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Invalid Contracts (Seminars 9-17) Misrepresentation Misleading Conduct TPA 52 Mistake Duress, Undue Influence Unconscionable Dealing Third Party Unconscionability Unconscionable Conduct TPA s51AA-AC, 87 Illegality Termination of Contracts (Seminar 18-23) Termination by frustration Termination for non-fulfillment of a contingent condition Termination for breach Restrictions on termination Termination by consent MISREPRESENTATION Generally the TPA is more generous, but it only applies „in trade or commerce.‟ For the TPA you need a court order to rescind, here you don‟t but it may be challenged in a court. 1. CREATION OF A RIGHT TO RESCIND When is a misrepresentation fraudulent? 1 A representation is fraudulent if the representor had no honest belief in its truth, or did not care whether it was true or not, in the sense in which it was intended (John McGrath v Applebee). John McGrath v Applebee the test is subjective Applebee buys a car and is told it is „new,‟ in fact it has been sitting in the store room for over a year and is only new in the sense that it is not second hand. The Court: Fraud requires knowledge of falsity or reckless indifference. The question is not whether the defendant believed the representation to be true in the sense assigned to it by the court but whether he believed the representation to be true in the sense in which he understood it. So salesman did not act fraudulently. Krakowski v Eurolynx Krakowski‟s want to buy shops, tell Eurolynx they want to make 10% per annum. Eurolynx say sure, Swaeder will rent from you, he is a great tenant. Eurolynx give Swaeder incentives to stay, he turns out to be a terrible tenant. Krakowskis successfully rescind. Eurolynx had made a representation that the document contained the whole of the agreement, which it did not, so they had acted fraudulently. Brennan, Deane, Gaudron, McHugh: (majority) - Lack of honest belief. Eurolynx intended for fraudulent misrep to be made. - No deliberate plan required You don’t need to plan it prior, or have an ‘evil motive.‟ - Fraud by corporations A division of function among officers does not relieve the corporation from responsibility. When can you rescind in equity for innocent misrepresentation? Recission here is subject to the rule in „Seddon‟s Case‟- it‟s not available if a contract has been „executed.‟ [We do not study this in any depth!] Here „executed‟ usually means „completed‟ of „fully performed,‟ but it‟s controversial. It is not available after the settlement of land has taken place- Krakowski It has been modified in relation to the sale of consumer goods in Victoria. Where appropriate only partial recission may be granted- Vadasz. 2. WHEN IS A MISREPRESENTATION ACTIONABLE? To be actionable, a representation must constitute a false statement of fact, and may also have to be „material,‟ although the law is equivocal on this point. And it must have induced the representee to enter the contract. False statement of fact Switch here from subjective to objective FACT: Must be objectively false. STATEMENT: Silence Prima Facie silence is not a statement, but may be actionable where the circumstances create a duty to speak- eg, recognized duty of disclosure, half-truths, or information subsequently discovered to be untrue. (Krakowski) Opinion/Commendation Factual statements are distinguished from „puffs.‟ Promises, Statements of Opinion, Predictions To be actionable a representation must amount to an assertion about what is presently true. However, non-factual statements constitute an actionable misrepresentation if made dishonestly. (Ritter) Krakowski v Eurolynx Whether a representation is false is to be understood by what a reasonable person in the position of the representee. 2 This is not a case simply about non disclosure of a fact, but a representation that the lease contained the whole of the agreement. (So a duty to disclose arises in such a „half truth‟ situation). Nicholas v Thompson Plaintiffs are induced by being told that a very large offer had been made and turned down. In fact it hadn‟t. McArthur J: The statement is one of fact- it is capable of proof or dispute. That the sum is not stated definitely does not matter. Ritter v North Side Enterprises Stated that the land would be sewered within four months. Gibbs J: His statement involved the assertion that he believed it would be sewered. He did not believe that, so the statement was false. Inducement (Causation) To be actionable a representation must have induced a party to enter the contract, though it need not be the only factor inducing. Failure to check the accuracy of information is not fatal. If it can be shown that a misrepresentation was material; objectively calculated to induce the making of a contract, inducement will be inferred unless the representor proves the contrary. However, whether „materiality‟ is a must, rather than just a question of liability, is debatable. Gould v Vaggelas They are buying a resort, are misrepresented as to the profitability of the resort. Gould tells her accountant she does not believe Vaggelas. Held 5:0 that she was induced, 3:2 entitled to damages. Wilson J: Onus rests on party seeking relief (Gould). Does not have to prove the soul inducing factor. If a misrepresentation made to induce, and the other party enters, a rebuttable presumption will be made that that misrepresentation did induce. Brennan J: The fact that she did not believe everything he said does not mean it didn‟t induce. „A knave does not escape liability because he is dealing with a fool.‟ MATERIALITY Whether it „must‟ be material (objectively calculated to induce into the contract) is debatable. Gould v Vaggelas McArthur J: „A representation is material if its natural and probable effect is to influence the mind of a normal refepresentee, or, to the knowledge of the representor, the particular representee.‟ I doubt it is essential the statement is material, nevertheless it was established here. [In Nicholas, McArthur J similarly doubts that materiality is necessary, though finds it present]. ALSO: IS RECISSION RESTRICTED? Contractual exclusion of right to rescind The right to rescind for an innocent (not fraudulent!) misrepresentation can be excluded or modified by the contract, such as through a merger clause. The incorporation of a misrepresentation as a term of the contract does not destroy the right to seek recission on the basis of the misrepresentation. Alati v Kruger found that a pre-contractual 3 misrepresentation was incorporated as an express term in the contract. The buyers could chose whether to rescind the contract for misrepresentation or seek a remedy for breach but not both. These alternatives are also available if the misrepresentation is innocent. Byers v Alati You cannot exclude the right to rescind for fraudulent misrepresentation. Restitution Requirement Both at common law and equity it is a prerequisite of recission that the parties can be substantially restored to their pre-contractual provision („restitutio in integrum‟). Recission may not be available where the subject matter of the contract has been consumed, altered or transferred to third parties. The common law requires more precise restitution than equity. Alati v Krueger Kruger buys a fruit shop, the takings are not what he expects. Majority: - no right to recission unless restitutio is possible Depends on whether restitution was possible at the commencement of the action - equity does not require precise restitution in cases of fraud Even if precise restitutio is possible, equity will disaffirm the contract if it can do what is practically just between the parties, and so substantially restore the status quo. - recission subject to compensation Equity can compensate the seller for loss of rent, equity could compensate him for the loss of stock. Discretionary Bars in Equity Equitable relief is discretionary, so a court may refuse to grant a decree of recission if the representee acted unconscionably after purporting to rescind the contract. Alati v Krueger If he had abandoned the premises without giving the respondent a reasonable opportunity to take them back, the court might refuse relief. Here it is not known whether he gave the appellant specific warning of his intention to leave, but even if he didn‟t, the appellant had ample opportunity to protect himself. Partial Recission in Equity Traditionally recission is „all or nothing,‟ but in equity it may be partial if this is appropriate. Vadasz v Pioneer Concrete Vadasz signs a personal guarantee of his company‟s debt to Pioneer without reading it. Vadasz only intended to guarantee future debt, and Pioneer knew this. Vadasz is told by trial judge that he only has to pay future amount, argues should have to pay nothing. Court: We are in the realm of equity. „In the present case it cannot be maintained that the appellant would not have entered the guarantee had it been confined to future indebtedness. The evidence is that he would have done so.‟ „The court must do what is practically just for both parties. To enforce the guarantee to the extent of future indebtedness is to hold the appellant to what he was prepared to undertake independently of any misrepresentation.‟ Affirmation If conduct of the representee constitutes affirmation of the contract, a right to rescind for misrepresentation may be lost. 4 Alati v Krueger There was no affirmation- he acted promptly (contrary to argument that he delayed). Ritter v North Side Enterprises Ritter wrote to NSE after four months, asking for an extension of the settlement date. It was argued that this letter constituted affirmation by way of estoppel, however, there is no indication that when the letter was written Ritter knew of the misrepresentation, so this evidence is not itself sufficient. MISLEADING CONDUCT TPA! 52(1)- A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. 87(1A) The Court may.. on the application of a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in a contravention of [s52].. make such an order.. as the Court thinks appropriate.. including (a) an order declaring the whole or any part of a contract void ab initio or.. after such date.. as specified. (b) an order varying such a contract (ba) an order refusing to enforce any or all of the provisions of such a contract (c) an order directing the person who engaged in the conduct..to refund money or return property. 1. BASIS OF STATUTORY RELIEF: CONDUCT THAT IS MISLEADING OR DECEPTIVE A: Intention to mislead In general it is not necessary to prove an intention to mislead or deceive to establish a contravention. But there are exceptions- eg when the defendant has merely passed on information from another source. The Saints Gallery v Plummer Mr Flannery sells paintings to Plummers not knowing that they are forgeries. But he was not being deceptive in passing on the information because he believed the seller‟s story to be true. „A disclaimer of any personal knowledge of the paintings‟ authenticity was deducible from the parties‟ relationship and the whole of the circumstance.‟ Nothing more should have been taken from the representations than that was what the seller had said, which was true. B: Falsity Conduct does not contravene s52 unless it conveys information that is, or turns out to be, objectively incorrect. Equuscorp v Glengallan Jerrard JA: There was a representation that Thornton would be supplied on a later date with documents confirming that the loan was a limited recourse loan. The representation was not false, as each defendant was later given a guarantee [that meant nothing!]. McPherson JA: The documents were received, so it is impossible to find any falsity or misleading conduct. Byers v Dorotea The sale of a unit in a building yet to be built- building asserting to be „bigger and better.‟ “Bigger and better‟ is not easily able to be said to be true or false. However, it was not argued that the units were bigger and better.‟ 5 [Don‟t need to address it in this case, Dorotea doesn‟t suggest that that they are actually bigger and better.] o Non-disclosure Silence is only actionable where circumstances are such to create a duty of disclosure. The words „otherwise than inadvertent‟ [s4(2)(c)(i)] suggest it must be advertent or deliberate. CCP Australian Airships v Primus Primus want an airship for the Olympics, CCP promise it but then do not deliver. CCP then refuse to return the deposit. - The clause (CCP can keep deposit) does not apply if CCP breach the contract so as to cause a total failure of consideration. „Elliptical expressions in mercantile contracts are to be read in no narrow spirit of construction but as the Court would suppose two honest businessmen would understand the words.‟ - There is an ambiguity here so it is to be resolved contra proferentum. 3 forms of ambiguity here: - Representing that the ship would be available during the Olympics. - Representing that if Primus paid the deposit by the date, would get the airship. - Refraining from telling Primus that it did not have funds to pay for the airship. Silence need not be advertent (intentional) in order to constitute misleading conduct. Failure to disclose inability to perform can be misleading conduct (CCP argued about the „traditional secretiveness‟ of the bargaining process, but court holds the purpose of the section is to ensure that the bargaining process is not seen as a „license to deceive.‟) „If a bargainer having no more capacity than a hope and a prayer of providing goods or services conducts negotiations in a fashion calculated to create the impression that he has the capacity to do so his conduct is misleading and deceptive.