.
Meriton Apartments Pty Ltd v. Mclaurin and Tait (Developments) Pty Ltd (1976) 133 CLR 671
 FACTS: parties had entered into a contract for a group of properties in Sydney
o purchaser proposed to redevelope the properties
o contract was subject tohte relevant council approving the development application
o approval was given
o property then became the subject of ‘green bans’ embargos imposed by trade unions
that oopposed the proposed development of the land
 HELD: the green bans did not frustrate the contract
o bans reduced the value of htel and and prevented the use of the land for the purpose
for which the purchaser bought it BUT this was not enough to frustrate the contract
o availabiloity ofhte land for the purchaser’s proposed purpose was nota term of the
contract
o the term relating to council approval was significant because the assingemnt of this
one risk affecting the development to the vendor left all other risks to be borne by the
purchaser.
Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales (1982) 149 CLR 337
 AGL Sales (Qld) v. Dawson Sales [2009] QCA 262
4. THE SPECIAL CASE OF LAND
Traditionally the courts have been reluctant to allow frustration to be used in land transactions
including leases. This changed in England as a result of National Carriers Ltd v. Panalpina
(Northern Ltd) [1981] AC 675.
where the contract is for 99 years, difficult to argue that a contract that was for such a long time
that the contract was frustrated.
 FACTS: lessee was denied access to a leased property for a period of 20 months out of a term
of 10 years
o there was 3 years left ot run on the lease
 HELD: (House of Lords) this delay was not sufficient to frustrate the contract.
o there was not a complete bar
o frustration may apply to a lease if the lease was a very short lease.
The position in Australia is less clear:
Halloran v. Firth (1926) 26 SR (NSW) 183 and then Firth v Halloran in the HC: you cannot use
the case of frustration in leases.
Scanlan’s New Neon Ltd v. Tooheys Ltd (1943) 67 CLR 169 per Williams J : possible that
frustration could apply to leases
o it would only be excluded where the lessees took possession onder the lease.
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NOTE: in England, it is no longer the case that lease contracts would be totally barred – see
National Carriers- but not clear in Australia.
For a detailed discussion of the case law see Carter, Penden and Tolhurst [33-36]
5. THE EFFECTS OF FRUSTRATION
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When the frustrating event occurs, both parties are AUTOMATICALLY discharged from their
future obligations under the contract.
No liability attaches for obligations falling due after the frustrating event.
Nevertheless, rights and duties which accrue prior to the frustrating event are not discharged.
o does not end obligations that arose prior to the frustrating event
 difficulties in the remedies that arise from obligations that arise prior to the frustrating events.
QLD IS SPECIAL – there is no statute dealing with this scenario. cf: in New South Wales,
Victoria and South Australia as well as England these matters are dealt with by statute.
There is no statute in Queensland and so the Common law applies.
Be careful in distinguishing between money paid prior to the frustrating event and the benefits
that were received prior to the frustration.
a. Money paid prior to frustration
Re Continental C & R Rubber Co Pty Ltd (1919) 27 CLR 194 – payments prior to the frustrating
event could not be recovered. – this is the old common law position in England nad Australia.
o ie. if I make a payment to you, under contract, if the contract is frustrated, I cannot
get my money back.
o the loss falls where it lied BUT this position was changed :
Fibrosa v. Fairbairn [1943] AC 32 – changed the old common law rule that no money is
recoverable BTU exception created: where the payment was made and the consideration had
totally failed, then the money could be recovered.
o ie. where I make a payment to you and you do absolutely nothing under the contract
(ie. consideration toally failed) I can recover my money.
o eg. If A pays B to manufacture something, and B does not do so totally and A does not
receive anything – the consideration has totally failed.
Baltic Shipping v. Dillon (1993) 176 CLR 355, 357 – Mason CJ : the above reflects the common
law of Australia now but note: must be total failure of consideration.
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Benefits received prior to frustration – ie. B performs for A – can B claim for the work
performed?
Appleby v. Myers (1867) LR 2 CP 651 - shows current common law approach
a. NOTE: other jurisdictions may differ BUT QLD follows the common law approach
FACTS: Pl. agreed to make and erect the whole of the machinery in the D’s factory and to keep
the machinery in good order for 2 years. After some but not all of the machinery was put in, there
was a fire and the machinery was destroyed along with the factory.
HELD: because of the fire, the contract was frustrated.
ISSUE: could the Pl. recover for the machinery they had put in - the contract had not been
completely performed, only partially.
a. the D. had incurred partial benefit
b. oculd Pl. recover the costs of the machine and the costs of the labour?
 HELD: NO.
a. in the situation where hthe contract is partially performed and then frustrated, benefits
cannot be recovered.
 NOTE: it is different though if the contract had been fully performed and then the factory had
burned down – in such a situation, the machinery and labour costs could have been
recovered.
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b. Benefits received after frustration - Suppose that there is a frustrating event and work is
done after the frustrating event – can this work be recovered?
Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales (1982) 149 CLR 337
HELD: where work is done after the furstating event, one can recover the work done.
o no difficulty saying that it is a stratightforward restritution remedy.
money paid out under the friustration contract only recoverable if there was a total failure of
consideration = non of the promise for performance is received
o ie. one party has done the work but he other party has not received any of the contracted
work = total failure of consideration - Fibrosa
READING
Paterson, Robinson and Duke, Principles of Contract Law, Ch 15.
Carter, Peden and Tolhurst, Contract Law in Australia, Chs 33, 34.
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LECTURE 9: PRIVITY
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The general rule in Australian law is that contracts only take effect between those who are
parties.
 For that rule, there are major exceptions at common law as well as in statutes.
 Privity is one of the areas where Qld has a statute dealing with the question of third party
rights – Qld in this area is not totoally dependent on common law.
 Privity rule means that:
1. (unconscionabiltiy) Non-parties cannot (generally) be bound by another’s contract ie. it is not
possible to burden a third party.
a. For example Anna enters into a contract with Bill that Clive will pay Anna £5. Clive
is not bound by the contract between Anna and Bill.
2. The rule that a non-party cannot enforce a contract made for his or her BENEFIT has proved
to be more controversial.
a. For example: Anna enters into a contract with Bill to pay Clive £5 – contracat is
between Anna and Bill. Applying the privity rule Clive has no remedy if Anna fails to
perform. The rule also applies where the benefit is in the form of a defence by way of
a contractual exemption or limitation clause.
b. For example Anna enters into a contract with Bill that Bill will transport a valuable
painting worth £100,000. There is a clause in the contract between A and B limiting
damages to £1,000 if the painting is damaged during transportation. Bill
subcontracts the transportation of the painting to Clive. The painting is damaged.
Can Clive rely on the clause limiting a claim for damages to £1,000?Clive is not
party to the original contract – even if the contract states that the limitation clause
applies to subcontractors, because Clive is not a party to the original contract, the
question arises whheter or not he can rely on the limitations
i. ie. are damages from Clive limited to 1000 pounds?
ii. Issues tend to occur when there is a defect in the contract between A and B
and whether C can rely on the clause to claim for damages.
1. PRIVITY THE RULE
 The rule was clearly set out in Gandy v. Gandy (1885) 30 Ch D 57, 69 Bowen LJ:
At law the rule in general is, no doubt, that a contract between two parties that one should do
something for the benefit of a stranger, cannot be enforced by the stranger, except in certain
exceptional cases.’
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English position: The rule was confirmed in Dunlop Pneumatic Tyre Co. Ltd v. Selfridge &
Co. Ltd [1915] AC 847.
ISSUE: why can’t a third party rely on a contract made for their benefit OR rely on clauses in
such contracts?
HELD: 2 reasons why.
o the ‘parties only’ rule = only parties who are in the contract can sue on the ocntracat
or rely on exemption clause
o no consideration had moved from the third party
o ie. In Dunlop :claim failed because the claimant was not a party AND because no
consideration moved from them.
In most cases the claim of a third party will fail for both of these reasons.
In order to enforce a contract, you both need to be a party AND provide consideration - if
one of htem is missing, then the claim fails.
Eg. Suppose Anna makes a promise to Bill and Clive to pay £100 to Clive in exchange for
consideration provided by Bill. In this case Clive is a party but cannot bring a claim because
he has not provided any consideration.
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clearly shows that these are separate conditions and that in order to enforce a contract
the claimant must both be a party and furnish consideration:
Coulls v. Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460-- (Windeyer J) both of
the requirements are needed – if you are a non party OR if you fail to provide cdonsideration
for the contract, the claim fails.
FACTS: Arthur Coulls granted to a company the right to quarry stone from his property in
return for the payment of certain royalties.
o agreement was headed ‘Agreemnt between Arthur Coulls and O’Neil Construction”
o agreement was signed by Arthur Coulls and his wife as well as L O’Neil on behalf of
the company
o agreement said that Arthur Coulls ‘authorised’ the company to pay all moneys
connected with the agreement to Doris Couslls nad himself ‘as joint tenants’
o Coulls died and his executor soughg directions from tnhe court as to whether the
ocmpanyt was entitled or bound topay the royalties to Doris Coulls
HELD: company owed no contractual obligaitoon to Doris because she was not a prty to the
agreement
o the contract expressly purported to be made between Arthur Coulls nad the company
o company made no express promise to pay royalties to Doris
 not possible to imply such a promise
o Doris signed the agreement but this does not make her a prty
o the authorisaiton clause was a revocable mandate tohte ocpmany to pay the royalties
to Arthur and Doris ….mandate lapsed on the death of Arthur Coulls.
o (dissent) Barwick CJ : Doris’ signature was given on the basis that she was intended
ot be a party to the agreement
o company’s promise to pay royalties was made to both the husband nad wife jointly
 inteitno was the the royalties would be paid to ethem while they both lived
and thereafter, to the survivor only.
We will be focusing on the ways in which the privity rule can be avoided. Statute has come
to play an increasingly important role including in Queensland.
2. THE CURRENT STATUS OF THE PRIVITY DOCTRINE
 Courts and later statute have found to mitigate the general rule aand allow claims by third
parties even though the 2 requirements are not met.
 The current status of the privity doctrine in Australia is not entirely clear.
 This is because there is no definitive an unequivocal statement by the High Court of
Australia:
 Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd (1988) 165 CLR 107 - HC had
the opportunity to clearup the mess of the privitty doctrine in Australia.
 FACTS: insurance contract give nfrom T to BC
o M was the principle contractor for consturciton work for BC
o under the contract for insurance from Trident, T agreed to indemnify ‘The Assured’
against liability
 ‘The Assured’ = “Blue Circle, all of its related companies and all contractors
nad suppliers.”
o crane driver , who was not an employee of M but was working under M’s direction,
sued M for damages for personal injury nad M sought indemnity form T under the
terms of the insurance contract made with BC.
 ISSUE: T argued that M had no right to use on that contract since it was not a party to it.
o Insurance Contracts Act 1984 (Cth) was passed after to the event:
 provides that a person who is covered by a general insurance policy can
recover from the insurer notwithstanding that he or she is not a prty to the
contract
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BUT: the Act does not apply to a contract of insurance made before its
commencement
 M therefore had to rely on common law principles.
o If the matter had been decided now, then yes M could get indemnified because statute
has intervened in the case of insurance contracts HOWEVER, the problem facing the
court in Trident was that this contract pre-dated the leiglsation
HELD: (Court of Appeal) BC did not contract as the agent of M but M was entitled to enforce
the contract.
o an exception to the privity rule should be recognized in the case of insurance
contracts – commercial convenience and practice demanded it.
o common law should ‘proceed in parallel fashion with statutory reforms’.
o rule of privitty of contract does not apply to insurance situation because the third
party was getting benefit off the insurance contract – Trident then appeals to HC.
HELD: (HC) favouring McNiece
o (Mason CJ and Wilson J) prvity rule has been crticised on substantial grounds…HC
has aresponsibilty to reform nunjust rules ,even when they are well entrenched.
 judges went further to suggest a way in which the law relating ot contracts to
benefit third parties could be modified.
 the problem with privity was that it often creates uncertainty –
uncertainty in the law is bad because solicitors do not know how to
advise their clinets.
 uncertainty in law calls for reconsideration.
 BUT: they limited themselves ote hquesiotn “whether the privity rule applied
to a policy of insurance” – judges said no they did not apply.
 if the privity rule applied, they woulc ause injustice because the
likelihood of reliance on insurance plicies by third party is so great.
 third parties may order their affairs nad refrain from making their
own arrangements in the knowledge that another person has insured
against a particular risk.
o (Toohey J) privity rule should not prevent enforecement of a contract of insurance by
a third party
 ‘insurance excpeiton’ exists but should only apply where it may be expected
that the hird party would order his or her affairs by referncne to the insurance
policy.
o in essence, Toohey J and Mason CJ and Wilson J’s formaulations are not distinct.
o The HCc majority looked at the workding of the contract – part of the role of the
courts is to interpret the intention of the parties in the contract
 from the words used ‘employees, subcontractors, ancillaries etc” will be
covered by the indeminity insurance indicates that a ruling in favour of M is
merely putting into effect the intention of the parties.
o (Gaudron J) there was unjust enrichment – promisor who accepts consideraiont for a
promie to benefit a third party is unjustly enriched at the expense of the third party if
the promise is not fulfilled
 to prevent unjust enrichment, third party is entitled to enforce an obligation
imposed by law.
 Gaudron’s approach has been questioned in subsequent cases.
o (Deane J) terms of the contract in quesiotn indicated that BC held its rights against T
on trust for non-party beneficiaries including M
 M could have pleaeded trust and join BC as a party to the action against T.
o (dissent ) (Brennan and Dawson JJ)
 (Brennan J) there waws no basis in policy or logic for any special principle
allowing third parties to enforce contracts of insurance
 there was no basis for overruling the doctrine of privity.
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any injustices to the ruel could be overcome by thel aw of trusts,
estoppel and damages
 “to hold that liability to insurance are an exception to privity, then
some criterion must be found to distinguish the mform the general
rule, I can find none…
 “no reason either of policy or logic is advanced for retaining the
doctrine for application to other contracts”
 (Dawson J) there was no conceptual basis for exempting only contracts of
insurance from the privity doctrine
 overturngin the doctrine would require resolution of numersous
difficult issues of policy which was inappropriate for the court to
resolve
Difficulty with this Trident was that 3 members of the HC allowed the claims in contract
though some of them confined their remakrs to contract of insurance
o some support that privtiy has been abolished
o ie. where it is a situation involving contract of insurance – this is special – third party
can rely on cover that was made for hteir benefit
o 2 memebrs allowed the lcaim for other reason – in dissent.
Trident does not give a clear direction nand there was so many directions in the case – only 1
judge prepared to abolish privity in Australia.
o at least 5 judges were willing to find ways around the doctrines – eg. to sazy that the
insurance contract was special / abolish privity entirely.
Trident: it was absolutely cleari nthte insurance contract hatt it was for hteb enefit for the
subcontractors - it was not that the insurers were nto aware – in that case, even though it
clearly stated in the contract that subcontractors were covered, insurers argued that they
were tird parties and cannot therefore rely on the contract.
o common in the building industry to employ subcontract
o THEREFORE: to overcome this common law issue – Australia government came up
with legislation to intervene.
Contrast the position in England and Wales: English courts clearly state that there is a
doctrine of privity in contract:
Scruttons Ltd. v. Midland Silicones Ltd. [1962] AC 446
Beswick v. Beswick [1968] AC 58
As a result in England and Wales there has been wide ranging legislative intervention:
o Contracts (Rights of Third Parties) Act 1999
3. LONG STANDING EXCEPTIONS
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There are a number of ways around the privity rule.
Are these really exceptions?
If in the exam, dealing with privity, think carefully about he situations presented and whether
the exceptions apply – always start with the statute.
Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd (1988) 165 CLR 107, 143 (Deane
J) – these are not really exceptions because they are situations where there is some other
reason, apart from thje contract itself, why the third party can bring a claim / rely on an
exemption.
o ie. there is no real exceptions
o HWOEVER: generally, they are treated still as excpetions to the privity rule BUT
Deane J is technically quite right.
o the basis of liability in exception cases is some other ground than the contract
between the parties.
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o
eg. for the painting example above: within the contract of carriage, limitation calsue
covers subcontractors/. Where there is protection for ssubcontractors, it is not
because htee privity law does not apply, it is because there is some other reason why
the subcontractors are protected eg. Himalayan clause (below) – drafting the
contract to ensure htat the exclusion/l;imitation clause applies.
a. Collateral contracts
 collateral contract – first issue: whether the representation counts as a separate collateral
contract? When they are, though rarely involving third parties:
 Shanklin Pier Ltd. v. Detel Products Ltd [1951] 2 KB 854
 FACTS: The Pl. employed contractors to paint a pier and instructed to buy a new paint made
by the D.
o the Pl. was keen on the contractors usinge the D’s paint because the D. said that the
Pl. would nto need to repaint the pier for another 7 years.
o in fact, the paint did not last 7 years – it lasted only for 3 months.
 ISSUE: contract to purchase the paint was between the contractors and the D.
o ie. Pl. was not a party to the contrtacat
o Pl. was wishing to sue because the repressntations had been made from D. to Pl. that
the paint would last for 7 years – they were not a party to the contract of sale could
the Pl. bring a claim?
 HELD: Yes they could because there was a collateral contract between the Pl. and the D.
relatoing to the quality of the paint.
o on the facts, courts probably did not like the extent of falsity of the stqatemnet made
by hteD.
 collateral contracts probably not big deal – not much use for it.
There are other types of contract where privity doctrines does not apply because of the nature of the
contract – majorly used:
b. Negotiable instruments – not a big deal either.
 A negotiable instrument such as a bill of exchange or a cheque is a device which can be
transferred from hand to hand to a purchaser in good faith for value who takes free of any
defects in the title to instrument. A cheque is a good example.
 Eg. Anna (the drawer) writes a cheque in favour of Bill. Cheque is an order to her bank (the
drawee) to pay Bill. Bill is not a party to a contract with the bank but can demand payment in
his favour.
c. Agency
 Eg. Anna employs Bill to negotiate on her behalf with Clive. Anna is known as the principle
and Bill the agent. Provided Bill acts as an agent the contract is between Anna and Clive
rather than Bill and Clive. Providing that B acts in the authority of A, then the contract is
between A and C instead of being B and C.
 privity rule does not apply if a person promised a benefit under a contract can show that one
fo the parties inoved in the contractual negotiations entered into the contract as his or her
agent
 agency relationshisp can be created expressly or by implicaiont
o necessary to show that the pirincipal expressly or impleidlyt consented tohe agent
acting on his or her behalf so as to effect the principal’s relations wth third parties
 Pola v Commonwealth Bank of Australia: “it is only necessary that the principal and agent
consent that that relationship…existence of agency may often by established form the words
of the parites and the cirucmsntaces of the partiuclr case and mqay be implied from prior
habits ….
o “[continuation] if the facts fairly disclose that one party is acting for or represetjnign
aontehr by the latter’s auhtoirty, the agency exists.:
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“consent may be implied where he palfcces another in such a stuatoin that a reaosnble
man wouold understand the other to have the principal’s authority to act on his behalf
o “or where the principal’s words or conduct are such as to lead to the resanoble
inference htat he is authorizing the agent to act for him.”
 Perpetual Trustees Australia Limited v Schmidt
o ISSUE: whether t imply an agency arrtangemnte between parties:
o FACTS: S borrowed fuinds form P and loan was organized by VHLA
 S argued that VHLA acted unscionably and engaged in misleading conduct in
breach of TPA
 S argued hta P was liable for this conduct because VHLA was acting as P’s
agent.
 agreement between P and VHLA described VHLA as an independent
onctractor
 terms fohte agreement between P and VHLA provide an indication of the
parties’ intenisons BUT a all of the surrounding cierucmsntaces must be
examined.
 P had stated in precise terms the manner in which VHLA was to deal with P’s
borrowers …VHLA was contractually obliged to comply with any directions
given to it by P.
o HELD: VHLA was acting as P’s agent.
 Necessary to show that the agent was purporting to act on behalf of the principal and not
solely on his or her behalf
o Carminco Gold & Resources Ltd v Findlay & Co Stockbrokers:
o FACTS: F agreed to raise funds for C so that C could purchasese a mine
 F stated that it wdold raise funds forom its clients and would transfer te loan
funds to C as the client’s agent.
 sale of mine did not occur nad F sought to recover the funds given to C.
 C argues that F had no legal right to reco ver the money as F was merely
agents for the clients.
o HELD: F had stated that it would act as agent for its clients BUT it had acquired
rights and assumed oblgiaitons underhte loan agreent
 identity of the client investors was unknown at the time the agreement
 indicated that f was entering the contract on its own behalf
 agreement said funds were to be repaid to F.
d. The trust of a promise
 eg. Anna promises Bill that she will confer a benefit on Clive – contract is between A and B
with C as the third party. The promise to confer a benefit has been treated as trust property –
the so called trust of a promise.This means that Bill holds that trust property on trust for
Clive as trustee. Clive is the beneficiary. In practice this means that where Bill brings a claim
for damages against Anna for non-performance for Anna’s failure to confer a benefit to Clive
then the damages Bill recovers are not his own (having suffered no loss) but Clive’s. Bill can
recover on behalf of the beneficiary Clive. He holds these on trust for Clive.
 Party in the contract can sue in essence on behalf of the third party
o
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
Les Affréteurs Réunis Société Anonyme v. Leopold Walford [1919] AC 801
One of the requirements is that there has to be an intention to create a trust. parties may argue
that courts should impose such an intention.

