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Law Notes > LAWS1075 - Contract Law Notes

Contracts Notes

Updates Available

This is an extract of our Contracts document, which we sell as part of our LAWS1075 - Contract Law Notes collection written by the top tier of University Of New South Wales students.

The following is a more accessble plain text extract of the PDF sample above, taken from our LAWS1075 - Contract Law Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Introduction to Express Terms - 3 -

Written Terms and Signature - 3 -

From Notice - 3 -

Identifying terms in an electronic contract - 4 -

Breakdown - 4 -

Identifying Express Terms - 4 -

Parol Evidence Rule - 4 -

From Statements Made - 6 -

Incorporation by a course of dealing - 6 -

Interpretation of the Express terms - 7 -

The use of extrinsic material - 7 -

Parol Evidence Rule and Construction - 8 -

The process of interpretation - 8 -

Exclusion Clauses - 9 -

Implied Terms - 9 -

In Law or In Fact or From Custom - 9 -

Implied by custom (impossible to prove) - 10 -

Implied by fact (Byrne v Australian Airlines; Frew v Australian Airlines) - 10 -

Implied by statute/law - 10 -

Australian Consumer Law - 11 -

Competition and Consumer Act 2010 (Cth) sched 2 - 11 -

Termination - 13 -

By Agreement - 13 -

Termination by subsequent agreement - 13 -

Express agreements - 13 -

Termination inferred from subsequent agreement - 14 -

Termination by abandonment - 14 -

Breach - 14 -

For Breach of a Condition - 14 -

For Breach on an Intermediate Term - 15 -

For Repudiation - 16 -

Termination for failure of a contingent condition - 17 -

Termination for Delay - 19 -

Restrictions on Termination - 20 -

Consequences of Affirmation/termination - 20 -

Ready and Willing - 21 -

Election - 21 -

Estoppel and Waiver - 22 -

Outline of an answer on Termination - 22 -

Frustration - 23 -

Frustration - 23 -

Law Against Unfair and Unjust Contract Terms - 23 -

Damages for Breach of Contract - 26 -

Types of Damages - 26 -

Map of the General Principles - 27 -

The Compensation Principle - 27 -

Expectation Damages – Compensation - 27 -

Loss of Chance - 28 -

Reliance Damages - 28 -

Gain-based Damages - 28 -

Limitations to Recovering Damages - 29 -

Causation and Remoteness - 29 -

Mitigation - 29 -

Issues when assessing damages - 29 -

Agreed Remedies and Penalties - 30 -

Actions for Debt - 33 -

Vitiating Factors - 34 -

Vitiating Factors and Rescission - 34 -

Mistake - 37 -

General law misrepresentation - 38 -

Misleading or Deceptive Conduct under Statute - 40 -

Duress - 42 -

Undue Influence - 43 -

General Law Unconscionable Dealing - 43 -

Statutory Prohibitions on Unconscionable Conduct - 44 -

Third Party Liability - 44 -

Specific Performance - 44 -

Introduction to Express Terms

Written Terms and Signature

  • Terms of a contract determine what the parties have agreed to do by way of performance to their contract

  • The objective approach in assessing parties’ intentions:

    • “the intention which reasonable persons would have had if placed in the situations of the parties” (Reardon Smith Line v Hansen-Tangen)

  • What are the terms of a contract?

    • The provisions and obligations of the contracts – find them

    • The scope of the performance that is necessary

    • What damage was caused by the breach of contract

  • Express terms may be incorporated:

    • By signature

    • By adequate notice

    • By a course of dealing

    • Under the principle established in the ticket cases

  • Statements made orally during negotiations may also be incorporated into a contract

  • Written terms and the effect of signature

    • General rule (L’estrange v Graucob; Toll (FGCT) v Alphapharm)

      • A party will be bound by the terms contained in a contractual document which they have signed, irrelevant of if they’ve read the document

    • The agency issues

      • A method of overcoming the requirements of privity in a commercial context

  • Circumstances in which the effect of signature may be avoided

    • The rule in L’estrange v Graucob does not apply where the signature was induced by misrepresentations of the nature or scope of obligation, or fraud, or in some cases of mistake

    • Also, where the document cannot reasonably be considered a contractual document, for instance if it appears to have another function, like a receipt (Curtis v Chemical Cleaning & Dyeing)

    • Nonesfacto (latin: this is not my document) – it is clear that someone cannot read a document

From Notice

  • Incorporation of terms by notice

    • It is not uncommon for one party to allege that the contract contains terms which have been displayed or delivered before or at the time of the transaction

    • Whether or not the party will be bound depends upon whether:

      • The terms were available to the party to be bound by those terms before the contract was made

      • Reasonable steps were taken to bring the terms to the notice of the party to be bound

  • Timing

    • For delivered or displayed terms to form part of a contract they must be available to the party to be bound before the contract is made (Oceanic Sun Line Special Shipping Company v Fay)

  • Knowledge or Notice (Thornton v Shoe Lane Parking)

    • If the timing requirement is satisfied, a party will be bound by delivered or displayed terms if they have either knowledge or reasonable notice of the terms

    • If a party knows that the relevant document contains contractual terms, they will be bound by those terms

    • In the absence of knowledge, a party will be bound by delivered or displayed terms if they had reasonable notice of the terms

    • Reasonable notice depends on the type of contract

  • Was notice given? Was it adequate timing before formation?

Identifying terms in an electronic contract

  • Electronic Transaction Act 2000 (NSW)

    • Signatures

      • A method is used to identify if a person and to indicate the persons intention in respect of the information communicated

      • The method used was either:

        • As reliable as appropriate for the purposes for which the electronic communication was generated or communicated

        • Proven to the fact to have fulfilled the functions described in paragraph A (above)

      • The person to whom the signature is required to be given consents to that requirement being met by the way of the use of the method mentioned in paragraph a


  • Identify the terms

    • Express terms written document, displayed terms of use

    • Implied terms

  • Written documents

    • Consider the method of incorporation of terms?

      • By signature

        • Is it a contractual document?

      • By notice (if the document is not contractual)

        • Is the notice sufficient?

