Up-dates to Gooley, Radan & Vickovich,
Principles of Australian Contract Law, 3rd ed,
LexisNexis, 2014
CHAPTER 4
At the end of the sixth sentence in 4.1 insert the following:
It can be noted that, in ascertaining whether a contract has been made during the course of
negotiations, be they in writing or oral, a court will look at the whole course of those
negotiations: Hussey v Horne-Payne (1878) 4 App Cas 311 at 316; Global Asset Capital, Inc v
Aabar Block SARL [2017] EWCA Civ 37 at [29]-[31]. However, once it is established that a
contract has been entered into, any further negotiations between the parties cannot alter or
end the contract unless agreed to by all the parties to it: Perry v Suffields [1916] 2 Ch 187 at
192.
At the end of 4.1 add the following:
The requirement of objectivity was, after ‘a brief but almost inconsequential flirtation with
subjective approaches in the mid-nineteenth century’,1 famously stated by Blackburn J in
Smith v Hughes (1871) LR 6 QB 597 at 607, as follows:
I apprehend that if one of the parties intends to make a contract on one set of terms, and the other
intends to make a contract on another set of terms, or, as it is sometimes expressed, if the parties are
not ad idem, there is no contract, unless the circumstances are such as to preclude one of the parties
from denying that he has agreed to the terms of the other … If, whatever a man’s real intention may be,
he so conducts himself that a reasonable man would believe that he was assenting to the terms
proposed by the other party, and that other party upon that belief enters into the contract with him,
1
J M Perillo, ‘The Origins of the Objective Theory of Contract Formation and Interpretation’ (2000) 69 Fordham
Law Review 427, p 428.
the man thus conducting himself would be equally bound as if he had intended to agree to the other
party’s terms.
At the end of 4.3 add the following:
For an agreement to arise pursuant to the process of offer and acceptance, the ‘offer and
acceptance must precisely correspond’ and ‘any departure by the acceptance from the terms of
the offer results in the purported acceptance being ineffective: Redowood Pty Ltd v Mongoose
Pty Ltd [2005] NSWCA 32 at [66].
At the end of 4.5 add the following:
Thus, as was pointed out by McPherson JA in Hyatt Australia Ltd v LTCB Australia Ltd [1996] 1
Qd R 260 at 264,
The words ‘offer’ and ‘acceptance’ are, however, simply useful labels designating successive bilateral
promises which, taken together, give rise to an enforceable agreement. The practice of analysing
contracts into offer and acceptance is simply one of convenience, and, provided in the end their terms
precisely correspond, it is in law immaterial which of the two promises comes first. Indeed, in the case
of forming a contract the sequence may often be reversed, as when the acceptance is conditional, and
so becomes a counter-offer itself capable of acceptance by a further promise on the other side.
At the end of 4.12 add the following:
In relation to whether there is an offer or invitation to treat, in Mealey v Power [2015] NSWSC
1678 at [1], Pembroke J said:
The … question [in this case] is whether, in the context of communications between [the parties], a
statement by one [party] should be properly characterised as an offer, or whether that communication,
when properly characterised in its context, was more in the nature of an invitation seeking to elicit a
higher offer from the other party. The legal principles are well-established. In determining a question as
to whether an agreement has come into existence, the Court seeks to ascertain the objective intention
of the parties, being: The intention that a reasonable person with knowledge of the words and actions
of the parties communicated to each other and the knowledge that the parties have of the surrounding
circumstances would conclude that the parties have concerning the subject matter of the alleged
contract.
At the end of 4.12 add the following:
In Re Webster (1975) 132 CLR 270, Barwick CJ said:
There is a radical distinction drawn in the law of contracts between the mere quotation of a price and
an offer to sell and deliver. If a person merely inquires of a man what price he is either selling or willing
to sell a commodity and the inquisitor is informed of that price, this quotation may not, and in general
will not, constitute an offer which is capable of acceptance so as to form a binding contract upon the
person making the quotation to sell and deliver, or upon the inquisitor to accept what is delivered. The
quotation will be no more than an offer to treat. This will be so, even if the inquisitor treated the
quotation as an offer and purported to accept it.
In 4.57 delete the first sentence and replace with the following:
In relation to situations not involving options or equitable estoppel, the revocation of an offer
must be communicated to the offeree (Financings Ltd v Stimson [1962] 3 All ER 386; CF Asset
Finance Ltd v Okonji [2014] EWCA Civ 870 at [17]) or to an agent authorised by the offeree to
receive such a communication: IVI Pty Ltd v Baycrown Pty Ltd [2005] QCA 205 at [2].
Delete 4.72 and replace with the following:
4.72 The death of the offeror before the acceptance of the offer will result in the lapse of the
offer if the offeree is aware of the death: Fong v Cilli (1968) 11 FLR 495 at 498. Whether an
offer will lapse in circumstances where the offeree does not know of the offeror’s death will
‘depend upon the type of contract involved and the intention of the offeror assessed
objectively’: Smith v Wood [2014] VSC 646 at [20]. Thus, if the offer related to the performance
of personal services, the death of the offeror would presumably terminate the offer. However,
if the contract could be performed by the deceased offeror’s legal personal representative, it
could be that the offer can be accepted notwithstanding the offeror’s death. An example of
such a case would be an offer to sell land.
Delete 4.76 and replace with the following:
For an offer to be accepted, the offeree’s acceptance must have been in reliance on, and in
response to, the offer: R v Clarke (1927) 40 CLR 227 at 231. This means that the offeree must
have had knowledge of the offer. Knowledge of the offer gives rise to a presumption that an
acceptance of the offer was in reliance upon the offer. However, this presumption can be
rebutted by evidence to the contrary, as occurred in R v Clarke.
The principle here emerged from nineteenth century cases in England dealing with offers of
rewards in relation to criminal offences. English courts were keen to allow claimants who
satisfied the terms of the reward offer to claim the reward. In this respect, Lobban observes as
follows:
In the absence of an organized police force and with no system of public prosecution, this was a vital
form of crime detection in early nineteenth-century England. Court were keen for rewards to be paid
where appropriate, since it encouraged the discovery of crimes … [C]ourts were not generally
interested in asking whether the claimant had accepted an offer. Nor did the courts look at the motives
of the claimant, but rather asked whether the requested action had been performed: Michael Lobban,
‘Contracts’ in Sir John Baker (Gen Ed), The Oxford History of the Laws of England, Volume XII, 18201914, Private Law, Oxford University Press, Oxford, 2010, p 349.
Lobban then concludes that ‘English courts throughout the century remained content to give
rewards to those who supplied the information in ignorance of the offer’: Michael Lobban,
‘Contracts’ in Sir John Baker (Gen Ed), The Oxford History of the Laws of England, Volume XII,
1820-1914, Private Law, Oxford University Press, Oxford, 2010, p 351.
At the end of the first sentence in 4.85 insert the following:
Whether there has been an acceptance in such cases is not always an easy matter to
determine. In this respect, in Quadling v Robinson (1976) 137 CLR 192 at 201, Gibbs J said:
[It] is not always easy to determine whether the purported exercise of an option should be understood
as attempting to vary the terms of the option or as intending to accept its terms without modification,
notwithstanding that they have been misdescribed, or notwithstanding that the grantee of the option
may have indicated that he intends to perform the contract in a manner for which the terms of the
option do not provide … It must of course depend upon the proper construction of the document by
which the grantee purports to exercise an option whether it amounts to an absolute and unqualified
acceptance of the rights and liabilities conditionally created by the option.
At the end of 4.85 add the following:
It is not sufficient that the conduct is merely consistent with the alleged contract - there needs
to be a positive indication that the conduct is evidence of the contract alleged: Industrial
Rollformers Pty Ltd v Ingersoll-Rand Australia Ltd [2001] NSWCA 111 at [142]; Kriketos v
Livschitz [2009] NSWCA 96 at [117]-[120]. Thus, in CMA Assets Pty Ltd Formerly Known as CMA
Contracting Pty Ltd v John Holland Pty Ltd (No 6) [2015] WASC 217 at [695], Allanson J said:
A contract will only be inferred ‘if it can be stated with some confidence that by a certain point the
parties mutually assented to a sufficiently clear regime which must, in the circumstances, have been
intended to be binding’: Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at 525 The
conduct relied on must point to the existence of the particular contract in the terms alleged in the
proceedings.
At the end of 4.86 add the following:
In relation to the decision in this case, in Laidlaw Hillier Hewitt Elsley Pty Ltd at [5], Macfarlan JA
said:
The decision of the House of Lords in Brogden v Metropolitan Railway Co establishes that the conduct of
parties may give rise to a contract. It was made clear however that the character and circumstances of the
conduct must indicate unambiguously that the parties intended to contract. For example the Lord
Chancellor [at 678] said about the conduct in question in that case that ‘no explanation can be given of it
unless it refers to the contract in question’ and, [680], that the conduct was ‘referable in my mind only to
the contract’. Lord Hatherley spoke in similar terms about the conduct: ‘It does establish a course of action
on the part of the Plaintiffs of such a character as necessarily to lead to the inference on the part of the
Defendants that the agreement had been accepted on the part of the Plaintiffs, and was to be acted upon
by them; and they did act upon it accordingly’. Likewise, Lord Selborne [at 689] said that ‘it appears to me
that every single circumstance points quite unequivocally to this agreement’.
At the end of 4.90 add the following:
In any litigation on the issue of whether there is a contract by conduct, evidence of post-
contractual conduct is admissible: see 12.67. For such conduct ‘to amount to implied
acceptance of an offer it must be of such a character as necessarily to lead to the inference on
the part of one party that the agreement had been accepted on the part of the other and was
to be acted upon by them’: Eccles v Koolan Iron Ore Pty Ltd (No 3) [2013] WASC 418 at [76].
In 4.94 delete the first sentence and replace with the following:
As a general rule an acceptance is only effective once it has been communicated to the offeror
(Tinn v Hoffman & Co (1873) 29 LT 271 at 278), or to the offer’s agent, that is, a person who has
the authority of the offeror to accept communication of the acceptance as agent on behalf of
the offeror: David Walker v Salomon Smith Barney Securities Pty Limited [2003] FCA 1099 at
[167].
At the end of 4.103 add the following:
In relation to the justification for the postal acceptance rule, in Household Fire & Accident
Insurance Company (Limited) v Grant (1879) LR 4 Ex D 216 at 223, Thesiger LJ said that the rule
‘may in some cases lead to inconvenience and hardship’, but he thought that ‘such there must
be at times in every view of the law’ and he was not prepared to concede that the rule would
‘lead to any great or general inconvenience or hardship’. His Lordship, at 223-4, noted that an
offeror can always specify that actual communication is required or ‘[i]f he trusts to the post he
trusts to a means of communication which, as a rule, does not fail, and if no answer to his offer
is received by him, and the matter is of importance to him, he can make inquiries of the person
to whom his offer was addressed’. Finally, as a prelude to his conclusion that the ‘balance of
conveniences and inconveniences’ favoured a postal acceptance rule, Thesiger LJ, at 224, said:
On the other hand, if the contract is not finally concluded, except in the event of the acceptance
actually reaching the offeror, the door would be opened to the perpetration of much fraud, and,
putting aside this consideration, considerable delay in commercial transactions, in which despatch is, as
a rule, of the greatest consequence, would be occasioned; for the acceptor would never be entirely safe
in acting upon his acceptance until he had received notice that his letter of acceptance had reached its
destination.
In Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34 at 41,
Lord Wilberforce said:
The rationale for it … has … been well explained. Mellish LJ in [Harris’ Case] ascribed it to the
extraordinary and mischievous consequences which would follow if it were held that an offer might be
revoked at any time until the letter accepting it had been actually received: and its foundation in
convenience was restated by Thesiger LJ in Household Fire and Carriage Accident Insurance Co Ltd v
Grant …
Lord Brandon of Oakbrook, at 48, said:
The reason for the exception [to the general rule requiring actual communication] is commercial
expediency … That reason of commercial expediency applies to cases where there is bound to be a
substantial interval between the time when the acceptance is sent and the time when it is received. In
such cases the exception to the general rule is more convenient, and makes on the whole for greater
fairness, than the general rule itself would do.
Gardner comes to much the same conclusion when he states:
The postal acceptance rule, which equates posting with delivery, thus stands alone as an exception to a
general requirement for full communication. In the modern law, the postal revocation rule is aligned
with the general approach. The argument here is that the acceptance rule is explicable above all as the
reflection of a popular conception about the nature of the postal service, though we have identified
other possible influences too. The slant of the rule may well serve no satisfactory business purpose in
modern times, but it does little harm, since it is often excluded by the terms of individual offers … ;
since there are other methods of communication by which any problems can generally be avoided; and
since, in the end, the post is usually adequately efficient anyway.2
At the end of point 1 in 4.104 add the following:
MacLauchlan,3 in a critique of the decision on the facts of Tallerman & Co Pty Ltd v Nathan’s
Merchandise (Vic) Pty Ltd states as follows:
What then of the circumstances in Tallerman? It is not easy to see why an acceptance posted as part of
‘a highly contentious correspondence’ between solicitors should be treated any differently from an
acceptance posted in the course of any other important transaction. The case concerned a contract
whereby the plaintiff, a company carrying on business in New South Wales, agreed to sell 1.6m rifle
bullets to the defendant, a company carrying on business in Victoria, for a price of £8800. A dispute
arose concerning the terms of delivery and the defendant sent back a shipment comprising the majority
of the bullets. Correspondence was then entered into between the parties’ solicitors in order to settle
the dispute. First, the defendant made a proposal for new terms of delivery. This was rejected by the
plaintiff. It made counter-proposals. In turn, these were rejected by the defendant, who reaffirmed its
original proposal. Two months later the plaintiff purported to accept this proposal. The litigation
concerned this belated acceptance by post of the original proposal. In the course of the proceedings
counsel for both sides agreed that, if a new contract was made, it was made in New South Wales where
the acceptance was posted. There can be no doubt that Dixon CJ and Fullagar J were justified in
describing the correspondence as ‘contentious’ (that is, quarrelsome, involving strife, dispute,
controversy). However, the quarrelsome nature of the negotiations does not make it any more or less
convenient or reasonable for the offeror to have to bear the risk that the letter of acceptance will be
delayed or lost in the post or for the offeror to suffer the disadvantage of being bound before it knows
that the offer has been accepted. These are burdens that the earlier settled case law had decided can
more justly and conveniently be borne by the offeror than the offeree. The fact that there are bad
feelings between the parties does not make it any less just or convenient for the offeror to bear those
burdens. The existence of a quarrel does not in itself justify preferring one party over the other.
It might be argued that the existence of bad feeling between the parties may make it less likely that the
offeror would agree to any departure from the general principle that an acceptance is not complete
until communicated. No doubt this would be true if the offeror’s intention were to be judged
2
S Gardner, ‘Trashing with Trollope: A Deconstruction of the Postal Rules in Contract’ (1992) 12 Oxford Journal of
Legal Studies 170, p 192.
3
D MacLaughlan, ‘The Uncertain Basis of the Postal Acceptance Rule? (2013) 30 Journal of Contract Law 33, pp 3940.
subjectively. However, it is axiomatic that the normal test for intention is objective. To take into
account the parties’ reaction to the fact that negotiations were quarrelsome in determining whether
the postal acceptance rule is implicitly negated would be inconsistent with the objective approach
which requires questions of implication to be decided ‘irrespective of the individuals concerned, their
temperaments and failings, their interest and circumstances’. In any event, the fact that the letters
were written by the solicitors for the parties seems to make it more difficult, rather than easier, to infer
that the offeror intended to depart from the postal acceptance rule. Few lay people who are
negotiating a contract have ever heard of the rule or given consideration to the time at which a posted
acceptance becomes binding, but solicitors would know, or at least could reasonably be taken to know,
about it and hence they would be aware of the need to include express words in an offer to negate its
application. Their failure to include such words would support an argument that they were content to
allow the rule to apply. Further, it is significant that in Tallerman itself counsel for both parties agreed in
the course of the case that the rule applied. Counsel for the offeror would surely not have made this
concession if the instructing solicitors had always thought that the acceptance would not be binding
until received. The judges seem to have known more about what was in the solicitors’ minds than the
solicitors themselves or their counsel.
At the end of point 3 in 4.104 add the following:
In relation to the issue of the acceptance never being received by the offeror, Evans 4 states the
following:
This is one of the most difficult problems in the formation of contracts by correspondence. Fortunately
it is relatively rare owing to the efficiency of the postal and telegraphic services. The not very numerous
cases on the point apply the traditional rule to place all risk of loss or delay on the offeror. The problem
is that while the offeree relies on his contract after dispatch of his acceptance the offeror is aware, until
he receives some communication, that he does not know whether he has a contract or not. But offers
lapse and one way of in effect rejecting an offer is for the offeree to remain silent and permit it to lapse.
Thus when the period for lapse has expired, and there has been no receipt of an acceptance because of
loss or delay in transmission, the offeror assumes that he knows he has no contract, and will act in
reliance on that assumption. In this situation one party must suffer.
It has been argued that the reason for placing the risk of loss or delay on the offeror is that he is the
party more likely to inquire if he receives no response. This may indeed be true in many situations - for
example, where the offer is made after a series of negotiations, where the parties deal together
regularly in the subject- matter of the contract, or where the offer is one of great financial importance.
But there will equally be many situations where the offeror will not be the party more likely to inquirefor example, where an offer for sale of goods is made to a number of possible purchasers conditional
on stock of the goods remaining on hind, or where the normal course of dealing between the parties is
to reject offers by silence permitting them to lapse. In the former of these situations the offeree will be
the more likely to inquire if his acceptance is lost or delayed and he therefore does not receive notice of
whether goods remain on hand when he expects. In the latter situation neither party is likely to inquire.
Finally in many situations the period for lapse will be so short that no inquiry could be in time to
remedy the situation in the event of loss or delay of the acceptance. This will be true, for example,
when the offer is by telegram calling for an immediate telegraphic reply. The traditional rule on loss or
delay cannot therefore be justified on the basis that the offeror is the party more likely to inquire.
4
D M Evans, ‘The Anglo-American Mailing Rule: Some Problems of Offer and Acceptance in Contracts by
Correspondence’ (1966) 15 International & Comparative Law Quarterly 553, pp 566-7.
It is suggested that the best result in this situation can be achieved by placing the risk of loss on the
offeror subject to an exception where the offeree would be the party more likely to inquire in the light
of the circumstances and business practices, and where that inquiry would be in time to remedy the
situation. In other words if the acceptance is lost or delayed, a contract will nevertheless be formed
unless the offeree should have inquired and failed to do so. There is no substantial justification for
putting the risk primarily on the offeror, but it is suggested that as the offeree is protected from
revocation in his reliance on the contract after dispatch of his acceptance it is more consistent to
protect him also from loss or delay unless he is at fault.
At the end of point 4 in 4.104 add the following:
In this respect in Woollahra Municipal Council v Secure Parking Pty Ltd [2015] NSWSC 257 at
[84], Ball J said:
[A]n offer that prescribes a means of acceptance will not necessarily be treated as mandatory. The
question is one that depends on the intention of the offeror, objectively ascertained. However, in the
absence of a clear indication of a contrary intention, it would not be reasonable to construe a provision
specifying the means of acceptance as excluding the giving of notice by other equally expeditious
means which do in fact result in the actual receipt of the notice by the offeror.
At the end of point 5 in 4.104 add the following:
In relation to this division of opinion, Pannam5 has commented as follows:
What will be the legal consequences … where an offeree by telephone or telegram purports to recall an
acceptance after it is posted but before it reaches the offeror[?] … Most writers suggest that the
effective-upon-despatch rule means what it says and that the revocation cannot be of any effect
because a binding contract is already completed when the acceptance is put into the post box. The
argument runs that to allow the revocation to take effect would be to give the offeree the best of both
worlds. He has the choice of either holding the offeror to the contract or recalling his acceptance by
telegram or telephone. With respect, the present writer has never been able to appreciate the
conclusiveness of this argument. It is true that a contrary view would allow the offeree to change his
mind but the question may be asked if this really matters. The offeror will, in point of fact, receive the
notification of rejection of the offer at a time before he would have received the acceptance, so he will
be in no worse position. The offeror is not relying on anything but merely keeping the bargain open
during this period. He will actually be in a better position if the revocation is effective because he will
know at an earlier point of time what his position is. The period of ‘offeror-uncertainty’ will thus be
reduced.
There is, however, a much more fundamental objection to the acceptance-on-despatch rule in this area.
The whole basis of that rule is … to protect the offeree as against the offeror. Why should that rule
apply when the offeree has made his own arrangements about his protection? It is submitted that to
apply the rule to these problems would be purely mechanistic and without any regard to the realities of
the situation.
To similar effect, Evans6 states the following:
5
C L Pannam, ‘Postal Regulation 289 and Acceptance of the Offer by Post’ (1960) 2 Melbourne University Law
Review 388, pp 395-6.
In the [overtaking rejection situation] … the effect of the [postal acceptance] rule intended to protect
the offeree from revocation is to penalise him by preventing him from changing his mind after dispatch
of his acceptance even though such change of mind can impose no hardship on the offeror. For as the
offeror is aware, until receipt of some communication, that he does not know whether he has a
contract or not, he must be prepared for either possibility. Since he cannot act until he knows what the
position is, he gains nothing from the rule that the acceptance is binding on dispatch - it cannot affect
him until receipt. Thus he is in no worse position if the offeree overtakes an acceptance with a rejection
than if the offeree had dispatched a rejection in the first place. There is therefore no case for holding
the offeree bound by the acceptance originally dispatched when to do so is clearly contrary to his
wishes.
One possible objection to this approach is that the offeree is given an opportunity to speculate.
This is because, at the time of posting the letter of acceptance there is a contract, but the
offeree can change his or her mind about the contract and effectively rescind it provided he or
she communicates a rejection of the offer before the letter of acceptance is received by the
offeror.
Delete 4.115 and replace with the following:
4.115
The first approach is the so-called ‘last shot’ doctrine. In Eccles v Koolan Iron Ore
Pty Ltd (No 3) [2013] WASC 418 at [74], La Miere J said:
A common answer to the question of conflicting conditions put forward by the parties is the ‘last shot’
doctrine. Where conflicting communications are exchanged, each is a counteroffer, so that if a contract
results at all, for example from acceptance by conduct, it must be on the terms of the final document in
the series leading to the conclusion of the contract. The battle is won by the person who fires the last
shot. In some cases the battle is won by the person who gets in the first blow. In Butler Machine Tool Co
Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1 WLR 401 at 405 Lord Denning explained:
If [the seller] offers to sell at a named price on the terms and conditions stated on the back:
and the buyer orders the goods purporting to accept the offer on an order form with his
own different terms and conditions on the back then, if the difference is so material that it
would affect the price, the buyer ought not to be allowed to take advantage of the
difference unless he draws it specifically to the attention of the seller.
However, it is not possible to lay down a general rule that will apply in all cases where there is a battle
of the forms. It always depends on an assessment of what the parties must objectively be taken to have
intended.
6
D M Evans, ‘The Anglo-American Mailing Rule: Some Problems of Offer and Acceptance in Contracts by
Correspondence’ (1966) 15 International & Comparative Law Quarterly 553, pp 563-4.
CHAPTER 5
At the end of the first sentence in 5.5 insert the following:
If the parties have not reached agreement on the essential terms of the contract, there will be
no binding contract even if one of the parties has commenced work that is referable to the
agreement. However, in such a case, non-contractual remedies, such as restitution, may be
available: Mushroom Composters Pty Ltd v I S & D E Robertson Pty Ltd [2015] NSWCA 1 at [63].
At the end of 5.5 add the following:
In relation to a lease of land, in Whitlock v Brew (1968) 118 CLR 445 at 454, McTiernan J said
that ‘there must be, in addition to the parties and property, an ascertainable period for its
duration, an ascertainable rent, and an ascertainable point of commencement’.
At the end of 5.18 add the following:
In Attrill v Dresdner Kleinwort Ltd [2013] 3 All ER 607 a bank’s employees terms and conditions
were set out in a handbook and included provisions for discretionary bonus awards. For many
years the procedure had been to allocate a bonus pool, award individual bonuses in November,
communicate the allocation and award in December and pay the cash element in January
provided that the employee was still employed at that time. The Court of Appeal rejected an
argument that the provision was void for uncertainty. Elias LJ, at 620-1, said:
The submission on uncertainty was based on the assertion that the announcement of the bonus pool
left many problems not determined. For example, it is submitted that there is uncertainty as to whether
the individual guaranteed fixed bonuses should come out of the fund; whether the bonus should be
paid by way of shares or cash; and what proportion of the fund could be held back for contingencies, it
being accepted that an element of the fund could be dealt with in that way. In my judgment, these
problems are largely dealt with by the finding of the judge that the fund would be dealt with ‘in the
usual way’. For example, that confirmed that individual fixed bonuses would be paid from the fund as
well as the discretionary bonuses. It would admittedly leave some imprecision, for example, on the
question of how much could be withheld for contingencies. But I have no doubt that the parties would
recognise that it would be a reasonable figure of the kind typically withheld for this purpose in the past.
The fundamental principles of the scheme were entirely clear and the fact that there were some loose
ends does not in my view begin to constitute a degree of uncertainty necessary to defeat the parties’
intention that the agreement should be capable of enforcement. The court will be slow to hold that
otherwise contractually enforceable obligations cannot be enforced because they are too uncertain.
At the end of 5.23 add the following:
Similarly, in Schulz v McArthur Ridge Investments [2015] NZCA 298 at [35], the Court of Appeal
in New Zealand said:
It is well established that a contract to negotiate may be enforceable. Whether it is depends upon its
terms and their specificity. That question is separate from whether the substantive agreement, if
reached, is sufficiently certain. If the contract specifies the way in which negotiations are to be
conducted with enough precision for a court to be able to determine what the parties are obliged to do,
it is enforceable. For example, an agreement simply to negotiate in good faith is unenforceable because
those terms are subjective and a court cannot apply an objective test to assess whether the parties
have done so. On the other hand an agreement to use best endeavours to obtain a defined object (for
example, to obtain planning permission) may be enforceable. Where there is an enforceable process
contract, the breach lies in failing to follow the process, not in failing to achieve the objective.
At the end of 5.25 add the following:
If there is not present some sort of agreed framework within which good faith negotiations are
to be conducted, an agreement to negotiate in good faith will, in all likelihood, be uncertain:
Baldwin v Icon Energy Ltd [2015] QSC 12 at [31]-[46].
At the end of 5.26 add the following:
In the light of Petromec and United Group Rail Services Limited v Rail Corporation New South
Wales, in Emirates Trading Agency Llc v Prime Minerals Exports Private Ltd [2014] EWHC
(Comm) at [50]-[51], Teare J said:
[W]here commercial parties have agreed a dispute resolution clause which purports to prevent them
from launching into an expensive arbitration without first seeking to resolve their dispute by friendly
discussions the courts should seek to give effect to the parties’ bargain. Moreover, there is a public
interest in giving effect to dispute resolution clauses which require the parties to seek to resolve
disputes before engaging in arbitration or litigation.
The obligation to seek to resolve disputes by friendly discussions must import an obligation to seek to
do so in good faith.
His Honour, at [63]-[64], went on to say:
I am not bound by authority to hold that a dispute resolution clause in an existing and enforceable
contract which requires the parties to seek to resolve a dispute by friendly discussions in good faith and
within a limited period of time before the dispute may be referred to arbitration is unenforceable.
The agreement is not incomplete; no term is missing. Nor is it uncertain; an obligation to seek to
resolve a dispute by friendly discussions in good faith has an identifiable standard, namely, fair, honest
and genuine discussions aimed at resolving a dispute. Difficulty of proving a breach in some cases
should not be confused with a suggestion that the clause lacks certainty. In the context of a dispute
resolution clause pursuant to which the parties have voluntarily accepted a restriction upon their
freedom not to negotiate it is not appropriate to suggest that the obligation is inconsistent with the
position of a negotiating party. Enforcement of such an agreement when found as part of a dispute
resolution clause is in the public interest, first, because commercial men expect the court to enforce
obligations which they have freely undertaken and, second, because the object of the agreement is to
avoid what might otherwise be an expensive and time consuming arbitration.
At the end of 5.38 add the following:
In Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313 at [15], [118], it was held
that a court may have regard to the subsequent conduct of the parties in determining whether
the preliminary agreement was one that the parties intended to be binding.
At the end of 5.42 add the following:
In Claremont 24-7 Pty Ltd v Invox Pty Ltd (No 2) [2015] WASC 220 at [49], Le Miere J said:
In construing a written document which the parties have signed, whether the parties subjectively
considered they were bound is not the central point. The central point is whether a reasonable person
would regard them as bound by what they said and did, in the light of the admissible surrounding
circumstances. A binding contract may be found even where some wording is used that would, but for
context and circumstances, have indicated no binding contract was intended.
CHAPTER 6
At the end of 6.2 add the following:
Benson comments on the importance and pedigree of consideration as follows:
No doctrine of the common law of contract has been longer settled or more carefully developed than
consideration … [It] embodied an idea of reciprocity that had continuously animated the long history of
contract law stretching back to fourteenth- and fifteenth-century English medieval law … [F]rom the
late sixteenth and early seventeenth centuries, consideration stipulated a general and necessary
prerequisite for a kind of liability that is still widely viewed as distinctively ‘contractual.’ If there has
ever been a basic contract doctrine that, as a matter of self-conscious legal practice, has presented
itself as reflecting a unified conception of contract, consideration is it. 7
Gordon8 has suggested that the doctrine of consideration is to contract law ‘as Elvis is to rockand-roll: the King’.
At the end of the first sentence in 6.3 insert the following:
Similarly, a promise given in return for the promisee’s natural love and affection is not one
supported by consideration and, therefore, does not give rise to a contract: Director of Public
Prosecutions for Victoria v Le (2007) 232 CLR 562 at 577; 240 ALR 204 at 216; W & K Holdings
(NSW) Pty Ltd v Lauren Margaret Mayo [2013] NSWSC 1063 at [167].
At the end of 6.5 add the following:
As was reaffirmed in Perry v Anthony [2016] NSWCA 56 at [26], from the perspective of the
requirement of consideration, the mutual exchange of promises is sufficient to create a
contract.
At the end of 6.15 add the following:
The understanding that the doctrine of consideration encapsulates the idea of a bargain was
recently reaffirmed in Kelly v Mina [2014] NSWCA 9 at [78], where Barrett JA, speaking for a
unanimous Court of Appeal, said:
In order to be a contractual promise, each had to be given in return for something of value - in the
sense that, in exchange for the promise, the promisor received a benefit or the promisee incurred a
detriment. If it can be seen that there was a bargain involving such quid pro quo, the promise will be an
enforceable contractual promise.
7
8
Peter Benson, ‘The Idea of Consideration’ (2011) 61 University of Toronto Law Journal 241, p 241.
J D Gordon, ‘A Dialogue About the Doctrine of Consideration’ (1990) 75 Cornell Law Review 987, p 987.
Delete (due to a typographical error) 6.17 and replace with the following:
In the context of bilateral contracts it is hard to imagine any proffered consideration not
satisfying the element of reliance. Thus, the essence of a contract for the sale by A of his car to
B for $1000, is that A (as promisor) says to B (as promisee) that, if B promises to pay A an
amount of $1000 (the request element), A will transfer title in the car to B. Given that B’s
promise is still only a promise to perform the act of paying the money to A in the future, it is
difficult to see how the promise could be seen as anything else but a promise given in reliance
upon A’s promise to transfer title in the car to B.
At the end of 6.34 add the following:
It can also be noted that, pursuant to s 32(1)(b) of the Bills of Exchange Act 1909 (Cth), past
consideration is good consideration for a bill of exchange: Rocky Castle Finance Pty Ltd v Taylor
[2014] SASCFC 1 at [93].
At the end of 6.35 add the following:
Furthermore, as was stated in Anglican Development Fund Diocese of Bathurst in its own
capacity and in its capacity as trustee of the Anglican Development Fund Diocese of Bathurst
(receivers and managers appointed) v The Right Reverend Ian Palmer, Bishop of The Diocese of
Bathurst [2015] NSWSC 1856 at [349].
A promise is not illusory because the promisor has some discretion in how its obligations are to be
performed. It is only necessary that there be an obligation that the promise be performed and that the
discretion is contained within defined parameters.
Delete 6.45 and replace with the following:
6.45 However, a promise to do more than is required of the promisee in carrying out his or her
public law duty is good consideration. Thus, in Glasbrook Brothers Ltd v Glamorgan County
Council [1925] AC 270.during a strike at Glasbrook Bros’ mine, the colliery manager asked the
police to station a police guard in the colliery premises to protect certain workers. The police
believed that mobile foot patrols would provide adequate protection but agreed to garrison the
colliery in return for payment at specified rates. When the strike was over, Glasbrook Bros
refused to pay. They argued that there was no binding promise to make the payments on the
ground that the police authority had not given consideration because it was their public duty to
protect property. The House of Lords held that the police authority gave consideration to
support the promise to pay for the maintenance of the garrison because they had provided
services of a kind that might be charged for. In this respect Viscount Cave, at 278, said:
I think that any attempt by a police authority to extract payment for services which fall within the plain
obligations of the police force, should be firmly discountenanced by the Courts. But it has always been
recognized that, where individuals desire that services of a special kind which, though not within the
obligations of a police authority, can most effectively be rendered by them, should be performed by
members of the police force, the police authorities may… ‘lend’ the services of constables for that
purpose in consideration of payment. Instances of the lending of constables on the occasion of large
gatherings in and outside private premises, as on the occasions of weddings, athletic or boxing contests
or race meetings, and the provision of constables at large railway stations.
This principle, which was subsequently given statutory force in England, has been applied in a
number of cases involving the policing of English football matches. In Harris v Sheffield United
Football Club Ltd [1988] QB 77; [1987] 2 All ER 838, the legislation was successfully relied upon
for a claim for payment for special policing services at professional football matches in England.
In relation to whether any such case is one in which the police provided special services, Neill
LJ, at QB 77; All ER 846-7 said:
In answering this question I do not propose to attempt to lay down any general rules as to what are or
are not ‘special police services,’ because in my judgment it is necessary to look at all the circumstances
of the individual case. I would, however, venture to suggest that the following matters require to be
taken into account (1) Are the police officers required to attend on private premises or in a public
place? Though in Glasbrook Brothers Ltd v Glamorgan County Council the fact that the garrison was to
be stationed on private premises was not treated as conclusive, the fact that the police will not as a
general rule have access to private premises suggests that prima facie their presence on private
premises would constitute special police services. (2) Has some violence or other emergency already
occurred or is it immediately imminent? … (3) What is the nature of the event or occasion at which the
officers are required to attend? … (4) Can the provision of the necessary amount of police protection be
met from the resources available to the chief constable without the assistance of officers who would
otherwise be engaged either in other duties or would be off duty?
In Ipswich Town Football Club Co Ltd v Chief Constable of Suffolk Constabulary [2016] EWHC
1682 (QB) at [129], Green J held that the fact that preventing crime is a core policing objective
does not mean that in appropriate circumstances it cannot amount to providing special services
of kind that fall within the principle set out in Glasbrook Brothers Ltd v Glamorgan County
Council. In this case his Honour ruled that services provided by the police at on streets that
were closed for a period of time to facilitate the entry of spectators into the football stadium
were of a kind that the police could charge a fee. However, the fees that were paid by the
football club included services for which the police could not charge any fees because they
were not to special services provided by the police. In a later case between the parties (Ipswich
Town Football Club Co Ltd v Chief Constable of Suffolk Constabulary [2017] EWHC 375 (QB)),his
Honour held that the football club was entitled to recover the fees charged for the non-special
services pursuant to principles within the law of restitution relating to payments made as the
result of a mistake at law.
In Chief Constable of the Greater Manchester Police v Wigan Athletic AFC Ltd [2009] 1 WLR
1580, a claim for payment for special services failed because the English Court of Appeal
unanimously held that such services had had not, either expressly or impliedly, been requested
by the football club. In relation to whether such services have been requested, in Reading
Festival Ltd v West Yorkshire Police Authority [2006] 1 WLR 2005 at 2021, Scott Baker LJ said:
I agree that it is impossible to lay down a comprehensive definition of ‘special police services’ and that
the particular circumstances are likely to be critical … It does however, seem to me that one of two key
features is ordinarily likely to be present. Either the services will have been asked for but will be beyond
what the police consider necessary to meet their public duty obligations, or they are services which, if
the police do not provide them, the asker will have to provide them from his own or other resources.
Essentially, however, ‘special police services’ will be something that someone wants, hence the
importance of the link in the section with a request.
The difficulty in determining whether special or additional services have been provided was
illustrated in Leeds United Football Club Ltd v Chief Constable of West Yorkshire Police [2014]
QB 168. In that case, a unanimous Court of Appeal held that police services provided after
completion of football matches in certain identified streets and public areas beyond the
immediate vicinity of the Leeds United football stadium were not special police services. The
court held that they were services provided in the discharge of the police force’s public duty to
prevent crime and protect life and property and that therefore there was no right to payment
for those services even though the football club requested these services.
Delete 6.60-6.61 and replace with the following:
6.60 The effect of this decision is to discard the need for consideration in relation to variation
agreements. Unless there are ‘policy reasons’ precluding it, a variation agreement of the type
discussed in the above cases would not require consideration for it to be binding on the parties
to it. Policy reasons precluding enforcement of the promise set out in the variation agreement
include, but are not confined to, those noted in Musumeci, namely, the presence of economic
duress, fraud, undue influence, unconscionable conduct and unfair pressure.
The authority of Antons Trawling in New Zealand was put in doubt in Fuel Espresso Ltd v Hsieh
[2007] 2 NZLR 651 at 654,where a differently constituted Court of Appeal, although not
referring to Antons Trawling, seemingly rejected it when it stated that ‘a variation of an
agreement requires consideration, just as much as the initial agreement does’. However, the
Antons Trawling approach was reaffirmed by the Court of Appeal in Teat v Willcocks [2014] 3
NZLR 129 at 141, where the Court of Appeal said,
[W]e are attracted to the alternative view expressed by this Court in Antons Trawling Co Ltd v Smith
that no consideration at all may be required provided the variation is agreed voluntarily and without
illegitimate pressure. This seems to us to reflect the reality of what happened in the present case – a
variation was proposed and willingly accepted, and the parties proceeded on that basis. In the context
of an existing agreement supported by consideration, that seems to us to be sufficient to constitute a
binding variation.
Similarly, in Nav Canada v Greater Fredericton Airport Authority Inc (2008) 290 DLR (4th) 405 at
425, Robertson JA, speaking for the New Brunswick Court of Appeal, said: ‘I am prepared to
accept that a post-contractual modification, unsupported by consideration, may be enforceable
so long as it is established that the variation was not procured under economic duress’. On the
other hand, in Braiden v La-Z-Boy Canada Ltd (2008) 294 DLR (4th) 172 at 187, the Ontario
Court of Appeal referred to the traditional view that ‘a promise to do something that a party to
a contract is already bound to do is not consideration’.
6.61 Australian law has not followed the Antons Trawling approach. Although not specifically
dealing with the decision in Antons Trawling, both the High Court in Agricultural & Rural
Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at 601; 251 ALR 322 at 346, and the Court of
Appeal in New South Wales in SAS Developments Pty Ltd v Kerr [2013] NSWCA 56 at [70], have
clearly stated that fresh consideration is necessary for the validity of an agreement to vary an
existing contract.
However, the question of whether the approach in Antons Trawling represents good law is
largely one of theoretical, rather than of practical, significance. As suggested in Antons
Trawling, the practical consequences of the Antons Trawling and Williams v Roffey Bros
approaches are the same. Under the Antons Trawling approach, consideration is not necessary.