Traditionally the courts were reluctant to create a trust particularly in a commercial context.

This may no longer be the case – court may just say that there is an intention to create the
trust:
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o
Wilson v. Darling Island Stevedore & Lighterage Co Ltd (1956) 95 CLR 43, 67
(Fullagar J approved by many judges in Trident General Insurance Co Ltd v.
McNiece Bros Pty Ltd (1988) 165 CLR ) “common law privity rule cannot operate
unjustly. Eqiuty can intervene in many cases by treating the promisee (eg. Bill where
Anna has promised Bill that she will confer a benefit on him) and the trustee, what
they are holding is the promise from A to C that there will be a benefit on the
beneficiary C. This means that B can bring a claim because B is a trustee
 BUT AT 107, 120 (Mason CJ and Wilson J); 146-7 (Deane J); 166 (Toohey J) : too uncertain
the previous rule – but this can be resovled if the courts can see if the parties intended that the
person claiming should be the trustee in the relationship between A and C.
o Mason CJ: look at all the cirucmsntaces in order to adduce whether or not this
intention exists
 “courts will recognize the existence of a trust when it appears from the
lenaguage of hteparties, construed in its context, including the matrix of
cirucmsntaces that het parties so intended…express trusts…dpends on
intention.
 “in divining intention…courts may look to :
 nature ofhte transaction
 cirucsmntacaes, icnlduing commercial necessaity, in order ot infer or
impiute inteiton…
o Deane J: “requisite intention should be inferred if it clearly appears that itw as the
inteitno of the promisee that the hird party should himself be entitled to insist on
performance of the promise…
 “A fortiori, equity’s requirement of an intention to create a trust will be
satisfied if the terms of the contract expressly or impliedly manfiest that
inteiton s the joint inteitno of oboth promisor and promisee”
e. Assignment
 Where a party to a contract can assign their contractual rights to a third party.
 Eg. Bill wishes C to have $1000, he knows that there is a problem if he enters into a contract
with A for A to pay C for $1000 because of the privity rule. B therefore enters into a contract
with A to pay B $1000, then B can assign the benefit of the $1000 to C THEREFORE, C can
enforce it.
f.
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Tort law
In recent decades, to some extent, the law of tort has tried to fill the gap led by the law of
contract.
Hill v. Van Erp (1997) 188 CLR 159 – claims for pure economic loss are now actionable in
thelaw of tort. One of the consequences of this is that claims can arise in tort law in contract
like situations.
FACTS: a solicitor prepared a will for a client. It was to include a testimatory disposition to a
friend of the client. The issue is that when the will was being executed, the solicitor asked the
husband of the intended beneficiary to attest it. One cannot do that becaauswe under s51 of
the Succession Act 1991 (Qld) – means that the disposition to the friend was no longer valid.
o After the death of the client, the friend discovered that they did not have their money
from the will and sued the solicitor.
o There was a problem in bringing a claim in contract because the contract was
between the client and the solicitor nad not with the intended beneficiary
o Could friend recover onn the basis of the intended disposition?
HELD: solicitor owed the friend, the intended beneficiary, a duty of care and had breached
the duty.
ie. in some of these cases, eg. in UK: White v James; tort law may come into play.
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The above exceptions mitigated the effects of the privity law – issue is that they are slightly
dependent on whether the courts are satisfied on the existence of something – this is very
uncertain because if you are a commercial party, you want to ensure that your client can have
the benefit of the exclusion clause as a third party..
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Misleading or deceptive condeduct
where there is a contravention of the stautotry prohibition against misleading or deceptive
conduct, person hwo is not ap arty tohe contract suffers loss and would be entitled to damages
o beneficiary is not sekeign to enforce the contract only to assert a statuory right to
damages
Accounting Systems 2000 v CCH Australia
FACTS: contract was between AS2000 and Castle Douglas where A assigned copyright in a
program to CD
o A warranted that there was no claim or potential claim agsint it for breach of
copyright BUT in fact, there was
o CCH had relied on the warranties made by A to CD.
HELD: CCH suffered loss as a reulst of htat misleading conduct and was therefore eenitled ot
relief under the TPA in respect of misleading conduct.
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4. THE HIMILAYA CLAUSE
 By the 1950s commercial parties were beginning to develop ways of drafting contracts so as
to avoid the rigours of the privity doctrine.
o ensures that the third party can rely on the contract.
 The Himilaya clause was the most famous of these methods. It is designed to allow a third
party to rely on a defence or limitation in a contract to which they were not a party.
 Eg. A enters into the contract with B, C cannot rely as a third party even thoughtthe contract
was for C’s benefit. If B is the agent of C with C as principal (ie. B is contracting not just on
C’s behalf, but as C’s agent) and therefore, B stands in the shoes of C.
 started in : Scruttons Ltd. v. Midland Silicones Ltd. [1962] AC 446, 474 (Lord Reid)
suggested that agency may provide the solution to the problem.
 The Eurymedon [1975] AC 154
 FACTS: Third parties were Steevdores – stevedores unloaded ships and were notorious for
dropping things and damaging things.
o ther was a contract between the shippers of the goods and the carrier
o question was whether there was a limitation clause between the shipper and the
carrier contract where the stevedore was protected – could stevedores rely on such
clauses?
o the clause stated “No servant or agent, including independent contractors, of the
carrier was to be liable for any act of default in the course of his employment
(exclusion clause). Every limitation availbe to the carrier should be available to such
persons. The carrier would be contracting on behalf / agnet of the contrctors”
 HELD: (Lord Wilberforce) Himalayan clause enforced BUT there is a limit: in this situation ,
the party in the main contract must have the authority of the thikrd party gto act as their agent
– they must have the authority.
o they cannot mjerely declare that they are acting as an agent for the third party
contractors , they have to have actual authority
 Eg. A enters into a contract with B with a limitation clause. Clause states that B is the agent
of C (the third party), it is not enough to declare that Bis C’s agent – there has to be evidence
that C has given B the authority to contract on their behalf.
o in the Eurymedon, there was no problem finding the authority becaue the stevedoring
had given the carrier the authority to contrac t on the behalf = in that situation ,the
court took the view that there was no difficulty in finding eveidence of authority.
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The New York Star [1981] 1 WLR 138 (Lord Wilberforce) Courts where they could would
not search for fine distinctions. They wll try to allow the operation of the Himalayan clause.
o commercial parties
o where the courts would, they would construe the Himalayan clause as effective.
 FACT:S tehr was a consignment of razor blades shipped from Canada to Autrali
o carrier issued a bill of lading toeh consignor of the fgoods
o terms ofhte contract included a ione year time bar on proceedings in respect of loss or
dmage to the goods
o Clasuse 2 was a Himalaya clause – extends the benfit fo htat liimitaiton clauase to
servants, agents and independent contractors employed by the carrier.
o stevedore was 49% owened by the carrier and commonly acted as its stevedore and
was aware of the terms of the bill of lading.
o goods were unloaded and were stolen
o consignee sued the stevedore fofr damages in tort, but stevedore was trying to enforce
the Himalaya clause and argue that it was outside of the time period.
 HELD: (3-2) the stevedpre was entield to the protection of the clause BUT (4-1) the
stevedore’s actions were not covered bythe lcause
o (Barwick CJ) carrier had acted with the authority of the stevedore as its agent in
contracting for the stevedore’s protection
 stevedore provided consideration by unloading the goods
o (Mason and Jacobs JJ) treated the protective provisions of the bill of lading as an
offer made by the consignee to the stevedore thorugh the agent (carrier)
 stevedore accepted that offer and provided consideraiotn for it by unloiading
the goods – knew of hthe offer and had relied on it
 THEREFORE, hthere was a unilateral contract between the consignee and
the stevedore rather than a bilateral contract made thorugh the agency of the
carrier.
 principle in New York Star case has been applied in subsequent cases where:
o a contract makes it clear hta abenfit is to beconferered ona beneficiary
o contract makes it clear htat the promsisee is acting as agent of the beneficiary
o the promisee was authoirsed teoenter into he contract onteh beneficiary’s behalf OR
the contract was subsequtnly ratified
o beneficiary provided ocnsidereation for the promise
 THEREFORE: beneficiary s ap arty tohe contract and he is entitled to enforce it.
BUT: usually, it is still an issue of judicial construction whether the Himalayan clauses are effective.
ALSO there are international rules eg. Hague rules, that may prevent Himalayan clause:
 The Starsin [2003] 2 WLR 711 HELD: you cannot use Himalayan clause to get around
international rules.
5. STATUTORY EXCEPTIONS
 Various States and Territories including Queensland have introduced statutory exceptions to
privity which considerable modify the impact of the rule. For other examples see:
 Property Law Act 1969 s 11 (WA)
 Law of Property Act 2000 s 56 (NT)
 Property Law Act 1974 (QLD)
 S 55. Contracts for the benefit of third parties
o A promisor who, for a valuable consideration moving from the promisee, promises to
do or to 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.
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o
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Prior to acceptance the promisor and promisee may without the consent of the
beneficiary vary or discharge the terms of the promise and any duty arising
therefrom.
o Upon acceptance the beneficiary shall be entitled in his own name to such remedies and relief
as may be just and convenient for the enforcement of the duty of the
promisor; and relief by way of specific performance, injunction or otherwise
shall not be refused solely on the ground that, as against the promisor, the
beneficiary may be a volunteer;
 the beneficiary shall be bound by the promise and subject to a duty
enforceable against him in his own name to do or refrain from doing such act
or acts (if any) as may by the terms of the promise be required of him;
 the promisor shall be entitled to such remedies and relief as may be just and
convenient for the enforcement of the duty of the beneficiary;
 the terms of the promise and the duty of the promisor or the beneficiary may
be varied or discharged with the consent of the promisor, the promisee, and
the beneficiary.
o Subject to subsection (1), any matter which would in proceedings not brought in
reliance on this section render a promise void, voidable or unenforceable, whether
wholly or in part, or which
in proceedings (not brought in reliance on this section) to enforce a promissory duty arising
from a promise is available by way of defence shall, in like manner and to the like extent,
render void, voidable or
unenforceable or be available by way of defence in proceedings for the enforcement of a duty
to which this section gives effect.
o In so far as a duty to which this section gives effect may be capable of creating and
creates an interest in land, such interest shall, subject to section 12, be capable of
being created and of subsisting in
land under the provisions of any Act but subject to the provisions of that Act.
o In this section ‘acceptance’ means an assent by words or conduct communicated by or on
behalf of the beneficiary to the
promisor, or to some person authorized on his behalf, in the manner (if any), 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;
 SOME KEY POINTS
1. The Common law is still relevant when the Act does not apply s 55 (7).
a. common law cases – exceptions- still apply.
2. When does s55 apply? look whether there was a promise by the promisor to act or refrain
from acting for the benefit of a third party beneficiary.
What is a promise?
 A promise is defined in s 55 (6) c
 ‘ promise’ means a promise (it is not enough that) which is or appears to be intended to be legally binding; and
 (ii) which creates or appears to be intended to create a duty enforceable by a beneficiary, and
includes a promise whether made by deed, or in, writing, or, subject to this Act, orally, or
partly in writing and partly
 orally;
 Eg. A promises B that they will pay $1000 to C. in this situation, it has to be intended that C
will have a right that is enforceable. BUT there has to be:
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intended to create a duty enforceable by the beneficiary – this can be used to knock out claims
under the act if not satisfied:
Sorbello v. Sorbello [2005] QSC 219
FACTS: involved a life insurance policy. A husband was a beneficiary under a wife. When
the wife knew that she was dying, she had discussions with the husband about where the
insurance money would go. couple had children and they were discussedas possible
recipients.
o ther was no contract with the children
o any discussions had totally taken place between the husband and the wife.
o Children tried to bring a claim under the legislation – claiming that they were third
parties to the insurance contract and wanted the money.
HELD: (Supreme Court of Qld) thjer ewas no intention to enter legal relations between the
husband and wife and therefore, no intention to create a duty enforceable by the children.
The Act only applies to BENEFITS and not BURDENS.
o you cannot enforce burdens on third parties under the legislation
Rural View Developments v. Fastfort [2009] QSC 244


Who is the third party. In the Act the third party is known as the beneficiary.
S 55 (6) (b) ‘beneficiary’ means a person other than the promisor or promisee, and includes a
person who, at the time of acceptance is identified and in existence, although that person may
not have been identified or in existence at the time when the promise was given.

So whilst the beneficiary need not be identified at the time of the PROMISE they must be
identified at the time of the ACCEPTANCE.
Portland Downs Pastoral v. Bexalaw [2009] QSC 272

3. What must the beneficiary do to gain the benefit?


The beneficiary need NOT provide consideration. That is provided by the promisee.
The beneficiary must ACCEPT the promise made for his or her benefit.

S 55 (6) (a) ‘acceptance’ means an assent by words or conduct communicated by or on behalf
of the beneficiary to the promisor, or to some person authorized on his behalf, in the manner
(if any), 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;

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The acceptance must be received by the promisor. No postal rule applied here.
The acceptance must be within the specified time or a reasonable time.
Re Davies [1989] 1 Qd R. 48 - failure of reasonable time accepetance
FACTS: A and B had entered into a contract for benefit of C. C had noticed in June 1985 ,
purporting to accept over a yeara later.
HELD: this was outside of the reasonable time.
If you have notice of the contract being made in your benefit, you are required to accept – you
cannot just sit there and do nothing.
Portland Downs Pastoral v. Bexalaw [2009] QSC 272
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The time is calculated from when the beneficiary had NOTICE.
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4. The consequences of accepting – just as if you were a party- similar liabilities.
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The beneficiary may sue in their own name and recover damages as well as specific performance and
injunction: S 55 (3) (a).
It is not possible to impose burdens on the beneficiary but it is possible to impose conditions which
the beneficiary is bound by when they accept:
S 55 (3) (b) (c)
5. Variation


Prior to acceptance the promisor and promisee can vary the contract:
S 55 (2).
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
Once the beneficiary has accepted then the beneficiaries consent is required:
S 55 (3) (d)
6. Defences

Any defences that the promisor had against the promisee are preserved against the
beneficiary: defences count as a benefit if the main parties agree – intention is present – and
the beneficiary accepts, any defences in the main contract are conferred on the third party.

S 55 (4)

Suppose A has a defence against B, nad C has accepted the benefits. Eg. A promises B that
they would pay C $1000, B has extracted the promise from A uinder duress. C has not done
aythign wrong, are those defences preserved against C? Yes they are.