          • Timing - For delivered or displayed terms to form part of a contract they must be available to the party to be bound before the contract is made (Oceanic Sun Line Special Shipping Company v Fay)

          • Knowledge - a party will be bound by delivered or displayed terms if they have either knowledge or reasonable notice of the terms (Thornton v Shoe Lane Parking)

    • Includes reference of other terms

      • Oral agreements, additional documents, advertising promises

    • Is the contract conclusive?

      • No oral statements and extrinsic material is included

Identifying Express Terms

Parol Evidence Rule

  • What is meant by parol evidence everything that is not the document

  • What is the rationale of the rule? to give effect to the intentions of the parties

  • What is the parole evidence rule? a circle statement

    • If the contract is whole in writing, then extrinsic material cannot be used

    • Therefore, the PER does not apply (State railway Authority)

  • Statements made during negotiations

    • Parties negotiating a contract may make statements about matters relating to the contract

    • If one of the statements is false, the party to whom it was made can seek legal remedy

    • Promissory: and this a term of the contract, then there will be a remedy for breach of contract

    • Representation: not part of the contract, relief must be sought under the law relating to misrepresentation

    • To determine if a statement proves part of a contract:

      • Consider whether evidence of the purported term is admissible to the court

        • Parole evidence rule limits the extent to which extrinsic evidence is available to “add to or vary” the terms of a contract

      • Courts must determine if parties would have intended the statement to form part of the contract.

  • Entire agreement clauses

    • Parties may expressly clarify their intention for a contract to be wholly in writing through a merger or entire contract clause

    • Which states that the written contract contains the entire agreement of the parties

    • Therefore, the PER does not apply because all the terms are in the contracts written document and cannot rely on extrinsic material

  • The parol evidence rules

    • The evidence available to the court will be important in identifying the terms that form part of the contract and the construction given to those terms

    • Common law: regards contracts that the parties have reduced to writing as being in a special category, and severely limits the kind of evidence outside the written document

    • Consists of two parts:

      • It prevents extrinsic evidence being given to add to, vary or contradict the terms of the contract – the ambit of the contract

      • Limits the evidence that might be given to explain the meaning of those terms

  • Evidence included

    • Any evidence extrinsic to the contract

    • In writing

    • Oral conversation

    • Letters

    • Early drafts

  • Can extrinsic evidence be used to determine whether a contract is wholly in writing? (Corbin on contracts; state railway authority of NSW v Health Outdoor)

    • The parol evidence rule only applies to contracts wholly in writing

    • Therefore, will not apply to exclude evidence of the oral terms of a contract that are only partly in writing

  • Exceptions to the parol evidence rule in identifying terms – Cases in which extrinsic material is admissible

    • Collateral contracts

      • What is a collateral contract?

        • A collateral contract is a contact the consideration for which is entry into another contract (Mann v Nunn)

        • Specific type of contract that is the entry into another agreement

        • EG looking for an apartment but the oven is broken and the guy showing the apartment says that hell fix it if you sign the contract, so you do but he never does – the oral agreement is not a part of the main contract

        • EG if you sign this then ill give you $100

      • Contract made when one party makes a promise, connected to but independent of a main contract

      • Parol evidence rule does not work to exclude evidence of a collateral contract

    • Requirements for establishing a collateral contract (Heilbut Symons & Co v Buckleton)

      • Must be strictly proven

      • Lighter burden if alleged contract deals with a subject matter that one would not naturally expect in the main contract (Shepperd v Municipality of Ryde)

      • Must be made as a promise

      • Must be intended to induce entry into the contract (JJ Savage & Sons Pty Ltd v Blakney)

      • Must be consistent with the terms of the main contract (Hoyt’s Pty Ltd v Spencer)

    • Estoppel

      • Divided to if the PER precludes the admission of extrinsic material for the purpose of establishing an estoppel

      • (Saleh v Romanous) yes to estoppel

      • (Australian Co-operative foods v Norco Co-operative) no to estoppel

From Statements Made

  • When is a statement a term of a contract?

    • Oral statement prove intentions objectively

      • Promises/terms/warranties (incorporated into contract)

        • D a binding promise

        • Legal Effect promissory statements are incorporated into the contract

        • Remedies damages in tort

      • Mere representation (not binding, have no legal affect in contract law)

        • D statements which induce entrance into a contact but are not guaranteed by their maker

        • Remedies recession, damages in tort, remedies under the ACL

        • Legal Effect no contractual effect – it may give rise to an estoppel or be tortious

      • Puffs – making something seem better than it is – advertising (does not induce entry into a contract)

        • D laudatory statements which are not intended to be taken seriously

        • Legal Effect no contractual effect

    • Judged objectively by the courts

    • Potentially relevant factors: (Equuscorp v Glengallen Investments; JJ Savage & Sons v Blakney; Oscar Chess v Williams; Dick Bentley Productions v Harold Smith (Motors))

      • Significance of a written contract

      • Language used (Oscar Chess v Williams; Dick Bentley Productions v Harold Smith (Motors))

      • Relevant expertise of the parties (JJ Savage & Sons v Blakney; Oscar Chess v Williams)

      • Importance of the statement

      • Timing of the statement

      • Form of the written contract

Incorporation by a course of dealing

  • A term can be incorporated by a course of dealing if there are enough facts to establish that a course of dealing has been established enough time that it is incorporate (Renaldo)

  • Therefore, if a you walk past a sign every day, then 30 days later there is a storm and the sign is washed away, the sign has been incorporated into a course of dealing enough time to count

  • criteria:

    • Regular

    • Uniform

  • Test:

    • Was sufficient notice given?

    • Objective test: reasonable person would have had notice

Interpretation of the Express terms

The use of extrinsic material

  • Construction (contractual interpretation)

    • the process by which a court determines the meaning and legal effect of the terms of the contract agreed by the parties – this is with the presumption that the parties intended to say that which they have said

    • Meaning of words assessed objectively: - what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean” (Chartbrook Ltd v Persimmon Homes Ltd)

      • Pacific Carriers Ltd v BNP Paribas – highlights the implications with adopting the objective approach

    • How is the intention of the parties determined?