‟ Henjo Investments v Collins Marrickville The restaurant doesn‟t have a license to seat 128 people. [Note Demagogue- duty to disclose is lost- you just have to show that silence in the circumstances amounted to misleading conduct]. Intention is not a necessary element in a contravention. The showing of the card was objectively false. o Statement of Opinion S52 does not distinguish between factual and opinionative statements, although it does recognize that puffery does not contravene the section unless it was reasonable to rely on it. Byers v Dorotea The bigger and better hotel. The opinion was not honestly held. „Bigger and better‟ was not a puff in these circumstances because it was „intended to, and did, convey a clear and wrong opinion.‟ eBay v Creative Festival Entertainment- about statement of (legal) opinion. Creative claimed legally entitled to detect and cancel any ticket resold for profit. This was misleading as they had no contractual right to cancel entry (as the relevant section was not incorporated into the contract), and they had no grounds to trace the tickets. o Statements about the future (including promises) Breach of a promise is not usually actionable under s52, but can be where: - the promise was made without any intention to perform - the promise was a factual warranty incorporated into the contract - the promise was made without reasonable grounds under TPAs51A. s51A- where does not have reasonable grounds to make the representation, will be held to be misleading unless they can prove otherwise. 6 Byers v Dorotea The brochure they were given stated the building would contain a swimming pool- this is a misleading statement. Accounting Systems 2000 v CCH Clause 3:1 is a warranty. A warranty „speaks to a present state of affairs.‟ A breach of a promise about the future contravenes s52 only if the extra steps in 51A can be satisfied. Equuscorp v Glengallan Glengallan can‟t rely on 51A because the representation that the documents would be supplied was not false. The representation that the loan agreements would not be enforced was not pleaded or proven (maybe if had pleaded this would have been okay). CCP Airships v Primus They did not have reasonable grounds to say the airship would be available because they knew it would not be. The letter requiring the deposit represented that if it was paid the airship would be ready, which was untrue. eBay International v Creative Festival They did not have the capabilities to detect and cancel tickets, so that representation was false. Causation A causal link between the misleading conduct and the entry into the contract must be shown (loss or damage). Henjo Investments v Collins Marrickville The misrepresentation was one of many factors and the buyer did not have it verified (they asked their lawyer, who failed to do so). The conduct was, however, the main inducement and their solicitors failure to check it does not matter. CCP Airships v Primus Primus relied on the conduct and would have walked away from the contract if they knew they could not have the ship for the Olympics. 2. RESTRICTIONS ON STATUTORY RELIEF o Contractual Exclusion Henjo v Collins Marrickville Merger clause held not to exclude liability. Butcher v Lachlan Realty Brochure states that cannot guarantee the accuracy of the brochure information. Held: not misleading. Nature of the parties, character of the transaction contemplated, contents of the brochure itself.‟ o Discretionary Factors under s87 Henjo v Collins Marrickville [The seats] Rescission orders refused- restitution is not possible because of delays largely made by CM, who had initially pursued only damages. Byers v Dorotea Recission is granted. 7 The right to relief under the TPA is not necessarily brought to an end by affirmation (they asked for an extension). „That the market had slumped was an important factor in the Byers‟ decision to rescind. But that was not conclusive.‟ OPERATIVE MISTAKE We distinguish mistake from misrepresentation (another form of mistake) in that here responsibility for the mistake cannot be attributed to the other party. As with the law of misrepresentation, it is necessary to distinguish between common law and equity. At common law mistake makes a contract void- it never came into existence. Equity confers a right to rescind- the contract is valid unless the party choses to avoid it. Also, in equity orders may be made to protect third parties. 1A: COMMON MISTAKE: A & B MAKE THE SAME MISTAKE o Common Law Not clear whether common mistake can make contract void It has been argued that in such a situation the loss should lie where it falls. Australian Estates (QCA) suggested could void a contract where „subject matter of the contract essentially and radically different from the subject matter which the parties believed to exist‟ (upholding English case Great Peace) but HC decisions McRae, Svanosio and Taylor make this controversial. McRae v Cth Newspaper advertisement invites tenders for a tanker, „said to contain oil.‟ McRae win the tender, fit out a ship, sink it, sail again and discover that there is no tanker. Cth claims common mistake to say that it is void at common law, so they cannot be sued for breach. Court say that even if common mistake were valid under common law, „the Commission cannot in this case rely on mistake as avoiding the contract, because any mistake was induced by the serious fault of their own servants, who asserted the existence of a tanker recklessly. „A party cannot rely on mutual mistake where the mistake consists of a belief which is entertained by him without any reasonable ground, and deliberately induced by him into the mind of the other party.‟ Svanosio v McNamara Svanosio buys land, both believe there is a hotel on it. The court say that there is not doctrine of common law mistake. Was too late to rescind. But- there is an equitable doctrine relating to common mistake. Common mistake makes contract void- point test Australian Estates v Cairns CC Variation of a completion date, subsequently terminated before later date, held terminated and no mistake. Atkinson J: „The following elements must be present if common mistake is to avoid a contract at the common law:‟ - there must be a common assumption as to the existence of a state of affairs - there must be no warranty by either party that the state of affairs exists - the non-existence of the state of affairs must not be attributable to the fault of either party - the non-existence of the state of affairs must render performance of the contract impossible - the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible. Here, cannot be void, because the mistake alleged did not render performance of the agreement impossible. 8 o Equity In the English case Solle v Butcher said that common mistake can make a contract voidable in equity if sufficiently serious, but Great Peace called it a chimera because it doesn‟t make sense to have common law and equity operating in essentially the same circumstances. Contract voidable in some situations Svanosio v McNamara Common mistake can make a law voidable in equity where there is fraud, misrepresentation or express or implied condition. ‟There may be cases of “mistake” in which it would be so inequitable that a party should be held to his contract that equity would set it aside. But it is difficult to conceive circumstances in which equity could give relief contract unless there has been fraud or misrepresentation or a condition can be found express or implied in the contract.‟ A contract for the sale of land cannot be avoided in equity after conveyance unless for fraud or total failure of consideration (neither of these apply here). No equitable jurisdiction Australian Estates v Cairns CC Attempt to vary the completion date, complete by the later date but not the earlier one. 3: 0 no operative mistake, termination valid. Jerrard JA: There was no relevant mistake made by either party, only ignorance of the law. Atkinson J: No relevant mistake. ‟There is no equitable jurisdiction to set aside, on the ground of common mistake, an agreement which is valid and enforceable at common law.‟ McMurdo: There is no evidence that the parties acted under any common mistake in agreeing to vary the contract. B: A MAKES A MISTAKE, B IS AWARE OF A’S MISTAKE o Common Law Common law does not invalidate contract If there is an objective agreement, neither party can rely on his own mistake to invalidate it. Taylor v Johnson She thinks she‟s getting $15,000 per acre, in fact it‟s for the lot. Doesn‟t matter in common law, does in equity. Subject to plea of non est factum A mistake as to the nature of the contract. Petelin v Cullen Mr Petelin is foreign, thinks he is signing a receipt but instead it is an extension form. Court holds 5:0 the contract is void. Non est factum is available to two classes: - those who cannot read because of blindness or illiteracy - those who through no fault of their own are unable to have any understanding of the purport of the document. The prerequisites are: - a radical mistake as to the character of the document - absence of any carelessness as against innocent parties 9 Mr Clement‟s must have known that the appellant was unable to understand the document- on an earlier occasion he had advised him to consult a solicitor, but he did not here. There was no carelessness on the part of the appellant- he had no indication that the document granted rights additional to those previously granted. There is a heavy onus on people seeking to escape a contract on a plea of non est factum. [Other possible exceptions: informal contracts, mistake of indentity] Taylor v Johnson Suggests that the common law may recognize other situations in which a contract may be voidable for unilateral mistake eg „informal contacts,‟ and „mistakes as to identity.‟ These are not investigated in this course. o Equity Contract voidable if enforcement unconscionable. A party who is unilaterally mistaken about the objective content of a contract may be able to avoid a contract in equity when the other party took knowing advantage of the mistake. This makes operative mistake a species of unconscionable dealing. Taylor v Johnson Relief from unilateral mistake will be granted where enforcement of the contract would be unconscionable. This is where „the other party is aware of that circumstances exist which indicate the mistake and deliberately sets out to ensure the first party does not become aware of the mistake.‟ Taylor deliberately set out to make sure Johnson did not become aware, so the contract is void. C: A & B MISTAKE EACH OTHER’S INTENTION. NEITHER IS AWARE OF THE OTHER’S MISTAKE o Common Law and Equity Contract valid unless no objective agreement. These are really cases on mutual unilateral mistake. If an objective contract can be identified, that contract prevails, and neither party can rely on its own mistake about the other party‟s intention as an excuse from performance. Equity follows the common law in relation to mutual mistake. Goldsbrough Mort & Co v Quinn Price of land expressed as „30s per acre calculated on a freehold basis.‟ Seller thought the buyer intended to pay a freehold price of 30s per acre for all the land. The buyer thought the seller thought „30s per acre‟ for the freehold portions, and 30s per acre for the rest less the cost of converting the rest to freehold. The contract has an objective meaning, that put forward by the buyer, so the contract is valid. Raffles v Whichelhaus There is no way of identifying an objective meaning of the words „ex peerless,‟ so the contract is invalid. 2: CAUSATION As in misrepresentation, the party claiming recission must establish that the mistake was a cause for entry into the contract. As a mistake is only operative, whether in common law or equity, if the mistake was serious, inducement is usually inferred (Svanosio). 3. RESTRICTIONS ON RECISSION Are the same as those in cases of misrepresentation, refer above. DURESS A party who was induced to make a contract by pressure or influence exerted by the other party may have the right to rescind it on the ground of duress or undue influence. 10 Duress is normally treated as a common law doctrine (though it has equitable analogues), and undue influence is an equitable doctrine. Both of these are difficult to separate from unconscionable dealing and unconscionable conduct. 1. ACTIONABLE DURESS (CREATION OF A RIGHT TO RESCIND) Applies when a person has been coerced into making a contract. The starting point for determining whether a party has a right to rescind for duress is the test of McHugh JA in Crescendo. Crescendo Management v Westpac Banking Corporation „A person who is the subject of duress usually knows only too well what he is doing. But he chooses to submit to the pressure rather than take alternative action.‟ McHugh JA: „The proper approach is to ask whether the pressure induced the victim to enter into the contract and whether that went beyond what the law is willing to countenance as legitimate. Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed.‟ A: Threat to person Threats of physical injury or death are clearly capable of constituting duress. Barton v Armstrong Armstrong threatens Barton with phone calls, and says that he could have him killed for $2,000. Barton hires bodyguards. Armstrong has someone call and say „I‟m hired to kill you,‟ then Armstrong tells Barton to sign an agreement, which he does. „The pressure must be of a kind which the law does not regard as legitimate. The first step is to show that some illegitimate means of persuasion was used. That there were threats to Barton‟s life was found by the judge.