BLO1105 – Business Law
Welcome to Business Law
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LECTURERS
CITY FLINDERS
Adv Andy Schmulow
(Subject coordinator)
Dr Daud Hassan
(Senior Lecturer: Victoria Law School)
FOOTSCRAY PARK
Mr Gerry Box
(Co-author: Parker and Box)
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Contact Details: Andy Schmulow
 Flinders
Street Campus
Room 1030 Phone 9919 1483
 Email
11 March 2016
Andy.Schmulow@vu.edu.au
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Contact Details: Dr Daud Hassan
 Queen
Street Campus
Room 1.05 Phone 9919 1857
 Email
Daud.Hassan@vu.edu.au
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Contact Details: Gerry Box
 Footscray
Park Campus
Room 32.42 Phone 9919 8275
 Email
3/11/2016
Gerald.Box@vu.edu.au
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Subject Outline
 An
Introduction to the Australian Legal
System.
 A detailed study of the Law of Contract.
All Business Graduates and their advisers
should have a sound understanding of
Contract Law principles.
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Assessment Summary
Check Subject Guide p. 2. This is definitive and
serves as a contract between you and the
University.
NOTE: TUTORIAL
PARTICIPATION IS
COMPULSORY AND YOU MAY
NOT MISS MORE THAN TWO (2)
TUTORIALS. IF YOU DO YOU
AUTOMATICALLY FAIL
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Tutorials
Tutorial attendance and participation.
Your attendance at and your level of
participation in Tutorial discussions will be
monitored and recorded by your Tutor.
At the end of semester, you will be
allocated a mark out of a possible 10%.
WHAT HAPPENS IF YOU MISS MORE
THAN 2?
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Assignment
You are required to submit during your
scheduled tutorial in the week commencing
Monday 27th April, 2009 a written
assignment or research essay of 2,000 –
2,500 words on the topic in the Student
manual for Semester 1, p. 17.
NOT SEMESTER 2 TOPIC p. 18.
You will receive a mark out of a possible 25.
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Final Examination
The final examination is a 3 hour exam, and
is “Open Book”
You may take into the exam any written or
printed materials, and use them to assist in
answering the questions, which are
problem-based. Marks are out of a possible
60%
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Teaching Method
Two hours of lectures each week. Check
timetable details of lectures Tutorials.
You must also attend One tutorial of one
hour’s duration each week.
TUTORIALS ARE COMPULSORY YOU
MAY NOT MISS MORE THAN TWO
(2). IF YOU DO YOU
AUTMOTAICALLY FAIL
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Materials
Student Manual.
The “Business Law Students Manual” is an
essential requirement for students. Cost is
about $12 or from E Reserve or WebCT .
It is available at the Bookshop, and contains
the Subject Outline, Syllabus details,
Tutorial programs and other materials,
including past exam papers.
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Materials (Continued)
Textbooks.
The officially prescribed texts are “An
Introduction to the Law of Contract” by
Stephen Graw, 5th ed., and “Business Law
for Business Students”, Parker & Box,2nd
Ed., in VU bookshop for $98.88 as a
package. If bought individually, Graw is
about $72.10 and Parker & Box is about
$41.58
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Materials (Continued)
“How to Study Business Law”
Crosling & Murphy, Butterworths.
Lecture Notes Summary.
Available at VU Library on Electronic (“E”)
Reserve, or from the Faculty website.
PowerPoint slides are available on the
WebCT website.
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Student Support Programs
The Teaching and Learning Unit conducts
various programs during the semester to
assist students with assignment preparation
and examination preparation.
Details of these classes will be announced in
lectures at the appropriate times.
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Australian Legal System
Some knowledge is assumed.
Week 1 & 2 Lectures will overview this area,
focusing on:  The evolution of Australian Law
 The sources of law
 The “common law”
 The “doctrine of precedent”
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Australian Legal System
 Law
reporting systems
 The “adversary system”
 Federal system of government
 State & Federal Court structures
 The Commonwealth Constitution
 Legislation and how to interpret it.
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Evolution of Australian Law
Following “settlement” by the English in 1788,
the English “common law” model was
imposed in Australia.
As a penal colony, martial law prevailed.
English law then applied from early 19th
Century until late in the 20th Century
Many English concepts survive today.
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Evolution of Australian Law
Australian law gradually developed its own
“flavour” as an offshoot of English law
Finally, we severed our ties with English law,
but only recently.
Result is a system heavily based on English
law, but now completely independent of it.
Processes and precedents still apply today
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Sources of Law in Australia





Primary Sources
Legislation, and
Precedent
Secondary Sources
Commercial Custom
Legal textbooks and journals
Law Reform Commission Reports
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Primary Sources of Law
Legislation comprises
 Acts of Parliament (“Statutes”),
 Statutory Rules & Regulations, and
 other “Delegated Legislation”.
For us as Victorians, this means both
Australian and Victorian legislation
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Primary Sources of Law
Precedent is “judge-made” law, as distinct
from law enacted by Parliament.
It is law as pronounced by the courts when
deciding cases over many years.
Legislation prevails over the common law.
Parliament has the final say as to what the law
is in any area.
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The Common Law
This term is used to describe
 A type of legal system.
(Contrast “common law” and “civil law”
systems, for example)
 The body of decisions made by courts
over time that collectively comprise the
“common law”. (Cf “Legislation”)
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The Doctrine of Precedent
Inherited from the UK, it means that decisions of
superior courts in a legal system (or “hierarchy”)
are binding on inferior courts in the same
hierarchy.
The Supreme Court of Victoria binds other
Victorian Courts, because it is our (State) superior
court.
The High Court of Australia binds all Australian
Courts.
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Advantages of Precedent
Properly applied, the courts become
 Consistent,
 Non-discriminatory and fair, and
 Predictable in their decisions
Some disadvantages apply.
There is a “safety valve” in the operation of
the doctrine.
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Law Reporting Systems
Vital to Precedent, the (printed) Law Reports
recorded all significant legal judgments for
future reference.They are very relevant to
Contract Law, which is not “codified”.
CLR and VR are important to Victorians.
Meehan v Jones (1982) 149 CLR 571
Causer v Brown [1952] VLR 1
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Useful Websites
Students should note two particular websites
that are extremely helpful in tracking down
Statutes and Cases.
All High Court cases and Acts can be found
on http://www.austlii.edu.au
All recent Victorian cases and Acts can be
found on http://www.dms.dpc.vic.gov.au
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The Adversary System
All “common law” countries adopt the
adversary system in conducting trials.
“Civil law” countries use the “inquisitorial”
approach.
Differences include: The role of the judge;
 Onus & burden of proof, and
 Some presumptions, eg “innocence”.
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The Australian Constitution
This is the “charter” for operation of our
“federal” system of government.
Adopted by a majority of people and States in
1900, it has operated since 1901 more or
less unchanged.
Federal systems (cf. “unitary” systems) exist
in many large countries, e.g., USA, Canada.
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The Australian Constitution
This results in having
 two law-making authorities (Commonwealth
and State), and
 a division of law-making powers between the
two.
Many complications arise from this, causing
conflicts between the two governments.
The constitution enshrines the UK concept of the
“separation of powers”.
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Federal System of Government
Every federation has the problem of two (competing)
law-making authorities.
Unitary systems (the majority of countries) do not
have this problem.
When confronted with a legal problem, we have to
check both
 Commonwealth (Australia-wide) laws, as well as
 State (Victoria-wide) laws
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The State Court System
The State Courts are
1.
2.
3.
4.
5.
The Court of Appeal (the “Full Court”);
The Supreme Court
The County Court
The Magistrates Court.
Various Tribunals, including VCAT
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The Federal Court System
The Federal Courts are
1.
2.
3.
4.
The High Court of Australia
The Family Court
The Federal Court
The Federal Magistrates Court
The Federal & Family Courts, created in
1976, rank equally in importance.
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Tribunals
Tribunals have succeeded because
 They
provide quick and easy access
 They are not as expensive as courts
 They are informal, and
 They are very efficient.
Rapid growth reflects their popularity.
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Statutory Interpretation
Interpreting Acts is now the main function
of courts, rather than creating new law,
which is now mostly done by parliament.
Problems include
 Human error in drafting
 Rapid technological change
 Changes in words and community standards
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Common Law Rules (of interpretation)
The Courts developed three main Rules to
assist in interpreting Acts:1. The Literal Rule,
2. The Golden Rule, and
3. The Mischief Rule.
Many “Maxims” (rules of lesser importance)
were also developed by the Courts.
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Statutory Rules (of interpretation)
Recently, (1984) Parliaments gave their own
instructions to the Courts about this task.
They passed legislation to require the courts
to use the “literal rule” when reading and
applying statutes.
If that creates a problem, the courts then must
use the “purposive approach”.
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The “Purposive” Approach
If in doubt (as to what the words mean), the
judge must ask
 “What was the purpose of this Act?”, or
 “Why was this Act passed?”
The judge must then interpret and apply the
Act to give effect to that purpose.
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Different Branches of Law
One main division or distinction is between
civil law and criminal law.
Civil law involves claims by one citizen
against another in the litigation process.
Criminal law involves the prosecution of a
citizen by the state (police) for a crime.
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The Law of Tort
A “tort” is a civil wrong for which the remedy
is an action for damages.
Examples of torts are negligence (the most
common tort), defamation, nuisance,
trespass and deceit.
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Contract Law
Contract law is the law concerning legally
enforceable agreements. It is the
“cornerstone” of all of our commercial or
business law.
We study it intensively simply because we are
students of business. We will work in
business or advise people who do.
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Constitutional Law
Constitutional Law is the study of the
constitution, in our case the constitution of
the Commonwealth of Australia.
This involves the relative powers of the
Commonwealth (Australian) and State
Governments, disputes between States,
between States and Commonwealth.