Under the Williams v Roffey Bros approach, as was recognised by the Singapore Court of Appeal
in Gay Choon Ing v Loh Sze Ti Terence Peter [2009] 2 SLR 332; [2009] SGCA 3 at [100]-[101],
consideration will in the absence of exceptional circumstances be relatively easy to establish. It
could also be argued that under the Williams v Roffey Bros approach consideration will always
be present on the basis that the promisor, acting rationally, would not have made the promise
in the first place unless it was in his or her interest to do so.
At the end of 6.63 add the following:
Although the Williams v Roffey approach to consideration is of great consequence in the
context of the requirement of consideration in the context of variations to existing contracts,
the question that arises as to its impact, if any on the requirement of consideration in the
context of contract formation. On this issue, Giancasprio9 makes the following observations:
In short the practical benefit principle can be said to ‘lower the bar’ with respect to satisfying the
consideration requirement for a contractual variation. Factual benefits are easily identifiable on almost
any conceivable set of facts in a renegotiation setting. Moreover, such factual benefits can include
those things that the promisor was already due to receive or which were not bargained for between the
parties. It might be said, therefore, that the courts retrospectively complete the agreement for the
parties where the practical benefit principle is found to apply. If this is so then the status of bargain
theory in this jurisdiction must be re-evaluated. The theory was expressly endorsed by the High Court of
Australia 58 years ago and yet the practical benefit principle appears flagrantly inconsistent with it. This
has significant implications given that, as will be seen further on, practical benefit has started to
infiltrate the Australian law of contract.
It might well be asked why special rules such as the practical benefit principle should apply strictly to
variations and not extend to formation as well. Chen-Wishart, for example, suggests that this possibility
stems directly from Williams v Roffey’s dilution of the consideration doctrine: ‘[The decision’s] effect
could logically extend beyond contract modification to contract formation and include the chance of
making a contract or some other un-promised benefit, or the chance of avoiding some nuisance or
other harm threatened by the promisee’. In Attorney-General for England and Wales v R Tipping J even
appeared to lend support to the notion that Williams v Roffey could apply to the formation of a
contract.
9
M Giancaspro, ‘Practical Benefit: An English Anomoly or a Growing Force in Contract Law? (2013) 30 Journal of
Contract Law 12, pp 20-21.
It is submitted, however, that such an extension is not possible for two reasons. First, the practical
benefit test as originally formulated by Glidewell LJ in Williams v Roffey clearly stipulates that the
principle only has application in cases of renegotiation. The third limb — ‘B thereupon promises A an
additional payment in return for A’s promise to perform his contractual obligations on time … ‘ —
envisages the promise of additional consideration from one party in return for the other party’s
promise to perform their pre-existing contractual obligation(s). Whilst a factual benefit might
conceivably be capable of amounting to consideration in the contractual formation stage, the current
practical benefit test does not permit such an extension. Second, extending practical benefit to
contractual formation would radically redefine the consideration doctrine and, more broadly, the
Anglo-Australian law of contract. ‘Such an extension would make it impossible to hold the line against
enforcing all promises. Any motive or desire of the promisor would be capable of constituting practical
benefit for the purchase of contractual rights’. This would bring the common law perilously close to
embracing the civil law doctrine of causa promissionis, a development which would turn our existing
understanding of the doctrine of consideration on its head.
Delete 6.75 and replace with the following:
6.75 In the light of Williams v Roffey Bros the question arises as to whether the practical
benefit rule can be used to overcome the consequences of the rule in Pinnel’s Case. In England,
in MWB Busines Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553 at [48], [85],
the Court of Appeal held that, if part payment of a debt results in a practical benefit to the
creditor in accordance with the decision in Williams v Roffey Bros, part payment of a debt will
overcome the rule in Pinnel’s Case. The Court of Appeal stressed that mere part payment of the
debt will not of itself be enough. There must be a practical benefit to the creditor that flows
from the part payment.
At the end of 6.84 add the following:
The essence of a deed was expressed by Brereton J in In the matter of Cummings Engineering
Holdings Pty Ltd [2014] NSWSC 250 at [52] as follows:
The essential requirements of a deed include that it be executed and intended to operate as a deed.
The mere affixation of a seal is insufficient to render an instrument a deed; there must be some
evidence (which may be found in the deed itself, or may be parole evidence) from which it can be
concluded that the instrument was intended to operate as a deed. Thus, that the affixing of a seal does
not render a document a deed, but actual words to show the intention of the parties that the
document be executed as a deed may suffice.
SHOULD THE DOCTRINE OF CONSIDERATION BE ABOLISHED?
Although firmly entrenched in our law, the doctrine of consideration is not without its critics.
Thus, in Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd at 855, Lord Dunedin
said:
I confess that this case is to my mind apt to nip any budding affection which one might have had for
the doctrine of consideration. For the effect of that doctrine in the present case is to make it possible
for a person to snap his fingers at a bargain deliberately made, a bargain not in itself unfair, and
which the person seeking to enforce it has a legitimate interest to enforce.
Lord Wright, writing extra-judicially, argued that this ‘peculiar doctrine’10 ought to be abolished
and that the existence of an enforceable agreement be determined by the test of intention to
be legally bound (a topic addressed in Chapter 7). Lord Wright expressed his views as follows:
The doctrine is a mere incumbrance. A scientific or logical theory of contract would in my opinion take
as the test of contractual intention the answer to the overriding question whether there was a
deliberate and serious intention, free from illegality, immorality, mistake, fraud or duress, to make a
binding contract. That must be in each case a question of fact … [T]he doctrine of consideration does
not exclude this overriding question.
But if that is the question, consideration in the technical sense, that is, something valuable in the eyes
of the law, is not immaterial; its presence is strong, and indeed generally conclusive evidence that the
promise is not mere ostentation but that it emanates from a serious mind. So regarded, it is not a
condition of the contract, but is merely a piece of evidence. Another class of evidence may be what in
England has been sometimes or in some cases called moral consideration, but in some foreign
jurisdictions has been called causa or cause, that is, such matters as natural love and affection,
gratitude for past favours, a sense of obligation for services rendered in the past, charity, benevolence
and so forth; all such circumstances, grounds, motives or objects in appropriate measure and degree,
would serve as evidence that the promise was seriously made; other evidence might consist of writing
whether simply or by specialty. But neither consideration nor causa nor writing is to be regarded as the
substance of the promise: all such matters are extrinsic and evidentiary, matters which go to establish
and corroborate the contractual intention. The substance is the promise itself …
In my opinion this is the true theory of the contract, free from theoretical or practical difficulties, and
capable of application to all the complicated possibilities of the world of fact.
It is true that in the great number of contracts, there is the element of bargain. In some, recompense is
inherent in the nature of the contract itself, e.g., in loan, sale of goods, barter, and many others. But
again, there are many other contracts in which … technical consideration is absent, and yet they are
such that justice calls for their enforcement. I think the theory of consideration ought to find no place in
our system of contract law. I do not stand alone in that opinion … [For example], Sir William Holdsworth
says that in its present form the doctrine of consideration is somewhat of an anachronism. He proposes
as a practical reform that a contract should be enforced by law if either it is in writing or there is
consideration. In that way a gratuitous promise would be enforced if there is written evidence …
I often wonder what practical purpose is served by the doctrine of consideration in its present form.
There is no public policy that I can see against enforcing gratuitous obligations. The most vital element
of public policy in this regard is that people should keep their plighted word. In some cases, certainly,
the judge or jury must be more particular about proof before a gratuitous obligation is enforced. We
have, however, seen that the old rule of consideration does not dispense with proof of contractual
intention, though it is generally strong evidence of that. But judges and juries can be trusted, I hope, to
deal wisely where gratuitous promises are alleged. They have often to handle much more difficult
questions of intention or mental state, e.g., in cases of fraud or mistake. In adjudicating on a contract,
they start with the objective basis of what the parties said or did, their words, written or spoken and
their conduct: they have all the surrounding circumstances and relationships. There is no reason why
10
R A (Lord) Wright, ‘Ought the Doctrine of Consideration to be Abolished from the Common Law?’ (1936) 49
Harvard Law Review 1225, p 1238.
they should be less successful in deciding if there is contractual intention than courts which know not
consideration in our sense. The abolition of consideration would not affect the law relating to mistake,
illegality, immorality, impossibility or failure of condition. In conclusion, I see no practical objections to
the abolition of the doctrine, to counterbalance the reasoning on which I have advocated that it should
be abolished.11
On the other hand, Chen-Wishart12 justifies the defends the doctrine in the following terms:
The practical effect of the consideration doctrine is the unenforceability of informal gratuitous
promises. The thesis is that this is necessary in relation to undertakings made in the private and
communal domains to avoid undermining: (i) the trust- and solidarity-building functions of such
promises in the social forms in which they generally occur; (ii) the respect that is due from promisees to
promisors (since enforcement of gratuitous promises would allow the promisee to treat the promisor
as a means to her ends without also respecting the promisor’s ends by forgiving, releasing or otherwise
accommodating the promisor’s change of mind); and (iii) the fluid, open-ended reciprocity implicit in
such relationships. This is reinforced by (iv) the serious practical problems of enforcement (including
the necessity and difficulty of recalibrating the excuses and remedies for non- performance),
particularly when affective motivations and extra-legal sanctions render enforcement largely
unnecessary, and when the formalities device makes enforceability possible. In these respects, the
consideration doctrine reinforces the strong presumption against enforcing even explicit exchanges in
the private domain.
In contrast, informal but explicitly reciprocated undertakings in the market domain are and should be
enforceable because: (i) this secures and extends a practice which facilitates cooperation and
coordination, and enhances autonomy and welfare by bridging the gap in trust and sanctions between
relative strangers; (ii) reciprocation ensures that each party treats the other respectfully, since each
party treats the other not merely as a means of enhancing her own ends, but also as an end which she
simultaneously serves; (iii) this tracks the instinct of reciprocity that is the mark of just dealing, and a
preserver of social stability; and (iv) the problems that tell against the enforcement of gratuitous
promises do not arise in this context, and, moreover, the reciprocity manifest in consideration provides
the best justification for contract’s expectation remedies and the limited excuses for non-performance.
Thus, explicit reciprocity describes the basic structure of what counts as just and prescribes the basic
rule of engagement justifying state support between parties in the market domain where reciprocity,
trust and social sanctions cannot be assumed.
Thus, concludes Chen-Wishart:
In general, transactions in the private domain should remain free from contract, and transactions in the
market domain—where reciprocity, trust and social sanctions are not implicit—should only attract state
enforcement where the parties’ dealings are marked by mutual respect. Consideration marks the
boundary between the two.
11
R A (Lord) Wright, ‘Ought the Doctrine of Consideration to be Abolished from the Common Law?’ (1936) 49
Harvard Law Review 1225, pp 1251-3.
12
M Chen-Wishart, ‘In Defence of Consideration’ (2013) 13 Oxford University Commonwealth Law Review 209, pp
211, 238.
CHAPTER 7
At the end of 7.2 add the following:
Similarly, in Sion v NSW Trustee and Guardian [2013] NSWCA 337 at [37], Emmett JA, speaking
for a unanimous Court of Appeal, said:
The question of an intention to create legal relations is not to be resolved by examining the subjective
minds of the parties. It is not their actual subjective intention that is relevant. Rather, it is the intention
that a court imputes to them. That is to be determined by examining what the parties said and did in
the circumstances in which they found themselves. The question is then whether reasonable people
would regard the arrangements made in those circumstances as intended to be binding on the parties.
The search for an intention to create contractual relations requires an objective assessment of the state
of affairs between the parties, and not the identification of any uncommunicated subjective intention
that either party may have had. The circumstances that might properly be taken into account in
deciding whether the relevant intention was present are very varied. It is not possible to form
prescriptive rules as to that matter. The intention is that which would objectively be conveyed by what
was said or done, having regard to the circumstances in which the statements and actions happened. It
is not a search for the uncommunicated subjective motives or intentions of the parties ...
[T]he more informal the circumstances in which the arrangement is made and the vaguer the terms in
which the arrangement is expressed, the more likely it will be that an observer would conclude that the
parties did not intend to enter into legally binding relations.
However, in Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21 at [107],
Buss JA, speaking for the Court of Appeal, said that there are exceptional cases where evidence
of actual or subjective intention can be admitted to ascertain the existence or otherwise of a
contract. These exceptional cases included ones where:
(a) during the negotiations the parties or their representatives were jesting, joking, engaged in a
dramatic performance or doing or saying things that were not intended to be taken at face value; (b)
the ‘contract’ was a sham; or (c) the actual state of mind of one or more of the parties was materially
affected by mistake, misrepresentation, duress or undue influence.
In relation to what evidence can be taken into account in determined the existence of an
intention to be legally bound, in Druin Pty Ltd atf the Druin No 3 Trust trading as Harvey
Norman Commercial Division v Corbin [2014] NSWSC 510 at [32], Robb J summarised the
position as follows:
As a matter of principle, the inquiry into whether the necessary objective intention exists should never
be confined to the written document, or at least not necessarily be so confined, as it would be if the
ascertainment of the existence of the intention was subject to the application of the parol evidence
rule. If it is established that each party intended to be bound by the terms of a document that
apparently sets out the whole of their intended bargain, then it is meaningful to determine the terms of
the contract by generally having regard only to the wording of the document, although subject to the
established exceptions. However, if, in a particular case, there is an antecedent inquiry as to whether
there is a contract at all, it seems to be logically necessary to permit reference to all objective
circumstances that may bear upon the existence of the necessary intention. In Alonso v SRS
Investments (WA) Pty Ltd [2012] WASC 168 Edelman J noted at [47], that the plurality in Ermogenous [v
Greek Orthodox Community of SA Inc (2002) 209 CLR 95] ‘did not suggest that there was any
requirement of ambiguity in the words of an agreement before resort could be had to surrounding
circumstances to determine whether there is a manifest intention to be legally bound. The issue of
manifest intention in entering an agreement may be different from the construction of words in an
agreement’ (emphasis in original).
Whether the evidence justifies a finding that a party objectively intended to be bound by the
terms of an alleged contract is a question of fact, not law: Druin Pty Ltd atf the Druin No 3 Trust
trading as Harvey Norman Commercial Division v Corbin at [36].
At the end of 7.7 add the following:
In Sion v NSW Trustee and Guardian at [40], Emmett JA noted that, in the context of family
relationships, [t]he presumption applies with diminishing force the more remote the familial
connection’.
At the beginning of 7.14 insert the following:
Although the presumption can be rebutted, Emmett JA pointed out in Sion v NSW Trustee &
Guardian at [41] that ‘[t]he vaguer the language of an arrangement and the greater its
informality, the more difficult it will be to rebut the presumption, as it will be more likely that
there was no intention to contract’.
At the end of 7.35 add the following:
In England, in the wake of recent cases dealing with the question of whether faith workers are
engaged under a contract of employment, in Sharpe v The Bishop of Worcester [2015] EWCA 399
at [60], Arden LJ said:
Not long ago, no one entertained the idea that, at least in a church where individual churches are
subject to an overarching organisation, a minister of religion could be an employee of the religious
organisation for which he worked. Several reasons were given for this: that the duties of office were
spiritual or that the minister held an office (and that holding of an office was exclusive of employment)
or that there was a presumption that the parties did not intend to create legal relations or that the
duties were prescribed by the special institutional framework of religious law. Slowly but surely … some
of these reasons have been displaced. The law has developed and changed because it was difficult to
justify the exclusion of ministers of religion from the benefit of modern employment protection
legislation. I would go so far as to say that there is now no rule which applies only to ministers which
does not also apply to other persons who claim to be employees although of course the facts to which
the law has to be applied are very different. It is the same principles which have to be applied.
Arden LJ, at [67], went to state the law here in the following points:
(a) The question of employment status cannot be answered simply by discerning whether a minister is
an office holder or in employment;
(b) there is no presumption against contractual intent; … and (c)
the spiritual nature of a ministry does not in any way prevent a contract of employment arising.
Arden LJ, at [92], then went on the stress ‘that it is not an inevitable outcome that the court will
seek to imply a contract of employment in every case of a minister of religion. The facts must
be looked at in the individual case and in the round’. Indeed, on the facts of this case, the Court
of Appeal unanimously held that an Anglican priest was not engaged under a contract of
employment.
At the end of 7.37 add the following:
In Price v Southern Cross Television (TNT9) Pty Ltd [2014] TASSC 70 at [51], after referring the
passage from Ermogenous cited above (see 7.35), Porter J said:
In the enquiry as to the issue of intention to create contractual relations, regard must also be had to the
consideration for the promises in question and the certainty with which the parties have expressed
their agreement. Further, … the weight of the consideration in the form of a detriment or disadvantage
to the plaintiff may compensate for a lack of clarity in the arrangements, where the substance of the
promise can be ascertained, but that as the substance of the agreement becomes difficult to identify
with certainty, then the more likely it is the arrangement will fail for want of an intention to create legal
relations.
At the end of 7.37 add the following:
In the context of commercial transactions, in Ailakis v Olivero (No 2) [2014] WASCA 127 at [91]
Martin CJ said:
Although the commercial character and context of an agreement should not be regarded as giving rise
to a presumption of an intention to create legal relations, the very significant commercial
characteristics of the arrangements between the Ailakis brothers and Mr Olivero strongly support an
inference that they intended those arrangements to be enforceable.
Similarly, in MacInnes v Gross[2017] EWHC 46 (QB) at [77] Coulson J said:
There are a number of important principles relating to the intention of the parties to create legal
relations. In particular: (a) Where there is an express agreement, in an ordinary commercial context,
the burden of disproving an intention to create legal relations is a heavy one;
(b) Where there is no
express agreement, the onus is on the party claiming that a binding agreement had been made to prove
that there was an intention to create legal relations;
(c) One factor which may be relevant to the issue
of contractual intention is the degree of precision (or otherwise) with which the alleged agreement is
expressed. Vagueness/uncertainty may be a ground for concluding that the parties did not reach any
agreement at all.
At the end of 7.39 add the following:
Similarly, in Sion v NSW Trustee & Guardian at [40], Emmett JA, after earlier referring to
Ermogenous v Greek Orthodox Community, said:
As a matter of human experience, when family members make a promise to each other it is unlikely
that they intend it to be legally binding. As a result, the law presumes that, as a matter of fact, family
members do not intend to contract when they make arrangements amongst themselves.
At the end of 7.40 add the following:
A similar approach was taken in Ashton v Pratt [2015] NSWCA 12 at [73] where, Bathurst CJ,
speaking for a unanimous Court of Appeal, said:
Notwithstanding what was said by this Court in Sion [v NSW Trustee & Guardian] in my opinion the
effect of the decision of the High Court in Ermogenous was that in considering the issue recourse should
not be had to any presumption concerning the contractual or non-contractual effects of family
arrangements. That does not mean that the relationship of the parties and the circumstances in which
the arrangement was entered into are irrelevant to the question. To the contrary, these factors form
part of the surrounding circumstances from which it will be determined whether or not a contract came
into existence.
In Arfaras v Vosnakis [2016] NSWCA 65 at [50], Ward JA, speaking for a unanimous Court of
Appeal, referred to the Ermogenous case when she said that ‘it is not disputed that the test as
to intention to create binding relations is an objective one. It takes into account not only the
words used but also the subject matter of the agreement, the status of the parties to it, their
relationship to one another, and other relevant surrounding circumstances’.
At the end of 7.48 add the following:
INTENTION AND CONSIDERATION
Some scholars and practitioners have argued that the doctrine of consideration can be
abolished, and that intention assume the role of whether there is a contract. These thinkers
take the view that consideration is ultimately a question of intention and therefore should give
way to the requirement of intention. On this issue, Morgan13 says the following:
[T]here are to objections to the simplifying proposal. First, … it is possible to stake out a distinct role. It
is not merely evidence of intention, as the historical rules on past consideration … and ‘natural love and
affection’ show. Rather the doctrine excludes gratuitous promises from legal enforcement (at least
outside the commercial context). While not uncontroversial, these arguments make it unsafe to assume
that consideration is the equivalent to the ‘intention to create’ doctrine. The second objection is that
the doctrine is not what it seems. Arguably it has little to do with intention! Rather, it is an instrument
to the draw the boundaries of contractual obligation …
Save when the parties have (exceptionally) made them explicitly clear, there is very little evidence of
actual intentions as legal enforceability. For commercial parties as much as for lovers or families,
13
J Morgan, Great Debates in Contract Law, Palgrave Macmillan, Basingstoke, 2012, pp 41-42.
litigation is literally the last think on their minds when making an agreement, since few relationships
survive a court case. Therefore courts trying to uncover intention are ‘inevitably driven to impose their
own view of whether the agreement ought to be enforced’.14 … The courts wished to control the novel
reliance on contracts in domestic litigation (eg between separated spouses). The idea of intention could
be used to keep contract in its place. It was this imperative … that explained the reception of the
doctrine. Consideration could not be used as the control device since some domestic promises are
unquestionably bilateral, one person saying to the other, ‘“I will meet you at 7.30; you bring the food; I
will brink the drink”; neither party of course envisages any action in the county court if either
commodity is not forthcoming’: [Ford Motor Co Ltd v Amalgamated Union of Engineering and Foundry
Workers [1969] 2 QB 303 at 321; [1969] 2 All ER 481 at 488].
14
S Hedley, ‘Keeping Contracts in its Place – Balfour v Balfour and the Enforceability of Informal Agreements’
(1985) 5 Oxford Journal of Legal Studies 391, p 393.
CHAPTER 8
At 8.25 delete the last sentence and replace with the following:
Thus, even if, for example, the elements of part performance are established, this does not allow a
court to award damages at common law for breach of contract: Penrith Whitewater Stadium Ltd v
Lesvos Pty Ltd [2007] NSWCA 196 at [40].
(Note: In original the word ‘not’ was inadvertently omitted.)
At the end of 8.30 add the following:
In M J Leonard Pty Ltd v Bristrol Custodians Limited (in liquidation) [2013] NSWSC 1734 at [41],
Windeyer AJ said:
The rationale of the doctrine of part performance is that it is unconscionable for a defendant to rely on
the Statute of Frauds 1677 … where a plaintiff has partly performed the agreement alleged. It is a
doctrine to bind the conscience of the defendant, who is setting up the statute as a defence. Acts of a
defendant may go towards deciding whether there is in existence a contract evidenced by the
defendant’s acts in pursuance of the alleged contract.
At the end of 8.39 add the following:
On the other hand, in Syzmanska v Syzmanski (No 2) [2015] SASC 191, the payment of money
by one co-owner of land to the other, where the first co-owner also resided in the property, did
not amount to sufficient acts of part performance of a contract for the sale of the second coowners interest in the land to the first co-owner. In relation to the first co-owners residence in
the property, Blue J, at [58] held that his ‘act of … continuing to reside in the property is not
referable to an agreement for the sale of an interest in property: as co-owner [he] had a right to
possession of the property’.
CHAPTER 10
At the end of 10.13 add the following:
In relation to intention in this context, in Mainieri v Cirillo [2014] VSCA 227 at [22], the Court of
Appeal cited with approval the following statement from Mihaljevic v Eiffel Tower Motors Pty
Ltd [1973] VR 545 at 555, where Gillard J said:
First, to establish that a statement made during the course of negotiation was promissory or
contractual in character, proof of a common intention of the parties to impose a contractual obligation
on the person making the statement is essential. Secondly, it is unnecessary that the statement must
contain an express form of words. It is sufficient if in the context the words used import the requisite
meaning to impose on the person making the statement a contractual obligation by way of promise or
guarantee. Thirdly, whether a statement was intended to be contractual or not must be determined
objectively in the light of the whole of the circumstances. Fourthly, whether an animus contrahendi
exists is a question of fact and can only be determined by looking at all the circumstances attending the
transaction. Fifthly, in the process of drawing such conclusion, the tribunal of fact is not entitled to
draw any inference contrary to the express terms of any written contract made between the parties.
Sixthly, it is easier to draw an inference that a warranty was intended where the person making the
statement of the condition or quality of an article has a personal knowledge thereof and the person to
whom the statement is made is, to the knowledge of both parties, ignorant of the condition or quality
of the article and is relying on the first party’s knowledge. Finally, in order to determine whether such
intention be inferred I was and still am of opinion that the method suggested by Lord Denning, MR, in
Oscar Chess, Ltd v Williams [1957] 1 All ER 325, 328 and Hornal v Neuberger Products, Ltd [1956] 3 All
ER 970, 972 is the most useful way to arrive at a decision. His Lordship said: ‘If an intelligent bystander
would reasonably infer that a warranty was intended, that would suffice even though neither party in
fact had it in mind’.
At the end of 10.20 add the following:
The case of L’Estrange v F Graucob Ltd, concerned the purchase of a vending machine pursuant
to a contract which was signed and contained a wide exclusion clause that protected the
vendor from liability to L’Estrange. The practical outcome of this case was that L’Estrange
purchased a machine that did not work and which was essentially worthless.
The rule in L’Estrange v F Graucob Ltd could be criticised on the ground that it can be, and is
being, used by powerful bargainers to impose upon on others their preferred terms of the
contract. If so, Chapman15 argues that the rule undermines the reality of the contract, which is,
after all, ‘the theoretical premise upon which contract law itself is based’. Chapman16 argues
that the signatory should receive reasonable notice of the terms be given before the he or she
is bound by the signature rule.
15
M Chapman, ‘Common Law Contract and Consent: Signature and Objectivity’ (1998) Northern Ireland Legal
Quarterly 363, p 377.
16
M Chapman, ‘Common Law Contract and Consent: Signature and Objectivity’ (1998) Northern Ireland Legal
Quarterly 363, p 380.
On the other hand, Moringiello17 suggests that the signature rule has an ‘alerting power’, in
that it signals to a signatory that the document is important and should, at least, be read.
At the end of 10.22 add the following:
In Wilton v Farnworth (1948) 76 CLR 646 at 649 Latham CJ said:
In the absence of fraud or some other of the special circumstances of the character mentioned, a man
cannot escape the consequences of signing a document by saying, and proving, that he did not
understand it. Unless he was prepared to take the chance of being bound by the terms of the
document, whatever they might be, it was for him to protect himself by abstaining from signing the
document until he understood it and was satisfied with it. Any weakening of these principles would
make chaos of everyday business transactions.
At the end of 10.51 add the following:
In relation to the principles dealing with incorporation of terms set out in an unsigned
document, in Surfstone Pty Ltd v Morgan Consulting Engineers Pty Ltd [2015] QSC 290 at [70],
Peter Lyons J, after considering relevant authorities summarised the law as follows:
My examination of these authorities leads me to adopt the following propositions for determining
whether a party (the acceptor) is bound by a term set out or incorporated in an unsigned document
which the other party (the offeror) has provided to the acceptor in circumstances which show the
offeror intends the document to identify terms of the contract. It is not always the case that the
acceptor is not bound by an exemption clause, unless the offeror directs attention to the clause. The
fundamental question is whether the offeror is reasonably entitled to conclude that the acceptor has
accepted the terms in the document, including the exemption clause. That conclusion should be
reached where the second party has had a reasonable opportunity to consider the terms, including the
exemption clause, and has behaved in a way which manifests acceptance of the document as recording
contractual terms. In other cases, where the clause is one reasonably to be expected in contracts of the
kind in question, acceptance of the document makes the clause binding, even if the acceptor does not
know its terms, or even that it is contained in the document. If the clause is not one reasonably to be
expected, then something more is required by way of provision of information about the clause to the
acceptor before the contract is formed. What information will be required will depend on the
circumstances, but particularly on the terms of the clause.
At the end of 10.52 add the following:
Thus, in James Elliot Construction Limited v Irish Asphalt Limited [2014] IESC 74 at [147], the
Irish Supreme Court said:
The general proposition … that terms may be incorporated by a previous consistent course of dealing
between the parties, or by their common understanding, is hardly controversial. Thus, if in the course
of a consistent period of dealing, the parties to a contract entered into a series of contracts including
terms and conditions, actually known to the party to be bound or drawn to their attention, and that if,
17
J M Moringiello, ‘Signals, Assent and Internet Contracting’ (2005) 57 Rutgers Law Review 1307, p 1313.
on the conclusion of a subsequent contract, the party relying on the terms and conditions omitted to
either draw the terms and conditions to the other party, or failed to include them on a contractual
document, it would be wrong to permit the party affected by the relevant term to say that, even
though they were aware of the terms and conditions, they could avoid its consequences because the
relevant term was not expressly incorporated into the subsequent contract.
At the end of 10.53 add the following:
In McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 at 128; [1964] 1 All ER 430 at 432,
Lord Reid’ said that whether it is reasonable to incorporate the terms depends upon whether,
[i]f the officious bystander had asked them whether [the parties] had intended to leave out the
conditions this time, both must, as honest men, have said “of course not”’.
At the end of 10.73 add the following:
In a similar vein, in BMIC Ltd v Chinnakannan Sivasankaran Siva Ltd [2014] EWHC 1880 (Comm)
at [45], Popplewell J said:
The purpose of a written and formally executed agreement is to avoid the disputes which commonly
arise when the parties’ bargain is not completely recorded in writing. In a case like this, in which the
parties contemplate that their agreement will be reduced to lengthy written agreements, drafted and
advised on by lawyers, and formally executed, there is a strong presumption (quite apart from any
entire agreement clause) that the parties do not intend to be bound by anything not recorded in their
written agreement.
At the end of the second sentence in 10.74 insert the following:
In this respect, in the High Court decision in Crown Melbourne Ltd v Cosmopolitan Hotel (Vic)
Pty Ltd (2016) 333 ALR 384 at 440, Gordon J said:
A statement will be promissory if it was ‘reasonably considered’ by the person to whom it was made as
‘intended’ to be a contractual promise. It must also be shown that the person to whom the statement
was made ‘intended’ to accept the statement as a contractual promise. The relevant ‘intention’ of the
parties is to be judged objectively, that is, ‘deduced from the totality of the evidence’, by reference to
what a reasonable person in the position of the parties would have understood. And as with any
contractual promise, the statement must be sufficiently certain.
At the end of 10.80 add the following:
In relation to the decision in McMahon v National Foods Milk Ltd, in Johnson Property Group
Pty Ltd v Thornton [2015] NSWSC 1389 at [58]-[59], Young AJA said the following:
There is debate as to how far one can have a collateral contract when one has an entire agreement
clause. Unfortunately, with respect, the waters are muddied a bit by the Court of Appeal in Victoria in
McMahon v National Foods Milk Ltd which essentially holds that there is no problem.
However, the basis of the decision of Nettle JA … is that he relied on academic writings to the effect
that entire agreement clauses operate as part of the rule against parole evidence. With respect, I
cannot accept that on the authorities. However McMahon is a decision of an interstate Court of Appeal
and, generally speaking, unless it is plainly wrong, one must follow it. With respect, I consider some of
the propositions in it are wrong, but not that the decision is plainly wrong. It may be that the real rule is
that worked out by Sackar J in Raphael Shin Enterprises Pty Ltd v Waterpoint Shepherds Bay Pty Ltd
[2014] NSWSC 743 at [353] and following where his Honour says that the answer probably is that one
must construe the entire agreement clause to see exactly what it covers. If it in fact mentions collateral
contracts, then they are excluded. If it does not, then one must look to see whether that is implied, and
one works out the answer accordingly.
CHAPTER 11
At the end of 11.1 add the following:
A simple, and not uncommon, illustration of this process relates to parties entering into an
agreement for the occupation of land. Often one party will have entered into occupation of the
land and agreed to pay a certain occupation fee. However, various other matters relating to the
occupation are not settled. For example, is the occupation by means of a lease or a licence? In
the context of such a situation, in Javad v Aqil [1991] 1 WLR 1007 at 1012-3, Nicholls LJ said:
As with other consensually based arrangements, parties frequently proceed with an arrangement
whereby one person takes possession of another's land for payment without having agreed or directed
their minds to one or more fundamental aspects of their transaction. In such cases the law, where
appropriate, has to step in and fill the gaps in a way which is sensible and reasonable. The law will
imply, from what was agreed and all the surrounding circumstances, the terms the parties are to be
taken to have intended to apply. Thus if one party permits another to go into possession of his land on
payment of a rent of so much per week or month, failing more the inference sensibly and reasonably to
be drawn is that the parties intended that there should be a weekly or monthly tenancy. Likewise, if
one party permits another to remain in possession after the expiration of his tenancy. But I emphasise
the qualification 'failing more'. Frequently there will be more. Indeed, nowadays there normally will be
other material surrounding circumstances. The simple situation is unlikely to arise often, not least
because of the extent to which statute has intervened in landlord-tenant relationships. Where there is
more than the simple situation, the inference sensibly and reasonably to be drawn will depend upon a
fair consideration of all the circumstances, of which the payment of rent on a periodical basis is only
one, albeit a very important one. This is so however large or small may be the amount of the payment.
To this I add one observation, having in mind the facts of the present case. Where parties are
negotiating the terms of a proposed lease, and the prospective tenant is let into possession or
permitted to remain in possession in advance of, and in anticipation of, terms being agreed, the fact
that the parties have not yet agreed terms will be a factor to be taken into account in ascertaining their
intention. It will often be a weighty factor. Frequently in such cases a sum called 'rent' is paid at once in
accordance with the terms of the proposed lease: for example, quarterly in advance. But, depending on
all the circumstances, parties are not to be supposed thereby to have agreed that the prospective
tenant shall be a quarterly tenant. They cannot sensibly be taken to have agreed that he shall have a
periodic tenancy, with all the consequences flowing from that, at a time when they are still not agreed
about the terms on which the prospective tenant shall have possession under the proposed lease and
when he has been permitted to go into possession or remain in possession merely as an interim
measure in the expectation that all will be regulated and regularised in due course when terms are
agreed and a formal lease granted.
Of course, when one party permits another to enter or remain upon his land on payment of a sum of
money, and that other has no statutory entitlement to be there, almost inevitably there will be some
consensual relationship between them. It may be no more than a licence determinable at any time or a
tenancy at will. But when and so long as such parties are in the throes of negotiating larger terms,
caution must be exercised before inferring or imputing to the parties an intention to give to the
occupant more than a very limited interest, be it licence or tenancy. Otherwise the court would be in
danger of inferring or imputing from conduct, such as payment of rent and the carrying out of repairs,
whose explanation lies in the parties' expectation that they will be able to reach agreement on the
larger terms, an intention to grant a lesser interest, such as a periodic tenancy, which the parties never
had in contemplation at all.
Delete 11.9 and insert the following at the end of 11.27:
The Construction Approach to Implication: The Belize Case
In Attorney General of Belize v Belize Telecom Limited [2009] 2 All ER 1127, Lord Hoffmann
signaled a new approach to the implication of terms on the facts of a case. This approach
propounds the view that the true basis for implying terms in such cases is what a reasonable
person would understand the contractual document to mean. In effect, it merges the
implication of terms with contractual construction or interpretation. In Attorney General of
Belize v Belize Telecom Limited at 1133, Lord Hoffmann, on behalf of the Privy Council, observed
that ‘in every case in which it is said that some provision ought to be implied in an instrument,
the question for the court is whether such a provision would spell out in express words what
the instrument, read against the relevant background, would reasonably be understood to
mean’. In Mediterranean Salvage & Towage Limited v Seamar Trading & Commerce Inc [2009]
EWCA Civ 531 at [9], Sir Anthony Clarke MR said that ‘the implication of a term is an exercise in
the construction of the contract as a whole’.
This approach to implication of terms was elaborated in Crema v Cenkos Securities Plc [2010]
EWCA Civ 1444 at [38], where Aikens LJ set out the following principles:
(1) A court cannot improve the instrument it has to construe to make it fairer or more reasonable. It is
concerned only to discover what the instrument means. (2) The meaning is that which the instrument
would convey to the legal anthropomorphism called ‘the reasonable person’, or the ‘reasonable
addressee’. That ‘person’ will have all the background knowledge which would reasonably be available
to the audience to whom the instrument is addressed. The objective meaning of the instrument is what
is conventionally called the intention of ‘the parties’ or the intention of whoever is the deemed author
of the instrument. (3) The question of implication of terms only arises when the instrument does not
expressly provide for what is to happen when some particular (often unforeseen) event occurs. (4) The
default position is that nothing is to be implied in the instrument. In that case, if that particular event
has caused loss, then the loss lies where it falls. (5) However, if the ‘reasonable addressee’ would
understand the instrument, against the other terms and the relevant background, to mean something
more, ie that something is to happen in that particular event which is not expressly dealt with in the
instrument’s terms, then it is said that the court implies a term as to what will happen if the event in
question occurs. (6) Nevertheless, that process does not add another term to the instrument; it only
spells out what the instrument means. It is an exercise in the construction of the instrument as a whole.
In the case of all written instruments, this obviously means that term is there from the outset, ie from
the moment the contract was agreed.
Barber18 makes the following statement in relation to the potential impact of the Belize test:
[The Belize] approach merges implication with interpretation. It means that implied terms are not
added to a contractual document but rather are part of it, and are revealed from the perspective of the
suitably informed reasonable person. As a general approach this seems to indicate a lower threshold
18
M Barber, ‘Implied Terms’ [2013] New Zealand Law Journal 238, p 238.
than the BP Refinery test, and may even end the requirements of necessity and obviousness altogether,
since a reasonable person may find an unexpressed term to be part of a contract notwithstanding that
neither is satisfied.
However, the impact of the Belize case was negated in a later decision of the United Kingdom
Supreme Court in Marks and Spencer v BNP Paribas [2015] 3 WLR 1843 at 1852. The impact of
this case was pithily summed up by the in Regency Villas Title Ltd v Diamond Resorts (Europe)
Ltd [2015] EWHC 3564 (Ch) at [37], where Purle J said:
It is also now clear that whatever inspired discussion study of Lord Hoffman’s speech in Attorney
General of Belize v Belize Telecom Ltd might engender, it did not change the law. Either necessity for
business efficacy, or obviousness, rather than reasonableness, is a required component of implication.
At the end of 11.10 add the following:
As already noted the implication of terms here is said to give effect to the presumed intention
of the parties. In relation to this, in Marks and Spencer PLC v BNP Paribas Securities Services
Trust Co (Jersey) Ltd [2015] 3 WLR 1843 at 1850, Lord Neuberger said:
[T]he implication of a term [is] ‘not critically dependent on proof of an actual intention of the parties’
when negotiating the contract. If one approaches the question by reference to what the parties would
have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with
that of notional reasonable people in the position of the parties at the time at which they were
contracting.
At the end of 11.13 add the following:
In this respect, in Marks and Spencer PLC v BNP Paribas Securities Services Trust Co (Jersey) Ltd
[2015] 3 WLR 1843 at 1850-1, Lord Neuberger said:
[A] term should not be implied into a detailed commercial contract merely because it appears fair or
merely because one considers that the parties would have agreed it if it had been suggested to them.
Those are necessary but not sufficient grounds for including a term. However, … it is questionable
whether Lord Simon’s first requirement, reasonableness and equitableness, will usually, if ever, add
anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable
and equitable.
At the end of 11.14 add the following:
In this respect, in Marks and Spencer PLC v BNP Paribas Securities Services Trust Co (Jersey) Ltd
[2015] 3 WLR 1843 at 1851, Lord Neuberger said:
[N]ecessity for business efficacy involves a value judgment ... [T]he test is not one of ‘absolute
necessity’, not least because the necessity is judged by reference to business efficacy. It may well be
that a more helpful way of putting Lord Simon’s second requirement is … that a term can only be
implied if, without the term, the contract would lack commercial or practical coherence.