‟ Majority: Only in very narrow circumstances should duress not be found where death threats are made Minority: This was such a narrow circumstance, he entered it for other reasons. B: Threat to property Detention of a persons goods can also be regarded as duress. Hawker Pacific v Helicopter Charter Helicopter was urgently needed, they could only get it back from the paint company if they signed away liability. Held that contract was voidable for duress. The threat operates as forcefully here as it would if it were in words. C: Economic Duress Not all economic pressures will equal duress- the law does not recognize you having to accept a badly paying job to pay living expenses as duress. A common example of economic duress is where a party threatens to withhold performance unless the other party agrees to vary the contract. TA Sundell Sundell agree to a variation in the contract, held invalid as they receive no consideration and are under duress. Sundell pays extra for iron but says does so without prejudice to rights. Economic duress by threat not to perform contractual duty does exist. Crescendo Management v Westpac Banking Westpac sues to enforce their mortgage, refuse to release proceeds until future securities are provided. 11 Westpac had applied economic duress, but this did not cause the execution of the mortgage, which was in fact done earlier. Westpac are entitled to enforce mortgage. McHugh JA: Even overwhelming pressure is not always economic duress. Economic duress by unlawful retention of money does exist. 2. CAUSATION o Onus on enforcing party once illegitimate pressure shown Barton v Armstrong „it was for Armstrong to establish that the threats which he was making in fact contributed nothing to Barton‟s decision to sign.‟ Dissent: „Barton was motivated to enter into the agreement by sheer commercial necessity.‟ Crescendo „Once the evidence establishes that the pressure was illegitimate, the onus lies on the person applying the pressure to show that it made no contribution to the victim entering into the agreement.‟ Although the pressure here was unlawful, it was applied after the mortgage had been executed. It is unnecessary to determine whether the long delay by Crescendo in complaining about duress indicates that the mortgage was freely executed. Hawker Pacific Priestly JA: Recourse to legal proceedings would not have solved his immediate helicopter need, causation is clear. TA Sundell There is no doubt that he urgently needed the iron and the arrangement was made under the threat that no iron would be delivered. 3. RESTRICTIONS ON RECISSION It is unclear whether the right to rescind for duress or undue influence can be excluded by contractual provision. By analogy to misrepresentation, it seems likely that it cannot, since duress and undue influence are more akin to fraud than innocent misrepresentation. It is also unclear to what extent duress applies. Courts and commentators have assumed that the principle in Vadasz applies to duress and undue influence as well as misrepresentation, so relief may be limited to partial recission in duress cases. STATUTORY DURESS- s53A and s60 TPA S53A- false representations and other misleading conduct in relation to land ‘A corporation shall not use physical force or undue harassment or coercion in connection with the sale of land or grant… of.. an interest in land…’ S60- harassment and coercion in the supply of consumer goods and services ‘A corporation shall not use physical force or undue harassment or coercion in connection with the supply.. of goods or services to a consumer..’ 4B(1)(a) provides that a person is a consumer if they acquire goods priced under the prescribed amount ($40,000), provided the goods are not acquired for the purpose of re-supply S4B: Consumers (1) For the purpose of the purposes of this Act, unless the contrary intention appears: (a) A person shall be taken to have acquired particular goods as a consumer if, and only if: (i) the price of the goods did not exceed the prescribed amount; or 12 (ii) where that price exceeded the prescribed amount- the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption or the goods consisted of a commercial road vehicle: And the person did not acquire the goods, or hold himself or herself out as acquiring the goods, for the purpose of resupply or for the purpose of using them up, or transforming them, in trade or commerce, in the course of a process of production or manufacture or of repairing or treating other goods or fixtures on land; and (b) a person shall be taken to have acquired particular services as a consumer if, and only if: (i) the price of the services did not exceed the prescribed amount- the services were of a kind ordinarily acquired for personal, domestic or household use of consumption.’ ACCC v Lux Mrs Spender was home alone, she couldn‟t read and had a mild intellectual disability. Harrassment Harassment involves „repeated pressure,‟ but despite him standing close to her and repeatedly saying that the old vaccum was going to „blow up,‟ „this was not a case where Podger embarked on actions calculated to intimidate, demoralize, tire out or exhaust the consumer.‟ Coercion The evidence does not establish the use of „force or compulsion or threats. This was not a case of bullying, bluff.. or standover tactics.‟ He didn‟t suggest he wouldn‟t leave if she asked him to, she never suggested she didn‟t want it or wanted him to leave, he did not offend the TPA. UNDUE INFLUENCE 1. ACTIONABLE UNDUE INFLUENCE The „improper exercise of.. an ascendancy or domination over‟ another party (Dixon J in Johnson v Buttress). Two elements- the claimant was under a special disability, the perpetrator took unfair advantage of that disability. Two Classes of Undue Influence Class 1: Actual undue influence- dominant pos inherent or arising from a particular situation or transaction Where the source of domination is found „in no antecedent relation but in a particular situation, or in the deliberate contrivance of the party. If this be so, facts must be proved showing that the transaction was the outcome of such an actual influence over the mind of the [other party] that it cannot be considered his free act.‟ (Dixon J in Johnson v Buttress). Such cases are rare, cases almost inevitably arise from an antecedent relationship between the parents. Johnson v Buttress 3: 0 Buttress‟ son gets the house. Starke J: No antecedent relation, but actual undue influence. Age and capacity, want of other advice, testamentary dispositions- all evidence that not the result of free and deliberate judgment. Class 2: Presumed undue influence- arises from established relationship between parties. Where the relationship between the parties is such that a transaction is likely to have resulted from influence by one party over the other. The presumption places on the stronger party the onus of showing that the weaker party understood the transaction and entered into it voluntarily. A Traditional relations of presumed influence Relationships which as a matter of law raise a presumption that influence has been exercised Johnson v Buttress Mr Johnson is old and leaves everything to Buttress. Before he dies he says to people that he knows she wants the house but will never get it. After he dies his son tries to get the house back, as Buttress fails to demonstrate it was the free exercise of his will the son gets the house. 13 Dixon J: (and Latham)There was an antecedent relationship between the parties raising a presumption of undue influence that had not been rebutted.‟ „The mans illiteracy, his ignorance of affairs, and his strangeness in disposition and manner provide the foundation for the suggested relation. For many years he had leant on his wife, and after her death began to place increasing reliance on Mrs Johnson and her family.. Ultimately he came so to depend on Mrs Johnson that a full relation of influence over him subsisted.‟ B Other relations of influence or trust Where the claimant establishes as a matter of fact that the existence of a relationship of such trust and confidence that a presumption of influence should arise. 2. CAUSATION Onus on enforcing party once relation shown Buttress- Dixon J: „An antecedent relation of influence existed which throws on Mrs Johnson the burden of justifying the transfer by showing that it was the result of the free exercise of the donor‟s independent will. This she has quite failed to do.‟ Adequacy of consideration relevant (substantive unfairness) Buttress- Dixon J: „When the transaction is not one of gift of purchase or other contract, adequacy of consideration becomes material.‟ Independent advice relevant Buttress Latham CJ: „It may not be necessary to show that the donor received competent independent advice. But such advice is the most obvious means of helping to establish that the gift was the result of the free exercise of independent will, and the absence of such advice would plainly be a most important factor.‟ Bridgewater v Leahy Free will established because independent advice would not have changed the result. 3. RESTRICTIONS ON RECISSION [See Duress] Plus equitable bars UNCONSCIONABLE DEALING Where the claimant was under a special disability and the perpetrator took advantage of that disability, then the claimant may have a right to resind under the equitable doctrine of unconscionable dealing. It is particularly difficult to separate from duress and undue influence. Unconscionable conduct refers specifically to the TPA. Actionable Unconscionable Dealing Taking Unfair Advantage of Special Disability Mason J in Amadio: „unconscientious use of superior position to the detriment of a party who suffers from some special disability or is in some special situation of disadvantage.‟ 14 „whenever one party by reason of some condition or circumstance is placed at a special disadvantage vis-à- vis another and unfair or unconscientious advantage is then taken.‟ CBA v Amadio the leading case! Amadio tells bank manager Virgo that his parents will provide building as security. They don‟t speak much English and he lies to them about the loan, they don‟t realize that it‟s „all moneys.‟ Mr Amadio says „only for 6 months‟ Mason, Wilson, Deane: unconscionable dealing Gibbs: misrepresentation Dawson [dissent]: neither Blomely v Ryan Ryan goes on his annual drinking spree with the shearers. Blomley uses this time to get him to sign over property. 2: 1 (Kitto dissents)- contract set aside. Louth v Diprose She leads him on, rejects him. Slashes wrists, threatens suicide, falsely says she is in danger of losing her house. He buys it. Bridgewater v Leahy Bill and his brother Sam have a partnership. He leaves his daughters his 5 properties, but gives Sam the option of buying the lot for $200,000 (worth $800,000) Before Bill dies, Sam pays $150, 000 for three properties, and has Bill medically examined first. After he dies, he buys the other two for $200,000. His daughters and wife sue Sam. 3:2 (he loses out) Gaudron, Gummow, Kirby: majority The deed and contracts are invalid because induced by unconscionable dealing. Status quo cannot be restored here because the interests of the other parties would be affected. ACCC v Berbatis Holdings The Roberts‟ sell their fish and chip shop, but then have to release themselves from the fighting fund. Their daughter has a chronic illness. In order to sell the business, they need a new lease but can only get out of it by leaving the fighting fund. The ACCC bring an action on their behalf. Held: 4:1, not unconscionable conduct, the Roberts‟ lose. 1. Special disability The special disability must impair the parties judgment. Some difference in bargaining power is not enough (Mason J in Amadio), it should affect the parties ability to conserve own interests (Kitto J in Blomley). Fullagher J in Blomley: Circumstances are of great variety and are hardly be satisfactorily classified, but among them are: poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education and lack of assistance or explanation where assistance or explanation is necessary. Amadio Mason J: they were reliant on son, of advanced years, limited command of written English, no experience in business, believed it was flourishing. Deane J: ‘the combination of their age, their limited grasp of written English, the circumstances in which the bank presented the document to them for their signature and most importantly, their lack of knowledge 15 and understanding of the contents of the document, was that they lacked assistance and advice where assistance and advice were plainly necessary.‟ Blomley He was a weak old man, „not sufficiently in possession of what threads of intellect he retained to protect his interest during the negotiations or while the contract was being concluded.‟ (McTiernan J) „At the time utterly incapable of forming a rational judgment.‟ (Fullagher J) He was quite capable of judging his interests and dealing with Blomley and Stemm (Kitto J) Louth He was emotionally dependant on her (Dawson, Gaudron, McHugh, Mason) „not merely infatuation,‟ „extra-ordinary vulnerability‟ (Deane). Bridgewater v Leahy Leaves 5 properties to daughters, gives Sam option to purchase. „strong emotional dependence or attachment.‟ ACCC v C G Berbatis No special disability. They were in a difficult bargaining position because they had no legal right to a renewal, but this situation does not necessarily support the conclusion that they lacked the capacity to make a judgment about their best interests.