      • The intention of the parties is ascertained from the words they have used or their contract

      • The question is not what the parties meant to say or what the other party actually understood to have been intended. It is what the meaning of what the parties have said

    • Courts will have regard to: (Arnold v Britton)

      • The natural and ordinary meaning of the clause

      • Any other relevant provisions of the contract

      • The overall purpose of the clause and the contract

      • The facts and circumstances known or assumed by the parties at the time the document was executed – to the extent that these surrounding circumstances are admissible

      • Commercial common sense

      • Disregarding subjective evidence of any party’s intentions

  • Extrinsic evidence in constructing a contract

    • Evidence excluded

      • PER states that where a contract is in writing, the meaning of the terms of the contract will be ascertained from the words the parties have used

      • Generally, not admitted:

        • Evidence that is subjective

        • Private intentions about the meaning of the contract

        • Evidence post-contractual

        • Where the parol evidence rule applies, extrinsic evidence is inadmissible

    • Evidence of the surrounding circumstances

      • Uncertainty when evidence of the context or surrounding circumstances may be admitted

      • In England, surrounding circumstances are always admissible (Investors Compensation Scheme Ltd v West Bromwich Building Society)

      • In Australia, “evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous” (Codelfa Construction Pty Ltd v State Rails Authority of NSW)

      • The current approach is far from clear

  • Codelfa Constructions v State Rail Authority of NSW – THE TRUE RULE

    • Mason: “the true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning”

      • Ambiguity is a gateway requirement to establishing the use of extrinsic material

      • Ambiguity means the contract is not wholly in writing, therefore the parol evidence rule does not apply, and extrinsic material/ evidence of context is admissible

      • There is always an ambiguity?

    • Is ambiguity a gateway requirement for extrinsic material in the High Court?

      • Maggbury v Hafele Australia generally admissible

      • Royal Botanic Gardens and Domain Trust issue avoided

      • Pacific Carriers v BNP Paribas Issue avoided

      • Western Export Services v Jireh Intl’

      • EGC v Woodside Energy

      • Mount Bruce Mining v Wright Prosecting

Parol Evidence Rule and Construction

  • To remind the parol evidence rule has two aspects:

    • It prevents the admission of evidence so as to subtract from, add or vary written documents

    • It excludes the use of extrinsic evidence in determining the meaning of written terms

  • Exceptions?

    • Ambiguity of the wholly written contract (Codelfa Constructions v State Rail Authority of NSW)

The process of interpretation

  • The process of construction

    • Consider the meaning that a reasonable person would give to the contract (Royal Botanic Gardens and Domain Trust v South Sydney City Council; Pacific Carriers Ltd v BNP Paribas)

  • Pacific Carriers Ltd v BNP Paribas – objective approach taken by the courts

    • Pacific wanted to be sure that if something happened during the agreed shipment, then they would be compensated for the loss. They signed a letter of indemnity. Royal signed the letter and the bank authorised the signature – the bank itself does not promise to indemnify Pacific, they are just authorising the signature. They ended up agreeing to remove this disclaimer that stated that the bank was just authorising the signature. The court decided that a reasonable person would have put a disclaimer, therefore the bank has to indemnify.

Exclusion Clauses

  • Exclusion or exception clause (The Law of Contract) as follows: a term of a contract that attempts either:

    • To modify the principal obligations arising under a contract of that particular type

    • To limit or exclude the liability of a party which would otherwise arise as a result of a breach by that party of his primary obligations to perform the contract in accordance with its terms

  • Indemnity clause similar to exception clause, seeks to exclude the liability of one party by imposing on the other a duty to indemnify the former in respect of any loss incurred (Pacific Carriers Ltd v BNP Paribas)

  • Legislation restrictions on exclusion clause

    • Whether an exclusion or limitation clause is effective, a number of issues must be considered (ACL pts 2-3 (Unfair Contract Terms) and 3-2 (Consumer Guarantees)

  • The common law approach to exclusion clauses

    • At common law, whether an exclusion clause applies

    • Issue of if a third party can claim the benefit of an exception clause in a contract made by another two parties

    • A party can rely on the protection of an exclusion clause it must be shown that the clause was incorporated into the contract

    • If the clause is incorporated asked as a matter of construction, applies to exclude or restrict liability in relation to the issue in dispute

    • Overly broad exclusion clause may even be found to empty a contract of all contents (MacRobertson Miler Airline Services v Commissioner of State Taxation)

  • Does the clause apply to the issue in dispute?

    • High court discusses the proper approach to be taken in construing an exclusion clause (Darlington Futures v Delco Aust; Nissho Iwai Australia Ltd v Malaysian International Shipping Corp)

      • Exclusion clause is to be construed according to its natural and ordinary meaning

      • Read in the light of the contract as a whole

      • Thereby giving due weight to the contract in which the clause appears

      • Construing the clause contra proferentem in case of ambiguity

  • Negligence

    • Contra proferentem principle --. Clear words are necessary to exclude liability for negligence (Darlington Futures Ltd v Delco Australia Pty Ltd) – the scope of any exclusion clause to be determined by reference to its natural and ordinary meaning.

Implied Terms

In Law or In Fact or From Custom

  • When will we try to imply a term?

    • To safeguard a client where the contract does not expressly protect

    • A term that works in your interest but not the other parties

    • Shift responsibility to other party

      • “In this specific contract there is an implied term…”

      • “In the case of a problem, there is an implied term of an extension”

    • Imply a limitation clause to shift blame for quality of the goods supplied

    • Impose liability on the other party by manipulating the facts

  • When will terms be implied

Implied by custom (impossible to prove)

  • Implied on the basis of custom where the custom is “well known and acquiesced in”; then “everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract”

  • This is a difficult requirement (Con-Stan Industries of Aust v Norwich Winterthur Ins (Aust))

    • There was an implied term in the contract of insurance, arising by virtue of custom or usage in the industry, that a broker alone is liable to an insurer for payment of the premium, or alternatively there is an implied term that payment of the premium to a broker discharges the assured’s obligation to the insurer

    • Alternatively, similar terms should be implied to give business efficacy to the contract

    • Cases have established the following propositions:

      • The existence of a custom or usage will justify the implication of a term into a contract is a question of fact (Nelson v Dahl)

      • There must be evidence that the custom relied on is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract (Thornley v Tilley)