Insurance Contracts Act 1984 (Cth) – no need to know this – merely that it exists to cover
insurance contracts.
6. BURDENS
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The general rule is that burdens cannot be imposed on a third party to a contract. The obvious
exception is the way in which in prperty law the burden as well as the benefit of a covenant
can pass:
Tulk v. Moxhay (1848) 2 Ph 774 – benefits and burden of covenant runs in equity.
o suppose A enters into a contraact with B to build land for which B will give A some
money, A selsl the land to C, it would be rather unhelpful if the covenant could not be
enfoorced against he new owners of the land.
Another dounbful exception has been limited by subsequent decisions:
Lord Stathcona Steamship Co Ltd v. Dominion Coal Co Ltd [1926] AC 108
Shell Oil Co of Australia Ltd v. Mcllwraith McEacharn Ltd (1945) 45 SR (NSW) 144, 150
(Jordan CJ)
Howie v. NSW Lawn Tennis Ground Ltd (1956) 95 CLR 132, 156 (Dixon CJ, McTiernan and
Fullagar JJ) HELD: the rule in Tulk v Moxhay only ever applie sto real property. It is a
specific rule in property doctrine, it is not a wide invention.
7. DAMAGES

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Remedies that are available to third parties?
Eg. Suppose Anna enters into a contract with Bill, that Bill is to build a house for Clive –
contract is between A and B. Bill builds the house badly in breach of contract. Anna can
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bring a claim but has suffered nominal loss – ie. no loss even though she is a party to the
contract. Clive has suffered a loss but as he is not a party he cannot bring a claim.
Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd (1988) 165 CLR 107
The general rule is that a person can only recover their own loss. In the example this means
that Anna cannot recover Clive’s loss.
To this rule there are some important exceptions:
(i) Jackson-type cases
 Where one party contracts for a benefit of a group for reasons of convenience: Jackson v.
Horizon Holidays Ltd [1975] 1 WLR 1468.
 FACTS: a father (solicitor) wanted to take his family whom he never saw on holiday.
o marvellous things are promsid by the holiday company
o it was promised that there would be lots of people ther and there were all sorts of
entertainment facilities
o in the second week, the family were the only people in the entire hotel wher the food
was terrible and the entertainment was bad.
o father decides to sue the travel company.
 ISSUE: could he recover for the upset and distress of other members of his family?
 HELD: (Lord Denning MR) where a oncotnract is made for the benfit of a third aprty,
promsiee is entitled to recovere damages in respect ofh gthe loss suffered by the third party
even where the promisee is not a trustee
o THEREFORE: J was eneitled to recover for the ‘expense…discomfort, vexation and
upset’ suffered by the other members of his family
 This exception is very limited:
 Woodar Investment Ltd v. Wimpey [1980] 1 WLR 277: dicta indicated that Lord Denning
went too far in saying tahat damges will always be recoverable in respect of loss suffered bya
third party beneficiary
 damages may only be recovereable in respect of contracts of a particular type wherrere the
third parties s and to gain indirectly by performance OR where there may be a presumption
that promisee himself suffered a loss as a result of the deprivation of the third parties.
 Alred McAlpine construction v Panatown
 HELD: where a direct remediy is avialble to the third party beneficiary against he promisor,
the n he promisee is entieltd to only nominal damages
 BUT: courts did not consider the correctness of Jackson.
 Trident v McNiece per Mason CJ and Wilson J: doubts eht decision in Jackson
o said that its uncertainty indicated that privity should nto stand
(ii) The St Martins Property Exception
 concerns specific situations.
 eg. A is the owner of a property. A enters into a contract with Bfor B to transport the
property. The property in the goods has been sold and passed onto C. If before the goods
reach C, they are damaged. This creates the difficulty: A the original owner has a contract
with the carrier but because they have no property in the goods, A has suffered no loss since
property has passed to C.
o C on the other hand has property in the goods but not a party to the contract –they
are a third party.
o HELD: A can recover damages even though the property in the goods were passed to
C BUT this is a very narrow exception traditionally in that it only applies to
commercial parties and only concerns contracts for the sale of goods, and it only
concerns the siutaiton where the third party has acquired the property in the goods
before they were damaged.
 The origins of this exception go back as far as Dunlop v. Lambert (1839) 2 Cl & F 626, 7 ER
824.
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It was revived in The Albazero [1977] AC 774, 847, Lord Diplock:
o In a commercial contract concerning goods where it is in the contemplation of the
parties that the proprietary interests in the goods may be transferred from one owner
to another after the contract has been entered into and before the breach which causes
the loss or damage to the goods, an original party to the contract, if such be the
intention of them both, is to be treated in law as having entered into the contract for
the benefit of all persons who have or may acquire an interest in the goods before
they are lost or damaged, and is entitled to recover by way of damages for breach of
contract the actual loss sustained by those for whose benefit the contract is entered
into.
o ie. exception cannot be used hwen the third party has their own claim

This exception is concerned with the situation where the rules about the passage of
property and hence risk of damage mean that the risk has passed to the third party but
he has no claim in contract.
This is a narrow exception: the parties must be commercial, the contract must concern goods
and the third party must have acquired an interest in the goods before the breach and loss.
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The exception was extended in Linden Gardens Trust v. Lenesta Sludge [1994] 1 AC 85 (St
Martins appeal).
FACTS: Pl. had a building contract with the D. to develop land. problem arose because the
land was transferred to a third party without the benefit of the contract between the original
parties (nromalyl, they would just assing the benefit of the original contracdt to the new party
but in this case, there was no assignment)
o this created a problem because the party (new owner) suffering the loss had no
contract with the builder.
o The party who had the contract with the builder no longer had property in the land
and therefore, suffered no loss
HELD: (majority in the HL) applied the Albazero principle (which was very narrow and
applied only to sale of goods) in this situation.

The exception was extended still further in: Darlington B.C. v. Wiltshier [1995] 1 WLR 68 –
HELD: excpetion could be used even where there was no transfer in the property to the third
party.

Court narrowed it back down again: Some significant limits on the exception still remain:
Alfred McAlpine Construction Ltd v. Panatown Ltd. [2001] 1 AC 518 – HELD: where the
third party has their own claim, even if the way the contract was arranged make stheir claim
less lucrative, then you cannot use this excpetionn.

NOTE: extent to which the Australian courts is unknown BUT Australian courts definitely
accept Jackson and Albezero BUT whether the extension of Albzero would apply in Aus is not
clear.
o these cases pre-dates the English legislation which undermines privity doctrine.
Reasons for abolishing the privity doctrine:
o privitiy rule thwarts the intenions of ocontracting parties
 even wher the promiso and promisee unambiguously manifest an itneiton that
the hthird party should obtain the right to enforce the promise, pro=ivity rule
prevents the courts from giving effect to that inetniotn
 THEREFORe, it is a constraint on freedom of contract
o may cause injustice to the third party, by denying a benefit that the third party
reasonably expects to receive and by denying a right the third party might reaasonbly
expect to havev
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o
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prevents a person who has suffered alo ss through non-fulfilment of the promise from
suing BUT persons who have suffered no loss (the promisee) may sue
 limited effectiveness of the remedies is a soruce of injustice
o even wehre substantial damages or pspeciifc performance may be granted, the
avialbelility of these remedies is dependent upon the promisee’s willingness and
bailtiy to sue
o unlieklyl that the various menas of cirucsmventing the rule will have eresolved all
insjutices.
o range of excpetions make t4eh law complex, artiifical and juncertaain
o privity doctrin is increasingly being abandone thorugh statute
 eg. QLd: third parties may sue on contracts mayde for hteirb benefit
o in commercial contracts- more conveneitn if contracts could create enforceable third
party rights
Reasons for retaining the privity doctrine
o pract4ical consideratsions: (Mason CJ and Wilson J in Trident) “three pratical policy
coinsdierations:
 if both the promisee and third party can enforce ap romsie to benefit the third
part,y double recovery is possible
 however this risk can be avoidled by requiring joinder of all praarites
in the first action OR by creatigng special rules to prevent double
recover
 privity doctrine protects a promisor from exposuyre to liability to a large
numenbr of potential plaintiffs
 eg. ocntracutal promsei moade toa government may ibty intend to
benefit a class of persons
 entitledment of a third party to enforce a contract might constrcaain the
freedom of action fo the promisor and promisee
 privity rules ensures that whatever benefits are promseid to third
parties, the proimsee is free to rescind the contract, modify it by
agrremetn with the promisor or compromise or assign his or her
contractual rights.
o theoretical considerations: not unjust to deny third aprteeis the right ot sue on
contracts mayde for their benefit but is unjust for them to do so BECAUSE:
 third party who is [promseid a benefit under acontract has not participated in
the abargiai nadn ahs not paid ap rice for the promise
 there is no relationship between nthe promiseor and the third party that
justifies the recognition of an obligation
 contrafct law should be concerned with balancing the private interst of htep
arites and not giving effect to public interest
 (third party rights gives public itnerst priority over private I ntersts
 intention to benfit a third party does not justifiy the imposition of an
obligaliton because obgliatoino is not based on intention alone but based on
bargain .
READING
Paterson, Robinson and Duke, Principles of Contract Law, Ch 11.
Carter, Peden and Tolhurst, Contract Law in Australia, Ch 16.
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LECTURE 10: MISTAKE
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categorise mistakes as ( subdivide topic to 3 headings and divide authority between the
headings)
1. mutual
 poarties do not understand the same thing
 mutual mistake = where parties think different things where they are both
mistaken
 parties are at cross purposes
 usually formation mistakes are mutual mistakes
2. common
 common mistake is where both parties make the same mistake
 eg. contracts for the sale of goods – there is legslaiton : Qld Sale of Goods
Act : both parties make the mistake that a thing exists that eg. A buys a car
from B but the car does not exists ) there are cases in which commo nmistkae
has made the contract void at common law.
 what is more difficult where there are other kinds of common mistakecontract law tends not to say that the contract is void = but you can go to
equity.
3. unilateral
 only one aprty makes the mistake and the other one knows about it
 eg Taylor v Johnson
 identity mistakes fall within this category
 the rogue knows that they are not whao they say they are and the
other person is being misled
 only one party knows the truth.
 mistake as to terms
 Think carefully about what categories !!
This topic is difficult.
In part this is a consequence of terminology.
Most textbook accounts are more confusing than illuminating.
contracts can be set aside with mistake – contracts is void or voidable.
2 categories of Mistake:
 common mistake = parties are in agreement but both erroneously assume some matter ot be
true.
 mutual mistake = parties are not in agreement and intended to contract on different terms
o unilateral mistake = if the understanding of one pof the parties accords with what a
reaonsble person would think was intended (ie. ifo one person is right and the other
paerson is wrong on an objective interpretation)
 ALSO applies if A knew or ought to have known of B’s mistake.
Mistake cases fall into two basic categories:
o formation mistakes (where there was never a contract) OR mistakes where there is a
contract but the contract may be set aside)
o Where the parties are mistaken about the consequences of their contracts
How to approach a mistake problem
1. Is there a contract?
2. has one of the parties , expressly or impliedly, undertaken the risk of the mistake?
3. what kind of mistake waws made?
a. common mistake – parties are in agreement?
b. mutual mistake – parties are at cross purposes?
c. unilateral mistake – parties are at cross purposes but one party is right and the other
wrong
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4. what did the mistake relate to? was the mistake fundamental?
5. to what extent is the mistake recognized as operative at common law or in equity?
6. what relief?
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FORMATION MISTAKES
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Many of the cases traditionally treated as cases on mistake are in fact more to do with contract
formation
o ie whheter there was a contract in the first place

Anna and Bill agree that Bill shall buy Anna’s car for $10,000. Anna owns two cars. Anna thinks
that Bill has contracted to buy her red car. Bill intends to buy Anna’s blue car.

There is a mistake. Anna and Bill are not in agreement about the subject matter of the contract.
The parties are at cross purposes. There is no consensus ad idem and no contract is formed. These
mistakes are mutual in that Anna believes one thing and Bill another.
o it is not a common mistake – because they believe different things not the same things
– one thinks the car is red and one think the car is blue.
o therefore, there is a question of contract formation.
o mistake here means that , if it meets the criteria of a mistake error, means there is no
contract in the first place
 not a question about setting the contract aside.
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
In some, but not all cases, a unilateral mistake may also prevent a contract from been formed. (ie.
a mistake from one party)
Mistakes as to term, mistake as to identify are cases of unilateral mistake.
mistakes as to identity are sufficient to prevent a contract being formed:
Example: Anna and Bill agree that Bill shall buy Anna’s red car for $10,000. Anna enters into the
contract with Bill on the assumption that Bill is Clive.
Sumamry: There is a mistake where there is no contract OR there is a contract but it may be set
aside ie. it is void or voidable.
+ there is a notion that equity may intervene.
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COMMON MISTAKE
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In cases of common mistake there is a contract.
The question is whether as a result of the common mistake of both parties the contract should be
treated as void.
At Common law it is very difficult to make a contract void for common mistake.
o common law does not like to void a contract for a bad bargain.
o Starting point is that the court do not like contracts to be set aside for common
mistakes.
Equity has special rules but in Equity a contract is only voidable
Anna and Bill agree that Bill will buy Anna’s red car for $10,000. Unknown to Anna and Bill,
Anna’s red car has been flattened by a truck and no longer exists.
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1. MUTUAL MISTAKES
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Raffles v. Wichelhaus (1864) 2 H & C 906
FACTS: Pl sold D 125 pounds of cotton to arrive on the ship
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o
o
o
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Pl. tended cotton from the ship in December.
There were two ships with the same name.
D. claimed that the ships that they were interested in in buying cotton from was the
ship that sailed in October.
 both ships were sailing from Bombay and in the same year but in different
months.
o ISSUE: is the contract valid? Have the parties agreed?
o One party thinks that they have agreed to take cotton from the October ship the other
thinks that they have agreed to take cotton from the December ship
o there is a mutual mistake – one thinks December one thinks October – is there a
contract?
HELD: difficult in the case to extract reasoning. Essentially, the view of the majrority is that
there is no contract – no agreement.
o it is a formation mistake.
o there is no contract – one thinks dec one thinks October.
o This case was accepted by the late 19th century as a case of mistake and there was no
contract but difficult to discern ratio.
o BUT: it will be rare that an apparent agreemtn will be so ambiguous that there will be
no way of preferring one party’s tinerepratatio nover naother’s on an objective basis.
Scriven Bros & Co. v. Hindley & Co. [1913] 3 KB 564
FACTS: quesiotn is whether there was a contract ni the first place.
o an auctioneer acting for the Pl. put up a sale of a box of hem.
o The auction catalogue was misleading.
o Tow was much cheaper than Hem and the D thought theat they were going to get
Hem.
o The D. bid for the lot thinking there was Hem
o D discovered their mistake and refused to pay
 HELD: there was a mistake that one party(the auctioneer) thought they were selling Tow and
the party bidding thought they were buying Hem.
o was there a contract? no, there was a no contract
 it was a formation mistake = there was no contract.
 These formation mistakes are mutual – one party thinks one thing the other thinks another
(like Red car blue car analogy of Anna and Bill)
2. UNILATERAL MISTAKES
 eg. where only one party makes a mistake.
a. Mistake as to term
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Anne enters into a contract with Bill to sell Bill her notes for contract law for $10. Bill
believed the notes to be for Contract Law B. In fact they were for Contract Law A. Anne
knows that Bill is making a mistake.
o only one party makes a mistake because Anne knows about the mistake.
Smith v. Hughes (1871) LR 6 QB 597
FACTS: the D was an owner and trainer of race horse. D agreed to buy some oats from the Pl.
farmer.
o sale was by sample – ie. they saw a sample of the oats before they bought it.
o there is a crucial difference between new oats and old oats as far as horses are
concerned.
o Pl. supplied new oats
o D. claimed that they had conracted to buy old oats – is there a contract?
o one of the parties knows that the other party is mistaken.
 HELD: there is no contract in this situation
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the word ‘old’ was used ith e discussison preeding the slae and ontract was for the
sale of old oats
o it would therefore allow the mistaken party to rely on the otherp arty’s mistake to
argue that there was a contract but there is no contract
o iti s a formation mistake that one party knows ath the other party is isteaken –
they cannot htne claim that there is a contract on their terms.
Hartog v. Colin and Shields [1939] 3 All ER 566
 FACTS: D. entered into a contract to sell 3000 Argentinian hair skins from Pl.
o as a result of a mistake, they were offered by the Pl. to be for sale of 10 pence per
pound instead of 10 pence for each hair skin.
o when the mistake was revealed to D. that the D were selling the skins for less
than it was, they refused ot deliver them.
o Pl. sued for delivery.
 HELD: Pl. could not reasonably have thought that the offeres were genuine because they
were dealers in skins.
o They could not possibly have thought that one would get a hair skin for 10 pence
a pound.
o therefore, there was no contract formed.
o “a party who is awarae ofhee error made by the other party cannot claim that
there is consensus ad idem”
Taylor v. Johnson (1983) 151 CLR 422
FACTS: a party entered into a written contract under a serious mistake about contents and the
question arose there whether that mistake was such that there was no contract formed.
HELD: Court questions whether the common law fo Aus relieves against unilateral mistake
o in thi cas,e the vendor had made a pricing error and that errorw as nkown to hted
purchaser
o HC set asideteh contract in equity
 could be argued that the commo nalw of Aus does not provide relief against
unilateral mistake because if relief was availbae at common law, there would
have been n o contract for eqwuity to set aside.
o could say that Taylor v Johnson was like Smith v Hughes- there is a mistake to term
(price) – applying Smith v Hughes, there is no contract. BUT not ohow the HC
decided.
o
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what the courts don’t likeis where one party makes a mistake and the other party takes
advantage of the mistake.
o these are mistakes as to terms – there is something fundamental about the
agreement that is based on mistake.
b. Mistake as to identity

Anne contracts to sell her car to Bill for $10,000. Anne believes that Bill is in fact Clive a
Professor of Law at the University of Queensland. Clive will have the means to pay her. Bill
is not Clive but an imposter and a rogue. On receiving the car Bill sells it to Debbie. He
disappears without paying Anne.