‟ The illness of their daughter fell short of seriously affecting their judgment. (Gummow and Hayne JJ). „A person is not in a position of relevant disadvantage simply because of inequality of bargaining power.‟ Probably most contracts are between parties of unequal bargaining power. (Gleeson J). They recognized and understood what was in their best interests, and acted accordingly (Callinan J). The condition of the daughter was relevant- the owners knew that her illness added great personal stress and emotional strain on the Roberts‟ (Kirby J)- situational special disability is okay with him. o Must impair judgment A difference in bargaining power is not enough. Mason J in Amadio: „I qualify the word „disadvantage‟ by the adjective „special‟ in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties.‟ Kitto J in Blomley: „whenever one party to a transaction is at a special disadvantage.. because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests.‟ 2. UNFAIR ADVANTAGE Unfair advantage exists where the reasonable person should have known of the disability, and there was procedural and substantive unfairness. 2A Knowledge of disability Amadio The facts known to Virgo were „such as to raise in the mind of any reasonable person a very real question as to the respondents‟ ability to make a judgment in their own best interests.‟ (Mason J). Blomley Blomley and Stemm were well aware (McTiernan) „Must have been patent‟ (Fullagher) Not „sufficiently evident.‟ (Kitto) Louth She was aware of that special disability and had specifically created it (Deane) 16 Bridgewater „a special and close relationship.‟ 2B. Procedural unfairness Amadio Bank did not disclose to the respondents information that would enable them to make an independent decision and did not ensure they obtained independent advice (Mason J) Virgo was obliged to ensure the parents knew what they were doing or ensure they obtained independent advice (Wilson J) Virgo was bound to make a simple inquiry as to whether the transaction had been properly explained to the Amadio‟s (Deane J). Blomley It was not fair to ask the respondent, given his condition „what is your price today,‟ and they proceeded with too much haste (McTiernan). „There was nothing which amounted to overarching, sharp practice or taking unfair advantage.‟ (Kitto). Louth „Manufacturing an atmosphere of crisis‟ (Dawson, Gaudron, McHugh, Mason) „Create a situation in which she could manipulate‟ (Deane, Brennan) Bridgewater Neils solicitor acted for both parties- lack of independent advice. Initiative taken by Neil, but passive acceptance of a benefit can be unconscionable. ACCC v C G Berbatis No unfair advantage taken. Parties to commercial negotiations frequently use their bargaining power to „extract‟ concessions from other parties. That is the stuff of ordinary commercial dealing.‟ (Gleeson J). The Roberts‟ were taken by surprise and did not have time or opportunity to act with caution.. people should be entitled to their legal rights and have them decided.. not surrendered when they are particularly vulnerable.‟ (Kirby J). 2C. Substantive unfairness Amadio The value in the security provided exceeded the increase in the bank‟s exposure. (Mason J) „In most cases where equity courts have granted relief against unconscionable dealing there has been an inadequacy of consideration. It is not, however, essential.‟ (Deane J) Blomley There was an enormous discrepancy between price and market value (McTiernan) „Gross undervalue‟ (Fullagher) Finding the market value was „not reached by reasoning from concrete facts.‟ (Kitto). Louth Transaction „improvident‟ (Deane, Mason) Bridgewater „A grossly improvident transaction.‟ ACCC v C G Berbatis They would have received less than $3,000 in the settlement, the renewal of the lease was worth $65,000 in the sale. 17 Onus Is on the perpetrator if aware of disability. Amadio „Where the disability was sufficiently evident an onus is cast on the stronger party to show that the transaction was fair.‟ (Deane J). Blomley If his condition had been evident, then Ryan would have had onus (Kitto) The inequalities in the contract raise a strong presumption that they procured this contract by constructive fraud.‟ (McTiernan) Louth On Louth- she was aware of Diprose‟s disability (Deane, Brennan). Bridgewater On enforcing party when known. 3. Causation Independent advice not conclusive, but may negate inducement. Amadio Had they known the company‟s financial predicament they wouldn‟t have executed the doc (Wilson J) „Any rational person knowing the circumstances of the company at that time would not have executed the instrument which they signed‟ (Mason J). Blomley The right to rescind is not lost by affirmation. He had no real idea of what had happened until he spoke to a solicitor, and then he had only a hazy recollection (Fullagher). Louth Diprose made the gift because he was emotionally dependent and she manipulated him (Dawson, Gaudron, McHugh). „Her conduct induced him to enter into [the] transaction‟ (Mason). Bridgewater The question is how the intention was produced. 4. Restrictions on Recission Contractual exclusion? Unconscionable dealing is regarded as „equitable fraud,‟ and so it is hard to see how responsibility for it can be excluded by contractual provision. Restitutio It is unclear to what extent the inability to restore the parties to their pre-contractual position (restitutio in integrum) will preclude recission in this context. Partial recission As in cases of misrepresentation, only partial recission may be available. Amadio Where appropriate, an order will be made which only partly nullifies a transaction liable to be set aside in equity pursuant to the principles of unconscionable dealing. 18 An order setting aside the whole of a transaction will, in an appropriate case, be made conditional on the party obtaining relief doing equity. [The Amadio‟s have the whole transaction set aside unconditionally.] Bridgewater Equity may be satisfied by setting aside some but not all instruments. Loss of right to rescind As with misrepresentation, the right to rescind or have the contract set aside may be lost by subsequent conduct. Blomley He did not lose his right to rescind through affirmation- he had no real understanding until he spoke to a solicitor and his memory was hazy. THIRD PARTY UNCONSCIONABILITY A loan is made to A (the borrower), by B (the lender), guaranteed by C (the surety or guarantor). What if C made the contract with B as a result of misinformation, pressure, influence or other unconscionable conduct perpetuated by A? C may be able to rescind in the below situations. If the lender doesn‟t know- go to three and four! Garcia and Amadio often run in tandem (they did in Kranz), it doesn‟t matter what order you run them in. 1 Agency If bank authorizes husband to obtain guarantee. Because the husband is authorized to act as agent by lender, the conduct of the agent is attributed to the principle- therefore the unconscionability is attributed to the bank. 2 Unconscionable Dealing: Amadio Previous seminar. Eg, if the lender knows the wife does everything the husband tells her, and knowing of that disability he accepts the guarantee. So here, the lender is engaging in unconscionability within the normal parameters of the Amadio doctrine. 3 Special Wives Equity: Yerkey An invention of Dixon J‟s showing a particular concern for women. Yerkey B is a lot more powerful. 1 A is C’s wife 2 B knows [or should know] that A is C’s wife And A is subject to actual undue influence by C A has no independent advice [YERKEY A] OR: 3 A is a volunteer 4 A is mistaken about the effect of the transaction 5 B took no steps to explain or ensure independent advice [YERKEY B] 4 Relationships of Trust and Confidence: Garcia Marriage is just one example of a relationship of trust and confidence, there are many other examples so Garcia sees the 5 elements of Yerkey B (possibly) transmuted. Garcia v NAB THE TEST Mrs Garcia enters an „all moneys‟ clause- she is worried her husband will leave her. She doesn‟t understand the risk involved; although she is an articulate businesswoman she doesn‟t read it. Held 6:0 Mrs Garcia gets out of the contract. 19 Yerkey B is applied and the doctrine remains relevant (Kirby dissents on this point). Gaudron, McHugh, Gummow, Hayne: The rationale of Yerkey is based on trust and confidence- Yerkey will probably find application to other relationships more common now. Kirby: „Where the credit provider is or ought to be aware that the surety reposes trust and confidence in the debtor.‟ (Yerkey is an insult to the women of Australia). Would affect the capacity of women to execute a guarantee, would encourage borrowers to seek to escape their obligations by challenging the adequacy of explanations given to wives. Where credit provider knows, or ought to know, relationship involving emotional dependence of surety towards debtor, obligation not enforceable if legal wrong of debtor unless credit provider has taken reasonable steps to satisfy self surety entered into obligation freely and in knowledge of the facts. Callinan: „I would not attempt to state a principle given the diversity of human relationships. Very rarely will such findings be open in the case of a wife with the attributes possessed by the appellant.‟ (Reluctant to come to the party). Kranz v NAB Kranz agrees to provide a portion of his co-owned business as surety for his brother-in-law to buy shares. Kranz signs a personal guarantee of Lefkovic‟s debt to NAB. Kranz does not have good English. The court accepts that relationships of trust and confidence can go beyond familial relations, but doesn‟t find it here. Held 3: 0- guarantee held valid. ANZ v Alierzai Alirezai comes to Australia from Iran. He befriends Sarlak. Sarlak lends him $50,000. Alirezai guarantees a mortgage for Sarlak. Alirezai takes documents to his solicitor, who advises him not to sign. But he does it anyway. His solicitor signs a certificate of independent advice, and he signs one saying his solicitor told him not to do it. 2:1- the mortgage was valid. He loses. 1 A and B are in a relationship of trust and confidence Garcia They are married. Kranz Unclear what the law finds on this point- judgments look hesitant but some portions suggest they would be willing to accept it. ANZ v Alirezai „Not a closed category; they could, for example, arise in some parent-child relationships or in the relationship between a disabled person and a carer; many other potential examples can be envisaged.‟ ANZ did not know the relationship was one where the level of trust and confidence made it objectively unreasonable for a volunteer to provide surety (McMurdo JA). „The bank knew of the trust and confidence between the two men, amply demonstrated by Sarlak‟s confident and accurate prediction that Alirezai would provide security. The evidence establishes that there was a relationship of trust and confidence.‟ (Jerrard JA). 2 B knows [or should know] of the relationship Garcia Bank knew they were married. Kranz 20 „Given the limited amount of information available to the bank, I do not accept that the bank knew or should have assumed that there was a relationship of trust and confidence between Kranz and Lefkovic.‟ (Charles JA). „I find much to commend the principle that a bank on becoming aware that the relationship between debtor and surety is a non-commercial one has an obligation to bring home to a proposed guarantor the risks he or she is taking in acting as surety. This principle is not the law in Australia.‟ (Eames JA). ANZ v Alirezai ANZ did not know, nor ought to have known, that Alierzai and Sarlak were in a relationship of trust and confidence. (McMurdo JA, Wilson JA). 3 A is a volunteer Garcia Although some benefit flowed to her family, she was a volunteer. She had no financial interest in the company. She was a director of the company, but he conducted the business. 4 A is mistaken about the effect of the transaction Garcia She thought it was a guarantee of limited overdraft accommodation to be applied to the purchase of gold. Nor did she understand that her obligations were secured by the mortgage over her home. ANZ v Alirezai Alirezai did not appreciate the magnitude of the risk he was assuming (Wilson JA). Alirezai did not understand when executing either mortgage that he would not recover his certificate of title, unencumbered, until Sarlak Enterprises cleared all its debts to the bank. On its trading history, that would be likely to occur only when Sarlak retired. (Jerrard JA). 5 B took no steps to explain or ensure independent advice. Garcia The bank took no step to explain the transaction to her and knew of no independent advice. ANZ v Alirezai „The bank ought not to have assumed that the transactions had been adequately explained to Alirezai when [neither] Alirezai [nor] Kennedy had information about the extent of the debtors liability.‟ (Wilson JA). Kennedy had no idea about Sarlak‟s debt, „where the proposed surety will be unable to make a judgment as to what is in the surety‟s own interests without information describing the true financial position of the borrower, it will be necessary for the bank to make sure that information is conveyed, as well as independent advice received.‟ (Jerrard JA). „The fact that Alirezai was not prepared to accept advice from his solicitor makes it unlikely that, even if he had known the full extent of the debts, this would have affected his determination to assist his friend.