At the end of 11.26 add the following:
More recently this approach was confirmed in the Court of Appeal in Victoria in P’Auer AG v
Polybuild Technologies International Pty Ltd [2015] VSCA 42 at [110], where Kaye JA said:
[I]n such a case, inquiries, such as whether the postulated implied term is ‘reasonable’, or ‘necessary to
give business efficacy to the contract’, or ‘so obvious that it goes without saying’, are considered to be
helpful guides as to whether or not a particular term should be implied in such a contract.
At the end of 11.30 add the following:
The test of necessity was referred to in Commonwealth Bank of Australia v Barker [2014] HCA
32 at [36], by French CJ, Bell and Keane JJ as follows:
[T]his Court must determine the existence of the implied duty by reference to the principles governing
implications of terms in law in a class of contract. That requires this Court to determine whether the
proposed implication is ‘necessary’ in the sense that would justify the exercise of the judicial power in a
way that may have a significant impact upon employment relationships and the law of the contract of
employment in this country. The broad concept of ‘necessity’ … may be defined by reference to what
‘the nature of the contract itself implicitly requires’: Liverpool City Council v Irwin [1977] AC 239 at 254.
It may be demonstrated by the futility of the transaction absent the implication. It is not satisfied by
demonstrating the reasonableness of the implied term.
In relation to the test of necessity, Kiefel J, at [85], noted as follows:
The requirement of necessity for the implication of a term in a contract, or a contract of a particular
kind, cannot be brushed aside as ‘elusive’. It is fundamental to the basis for implications. It is not
uncertain … It has the advantage of providing objectivity to the test employed by the courts.
However, Gaegler J, at [114], after affirming the test of necessity, went on to add the
following:
But the inquiry is not exhausted by that consideration; it does not exclude considerations of justice and
policy. Couching the ultimate evaluation in terms of necessity serves usefully to emphasise this and no
more: that a court should not imply a new term other than by reference to considerations that are
compelling.
In 11.34 delete all words after the quotation from the Edwards v Chesterfield Royal Hospital
NHS Foundation Trust case and replace with the following:
However, the existence of such an implied term in Australian employment contracts has been
rejected by the High Court, largely on the grounds that the test of necessity is not satisfied:
Commonwealth Bank of Australia v Barker [2014] HCA 32 at [36], [108].
At the end of 11.35 add the following:
The extent of the implied term to co-operate was elaborated upon in Secured Income Real
Estate (Australia) Ltd v St Martins Investments Pty Ltd at CLR 607-8, where Mason J said:
It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by
the parties or by one of the parties of fundamental obligations under the contract. It is not quite so
easy to make the implication when the acts in question are necessary to entitle the other contracting
party to a benefit under the contract but are not essential to the performance of that party’s
obligations and are not fundamental to the contract. Then the question arises whether the contract
imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself
whether the acts shall be done, even if the consequence of his decision is to disentitle the other party
to a benefit. In such a case, the correct interpretation of the contract depends, as it seems to me, not so
much on the application of the general rule of construction as on the intention of the parties as
manifested by the contract itself.
Delete 11. 43 and replace with the following:
11.43 The existence of such an implied term is contested. As was pointed out by Stone J in
Transpacific Pty Ltd v Prudential Retirement Insurance and Annuity Company [2011] FCA 630 at
[18], there has been a ‘vigorous debate in Australian contract law about the role of good faith
in contract and whether it is an implied term or inherent in the content of what the parties
have agreed’. In Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at [107]; 312
ALR 356 at 385, Kiefel J in the High Court observed that ‘whether a standard of good faith
should be applied generally to contracts has not been resolved in Australia’. In relation to why
the issue remains clouded in doubt, in Esso Petroleum Pty Ltd v Southern Pacific Petroleum NL
[2005] VSCA 228 at [3], Warren CJ said:
If a duty of good faith exists, it really means that there is a standard of contractual conduct that should
be met. The difficulty is that the standard is nebulous. Therefore, the current reticence attending the
application and recognition of a duty of good faith probably lies as much with the vagueness and
imprecision inherent in defining commercial morality. The modern law of contract has developed on
the premise of achieving certainty in commerce. If good faith is not readily capable of definition then
that certainty is undermined.
However, an obligation of good faith has been found to exist in some cases. Thus, in Renard
Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, a majority of the
New South Wales Court of Appeal held that such a term arose in the context of a
construction contract. A later New South Wales case of Burger King Corporation v Hungry
Jack’s Pty Ltd (2001) 69 NSWLR 558 saw the implication of such a term in the context of a
development agreement between a franchisor and franchisee. The implication of such a term
was supported in Victoria in the context of a franchise agreement in Far Horizons Pty Ltd v
McDonalds Australia Ltd [2000] VSC 310, and by the Western Australian Supreme Court in the
context of a process contract (see 4.35) in Dockpride Pty Ltd v Subiaco Redevelopment Authority
[2005] WASC 211 at [154]–[156].
In 11.53 after the fourth sentence add the following:
Indeed, it has been held that franchise contracts are ones in which there is a good faith term
implied by law: Video Ezy International Pty Ltd v Sedema Pty Ltd [2014] NSWSC 143 at [72]; RPR
Maintenance Pty Ltd v Marmax Investments Pty Ltd [2014] FCA 409 at [208].
At the end of 11.55 add the following:
In this case, Leggatt J at [123] set out the reasons for the reluctance, to date, of English law to
embrace an implied term of good faith:
Three main reasons have been given for what Professor McKendrick has called the ‘traditional English
hostility’ towards a doctrine of good faith. The first is … that the preferred method of English law is to
proceed incrementally by fashioning particular solutions in response to particular problems rather than
by enforcing broad overarching principles. A second reason is that English law is said to embody an
ethos of individualism, whereby the parties are free to pursue their own self-interest not only in
negotiating but also in performing contracts provided they do not act in breach of a term of the
contract. The third main reason given is a fear that recognising a general requirement of good faith in
the performance of contracts would create too much uncertainty. There is concern that the content of
the obligation would be vague and subjective and that its adoption would undermine the goal of
contractual certainty to which English law has always attached great weight.
Writing extra-judicially Lady Justice Arden, after referring to the judgment of Leggatt J as
‘undoubtedly a welcome tour de force on good faith’, said:
The principal objection to introducing a specific concept of good faith into English law is that it would
bring with it uncertainty, delay and expense if the question of what the concept meant in any given
case had to be litigated. But I have only been considering the question of contracts where parties have
opted for an obligation of good faith. Where they do so expressly, they have really only themselves to
blame if they do not provide sufficient guidance to enable them to work out when there has been a
breach.
There is also the principled answer to this point, namely, that certainty is not a trump card that defeats
all other principles in contract law. Of course certainty and predictability are qualities of English
commercial law but they are not the be-all and end-all of contract law. In [Golden Strait Corpn v Nippon
Yusen Kubishika Kaisha [2007] 2 AC 353 at 383], … Lord Scott, giving the leading speech … [said]:
Certainty is a desideratum and a very important one, particularly in commercial contracts.
But it is not a principle and must give way to principle …
[I]n the field of good faith clauses, certainty may have to yield in appropriate cases to the principle of
giving effect to the parties’ agreement in accordance with the principle of party autonomy.
I would apply the principle of giving effect to the reasonable expectations of the parties to the debate
on good faith clauses in the following way …
That is very strong support indeed for the development of the concept of good faith or its equivalent,
and for doing so, as I would myself wish to do, within the values and traditions of the common law.
There are other very eminent judges who have also supported the introduction of good faith. 19
19
The Rt Hon Lady Justice Arden, ‘Coming to Terms with Good Faith’ (2013) 30 Journal of Contract Law 199, 207,
211-2.
After the decision in Yam Seng, in Mid Essex Hospital Services NHS Trust v Compass Group UK
and Ireland Ltd (t/a Medirest) [2013] EWCA Civ 200 at [105], Jackson LJ said:
[T]here is no general doctrine of ‘good faith’ in English contract law, although a duty of good faith is
implied by law as an incident of certain categories of contract. If the parties wish to impose such a duty
they must do so expressly.
At the end of 11.57 add the following:
Similar sentiments were evident in North East Solution Pty v Masters Home Improvement
Australia Pty Ltd [2016] VSC 1 at [61], where Croft J observed that the elements of good faith
should not be regarded as a code or be applied independently of each other. Furthermore, as
was pointed out by Edelman J in Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) [2015] FCA 825 at
[1005], the content of any obligation of good faith will always depend upon the terms of the
contract.
At the end of 11.58 add the following:
In this respect, in Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd [2015] FCAFC 127 at
[149], the Full Court of the Federal Court said:
The implied obligation of good faith does not place contracting parties in a fiduciary relationship. That
is, it does not require a contracting party to prefer the interests of the other contracting party, or to
subordinate its self-interest.
At the end of 11.59 add the following:
In Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50 at [288]-[293],
Allsop CJ said the following in relation to the meaning of good faith:
The usual content of the obligation of good faith that can be extracted [the] from cases such is an
obligation to act honestly and with a fidelity to the bargain; an obligation not to act dishonestly and not
to act to undermine the bargain entered or the substance of the contractual benefit bargained for; and
an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which
will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively
ascertained.
None of these obligations requires the interests of a contracting party to be subordinated to those of
the other. It is good faith or fair dealing between the parties by reference to the bargain and its terms
that is called for, be they both commercial parties or business dealing with consumers … [T]he
contractual notion of good faith varies in what is required for its satisfaction by reference to the nature
of the contract. But the notion is rooted in the bargain and requires behaviour to support it, not
undermine it, and not to take advantage of oversight, slips and the like in it. To do so is akin to theft,
and if permitted by the law led to over-elaborate contracts, and defensive and mistrustful attitudes
among contracting parties ...
The standard of fair dealing or reasonableness that is to be expected in any given case must recognise
the nature of the contract or relationship, the different interests of the parties and the lack of necessity
for parties to subordinate their own interests to those of the counterparty. That a normative standard
is introduced by good faith is clear. It will, however, not call for the same acts from all contracting
parties in all cases. The legal norm should not be confused with the factual question of its satisfaction.
The contractual and factual context (including the nature of the contract or contextual relationship) is
vital to understand what, in any case, is required to be done or not done to satisfy the normative
standard.
Good faith does not import an equitable notion of the fiduciary that is rooted in loyalty to another in
the service of her or his interests. Rather, it is rooted in honest and reasonable fair dealing.
Trickery and sharp practice impede commerce by decreasing trust and increasing risk. Good faith and
fair dealing promote commerce by supporting the central conception and basal foundation of
commerce: a requisite degree of trust. Business people understand these things.
CHAPTER 13
At the end of 13.4 add the following:
Thus, in McGee Group Ltd v Galliford Try Building Ltd [2017] EWHC 87 (TCC) at [25], Coulson J
said:
[A] clause which seeks to limit the liability of one party to a commercial contract, for some or all of the
claims which may be made by the other party, should generally be treated as an element of the parties'
wider allocation of benefit, risk and responsibility. No special rules apply to the construction or
interpretation of such a clause although, in order to have the effect contended for by the party relying
upon it, a clause limiting liability must be clear and unambiguous.
At the end of 13.8 add the following:
In this respect, in OZ Minerals Holdings Pty Ltd v AIG Australia Ltd [2015] VSC 185 at [20],
Hargrave J said:
The Court does not strain to find ambiguity in exclusion clauses. It is only appropriate to apply the
contra proferentem principle when ambiguity remains after applying accepted principles of contractual
interpretation.
At the end of 13.25 add the following:
In Capita (Banstead 2011) Ltd v RFIB Group Ltd [2014] EWHC 2197 (Comm) at [15], Popplewell J,
derived the following principles from the recent English decisions dealing with the Canada
Steamship Lines v The King principles:
(1) A clear intention must appear from the words used before the Court will reach the conclusion that
one party has agreed to exempt the other from the consequences of his own negligence … The
underlying rationale is that clear words are needed because it is inherently improbable that one party
should agree to assume responsibility for the consequences of the other’s negligence.
(2) The Canada Steamship principles are not to be applied mechanistically and ought to be considered
as no more than guidelines; the task is always to ascertain what the parties intended in their particular
commercial context in accordance with the established principles of construction. They nevertheless
form a useful guide to the approach where the commercial context makes it improbable that in the
absence of clear words one party would have agreed to assume responsibility for the relevant
negligence of the other.
(3) These principles apply with even greater force to dishonest wrongdoing, because of the inherent
improbability of one party assuming responsibility for the consequences of dishonest wrongdoing by
the other. The law, on public policy grounds, does not permit a party to exclude liability for the
consequences of his own fraud; and if the consequences of fraudulent or dishonest misrepresentation
or deceit by his agent are to be excluded, such intention must be expressed in clear and unmistakeable
terms on the face of the contract. General words will not serve. The language must be such as will alert
a commercial party to the extraordinary bargain he is invited to make because in the absence of words
which expressly refer to dishonesty the common assumption is that the parties will act honestly.
At the end of 13.35 add the following:
It should also be noted that the four corners rule is not a rule of law but a principle of
construction of an exclusion clause. What this means is that a carefully drafted exclusion clause
can exclude liability for conduct that would otherwise be caught by the four corners rule.
At the end of 13.42 add the following:
A further qualification to the application of s 64 is set out in s 139A of the Competition and
Consumer Act 2010 (Cth), which deals with terms excluding consumer guarantees from supplies
of recreational services. Section 139A stipulates as follows:
(1) A term of a contract for the supply of recreational services to a consumer by a person is not void
under section 64 of the Australian Consumer Law only because the term excludes, restricts or modifies,
or has the effect of excluding, restricting or modifying:
(a)
(b)
(c)
the application of all or any of the provisions of Subdivision B of Division 1 of Part 3-2 of the
Australian Consumer Law; or
the exercise of a right conferred by such a provision; or
any liability of the person for a failure to comply with a guarantee that applies under that
Subdivision to the supply.
(2) Recreational services are services that consist of participation in:
(a)
(b)
a sporting activity or a similar leisure time pursuit; or
any other activity that:
(i)
(ii)
involves a significant degree of physical exertion or physical risk; and
is undertaken for the purposes of recreation, enjoyment or leisure.
(3) This section does not apply unless the exclusion, restriction or modification is limited to liability for:
(a)
(b)
(c)
(d)
death; or
a physical or mental injury of an individual (including the aggravation, acceleration or
recurrence of such an injury of the individual); or
the contraction, aggravation or acceleration of a disease of an individual; or
the coming into existence, the aggravation, acceleration or recurrence of any other
condition, circumstance, occurrence, activity, form of behaviour, course of conduct or state
of affairs in relation to an individual:
(i)
(ii)
that is or may be harmful or disadvantageous to the individual or community; or
that may result in harm or disadvantage to the individual or community.
(4) This section does not apply if the exclusion, restriction or modification would apply to significant
personal injury suffered by a person that is caused by the reckless conduct of the supplier of the
recreational services.
(5) The supplier’s conduct is reckless conduct if the supplier:
(a)
(b)
is aware, or should reasonably have been aware, of a significant risk that the conduct could
result in personal injury to another person; and
engages in the conduct despite the risk and without adequate justification.
Note: Section 139A’s predecessor provision was s 68B of the Trade Practices Act 1974 (Cth). Section is
in essence the same as s 68B. However, there are changes in wording. In s 139A(1) the words ‘only
because’ which are underlined above, replaced the words ‘by reason only that’ in s 68A. Furthermore,
in s 139(3) the word ‘unless’ which is underlined above, replaced the words ‘so long as’ in s 68.
It should be noted that s 139A’s predecessor provision was s 68B of the Trade Practices Act
1974 (Cth). Section 139 A is in essence the same as s 68B. However, there are changes in
wording. In s 139A(1) the words ‘only because’ which are underlined above, replaced the words
‘by reason only that’ in s 68A. Furthermore, in s 139(3) the word ‘unless’ which is underlined
above, replaced the words ‘so long as’ in s 68.
CHAPTER 14
At the end of 14.5 add the following:
Indeed, this appears to be the way the law has developed in England. Thus, in Briggs v Gleeds
(Head Office) [2014] EWHC 1178 (Ch) at [28], Newey J, cited with approval the following
statement in Pankhania v Hackney [2002] EWHC 2441 (Ch) at [57], where Rex Todd QC, sitting
as a High Court judge, said:
I have concluded that the ‘misrepresentation of law’ rule has not survived the decision in Kleinwort
Benson Ltd v Lincoln City Council [1999] 2 AC 349. Its historical origin is as an off-shoot of the ‘mistake
of law’ rule, created by analogy with it, and the two are logically interdependent . Both are grounded in
the maxim ‘ignorantia juris non excusat’, a tag whose dubious utility would have been enhanced, had it
gone on to explain who was not excused, and from what. As it stands, it means no more than that
ignorance of the general law does not excuse anyone from compliance with it, a proposition with which
criminal lawyers are familiar. In translation, it has become distorted and amplified in meaning, in such
expressions as ‘everyone is taken to know the law’, from which follow two further propositions,
(underpinning the ‘mistake of law’ and ‘misrepresentation of law’ rules respectively) (i) ‘as you are
taken to know the law, it is your own fault if you are mistaken as to it, and because of that you should
have no relief’ and (ii) ‘as you are taken to know the law, it is your own fault if you are mistaken as to it,
even if I have misrepresented it to you, and because of that you should have no relief’. Those two
propositions bear little relation to, and do not follow logically from, the maxim ‘ignorantia juris non
excusat’, but save for its Latin roots, no basis for the ‘misrepresentation of law’ rule is to be found …
The distinction between fact and law in the context of relief from misrepresentation has no more
underlying principle to it than it does in the context of relief from mistake. Indeed, when the principles
of mistake and misrepresentation are set side by side, there is a stronger case for granting relief against
a party who has induced a mistaken belief as to law in another, than against one who has merely made
the same mistake himself. The rules of the common law should, so far as possible, be congruent with
one another, and based on coherent principle. The survival of the ‘misrepresentation of law’ rule
following the demise of the ‘mistake of law’ rule would be no more than a quixotic anachronism.
At the end of 14.17 add the following:
In AIC Ltd v ITS Testing Services (UK) Ltd ‘The Kriti Palm’ [2006] EWCA Civ 1601 at [255], Rix LJ
said:
A statement of opinion will not suffice unless the deceit is in the fact that the opinion was not, or not
honestly, held or in some further implicit dishonest misrepresentation of fact to be derived from the
statement of opinion.
After the second sentence in 14.21 insert the following:
In relation to the manner in which a representation is communicated, in Global Flood Defence
Systems Ltd v Johann Van Den Noort Beheer BV [2016] EWHC 99 (IPEC) at [40]-[41], Hacon J said
the following:
Particularly where a representation is made in writing, the nature and style of the communication may
influence the court's approach to the construction of a document. For example, a chatty representation
made in an email will not generally be interpreted by strict application of all the usual rules of
construction. By contrast if the representation is made, for instance, in a draft patent licence
agreement written in the usual style of such documents, it will be more appropriate to apply the usual
rules of construction to the draft. Business sense is to be given to business documents. Moreover the
nature and style of the document may indicate to a reasonable person in the position of the
representee that he needs to secure the help of someone with relevant expertise before he is able to
interpret the document correctly. The understanding of the document on the part of a representee
who fails to do this may significantly differ from the understanding of a reasonable person in his shoes
who has taken appropriately informed advice. In my view, only the latter is relevant. It would be
unsatisfactory if this were not the law. In that event, where the representation is contained in a
specialist document and the representee has no relevant training, he could rely on his own reasonable
ignorance together with a mulish refusal to take informed advice to say that his genuine but false
interpretation of the document induced him to enter into the agreement.
Although this will probably more usually arise in the context of written representations, it seems to me
that the same principle applies in relation to oral representations. The representation will be taken to
be that which would be understood by a reasonable person with the background knowledge of the
representee, such knowledge having been supplemented by informed specialist advice where the
nature and style of the representation reasonably indicates that such advice is necessary for its
accurate understanding.
At the end of 14.21 add the following:
The approach of the common law is that buyers can demand a warranty in relation to various
matters. In Smith v Hughes (1871) LR 6 QB 597 at 603, Cockburn CJ said:
I take the true rule to be, that where a specific article is offered for sale, without express warranty, or
without circumstances from which the law will imply a warranty - as where, for instance, an article is
ordered for a specific purpose - and the buyer has full opportunity of inspecting and forming his own
judgment, if he chooses to act on his own judgment, the rule caveat emptor applies. If he gets the
article he contracted to buy, and that article corresponds with what it was sold as, he gets all he is
entitled to, and is bound by the contract. Here the defendant agreed to buy a specific parcel of oats.
The oats were what they were sold as, namely, good oats according to the sample. The buyer
persuaded himself they were old oats, when they were not so; but the seller neither said nor did
anything to contribute to his deception. He has himself to blame. The question is not what a man of
scrupulous morality or nice honour would do under such circumstances.
In a similar vein, Blackburn J, at 606-7, said:
[O]n the sale of a specific article, unless there be a warranty making it part of the bargain that it
possesses some particular quality, the purchaser must take the article he has bought though it does not
possess that quality. And I agree that even if the vendor was aware that the purchaser thought that the
article possessed that quality, and would not have entered into the contract unless he had so thought,
still the purchaser is bound, unless the vendor was guilty of some fraud or deceit upon him, and that a
mere abstinence from disabusing the purchaser of that impression is not fraud or deceit; for, whatever
may be the case in a court of morals, there is no legal obligation on the vendor to inform the purchaser
that he is under a mistake, not induced by the act of the vendor.
The best explanation for the caveat emptor principle is the common law’s historical attachment to
the concept of a free market and individualist ideology.
The common law approach here is in stark contrast with civil law systems which require precontractual disclosure of relevant facts pursuant to a pre-contractual duty of good faith.
At the end of 14.26 add the following:
Thus, in Cramaso LLP v Ogilvie-Grant [2014] AC 1093 at 1103, Lord Reed, speaking for a
unanimous Supreme Court, said:
As Smith J observed in the Australian case of Jones v Dumbrell [1981] VR 199 [at] 203:
When a man makes a representation with the object of inducing another to enter into a
contract with him, that other will ordinarily understand the representor, by his conduct in
continuing the negotiations and concluding the contract, to be asserting, throughout, that
the facts remain as they were initially represented to be. And the representor will ordinarily
be well aware that his representation is still operating in this way, or at least will continue to
desire that it shall do so. Commonly, therefore, an inducing representation is a 'continuing'
representation, in reality and not merely by construction of law.
As Smith J indicated by his use of the words ‘ordinarily’ and ‘commonly’, whether a representation
should be treated as continuing depends upon the facts of the individual case. Where a
misrepresentation does not have a continuing effect, for example because it is withdrawn or lapses, or
because the other party discovers the true state of affairs before the contract is concluded, it cannot
induce the other party to enter into the contract and therefore cannot affect its validity or give rise to a
remedy in damages for any loss resulting from its conclusion. As Lord Brougham observed in Irvine v
Kirkpatrick (1850) 7 Bell App 186 [at] 237-238, in order that the misrepresentation may be of any avail
whatever, it must inure to the date of the contract. If the other party discovers the truth before he
signs the contract, ‘the misrepresentation and the concealment go for just absolutely nothing’.
At the end of 14.27 add the following:
The issue of silence in the context of misrepresentation was summarised by Bowen CJ in RhonePoulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 at 489-90, as follows:
Dealing with the question of misrepresentation constituted by silence, there are cases which show, for
example, that an omission to mention a qualification, in the absence of which some absolute statement
made is rendered misleading, is conduct which should be regarded as misleading. So too is the omission
to mention a subsequent change which has occurred after some statement which is correct at the time
has been made where the result of the change is to render the statement incorrect so that thereafter it
becomes misleading. This also may be regarded as constituting misleading conduct. However, the
general position between contracting parties has been expressed in the following way: ‘The general
rule, both of law and equity, in respect to concealment, is that mere silence with regard to a material
fact, which there is no legal obligation to divulge, will not avoid a contract, although it operates as an
injury to the party from whom it is concealed.’ (Smith v Hughes (1871) LR 6 QB 597 at 604. Under the
general law it is important to consider whether there is a legal obligation to divulge. There are
particular relationships which have been held to raise an obligation of disclosure. Contracts uberrimae
fidei come to mind as examples of this type of relationship. Indeed, there are many particular
relationships which raise duties of disclosure. These include trustee and beneficiary, solicitor and client,
principal and agent and guardian and ward. Where an obligation to disclose arises an omission to
inform the person to whom the obligation is owed may, perhaps on the basis that that person is
entitled to assume some fact or circumstance which does not exist, constitute or be an ingredient in
misleading conduct.
Finally, it can be observed that the caveat emptor principle is in certain classes of contracts
overcome to some degree by implied terms at law. For example, legislation regulating the sale
of goods (see 11.29) imposes duties on sellers, so that goods must correspond with any
description, be of satisfactory quality and be reasonably fit for the purpose disclosed by the
buyer. Such obligations effectively require certain matters relevant to the goods to be
disclosed. However, it must be kept in mind that not all sales of goods will necessarily be caught
by these provisions.
At the end of 14.35 add the following:
However, ‘[i]t is not … sufficient for [the representee] to show merely that he was supported or
encouraged in reaching his decision by the representation in question’: Raffeisen Zentralbank
Osterreich AG v Royal Bank of Scotland Plc [2011] 1 Lloyd’s Rep 123 at [153]; Leni Gas & Oil
Investments Ltd v Malta Oil Pty Ltd [2014] EWHC 893 (Comm) at [16].
At the end of 14.36 add the following:
A question that arises in misrepresentation cases stems from a question that is usually put to
representees at the hearing of the case. The question is: ‘What would you have done if you
knew that the representation was untrue?’ In Raiffeisen Zentralbank Osterreich AG v The Royal
Bank of Scotland Plc [2011] 1 Lloyd’s Rep 123 at [181], Christopher Clarke J observed that
‘judges use their answers (or the judge’s own conclusion on the question) to decide whether
inducement has been established’. However, in cases involving fraudulent misrepresentations,
the relevance of the answer to such a question is a matter of some doubt. In Leni Gas & Oil
Investments Ltd v Malta Oil Pty Ltd at [20], Males J summed up the position in England as
follows:
[There is] a debate about the extent to which it is permitted to consider whether a claimant would still
have entered into the contract on the same terms even if it had known the true position. Some cases
suggest that as a matter of principle a dishonest defendant will not be allowed to seek to rebut the
presumption of inducement by proving that the claimant would still have entered into the contract on
the same terms even if it had known the true position (eg Downs v Chappell [1997] 1 WLR 426 at 433
and Parabola Investments Ltd v Browallia Cal Ltd [2009] EWHC 901 (Comm) at [100]). Other cases
suggest that if it can be proved what the claimant would have done if it had known the truth, that may,
depending on the facts, enable the claimant to prove that it was indeed induced by the fraudulent
representation to enter into the contract (Parabola also at [100]; Raffeisen at [184]) or it may enable
the defendant to prove that the claimant was not so induced (Raffeisen at [185]).
However, the position is somewhat clearer in Australia. In Taheri v Vitek (2014) 87 NSWLR 403
at 420, Leeming JA (Bathurst CJ and Emmett JA agreeing) said:
To be clear, it would be no defence even if it were shown that [the representees] might well have
entered into the compromise absent any fraudulent misrepresentation. As James VC put it in Re
lmperial Mercantile Credit Association; Williams’ case (1869) 9 LR Eq 225n at 226, in a passage endorsed
by Meagher and Handley JJA in Demetrios v Gikas Dry Cleaning Industries Pty Ltd (1991) 22 NSWLR 561
at 570 and by Lord Millett in BP Exploration Operating Co Ltd v Chevron Transport (Scotland) [2003] 1
AC 197 at [105]:
… I do not think a Court of Equity is in the habit of considering that a falsehood is not to be
looked at because, if the truth had been told, the same thing might have resulted.
The authorities to the same effect were collected by Beazley JA in Macquarie Generation v Peabody
Resources [2000] NSWCA 361 at [81]. Her Honour concluded at [82]:
Thus, it is not relevant for the Court to determine whether, if the true position had been
known, the representee would or would not have altered his position in relation to the
contract. ‘It is enough if a full and exact revelation of the material facts might have
prevented him from doing so.’ (Citations omitted)
At the end of 14.30 add the following:
In this respect, in Global Flood Defence Systems Ltd v Johann Van Den Noort Beheer BV [2016]
EWHC 99 (IPEC) at [35], Hacon J said:
It is open to a defendant to show that notwithstanding his misrepresentation, the claimant was aware
of the true facts and was therefore not induced by the misrepresentation to enter into the contract.
However, it is not enough for the defendant to establish that the claimant could have discovered the
true facts, it must be shown that he did discover them.
At the end of 14.38 add the following:
In a similar manner, in Bate v Aviva Insurance UK Ltd [2014] EWCA Civ 334 at [35], in a case
where there was evidence of inducement independent of the materiality of the representation,
Tomlinson LJ said:
[T]here may be cases in which the materiality is so obvious as to justify an inference of fact that the
representee was actually induced, although even in such exceptional cases the inference may be
rebutted – see St Paul Fire and Marine Insurance Co (UK) Ltd v McConnell Dowell Constructors Ltd,
[1996] 1 All ER 96 at 112 … This was such a case where the inference of inducement would have been
justified, had it been necessary to resort to it.
CHAPTER 15
In 15.3, after the setting out of the terms of s 18(1) of the ACL, insert the following:
In Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty
Limited [2014] FCA 634 at [38], Allsop CJ observed as follows:
For the enquiry under s 18, it is necessary to identify the impugned conduct and then to consider
whether that conduct, considered as a whole and in context, is misleading or deceptive or likely to
mislead or deceive.
At the end of 15.5 add the following:
The High Court decision in Concrete Constructions was summed up by the Full Court of the
Federal Court in Fletcher v Nextra Australia Pty Ltd (2015) 229 FCR 153 at [31], as follows
It has been observed that the High Court made a deliberate choice in Concrete Constructions between a
wide and narrow view of the expression ‘in trade or commerce’ in s 52 and chose the narrow view. As
such ‘in trade or commerce’ would have a restrictive operation and confine the effect of the provision
to conduct which ‘is itself an aspect or element of activities or transactions which, of their nature, bear
a trading or a commercial character’: Concrete Constructions at [CLR] 603. In Concrete Constructions,
focus was placed upon ‘the central conception’ of trade or commerce and not the ‘immense field of
activities’ in which corporations may engage in the course of, or for the purposes of, carrying on some
overall trading or commercial business. As Yates J noted in Toben v (2012) 298 ALR 203 at [40], …
conduct ‘in relation to’ or ‘in connection with’ trade or commerce is not sufficient to engage the
provision.
In Bride v The Shire of Katanning [2016] FCA 65 at [23], McKerracher J, said:
Concrete Constructions made clear that s 52 (the predecessor of s 18) was not intended to extend to all
conduct, regardless of its nature, in which a corporation might engage for the purpose of its overall
trading or commercial business. Rather, the reference to conduct ‘in trade or commerce’ can be
construed as referring only to conduct which is itself an aspect or element of activities or transactions
which of their nature bear a trading or commercial character.
At the end of 15.8 add the following:
In Woollahra Municipal Council v Secure Parking Pty Ltd [2015] NSWSC 257 at [110], Ball J said
the following in relation to silence:
Silence may amount to misleading or deceptive conduct, but only if the person who is said to have been
misled or deceived had a reasonable expectation that if the relevant matter existed it would be
disclosed. It is not necessary for the silence to be intentional.
At the end of 15.21 add the following:
In Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198, Gibbs CJ
observed that the words ‘likely to mislead or deceive’ added little to the meaning on s 18 and
that, ‘at most they make it clear that it is unnecessary to prove that the conduct in question
actually deceived or misled anyone’.
At the end of first sentence in 15.22 insert the following:
In Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 304 ALR 186 at 194,
French CJ and Crennan, Bell and Keane JJ said:
Conduct is misleading or deceptive, or likely to mislead or deceive, if it has a tendency to lead into
error. That is to say there must be a sufficient causal link between the conduct and error on the part of
persons exposed to it. It is in that sense that it can be said that the [prohibition] in … s 18 [was] not
enacted for the benefit of people who failed to take reasonable care of their own interests.
In Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty
Limited [2014] FCA 634 at [39], Allsop CJ observed as follows:
Conduct is misleading or deceptive or likely to mislead or deceive if it has the tendency to lead into
error, if there is a sufficient causal link between the conduct and the error on the part of the person
exposed to the conduct. The causing of confusion or questioning is insufficient; it is necessary to
establish that the ordinary or reasonable consumer is likely to be led into error.
In Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435 at 443; 294 ALR
404 at 407, French CJ, Crennan, Bell and Keane JJ held that ‘conduct causing confusion and wonderment
is not necessarily co-extensive with misleading or deceptive conduct’.
At the end of 15.24 add the following:
The state of mind on the person is irrelevant unless the statement relates to the state of mind
of that person: Australian Competition & Consumer Commission v Dateline Imports Pty Ltd
[2015] FCAFC 114 at [179].
At the end of first sentence in 15.32 insert the following:
In Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty
Limited [2014] FCA 634, the facts concerned the sale of bread in a supermarket which was
baked in a two-stage process. It was partly baked before it arrived in the supermarket and then
finally baked on the day it was sold. The issue before the court was whether phrases such as
‘baked today, sold today’, ‘baked fresh’ and ‘freshly baked in-store’ amounted to misleading or
deceptive conduct. In ruling that it did, Allsop CJ, at [43], said:
Where conduct or representations is or are directed to members of the public at large, the conduct or
representations must be judged by their effect on ‘ordinary’ or ‘reasonable’ members of the class of
prospective purchasers. In a context such as the present, the purchasing of a staple such as bread in a
supermarket, the ordinary or reasonable person may be intelligent or not, may be well educated or not,
will not likely spend any time undertaking an intellectualised process of analysis, will often be shopping
for many other items, and will be likely affected by an intuitive sense of attraction rather than by any
process of analytical or logical choice. The dominant message of advertising for bread is likely to be
simple, though intuitively diffuse. What is reasonable care by members of the public must be judged in
the above context. The purchase of bread from a baker or bread shop should not normally call for
astute attention to disclaimers about the wares on sale at the counter.
At the end of first sentence in 15.43 insert the following:
In the context of the former s 51A of the Trade Practices Act, in Traderight (NSW) Pty Ltd v Bank
Of Queensland Limited [2014] NSWSC 55 at [1124]-[1128], Ball said:
In order for s 51A … to operate the representation must be a representation with ‘respect to any future
matter’. ‘Future matter’ is not defined. The expression ‘with respect to’ is a broad one. It may include
representations which induced the relevant arrangement …
The question whether a representation is a representation with respect to a future matter is a question
of characterisation that must take into account the context in which the representation was made. The
mere fact that the representation is expressed as an opinion does not prevent it from being a
representation with respect to a future matter …
It has sometimes been suggested that, if the representor states his or her reasons for making a
statement, the statement is not a representation with respect to a future matter. However, that
approach was rejected by the Court of Appeal in Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58 at
[97], [103]-[104].
Similarly, the fact that a statement is expressed in terms of what is possible rather than what will
happen does not necessarily mean that the statement is not a statement with respect to a future
matter …
On the other hand, it is necessary to distinguish between a statement concerning what may occur in
the future and a statement concerning what is hypothetically possible. To take a simple example,
compare these two statements:
(1) If you become a Bank of Queensland franchisee you should be able to write $4 million in new loans
per month.
(2) It is possible for some Bank of Queensland franchisees to write $4 million in new loans per month.
Leaving context aside, the first statement appears to be a statement of what a particular individual
should be able to achieve as an Owner Manager in the future. It is a statement with respect to a future
matter even though it is couched in terms of what is possible or likely. The second statement is not a
statement with respect to a future matter at all. It is not saying that any particular state of affairs will or
is likely or may come about. It is merely saying what is possible without making any prediction
concerning what any particular franchisee might achieve. The statement is consistent with a statement
made to a particular proposed franchisee to the effect that ‘If you become a Bank of Queensland
franchisee there is no possibility that you will write $4 million in new loans per month’. Consequently, if
made, it cannot carry with it the implication that any particular franchisee will or may write $4 million
in loans per month. What character a particular statement has depends on the words used and their
context.
At the end of 15.51 add the following:
In relation to establishing reliance, in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR
304 at 348, the plurality in the High Court said:
It is as well to add, however, that, of itself, neither the inclusion of an entire agreement clause in an
agreement nor the inclusion of a provision expressly denying reliance upon pre-contractual
representations will necessarily prevent the provision of misleading information before a contract was
made constituting a contravention of the prohibition against misleading or deceptive conduct by which
loss or damage was sustained.
To similar effect, in Juniper Property Holdings No 15 P/L v Caltabiano (No 2) [2016] QSC 5 at
[80], Jackson J said:
[T]he fact that an entire agreement clause or non-reliance clause was included in the contract is not
sufficient to demonstrate a break in the chain of causation between the alleged representations as
misleading or deceptive conduct and the loss or damage suffered by the defendant if held to the
contract.
CHAPTER 16
At the end of 16.7 add the following:
However, as was pointed out by Steyn J in Associated Japanese Bank (International) Ltd v Credit
du Nord SA [1988] 3 All ER 902 at 912 the following matters need to be taken in account before
considering whether there is a common mistake:
(i) there can be no mistake if ‘the contract itself, by express or implied condition precedent
or otherwise, provides who bears the risk of the relevant mistake’ and that it is, indeed,
‘this hurdle that many pleas of mistake will either fail or prove to have been
unnecessary’ because ‘[o]nly if the contract is silent on the point, is there scope for
invoking mistake’;
(ii) the law seeks to uphold, rather than destroy, apparent contracts; and
(iii) there can be no common mistake if a party has entered into the contract with a
mistaken belief in circumstances where there are no reasonable grounds for such a
belief.
Steyn J also pointed out that ‘the common law rules as to a mistake …, like the common law
rules regarding commercial frustration, are designed to cope with the impact of unexpected
and wholly exceptional circumstances on apparent contracts’.
At the end of 16.34 add the following:
In Menegazzo v Pricewaterhousecoopers (a firm),20 Applegarth J accepted the views of the
Court of Appeal in Australian Estates Pty Ltd v Cairns City Council as ‘correct’. On the other
hand, the correctness or otherwise of Great Peace on the issue of common mistake in equity
was left open in Errichetti Nominees Pty Ltd v Paterson Ground Architects Pty Ltd [2007] WASC
77 at [50]-[63], and HWG Holdings Pty Ltd v Fairlie Court Pty Ltd (2015) 302 FLR 230 at 237-241.
Finally, Young JA in Hawcroft v Hawcroft General Trading Co Pty Ltd [2016] NSWSC 555 at [45][69] and McMillan J in Rees v Rees [2016] VSC 452 at [98]-[103] took the view that common
mistake operated at both the common law and in equity.
After the second sentence in 16.64 insert the following:
In Gallinar Holdings Pty Ltd v Riedel [2014] NSWSC 476 at [34], White J suggested the following:
A deliberate course of cloaking the other party’s mistake is one basis for finding the contract can be
vitiated for unilateral mistake. I would accept that if it were shown that the other party was aware of
the mistake, being a serious mistake about a fundamental term, and otherwise acted unconscionably,
that the contract would be liable to be rescinded.
20
[2016] QSC 94 at [117].
At the end of 16.71 add the following:
In CF Asset Finance Ltd v Okonji [2014] EWCA Civ 870 at [27], Patten LJ said:
The court's desire to confine the effectiveness of a plea of non est factum to very limited circumstances
has undoubtedly been dictated by its legal consequences. To declare the contract a nullity has obviously
serious and adverse consequences for third parties who may have relied on the contents of the
document such as the claimant in this case. Their interests cannot be protected or at least taken into
account by the court as they might have been had the contract been voidable for misrepresentation
and what the appellants were seeking was equitable rescission.
