Table of Contents

FORMATION.....................................................................................................4
CAPACITY.........................................................................................................4
OFFER............................................................................................................. 5
THE TEST IS:........................................................................................................................... 5
AN OFFER NEEDS TO BE DISTINGUISHED FROM:.............................................................................. 6
TENDERS HARVELA V ROYAL................................................................................................... 6
REVOKE OFFER DICKINSON V DODDS......................................................................................... 6
REVOKE OFFER WORLDWIDE MOBIL OIL V WELLCOME..................................................................6
SPECIFIED TIME GOLDSBROUGH MORT V QUINN..........................................................................6
ACCEPTANCE....................................................................................................6
ACCEPTANCE MUST BE COMMUNICATED TO THE OFFEROR EMPIRNALL V MACHON...............................7
ACCEPTANCE VS. COUNTER-OFFER............................................................................................... 7
COUNTER OFFERS - BUTLER MACHINE TOOL V EX-CELL-O CORP......................................................7
ONLY PARTIES TO WHICH AN OFFER IS MADE ARE CAPABLE OF ACCEPTING THE OFFER R V CLARKE.........7
MODE OF ACCEPTANCE MANCHESTER V COMMERCIAL AND GENERAL...............................................7
SILENCE IS NOT SUFFICIENT TO ACCEPT AN OFFER FELTHOUSE V BINDLEY.........................................7
POSTAL ACCEPTANCE RULE BRINKIBON V STAHAG.......................................................................7
TICKETS MACROBERTSON AIRLINE V COMMISSIONER OF TAXATION.................................................7
CONSIDERATION...............................................................................................7
EXECUTORY VS EXECUTED CONSIDERATION................................................................................... 8
DETRIMENT AS CONSIDERATION CARLILL V CARBOLIC SMOKE BALL.................................................8
REFERABILITY, QUID PRO QUO AUSTRALIAN WOOLLEN MILLS V COMMONWEALTH...............................8
BARGAIN VS RELIANCE BEATON V MCDIVITT.............................................................................. 8
CONSIDERATION MUST MOVE FROM THE PROMISEE COULLS V BAGOTS............................................8
SUFFICIENCY WOOLWORTHS V KELLY........................................................................................ 8
ILLUSORY OR VAGUE CONSIDERATION PLACER DEVELOPMENT V COMMONWEALTH...............................8
PAST CONSIDERATION ROSCORLA V THOMAS (HORSE SALE)...........................................................9
EXISTING PUBLIC DUTY GLASBROOK V GLAMORGAN (POLICE SECURITY)...........................................9
EXISTING LEGAL/CONTRACTUAL DUTY STILK V MYRICK..................................................................9
PRACTICAL BENEFIT WILLIAMS V ROFFEY (ENGLAND), MUSUMECI V WINADELL (AUSTRALIA)................9
PART PAYMENT OF DEBT.......................................................................................................... 10
INTENTION.....................................................................................................10
COMMERCIAL AGREEMENTS BANQUE BRUSSELS V AUSTRALIAN NATIONAL INDUSTRIES (ANI).............10
DOMESTIC AGREEMENTS TODD V NICOL.................................................................................. 10
REBUTTAL OF PRESUMPTION JONES V PADAVATTON....................................................................10
PRESUMPTION SHOULD NOT BE USED ERMOGENOUS...................................................................11
AGREEMENTS WITH GOVERNMENT PAPUA NEW GUINEA V LEAHY..................................................11
AGREEMENTS SUBJECT TO CONTRACT MASTERS V CAMERON......................................................11
AGREEMENTS WITH NO LEGAL INTENTION ROSE & FRANK V JR CROMPTON....................................11
CERTAINTY.....................................................................................................11
UNCERTAINTY AND VAGUENESS MEEHAN V JONES......................................................................11
AGREEMENTS WITH MORE THAN ONE MEANING COUNCIL OF THE UPPER HUNTER V AUSTRALIAN
CHILLING............................................................................................................................. 11
SEVERING TERMS WHITLOCK V BREW..................................................................................... 12
ESSENTIAL TERMS HALL V BUSST........................................................................................... 12
INCOMPLETENESS................................................................................................................... 12
AGREEMENTS TO AGREE UNITED GROUP RAIL V RAIL CORP NSW (NEGOTIATE IN GOOD FAITH).........12
ILLUSORY PROMISES PLACER DEVELOPMENT V COMMONWEALTH...................................................12
UNCERTAINTY VS ILLUSORY TERMS BIOTECHNOLOGY V PACE........................................................13
PRIVITY..........................................................................................................13
THIRD PARTY BENEFIT COULLS V BAGOTS................................................................................ 13
EXCEPTIONS TO PRIVITY TRIDENT V MCNIECE........................................................................... 14
HIMALAYA CLAUSES PORT JACKSON STEVEDORING V SALMOND V SPRAGGON (AGENCY)...................14

EXPRESS TERMS - INCORPORATION..................................................................14

INCORPORATION BY SIGNATURE LESTRANGE V GRAUCOB............................................................15
EXCEPTIONS TO LESTRANGE V GRAUCOB CURTIS V CHEMICAL CLEANING......................................15
NON EST FACTUM PETELIN V CULLEN...................................................................................... 15
REASONABLE NOTICE OCEANIC SUN LINE V FAY........................................................................15
REASONABLE NOTICE IN NON-CONTRACTUAL DOCUMENTS CAUSER V BROWNE................................15
PROPER NOTICE + ACCEPTANCE OF TICKET THORNTON V SHOE LANE PARKING...............................16
INCORPORATION BY COURSE OF DEALING RINALDI V PRECISION MOULDINGS..................................16
PAROLE EVIDENCE RULE.......................................................................................................... 16
CIRCUMVENTING PAROL EVIDENCE RULE..................................................................................... 16
Evidence of prior negotiations Prenn v Simmonds......................................................17
Collateral contracts Hoyts v Spencer..........................................................................17
SUMMARY............................................................................................................................. 17
EXPRESS TERMS.............................................................................................17
TERM OR REPRESENTATION JJ SAVAGE V BLAKNEY......................................................................18
RELATIVE EXPERTISE DICK BENTLEY PRODUCTIONS V HAROLD SMITH (MOTORS).............................18
NON-PROMISSORY REPRESENTATION OSCAR CHESS V WILLIAMS...................................................18
CONSTRUCTION..................................................................................................................... 18
EXCLUSION CLAUSES.............................................................................................................. 18
Strict construction Darlington Futures v Delco...........................................................18
Contra Proferentem Darlington Futures v Delco.........................................................19
Four corners rule Council of City of Sydney v West....................................................19
Deviation rule TNT v May & Baker..............................................................................19
IMPLIED TERMS..............................................................................................19
NECESSARY TERMS IMPLIED IN FACT BYRNE V AUSTRALIAN AIRLINES.............................................19
TERMS IMPLIED BY LAW LIVERPOOL CITY COUNCIL V IRWIN..........................................................20
TERMS IMPLIED BY CUSTOM CON-STAN INDUSTRIES OF AUSTRALIA V NORWICH WINTERTHUR............20
CLASSIFICATION OF TERMS, BREACH AND TERMINATION...................................20
CONDITION OR WARRANTY LUNA PARK V TRAMWAYS ADVERTISING...............................................20
IMPORTANCE OF TERM ASSOCIATED NEWSPAPERS V BANCKS........................................................21
INTERMEDIATE TERM HONG KONG FIR V KAWASAKI KISEN KAISHA + KOOMPAHTOO V SANPINE..........21
RELEVANT FACTORS IN ASSESSING IF A TERM IS A CONDITION.......................................................21
TERMINATION.................................................................................................21
CONTINGENT CONDITIONS....................................................................................................... 22
BREACH OF CONTINGENT CONDITION CUTTER V POWELL.............................................................22
EXPIRY OF CONDITION PRECEDENT LEWES NOMINEES V STRANG...................................................22
CONDITION SUBSEQUENT MAYNARD V GOODE..........................................................................22
BREACH OF INTERMEDIATE TERM KOOMPAHTOO LOCAL ABORIGINAL LAND V SANPINE PTY LTD..........22
TERMINATION BY AGREEMENT................................................................................................... 23
UNILATERAL DISCHARGE MCDERMOTT V BLACK.........................................................................23
TERMINATION REPUDIATION..........................................................................23
REPUDIATION BY CONDUCT CARR V JA BERRIMAN......................................................................23
COMBINATION OF EVENTS PROGRESSIVE MAILING HOUSE V TABALI PTY LTD...................................24
REPUDIATION BY QUANTITY MAPLE FLOCK V UNIVERSAL FURNITURE..............................................24
REPUDIATION BY AGREEMENT DTR NOMINEES V MONA HOMES....................................................24
TERMINATION FRUSTRATION.........................................................................24
ABSOLUTE IMPOSSIBILITY TAYLOR V CALDWELL (VENUE DESTROYED).............................................24
RADICAL DIFFERENCE............................................................................................................. 25
ILLEGALITY........................................................................................................................... 25
FUTILITY KRELL V HENRY + BRISBANE V GROUP PROJECTS.........................................................25
TEST FOR FRUSTRATION CODELFA CONSTRUCTIONS V STATE RAIL AUTHORITY OF NSW....................25
LIMITS OF FRUSTRATION.......................................................................................................... 25
FORCE MAJEURE CLAUSE......................................................................................................... 25
CONSEQUENCE OF FRUSTRATION............................................................................................... 25
EFFECT OF LEGISLATION FRUSTRATED CONTRACTS ACT 1978.....................................................26
RELEVANT PROVISIONS IN THE NSW ACT................................................................................... 26