      • A term will not be implied into a contract on the basis of custom where it is contrary to the express term of the agreement

      • A person may be bound by a custom notwithstanding the fact that he had no knowledge of it

      • In order to establish a custom to the effect that a broker is alone liable to an insurer for payment of a premium on a policy insurance, it is not sufficient to show that in the ordinary course of events the premium is paid to the insurer by the broker, nor is it sufficient to show that where a broker has failed to pay a premium the insurer makes its first demand for payment from the broker

Implied by fact (Byrne v Australian Airlines; Frew v Australian Airlines)

  • Based on “presumed” intentions

  • Give effect to intentions of the parties to the particular contract

  • Implications of the term is not an addition to the instrument. It only spells out what the contract means (Lord Hoffmann in Attorney General of Belize v Belize Telecom Ltd)

  • Reliance is usually placed on the Privy Councils statement in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council

    • For a term to be implied, the following conditions must be satisfied:

      • It must be reasonable and equitable

      • It must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it

      • It must be so obvious that “it goes without saying”

      • It must be capable of clear expression

      • It must not contradict any express term of the contract

Implied by statute/law

  • Terms implied as a legal incident of all contracts of a particular class

  • Traditional examples include: (Byrne v Australian Airlines Ltd)

    • Conditions of reasonable fitness and merchantable quality of a contract for sale of goods

    • The rule that payment and delivery of good are concurrent with conditions

    • Warranty of seaworthiness

    • Letting of a furnished house that it is reasonably fit for habitation

    • Promise by a servant not to disclose secret processes

    • Not to hand over to a rival written work completed for the master

    • And, not while still in the master’s employment

    • To solicit the master’s customers to transfer their custom to himself (overruling)

    • Promise by an employer to furnish work

    • Duty of care in the carriage of passengers

    • Duty of care in looking after bailed goods

    • Promise by a banker not to disclose the state of his customers account

  • State affairs essential to performance (Codelfa Construction v State Rail Authority of NSW)

    • Difficulty accepting that the doctrine of frustration rests on an implied term

    • In many situations, it is easier to say that the parties never agreed to be bound in a fundamentally different situation which has unexpectedly emerged than it is to assert that in a like situation the parties have impliedly agreed that the contact is to remain on foot with a new provision

    • My reluctance to imply a term is stronger because the contract in this case was not a negotiated contract. It is a factor which in my view makes it very difficult to conclude that either of the terms sought to be implied is so obvious that it goes without saying.

Australian Consumer Law

Competition and Consumer Act 2010 (Cth) sched 2

  1. Is the person acquiring the goods or services a “consumer”?

In broad terms, the acquirer is a "consumer" if, for the good or service in question:

  • Price $40,000; OR

  • Price > $40,000 but goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption (or vehicles or trailers acquired for use principally in transport of goods); AND

  • The goods were NOT acquired for re-supply (s 3(2)(a)), or for the purpose of using them up or transforming them in trade or commerce in the course of certain activities (s 3(2)(b)).

  • If the good or service is not acquired by a “consumer”, the guarantees do not apply.

  1. If so,whichof the consumerguaranteesin respect of goods or services apply?

  • Guarantees in respect of the supply of goods,include guarantees, in broad terms:

    • As totitle(s 51);

    • As to right to undisturbedpossession(s 52);

    • As to undisclosed securities etc (s 53);

    • That goods are ofacceptable quality(which includes that goods are fit for all purposes for which goods of that kind are commonly supplied) (s 54);

    • That goods are reasonablyfit for any disclosed purpose, and for any purpose for which the supplier represents they are reasonably fit (s 55);

    • That goods correspond with theirdescription, if they are sold by description (s 56);

    • That goods correspond withsample or demonstrationmodel, if sold by reference to sample or demonstration model (s 57);

    • That the manufacturer will ensure reasonable access to service facilities andspare parts(s 58); and

    • Compliance with anyexpress warrantymade by supplier or manufacturer (s 59).

  • Guarantees in respect of the supply of services,include guarantees that:

    • Services will be rendered withdue care and skill(s 60);

    • Services, and products resulting from service, will bereasonably fit for particular purposespecified (s 61); and

    • Services will be rendered within areasonable time(s 62).

  1. Were the goods or services supplied in “trade or commerce”? This is a requirement for most, but not all, consumer guarantees.

  • Exceptionsare the guarantees of title, undisturbed possession and undisclosed securities which apply whether or not the goods were supplied in trade or commerce: ss 51-53.

  1. Has the supplier failed to fulfil the relevant guarantee? If so, was it a “major failure”?

  • According to ss 260, 268, a failure is a "major failure" if, in broad terms, the goods or services:

    • would not have been acquired by a reasonable consumerfully acquainted with the nature and extent of the failure; or

    • aresubstantiallyunfit for a purposefor which they are commonly supplied; or

    • areunfit for a disclosed purpose; or

    • goods are not of acceptable quality because they areunsafe, or services create unsafe situation; or

  • In respect ofgoods:

    • theydepart in one or more significant respects from their description, or from a sampleor demonstration model, where they were supplied by either of those methods; or

  • In respect ofservices:

    • they, and any resulting product, arenotof such a nature, or quality, state or condition, that they might reasonably be expected toachieve a result desired by consumerthat was made known to the supplier.

  1. Whatremediesare available? This will depend, in part, on whether or not it was a major failure.

  • If there is amajor failurein respect of the supply ofgoodsin trade or commerce, the consumer may:

    • rejectthe goods and get a refund or replacement (ss 259(3)(a), 263); OR

    • recovercompensationfor any reduction in value of the goods as a result of the failure (s 259(3)(b)).

    • There are limits on the right to reject goods, including limitations relating to:

      • the passage of time and return of the rejected goods; and

      • loss of, damage to or destruction of the goods: s 262.

    • If there is amajor failurein respect of the supply ofservicesin trade or commerce, the consumer may:

      • terminatethe contract for supply of services; OR

      • recovercompensationfor any reduction in value of the services as a result of the failure: s 267(3).

  • If the failure isnotmajor in respect of the supply ofgoods, the consumer may:

    • require the supplier to remedythe failure within a reasonable time; OR

    • if the supplier fails to do so, have the failure remedied at the supplier's cost or reject the goods: s 259(2).