CHAPTER 17
At the end of 17.1 add the following:
In assessing whether duress (as well as undue influence) is present the court focuses on the
quality of the consent to the contract that is given by the victim of duress. In Hussain v
Haynoum Developments Pty Ltd [2015] NSWCA 420 at [5], Leeming JA stated that this was not
the question that was addressed in cases of unconscionability in equity. In these cases, his
Honour said that the focus is on whether the conduct of the stronger party is, in all the
circumstances, unconscionable. However, although his Honour’s statement does point to
differences in terms of the focus of attention between duress and undue influence, on the one
hand, and unconscionability, on the other, a finding of unconscionability does, nevertheless,
mean that the weaker party’s consent was impaired when he or she entered into the contract.
At the end of 17.11 add the following:
In the wake of the decision in Australia & New Zealand Banking Group Ltd v Karam, in A v N
[2012] NSWSC 354 at [509], Ward J said:
If … Karam [is] correct, then the concept of duress … is now limited to unlawful conduct. This limitation
is not difficult to reconcile with the classic cases on duress to the person. In Barton v Armstrong, the
'duress' was constituted by several death threats. In McLarnon v McLarnon (1968) 112 Sol J 419, the
threats were of incarceration. In Saxon v Saxon [1976] 4 WWR 300, death threats were made against
not the signer, but the signer's children. The threatened acts in each of those cases are unlawful.
Moreover, even if Karam is incorrect in limiting duress to unlawful acts, the cases show that there is a
high threshold to be met with respect to the conduct of the party alleged to be exerting pressure, as
these cases all exhibit a high degree of threatened violence.
At the end of 17.19 add the following:
In Progress Bulk Carriers Ltd v Tube City IMS LLC [2012] EWHC 273 (Comm), Tube City chartered
a ship from Progress to transport its cargo of shredded scrap from the Mississippi River to China.
In breach of the contract, Progress hired the ship to Daewoo, a third party. Progress then ‘lulled
Tube into a false sense of security’ by offering to provide a substitute ship and cover Tube’s
losses. In reality Progress was ‘quietly manoeuvring [Tube] into a corner’. By the time a
replacement ship was found, Tube had been forced to accept a significant price reduction from
its Chinese buyer for failing to deliver the shredded scrap on time. It was also facing escalating
storage costs.
Knowing that Tube had no real alternatives as the price of shredded scrap had, in the meantime,
significantly fallen, Progress then backed out of its promise to compensate Tube in full. Rather,
it made a ‘take it or leave it’ offer which required Tube to waive all of its claims against Progress.
Under protest, Tube agreed to the terms put to it by Progress. The issue before the court was
whether Progress’ conduct amounted to economic duress, even though its conduct was lawful.
After referring to Pao On v Lau Yiu Long and Universe Tankships Inc of Monrovia v International
Transport Workers Federation, and citing the above passage from CTN Cash & Carry v Gallagher
Ltd, Cooke J, at [36], in finding that Progress was guilty of duress, said:
The question of law posed is whether [Progress’] … amounted to ‘the illegitimate pressure’ required to
establish economic duress in law … It is, in my judgement, clear from the authorities that ‘illegitimate
pressure’ can be constituted by conduct which is not in itself unlawful, although it will be an unusual
case where that is so, particularly in the commercial context. It is also clear that a past unlawful act, as
well as a threat of a future unlawful act can, in appropriate circumstances, amount to ‘illegitimate
pressure’.
Delete 17.20 and replace with the following:
17.20 A contract obtained by duress is voidable. The primary remedy for duress is, if available,
rescission (see Chapter 35): Borrelli v Ting (Bermuda) [2010] UKPC 21 at [34]. However, the
courts may order recovery of money in cases of economic duress pursuant to claim in
restitution. However, before the restitutionary claim can be made the contract must be
rescinded because such claims cannot be made in respect of an effective contract: Electricity
Generation Corporation t/a Verve Energy v Woodside Energy Ltd [2013] WASCA 36 at [201].
CHAPTER 18
At the end of 18.3 add the following:
Although related but distinct, the High Court has recognised that the facts of a case may be
such that a plaintiff can establish both undue influence and unconscionability: Bridgewater v
Leahy (1998) 194 CLR 457 at 477-8; 158 ALR 66 at 80. Thus, in Verduci v Golotta [2010] NSWSC
506, a mortgage was held to be voidable on the grounds of both undue influence and
unconscionability in circumstances where a solicitor’s client borrowed money from the
solicitor’s father. On the other hand, in Lee v Chai [2013] QSC 136, where a man sought to set
aside a gifts of property to his lover, the man’s claims that the gifts were the result of undue
influence or unconscionability were rejected by the court.
At the end of 18.8 add the following:
In Evans v Lloyd [2013] EWHC 1725 (Ch) at [37], Judge Keyser QC said:
[T]he two labels [of actual and presumed undue influence] describe different ways in which undue
influence is exercised and, accordingly, different ways of proving that undue influence has in fact been
exercised. In very general terms, in a case of actual undue influence it is necessary to prove some overt
act by which influence was exercised, whereas in a case of presumed undue influence the influence will
be exercised less directly and its existence is inferred from a consideration of the facts relating to the
transaction under consideration and the relationship of the parties to that transaction.
At the end of 18.11 add the following:
In Band of Credit and Commerce International SA v Aboody [1990] 1 QB 923; [1992] 4 All ER
955, it was held that in cases of actual undue influence the transaction had to be one in which
there was a manifest disadvantage to the claimant. LJ Slade, at QB 967; All ER 976, giving the
judgment of the Court of Appeal, said:
Leaving aside proof of manifest disadvantage, we think that a person relying on a plea of actual undue
influence must show: (a) that the other party to the transaction (or someone who induced the
transaction for his own benefit) had the capacity to influence the complainant; (b) that the influence
was exercised; (c) that its exercise was undue; (d) that its exercise brought about the transaction.
At the end of 18.55 add the following:
In Gardiner v Westpac New Zealand Ltd [2015] 3 NZLR 1 at 9 the Court of Appeal in New
Zealand said the following in relation to whether a third-party guarantor will be able to
establish that the guarantee was obtained as the result of undue influence:
Undue influence is likely to be presumed if the guarantor has limited commercial ability, has a minimal
financial stake in the enterprise guaranteed and is in a relationship involving an emotional tie or
dependency on the part of the guarantor towards the principal debtor.
The Court, at 11, went on to say the following in relation to what a lender should do in order to
avoid a finding of undue influence in such cases:
[I]t will be prudent for a financier to insist that the guarantor be given advice by an independent
solicitor, and to obtain from that solicitor a certificate that the effect and implications of the documents
have been explained to the guarantor and that the guarantor appears to have understood the
explanation … [I]t cannot be assumed that a solicitor loses the ability to function independently in
advising a guarantor where the solicitor also has some involvement with the principal debtor.
Depending on the circumstances, a solicitor in that position may be in a better position than a stranger
to give balanced advice and to assess whether its significance has been appreciated by the guarantor.
Where the guarantor declines to obtain independent advice, a prudent financier will endeavour to
ensure that somebody (and preferably a solicitor) explains the documents and their consequences.
Furthermore, while it is prudent for a financier to insist that the guarantor is advised by a solicitor who
is not acting for another party to the transaction, it is not for the financier to tell a solicitor how to
perform his or her duties or to inquire about the solicitor’s independence or the adequacy of the
advice.
At the end of 18.60 add the following:
In this context in Warburton v Whitely (1989) BC8902563, Kirby P said:
The appellants [in this case] attacked the principle [in Yerkey v Jones] on the basis that, however
appropriate to the social circumstances in which it was developed and in which it was expounded by
Dixon J, it is no longer appropriate today to ground such an undiscriminating and absolute rule. It was
suggested that the principle was based upon a stereotyped perception of the dependent position of
wives in relation to their husbands. It gave no equal protection to husbands in an analogous position of
dependence. It derived from the history of the legal disadvantages suffered at law by married women.
It could be explained on the basis of the earlier perceived needs in the law to provide special
protections for wives in relation to their husbands. It perpetuated a stereotype which was out of
harmony with today's society, preserved the unequal position of women and conflicted with the
development of statute law with which legal and equitable principles should keep in step. Above all, it
was argued that Yerkey is not now necessary because of the later exposition of an applicable and more
general legal principle [of unconscionability] for the undiscriminating protection of persons (whether
husbands, wives or otherwise) in a position of special disability known to a creditor.
Just to cite Dixon J's words in Yerkey is to illustrate how inappropriate they are, nowadays, taken as a
rule of general application. They contrast with the very different social circumstances of Australian
society today, when compared to that society fifty years ago when Yerkey was written: ‘Although the
relation of husband to wife is not one of influence, yet the opportunities it gives are such that if the
husband procures his wife to become surety for his debt a creditor who accepts her suretyship
obtained through her husband has been treated as taking it subject to any invalidating conduct on the
part of her husband even if the creditor be not actually privy to such conduct’.
The advance in the status and education of women, the increasing role of women (including wives) in
business and commercial affairs and the variety of personal relationships today all make a principle,
fashioned in terms of a wife's disadvantageous position vis-a-vis her husband, unsafe when stated as a
general rule of universal application. Even as a statement of a prima facie position, the statement is
now unsound and objectionable in principle. It is also of dubious accuracy in practice. Doubtless … there
are cases, even today, where wives in our society are in a position of special disability with respect to
their husbands and in need of particular protection from the law in relation to incurring debts. That is
not in doubt. What is in issue is the important question of principle as to whether the law's protection
should be offered on the basis of assumptions about a dependent relationship as described fifty years
ago or grounded in a more discriminating principle which can be adapted to the facts of the relationship
proved. Such a principle would avoid presuppositions about the relationship only of wives to husbands.
It would avoid [as Deane J did in Commercial Bank of Australia Ltd v Amadio (1983) CLR 447 at 475] a
rule which confines the ‘process of reasoning...to cases of the relief of female spouses’. It would
examine the facts of each relationship to determine whether a special disability existed. It could thus
adjust the principle of the law so that it could apply to the greater variety of personal relationships such
as exist today in greater number than fifty years ago. And it would withhold the interference of the law
in the economic activities of individuals based upon no better reason than the existence of marriage
and the presumed dependence of the wife within it.
Despite the advances in the status of women in recent years it should not be assumed that all
commentators are of the opinion that the law should immediately expunge every rule previously
fashioned to distinguish the position of women (and wives) from men (and husbands or persons in
other relationships). Thus some commentators suggest that the conferral of ‘special’ rights upon
women (and wives) enables them to exercise an ‘equal right’ without which they will, effectively, be
denied equal treatment by the law. See eg M Thornton ‘Feminist Jurisprudence: Illusion or Reality’
(1986) 3 Australian Journal of Law and Society at 5. See also S Deery and P Plowman ‘Antidiscrimination in Employment’ in Australian Industrial Relations, 2nd ed (1985) at 437; L Bryson,
‘Women and Management in the Public Sector’ (1987) 46 Australian Journal of Public Administration at
259; and Women and Credit: Sex Discrimination in Consumer Credit, Report by the New South Wales
Anti-Discrimination Board, 1986 at 85. Other commentators oppose any ‘special treatment’ for women
(including wives) as such. They recognise the limitations of the strict equality in the treatment of
women (and wives) on the one hand, and men, (husbands and others) on the other. But they contend
that there are more dangers in special treatment. Thus, WW Williams in ‘The Equality Crisis: Some
Reflections on Culture, Courts and Feminism’ 7 Womens Rights Law Reporter 175 (1981) observes,
relevant to special treatment rules that they: ‘...absolve women of personal responsibility in the name
of protection ... [D]o we not acquire a greater right to claim our share from society if we too share its
ultimate jeopardies? ... and do we not, by insisting upon our differences at these crucial junctures,
promote and reinforce a us-them dichotomy that permits the Rehnquists and the Stewarts to resolve
matters of great importance and complexity by the simplistic, reflexive and assertion that men and
women are "simply not similarly situated?’
At the end of 18.63 add the following:
In National Australia Bank Ltd v Savage [2013] NSWSC 1718 at [70], Adamson J said:
[T] he [Yerkey v Jones] equity [is] not based on any presumption of subservience, inferior economic
position or vulnerability to exploitation of married women. Rather, it [is] based on trust and confidence
whereby a wife might leave all business judgments to her husband in circumstances where she is
neither consulted, nor advised, in any substantial way about the legal effect of documents she signs
which concern her financial interests as well as those of her husband.
At the end of 18.64 add the following:
In relation to the relationships to which the Yerkey v Jones principle extends beyond that of
husband and wife, cases such as Wenczel v Commonwealth Bank of Australia [2006] VSC 324 at
[135] and Dowdle v Pay Now For Business Pty Ltd [2012] QSC 272 at [101], suggest that the
principle applies to cases of husbands and wives who have separated. However, in Groves v
Groves [2013] 277 at [191], Martin J, expressed ‘doubt about its applicability in cases of long
separation’.
On the other hand, in Capital One Securities Pty Ltd v Soda Kids Holdings Pty Ltd [2014] VSC 168
at [233], Ginnane J said that ‘[t]he Garcia defence only applies to instruments of suretyship,
which operate to a wife’s or husband’s advantage or which confer a voluntary benefit on them’.
However, on the facts of that case, Ginnane J held that the husband had not established the
elements of the Yerkey v Jones principle as set out in Garcia v National Australia Bank.
At the end of 18.67 add the following:
In both Westpac Banking Corporation v Diagne [2014] NSWSC 822 at [64] and National
Australia Bank Limited v Wehbeh [2014] VSC 431 at [53]-[55], a wife failed to establish that she
was a volunteer as she had an interest in and worked in the business for which the loans were
raised by the husband.
CHAPTER 19
At the end of 19.13 add the following:
The special disadvantage need not have been created by the party that benefits from the
transaction: Louth v Diprose (1992) 175 CLR 621 at 629.Nor does that party, unless he or she is
a fiduciary, need to take steps to ascertain whether a disadvantage exists. That party is judged
on the basis 0f facts that were known to it. However, as was noted in Owerhall v Bolton & Swan
Pty Ltd [2016] VSC 91 at [49], ‘[i]t is not necessary … that there be full knowledge of the special
disability. It is enough that the party has sufficient awareness to be placed on inquiry so that
ignorance of the special disability may be characterised as wilful’.
At the end of 19.83 add the following:
In Tonto Home Loans Australia Pty Ltd v Tavares at [291], Allsop P said:
Aspects of the content of the word ‘unconscionable’ include the following: the conduct must
demonstrate a high level of moral obloquy on the part of the person said to have acted unconscionably;
the conduct must be irreconcilable with what is right or reasonable; … the concept of unconscionable in
this context is wider than the general law and the provisions are intended to build on and not be
constrained by cases at general law and equity; [s 21 focuses] on the conduct of the person said to have
acted unconscionably. It is neither possible nor desirable to provide a comprehensive definition. The
range of conduct is wide and can include bullying and thuggish behaviour, undue pressure and unfair
tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct. A
finding requires an examination of all the circumstances.
In Paciocco v Australia and New Zealand Banking Group Limited (2015) 236 FCR 199 at 274-5.
Allsop CJ said:
The working through of what a modern Australian commercial, business or trade conscience contains
and requires, in both consumer and business contexts, will take its inspiration and formative direction
from the nation’s legal heritage in Equity and the common law, and from modern social and
commercial legal values identified by Australian Parliaments and courts. The evaluation of conduct …
does not involve personal intuitive assertion. It is an evaluation which must be reasoned and
enunciated by reference to the values and norms recognised by the text, structure and context of the
legislation, and made against an assessment of all connected circumstances. The evaluation includes a
recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or
sharp practice; fairness when dealing with consumers; the central importance of the faithful
performance of bargains and promises freely made; the protection of those whose vulnerability as to
the protection of their own interests places them in a position that calls for a just legal system to
respond for their protection, especially from those who would victimise, predate or take advantage; a
recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to
fair dealing or conscience; the importance of a reasonable degree of certainty in commercial
transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a
business and consumer context that exhibits good faith and fair dealing; and the conduct of an
equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment
and exercise of power and discretion based thereon.
In relation to the particular facts of that case, Allsop CJ, at 283, held ‘the lack of any proven
predation on the weak or poor, the lack of real vulnerability requiring protection, the lack of
financial or personal compulsion or pressure to enter or maintain accounts, the clarity of
disclosure, the lack of secrecy, trickery or dishonesty, and the ability of people to avoid the fees
or terminate the accounts’ meant that the bank in that case was not guilty of unconscionable
conduct.
In relation to establishing statutory unconscionability, in Australian Competition and Consumer
Commission v Woolworths Ltd [2016] FCA 1472 at [142], Yates J cautioned that ‘the
characterisation of conduct, in trade or commerce, as “unconscionable” is not arrived at by a
process of personal intuitive assertions or idiosyncratic notions of commercial morality. The
characterisation of the conduct in issue is plainly informed by fact-finding concerning the
nature of the relationships involved, by which the relevant norms are to be identified’.
In Director of Consumer Affairs Victoria v Scully & Ors (No 3) [2012] VSC 444 at [31], Hargrave J
said that to establish statutory unconscionability it had be shown that ‘the conduct in question
must be more than negligent. It will usually involve some deliberate wrongdoing, although
there may be cases where recklessness will suffice’. In citing with approval this statement, the
Court of Appeal in Victoria in Violet Homes Loans Pty Ltd v Schmidt (2013) 44 VR 202 at 219,
observed ‘that recklessness, in the form of wilful blindness, may in some cases supply the
necessary element of moral obloquy’.
In W & K Holdings (NSW) Pty Ltd v Lauren Margaret Mayo [2013] NSWSC 1063 at [153], Sackar J
said:
When used in [s 21], the term [unconscionable] requires that the actions of the alleged contravenor
show no regard for conscience, and be irreconcilable with what is right or reasonable, importing a
pejorative moral … [N]ormally, some moral fault or moral responsibility would be involved, rather than
mere negligence. There would ordinarily need to be an intentional act or at least a reckless act.
At the end of 19.86 add the following:
Although the courts have made it clear that it is undesirable to attempt a comprehensive
definition of the word ‘unconscionable’ as it appears in s 21(1)(a), the Court of Appeal in
Victoria in Director of Consumer Affairs Victoria v Scully (2013) 303 ALR 176 at 180-6, made the
following observations:
First, it has now been firmly decided that the use of the word in [s 21(1)(a)] is intended to have its
ordinary meaning, and is not to be confined, as [s 20] is confined, to notions of unconsionability that
have developed in courts of equity.
Second, the word ‘unconscionable’ is an epithet, and, in the provision, it is predicated of ‘conduct’. Care
has to be taken when one’s attention is drawn to the circumstances that afflict some people. For
example, it may be said that a party gained ‘an unfair or unconscientious advantage’, or that a
mortgage was ‘unfair, unjust or unreasonable’. Obviously enough, a person’s conduct is to be
distinguished from the consequences that that conduct may have on the lives of other people. As the
High Court recently said, albeit in the context of a claim under [s 20]: ‘the principle which the appellant
invokes is not engaged by the circumstance that a plaintiff’s transaction with a defendant has resulted
in loss to the plaintiff, even loss amounting to hardship’: Kakavas v Crown Melbourne Ltd (2013) 298
ALR 35 at 40. Well intentioned conduct may have dire consequences for other people; malign conduct
may be without consequence; adventitiously, it may have benign consequences. Generally speaking, it
will be the consequences of one person’s conduct upon others that attracts the attention of the law.
The problems of some vulnerable groups of people have been exacerbated by another person’s
conduct. However, those consequences having, as it were, attracted the attention of the law, attention
then properly shifts back to the nature of the conduct of the putative defendant. The fact that the
circumstances of a person or a group of persons, or the circumstances of some transaction they
entered into, may reasonably be described as ‘unfair’ is the commencement of the enquiry, not its
terminus.
Third, equity’s exploration over the years of the manifold and novel ways in which the strong can
exploit the weak, in trade and commerce or otherwise, will usually be of assistance in assessing
whether it should be said that conduct has been unconscionable.
Fourth, the third observation is borne out by the content of [s 22(1)]. It describes several matters to
which a court or tribunal may have regard in determining whether a person may be said to have
engaged in conduct that is, in all the circumstances, unconscionable. The presence of one or more of
those matters, without more, does not mean that conduct has been unconscionable.
However, even though the concept of unconscionability is not closed and will be apt to describe
exploitative conduct that has yet to be observed, the matters referred to in [s 22(1)] help illuminate its
meaning. As Macaulay AJA said in Body Bronze International Pty Ltd v Fehcorp Pty Ltd (2011) 34 VR 536
at 552:
Not only do these factors assist in comprehending the intended scope and meaning of
unconscionable conduct prohibited by the section, but they also provide a useful, although
non-exhaustive, set of factors by which to test the particular conduct in question.
So, suppliers may be at risk if they simply disregard the ‘relative strengths of the bargaining positions’
that may in some cases exist between themselves and particular purchasers: [s 22(1)(a)]. A
disproportion in the bargaining positions of a particular supplier and a particular purchaser will not, of
itself, make the conduct of the supplier unconscionable. But, where the scales are weighted against a
purchaser, opportunities for the exploitation of the vulnerable arise more readily and, if taken
advantage of, may well involve conduct that is, ‘in all the circumstances’ unconscionable. Or, take [s
22(1)(c)]: ‘whether the purchaser was able to understand any documents relating to the supply or
possible supply of the goods or services.’ Contractual documents are in English, but the range of
possible purchasers includes many people who have no grasp of the significance of words that they are
asked to subscribe. There was a time when, whatever equity had to say, the law simply cautioned the
buyer to beware. If nothing else, the matters in [s 22(1)(c)] have made it plain that public policy and the
law is no longer indifferent to the morality of what has taken place between supplier and purchaser.
Fifth, [s 22(1)] makes clear that qualities of unreasonableness and unfairness in the circumstances it
specifies are not to be regarded as automatically rendering conduct unconscionable, but rather are
matters to which regard is to be had in determining whether conduct is unconscionable. They are
indicia of unconscionability.
Sixth, a court must explain what it understands by the words and phrases in a statutory provision and,
in order to do so, will necessarily use words and phrases different from those contained in the
provision. But, the use of the latter words and phrases is for a strictly limited purpose: they are to
explain the former, not to replace them. As French CJ, Hayne, Crennan, Bell and Gageler JJ said in
Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 293 ALR 257 at 268: ‘This
Court has stated on many occasions that the task of statutory construction must begin with a
consideration of the [statutory] text’. And, it must not drift from that text; the statutory text must
anchor the ‘task of construction’. There is much force in the caution given, in Canon Australia Pty Ltd v
Patton (2007) 244 ALR 759 at 761, by Basten JA against substituting what might be thought to be
helpful synonyms for the statutory words. He said:
However, to treat the word ‘unconscionable’ as having some larger meaning, derived from
ordinary language, and then to seek to confine it by such concepts as high moral obloquy is
to risk substituting for the statutory term language of no greater precision in an attempt to
impose limits without which the Court may wander from well-trodden paths without clear
criteria or guidance. That approach should not be adopted unless the statute clearly so
requires.
Seventh, [s 21(1)(a)] … applies to conduct ‘in trade or commerce, in connection with the supply or
possible supply of goods or services’. That context is itself largely governed by existing legal principle.
One is mindful of what Spigelman CJ said in the extract from Attorney-General (NSW) v World Best
Holdings Ltd (2005) 63 NSWLR 557 at 583: ‘If it (the concept of unconscionability) were to be applied as
if it were equivalent to what was ‘fair’ or ‘just’, it could transform commercial relationships . . . The
principle of ‘unconscionability’ would not be a doctrine of occasional application, when the
circumstances are highly unethical, it would be transformed into the first and easiest port of call when
any dispute about a retail lease arises.’ The law of contract and that of property, and the principles that
constitute them, are the very things which make trade and commerce possible. Without these legal
principles, and the existence of institutions such as the courts that are constrained to apply them, the
strong would prevail and the weak would go to the wall. It cannot have been the legislature’s intention
to interfere with arm’s length commercial transactions by reference to loose notions of
unreasonableness and unfairness. The contention favoured by the appellant [in the case before this
court] is that conduct may be found to be unconscionable within [s 21(1)] … if it can be found to be
irreconcilable with what was right and reasonable overlooks the force of the observation of Deane J in
Muschinski v Dodds (1985) 160 CLR 583 at 616 that judges in equity, whose jurisdiction was
discretionary, had long since abandoned recourse to undefined notions of justice and what was fair.
The legislature is presumed not to alter basic common law doctrines and not to interfere with
proprietary rights.
Eighth, [s 21(1)] uses the phrase ‘in all the circumstances’. The characterisation demanded by the
provision is one that is to be made ‘in all the circumstances’. Consideration of ‘all the circumstances’
can cast a different complexion on things. A failure to fulfil a contractual promise may visit unwanted
consequences on the innocent party. But, under [s 21(1)], it is the conduct of the contract breaker that
must be shown to be unconscionable. That party may have had sound reasons for breaking the
contract, reasons that involve no wish to exploit any vulnerability in the innocent party. While these
sound reasons will be of no significance in defence of a claim for breach of contract, they may be highly
relevant in a defence to a claim that conduct has been unconscionable. In Body Bronze International Pty
Ltd v Fehcorp Pty Ltd (2011) 34 VR 536 at 556, Macaulay AJA said:
A decision may be taken to break a contract because, upon rational commercial
considerations, the burden of performance may be greater and more onerous than the
liability to be incurred if the conduct amounts to breach. The party committing the breach
may know that it will deliver to the opposite party an opportunity to exercise rights both
under and outside the contract that flow from the breach, and that the opposite party has
the means to exercise and enforce those rights. Those rights may include seeking injunctive
relief to restrain the breach, accepting a repudiation of the contract so as to terminate
executory obligations and seeking damages, or keeping the contract on foot and merely
seeking damages. There may be nothing offensive to conscience in a commercial participant
taking such a commercial decision in given circumstances. Whether or not it amounts to
unconscionable conduct does not simply flow from it being a deliberate breach; it must be
evaluated in ‘all the circumstances’.
Ninth, a distinctive quality of unconscionable conduct as against unreasonable or unfair conduct is that
it is unethical. The characteristic of unreasonableness or unfairness may form the basis (or a significant
part of the basis) of a conclusion that conduct is unconscionable. As Allsop P said, in Tonto Home Loans
Australia Pty Ltd v Tavares [2011] NSWCA 389 at [293], it is necessary to show at least ‘some degree of
moral tainting in the transaction of a kind that permits the opprobrium of unconscionability to
characterise the conduct of the party’.
Tenth, it is a noticeable feature of all the cases, thus far, in which conduct has been held to be
‘unconscionable’ that the conduct has been found to be unethical in some manner or other. For
example, in Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC
90, a case which involved door to door sales of vacuum cleaners, the Court found that a defendant had
practised a ‘deceptive ruse’ to take advantage of an 89 year-old woman living alone. The ruse involved
salesmen cold calling and offering a free maintenance check on existing cleaners.
In Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132,
the respondent had written to the shareholders of a listed company offering to buy shares at a price of
$0.35 per share. The offer price was at a considerable undervalue and the Court found that the
targeted offerees ‘could reasonably be expected to include persons who are unacquainted with share
values, inexperienced in trading their interests, lacking in commercial experience and some of whom
act inadvertently and are elderly’. The Court, [at 142], found that the defendant had:
... set out to systematically implement a strategy to take advantage of the fact that amongst
the official members there would be a group of inexperienced persons who would act
irrationally from a purely commercial viewpoint and would accept the offer ... This is not a
case of shrewd commercial negotiation between businesses within acceptable boundaries.
The conduct can properly be described as predatory and against good conscience. This is not
a case of obtaining a low price by shrewd negotiation. It is predatory conduct designed to
take advantage of inexperienced offerees. …
Eleventh, the intentional breach or reckless disregard of certain norms or standards amounts to
statutory unconscionability. Those norms or standards must be more than those that happen to be
personal to the court or tribunal charged with the responsibility of deciding whether conduct is
unconscionable. Certainly, they will include norms of honesty and fair dealing and norms which exclude
exploitation and deception. Some such norms and standards may be detected in the principles of public
policy immanent in legislation such as the Competition and Consumer Act 2010 (Cth) and the Australian
Consumer Law and Fair Trading Act 2012 (Vic). As the Federal Court said in Australian Competition and
Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 at [23]:
The task of the Court is the evaluation of the facts by reference to a normative standard of
conscience. That normative standard is permeated with accepted and acceptable
community values. In some contexts, such values are contestable. Here, however, they can
be seen to be honesty and fairness in the dealing with consumers. The content of those
values is not solely governed by the legislature, but the legislature may illuminate, elaborate
and develop those norms and values by the act of legislating, and thus standard setting. The
existence of State legislation directed to elements of fairness is a fact to be taken into
account. It assists the Court in appreciating some aspects of the publicly recognised content
of fairness, without in any way constricting it. Values, norms and community expectations
can develop and change over time. Customary morality develops ‘silently and unconsciously
from one age to another’, shaping law and legal values: Cardozo, The Nature of the Judicial
Process (Newhaven, Yale University Press, 1921) pp 104-105. These laws of the States and
the operative provisions of the ACL reinforce the recognised societal values and
expectations that consumers will be dealt with honestly, fairly and without deception or
unfair pressure. These considerations are central to the evaluation of the facts by reference
to the operative norm of required conscionable conduct.
At the end of 19.88 add the following:
In Transerve Pty Ltd v Blue Ridge WA Pty Ltd [2015] FCA 953 at [244], Barker J observed that
‘the factors listed in s 22 plainly are not exhaustive and are intended to be an aid to the Court
rather than control it’.
CHAPTER 20
At the end of 20.2 add the following:
In Quikfund (Australia) Pty Limited v Airmark Consolidators Pty Limited [2014] FCAFC 70 at
[120], The Full Court observed that the Act ‘wrought an important, indeed, fundamental change
to the commercial legal landscape in New South Wales’.
In Gray v Latter [2014] NSWSC 122 at [100], Adamson J described the purpose of the Act as
follows:
Although equitable considerations are relevant to the application of the Contracts Review Act, they
neither define, nor confine, it. The purpose of the Act is not to punish wrongdoers. The Act is not
directly, or even primarily, concerned with the conscience of the party other than the party seeking
relief. Rather, it empowers the Court to provide redress to those who are subjected to unjust contracts
and, where required, to relieve them from compliance with some or all of their legal obligations arising
from an unjust contract or provision in certain circumstances.
Delete 20.6 and replace with the following:
20.6 The Contracts Review Act 1980 confers on New South Wales courts the power to review
contracts that are ‘unjust’. In Provident Capital Ltd v Papa [2013] NSWCA 36 at [7], Allsop P
referred to the normative evaluation that was involved in determining in any given case
whether of a contract was unjust in the following terms:
The broad evaluation of unjustness under the Contracts Review Act 1980 (NSW) ss 4, 7 and 9 involves
the normative evaluation of the totality of relevant circumstances. Inevitably minds may differ as to
conclusions about such questions. Also, it is often not fruitful to compare other cases with the
particular circumstances at hand, lest one be deflected from an appropriate overall assessment by
focus on particular aspects relevant to any such comparison. Central to the normative evaluation is the
recognition that there is a need for the protection of some people in some circumstances, who are not
able fully to protect their own interests against factors that may cause injustice. That vulnerability may
come from one or more of many circumstances, such as lack of education or of intelligence, from
gullibility, from the predation of fraud and greed, and also sometimes from loyalty and love. The
characterisation of a contract as unjust and the sheeting home to the other contracting party of the
consequences of its unjustness may be a difficult evaluative exercise. At its heart, however, is the
recognition of the inadequacy of one party to protect her or his interests in the circumstances.
The comments were cited with approval by Sackar J in W & K Holdings (NSW) Pty Ltd v Lauren
Margaret Mayo [2013] NSWSC 1063 at [155].
‘Unjust’ is defined in s 4 of the Act in a non-exhaustive way to include ‘harsh, oppressive or
unconscionable’. “Unjustness” has been held not to be a concept or word with immutable or
unvarying content: Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [266].
In May v Brahmbhatt [2013] NSWCA 309 at [36], Beazley P noted that that ‘“justness” is both a
“general and inherently variable” notion which Parliament undoubtedly intended to respond to
contemporary community standards’. Further, in Perpetual Trustee Company Limited v
Khoshaba [2006] NSWCA 41 at [114], Basten JA observed that the statutory definition of
‘unjust’ is clearly intended to give the term an expansive meaning.
In West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620 McHugh JA observed that a contract
could be unjust ‘because of the way it operates in relation to the claimant or because of the
way in which it was made or both’. His Honour noted that a contract could be unjust because it
contained ‘substantive injustice’ - which arises ‘because it terms, consequences or effects are
unjust’ - or because of ‘procedural injustice’ - which arises ‘because of the unfairness of the
methods used to make it’ - or both.
At the end of 20.9 add the following:
It is clear from these and other cases that ‘because of the flexibility in the Act, it is more difficult
for a party who is seeking to resist compliance with a contract to succeed pursuant to the
principles unconscionability than it is to succeed pursuant to the Act’: Ling v Pan Pac Investment
Pty Ltd [2015] NSWSC 850 at [110].
On the other hand, in Agricultural & Rural Finance Pty Ltd v Atkinson (No 2) [2014] NSWSC 1397
at [109], Ball J indicated some of the types of cases that have been found not to be unjust:
A contract will not, therefore, be unjust merely because it was not in the interest of the claimant to
enter it, or that it was inopportune or produced a loss, or because the contract is very burdensome, a
hard bargain, strongly preferring the interests of the party against whom relief is sought, or in some
sense unreasonable. Although McHugh JA suggested in West v AGC (Advances) Ltd (1986) 5 NSWLR 610
that contracts falling outside the scope of the terms ‘unconscionable, harsh or oppressive’ might still be
unjust, it has been said that ‘it would only rarely, if ever, be the case that anything not of that general
character would be unjust’: Conley v Commonwealth Bank of Australia [2000] NSWCA 101 at [95].
At the end of 20.10 add the following:
In determining whether or not a remedy for an unjust contract should be ordered the court
‘must decide whether any orders are necessary to avoid … unjust consequences’: First
Mortgage Management Investments Pty Ltd v Pittman [2014] NSWCA 110 at [168]. In S H Lock
(Australia) Ltd v Kennedy (1988) 12 NSWLR 482 at 492, Priestley JA said:
Once a court finds a contract unjust... it is faced with the next and quite separate task, for which the Act
provides less guidance ... As I understand s 7(1), wide though the court’s powers are to find a contract
unjust, the remedies it may grant in respect of such injustice are strictly limited to avoiding an unjust
consequence or result of the unjust contract.
In Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482 at 489, Handley JA said the
following:
[Section 7(1)] gives the Court powers to grant civil remedies to remove injustice. These powers are
neither penal nor disciplinary, and should not be exercised for such purposes. Once injustice to the
weaker party has been remedied, the Court should not further interfere with the rights of the parties.
Interference beyond that point will cause injustice to the other party, and is not authorised by the
section.
At the end of 20.20 add the following:
In Agricultural & Rural Finance Pty Ltd v Atkinson (No 2) [2014] NSWSC 1397 at [105], Ball J said
the following about the public interest requirement:
The public interest requirement in s 9(1) involves the advancement of the general legislative purpose of
the [Act]. That general purpose has been identified by the authorities as the protection of people who
are not able fully to protect themselves and who are preyed upon by dishonesty, trickery and other
forms of predation. However, s9 (1) requires that legislative purpose to be balanced against the public
interest in ‘keeping people to their freely entered bargains’: Baltic Shipping Co v Dillon (1991) 22
NSWLR 1 at 9, and in ‘maintaining certainty of contract’: Blacker v National Australia Bank Ltd [2000]
NSWSC 805 at [159].
At the end of 20.21 add the following:
In relation to s 9(2), in May v Brahmbhatt at [37], Beazley P said:
[A] party is not necessarily entitled to relief merely by establishing circumstances that fall into one or
other of the factors specified in s 9(2). It must be established that the contract was unjust. This is a
question of fact, although there are broadly-based value judgements involved in the ultimate factual
determination. Further the grant of relief is a matter of judicial discretion.
In relation to the criteria set out in s 9(2), in Nemeth v Australian Litigation Funders Pty Ltd
[2014] NSWCA 198 at [94], Gleeson JA said:
In an appropriate case gross disparity between the price of goods or services and their value may
render the contract unjust even though none of the provisions of s 9(2) (which are mostly concerned
with matters of procedural injustice) can be invoked by the claimant … [Furthermore,] if a defendant
has not been engaged in conduct depriving the claimant of a real or informed choice to enter into a
contract and the terms of the contract are reasonable as between the parties, the contract could not be
considered unjust simply because it was not in the interest of the claimant to make the contract or
because she had no independent advice.
At the end of 20.14 add the following:
In Quikfund (Australia) Pty Limited v Airmark Consolidators Pty Limited [2014] FCAFC 70 at
[124]-[138], after a careful consideration of previous authorities, ruled that shareholders of a
company could not be said to be carrying on a business that was owned by the company. This
was so even in a case where a so-called two dollar company was the owner. The Full Court
recognised the difficulties that such an interpretation of s 6(2) leads to and referred to the
following comment by Rogers J in Australian Bank Ltd v Stokes [1985] 3 NSWLR 174 at 176:
It seems illogical in the extreme that Parliament should have excluded, from the purview of the Act,
relief to a two dollar company which is carried on by the corner grocer and to the grocer carrying on
business in his own name, yet if that grocer carries on business in the name of the two dollar company
and then gives a guarantee in respect of the business of the company, on the face of it he is not
carrying on business for the purposes of s 6(2) and the Act operates in relation to a guarantee.
At the end of 20.40 add the following:
In Knezevic v Perpetual Trustees Victoria Ltd [2013] NSWCA 199 at [73]-[76], Meagher JA said
the following in relation to ‘asset lending’:
Judges of this Court have avoided making generalised remarks about the unjustness or otherwise of
what is referred to as ‘asset lending’ or the making of ‘lo doc’ loans. As Allsop P observed in Tonto
Home Loans at [3], the use of such labels ‘should be eschewed as determinative of legal reasoning’. His
Honour made similar remarks (which were agreed in by Bathurst CJ and Campbell JA) in Fast Fix Loans
Pty Ltd v Samardzic [2011] NSWCA 260 at [43]. In Khoshaba, Basten JA observed at [128]:
To engage in pure asset lending, namely to lend money without regard to the ability of the
borrower to repay by instalments under the contract, in the knowledge that adequate
security is available in the event of default, is to engage in a potentially fruitless enterprise,
simply because there is no risk of loss. At least where the security is the sole residence of the
borrower, there is a public interest in treating such contracts as unjust, at least in
circumstances where the borrowers can be said to have demonstrated an inability
reasonably to protect their own interests ... That does not mean that the Act will permit
intervention merely where the borrower has been foolish, gullible or greedy. Something
more is required.
In Kowalczuk, referring to that observation, Campbell JA added that ‘whether lending on the basis that
the loan can adequately be repaid from the security, is in the circumstances of any particular case
unconscionable or unjust, depends on other matters as well’. His Honour then referred, by way of
example, to the decisions in Elkofairi v Perpetual Trustee Co Ltd [2002] NSWCA 413 and Khoshaba.
In Elkofairi, a husband and wife gave a mortgage over their jointly owned property to secure a loan
which was to be used principally by the husband in his own business activities. The lender knew that
the wife had no income or ability to make repayments and that the husband had limited business
experience. The lender had no information as to the nature of the business or investment to be
undertaken or as to the income it was likely to generate. In circumstances where there was to be a
large borrowing secured over the wife's asset and the lender knew that her only source of repayment
would be the sale of her asset, the transaction was held, so far as the wife was concerned, to be unjust
within the meaning of s 7.