TERMINATION TIME DELAY............................................................................26

TIME STIPULATIONS................................................................................................................ 26
AT WHAT TIME IS PERFORMANCE REQUIRED............................................................................... 27
Where Time is of the Essence....................................................................................... 27
Construing Time Stipulation.......................................................................................... 27
Where Time is not of the Essence................................................................................. 27
NOTICE................................................................................................................................ 28
The Notice Procedure.................................................................................................... 28
The Requirements for a Valid Notice............................................................................. 28
Laurinda Pty Ltd v Capalaba Park Shopping Centre......................................................28
REASONABLE TIME FOR COMPLIANCE WITH A NOTICE...................................................................28
Louinder v Leis.............................................................................................................. 29
NO STIPULATION FOR TIME FOR PERFORMANCE............................................................................29
EXTENSION OF THE TIME FOR PERFORMANCE.............................................................................. 29
ESTOPPEL......................................................................................................29
THE ELEMENTS OF PROMISSORY ESTOPPEL ARE:...........................................................................29
PROMISSORY ESTOPPEL WALTON STORES V MAHER...................................................................30
DETRIMENT JE MAINTIENDRAI V QUAGLIA................................................................................. 30
RELIANCE GIUMELLI V GIUMELLI............................................................................................. 30
NON-FINANCIAL DETRIMENT COMMONWEALTH V VERWAYEAN.......................................................30
INDUCEMENT......................................................................................................................... 30
SHIELD OR SWORD................................................................................................................. 31
ESTOPPEL V CONTRACT LAW.................................................................................................... 31
VITIATING FACTORS........................................................................................31
MISREPRESENTATION.............................................................................................................. 31
Categories of misrepresentation................................................................................... 32
Elements of actionable fraudulent misrepresentation...................................................32
When silence becomes misrepresentation Davies v London & Provincial Marine
Insurance...................................................................................................................... 33
Statement of opinion Smith v Land and House Property Corporation.........................33
Statement of future Fitzpatrick v Michel.....................................................................33
Opportunity to verify the representation Redgrave v Hurd........................................33
Reliance and inducement Nicholas v Thompson.........................................................33
Statutory provisions...................................................................................................... 33
Statutory provision ACL........................................................................................................................ 34
What is misleading or deceptive conduct under the ACL?.......................................................................34

What is conduct that is misleading or deceptive?.......................................................34

Who is the conduct directed to?.................................................................................... 34
DURESS............................................................................................................................... 35
Analysing duress problems........................................................................................... 35
UNCONSCIONABLE CONDUCT.................................................................................................... 36
What constitutes a disability......................................................................................... 36
Non-statutory Unconscionability Commercial Bank of Australia v Amadio.................36
Drunkenness Blomley v Ryan..................................................................................... 36
Emotional dependence Louth v Diprose.....................................................................37
Active Unconscionability Bridgewater v Leahy...........................................................37
Inequality of bargaining position ACCC v CG Berbatis Holdings.................................37
Relief from unconscionable transactions.......................................................................37
Statutory protection............................................................................................................................... 37
Unconscionable conduct - ACL................................................................................................................ 37
Unconscionable conduct ACL ACCC v Simply No Knead (Franchising)................................................38
Unconscionable conduct NSW legislation............................................................................................. 38
Unfair contract terms Legislation......................................................................................................... 39
UNDUE INFLUENCE................................................................................................................. 39

Presumptive relationships............................................................................................. 39
No presumptive relationship Johnson v Buttress........................................................40
Rebutting the presumption Westmelton v Archer and Schulman...............................40
Undue influence by a 3rd party Garcia v National Australia Bank................................40
REMEDIES......................................................................................................40
EQUITABLE REMEDIES............................................................................................................. 41

Formation
Essentially a contract is formed when a clear and unequivocal offer is
accepted without qualification AND the agreement is supported by real
and sufficient consideration AND the parties intended to be legally bound
by their promises AND their promises were sufficiently clear and complete
to make enforcement possible.

Capacity
The doctrine of capacity stipulates that a contract is not binding if someone does
not have the capacity to enter into it. Contracts made with a person lacking
contractual capacity are generally voidable at the option of the person who lacks
capacity.
In NSW the Minors Property and Contracts Act provides a comprehensive code for
dealing with law relating to minors.
Contract is not binding if someone does not have capacity i.e. contract not validly
formed
Contracts are presumed to be binding because people that enter into contracts are
presumed to have the capacity to enter into the contract
Exceptions
Statutory exception for minors
- Minors Property and Contracts Act NSW 1970 p356 circumstances
where a minor can be liable or be bound by a contract. Codifies minors in
contracts, contrast to common law position
- Minors under the age of 18 are considered to not have capacity
o Minor defined as under 18 s6
- Act does not cover people over 18
- s19 circumstances where minors can have capacity to enter a contract
o If minor participates in formation in contract and is a benefit to the
minor at the time of the formation then it is binding
- s20 Deals with the sale of land.
o s20(2) property
Under this section a disposition of property to a minor is
considered presumptively binding if the consideration paid or
promised by the minor is not manifestly excessive at the time of
the disposition
- s30-34 contract affirmed or repudiated
o Upon turning 18 a person can affirm or repudiate contract previously
entered into
- s36 adult can take minor to court about capacity
- s37 if contract is repudiated, other party can receive compensation
- s38 provisions for repudiation expire when 19

Statutory exception for mental incapacity including drunkenness

- Sale of Goods Act 1923 NSW
- s7 circumstances when contract is binding or not binding when buying or
selling
o If you have mental incapacity or are drunk when entering contract
then you lack capacity.
o Exception when the contract is a necessary'
Common law - minors can still be bound if they satisfy more general tests from Nash
v Inman
Nash v Inman - Student orders 11 waistcoats from tailor, doesnt pay on grounds of
lack of capacity due to being a minor.
- Two key requirements for necessaries
o Contract must be for a reasonable price
o Suitable to the condition of the minor and is necessary for their actual
requirements at the time of supply
Court found that the conditions were not necessary. Suitable but not
necessary
Gibbons v Wright - Whether or not one party can rely on mental incapacity for
contract to not be binding. Definition for mental incapacity:
- Must exist a mental incapacity
o Person claiming incapacity has the burden of proof.
o If a person lacks understanding of the general nature of the contract
then they dont have the capacity to enter into the contract.
o such as when you are very drunk
- The other party must be aware of the persons condition in understanding
the contract but continued the contract regardless.
o In order to avoid a fair contract on the grounds of insanity, the
mental capacity of one must be known to the other of the
contracting parties. A defendant who seeks to void a contract on the
ground of his insanity must plead and prove not merely his
incapacity but also the plaintiffs knowledge of that fact. And unless
he proves these two things he cannot succeed."
In these circumstances the contract is voidable, not void. Contract goes ahead
unless one party seeks to have the contract set aside.

Offer
Is there an offer?
An offer is a statement by the offeror that he or she is willing to enter into a legally
binding contract on particular terms. Whether or not there is an offer is determined
objectively by the courts.

The test is:

-

Whether it would appear to a reasonable person in the position of the

offeree that an offer was intended and that a binding agreement would
be made upon acceptance. Carlill v Carbolic Smoke Ball Co
Whether particular conduct amounts to an offer is a question to be
decided on the facts of each case Australian Woollen Mills v
Commonwealth

An offer needs to be distinguished from:

-

Invitations to treat or negotiate Pharmaceutical Society v Boots

o An invitation to make offers or negotiate is not an offer - Pharmaceutical
Society v Boots
o An indication by the owner of property that he or she might be
interested in selling at a certain price or negotiating is not an offer
Puffery Carlill v Carbolic Smoke Ball
o A court will look at who was intended to read the offer and what a
reasonable person would understand it as saying
o Promotional statements that express subjective views rather than
objective which no reasonable person would take literally
Supply of information & Rejection Stevenson Jaques v McLean
o Supply of information or inquiry is not an offer, acceptance or counteroffer
o Inquiry into price, more information or possibility of modification not an
offer
Counter-offers Butler Machine v Ex-Cell-O Corp
o If an offer is accepted with some modifications then this is a counteroffer and a contract does not exist until the original offeror accepts the
new modified terms
o A counter-offer is seen as a rejection of the original offer. Note the
distinction between counter-offer and inquiry into modifying as above

Tenders Harvela v Royal

-

When a seller states they will accept the highest tender, the invitation to
submit tenders is an offer capable of acceptance by a party who offers the
highest price

Revoke offer Dickinson v Dodds.

-

As a general rule, an offer may be revoked at any time before it is accepted

provided the withdrawal is brought to the attention of the offeree, even by a
third party

Revoke offer worldwide Mobil Oil v Wellcome.

-

Where an offer is made to the whole world, the offeror must use appropriate
means to communicate the revocation of the offer to all potential offerees

Specified time Goldsbrough Mort v Quinn

-

An offer can be withdrawn at any time before acceptance. However if there is

consideration for an offer to remain open for a period of time then it cannot
be withdrawn. I.e. deposit. Ancillary contract, option to purchase
If there is no time period stipulated in the offer then it will end at the
expiration of a reasonable period.

Death Fong v Cilli

-

In the event a party dies before acceptance of the offer, the offer lapses. In
the event of death of the offeror, the offeree may accept the offer at any time
prior to the receipt of notice of death

Acceptance
An offer only becomes a contract when accepted unconditionally. An acceptance
must be made in response to the offer. Acceptance may be in writing, oral or
implied by conduct unless otherwise specified in the terms of the offer. A valid
contract is formed only when the other party is made aware of the acceptance. The
relevant jurisdiction for a contract is where the acceptance is received.

Acceptance must be communicated to the offeror Empirnall v

Machon
-

Unless reasonable person can infer that the conduct of the offeree constitutes
their knowledge and acceptance through receiving benefits of the terms
under that offer
I.e. Acceptance by benefit
Acceptance can be made in writing, verbally or any other means of
communication as long as they receive it

Acceptance vs. counter-offer

-

A valid acceptance must be unconditional and correspond to the offer i.e. no

changes, additions or qualifications.

