LEGT 1710_Wk_6_Semester 2_2013

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LEGT 1710

Business and the Law

Week 6

Contract Law (Contd)Breach of contract/Termination of

contract/Remedies for breach of contract

Lecturer: Dr Leela Cejnar

2013 The University of New South Wales

Sydney 2052 Australia

The original material prepared for this guide is copyright. Apart from fair dealing for the purposes of private study, research, criticism or review, as

permitted under the Copyright Act, no part m ay be reproduced by any process without written permission.

Enquiries should be addressed to the Head of School, Taxation and Business Law, UNSW, Sydney22

ASSIGNMENT 2

On Blackboard now

Contract law, problem question

See Guidelines to Students (attached to the

assignment)

DUE WEEK 9: MONDAY 23 SEPTEMBER 2013

See Course Outline (paragraph 4.4) for details

about where and how to submit Assignment 2Must be submitted ONLINE on Blackboard (via

Turnitin), due by 5pm Monday 23 September

ASSIGNMENT 2

ONLINE SUBMISSION ONLY

Check your plagiarism score and re-submit on

Turnitin as many times as you wish UNTIL the

deadline of 5pm on 23 September

Word limit is 2000 words please observe the word

limit

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Week 5: SummaryRequirements for a valid contract (contd)

Capacity

Consent

Proper form

Privity of contract

Agency: the exception to Privi ty

Vitiating elements

Mistake

Misrepresentation

Illegality

Inequal ity between the parties

Duress (threats of violence to person/property etc) Undue influence (improper use of position of authority)

Unconscionable conduct (abuse of superior bargaining position when you

know other party in situation of special disadvantage/special disability:

Commercial Bank v Amadio)

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Unconscionable or Unfair Contracts

Contract will be set aside as unconscionable (unfair)

where the defendant has abused their superior

bargaining position in their dealings with the plaintiff

Case: Commercial Bank of Australia v Amadio

See Latimer at 5-730

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Unconscionable contracts

The plaintiff has to establish:

They were in a position ofspecial disability orspecial disadvantage

That substantially affected their ability to protectthemselves

The defendant knew, or ought to have known, ofthe plaintiffs disability/disadvantage and should nothave taken advantage of it

AND

The actions of defendant were unconscionable

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Unconscionable contracts

Examples ofspecial disability/specialdisadvantage include:

age

financial needs

illness

ignorance

inexperience

inability to understand the language

inability to read


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Restraint of trade clauses

Clauses in restraint of trade are found in:

Contracts for employment

Contracts for sale of business

Contracts between manufacturers and traders

Clauses in contracts in restraint of trade will generally

be void as being contrary to public policy unless the

restraint is reasonable

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Restraint of trade clauses

What is reasonable is determined by:

The geographic extent

The time period involved

The nature of the business and the activity being

restrained

Whether the restraint is reasonable, both in the

interests of the parties and the public

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Todays lecture

Breach of contract

Termination for breach of contract

Remedies available for breach of contract, under the

common law

Loss of the right to sue (the limitation period)

Time of the essence

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Overview - Week 6Breach of Contract/Termination for breach of

contract/Remedies

On completion of this week you should be

able to:

9 Explain when a contract may be terminated or

discharged

9 Identify the remedies for breach of contract

9 Explain what is a statutory limitation period

9 Explain what time of the essence means

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Enforceability

Contracts classified by enforceability:

Valid - a contract which the law will enforce

Voidable - the contract remains valid and binding

unless and until it is repudiated (ie cancelled) by

the injured party

Void - no legal rights or obligations from the outset

(void ab initio)

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Enforceability

Contracts classified by enforceability:

Unenforceable - valid on its face but no legal

action can be brought on the contract, often

because of a procedural defect

Illegal - the purpose of the contract contravenes a

statute or the common law, and generally treatedas void

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Breach of contract

Remedies

(1) Common Law

Termination of contract

Damages

(2) Equity

Rescission

Restitution

Rectification

Specific Performance

Injunctions

(Also: Remedies under the Australian Consumer Law - to be

discussed in Consumer Law lecture)

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At Common Law:


When one party:

completely fails to perform their obligations (actual

breach)

or

indicates that they do not intend to perform their

obligations (anticipatory breach), the other party is

entitled to terminate the contract

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At Common Law:


Breach of contract may be either:

Total breach: where one of the parties does not

perform the contract at all

OR

Partial breach: where one of the parties does not

perform the full requirements of the contract

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At Common Law:


A contract may be terminated or discharged:

by performance

by agreement

by operation of law (eg bankruptcy)

by lapse of time

by frustration

See Latimer at 6-280 to 6-350

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At Common Law:


By performance: contract usually ends when eachparty has performed its contractual obligations

Obligations under a contract must be performedexactly

Near enough is not good enough

Cases: In re Moore & Co Ltd and Landauer & Co

Sumpter v Hedges


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At Common Law:


By performance:

Entire or divisible contracts

- If a contract does not provide forpro rata recovery expressly or

by implication then this equals an entire/lump sum contract

- If the contract is to be delivered by instalments which are to be

separately paid for, then the terms of the contract will show

whether the breach is a repudiation of the whole contract OR

whether the breach is severable (ie referable to the particular

instalment only)


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At Common Law:


By agreement: contractual obligations can bedischarged by agreement between the parties

By operation of law: bankruptcy, death, materialalteration of a written document without consent,merger of contract terms into one document

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At Common Law:


By lapse of time: when contract stipulates a time

period after which it will expire and parties allow this

time to lapse or expire

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Time of the essence

Performance of the contract must take place in the timespecified

Or, within a reasonable time if no time is specified

If performance at certain time is essential, contract may containa time of the essence clause