The difficulty for Anne is that unless the contract with Bill is void as opposed to voidable she
cannot recover her car because Debbie is a bona fide purchaser for value without notice.
o difficulty is whether the contract is void or voidable
o if the contract is void, the contract nevere happened and she can get her car back.
o If the contract is only voidable, she cannot get the car back if Debbie is a bona
fide purchaser for value without notice that there has been a mistake.
 the cases on this issue are confusing.
 in some of the cases, the courts say that he contract is void – there is a mistake of identity.
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these cases are a dispute about the person selling and the person buying – it is not a
question about the person who has sold and the rogue party - difficulty is when a third
party has bought the contract
o can the contract be set aside as void or is it voidable?
o if it is voidable, the third party, being bona fide purchaser of value without notice
= they can keep the car.
o if it is void – there never was a contract – seller can get the car back.
Identity must be material:
Boulton v. Jones (1857) 2 H & N 564
FACTS: If the mistake of identity was material, the contract was void.
o how do we decide if the mistake of identiy is material?
o look at case law.
HELD: it comes down to the facts whether the mistake of identity was material.
Mistakes of identity have arisen in several different ways which may influence the outcome.
Clive is an identifiable person. Anne and Bill contract at a distance rather than face to face.
Cundy v. Lindsay (1878) 3 App Cas 459
 FACTS: major fraud involved.
o Pl. received an order for hankerchiefs from a rogue seller who gave his address to
the Pl.
o Buyer wanted to get the order on credit by presenting to the Pl. as another client
who lived on the same road as the fake address given.
o Buyer wanted the handkerchiefs sent to him on credit and once he did, he sold
them.
 it was a scam.
o Buyer did not pay nbecuase they were on credit and he sold them to the D.
o Ds were an innocent third party – was there a contract between the Pl.s and the
seller?
 HELD: the contract was void – there never was a contract.
Shogun Finance Ltd v. Hudson [2004] 1 AC 919
FACTS: ther was a slae of car.
o a finance company agreed to sell a car to a rogue.
o rogue misrepresented their character and identity to the finance company.
o Rogue produced proof of identity – a driving licence – which was unlawfully
obtained.
 it was not a genuine driving licence – it was in the name of another
person.
o the finance company sued the man on the driving licence
 rogue had sold the car on and disappeared.
o ISSUE: if the agreement was voidable, then the party who currently have the car
would be able to keep it because he was bona fide.
 if the agreement was void, then the Pl. fiannce company could have the
car.
 HELD: majority said that the contract was void
o hterew as never a contract
o there was never a contract because the finance company thought they were
dealing with Mr Patel (on the driving licence) but they were not dealing with him
and they were dealing with the rogue.
o contract was clerlay expressed to be one madebetween P and S
o ina consumer credit agreement , the identiy of the consumer is fundamental
because credjt is givne on thebasis of the consume’rs credit rating
o ther was no oconsensus ad idem between S and the rogue
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
o
o
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S intended ot ocntracto nly with P anda the rogue had on contracutla intention
at all. THEREFORE, contract was void.
2 judge in dissent: (needs to take the dissent seriously) the contract is not void
because the parties have dealt face to face.
 basic argument: where parties deal face to face, there is an assumption
that there is a contract.
 they are not dealing at a distance.
 it is not that the contract is not voidable , the contract is voidable for
fraud BUT it is ont theat there was never a contract
 ther was a contract.
 you cannot pretend that if the parties are dealing face to face that there is
no contrac
 on the facts – parties were daelign face to face, it might be different if the
parties were dealing at a distance.
BUT: in any event, the dissent is only 2 judges out of 5 – they are however
stating a rule that courts, prior to Shogun, did not like contracts to be void – hard
luck if someone was pretending to be someone else.
Clive is not an identifiable, separate person from Bill, but the name is simply an alias used by
Bill. Anne and Bill contract at a distance.
King’s Norton Metal Co. Ltd v. Edridge, Merrett and Co. Ltd (1897) 14 TLR 98
FACTS: Pl. received an order from Hallum & Co.
o H&Co were descrbied as a substantial firm.
o Pl. thought that a rogue called “Wallace” was Hallum and Co. and sent in wire
(metal) to him.
o Wallace osld the wire – faile1d to pay Metal Co.
o ISUSE: si the contract void?
 HELD: the Pl. intended to contract – there was no mistake of identity.
o Wallace has merely misrepresented that it was a respectable firm – it was a
mistake as to credit worthiness.
o Wallace could have traded under any name it thought fit.
o ‘Hallum & Co’ was merely an alias for Wallace.
o The contract was voidable for fraud but it was not void.
o the third party bona fide purchaser could keep the wire.
o NOTE: the parties here were dealing by letter.
o where the parties are dealing face to face, the situation is different – there is a
presumption that wher A deals with B face to face, A intends to deal with the
person physically present
 you cannot argue that the contract is void.
critical if the parties sare dealing face ot face or at a distance
In these cases the presumption is that Anne intended to deal with Bill because Bill was the
person physically present when the contract was concluded.
Courts are extremely reluctant that where acontract is concluded face to face – to say that the
contract was void.
BUT: it does not mean that just becaue it was face to face ,the contract can never be void.
o look at case law
Phillips v. Brooks Ltd [1919] 2 KB 243
FACTS: there was a rogue – he liked jewellery.
o Rogue selected a valuable ring.
o Rogue produced a cheque book claiming to be “Sir George” who was a wealthy
man and gave Sir George’s address.
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Pl. was not a complete fool – they checked the address and found that Sir George
lived at that address.
o as a result, the Pl. allowd the rogue to take the ring.
o rogue immediately went down to te pawn brokers and sold the ring.
o ISUE: Whether or not there was a occntract between the pawn broker or the Pl
 if it was voidable – pawn broker (bona fide third party) oculd keep the
ring
 if it was void- jeweller could get the ring back.
 HELD: contract was valid
o it was a face to face dealing
o the intention of the seller was to deal with the person in front of him.
 After Phillips, clear that courts do not like to void contracts between parties dealing face
to face BUT note:
Ingram v. Little [1961] 1 QB 31
FACTS: (similar to Phillips) Rogue wanted to buy a car and he bought a car from the Pl.
o he bought the car pretending to be ‘PGM Hutchinson’ and gave address of PGM.
o Rogue goes ot the sellers (who were little old ladies) and pretends ot be PGM.
o little old ladies were not entirlely inapt – they checked the directory for the
address and found that PGM did live at the address given
o PGM sold the car without paying as the cheque bounced.
o ISSUE: if you apply Phillips, if you preteend to be somebody, and you check the
books to correct the rogues’ information, the contract is voidable.
 HELD: the court of appeal said that the contract is void.
o contrary to Philips, the contract was voidl.
 How do you distinguish Ingram and Philips?
o the courts focused a graet deal in Ingram that it was all about intention and that
the parties had not made a mistake as to credit worthiness
 the Pl. had intended to deal with the rogue.
o probably that Corut of Appeal wanted to reach the outcome it reached – there is
really no difference between Ingram and Phillips
o It was distinguished that in Phillips the dealer was quite happy to sell to the rogue
before the name “Sir George” was mentioned
 BUT: ti wass not clear that this was the case from the facts.
Lewis v. Avery [1972] 1 QB 198
FACTS: Pl. sells a car to a rogue.
o rogue pretends that he is a well known actor.
o Is there a contract? there is aconflict in authorities – apply Phillips ? or Ingram?
 HELD: it is a matter of intention.
o ther is a presumption that where parties deal face to face, they intend to deal with
the parties in front of theem THEREFORE you cannot say that the contract is
void.
o (Denning L) a mistake of identity never makes a contract void.
 looks at with hwo the risks would lie?
 Lewis said “you can take the car before the cheque clears”
 balancing of where the risks should lie because both parties were really
innocent.
 therefore, because L had contracted with the rogue face to face.
 “we do not look at the parties intentions, we look to outward
appearances”
 Lewis should hold the risk and the contract was voidable.
o Lord Dennig rejected the distinction between mitetake as to identity nad mistake as to
attributes
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ie. he rejected that a mistake as to identity can render the ocntrafct ovidb ut
the mistake as to attributes / quality cannot
Denning also rejected the distinction between a contract of sale conlcudededj
ustbefroe the rogue’s fraudulent misrep were made or just after the fraduelnt mistake
was made
 it was the original owner who got duped and therefore, nan innocent
purchaser shoud not be able to redcover.
MEgaw LJ: mistake here was to an attribute and not to dientty (ie. same conclusion as
Dennig but accepted th distinction between mistake as to identyy and mistake as to
attribute)
 pl. intended to contract with the person physically before him
 identity of the buyer was not vital because identiy was sought only to assess
the creditworthiness of the purchaser.
In any event, Shogun : House of Lords said that wher het parties daeal face to face, there is a
presumption that there is a contract. REMAINS THE RULE.
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Porter v. Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177
FACTS: ‘LH Gale’ got a loan form the D. pretending to be LHG’s father
o there wree various subsequent frauds.
o ISSUE: could the loan contract be set aside – was it a case like Phillips?
 HELD: this is not a mistake that voids the contract. Contract stands.
o (Barwick CJ in majority) it is not fundamental to the transaction who the
fraudster pretends to be – the contract stands.
o (minority) (Windeyer and Kitto JJ) disagreed and held that the contract is void
because there is a mistake.
 you have assessed the party to be credit worthy therefore, you cannot say
that the party’s identity was not fundamental
 In Aus nad England, it is very difficult to void a contract to void a contract where the
parites dedal face toface.
o courts don’t like voiding a contract where a third party is involved.
c. Unilateral mistake in equity
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Equity will rescind a contract for unilateral mistake where it would be unconscionable for the
non-mistaken party to enforce the contract. Such a mistake only makes the contract
VOIDABLE.
In what situation will equity intervene?
you need some kind of unconscionable conduct – but what is required is not exactly clear.
Taylor v. Johnson (1983) 151 CLR 422 – main authority.
FACTS: Johnson granted an option to T ot purchase 2 lots of land, each comprising 5 acres
for a total purchase price of $15,000
o option was exercised there was a written contract
o J declined to perform the contract ecasue she had thought that heagrement provided
for a price of $15,000 per acre nad no the whole land
o T believed that J was under some seirous mistake BUT delieberatley set out tho
ensure htat hse didn toe become aware fo the mistake
o D. had refrained form mentioning the price and wrongly stated that he did not have a
ocpy of the option to make avialbe to her
HELD :the contrac tshoud be set aside
o court looked at subjective nad objective theories of contractual asset
o subjective theory affirsms that true consent is essential to a vlaid contract and
thereof,re in the absence, the contract is void
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objective theory affirms that contralct law is confcerned nto with t4he relear inteitnso
of the parties bunt with the outward manifestation of htose intentions
 objectively, the parties have agreed with the price of $15,000 because this is
what was written down.
o therfoer, under objective theor,y, where there is uncosncioanble conudc,th te onctract
is voidable
 objectively at law, there is a contract BUT in equity, the contract is voidable.
o court refereed to Denning LJ in Solle
o “a party who has entered into a written contract under a sseirous mistake about its
ocntnet in relation to a fundamental termu will be netield in equity to an order
rescinding the onctrafct fi the oather party (defendant) is aware that cirucmsntace
exist twhihch idnciate that the firstp arty is entering the ocntractg under mistake and
dleibveratley sets out toe ensrue htath efirst party does not become arware of the
mistake”
above statement hads bee ntaken as not a comphrensive state of the only cicusmtnacstanace in
which mistake by a contracting party would attract equitable relief.
generally, look at hwehteri t would be unconsionblae for the non-mistaken party to atke
advantage ofh te mistaken part’ys mistake.
courts deal with unilateral mistake cases (Smith v Smith) “essential emelmts are:
o one paersosn enters into a contract under a serious mistake about its content in
relation to a fundamental matter
o other party is aware of the cirumcsntaces exisxts indicatiogn that the first perons is
enterin into the onctrat under serious mistake
o second aprty dliberalety set out to ensure thathe first party does not become aware of
the mistake. by positive acts or omitting to bring ti to their attention.
o Taylor v Johnson: even though one party is mistaken, objectively, they said that there
is a contract.
 seems to limit common law in terms of mistake because paradox: this
liberates the law on common mistake (like Bell v Lever Bros: where the
parties make the same mistake at common law, it is virtually impossible to
argue that he contract is void unless the mistake is fundamental – subsequent
cases after Bell v Lever have shown that it was virtually impossible to void a
contract for common mistake)
Flexibilityy in Australia to do with mistake in equity at the expense of certainty.
Smith v. Smith [2004] NSWSC 663 – needs ot be deliberate concealment BUT you can give a
false impression by omission without being deliberate.
Leibler v. Air New Zealand (No. 2) [1999] 1 VR 1 – suggested that ther need not be a
deliberate concealment of the mistake in order for the contract to be set aside in equity.
FACT:S agreement for the lsae of shares comprising a hhalf-itnerst in a company that
operated a travel angecy
o solicitpors acting forth purchaser mistakenly delated from the agrfement for sale a
lcause given the prcahser a right of preemption in relation to the sleler’s remaining
shares in the company
HELD: equity required the seller to brign th4e mistake to the attention nfo the purchaser
because of circusmtnaces:
o copmelxity of the transcation
o degree fo trust involved
o funadmaental importance ofteh omitted term
o fact thathe deletion of the clasue was totally inconsistent with the tenor of the
negotiatons.
o HOWEVE:R it is actually not clear what is required before equity can intervene
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XCB Pty Ltd v. Creative Brands Pty Ltd [2005] VSC 424 – knowledge of the other mistaken
party making the mistake is not enough – needs something more than that but what more, it is
not clear.
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IT all depends on the facts.
3. COMMON MISTAKE
contract is rarely void for common mistakes.
There are two main requirements for an operative common mistake at law:
i.
The mistake must be shared i.e. the parties must make the same mistake and
ii.
The mistake must be fundamental.
ie. where A and B both make the same mistake.
a. Non-existence of subject matter of the contract
Things which once existed – the parties have contracted to sell something that does not exiswt
o both parties believing htat it does exist.
generally – courts will allow the contract ot be voided.
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Couturier v. Hastie (1856) 5 HCL 673
FACTS: One party agrees to sell corn which no longer exsited at the time the contract was made
HELD: it depends on the construction of the contract.
o the contract was void.
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Queensland legislation: Sale of Goods Act 1876 (Qld)s 9
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When there is a contract for the sale of specific goods, and the goods without the knowledge of
the seller have perished at the time when the contract is made, the contract is void.
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McRae v. Commonwealth Disposal Commission (1951) 84 CLR 377
FACTS: Commissioner invivted tenders for htep urchase of an oil tanker described as wrecked at
a certain location in Papua.
o Pl. put in a tender and was accepted
o Pl. incurred expensies in fitting out a salvage operation
o there was no tanker in the vicinity of the allegted location
HELD: there was a contract and the D. was liable for breach
o D. had impliedly promised that there wa a tanker in the position specified and was liable
for breach of that promise
o evne if a common mistake of a fundamnetla nature could render a contract void, a party
cannot rely on such a mistake wher it conststs of a belief entertained without any
reasonable gorund and deliberately induced by that party in the mind of the other party.
o Court gave reliance losses.
Svanosio v. McNamara (1956) 96 CLR 186 – LAND SALE – no bad behaviour therefore
reluctance to set aside.
FACTS: D sold land to the Pl.
o both parties were mistaken and thought that the land that was sold included a hotel.
o vendor was not in the position to sell the hotel because part of the land that the hotel was
on was owned by the crown.
o ISSUE: was the contract void?
o Pl. could have just claimed damages but they wanted the contract set aside and money
repaid.
 to get the money repaid, the contract had to be void.
HELD: the contract was not void.
o court was reluctant to set the contract aside in equity.
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o
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usually, it is easy to set hete contract aside in equity because the courts will just refuse
specific performance
BUT here, no, equity could not do so.
it was not voidable in equity because there was no fraud – both parties had made a
common mistake.
+ it was partly because they were reluctant to set the contract aside in contract law or
equity becauseit was a sale of land.
b. Mistakes as to acquiring an interest in property that already belongs to the buyer (res
sua)
a. eg. A sells B the land but B already owns the land.
Copper v. Phibbs (1867) LR 2 HL 149
 FACTS: ther was a mistake and the contract could be set aside. Issue was whether the
cocntract was void or voidable.
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Bell v. Lever Bros. Ltd. [1932] AC 161, 218 (Lord Atkin) too k the view that the contract is void
at law and not voidable in equity
o equity only makes the contract voidable
o especially where a third party is involved, the third party may keep the car if equity
intervenes.
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Svanosio v. McNamara (1956) 96 CLR 186, 198, 208
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c. Mistakes to quality (rmb: both parties are making this mistake)
In the previous two categories performance is just not possible.
here, not impossible to say that the contract is void BUT it is difficult.
Here it is a question of how far the contract deviates from the parties’ common purpose. Mistakes
as to quality will not void the contract. Mistakes of substance or essence will.
In England and Wales the doctrine of common mistake has traditionally been very narrow but
tempered by broader doctrine of mistake in equity.
In Australia common mistake is equally narrow. Yet equity retains a role under the guise of
unconscionability.
Bell v. Lever Bros. Ltd. [1932] AC 161
FACTS: B and S agreed to serve as Chairman and Vice Chairman at Lever Bros. Lever Bros hhad
to pay B and S monies as the company did not do well.
o ISSUE:neither parties thought that they were entired to a payoff.
o BUT in fact, B and S had breached their contract sand were not entitled to a payoff.
 at the time the parties entered into the compensation package, B and L thought
htat B was entield to compensation.
o was the contract void for mistake?
o L argued that the contract was void becaue he wanted to get he money back.
HELD: contract was not void.
o because the mistake was not sufficiently fundamental.
 mistake only realted to the quality of the agreement – was not fundamental
o (AtkinL) it was a payoff to end the contract and that was what they got
 the release contract was identical whether they had been opedrating under the
contract or not.
 mistake as to quality can make the contract void but only if it was fundamental
o “is an agreement to terminate a broken contract different in kind from an agrfeemtn t
oterminate an unbroken contract ? in this case, no.
o “contract reaeased is identical contract in btth cases, and the party paying for the release
gets exactly what he bargains for.
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it is difficult to argue (almost impossible) that the mistake is fundamental – where there are
mistakes to quality, courts do not like to say the contract is void.
o you can do so in equity however.
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Solle v. Butcher [1950] 1 KB 671 Solle v Butcher per Denning LJ: “correct interpretation of Bell
is htat once a contract has been made, the contract is good unless and until it is set aside for
failure of some condition on which the existence of het contract depends, or for fraud,, or on some
equitable ground.”
o Svansio v McNamara per Dixon CJ and Fjullagar J quoting with approval.
Aus courts accept that there is an equitable doctrine of mistake – you amy not be able to say
thathe contract is void at law but you can do so in equity
ISSUE: when will the contract be void in equity?
Great Peace Shipping Ltd v. Tsavliris (International) Ltd [2003] QB 679
 UK English Court of Appeal rejected Denning LJ’s interpretation of Bell:
 FACTS: D had contracted to provide slavage services to a vessel that had suffered serious
structural damage
o D were told by a third party that the Pl’s ship (the Great Peace) was 35 miles away
from the vessel damaged.
o D contracted with P to charter the Great Peace to stand by the damaged ship until the
tug arrived in case it becaome necessary to rescue the crew.
o D later finds out that the ships were actually 410 miles apart
o D resisted the claim for payment under the contract on the bassi of a common mistake
 HELD: conrtract will be void for mistake if:
o following elements are present:
1. common assumption as to the existence fo a state of affairs
2. must be nowarranty by either party that htat state of affairs exists
3. the non-existence fo the state of affairs must net be atributabel to the fault of
either party
4. non-existence of the state of affairs must nrennder performance impossible
5. state of affairs may be the existence, orr a vital attrtibute, of the consideration to
be provided or cirucmstnaaces which must subsist if performance of the
contractual adventure is to be possible.
o D would have had an arguable case that he contract wsas void for common mistake if
the distiance between the two vessels had been “so great as to reneder the contractual
adventure imposisibel of performance”
o Great Peace was able to ‘arrive iun tiem to provide several days of escort service’
THEREFORe, the vessel was in a position to provide the services whichc would not
be ‘essentially different from those envisaged by the parteis’
o D’s failure to coancel the contract upon knowledge of the position nof the Great
Peace was a telling indication of this
o D was therefore bound byt the contract and waws obliged to pay the cancellation fee
 QCA in Australia Estates v Cairns City has accepted the test for a contract to be void for
common mistake from Great Peace.
o BUT: in Cairns City Council: it was found that no mistake had been made
THEREFORE, its approval of Great Peace is only obiter THEREFORE, Solle still
has merits.
Svanosio v. McNamara (1956) 96 CLR 186
HELD: doctrine of equitable mistake was fairly narrow – there ahs to be a fraud OR a total failure
of consideration.
Svansio papproved Denning LJ in Solle that despite the parties’ mistake, a contract holds goodu
unless and until it is set aside on some equitable ground
o FACTS: D sold to the Pl. scertain alloktment of land with a hotel whichv was erected onti
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after conveyance of the property, it was discovered htat only apportion of
htehotel building stood on the land described
 one third of the land was owned by the Crown
 Pl. laimed thath e contract nad conveyance hsoudl be set aside and the purchase
money returned because teparties had entered the contract undera common
mistake
o HELD: HC dismissinghte claim
 equity would not undo a slae of land after conveyance uneless ther was fraud or a
total failure of consideration
 here: there was only partical failure of consideration.
 “it is difficult to conceive any circusmtnances in which equity cvould properly
give relief by setting aside the contract unless there had been fraud or a condition
can eb found express or implied int eh contract”
 Crucial factor of the case also was that the contract of sale of lthe land was in a
special category because the purchaser has a good opportunity to inestigate the
seller’s title nad survey the land prior to conyeance
 in this ca,se only a cursorty examination fot title was made on behalf of the
purchasaer
Taylor v Johnson agreed with the statement and said that ‘fraud’ means the wide equitable sense
inclduign unconscionable dealing.
o THEREFORE: in later cases after McNamara (see Taylor) seems slightly wider – equity
may be wider in allowing contracts to be voided where there is mistake.
Does equitable mistake, if it exists as a doctrine, is a fallback to mistake of quality (where it is
difficult to void the contract) still exist in Aus as it was abolished in UK.
o UK argues that it was not consistent.
Taylor v. Johnson (1983) 151 CLR 422 – seems to support that there is a doctrine of equity in
mistake
o even though it is virtually impossible to set the contract aside as the mistake was not to a
fundamental aprt ofhte contract, you can still set it aside in equity.
o Solle v Butcher cited by HC in Taylor v Johnson but has been rejected by English Court
of Appeal in Great Peace
 English Court in Great Peace : don’t like equity interfereing with a mistake in
common law
o NOTE: Taylor v Johnson deals with unilateral mistake BUT approved Solle which was to
do with common mistake.
 seems like you can apply Taylor v Johnson to any mistake case.
Classic International Pty Ltd v. Lagos (2002) 60 NSWLR 241
Australian Estates Pty Ltd v. Cairns City Council [2005] QCA 328
Await HC decision – but Austrtalian courts are quite rightly to aply equitable rules, it would be
quite suprising if the Aus courts follow the same route as English Court of Appeal in Great Peace
Shipping v Tsavliris.
4. RECTIFICATION
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Where a contract is in written form and it fails to accurately reflect the common intentions of the
parties it can be rectified to reflect their common intentions. Rectification can also be used in
cases of unilateral mistake where it would be unconscionable for the non-mistaken party to
enforce the contract.
Key point: whether the contract reflects the true intentions of the parties: Maralinga Pty Ltd v.
Major Enterprises Pty Ltd (1973) 128 CLR 336
 FACTS: Major put up ladn for sale by auction
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auctioneer announced hat the purchaser would be allowed a mortgage back tohe
vendor for $64,500 for 3 years at8%.
o property was knocked doewn to Maralinga
o draft contract provided for the paymtent of the balance of purchase price on
completion buyt did not contain a provision for any part of the price to remain on
mortgage
o Maralinga signed the contract knowing this omission and Major did oto
o Maralinga thought it coud lstil lhave the benefit of the auctoneeer’s promise regardin
gehthe mortgage and sought rectification
 HELD: HC refused to order rectifciaction
o no mistake had been made because both parties knew the written instrument differed
from the temrs of the bargain
o “Court must be staisisfied thath e instrument does not reflect the true agrremnet of the
parties
o cannot be so ssatisfied unless the writing was intended ot record the earlier agremetn
and by mistake, the parties fail to do so
o rectification would nhave ben granted only if an actual agreement had been
ocncluded before the edxecution of htewriting sinstrument.
o BUT: even without actual agreemtn prior to the written instrument, rectification could
still be allowed but in this cas,e intentions did not indicate that the parties had
intended to contract upon the auctioneer’s promise.
 NOTE: parol evidence rule would apply but ,, equity may order recotification of the doc so
thagt it expresses the true inteitnos ofh te parties
o even where there is an entire agreent clause , it owudl not preclude the reception of
evidence to rpove that the written contract was not in accord with the true intentions
ofh te parties – MacDonald v Shinko
Pukallus v. Cameron (1982) 180 CLR 447
 fACTS: written agreement asaid that only “Subdivision 1 of Portion 1154” was for sale
o both parties beelived that Subdivision 1 included a bore and an area of cultivated land
which they had einspected together before the contract was signed
o after the sale, purchaser discovered that the are aof land in queswiton was part of
Subdivision 2
o ;purchasersought rectiifcatoint of the contract
 HELD: written contract did embody the inteitno of the parties which was to transfer
Subdivision 1 of Portion 1154 THEREFORE: ther was evidence of inetnion to transfer only
Subdoivision 1
o to obtain rectification, the purchase would nted to provie the precsise term athtt was
agreed between the parties and have mistakenly omitted from the written contract
It is all about looking at the true agreement
you cannot use rectification merely because the parties have changed their minds popst thewritten
contracts because at the time of formation, the contract reflects their intentions at the time of
entering the contract. (Winks v. WH Heck & Sons Pty Ltd [1986] 1 Qd R 226)
5. NON EST FACTUM
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A person is generally bound by a document that they sign. To this there is a defence of non est
factum. It was originally used by those who were illiterate. It has been extended but is still very
difficult to raise. If successful it renders the contract void.
o origin was because people did not understand the contracts they signed because they
were illiterate BUT these days, most people are at least literate THEREFORE may
not be that useful.
o but there could be language problems
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the defence of non est factum has been extended.
L’Estrange v. Graucob [1943] 2 KB 394 – general rule for non est factum
FACTS: contract was for the sale of slot machines.
o parties had signed the contract where in it, liability was excluded for express and
implied warranties – straightforward exclusion clause
o it was in tiny print that one needed a magnifying glass to read it
o machines turned out to be faulty.
o was the Pl. bound by the exclusion clauses? the Pl.s had signed the contract.
 HELD: the pl.s were bound – non est factum could not be used.
sc ope of the defence considered in England in Saunders v. Anglia Building Society [1971] AC
1004: HELD: non est factum is not confined to people whoe were illiterate but covered all of
those who were permanently or temporarily, thorugh no fault of their own, unable without an
explanation to understand the document whether through defective education, illness or innate
capacity.
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Toll v. Alphapharm (2004) 219 CLR 165
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Petelin v. Cullen (1975) 132 CLR 355
FACTS: man had poor understanding of English. P was persuaded by an agent of Cullen to renew
an option to be in favour of C.
o P did not understand the doc that he had signed
o P thought that it was just a receipt
o the fact that he thought that was deliberate
o C tried to exercise the option of land at a very cheap price – issue is wheter renewal
of the land was valid. could non est factum be used?
 HELD: qualificatiosn to non est factum:
o class of person who can avail themselves fo the rulee is limited to those who cannot
read bowing to some sort of disability +
o signer msut sign the document in the ebleif that it was radically difernt from whatit
was in fact.
 mistake as to contents of a dociuemtn can be just as radical as a mistake as to
its character
o where the defnece is asserted against an innocent third party, failure to read nad
understand the document msut not be due to carelessness on the part of the signer.
 signer must have taken reasonable precautiosn to understand the document.
o person who seeks to rely on the defnece does not need to sstalish thath e other party
had knoweldfvge of the incapacity that led to the signing of the contracts.