    • There are limits on the right to reject goods, including limitations relating to:

      • the passage of time and return of the rejected goods; and

      • loss of, damage to or destruction of goods: s 262.

    • If the failure is not majorin respect of the supply ofservices, the consumer may:

      • require the supplier to remedythe failure within a reasonable time; OR

      • if the supplier fails to do so, have the failure remedied at the supplier's cost or terminate the contract: s 267(2).


Bringing an end to the obligations of parties to preform specific terms of a contract. Discharge one-self of obligation to perform.

By Agreement

  • Express powers to terminate

    • By providing that the contact is to last for a fixed period of time – after that time expires the contract will automatically come to an end EG a lease for a specified number of years

    • A term for termination may specify a procedure to be followed before the contract is terminated

      • For example, may require a party to give notice of decision in a particular form

    • Requirements of commercial contract should not be construed in an overly technical or restrictive manner (Kirby in Pan Foods Company importers and Distributors Pty Ltd v Austrlia and New Zealand Banking Group)

    • The scope of the express termination clause is a question of construction

      • Prove ambiguity in construction

      • Underpin an implied term

  • Implied right to terminate a contract to otherwise indefinite duration

    • Where a contract is silent as to its duration, courts may be prepared to imply a right for one or both of the parties to terminate the contract

    • The right is based on the inference that the parties would not have intended the contract to continue indefinitely

    • Where the right to terminate is implied, the requirement is:

      • “to bring to an end in an orderly way their relationship”

      • “a reasonable opportunity to enter into alternative arrangements and to wind up matters which arise out of their relationship” (Alivar v Calandra)

Termination by subsequent agreement

Express agreements

  • Terminate by making a subsequent agreement under which each agrees to release the other from the original contract

  • To be binding in law, an agreement to terminate an existing agreement must comply with the ordinary rules of contract formation, including the requirement of consideration

  • Partly preformed contracts and the issue of consideration

    • Consideration becomes difficult where one party has fully preformed the original contract and the other party has not

    • Formal requirements

      • In all Australian jurisdictions, the Statute of frauds requires certain contracts to be in writing

      • It has been held that writing is not required for an agreement to terminate an existing contract

      • Writing will be required where the subsequent contract seeks to vary, rather than terminate, the original contract

Termination inferred from subsequent agreement

  • Sometime parties make a subsequent agreement without explaining how that agreement is to interact with their original contract

  • Two possible interpretations of the subsequent agreement

    • Parties may have intended the subsequent agreement to replace and thus terminate the original contract

    • Intended the subsequent agreement merely to vary or supplement the original contract

    • The distinction: is a “matter of degree”

  • In the absence of an express term explaining the relationship between the two agreements, whether a subsequent agreement varies or terminates the original contract will depend on the intentions of the parties as disclosed by the terms and circumstances of the subsequent agreement (Tallerman v Nathans Merchandise)

  • Where a subsequent contract does not change the obligations of the parties under the original contract, but rather substitutes new parties, the substitute contract is called a novation and is treated as a new contract discharging the original one

Termination by abandonment

  • The courts may determine that the parties conducted themselves so as to mutually abandon their contract

  • Also, when an inordinate length of time has lapsed during which neither party attempted to perform the contract (Fitzgerald v Masters)


  • Forms of breach:

    • Non-performance: there is no performance at all

    • Defective performance: performance is not of the quality or quantity required by the contract

    • Late performance: a type of defective performance, the obligation is preformed but after the time set in the contract for performance

  • Some contractual duties are strict – EG the obligation to pay a fixed sum on a specified day

  • Some contractual provisions impose a standard of performance EG an obligation to take reasonable care or make reasonable efforts

  • Breach can be distinguished from lawful termination

For Breach of a Condition

  • Rights conferred by the common law

    • A party nay be entitled to terminate where the other party repudiates his or her obligations under the contract

    • Regardless of whether or not the aggravated party decides to terminate the contract or not, he or she will have a right to damages to compensate for loss caused by any breach of the contract

    • Where the aggravated party seeks to terminate a contract, the other party may argue that the right to terminate has been lost by some conduct on the part of the aggravated party

  • What constitutes a breach of contract?

    • When a party fails to perform at the time or to the standard required by the contract

  • When is there a right to terminate for breach at common law?

    • Depends on the classification of the term breached, this is three-fold:

      • Condition: aggravated party is entitled to terminate for any breach of that term by the other party regardless of the gravity or consequences of the breach

        • Damages to compensate for any loss suffered by the aggrieved party will also be available

        • Right to terminate and claim breach damages

      • Warranty: aggrieved party will not be entitled to terminate merely by reason of a breach of the term by the other party

        • Although, damages to compensate for any loss suffered by the aggrieved party will be available

        • Right to claim breach damages but no right to terminate

      • Intermediate or innominate: the aggrieved parties right to terminate depends on the gravity and consequences of the breach of the term

        • Of the breach is likely to have serious consequences for further performance of the contract then the aggrieved party will be entitled to terminate the contract in addition to claiming damages for any losses cause by the breach

        • Right to terminate depends on the severity of the breach

  • Termination for breach of a condition

    • If the term is classified as a condition, any breach of the term, regardless of its gravity, will give the aggrieved party a right to terminate the contract

    • The accepted test: (tramways advertising v Luna Park and approved by the High Court in Associated Newspaper v Bancks) Essentiality

      • An essential or inessential promise depends on the intentions of the parties as appearing in or from the contract

      • Essentiality depends on if it appears in the general nature of the contract

      • Particular term, that the promise is of such importance to the promisee that he wouldn’t have entered into the contract unless he had been assured of a strict and substantial performance of the promise

For Breach on an Intermediate Term

  • Where the term is immediate, the right to terminate depends on the nature of the breach and its foreseeable consequences

    • Whether the promisee is entitled to terminate requires analysis of the actual and foreseeable consequences of the breach

    • The right will arise if the breach is grave, sufficiently serious, fundamental and goes to the root of the contract, or in cases where the breach gives rise to events that frustrate the commercial purpose of the contract

