Australian Contract Law Ii Notes - Contract

DISCHARGE BY AGREEMENT OR FRUSTRATION Content Overview: * Discharge o By Performance (CCO1) o By Agreement o By Frustration o By Breach * Consequences of termination * Remedies * Excuses for non--performance Discharge of a Valid Contract: * A contract may be discharged by: o Performance SS? CCO1 o Agreement o The Doctrine of Frustration o Breach Discharge by Agreement * If the parties agree to discharge the contract, there is no reason to hold them to the terms of the contract * Terms by which this occurs may be in the original contract or by subsequent agreement/s * Make a new contract to discharge the original contract, (with all the components of a contract) o Consideration can be controversial: SS? Deed or subsequent payment can be made if one party has fulfilled their agreement SS? If neither party has fulfilled their role under the contract, the consideration is releasing the other party from their obligations Discharge by Frustration * Emerged from the "absolute contract rule" o Once a party entered into the contract, they were bound by their undertaking even if external circumstances outside their control rendered their performance impossible * Doctrine of frustration developed to overcome this rule * Occurs where an unexpected event, which was not the fault of either party, makes performance of the contract something radically different to what the parties originally agreed * Question of construction of the contract, in light of the events that have occurred * Where frustration is made out, the contract terminates automatically Frustration is rarely successfully pleaded and generally, where it is unsuccessful, there will be an action for breach of contract. * Davis Contractors Ltd v Fareham Urban District Council: o "Frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because * * * * * the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. It is not this that I promised to do." SS? This statement was adopted by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales The doctrine relates to an event that happens after the contract is made The frustrating event must be unexpected and the parties must have made no provision for it in the contract Must have a significant impact on the performance of the contract by one or both of the parties, such that performance is now radically different to that thought of at the time the contract was made Neither party can have caused the event Not every unanticipated event amounts to frustration o The mere fact that performance becomes more onerous for a party is not enough to trigger the doctrine SS? Tsakiroglou & Co Ltd v Noblee & Thorl G.m.b.H What is the basis for the doctrine? * Implied term o Imply a term within the contract which accounts for the doctrine SS? Taylor v Caldwell * Total failure of consideration o If there is no consideration, there is no contract SS? Fibrasa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd * Legal device o The doctrine of frustration is really a device by which the rules as to absolute contracts are reconciled with a special exception which justice demands SS? Hirji Mulji v Cheong Yue SS Co Ltd * Construction theory o One prevailing account of why it exists SS? Frustration depends not on adding any implied term but on the true construction of the terms which are read in the light of the nature of the contract and of the relevant surrounding circumstances * Davis Contractors Ltd v Fareham Urban District Council SS? It is legitimate to look to extrinsic evidence in the form of relevant surrounding circumstances to assist us in the interpretation of the contract * Codelfa Construction Pty Ltd v State Rail Authority of NSW Accepted grounds for application of the doctrine: * Where a party has died or has become incapacitated o Simmons Ltd v Hay * Where the contracts subject matter has been destroyed or is unavailable o Taylor v Caldwell o Hirji Mulji v Cheong Yue SS Co Ltd * Inability to use the contracts subject matter for a specified or contemplated purpose o Krell v Henry * Where there is delay in performance (not every delay will constitute frustration) o Jackson v Union Marine Insurance Co Ltd o Metropolitan Water Board v Dick Kerr & Co * Where war affects performance of the contract o Kodros Shipping Corporation of Monrovia v Empresa Cuba de Dletes (The Envia) (No 2) * Where a certain state of affairs is essential to performance o Codelfa Construction Pty Ltd v State Rail Authority of New South Wales Forseeability * Where the event is foreseen by the parties the doctrine will not apply o Walton Harvey Ltd v Walker and Homfroys Ltd * What degree of foresight is required? o The parties must have foreseen the events occurrence as a serious possibility * A plea of frustration will not succeed: o Where the contract makes provision for the allegedly frustrating event o Where the party seeking to rely on frustration should have foreseen the allegedly frustrating event but did not Self--Induced Frustration * Frustration must occur without fault of the party seeking to rely on the contract being frustrated * The onus of proving self--induced frustration rests on the party alleging fault o Maritime National Fish Ltd v Ocean Trawlers SS? Plaintiff charted one of 5 trawlers owned by the defendant SS? Each of the 5 vessels required a license - but they only had 3 licenses SS? Defendant couldn't charter the boat to the plaintiff because the boat they ordered didn't have a license SS? Argued that the contract had been frustrated, through self induction, because the defendant had not given one of the licenses to the boat hired by the plaintiff The effect of frustration * If frustration is made out, the contract is automatically terminated * Future rights and obligations are all discharged but accrued rights and obligations remain on foot * The occurrence of a frustrating event doesn't give either party a right to claim damages * Payment for any work performed after the frustrating event must be on a quantum meruit * Payments made up to the point of frustration cant be recovered unless there is a total failure of consideration o Sometimes claims can be made in restitution 'Force majeure' clauses * Principles of frustration are default principles that will apply absent provision in the contract * Clauses that seek to allocate risk for unexpected