Counter offers - Butler Machine Tool v Ex-Cell-O Corp

-

Who has made the final offer and whose terms were accepted
Counter-offer kills the original offer

Only parties to which an offer is made are capable of accepting the

offer R v Clarke
-

An offeree must be aware of the existence and terms of the offer when
acceptance occurs.
Acceptance must be on the faith of/in reliance upon the offer

Mode of acceptance Manchester v Commercial and General

-

The method of communication is a matter for the parties and the offeror may
prescribe a particular mode of acceptance
Acceptance is generally expected to be in the same form as the offer was
made unless stated otherwise

Silence is not sufficient to accept an offer Felthouse v Bindley

-

Acceptance must be communicated

Unless see above, Empirnall v Machon

Postal Acceptance Rule Brinkibon v Stahag

-

The postal acceptance rule is an exception to the rule that acceptance must
first be communicated to the offeror to be effective
Only applies to written letters sent by regular mail. Acceptance occurs when
the letter is posted at the post office.
Instantaneous communications acceptance occurs when offeror receives it
Jurisdiction is where acceptance occurs
7

Tickets MacRobertson Airline v Commissioner of Taxation

-

Generally a contract is formed when a ticket is purchased

Where there is no promise contained on the ticket, the ticket for carriage is an
offer (plane tickets offering seat).
o Acceptance does not occur when the ticket is purchased but at some
time afterwards (depending on the case)(boarding the plane is
acceptance of the offered seat)

Consideration
For a promise to be binding, both parties must provide consideration. Only parties
that have provided consideration can enforce the contract. Consideration is the
price for the other partys promise Dunlop v Selfridge. It can be either a
detriment to one party or a benefit to the other Currie v Misa. In addition to, to be
sufficient consideration must:
1. Not be from the past Roscorla v Thomas
2. Involve an exchange or quid pro quo Australian Woollen Mills Pty Ltd v
Commonwealth
3. Move from the promisee Coulls v Bagots
4. Not be an existing public duty Glasbrook Bros Ltd v Glamorgan
5. Not be an existing contractual duty Stilk v Myrick + Wigan v Edwards
6. Not be part payment of an existing debt Pinnels case
7. Not be illusory or vague Placer development Ltd v Commonwealth
Without consideration, an agreement is said to be nudum pactum
Unilateral contract one promisor
Bilateral contract two promisors
Consideration may involve
- Exchange of things
- Exchange of thing for promise
- Exchange of promises
Not important if promises have been fulfilled yet, only the existence of the promise
is sufficient to form a contract.

Executory vs executed consideration

-

Executory promise that has yet to be fulfilled

Executed promise already fulfilled

Detriment as consideration Carlill v Carbolic Smoke Ball

-

Doing something that you would not have normally done can identify as a
detriment and be sufficient for consideration.
Unilateral contract. Consideration was detriment suffered from using the
product as prescribed outside of usual course of action.

Referability, quid pro quo Australian Woollen Mills v

Commonwealth
-

Bargain element there must be a sufficient connection between the

consideration and the promise that it is supposed to support.
8

Acts must simply not be performed in reliance of a promise; rather they must
be done in return for the promise to constitute a quid pro quo consideration.
Two sided deal

Bargain vs Reliance Beaton v McDivitt

-

Acts or promises in consideration must be made in exchange for the other

promise, not in reliance.

Consideration must move from the promisee Coulls v Bagots

-

Consideration must move from the promisee but it does not need to flow
directly to the promisor.
If there are two promisees as a joint party it is sufficient that consideration
flows from only one of them as there is a single promise made to both of
them.

Sufficiency Woolworths v Kelly

-

Courts not concerned with the price or adequacy of consideration, only that it
is sufficient or real able to be considered under law.

Illusory or vague consideration Placer development v

Commonwealth
-

A promise or apparent promise is not good consideration if it is too uncertain

to be enforced or the promisor has retained discretion on whether or not to
perform that promise.
Natural love and affection illusory Dunton v Dunton
o Being a spouse is not suffering a detriment (even if they suck)
o However refraining from natural actions otherwise legal and at liberty to
perform can be consideration

Past consideration Roscorla v Thomas (horse sale)

-

Acts or promises that predate a promise cannot be used as consideration for

that promise.
- Past consideration cannot be used to support a new promise
Unless the act was done at the request of the promisor Re Caseys Patents
- Must also be understood that the acts would be paid for. I.e. Promise to pay
for past services is binding
- E.g. where a party performs an act at the request of another with the
understanding that it will be paid for before the promise to pay is made.

Existing public duty Glasbrook v Glamorgan (police security)

-

The performance of a public duty e.g. voting, is not sufficient consideration

However, providing a service over and above that required by public duty is
sufficient consideration.

Existing legal/contractual duty Stilk v Myrick

-

A promise to perform an obligation that is already contractually required is not

sufficient consideration
Wigan v Edwards The general rule is that a promise to perform an
existing legal duty is no consideration, at least when the promise is made by
a party to a pre-existing contract, when it is made to the promisee under that
contract, and it is to do no more than the promisor is bound to do under that
contract
Promise to perform existing contractual duty is illusory
9

Wigan v Edwards Compromise of a claim or forbearance to sue can be

considered additional benefit
- If one party has a bona fide belief (which is not frivolous) that he is excused
from performing a pre-existing contractual obligation, then performance or
promise of performance of this obligation will be good consideration for a new
promise by the other party.
- A promise to perform an existing contractual duty already owed to a third
party may be sufficient consideration for anothers promise Pau On v Lau
Yiu Long

Practical benefit Williams v Roffey (England), Musumeci v Winadell

(Australia)
-

As above, performance of existing legal duty is not sufficient

However where the other party stands to receive an additional practical
benefit from performance of that duty then it is sufficient consideration.
Only applies where no undue pressure is applied
Only good consideration where the performance of existing duty is worth
more than any remedy against non-performance. I.e. worth more than
damages.
5 point test in Williams v Roffey for practical benefit
o If A has a contract with B for work
o Before it is done, has reason to believe A may not be able to complete
o B promises A more to finish on time
o B obtains practical benefit or obviates a disbenefit from giving the
promise
o There is no economic duress or fraud
Musumeci v Winadell applies Williams v Roffey in Australia with
modifications, accepts situations where one party accepts less for overall
benefit.

Part Payment of debt

-

Pinnels Case
o Payment of a lesser sum on the due day for payment is no satisfaction
of the whole debt because the agreement to accept a lesser sum is not
supported by any consideration
o Part payment does not confer any benefit that was not already owed.
Foakes v Beer
o Pinnels case confirmed, as no additional benefit conferred. However
when something extra of value is provided as consideration then
changes in terms of payment may be binding.

Intention
Intention refers to a contractual partys intention to create a legal relationship. That
is, their intention for a promise to be legally binding. An agreement can only be
enforceable if the parties intended the agreement to be legally enforceable. This is
generally tested objectively, i.e. would a reasonable person think the agreement
was intended to be legally binding.
Two presumptions are traditionally held under common law:
10

Commercial agreements are presumed to create legal relations Banque

Brussels Lambert SA v Australian National Industries
Domestic or social agreements are presumed not to create legal relations
Todd v Nicol

These presumptions are rebuttable however; they merely provide a starting point
for further analysis.
Regardless of the context a contract is made, the courts must consider all of the
circumstances in and surrounding the contract when determining intention
Ermogenous. The test for intention is an objective one, whether the reasonable
person would consider the agreement as intended to be binding.
A court may look at:
- Terms of the contract
- Relationship of the parties to each other
- Subject matter of the agreement
- Status of the parties
- Surrounding circumstances

Commercial agreements Banque Brussels v Australian National

Industries (ANI)
-

In commercial transactions, the courts will assume there is a presumption of

intention
The onus of proof lies with the defence in these cases
A party will only be regarded as making an offer and acceptance if that party
manifested an intention to be legally bound.
In commercial world the creation of meaningless instrument or document is
unthinkable

Domestic agreements Todd v Nicol

-

Rebuttable presumption that agreements made in a domestic or social

context are not enforceable due to lack of intention
However if the circumstances of the case show that a party has taken
particularly onerous steps to fulfil their promise then that may show a
contrary legal intention.

Rebuttal of presumption Jones v Padavatton

-

Presumption can be rebutted by an objective analysis of all the circumstances

Jones v Padavatton
E.g. an agreement in a domestic setting but with a commercial nature.

Presumption should not be used Ermogenous

-

Each case should be decided on its own circumstances

Presumptions should not be used when determining intent
In a domestic setting, the person seeking to enforce the contract bears the
onus of proving the presumption should be rebutted
Even in a social setting, must consider all circumstances if it may be
commercial etc.

Agreements with government Papua New Guinea v Leahy

-

Performance of a government policy-based agreement is not intention to be

bound
Normal commercial agreements with government likely to show intention

Agreements subject to contract Masters v Cameron

-

Agreements that are subject to contract are not binding unless expressly
stated to be.
11

Until terms of a contract are drawn there is nothing to be bound to, merely an
agreement that there will be terms, no guarantee that agreement will be
reached.

Agreements with no legal intention Rose & Frank v JR Crompton

-

Parties to a commercial agreement can specifically agree not to be bound

by the law
However once one promise is executed the intention is relevant.