    • The breach must deprive the innocent party of substantially the whole benefit which it was the express intention of the parties that should obtain from the contract (diploc in Hong Kong shipping v Kawasaki)

  • The breach must be “serious or deprive the aggrieved party of substantially the whole benefit which it was intended that he or she should obtain form the contract” (Ankar v National Westminister Finance)

For Repudiation

  • Where one party manifests an unwillingness or inability to perform his or her obligations under the contract, the other party may have the right to terminate

  • Traditionally, the party who is unwilling or unable to perform the contract has been said to have repudiated the contract

  • High Court used the term renunciation to describe conduct of a party who is no longer willing or able to perform the contract (Koompahtoo Local Aboriginal Land Council v Sanpine)

    • The term should be used to describe any breach of contract which justifies termination by the other party

  • Hargrave in Earney v Austrlian Property Investment Strategic set out a summary of the relevant legal principles concerning repudiation

    • The term is used in a number of senses

      • The high court has stated that repudiation may refer to conduct which evinces an unwillingness or an inability to render substantial performance of the contract

      • Described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it

      • The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it

    • It is not necessary to prove a subjective intention to repudiate – the test is objective

    • Whether there has been repudiation is a question of fact

    • Repudiation is not to be inferred lightly – it is a serious matter

    • Repudiation may be evidenced by a single act or by an accumulation of conduct in circumstances where no individual act on its own constituted repudiation

    • Repudiation does not bring an end to a contract – it is necessary for the innocent party to elect to accept the repudiation

    • Repudiatory conduct may be cured by the party in breach, but only prior to the acceptance of the repudiation

  • Repudiation and anticipatory breach

    • Anticipatory breach occurs when one party repudiates his or her obligations under the contract prior to the time set for performance of those obligations

    • The aggrieved party will be entitled to terminate the contract

    • The aggrieved party may immediately sue for damages for breach

  • Reasons for the doctrine of repudiation

    • Purely practical (Hochster v De La Tour)

  • The absence of willingness or ability

    • Where a party indicates an unwillingness or inability to perform the whole contract there is no difficulty in finding that there has been a repudiation which the aggrieved party may accept by terminating the contract

    • This is the case where the unwillingness relates to a condition or essential term of the contract (Foran v Wight)

  • Conduct amounting to a repudiation

    • A party will repudiate a contract where he or she evinces a lack of willingness or ability to preform the contract – either will suffice

    • Express statement

      • The straightest forward case is when the parties make an express statement to the effect that they are unwilling or unable to perform the contract

    • Repudiation based on words or conduct

      • In absence of a statement, words or conducts may suffice

      • Carr v JA Berriman

      • Maple Flock v Universal Furniture Products

Termination for failure of a contingent condition

  • Acontingent conditionis a term which makes the performance of the whole or part of the contractconditional on a particular eventoccurring or not occurring, but neither party promises to ensure that event occurs or does not occur.

  • Types of contingent conditions:

    • Acontingent condition to performancequalifies theperformanceof part or whole of the contract – a binding contract exists, but the obligation to perform some or all of its terms is suspended until the condition is fulfilled – eg, an obligation to purchase is subject to Foreign Investment Review Board (FIRB) approval.

    • Acontingent condition to formationqualifies theformationof a contract – the contract is not binding on the parties, and the transaction creates no rights, until condition is fulfilled – eg, the parties sign a non-binding Memorandum of Understanding (MOU) and the parties' main agreement is subject to preparation of a formal contract.

    • Conditions precedent vs conditions subsequent– fulfilment is required before parties are bound to perform vs there is an obligation to perform which comes to an end if the condition is met. This distinction is now criticised as "artificial".

  • Duty to Cooperate

    • Parties do not promise to ensure a contingent condition is fulfilled, but they may agree on anexpress termthat they will use 'reasonable endeavours' to ensure the condition is met. The contract may specify what 'reasonable endeavours' means.

    • There is also generally animplied termthat each party will do what is reasonably necessary to enable the fulfilment of the contingent condition. That is, there is an implied duty to cooperate:Meehan v Jones(1982) 149 CLR 571, 591.

    • A party in breach of their duty to cooperate cannot rely on the failure of the condition to terminate the contract, and the condition may be treated as fulfilled. However, the condition will not be treated as fulfilled in these circumstances if the condition was for the benefit of theotherparty:Newmont Pty Ltd v Laverton Nickel NL[1983] 1 NSWLR 181.

    • The aggrieved party may also be able to claimdamagesfor the other party's breach of the duty to cooperate.

  • Non-fulfilment of a contingent condition occurs when:

    • Anevent occurs which is contraryto the contingent condition – e.g., the requisite FIRB approval is refused.

    • The condition is not fulfilled within thetimeexpressly fixed for its fulfilment, or, on the basis of construction of the contract, the condition is not fulfilled within a reasonable time for fulfilment of that condition.

    • When the condition depends onone party's decision or judgment, it will fail when one party is not satisfied of, or does not approve, a certain matter.

      • The party's state of mind must be proved as a question of fact. The party must act honestly, but there is a question whether that party must also act reasonably or only in its own interests (Meehan v Jones; Renard Constructions v Minister for Public Works)

      • These conditions are also subject to the duty to cooperate.

  • Consequences of non-fulfilment

    • Non-fulfilment of a contingent condition is not a breach of the contract.

    • Failure of the conditionexcuses performanceeither of a particular obligation or of the whole contract, depending on how the contract is construed.

      • This is a question of determining the objective meaning of the relevant terms, according to the ordinary principles of construction.

    • If the contingent condition qualifies performance of the whole contract, the contract will generally bevoidable– that is, one or both parties will have the right to elect to terminate the contract.

    • No prior notice is required before the contract can be terminated: the right to terminate arises immediately upon non-fulfilment of the condition.

    • Whether one or both parties can terminate depends on the construction of the contract, taking into account, for example, whether only one party's obligations were conditional on fulfilment of that condition.

  • Non-fullment with Express Terms

    • The contract may include anexpress termwhich provides that the contract automatically comes to an end or is deemed to come to an end on non-fulfilment, or that one party may elect to terminate the contract on non-fulfilment.