In Khoshaba, a husband and wife, who were pensioners, borrowed moneys which were to be invested
by their daughter in Karl Suleman Enterprizes, which was subsequently found to be operating a Ponzi
scheme. The loan application was prepared by a broker associated with Karl Suleman Enterprizes. The
application falsely stated that the husband was employed and earning $43,000 a year. It also contained
the forged signature of the wife. The husband and wife had no knowledge of, or involvement in, the
making of the false statements or the forgery. The mortgage originator to whom the application was
submitted did not take steps to check the correctness of the statements made. Had enquires been
made in accordance with the lender's guidelines, the husband's true employment position would have
been revealed and the loan not gone ahead. That breach of the guidelines allowed the broker
dishonestly to procure the loan without the knowing involvement of the borrowers, in circumstances
where it should not have gone ahead.
CHAPTER 21
At the end of 21.14 add the following:
In Australian Competition and Consumer Commission v ACN 117 372 915 Pty Limited (in liq)
[2015] FCA 368 the facts involved contracts entered into by customers for treatment for male
sexual dysfunction which stipulated a time for which the contract, and therefore the treatment
time, would last. The relevant clause that was found to be unfair related to cancellation of the
contract before the treatment time had elapsed. In relation to the treatment centre (NRM) not
being able to establish that the contract was not a standard form contract, North J, at [947],
said:
NRM failed to show that these circumstances [in s 27(2)] did not exist. In fact, the evidence positively
established that NRM had a dominant bargaining position obtained by using high-pressure selling
techniques. The pressure applied to the patients denied them the power to resist entering into the
agreement. This was manifested in the NRM patients who said they felt pressured and in the case of
some who tried to cancel their contracts immediately following the phone call. Patients did not have
the chance to negotiate the terms of the contract apart from price. The terms were set by the
parameters of the business model of NRM. The terms were set out in the instruction booklet sent to
patients, often after they had entered into the contract, and were in the same form irrespective of the
individual circumstances of the patient.
At the end of 21.15 add the following:
In Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50 at [363], Allsop CJ
noted that unfairness ‘was of a lower moral or ethical standard than unconscionability’.
At the end of 21.17 add the following:
In Australian Competition and Consumer Commission v ACN 117 372 915 Pty Limited (in liq)
[2015] FCA 368 at [951]-[954], in relation to the unfairness of the cancellation clause, North J
said:
The NRM refund term required the patient to pay a 15 per cent administration fee, a pro-rata fee for
the expired portion of the treatment, a pro-rata fee for the 30-day notice period, and the cost of
medication supplied or prepared for the patient. The term operated whether the reason for the
termination was a change of mind very soon after the phone consultation, a severe adverse side effect,
or where the medication proved ineffective. The term thus caused detriment to the patient, if relied
upon, within the meaning of s 24(1)(c). It also caused a significant imbalance in the parties’ rights and
obligations because it had the effect of binding patients to continue treatment in disadvantageous
circumstances, or alternatively suffer a financial penalty.
In determining whether a term of consumer contract is unfair, the Court must take into account the
extent to which the term is transparent and also take into account the contract as a whole (s 24(2)). A
term is transparent if it is expressed in reasonably plain language, is legible, is presented clearly, and is
readily available to any party affected by the term (s 24(3)).
The NRM refund term lacked transparency to a significant extent. The basis on which the
administration fee was calculated was not disclosed to the patient at all. The method of calculation of
the cost of the medication was not disclosed to the patient at all. At the time that the agreement was
made, the patient was told about the NRM refund term in a recorded message which suffered from the
deficiencies outlined at [858] of these reasons for judgment. The patient was not provided with a
written copy of the refund term until after the contract was entered into, save in the case of patients
who attended clinics.
When regard is had to the contract as a whole, the unfairness of the term becomes incontrovertible.
The contract provided for the supply of medications which were not regarded by the medical profession
as the usual forms of treatment and there was no cogent evidence that they were effective to treat
[erectile dysfunction] or [premature ejaculation]. In those circumstances it was unfair to hold the
patient to the agreement on penalty of payment of fees, the method of calculation of which was
unknown, imposed in order to cancel the treatment.
CHAPTER 22
At the end of 22.13 add the following:
In determining whether obligations are independent or dependent the court is engaged in an
exercise to ascertain the objective intention of the parties: Hillam v Iacullo [2015] NSWCA 196 at
[93]. In Sydney Attractions Group Pty Ltd v Schulman [2013] NSWSC 858 at [45], Sackar J noted that, in
ascertaining the parties’ intention, the following principles would be applicable:
(1) the question is one of construction;
(2) the more closely the obligations are linked to the rights, the easier it will be to construe the rights as
qualified by due observance of the obligation;
(3) if the obligation constitutes a substantial part of the consideration for the contract or right the court
is likely to construe it as a dependent obligation. That is, to construe the right as qualified by due
observance of the obligation; and
(4) a practical approach prevails, whereby the presumption is that obligations are dependent in
character.
At the end of 22.19 add the following:
However, as was pointed out by the Court of Appeal in Wolfe v Permanent Custodians [2013]
VSCA 331 at [28] ‘the scope of the duty [to co-operate] is defined by what has been promised
under the contract; it is not a general duty to ensure another party obtains an anticipated
benefit’.
In relation to the limits on the duty to co-operate, in Stepping Stones Child Care Centre (ACT)
Pty Limited v Early Learning Services Limited [2013] ACTSC 173 at [541]-545], Refshauge J said:
There are, however, limits to the [duty to co-operate]. It only appears to be relevant to what cannot be
done without the concurrence or co-operation of both parties. As McMurdo J, with whom Jerrard JA
agreed, said in Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd [2006] QCA 126 at [51][52]:
In the same way, the duty to do what is necessary to enable the other party to have the
benefit of the contract is limited to acts which are necessary to the performance of
obligations under the contract. To assess the scope of the duty in a particular case, it is first
necessary to define the relevant obligations, and in particular, to define the circumstances in
which the parties have agreed that a certain obligation must be performed. It is not a duty
upon one party to act so as to enhance the commercial value to the other party of the
contract.
As appears from the above passage, in Mackay v Dick, the duty of co-operation is one which
applies to a certain type of contract, which is where the parties have agreed that something
shall be done which cannot be done unless both concur in doing it.
There are other limits. In particular, it is not required that the duty be to preserve the benefit of a party
but only the benefit of the contract. As the NSW Court of Appeal put it in Australia Media Holdings Pty
Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 at 124-5:
[T]here cannot be a duty to co-operate in bringing about something which the contract does
not require to happen. ... A contract may ‘contemplate’ many benefits for the respective
parties, but each can only call on the other to provide, or co-operate in the providing of,
benefits promised by that party.
The obligation is also limited to what can reasonably be required in the circumstances, as decided by
Mason J, with whom the other members of the High Court agreed, in Secured Income Real Estate
(Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 615.
Further, the duty will not exist if inconsistent with the express terms of the contract. Thus, in Central
Exchange Ltd v Anaconda Nickel Ltd (2002) 26 WAR 33 [at 56], Steytler J rejected the contention that an
implied duty to co-operate required disclosure of certain information and documents, saying:
[A] requirement of the kind contended for would, in my opinion, be inconsistent with the
express provisions of the contract itself. As has been said by Parker J ... the express
agreement of the parties to the dispute resolution procedure, which protects the
confidentiality of the respondent’s documents and information, tells strongly against the
implication of an obligation on the respondent to make available to the appellant the
documents and information sought.
It is also worth quoting a passage, to which his Honour referred at 55; by Sir Anthony Mason, writing
extra-curially in A F Mason, “Contract, Good Faith and Equitable Standards in Fair Dealing” (2006) 116
Law Quarterly Review 66 at 75:
Once it is accepted that the common law implies an obligation of the kind just discussed [an
obligation to do all things necessary to enable the other party to have the benefit of the
contract] and that the obligation extends to the situations described, then the Australian
(and the Canadian) law of contract comes very close to recognising that aspect of the good
faith doctrine to which I have referred as ‘loyalty to the promise itself’. Of course, the
implied obligation does not override the express provisions of the contract so every case
depends to a significant extent on the intention of the parties as manifested in the particular
contract (Secured Income (at 607-608)).
In this context, it may be going too far to say that the implied obligation results in a duty to
co-operate to achieve the contractual objects. The implied obligation does no more than
spell out what, on the true construction of the contract, is the effect of promises and
undertakings entered into by the party. In reaching that construction, it will be relevant to
take account of the legitimate or reasonable expectations of the parties when they make the
contract.
Contracts will often have terms requiring the parties to use ‘reasonable endeavours’ or ‘best
endeavours’ to enable the contract to be carried out. In relation to the meaning and differences
between these and similar expressions, in Stepping Stones Child Care Centre (ACT) Pty Limited v
Early Learning Services Limited at [275]-[297], Refshauge J said:
In Elizabeth Peden, Good Faith in the Performance of Contracts (LexisNexis Butterworths, 2003) at 17981, the author points to some authority suggesting that ‘reasonable endeavours’ and ‘best endeavours’
are relevantly equivalent. I respectfully disagree …
That ‘best endeavours’ imports a level of reasonableness does not, in my view, mean that the two tests
are the same …
[I]t seems to me that an obligation to use ‘reasonable endeavours’ is not as onerous as one to use ‘best
endeavours’ or ‘all reasonable endeavours’ …
An obligation to use reasonable endeavours … is to be assessed by the court using an objective test. It
requires the parties to act to the extent that it is reasonable to do so, but not being required to go
beyond the bounds of reason.
A party obliged to use reasonable endeavours (or even best endeavours) is not obliged to disregard his,
her or its own interests …
Further, a party obliged to use reasonable endeavours must, in addition to acting honestly, not act
capriciously or irrationally. I would add that it would appear that such a party should also not act for an
improper purpose.
It is clear that the proper purpose is the fulfilment of the contractual purpose, and the party must
certainly not hinder or prevent the fulfilment of that purpose …
I note, too, that the impact upon the party obliged to use reasonable endeavours is a very important
issue. Thus, in Optus Vision Pty Ltd v Australian Rugby Football League Ltd [2003] NSWSC 288 at [114][115], the court said:
Where a contract contained a provision that the parties ‘shall use reasonable endeavours to
agree’ on certain matters, the English Court of Appeal has held that that clause left the
parties at liberty to take into account their own financial position, at any rate short of bad
faith or in breach of an express term of the agreement: Phillips Petroleum Co United
Kingdom Limited v Enron Europe Limited (1997) CCH CLC 329, cf State Bank of New South
Wales Limited v Chia (2001) 50 NSWLR 597 at 620-621.
There is a strong argument in support of the proposition that there can be no breach of a
best endeavours clause where, to do the action said to be required by that clause, would
expose a party to a proceeding for breach of contract. The proposition is that such a clause
must be construed as only permitting a party to do that which is lawful to be done (see, for
example, Aerial Taxi Cabs Co-operative Society Limited v Lee [2000] FCA 1628 at [75]).
After an analysis of the authorities, McDougall J in OzEcom Ltd v Hudson Investment [2007] NSWSC 719
at [231] set out the principles which his Honour distilled from the authorities, as follows:
(1) An obligation to use best endeavours to achieve an outcome is neither an unqualified
obligation to achieve that outcome nor a warranty that it will be achieved.
(2) The content of the obligation to use ‘best endeavours’ must be measured having regard
to the contract as a whole and to the factual context in which the best endeavours fall to be
exerted.
(3) In ascertaining whether best endeavours have been exerted, the Court should have
regard to the qualifications, abilities and responsibilities of the person obliged to exert them.
(4) Stipulation of an obligation to use ‘best endeavours’ necessarily carries with it an
understanding that the outcome, towards the achievement of which the best endeavours
are to be directed, may not in fact be achieved. …
The test to be used by the court in assessing whether reasonable endeavours have been used, which,
because the test is objective, the court must do, has been said to be a ‘but for’ test. In Egan v Geraghty
[1994] QCA 8, Fitzgerald P referred to the question of how to determine whether best endeavours had
been used. His Honour … said:
The second proposition for the respondent was that, in any event, it did not appear that it
was because of the failure of the respondent to use her ‘best endeavours’, that probate was
not obtained by 1 June 1989. During the course of argument, two approaches to this second
issue were debated. On one view, the question to be asked is whether the conduct of the
respondent was the sole, or at least the dominant, cause why probate had not been
obtained by 1 June 1989. On an alternative view, the question is whether the conduct of the
respondent was a significant contributing factor: cf Gange v Sullivan (1986) 116 CLR 418;
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 567.
Some support for the former view may, perhaps, be found in dicta in Nina’s Bar Bistro Pty
Ltd v M B E Corporation Pty Ltd (1984) 3 NSWLR 613. See also Italo-Australian Club Ltd v
National Australia Bank Ltd (1989) NSW Conv R 55-461. However, those cases do not
authoritatively establish that it must be shown that the respondent’s breach was the sole
cause of her failure to obtain probate by the agreed date. Rather, a ‘but for’ test should be
adopted. Would probate probably been obtained by 1 June 1989 ‘but for’ the respondent’s
omission to use her ‘best endeavours’ to do so; or, in other words, if she had used her ‘best
endeavours’, is it more probable than not that probate would have been obtained by that
date?
I am satisfied that the test for ‘reasonable endeavours’ is also an objective one.
The alternative view, referred to by his Honour, is that set out in Italo-Australian Club Ltd v National
Australia Bank Ltd (1989) NSW Conv R 55-461 at 58,340, where the court asked whether the result
would have been achieved if the party subject to the contractual ‘best endeavours’ obligations had
done what should have been done when it should have been done. As Einstein J said in Lakatoi
Universal Pty Ltd v Walker [2000] NSWSC 113 at [1324], attention needs to be given to ‘the chances,
had best endeavours been used,’ of the relevant event occurring.
That there are competing tests from intermediate Courts of Appeal is problematic for a trial judge. In
this case, as in others, it may not matter much which test is used. It seems to me that the ‘but for’ test
is preferable. See also Parland Pty Ltd v Mariposa Pty Ltd (1995) 5 Tas R 121 at 133, where Green CJ
said:
In any event quite apart from authority it would seem to me to be an untenable proposition
that a party could be held to have failed to satisfy a condition requiring it to use its best
endeavours in relation to an application because it failed to take some particular step if in
fact the application would have been unsuccessful even had the step been taken.
In relation to a ‘best endeavours’ clause, in Centennial Coal Company Ltd v Xstrata Coal Pty Ltd
(2009) 76 NSWLR 129, the Court of Appeal agreed with the reasoning of the trial judge,
Brereton J, in that case in Centennial Coal Company Ltd v Xstrata Coal Pty Ltd [2009] NSWSC
788 at [26], where Brereton J said:
While the content of a ‘best endeavours’ clause depends upon the particular obligation and the
circumstances in which it was undertaken, it posits an objective standard to be addressed by reference
to what was done or not done in the circumstances that existed; it requires the doing of what can
reasonably be done in the circumstances to achieve the contractual object: Hospital Products Ltd v
United State Surgical Corporation (1984) 156 CLR 41 at 64-5 91-2 and 118. It necessarily includes an
obligation not to hinder or prevent achievement of the contractual object: Hospital Products, 64-5, and
95. The obligation continues until the obligor ‘should reasonably judge in the circumstances that further
efforts would have such remote prospects of success that they are simply likely to be wasted’: Hawkins
v Pender Bros Pty Ltd [1990] 1 Qd R 135 at 150-1 and 152; however, one must allow for events,
including extraordinary events, as they unfold, as Lewison J said in Yewbelle Ltd v London Green
Developments Ltd [2006] EWHC 3166 (Ch) at [123); affirmed [2007] EWCACiv 475 [29], [33], [122],
[124].
In Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417 at [69], Longmore LJ held that a
best endeavours clause will usually be enforceable unless:
i) the object intended to be procured by the endeavours is too vague or elusive to be itself a matter of
legal obligation; or
ii) the parties have … provided no criteria on the basis of which it is possible to assess whether best
endeavours have been, or can be used.
Most recently, in Electricity Generation Corporation v Woodside Energy Ltd (2014) 306 ALR 25
at 35, French CJ, Hayne, Crennan and Kiefel JJ said:
Contractual obligations framed in terms of ‘reasonable endeavours’ or ‘best endeavours (or efforts)’
are familiar. Argument proceeded on the basis that substantially similar obligations are imposed by
either expression. Such obligations are not uncommon in distribution agreements, intellectual property
licences, mining and resources agreements and planning and construction contracts. Such clauses are
ordinarily inserted into commercial contracts between parties at arm's length who have their own
independent business interests.
Three general observations can be made about obligations to use reasonable endeavours to achieve a
contractual object. First, an obligation expressed thus is not an absolute or unconditional obligation.
Second, the nature and extent of an obligation imposed in such terms is necessarily conditioned by
what is reasonable in the circumstances, which can include circumstances that may affect an obligee's
business. This was explained by Mason J in Hospital Products Ltd v United States Surgical Corporation,
which concerned a sole distributor's obligation to use ‘best efforts’ to promote the sale of a
manufacturer's products. His Honour said:
The qualification [of reasonableness] itself is aimed at situations in which there would be a
conflict between the obligation to use best efforts and the independent business interests
of the distributor and has the object of resolving those conflicts by the standard of
reasonableness ... It therefore involves a recognition that the interests of [the manufacturer]
could not be paramount in every case and that in some cases the interests of the distributor
would prevail: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
at 92.
As Sellers J observed of a corporate obligee in Terrell v Mabie Todd & Co Ltd, an obligation to use
reasonable endeavours would not oblige the achievement of a contractual object ‘to the certain ruin of
the Company or to the utter disregard of the interests of the shareholders’: Terrell v Mabie Todd & Co
Ltd .(1952) RPC 234 at 236. An obligee's freedom to act in its own business interests, in matters to
which the agreement relates, is not necessarily foreclosed, or to be sacrificed, by an obligation to use
reasonable endeavours to achieve a contractual object.
Third, some contracts containing an obligation to use or make reasonable endeavours to achieve a
contractual object contain their own internal standard of what is reasonable, by some express
reference relevant to the business interests of an oblige.
CHAPTER 23
At the end of 23.24 add the following:
The question of which of the two possibilities occurs in any particular case is ultimately a
question of objectively determining the intention of the parties: Hillam v Iacullo [2015] NSWCA
196 at [57].
At the end of 23.38 add the following:
In Ballantyne v Phillott (1961) 105 CLR 379 at 397, Menzies J, observed that if it could be
inferred that the parties composed their differences by each promising to give up claims against
the other, it would not matter that the language used was not promissory in nature. However,
as was confirmed by Bathurst CJ in Ashton v Pratt (2015) 88 NSWLR 281 at 311; 318 ALR 260 at
291, for an agreement to constitute an accord and satisfaction, the agreement in question must
clearly demonstrate an intention to release claims in consideration of that which is to be
provided in satisfaction of the claims.
At the end of 23.51 add the following:
In relation to releases and the process of accord and satisfaction in Scaffidi v Perpetual Trustees
Victoria Ltd (2011) 42 WAR 59 at 65-69, the Court of Appeal said:
Releases and covenants not to sue
Technically, at common law, a release is a discharge under seal of an existing obligation or right of
action. The common law rule was that the release of a cause of action once accrued must be by deed
under seal. Consideration is not required for a promise in a deed.
The existence of a release by deed did not necessarily indicate the receipt by the plaintiff of satisfaction
in respect of the original wrong in question.
Under the common law, the release of an obligation created other than by deed could also be brought
about by an agreement for valuable consideration if it amounted to an accord and satisfaction.
In Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574 at 610, Gummow J said:
Accord and satisfaction (the former being the agreement or consent to accept the latter)
requires acceptance of something in place of the full remedy to which the recipient is
entitled, coupled with provision of the consideration agreed upon.
In the case of both release by deed and release by accord and satisfaction, the release ‘discharges and
extinguishes the obligation’: Federal Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500 at 544.
At law, an obligation created by deed, however, could only be released by deed and not by accord and
satisfaction. For that reason, an accord and satisfaction was not pleaded in bar of an action upon a
specialty. (As to specialty debts see Saunders v Milsome (1866) LR 2 Eq 573 at 575.)
On the other hand, equity would enforce an agreement for value to release an obligation, whether the
obligation was originally created by deed or not. Hence, the statements in cases that ‘such agreements
operated as releases and thus as discharges’: Federal Commissioner of Taxation v Orica Ltd at 544.
Prior to the Judicature Act 1873 (UK), such an agreement, including an agreement by way of covenant
not to sue, was enforced by common injunction restraining the plaintiff from pleading the facts to the
contrary, at least if the consideration under the agreement was neither illusory nor inadequate. In the
Judicature system, the agreement may be pleaded directly in bar by way of equitable defence if the
plaintiff asserts its original right or cause of action.
Further, at common law, a covenant not to sue involving a single promisor, although not a release
under seal or an accord and satisfaction, if it were unlimited in time and general and unconditional,
could also be pleaded in bar in order to avoid circuity of action. [In] Thompson v Australian Capital
Television Pty Ltd, at 609, … Gummow J said:
The reason why a covenant not to sue of this nature has been held to provide a plea in bar
was more fully explained by Williston in the following passage:
This is to avoid circuity of action; for, if the plaintiff in the original action should
recover, the defendant could recover precisely the same damages back for
breach of the covenant to forbear or not to sue. Instead of permitting the double
action, the court produces the same effect more simply by giving judgment for the
defendant in the original action. (emphasis added)
Similarly, in Smith v Mapleback (1786) 99 ER 1186 at 1189, Buller J said:
[I]t is a maxim in law so to judge of contracts as to prevent a multiplicity of actions;
therefore this must be taken to be a surrender, in order to prevent two actions instead of
one … And it is on that ground, that the Courts have construed express words of covenant
into a release. As supposing the obligee of a bond covenanted that he would not sue on it,
the Courts say that shall operate as a release; for if it operated only as a covenant, it would
produce two actions.
Where, however, there were several joint promisors, the law did not apply the circuity of action
principle so as to treat a covenant not to sue one as the release of the other. A covenant not to sue one
joint obligor was treated as simply a covenant not to enforce the obligation. The law with reference to
the difference between joint promisors and single promisors, was summarised in this regard by
Glanville Williams in Joint Obligations (Butterworth & Co, 1949) as follows, at 107-108:
Whereas a release of one joint debtor discharges all, a covenant not to sue, it is held, does
not. The argument, for what it is worth, is that where there is a single promisor a release will
discharge him by putting an end to the obligation; whereas a covenant not to sue does not
directly put an end to the obligation but is a contract not to enforce it. It is true that if the
creditor were able to claim on the obligation in breach of his covenant the defendant would
be able to counterclaim for damages for breach of covenant; and as the two claims would
cancel out the court short-circuits the whole proceeding by dismissing the plaintiff’s claim in
the first instance. But this is only where there is a single promisor; if there are several joint
promisors, and the creditor sues others than those whom he covenanted not to sue, the
argument based on circuity of proceedings does not apply, and the action will succeed. The
point was clearly put in Clayton (Lacy) v Kynaston (1701):
A perpetual and absolute covenant, for example, to an obligor, that the obligee
would never sue upon the obligation, is a release; or if it be with condition never
to sue, it will be a defeasance, though there be no words not to sue in the
obligation, but only in the condition of it; and the reason of this is to avoid a
circuity of action; because there one should precisely recover the same damage
that he has suffered by the other’s suing the bond. A is bound to B and B
covenants never to put the bond in suit against A; if afterwards B will sue A on
the bond, he may plead the covenant by way of release. But if A and B be jointly
and severally bound to C in a sum certain, and C covenants with A not to sue him,
that shall not be a release, but a covenant only; because he covenants only not to
sue A but does not covenant not to sue B for the covenant is not a release in its
nature, but only by construction, to avoid circuity of action; for where he
covenants not to sue one, he still has a remedy, and then it shall be construed as
a covenant, and no more.
The rule developed against the background that a release by deed or accord and satisfaction granted to
one joint obligor discharged the others. As a consequence, the courts were reluctant to construe an
agreement with one joint obligor as a release rather than a covenant not to sue. Thus, even if a
document were expressed as a release, if it expressly reserved the plaintiff’s rights against the other
parties jointly liable, it would be read as a covenant not to sue and would not operate as a release of
the others.
Accord executory, accord and satisfaction, and accord and conditional satisfaction
Dixon J in McDermott v Black (1940) 63 CLR 161 at 183–5, said:
The essence of accord and satisfaction is the acceptance by the plaintiff of something in
place of his cause of action. What he takes is a matter depending on his own consent or
agreement. It may be a promise or contract or it may be the act or thing promised. But,
whatever it is, until it is provided and accepted the cause of action remains alive and
unimpaired. The accord is the agreement or consent to accept the satisfaction. Until the
satisfaction is given the accord remains executory and cannot bar the claim. The distinction
between an accord executory and an accord and satisfaction remains as valid and as
important as ever. An accord executory neither extinguishes the old cause of action nor
affords a new one …
The distinction depends on what exactly is agreed to be taken in place of the existing cause
of action or claim. An executory promise or series of promises given in consideration of the
abandonment of the claim may be accepted in substitution or satisfaction of the existing
liability. Or, on the other hand, promises may be given by the party liable that he will satisfy
the claim by doing an act, making over a thing or paying an ascertained sum of money and
the other party may agree to accept, not the promise, but the act, thing or money in
satisfaction of his claim. If the agreement is to accept the promise in satisfaction, the
discharge of the liability is immediate; if the performance, then there is no discharge unless
and until the promise is performed.
As Keane J observed, however, in Blue Moon Grill Pty Ltd v Yorkey’s Knob Boating Club Inc [2006] QCA
253 at [20], what is important is to focus on what the parties have agreed, rather than the
categorisation of their agreement as either an accord and satisfaction or an accord executory. The
classification of agreements itself depends on a true appreciation of the effect of the terms agreed
between the parties and the binary classification of agreements is not always adequate.
An accord executory, whereby a promisor promises to abandon a claim or cause of action in exchange
for some active performance by the promisee is a type of unilateral contract.
The inadequacy of the binary classification into accord executory and accord satisfaction was referred
to by Fullagar J in Scott v English [1947] VLR 445 at 453:
The essence of the matter may be said to be that a mere ‘accord’ is not a contract at all. But,
if we find in any particular case that there is a contract — a promise accepted in
‘satisfaction’ against a promise — our problem is not necessarily at an end. We have still, I
think, in some cases to construe the contract to see whether its effect is to discharge the
original cause of action absolutely, so that the plaintiff can never thereafter sue on it but can
only sue on the new contract, or whether it effects only a conditional discharge, merely
suspending the original cause of action, so that, if it is not performed by the defendant
according to its tenor, the plaintiff may still maintain that original cause of action … The
question is likely to arise wherever a time is fixed for performance of the defendant’s
promise. In the present case, where a time is so fixed, if the compromise is a mere accord,
the plaintiff could sue on the original cause of action at any time before acceptance of
performance; he would not be bound to accept performance. If, on the other hand, the
compromise is a new contract, he cannot sue on the original cause of action unless the time
for performance has passed and there is no performance. But, if the time for performance
by the defendant has passed and there is no performance, can he sue only on the new
contract, the original cause of action being absolutely discharged by the new contract, or
can he, at his option sue for breach of the new contract, or, rescinding the new contract,
proceed on his original cause of action? The question, I think, is to be decided as a matter of
construction of the new contract. …
Fullagar J’s reasoning was summarised by Phillips JA in Osborn v McDermott (1998) 3 VR 1 at 10, who
said that:
[H]is Honour contemplated a case in which the accord amounted to an immediately
enforceable agreement (which suggests that there was accord and satisfaction), but that the
‘satisfaction’ (the discharge of existing obligations) was itself only conditional, suspending
the original cause of action, but not extinguishing it, unless and until performance by the
defendant according to the tenor of the agreement.
Phillips JA, at 10-11, described the three categories of compromises in the following way:
Thus, there are three possibilities, not two. First, there is the mere accord executory which,
on the authorities, does not constitute a contract and which is altogether unenforceable,
giving rise to no new rights and obligations pending performance and under which, when
there is performance (but only when there is performance), the plaintiff’s existing cause of
action is discharged. Secondly, at the other end of the scale is the accord and satisfaction,
under which there is an immediate and enforceable agreement once the compromise is
agreed upon, the parties agreeing that the plaintiff takes in satisfaction of his existing claim
against the defendant the new promise by the defendant in substitution for any existing
obligation. Somewhere between the two, there is the accord and conditional satisfaction,
which exists where the compromise amounts to an existing and enforceable agreement
between the parties for performance according to its tenor but which does not operate to
discharge any existing cause of action unless and until there has been performance.
Where there is a mere accord executory, no suit can be maintained upon the compromise
unless and until there has been performance, and then suit is ordinarily unnecessary. Upon
default in performance, the plaintiff’s existing cause of action continues unaffected. With
accord and satisfaction, either party may sue upon the compromise, but only on the
compromise and for nothing else: the original cause of action has gone. Where there is
accord and conditional satisfaction, the plaintiff is bound to await performance and accept it
if tendered, but if there be no performance, then the plaintiff may proceed according to
general principles called into play when any agreement is repudiated: the plaintiff may either
treat the agreement (the accord) as at an end and proceed on his original cause of action; or
he may, at his option, sue on the compromise agreement, in place of the original cause of
action. (emphasis added)
In Nissho Iwai (Australia) Ltd v Shrian Oskar [1984] WAR 53 at 58, Brinsden J referred in similar terms to
the position of a plaintiff under a compromise agreement involving, in effect, an accord and conditional
satisfaction:
I am of the opinion that [the compromise] was no mere accord executory but a contract
intended to create new antecedent obligations, but effected no absolute discharge of the
cause of action but only if the defendant performed his promise. The defendant in this case
failed to perform his promise and so that left the plaintiff in the position that it could sue on
the new contract or rescind the new contract and proceed on the original cause of action.
CHAPTER 24
At the end of 24.10 add the following:
In Velik v Steingold [2013] NSWCA 303 at [86]-[87], after citing the definition of repudiation in
referred to in Koompahtoo Local Aboriginal Land Council v Sanpine, Sackville AJA (McColl and
Gleeson JJA agreeing) said:
Koompahtoo Council v Sanpine, as the plurality noted, was not concerned with issues that arise when
the alleged repudiation takes the form of one party asserting an erroneous interpretation of a
contractual provision. However, the authorities establish a number of principles relevant to such a case.
A convenient statement of ‘some of the key principles’ is to be found in the judgment of Ashley JA (with
whom Kellam JJA, and Osborn AJA agreed) in R & A Cab Co Pty Ltd v Kotzman [2008] VSCA 68, at [44][49]. What follows is in part drawn on that statement:







whether a party to a contract has acted in such a way as to evince an intention not to carry out
the contract is a question of fact;
repudiation of a contract is a serious matter and is not to be lightly found or inferred;
the question of repudiation requires a consideration of all of the circumstances, including the
conduct of the party claiming to have accepted the repudiation;
repudiation is not determined by inquiring into the subjective state of mind of the party in
default, but by reference to conduct (verbal or otherwise) which conveys to the other party
the defaulting party’s intention not to perform the contract or to perform it only in a manner
inconsistent with that party’s obligations and in no other way;
where one party to a contract persists in maintaining that it will only perform an obligation of
essential importance in accordance with an untenable construction of that obligation, that
conduct amounts to a repudiation of the contract;
in some circumstances, an honest misapprehension as to the proper construction of the
contract will not justify a claim of repudiation, especially if the defaulting party indicates that
he or she may be open to correction; and
whether the party propounding an erroneous construction of the contract has put forward
that construction in good faith is relevant to the question of whether he or she evinces an
intention not to be bound by the contract.
The High Court considered the consequences of one party acting on a mistaken interpretation of a
contract for the sale of land in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 [at 4323]. Four members of the Court (Stephen, Mason and Jacobs JJ; Aickin J agreeing) analysed the position
as follows:
No doubt there are cases in which a party, by insisting on an incorrect interpretation of a
contract, evinces an intention that he will not perform the contract according to its terms.
But there are other cases in which a party, though asserting a wrong view of a contract
because he believes it to be correct, is willing to perform the contract according to its tenor.
He may be willing to recognize his heresy once the true doctrine is enunciated or he may be
willing to accept an authoritative exposition of the correct interpretation. In either event an
intention to repudiate the contract could not be attributed to him. As Pearson LJ observed in
Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699, at 734: ‘In the last
resort, if the parties cannot agree, the true construction will have to be determined by the
court. A party should not too readily be found to have refused to perform the agreement by
contentious observations in the course of discussions or arguments ...
In this case the [vendor] acted on its view of the contract without realizing that the
[purchasers] were insisting upon a different view until such time as they purported to
rescind. It was not a case in which any attempt was made to persuade the [vendor] of the
error of its ways or indeed to give it any opportunity to reconsider its position in the light of
an assertion of the correct interpretation. There is therefore no basis on which one can infer
that the [vendor] was persisting in its interpretation willy nilly in the face of a clear
enunciation of the true agreement.
... on the evidence this Court would not be justified in finding that the [vendor] acted
otherwise than in accordance with a bona fide belief as to the correctness of the
interpretation which it sought to place upon the contract. Consequently it is a case of a bona
fide dispute as to the true construction of a contract expressed in terms which are by no
means clear (see Asprey JA in Satellite Estate Pty Ltd v Jaquet (1968) 71 SR (NSW) 126, 149).
In these circumstances the Court is not justified in drawing an inference that the [vendor]
intended not to perform the contract according to its terms or that it repudiated the
contract.
In DCT Projects Pty Ltd v Champion Homes Pty Ltd [2016] NSWCA 117 at [39], Gleeson JA in the
Court of Appeal in New South Wales, in light of High Court authorities discussing repudiation,
summarised them as follows:
For the conduct of a party to constitute a renunciation of its contractual obligations it must be shown
that the party is either unwilling or unable to perform its contractual obligations, that is, it has evinced
an intention to no longer be bound by the contract, or stated that it intends to fulfil the contract only in
a manner substantially inconsistent with its obligations and in no other way. Repudiation is a serious
matter and is not to be lightly found or inferred.
At the end of 24.28 add the following:
In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd at QB 70, Diplock LJ stated that a
breach of an intermediate term will justify termination if it ‘will deprive the party not in default
of substantially the whole benefit which it was intended that he should obtain from the
contract’. In relation to the test of substantial deprivation, in Decro-Wall International SA v
Practitioners in Marketing Ltd [1971] 1 WLR 361 at 380, Buckley LJ said:
The measure of the necessary degree of substantiality has been expressed in a variety of ways in the
cases. It has been said that the breach must be of an essential term, or of a fundamental term of the
contract, or that it must go to the root of the contract.
However, as was pointed out by the majority judgment of the High Court in Koompahtoo Local
Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at 140, to describe a breach as
‘going to the root of the contract’ is ‘a conclusory description that takes account of the nature
of the contract and the relationship it creates, the nature of the term, the kind and degree of
the breach, and the consequences of the breach for the other party’.
In the light of such observations, in Ampurius Nu Homes Holdings Ltd v Telford Homes
(Creekside) Ltd [2013] 4 All ER 377 at 393-4, Lewison LJ said the following:
Whatever test one adopts, it seems to me that the starting point must be to consider what benefit the
injured party was intended to obtain from performance of the contract … The next thing to consider is
the effect of the breach on the injured party. What financial loss has it caused? How much of the
intended benefit under the contract has the injured party already received? Can the injured party be
adequately compensated by an award of damages? Is the breach likely to be repeated? Will the guilty
party resume compliance with his obligations? Has the breach fundamentally changed the value of
future performance of the guilty party's outstanding obligations?
Later in his judgment Lewison LJ, at 396-7, said:
A breach of contract, although serious, may be capable of remedy. If it is remedied before the injured
party purports to exercise a right of termination, then the fact that the breach has been remedied is an
important factor to be taken into account. Likewise if there is delay in performance of an ongoing
obligation it may well be possible for the delay to be made up by faster performance.
At the end of 24.54 add the following:
In Romero v Farstad Shipping (Indian Pacific) Pty Ltd [2014] FCAFC 177 at [112], the Full Court
discussed the meaning of repudiation as follows:
A breach of a contract by repudiation occurs when a party evinces an intention no longer to be bound
by it or to fulfil it only in a manner substantially inconsistent with the contractual obligations.
Repudiation will arise where there is conduct consistent with a renunciation either of the contract as a
whole or a fundamental obligation under it. Repudiation of a contract is a serious matter and is not to
be lightly found or inferred. To amount to a refusal to perform the contract, the breach must be
sufficiently serious
An example of repudiation in the form of performing a contract substantially inconsistent with
one’s contractual obligations is where an employer unilaterally reduces an employee’s pay or
diminishes the value of his or her salary package. Such conduct undermines the entire
foundation of the contract of employment and thus constitutes repudiation of it: Actrol Parts
Ltd v Coppi (No 2) [2015] VSC 694 at [40]-[41].
At the end of 24.56 add the following:
In Galafassi v Kelly [2014] NSWCA 190 at [62]-[64], Gleeson JA said:
For the conduct of a party to constitute a renunciation of its contractual obligations it must be shown
that the party is either unwilling or unable to perform its contractual obligations, that is, it has evinced
an intention to no longer be bound by the contract or stated that it intends to fulfil the contract only in
a manner substantially inconsistent with its obligations and in no other way. Where inability to perform
is declared the conduct amounts to a refusal to perform and the innocent party need not prove that the
other party was actually unable to perform as a matter of fact.
A renunciation can be made either by words or conduct, provided it is clearly made. 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.
So far as factual inability to perform is concerned what needs to be shown is that the party in question
has become wholly and finally disabled from performing the essential terms of the contract altogether.
It is well accepted that factual inability must be proved ‘in fact and not in supposition’: Universal Cargo
Carriers Corporation v Citati [1957] 2 QB 401 at 50.
At the end of 24.60 add the following:
It is also the case that delay in performance of one’s obligations may be such as to demonstrate
an unwillingness or an inability to render substantial performance of the contract so as to
amount to a repudiation: Galafassi v Kelly [2014] NSWCA 190 at [96]-[97].
At the end of 24.61 add the following:
In relation to the development of the concept of anticipatory breach, in Bunge SA v Nidera BV
[2015] 3 All ER 3 All ER 1082 at 1088, Lord Sumption said the following:
Anticipatory breach of contract, probably more accurately referred to as 'renunciation', is a concept
which can be traced back to the earliest years of the common law but was first coherently formulated
in terms of legal principle in Hochster v De La Tour (1853) 118 ER 922 in England and Howie v Anderson
(1848) 10 D 355 in Scotland. In its modern form it is a response to the pragmatic concern of Victorian
judges to avoid the waste of economic resources implicit in any inflexible rule which required the
parties to go through the motions of performing a contract which was for practical purposes dead. The
same concern informs much of the law of contract, notably in the area of frustration and remedies. The
early rules of pleading, reflecting the terms of the contract, had required the plaintiff in an action for
damages to plead that he had tendered performance of any obligation to be performed by him as a
condition precedent to the defaulting party's obligation. But as Lord Campbell CJ explained in Hochster
v De la Tour, the effect of the renunciation of a contract in advance of the time agreed for performance
was (i) to confer on the injured party an option to accept the renunciation as bringing the contract to an
end and to treat himself as discharged from that time onward from further performance; (ii) to enable
the injured party to deal with the financial consequences by suing for damages at once, without waiting
for the time fixed for performance; and (iii) to bring forward the injured party's duty to mitigate to the
time when the renunciation was accepted.