Certainty
Even when there appears to be a valid offer and acceptance, there may in fact be
no agreement capable of being enforced. For a contract to be certain
- The terms or language of the agreement must be sufficiently clear and certain
- The agreement must be sufficiently complete, not missing any essential
elements
- The contractual promises made cannot be illusory
A contract will only be considered invalid due to uncertainty when the courts arent
able to reasonably ascertain what the parties intended to promise Meehan v
Jones.
However an uncertain contract can still be made enforceable if it is possible to
remove the uncertainty from the contract such that the rest of the contract remains
valid Whitlock v Brew
When the meaning of a promise is obscure or ambiguous, the courts will look at the
construction of the term to try to ascertain the intention of the promise Council
of the Upper Hunter v Australian Chilling

Uncertainty and vagueness Meehan v Jones (Subject to finance)

-

Uncertainty and vagueness will only invalidate a contract where the courts
cannot reasonably ascertain what the parties intended
The language used in the agreement has to be capable of at least some
meaning where the courts can attribute a particular contractual intention to
the parties
Even if the language is obscure, the agreement is valid IF the courts can
interpret the words to discern contractual intention

Agreements with more than one meaning Council of the Upper

Hunter v Australian Chilling
-

A contract with more than one meaning is not void for uncertainty provided
that it is still capable of some meaning
To determine the meaning of a contractual term, one relies on the
construction of the term as a way of ascertaining the intention of the parties
Barwick CJ
When interpreting the meaning of a contract it is important to distinguish
between obscurity and lack of meaning

Severing Terms Whitlock v Brew

-

Courts can only interpret contracts and cannot create them or terms of a
contract where the parties have failed to stipulate the terms
However, if the language of a clause lacks meaning, the contract may still be
enforced if the meaningless clause can be severed without affecting the
substance of what was agreed.
12

Essential terms Hall v Busst

-

Certain essential terms must be present in all contracts depending on the

nature of the contract.
For the contract for the sale of land there cannot be a binding contract
without 3 essential elements, which are the subject of a concluded agreement
the parties the subject matter and the price.
A reasonable amount is an uncertain term when considering money. Who is
to say what is reasonable?

Incompleteness
-

An incomplete agreement is one where one or more essential terms have

been omitted.
Essential terms are those that are fundamental to the operation of a contract
e.g. price, party, quantity, subject matter etc.
Where a contract is missing an essential term, it will be void even if the
language of the rest of the contract is clear in all aspects Hall v Busst

Agreements to agree United Group Rail v Rail Corp NSW (Negotiate

in good faith)
-

General rule is that courts will not draft a contract when essential elements
have been overlooked Whitlock v Brew
Parties who want a contract signed but cant agree on certain points can in
some cases include a clause that states they agree to agree on certain terms
i.e. a contract for sale but agree that price will be agreed upon between the
parties at a later date.
Parties may make a valid contract if they provide an effective mechanism for
supplying the term in the even they fail to reach an agreement
Parties can also provide a formula for settling a term if in dispute.
Allsop J Proper approach when considering agreements to negotiate in good
faith
1. An agreement to agree is incomplete, lacking essential terms
2. The task of the court is to give effect to business contracts where
there is a meaning capable of being ascribed to a word or phrase or
term or contract ambiguity not being vagueness
3. Good faith is not a concept foreign to the common law, the law
merchant or businessmen and women. His honour noted that the
NSW Supreme Court had previously held that a duty of good faith,
both in performing obligations and exercising rights, might by
implication be imposed upon parties as part of a contract.

Illusory promises Placer Development v Commonwealth

-

A contractual promise is illusory when the performance of the promise is at

the discretion of the promisor.
Such a promise is not enforceablepromises of this character are treated
not as vague and uncertain promises for their meaning is only too clear
but as illusory promises.
A promise combined with a discretion as to whether it will be carried out
amounts to no [enforceable] promise (or not contract) at all Loftus v
Roberts

Uncertainty vs illusory terms Biotechnology v Pace

-

Where terms lack meaning and there is no external standard to resolve the
ambiguity then the term is uncertain Kirby P
13

Where performance of a term is at the discretion of a party then the term is

illusory McHugh JA

Privity
The doctrine of privity states that a third party cannot sue upon a contract and that
a stranger to the consideration cannot maintain an action at law under it Trident
v McNiece. That is, only parties to a contract are legally bound by the terms of the
contract and are entitled to enforce it. Parties to a contract are generally stated in
the contract or have provided consideration. Third parties cannot enforce a contract
even if they receive a benefit, as they have not provided consideration Coulls v
Bagots. Except for in insurance contracts (Trident v McNiece), there are generally
no exceptions to the rule, however there are ways to circumvent it through:
- Agency when one party acts as an agent for another party and assumes
legal rights on their behalf Port Jackson Stevedoring v Salmond &
Spraggon
- Assignment when one party assigns their legal rights upon another
Conveyancing Act 1919
- Trust where there exists a trust relationship between a third party and a
contracting party, the trustee can act on behalf of a third party Trident v
McNiece
- Statutory provisions legislation overrides common law Insurance
Contracts Act 1984

Third party benefit Coulls v Bagots

-

Third party beneficiaries cannot enforce a contract because they are not a
contracting party and as such, strangers to the consideration.
Signature on a contract does not automatically make you a party. Must be
expressly stated that you are a party.
In the case of two promises, must be expressly stated that they are joint
party. I.e. both names on the contract title etc. not just mentioned in a term
Consideration may come from both parties if they are joint parties.

Exceptions to privity Trident v McNiece

-

Mason CJ & Wilson J

14

o Recognised a general exception to the doctrine of privity for contracts of

insurance
o Criticised privity on the basis of fairness and could not find a convincing
justification for retaining privity
o Stated that the doctrine of privity and the rule that consideration must
be provided for a promise were under siege.
Toohey J
o Recognised similar exception for insurance contracts
o However there needs to be express contemplation of the third partys
benefit in the contract. I.e. not just implied by the terms
o Neither privity rule nor rule requiring consideration to move from the
promise should prevent a third party enforcing a contract for insurance.
Gaudron J
o Generally agreed with criticism of privity
o However found for McNiece on the grounds of unjust enrichment under
equity, not a contractual obligation so not concerning privity. (Trident
took money for insurance but not perform their promise)
Deane J
o No exception to privity for insurance contracts
o Should apply trust laws to allow for recovery where one party holds part
of their contractual rights on trust for a third party
o There must be intention to create a trust and that intention is readily
discernable in certain classes of contract (of which insurance contracts
were one)
Brennan J (dissent)
o Followed traditional analysis of privity, no exception for insurance
contracts
o Injustice can be overcome in other areas such as trusts, estoppel etc.
Dawson J (dissent)
o Privity should apply, important that law stays certain and does not
become too confused

Himalaya Clauses Port Jackson Stevedoring v Salmond v Spraggon

(Agency)
-

A Himalaya clause is a contractual provision expressed to be for the benefit of

a third party who is not a party to a contract
There are strict rules that need to be met before a Himalaya clause will be
effective Scuttons v Midland Silicones
1. It must be clear that the 3rd party was intended to be covered
2. It is clear that the carrier was acting as an agent for the 3rd party
3. That the carrier was acting on the authority of the 3rd party to act on
their behalf
4. That the 3rd party had paid consideration for the cover
Himalaya clause will only work for a 3rd party if the contract party is acting as
an agent for that party. It is not an exception to privity

Express terms - Incorporation

Terms are essentially promises or parts of promises made by a party. Generally they
may either be express in writing or verbally, or implied terms based on
circumstances in which the contract was made.
15

Terms can be incorporated into a contract in four ways:

1. Signature on a written agreement LEstrange v Graucob
- Parole evidence rule applies to documents wholly written and signed
2. Providing reasonable notice
3. Acceptance of a ticket
4. Through course of dealing
Not all statements made during negotiation will find their way into a written
contract

Incorporation by signature LEstrange v Graucob

-

Generally parties are bound to a written contract once they have signed it
even if they have not read all the terms.
In an ordinary case, where an action is brought on a written agreement
which is signed by the defendant, the agreement is proved by proving his
signature, and, in the absence of fraud, it is wholly immaterial that he has not
read the agreement and does not know its contents.

Exceptions to LEstrange v Graucob Curtis v Chemical Cleaning

-

Where the document is signed is non-contractual in nature, the clause will not
be incorporated into the contract unless the clause was brought to the actual
notice of the other party (receipt)
Where consent has been vitiated by factors such as misrepresentation,
mistake, duress, undue influence or unconscionable dealing
Doctrine of non est factum applies

Non est factum Petelin v Cullen

-

It is not my deed. Rare exception where the resisting party belongs to a class
of person who rely on other for advice (blind, illiterate, mental disability) and
the document signed is completely different in character or effect from what
they thought they were signing
Party relying on this must show that:
o They believed the document to be different
o As innocent party their failure to read and understand the document
was not due to carelessness.

Reasonable notice Oceanic Sun Line v Fay

-

Where not all of the terms of a contract are written, for terms to be
incorporated:
o Notice must be given before the contract was formed AND
o Reasonable steps must be taken to bring attention to the terms
A party who actually knows that a delivered document or displayed sign
contains terms before or at the time the contract was made will be bound by
those terms whether they have read them or not Parker v South Eastern
Railway
For tickets, normally an offer is accepted when the passenger undertakes the
journey (MMA), however terms on the ticket in Oceanic were not presented
until passenger showed up
Company did not do all that was reasonably necessary to make terms aware

Reasonable notice in non-contractual documents Causer v Browne

-

Where a document would not be reasonably thought to contain terms the

party seeking to enforce the terms must take reasonable steps to bring those
terms to the notice of the party being bound.
16

The general rule is that notice should be in such a form that is likely to come
to the attention of the party to be bound.

Proper notice + Acceptance of ticket Thornton v Shoe Lane Parking

-

Parker v South Eastern Railway found that if a party knows that there is
writing on the ticket and it is a contractual document, then that party is bound
by those terms even if they are unread
o However this is limited to where the ticket is handed out before the
contract is accepted
For term to be incorporated into a ticket upon acceptance, notice of the terms
must be made known before the contract is formed.
All reasonable steps must be taken to make these terms known
o

Lord Denning the court should not hold a person bound by a broad exempting
condition appearing on the ticket unless it is brought to that persons attention in the
most explicit way printed in red ink with a red hand pointing to it or something
equally startling.

Where the clause is particularly onerous, the party seeking to rely on this
clause must take action to draw the other partys attention to that particular
condition

Incorporation by Course of Dealing Rinaldi v Precision Mouldings

-

Where parties have had a history of dealings, contractual terms introduced in

earlier transactions may be incorporated into a subsequent contract even
though the ordinary requirements for the incorporation of terms have not
been met.
For a term to be incorporated by a course of dealing, that course must have
been regular and uniform
Any documents relied upon during previous dealings must be contractual in
nature.
Incorporation by a course of dealings works because there is implied consent
from both parties.