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Administrative Law
Public servants can now have their decisions
tested by citizens through various tribunals.
Formerly, only the legality of the decision
could challenged. Under administrative law,
the correctness of the decision can now be
challenged and reviewed by the tribunal.
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The Rules of Equity
Different in origin from the “common law”,
equity developed in the “King’s Court”,
later taken over by the Chancellor, and
became known as “Chancery Courts”.
The rules of natural justice (as distinct from
common law rules) were applied. The two
systems have “merged” in all out courts.
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Further Reading
“Business Law for Business Students”,
pages 1 – 53; or
The Introductory Chapters of either
“Business Law in Australia”,
Vermeesch & Lindgren, or
“Australian Business Law”,
Latimer, CCH.
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Contract Defined
A contract is
 An agreement that the law will enforce;
 A promise (or set of promises) that the
courts will enforce; or
 A legally enforceable agreement.
All emphasize “agreement” (or set of
promises), and “enforceability”.
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Contract Formation Formula
Many problems require us to say whether a
contract exists.
To resolve this, a useful formula is
Offer + Acceptance = Agreement
Agreement + Intention + Consideration =
Contract
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Typical Formation Process
The vast majority of contracts are formed by
the process outlined.
An offer is made by A to B.
That offer (or some negotiated variation of it)
is accepted by B.
Agreement exists.
(Courts still typically apply this test.)
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An Exception to the Rule
In Clarke v Dunraven [1897] AC 59, the
Court of Appeal held (decided) that
agreement had been achieved between C
and D.
They had each advised a “third party”, the
secretary of a Yacht Club, that they would
be bound by the Club’s rules in the conduct
of yacht races.
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Introductory Points (about contract).
Contrast “Simple Contract” and “Formal
Deed”.
 Does the contract have to be in writing?
 Doctrine of “part performance”.
 How to prove terms of “verbal” contract?
 Contrast bilateral and unilateral contracts.

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Components of a Contract
Essential components, or elements, are: Offer;
 Acceptance (these two make agreement);
 Intention (to be legally bound); and
 Consideration.
(Some add “capacity”, “legality of purpose” etc,
but these are less important).
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Intention (to be legally bound)
Not all “agreements” are “contracts”.
Some will not be enforced in a Court.
Why?
Because they were never intended to create
legal obligations or legal consequences.
Consider some simple examples.
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Testing by Using Presumptions
A presumption is a “probable outcome”. It
is not an absolute.
It can be overturned (“rebutted”), but only by
strong contrary evidence.
Examples:The presumption of innocence.
The presumption of survivorship.
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The Relevant Presumptions
If an agreement concerns a personal,
domestic or social transaction, the Court
presumes that intention was not present.
and
If the agreement concerns a business or
commercial transaction, the Court
presumes that intention was present.
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Testing Methods
Courts use two quite different testing methods.
One is “subjective” testing. This involves
testing by reference to the persons actually
involved in the case.
“What did you intend when you made this
deal”?
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Subjective Testing
Although used a lot in criminal trials, where
intention is an essential ingredient of a
crime in many cases, subjective testing is
not often used in civil trials.
It is flawed because we usually get two
opposite and competing answers to the
same questions.
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Objective Testing
The preferred method in civil trials, this
method tests by reference to some “outside”
or “objective” criterion or yardstick.
The benchmark is often “the reasonable
person”, or “the intelligent bystander”.
Although not perfect, it is better than
subjective testing.
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Summary of Testing (for Intention)
We can solve any problem on this question
(“whether intention exists”) by following
this strategy:1. Applying the presumptions as above; and
2. Testing the question objectively, not
subjectively.
We will look at some relevant cases.
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Domestic Arrangements
Married couples, and closely-related
family members.
See Balfour v Balfour [1919] 2 KB 571
Cohen v Cohen (1929) 42 CLR 91
Murphy v Simpson [1957] VLR 598
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Balfour v Balfour
B promised to pay maintenance to his wife
pending her return to Ceylon, where he
worked with the UK diplomatic corps.
He did not pay. After divorce, she sued.
The court held that agreements between
spouses – while living together – are not
contracts. No intention exists.
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Social Agreements
Coward v Motor Insurers Bureau [1962] 1
All ER 531 (an agreement between two
fellow workers for transport to and from
work on a motor cycle), and
Cameron v Hogan (1934) 51 CLR 358 (an
agreement between members of a political
party)
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Rebutting the Presumption
Remember that the two presumptions apply,
but each presumption can be rebutted.
Rebuttal is achieved by leading strong
evidence to defeat the presumption.
The onus of proof is borne by the party
seeking to rebut the presumption.
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Rebuttal in Domestic Cases
See
McGregor v McGregor (1888) 21 QBD 424
Merritt v Merritt [1970] 1 WLR 1211
The precedent set in Balfour v Balfour (no
intention in husband/wife agreements) does
not apply if the married couple are
separated when the agreement is made.
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Rebuttal in the “Migration Cases”
Wakeling v Ripley (1951) SR (NSW) 183
Riches v Hogben [1986] 1 Qd R 315
Todd v Nichol [1957] SASR 72
The presumption of non-intention was
triggered by close relationship, but was
held to be rebutted by serious outcomes
to the parties in each case.
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Wakeling v Ripley
W’s married sister migrated to Australia from
UK (at W’s request) to look after him, in
return for promised benefits.
After disagreement, W reneged on his offer.
R sued for damages for breach of contract.
Held: Despite close relationship, intention
exists, and there is a contract.
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Further Rebuttal Cases
Parker v Clarke [1960] 1 All ER 93
(aged care agreement between two friendly,
unrelated couples)
Popiw v Popiw [1959] VLR 197
(separated husband and wife)
Simkins v Pays [1955] 1 WLR 975
(competitions, raffles and lotteries)
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Commercial (business) Agreements
The presumption of intention applies here.
Any agreement made “at arm’s length” ( with
a stranger) will be treated as commercial,
even when the subject-matter is personal.
This presumption can also be rebutted, but the
cases show that rebuttal is difficult to
achieve.
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Carlill v Carbolic Smoke Ball Co.
Defendant argued that a cash reward offered
in a newspaper to promote product sales
was an “advertising stunt”, with no
intention to be legally bound (to pay).
Held: The reward is an offer, accepted by C
by buying and using the product. Intention
exists and there is therefore a contract.
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Edwards v Skyways Ltd
An agreement between Defendant and E’s
Union to pay superannuation payments on
early retirement of pilots “taking a package”
was a commercial agreement.
The presumption of intention applied, was
not rebutted, and therefore prevailed,
despite the fact that the payments were
described as “ex gratia”, (voluntary).
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Express Exclusion (of intention)
Can the (contracting) parties exclude intention
by agreement?
This was achieved by an “exclusion clause” in
Jones v Vernon’s Pools Ltd [1938] 2 All
ER 626. A ticket in a soccer pools
competition contained an effective
exclusion clause (“this is not a legal
contract”). The claim by Jones failed.
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Honour Clauses in Contracts
Can the parties avoid a contract by inserting
an “honour clause” in the agreement?
See Rose & Frank Co v Crompton Bros
Ltd. [1925] AC 445. Dispute taken to Court,
but agreement contained a detailed and
specific “honour clause”. The Court held
that there was no legal contract.
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“Ousting” the Jurisdiction
It is acceptable to say “This agreement is not
a contract”, as in the last case.
But it is not acceptable to say “This
agreement is a contract, but the Courts
cannot adjudicate upon it”. This is an
attempt to “oust the jurisdiction of the
courts”, and is against public policy.
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“Letters of Comfort”
A letter by a parent company to a Bank
lending money to its subsidiary company
might be a “letter of comfort”, or a
guarantee to repay the loan if the
borrower fails to do so.
It is a question of intention. Would a
reasonable person conclude that intention
existed?
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Letter of Comfort Cases
Kleinwort Benson Ltd v Malaysian Mining Corp
Bhd [1988] 1 WLR 799 (No intention)
Commonwealth Bank of Australia Ltd v TLI
Management Pty Ltd [1990] VR 510 (No
intention)
Banque Brussels Lambert SA v Australian
National Industries Ltd (1989) 21 NSWLR 502
(Intention to guarantee repayment was found)
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Administrative Arrangements
Is an agreement between government and a
citizen a legal contract or not? See
The Administration of the Territory of
PNG v Leahy (1961) 105 CLR 5, and
Australian Woollen Mills Ltd v
Commonwealth of Australia (1954) 92
CLR 424
In both cases, no intention was concluded.
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Summary of Intention
Problems involving intention can be solved by
1. Discussing and applying the two
presumptions, using cases to illustrate the
distinction between them, and
2. Remembering to use an objective, as
distinct from a subjective, testing
mechanism.
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Offer Defined
“ A proposal or proposition which, if
accepted, gives rise to an agreement”
The person making the offer (the “offeror”)
will make it to
 one person (the “offeree”), or
 to a group of persons, or
 sometimes to “the world at large”
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Requirements of an Offer
The offer can be “express”, which means that
it is expressed by being spoken or written,
or it can be “implied”, usually from
conduct or behaviour.
It must be “promissory”, i.e., it can be
converted by acceptance into a binding
obligation. Harvey v Facey [1893] AC 552
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Offer v “Invitation to Treat”
Some activities appear to be making offers,
but legally are not. They may be only
extending an “invitation to treat” or an
“invitation to negotiate or deal”. Consider
1.
2.
3.
Display of goods for sale
Distributing brochures or circulars, and
Advertising goods for sale.
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Display of Goods for Sale
A retailer of goods who displays them for sale
appears to be “offering” the goods for sale
to customers.