At the end of 24.68 add the following:
In Stepping Stones Child Care Centre (ACT) Pty Limited v Early Learning Services Limited [2013]
ACTSC 173 at [315]-[328], Refshauge J made the following comments:
The principle is that, where a party cannot perform a contract, the other party may terminate the
contract, even if the time for performance has not yet arrived. As Dixon CJ said in Rawson v Hobbs
(1961) 107 CLR 466 at 481
it is absurd to treat one party as tied to the performance of an executory contract although
the other has neither the means nor intention of performing his [or her] part when his [or
her] turn comes. …
As Devlin J said in Universal Cargo Carriers Corp v Citati [1957] 2 QB 401 at 437, ‘[s]ince a man [or
woman] must be both ready and willing to perform, a profession by words or conduct of inability is by
itself enough to constitute renunciation’.
The party seeking to terminate must prove:
(1) that the other party was “wholly and finally disabled” from performing; and
(2) that the inability existed at the time of termination.
The notion of ‘wholly and finally disabled’ comes from what Lord Sumner … said in British and
Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48 at 72:
[B]ut I do not see how the fact, that the buyers have wrongly said ‘we treat this contract as
being at an end, owing to your unreasonable delay in the performance of it’ obliges them,
when that reason, fails, to pay in full, if, at the very time of this repudiation, the sellers had
become wholly and finally disabled from performing essential terms of the contract
altogether.
In Rawson v Hobbs, a contract for the sale of land was conditional upon the Minister for Lands
consenting to the transfer, and it was agreed in the contract that, if the Minister refused to consent,
either party could annul the sale.
Kitto J, at 487, said:
Since the contract did not fix a time within which the Minister’s approval should be
obtained, an approval at any time up to the agreed date for completion would suffice. But
according to well-recognized principle, the purchasers, if there had been no provision in the
contract on the subject of cl 12, would not have been bound to wait until the date for
completion and to perform the contract on their part in the meantime, if before that date
they could show by sufficient evidence that the Minister’s approval would not be obtainable.
In order to show this, a refusal given at any time would suffice, provided it were final and
definite.
His Honour, at 489, then considered the facts of the case and continued:
If this be so, there remains only the question of fact, whether the Under-Secretary’s letter of
9th March 1959 was a sufficient refusal of the Minister’s consent. It seems to me that it
clearly was. It left no room for doubt that there was no chance of the approval being given.
The letter came from the permanent head of the department, to whom s 168 gave authority
to correspond with persons under the direction of the Minister; its terms were unequivocal;
in tone it was final, inviting no discussion or further representations; and the reason it gave
was the unanswerable reason of a statutory prohibition. In these circumstances I am of
opinion that the plaintiffs’ purported annulment of the contract under cl 12 was effectual.
A similar situation arose in Fileman v Liddle (1974) 2 BPR 9192, where a contract was conditional upon
the approval of a plan of subdivision. Mahoney J, at 9202, said:
It is important in my opinion to bear in mind that the present condition is not one which
provides for the contract to be void or voidable upon such a consent being ‘refused’ ...
Where, however, a contract is merely conditional upon such an approval being obtained, the
effect of the refusal of an application for approval must be assessed by reference to what
the agreement provides as to the time for obtaining such approval. In an ordinary contract
of sale, where no special stipulation is made in this regard, the approval of the plan of
subdivision must be obtained before the time which the contract fixes (expressly or by
implication) as the time for completion ...
Therefore, prima facie, the condition will be fulfilled if the approval is obtained before that
time or before such time as otherwise the contract fixes as the time within which the
approval must be obtained. If it is so obtained, then no right to terminate the contract will
arise …
Upon this basis, the fact that approval has been refused prior to that date will not of itself
establish the breach or non-fulfilment of such a condition. However, in some cases, where
refusal is given before the time by which the condition requires that approval be obtained, a
right to refuse to proceed with the contract may arise even though, between the dates of
refusal and the date on which the [approval] application is required to be obtained, it would
be possible for a further application for approval to be made. What will justify such a refusal
to proceed with the contract prior to the date by which, under the contract, the approval
must be obtained will depend upon the circumstances.
In Fylayne Pty Ltd v Berck (Unreported, Queensland Supreme Court, Full Court, 24 November 1988) a
similar situation arose where the respondents contended that they were not bound by a contract they
had entered into with the appellant because it was conditional upon an extension of time being granted
by the Land Commissioner to fulfil a condition of a lease, which extension of time was refused. The
contract stipulated no time within which the condition was to be fulfilled. The respondents rescinded
the contract. The appellant contended that, as a reasonable time had not expired, it could not be said
that the condition had not been fulfilled.
Derrington J, at 14-15, said:
The condition, it is said, fails only upon the non-granting of the extension within a
reasonable time; and until that time has expired it cannot be said that the extension has not
been granted, particularly as the only application which has been made related to a proposal
which is not the only available proposal. In other words, non approval is not a single event,
such as a refusal of a particular application, but a state of affairs. Non-approval is reached
only after the expiry of the relevant time, and an intermediate refusal does not defeat this.
However, if the respondents have been able to show before the expiration of a reasonable
time that the Minister’s approval for the extension would not be obtainable then the
condition is seen to have failed and the contract may be avoided by either party.
His Honour then considered the Minister’s response and how it might be characterised in the context of
these principles. His Honour, at 16-17, said:
That response has been made in unequivocal and final terms. Not only was the large
development proposed by the appellant rejected, but, by necessary implication, so too in
anticipation was the application for the extension of time in which to comply with the terms
of the lease for a period of eighteen months. An extension to 31st December, 1988 only was
allowed, and that in respect of any proposed development alternative to that which had
been rejected. The finality of the decision as to the reduced extension of time has been
made perfectly clear, and the context indicates that it refers to the advancement of any
alternative proposal without qualification. This must include even a proposal to comply with
the original condition of the lease. Accordingly, although it may be argued with some force
that the original application for the extension of time was qualified by reason of its
association by the appellant with the large development proposed it so that the range of
applications that was open to the parties was not thereby exhausted, the matter has been
taken out of their hands by the Commission which not only rejected the combined
application for extension of time and approval of the proposal but also rejected in
anticipation any further application for an extension of time for an alternative proposal.
This is partly of the making of the appellant itself which chose to submit a proposal which
proved to be unacceptable and which may have attracted such a limitation upon any
extension of time for any alternative proposal. The respondents undertook all that was
necessary on their part to provide the formal support for the application, and it cannot be
said that they have defaulted in any way. Faced with the finality of the response relating to
an extension of time which did not meet the relevant condition and their perception of the
sterility of any further application, not unreasonably they regarded the deeds as terminated
for non-fulfilment of the condition and rescinded.
In this they were justified. The conclusive nature of the refusal established that the
condition could not be fulfilled at all, and accordingly, consistently with the above
authorities, it was established then that there would be no grant of an extension within a
reasonable time.
[In the case before this court,] Stepping Stones did not challenge these principles. It submitted that the
cases, however, all related to decisions by statutory authorities and were not applicable to a
commercial contract of the kind here under consideration. The principles, it was submitted, were not
relevant.
I reject that contention. The principle has been applied in commercial situations where no statutory
authority is involved. It was invoked in Universal Cargo Carriers Corp v Citati, which involved a charter
party and delay without any relevant statutory authority.
In Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [179]–[180],
Bathurst CJ described repudiation as an unwillingness or inability to render substantial
performance of a contract, and observed that the test of whether repudiation has occurred is
whether there has been conduct that would convey to a reasonable person repudiation of the
contract as a whole or of a fundamental obligation under it.
At the end of 24.69 add the following:
However, service of a notice is not required.21 In Southern Cross Autoglass Pty Limited v
Protector Glass Pty Ltd Kunc J said:
Actual communication of that state of affairs is not necessary, although in almost all cases the party
which has repudiated the contract will be made aware either directly or indirectly of the circumstances
from which an election to terminate the contract are objectively determined. 22
For example, in Holland v Wiltshire, a purchaser had failed to complete a contract for the sale of
land. The vendor gave the purchaser a notice requiring settlement by a particular date and
21
22
Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105 at 146.
Southern Cross Autoglass Pty Limited v Protector Glass Pty Ltd [2014] NSWSC 261 at [148].
informed the purchaser that, if settlement did not take place by that date, the vendor would
take proceedings for breach of contract. The date in the notice passed without completion of
the contract taking place. The vendor then put the property up for re-sale. The High Court held
the vendor was entitled to terminate the contract. Dixon CJ said:
In these circumstances, the vendor was entitled to treat the contract as discharged by breach. He
himself was ready and willing up to the expiration of the notice. His election to treat the contract as
discharged by the purchasers’ breach was sufficiently manifested by his proceeding to advertise the
property for sale, and by his selling it.23
At the end of 24.70 add the following:
If a party terminates a contract and the stated ground is not a valid reason to terminate, but
there are other grounds justification, the termination will be valid, even if the promisee was not
aware of the justified reasons to terminate at the time he or she terminated the contract:
Shepherd v. Felt & Textiles of Australia Ltd (1931) 45 CLR 359 at 377. Thus, in Sunbird Plaza Pty
Ltd v Maloney (1988) 166 CLR 245 at 262, Mason CJ (Deane, Dawson, Toohey JJ agreeing) said:
Shepherd v Felt & Textiles of Australia Ltd stands as authority for the general proposition that a
termination of a contract may be justified by reference to any ground that was valid at the time of
termination, even though it was not relied on at the time and even though the ground actually relied
on is found to be without substance.
This right applies equally to termination for breach as well as termination pursuant to a
contractual right to terminate: Elsewhere Investments Pty Ltd v Oksa [2014] NSWSC 537 at [62].
However, the other right to terminate must exist at the time termination took place. In cases of
independent obligations, it may be the case that the right to terminate may only have arisen
after the purported termination took place. As was pointed out by Gleeson JA in Bibby Financial
Services Australia Pty Limited v Sharma [2014] NSWCA 37 at [126], ‘in the case of independent
rights of termination, a promisee who purports to terminate on one contractual basis, cannot
rely upon a contractual right to terminate which would have come into existence at a later
date’.
At the end of 24.72 add the following:
In Newland Shipping and Forwarding Ltd v Toba Reading FZC [2014] EWHC 661 (Comm) at [49],
Leggatt J said:
In principle, a contractual right to cancel or terminate a contract (these terms generally being
interchangeable) arises when the contract says it arises. No particular formality is necessary (unless the
contract so provides) to exercise the right. Any communication which clearly conveys that the right is
being exercised will suffice. The consequences which follow from the valid exercise of a cancellation
right are again in principle whatever the contract says they are (subject to any restrictions imposed by
23
Holland v Wiltshire (1954) 90 CLR 409 at 416.
law on the parties’ freedom of contract, such as the rule against penalties). The general meaning of
cancellation or termination of a contract, however, is termination of all the primary legal obligations
imposed by the contract of which performance is not yet due.
At the end of 24.81 add the following:
In Bibby Financial Services Australia Pty Limited v Sharma [2014] NSWCA 37 at [115], Gleeson
JA, speaking for a unanimous Court of Appeal, said:
An election occurs where a person has two truly alternative rights or sets of rights and with knowledge
of the facts giving rise to the inconsistent rights acts in a manner consistent only with the exercise of
one of those rights and inconsistent with the exercise of the other.
At the end of 24.83 add the following:
In relation to the requirement of communication referred to by Mason J, it is clear that the
innocent party can only be said to have elected if he or she has communication his or her
election to the other party in clear and unequivocal terms: Immer (No 145) Pty Ltd v Uniting
Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 39; 112 ALR 609 at 618; Cong Xu
v Austino Property Developments Pty Ltd [2013] NSWSC 1177 at [34].
At the end of 24.85 add the following:
In Ailakis v Olivero (No 2) [2014] WASCA 127 at [115], Martin CJ said:
In assessing the consequences of an election to affirm a contract after breach, there is a vital distinction
between those cases in which the election occurs after an act or omission which constitutes a single
breach, and those cases in which the conduct of the party in breach manifests a continuing intention
not to be bound by the contract, and thereby constitutes a continuing repudiatory breach. In cases
falling within the former category, an election to affirm the contract will result in the loss of the right to
accept a breach as bringing the contract to an end at any time thereafter. However, in cases falling
within the latter category, if the conduct of the party in breach manifests a continuing intention not to
be bound by the contract, unless and until the party in breach retracts its implicit or express assertion
to the effect that it is not bound by the contract and agrees to perform its terms, the innocent party can
at any time accept the breach and bring the contract to an end.
At the end of 24.90 add the following:
In Galafassi v Kelly [2014] NSWCA 190 at [74]-[76], Gleeson JA said the following in relation to
the doctrine of election:
At the heart of election is the idea of confrontation which in turn produces the necessity of making a
choice. Thus where a party, faced with the choice of terminating the contract or keeping it on foot,
terminates the contract ordinarily that conduct leaves no doubt as to the choice being made. This is
because the contract no longer exists. But … the question is not answered so readily where the
situation is the converse. This is because a party may act on the basis that the contract remains on foot
without necessarily being confronted with the necessity of making a choice to either terminate or
affirm the contract.
This is to be contrasted with a situation of inconsistent remedies to enforce a right where no question
of election arises until one or other claim has been pursued until judgment. The institution of
proceedings for alternative remedies (including relief of an equitable nature) is not an election by the
promisee in favour of either remedy. The very purpose of seeking alternative relief is to keep the
promisee's options open. The distinction between alternate rights and remedies and its consequences
has been described by the High Court as ‘fundamental’: Ciavarella v Balmer (1983) 153 CLR 438 at 449.
Although an election between inconsistent rights once made is irrevocable, it does not follow that an
innocent party who seeks (and gets) specific performance is treated as affirming the contract
irrevocably so as to prevent the innocent party from later bringing the contract to an end if the
repudiating party persists in its failure to perform.
His Honour, at [83], after examining relevant authorities then concluded as follows:
[T]he legal significance of commencing proceedings for specific performance is as follows - a vendor
who elects to sue for specific performance is not thereby precluded from later terminating the contract
and claiming damages for the continued refusal by the purchaser to complete if the purchaser, after the
institution of the proceedings, either committed a breach of an essential term of the contract or
otherwise evinced an intention to no longer be bound by the contract.
CHAPTER 25
At the end of 25.1 add the following:
Historically, contract law did not have a doctrine of frustration. A radical change of
circumstances did not affect the contract at all. Thus, in Paradine v Jane (1648) 82 ER 897, the
court expressed the view that parties could have made provision in the contract to govern what
would happen in the event of unexpected events.
The doctrine of frustration began to develop with the decision in Taylor v Caldwell (1863) 122 ER
309, a case in which the destruction of a music hall made the performance of a contract for the
hiring of the music hall impossible to perform with the result that the parties were excused from
any further performance of the contract. Taylor v Caldwell was treated as an exception to the
general principle in Paradine v Jane until the early decades of the twentieth century. The
doctrine of frustration was firmly cemented as a principle in contract law by the so-called
Coronation Cases that arose in the wake of the cancellation of celebrations marking the
coronation of Edward VII and the flood of cases arising from interruptions to commercial
contract activity that flowed from the course of World War I.
Recent events such as the global financial crisis, the increase in counter-terrorism measures, the
Fijian constitutional crisis and the earthquakes in Canterbury in New Zealand have seen
something of a resurgence of cases on frustration.
In J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd’s Rep 1 at 8, Bingham
LJ explained the function of the doctrine of frustration as follows:
The doctrine of frustration was evolved to mitigate the rigour of the common law’s insistence on literal
performance of absolute promises. The object of the doctrine was to give effect to the demands of
justice, to achieve a just and reasonable result, to do what is reasonable and fair, as an expedient to
escape from injustice where such would result from enforcement of a contract in its literal terms after a
significant change in circumstances.
At the end of 25.10 add the following:
Similarly, in Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 at 752, Lord
Roskill cautioned ‘that the doctrine of frustration is not lightly invoked to relieve contracting
parties of the normal consequences of imprudent commercial bargains’.
At the end of 25.15 add the following:
In relation to this, and other cases dealing with the Suez Canal closure, in oOh! Media Roadside
Pty Ltd v Diamond Wheels Pty Ltd at [102], Nettle JA (Redlich and Weinberg JJA agreeing) said:
[In] the Suez Canal closure charterparty cases, … despite the closure of the canal, it was still possible to
use the ship for the permitted purpose of the charter, albeit via another route, at greater cost and thus
for less or no profit. It was held that it was not enough to invoke the doctrine of frustration that the
venture would therefore yield far less profit or perhaps no profit at all. Similar reasoning informs some
of the more recent English cases concerned with the international sale of goods in which it was held
that a supervening event did not frustrate the contract simply because it made performance more
expensive and therefore less profitable. [See, for example, CTI Group Inc v Transclear SA (The Mary
Nour) [2008] 2 Lloyd’s Rep 526 and the cases there cited.]
At the end of 25.17 add the following:
In oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd at [93], Nettle JA said the following
about the Codelfa decision:
In Codelfa, it was plain from the evidence of surrounding circumstances that the parties entered into
the construction agreement on the basis of a common assumption that [Codelfa] would be able to carry
out the contract works operating three shifts per day, six days a week, and could not be restrained by
injunction from proceeding in that fashion. The evidence included that [Codelfa] tendered on the basis
that it would complete the works using three shifts per day, six days a week; that it would have been
impossible to complete the works in the required time using less than three shifts per day six days a
week; and that the [State Rail Authority] had taken legal advice, which it passed on to [Codelfa] with
the intention that [Codelfa] should rely on it (which [Codelfa] did when tendering for the contract), that
injunction could not go to restrain [Codelfa] from working three shifts per day working six days a week.
Thus, as Aickin J, 381, summarised the position:
It may be that in other circumstances the parties might have made some express provision
for possible legal action, especially in the light of the location of the Site in a heavily
populated residential area, or at least taken it into account in arriving at or considering the
tender price. The erroneous belief entertained by the [State Rail] Authority and
communicated to and accepted by [Codelfa] clearly led to that possibility not being
contemplated by either party. It is plain on the findings of the Arbitrator that both parties
proceeded upon the assumption that the works could be lawfully completed within the
specified time by continuous work on a three-shift basis for six days a week. The situation
became one in which it was impossible to perform the contract in accordance with its terms,
impossible because court orders restrained the mode of performance, which was held to
constitute a nuisance, but which was critical to the completion of the works within the time
allowed.
At the end of 25.19 add the following:
It can be persuasively argued that these cases of supervening illegality are not cases properly
dealt with by the doctrine of frustration. Cases of supervening illegality are not, as are other
cases of frustration, governed by the principle of foreseeability. Frustration cannot arise if the
supervening event was foreseeable. However, with supervening illegality, parties will be
discharged from the contract even if the supervening event was foreseeable or even expressly
provided for. Furthermore, even before the doctrine of frustration emerged with the decision in
Taylor v Caldwell, a supervening illegality resulted in the parties being discharged from further
performance of the contract.
At the end of 25.22 add the following:
In Blankley v Central Manchester and Manchester Children’s University Hospitals NHS Trust
[2014] EWHC 168 (QB) a client’s short-term mental incapacity did not frustrate the contract of
retainer with her solicitor. In coming to his conclusion on the facts of this case, Phillips J, at [43],
said:
In deciding whether the employment is frustrated by such incapacity, the court will consider the nature
and likely duration of the incapacity, the prospects of recovery and whether performance of the
contractual duties would be either impossible or radically different. A client’s role in a contract of
retainer is far less personal than a contract of employment and can readily be assumed by a deputy,
further indicating that incapacity does not in itself frustrate such a contract.
At the end of 25.27 add the following:
In relation to Edward VII’s postponed coronation and banquet, Groom writes as follows:
The coronation of Edward VII (1901-10) was due to take place on Thursday 26 June 1902. Crowned
heads and statesmen of Europe and the world were gathering in London, and a superb banquet for 250
carefully selected guests was being prepared at Buckingham Palace …
On Wednesday 15 June Sir Frederick Treves, the king’s doctor, send for the Master of the Household,
Lord Farquhar, who sends for Monsieur Menager, the Royal Chef, who tells the kitchen staff that the
king is seriously ill and will undergo an emergency operation that very evening. The coronation is
postponed …
[The late Queen] Victoria’s eldest son, Albert Edward, Prince of Wales, was fifty-nine when he finally
came to the throne, and he had a reputation as a bon viveur. In the summer of 1902, amid the building
pressure as coronation day approached, it was observed that the king was eating too much. He had
developed pains in his lower abdomen, but ignored them, feeling impelled to carry on with the
preparations for the great event. When his doctors told him the coronation must be postponed, he
ordered them to leave the room. He declared that he would go to his coronation even if her were to
drop dead during the service, but in the event he developed peritonitis. His doctors warned that
without an operation he would certainly drop dead before he even got to Westminster Abbey, and an
operating theatre was prepared in Buckingham Palace. In 1902 a surgical procedure of this kind was not
without risk for a heavily smoking 16-stone man in his sixtieth year. Sir Frederick Treves, was, however,
a most capable surgeon; one of his other patients was Joseph Merrick, better known as the Elephant
Man. The operation was successfully completed in less than an hour, and by the following morning –
which should have been that of his coronation -he was sitting up in bed, puffing on one of his favourite
cigars.
Meanwhile, down in the palace kitchens, panic mingled with growing despair as the cooks stared at row
upon row of ingredients … [T]he sheer volume of food meant that the kitchens were literally out of
action … It was decided … to offer the food to the Little Sisters of the Poor to distribute to the hungry
and homeless in the East End of London. It was to be a discreet handover, and the cooks would never
know what was thought of their two weeks of dedicated work. The East Enders must have been puzzled
at food the like of which they had never tasted, and one wonders whether they enjoyed it …
‘The King’s Dinner to the Poor’ – a celebratory coronation dinner and festivities for ‘the submerged
tenth,’ London’s poor – took place on Saturday 5 July 1902 … Dinners were offered cross the capital, in
Paddington, Fulham, Poplar, Hackney, Stepney, Marylebone, St Pancras, Holborn, Finsbury and
Shoreditch. The dinners in Shoreditch, which catered for 15,000 people, took place in a variety of halls;
some were even delivered to the guests’ own homes. The fare served in that part of the city was
typical: roast beef, pork, ham, potatoes, hot plum pudding, preserved fruit, jam roll, bread and cheese,
pickles, aerated water, lime juice and cider. Some 18,000 packets of tobacco and cigarettes were
donated by Imperial Tobacco, boxes of chocolates were supplied courtesy of Messrs Rowntree of York,
and there were also gifts of portraits of the king and queen. During the day the Prince and Princess of
Wales and other members of the royal family, in place of the king and queen, made a tour in open
carriages to the diners in all these deprived areas of London, bringing the king’s good wishes and
reporting on his improving health. They were greeted with loud cheers and the singing of the national
anthem.
Meanwhile the king convalesced on his yacht, on a diet of chicken mousse and boiled fish, building up
his health and strength for his actual coronation, which finally took place on 9 August.24
In oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd at [89]-[90], Nettle JA said:
The decision in Krell v Henry has been criticised. In Larrinaga & Co Ltd v Société Franco-Americaine des
Phosphates de Medulla, Paris (1922) 29 Com Cas 1 at 7, Viscount Finlay suggested that, although the
parties in Krell v Henry have contracted in the expectation that the procession would take place, it was
difficult to see why the happening of the procession was the basis of the contract. Latham CJ took a
similar view in Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169 at 194. On the other hand, the
majority of the court in Scanlan’s New Neon, McTiernan and Williams JJ [at 215 and 222 respectively],
considered that Krell v Henry was correctly decided in accordance with the principle that a contract may
be frustrated where ‘the underlying object’ of it is rendered impossible of achievement or where there
is cessation or non-existence of an express condition or ‘state of things going to the root of the contract,
and essential to its performance’. Mason J approached it in the same way in Codelfa and described
Latham CJ’s approach as based on an outmoded view that it is impermissible to take account of
extrinsic evidence in determining whether the parties entered into the contract on the basis of a
mistaken common assumption that some particular thing or state of affairs would continue to exist or
be available.
Perhaps the better view of Krell v Henry is that it was rightly decided because it was apparent on the
particular facts of the case that the occurrence of the coronation procession on the appointed dates
was the basis of the contract and that neither party contemplated the possibility that the procession
might be cancelled. But as Lord Wright explained in Maritime National Fish Ltd v Ocean Trawlers Ltd
[1935 AC 524 at 529:
The authority [of Krell v Henry] is not one to be extended: it is particularly difficult to apply
where, as in the present case, the possibility of the event relied on as constituting a
frustration of the adventure (here the failure to obtain a licence) was known to both parties
when the contract was made, but the contract entered into was absolute in terms so far as
concerned the known possibility. It may be asked whether in such cases there is any reason
to throw the loss on those who have undertaken to place the thing or service for which the
contract provides at the other parties’ disposal and are able and willing to do so … In a case
such as the present it may be questioned whether the Court should imply a condition
resolutive of the contract (which is what is involved in frustration) when the parties might
have inserted an express condition to that effect but did not do so, though the possibility
that things might happen as they did, was present in their minds when they made the
24
Susanna Groom, At the King’s Table, Royal Dining Through the Ages, Merrell Publishers, London, 2013, pp 16470.
contract.
At the end of 25.29 add the following:
On the other hand, in Krell v Henry, because the hiring was the daytime only, the only conceivable
purpose of the contract was to have a view of the coronation parade: Planet Kids Ltd v Auckland Council
[2013] 1 NZLR 485 at 493.
At the end of 25.38 add the following:
In oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd at [72-[74], Nettle JA said:
[W]here a supervening event is not only foreseeable but actually foreseen at the time of entry into a
contract, it is more difficult to conceive of the parties as having entered into the contract on the basis of
a common understanding that the event could not occur during the life of the contract. Where,
however, a supervening event, although foreseeable, was not foreseen at the time of entry into the
contract, the fact that it was foreseeable may not be of much significance unless the degree of
foreseeability is particularly high.
Consequently … it is important to be precise about the nature and degree of foresight. So far as
foreseen events are concerned, the parties to a contract may have foreseen an event but not foreseen
the nature or extent of it. In The Sea Angel, Rix LJ gave as an example, based on Pioneer Shipping Ltd v
BTP Tioxide Ltd (The Nema) [1982] AC 724 a case where the possibility of an industrial strike was
foreseen, and actually provided for in the contract, but lasted so long as to go beyond the risk assumed
under the contract. It was held to have frustrated the contract. Cheshire and Fifoot’s Law of Contract
[9th ed, (2008), at 19.12] suggests that in some cases it may also appear that, Failure to provide
expressly for an event that was foreseen [is] due to … a deliberate decision to leave matters to be
sorted out by the parties, or by the law.
In the case of foreseeable but unforeseen events, the nature and extent of foreseeability is critical.
Since most events are foreseeable in one sense or another, the parties to a contract will not ordinarily
be taken to have assumed the risk of an event occurring during the life of the contract unless the
degree of foreseeability of that event is very substantial. Hence, as the position is summarised in Chitty
on Contracts [30th ed, (2008), at 23–060]:
Much turns on the extent to which the event was foreseeable. The issue which the court
must consider is whether or not one or other party has assumed the risk of the occurrence
of the event. The degree of foreseeability required to exclude the doctrine of frustration is …
a high one: ‘foreseeability’ will support the inference of risk-assumption only where the
supervening event is one which any person of ordinary intelligence would regard as likely to
occur or … ‘one which the parties could reasonably be thought to have foreseen as a real
possibility: Treitel, Frustration and Force Majeure, 2nd ed, (2004).
At the end of 25.40 add the following:
The Relationship Between Frustration and Common Mistake
Principles relating to common mistake and frustration both deal with situations become or are
different from what the parties to an agreement thought at the time. Both doctrines only
become relevant when the parties themselves have not determined who will bear the risk of
the unexpected event or circumstance. The crucial factor that distinguishes the two doctrines,
as is illustrated in the case of Amalgamated Investment & Property Co v John Walker & Sons
[1977] 1 WLR 164, is the timing of the unexpected or unforeseen event or circumstance. In the
case of common mistake one is concerned with circumstances that exist at the time of the
contract, whereas with frustration, one is concerned with circumstances that arise after the
contract has been entered into.
Furthermore, the consequences of the two doctrines are different. With common mistake the
contract is void at common law. If not void at common law, and if Solle v Butcher [1950] 1 KB
691, is still good law in Australia, it may be that the contract is, if not void at common will,
applicable, voidable in equity. On the other hand, with frustration, the contract is
automatically terminated upon the happening of the frustrating event. Although terminated,
at common law, parties’ pre-frustrating event obligations are enforceable (see below).
At the end of 25.42 add the following:
Just why frustration results in an automatic discharge of the contract is not made clear in the
cases. The major policy argument for this consequence is that if it were for the courts to adjust
the contract, rather than it being automatically discharged, would mean that the courts would
be making the contract for the parties, something they have routinely rejected in other areas of
contract law.
At the end of 25.76 add the following:
IS THE DOCTRINE OF FRUSTRATION NECESSARY?
Critics of the doctrine of frustration argue that the risk that comes with a supervening event is
something that should be left to the parties to resolve. Ultimately, this is a process of negotiating
risk. If the contract is silent in relation to some supervening event there is, according to these
critics, nothing that justifies shifting the risk of loss by means of the doctrine of frustration.
In effect parties do often negotiate the risk associated with supervening events by express
provisions in the contract that provide what is to happen in the case of specified supervening
events. These force majeure clauses are very common, so much so that it has been argued that
they, rather than the doctrine of frustration, in fact deal with the vast majority of cases where
supervening events arise.25
Force majeure clauses have advantages over the doctrine of frustration in that they can be
flexible in that the parties can choose from a range of consequences (eg, suspension of
obligations, re-pricing according to an agreed formula etc) that follow the supervening event,
25
E McKendrick, ‘Force Majeure Clauses: The Gap Between Doctrine and Practice’ in A Burrows & E Peel (eds),
Contract Terms, Oxford University Press, Oxford, 2007, 233, p 233.
whereas if frustrated the only possible consequence is that both parties are discharged from
further performance of the contract. Force majeure clauses can also provide for a wider range of
‘triggering events’ than occurs in the application of the doctrine of frustration. All in all, as
McKendick suggests, the ‘remedial rigidity of the general law contrasts unfavourably with the
flexibility’ of force majeure clauses.26 The only downside associated with force majeure clauses is
the strict approach the courts have taken in interpreting them, as was illustrated above in
Metropolitan Water Board v Dick Kerr & Co Ltd [1918] 2 KB 1 at 30 (later affirmed on appeal
in [1918] AC 119).
26
E McKendrick, ‘Force Majeure Clauses: The Gap Between Doctrine and Practice’ in A Burrows & E Peel (eds),
Contract Terms, Oxford University Press, Oxford, 2007, 233, p 239.
CHAPTER 26
At the end of 26.2 add the following:
In ParkingEye Ltd v Somerfield Stores Ltd [2013] QB 840 at 848, Sir Robin Jacob observed that
‘[i]llegality and the law of contract is notoriously knotty territory’. Toulson LJ, at 850-1, added
that the topic of illegality ‘is one of the least satisfactory parts of the law of contract’ and that
‘[t]he fundamental reason why illegality is a difficult topic is that the doctrine is founded on
public policy, and public policy not infrequently gives rise to conflicting considerations’.
At the end of 26.10 add the following:
What cases such as Nelson v Nelson and Master Educations Services Pty Ltd v Ketchell point to
was summarised in the High Court in Miller v Miller (2011) 242 CLR 446 at 459; 275 ALR 611 at
619, by French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ, as being one which gives an
emphasis to:
… the discernment, from the scope and purpose of the statute, of whether the legislative purpose will
be fulfilled without regarding the contract … as void and unenforceable. But implicit in, indeed at the
very heart of, that process lies the recognition that there are cases where the breach of a norm of
conduct stated expressly or implied in the statutory text requires the conclusion that an obligation
otherwise created or recognised is not to be enforced by the courts.
At the end of the second sentence in 26.14 insert the following:
In Equuscorp Pty Ltd v Haxton (2012) 246 CLR 1 at 29, French CJ, Crennan and Kiefel JJ, in a
passage subsequently cited with approval by French CJ, Kiefel, Keane and Nettle JJ in Gnych v
Polish Club Limited (2015) 320 ALR 489 at 495, after noting that a statute might expressly or
impliedly prohibit a contract, referred to a further possible effect of the statute on the
enforceability of a contract as follows:
[T]he agreement is not expressly or impliedly prohibited by a statute but is treated by the courts as
unenforceable because it is a ‘contract associated with or in the furtherance of illegal purposes’.
In …
[this] category of case, the court acts to uphold the policy of the law, which may make the agreement
unenforceable. That policy does not impose the sanction of unenforceability on every agreement
associated with or made in furtherance of illegal purposes. The court must discern from the scope and
purpose of the relevant statute ‘whether the legislative purpose will be fulfilled without regarding the
contract or the trust as void and unenforceable’.
At the end of 26.21 add the following:
In Baird v Magripilis (1925) 37 CLR 321, two Greek migrants contracted to sub-lease certain
Crown land from Baird. The Leases to Aliens Restriction Act 1912 (Qld), stipulated that:
[I]t shall not be lawful to … enter into any agreement … for any lease of any parcel of land … with any
alien who has not first obtained … a certificate that he is able to read and write from dictation words in
such language as the Secretary of Public Lands may direct. Any such … agreement shall be null and void.
The two Greek migrants, although they had been naturalised as Australians had not passed the
dictation test required by the legislation. The consequence was that their application to
specifically enforce the sub-lease was rejected as the sub-lease was expressly illegal pursuant to
the said provisions of the Leases to Aliens Restriction Act 1912.
At the end of 26.47 add the following:
Public Policy of a Statute Rendering a Contract Illegal
In Nelson v Nelson (1995) 184 538 at 551-2, Deane and Gummow J refereed to a third type of
statutory illegality that was in addition to express and implied statutory illegality. This third
category related to cases where the statute treated a contract as unenforceable because it was
associated with some illegal purpose.
In this third category of statutory illegality the court, in the absence of some express or implied
statutory prohibition relating to the contract, has to consider whether the legislative purpose of
the statute will be fulfilled without regarding the contract as void and unenforceable. In these
cases illegality flows from the principles of the common law as to illegality that are informed by
the scope and purpose of the relevant statute. Thus there is the quest to determine whether
there is some public policy associated with the statute that renders the contract unenforceable
because it is one that pursues some illegal purpose.
In Nelson v Nelson (1995) 184 CLR 538 at 552, Deane and Gummow J said:
In this … class of case, the courts act not in response to a direct legislative prohibition but, as it is said,
from ‘the policy of the law’. The finding of such policy involves consideration of the scope and purpose
of the particular statute.
In Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215 at 227, McHugh and Gummow JJ said:
The question then becomes whether, as a matter of public policy, the court should decline to enforce
the contract because of its association with the illegal activity of the owner … The refusal of the courts
in such a case to regard the contract as enforceable stems not from express or implied legislative
prohibition but from the policy of the law, commonly called public policy. Regard is to be had primarily
to the scope and purpose of the statute to consider whether the legislative purpose will be fulfilled
without regarding the contract as void and unenforceable.
Their Honours, at 229, then continued:
[T]he courts should not refuse to enforce contractual rights arising under a contract, merely because
the contract is associated with or in furtherance of an illegal purpose, where the contract was not made
in breach of a statutory prohibition upon its formation or upon the doing of a particular act essential to
the performance of the contract or otherwise making unlawful the manner in which the contract is
performed.
In Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at 513, French CJ, Crennan and Kiefel JJ said:
In the third category of case, the court acts to uphold the policy of the law, which may make the
agreement unenforceable. That policy does not impose the sanction of unenforceability on every
agreement associated with or made in furtherance of illegal purposes. The court must discern from the
scope and purpose of the relevant statute ‘whether the legislative purpose will be fulfilled without
regarding the contract or the trust as void and unenforceable’. 27 As in the case when a plaintiff sues
another for damages sustained in the course of or as a result of illegal conduct of the plaintiff, ‘the
central policy consideration at stake is the coherence of the law’. 28
In Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 the facts concerned a complex investment
scheme, which collapsed in due course, involving a number of companies which was designed
to take advantage of tax laws that permitted investors to deduct farming expenses from nonfarming income. Rural Finance Pty Ltd was one of the companies in the scheme that loaned
money to investors to invest in the scheme. The scheme related to the growing, harvesting and
sale of blueberries at Corindi in New South Wales. The investment scheme was contrary to s
170 of the Companies Code which prohibited such investments in the absence of a prospectus
which had to set out extensive information about the investment scheme. Section 174 of the
Companies Code provided for various penalties for breaches of s 170.
The High Court upheld the decision of the lower courts to the effect that held that the loan
contracts that formed part of the investment scheme were rendered illegal by the statute. In
this respect, French CJ, Crennan and Kiefel JJ said at 513-4:
The making of the loan agreements was not expressly prohibited by the Code. The primary judge did
not discuss in his reasons whether their making was impliedly prohibited … It appears that the primary
judge held the loan agreements to be unenforceable … on the common law ground that they were
made in furtherance of an illegal purpose. The precise basis of their unenforceability was not further
explored in the Court of Appeal.
In Nelson v Nelson, Deane and Gummow JJ observed, in relation to contracts associated with or in
furtherance of illegal purposes, that:
[t]he formulation of the appropriate public policy in this class of case may more readily
accommodate equitable doctrines and remedies and restitutionary money claims than is
possible where the making of the contract offends an express or implied statutory
prohibition.29
That observation involves the rejection of any inflexible or rigid rule excluding non-contractual claims in
cases involving contracts unenforceable for illegality. In this case, the answer to the question whether it
would have been open to Rural [the lenders of money to investors in the scheme] to pursue claims for
money had and received under the loan agreements depends upon a number of factors but critically
27
Miller v Miller (2011) 242 CLR 446 at 459.
Miller v Miller (2011) 242 CLR 446 at 454.
29
Nelson v Nelson (1995) 184 CLR 538 at 552.
28
upon whether vindication of those claims would have frustrated or defeated, or have been inconsistent
with, the statutory purpose of the provisions of the Code relating to the issue of prescribed interests.
The requirement of coherence in this area of the law is not satisfied by the mere exclusion of an implied
legislative intention to render unenforceable a contract made in furtherance of a contravening purpose.
Unenforceability flows from the application of the common law informed, inter alia, by the scope and
purpose of the relevant statute.
In Gnych v Polish Club Limited (2015) 320 CLR 489, the facts concerned a sub-lease of part of
licensed premises in New South Wales. Section 92(1)(d) of the Liquor Act 2007 (NSW) (the Act)
mandated that a licensee of such premises could not ‘lease or sublease any other part of the
licensed premises except with the approval of the [Independent Liquor and Gaming] Authority’.
Pursuant to s 139(3)(d) of the Act breaches by a licensee of any provision of the Act could be
brought before the Authority. Pursuant to s 141(2) of the Act, the Authority is granted power to
make various orders in relation to any complaint being established. However, the Authority
could also take no action in relation to the complaint. In this case the Polish Club granted a
sublease of part of its premises to Mr and Mrs Gnych without the approval of the Authority.
The club claimed that this rendered the sublease void and unenforceable.
The High Court unanimously dismissed the club’s claim. The High Court held that to hold the
sublease agreement to be void and unenforceable would prejudice the Gnychs without
furthering the objects of the Act.