o on the facts, P had not been careless – not their fault that they did not understand
englsh; and C’s agents had reason to suspect that there was misapprehension of the
character of the document that was signed
o there are two conflicting policy araguemtns:
 there is on the one hand, the notion that if A gets B to sign something, B
should be able to rely on A’s signature when there is no reason to doubt its
validity.
 vs.
 there is injustice in holding someone to a contract that they have not really
consented to.
 in a case like Petellin, where there is no fault of the person signing and the other knew that
they did no really understand what they were signing that the defence toan action in contract
to non est factum can be brought.
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READING
Paterson, Robinson and Duke, Principles of Contract Law, Ch 31, .
Carter, Peden and Tolhurst, Contract Law in Australia, Chs 20, 21.
Those interested in mistake may wish to consult:
C MacMillan, Mistakes in Contract Law (Hart, Oxford, 2010)
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Summary: Mistake cases = contract never existed and the contract is void.
o no property can pass to the third party if the contract is void of mistae
o because no contract is passed to third party, original party can bring conversion suit.
Category 1 –Raffles v Witchelhouse (mutual mistake) 1 party thinks that the cotton is in the
October Pearless, other thinks it is in the December Peerless -> no consensus ad idem.
Category 2 – unilateral mistake
o unilateral mistake as to term – usually at law, the court takes the view that there is no
contract (hare skin case)
o Equity may intervene (Taylor v Johnson) – question on when equity will intervene
 whtehr the party who knows about the mistake has to conceal the mistake or
whether it is merely that they have kept quiet.
o unilateral mistake as to identity – rogue cases
 third party is affected in these cases –if we say that at law, the contract is
void, the innocent third party loses the subject matter; vs. may say that the
contract is not void ie. the law does not say that there is no dcontract – then
it is a fraud – then the contract is merely voidable and not void – ie. one has
to go through the process of rescission
 Phillips v Brookes – contract void.
o not that there never was a contract but that there was a contract but the contract is
rescindable.
o fraud rules protects bona fide third party
 if you are a third party you don’t want the contract to be void.
o more recently – where the parties are dealing face ot face (Phillips v Brookes)
presumption that the contract is valid.
 if you deal with someone face to face, it is impossible to argue that you did
not intend to deal with the person in fron of you THEREFORE courts
unwilling to say that the contract is void.
 almost impossible to say that a contract enetered into face to face is void
 courts have taken the view that they want to protect third parties
 the contract is voidable for fraud – because it is voidable, if you are the
original party ,you want to get the contract rescinded but note bar to
rescission – bona fide third party.
Common mistake is not a mutual mistake
o mutual mistake = parties at cross purposes
o common mistake = both parties make the same mistake
 Solle v Butcher – both parties make the mistake that the flat was not subject
to rent control.
 courts at law (in both UK nad AU) are very reluctant to allow a contract to
be set aside for common mistake
 because even if the parties make a mistake which they share, for all purposes,
they have agreed – they have merely agreed on the basis of a shared mistake
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law takes an objective view – by outward looks parties have agreed.
parties have simply agreed on the basis of a shared mistake.
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WEEK 11: REMEDIES 1
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Given that the subject of remedies has a course of its own we will confine ourselves to some basic
principles so far as they apply to the law of contract.
The primary remedy for breach of contract is damages. These are awarded to compensate the
plaintiff for the defendant’s breach.
o fundamental rpicnipel is compensatory
Damage awards in contract do NOT punish the defendant: Addis v. Gramophone Co Ltd [1909]
AC 488.
o if persons are to be allowed punitive damages – then enormous damages exceeding
the loss suffered will be allowed.
Contrast the position in tort law: courts do occasionally allowed punitive damages: Gray v. Motor
Accident Compensation Commission (1998) 196 CLR 1.
Compensation may take three basic measures for contract damages – three ways in which the
courts can access the damages:
i.
ii.
iii.
The expectation measure
The reliance measure
The restitutionary measure
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Expectation is most important
reliance measure is still relevant BUT restitutionary measure has been restricted.
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Expectation measure:we enter into contracts because we expect the other party to perform it.
Eg. of Expectationt measure:
o Anna enters into a contract with Bill. As a result of the contract she has an
expectation that Bill will perform. If Bill fails to perform damages are designed to put
Anne in the position that she would have occupied had the contract been performed.
o They are designed to put her in the position she would have been in had the contract
been performed.
Reliance measure:
o eg. Anna enters into a contract with Bill. Bill fails to perform. As a result of the
contract Anna has relied to her detriment. The damages contract not been entered
into.
o Losses are worked on the bassi that Anna has relied on the contract to the extent of
her detriment
o they are not about performance / expectation -0 they are about the expenditure that
the Pl. has incurred.
Restitutionary measure – Aus courts don’t like
o it is not about compensation.
o Eg. Anna enters into a contract with Bill. Bill fails to perform. Damages here do not
reflect compensation but return of a gain made by Bill.
o Damages here are about getting the gain that Bill receives by not performing
o eg. by breaching contract with Anna, Bill is able to make profit by selling wheat
elsewhere, he has made a gain on that expense and therefore, that gain, on that
restitutionary measure, can be incurred.
 Forms of expectation damages:
o reliance damages - to compensate the pl for expenditure incurred in reliance on the
contract beign performed.
o loss of a chance = damages awarded where the pl. only expected to gain the chance
of a benefit form performance of the contract.
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As far as Australia is concerned the first of these is the most important. Damages can also be
recovered in the second category. Sometimes the measures give the same result; sometimes not.
EXAMPLE:
Anna agrees to buy a car from Bill for $10,000. The market value of such a car is only $10,000.
The value of the car delivered (because of some fault) is $5,000. Anna receives the car but it is
worth less than the car she was promised (it is not the car that was promised):
o The expectation measure is worked out on the basis that the contract was performed
according to its terms namely the delivery of a car worth $10,000. Damages are
calculated by deducting the value of what was received (the market value) from the
value of what was actually delivered i.e. $10,000 - $5,000 = $5,000
o The reliance measure is worked out on the basis that the contract was never entered
into. Anna would never have parted with $10,000 and never received a car worth
$5,000. Damages are calculated by deducting what was actually received from what
was paid i.e. $10,000 - $5,000 = $5,000
In this example the result is the same. It need not be. In the example the contract price reflects the
market price. Often this is not the case.
 ie. where the market value and the actual valaue of the thing are different
(market value of what was contracted for and the actrual value are different):
Anne agrees to buy a car from Bill for $10,000. A car of the sort promised costs $8,000 in the
market. The car delivered is worth $5,000.
o Expectation damages: $8,000 - $5,000 = $3,000
o Reliance damages: $10,000 (the sum paid) - $5,000 (what it was worth) = $5,000
This allows the plaintiff to escape from a bad bargain one in which they paid over the market
value for a thing.
Suppose that Anna has made a good bargain. The car is worth $12,000 on the market and Anna
has paid $10,000.
Expectation damages: $12,000 - $5,000 = $7,000
Reliance damages: $10,000 - $5,000 = $5,000 – this figure does not change because reliance is
based on the amount paid minus its worth.
expectation measure: market value important – if the market value is not different from that which
was paid, then the Pl. has not lost anything.
1. ASSESSING DAMAGES
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Damages are generally assessed at the date of breach.
o this menas that if at the time of the formation, the market price of the object is
$10,000 and by the time it comes to performing, the market value of the object has
fallen ($8000), then party at the time who has the obligation to pay will breach it to
try and pay less.
 How to assess damages: (market price of the date of breach -$10,000) – actual value of the
things ($5,000).
o this assumes that the contract price ($10,000) and the market price at the date of
breach is the same.
o what if the market price is less at the time of breach is less than the contract price (eg.
where the contract price is $10,000 but the market price is not $10,000 – therefore,
the buyer has overpaid.)
 eg. where the market price is $8,000 at the time the contract is breached.
o taking the market price – actual value (all at the date of breach) = $8000 - $5000 =
$3000
 take the value of the thing contracted for (not the thing received) at the time of the breach.
This rule can be departed from where necessary to do justice.
Johnson v. Perez (1988) 166 CLR 351
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The burden of proof (on the balance of probabilities) is for the plaintiff to prove loss. In absence
of loss nominal damages may be awarded to reflect that the contract was breached.
o may therefore affect issues such as costs.
Commonwealth of Australia v. Amann Aviation Pty Ltd (1991) 174 CLR 64, 80, 99, 137
2. EXPECTATION DAMAGES
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Robinson v. Harman (1848) 1 Ex 850, 855:
o The rule of the common law is, that where a party sustains loss by reason of a breach of
contract, he is so far as money can do it, to be placed in the same situation, with respect to
damages, as if the contract had been performed.
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This statement has been approved in Australia:
Wenham v. Ella (1972) 127 CLR 454, 471 (Gibbs J)
Burns v. MAN Automotive (1986) 161 CLR 653, 667, 672
Commonwealth of Australia v. Amann Aviation Pty Ltd (1991) 174 CLR 64
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difficulties in these cases – where the market price is unstable.
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The most straight forward expectation losses occur where the market price is stable. Anna agrees
to buy a tonne of wheat from Bill for $100,000 (thius is the contracat price).
o In breach of contract, Bill fails to deliver the wheat.
o Damages at the date of breach: At the date of breach the market value is $100,000.
o In this case her losses are zero.
 $100,000 - $100,000 = 0
o losses in this case are only nominal.
Suppose the market value of wheat has risen from the date of the contract to the date of the breach
to $200,000.
o Makret has moved against Bill because Bill has agred t osell his wheat for less than it was
worth at the date of breach.
o In this case her losses are the price she would have had to pay Bill deducted from the
market price i.e. $100,000. HERE: the damages = $200,000 - $100,000.
o This situation is quite common. Parties fail to deliver commodities because the market
has shifted. Equally it could work the other way around when prices have fallen.
Suppose at the date of breach wheat is now only worth $80,000 and Anna refuses to pay. Bill can
recover $20,000 as a loss of profit.
o that is the profit he would have made from the wheat.
o because the value of the wheat has fallen (ie. the market price is less than the selling
price) he has lost $20,000 profit.
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The expectation measure is subject to some limitations. Not all losses can be recovered. These
include:
i.
ii.
iii.
iv.
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Causation
Remoteness
Mitigation
Contributory negligence
Some categories of expectation loss are problematic.
o special categories of damage where special rules apply.
a. The problem of cost of cure
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Eg. A contracts with B to build a house for $100,000; Say they build the house 30 cm too short.
This is a breach if it is a contract that the house is to be a certain size. IF we apply the normal
expectation measure, it is difficult to argue that there is a loss.
o expectation damages are very low or even because the breach causes no loss – you get he
house in terms of its market value that you contracted for.
o eg. if the contract is $100,000, the market value of the house at the time of breach is
$100,000 – there has been no loss = 0 expectation damages.
Sale of Goods Act 1896 (Qld), s 54 (2)-(3):
The measure of damages for breach of warranty is the estimated loss directly and naturally
resulting, in the ordinary course of events, from the breach of warranty.
In the case of breach of warranty of quality such loss is prima facie the difference between the
value of the goods at the time of delivery to the buyer and the value which they would have had if
they had answered to the warranty.
Ruxley Electronics and Constructions Ltd v. Forsyth [1996] 1 AC 344 - more serious example of
when expectation damages = 0.
FACTS: Pl. entered into contract with D to build a swimming pool,.
o under the specifications of the building contract, the pool was supposed to be 7 foot 6
inches deep at the deep end.
o the pool was only 6 foot 9 inches at the deep end when built.
o Mr Forsyth argued htat he did not get the pool that he contracted for – it was more
shallow
o therefore, F argued that he should be allowed damages
o ISSUE: the pool was perfrectly safe for swmming / diving – ther ewas no difference
between nthe market value of the thing contracted for and the actual value
o THEREFOER: expectation damages were 0.
o No one doubted that there was a breach BUT that the breach made no difference to the
value of the end product.
o F was a wealthy / litigious man – argued that he should be entitled ot recover the cost of
diggin up the whole pool and starting it up again to make it fit witht the specifications
 this is a cost of cure.
 F was seeking for damages to rectify the breach.
o the cost of diggingup the deep end of the pool nad paying someone else ot do it was
significant.
HELD: Could he claim those damges? House of Lord reasoning is not entirely clear. but they said
No, he could nto claim the damage sought.
o “such an award would be unreasonable but you maey recover costs of cure in some cases
some times”
o HL did not lay odwn clear rules but said that “such an award would be wholely
disproportionate to any benefit that would result”:
o it was unreasonable (apapears that F was terribly litigious and the swimming pool
company had offered vaiours other benefits free of charge to F before going to court)
o HL said you can recover for costs of cure – you can recover damage sto get the defect
fixed
 what ehy were saying was that the pool was good and it was totally unraeosnbale
to be able to claim the costs of curing
o HL was probably also worried about pocketing the money from those damges to cure.
o F was entitled to compensation for looss of amenity.
Tabcorp: HC discussed Ruxley and said thqat the finding wqas not consistent with the statement
of Oliver J (about taking into consideration the pl’s preferences in whether or not rectification
should be allowed) BUT Tabcorp said that the circumstances in Ruxley were ‘quite exception’.
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Bellgrove v. Eldridge (1954) 90 CLR 613
FACTS: builders built a house wher there were bad foundations.
o foundations were not in accordance with the contract and were faulty.
 problem: concrete had not been mixed properly
o hosue with weak foundations is not what people wants
o ISSUE: could they recover cost of cure damages?
LITIGATION: on the facts, ti was not that expectation damges were 0 but that the Pl. wanted the
house rebuilt
o Pl. was not interested in how much less the house was worth in the market price
o they were simply seeking to cure the defect
o in this situation, one wants a house that would not in 10 years fall down HTHEREFRE, Pl
argued that they could recover the cost of getting the house rebuilt.
o cost of getting thte house built in the first place was $3,500 cost of rebuilding the house
was $5000.
HELD: (HC) yess they could recover the cost of cure.
o it was stressed that cost of cure damages will only be awarded in exceptional
circusmtnaces
o normally, you get expectation damages BUT there are some casese where there are
exceptions.
o exception dependso n whether it was reasonable and necessary to be awareed cost of cure
damages.
 recticiation in this case was reasonbel because the foundation of the house were
defective and the building was unstable.
 THEREFORE: a real and practical necessity arose for the work to be redone.
o alos stressed that it was not the court’s business if the Pl. ddid not use the damages to cure
the defect
 ie. even if the Pl. just pocketed the damgages – it would not be for the court to
decidej how the damages are spent
 Is it relevant whether the Pl. intends to carry out the repairs?
 Pl. may not actually intend to carry out the work required to rectify the building
 damages are beoing sought on this basis but unsettled whether the Plo’s intention
should be relevant in assessing damages for the cost of rectification.
o there are examples given in the judgment of when cost of cure damgges can be awarded
and when not:
o 2 examples were given:
 Cost of cure awarded: where A contract with B to paint a room purple; instead, B
paints the room yellow; yello and purple room are probably worth the same – ca
n you recover cost to get the room repainted? court said yes.
 an example where cost of cure damages can be awarded
 some sort of personal preference is allowed.
 where cost of cure not awarded: where A contracts with B for B to use old bricks
as he prefers BUT B uses new bricks rather than old bricks. Cost of cure damages
cannot be awarded – A cannot recover the costs of knocking down the house and
building it.
o there are several factors in play with the 2 examples before – all of which are treated
under the rubric of what is and what is not unreasonable
 partly depends also whether the thingis totally different to the thing contrafcted
for +
 more importantly,whether the damages would be disproportionate to the breach.
the concern behind reluctance in looking at whether or not the Pl. would use the damages to
actually fix the defect is that inquiry intop a pl’s subjective intentions is not part of the ordinary
approach to contract damages and..will produce commercial uncertainty. (Bowen Investments v
Tabcorp)
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cf. different approach is that the Pl’s intention is relevant but only to the question of whether
the award is reasonable.
approach focuses on the compensatory nature of damages – “if the Pl. will not put itself in the
position it woud have been in had the contract been performed, the pl. should not be given the
means of doing so.” (Westpoint Management Ltd. v. Chocolate Factory Apartments Ltd [2007]
NSWCA 253 [43] (Giles JA):
TEST: whether the damages for the cost of cure were reasonable ornecessary?
HELD: one factor that the NSWCA said was relevant in deciding the test is whether the work was
ever to be carried out with the damages awarded.
o this is the opposite of Eldridge – because Eldridge says that whether the money from the
cost of cure would be used to fix the defect is not a business of the courts
o “intention not to carry out the rectification work will not make carrying out the work
unreasonable
o “but, it may be evidentiary of unreasonableness
o “if the property is perfectloy functional and aesthetically pleasing despite the noncomplying work, may be found that the rectificaiotn is out of all proportion to
achievement of the ocntrctuaql objective or to the benefit to be thereby obtained”.
HC in Chocolate Factory did not directly address the issue in Tabcorp but affirmed that ‘the
diminution in value measure of admaages will only apply where the innocent party is merely
using a technical breach to secure an uncovented profit”
o THEREFORE: inteitno of the Pll. is relevant only so far as it provides evidence of such
conduct
ie. the Pl’s intention in seeking damages for rectification is relevant only to see if the award is
reasonable = make sure that the pl; is not using a technical breach to secure an uncovented profit
(Tabcorp)
NOTE: Since the remedy is for disappointed expectation, a plaintiff’s position is not found solely
in any monetary loss it has suffered. In a contract for the performance of building work, the
plaintiff can recover the cost of rectifying defective or incomplete work because, by receipt of the
money in substitution for performance, it is given the means of putting itself in the position it
would have been in had the contract been performed.
Tabcorp Holdings v Bowen Investments: justifies cost of cure damages on the basis of Robinson v
Harmon
FACTS: Tabcorp leased officec premises for a term of ten years which had a covenant where the
tenant could not make any substantial alterations to the demised premises without the written
approval of the landlord
o tenant applied for consent but was told by the landlord that the appciation could not be
considered before the proposed alterations were examined ata a site meeting
o in “contumelious disregard” for the rights of the landlord, the tenant commenced work on
the proposed alterations before the site meeting and complete the work wihtouthe consent
of the landlord
o landlord sued the tenant
HELD: (trial judge) damages awarded based on the diminution in the value of the building caused
by the new building work
o (Full court of the Federal Court) increased the damages to include the :
 cost of restoring the foyer to its original condition
 rent lost during the restoration period
o (HC) dismissing the appeal:
 landlord was contractually entitled ot he preservation fo the premises without
alterations not consented to
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therefor,e the measure of damages is the loss usustained by the failrure fothe
Tenatn to peerdform that obligation
 loss is the cost of restoring the premises to the condition in which they would
have been in if the obligation had not been breached.
o HC refrerred to the principle in Robinson v Harman and said htat ‘putting the plaintiff in
the same posoitino as if the contract had been rerfomed does not mean ‘as good a
financial position as if the contract had been performed’.
 “putting the innocent art into the same situation as if the contract had been
perofrmend will coincide with placing the party into the same financial situation
…
 “in the case of the supply of defective goods…measure of damages is the
difference in value between the contract goods and the goods supplied BUT per
Straughton Lj in Ruxley Electronics v Forsyth “the buyer is placed in the ‘same
situation …as if the contract had been performed’ with the loss beign the
difference in market value…
 in cases where the contract is not for the sale of marketable
commodities…dimuniation I nvalue damages will not restore the
innocent party to the same situation as if the contract had been
performed.”
ISSUE: but we normamlly take Robinson as a rule on how to calculate expectaqtion losses
 usually used to look at hwo to assess damages in monetary terms – is the thing
you contracted for less tha nwaht you paid for it.
o yet, HELD in Tabcorp: Robinson is not just about that – cost of cure damages flow form
the same principle
 Robinson is about putting the party in the position they should have been in if the
contract had been performed – putting them in the position financially
 Cost of cure in a way is the same sort of thing – you are giving what the party has
contracted for but in a different way
Tabcorpseems to suggest that the HC of Aus are very committed to cost of cure damages –they
are prepared to justify htem in a way thatis fundamental
o they are not ismply a type of damages
o they go right to the heart of dmages
Robinson in Tabcorp wasno t confined to merely assessing difference between market and
contract price BUT is about generally, coist of cure works on the same basis of putting parties
back to the position they were contracting for.
o Tabcorpseems to say that the basic rule is that you can recover and it is difficult to argue
that he damages are uneasonbel EXCEPT in the situation where ht sinnnocent party is
using a technical. breach to secure an enormous sum of money.
 ie. cost of cure can apply but it cannot be used to get a windfall.
 this seems to cover the example of the house that is only in a very small way
different to the one contracted for
 Tapcorp: HC conceived that Ruxley was such a case but say that such cases are
fairly exceptional
o Tabcorp: tenant attemped to aruge htat rectification was not reasonebl because”landlord
had never run a caase that it valued the foyer for its aesthetic qualities as distinct fomr its
having ‘pulling power’ as a ‘leasing tool’ and the old foyer was no more effective as a
leasing tool than the new foyer”
 HC rejected that argument
 quoting Oliver J in Radford v De Froberville that a D may argue that
“what the pl. has stipulated for will not serve his commercial interests so
waell as some other scheme or course of action…but that mnust be for
the pl. to judge”
 “if he contracts for the supply of that which he thinks serves his
sinterests – be they commercial, aetheticc or merely eccentric- then if htat
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which is contracted for is not supplied by the other ocntracitng party, I do
not see why he should not be compensated by beign provided with the
oct of supplying it through someone else or in a different way
 “subject to the proviso that he is seeking compensation for a genuine loss
and not merely using a technical breach to secure an uncovenanted profit.
 court thought that the test of ‘unreasonablneess’ preventing rectification damages
would ony be satisfied by ‘fairly exceptional cirucmsntaces’.
THEREFORE trend for HC to extend the category of damages.
NOTE: where it has been held that the damages are unreasonable: Brewarrina Shire
Council v Beckhaus Civil Pty Ltd
FACTS: the levee built though not in compliance with the contract, it would adequately
perform its funcitonws and the rectification work would not increase its capacity to repel
floodwater.
HELD: rectification of the dry side of a levee was unreasonable.
Award of damages for the cost of rectification nmay be unreasonable where the cost of
rectification would be wholly disproportionate to the benefit obtained.
b. Loss of chance
usual way of calculating damages – on the bassis of a particular outcome that the pl. contracted
to occur – damages for loss of a chance is not calculated on the basis that the contract was
performed because in this situation, the outcome is unclear
o ie. damages are worked out on the basis of a ahcne of a particular outcome rather
tahtn a particular outcome occurring.
Chaplin v. Hicks [1911] 2 KB 786
FACTS: D ran a beauty contest. Prize for the event is that the 12 highest placed contestant were to
be engaged at a theatre.
o Pl. was,at least compared to those applied in the view of the selectors, was selected
for the final 50 after 6000 had applied.
o in order to make the final selection of the top 12, the D were to interview the final 50.
o the D failed to notify the Pl. of the times of the interview T?HEREFORE ,the pl.l
never went to the interview and was not selected to be one of the top 12.
o Pl. sued the D for breach of contract.
o Pl. argued that the D breached had deprived them of an opportunity of winning the
competition.
o NOTE: it was not certain that they would have been in the top 12
o Pl. argued that they were deprived of the chance of being in the selected 12.
 HELD: court accepted their loss of chance argument
damages seemed to be awardable for loss of chance in Aus: Sellars v. Adelaide Petroleum NL
(1994) 179 CLR 332 – (FACTS: TPA case with the issue whether the loss of a commercial
opportunity under the legislation was recoverable under the TPA) HELD: HC said that yes, can
recover loss of a commercial opportunity but also suggest that damages can be awarded in the law
of contract for loss of a chance.
this is a slightly unusual situation -= because usually contract damages are asseseed on the basis
of a particular outfcome
o sometimes, like in these casdese, they are assessed on the basis of a loss of a
particular outcome.
c. Mental distress
 generally, one cannot recover for damages for metntal distress suffered for the breach of
contract
o otherwise every party may claimdamaages for distress for the other party’s
breach
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courts seem to still accept the rule that no damages can be awarded for mental distress BUT:
Baltic Shipping Co. Ltd. v. Dillon (1993) 176 CLR 344: Mason CJ seems to want to reject the
general rule but he confines it by saying that “in any event, there are exceptions to the general
rule.
o Baltci Shiping did not abolish the rule, it sets out exceptions.
FACTS: Dillon went on holiday – ship sank – question of damages for distressed – Dillon
argued that there was a breach of contracat and from the sinking of the ship, she had suffered
distress.
HELD: Mason CJ does not like the general rule at all because it ‘rests on flimsy policy foundations;
and is conceptually at odds with the fundamental principles allowing recovering of damages; Mason CJ
also says that there are excpetions:
o HC affirmed the rule that contract breaches will nto give damages for non-pecuniarty losses
UT there are 3 excpetions:
o damages may be obtained for pain and suffering arising form the physical injury caused by a
breach o f contract.
o damages for disappointment and distress will be available where they relate to physical
inconvenience caused by a rbeach contract
 (Bailey v Bullock) Soliucitor breached his contract by fialing to obtain possession of
the pl’s house and the pl. had to live with his wife’s parents ain circusmtnaces of
physical inconvenience - damages were awarded for this inconvenience and
discomfort.
o disappointment and distress arising form a breach of contrat will be aivalbel where an object
of the contract was to provide enjoyment relaxation or freedom from molestation
o ‘in this case, the pl. was a passenger on a cruise ship that sank halfway through the cruise
THERFORE, she successfully obtained damges for personal injuries suffered and loss of
property
o D had impliedly promised to provide a pleasurable holiday THEREFORe, the pl was entitled
to damkages of $5000 to compensate for the disappointment and distress at the loss of the
facilities and enjoyment she had been promised.
o
inflation of damages awards in commercial cases if damages for non pecuniary losses
were allowed.
3. RELIANCE DAMAGES
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reliancfe = on the basis of part performance / preparations for the contract that has been
breached
o you are recovering damages on the basis of the costs that you incur
McRae v. Commonwealth Disposals Commission (1951) 84 CLR 377 –states the position of
Aus in reliance damages.
FACTS: Pl entered into a contract with the Cth Disposals Commission for the purchase of a wrecked
oil tanker that they intended to salvage
o tanker was described at a location and the pl. were give ncoordinates of the supposed wreck
o thre was in fact no oil tanker present
o breach = there was an implied term in the contract that the tanker existed THEREFORE
breach = that there was no tanker there.
o ISSUE: if they were trying ot recover expectation damages – such damages were too
speculative
 even if the ship had existed, it would be difficult to work out if it was
 salvageable?
 could oil be removed?
 would project make money/profit even if salvaged?
 notl iek a simple market sale of goods where you can work it out but here it
is very speculative.
 the damages on such a basis were impossible to quantify.
o before discovering the fact, pl had incurred considerable expenditure in fitting out a salvage
operation on the basis of the CDC’s promise that there was a tanker.
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HELD: pl.were entitled to recover damages for the breach of contract measured by reference too the
expenditure reasonably incurred and wastd in reliance on the commisison’s promise.
o NOTE: reliance damages seem to be regarded as narrow.
o arises only in the situation where you cannot show / it is not knowable whethere therer would
be a profit to be made
o ie. you cannot choose reliance or expectation depending on what you think will give you more
o the court in such fcases are rewarding reliance damages because they could never have
recovered expectation damages
 this was impossible to work out.
 not that they were choosing.
Reliacne damages are an exceptions to the rule that expectation damages are awarded.
Commonwealth of Australia v. Amann Aviation Pty Ltd (1991) 174 CLR 64, 137 (Toohey J):
Reliance damages are a means of compensating the plaintiff where there has been no loss of
profit, or more likely, where the plaintiff cannot prove loss of profit with any certainty.