However, the courts take the view this action
(placing goods on display for sale) is not an
offer to sell as such, but only an invitation
to customers to make an offer to buy. See
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“Boots Case”
In Pharmaceutical Society of Great Britain v
Boots Cash Chemists (Southern) Ltd [1952] 2
QB 795,
When B displayed goods (including prescribed drugs)
for sale in a “self-service” chemist store, plaintiff
claimed that B was guilty of the offence of
“offering drugs for sale otherwise than under the
supervision of a qualified chemist”.
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Boots Case (Cont.)
B’s defence was that the customer makes the offer at
the check-out, where a chemist was in attendance
to supervise sales.
The issue becomes “where is the offer made”?
Does B offer to sell (at the display shelf), or does the
customer offer to buy (at the check-out)?
Held:
The latter. Therefore B not guilty.
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Display in “conventional” shop
Boots Case was a self-service, or supermarket
situation. What happens in a conventional
store? See Fisher v Bell [1961] 1 QB 394,
where B was charged with offering for sale
an offensive weapon when he put a flickknife in his shop window with a price tag.
Held: Not guilty; display only an invitation.
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Brochure Distribution
Distribution of brochures, circulars,
catalogues or other advertising material
looks like the making of offers, but it
legally is not. See Grainger & Sons v
Gough [1896] AC 325, where a circular
listing products and prices from a wine store
was held to be only an invitation to treat.
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Advertisements generally
An advert. in a paper or other media looks like
an offer, but generally it is regarded legally
as only an invitation.
The prospective buyer has to make an offer
that the advertiser can accept or reject.
See Partridge v Crittenden [1968] 2 All ER
421
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Exceptions to the Rule
The general rule is that an advert will not be
an offer. There are two exceptions:1. The advert may convert (from an
invitation) to an offer if conditions are
imposed that the prospective buyer must
satisfy to buy the article advertised.
2. If the advert offers a reward to the reader
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The Smokeball revisited
In Carlill v Carbolic Smokeball Co., the
company argued the general rule that an
advert is not an offer, and there was thus no
contract with Mrs C.
The court rejected this argument, noting that
when a reward is advertised, the advert
becomes an offer that the reader can accept
by conduct (buying the product etc.)
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Sales by Auction
When selling goods (or land) by auction, the
auctioneer in calling for bids is extending an
invitation to the assembled buyers to make
him an offer.
The resultant bids are offers.
The contract is formed if and when the
auctioneer accepts one of the bids (offers)
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Sales by Tender
Sale by tender is becoming more popular.
Tenders have long been used to form
contracts for major works, or high volume
supply of goods.
Calling for tenders is an invitation.
Submitting a tender is making an offer.
When the advertiser accepts the preferred
tender, if any, the contract is formed.
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Evaluating Tenders
If the advert inviting tenders specifies a
process or procedure that will be applied
in evaluating tenders, that process or
procedure must be strictly followed.
If not, damages will be payable to an
aggrieved unsuccessful tenderer.
See Hughes Aircraft Systems Int. v
AirServices Australia (1997) 146 ALR 1
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Acceptance of Offer
Offer + Acceptance = Agreement
An acceptance is a clear and undoubted
assent to the offer and all of its terms.
It can be express (stated or written), or it can
be implied from conduct.
No “magic formula of words”.
Four rules of acceptance have evolved.
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The Four Rules of Acceptance
1.
2.
3.
4.
It must be clear and undoubted.
The correct method must be used.
The acceptance must be given with
knowledge of, and in reliance upon, the
offer.
Acceptance must be communicated.
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Rule One of Acceptance
Acceptance must be clear, undoubted.
If the offeree tries to change any terms of the
offer, he is not accepting it but making a
“counter-offer”.
This replaces the first offer with a second
one.
Less obviously, it destroys the first offer.
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Conditional Acceptance
An acceptance given subject to a condition
will not operate unless and until the
condition is satisfied.
A simple example would be
“ I accept your offer to sell me your car for
$20,000 provided I can get a loan of
$10,000 from my Bank”.
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Masters v Cameron (1954) 91 CLR 353
A complex case of conditional acceptance. C
sold a property to M, who paid a deposit of
10%. Both signed a “Sale Note” prepared
by the agent, to be replaced later on by a
formal contract of sale that C’s solicitors
would prepare.
The sale note contained a clause that C
insisted be inserted by the agent.
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Masters v Cameron (Cont)
“This agreement is made subject to the
preparation of a formal contract of sale
which shall be acceptable to my solicitors”.
When the contract was prepared to replace the
Sale Note, M refused to sign it because he
couldn’t get the loan he needed to buy the
house.
Is the Sale Note a binding, legal contract?
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Masters v Cameron (Cont)
Was C’s acceptance of M’s offer to buy
conditional on the signing of the
replacement contract?
The High Court held that it was, because the
words used suggested that new terms could
be added to those in the Sale Note. M
should not be forced to include new terms
that he had not even seen or considered.
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Rule Two of Acceptance
This rule focuses on the method to be used
in accepting an offer.
The offeror, when making the offer, can
dictate HOW the offer is to be accepted.
If he does, his stipulations are binding on the
offeree, and must be strictly followed.
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Rule Two Sub-rules.
1.
2.
3.
4.
5.
An exclusive method must be used
A nominated method, or any quicker one,
may be used
If no method nominated, the same method
(as the offeror used) may be used
If communication is instantaneous,
acceptance is effective when received.
The Postal rule of acceptance.
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Rule Two - Sub-rule One
In rare cases, the offeror might say (when
making the offer):“If you want to accept this offer, you must
accept by (say) fax”.
If he does, acceptance by any method other
than fax will not be binding on the offeror.
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Rule Two - Sub-rule Two
If a method is nominated by the offeror, but
not exclusively, that method – or any faster
method – may be used by the offeree.
For example, if acceptance by post is
specified, fax could be used as an
alternative. But the new method must in fact
faster, not just in theory. See Eliason v
Henshaw (1919) 4 Wheaton 225
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Rule Two - Sub-rule Three
This is a very helpful sub-rule.
If no method is nominated by the offeror,
there is a presumption that the offeree can
use (to accept the offer) the same method
that the offeror used (to make the offer).
So an offer made by post can be accepted by
post if no alternative is stated by the offeror.
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Rule Two Sub-rule Four
If communication is “instantaneous”, the
acceptance is effective only when
actually received by the offeror.
This applies to telephone, telex, fax.
See Entores Ltd v Miles Far East
Corporation [1955] 2 QB 327
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Entores Ltd v Miles Far East Corp
A contract was formed by telex, the offer
being telexed from London to Amsterdam,
and the acceptance was telexed back.
The question was “where was the contract
made”? This establishes the law of the
contract which must be applied in any
dispute. Held, acceptance occurred in UK
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Rule Two - Sub-rule Five
If the Postal Rule of Acceptance is activated,
the posted acceptance is legally effective
when the letter is posted, (as distinct from
when it is received).
This curious rule, created in England in early
19th century can be explained only in the
context of the Law of Agency.
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The Postal Rule of Acceptance
Remember to justify using this rule if you
invoke it. It applies if the offeror expressly
nominates it, or the circumstances allow it
to be invoked by implication.
Remember also that it applies only to
acceptances – not revocations, counteroffers, or any other communications.
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Electronic Transactions Acts
Recent Acts have been passed by the
Australian and Victorian Parliaments to
authorize the use of electronic
communication (e-mail etc) in business and
in dealing with government.
This has some implications for us in the area
of contract formation.
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Rule Three of Acceptance
An acceptance must be given
 with knowledge of the offer, and
 in reliance upon the offer.
 You cannot accept “by accident” – it must
be a conscious decision to make the contract.
See R v Clarke (1927) 40 CLR 227
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R v Clarke
C had heard of an offer by the government of
WA to pay a reward. When arrested and
questioned, he gave the information sought.
He claimed the reward in contract.
Held. On his own admission, he had forgotten
the reward, and was seeking to protect
himself. No valid acceptance of offer.
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Rule Four of Acceptance
The acceptance must be communicated.
This can be express (stated or written), or
implied from the offeree’s conduct.
But it must be one or the other. See Felthouse
v Bindley (1862) 142 ER 1037
See also Brogden v Metropolitan Railway
Co (1877) 2 AC 666
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Acceptance by Agent
An agent can be used to accept on behalf of
the offeree.
But the agent must be properly authorized to
accept the offer.
See Powell v Lee (1908) 99 LT 284
Contrast Northern territory of Australia v
Skywest Airlines Pty Ltd [1987] 48 NTR 20
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Cross Offers
What if two identical offers (A to sell to B,
and B to buy from A) cross in transit? Is
there a contract in this situation.
The court held in Tinn v Hoffman & Co
(1873) 28 LT 271 that two identical offers are
not the same as an offer and an acceptance.
One offer has to be accepted.
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Counter-offers
The counter-offer does two things
1. It substitutes a new offer for the offer that
it replaces.
2. It legally destroys the previous (replaced)
offer.
The offeree cannot revive the replaced offer,
but the offeror may. See Hyde v Wrench
1840 49 ER 132
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Request for Information
A counter-offer destroys the replaced offer.
An enquiry or “request for information”
does not.
See Stevenson Jacques & Co v McLean
(1880) 5 QBD 346
This distinction can be very important in
problem solving.
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RevocationofofOffer
Offer
Revocation
The general rule is that an offer can be
revoked at any time before it is accepted,
even if the offeror says he will leave it open
for a defined time period. See Routledge v
Grant (1928) 4 Bing 653
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Exception to the Rule
The exception to the general rule occurs when
an option is bought and paid for by the
offeree in order to keep the offer open for
an agreed amount of time.
See Goldsborough Mort & Co Ltd v Quinn
(1910) 10 CLR 674
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Revocation (Continued)
If revoking an offer before the expiry of its
stated life-expectancy, which can only be
done if there is no valid option, the offeror
should take care to ensure that the offeree is
notified of the revocation.