    • But what happens if non-fulfilment of the condition is due to one party’sdefault? (e.g., breach of duty to cooperate)

      • A party cannot take advantage of its own wrong:MK & JA Roche v Metro Edgely.

      • If the non-fulfilment is due to one party's default, the contract is not void but only voidable at the option of the non-defaulting party:Suttor v Gundowda.

      • Where one party induces the other to believe the contract was still on foot, that party may be estopped from asserting that the contract automatically came to an end:Waterman v Gerling Australia.

  • Waiver of Contingent Condition

    • Both parties mayagree to waivea contingent condition, in which case both parties will be bound by the agreement and neither party can terminate for non-fulfilment.

    • One party acting alone can waive compliance where the condition is for the benefit of that party:

      • For example, inPerri v Coolangatta Investments Pty Ltd(1982) 149 CLR 537, since the contract for the sale of land was subject to the purchasers completing a sale of their own property, the purchasers acting alone could waive compliance with the condition since it was substantially for their benefit and inserted for their protection.

      • ContrastGough Bay Holdings v Tyrwhitt-Drake, where the sale of the property was subject to the parties obtaining development approval - this condition was for the benefit of both purchaser and vendor since the vendor was retaining the adjacent land.

  • Restrictions on right to terminate for non-fulfilment

    • Restrictions on the right to terminate for non-fulfilment of a contingent condition include:

      • Waiver of the benefit of the condition – the relevant party or parties are bound by the waiver once it is communicated to the other party.

      • Prevention of fulfilment of the condition – a party who prevents fulfilment of the condition cannot rely on non-fulfilment of the condition.

      • Estoppel – the right to terminate can be lost by subsequent conduct which gives rise to an estoppel.

      • Doctrine of good faith – termination for non-fulfilment may be subject to an implied obligation to act in good faith.

      • Unconscionable conduct under ss 20-21 Australian Consumer Law – may prevent reliance on non-fulfilment of the condition.

Termination for Delay

1. When is performance required?

  • There may be anexpress termof the contract setting a certain period or date for performance; or

  • If the contract provides no express time for performance, there will be animplied termrequiring performance of the obligation within a ‘reasonable time’ (reasonableness depends on the circumstances); or

  • Where one party has given the otheran extension of timefor performance, the time for performance will depend on the terms of the notice and the nature of the original time stipulation (discussed later).

2. What can the aggrieved party do if the other party is late performing?

  • If the time stipulated is anessential term, any breach of the time stipulation will entitle the aggrieved party to elect to terminate.

  • If the time stipulation isnot an essential term, the aggrieved party can only terminate for breach of the term where the delay – possibly combined with other conduct – amounts to repudiation,orwhere the breach of the time stipulation is sufficiently serious.

3. When is a time stipulation anessentialterm of the contract?

  • The contract states that ‘time is of the essence’; or

  • The contract specifies that breach of the time stipulation amounts to repudiation and that it will entitle the other party to terminate;but

  • If there is merely an express right to terminate for delay, the time stipulation may not be essential: seeHewitt v Debus;

  • The usual considerations for construing a term as essential apply;

  • A term regarding time for performance will only be essential where it would have been deemed to be essential in a court of equity – ie where that was the intent of the parties, judgedobjectively(since theJudicature Act 1873): Conveyancing Act 1919(NSW) s 13;

  • It is generally unlikely that an implied term regarding time will be essential.

4. If thetime stipulation isnot an essential term, what are the aggrieved party’s rights if the time stipulation is breached?

  • There is generally no right to terminate for breach of a non-essential term as to time, UNLESS

  • The delay is a serious breach of the time stipulation in terms of the degree of delay and its consequences, in which case the aggrieved party may terminate based on the seriousness of the breach (but there is some uncertainty concerning this ground for termination – seeBunge Corp New York v Tradax(UK);Ankar v National Westminster; Carter,Contract Law); or

  • The delay amounts to repudiation of the contract in that, on its own or with other conduct, it indicates the party is not willing or able to perform the contract.

  • The aggrieved party may also use the notice procedure to establish a right to terminate (as explained below).

5. If the time stipulation isnot an essential term,and one party has breached that stipulation,the aggrieved party can also acquire a right to terminate if it provides a valid notice including a time for performance, and that notice is breached.

Requirements for valid notice procedure:

  • The notice mustspecify a timefor performance;

  • The time specified for performance must bereasonable(depending on the circumstances of the case, including subject matter; what remains to be done; earlier delay; time required to perform the obligation). The onus is on the party giving notice to show the period was reasonable; and

  • It must clearly indicate that the time stipulated in the notice is of the essence, or "convey a definite and specific intent to require strict compliance with the terms of the contract", including, eg, by indicating that the party giving notice regards themselves as entitled to terminate for non-compliance.

For further detail, readLaurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd(1989) 166 CLR 623

Other requirements for terminating after notice:

  • The party issuing the notice should beready and willingto perform their own obligations under the agreement at the time the notice is given (unless the party is only in breach of a non-essential term which would only entitle the other party to damages);

  • The notice must relate to a time stipulation in the contract that has been breached, andnot some other obligationunder the contract which is not yet due for performance:Louinder v Leis(1982) 149 CLR 509; and

  • If the contract does not expressly provide a time for performance and the party relies on animplied term, notice can only be given after an initial period of unreasonable delay which amounts to breach:Laurinda v Capalaba Park Shopping Centre.

6. What happens if the aggrieved party gives an EXTENSION OF TIME for performance?

  • If the time stipulation was originally an essential term and the extension stipulates a new time for performance, time will remain of the essence (entitled to terminate immediately if the extended time for performance is breached);

  • If the time stipulation was originally an essential term and the extension does not stipulate a new time for performance, time will no longer be of the essence (only entitled to terminate later if the subsequent delay amounts to repudiation or by following the notice procedure);

  • If time was not originally an essential term, time is still not of the essence (only entitled to terminate if the subsequent delay amounts to repudiation or by following the notice procedure).