events o Natural disasters, (other acts of God) o War o Failure of third parties to perform * A force majeure clause will only cover events that o Are beyond the control of the parties o Which cant be prevented by the exercise of due care * Courts will only consider clauses WITHIN the actual contract o They will not imply one into it Codelfa Construction Pty Ltd v State Rail Authority of NSW * Facts: o Codelfa entered into an agreement with State Rail to do excavation work for an underground railway Contract required different stages of the work to be completed by certain times Parties entered into the contract on the understanding that the work was to be carried out by three shifts for seven days a week o Residents obtained an injunction against noisy work o Courts deemed it was frustration What were the legal issues? o Is there an implied term that SRA would indemnify Codelfa for additional costs incurred by such an event? o Is the contract frustrated? What did the court decide o Majority (Stephen, Mason, Aickin, Wilson JJ) SS? An injunction was not contemplated by the parties at the time the contract was entered into SS? It rendered the performance of the contract radically different form the performance the parties had contemplated SS? It therefore frustrated the contract o Minority (Brennan J) SS? Same decision, but through different reasoning * The circumstance had not radically changed after the injunction * At the time the contract was into, Codelfa was still under a legal obligation not to cause noise/nuisance - IMPLIED TERM * Codelfa should have known or accounted for that risk at the time of entering into the contract o o * * TERMINATION BY BREACH OR REPUDIATION Right to rescind o Rescission ab initio SS? Discharge from the beginning o Can the parties returned, (substantially), to their original position? SS? Misrepresentation, mistake, unconscionable conduct, duress, undue influence, and or misleading or deceptive conduct * Right to terminate o Right to terminate the performance of the contract in futuro o Accrued rights may still be enforceable but not future rights SS? Breach and repudiation * Repudiation gives right to terminate Right to Terminate * Every breach of contract gives rise to a right to damages * Not every breach entitles the promise the right to terminate the contract * Right to terminate can come from: o Termination clause in the contract SS? Allows parties to alter the common law and is a question of construction SS? Statute * Rare, but certain legislation does give this right o Sale of Goods, ACL etc. SS? Cannot contract out of ACL SS? Remedies are also through the statute SS? Common Law * Arises in 3 situations: o Breach of a condition SS? An essential term in the contract o A fundamental breach of an intermediate term o Repudiation SS? Words or conduct amounting to a refusal to perform the contract Termination for Breach of a Condition * All breaches of a condition will give rise to the right to terminate, regardless of the gravity of the breach o Arcos v Ronaasen * Express or implied * A term can be deemed a condition o By statute SS? ACL s54 "guarantee as to acceptable quality" SS? By designation * Need a clear intention for term to have status as 'condition' * Use of the word condition is not decisive o Schuler v Wickman Machine Tool Sales o By construction SS? "the test of essentiality is whether it appears from the general nature of the contract, that the promise is of such importance that the promisee would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise and this ought to have been apparent to the promisor" - Jordan CJ * * Tramways Advertising P/L v Luna Park Ltd * Associated Newspapers Ltd v Bancks SS? This is the main way to determine whether something is a condition of the contract Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 Facts Issue Held Bancks agreed tor provide AN Was the company's The term was a condition. a weekly full page cartoon, to undertaking to present the Applied the test in Tramways: be presented on the front page defendant's drawing on the "if the innocent party would of the comic section. Bancks front page of the comic is a : not have entered into the alleged that AN had -- condition or essential term contract unless assured of a repeatedly, without his of the contract going to its strict and literal performance consent and in face of his very root, the breach of which of the promise, he may in protest, failed its to perform would immediately entitle the general treat himself as its obligations. Bancks gave defendant at his option to discharged upon any breach of notice that he was no longer rescind the contract and sue the promise, however slight." bound by the contract. for damages for the loss of the contract or, -- mere warranty or non essential term, the breach of which would entitle the defendant to damages Termination for Breach of a Condition * DTR Nominees Pty Ltd v Mona Homes P/L o Further explanation for the test * Would the parties have entered into a contract on the understanding that there would be strict compliance with a term? * Characterization in previous cases o Standard form contract SS? Expected readiness clause = condition * Maredelanto Compania Naviera SA v Bergbau--Handel GmbH SS? Promoting certainty * Bunge Corporation v Tradax Export SA SS? Language used to describe obligation is important but not decisive * Luna Park v Tramways o Advertising boards "guaranteed" to be "on the tracks at least eight hours per day" SS? Condition argument failed in: * Bettini v Gye * Donut King Australia Pty Ltd v Wayne Gardner Racing Pty Ltd SS? Probable consequences of breach * Hongkong Fir Shipping Co Ltd v Kawasaki Lisen Kaisha Ltd SS? Whether damages an adequate remedy * Ankar v National Westminster Finance For fundamental breach of an intermediate term: * Less than an essential term but more than a warranty o Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council * Innominate: assumes the character of each in turn, in accordance with the seriousness of the breach o Bunge Corporation v Tradax Export SA * Where a term is intermediate, the right to terminate depends on the nature of the breach and its forseeable consequences. It must deprive the innocent party of substantially the whole benefit which was intended o Hongkong Fir Shipping Co Ltd v Kawasaki Lisen Kaisha Ltd