In coming to the conclusion that the breach by the club in this case did not serve to undermine
the purpose or policy behind the Act, French CJ, Kiefel, Keane and Nettle JJ, at 498, observed
that the granting of a sublease was not contrary to the purposes of the Act, as s 92(1)(d) of the
Act in fact contemplated that subleases could be granted. Furthermore, their Honours pointed
to the complaint provisions of under the Act and the powers of the Authority as a further
reason why the sublease was not void or unenforceable. In this respect, their Honours, 498-9,
said:
The discharge by the authority of its responsibility might lead to a decision that there should be no
change in the status quo in relation to the licence. In that event, the [Gnychs] as lessees might continue
their occupation of the leased part of the premises. If the authority were to cancel the club’s licence,
then a question would arise as to whether the lease was terminated by frustration or terminable by the
[Gnychs] by reason of the club’s inability to make licensed premises available under the lease. On the
other hand, the authority might conclude that the [Gnychs] were fit and proper persons to be in charge
of the part of the premises dedicated to the restaurant, which might lead it to decide not to cancel the
club’s licence notwithstanding its breach of s 92(1)(d), in which case the club’s breach of the Liquor Act
would have no consequences for the continuation of the lease. The conclusion that a breach of s
92(1)(d) automatically avoids the lease would pre-empt the effect of the authority’s decision in this
regard. That outcome would not be consistent with the supervisory role entrusted to the authority by
the Liquor Act.
CHAPTER 27
Delete 27.6 and insert the following at the end of 27.5:
However, merely because there is some illegal act that is committed by a party to the contract
does not necessarily mean that the contract will be unenforceable. Thus, in Parkingeye Ltd v
Somerfield Stores Pty Ltd [2013] QB 840 at 851, Toulson LJ said:
There is a public interest in the court not appearing to reward wrong doing or condone a breach of the
law. But where … both parties were complicit in the illegality, denial of one party’s claim on that ground
will be to give an unjustified benefit to the other. The rule that where both parties are equally at fault
the defendant should prevail may be right in more serious cases (on the ground that the court should,
in effect, wash its hands of the dispute), but may be a disproportionately severe response in less
serious cases, especially where the parties did not appreciate that they were acting contrary to the law.
There is a public interest in doing justice between the parties and … in nullifying a bargain only on
serious and sufficient grounds.
In Parkingeye Ltd v Somerfield Stores Pty Ltd at 855-8, Toulson LJ listed the following factors
that are relevant in assessing whether the illegality will result in the unenforceability of the
contract: (i) the object and intent of the party committing the illegality; (ii) the gravity of the
illegality in the context of the contract, and (iii) the nature of the illegality.
In relation to the first point, proof of an intention to act unlawfully is crucial. The party must
have knowledge that what he or she does involves acting unlawfully. The fact that a contract
has the potential to be used in breach of public policy is not enough in the absence of proof of a
party’s intentions. Thus, in Yaroomba Beach Development Co Pty Ltd v Coeur de Lion
Investments Pty Ltd (1989) 18 NSWLR 398, the failure to prove that the vendors intended to
defraud the revenue was the key reason why a land purchase agreement was not struck down.
In relation to the second point, if the illegality is minor or incidental to the performance of the
contract, the enforceability of the contract will not be affected: Parkingeye Ltd v Somerfield
Stores Pty Ltd at 857.
In relation to the third factor - the nature of the illegality – it is clear that the courts will be
more likely to find that a contract is unenforceable if the illegality is of a serious nature. In
effect, the law has a hierarchy of offences - the more serious the offence, the more likely that
the contract will be unenforceable. Thus, in Parkingeye Ltd v Somerfield Stores Pty Ltd, the
illegality that was committed was the tort of deceit and, in the circumstances of the case, this
did not affect the enforceability of the contract. However, Toulson LJ, at 858, clearly implied
that, had the facts of the case established that the illegal conduct also included violations of
relevant statutory provisions relating to obtaining money by deception and/or unlawful
harassment of a debtor (both of which were pleaded but not established on the facts of the
case), the illegality would more likely have resulted in the contract being unenforceable.
At the end of 27.7 add the following:
In Commonwealth of Australia v Sanofi [2017] FCA 382 at [51]-[55], after citing passages from A
v Hayden and other relevant cases, Nicholas J said that they supported the following
propositions:
First, there are some contracts that are void because their purpose and effect is to interfere adversely
with the administration of justice. Examples are where a witness is promised money in exchange for
giving false testimony or where a contract has the purpose and effect of concealing the existence of a
serious criminal offence or the identity of the perpetrator. These contracts are void at common law on
the basis that they have a tendency to interfere with the proper working of the machinery of justice.
Secondly, there are other contracts that are not void but which may be unenforceable to the extent
that they have a tendency to interfere adversely with the proper administration of justice. In these
cases it is the effect of the enforcement of the contract which is most important. An employment
contract in which the employee agrees not to disclose to third parties his or her employer’s private
affairs is not enforceable by the employer to prevent the employee from disclosing to the authorities
the commission of a serious criminal offence. In that case the contract must give way to the strong
public interest in the enforcement of the criminal law
Thirdly, it may be necessary for the Court to weigh competing public policy considerations when
determining whether or not to decline to enforce a contract on the ground that it has a tendency to
interfere adversely with the administration of justice. This is because the contract may be beneficial to
the administration of justice in some respects but adverse to it in others. There is a public interest in
upholding contractual bargains and in encouraging the settlement of legal proceedings. But these
considerations may need to be weighed against other considerations relevant to the proper
administration of justice.
Fourthly, a court is required to exercise extreme caution and reserve before finding a contract void as
against public policy and may only do so when the contract in question is ‘incontestably and on any
view inimical to the public interest’: Monkland v Jack Barclay [1951] 2 KB 252 at 265. The ‘public
interest’ in this context refers to some definite and recognizable public interest that transcends the
private interests of the parties to a particular dispute.
Fifthly, a party cannot prevent a witness giving evidence in legal proceedings. Subject to any valid
objection to evidence, the opposite party is entitled to call the witness and adduce evidence from him
or her. The opposite party is also entitled to interview the witness if he or she agrees to such an
interview. However, as Beazley JA observed in Richards v Kardin at (2005) 64 NSWLR 204 at 225: ‘That
does not mean ... that the right of a party to call evidence in court operates so as to permit or require a
potential witness to breach an obligation of confidence other than in the giving of evidence. Put simply,
it does not mean that in the pre-trial phase, a party wishing to call a witness bound by an obligation of
confidence, can require the witness to provide information that will breach the obligation of
confidence’.
At the end of 27.24 add the following:
The mere presence of a restraint of trade clause does not automatically trigger the application
of the restraint of trade doctrine as set out in Nordenfelt v Maxim-Nordenfelt Guns. In Proactive
Sports Management Limited v Rooney [2011] EWCA 1444 at [55], Arden LJ said:
The boundary between contracts that are contrary to public policy as being in restraint of trade and
that will not be enforced, and contracts that contain acceptable restrictions is an uncertain and porous
one … Some contracts are treated as moulded by normal commercial experience and thus outside the
doctrine even though they contain restrictions on trade. These include restrictive covenants in
commercial leases against user save for particular trading purposes.
At the end of 27.25 add the following:
In relation to the tension between the competing principles of freedom of contract and
restraint of trade, in Proactive Sports management Limited v Rooney [2011] EWCA 1444 at
[145], Gross LJ said:
[T]he doctrine of restraint of trade and the protection of freedom of trade do not stand alone; there is
also the public interest in freedom of contract to be considered – parties are, in general, free to enter
into any lawful contract they wish and it is not for the Court to rewrite their bargains … Self evidently,
the doctrine of restraint of trade itself serves to limit the individual’s freedom of contract. There is,
accordingly, obvious scope for tension between these two public interests, involving the need for
compromise. The Court should be slow to substitute its (objective) view as to the interests of the
parties for the (subjective) views of the parties themselves in deciding to enter into the contract. But in
some circumstances the doctrine of restraint of trade will prevail – where it is held that a contract is in
restraint of trade and that to be enforceable it must pass a test of reasonableness.
At the end of 27.42 add the following:
 If the parties to the restraint acknowledge that the restraint is reasonable that is a
factor to be considered, but is not conclusive. In this respect, in Vision Eye Institute Ltd v
Kitchen [2014] QSC 260 at [266], Applegarth J said:
The fact that the parties agreed to the restraint and that the contract acknowledges that the
restrictions are reasonable is some evidence of their reasonableness, particularly where the
parties bargain from a position of equality. An acknowledgement of reasonableness should be
given appropriate weight. This is because the parties are taken to have a good knowledge of the
relevant industry and are in a better position than the Court to assess what amounts to
reasonable protection. However, a declaration by a party that a restraint is reasonable does not
bind the Court.
At the end of 27.44 add the following:
Often, in each of these cases the legitimate interest sought to be protected by the restraint of
trade clause is the covenantee’s goodwill: Testel Australia Pty Ltd v KRG Electrics Pty Ltd [2013]
SASC 91 at [53].
At the end of 27.45 add the following:
In relation to these vendor-purchaser restraints, in Vision Eye Institute Ltd v Kitchen [2014] QSC
260 at [261], Applegarth J said:
The buyer of a business has a legitimate interest in protecting its investment against competition by the
seller, since without a covenant against competition the buyer would not get what it was contracting to
buy. A covenant against competition is reasonable if it protects the goodwill that is purchased. The
question of whether the protection given to the covenantee is excessive can give rise to issues about
the width of the activities that are restrained, the area or scope of the restraint and whether the
duration of the restraint is unduly long. The principal protection afforded by such restraints is of
goodwill in the form of connection with existing or potential customers. An employer also has a
legitimate interest in maintaining a stable workforce.
Delete 27.54 and replace with the following:
27.54 A final point to note relates to the principle, established in the House of Lords’ decision
in General Billposting Company Ltd v Atkinson [1909] AC 118 at 121, 122 and affirmed by the
High Court in Kaufman v McGillicuddy (1914) 19 CLR 1 at 11-2, 13-4 to the effect that an employee is
not bound by a post-employment restraint of trade clause where the employer has repudiated
the contract and that repudiation has been accepted by the employee. The major rationale for
the principle in General Billposting Company Ltd v Atkinson General Billposting principle rests
on public policy considerations. Two public policy considerations have been noted. The first is
the public policy behind the rule that restraints of trade are void unless reasonable as set out in
Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd. A statement of that public policy
rationale in the context of post-employment restraints of trade is found in Mason v Provident
Clothing and Supply Company, Limited [1913] AC 724 at 738, where Lord Shaw said:
But, to use Lord Macnaghten's language in the Nordenfelt Case, ‘There is obviously more freedom of
contract between buyer and seller than between master and servant or between an employer and a
person seeking employment.’ And in my opinion there is much greater room for allowing, as between
buyer and seller, a larger scope for freedom of contract and a correspondingly large restraint in
freedom of trade, than there is for allowing a restraint of the opportunity for labour in a contract
between master and servant or an employer and an applicant for work.
My Lords, in both cases which have been cited there are appeals to public interest. Yet the public
interest in the one case may be on the side of freedom of contract, while on the other it is on the side
of freedom of trade. The right to dispose for adequate consideration of a business which a person has
built up and which has become solid, attractive, and valuable, by the exercise of his energy or ability,
might become worthless unless accompanied by a substantial restraint of opposition on the part of the
seller: and for the law to decline to support the restraint would be to impose a great obstacle to the
enjoyment of the fruits of labour, and to destroy an incentive to industrial or commercial energy. The
public interest might thus be grievously injured by such a restraint on freedom of contract.
But, upon the other side, the public interest may strongly coincide with freedom of trade. That might
be gravely endangered or contravened by a restriction or impairment of the liberty of the subject to
enter the ranks of business or of labour and work for and earn his living. My Lords, the law can achieve
a reconciliation and adjustment of these two elementary liberties — the right to bargain and the right
to work. And it has in fact achieved this in such a manner that the public interest has been in both cases
conserved.
An alternative public policy consideration is based upon the principle that a party (in this case
the repudiating employer) cannot benefit from his or her own wrongdoing: Cheall v Association
of Professional Executive Clerical and Computer Staff [1983] 2 AC 180 at 189
However, some judges and academic commentators have doubted the veracity of the principle
in General Billposting Company Ltd v Atkinson. On the basis of these doubts, in Pet Tech Pty Ltd
v Batson [2013] NSWSC 1954 at [15], Young JA noted that the principle ‘was … considered to be
on shaky grounds’. Indeed, in Richmond v Moore Stephens Adelaide Pty Ltd [2015] SASCFC 147
in obiter dicta comments, the Full Court in South Australia rejected the proposition that an
employer could never enforce a post-employment restraint of trade in circumstances where
the employer had wrongfully terminated the contract of employment. After referring to
General Billposting Company Ltd v Atkinson, Measures v Measures Brothers Ltd [1910] 2 Ch 248,
Kaufman v McGillicuddy, and Geraghty v Minter (1979) 142 CLR 177, the Full Court, at [210],
said:
[It has be contended] that General Billposting Company Ltd v Atkinson is authority for the proposition
that it is a rule of law that a party who has repudiated a contract leading to its termination by the
innocent party can never enforce a restraint clause expressed to operate after termination and [that]
this was endorsed by the High Court in Kaufman v McGillicuddy. [This] contention should be rejected
because the question whether the restraint clause survives must depend on the proper construction of
the contract. This was the approach adopted by the Court of Appeal in Measures v Measures Brothers
Ltd which was cited with approval by the High Court in Kaufman v McGillicuddy and by Gibbs J, with
whom Aickin J agreed, and Stephen J in Geraghty v Minter. To the extent that Lord Collins’ judgment in
General Billposting Company Ltd v Atkinson might be read as suggesting that there is a rule of law
regardless of the parties’ intention as manifested in the contract that restraint clauses cannot survive
termination for repudiation by the party in whose favour they operate, this might be explained by the
fact that in 1909 the common law had not yet been clarified that termination for repudiation does not
operate by way of rescission ab initio.
However, the approach of the South Australian Full Court was not followed in Crowe Horwath
(Aust) Pty Ltd v Loone [2017] VSC 163 at [152], where McDonald J held that current High Court
authority supports the proposition that ‘an employee’s post-employment restraint of trade
obligations do not survive the termination of the employment contract effected by the
employee accepting the employer’s repudiation of the contract’.
At the end of 27.71 add the following:
Franchisor–franchisee agreements
In Testel Australia Pty Ltd v KRG Electrics Pty Ltd [2013] SASC 91 at [54], Blue J said that typical
factors that are relevant in assessing the reasonableness of a restraint of trade clause in a
franchise contract include the following:
1. It is generally necessary that the franchisor possesses goodwill of a substantial value in respect of its
business and that such goodwill would be likely to be adversely affected by the franchisee being
unrestrained by the restraint of trade provision.
2. A relevant factor will typically be whether the franchisor possesses confidential information and/or
intellectual property of a substantial value which would be adversely affected by the franchisee
being unrestrained by the restraint of trade provisions.
3. Reasonableness will be assessed by reference to the nature of the restraint, the depth and scope of
the activities restrained, the period of the restraint and the geographical area the subject of the
restraint.
4. A relevant factor will often be the nature and depth of the relationship between the franchisee and
the franchisor’s clients, such that the stronger the relationship, typically the more likely the covenant
will be found to be reasonable.
5. A relevant factor will be the frequency with which contracts between the franchisor and its clients
are negotiated.
6. If the contract, and in particular the restraint of trade provision, was freely negotiated between
parties at arm’s length, that is a factor to be taken into account in assessing the reasonableness of
the restraint as between the parties.
7. Generally, the more akin the relationship between franchisor and franchisee is to a relationship
between employer and employee, the less likely it is that the covenant will be assessed as
reasonable.
8. To the extent that the franchisor relies upon protection of intellectual property or confidential
information (or intangible property more generally) as justification for the restraint, it is relevant to
consider the extent to which the franchisor is adequately protected by other contractual provisions
or duties owed to the franchisor by the franchisee.
Blue J, at [60]-[64], described several examples of cases involving restraint of trade clause in
franchise agreements as follows:
In NE Perry Pty Ltd v Judge (2002) 84 SASR 86, the plaintiff company (‘Perry’) was owned by a
chiropractor (Dr Perry) and carried on a chiropractic business in Whyalla. Perry engaged the second
defendant (‘Judge’), a company of which the first defendant (Dr Judge) was a shareholder and director,
to procure Dr Judge to provide chiropractic services at Perry’s Whyalla practice. The contract included a
covenant in restraint of trade, precluding Judge from practicing in Whyalla for two years following
termination of the agreement. The trial Judge concluded that a restraint of trade clause in those terms
for one year following termination of the agreement would have afforded reasonable protection to
Perry, but that Perry had not demonstrated that two years was necessary for the reasonable protection
of Perry’s legitimate interests. This conclusion was upheld on appeal by the Full Court of this court. The
Full Court held that the principal factor to be considered was the time required to break the connection
between Dr Judge and the patients whom he treated.
In EzyDVD Pty Ltd v Lahrs Investments Qld Pty Ltd [2010] 2 Qd R 517, the plaintiff franchisor granted to
a franchisee company the right to operate an EzyDVD store at a Brisbane suburb. The franchise
agreement included a covenant restraining the franchisee company and its two directors from engaging
in or having a financial interest in a competitive business within 5 kilometres of the store or within one
kilometre of any other EzyDVD store in Australia for six months following the expiration of the
franchise. The trial Judge concluded that the restraint was unreasonable. This was upheld by the Court
of Appeal of the Queensland Supreme Court. The principal reason for that conclusion was that there
was limited personal goodwill and the plaintiff was largely protected in respect of its confidential
information by its intellectual property rights and confidential information contractual rights.
In BB Australia Pty Ltd v Karioi Pty Ltd (2010) 278 ALR 105, the plaintiff franchisor granted to a
franchisee company the right to conduct a Blockbuster video store at two Sunshine Coast towns. The
franchise agreement included a provision restraining the franchisee from engaging in or having a
financial interest in a competitive business within cascading radii ranging from 30 kilometres down to 1
kilometre of the site or any other Blockbuster video outlet in Australia for cascading periods ranging
from 3 years down to 6 months following termination of the franchise. The trial Judge held that the
restraint of trade clause was unreasonable. This conclusion was upheld by the Court of Appeal of the
New South Wales Supreme Court. The principal reason for the Court of Appeal’s conclusion was that a
franchisee did not itself enjoy substantial personal goodwill in its relationship with customers of the
Blockbuster stores.
In Pearson v HRX Holdings Pty Ltd (2010) 205 FCR 187, the plaintiff carried on a human resources
business. The plaintiff employed the defendant as chief operating officer. One of the defendant’s
principal roles was to be the primary presenter on behalf of the plaintiff to prospective clients in an
endeavour to secure their business. He was intended to have a close relationship with clients and
prospective clients of the plaintiff’s business. The service agreement included a clause restraining him
from being concerned in a business similar to or competitive with the plaintiff’s recruitment business
for two years following termination of the employment relationship. The trial Judge held that the
restraint was reasonable. This conclusion was upheld by a Full Court of the Federal Court. The principal
reason for the conclusion was the extent and importance of the defendant’s connections with the
plaintiff’s customers.
In AGA Assistance Australia Pty Ltd v Tokody [2012] QSC 176, the plaintiff carried on business as a travel
insurer. The plaintiff employed the defendant in a position under various titles, the last of which was
chief sales officer. The defendant was responsible for procuring insurance business and as a result had
extensive and intensive relationships with clients and prospective clients of the plaintiff’s travel
insurance business. The employment contract included a clause restraining him from being interested
or concerned in a business substantially similar to or in competition with the plaintiff’s business within
cascading areas ranging from Australia to Brisbane for cascading periods ranging from one year down to
three months. McMurdo J held that the restraint of trade clause was reasonable. An important factor
was the extent of the personal relationship between the defendant and the plaintiff’s clients and
prospective clients.
CHAPTER 29
At the end of 29.7 add the following:
In Nicholson v Hilldove Pty Ltd (No 4) [2013] VSC 578 at [10], an award of nominal damages was
described as ‘vindicatory and not compensatory’.
At the end of 29.8 add the following:
In Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2011] WASCA 65 at [10] the Court of
Appeal, after observing that the fact that a plaintiff is awarded nominal damages does not
entitle it to the costs of the proceedings and that the real question was the plaintiff should be
regarded as the successful plaintiff, went on to say the following:
While each case must depend upon its own facts, where it is not a primary purpose of proceedings
simply to establish or vindicate some legal right but the primary purpose is to recover substantial
damages, ordinarily an award of nominal damages will not entitle a party to the costs of the
proceedings. In such a case, the party has obtained something of no real use to them and something
which, if they had known it was all that was available, they would not have brought proceedings to
recover. It would be contrary to modern notions of the efficient and cost-effective use of judicial
resources to enable a party to recover its costs for a pyrrhic victory, having substantively failed in the
action.
This case is such an instance. It is clear enough that the [plaintiff’s] only purpose in bringing the action
was to recover substantial damages. Having failed to prove at trial that it had suffered any damage, it
was entitled to no more than nominal damages.
At the end of 29.9 add the following:
In Clark v Macourt [2013] HCA 56 at [28], Crennan and Bell JJ noted that the compensation
principle:
… explains the prima facie measure of damages at common law in respect of a sale of goods … The
measure is the market price of goods at the contractual time for delivery, less the contract price (if the
latter has not been paid to the seller). This is the amount of money theoretically needed to put the
promisee in the position which would have been achieved if the contract had been performed.
At the end of 29.30 add the following:
In Johnson v Perez, at CLR 356-7; ALR 589-90, Mason CJ said:
The general rule that damages are assessed as at the date of breach or when the cause of action arose
has been applied more uniformly in contract than in tort and for good reason. But even in contract
cases courts depart from the general rule whenever it is necessary to do so in the interests of justice.
So, when a creditor seeks to enforce a debt payable in a foreign currency, ‘[t]he critical date is not so
much the date when the cause of action arose but rather the date when the debt should have been
paid’: Cummings v London Bullion Co Ltd [1952] 1 KB 327 at 336. The two dates usually coincide but
they may diverge and then the later date may be appropriate.
Likewise with contracts for the sale of goods. Where there is a market in which the injured party can
buy a replacement, the date of non-delivery is usually deemed the appropriate date. But where there is
no such market, a later date may be appropriate. As Oliver J noted in Radford v De Froberville [1978] 1
All ER 33 at 56, the rationale behind this rule lies ‘in the inquiry — at what date could the plaintiff
reasonably have been expected to mitigate the damages by seeking an alternative to performance of
the contractual obligation?’ The role of this rationale can be seen in Asamera Oil Corp Ltd v Sea Oil &
General Co (1978) 89 DLR (3d) 1, a case in which the Supreme Court of Canada had to consider the
principles governing the assessment of damages for failure to return shares that had been lent to the
defendant. Between the time of the breach of the contract of bailment and the trial the market value of
the shares had fluctuated widely. The Supreme Court of Canada held that damages should be assessed
as at the time the plaintiff could reasonably have been expected to be able to replace the shares. Estey
J, at 31, … explained that the determination of the damages should be made on the basis that the
plaintiff ‘ought to have crystallised these damages by the acquisition of replacement shares so as to
minimise the avoidable losses flowing from the deprivation by [the defendant] of [the plaintiff’s]
opportunity to market the … shares. Such share purchases should have taken place within a reasonable
time after the date of breach’.
At the end of 29.31 add the following:
In Hooper v Oates [2013] 3 All ER 211 at 221, in relation to contracts for the sale of land, Lloyd
LJ, speaking for the Court of Appeal, said
[T]he availability of a market is a most relevant factor in relation to the date for assessment of damages
for breach of a contract for the sale of land where the buyer fails or refuses to complete the purchase.
It is hardly ever the case that there is a readily and immediately available market for the sale or
purchase of land, in the sense that the seller can go out into the market on the date of breach, or the
next day, and find a purchaser who can and will proceed to contract at once. That may be possible with
commodities, with listed shares, with freight forward agreements, or with charterparties, for example.
But the sale of land invariably requires time, under the procedures and legislation prevailing in England,
and how long it requires will depend in part on economic circumstances at the time. The definition of
market value itself, to which I have referred above, involves an assumption that the property has been
exposed to the market for a reasonable time, which is likely to be for more than a month and may well
be several months or longer. If the comparison sought to be made is between the contract price and
the market value as at the breach date, then the assessment of that market value, by an expert valuer
on established principles, would have to assume a prior period of marketing, which, by definition, will
not and could not have happened.
Lloyd LJ, at 222-3, continued and said:
It seems to me that the breach date is the right date for assessment of damages only where there is an
immediately available market for the sale of the relevant asset or, in the converse case, for the
purchase of an equivalent asset. This is most unlikely to be the case where the asset in question is land.
If the defaulting party is the buyer, much will depend on what the seller does in response to the breach
… If he resells, the buyer may be able to show that, in so doing, the seller failed to take reasonable
steps to mitigate his loss, for example by taking too long, or failing to follow proper professional advice,
or in some other way. Absent any feature of that kind, the eventual resale price is likely to be the figure
to be set against the contract price for assessment of the damages, not because it represents the
market value at the date of the breach, but because it shows what loss the seller has suffered,
uncomplicated by issues of remoteness or failure to mitigate. If the property market has declined
during that time, it is of no avail for the defaulting buyer to say that this should not be laid at his door. If
he had completed the contract, he would have suffered that decline in value, so this is part of the loss
for which the seller needs to be compensated.
If the vendor does not resell, and takes no steps to do so, then it may be that the date of the breach is
to be taken as relevant, or a date soon after that, when he is shown, or taken, to have decided to retain
the property. In the present case, by contrast, the seller only decided not to resell after taking
reasonable steps to find a buyer. I can see no basis of policy or principle, in such a case, for imposing on
the vendor the value as at the breach date rather than the later date when, after taking steps with a
view to mitigating his loss, he finally decided to retain the property upon the failure of his attempt to
mitigate.
At the end of 29.41 add the following:
In Camellia Properties Pty Ltd v Wesfarmers General Insurance Ltd [2013] NSWSC 1975 at [390],
Sackar J summed up the position here as follows:
In these situations, when the law takes account of future or hypothetical events in assessing damages,
it does so by reference to the degree of probability of events occurring in a range from ‘just above the
speculative’ to ‘just below the certain’: State of New South Wales v Moss (2000) 54 NSWLR 536 at 5534. This process has been described as ‘imprecise’, ‘indeterminate’, ‘speculative’, based on ‘slender
materials’, based on ‘thin evidence’, involving ‘guesswork’, and a matter of ‘prophecy or judicial
guesses’. However, the word ‘guess’ in this context ‘should not be taken as detracting from the
obligation of the judge to adopt a reasoning process that has a rational basis, to the extent that the
evidence presented, and the intrinsic nature of the materials and subject matter under consideration,
permit’: Zorom Enterprises v Zabow (2007) 71 NSWLR 354 at 376.
At the end of 29.88 add the following:
In Tzaneros Investments Pty Limited v Walker Group Constructions Pty Limited [2016] NSWSC 50
at [133]-[137], Ball J offered the following summary of principles relating to betterment:
In determining whether a discount to an award of damages is appropriate on the ground of betterment,
each case must be considered on its own facts. In addition, in considering the facts of a particular case,
the court must have regard to two countervailing policy considerations. On one hand, the court is
concerned not to award to a successful plaintiff a windfall to which he or she is not entitled. On the
other hand, the court takes into account the potential inconvenience that a plaintiff may be placed
under where a discount for betterment is made, by being in effect forced to undertake unplanned
capital expenditure as a result of the defendant’s wrongful conduct.
In Tyco Australia Pty Ltd v Optus Networks Pty [2004] NSWCA 333, Hodgson JA summarised some of the
applicable principles in these terms:
[261] First, if a plaintiff chooses to acquire a more valuable asset than that which had to be
replaced, where the plaintiff could for a lesser expenditure have acquired an asset that
would have been as satisfactory as that replaced, the plaintiff cannot recover more than that
lesser expenditure.
[262] Second, even if there is no alternative available to a plaintiff other than to acquire a
more valuable asset, a plaintiff may have to give credit reflecting the greater value of this
asset to the plaintiff, if there is a benefit to the plaintiff which is not remote in time or
speculative, and which can be quantified ...
[263] Third, where any benefit received by the plaintiff is considered as not truly caused by
the defendant’s conduct and expenditure undertaken in consequence of it (and paid for by
the defendant), but rather considered as being collateral, no credit is given for it.
[264] Fourth, although the plaintiff has the general onus of proof of damages, there can be
legal or at least evidentiary onuses cast on the defendant.
A discount on the ground of betterment is likely to be appropriate where the plaintiff has had
machinery or other property used for a commercial purpose replaced with property of greater
efficiency or productivity, resulting in increased profits for the plaintiff. A discount is also likely to be
appropriate where the replaced or repaired property is a ‘marketable commodity’ that has been or is
likely to be sold in the near future, as this would realise for the benefit of the plaintiff any increase in
value due to the replacement or repair of the damaged or defective property.
On the other hand, if the benefit said to accrue to the plaintiff is not quantifiable, is too remote in time,
or could be considered to be merely speculative, a discount on the ground of betterment is less likely to
be appropriate. In Hyder Consulting (Australia) v Wilh Wilhelmsen Agency [2001] NSWCA 313, a
defective pavement with a life expectancy of twenty years collapsed after four years. In reaching the
decision that a discount for betterment would not be appropriate in that case, Sheller JA[at [55]], said
that it was no more than a ‘speculative proposition that the new pavement might last longer than the
old one would have’.
It may be appropriate for any reduction in damages itself to be adjusted where the benefits that make
the discount appropriate will only become available at some point in the future or are not certain to
eventuate: Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 … at [262]. In that case
Hodgson JA did not consider a discount for betterment appropriate but noted in obiter that even if he
had been, ‘the deduction from damages would have been substantially less than 50%, because the
benefits would have become available between four and eight years in the future, and been less than
100% certain’. In the New Zealand case of J & B Caldwell Ltd v Logan House Retirement Home [1999] 2
NZLR 99 [at 107,]… Fisher J made an adjustment to a discount for betterment to take into account
disadvantages to the plaintiff ‘associated with the involuntary nature of the additional investment’.
At the end of 29.95 add the following:
In relation to situations where it is alleged that the plaintiff’s conduct is alleged to constitute an
intervening event, in Stacey (t/a the New Gailey Caravan/Motorhomes Centre) v Autosleeper
Group Ltd [2014] EWCA Civ 1551 at [14], approved the following summary of principles set out
in the judgment of Gross LJ in Borealis AB v Geogas Trading SA [2011] 1 Lloyd’s LR 482 at [42][47]:
i) Although the legal burden of proof that the breach of contract caused loss rests throughout on the
claimant, there is an evidential burden on the defendant if it contends that there was a break in the
chain of causation.
ii) To break the chain of causation, the intervening conduct of the claimant must be of such impact that
it obliterates the wrongdoing of the claimant in the sense that the claimant's conduct must be the true
cause of the loss rather than the conduct of the defendant. That is because, where the defendant's
conduct remains an effective cause of the loss, at least ordinarily the chain of causation will not be
broken.
iii) It is difficult to conceive of anything less than unreasonable conduct on the part of the claimant
breaking the chain.
iv) Even unreasonable conduct will not necessarily break the chain, for example where the defendant's
conduct remains an effective cause.
v) Reckless conduct ordinarily breaks the chain of causation, although there is no general rule that only
reckless conduct will do so.
vi) The claimant's state of knowledge at the time of and following the defendant's breach is likely to be
a factor of great significance.
vii) However it does not follow that actual knowledge of the breach is a pre-requisite of breaking the
chain.
viii) The question of whether there has been a break in the chain is fact sensitive. In a given case the
determination of whether the chain of causation is broken may involve the cumulative effect of a
number of factors which have the effect of removing the wrongdoing sued on as a cause.
ix) Whilst the authorities provide guidance they are not to be read as statutes
In relation to the extent to which the plaintiff’s knowledge of the breach of contract impacts on
whether the plaintiff’s conduct constitutes an intervening event, in County Limited v
Girozentrale Securities [1996] 3 All ER 834 at 857, Hobhouse LJ said:
Where a plaintiff does not know of a defendant’s breach of contract and where he is entitled to rely
upon the defendant having performed his contract, it will only be in the most exceptional
circumstances that conduct of the plaintiff suffices to break the causal relationship between the
defendant's breach and the plaintiff's loss … Conduct which is undertaken without an appreciation of
the existence of the earlier causal factor will normally only suffice to break the causal relationship if the
conduct was reckless. It is the character of reckless conduct that it makes the actual state of knowledge
of that party immaterial.
At the end of 29.133 add the following:
Although Viscount Haldane spoke in terms of mitigation being a duty, this should not be
understood as meaning that the innocent party owes an obligation to the contract breaker to
do so: Chand v Commonwealth Bank of Australia [2015] NSWCA 181 at [180]-[181]. Rather, ‘it is
an aspect of the principle of causation that the contract breaker will not be held to have caused
loss which the claimant could reasonably have avoided’: Bunge SA v Nidera BV [2015] 3 All ER
1082 at 1107.
It is important to keep in mind that the rules relating to mitigation are an expression one
underlying principle. In this respect, in Thai Airways International Public Company Ltd v KI
Holdings Co Ltd [2015] EWHC 1250 (Comm) at [33], Leggatt J said:
Whilst distinguishing these rules may sometimes be useful, it is important not to lose sight of their
underlying unity … [T]he essential purpose of the mitigation rules is to identify, in the light of what the
claimant has done or not done to avoid loss resulting from the defendant’s breach of contract or other
legal wrong, which costs and benefits accruing to the claimant are to be treated as consequences of the
defendant’s wrong and which are to be treated as caused by the claimant’s own action or inaction. The
basic test which the doctrine of mitigation involves is whether the claimant has acted reasonably in
response to the defendant's wrong. Insofar as the claimant has acted reasonably, costs and benefits
accruing to the claimant are included in the calculation of damages. Insofar as the claimant has not
acted reasonably, the claimant's damages are assessed as if it had.
At the end of 29.139 add the following:
In Heugh v Central Petroleum Ltd (No 5) [2014] WASC 311 at [131], Le Miere J cited Yetton v
Eastwoods Froy Ltd as authority for the proposition that, in an employment contract, [t]he duty
to act reasonably to mitigate damage does not generally require the employee to take
employment with a level of remuneration or status less than previously enjoyed by the
dismissed employee’.
At the end of 29.161 add the following:
In reaching that conclusion, Hope JA, at 154, said that a court was not obliged to assess
damages by reference to ‘an improbable factual hypothesis’ and that it had to have regard to
the facts of the case to determine whether the repudiating party, if it had not repudiated,
would have exercised its lawful right of termination. His Honour, at 156, then went on to say
the following:
In some cases, the evidence may be silent as to whether the defendant would have exercised the
option apparently favourable to himself; in other cases, although not silent, the evidence may not
justify a finding that the defendant would not have exercised it. In these cases it can be said that it is a
natural inference from the terms of the contract that the defendant would have exercised that option
which in terms benefits him. It is not a natural inference when the facts point to the opposite
conclusion. In my opinion, consistently with the many authorities which establish that regard can be
had to evidence of facts between the time when a cause of action arises and the time of trial in order to
produce certainty where there would otherwise be uncertainty, the general preference of the law for
fact rather than hypothesis is applicable to the principle under consideration. That principle does not
require the assessment of damages to be based on a fiction in disregard of the actual facts.
CHAPTER 30
At the end of 30.4 add the following:
In Birdanco Nominees Pty Ltd v Money (2012) 36 VR 341 at 358, Robson AJA, speaking for a
unanimous Court of Appeal said:
A liquidated damages clause is recognised at law as a useful and practical means of determining the
consequences of a breach of contract, makes good commercial sense, and avoids the difficulties of
proof and the trouble of litigation.
At the end of 30.10 add the following:
In the light of the High Court decision in Andrews v Australia and New Zealand Banking Group
Ltd, in Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd [2014] VSCA 32 at [43], the Victorian
Court of Appeal said:
[W]here it is sought to secure the performance of a condition and, instead of exacting a promise from
the obligor to perform the condition, the obligee exacts a promise from the obligor to pay a sum of
money (or perhaps to convey property) if the condition not be performed, the promise is properly to be
viewed as a security for the satisfaction of the condition and so, therefore, if the sum of money (or
conveyance) is excessive and unconscionable, may now be treated as penal.
In 30.23 delete points (iii) and replace with the following:
(iii)
A clause will be a penalty if the sum stipulated ‘is extravagant and unconscionable in
amount in comparison with the greatest loss that could conceivably be proved to have
followed from the breach’. In AMEV-UDC Finance v Austin, at CLR 190; ALR 199, it was
said that a clause would be a penalty if the sum stipulated was ‘out of all proportion to
damage likely to be suffered as a result of the breach’. More recently, in Ringrow v BP
Australia, at CLR 669; ALR 312, the High Court said that what was required was ‘a
“degree of disproportion” sufficient to point to oppressiveness’.
In Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50 at
[103], Allsop CJ said the following with references to the expressions used by judges to
indicate when a penalty exists:
Care must be taken not to dwell on the words of expression used by judges in cases as if they
were statutes. It is essential to keep in mind and distinguish the object and purpose of the
doctrine of penalties (the prevention or limitation of oppressive or unconscionable terms) and
the means of prevention or limitation (the leaving of the obligee to an action in damages). The
object and purpose of the doctrine of penalties is vindicated if one considers whether the
agreed sum is commensurate with the interest protected by the bargain. This is not to say that
the enquiry is unconnected with recoverable damages; but the question of extravagance and
unconscionability by reference, as Lord Dunedin said in Dunlop, to the greatest loss that could
conceivably be proved to have followed from the breach, is to be understood as reflecting the
obligee’s interest in the due performance of the obligation. One only needs to reflect on the
facts of Dunlop and the justification for the payment that was found to be legitimate to
appreciate these matters.
When making the comparison between the amount stipulated in the clause and the
likely loss to be suffered by the plaintiff, a court should not compare the actual loss
occasioned by breach and the amount provided for in the contract. Rather, the question
is whether, at the date of the contact, the amount stipulated was out of all proportion
to the likely loss to be suffered: Zachariadis v Allforks Pty Ltd at 79.
In more recent times the case law indicates that even if the sum stipulated in the clause
is excessive it will not be a penalty if there is some proper commercial justification for it.
In Makdessi v Cavendish Square Holdings BV at [125], Christopher Clarke LJ put this
principle as follows:
‘Extravagant’ and ‘unconscionable’ were terms originally used to characterise a provision which
required far too high a payment in the event of breach. That it did so offended the conscience
of equity, which treated it as penal – because its function was not to compensate but to deter
breaches of obligations - and unenforceable (save as to the amount of the proved damage).
Nowadays, when a term which provides for excessive payment on breach may be valid if it has
a proper commercial justification, the term ‘unconscionable’ would, perhaps more
appropriately be used for a clause which provides for extravagant payment without sufficient
commercial justification. Such a clause is likely to be regarded as penal and deterrence its
predominate function, on the basis that if it requires excessive payment and lacks commercial
justification for doing so, there is little room for any conclusion other than its function is to
deter breach or, to put it positively, to secure performance.
In 30.23 delete points (v) and replace with the following:
(v)
There is a rebuttable presumption that the clause is a penalty if it stipulates that the
same sum is to be paid for ‘on the occurrence of one or more of several events, some of
which may occasion serious and others but trifling damage’. This point was further
clarified in Dunlop at 98, by Lord Parker of Waddington who observed that the
presumption applied in cases where the losses suffered as a result of the breaches is not
of the same kind. Where the losses from the breaches are of the same kind, the fact that
the extent of the losses vary from breach to breach does not raise the inference that the
clause is a penalty. For example, an agreed damages clause in relation to a nonsolicitation of trade customers clause would not invoke the presumption simply because
it may result in varying degrees of actual damage because such damage would be of the
same kind: Paciocco v Australia and New Zealand Banking Group Limited at [128].