A revocation is not affected by the postal rule.
See Byrne v Van Tienhoven (1880)
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Lapse of Offer
How long does an offer last?
At the latest, at the end of its allocated
timeframe, if one is set.
But if none is set, it will lapse after a
“reasonable time”. See Ramsgate Victoria
Hotel v Montefiore (1888).
This is a question of fact in each case. It could
be seconds, or many years.
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Consideration
Consideration emerged in the English courts
in the 16th Century to defeat fraudulent
claims.
Consideration is
• Peculiar to the “common law” systems;
• Traceable back to the 1500s.
It means that a“gratuitous” promise will not
be legally enforced.
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Consideration Defined
Lord Pollock defined consideration as
“An act or forbearance of one party, or the
promise thereof, is the price for which the
promise of the other is bought, and the
promise thus given for value, is
enforceable”.
Consideration must be “something of value”.
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Elements of Consideration
Consideration can be
• Positive (doing something, or promising to
do something), or
• Negative (a “forebearance”, such as
promising that you will NOT do something).
Consideration can be present or future, but not
past.
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The 6 rules of Consideration
Necessary in all “simple contracts”.
2. Past consideration is “not good
consideration”.
3. It must come from the “promisee”, but
need not go back to the “promisor”.
Note: The promisor makes the promise, the
promisee receives it.
1.
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The 6 Rules of Consideration
4.
5.
6.
It need not be “adequate”, or
commercially realistic.
It must not be too vague.
It must be “sufficient” in the eyes of the
law.
These last three rules are inter-related.
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Rule 1 of Consideration
If the contract is a simple contract,
consideration must be proved to exist.
If it is a formal deed, consideration is not
required.
Formal deeds are rare, and recognisable by the
words used in the “jurat” or signing clause,
namely “signed, sealed and delivered”.
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Rule 2 of Consideration
Consideration can be in the present or the
future, but past consideration is not
acceptable.
See Eastwood v Kenyon (1840),
Roscorla v Thomas (1842), and
Anderson v Glass (1868)
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Possible Exception to Rule 2
In contracts of service, this rule might be
overcome.
See Lampleigh v Braithwait (1615), and
Re Casey’s Patents, Stewart v Casey
(1892)
A promise to pay something is implied when
the work is requested.
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Rule 3 of Consideration
Consideration must come from the promisee,
but need not revert to the promisor.
That is, the benefit may move “sideways”, to
a third party.
The doctrine of “privity of contract” states
that only a party to a contract can sue or
be sued under that contract.
See Dunlop Pneumatic Tyre Co v Selfridge.
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Rule 3 – Joint Promisees
If a promise is made to 2 promisees “jointly”,
as where
A promises B and C to pay for work done, or
for value provided only by B or by C
See: Coulls v Bagots Executor & Trustee
Co Ltd (1967)
One promisee providing value on behalf of 2
promisees is acceptable.
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Rule 4 of Consideration
Put simply, this rule means that the price
does not have to be right.
The court will not enquire whether the price is
adequate or not.
It is not the court’s concern.
So long as some price is paid, the court will
look no further.
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Nominal Consideration
The price might be a price in name only.
See Thomas v Thomas (1842)
Does it have to be expressed in currency
terms?
See Chappell & Co Ltd v Nestle Co Ltd
(1960)
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Rule 5 of Consideration
Consideration must be something of
recognisable value – it must not be too
vague.
See White v Bluett (1853)
Dunton v Dunton (1892), and
Loftus v Roberts (1902)
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Rule 6 of Consideration
It must be legally sufficient.
A moral obligation “per se” is not enough.
What about a promise not to sue, or to
abandon a claim?
See Wigan v Edwards (1973), and
Hercules Motors Pty Ltd v Schubert (1973)
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Existing Legal Obligation
If the promisee is already legally obliged to do
that which the promisor asks him to do to
justify payment, there is no consideration
for the promise.
See Collins v Godefroy (1831).
But if he does something extra, there is.
See Glasbrook Bros Ltd v Glamorgan CC (1925)
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Existing Contractual Duty
If payment is promised just to perform an
existing contract, there may be a problem
enforcing that promise.
See Stilk v Myrick (1809)
Hartley v Ponsonby (1857).
Contrast Williams v Roffey Bros & Nicholls
(Contractors) Ltd (1991)
Musumici v Winadell Pty Ltd (1994)
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Existing Contractual Duty (cont)
The two old cases concluded that there is no
consideration for a promise to simply
perform your existing contract, and no
more.
The “modern” cases are more creative in
looking for things that might amount to
consideration.
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Discharge of Obligation
A contract can be formed to discharge an
obligation created by an earlier contract,
such as a debt or loan.
In other words, the first contract creates the
debt and the second contract discharges it.
This is normally, but not always, done by total
repayment of the debt.
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Discharge of a Loan Contract
As with the first contract, the second contract
must have all necessary components,
including consideration.
Assume A owes $1000 to B under an existing
contract. Assume it is due for repayment,
but A cannot pay in full.
He offers B $700, and B agrees to accept it in
full settlement of the debt.
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Discharge of a Loan (cont)
In other words, B is promising A that he will
not sue him for the other $300.
But, is this promise enforceable at law?
It is enforceable as a contract ONLY if there
is consideration for it.
Sadly for A, there is no consideration.
So B can change his mind
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The Rule in Pinnel’s Case
This rule states that “payment of a lesser sum
will not extinguish a debt for a greater
amount”.
Since 1608, the rule has impacted on the
doctrine of consideration, and exposed the
one area where it does not function fairly.
The rule enables a creditor to make a
promise, and then change his mind.
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Foakes v Beer (1884)
This case restated the rule in a different
context.
B’s promise not to claim interest on a debt
paid by installments was ignored by her.
The court held that her promise (to forego
interest) was not binding as a contract,
because it lacked consideration.
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Exceptions to the Rule
Courts did not like the Rule, but could not
avoid it without destroying consideration.
Their solution was to allow exceptions to the
rule whenever possible.
The following exceptions were created and
allowed by the courts over many hundreds
of years until its impact was effectively
eroded.
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Exceptions to the Rule (cont.)
Prepayment
2. Payment by transferring a chattel
3. Fraud on a “third party”
4. Composition with creditors or settlement
of a valid legal claim, and finally
5. Promissory estoppel.
We will examine each exception.
1.
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Prepayment of Debt.
Payment (of a lesser sum) on the due date is
a problem.
But, if the debtor pays a lesser amount before
repayment is legally required, such
prepayment benefits the creditor and
disadvantages the debtor.
The benefit and/or disadvantage is good
consideration for the creditor’s promise.
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Transferring a Chattel
If, instead of paying cash, I give my creditor
some object of value, and he agrees to
accept it in full settlement, he cannot later
change his mind and sue.
This is because the court will not ascribe a
value to the object. It could be worth a
fortune to the creditor
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Fraud on a “Third Party”
If a person “outside the contract”, that is a
“third party” pays part of the debt and the
creditor agrees to accept it, the creditor
cannot later sue the debtor for the balance.
If he could, it would amount to a deception of
the person who paid part of the debt. See
Hirachand Punamchand v Temple (1911)
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Composition with Creditors
If a debtor convenes a meeting of creditors
and they approve a composition under Part
X of the Bankruptcy Act, no creditor can
later sue for the unpaid balance of debt.
This applies even if the relevant creditor voted
against the scheme. All creditors are bound
if it is a valid composition.
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Settlement of a Legal Claim
If a plaintiff settles a genuine legal claim for
less than its “face value”, he cannot later
sue for the balance.
Settlement is encouraged by the courts.
There are many reasons why a claimant may
settle for less than he is owed.
Once settled, the claim cannot be revived.
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Estoppel
If a person is “estopped” from doing
something, he is prevented from doing it.
Estoppel is a legal doctrine that prevents a
person saying one thing and meaning
another in a business dealing.
If another person acts on your statement, you
are “estopped” from denying its truth.
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Estoppel (continued)
Look at the agency example on pages 33 – 34
of the Lecture Notes on E-Reserve.
If I create a deception, or even allow it to be
created and do nothing to correct it, I
cannot later benefit from that deception
by trying to revert to the true facts.
Why didn’t Dr.Foakes argue estoppel?
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Limitation on estoppel
The limiting aspect of estoppel was that courts
applied it only to statements of a factual
nature, and refused to extend it to
promises of future intention.
“He is my agent” is a statement of fact.
“I will not sue you for the interest” is a
promise of Mrs Beer’s future intention.
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Promissory Estoppel
This approach was changed in 1947 in the
“High trees House Case”.
Central London Property Trust Ltd v High
Trees House Pty Ltd The facts are set out
in detail on page 34.
Lord Denning, using lateral thinking for
which he became famous, created
“promissory estoppel”.
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Promissory Estoppel (cont)
Ordinary estoppel applied to facts.
Promissory estoppel applies to promises.
By extending the concept in this way, making
us accountable for our promises, Lord
Denning effectively overcame 339 years of
problems. It quickly caught on, despite
being only “obiter dicta”.
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Limiting the Doctrine
But, the logical extension of promissory
estoppel arguably does away with
consideration completely.
If I make you a promise, and you act on it to
your disadvantage, I must perform it!
The fear of this result was overcome by the
decision in Combe v Combe (1951)
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Combe v Combe
Mrs Combe tried to create a new contract by
arguing promissory estoppel.
The Court of Appeal limited the doctrine to
cases where there is an existing contract,
and an attempt is made to vary or discharge
it by entering into a second agreement.
The doctrine of consideration was preserved.
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Detriment or Disadvantage.
To invoke the doctrine, the promisee must act
on the promise.
But need he act to his detriment?