‟ So ANZ was not obliged to disclose. (McMurdo JA). So majority believe- unless guarantot knows of the financial position of the borrower, no amount of explanation is enough- just because they get you to sign a statement does not displace Garcia or Amadio. Restrictions on Recission Where C seeks recission on the basis of These general principles are not to be applied directly to each case but only be resort to more specific mediating rules. by B, the limits on recission considered in unconscionable dealing apply. Presumably the same limits apply where the claim to recission is based on A‟s misconduct. UNCONSCIONABLE CONDUCT TPA S51AA-AC, 87 See sections in full! 21 Only s51AC applies to financial services, it, like the others, is mirrored by the Australian Securities and Investments Act , enforced by ASIC rather than the ACCC. Employment contracts are also expressly excluded. Start with s51AB and 51AC, then if they don‟t apply, go to 51AA. 51AA- BIG BUSINESS- mirrored only by Victoria. ‘conduct that is unconscionable within the meaning of the unwritten law’ Does not apply to conduct that is prohibited by s51AB or s51AC. Public listed? Above 10m? You‟re in s51AA!! ACCC v Berbatis Roberts‟ and the fish and chip shop. 4:1 no contravention of s51AA. Gummow and Hayne JJ: on unconscionable conduct under s51AA The meaning to the word „unconscionable‟ in s51AA is „the principles of law and equity expounded from time to time in decisions respecting the common law of Australia.‟ There is no need now to determine whether the section is limited to equitable doctrines, so as to exclude common law duress. Courts generally require a high level of unconscionability in the context of business transactions. ACCC v Radio Rentals Groth has an intellectual disability and schizophrenic illness. He makes 39 rental, loan or service agreements with Radio Rentals, and over a three year period calls them 329 times. Finn J: on knowledge of disability and s51AA Unconscionable dealings is relevant here, so RR need to „know or ought to have known.‟ Mr Groth is not obviously presented as mentally retarded by appearance, speech or manner of communication. His disabilities were not sufficiently evident to salespeople or service technicians. „While Mr Groth could be said to be in a position of special disadvantage, he was not knowingly taken advantage of by the respondents.‟ On aggregation of information The records (phone) embody unrelated events, transactions and communications. There is no evidence that RR monitored customer records- to suggest that they needed to „would have potentially alarming consequences for large, multi function corporations.‟ This is not a case like Krakowski. ACCC didn‟t plead risk management, maybe if they had they would have succeeded- „companies can properly be expected to have in place appropriate risk management practices.‟ 51AB- CONSUMERS- mirrored by all state jurisdictions. ‘conduct that is unconscionable in all the circumstances’ ‘matters to which the court may have regard’ Applies to supply of personal, domestic or household goods and services, unless supplied for re-supply or commercial use or transformation. Prohibits corporations and people from enagaging in unconscionable conduct (a person here means a person or corporation because „person‟ can include corp). Confined to household- selling toasters to supplier does not count. Services are defined to include just about everything; it is hard to think of contracts not included by this. There are a list of matters, that go beyond common law and equity. [you have to know- Lux]. 51AB (a) relative bargaining positions of corporation and consumer (b) conditions not reasonably necessary for protection of legitimate interests of corporation (c) whether consumer was able to understand documents (d) undue influence or pressure or unfair tactics by corporation (e) amount for, and circumstances in, which consumer could have acquired identical or equivalent goods or services from others. ACCC v Lux 22 She buys a vacuum, has a mild intellectual disability. 1:0 ACCC win under s51AB. R D Nicholson J: In this section, „unconscionable‟ is not limited to traditional equitable or common law notions of unconscionability- it bears its ordinary meaning of ‘showing no regard for conscience, irreconcilable with what is right of reasonable.’ Particularly unconscionable in not giving her the opportunity to take independent advice. He knew she was illiterate and did not understand commercial matters in any depth. She told him she couldn‟t read and he didn‟t explain it to her. So Nicholson J here is qualifying the list of matters with ‘knowledge.’ ACCC v Radio Rentals Agrees meaning of unconscionable is different here. Bargaining positions are unequal- but is there unfair use? There is little doubt he didn‟t understand the documents- but this was not sufficiently evident. There is no evidence that the terms he was required to accept differed from those required of other customers, or that unfair tactics were used or unfair pressure was exerted. 51AC- SMALL BUSINESS- mirrored by Victoria and Tasmania. ‘conduct that is unconscionable in all the circumstances’ ‘matters to which the court may have regard’ Applies to supply and acquisition for the purposes of trade or commerce- s51AC (7), (8). Price must not exceed $10m- s51AC- (9), (10). A section about unconscionable conduct in small business transactions. Applies separately to the supply of goods and the acquisition of goods and services. Not only the supplier not to engage in unconscionable conduct but also the acquirer.‟ It is a section about business transactions- applies only to acquisition or supply for trade or commerce (consumers left out). The separation of small and large businesses is done by excluding publicly listed companies from the prohibition- the assumption being that these represent big businesses, although it does not work perfectly. Also, any supply of goods and services for more than $10m is not covered. All the matters from s51AB, plus 6 more, that are potentially very powerful. S51AC (a)-(e) See above (f) Extent to which supplier‟s conduct was consistent with similar transactions with other business consumers. (g) Any applicable industry code. (h) Any other industry code reasonably relied on by business consumer (i) Extent to which supplier unreasonably failed to disclose any intended conduct that might affect the interests of business consumer. (j) Extent to which supplier was willing to negotiate. (k) Extent to which supplier and business consumer acted in good faith. ACCC v Simply No-Knead Sunberg J: S51AC goes „beyond what would constitute unconscionability in equity.‟ „Having regard to the applicable matters, the accumulation of incidents discloses an overwhelming case of unreasonable, unfair, bullying and thuggish behavior in relation to each franchisee that amounts to unreasonable conduct.‟ Coggin v Telstar Finance Coggin had been bitten by a spider and was woozy, has to have his leg on a chair. Three people plot to deprive him of his boat, he thinks it is being used as security but it is sold. Unconscionability found. Coggin not entitled to recission, but to damages (s82). Heerey J: Meaning of „unconscionability‟ very broad, various definitions „import a pejorative moral judgment.‟ Procedural unconscionability here under a, d, l, k 23 Bur more importantly, substantive unconscionability under b, e „More significant is the overwhelming weighting of the transaction against any rational assessment of what was in Coggin‟s interests.‟ CIT v Keable Keable and Zelner work for a motorcycle company. Zelner signs a directors agreement at the insistence of Zelner, but he doesn‟t really understand it- it‟s not just „while he‟s a director,‟ it‟s an all moneys guarantee. On the front page of the guarantee it says „it‟s important you read and fully understand all the terms and conditions of the above noted agreement prior to signing.‟ Also have to sign that you received legal advice, but no certificate of independent advice is included in the documents. Keable would not have signed it if he knew the truth. Spigelman J: Not unconscionable for 51AC. The guarantee was not complex or onerous, save insofar as any guarantee is capable of giving rise to significant obligations [b,c] „The general nature of what a guarantee entails is part of the usual knowledge of the overwhelming majority of persons who become company directors.‟- reinforced by plain English statement on the front. The lack of independent advice was not determinative [c,d] Misrepresentation is not necessarily unconscionable conduct [d,i]. Unless the person suffers some special, known, disadvantage, then placing the contract in front of them to read is as much as conscience requires. No relevant pressure [d]. „Nothing in the circumstances suggested any significant urgency or that the Respondent‟s will was being overborne or that he was being pressurized into refraining from taking steps to understand what he was being asked to do, make inquiries, protect his interests, read the document or take advice.‟ TPAs84(2)- Third party unconscionability doctrine. Conduct engaged in on behalf or a body corporate by a director, servant or agent, or at the direction of one of these, shall be deemed to have been engaged in also by the body corporate. Here, no basis for inference that the process of explanation was delegated to Zellner. If section 51A? has been breached, X may: recover the $ paid (section 82); or have the Y agreement set aside (section 87). ILLEGALITY 1 Statutory Illegality Express Prohibition If making a contract is expressly prohibited by statute, the contract is normally invalid. Bradshaw v Gilberts Scrap lead is sold for a lot more than it could legally be sold for under the Prices Regulation Act 1918. Held 2:1 the contract was void. „The general rule is that if a particular class of sale is prohibited by statute a sale in breach of the prohibition is void.‟ Implied Prohibition Many statutes prohibit specified conduct without making any reference to contracts involve such conduct. Whether they are invalid is a question of statutory interpretation, with the aid of rules developed in relation to contractual or other civil claims. Fitzgerald v F J Leonhart Drilling permits aren‟t held for the bores, neither party intends to not obey the law. There‟s nothing illegal in the contract as formed, just its performance. 5:0 the contract is not invalid (so FJL do get paid for the holes). 24 Kirby (others largely agree): Contract not expressly prohibited Contract was not implied prohibited as formed- it could be performed without breaking the law. Parties are assumed to intend lawful performance unless proved otherwise. The contract was not impliedly prohibited as performed- the breach was not deliberate, and also there are serious criminal sanctions for the breach of the Act- „if legislation provides sanctions, courts will require good reason to add civil penalties. The penalties and the scheme of the Act exhaust the legislative purpose. 2 Public Policy The HC has consistently affirmed the power of the courts to refuse enforcement of a contract on this basis, notwithstanding the longstanding criticism that public policy is an „unruly horse.‟ Courts have tried to create some basic rules by established a number of „heads‟ of public policy that identify contracts that are prima face illegal. Wilkinson v Osborne Isaacs J: „The principle must be of general recognition in the community [and] essential to its corporate welfare. The court cannot initiate the principle; it can only state if it already exists.‟ Contracts: (we only look at two) Involving unlawful conduct A contract involving unlawful conduct in its formation or performance is prima facie contrary to public policy. [[Not on course: A contract that does not involve unlawful conduct, that is nevertheless made for an unlawful purpose, may also be invalid on the basis of public policy- eg selling land to be used for tax evasion.]] North v Marra Developments Ltd North buys a large amount of Marra shares to inflate their value, then sues Marra for payment of fees. 5: 0 it‟s invalid. Contract illegal as formed: „fraud and illegality (common law and statutory) was a contemplated means of performing the contract.‟ (Mason) Contract illegal as performed: „the appellants fail.. performance involved illegal conduct.‟ (Mason). Fitzgerald v F J Leonhart A contract can be void „because of its association with illegal activity.‟ „Refusal in such a case to regard the contract unenforceable stems not from express or implied legislative prohibition but from public policy.‟ But in determining whether public policy precludes enforcement, „regard is had primarily to the statute.‟ The Nelson Principle: Courts should refuse to enforce legal or equitable rights because of public policy when they arose out of or were associated with conduct contravening a statute only if: - (i) refusing to enforce is not disproportionate to the seriousness of the unlawful conduct; and - (ii) refusing to enforce is necessary to protect the statute‟s objects or policies, and - (iii) statutory sanctions are not intended to be exclusive. Kirby: (applying it) Here it would be disproportionate to the respondent‟s unlawful conduct to deprive it of recovery under the contract. If there had been a specific agreement to deliberately breach the Act it might have been different. Such a sanction is not necessary to protect the objects of the Act. The penalties and the scheme of the Act appear to exhaust the legislative purpose. Prejudicing impartiality of public officials Public officials must act honestly and impartially. A contract that impairs their ability to do so normally is against public policy. 