Parole evidence rule

-

When a contract is entirely written, the rule prevents extrinsic evidence being
given to add, vary or contradict the terms of the contract as they appear in
the written document, or to explain the meaning of those terms.
However extrinsic evidence is allowed in order to establish whether the
contract is entirely written or not.
o Evidence of the actual intentions of the parties
o Evidence of prior negotiations of the parties
o Evidence of subsequent conduct
o Evidence of terms not set out in a written document
Steps in applying the parole evidence rule
1. Is the contract entirely written? If express clause is in the contract = strong
presumption, signature J Evans & Sons
2. If yes then parole evidence rule applies and no extrinsic evidence can be
used Goss v Lord Nugent
3. If no then extrinsic evidence is allowed
4. If in dispute then extrinsic evidence allowed to determine whether the
parties intended their agreement to be entirely recorded within the
document Codelfa v SRA
5. Exceptions for contextual evidence if a term is ambiguous
17

Whether the parties intended that the whole of their agreement be to be recorded
in a particular document is determined objectively - would a reasonable person
have understood the writing to contain the whole of the agreement? Thus, the
court is required to look at all of the evidence (including the surrounding
circumstances) to determine the intention of the parties (Codelfa Construction v
State Rail Authority of New South Wales).

Circumventing parol evidence rule

-

Gordon v McGregor
o Where an agreement is reduced to writing there is an irresistible
presumption that the parties agreed that this should be the record of
their entire bargain.
o In such cases no extrinsic evidence can be used to vary the terms
o To overcome the presumption, there would have to be evidence of fraud
or that the contract didnt properly record their agreement e.g. a typo or
grammar error
Evidence of prior negotiations Prenn v Simmonds
If a term is ambiguous then evidence of the contextual factual matrix of the
agreement is allowed so that an interpretation that makes commercial sense
can be derived i.e. the background and commercial purpose of the transaction
and the market in which the parties are operating may all be relevant.
However evidence prior to negotiations is not allowed
Collateral contracts Hoyts v Spencer
Where a statement is found not to be a part of the main contract, it is still
possible for the promise to be enforceable if it is determined to represent a
valid collateral contract (separate contract)
o This is so even if the main contract is in writing
A collateral contract is made when one party makes a promise, connected to,
but independent of, a main contract and consideration for that promise is
entering into the main contract.
o It must happen before the main contract
o The statement must have intention to be legally binding JJ Savage v
Blakney
For collateral contract to be binding it must:
o The statement must be consistent with the terms of the main contract Hoyts
o The statement must be made as a promise and must be intended to
induce entry into contract.

Summary
-

Is the contract wholly written?

Would a reasonable person have regarded the document as containing
contractual terms or regarded it as a mere receipt? - Curtis v Chemical
Cleaning & Dyeing Co
Has reasonable notice of the terms been given? - Thornton v Shoe Lane
Parking Ltd
Have particularly onerous or unusual conditions been brought to the
customers notice? - Thornton v Shoe Lane Parking Ltd
18

Have the parties had previous dealings? Rinaldi & Patroni Pty Ltd v
Precision Mouldings
Were the terms included after the contract had been completed? - Thornton
v Shoe Lane Parking Ltd

Express terms
Not all statements made during negotiation will find their way into a written
contract. If a statement made during pre-contractual negotiations is promissory in
nature it may be considered a term and be legally binding. If one of those
statements proves false it is a misrepresentation. A mere representation that
induces a party to enter into the contract but is not intended to be promissory has
no contractual remedy if it turns out to be false.

A statement will likely be a term if:

- Relative expertise A statement made by an expert to a non-expert is
more likely to be determined as a term of the contract Dick Bentley
v Harold Smith
- Importance of statement An important statement i.e. highly significant
to the operation of the contract, is more likely to be assessed as being a
term Van Den Esschert v Chappell
- Timing of statement and reducing contract to writing It is often
assumed that the parties intended to replace the oral agreement with a
written one and therefore any oral terms not in the written version are
not meant to be binding.

Term or representation JJ Savage v Blakney (Is it promissory?)

-

A statement is more likely to be a term if the wording is promissory in nature

e.g. words such as obviously, promise, and words of strong undertaking
such as agree, guarantee, warrant etc.
Words that come across as opinion are less likely to be determined as terms
e.g. I guess, estimate, I think, etc.
A mere representation that induces a party to enter into the contract but is
not intended to be promissory has no contractual remedy if it turns out to be
false.

Relative expertise Dick Bentley Productions v Harold Smith

(Motors)
-

A representation made in the course of dealings for a contract for the very
purpose of inducing another party to enter into the contract is presumed
prima facie to be a warranty of that contract and therefore, a breach of it will
lead to a cause of action for damages even if it is innocently made
It is an objective test that is used to determine if a representation was a
warranty if it was intended to be acted upon, and was acted upon, then it is
a warranty.

Non-promissory representation Oscar Chess v Williams

-

Would an intelligent bystander reasonably infer that a warranty was

intended? Denning LJ
19

Where a statement is made in a non-promissory nature by an inexperienced

party to an experienced party then the experienced party should have
expertise to verify the statement

Construction
-

Construction is the process undertaken by the courts to ascertain the rights

and obligations arising under the contract and the meaning of he language
used by the parties Brambles Holdings v Bathurst
The court applies an objective test to determine the parties intentions
The court does not consider what was privately intended but what the words
used would convey to a reasonable person in the position of the parties Toll
v Alphapharm
The parties intentions are determined using the plain and ordinary meaning of
the words ABC v APRA
Courts will favour an interpretation which produces a reasonable commercial
result on the grounds that this is what the parties probably would have
intended ABC v APRA

Exclusion clauses
-

Exclusion clauses aim to reduce or exclude a partys liability for conduct that
would otherwise be in breach of contract or constitute a tort, the law has
developed specific rules that apply to this category of contractual term. These
are:
1. The strict construction rule Darlington Futures
2. The Contra Proferentem rule Darlington Futures
3. The four corners rule Sydney of Sydney v West
4. The deviation rule TNT v May & Baker
Strict construction Darlington Futures v Delco
Clauses are to be construed according to their natural and ordinary meaning.
I.e. read literally
Where the wording of the clause is unambiguous i.e. clear, exclusion clauses
will be strictly construed.
When an exclusion clause is construed, it should still be done with the entirety
of the contract in mind
o According to its natural and ordinary meaning, read in the light of the
contract as a whole, thereby giving due weight to the context in which
the clause appears including the nature and object of the contract
Exclusion clauses are to be interpreted the same as any other term regardless
of whether a breach has occurred Photo Production v Securicor
Transport
o Scope of the exclusion is determined by examining the construction of
the contract.
Contra Proferentem Darlington Futures v Delco
If there is any ambiguity in construction, the terms will be construed contra
proferentem against the offeror, i.e. against the person seeking to rely on it
Four corners rule Council of City of Sydney v West
Actions outside of the four corners of a contract cannot be covered by an
exclusion clause
A generally worded exclusion clause is not effective if the defaulting party was
acting in a way not authorised by the contract.

20

Deviation rule TNT v May & Baker

Variation of four corners rule that predominantly applies to carriers by sea or
land.
Rule is that an exclusion clause will not be able to be relied upon if there has
been a deviation to the stipulated, implied, contractual, or customary route

Implied terms
Generally in cases where an intended term is omitted from a contract, the court
may imply such a term on a case-by-case basis, by using the objective test of what
a reasonable person would conclude as the parties intentions.
Where there is a need to imply a term in fact or formal contracts, the courts will
apply the 5 rules established in BP Refinery v Hastings Shire Council.
Confirmed in Codelfa v State Rail
The term must be:
1. Reasonable and equitable
2. Necessary to give efficacy to the contract
3. Obvious, goes without saying
4. Capable of clear expression
5. Not a contradiction to an expressed term
There are three reasons why terms may be implied into a contract:
1. To give it business efficacy
2. To give effect to common law or statutory obligations
3. To make the contract consistent with accepted custom or usage

Necessary terms implied in fact Byrne v Australian Airlines

-

For an informal contract a term will be implied if it is necessary for the

reasonable or effective operation of the contract in the circumstances of the
case. I.e. the necessity test
A term will not be implied by law into a particular class of contract unless the
enjoyment of rights conferred by the contract would or could be rendered
nugatory, worthless or perhaps seriously undermined unless the term is
implied.
McHugh J The requirement of necessity reflects the concern of the courts that, unless
such a term be implied, the enjoyment of the rights conferred by the contract would or could
be rendered nugatory, worthless, or, perhaps, be seriously undermined.

Terms implied by law Liverpool City Council v Irwin

-

Generally terms implied by law are those that apply because of how the
common law or statute has treated similar types of contracts in the past
Australian Consumer Legislation or Sale of Goods Act e.g. s19 Sale of
Goods Act implied term that goods will be of merchantable quality
Common law example if employment contracts where it is implied that the
employer must take proper or reasonable care in providing a safe workplace
for employees.
Liverpool City Council v Irwin Considered the rules that apply to the
implication of terms by law. The rules for including a term implied by law are:
1. Term must be applicable to a definable class of contractual
relationships e.g. employment
21

2. Term must be suitable for it to be recognised as in all contracts of

that class i.e. applies to all
3. The term must be necessary for the efficacy of the contract.