Yes, but potential detriment will suffice. See
Je Maintiendrai Pty Ltd v Quaglia (1980)
and Legione v Hateley (1983)
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A “New” Development
Consideration has evolved over 400 years of
cases, the “standout” 20th century case
being High Trees House.
But the Australian case of Waltons Stores
(Interstate) Ltd v Maher in 1988 could
have even more repercussions in the long
term.
Some say it could do away with consideration.
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Waltons v Maher
Maher won a claim for damages against W,
even though there was no contract signed,
because
• W had promised M that they would sign,
• M acted on that promise to his substantial
detriment, and
• the court held that W’s conduct was
“unconscionable”
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Waltons v Maher (cont)
This is a radical departure from established
precedent.
You can get damages for a person’s failure
to enter into a contract as promised.
But its application is limited, and subsequent
cases show that it has not, as was once
feared, opened the floodgates.
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Contents of the Contract
A contract can contain
• Express (stated or written) terms, and
• Implied terms, that is terms that are not
apparent, but may be implied into the
contract by the court.
This can be done by reference to prior
dealings, trade custom, to make the contract
workable, or by statute.
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Express Terms
Some typical questions about express terms
are: • How important is the term?
• Are all terms of equal importance?
• What if its meaning is not clear?
• What if it is ambiguous?
• How to you prove oral terms?
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Proving Oral Terms
There are obvious problems in proving oral
terms that are not admitted by an opponent.
But it is possible to do so by giving credible
evidence of them, having witnesses present
and so on.
It is always better to have a written contract.
See Buckenara v Hawthorn Football Club
Ltd (1988)
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The “Parol Evidence Rule”
Whenever we have a written contract, an
important rule is activated.
The Parol Evidence Rule states that if we
have a written contract that appears to cover
all the details, verbal evidence to add terms,
vary existing terms, or change the written
contract in any way, will not be considered
by the Court.
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The Rule Explained
Courts assume that the written contract will
accurately tell the whole story about the
transaction.
If prepared by experts, it should!
If either party can add or subtract terms, or
change terms, what is the point of having a
written contract in the first place?
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Exceptions to the Rule
Custom or trade usage;
 Verbal “condition precedent”;
 Written contract is not complete;
 Ambiguous terms;
 Mistake in the terms; and
 Confusion as to identity of the parties.

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Custom or Trade Usage
If contracts in a particular industry or trade
always contain fixed terms, they do not
have to be included in the written contract.
They will be implied by the Court if they
are established and accepted by most people
in that industry.
See British Crane Hire Corp. Ltd v Ipswich
Plant Hire Ltd (1974)
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Limit to this Exception
But a term based on trade customs or
conventions will not be implied into the
contract if it will directly contradict an
express term in the contract.
See Summers v Commonwealth of
Australia (1918)
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Verbal “Condition Precedent”
A detailed, written contract might fail to
mention that it is conditional.
For example, it is not to commence operation
until some event occurs to activate it.
If so, verbal evidence of the “condition
precedent” is allowable.
See Pym v Campbell (1856)
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Incomplete Written Contract
It is possible, but difficult, to prove that some
vital clause has been omitted from the
contract, and to argue for its inclusion.
There must be special circumstances to
succeed in this approach.
See Van Den Esschert v Chappell (1960)
This exception is rarely invoked.
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Ambiguous or Mistaken Terms
If a term has more than one meaning, or has
been included in the contract by mistake,
the Court will allow verbal evidence to be
lead to remove the ambiguity, or to rectify
the mistake.
This is necessary to make the contract operate
properly, and to achieve its purpose.
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Identity of the Parties
Confusion can arise as to the correct identity
of a party – usually when a “natural person”
enters into a contract “on behalf of a
company to be incorporated”.
Pending incorporation, who was liable?
The “shelf company” industry has largely
overcome this problem.
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Analysis of Statements
Consider statements made during
negotiations.
Are all “promises” potential terms?
Putting that another way, is everything said
actionable if false or incorrect?
The Parol Evidence Rule covers this if the
contract is written.
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Verbal (oral) Contracts
Some statements become terms, allowing a
contractual remedy if untrue. You can get
damages for breach of condition or for
breach of warranty.
But if the statement is not a term, it might be a
misrepresentation.
The remedies are different.
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Oscar Chess Ltd v Williams
An important case outlining the method of
deciding whether a pre-contract statement
becomes a term or not.
W. traded in his car, which he said was a 1948
model, on a new one. It was actually a 1939
model, but he did not know. OCL sued for
damages for breach of warranty to recoup
the excess money they had allowed.
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Tests Applied
In deciding that it was not a warranty, the
court examined:  The objective intention of the parties;
 The actual words used;
 The proper inferences from known facts;
 Was it written down?
 Comparative skill and knowledge.
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The Result
Having concluded that it was not a warranty,
the court could not award damages to OCL.
They could have proved innocent
misrepresentation (W unknowingly made
a false statement), but the remedy for that is
rescission, not damages.
The court could not rescind this contract.
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Collateral Contract
The preferred result for the victim of a false
statement is to be able to show that a term
has been breached, rather than to try and
argue misrepresentation.
The remedies are stronger.
This has lead to the emergence of the
“collateral contract” argument.
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Collateral Contract Explained
A collateral contract is a separate contract
from the main contract, and is represented
by a separate promise not included in the
main contract.
It can be argued that A signed the main
contract only because B made the
collateral promise.
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Consideration??
If the collateral promise is to become a
collateral contract, there must be
consideration for that promise.
What consideration exists?
The act of signing the main contract arguably
provides the consideration for the collateral
promise, making it contractual.
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De Lassalle v Guildford
A lease had been drawn up between D and G,
and they were about to exchange parts
(copies) of the lease, which would result in
the lease contract existing.
When asked, the owner promised the tenant
that the drains were in good order. They
were not! D claimed damages for breach of
a collateral contract.
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De Lassalle v Guildford (cont)
In defence, the owner pleaded the Parol
Evidence Rule. The court held that the
tenant had signed the lease only because the
collateral promise had been made.
There was thus consideration for the promise,
transforming it into a collateral contract. As
the promise was false, this contract had
been breached. D got damages.
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Interchangeable Arguments
The collateral contract argument is virtually
interchangeable with the 3rd exception to
the Parol Evidence Rule argument, as
used in Van Den Esschert v Chappell.
Both arguments emerged as creative solutions
to the Parol Evidence Rule.
Both have limited application.
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Limiting Aspects
Our Courts limit the argument, requiring
1. Consistency between the collateral
promise and the terms of the main contract
[See Hoyts Pty Ltd v Spencer (1919)]
2. A strong motivational link between the
promise and the signing of the main
contract. [J.J Savage & Sons Ltd v
Blakeney (1970)]
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Interpreting Contract Terms
Courts often have to give meaning to a term if
it is unclear. But if it is so uncertain that
they cannot save it, they will either
 preferably, sever the uncertain term, or
 reluctantly, declare the whole contract
“void for uncertainty”.
They will try and uphold contracts if possible.
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Scammell & Nephew v Ouston
To illustrate, an agreement to buy a new truck
on “hire purchase terms over 2 years”
could not be enforced by the court, because
the term was too uncertain.
Since the price was not clearly defined, and
the price is a vital term in any contract, the
contract was held to be “void for
uncertainty”.
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Importance of Terms
The terms (clauses) of a contract fall into
three possible categories.
1. Conditions.
2. Warranties.
3. Intermediate (or “innominate”) terms.
Correct classification controls the remedy for
breach of each category.
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Conditions
A condition is an important term or clause in
the contract. It is central to the contract,
and “goes to the root of the contract”.
If you took this term away, the contract would
be radically different.
Note that, if there is a dispute, the court will
decide if the term is a condition, whatever
the parties might have called the term.
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Warranties
A warranty is a term of lesser importance
than a condition.
It is “subsidiary” to the condition, but it is
nevertheless still important.
It deals with “cosmetic” rather than
“structural” or “fundamental” aspects of
the transaction.
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Intermediate Terms
A recent creation, intermediate or
“innominate” terms are “hybrids”, being
sometimes treated as conditions and at other
times treated as warranties.
The choice (between condition and warranty)
is made depending on the timing and
importance of the relevant breach.
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Remedies for Breach
A breach of condition entitles repudiation of
the contract and/or damages.
A breach of warranty entitles damages only.
Breach of an intermediate term entitles
 either the remedy for breach of condition
(if it was a condition at the time),
 or the remedy for breach of warranty (if it
was a warranty at the time).
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Relevant Cases
Cases illustrating the distinction between
conditions and warranties include
 Bettini v Gye (1876);
 Poussard v Spiers & Pond (1876);
 Associated Newspapers Ltd v Bancks
(1951).
Note that intermediate terms are rarely found.
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Condition Precedent
A condition precedent is a term in a contract
that relates to some outside event.
That event must occur before performance is
required.
A common example is a clause making the
buyer’s performance conditional upon
obtaining the necessary loan.
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Condition Subsequent
A condition subsequent is also a term
relating to some outside event.
When it occurs, it will bring an operating
contract to an end.
The return of faulty goods is a common
example. See Head v Tattersall (1871)
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Exclusion Clauses
An exclusion clause is a term in a contract
that seeks to either
 Totally exclude (called an “exclusion
clause”), or
 Limit in some way (called a “limitation
clause”)
the liability of one party if a breach occurs.
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Common Examples
Such clauses are to be found, for example, in
1. Car park tickets;
2. Dry cleaning dockets;
3. Entertainment tickets;
4. Airline tickets;
5. Film processing dockets, and elsewhere.
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Signed & Unsigned Documents
Such clauses can be found in signed
contracts, or in what we call “ticket cases”,
where the clause is found on a ticket or
docket that has not been signed by the
customer.
The examples listed above are all “ticket
cases”.
The distinction matters as the rules differ.