25 Wilkinson v Osborne Wilkinson engages Parliamentarians to lobby get Parliament to buy his property. Government buy it, Parliamentarians ask him for money, he refuses to give it. 3:0 the contract is void as against public policy. A legislator must act „impartially‟ (Griffith CJ) „according to the deliberate result of his judgment and conscience‟ (Griffith CJ, Isaacs J), „independently and from the standpoint of public welfare‟ (Isaacs J). This bargain raises a conflict between interest and duty and is therefore against public policy (Isaacs J). „The principle rests on the State Constitution read by the light of the doctrine of responsible government.‟ (Isaacs J). 3 Effect of Illegality Invalidity- contract is void, conduct is excused Illegality is usually relied on as an excuse for non performance: if it succeeds the claim is defeated. Severance If the contract is illegal only in part and the illegal part can be severed, the remainder will be valid. S4L of the TPA requires severance of provisions which would otherwise make a contract invalid because of a contravention of the TPA. North v Marra Not possible as fraud and illegality was a contemplated means of performing the contract and became an integral element in the appellant‟s performance. SST Consulting v Rieson SST lends money to AFS, in return for promise by AFS to direct all business their way. This clause contravenes the TPA (exclusive dealing). HC: the clause is severable. Severance under 4L is not „predicated on the application of common law rules governing severance.‟ 4L requires rather than permits severance, the „working out of limits in each case will depend upon the particular contractual provisions that are to be considered.‟ Enforcement by innocent party Where the parties are not equally responsible for the illegality, the more innocent party may be able to enforce the contract. If the parties are equally at fault the plaintiff‟s claim to enforce the contract must fail. Fitzgerald v F J Leonhardt „In this case the illegality was on the part of the owner, not the driller, and the evidence does not disclose that the driller was implicated in that illegality.‟ (Dawson and Toohey JJ). If the plaintiff is not at equal fault, may be granted relief, but this should not be approached by considering any general doctrine (McHugh and Gummow JJ). Non-contractual remedies Parties may be able to enforce obligations arising independently of the topic eg: - restitution - collateral claims in tort or under the TPA - proprietary claims TERMINATION BY FRUSTRATION After formation an event makes performance more onerous or even impossible. The law sets limits on it- all contracts involve risk. Note that all Australian jurisdictions have passed legislation dealing specifically with the destruction of goods after a contract of sale has been made: „Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided.‟ 26 1. Frustrating Event „The various theories shade into one another and that a choice between them is a choice of what is most appropriate to the particular contract under consideration.‟ (Brennan, Codelfa). 1 Objective justice If court decides it is „just‟ to terminate (Scanlans). „The law of Australia has not adopted any such proposition.‟ In any case, there‟s no objective injustice here (Latham, Scanlans). 2 Implied terms Based on the principle that some universally implied term that contract will terminate if that happens (Scanlan, Meriton, Beaton) „Availability of development was not made a condition of the contract and there is no basis on which a term to that effect could be implied‟ (Meriton). 3 Fundamental difference (this is the favorite test but still use them all) Consider the situation contemplated by the parties, then what actually happened (BCC, Codelfa). If the two situations be „fundamentally different,‟ the contract is frustrated (Stephen J in BCC). „Performance of a two shift operation was fundamentally different from that contemplated by the contract.‟ (Mason, Codelfa- Brennan dissents, no fundamental diff). 2. Qualification 1 Event must not be self-induced If you sink the ship yourself you are out of luck (Scanlans, BCC, Codelfa) 2 Risk must not be expressly assumed (Scanlans, Meriton, BCC, Codelfa) „Express provisions that rent to be paid whether the sign was used or not‟ (Latham, Scanlans) „At the date of the contracts the risk of restrictions was a fair business risk‟ (Williams, Scanlans) “Was [Codelfa] undertaking in any event to perform even though the method contemplated might prove to be unlawful? I do not think that.‟ (Mason Codelfa). „The contractor had agreed to perform the contract irrespective of difficulty.‟ (Brennan J). 3 Risk must not be impliedly assumed- foreseen/foreseeable? (Scanlans, BCC, Codelfa) Most of the time it is somewhat foreseeable so it‟s not an absolute criteria, but it does work as an index of risk assumption. The risk was „not one the parties could reasonable be thought to have foreseen.‟ (Stephen J BCC). This was an „industrial kind of risk which a purchaser might expect to encounter in a commercial development‟ (Meriton). Scanlan’s New Neon v Tooheys The leasing of illuminated signs to Tooheys pubs. Rental of sign for 5 years. For Scanlan‟s, installation is 50% of the cost. They cant use the sign after the start of WW2. Unanimous- no frustration. All the indicia except self inducement (not in issue) speak against frustration. Brisbane City Council v Group Projects BCC allows rezoning for development. GP agrees that in the event of rezoning approval will do a number of community projects. Land compulsorily acquired, BCC still want them to do projects. 5:0 contract has been terminated (3- non fulfillment of a contingent condition, 2- frustration). Codelfa Construction v SRA of NSW 27 Held 4:1 contract probably terminated by frustration (remitted to arbiter). Beaton v McDivitt Beaton sued to enforce promise by McDivitts to transfer block of land after rezoning, expected after two years. After 10 nothing has happened. 2:1 the action fails. No binding contract was made because of lack of consideration (Kirby) A binding contract was made but it was terminated by frustration (Mahoney J) A binding contract had been made and was not terminated- no frustration as subdivision could be applied for and might still happen (McHugh in dissent). Meriton Apartments v McLaurin & Tait Development is prevented by industrial action. Meriton argue that contract was frustrated by the green bans. Held: no frustration. 3. Effect Automatic Prospective Termination Further performance excused- Scanlan’s, BCC, Codelfa, Beaton, Meriton Case law on frustration is different from breach or non fulfillment of a non contingent condition because it occurs „by operation of law‟ when a frustrating event occurs- eg, not by election. Also, it is prospective- rights and liabilities which have already accrued remain on foot and breaches which preceded the frustrating event remain actionable. Where termination favours one party more than the other, turn to unjust enrichment. Restitution Recovery of money paid on failure of consideration Restitutionary award for unjust enrichment Frustrated Contracts Act 1959 (Vic) Vic, NSW and SA all have legn to confer on the court the power to make adjustments between the parties so as to avoid injustice. In Vic this is the Frustrated Contracts Act 1959 (Vic.) Section 3 (1) Where a contract has … been … frustrated … the following provisions … shall … have effect … (2) All sums paid or payable to any party in pursuance of the contract … shall …be recoverable and … cease to be so payable: Provided that, if the party to whom the sums were so paid or payable incurred expenses before the time of discharge in or for the purpose of the performance of the contract, the court may, if it considers it just to do so having regard to all the circumstances … allow him to retain or …recover the whole or any part of sums so paid or payable, not being an amount in excess of the expenses so incurred. (3) Where any party .. has by reason of anything done … in or for the purpose of the performance of the contract obtained a valuable benefit … before the time of discharge, there shall be recoverable from him … such sum (if any) not exceeding the value of the said benefit … as the court considers just … Section 4 (3) Where any contract … contains any provision … intended to have effect in the … circumstances … the court shall give effect to the said provision … TERMINATION FOR NON FULFILLMENT OF A CONTINGENT CONDITION Contingent conditions are not promises, and their non-fulfillment is not a breach of contract. Make the distinction between contingent conditions of formation and performance: 28 - Formation- no contract comes into existence unless and until the condition is fulfilled (eg- subject to preparation of a formal document. We looked at this in Obs). - Performance [our focus]- A contract is formed, but the obligation of party/ies to perform any or all the obligations under the contract is conditional on fulfillment of the condition. If the contract is terminated for non fulfillment of a contingent then restitution may be available for obligations already performed. Prerequisites for termination for non fulfillment of a contingent condition of performance 1 Non fulfillment must be established Must be clearly established by the terminating party. Gange v Sullivan Contingent on getting approval from council for development. Get „approval in principle.‟ Held: this does not constitute approval, so there is non fulfillment of a contingent condition. 2 Termination must be automatic or elective It may bring a contract to end automatically, or it may create an elective right to bring it to an end. (Perri, Gange, Suttor- just because you state that termination should be automatic does not mean it automatically is). Automatic termination only arises if the contract clearly provides for it. Gange v Sullivan The effect of a condition must in every case depend on the language in which it is expressed. Here the contract is voidable, and it was brought to an end by the vendor‟s positive recission. MK & JA La Roche v Metro Edgley Development contract: „this contract will be deemed to be automatically rescinded and of no force and effect if the conditions precedent are not satisfied by 31 March 2004. Roche argue that automatically terminated, or else the notice was effective notice of recission. Hodgson J: Parties can provide for automatic termination, but where termination is brought about by action of one party they can be prevented from taking advantage of it. The contract then becomes voidable, not void, by the other party. Proof of essentiality not required Unlike right to terminate for breach of a promissory term of a contract (later), the right to terminate for non-fulfillment of a contingent condition does not depend on proof that it is an „essential term‟ of the contract. A contingent condition is regarded as substantively essential, and its fulfillment within the specified period of time (or, if no time specified- within a reasonable time) is essential, even if this has not been agreed. In this respect it is different to the right to terminate a contract for failure to perform on time. Perri v Coolangatta Coolangatta sue the purchaser Perri for declaration that the contract has been validly terminated. 4:1 termination granted. „This contract has been entered into subject to purchasers completing a sale of their property No 9 Kokoran Road, Lilli Pilli.‟ That condition must have been performed in a reasonable time, which it was not. Therefore entitled to terminate after this time. Purchasers say, its mainly for our benefit, so we waive that benefit. Court says no, once time had expired immediate right to terminate, even if the contract says nothing about essentiality. The notice to terminate was served too early, but the commencement of the legal action was within time so that was the exercise of the right. 29 Restrictions on termination 1 Waiver of benefit of condition by enforcing party Even if a contract provides expressly or implicitly that non-fulfillment may be relied on by either party, if it is primarily for the benefit of the condition before it is relied on by the other party. Waiving party thereby gives up own right, but also strips other party of theirs. Perri Purchasers tried this, but failed because the contract had already been terminated. Sandra Investments v Booth „In the event that such approval is not obtained then the Purchaser may at their option cancel the contract.‟ Held: the clause gives only the purchaser the right to rely on the provision. After the period passes they elect not to cancel the contract, other party try to but are not able to use it. Can purchaser waive condition where it is „primarily‟ for benefit, or just „exclusively‟ for benefit? „It is not appropriate to pursue a discussion of these matters. I would merely observe that one should not lightly imply a right of waiver in one party to the possible prejudice of the other unless it clearly emerges on the face of the contract.‟ (Wilson J). Can you waive the benefit after the period has expired? Yes, it appears so (Wilson J). 2 Failure to cooperate by terminating party (also applies to breach) An obligation is implied in every contract that each party will do all things necessary to enable the other to have the benefit of the contract. Breach of this obligation is not only a breach of contract resulting in potential liability for damages; but it also disqualifies the party in breach from reliance on non fulfillment of the condition as a ground for termination. Park v Brothers The Parks want to buy from the Brothers. Special Condition: „Early Occupation by Purchaser to do Farming Work. The purchaser may enter the property as licensee without payment of any occupation fee to work up ground for crops.. in locations first approved by the vendor.’ Brother says they can start planting rice early, then he kicks them off, then they are allowed back on by a court but cannot reap all the rice because they have been gone for so long. They sue for damages during the exclusion period. HC: get damages of $1m. Brothers could not refuse to grant approval unreasonably. „There is nothing to suggest any reason related to the locations or nature of the development, or any legitimate interests of the respondent.‟ (Gleeson, Gummow, Hayne, Callinan and Heydon JJ). 3 Others: ALL EXAMINED UNDER BREACH, LOOK THERE! o Terminating party affirms, waives right to terminate or is estopped from terminating o Terminating party breached an obligation of co-operation or good faith o Terminating party is unconscionable in equity o Termination is unconscionable conduct under legislation TERMINATION FOR BREACH Where one party breaches the contract the other party is entitled to terminate it if the law provides a right to terminate for the breach in question; or the contract provides a right to terminate for the breach in question. The right to terminate for breach, whether legal or contractual, is not absolute. Termination for breach is proscriptive unless otherwise agreed, meaning that the contract is treated as valid until termination. (However the law of restitution applies- money that is paid before termination may be recoverable if its retention would constitute an unjust enrichment.) 30 A party who exercises a right conferred by law to terminate for breach is entitled to sue for damages for the loss of the performance which would have been given had the contract not been terminated. However if termination can only be justified on the basis of a right conferred by the contract the loss of bargain damages can only be recovered if the contract so provides. Legal Right A: Repudiation- consider also late performance Where a party manifests unwillingness or inability to perform the contract at all or in some essential aspect. This can occur before performance is due, in which case there is anticipatory breach. It can also occur where an actual breach involves repudiatory conduct. Where a party „evinces an intention no longer to be bound by the contract.. or shows he intends to fulfill the contract only in a manner substantially inconsistent with his obligations and not in any other way.‟ A manifestation of inability to perform is as much a repudiation as is unwillingness to perform. o Repudiation by actual breach An actual breach (even of an inessential term) involves repudiation if it evinces an intention no longer to be bound by the contract. Associated Newspapers v Bancks Agreed that „Us Fellers‟ would be published on the front page of the comic section, it is not. Held: he can terminate the contract. The conduct of the plaintiff was such as to amount to a refusal to be bound by the contract. Carr v J A Berriman Berriman contracts to build factory for Carr and supply the steel. Carr do not excavate by designated date and gets steel elsewhere. Berriman terminates and tries to sue for damages. The combination of the two factors constitutes repudiation- the failure to excavate alone did not. o Repudiation by anticipatory breach A contract can be repudiated before performance is due- a manifestation of unwillingness or inability to perform in advance of the time for performance is anticipatory breach that gives the other party an immediate right to „accept the repudiation‟ by terminating the contract. However the contract remains on foot until this right is exercised so it can be lost if the repudiating party withdraws its refusal or overcomes its ability to perform, or takes advantage of any subsequent event that discharges its duty to perform. Bowes v Chaleyer The shipping of silk ties- Bowes tries to cancel before shipping, the shipper ships it anyway but in three consignments (not half as soon as possible, half two months later as stated in the contract). Chaleyer argue that the requirement to ship as per contract was terminated when Bowes repudiated the contract. Held: (Knox CJ)- „A repudiation or breach by anticipation of the contract by one party gives the other party the option of treating the contract as at an end or waiting till the time for performance has arrived before making any claim for breach. If he elects to wait (as in this case) he remains liable to perform his part of the contract and enables the party in default to take advantage of any supervening circumstance which would justify him in refusing to perform it.‟ [Chaleyer did not accept Bowes‟ repudiation so the contract remained on foot]. The delivery situation was a condition, breach of which entitled Bowes to terminate. o Repudiation by unjustified termination A party who purports to terminate a contract without having a right to do so thereby repudiates the contract. However, a refusal to perform the contract on the basis of a bona fide, though incorrect, interpretation of its meaning is not necessarily a repudiation. DTR v Mona Homes Condition 4: the plan of subdivision annexed hereto has been lodged with the council. But in fact DTR lodge a different plan. 31 Mona Homes terminate for breach. DTR argue the termination was not valid and so a repudiation and so they try to terminate (so as to retain the deposit). Court: 4: 1 neither is entitled to terminate, but as neither want to perform the contract is abandoned and Mona get the deposit. Mona had no right to terminate because DTR, though in breach, did not repudiate by annexing the wrong plan. (Stephen, Mason and Jacobs JJ: „The appellant acted on its view of the contract without realizing that [Mona] were insisting on a different view until they purported to rescind… there is no basis on which one can infer that the appellant was persisting on its interpretation willy nilly‟). DTR had no right to terminate because Mona’s termination (though unjustified) was not a repudiation. Mona were in error regarding themselves as entitled to rescind but they were not in error of their interpretation of the contract. Contract abandoned. B: Breach of Essential Term- consider also late performance A failure to perform an obligation when it falls due justifies termination if the obligation is an „essential term.‟ A contract may expressly designate an obligation as an essential term (the express or implied designation of a term as a condition or condition precedent will normally have this effect). If not, the law determines whether a term is essential or not. Tramways test (adopted in Bancks): ‘The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promise that he would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise, as the case may be, and this ought to have been apparent to the promiser.’ Associated Newspapers v Bancks Objectively applying the Tramways test (would a reasonable person have seen the term as essential?) A person in Bancks position would not have entered otherwise, need for work to be in a conspicuous position, this should be obvious, there was breach of an essential term. Ankar Contract of suretyship. Ankar want security deposit back. Ankar don‟t give notice. Mason, Wilson, Brennan, Dawson: Courts are not too ready to construe a term as a condition. Three factors favour an interpretation that gives the clauses the status of conditions: - neither clause is readily enforceable by way of damages - the clauses enable the surety to safeguard its interests - clearly disadvantageous to be liable for a lessee of equipment who no longer enjoyed possession of that equipment. It is necessary to take into account the special character of a suretyship contract- ambiguous contractual provisions should be construed in favour of the surety. [Late Performance] Consider in relation to repudiation and breach. Delay confers a right to terminate if time was of the essence- so where breach consists of a failure to perform on time it will be necessary to show that performance on time was an essential term of the contract. Performance at or within a specified term is normally regarded as essential in a commercial contract (Bowes), though not always- it‟s a prima facie rule subject to the Tramways test (Burger King). If no time has been specified for performance, an obligation to perform within a reasonable time is normally implied. This is unlikely to be „of the essence‟ (Laurinda, DTR) (but it can be!)- must show the manner of late performance constituted repudiation. 32 If time is not of the essence the promisee cannot terminate the contract for failure to perform on time without first giving a notice (often called a notice to complete) allowing a further reasonable time and indicating that performance within that time is of the essence. Bowes v Chaleyer „A stipulation in a contract for sale of goods that goods shall be shipped at a given time is at least prima facie a condition precedent.‟ Burger King v Hungry Jacks The commercial rule is only prima facie and whether a term is essential depends on proper construction of the contract. DTR Nominees v Mona Homes Where no specified time (eg here „with all due dispatch‟), imply a reasonable time but the prima facie rule drops away. There is no foundation for holding that would not have entered contract had they known the appellant would not act expeditiously. Burger King v Hungry Jacks Failure to open 4 new restaurants Held: in light of the other terms of the contract, it was not an essential term. It is impossible to say that BKC would not have entered if not assured of strict compliance. Many other benefits are far more important. Express clause requiring adherence to the rule was dropped in latest agreement. Laurinda v Capalaba Laurinda was going to lease a shop in Capalaba‟s shopping centre. Due to start December, November L ask about it, C says will send shortly but delays because it is financially advantageous. L moves in without a lease, ask again in March, in August write a letter saying ‟13 days.‟ Capalaba breached an implied obligation to register or deliver a registration lease in reasonable time. BUT performance within a reasonable time was not of the essence. Was the notice effective? NO 1 Did not set a reasonable time 5:0 (14 would have been appropriate). 2 The letter was not unequivocal- „we reserve our rights‟ did not make time of the essence 3:2. Capalaba was entitled to terminate for repudiation. Late Performance as Repudiation: (delay may confer a right to terminate if it consts repudiation) Long and unexplained delay (Brennan) Delay was deliberate and for lessor‟s own commercial purposes. „Procrastination persistently practiced can reach the stage of repudiation even though accompanied by assurances of ultimate performance at some future time.‟ (Deane/Dawson) „The correspondence demonstrates an attitude on the part of Capalaba which was not only dilatory but also cavalier and recalcitrant.‟ (Mason). Carr v Berriman Failure to excavate on time did not constitute repudiation. Evidence suggests weather presented difficulties, so although it‟s a breach it‟s not intentional so not repudiatory. C: Substantial Loss A breach may cause substantial loss even if there was no repudiation and the term in question is not an essential term. In such cases a right to terminate may arise nevertheless on the basis of the serious effect of the breach. Carr v Berriman 33 The severity of the breach involving the provision of steel alone justified recission. The clearest indication that the effect of breach may itself justify termination is to be found in the recognition, in some cases, of a category of innomate or immediate terms which may or not give rise to a right to terminate, depending on the consequences of that particular breach. Ankar Failure to comply with notice was breach of an essential term. But, in the alternative argument- innomate terms- neither essential nor inessential and where it is one ot these you should look to the severity of the loss. [Doesn‟t really accept/use/apply, just mentions.] Contractual Rights to terminate for breach of contract You can, by contract, give yourself a right that does beyond a right to terminate by law. There are no restrictions on this in any way, but whether you have done this is a question of determination. Burger King „The occurrence of any of the following.. shall constitute good cause for BKC to terminate.. (d) HJ fails to comply with any terms, provisions or conditions of this Agreement.‟ Court: Fail because the clause is subject to cl8, which gives HJ the right to „cure‟ a failure. [ABC v APRA- where two constructions of language, avoid capricious, unreasonable, inconvenient or unjust] Relationship between legal and contractual right to terminate Unless otherwise agreed, both exist concurrently- so if a breach confers right to terminate on both bases, can chose either. However, legal right to terminate can be excluded expressly or by implication. Wallace-Smith v Thiess NX Swanston win tram contract, contract with Thiess to provide maintenance. Cl24 Thiess can only terminate if director of public transport decides it is no longer necessary for them to have the contract. NX Swanston become insolvent, Thiess want money. Metlink gets the new contract, services of Thiess are transferred. Held 3:0 NX Swanston repudiated, Thiess has a legal right to terminate. 3:0 cl24 did not exclude the right to terminate, only made it contingent on DPT approval. 