Terms implied by custom Con-Stan Industries of Australia v

Norwich Winterthur
-

Courts have the power to imply terms into contracts where there is an
established practice or custom in a particular trade, industry or profession
sufficient to imply such terms, e.g. lawnmowers taking grass away, provided
that it is established practice.
It is necessary to establish a clear course of conduct..a practice rarely if
ever departed from
High Court outlined principles to apply when implying terms by custom:
o The existence of a custom or usage that will justify the implication of a
term is a question of fact
o The custom must be so well known that everyone can reasonably be
presumed to be aware of it
o Cannot be contrary to an expressed term
o Person can be bound by a custom even if they had no knowledge

Classification of terms, breach and termination

Contractual terms whether express or implied can be classified as
- Conditions major term - essential part of the contract.
- Warranty minor term - promise that is enforceable but not essential to the
contract
- Intermediate term can be breached in a varying degree from minor to major
Breach of condition, warranty or intermediate term gives rise to damages
Right of termination arises when:
- A condition is breached Luna Park v Tramways
- An intermediate term is sufficiently breached i.e. a serious breach Hong
Kong Fir v Kawasaki

Condition or warranty Luna Park v Tramways Advertising

-

The question whether a term in a contract is a condition or warranty, that is,

an essential or inessential promise, depends upon the intention of the parties
as appearing in or from the contract. The test of essentiality is whether it
appears from the general nature of the contract, or from some particular term
or terms, that the promise is of such importance to the promisee that he
would not have entered into the contract unless he had been assured of a
strict or substantial performance of the promise, as the case may be, and this
ought to have been apparent to the promisor. Jordan CJ

Importance of term Associated Newspapers v Bancks

-

Circumstances of a contract are taken into consideration when determining

the importance of a term. Importance to the parties determines if it is
essential or not
A term is a condition if a party would not have entered into the contract in the
first place unless the term was present.

22

The Court will apply an objective test and look to the plain and ordinary meaning of
the words to determine whether the clause is a Condition. (Luna Park + Bancks)
A court is more likely to classify a term a condition if it is a commercial contract
Bunge.

Intermediate term Hong Kong Fir v Kawasaki Kisen Kaisha +

Koompahtoo v Sanpine
-

Terms that can be breached in a variety of ways from minor to major cannot
be a condition.
A serious or major breach of an intermediate term is one where the breach
deprives the parties of substantially the whole benefit of the contract.
A serious breach will give the party the right to terminate

A term is more likely to be considered an intermediate term if it can be breached in

a variety of ways from minor to major. (Koompahtoo + Hong Kong Fir)

Relevant Factors in Assessing if a Term is a Condition

1. Previous decisions. If a term has been classified previously by the court then subsequent
courts are likely to follow.
2. Motivation for entry into the contract (Associated Newspapers Ltd V Bancks);
3. Promoting Certainty. The need for certainty by both parties will be taken into account.
Especially important in mercantile contracts.
4. Language in which the term is described. Clear and precise is more likely to be a
condition. Vague and general less likely. Ref: Tramways Advertising v Luna Park term in
contract stated that advertising boards should be in place 8 hours per day. Tramways argues
that this meant an average of 8 hours per day. Majority of High Court decided that the term
meant that the boards needed to be erected 8 hours every day and that the term was a
condition (i.e. Luna Park could terminate). The use of the word guarantee influenced their
decision. In other cases words such as as soon as possible have been used to indicate that
a term is not essential.
5. Other terms of the contract. If parties have expressly indicated that a breach of some
terms will result in termination then this would imply that those without that expression are
not conditions.
6. The likely character of the breach. If every breach of a term is likely to deprive the
aggrieved party of substantially the whole of the benefit then the term is likely to be
classified a condition. If a term can be breached in a variety of ways from serious to trivial
then most likely an intermediate term. In Hongkong Fir Shipping v Kawasaki Kisen
Kaisha a term requiring a ship to be seaworthy was deemed to not be a condition as a trivial
breach could otherwise mean termination.
7. Nature of the contract, the term and its subject matter: Bunge Corporation New York v
Tradax Export SA Panama [1981], suggests that if a contract is commercial in nature, the
term is more likely to be construed as a condition. Terms relating to quantity or description of
subject matter are more likely to be conditions (Bowes v Chaleyer (1923) .
8. Whether damages would be an adequate remedy. If damages would not properly
compensate aggrieved party then more likely to be classified a condition.
9. Justice and reasonableness. Courts may refuse to construe a term as a condition if that
would produce an unreasonable result - Hongkong Fir Shipping Co Ltd v Kawaski Kisen
Kaisha Ltd

Termination
The ability to terminate a contract is important because it relieves the parties from
any future obligations under the contract. The right to terminate a contract may
arise in a number of different ways:
1. Breach of a condition Luna Park
2. Serious breach of an intermediate term - Koohmpahtoo
3. Failure of a contingent condition
23

4.
5.
6.
7.
8.

Termination by agreement or term of contract

Repudiation
Frustration
Delay
Full performance of the contract

A breach of any term of a contract gives the innocent party the right to sue for
damages arising from the breach. A breach of contract occurs where a party fails to
perform his or her contractual obligations to the standard required under the
contract.
Breach of a term has the following consequences:
- Condition the innocent party may terminate the contract and sue for
damages
- Intermediate term only a serious breach gives right to terminate, otherwise
can only sue for damages
- Any other breach innocent party can only claim for damages and must
continue to fulfil their obligations

Contingent conditions
-

A contingent condition is one where the performance of one party depends on

the performance of something else.
o A contingent condition precedent is one that must be fulfilled before the
parties are bound to perform their contract.
No contract until an event occurs
o A condition subsequent is one where the parties obligation to perform is
immediately binding but will come to an end if an event specified in the
condition occurs. E.g. purchase of tobacco for sale being conditional on
a tobacco licence.
Contract is in force until an even occurs

Breach of contingent condition Cutter v Powell

-

The intention of the parties is key

Condition precedent has to be fulfilled before other party has obligation to
their promise

Expiry of condition precedent Lewes Nominees v Strang

-

The expiry of a condition precedent will be adhered to strictly based on an

interpretation of the contract.

Condition subsequent Maynard v Goode

-

If there is no specified time for the performance of a condition subsequent

then it should be performed in a reasonable time
Notice must be given before contract can come to an end

Breach of intermediate term Koompahtoo Local Aboriginal Land v

Sanpine Pty Ltd
-

A serious breach must go to the root of the contract

Intermediate terms are capable of both minor and major breaches. In the
event of a major breach, the innocent party may terminate the contract and
sue for damages. If the breach is minor the innocent party may only sue for
damages
24

Test Does the effect of the breach (consequences) deprive you of the whole
benefit expected to be received out of the contract?
The adequacy of damages as a remedy may also determine whether the right
to terminate is appropriate.

Termination by agreement
-

Original contract may contain a term that gives the parties the right to
terminate under certain conditions.
In the absence of such express conditions, a contract can be terminated by a
subsequent agreement i.e. a new separate contract

Unilateral discharge McDermott v Black

-

This occurs where only one party is discharged of their obligations under a
contract while the other party agrees not to enforce performance of those
obligations.
Promise to give up existing rights must be supported by consideration

Termination Repudiation
Repudiation is where one party signifies an unwillingness or inability to perform his
her obligations under the contract or expresses intention to no longer be bound by
the contract. Where a contract has been repudiated, the other party may have the
right to terminate.
Repudiation can be expressed by:
- Express words written into the contract e.g. I no longer intend to be bound
if
- Actions that suggest repudiation, acting inconsistently, showing intention to
not be bound.
o Would a reasonable person conclude that words or conduct amount to
repudiation?
- Impossibility or inaction impossibility of performance or evidence of inaction
to perform
o Anticipatory breach repudiation in anticipation of a future breach by
the other party.
o Reasonable inference that the other party cannot or will not perform by
the due date.
o Inability to perform must relate to
The whole of the contract; or
To a condition of the contract; or
Fundamental to the contract Progressive Mail v Tabali
While a breach of condition may also amount to repudiation, the difference is where
repudiation may occur before a breach of condition occurs i.e. get out of a contract
before performance is due.
Repudiation itself does not automatically terminate a contract. The innocent party
must accept the repudiation and exercise their right to terminate the contract in
order to sue for damages.
However if repudiation occurs before the time set for performance, there is no
obligation to accept anticipatory repudiation.
25

If the innocent party chooses not to accept anticipatory repudiation, they affirm the
contract and the contract will continue. As such they will lose the right to sue until
an actual breach occurs.

Repudiation by conduct Carr v JA Berriman

-

Missing a deadline due to bad weather not considered repudiation

However when in conjunction with using another sub-contractor showed
unwillingness to proceed.

Combination of events Progressive Mailing House v Tabali Pty Ltd

-

Breach of certain terms not were not individually enough to warrant

repudiation
Series of breaches show unwillingness
However behaviour substantially inconsistent with the obligations of a
contract is repudiation.
Exercise of a clause under contract to re-enter premises

Repudiation by quantity Maple Flock v Universal Furniture

-

A few missed/unsatisfactory instalments do not amount to repudiation. E.g.

bad batch of product. If it is only a small proportion and chance of repetition is
low.
Lord Hewart CJ where a breach will lead to a reasonable inference that
similar breaches may be committed in future, the whole of the contract may
be regarded as repudiated
Main tests:
o The ratio of the breach to the contract as a whole
o The probability or improbability that the breach will be repeated.

Repudiation by agreement DTR Nominees v Mona Homes

-

Both parties found not to have repudiated because of honest belief in

wrongful interpretation. Actions therefore did not constitute repudiation.
Both parties mutually terminated the contract

Termination Frustration
Frustration occurs when an unforeseen event that occurs after a contract is formed
but before the time of performance that renders performance impossible or
radically different.
Frustration discharges a contract when events occur after the contract is made,
without any fault of the parties, that renders the performance of the contract
impossible, or completely different from what was originally undertaken by the
parties. A frustrated contract comes to an end automatically.
Frustration can occur in these situations:
- Absolute impossibility Taylor v Caldwell
- Radical difference
- Illegality
- Futility Krell v Henry
The modern test for frustration is: Codelfa v State Rail
1. A supervening even makes completion of the contract impossible or
radically different
26

2. The event was not foreseeable (otherwise should be accounted for in

the contract)
3. The event was not the fault of either party (otherwise = breach)
4. The outcome is radically different to what is in the contract.