Furthermore, the presumption will be ‘rebutted by the fact that the very damage
caused by each of the events, however varying in importance, might be of such an
uncertain nature that it could not accurately be ascertained’: Makdessi v Cavendish
Square Holdings BV at [63]. On the other hand where the agreed damages clause
stipulates the same sum for breaches of a variety of obligations with differing degrees of
importance, the clause will be a penalty: Paciocco v Australia and New Zealand Banking
Group Limited at [126]-[127].
At the end of 30.25 add the following:
In Parkingeye Ltd v Beavis [2015] EWCA Civ 402, a contract for parking a car in a parking station,
operated by Parkingeye, stipulated that the for first two hours of parking one’s car no charge
was payable, but if a customer overstayed the customer was liable to pay a charge of £85,
although the charge would be reduced to £50 if it that sum was promptly paid. An issue before
the court was whether the payment charge was a penalty. It was recognised that the
Parkingeye did not suffered any damage as a result of an overstay by Beavis who was the
customer in this case. It was also recognised that in this case the imposition of the charge was
penal in nature and had a deterrent purpose of encouraging customers not to park their cars at
the parking station for more than two hours. However, the Court of Appeal unanimously held
that the clause imposing the charge was not a penalty. In coming to that conclusion, MooreBick LJ at [27] said:
[T]he fact that the contract provides for the payment on breach of a sum which significantly exceeds
the greatest loss that the law would recognise as having been suffered by the injured party is in most
circumstances a strong indication that the bargain is extravagant and unconscionable, but other factors
may be present which rob the bargain of that character. Those factors may be of a commercial nature
… but I see no reason in principle why other factors should not be capable of leading to the same
conclusion. In the present case it is possible to present the charges … as commercially justifiable, but in
truth they are justified by a combination of factors, social as well as commercial. In the commercial
context a ‘dominant purpose of deterrence’ has been equated to extravagance and unconscionability,
but in another context that need not be the case.
In relation to the commercial justification for the parking charge, Sir Timothy Lloyd, at [45] and
[49] said:
The operator affords the driver a free facility. That facility is, of course, of economic value to the driver,
as well as of convenience, in assisting the driver to visit the shops in the shopping centre which the car
park serves. It is thus useful to the driver, being close to the shops, and free. It is also useful to the
shopkeepers, in encouraging visitors, and in particular in encouraging a turnover of visitors because of
the two hour limit. A car owner cannot simply come to the car park and park there all day. To do that
would be to clog up the facility and to prevent those arriving later from using the park for its intended
purpose … In a case such as the present … for the law to prohibit a provision such as the overstaying
charge, on the basis that it bears no relationship to the loss (if any) suffered by the car park operator
would fail to take account of the nature of the contract, with its gratuitous but valuable benefit of two
hours' free parking, and of the entirely legitimate reason for limiting that facility to a two hour period.
The Court of Appeal decision in this case was affirmed by the United Kingdom Supreme Court
(Lords Neuberger, Mance, Clarke, Sumption, Carnworth and Hodge; Lord Toulson dissenting) in
Cavendish Square Holding BV v Talal El Makdessi [2015] 3 WLR 1373. In confirming the decision
of the Court of Appeal, Lord Neuberger and Lord Sumption (Lord Carnworth agreeing), at 1414,
said:
[T]he £85 charge had two main objects. One was to manage the efficient use of parking space in the
interests of the retail outlets, and of the users of those outlets who wish to find spaces in which to park
their cars. This was to be achieved by deterring commuters or other long-stay motorists from occupying
parking spaces for long periods or engaging in other inconsiderate parking practices, thereby reducing
the space available to other members of the public, in particular the customers of the retail outlets. The
other purpose was to provide an income stream to enable ParkingEye to meet the costs of operating
the scheme and make a profit from its services, without which those services would not be available.
These two objectives appear to us to be perfectly reasonable in themselves. Subject to the penalty rule,
… the imposition of a charge to deter overstayers is a reasonable mode of achieving them. Indeed, once
it is resolved to allow up to two hours free parking, it is difficult to see how else those objectives could
be achieved. In our opinion, while the penalty rule is plainly engaged, the £85 charge is not a penalty.
The reason is that although ParkingEye was not liable to suffer loss as a result of overstaying motorists,
it had a legitimate interest in charging them which extended beyond the recovery of any loss.
Furthermore, the Supreme Court unanimously rejected a submission that the penalties doctrine
should be abolished. In this respect, Lord Neuberger and Lord Sumption (Lord Carnworth
agreeing), at 1394-5, said:
[It was submitted to this court] that the penalty rule should now be regarded as antiquated, anomalous
and unnecessary, especially in the light of the growing importance of statutory regulation in this field …
There is a case to be made for taking this course … We rather doubt that the courts would have
invented the rule today if their predecessors had not done so three centuries ago. But this is not the
way in which English law develops, and we do not consider that judicial abolition would be a proper
course for this court to take. The first point to be made is that the penalty rule is not only a longstanding principle of English law, but is common to almost all major systems of law, at any rate in the
western world … Further, although there are justified criticisms that can be made of the penalty rule, it
is consistent with other well-established principles which have been developed by judges (albeit mostly
in the Chancery courts) and which involve the court in declining to give full force to contractual
provisions, such as relief from forfeiture, the equity of redemption, and refusal to grant specific
performance … Finally, the case for abolishing the rule depends heavily on anomalies in the operation
of the law as it has traditionally been understood. Many, though not all of these are better addressed (i)
by a realistic appraisal of the substance of contractual provisions operating upon breach, and (ii) by
taking a more principled approach to the interests that may properly be protected by the terms of the
parties’ agreement.
At the end of 30.40 add the following:
It can also be noted that in the United Kingdom it has been held that Lowe v Hope was wrongly
decided on this point: Hardy v Griffiths [2014] EWHC 3947 (Ch) at [109].
At the start of 30.50 insert the following:
In Meriton Apartments Pty Limited v The Owners of Strata Plan No 72381 [2015] NSWSC 202 at
[334], Slattery J described the cooperation qualification as follows:
[T]he co-operation limitation means that if repudiating party has agreed to pay a contractual sum as
the agreed return for the innocent party’s performance of the contract but the provision of which
performance still requires the repudiating party’s co-operation, a refusal by the repudiating party to cooperate will nevertheless prevent the innocent party from earning the contract price unless the
innocent party obtains an order for specific performance.
CHAPTER 34
At the end of 34.4 add the following:
Accordingly, courts will be very careful before ordering rectification: Russell v RCR Tomlinson
Ltd [2012] WASC 405 at [61].
However, as was noted by Sackar J in W & K Holdings (NSW) Pty Ltd v Lauren Margaret Mayo
[2013] NSWSC 1063 at [66], ‘the requirement for “convincing proof” does not alter the civil
standard of proof on the balance of probabilities’. In this respect, in Thomas Bates & Son Ltd v
Wyndham’s (Lingerie) Ltd [1981] 1 All ER 1077 at 1090, Brightman LJ said:
The standard of proof required in an action of rectification to establish the common intention of the
parties is, in my view, the civil standard of balance of probability. But as the alleged common intention
ex hypothesi contradicts the written instrument, convincing proof is required in order to counteract the
cogent evidence of the parties’ intention displayed by the instrument itself. It is not, I think, the
standard of proof which is high, so differing from the normal civil standard, but the evidential
requirement needed to counteract the inherent probability that the written instrument truly represents
the parties’ intention because it is a document signed by the parties.
At the end of 34.7 add the following:
Similarly, in Westpac Banking Corporation v Newey [2013] NSWSC 847 at [39], Pembroke J said:
Rectification merely reforms the language of the instrument where it is necessary to do so because the
words have been written down incorrectly. Many contracts are ambiguous. Rectification is not
concerned with curing ambiguity. Its object is different and more prosaic - limited to correcting the
language of the instrument.
At the end of 34.8 add the following:
On the issue of when a case is one of construction as opposed to rectification, in W & K
Holdings (NSW) Pty Ltd v Lauren Margaret Mayo at [50]-[51], Sackar J said:
Although there is clearly a conceptual similarity, and perhaps an overlap, between correction by
construction and the doctrine of rectification, there is a difference in their respective scopes of
application … [A] common view is that the dividing line between cases where correction by construction
is available and where only correction by rectification is available, is to be drawn on the basis of
whether the party seeking the correction is seeking to rely on prior negotiations between the parties,
the actual or subjective intentions of the parties or parol evidence or on whether the ‘error’ calling for
correction is so obvious simply from the face of the document … That would appear to be consistent
with Mason J’s comments in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR
337 at 352:
The object of the parole evidence rule is to exclude them, the prior oral agreement of the
parties being inadmissible in aid of construction, though admissible in an action for
rectification.
The difference between the scope of operation of correction by construction and correction by
rectification is perhaps more important in Australian than English contract law, given the narrower
Australian view as to the permissibility of extrinsic material for the purposes of construction (Cordon
Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [52]; … Western Export Services
Inc v Jireh International Pty Ltd (2011) 282 ALR 604; cf Charterbrook Ltd v Persimmon Homes Ltd [2009]
1 AC 1101 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR
896). [See 12.13-12.29.]
On the other hand, an entire agreement clause will not preclude the granting of the remedy of
rectification. In Westpac Banking Corporation v Newey at [42], Pembroke J said:
I do not think that the presence of such a clause is determinative of either the construction issue or the
rectification issue. It is not a bar to rectification although in certain cases it may be a factor. I doubt that
an entire agreement clause does more than indicate that the parties intended, as they usually do, that
their agreement is to be found in the language they have chosen, and not outside of it. But that is not
an answer to a rectification claim - which involves a search for an underlying intention that is not
accurately reflected in the chosen words.
At the end of 34.12 add the following:
In Daventry District Council v Daventry & District Housing Ltd [2012] 1 WLR 1333 at [85]-[89],
Etherton LJ (Lord Neuberger MR agreeing) set out the policy justifications for the objective
approach as follows:
By way of reinforcement of those points, it may be helpful to consider the policy considerations
justifying the intervention of equity by rectification for mutual mistake of a contract binding on the
parties at common law. There are primarily four factual situations to consider. The first one is where
the parties subjectively and objectively (that is to say in their communications passing between them—
or ‘crossing the line’) are in agreement but the formal documentation as executed fails to give effect to
that prior agreement. The documentation should be rectified to bring it into line (retrospectively) with
their prior accord. Subject to such matters as delay and prejudice to any third party interests, there is
no good reason not to do so.
The second scenario is where the parties never subjectively had the same intention, but the
communications crossing the line show that objectively there was a common continuing intention at all
relevant times prior to the execution of the final documentation, and the formal documentation
reflected those prior communications. In that situation, whether or not rectified, one or other of the
parties will be bound by a contract which they did not subjectively intend to enter into. It is right that
the claimant should not be entitled to rectification to bring the documentation into line with a
subjective intention and belief that was never communicated to the defendant and to which the
defendant never agreed.
The third scenario is where there was objectively a prior accord, but one of the parties then subjectively
changed their mind, but objectively did not bring that change of mind to the attention of the other
party. It is right that, if the documentation gives effect to the objective prior accord, the formal
documentation should not be rectified to reflect the changed but uncommunicated subjective
intention; and if the documentation as executed reflects the changed but uncommunicated subjective
intention, it should be rectified to give effect to the objective prior accord. To do otherwise would be to
force on one of the parties a contract which they never intended to make on the basis of an
uncommunicated intention and belief.
The fourth scenario is where there was objectively a prior accord (whether or not a subjective common
intention), and one of the parties then objectively changed their mind, that is to say objectively made
apparent to the other party that they intended to enter into the transaction on different terms. Leaving
aside rectification for unilateral mistake (the requirements for which are quite different), it is right that,
if the documentation as executed gives effect to the objectively indicated change of mind, a claim for
rectification to give effect to the earlier prior accord should be refused. Once again, to do otherwise
would force on the defendant a contract which they never intended to make on the basis of the
claimant’s uncommunicated subjective intention to enter into a contract on the basis of the original
accord notwithstanding the defendant’s objectively communicated change of mind.
That analysis shows why it is good policy to favour objective accord or objective change of accord over
subjective belief and intention in cases of rectification for mutual mistake.
At the end of the first sentence in 34.14 insert the following:
In Ryledar Pty Ltd v Euphoric Pty Ltd at 658-68, after an analysis of relevant authorities,
Campbell JA concluded that an outward expression of common intention is required, but that is
can be satisfied in various ways, including direct or indirect statements by the parties, a process
of conscious and deliberate inference, or in particular contexts, the existence of specific
practices and conventions.
At the end of the first sentence in 34.17 insert the following:
In W & K Holdings (NSW) Pty Ltd v Lauren Margaret Mayo at [98], Sackar J said:
There needs to be evidence not only of the effect which the parties intended to achieve, but also of the
precise method by which the parties intend that effect to be achieved, in order to enable the court to
have an evidentiary basis for formulating the terms of the order for rectification.
At the end of the first sentence in 34.18 insert the following:
Thus, in Franknelly Nominees Pty Ltd v Abrugiato at [179], Buss JA, speaking for a unanimous
Court of Appeal, said:
[R]ectification will not be available where the parties are merely mistaken as to the consequences of, or
the advantages to be gained by, a contract or transaction recorded in an instrument. That is, equity will
not grant rectification where a mistake by the parties relates only to the expected consequences or
advantages of a contract or transaction, and not to the expression in the instrument of what the parties
actually agreed or intended.
CHAPTER 36
At the end of the third sentence in 36.15 insert the following:
Unlike contract, promissory estoppel does not look forward. Rather it ‘looks backwards from
the moment when the promise falls due to be performed and asks whether, in the
circumstances which have actually happened, it would be [unconscientious] for the promise not
to be kept’: Waddell v Waddell [2012] NSWCA 214 at [54].
Delete 36.32-36.37 and replace with the following:
To establish a case based upon principles of equitable estoppel, there needs to be a promise or
a sufficiently clear and unambiguous representation. In Low v Bouverie[1891] 3 Ch 82 at 106,
Bowen LJ said:
[T]he language upon which the estoppel is founded, must be precise and unambiguous. That does not
necessarily mean that the language must be such that it cannot possibly be open to different
constructions, but that it must be such as will be reasonably understood in a particular sense by the
person to whom it is addressed.
The promise or representation can be either express or implied. In Legione v Hateley(1983) 152
CLR 438–9; 46 ALR 1 at 23–4, Mason and Deane JJ said:
The requirement that a representation as to existing fact or future conduct must be clear … does not
mean that the representation must be express. Such a clear representation may properly be seen as
implied by the words used or to be adduced from either the failure to speak where there was a duty to
speak or from conduct. Nor is it necessary that a representation be clear in its entirety. It will suffice if
so much of the representation as is necessary to found the propounded estoppel satisfies the
requirement.
However, there can be no promise or representation by mere silence during pre-contractual
negotiations: Blackley Investments Pty Ltd v Burnie City Council (No 2) (2011) 21 Tas R 98 at
111–2.
The rationale for this requirement of clarity stems from the fact that equitable estoppel is
founded on the principle of unconscientiousness and unconscientiousness is difficult to
establish if the representation is ambiguous or unclear: Blackley Investments Pty Ltd v Burnie
City Council (No 2) (2011) 21 Tas R 98 at 111–2.
The critical question with respect to the clarity of the representation is whether different
standards of clarity or certainty apply in relation to promissory estoppel, on the one hand, and
proprietary estoppel, on the other.
In Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1 at 310; 270
FLR 1 at 308, Drummond AJA expressed the view that a higher standard of clarity was necessary
in cases of promissory estoppel. His Honour stated that ambiguity or lack of clarity will be fatal
to any promissory estoppel case. However, this was not necessarily so in proprietary estoppel
cases, where ‘vague and imprecise conduct is often enough to give rise to an equitable
proprietary estoppel’. His Honour, at WAR 311; FLR 1, observed that this was so because, unlike
promissory estoppel cases, proprietary estoppel cases ‘do not depend on proof of clear
representations or promises but on conduct with respect to property of the parties said to be
estopped that is often diffuse and ambiguous, but which is sufficient, in the circumstances of
the particular case, to attract the intervention of equity’.
Drummond AJA’s views on promissory estoppel are seemingly echoed in Closegate Hotel
Development (Durham) Ltd v McLean[2013] EWHC 3237 (Ch) at [57], where Richard Snowden
QC, after an analysis of relevant English cases on the matter, said:
[I]t seems to me that the weight of authority is to the effect that for a plea of promissory estoppel to
succeed, there must have been a clear and unequivocal statement; and that if ambiguous words were
used which could reasonably be interpreted in several ways (one of which would not support the
alleged estoppel) then those words will not found an estoppel unless the representee seeks and obtains
clarification of the statement.
A similar view to that of Drummond AJA was taken by Keane J in Crown Melbourne Ltd v
Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26. In that case His Honour, at [147], expressed the
view that the test of clarity in promissory estoppel cases ‘should be no less … than would be
required for an effective contractual variation’. His Honour, at [153], justified this view as
follows:
Observance of this limit on the operation of estoppel in equity ensures that it is not allowed to operate
to underwrite unrealistic expectations or wishful thinking. Such an operation would be especially
pernicious in a commercial context; but even in a non-commercial context estoppel should not be
allowed to operate as an instrument of injustice.
On the other hand, in Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd, Nettle J, at
[211], took a contrary view when he said that ‘[t]he notion that it takes a representation of
contractual certainty to found a promissory estoppel is misplaced’. His Honour, at [215], was of
the view that the test of certainty is the same for both promissory estoppel and proprietary
estoppel. His Honour, at [217], justified his view as follows:
The foundational principle on which equitable estoppel in all its forms is grounded is that equity will not
permit an unjust or unconscionable departure by a party from an assumption or expectation of fact or
law, present or future, which that party has caused another party to adopt for the purpose of their legal
relations. Consequently, the notion that there is or should be some a priori distinction between the
degree of objective certainty required to found a promissory estoppel compared to a proprietary
estoppel runs counter to principle. … [I]n as much as the recognised categories of equitable estoppel
are instances of the operation of the more general foundational principle, the determination of
whether it is unconscionable for the charged party to depart from an assumption or expectation
created in the mind of the claimant must always depend on the particular facts and circumstances of
the case.
Although there is a divergence of views on the test for clarity or certainty of a representation in
the context of promissory estoppel, there is agreement that in cases of proprietary estoppel,
the test is less than that that is required for contract formation or variation. Thus, in the context
of a proprietary estoppel case, in Sullivan v Sullivan [2006] NSWCA 312 at [84]–[85], Hodgson JA
said:
It has been said that in some respects at least more certainty is required for an estoppel than for a
contractual variation; but it is also the case that a promise or representation may support an estoppel
even though it is not sufficiently certain to operate as a contract. Generally, a promise or
representation will be sufficiently certain to support an estoppel if it was reasonable for the
representee to interpret the representation or promise in a particular way and to act in reliance on that
interpretation, thereby suffering detriment if the representor departs from what was represented or
promised. Generally, if there is a grey area in what is represented or promised, but it was reasonable
for the representee to interpret it as extending at least to the lower limit of the grey area and to act in
reliance on it as so understood, I see no reason why the Court should not regard the representation or
promise as sufficiently certain up to this lower limit.
In proprietary estoppel cases, whether the relevant representation is sufficiently clear and
unambiguous is, as Lord Walker of Gestingthorpe observed in Thorner v Major (2009) 3 All ER
945 at 964, ‘hugely dependent on context’. In that case, in the context of a family relationship,
an expectation generated by somewhat oblique remarks was sufficiently clear and certain to
establish a proprietary estoppel claim. However, in Saravinovksa v Saravinovski (No 6) [2016]
NSWSC 964 at [331], Kunc J held, in the circumstances of that case, that ‘a representation that ‘I
am going to give you one of my properties’, rather than referring to a specific and identifiable
property, was not sufficiently clear and unequivocal to support an estoppel claim. The result
might be different if the identity of the property was objectively ascertainable from other facts’.
At the end of 36.40 add the following:
On the other hand, in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 735
Campbell JA said that the first requirement, insofar as it relates to an expected future legal
relationship, involved an expectation ‘that, at the time of the events alleged to give rise to the
estoppel, the plaintiff expected that a particular legal relationship would in future exist with the
defendant and, at that time, the plaintiff also expected that the defendant would not be free to
withdraw from the expected legal relationship’.
At the end of 36.48 add the following:
In relation to whether, in cases of proprietary estoppel by encouragement (see 12.18-12.19),
the relying party has suffered detriment in reliance on the representation, in Flinn v Flinn at
749, Brooking JA said that ‘it would be remarkable if that [representation] was not, to say the
least, an inducement, and this is all that is necessary’. In Van Dyke v Sidhu [2013] NSWCA 198 at
[83]-[84], Barrett JA referred to this as giving rise to a ‘presumption of reliance’ with the
consequence that:
[w]here inducement by the [representation] may be inferred from the [the relying party’s] conduct …
the onus or burden of proof shifts to the [representor] to establish that the [relying party] did not rely
on the [representation]. It [is] therefore for [representor] to rebut that presumption and establish that
the [relying party] did not rely at all on the [representation] in acting or refraining from acting to [its]
detriment.
In relation to rebutting the presumption of reliance, Barrett JA, at [94], cited with approval
Spence’s book, Protecting Reliance30 in which the author states that the presumption will be
rebutted if the representor shows:
(i) that it was impossible for the other party to adopt any course of action or inaction than that which
he did adopt, or (ii) that it is improbable that the other party would have adopted a different course to
that which he did adopt.
However, in Sidhu v Van Dyke [2014] HCA 19 the high Court unanimously rejected the idea of a
resumption of reliance and held that the onus of proof was on the representee to establish
reliance. French CJ, Kiefel, Bell and Keane JJ, at [58], said:
In point of principle, to speak of deploying a presumption of reliance in the context of equitable
estoppel is to fail to recognise that it is the conduct of the representee induced by the representor
which is the very foundation for equitable intervention. Reliance is a fact to be found; it is not to be
imputed on the basis of evidence which falls short of proof of the fact.
At the end of 36.55 add the following:
In Ashton v Pratt [2015] NSWCA 12 at [147], Bathurst CJ observed that the detriment must be
‘substantial although it need not be quantifiable in the same was as an order for damages’.
At the end of 36.66 add the following:
In Sidhu v Van Dyke [2014] HCA 19 at [77], French CJ, Kiefel, Bell and Keane JJ, referred to this
statement in Donis v Donis when they said:
This category of equitable estoppel serves to vindicate the expectations of the representee against a
party who seeks unconscionably to resile from an expectation he or she has created.
30
. M Spence, Protecting Reliance: The Emergent Doctrine of Equitable Estoppel, Federation Press, Sydney, 1999, p
43.
CHAPTER 37
At the end of 37.10 add the following:
As noted at 37.14, the motive of the representor is not relevant. This means that ‘an intention
to influence the mind of the representee must be shown if the requisite dishonest intention is
to be established. In other words, the claimant has to demonstrate an intention to deceive’:
Gabriel v Little [2013] EWCA Civ 1513 at [33]. Thus, in Bradford Building Society v Borders [1941]
2 All ER 205 at 220, Lord Wright said:
Fraud involves deliberate intent, which is called mens rea. Nothing short of the wicked or guilty mind
will serve, as this House held in most striking circumstances in Derry v. Peek, where the statement
complained of was, to the knowledge of the directors, not true in fact, but they mistakenly thought that
it was as good as true, whereas events completely falsified their expectation, to the damage of the
plaintiffs. However, the directors were held not to be liable, because they were innocent of any
intention to deceive.
At the end of 37.16 add the following:
To similar effect, in the High Court in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992)
110 ALR 449 at 450-1, Mason CJ, Brennan, Deane and Gaudron JJ said:
The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is
proof on the balance of probabilities. That remains so even where the matter to be proved involves
criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact
or facts on the balance of probabilities may vary according to the nature of what it is sought to prove.
Thus, authoritative statements have often been made to the effect that clearor cogent or strict proof is
necessary ‘where so serious a matter as fraud is to be found’: Rejfek v McElroy (1965) 112 CLR 517 at
521. Statements to that effect should not, however, be understood as directed to the standard of
proof. Rather, they should be understood as merely reflecting a conventional perception that members
of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a
court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has
been guilty of such conduct.
At the end of 37.21 add the following:
In Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 at 252,
Brennan CJ stated:
But, in every case, it is necessary for the plaintiff to allege and prove that the defendant knew or ought
reasonably to have known that the information or advice would be communicated to the plaintiff,
either individually or as a member of an identified class, that the information or advice would be so
communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of
the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter
into such a transaction in reliance on the information or advice and thereby risk the incurring of
economic loss if the statement should be untrue or the advice should be unsound. If any of these
elements be wanting, the plaintiff fails to establish that the defendant owed the plaintiff a duty to use
reasonable care in making the statement or giving the advice.
In ABN AMRO Bank NV v Bathurst Regional Council (2014) 309 ALR 445 at 556-8, the Full Court
of the Federal Court set out the following summary of principles:
[T]he applicable principles may be summarised as follows. First, for there to be a duty to exercise
reasonable care in making a statement or giving advice:
1.
The speaker must realise, or the circumstances must be such that the speaker ought to
have realised, that the recipient of the information or advice intends to act on that
information or advice in connection with some matter of business or serious consequence;
and
2.
The circumstances must be such that it is reasonable in all the circumstances for the
recipient to seek, or to accept, and to rely upon the utterance of the speaker.
In respect of the second limb, the nature of the subject matter, the occasion of the interchange, and
the identity and relative position of the parties as regards knowledge (actual or potential) and relevant
capacity to form or exercise judgment will all be included in the factors which will determine the
reasonableness of the acceptance of, and of the reliance by the recipient upon, the words of the
speaker: Tepko Pty Limited v Water Board (2001) 206 CLR 1 at 16-17. It is important to recognise that
the list is not exhaustive.
Second, proof of the criteria [set out] above establishes an assumption of responsibility or known
reliance (or the converse, vulnerability), sufficient for a duty to be imposed.
Additional, but related, points about the criteria [set out above] should be noted. A duty of care is
imposed whether the information or advice is given in response to a request or volunteered.
Further, a duty is also imposed where the information and advice is communicated to an identifiable
class of people if the criteria identified in Tepko are established. It is not necessary that the person
making the statement know the identity of the persons who may rely on it and suffer loss ... Next, the
fact that the person making the statement or giving the advice has some special expertise is consistent
with (although not always necessary for) the imposition of the duty ...
[C]entral to the analysis required by the identified criteria is the purpose for which the statement is
made or the advice is given. A recipient of information or advice is owed a duty by the speaker if (a)
that recipient is part of a class to whom the statement or advice is directed and (b) reliance on the
statement or advice by a member of the class is consistent with the substance of the purpose for which
the statement is made or advice given.
At the end of 37.23 add the following:
In Cramaso LLP v Ogilvie-Grant [2014] 2 WLR 317, Ogilvie-Grant and others were the owners of
a grouse moor, over which commercial shooting took place. The owners discussed the terms of
a lease of the moor with Erskine. In answer to Erskine’s concerns about the number of grouse
on the moor the owners sent Erskine an email with information about grouse counts and the
estimated population. Erskine decided to proceed with the lease. Subsequently Erskine
discovered that the grouse population was less than had been stated by the owners. The
Supreme Court held that the owners’ statement in the email constituted a negligent
misstatement.
At the end of 37.31 add the following:
In relation to this issue, as a result of the unanimous Court of Appeal decision in Wellesley
Partners LLP v Withers LLP [2015] EWCA Civ 1146, the law in England has been resolved in
favour of the second option, that is, that the contract rules of remoteness should apply in cases
of concurrent liability. In this case, Floyd LJ, at [80], said this approach was justified because
‘the parties have the opportunity to draw special circumstances to each other’s attention at the
time of formation of the contract’.
CHAPTER 38
At the end of 38.10 add the following:
In Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd (No 3) [2014] WASC 162 at [50][51], Edelman J summarised the position as follows:
The concept of unjust enrichment is, in Australia, limited to [a] taxonomic function. It has been
emphasised on numerous occasions that unjust enrichment is not a ‘definitive legal principle’, and does
not supply ‘a sufficient premise for direct application in a particular case’; Australian Financial Services
and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14 at [73]. In this sense, unjust enrichment is not
the direct basis of restitutionary relief in Australian law. A comparison might be drawn with the
category of torts. A plaintiff cannot plead that a defendant is liable for having committed a ‘tort’. ‘Torts’
describes the category not the action (which might be assault, battery, conversion etc). At an even
higher level of theory, the ultimate basis of restitutionary liability was expressed by the joint judgment
in Australian Financial Services as depending upon whether retention is against ‘conscience’: Australian
Financial Services and Leasing Pty Ltd v Hills Industries Ltd at [65]-[76]. Their Honours explained that
‘conscience’ does not invite subjective evaluation. Instead, it is ‘a construct of values and standards
against which the conduct of “suitors” – not only defendants – is to be judged’: Australian Financial
Services and Leasing Pty Ltd v Hills Industries Ltd at [76].
Provided that unjust enrichment is not applied as a direct source of liability, in Australia the taxonomic
category of unjust enrichment has served a useful function and might continue to do so. Like the
category of ‘torts’ the category of unjust enrichment assists in understanding even though it is not a
direct source of liability. The category directs attention to a common legal foundation shared by a
number of instances of liability formerly concealed within the forms of action or within bills in equity.
At the end of 38.14 add the following:
In Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd (No 3) [2014] WASC 162 at [54][55], Edelman J said:
The boundaries of what will count as an unjust factor are not fixed. Examples of unjust factors were
given by Lord Mansfield in Moses v Macferlan (1760) 97 ER 676 at 681:
money paid by mistake; or on a consideration which happens to fail; or for money got
through imposition, (express, or implied) or extortion; or oppression; or an undue
advantage taken of the plaintiff’s situation.
A quarter of a millennium later, although it is well established that liability in the ‘taxonomic’ category
of unjust enrichment requires the existence of an ‘unjust factor’, there is only limited judicial
recognition of unjust factors beyond those in this list. The first fundamental objection in this application
concerns one possible additional unjust factor which has been described as ‘free acceptance’. The
second fundamental objection concerns the boundaries of operation of the unjust factor of failure of
consideration. No submissions were made, nor was there any suggestion, alleging any fundamental
objection concerning the ground of restitution which relied upon express or implied request.
His Honour, at [58]-[90], then discussed the controversial issue of whether the so-called free
acceptance principle came within the category of unjust factors and came to the conclusion
that it was. The free acceptance principle has been defined as follows:
[A defendant] will be held to have benefited from the services rendered if he, as a reasonable man,
should have known that the claimant who rendered the services expected to be paid for them, and yet
did not take a reasonable opportunity open to him to reject the proffered services. Moreover, in such a
case, he cannot deny that he has been unjustly enriched: C Mitchell, P Mitchell & S Watterson (eds),
Goff & Jones, The Law of Unjust Enrichment, 8th ed, 2011, pp 453-4.
At the end of 38.42 add the following:
The facts of Baltic Shipping Co Ltd v Dillon provide a context in which one can appreciate the
difficulty of establishing a total failure of consideration. In such a case there will be total failure
of consideration if the customer did not receive a substantial part of the benefit promised
under the contract. This point was addressed in Luo v Zhai [2015] FCA 350 at [38]-[39], by
Perram J as follows:
What is substantial? We have it in the strength of the result in Baltic Shipping itself that to receive 10
days of a 14 day cruise on the Mikhail Lermontov before it sank off New Zealand did not involve a total
failure of consideration and that Mrs Dillon was not entitled to get her fare back. Mason CJ … thought
the eight days of uninterrupted and presumably serene cruising a sufficient benefit under the contract,
as did Deane and Dawson JJ, Gaudron J and McHugh J. Significant to each Justice was the idea that the
cruise was not to be characterised as a mere transportation contract to carry Mrs Dillon from a point of
embarkation (Sydney) to a point of disembarkation (also Sydney). A significant element in the benefit
bargained for by Mrs Dillon was not just her transportation but also the mode of that transportation.
This might suggest that one might get a different outcome where the substantive bargain is only about
transport rather than transport as a recreational activity.
Indeed, Deane and Dawson JJ [at CLR 378] contemplated this very possibility:
There can be circumstances in which there is, for relevant purposes, a complete failure of
consideration under a contract of transportation notwithstanding that the carrier has
provided sustenance, entertainment and carriage of the passenger during part of the
stipulated journey. For example, the consideration for which the fare is paid under a
contract for the transportation of a passenger by air from Sydney to London would, at least
prima facie, wholly fail if, after dinner and the inflight film, the aircraft were forced to turn
back due to negligent maintenance on the part of the carrier and if the passenger were
disembarked at the starting-point in Sydney and informed that no alternative transportation
would be provided. Thus, in Heywood v Wellers, [[1976] QB 446, [1976] 1 All ER 300] Lord
Denning MR regarded it as self-evident that, in some circumstances where part of a journey
had been completed, money paid to the carrier or ‘driver’ was recoverable ‘as of right’ for
the reason that it was ‘money paid on a consideration which had wholly failed’.
At the end of 38.44 add the following:
The decision in Roxborough was cited with approval by the Supreme Court of the United
Kingdom in Barnes (as former Court Appointed Receiver) v The Eastenders Group [2014] UKSC
26 at [109]-[113].
At the end of 38.50 add the following:
An appeal from this decision was dismissed by the High Court: Australian Financial Services and
Leasing Pty Ltd v Hills Industries Ltd (2014) 307 ALR 512.
At the end of 38.60 add the following:
In Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14 at [70][92], Hayne, Crennan, Kiefel, Bell and Keane JJ said the following in relation to the change of
position defence:
In §65 of the Restatement of the Law Third, Restitution and Unjust Enrichment, under the rubric
‘Change of Position’, the American Law Institute states:
If receipt of a benefit has led a recipient without notice to change position in such manner
that an obligation to make restitution of the original benefit would be inequitable to the
recipient, the recipient's liability in restitution is to that extent reduced.
In Lipkin Gorman [v Karpnale Ltd] [1991] 2 AC 548 at 579, Lord Goff used similar language in explaining
the basis of the change of position defence:
[W]here an innocent defendant's position is so changed that he will suffer an injustice if
called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs
the injustice of denying the plaintiff restitution.
In David Securities, reference was made to what was said in Lipkin Gorman concerning the defence. It
was observed that in Lipkin Gorman, Lord Bridge of Harwich, Lord Ackner and Lord Goff said that the
defence should be recognised by English law but declined to define its scope. However, in David
Securities the ‘central element’ of the defence was identified as being ‘that the defendant has acted to
his or her detriment on the faith of the receipt’ (emphasis in original). Whether English cases
subsequent to Lipkin Gorman have taken a wider view of the defence, one which eschews a
requirement of detrimental reliance in favour of a mere causal link, cannot alter what was said in David
Securities regarding the defence. Whether the conclusion reached in the English cases, including Lipkin
Gorman, is different from that which would be reached by reference to equitable principles is a moot
point. In any event, consistently with an enquiry as to whether it is unconscionable for the recipient to
retain the monies, it is necessary in cases such as the present to consider what was done by the
recipient in reliance upon the receipt.
In David Securities, in the passage in which reference is made to a recipient acting on the faith of the
receipt, it was said that a common element in cases in Canada and the United States, where the
defence has been accepted, is that it is necessary that the defendant point to ‘expenditure or financial
commitment’ which can be ascribed to the mistaken payment. The passage does not provide precise
direction as to the resolution of the issue in this case, but it is tolerably clear that their Honours did not
suggest that the defence was available only to a recipient who was able to demonstrate monetary
disenrichment on the faith of the mistaken payment.
AFSL argued that it is necessary and appropriate to assess, forensically, the value of TCP’s debts to Hills
and Bosch, or their prospects of recovery, in order to measure the extent to which they remained
enriched by AFSL’s mistaken payments. AFSL’s argument in this regard relied upon cases such as The
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 and Sellars v Adelaide Petroleum NL (1994)
179 CLR 332. However, these cases concerned the assessment of damages by way of compensation for
breach of contract or statutory or common law norms of conduct predicated upon proof of loss by
reason of the breach. Here, Hills and Bosch had done AFSL no wrong that gave rise to an obligation to
compensate AFSL for the loss suffered by it as a result. As Lord Goff observed in Lipkin Gorman,
restitutionary claims are not founded upon a wrong done to the payer.
More importantly, under Australian law, a mathematical assessment of enduring economic benefit
does not determine the availability of restitutionary remedies. The equitable doctrine which protects
expectations, with which the notion of ‘detriment’ is associated, is not concerned with loss caused by a
wrong or a breach of promise. As Deane J observed in The Commonwealth v Verwayen (1990) 170 CLR
394 at 448, ‘[e]quity has never adopted the approach that relief should be framed on the basis that the
only relevant detriment ... is that which is compensable by an award of monetary damages’. The
equitable doctrine concerning detriment is concerned with the consequences that would enure to the
disadvantage of a person who has been induced to change his or her position if the state of affairs so
brought about were to be altered by the reversal of the assumption on which the change of position
occurred. On this view, the injustice which precludes such a result lies in the disadvantage which would
result to the recipient if the payer were to be permitted to recover payments as mistakenly made
where they have been applied by the recipient.
This view accords with the understanding of detrimental reliance sufficient to ground an estoppel …
The fundamental purpose of an estoppel is to provide protection against the detriment which would
flow from a party’s change of position if the assumption which led to it were deserted.
While it may be accepted that estoppel affords a level of protection to expectations different from that
afforded by the change of position defence, and estoppel is also concerned with the manner in which
expectations are created, both estoppel and the defence are grounded in that body of equitable
doctrine that prevents the unconscientious assertion of what are said to be legal rights …
[T]he detriment must flow from reliance upon that assumption
Detriment has not been considered to be a narrow or technical concept in connection with estoppel. So
long as it is substantial, it need not consist of expenditure of money or other quantifiable financial
detriment … In the context of mistaken payments, the question is whether it would be unconscionable
for a recipient who has changed its position on the faith of the receipt to be required to repay
In Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 347 at 349, Lord Goff suggested that defences
such as change of position are concerned to protect the stability or finality of transactions. It may
perhaps be more accurate to say that, where the defence of change of position is made out, finality is
the result that is achieved. But the desirability of "certainty of receipts" cannot itself dictate the
outcome of the enquiry respecting the actions taken by a recipient where a mistaken payment is made
in a commercial context. It is necessary to recall that the action for money had and received is itself a
qualification upon what the law otherwise regards as the overriding importance attached to the
security of actual receipts.
In the light of these cases on the change of position defence, in Southage Pty Ltd v Vescovi
(2015) 321 ALR 383 at 399, the Victorian Court of Appeal concluded that ‘the the ultimate
inquiry is whether it would be inequitable in all the circumstances to require the respondent to
make restitution. The focus for the court in answering this question is on what was done by the
recipient in reliance upon the receipt’.
CHAPTER 39
At the end of 39.74 add the following:
It can be noted that in the latter part of the nineteenth century that courts were quite willing to
find that B was a trustee and to allow B to therefore recover substantial damages. This was
exemplified in Lloyd’s v Harper at 309, where Fry J took the view that where a contract was
made for the benefit of a third party (in our example C), there arose an equity in the contracting
party (in our example B) to sue for the third party and that the contracting party (in our case B)
could be treated as a trustee. In this way the courts were easily able to overcome the problem
of B only recovering nominal damages and A being able to escape any real liability for breaching
the contract. However, in later decades the courts later became much tougher on the question
of whether there was a trust with the consequence that ‘the “black hole” in damages caused by
the rule in privity extended’.31 In more recent times, as evidenced by comments in the Trident
case, courts are more willing to find ways around the consequences of the privity doctrine,
including being more amenable to finding that a trust exists.
31
Michael Lobban, ‘Contracts’ in Sir John Baker (Gen Ed), The Oxford History of the Laws of England, Volume XII,
1820-1914, Private Law, Oxford University Press, Oxford, 2010, p 394.