81 Mason CJ and Dawson J:

In the ordinary course of commercial dealings, a party supplying goods or rendering services
will enter into a contract with a view to securing a profit, that is to say, that party will expect a
certain margin of gain to be achieved in addition to recouping of any expenses reasonably
incurred by it in the discharge of its contractual obligations. It is for this reason that
expectation damages are often described as damages for loss of profits. Damages recoverable
as lost profits are constituted by the combination of expenses justifiably incurred by the
plaintiff in the discharge of contractual obligations and any amount by which gross receipts
would have exceeded those expenses. The second amount is net profit.
4. GAIN BASED DAMAGES
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where one is recovering expectation / reliance damages, focus in on Pl’s loss
o one is assessed on the basis that the contracat is perfvormed
o other is assessed on the basis of the pl.’s loss in reliance on the contract
gains based not assessed on the basis of los
assessed on the basis that the D by the breach, makes a gain and it is about clawing back the
gain.
Australian authority discuss English authority:
Attorney-General v. Blake [2001] 1 AC 268, 284-85
FACTS: B was a spy for the soviet union.
o B escaped back to Russia
o B decided to write his memoirs.
o British government argued that B was in breach of contrat because when one works
for the secirty services, one sigsn the official Secrets Act and by writing the book, he
revealed information which he was not allowed to reveal under that Act therefore, he
was in breach of contract
o PROBLEM: government was not relaly suffering any loss
 B would merely make a financial gain.
HELD: (Lord Hobhouse in dissent ) says you c annot recover profitrs for breach of contract –
orthodox view.
(Lord Nicholls):
o There seems to be no reason, in principle, why the court must in all circumstances
rule out an account of profits as a remedy for breach of contract. I prefer to avoid the
unhappy expression restitutionary damages. Remedies are the laws response to a
wrong (or more precisely to a cause of action). When exceptionally, a just response to
a breach of contract so requires, the court should be able to grant the discretionary
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remedy of requiring a defendant to account to the plaintiff for the benefits he has
received from his breach of contract. In the same way as a plaintiff’s interest in
performance of a contract may render it just and equitable for the court to make an
order for specific performance or grant an injunction, so the plaintiff’s interest in
performance may make it just and equitable that the defendant should retain no
benefit from his breach of contract.
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Lord Hobhouse at 299:
o I must also sound a further note of warning that if some more extensive principle of
awarding non-compensatory damages for breach of contract is to be introduced into
our commercial law the consequences will be very far reaching and disruptive.
(Majority) government can recover profits bac for breach of contract – totally against other
authorities!
o this is clearly a public policydecison
o majoirityy says that such damages are exceptional
o they can only ever be used where the other measures would not allow recovery
o ie again, you cannot choose gains based damages over expectation, it is only where
the other remedies give you nothing.
Australian courts are shuning the notion for gains based damages
o authorities are highly resistive to Blake: ie. they essentially saying htat to allow Pl. to
get a windfall under a guise of breach of contrct if gains based allows
o damages are about compensation and it is not about gains (Hospitality Group v
Australian Rugby Union.)
Hospitality Group Pty Ltd v. Australian Rugby Union Ltd [2001] 110 FCR 157, 196 (Hill and
Finkelstein JJ) NSW District Registry:
o The position in Australia is that the loss recoverable for breach of contract is limited
to that laid down in Robinson v Harman. That is the aggrieved party is entitled only
to compensation. If he has suffered no loss, he is not entitled to compensation. In an
appropriate case, the aggrieved party may be able to recover the price paid under an
incomplete contract or recover possession of goods sold but not paid for. Presently,
however, it would be inconsistent with the current practice laid down by the High
Court to confer a windfall on a plaintiff under the guise of damages for breach of
contract.
5. THE PUZZLING CASE OF AMANN AVIATION

