#7293 - Termination For Breach And Repudiation Casebook Component -

Casebook Component – Termination for Breach

Whether or not a common law right to terminate for breach exists depends on the classification of the term breached:
- If a term is a condition the aggrieved party will be entitled to terminate for any breach of that term by the other party regardless of the gravity/consequences of the breach. Damages for any loss suffered are also available
- If a term is a warranty, the aggrieved party will not be entitled to terminate only by reason of breach by the other party but damages to compensate loss suffered will be available
- If a term is a intermediate or innominate term the aggrieved party’s right to terminate depends on the gravity/consequences of the breach. If it is likely to have serious consequences for performance, then the aggrieved party will have the right to terminate the contract and claim damages for anay losses
Hence the first step in deciding whether or not the party has the right to terminate is to classify the term.
In general terms will only be classified as warranties where required under statute
The classification of the term as intermediate is like to be preferred since it gives courts greater flexibility in dealing with breach (after HK Fir Shipping)
Hong Kong Fir Shopping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 – in the absence of a clearly expressed intention to the contrary, a term will only be classified as a warranty if it is such that no possible breach could give rise to an event which would deprive the aggrieved party of substantially the whole of the benefit which it was intended he/she receive from the contract

Termination for Breach of a Condition

The accepted test for whether or not a term should be a condition was outlined in Tramways (below)
- The question is whether or not the term is essential or inessential “depends on the intention of the parties as appearing in or from the contract”. The test is “whether it appears from the general nature of the contract, or for some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise, as the case may be, and this ought to have been apparent to the promisor”
This was further clarified in DTR Nominees Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
- The judgement should take “close account of the importance which the parties have attached to the provision as evidenced by the contract itself as applied to the surrounding circumstances”

Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 Relevant Facts: The plaintiff (T) was in the business of advertising for the defendant (L) by means of 53 boards displayed on the roof of trams. The plaintiff guaranteed in a letter that “these boards will be on the track at least eight hours a day throughout the season”. After this contract was in operation for two seasons L objected that the display contracted for was not being provided and therefore that it did not regard itself as bound to perform (pay) under the contract. T admitted that the service had not been provided but contended that the contract required that each board was advertised for an average of 8 hours per day. T offered to discuss alternations to the form but L refused to discuss. L protested to the boards being displayed when T did so in a third season. Case History: T sued for the charge of the third season. L launched a cross-action for damages Issue: What were the consequences for breach of the term Ratio (Jordan CJ): His honour considered relevant whether: the breach extended to all/some of the promises of the defaulting party, whether or not that promise was important and it’s breached substantial or trivial, when the breach occurred happened in relation to performance. He discuss the second matter as a matter of *essentiality* outlining the test above. He then said if the innocent party would not have entered but for strict assurance of the promise, he may treat himself as being discharged on any breach however slight. If he contracted on substantial performance of the promise, then any substantial breach would justify discharge The extent of performance is also relevant: If nothing has been done on either side when the breach is committed, the innocent party can exercise his right of treating himself as discharged and sue for damages for loss of contract Also if a party entitled to end the contract does not exercise the right when aware of the breach he loses his right to avoid and is remitted to remedy by damages when: He proceeds to do some act which could only be done by virtue of the contract being treated as subsisting The party in default carries on with performance at the express/tacit request of the innocent party But a party does not lose his right of putting an end to the contract by insisting that a breach should be remedied, but if he does then he cannot exercise this right afterwards without giving reasonable notice of this intention If a defaulting party withholds performance which is necessary to enable the innocent party to perform, the innocent party is absolved from performance as long as participation is withheld He then described the implied promise of a party not to repudiate – the breach of which gives a right to avoid Breaches can amount to either breach of: non-essential promises (damages), essential promises, implied repudiation A breach implies repudiation if it leads to the inference that similar breaches will be committed wrt. subsequent performance (Maple Flock Co Ltd v Universal Future Products) A vital breach of an essential promise is good ground for avoidance notwithstanding an intent to repudiate – hence if the essence of the contract is that at least 1 ton of something should be delivered a week – failure to do so justifies avoidance
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 61 CLR 286 Latham CJ: Made it clear that though a concession was made as to nominal damages being an entitlement of L, the extent of the breach was undetermined and therefore the evidence does not make it possible to reach any estimate of the damage suffered. And furthermore by choosing to go to trial L must abide the consequences of doing so with incomplete evidence He dealt with the construction of the clause to determine whether or not it was essential: The words ‘we guarantee’ are particularly suited to emphasise the importance of the clause The importance of all 53 boards being displayed (echoed in the contract) supports the view that the parties regarded completeness of the display as an essential element of the contract (payment only when all displayed) A discontinuous irregular display is something very different from a guaranteed continuous and regular display and thus the clause was a condition not a mere warranty – the defendant was entitled to determine the contract due to past breaches Furthermore the plaintiff must be regarded as renouncing the contract which it was made even though they contended that it would be properly performed (they offered the defendant the right to believe that the contract was not to be performed according to its true construction) “The defendant can justify the repudiation of the contract upon any ground which in fact existed whether or not such a ground was previously relied upon by him” – Shepherd v Felt and Textiles of Australia (1931) 45 CLR 359

Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632

Relevant Facts: The plaintiff (T) was in the business of advertising for the defendant (L) by means of 53 boards displayed on the roof of trams. The plaintiff guaranteed in a letter that “these boards will be on the track at least eight hours a day throughout the season”. After this contract was in operation for two seasons L objected that the display contracted for was not being provided and therefore that it did not regard itself as bound to perform (pay) under the contract. T admitted that the service had not been provided but contended that the contract required that each board was advertised for an average of 8 hours per day. T offered to discuss alternations to the form but L refused to discuss. L protested to the boards being displayed when T did so in a third season.