If time not of the essence, serving a notice to complete will fixthe time for performance/completion of the contract

Non-compliance will become a breach


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Loss of the right to sue:

Statutes of Limitation

Statutes of Limitation protect a person from being forced to

defend a case after a certain number of years (when the casebecomes statute barred)

Period of limitation begins to run as soon as a cause of actionarises (so when the breach of contract first occurs)

Statutory limitation period: 6 years (or 12 years for formal

contracts)


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At Common Law:


By frustration:

After formation of the contract, performance may

become impossible if something unexpected

happens over which neither party has any control


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At Common Law:


Frustration can arise if:

There is some significant or radical change tonature of contractual rights and obligations by anunexpected event

Neither party caused the unexpected event

Neither party contemplated the unexpected eventwhen the contract was entered into

In the new circumstances, it would be unjust to holdthe parties to the originally agreed contract

See Latimer at 6-350, footnote 51: National Carriers Ltd v

Panalpina (Northern) Ltdcase26

At Common Law:


Cases:

Codelfa Constructions Pty Ltd v State Rail Authority (NSW)

Ooh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd


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At Common Law: Damages

Every breach of contract gives the innocent party a

right to claim damages

Main purpose of damages is to enable the innocent

party to receive (monetary) compensation for injury or

loss suffered because of the breach

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Damages are calculated on the basis of looking at

what the position of the plaintiff would have been if

the contract had been properly performed

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Key issues:

Causation

Remoteness

Case: Hadley v Baxendale


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Causation and Remoteness:

The plaintiff must show that the breach of contract by thedefendant was the cause of the loss

Must be a connection between the breach and the loss

suffered

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Causation and Remoteness:

ASK:

Is the loss suffered by the injured party a usual

and reasonably direct consequence of the breach of

contract?

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Causation and Remoteness

Compensation will NOT be awarded for damages that are too remote

The plaintiff may not be able to recoverif an additional factor

unconnected with the defendants breach breaks the causal chain

between the defendants action and the plaintiffs loss or damage

This is a question of fact


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Losses which can be claimed are those that:

flow naturally from the breach of contract

special losses made known to the defendant when the

contract was made

Case: Victoria Laundry (Windsor) Ltd v Newman

Industries Ltd


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Damages for special losses cannot be awarded unless:

the plaintiffmade known the special circumstances to thedefendant at the time the contract was made

if so, the defendant will be taken to have accepted the risk

by default

Case: Victoria Laundry (Windsor) Ltd v Newman

Industries Ltd


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Amount of damages

The aim of damages is to put the injured party back as

close to the position they would have been in had the

breach never occurred

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Amount of damages

Damages are recoverable for economic loss as well

as for:

Distress and disappointment

Upset/anxiety

Discomfort

Mental distress


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Mitigation of damages

The innocent party has a duty to take reasonable steps to

minimise or mitigate their loss. Failure to do so can result in a

reduction of damages

Mitigation is a question of fact

Onus of proof is on the defendant to show that the innocent

party (plaintiff) did nothing to mitigate the loss

Case: Payzu v Saunders


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Types of damages

The type of damages that will be awarded will be

determined by the seriousness of the breach and

whether the contract has specified the amount of

damages to be paid in the event of breach

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Types of damages

General damages: compensation for loss suffered

by the plaintiff as a result of the breach

Nominal damages: defendant breached contract but

plaintiff has not suffered any actual loss

Exemplary damages: punitive and may be awarded

for non-economic loss


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Types of damages

Liquidated damages: awarded where a plaintiff is

able to sue for a specified sum, which must be a

genuine or bona fide pre-estimate of the actual loss

that will flow from the breach

Unliquidated damages: awarded where an injured

party has no fixed sum in mind and leaves the court

to decide the amount


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Types of damages

Penalties

Only enforceable if amount is a genuine pre-estimate of the loss from the breach of contract

Must not be extravagant or unconscionable

Must not be designed to apply pressure orintimidate the other party

Must be transparent: based on reasonable criteriaand clear evidence/information as to how theamount is calculated


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Equitable remedies

Restitution

Rescission

Rectification


Injunction

These are discretionary remedies at equity and

only granted where damages are not an adequate

remedy

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Equitable remedies

Restitution: The court orders the return of property

or the payment of money

Rescission: Setting aside an agreement and

restoring parties to their pre-contractual positions

Rectification: The court corrects a written document

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Restitution

Based on the concept of some UNJUST

ENRICHMENT

Can be used where there has been:

a mistake of fact or of law

duress

some element of compulsion


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Restitution

The plaintiff must establish:

Defendant obtained a benefit or enrichment;

Benefit was at plaintiffs expense

It would be unjust to allow defendant

to keep benefit or enrichment

and

Defendant has no defences (such as estoppel,

incapacity, illegality) to rely on

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Rescission

Termination by right

Court order setting aside contract, to restore partiesto pre-contractual position

May be granted because of:

mistake

misrepresentation

undue influence

duress

unconscionability


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Rectification

Court order requiring correction of mistake/error, to

bring document in line with correct agreement

between parties


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Court order requiring a party to specifically perform

their contractual obligations


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Injunctions

Court order prohibiting a party from doing something

Court order requiring or compelling a party to do

something


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Injunctions

Cases:

Lumley v Wagner

Curro v Beyond Productions Pty Ltd

Network Ten Pty Ltd v Rowe


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Next week

Consumer Law

Read Latimer, Ch 7

LEGT 1710_Wk_6_Semester 2_2013

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Transcript of LEGT 1710_Wk_6_Semester 2_2013