Restrictions on Termination

Consequences of Affirmation/termination

  • The right to elect

    • On the breach of condition, grave breach of an intermediate term or repudiation, the aggrieved party has a right to terminate the contract

    • The aggrieved party is put to their election

    • The essence of election is that an aggrieved party cannot take up two inconsistent positions

    • The aggrieved party must make an election:

      • Terminate the contract

      • Affirm – continue with the contract

    • Once an election is made, it cannot be retracted (tropical Traders)

  • Where the contract is affirmed

    • Consequences of affirmation for the aggrieved party

      • The breaching or repudiating party may rely on the contract demanding performance of it (Foran v Wight; Bowes v Chaleyer)

    • Consequences of affirmation for the non-preforming party

      • Right to rely on subsequent events (Bowes v Chaleyer)

        • Affirmation keeps the contract alive for the benefit of both parties

        • A party who has breached or repudiated a contract may be able to rely to her or his advantage on subsequent events

  • Where the contract is terminated

    • Consequences of termination for the aggrieved party

      • Where an aggrieved party terminates a contract, the action brings to an end both parties future obligations to perform under the contract

      • The contract is not rescinded from the beginning

      • The rights that have already been unconditionally acquired or accrued are not discharged (McDonald v Dennys Lasceles)

    • Consequences of termination for the non-preforming party

      • Where a contract is terminated, rights which have accrued prior to termination continue in force and may accordingly be relied upon even by a party who has breached or repudiated the contract

Ready and Willing

  • A party who claims to have lawfully and validly terminated a contract must prove the existence of a right to terminate and that the right of election was exercised lawfully.

  • The aggrieved party must also prove their readiness and willingness to perform the contract as the time of the other party’s breach

  • Restrictions on the right to terminate

    • Where one party has a prima facie right to terminate a contract, the other party may claim that there is some form of restriction on that right

    • The parties may impose such restrictions – EG through the use of a clause excluding the consequences of certain types of breach of contract

    • Statues may impose restrictions on the right to terminate for breach

  • Readiness and willingness

    • To be entitled to terminate a contract for breach or repudiation, an aggrieved party must show that he or she was ready – and able – and willing to perform the contract

    • The time at which an aggrieved party must have been ready and willing to preform, and what the aggrieved party much show to satisfy the requirement

  • Readiness and Willingness must be proved only where damages were also sought (Hodgson JA in Sharjade Pty Ltd v Commonwealth support Deane in Foran v Wight)

  • Where the other party intimates that performance would be futile an aggrieved party may be absolved of the consequences of non-performance (Foran v Wight)


  • An aggrieved party faced with an event which entitles her or him to terminate the contract has a choice between terminating and continuing with or affirming the contract

  • The doctrine of election refers to the choice between alternative rights

  • An election is usually finals and cannot be retracted

  • There are two requirements for election: (Tropical Traders v Goonan)

    • Knowledge of at least the facts giving rise to the right to terminate

    • Unequivocal conduct consistent only with a choicer to continue with the contract

Estoppel and Waiver

  • The exercise of a right to terminate a contract may be restricted by equitable estoppel

  • An aggrieved party may be estopped from terminating a contract: (Legione v Hateley)

    • where they induced the other party to believe that the contract will not be terminated in the circumstances that occurred

    • The other party has relied on that assumption to their detriment

  • Waiver (Agricultural and Rural Finance v Gardiner)

Outline of an answer on Termination

  • Firstly, advise Con Tracts of his rights

  • A defective performance – not having the whole

  • The breach must be “serious or deprive the aggrieved party of substantially the whole benefit which it was intended that he or she should obtain form the contract” (Ankar v National Westminister Finance)

  1. Is there a termination clause? Express or implied

    1. What right of termianton are they activating

      1. Common law tight

      2. Contractual right

  2. If no, is there an obligation that will be breached

    1. What is the method of incorporation? (“assuming valid incorporation, the contract contains this obligation….”

      1. Course of dealing

      2. Signatrure

      3. Notice

    2. Is it oral, written or implied?

  3. Determine the scope of the obligation and construction

  4. Establish what the bleach was

    1. Compare actual conduct with the standards set in the contract to establish breach

If you client is in breach but you want to advise them of their rights

  1. Potentially imply a term

    1. Determine the implication is not excluded

    2. There is a gap in the express term

    3. The scope of the implied term

  2. Argue not a breach – related to construction

  3. Argue not essential to the purpose of the contract

  4. Argue an intermediate condition that is not detrimental to the whole purpose



  • Frustration as an excuse for non-performance

    • The performance of a contract may sometimes be disrupted by catastrophic event that have not been provided for by parties to the contract

    • Inferred there is a gap in the contract

    • The doctrine of frustration provides an excuse for non-performance

  • When is the contract frustrated?

    • The test for frustration (Davis Contractors v Fareham; Codelfa v State Railway Authority)

      • Occurs whenever the law recognises without default of wither 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

      • Construction of the contract

    • Illustrations

      • Destruction of subject matter (Taylor v Caldwell)

      • Disappearance of the basis of the contract (Krell v Henry)

      • On true construction of the term which are in the contract read in light of the nature of the contract and of the relevant surrounding circumstances (Brisbane City Council v Group Projects)

      • Brisbane City Council is accepted by Codelfa

Law Against Unfair and Unjust Contract Terms

  • Overview of the Unfair Contract Terms Law

    • Part 2-3 of the Australian Consumer Law (ACL) regulates unfair contract terms in consumer, and small business, standard form contracts.

    • This unfair contract terms law (UCTL) took effect on:

      • 1 July 2010 for "consumer contracts"; and

      • 12 November 2016 for "small business contracts".

    • The UCTLdoes not prohibitunfair contract terms, but only makes anunfair term voidwhere Part 2-3 applies to the contract in question.

      • This is in contrast to the more recent proposals of the ACCC to make unfair contract terms unlawful and subject to pecuniary penalties

  • When a term is void under the UCTL

    • A term isvoidunderACL s 23(1)if:

      • no exception applies to that term;

      • it is in a “consumer contract” or “small business contract”

      • the contract is also a standard form contract; and

      • it is unfair.

  • 1. Does an exception apply to the term? ACL ss26 and 28

    • The UCTLdoes not applyto certain terms or contracts, including:

      • terms that define the main subject matter of the contract;

      • terms that set the up-front price payable;

      • terms required or expressed permitted by a law of the Commonwealth, State or Territory; or

      • terms in certain contracts, including certain...

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