Absolute impossibility Taylor v Caldwell (Venue destroyed)

-

Occurs in situations where a subsequent event makes performance physically

impossible. E.g. subject matter destroyed, no longer available or party dies
Where parties had contracted on the continuing existence of something
clearly essential to the performance of the contract, which was destroyed

Radical difference
-

Situations where performance is not impossible but has become radically

different from what was originally imagined when negotiating the contract.
E.g. a contract for someone to cook for your small family daily for $200/week,
but later, your extended family of 20+ come and stay indefinitely.

Illegality
-

Where the performance of the contract becomes illegal.

E.g. a contract to supply knives, but laws pass making knife sales illegal

Futility Krell v Henry + Brisbane v Group Projects

-

Where performance is not impossible but would be futile because the purpose
of the contract can no longer be achieved.
E.g. Lease of a hotel room for the purpose of attending a nearby concert but
the concert gets cancelled.

Test for frustration Codelfa Constructions v State Rail Authority of

NSW
-

Test for frustration from Davis Contractors v Fareham

o Event must:
Be unforeseeable
Not the fault of either party
Result in an outcome radically different to what is in the contract
'... the performance of the contract in the events which have occurred is
radically different from performance of the contract in the circumstances
which it, construed in the light of surrounding circumstances, contemplated.

Limits of Frustration
Cant have frustration:
1. Where the performance does not become impossible but merely onerous,
inconvenient or expensive.
2. If the risk of the frustration event has been provided for in the contract e.g.
majeure clause.
3. If the even could have been foreseen.
4. If the event was the fault of the party seeking to rely on frustration.

Force Majeure clause

This type of clause seeks to nominate certain events that will not frustrate a
contract if they occur. Can nominate specific events e.g. war, flood etc. or generic
categories of events and provide either party with the right to terminate if an event
occurs.

27

Consequence of frustration
-

When a contract is frustrated the contract comes to an end at the point of the
frustrating event and neither party can be held to performance from that
point onwards.
Accrued rights and liabilities are not discharged by frustration
Payments made to the point of frustration cannot be recovered unless there
has been a total failure of consideration - Fibrosa Spolka v Fairbairn. I.e.
frustrating even occurs before any performance of contract.

Effect of legislation Frustrated Contracts Act 1978

-

The object of the legislation is that the risk of frustration is to be borne equally
by the parties.
The provisions make some changes to the common law as follows;
o Monetary payments made prior to frustrating event are to be returned
(apportionment may be necessary)
o There may be a right to recover non-monetary benefits accrued prior to
point of frustration
o Recovery may be permitted for wasted expenditure
Exclusions from the act are:
o Carriage of good by sea
o Certain types of charter party
o Insurance contracts
o Parties can also contract out of legislation - (S6(1e) of the Act.If the Act
doesnt apply then the courts will revert to Common Law i.e. Fibrosa.

Relevant Provisions in the NSW Act

Sect. 6
charter

excludes the Act from applying to certain bodies including but not limited to
parties, carriage of goods by sea and contracts of insurance.

Sect. 6(3)

Act does not apply to an entire contract where the frustration has occurred but
only to one or more severable terms of the contract.

Sect. 7

releases a party from performing a promise due before frustration but not yet
performed, except to the extent necessary to support a claim for damages.

Sect. 10(2)

allows a person to receive the value of the performance where the whole of the
performance has been rendered prior to frustration.

Sect. 11

allows an apportionment of the amount due to be paid where part of the

performance was received prior to the frustration.

Sect. 12

overcomes the differences between Continental and Fibrosa in that they allow for
money paid as a deposit or for part performance, to be returned upon the
frustration of the contract.

Section 13 - allows a party to recover up to half the money spent in preparing for performance of the
contract prior to frustration.

28

Section 15 - allows the court to make any adjustments it feels is appropriate under the
circumstances of a frustrated contract.

Termination Time delay

Time Stipulations
A time stipulation in a contract is breached by late performance. The time
stipulation may be expressly stated or it may be fixed by reference to an event such
as the arrival of goods that are the subject of the contract for sale of goods.
Where the contract does not specify a time for performance, the contractual
obligation must be performed within a reasonable time. A delay in performance will
give rise to a right to terminate at law in the same circumstances as for breach and
repudiation.

At What Time is Performance Required

In some contracts times are specified precisely and in others the time may be
expressed in more general terms e.g. within a time period or within a reasonable
time.
If not specified then it will be implied that the time specified for performance will be
reasonable.
Where Time is of the Essence
- Where time is of the essence a breach of the time stipulation will entitle the
aggrieved party to elect to terminate.
- Express Designation
o This can be achieved by including a specific clause stating that time is
of the essence or specifying that a breach of a time stipulation will be a
repudiation of the contract.
-

No Express Stipulation
o Historically Common Law and Equity differed in how time was treated
when not expressly stipulated.

Under common law it was assumed time was of the essence.

Under equity the contrary was assumed and courts would prefer a remedy of
specific performance. S13 of the Conveyancing Act states that where there is a
conflict between common law and equity then the equity position will prevail.
Accordingly in the absence of express stipulation by the parties, whether or not time
is of the essence is a matter of construction of the contract in question.
Equity rule now prevails.
Construing Time Stipulation
In deciding whether or not a time stipulation should be construed as essential the
consideration discussed in relation to the classification of terms will apply.
29

Courts are most likely to construe time as being of the essence in commercial
contracts for the sale of goods.
When determining whether an essential time stipulation is implied into a contract,
the court will look at the nature of the subject matter of the contract and the
circumstances surrounding the contract. For instance, time may be essential where
the subject matter is perishable or fluctuating - Bowes v Chaleyer.
Where Time is not of the Essence
Where this is the case a breach will not give the aggrieved party the right to elect to
terminate. In the absence of notice, termination in these cases will only be justified
where there is a delay amounting to repudiation.
Repudiation
- For a delay to amount to repudiation the delay must be such as to evidence
an intention on the part of the delaying party no longer to be bound by the
contract. The delay must be gross or protracted.

Notice
The Notice Procedure
- Where time is not of the essence and the delay in breach of contract does not
amount to a serious breach of an intermediate term or repudiation, an
aggrieved party may gain the right to terminate by providing notice. This is
most commonly used in conveyancing transactions.
-

The notice must set a reasonable time for performance of the obligation. If
the party in breach does not perform the obligation in question within the
time specified in the notice then the aggrieved party can immediately
terminate the contract.

The Requirements for a Valid Notice

- The requirements for valid notice are:
-

Must specify time for performance

The time allocated must be reasonable

The notice must clearly convey that either the time is of the essence or that
termination will result if time stipulation is not met.
Laurinda Pty Ltd v Capalaba Park Shopping Centre
FACTS Lease of shop. As part of contract the lessor undertook to procure the
registration of a formal lease. After considerable delay the lessees solicitor wrote
to the lessors solicitor requiring the lessor to complete registration within 14 days...
The notice stated that if this didnt happen the lessee reserved his rights. The lease
was not registered and the lessee terminated the agreement.
HELD The High Court held that the notice was not effective as the 14 days given
was not reasonable and the consequences of non compliance were not clear.
However, court also held that lessors conduct viewed as a whole sustained the
inference of repudiation.
30

Notice Must be Given in Relation to the Provision that has been Breached

Reasonable Time for Compliance with a Notice

This will depend on the circumstances of the case. Things to be taken into account:
-

Subject matter of the contract.

What remains to be done at the date of notice

Whether the aggrieved party has been continually pressing for performance

Any unnecessary delay on the part of the party in breach before notice was
given

Louinder v Leis
FACTS Contract for sale of land did not contain a date for completion and did not
state time was of the essence. Notice was issued to complete.
HELD High Court held that the notice did not entitle vendor to terminate as the
completion date was not in breach as a reasonable time had yet to expire.

No stipulation for Time for Performance

Important to remember that in cases where time for performance is not specified
there must be a period of unreasonable delay before a breach arises.
Notice setting a reasonable time to perform can only be given after an initial period
of unreasonable delay constituting the breach of contract.

Extension of the Time for Performance

Where a party is having difficulties in performing his or her obligations within the
time required by the contract, the other party may decide to give an extension of
time for performance. Such an extension will usually be binding on the party that
has granted it. It may constitute a variance to the contract or may give rise to an
estoppel preventing the granting party exercising their original rights under the
contract.

Estoppel
Estoppel is an equitable doctrine, which prevents a person from resiling from, or
denying a position or action they have taken and/or a statement they have made
(representation) upon which another person has relied to their detriment.
Equitable estoppel comes in two types:
- Promissory estoppel reliance on future conduct e.g. I will sign the contract
- Proprietary estoppel related to property
31

Estoppel works to restrict someone from exercising his or her legal rights or to force
people to perform.
It is based on unfairness where:
- A promise has been induced
- Reliance on a promise results in detriment reliance must be reasonable Giumelli
- It is unconscionable to go back on the promise unfair due to circumstance
Central London Property v High Trees House

The elements of promissory estoppel are:

1. Existence of a legal relationship or in the process of establishing one
2. Clear unambiguous assumption or expectation (could be result of a
representation but not necessarily)
3. Reasonable reliance
4. Detriment suffered if assumption or expectation unfulfilled Je Maintiendrai
v Quaglia
5. Defendant knows or ought to know detriment will occur
6. Defendant fails to avoid causing that detriment

Promissory estoppel Walton Stores v Maher

-

Established that promissory estoppel can exist where there is no pre-existing

relationship. However the parties must be in the process of establishing one
Promissory estoppel could arise between parties involved in pre-contractual
statements
o the appellants inactionconstituted clear encouragement or
inducement to the respondents to continue to act on the basis of the
assumption which they had made.
The remedy of estoppel is the minimum necessary to prevent further
detriment being suffered by the relying party as a result of his/her reliance
Brennan J

Detriment Je Maintiendrai v Quaglia

-

Whether detriment is suffered depends on the situation of the relying party.