2:1 Right exercised by transfer agreement. (Legal and contractual rights are concurrent, all the contract does is make the legal right contingent). - Legal right to terminate can be excluded Common law rights of termination may be displaced by the contract (French J) Parties can agree expressly or impliedly that right to terminate will be governed exclusively by the contract. (Weinberg J) - Should legal right to terminate for repudiation be excludable? What is the sound of one hand clapping? Surely if you repudiate you remove all legal terms, including the one prohibiting the other party from terminating (French J). „There is no doubt that a party‟s right to accept a repudiation can also be excluded by contract.‟ (Allsop J). -The presumption of concurrence All quote Concut. All accept presumption of concurrence. - Strict construction of contractual termination rights In general, construed strictly, limiting the right where breaches are relatively innocuous. (Weinberg J). Cth v Amann Aviation Clause excludes any legal right to terminate the contract by constituting an exclusive code governing termination for breach. Concutt v Worrell Gleeson CJ, Gummow and Gaudron JJ: 34 „Clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of contract arising by operation of law.‟ RESTRICTIONS ON TERMINATION Also apply to the exercise of a right to terminate for non-fulfillment of a contingent condition, aside from two marked. Readiness and Willingness [does not apply to contingent condition] A party can only terminate a contract if that party itself was ready and willing to perform the contract. Where a contract provides for contemporaneous performance, each party must tender performance to establish it is ready. However, a party can be estopped from relying on this principle where the other party justifiably inferred from the first party‟s demeanor that readiness and willingness to perform was no longer required. DTR Nominees (First, no repudiation, but also:) DTR was not ready and willing to perform. Foran v Wight Wights selling land to the Forans, dispute over deposit. Forans say time is of the essence, Wights say we can‟t settle on the day, Forans stop seeking finance, then try to terminate for failure to complete on date. They must discover who is at fault to decide who gets it. 4:1 Forans were entitled to terminate and recover deposit. They were excused from readiness and tendor on 22 June. Readiness and willingness is a prerequisite for termination for breach [Dawson, Brennan, Mason, Gaudron- Deane disagrees]. Wights could not rely on lack of readiness/willingness on 22 June. Forans were dispensed from it by intimation it was useless [Dawson, Brennan, Deane] Wights estopped from relying on it [Deane, Mason diss- no detriment] Forans had to shown they were not unable or unwilling on 20 June [Dawson, Brennan]- that they were not unready or unwilling when then informed by Wights, a much lighter burden to carry. Prevention and dispensation Neither breach nor non-fulfillment of a contingent condition can be relied on as a ground of termination by a party whose conduct prevented its performance of fulfillment, or who dispensed with it by intimating that it was pointless or no longer required. Peter Turnbull v Mundus Trading Sale of oats from Mundus to Turnbull Mundus can‟t deliver it in Sydney, but can deliver in Melbourne. Turnbull says has to be in Sydney. Turnbull buys from elsewhere and brings action for balance. Dixon CJ: Mundus dispensed Peter Turnbull from having to nominate a ship. Park v Brothers Sale of property on the bank of a river, Park wants to get in early to plant crop. Condition allowing him early access in locations approved by the vendor. Never actually requested or were granted approval, but was dispensed from having to request because Brothers made it plain he wouldn‟t grant it. Affirmation and waiver The right to terminate a contract can be lost irrevocably by a choice not to exercise the right. This may be an „affirmation‟ of the contract or a „waiver‟ of the right to terminate. 35 Recurrent question- how aware must a party be of the existence of a right to terminate before it can be lost. Carr v JA Berriman Actions after the failure to excavate the site suggest that they intended for the contract to remain on foot. Sargent v ASL Developments Contract for the sale of land, contains a clause giving either party a right to terminate if the property is affected by a planning scheme. Seller knows property is affected but doesn‟t know about clause. After 3 years, gets a better offer, tries to get out of it. HC: no, affirmation. The fact that they did not know the right doesn‟t matter, they knew the fact that gave rise to the right. Immer v Uniting Church Contract for the sale of floorspace, contract is subject to a contingent condition, Council to give approval by a certain date and it isn‟t achieved. Continue to act as if contract is on foot, and then it becomes apparent that restoration of Pilgrim House is required and Immer terminates, relying on the failure to get approval by the date. Held 5:0 termination valid. Deane, Toohey, Gaudron, McHugh: Sargent should not be read as meaning that a party who acts as though a contract remains on foot affirms it, a party must make a choice which Immer could not do because he thought council approval was a formality. Wallace-Smith v Thiess „It is not necessary for election that there be a conscious „choosing‟ mind. [It is not necessary] for the electing party to be aware of the existence of the right as long as the party was aware of the facts giving the right to rescind.‟ (French J). But Theiss did not make a choice, it reserved its position at all times- useful in a hypo involving express assertion of rights. MK & JA Roche Roche affirmed. Estoppel If the holder of a right to terminate engages in conduct which leads the other party to assume that the right will not be exercised, and that assumption is relied on, the doctrine of estoppel may prevent the exercise of that right. Estoppel may also preclude the automatic termination of a contract as a result of non-fulfillment of a contingent condition of performance. Legione v Hateley Promissory estoppel. Ask to settle later, secretary says she thinks that will be alright but she‟ll have to check. 3:2 not estopped from terminating- not definite enough. Undertaking to seek further instructions is not a promise or representation (Brennan, Mason, Deane). Funds were available and they could have paid, the secretary knew the time of expiry was close (Gibbs, Murphy). Garry Rogers v Subaru Finkelstein: He had no reason to believe that Subaru would not proceed with the termination. No conduct could have lead him to believe it, and even if it could, there is no relevant detriment. MK and JA Roche Rely on common law estoppel. Case primarily decided on affirmation. 36 Do you need detriment for conventional estoppel? The yes argument is that there is one overarching doctrine of estoppel. „I do not accept that reliance and detriment are not essential for common law estoppel.‟ Cooperation and Good Faith Where breach caused by terminating party‟s failure to cooperate, they are precluded from terminating contract. Park v Brothers Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ: The general rule of construction is that from Butt and Secured Income- parties are taken to agree to do all that is reasonably necessary to secure performance of the contract. Would not have been entitled to refuse application for a location (though no one suggested one), but want to approval was not raised before the trail judge. Burger King Bk can‟t terminate the franchise, barred by implied duty of good faith and cooperation. Because of the third party freeze and its financial and operational disapproval. Gary Rogers Accepted as a potential bar, but not applicable here. Subaru did have good reason to terminate the dealership- Rogers‟ conduct was contrary to its business interests and 13 months was enough notice of termination to allow him to sort out his affairs. Meridian Retail Good faith is acknowledged as a bar on a right to terminate. But no evidence to establish it here. Unconscionability in Equity A general principle that „a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct,‟ and a specific „power to grant relief in respect of any termination which happens to be unconscionable‟ have been endorsed by the HC These general principles are not to be applied directly to each case but only be resort to more specific mediating rules. Tanwar v Cauchi Tanwar want to buy land- are delayed but offer to pay compensation. Extend the date twice, with the agreement that if can‟t pay at the second date the vendor can terminate. Money is delayed from Singapore by a day. Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ: Can‟t use unconscionability in the abstract. „The special heads of fraud, accident, mistake or surprise identify in a broad sense the circumstances making it inequitable for the vendors to rely on their termination of Tanwar‟s contracts as an answer to its claim for specific performance.‟ [Doesn‟t quite say these are the only ones, some residual room for new ones- „no doubt the special heads do not disclose exhaustively the circumstances which merit equitable intervention.‟] Termination is not unconscionable here. No fraud (not alleged), accident could not be relied on, no mistake, no surprise. Exceptional circumstances are not needed before equity will intervene. Unjust Forfeiture of Proprietary Interest [does not apply to contingent condition] This is most often invoked in relation to contracts for the sale of land. Purchaser acquires an equitable interest as soon as the contract is made, although no legal title is acquired until completion. Termination by the vendor therefore involves forfeiture of a proprietary interest. “The place of forfeiture in the law is rather unclear since Tanwar.” 37 Tanwar It can be difficult to show an equitable interest if you were in breach of an essential term. Contracts between Tanwar and the vendors do not share the characteristic of close and obvious relationship between contract and purchase. TPA s51AA, AB and AC Unconscionable conduct under the TPA. These provisions potentially affect the exercise of contractual rights to terminate for breach. S51AB and s51AC go beyond the ambit of equitable restraint on the exercise of contractual powers. Courts have stated potentially available, but rarely find it. Meridian It was a legitimate exercise of right to terminate. Unconscionable conduct not established on the facts. Where not in bad faith to terminate, unlikely to be unconscionable conduct in termination. Garry Rogers v Subaru Not sufficient to establish as unconscious under 51AC. Subaru were justified in holding the view that he was someone who couldn‟t be trusted. TERMINATION BY CONSENT 1 Subsequent Contract Parties can release each other from obligations in a subsequent contract, an intention to abrogate the existing contract must be clearly established. Where one party already performed the contract it may raise problems of consideration. (Contracts of release should be recorded in a deed). It need not be in writing to be enforceable, even where the original contract was a deed- can be express or implied. Distinguish a contract of variation. Whether a variation terminates an existing contract and replaces with a new one or just changes it can be important. BP Refinery Mutual release serves as consideration. Creamoata v Rice Equalisation Millers form agreement, some growers decide to start milling as well, Creamoata agrees to help mill for them. He‟s ejected from the association. He applies for a bigger allocation, the association sue him saying he‟s in breach of agreement. Court holds no, the meeting resulted in an agreement to release him. Wallace-Smith v Thiess Just because parties get together and terminate does not mean a termination by consent, can be a termination for breach. Thiess argue they terminated for repudiation (so can get loss of bargain damages). Court, yes, you win, it wasn‟t terminated by consent. It was not fatal that Thiess did not express the termination as acceptance of a repudiation (French J). Electronic Industries v David Jones Television demonstration held up by coal strike. DJ argue agreed to terminate. Court say: subsequent arrangement was not a termination it was a variation. So if a mere contract of variation, still an obligation to perform. 38 Commr of Taxation v Sara Lee Does obligation to perform arise because of new contract, or varied original contract? This is all about time, for capital gains tax. If Sara Lee can place gain later, get all sorts of benefits. Held: Well it depends on what the contract says. For a number of reasons, here is was not replacing the original agreement. Obligations did not change, prices did but source of obligation was original agreement. 2 Abandonment Abandonement can be manifested by a mutual unwillingness to perform, or by prolonged inactivity. It can be less readily inferred if the contract has been performed to some extent, or if proprietary rights have been created. DTR Nominees Mona homes is entitled to the deposit because the contract has been abandoned. Fitzgerald v Masters Fitzgerald sells half of farm to Masters, Masters leaves but tells Fitzgerald intends to retain interest in land. 26 years later Fitzgerald dies. 5:0 contract was not abandoned. No abandonment when he left the farm. No abandonment from long inactivity- here the contract had been partly performed, so equitable interest he had acquired could not be lost by mere inactivity. 39