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Signed Document Rules
Predictably, a person is bound by the terms of
any contract that they sign.
This applies whether or not they have read it,
and also whether or not they understand it.
Put simply, if you sign it, you wear it!
See L’Estrange v Graucob Ltd (1934).
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Possible Exceptions
The only possible escape routes from this are
1. If the clause is misrepresented to the
customer. See Curtis v Chemical
Cleaning & Dyeing Co (1951).
2. If the customer can successfully plead
“non est factum”.
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“Non Est Factum”
Literally, this means “It is not my deed!”,
which implies that the wrong document is
signed.
Historically a defence for illiterate people, it
is very hard to prove in modern times.
See Gallie v Lee (1971), and contrast Petelin v
Cullen (1975)
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Unsigned Documents
Most problems occur in this context. The
question that the court must decide is
“Has the exclusion clause printed on the
ticket or docket become part of (a term of)
the contract?”
If so, it will affect the customer’s rights.
If not, it will not bind the customer.
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The Testing Process
To test whether the clause has become part of
the contract, the courts will apply two tests,
namely
1. The “nature of the document test”, and
2. The “reasonable notice test”.
These tests are applied sequentially in the
order stated.
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Nature of the Document Test
This test involves examining the docket and
asking “what is its role in the transaction?”
Would a reasonable person expect it to
contain terms of the contract?
Does it have any other logical function, such
as proving payment (a receipt), or proving
ownership (a voucher)?
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Cases on the First Test
See Causer v Brown (1952), where the court
held that a dry cleaning docket was
logically a voucher to prove ownership of
garments.
Also Chapelton v Barry Urban District
Council (1940), where the ticket was
logically a receipt to prove payment of a
deck chair hiring charge.
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Signed Delivery Dockets
When delivery dockets are signed after
receipt of goods, it is too late to try to
include new terms in the contract, which
has already been performed.
See Walter Wright Pty Ltd v DJ Hill & Co
Pty Ltd (1971), and Rinaldi & Patroni Pty
Ltd v Precision Mouldings Pty Ltd (1986)
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Future of the First Test
As exclusion clauses become more common,
and more accepted by society, it will be
increasingly hard to pass this test, since
the test is applied objectively.
It is no advantage to say “I didn’t know it was
there”, because the question is whether a
reasonable person would know.
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The Reasonable Notice Test
This test is applied only if the customer fails
the first test.
It requires that reasonable steps be taken by
the business operator to bring the clause to
the notice and attention of the customer.
Again, the test is applied objectively.
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Relevant Cases
See, as examples
 Parker v South Eastern Railway Co (1877)
[clause on back of ticket]
 Thompson v L. M.&S. Railway Co (1930)
[clause on train timetable on platform]
 Thornton v Shoe Lane Parking Co (1971)
[clause hidden on back of pillar in car park]
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Exclusion Clause on Display
The clause may be displayed on a sign, rather
than (or as well as) being printed on a ticket
or docket.
This is quite effective, so long as the sign
containing the clause is prominently on
display at a point where all customers can
see and read it.
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Actual & Constructive Notice
See Balmain New Ferry Co v Robertson
(1906), where the High Court held that terms
may be communicated by displaying them
for the public to read.
Those who see and read the sign have actual
notice of the clause. Those who could have,
but didn’t read it have constructive notice.
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Timing of the Notice
Notice (of the exclusion clause) must be given
before or when the contract is formed, not
later. If given afterwards, it is too late.
See Olley v Marlborough Court Ltd (1949),
where an attempt to rely on a clause of
which details were given after formation
of the contract, failed.
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Prior Dealings
The business operator can rely on previous
dealings with the same customer to try and
invoke an exclusion clause.
But it can be difficult. See Hollier v Rambler
Motors (1972).
In this case, the court refused to allow reliance
on the clause when prior dealings were
pleaded.
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The “Contra Proferentem” Rule
Because exclusion clauses damage our rights,
change the rules of the game, and are
sometimes introduced in a “sinister” way,
courts do not like them.
They interpret them “contra proferentem”,
that is adversely to the business operator.
See White v John Warwick & Co. (1953)
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Implied Terms
Implied terms, as distinct from express terms,
are not evident in the contract.
We have to find them elsewhere, either by
using some common law rules to imply
them, or – more frequently – by relying on a
statute to imply them.
Terms will be implied only if it is necessary.
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Common Law Implication
Terms can be implied as follows:  By industry custom or convention,
sometimes called “trade usage”;
 By reference to past dealings;
 To give “business efficacy” to a contract, in
order to make the contract work properly .
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Industry Custom or Convention
See British Crane Hire Corporation Ltd v
Ipswich Plant Hire Ltd (1974) as an
example.
Note that a term will not be implied in this
way if it contradicts an express term in the
contract.
Summers v Commonwealth of Australia
(1918)
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Past Dealings
Previous dealings between the parties will
often lead to the inclusion by the Court of
“missing” terms .
See Hillas & Co Ltd v Arcos Ltd (1932);
Balmain New Ferry Co v Robertson (1906);
Hollier v Rambler Motors (AMC) (1972).
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Business Efficacy
If the contract does not make sense, a term
may be implied to make it function.
See “The Moorcock” (1886).
But a term will not be implied in this manner
if the contract makes sense without it. See
Codelfa Construction Pty Ltd v State
Rail Authority of NSW (1982).
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Statutory Implied Terms
Part I of the Victorian Goods Act 1958
(originally enacted in the 1890s) implied
terms into all contracts for the sale of goods.
These related to title, fitness for purpose,
quality and description of goods sold, and
protected the buyer against unscrupulous
sellers. But they could be avoided!
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Part I of Goods Act 1958
Protection for buyers under this old Part of the
Goods Act became ineffective, because
sellers could – and therefore usually did –
avoid these implied terms by getting buyers
to sign away their rights.
See L’Estrange v Graucob Ltd (1934) as an
example of this trend.
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Trade Practices Act 1974
A Commonwealth Act, the TPA restored to
buyers the old Goods Act protections.
They could not be avoided as previously.
But the TPA applied only to
 corporations (not “natural persons”), and
 only to “consumer sales”.
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Goods Act Part IV
Because of the gaps in the TPA, the Victorian
Parliament passed the Goods (Sales &
Leases) Act 1981, which added Part IV to
the “old” Goods Act.
Sales and leases to “consumers” in Victoria
are covered by this Act. Dealers and
wholesalers can look after themselves.
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Fair Trading Act 1999 (Vic)
In 2003 the Victorian Government decided to
move the statutory implied terms from Part
IV of the Goods Act 1958 into the Fair
Trading Act 1999.
It did so by enacting new Parts 2A and 2B of
the FTA, being sections 32A to 32 ZD. Part
IV of the Goods Act has been repealed.
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Avoidance of Terms
As with the TPA, the new part of the
Victorian goods Act does not permit a seller
to escape these reinstated protections.
So long as the buyer is a consumer, and the
criteria for application of the Acts are met,
the seller cannot avoid the implied terms (as
they once could).
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Capacity to Contract
Some persons do not have the ability (the
legal capacity) to contract.
These include minors, mentally ill persons,
persons badly affected by alcohol or drugs,
bankrupts, foreign nationals (in time of
war), prisoners.
In some cases, such as bankrupts, capacity is
limited.
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Married Women
Under the common law, married women
lacked the capacity to contract, as we saw in
Eastwood v Kenyon.
This has now been overcome by statute.
The most common problem area is with
minors (persons under the age of 18).
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Legal Minors
The general rule is that a minor does not have
the capacity to make a contract.
The exceptions are
 A contract for the purchase of
“necessaries”, and
 A contract of employment for the benefit
of the minor, such as an apprenticeship.
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“Necessaries”
A necessary is something without which the
minor cannot exist, such as basic food,
shelter, clothing, medical and like services
in an emergency.
Clearly, a luxury item is not covered.
See Nash v Inman (1908)
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Necessaries (cont)
Necessaries were summarized in Chapple v
Cooper (1844), where the “station in life”
concept was evident.
More modern examples appear in
Scarborough v Sturzaker (1905), and in
Bojczuk v Gregorcewicz (1961).
Some statutes affect minor’s contracts.
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Mistake
If a mistake occurs during contract formation,
the court may declare the “contract” void
for (because of the) mistake.
If so, there was never a contract at all, since
the parties never reached agreement in the
first place.
The “contract” is “void ab initio”, or a nullity
from the beginning.
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Consequence of Voidness
It is vital to understand that, when a finding of
mistake occurs, the “contract” is void.
It follows that there can be no legal outcomes
resulting from the contract.
For example, if the contract was intended to
transfer ownership from A to B, such
transfer cannot be achieved!
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Categories of Mistake
Mistake is not easily proved, since it allows a
convenient escape route from a contract.
But three categories of mistake exist, namely
 Common mistake;
 Mutual mistake; and
 Unilateral mistake.
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Common Mistake
Cases usually relate to non-existence of the
subject matter.
See Pritchard v Merchants & Tradesmans
Mutual Life Ass. Society (1858)
But if one party effectively guarantees the
existence of the subject matter, he cannot
argue mistake. See McRae v CDC (1951)
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Mutual Mistake
This occurs when the parties are at “crosspurposes”, as where A owns cars 1 and 2.
B offers to buy car 1 from A, whereas A
thinks that B is offering to buy car 2.
This type of confusion arose in Raffles v
Wichelhaus (1864), when cargo was
described as “Ex Peerless from Bombay”
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Unilateral Mistake
This is “one-sided” mistake. One party is
mistaken, and the other knows (or ought
reasonably to know) that he is mistaken.
Note “actual” and “constructive” knowledge.
Usually unilateral mistake applies to
 The subject-matter of the contract, or
 The identity of the other party.
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Payment by Personal Cheque
These cases often arise when goods are sold
and paid for by personal (as distinct from
bank) cheque.