FACTS: contract under which Amann was to provide coastal surveillance flights for the
commonwealth over a period of 3 yeawrs.
o Commonwelath wrongfully terminated in accordance with the express etermination
clause = they had breached the contract
o Amann treated it as a repudiation of the contract and electred to termijnate the
contract and then claimed damages.
o in order to carry out the contract, A had incurred heavy expenditures – in acquiring
and fitting out the aircraft – therefore they brought a claim for damages.
o BUT: Amann also required significantly longer period of operation than 3 years to
recoup the expenditure.
o ISSUE: ahd the contract been performed, they would not have made a profit
o THERFORE, in this sense, they suffered no loss.
 thry could not be allowd reliance damages – different from McRae no profit
when contract is performed.
 his ability to recoup the initial expenditure and to make a profit depended on
the contract being renewed for a further term after the initial 3 year period.
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o
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Amann could not prove that the contract would have been renewed THEREFORE, if
damages were assessed on an expectaiton basis= Amann would only have recovered
the receipts owing to it under the original contract and not the amount expended on
preparing for the contract.
LITIGATION: THEREFORE: Amann claimed that in assessing the benefits it would have gained
from performance ofhte contract, the prospect of renewal of the contract should be taken into
account
o Amann could not prove the value of what it expected to gain from renewal of the
contract but therefore sought reliance damages to cover wasted expenditure.
o Commonwealth argued that the expenditure incurred by Amann would have been
wasted even if the original contracat had been performed – Commonealth argued
thqat because it was under no oboligation to renew the contr4afct with Amann, the
prospect of renewal should not be takien into account in determining whether or not
Amann would have recouped its expenditure.
HELD: HC rejecting Cth’s argument
o damges were recoverable for damages because they were within the principels of
Robinson v Harmon: they were expectation damages
o expectaiotn damages = parties recovered the cost of hteir expenditure and they would
have done so if the contract had been performed.
o HC presumed that: where two aprties were in a contractual relationship, therei s a
presumption that at the very least, their expenditures would be recovered
 burden of displacing that presumption falls on the D.
 in order to displace that D, Cth had to establish that the expenditure would
have been wasted.
o puzzling in that the receipts under the contract –money paid by Cth – within the 3
years were less than the money they spent
 therefore, at first sight, it looks like a bad bargain
o BUT: whywas the presumption unrebutted?
o BECAUSE: (Mason and Dawson J) Amnan would be in a god position to secure
renewlal because it would have had the necessary equipment, facilities and personnel
in place at the relevant time”
 strong probability that the contract would be renewed
 if the contract had been renewed = expenditure recovered.
o WHY was the HC sympathetic? ebcasue A had spent all this money and Cth had
terminated in an improper manner
o Commonwealht could nto show that he value of the prospect of renewal, when
combined with the remuneration under the original contracts, would nto cover the
expenditure incurred by Amann THREFROE, Amann was entitled to substantial
reliance damages.
o DDubious reasoning!!!!
o WHY? because it introduced a presumtoption where no presumption existed before
o presumptiosn are artificial
o presumption that owhen one enteres a contract, ttehy would recover their
expenditure.
o dubious on the facts – seems that there was an existing contractor =- cth put out a
tender, A undercut the competing contractor because they were desperate to get the
contract and if they had the contract long term ,it would be profitable.
o BUT: turned ou that A had undercut too much and they were really not able to buy
equiipent or complete the contract.
o looks slightly dubious that it was even likely that the contract would be renewed –
because the commonwealth had changed the contractor before (they had gotten rid
of the long term contractor because Amann was cheaper) – what was to stop them
not renewing the contract wit Amann?
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o


some HC judges made deduction in the amount of damages awarded: difference
between them as to how much they were awarding – based on the prohabitliy of
hteocntract being renewed.
where no loss is established, the Pl. will usually recover only nominal damages
o = money awarded in recognition of the fact that the Pls legal rights have been
infringed but without compensating any actual loss.
NOTE: sometimes, pl. will not be able to produce precise evidence of the loss he or she has
suffered BUT ‘mre difficulty’ of estimating damages does nto relieve a court of the responsibility
of placing a value on what has been lost (Commonwealth v Amann Aviation)
READING
Paterson, Robinson and Duke, Principles of Contract Law, Ch 26.
Carter, Peden and Tolhurst, Contract Law in Australia, Chs 35, 36.
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WEEK 12: REMEDIES II – Limits on damages

in order to recover damages for contract, you have to hsow that the breach has caused the damage.
1. CAUSATION
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Causation is rarely a problem in contract cases.
In most instances it is clear that the defendant’s breach caused the plaintiff’s loss.
o there has not been contentious cases as there has been in causation in tort law.
In various situations an intervening event means that it cannot be said that the defendant caused
the loss.
usually, courts say it is a matter of common sense that the breach caused the loss.
Reg Glass Pty Ltd v. Rivers Locking Systems Pty Ltd (1968) 120 CLR 516
FACTS: Pl. were played by burglars
o D agreed to provide a burglar proof door.
o the door was faulty – burglars broke in and stole the Pl’s stock.
o what cuased the loss? was it the fact that the burglar proof doors were faulty or could it
be attributed to the burglars?
HELD: the D were responsible if the door had been reasonably fit for purpose, the burglars would
not have gained entrance.
o BUT: eif the burglars had gained entry however fantasti the door had been the D were not
liable
o IN THIS CASE: because the door was not fit for purpsose, D was liable.
a. Other causes of the loss
 Difficulties arise where the pl’s loss occurs partyl asw a result of the D’s breach and partly sa
a result of another factor = more than one cuase.
 Alexander v. Cambridge Credit Corporation (1987) 9 NSWLR 310 – whre there are
concurrently losses AND the D’s breach is a cause (does not need otbe the sole cause ) then
the D is liable.


FACTS: auditors of Cambridge Credit overstated the value of the assets of Cambridge Credit in rbeach
of hteir contractual duty of care
o things were omitted from the accounts.
o if the auditors had prepared the reporst correctly, the trustee would have known that he
business was in serious financial difficulties and debenture holders would have put the
ocmpnay nito receivership instead of conintuing the trade until the company sustained $155
million of losses instead of $10 million had it gone into receivership earlier.
o lossees in question were affecdted not only bththe company continuing to trade but also by
some external developments adverse to Camrbdige Credit includgin the collapse of the real
estate market that Cambridge had invested in.
o but for ttest of causation would have been satisfied
HELD: enough to show that the audoitor’s actions was a cause of the loss.
o it w as the failure to audit the books properly which in a common sense way, caused the
damages because had that failure not occurred, the company would have ceased trade.
 becuasde it continued to trade.
o (Mahoney JA) to allow the company to remain in existence does not cause losses from
anything which is a danger incidental to [the fact that the business is in existence]
 ie. just because the breach lead ot he company deciding to remain in existence does
not mean that thetre is a causal link between any event that wuld cause loss that was
incidental to the company being in existence’
o (McHugh JA) as a matter of ‘common sense’, the existencfe of a company could not be the
cause of tis subsequtn trading losses
 the auditors’ negliegence was ‘superseded in potency’ by supervening events
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

eg. external economic factors broke the change of causation between the
neglitgence and the losses.
the lsoses were too remote from the breach of contrac for the auditors to be liabel.
b. Break in the chain of causation
 sometimes, may argue that the losses were caused by the actions of the Pl rather than the
breach.
 Lexmead (Basingstoke) Ltd v. Lewis [1982] AC 225


FAC:ST purchaser purchawed form retailers a towing hitch to couple his Land Rover to his trailer.
o purchaser knew that some part of the towing hitch was in unsafe condition BUT continued to
tow using it anyway
o due to the defective state of the hitch, the trailer became detached nacaused serious accident
o claim was nbrouht against the purchaser for negligence
o purchaser then sued the retiilares claiming hta the retailrers were in breacah of their implied
obligations under the Sale of Goods act to supply a towing hitch fir for its purpose
 Purchaser argud that the breach was the cause of the accident.
HELD: rejecting the claim
o the pruchaser’s conduct in continuing to use the towing hitch evnen with the knowledge of the
damaged hitch had broken the chain of causation betwenethe retailer’s breach and the accident
that occurred.
2. REMOTENESS
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The rules of remoteness were developed by the courts to place some sort of limits on the
damages that the plaintiff can recover.
o rule in contract are stricter than in tort of deceit.
As a result they cannot recover all losses caused by the defendant. The courts have
experienced great difficulty in deciding where the line should be drawn.
Hadley v. Baxendale (1854) 9 Ex 341, 354 – decision has been approved in Australia.
Where two parties have made a contract which one of them has broken, the damages which
the other party ought to receive in respect of breach of contract, should be such as may fairly
and reasonably be considered, either arising naturally, i.e. according to the usual course of
things from such breach of contract itself, or such as may reasonably be supposed to have
been in the contemplation of both parties, at the time they made the contract as the probable
result of the breach of it.
Basic rule for the breach of contract are too remote UNLESS they arise
o naturally / as a result of a usual course of things
o OR
o if they were within the resaonsble contemplation of both parties at the time they
entered into both contracts.
expressing a single principel (2 judges say so)
o per Commonealth v Amann Aviaiton: “pl. is entitled ot recover such damages as arise naturally
= according to the usual course of things, from the breach ,or such as may reaosnbly be
supposed ot have beeni nteh contemplation of both parties (even if in the ordinary course of
things it would not occur) at the time they made the contract as the probable result of the
breach’.
o

TEHREFORE: Commonwealth v Amann 2 judges extended the rule
Applying the test Hadley v. Baxendale there are one of two ways in which damages are NOT
too remote either because they:
1. Arise naturally or as a result of the usual course of things or
2. Although the losses did not arise naturally they were within the reasonable contemplation of
BOTH parties at the time they ENTERED into the contract.
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talk about Hadley v Baxendale then talk about Herron II
a. What does arise naturally mean?
 What is the ordinary course f things? Koufos v. C Czarnikow Ltd (The Heron II)LOOK AT
TEXTBOOK SUMMARY [1969] 1 AC 350, 414.
 FACTS: sugar was late for delivery to the Pl.
o by the time the shipment arrived, the market in sugar had fallen THERFORE, the pl.
got less for the sugar than they had gotten had the ship arrived on time
o waws the D liable?
o ie. were they liable for the difference between the amount they had recovered fomr
the market had the sugar arrived on time and the amount they actually received for
the sugar.
o D argued that they were totally ignorant of the sugar market – they merely chartered
ships / were ship oweners – they knew nothing baouit fluctuations in sugar markets –
where the seasons were.
 HELD: rejecting D’s arguments
o shipowner must be presumed to know that prices in commodity markets fluctuate
THEREFORe the loss could be said to arise naturally OR as a result of the usul
course of things
o (Lord Pearce):
o The underlying rule of the common law is that ‘where a party sustains a loss by
reason of a breach of contract, he is, so far as money can do it, to be placed in the
same situation with respect to damages, as if the contract had been performed’ (Parke
B. in Robinson v. Harman. But since so wide a principle might be too harsh on a
contract-breaker in making him liable for a chain of unforeseen and fortuitous
circumstances, the law limited the liability in ways which crystallised in the rule in
Hadley v. Baxendale . This was designed as a direction to juries but it has become an
integral part of the law.



Wenham v. Ella (1972) 127 CLR 454, 471-472
FACTS: property development – Pl. made some investment but the interest in the land was
not transferee.d
HELD: (Gibbs J) facts fall within the naturally arising limb – the losses were described asa
near cetinaty that hif the agremetn was not performed, P would suffer loss
o (obiter) not that it hasd to be reasonbaably contemplated as a near certaintysomething less than that is enough.

Baltic Shipping v. Dillon (1993) 176 CLR 344, 365, 368, 370
b. What does reasonable contemplation mean?
 Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd [1949] 2 KB 528


FACTS: there was a contract for the sale of a boiler by the D to the Pl. for use in the Pl’s laundry and
dyeing business
o boiler was delivered 20 weeks after the time stated in the contract because the D had damaged
it and needed time to repair it.
o Pl.s claimed damages for htel oss of htep rofit they would have made had the fboiler been
delivered on time which included: profits fell into 2 categories:
 loss of a large number of new customers
 loss of a highly lucrative contract with te Ministry of Suppoly
HELD: (Court of Appeal) pls could recover a gernal sum forh t the loss of profit as it was within the
reasonable contemplationg of the parties BUT could not recover for htel osses relating ot the highly
lucrative contracts
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o
o
o
o
o
o
o
o
o
o
o
o
o
D knew that the pls need ed the boiler for immediate use in their laundry business but did to
know the precise use to which the boiler was to be put.
D msut reaosnbly be presmed to foresee some loss of business if the boiler was not delivered
on time
 D was in the business themselves of providing the boilers THEREFORE within its
reasonable contemplation
BUT the pls were not able torecover losses relating to the highly lucrative (Ministry of
Supply) contracts.
D would not have reaosnbyl conempalted this at the tine of entering into the contract
the test for reasonable contemplaton was examined in The Heron II – what does reasonable
contemplation mean?
(Lord Reid) reasonable contemplation = not unlilkely
(Lord Morris) similar to ‘not unlikely’
(Lord Pearce and Upjohn) “serious possibility / real danger”
Test is not that the losses were reasonably foreseeable – this is the tort measure
test of reaosnble foreseeabiultiy is easier to satisfy than the contrac test.
in contract, you can only recover damages that arise naturally or are within the reaosnbale
contemplation of both partesie at the time they etnere into the contract (Baxendale)
 that is not the same as saying that he damages are reaosnbly foreseeable
reasonable contemplation is a higher standard.
 whatever words are used – reaosnble contemplationg is harder to satisfy than
reasonably foreseeable.
 not hat the parties had to acutlaly contemplate such losses but wheter it was
reasonable for them to contemplate such losses.
for the pl. to recover the profits on the speicla onctract,ks D would have had to know of the
prospect of such contracts BUT it was unreaosnble for themto havekonwn that because they
knew nothing of that Ministry of Suply contract.
c. Is reasonable contemplation still enough?