Case History: T sued for the charge of the third season. L launched a cross-action for damages

Issue: What were the consequences for breach of the term

Ratio (Jordan CJ):

His honour considered relevant whether: the breach extended to all/some of the promises of the defaulting party, whether or not that promise was important and it’s breached substantial or trivial, when the breach occurred happened in relation to performance.

He discuss the second matter as a matter of essentiality outlining the test above. He then said if the innocent party would not have entered but for strict assurance of the promise, he may treat himself as being discharged on any breach however slight. If he contracted on substantial performance of the promise, then any substantial breach would justify discharge

The extent of performance is also relevant:
- If nothing has been done on either side when the breach is committed, the innocent party can exercise his right of treating himself as discharged and sue for damages for loss of contract
Also if a party entitled to end the contract does not exercise the right when aware of the breach he loses his right to avoid and is remitted to remedy by damages when:
- He proceeds to do some act which could only be done by virtue of the contract being treated as subsisting
- The party in default carries on with performance at the express/tacit request of the innocent party
But a party does not lose his right of putting an end to the contract by insisting that a breach should be remedied, but if he does then he cannot exercise this right afterwards without giving reasonable notice of this intention
If a defaulting party withholds performance which is necessary to enable the innocent party to perform, the innocent party is absolved from performance as long as participation is withheld
He then described the implied promise of a party not to repudiate – the breach of which gives a right to avoid
Breaches can amount to either breach of: non-essential promises (damages), essential promises, implied repudiation
A breach implies repudiation if it leads to the inference that similar breaches will be committed wrt. subsequent performance (Maple Flock Co Ltd v Universal Future Products)

A vital breach of an essential promise is good ground for avoidance notwithstanding an intent to repudiate – hence if the essence of the contract is that at least 1 ton of something should be delivered a week – failure to do so justifies avoidance

Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 61 CLR 286

Latham CJ:

Made it clear that though a concession was made as to nominal damages being an entitlement of L, the extent of the breach was undetermined and therefore the evidence does not make it possible to reach any estimate of the damage suffered. And furthermore by choosing to go to trial L must abide the consequences of doing so with incomplete evidence
He dealt with the construction of the clause to determine whether or not it was essential:
- The words ‘we guarantee’ are particularly suited to emphasise the importance of the clause
- The importance of all 53 boards being displayed (echoed in the contract) supports the view that the parties regarded completeness of the display as an essential element of the contract (payment only when all displayed)
A discontinuous irregular display is something very different from a guaranteed continuous and regular display and thus the clause was a condition not a mere warranty – the defendant was entitled to determine the contract due to past breaches
Furthermore the plaintiff must be regarded as renouncing the contract which it was made even though they contended that it would be properly performed (they offered the defendant the right to believe that the contract was not to be performed according to its true construction)

“The defendant can justify the repudiation of the contract upon any ground which in fact existed whether or not such a ground was previously relied upon by him” – Shepherd v Felt and Textiles of Australia (1931) 45 CLR 359

Associated Newspapers Ltd v Bancks (1951) 83 CLR 322

Relevant Facts: The plaintiff (AN) was in a 10 year contract with the defendant (B) to publish a full-page drawing of Us Fellers on the front page of the comic section of the Sunday Sun and Guardian. It had done so until the 11^th of Feb 1941 when, due to a shortage of newsprint, printed it on the third page headed ‘Sunday Sun Comics’. B sent a letter to AN stipulating that they were no longer bound by the contract because the AN repeatedly, without consent, broke its undertaking. The company commenced proceedings for an injunction restraining the breach by the defendant of certain negative stipulations in the contract

Issue: Whether or not the initial term was a condition or warranty of the contract

Ratio (Dixon, Williams, Webb, Fullagar and Kitto JJ):

Their honours accepted the test of Jordan CJ in Luna Park as a correct statement of law
They construed the term as a condition – a composite understanding comprising of three ingredients: 1) presenting the full-page drawing 2) doing so weekly 3) doing so on the front page of the comic section
Also relevant was that the plaintiff’s true work was the production of this drawing and what he was substantially paid his weekly salary for. They referred to the disparity of it being his only obligation as being a condition for him but only a subsidiary term for the defendant, breach of which would sound in damage
They analogised it to the work of an actor – failure to give an actor a proper party is breach of a contract which goes to the contract’s root and justifies in the actor in treating the contract as rescinded (White v AU and NZ Theatres Ltd)
The fact that it formed a condition and that three successive breaches was held to be failure to perform the condition and a breach going to the root of the contract – this gave the defendant the right to treat the contract as at an end
Though not essential for proof their honours referred to whether or not the conduct of the plaintiff was such as to amount to refusal to be bound by the contract (which in this...

#7293 - Termination For Breach And Repudiation Casebook Component - Contracts 2

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