To accept a personal cheque in exchange for
goods is to give credit to the buyer.
Can the seller argue mistake (as to identity),
and have the “contract” declared void?
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Mistaken Identity
If the contract IS declared void, it means that
it was void from the beginning, and it
cannot achieve legal outcomes, such as
transferring ownership.
Therefore, the goods “sold” have not been
sold at all, and legal ownership of the goods
never left the seller. He gets them back!
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Mistake v Misrepresentation
There is a competing argument, namely that
the buyer has fraudulently misrepresented
his identity.
Mistake makes a contract VOID.
Misrepresentation makes a contract VOIDABLE.
This distinction is vitally important! The cases
explain why it is important.
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Phillips v Brooks Ltd. (1919)
P sold goods to X, believing him to be Y, and
accepted a cheque drawn on Y’s account.
The cheque was forged, and “bounced”.X
quickly pawned the goods to BL. P sued BL
for the goods, arguing mistake.
Held. You cannot argue mistake when dealing
“face-to-face”.
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Phillips v Brooks (cont)
P could have proved misrepresentation of
identity by X, and this would have made the
contract voidable (capable of being
avoided at the option of P).
But P did not take any steps to avoid it before
X resold the goods to BL. Therefore BL
keeps the goods. P can only sue X.
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Avoiding the Contract
How do you avoid a contract that is voidable
because of a misrepresentation?
This can be done by physical cancellation of
the contract, or by endeavour.
See Car & Universal Finance Co v Caldwell
(1965). It was held that a contract is avoided
if all reasonable attempts are made.
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Ingram v Little (1961)
This case appeared to contradict the precedent
of Phillips v Brooks. Two ladies sold their
car to a trickster, who said he was
“Hutchinson”. He wasn’t. They took a
cheque in payment. Later they found their
car in Little’s used car yard. The court held
they were mistaken, and they got their car
back.
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Lewis v Averay (1971)
Lewis sold his car to “Green”, another
trickster who had Green’s cheque book and
proof of identification.
He later found the car which had been bought
from G by Averay, and sued for its return.
Lord Denning strongly criticised Ingram v
Little, and reinstated Phillips v Brooks.
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“Bona Fide Purchaser”
Note that the third party who buys the goods
must be a genuine buyer, paying fair
value for the goods, and being unaware of
any defect in the title.
If he is not, he does not get good title as
against the true owner.
A price comparison is a good guide.
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Conclusion
In cases of this type, the better view is that
the third party – if genuine – will obtain
and retain good title to the goods.
The original owner therefore loses title, and
is left with a doubtful remedy, namely an
action to recover his loss from the trickster.
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Non Est Factum
Remember the defence of “non est factum”,
which is really based on unilateral mistake
as to the nature of the document signed.
The cases of Gallie v Lee and Petelin v
Cullen, previously discussed in exclusion
clauses, apply. You must prove both
mistake and an absence of carelessness.
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Misrepresentation
If a false statement cannot be proved to be a
term, the misrepresentation possibility
should be explored.
This is a false statement made during
negotiations, that induces the person
hearing it to enter into the contract.
The essentials are fact and inducement.
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Types of Misrepresentation
There are three distinct categories of
misrepresentation, namely
 Innocent (unintended deception);
 Fraudulent (intended deception); and
 Negligent (breach of a duty of care).
The remedies vary for the different types.
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Statement of Fact
The offending statement must be of a factual
nature – not a statement of law or an
expression of opinion.
Note that an apparent statement of a factual
kind might in some circumstances be
treated as only an expression of opinion.
See Bissett v Wilkinson (1927)
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The Converse Result
Similarly, what appears to be an expression
of opinion might in some cases be treated
by the court as a statement of fact.
This is specially so if the person making the
statement knows exclusively all of the facts
upon which the apparent opinion is based.
See Smith v Land & House Property Corp Ltd.
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Silence as a Response
Generally speaking, silence (as a response to a
question) will not be misrepresentation.
Exceptions apply, including
 “Utmost good faith” contracts;
 Special relationships;
 If silence distorts the truth; and
 If a statute requires disclosure.
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“Utmost Good Faith”
Some types of contract are governed by the
requirement that the parties are bound to
apply the utmost good faith in their
dealings.
Insurance contracts require full disclosure in
proposals by the customer because of the
“imbalance” of knowledge.
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Special Relationships
When a special relationship exists between
the parties, the dominant party must make
full disclosure when contracting with the
“subservient” or weaker party.
Examples include doctor/patient,
solicitor/client, parent/child, teacher/pupil,
banker/customer, director/shareholder etc.
There is a “fiduciary duty” owed.
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Distortion of the Truth
Sometimes, silence can distort the truth, if
only part of the story is told.
In such case, silence is not acceptable.
See R v Kylsant (1932) to illustrate.
Director’s statement in a prospectus that
profits had been paid for 6 years did not tell
the full story.
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Statutory Requirements
Some Acts of Parliament require that certain
information be disclosed, such as the Sale
of Land Act 1962 (Vic).
The vendor of real estate must supply detailed
information to prospective buyers before
the contract is signed.
Similar rules apply to sale of a business.
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Inducement is Required
The second requirement for
misrepresentation is that the innocent party
must be induced by the false statement to
enter into the contract.
If he isn’t induced, no harm results.
See Attwood v Small (1838) as an example.
The same would apply to an RACV check.
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Misrepresentations Classified.
The false statement may be
 Innocent (unintended);
 Fraudulent (intended); or
 Negligent (carelessly given).
An innocent misrepresentation is relatively
easy to prove, requiring only proof of a
false statement that induced the contract.
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Fraudulent Misrepresentation
More difficult to prove, this requires the
additional component that the person knew
that the statement was false, or that he
couldn’t care less whether it was true or
false.
See Derry v Peek (1889) for discussion on the
elements of fraudulent misrepresentation.
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The Remedies
In all cases of misrepresentation, rescission
is the appropriate remedy. In the case of
fraudulent and negligent misrepresentation,
damages are also available.
The problem with rescission is that – although
in theory a good remedy – the right to
rescind is easily compromised or lost.
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Limitations on Rescission
Rescission will not be awarded if there is
 Unreasonable delay;
 Affirmation of the contract;
 Intervention of third parties;
 Change or destruction of subject-matter;
 The rule in Seddon’s Case applicable.
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Effect of Losing Rescission
When the right to rescind is lost for one or
more of the foregoing reasons, this places
the victim of an innocent misrepresentation
in an invidious position.
He cannot get damages, since they are not
available for innocent misrepresentation.
He has lost the right to rescind. He has no
remedy at all!
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Possible Solutions
The options are
1. Try to prove it is fraudulent or negligent.
2. If an oral contract, try to prove it is a term,
as was tried in Oscar Chess v Williams.
3. If a written contract, try to include it as a
term by arguing the 3rd exception to the
PER, or arguing collateral contract.
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Continued
While these solutions are possible, we have
seen that they have their difficulties.
Proving fraud is not easy, if denied.
The 3rd exception to the Parol Evidence Rule
has limiting factors, as does the collateral
contract argument.
There is thus no simple solution available.
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Negligent Misrepresentation
Negligence is “breach of a duty of care”.
There must therefore be a case where the
duty is owed and breached.
This can occur in a special relationship, or if
an opinion is given carelessly by an expert.
As an example, see Esso Petroleum Ltd v
Mardon (1976).
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Statutory Misrepresentation
Business operators are now subject to
legislation in this area. Relevant Acts are
 Trade Practices Act 1974 (C’th); and
 Fair Trading Act 1999 (Vic).
Misrepresentation occurs if a “misleading or
deceptive” statement is made in the conduct
of a business. Note s.52 TPA.
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Duress, Undue Influence &
Unconscionable Conduct
Here we examine 3 types of behaviour or
conduct occasionally apparent when
contracts are being negotiated.
If occurring, the contract becomes “voidable
at the option of the victim” of such activity.
This makes sense, because “agreement” has
not been freely and voluntarily given.
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Duress
Duress is the use of violence, or the threat of
violence to a person, his goods or his
assets in order to force him into a contract.
The victim of such contract can – at his
option – have the contract set aside
(avoided) because of the duress.
See Barton v Armstrong (1974)
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Duress (continued)
Historically, physical violence or threats to
harm the person or immediate family was
required. Today, threats of economic
damage will suffice.
See Universe Tankships of Monrovia v
International Transport workers
Federation (1982)
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Undue Influence
Less obvious, undue influence occurs when
the free will of a party is compromised by
a person in a dominant situation.
Usually this involves a “special relationship”
between the two parties.
In such cases, the courts presume that the
stronger party has unduly influenced the
weaker.
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Undue Influence (cont)
The onus is then upon the dominant party to
prove that the weaker party was not unduly
influenced.
If he fails, the contract is voidable at the
option of the victim.
See Lloyd’s Bank Ltd v Bundy (1974), and
Tate v Williamson (1866)
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Unconscionable Conduct
This means conduct that offends good
conscience. Relatively unknown under the
common law, due to the “freedom of
contract” doctrine, it is now a recognized
reason to have a contract set aside.
There is usually an inequality of bargaining
power, and the weaker is disadvantaged.
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….continued
Such inequality can result from ignorance,
illness, pressing need, financial desperation.
See Clifford Davis Management Ltd v
WEA Records Ltd. (1975), where advantage
was taken of the business inexperience of
musicians and composers to negotiate
grossly unfair management terms. The
contract was set aside.
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Australian Cases
Apart from the case of Waltons v Maher,
important Australian cases on
unconscionability include
 Commercial Bank of Australia Ltd v
Amadio (1983), and
 Nolan v Westpac Banking Corporation
Ltd (1989)
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Parliamentary Intervention
This is another area where Statutes have been
passed to strengthen the common law.