Transfield Shipping Inc v Mercator Shipping Inc [2009] 1 AC 61

FACTS: bulk carrier had been let tohe D with a swpecified date for dredlivery
o prior to the date for delivery, the market rates for hire had doubled and woners fixed thevessel
for a hire to a new charterer commencing almost immediately after its rturn fomr the D. under
the first contract
o vessel was not returned on time and the P. therefore had ot accept a reduced rate of hire
o pl. claimed damages from thje D for the loss of the difference between the original rate of here
under the second contract and the reduced rate.
 ie. Pl. was claiming original rate of contract – reduced rate of contract because of
decrease in market price.
o ISSUE: the market rate for chartering ships had fallen. THEREFORE: it could only be
chartered for less than $39,000 per day (8 th May second contract price) – could only be
chartered for $31,000 a day.
 the Pl tried to recover the difference between the price on the 8 th May and the lower
market price caused by the late delivery.
o NOTE: general udnerstandign in the shipping market was that liability was restricted to the
difference between the market rate and the rate in the first contract
 this means that the higher rate originally agreed under the second contract was not
relevant for calculating damages.
HELD: 2 judges applied second limb of Hadley v Baxendale – charterers were not responsible for the
difference in value because theyey knew nothing about the lucrative charter that was to follow on from
their own THERFORE they could not be liable.
o accepted that the proper measure of dmages was the difference between the market rate and
the rate in the first fconrtacat between the parties
o the parties would not have had the particular loss ofhte lucrative second contract within their
contemplation at the time the first contract was made.
o 2 other judges took Lord Hoffman view: market practice gave the bassi for inferring that the
assumption of risk implicitltly asseumd by the D was limited to that represtned by the market
practice.
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“logical tofound liability for dmages upon the inteinto of the parties …ebcaseu all contractual
labiltiy is volunatarily undertaken ..
 “it must be in principle wrong ot hold someone loiable for risks for which the people
entering into such a contract in their particular market would not reaosnbly be
considered to have undertaken”
o assumption fo repsonsibiltiy forsm the basis fo the law of remotness of damage in contract
 this assumption is detemirned by more htan what at the itme of the ocntrat was
reasonably foreseeable
o “the question is whether the loss was atpye of loss for which the party can reaosnbly be
assumed to have assumed responsibility”
o in the circumstances ofhte case “agiansth teb ackground of market expectations…oen would
reasonably have considered the extent of laibiltiy they were undertaking ...”
THEREFORE: in Achilleas, Lord Hoffman not enough that natural cuase of things / reaosnble
contemplation- ther is another hurdle : talked about the assumption of responsibility as aprt of the
inquirty into whether or not it was iwhtin the comntemplation of htep arites for htep urpose of applying
Hadley v Baxendale BUT: it could also be wseen as a new critierion fr assessing remoteness?
o BUT in any way, start with Hadley v BAxendale’s two limb test for remoteness THEN in ‘rare
cases’ (per Lord Hoffman) , you may look at whether or not as wpart of the inquiry of the
second limb, you may look at whether or not the party had assumed responsibility.
NOTE this is unclear because 2 judges took second limb of Hadley; 2 judges followed Lord Hoffmans
extra requirement and1 judge agreed with all of them.
o NOTE in any case, English courts take Lord Hoffman’s view restrictively.
o
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Evans of Robb Evans & Associates v European Bank Ltd (2009) 255 ALR 171 [58] asusmtpin of responsibility goes within the second limb fo whether it was a reasonable
contemplation of both parties.
3. MITIGATION
 The plaintiff is free to act as they wish. Nevertheless if they fail to mitigate their losses they
will be unable to recover that portion of the loss which is attributable to the failure to
mitigate.
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3 rules under mitigation:
o pl. cannot recover for avoidable loss
o pl. can reovver for loss incurred in reaosnasble attetmpts to aovid it
o pl,. canot reover for avoided loss.
a. The plaintiff must take all reasonable steps to minimise their loss.
 Burns v. MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653: HELD: where the Pl .;could nor
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afford to take stpes to reudduce the coss caused byha breach of contract may nontethelss result in a
reduciotn of damage s thoruhg the pincipl of remoteness or mitigation where htep l’s faiulure to
mitigate is held tob e unreasonble’ in the circumsntaces.
FACTS: in the contrac,t seller agreed ot sell a diesel pime mover to a fiannce company which would
then hire the prime mover to Burns
o seller warranted that the enegine of theprime mover had been fully reconiditioed
o seller knew that Burns inteneded to sue the prime mover in ab usines of itnerstagte haulage
o seller should have known that Bruns was not ina affluent circusmtnaces
o enginge in fact had not been reconiditioned
o Burns had difficulty in conducting his business
o the vehicle broke down in 1978 and Burns found out that the enginge had not been fully
reconiditoned and was defecdtive
o Burns could not afford to put the engine into its warranted condition and seller refused to od
so
o Burns therefore uswed the prime mover on less lucrative work instead
o 1979 – prime mover broke down again and was repossessed by the finance company
b. The plaintiff must not unreasonably incur expense subsequent to the breach.
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Ardlethan Options Ltd v. Easdown (1915) 20 CLR 285
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Banco de Portugal v. Waterlow & Sons Ltd [1932] AC 452
FACTS: D contracted to print bank notes for the Pl bank.
o in breach fo contract, some of the newly printed notes got into the hands of criminals who put
them into circulation in Portugal.
o ther was therefore a problem in that all these illegally obtained notes were circulated – stolen
money in circulation.
o on discovery, bank withdrew all the noes from circulation and undertook to exchange the
notes that haed been illegally circulated for ones that were valid.
 this was expensive
o D argued that they should only be liable for the costs of printing these notes and not the losses
for the bank in exchagnein the new ones
o D argued that the bank had acated unreasonably – there were various suggestions about what
the bank should have done
 eg. putting stamps on the notes etc
HELD: Banks had acted reasonably
o (Lord McMillon) the fact that htePl . can suggest alaternative ways which are less burdensome
to hi is not relevant.
o the simple question is wehtehr the pl. had acted reasonably.
o it is not for the D to dictate what they could have done, you have to look at the conduct of htep
l. and if in this case, you had looked at it, they had acted reaosnbly.
c. The plaintiff obtains a benefit by the breach.
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4.
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British Westinghouse Electric and Manufacturing Co Ltd v. Underground Electric Railways
Co London Ltd [1912] AC 673
FACTS: breach was that the D provided turbines that were defective – the D then provides
turbines that were much more efficient than the original turbines
o therefore the Pl. had gained from the breach
o the profit gained by the more efficient replacement turbines more than made up for
the losses.
HELD: Pl could only recover nominal damages – this is an unusual case that ther was a
benefit form the breach – because any of hteir losses had been completely mitigated by the
extra profit with the replacement turbines.
generally, courts look at whether the Pl has failed to act or has acted unreasonably to
the breach.
CONTRIBUTORY NEGLIGENCE
there is no general defence of contributory negligence in law of contract.
NOTE: courts can sometimes deal with contributory negligence as a matter of causation
Contributory negligence in this context does not refer to a breach of a duty of care. It refers to
acts or omissions of the plaintiff which contribute to the loss claimed.
Traditionally contributory negligence was not relevant in claims for breach of contract. If the
negligence broke the chain of causation then the claim failed for that reason. No separate
doctrine was need.
Contributory negligence is relevant ONLY where the claim in contract is concurrent to a
claim in tort. - Law Reform Act 1995 (Qld) s 5 liability may be apportioned if the act
“amounts to a breach of a contraual dtuy of acrfe that s concurrent and coextensive with a
duty of care in tort”
o this is a good policy because otherwise, pl.s would just plainly sue in contract if there
was contributory negligence yet in tort, everyone accepts that contributory
negligence is a defence.
o For example where there is a contractual duty of care: Astley v. Austrust Ltd (1999)
197 CLR 1
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FACTS: solicitors faileld to give advice to a trust company on how to confine the liabltiy of
the company to its creditrors
 breached therefore both the implied term of reasonhel care that areises by operation
fo the law in a contract for professional services + duty in tort ot tarke reasonable
care
HEL: trust’s own negligence had contributed to tits loss.
 thee trust fialed oto make a proper investigation of the fincial viabiliyo f the
transaction into which it was entering
 BUT: the legislation at that time did not apply to ddamgtes in contract THERFORE,
the ward of damges payable by the solicitor to the trust fowr breach fo contract was
not reduced to reflect the contributory negligence of the trust.
5. DEBT
 Where the contract is for a fixed sum of money then there is a debt. A debt is distinct from a
claim in damages. It is a claim for a sum owing.
o eg. a contract ot deliver goods – A contracts ot deliver goods to B and B does not pay
– A brings an action of debt to recover the price.
 key: the price is fixed!
 Debt is probably quite important
 whether the claim is for debt or damages depend on how the contract is drafted
o the reasons for this distinction is historical.
 ther are 2 types of actiosn under grievance debt in conract:
o for most part, distinction does not matter entirely between damages and debt becase:
o Mitigation and remoteness do not apply.
 The typical example is a contract to deliver goods which are delivered but the buyer does not
pay. The availability of debt depends on how the contract is drafted.
 Young v. Queensland Trustees Ltd (1956) 99 CLR 560, 567(Dixon CJ, McTiernan and Taylor
JJ) :
 the common law does not and never did conceive of indebtedness in a sum certain for an
executed consideration as a mere breach of contract: it is rather the detention of a sum of
money.
6. LIQUIDATED DAMAGES
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where you are concerned about a breach of contract and not getting damages to cover your
expenses – you put in a liquidated damges clause.
Such a clause states the amount that shall be payable in the event of a breach.
o Rather than a debt claim an alternative for avoiding under-compensation is to include
a liquidated damages clause.
difference between liquidated damges clause vs penalty clause:
o If a clause is a genuine pre-estimate of loss then it is classified as a LIQUIDATED
DAMAGES clause and is enforceable.
o If the clause is not a genuine pre-estimate of loss then it is classified as a PENALTY
clause and is not enforceable. A penalty clause can only be enforced up to the
genuine amount of the actual loss.
how do we determine which is which?
Dunlop Pneumatic Tyre Co. Ltd v. New Garage and Motor Co. Ltd [1915] AC 79
Differences between ‘penalty’ and ‘liquidated damages clauses:
o parties to a contract who use the words ‘penalty’ or ‘liquiated damages’ is not
conclusive
 courts must find out whether the playment stipulated is in truth a penalty or
liquidated damages.
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o
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essence of liquidated damages is a genuine ecovenanted pre-estimate of dmage.
question whether a sum stipulated is a penalty or liquidated amages is a question of
construction to be decided upon the temrs nad inherent cirucmsntaces of each
particular contract judges at he time of the making of the contract
 not at the time of breach
o vaiorus tests have bene suggested:
o it wil be held ot be a penalty if the sum stiaputeld fr is extraveagant and
unconscinonable in amount in comparison with the greatest loss that could
conceivably e proved to have followed from the breach.
o penalty = if the breach consitt only in not paying a sm of money and the sum
stipulated in the clause is a sum greater than the sum which ought to have been padi.
o presumption that a penalty = where a ‘single lump sum is made paytbale by way of
compensation on the occurrence of one or more or all of several events, some of
which may occasion seirous and others but trifling damage”
 ie. if in minor way = large sum of damages and major rbeach = same large
sum of damages = presumption that it is a penalty.
o On the other hand: so long as the sum stipulated was a genuine preestimate of
damages, it might not be accurate because the consequencvces of some breach might
be such a nature that pre estimates are impossible.
usually, a liquidated damages clauyse is designed to benefit the Pl. because it extends the Pl’s
losses rather than restrict them BUT occasional case occurs where the liquidated damages
clause may benefit the defendant. see : Cellulose Acetate v. Widnes Foundry [1933] AC 20
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Jobson v. Jobson [1989] 1 WLR 1026 - penalty clauses may involve transfer of losses on
breach.
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Ringrow Pty Ltd v. BP Australia Pty Ltd (2005) 224 CLR 656
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FACTS: fuel distributor sold a service station site to its operator
o parties entered into ana grement under which htesite was to be operated under the distributor’s
brand
o if the operator breached the agreement, the distibuotr was entitled to tremrinatre it and claim
liquiedated damages.
 damges were calculated by reference to heexpected profits of the distributor over the
balance of the term of the agreement
o within the agreement, ther was a lso ad deed where the operator would grant to the distributor
the option to repurchase the site on termaintion fo the agreement
 option price was to be the makrtet value of the size but without refercen to goodwill
 agreemtn saide htat if the option was exercise,d liquoedated damage sfor the breach
were not payable
o operator breached the agreement by buying fuel form a third party
o distributor then terminates the contrac t nad gives notice of the inteiton to exercise the option.
o operator then argues that the deed was void and unenforceable ebcauwe it was a penalty.
HELD: the provision was enforceable and not a penalty = distributor could exercise the option.
o “a suspicion that the business might be wroth more than the price paid for it was not sufficient
to establish the provision in question as a penalty.
o the comparison between penalty and liquidated damages calls for something ‘extraveagant and
unconscionable’ in the value of what is transferred compared to the price to be received.
o operator had failed to establish that the goodwill was of any significant value therefore, could
nto be said that the cumiulative imposition of the option…is oppressive or was extravagant
and unconscionable in comparison with the loss which flowed form the breach of the
contract”
o the operator also claimed the provisoin was a enalty because of a disproportionat between the
the innocent party’s commercial interst and the promise extrted to protect them
 to argue this, they quoted AMEV-UDC v Austin where Mason and Wilson JJ said htat
‘an agreed sum should only b be ‘cahracterisedc as a penalty if it si uout of all
proportion to damge likely to be suffered as a result of breach”
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BUT HC said that there was nothing in the passage to suggest the ‘need to inquire
into whether htee is proportionatliy between the impugned provision and the
legitimate commercial interests of the party relying on it.”
READING
Paterson, Robinson and Duke, Principles of Contract Law, Chs 27, 28, 29.
Carter, Peden and Tolhurst, Contract Law in Australia, Chs 35, 36, 37
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WEEK 13: REMEDIES III
1. SPECIFIC PERFORMANCE
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specific performance is the order to complete the contract.
speciifcd performance is derived from equity THEREFORE it is discretionary.
in every situation where I have fialed toe perform the contract with oyu, it is not guaranteed
that the court woiuld order specific performance.
courts will never award specific perforancew where damges are an adequate remedy.
law of contract takes as its starting point, hwere there is a breach ,damages will be awarded.
there are certain situations where damages are not adequate remedy.
o eg. A enteres into contract ot sell you X. A fails to perform. What you really want is
the unique / rare painting – you don’t’ want damages.
Importantly : contracts for the slae of land – every piece of land is unique.
o if A agrees to sell you A’s house, it is A’s house that you want to buy- you don’t
want some other house.
JC Williamson v. Lukey (1931) 45 CLR 282, 297-98 (Dixon J):
o (specific performance) is a remedy to compel the execution in specie of a contract
which requires some definite thing to be done before the transaction is complete and
the parties’ rights are settled and defined in the manner intended… the remedy is not
available unless complete relief can be given, and the contract carried into full and
final execution so that the parties are put in the relation contemplated by their
agreement. Specific performance is inapplicable when the continued supervision of
the Court is necessary in order to ensure the fulfilment of the contract. It is not a form
of relief which can be granted if the contract involves the performance by one party
of services to the other or requires their continued co-operation.
When is specific performance available?
there are certain types of contracts that are excluded from specific performance – whether the
thing is unique or not.
o eg. contracts of employment – specific performance NEVER awarded.
o policy idea that it would not be right for parties to perform contracts of employment.
see Byrne v. Australian Airlines Ltd (1995) 185 CLR 410, 428
Two hurdles:
o damages are inadequate
o need to persude court to exercise discretion in your favour.
damages are awarded at the date of breach because dmages are about the losses resulting from
the breach = general rule.
with specific performance, rule is different – specifi performance can be ordered prior to the
time performance becomes due. see Turner v Bladin (1951) 82 CLR 463: HELD: specific
performance could be rboguht where the D threatened to refuse performance even if this is
before the time due for performance.
o eg. where there is a contract – breached – damages are not adequate – courts neeed to
deicde whether in the exercise of their discretion to award specific performance.
JC Williamson v Lukey Mulholland
FACTS: D were lessees of a theatre who grnated the Pl. a licence to sell confectionary in the
theatre for a period of 5 years in return for a promise by the Pl .to pay a weekly fee.
o both D and P were experienced in contracts of this nature.
o implied in the agreement that the Pls were obliged to employ a sufficient number of
staff and unfiroms and behaviour of the staff would be under the control of the D and
in a manner approved by the D.
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 also agreed that sweets must be of a kind and quality usually sold in a theatre.
o before the temr of htel icence expired, the D repudiated the agrememnt.
o D gratned the rights ot sel confectiaonry exclusively to a third party
HELD: decree of specific eprformaance was refused
o there were difficulties in granting specific performance n the facts of the case –
speicifc performamnce is a matter for the cfourt’s discretion.
o in the exercise of its discretion – no speicifc performance would be granted.
o was not here that damages were na inadequate remedies
o various other reasons why specific performance as difficult.
o most importantly:
o If specific performance have been ordered – it would not amount tto a final settlement
because of the condicitons of the contract.
 ie. pl’s obligations inovled repeated acts nad might have required constant
supervision
 if specific performance allowe,d theatre could refuse entry to the
confectioner if the Pl.’s staff were not appropriately dressed = courts
would have to supervise the parties to ensure performance = ie. they
have to ensure that the theatre’s only reason for not allowing access
only because of the conditions per the contract.
 ie. if the Pl. breaches the contract, specific performance could not be grnated
to them because it would be difficult for the courts to supervise and hence, it
would be unfair if the D would only have a remedy in damages but the Pl
have remedy in both damages nad injunction THERFORE iunjunciton could
not be granted.
 NOTE:Fact htat court had to continue supervision because the speicifc
performance did not contain a one off act was not enough alone to refuse
specific performance – courts often have to exercise supervisionary functions
- See Patrick Stevedores Operations No. 2 Pty Ltd v. Maritime Union of
Australia (1998) 195 CLR 1
o another reason for refusal – lack of mutuality – if speicifc performance allowed for
confectioner, the other party does not have a mutual remedy available.
 in order to support mutuality, D needed to be able to have an order for
specific perofmanrce as similar to what the Pl was trying to enforce
 BUT: if you order speicifc performance because there was mutuality – then
the relief for the Pl. would not be final because the D can come along in a
sense and try to reopen the contract.
o antohre reason: there was a delay in purusing the remedy
 not merely that there was a delay but that the delay begins at the time of
which the Pl. kenw or ought to have known of the facts that gave rise to a
right of specific performance
 you don’t need to know htat you have a right to speiciiufic
performance – merely time starts running if you knew the facts.
NOTE: speicifc performance usually concerns a single transaction – no need for courts to
continue to monitor performamnce THEREFORE JC Williamson v Lukey : was concenred
that it would be very difficult for the court to monitor performance.
specific performance will not be granted if it will cause hardship. Norton v. Angus (1926) 38
CLR 523
o FACT:S ther was aocntract for the purchase of two selectiosn of Crown leasehold
.adn under the Land Acts (Qld)
 the two selections together exceeded the maximum area of land that one
person was allowed to hold in the relevant district and the purchaser risked
forfeitrue of the land if specific performance was allowed and there was
forced transfer of land
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all the purchaser could do was to find another party to atake one selection OR
forfeit the land if specific performance allowed.
o HELD: courts refused to order specific perofmrmnance agisnth t epruchasre and
ordered an inquiry into damages instead.
Courts look at how the parties wantring specific performance behave.
Main point: it is a discreiotnary remedy – only available where damages are inadequate.
o largely confined for contracts for the sale of land OR contracts for the sale of goods
that are unique
o THEREFORE: if question in exam where the goods are not unique nor does the
contract conern land – IGNORE SPECIIFC PERFORMANCE.
o still state specific perofmrnace would be unlielky to be granted in this situation
because ____.
2. INJUNCTIONS
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injunction is a product of equity and will only be granted where damages are inadequate.
generally only ever granted where the injuhnciton is designed to prevent a breach of a
negative stipulation in a contract.
o negative stipulation = oligation not to do a thing.
injunctiosn are perpetual (ie. final) OR interlocutory (ie. they ware not a final determination
but maintains things until a final decision is made.)
Generally only negative stipulations can be enforced by injunctions Rarely will injucntiosn be
granted for positigve stipulations.
BUT: exceptions: Burns Philip Trust Co Pty v. Kwikasair Freightlines Ltd (1963) 80 WN
(NSW) 802.
FACTS: Pl sought an injunction to stop D from preventing them inspecting a register which
they were entiled to inspect under a deed of trust.
o ISSUE: the deed of trust expressed this in positive terms
o deed of trust conferred a positive right on the part of the Pl to inspect.
o applying usual rule : this was not entirely a negative stipulation
HELD: injnction was granted.
An injunction will not be granted where its effect would be directly or indirectly to compel
the defendant to perform acts in circumstances where specific performance would not be
granted.
Dalgety Wines Estates Pty Ltd v. Rizzon (1979) 141 CLR 552
FACTS: (shows extent to which courts have discretion – broad – when determining whether
to grant an injunction)
o current tenant who ran the bar wished the transfer another licence to another bar.
o this did not suit thelandlord because a bar that is unlicenced would nto be attractive to
new tenants – would make the premises worthless.
o in order to get the licence removed and transferred, Pl had to apply for the licence in
court.
o Landlord wished to stop them applying for licence in court – because if so, there was
a hcahcne that licence would be transferred = therefore Landlord sought injunction to
stop proceeding to licence in court.
HELD: HC are not going to grant injiunctions eailsy in this circusmtnaces BECAUSE this
would restrain proceedings in another court.
o doubly difficult because matters from the licensing court would end up in the
mainstream court
o instead, one could appleal to the Supreme Court if they did not like the outcome in
the Licencing Court.
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o
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HC said htat court has discretion as to wether to grant injunction – this was a type of
case wher the discretion should be exercised in such a way that no injcuntion si
grnatd.
what court seems to be worried about is that to grant an ninjucntioun would be to
enter the jurisdiction of another court.
THERFORE: the HC would in essence predetermine the matter which was a matter
fo another court.
there was no illegal act – merely a breach of contract
case illustrates how wide discretion is under both specifc performance and injunction.
you can identify some factors the courts put weight on but ultimately it is a matter for
the cour’ts discretion.
Important remedy to know in detail is damages!!
READING
Paterson, Robinson and Duke, Principles of Contract Law, Ch 30.
Carter, Peden and Tolhurst, Contract Law in Australia, Chs 39, 40.
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Format of exam: 3 questions- answer 2.
ALL TOPICS EXAMINABLE.
FORMAT OF EXAM: problem questions and essay questions.
PROBLEM QUESTION:
 style of the answer has to be methodical.
 use headings
 separate different transactions / different grounds of liability
 take the liabitliy question first
 then issue of remedies first
 liability --> remedies
 be methodical!
 IF exaaclty the same legal rules apply to different parts of the problem – can say ‘see above’.
 case law
o won’t expect too many cases!
o remember some case law – close approximation of the case is enough
 one party is enough
 if you can rmb the facts use that
o important to get the law right!
 if you’re unsure about something is relevant – put it in.
 need to try and rwrite in a coherent style.
 keep sentences short and simple.
 Clear style!
 generally
o think carefully about the audience of the exam – audeicne is the stupidest person that
you know – don’t make any assumptions
o look at the facts of the question. think carefully about how the facts are relevant in the
question.
o what arre the areas of law that apply to this scenario.
o include anything you doubt may or may not be relevant.
 think carefully about what the quesiotn is asking before you start writing.
 weight placed on the way in which you address the question set.
o good answer addresses the question
 when it comes to addressing the question, often essay quesiotns take the form of
quotations from judges – discuss when the other judge says something else
o address the wording fo the quotes
o look at key words fo the quote
o what is the question really asking you to do?
o engaging with the question
o think carefully about the structure.
 revision
o ensure that you have adequate coverage of an adequate number of topics
o questions will not be confined to one topic.
o problem question will cover 4-5 topics at least.
 Representations and ACL
 think strategically in exam – time managmenet
 separate concepts out clearly – use headings.
 Take each issue in turn!
 All information is always relevant!
READ: Carter : Discharge is the basis for termination for breach of contract.
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Case law developments: HC case on penalties – not strictly relevant because there was not a contract
– issue is whether the doctrine of penalties applied outside contracts – therewaas some discussion on
how a court edefine something was a penalty
federal courts: there are a number ofa tuhorites that are to deo with ACL.
QCA: whether or not something is a condiction : Gotham Investments Ltd: deicison applies Tramways
Adverstiing v Luuna: applies whether the term was essential.
Use of short names perfectly acceptable.
Go through questions / answer books
When you’re doing essay question – don’t be afraid to be controversial! – be able to back up
argument – with cases.
 revise by reading articles.
 what areas of law are controversial?
o damages?
o mistake?
o ACL because it is new 2010.
 NOTE: study main authorities.
 draw up a list of 10 main cases for each controversial topic – rmb legal issues for them.
o
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