Conduct in business that is “harsh and
oppressive” is now outlawed by the TPA
and the Fair Trading Act (Vic).
The courts will consider bargaining strength,
conditions imposed, clarity of documents,
unfair tactics and so on.
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Discharge of Contract
A contract can be discharged (terminated) by
1. Performance;
2. Agreement;
3. A term in the contract;
4. Breach of a condition in the contract;
5. Operation of law; and
6. Frustration.
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Performance
The most common method of discharge, as most
contracts are formed and performed without
problems.
Note that part-performance is not acceptable.
See Cutter v Powell (1795)
Performance must exactly comply with the terms of
the contract. See Moore v Landauer (1921)
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Part Performance Exceptions
The total ban on “part performance” created
hardship, and exceptions have been allowed
when
 The contract is “divisible” into parts; and
 When the contract has been substantially
(almost totally) performed.
Contrast “divisible” and “non-divisible”
contracts.
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Quantum Meruit
If a contract has been partly performed, and
there is a reason for not completing it, the
court will use the “quantum meruit” rule
to decide how much the contractor should
be paid. This also applies if there is no
agreement as to price.
A reasonable price will be paid for a
reasonable quality job.
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Time of Completion.
The term setting the date for completion of the
contract is usually only a warranty.
It can be converted to a condition by saying
time shall be “of the essence” in this
contract.
If this is done, any late completion is breach
of condition, not breach of warranty.
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Discharge by Agreement
A contract is created by agreement. Logically,
it can be discharged in the same way. This
can be done by a term in the original
contract, or by a separate agreement.
If it is done by a separate agreement,
remember that there must be consideration,
or the agreement will not be enforceable.
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Discharge by a Term
This is a reference to a “condition
subsequent”, which we have discussed
previously.
It is a term referring to some event which –
when it occurs – will bring the contract to
an end.
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Discharge by Law
The possibilities here are:  Merger of two contracts, when the smaller
contract merges with the larger one;
 Bankruptcy, when the Act prevents the
continuation of some contracts; and
 Document alteration in a material way.
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Discharge by Breach
This refers to breach of condition, entitling
repudiation, as distinct from breach of
warranty, which entitles only damages.
Note the terms:  “Repudiatory breach”, and
 “Anticipatory breach”.
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Discharge by Frustration
An outside, “supervening” event, might
make performance of the contract
impossible.
Prevention of performance by an “act of God”,
natural disaster, “force majeur”, riot, civil
commotion, might discharge the contract.
The event must be beyond the control of the
parties, and not anticipated by them
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Historical Background
Historically, courts would not entertain this
argument, saying that the parties should
have protected themselves by terms in the
contract.
In theory, that is alright, but how do you
foresee the unforeseeable? A contract
covering every possibility would be too
heavy to carry into court.
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Acceptance of Frustration
In Taylor v Caldwell (1863), the frustration
argument was accepted when a building
hired to stage concerts was destroyed by fire
the night before the first concert.
The promoter’s action to recover expenses
from the owner failed, since the contract
was discharged by the frustrating event
(in this case, the fire).
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Proving Frustration
In National Carriers Ltd v Panalpina (Northern)
Ltd (1981) it was held the requirements are
1.
2.
3.
4.
5.
A supervening event;
Not caused by either party;
Not contemplated by the contract;
Changes the nature of the contract; and
Causes resulting injustice to the parties.
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Examples of Frustration
Destruction of the subject-matter, as in
Taylor v Caldwell;
 Illegality of purpose, as in Esposito v
Bowden;
 Circumstances ceasing to exist, as in
Horlock v Beal;
 Cancellation of event, as in Krell v Henry;

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Examples (continued)
Change of government policy, as in MWB
v Dick, Kerr & Co.;
 Event making performance impossible, as
in Wong Lai Ying v Chinachem
Investment Co.;
 Event causing unreasonable delay, as in
Bank Line v Capel

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Limitation on Frustration
Note that frustration will not apply if it still
possible to perform the contract. This
applies even though it might be much more
onerous and/or less profitable to do so.
See the Tsakiroglou Case, arising out of the
closure of the Suez Canal in wartime. The
frustration argument failed in this case.
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Codelfa Constructions Case
This Australian case in 1982 against the NSW
State Rail Authority shows a more
flexible approach by the High Court to the
frustration argument.
Codelfa was able to have the contract
rewritten because of the intervention by
residents to limit the hours of work.
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Frustrated Contracts Act
Under the common law, frustration does not
operate retrospectively, so that
prepayments for work not done at time of
frustration cannot be recovered.
The Act changes this, and the contractor may
now only retain money paid for work
already done at time of frustration.
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Remedies for Breach (of contract)
Before we discuss damages – the traditional
and main remedy for breach of contract we need to examine 2 equitable remedies,
namely:  Specific performance; and
 Injunction (restraining order).
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Specific Performance
If a legal contract exists between A and B,
and B refuses (for no valid reason) to
perform it, A can seek an order for “specific
performance of the contract” by B.
If satisfied (that the contract exists, is valid,
and B’s refusal to perform cannot be legally
justified), the court will order B to
perform his contractual obligations.
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Continued…….
We thus have a strategy to compel
performance of a contract when refusal
occurs. This covers cases, such as a
property purchase, where damages might
not properly compensate.
An assertive threat to take this step (seek
specific performance) usually works.
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Injunction
In contrast to specific performance, which is a
positive remedy, the injunction is a
negative remedy.
It prevents or restrains a person from taking
action that will breach the contract or will
damage property that is the subject-matter
of the contract.
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Injunction Risks
By their nature, injunctions are often sought
and obtained “ex parte”, in the absence of
the party restrained.
The applicant must give undertakings to the
court that he will pay costs and damages if
it emerges that he has improperly sought
and obtained the injunction. This is a
significant deterrent.
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Damages
The court’s objective in awarding damages is
to compensate the victim (of the breach of
contract), not to punish or penalise the one
who breached the contract.
Punitive damages have no relevance to
contract law, although applied in some other
areas, such as tort.
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Two Aspects of Damages
Two questions arise for determination.
1. Do the losses claimed result from the
contract breach? This is the question of
“remoteness of damage”.
2. How much damages do we award? This is
the question of the “measure of
damages”.
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Remoteness of Damages
Not all damages that appear to result from a
breach of contract can necessarily be
claimed.
They may be too remote from (too far
removed from) the breach.
There has to be a “causal connection” or an
identifiable link between the breach and
the loss claimed to result from it.
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Continued ………
Consider the textbook examples of bizarre
cases.
You could argue that these losses could be
claimed, specially if you apply the “but for”
test.
In Leisbosch Dredger v SS Edison (1933),
Lord Wright said we have to draw the line.
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Hadley v Baxendale (1854)
Still the leading case on remoteness, involved
a cartage contract under which B agreed to
transport H’s broken crankshaft from his
flour mill to the manufacturer to use as a
pattern for a replacement shaft.
B was also to transport the new shaft, when
made, back to H.
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Continued ………
B took much too long to perform the contract,
and H claimed damages for loss of
production in his mill.
It was held that B is liable only for losses
that he can foresee. He can foresee losses
that are either
 A natural consequence of his breach, or
 Losses he has been told about by H.
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Foreseeable Losses
Any losses falling outside these two
categories were not foreseeable by B when
the contract was formed, and he cannot be
liable to pay them.
H could have made the production losses
foreseeable by B simply by telling him that
the broken crankshaft was his ONLY
crankshaft.
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Continued ……..
Losses are too remote from the breach if they
are not foreseeable by the contracting party.
They are foreseeable if they are either
 Natural consequences (everyone knows, or
should know, they will result!), or
 Consequences that the contractor has
been told about when the contract is made.
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The Practical Solution
The solution is to make sure that you tell your
contractor what the consequences of any
breach by him will be, and he will be liable
for resultant losses.
But, in business, people often are too secretive
as they do not want others to know their
commercial secrets.
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Victoria Laundry Case
The decision in Hadley v Baxendale was
followed and endorsed in Victoria
Laundry (Windsor) Ltd v Newman
Industries Ltd (1949).
Again, the defendant was liable for losses
they could foresee, but not for those that
they could not foresee.
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Interest on Lost Capital
If capital is lost and successfully claimed as
damages, the High Court held in
Hungerfords v Walker (1989), that the
plaintiff could also claim interest on the
capital for the duration of the loss.
Interest paid on lost capital, or lost on
investing it, is a “natural consequence” of
the breach causing the loss of capital.
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Measure of Damages
Damages can be special, general, nominal or
punitive. As noted, the latter are not given
in contract disputes.
Restoration – not punishment – is the aim.
Damages are measured by the “expectation
loss” method if applicable, and by the
“reliance loss” method if not.
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Amann Aviation Case
In Commonwealth v Amann Aviation Pty
Ltd (1992), an award of $410,000 under the
expectation loss method was increased on
appeal to the Full court of the Federal Court
to $6.6 million by using the reliance loss
method.
The High Court upheld this increase on a
further appeal.
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Mitigation of Loss
All plaintiffs are required to keep losses to a
minimum, and to prevent unnecessary
escalation of loss.
This applies to contract and other areas of law.
It is tempting to allow the losses to mount
up, but this can work against the claimant.
Reasonable steps to mitigate are required.
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Examples of Mitigation
Examples include
 The wrongfully dismissed employee must
take reasonable steps to find another job;
 The landlord must take reasonable steps to
find a replacement tenant if the tenant
leaves before end of lease.
They might not succeed, but they must try!
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Jarvis v Swan Tours Ltd (1972)
Tourism students should note that Jarvis won
a claim for damages for “injured feelings”
and “emotional upset” against a tour
operator who breached a contract with him.
This was the first recorded case of this
happening in a contract case (cf tort), and
was a typical Lord Denning innovation.
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