Detriment was found in having to pay back lump sum and giving up
opportunities to establish business elsewhere

the court said when a party relies on a promise and suffers detriment or a change in position
to his detriment the promisor may be estopped from resiling from that promise. A lump sum
payment may be viewed as such a detriment. The loss of opportunity to find other methods
of resolving the problem would also constitute detriment to satisfy an equitable estoppel.

Reliance Giumelli v Giumelli

-

Suffered detriment through working on a property in reliance of a promise for

a share of the property.
Detriment through work, money invested and loss of work opportunity
elsewhere

Non-financial detriment Commonwealth v Verwayean

Loss in this case included additional stress and anxiety as a result of the
Commonwealth reneging on a promise not to use certain defences (e.g.
statute of limitations).
Detriment must be:
1.
2.
3.

Material, and
Significant, or
Substantial
32

In Hawker Pacific v Helicopter Charter visits by the plaintiff to collect a

promised debt were not seen as material or of significant detriment.
Detriment does not need to have been suffered at the time the estoppel is
sought to be established. The prospect of detriment is sufficient in each case.

Inducement
Some cases have required that a clear or unequivocal promise must be made.
In Legione v Hately a legal secretary said she thought it would be OK to extend
a settlement date but needed to get instructions. By majority it was determined
that no estoppel existed.
Later High Court decisions have opened the possibility of induced assumption.
In the Waltons case there was no express promise or representation but it was
clearly reasonable for the Mahers to adopt the assumption. Although clear
promise is no longer required it is the reasonableness of the inducement that is
important Galaxidis v Galaxidis.

Shield or sword
-

Shield
o PE may be employed as a defence to stop a promisor from enforcing his
or her legal rights JE Maintiendrai v Quaglia
Sword
o PE may be used to enforce a positive statement or representation that
was relied on by the promisee as a promise in circumstances where
there is no enforceable contract Walton v Maher

Estoppel v Contract law

Vitiating Factors
Vitiating factors are extraneous influences that have an impact on the formation
and/or the terms of the contract. These factors include:
- Duress
- Undue influence
- Mistake
33

- Misrepresentation & misleading and deceptive conduct

- Unconscionability
- Illegality
- Particular criteria established under legislation
If any of these factors or circumstances is proved, the contact may be either void or
voidable.
If a contract is void it has not come into existence. A voidable contract is one that
may be rescinded by the innocent party. If a contract is void ab initio (from the
beginning) it was never formed.
Equitable remedies are available to put the parties back in the position they were
before the contract came into effect, however no damages can be claimed

Misrepresentation
Misrepresentation is a false statement of fact made by one party to another party
that induces the other party to enter into a contract. Recission is the main remedy
available for misrepresentation; which essentially means that the contract is set
aside ab initio (from the beginning). Damages are also available at common law but
only if the relevant torts of deceit and negligence are established.
Misrepresentations can be innocent, fraudulent and negligent, each having specific
remedies.
There are common law courses of action for misrepresentation. In addition s.18 of
the Australian Consumer Law provides statutory protection against misleading
and deceptive conduct, which includes misrepresentation.
The ACL only covers misleading and deceptive conduct by corporations in trade and
commerce for consumer contracts of less than $40k. Common law and equity are
still relevant to those circumstances not covered by the legislation.
A representation is a statement (words or conduct):
- Made by one party (representor) to another party
- That induces the other party into entering the contract
- That is not a term of the contract.
A misrepresentation is a false representation. If a pre-contractual statement ends up
being a term of the contract then it is not a misrepresentation.
Is it a term?
- Is the term included in an entirely written contract? Parole evidence rule
- Was proper notice given? Shoe Lane Parking
- Was it promissory? JJ Savage
- Can it be implied? Codelfa
Categories of misrepresentation
Innocent misrepresentation
- Honest and mistaken belief
- Common law = no remedy
- Equity = representor cannot get specific performance
- Statutory rights for compensation under ACL
Fraudulent misrepresentation
- Knowing it to be false, or
- Reckless to its truthfulness
- Remedy = recission and tortious damages (tort = deceit)
Negligent misrepresentation
- Representor has expertise and fails to ensure truthfulness
34

Relationship of reliance and trust

Advice incorrect due to negligence
Remedy = recission and tortious damages (tort = negligence)

Elements of actionable fraudulent misrepresentation

False statement of fact Fitzpatrick v Michel
- Some sort of positive statement or conduct, generally not silence
- About a past or present fact this excludes puffs, statements of opinion or
future intent and representations of law
- Honest belief is a complete defence to false misrepresentation
Addressed to the party that has been misled
- Third parties cannot recover on a misrepresentation
- E.g. overhear a misrepresentation and act on it, cannot sue.
Reliance and inducement Nicholas v Thompson
- Intends to an actually induces the contract.
- Subjective test
- Does not need to be the sole inducement
When silence becomes misrepresentation Davies v London & Provincial
Marine Insurance
- If a statement has been made which is true at the time, but which during the
course of the negotiations becomes untrue, then the person who knows that it
has become untrue is under an obligation to disclose to the other the change
of the circumstances
- Contracts of insurance are classified uberrimae fidei (of utmost good and
faith) and there is a general obligation to disclose the material facts as per
s.21(1) of the Insurance Contracts Act 1984.
- Fiduciary relationships give rise to a full duty to disclose McKenzie v
McDonald
- Contracts of guarantee are not contracts uberrimae fidei, but there is a limited
duty to disclose.
Statement of opinion Smith v Land and House Property Corporation
- A statement of opinion is not generally considered capable of supporting an
action for misrepresentation JJ Savage & Sons v Blakney
- However if the facts are not equally known to both sides, then a statement of
opinion by the one who knows the facts the best involves very often a
statement of material fact, for he impliedly states that he knows the facts
which justify his opinion. Bowen LJ
Statement of future Fitzpatrick v Michel
- A statement of opinion about future intent or affairs is generally not
considered capable of supporting an action for misrepresentation. Statements
regarding the future cannot be factual in the same way as present facts
- However where the opinion is honestly held it can be a defence to a charge of
misrepresentation. If a statement is an honest expression of opinion,
honestly entertained, it cannot be said that it involves a fraudulent
misrepresentation of fact.
Opportunity to verify the representation Redgrave v Hurd
- The mere fact that a party has the opportunity of investigating whether a
representation is true or false is not sufficient to deprive them of their right to
rely on it.

35

To avoid recission, the onus of proof falls to the maker of the

misrepresentation to show that the other party knew it was untrue, or did not
rely on it.

Reliance and inducement Nicholas v Thompson

- For a misrepresentation to be actionable is must be intended to and actually
does induce the representee to enter into the contract.
- A statement is material if the representor intended for the representee to act
on the representation and the representee is in fact induced into acting on it
- It does not have to be the sole inducement
- Such statements are considered material regardless of whether it would have
induced the reasonable person into the contract. I.e. subjective test
Statutory provisions
- S.18 of the Australian Consumer Law (ACL), which is found in schedule 2
of the Competition and Consumer Act (formerly the Trade Practices Act
1974) prohibits conduct by corporations in trade or commerce which is
misleading or deceptive or is likely to mislead or deceive.
- Individuals may be ancillary liable for breaches of s.18 if they are knowingly
concerned in the breach (s.75B of the CCA)
- A victim of misleading or deceptive conduct is only entitled to damages if they
have suffered loss or damage as a result of the conduct. The measure of loss
is generally the same as in contract or tort law.

Statutory provision ACL

Types of goods or services regulated
- Generally, the ACL applies to a consumers. S.3 states that a person is taken
to have acquired particular goods or services as a consumer if, and only if:
o The amount payable for the goods or services is less than $40,000; or
o The goods or services were of a kind ordinarily acquired for personal,
domestic or household use or consumption; or
o The goods consisted of a vehicle or trailer acquired for use principally in
the transport of goods on public roads.
- However, this definition does not apply if the person acquired goods, or held
themselves out as acquiring goods:
o For the purpose of re-supply; or
o 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
o In the course of repairing or treating other goods or fixtures on land (s
3(2) ACL).
What is misleading or deceptive conduct under the ACL?
- Conduct includes actions and statements, such as:
o Advertisements
o Promotions
o Quotations
o Statements
o Any representation made by a person.
- Likely to break the law if it creates a misleading overall impression among the
intended audience about the price, value or quality of consumer goods or
services.
- Intention to mislead or deceive is irrelevant; what matters is how statements
and actions could affect the thoughts and beliefs of a consumer
36

What is conduct that is misleading or deceptive?

- What do the words mean?
o The words misleading and deceptive do not mean the same thing. They
must be given their ordinary meaning: Henjo Investments Pty Ltd v
Collins Marrickville Pty Ltd (1988) 39 FCR 546
- How misleading or deceptive must the conduct be?
o Conduct will only be misleading or deceptive if it induces, or is capable
of inducing error: Parkdale Custon Built Furniture v Puxu Pty Ltd
(1982) 149 CLR 191
o It is not sufficient for the conduct to cause confusion or wonderment:
Campomar Sociedad, Limitada v Nike International Ltd (2000)
202 CLR 45
- Is the test objective or subjective?
o The intent of the defendant is not relevant. All that is relevant is
whether, tested objectively, the conduct was misleading or deceptive:
Hornsby Building Information Centre Pty Ltd v Sydney Building
Information Centre Ltd (1978) 140 CLR 216
Who is the conduct directed to?
Conduct may be directed towards the public at large, or to private negotiations
between two parties.
- Public at large
o Determine the class of people to whom the conduct was directed and
isolate a representative member of that class. The test is an objective
one: Campomar Sociedad, Limitada v Nike International Ltd
(2000) 202 CLR 45
- Individuals
o The analysis of the relevant conduct is undertaken by considering
whether a reasonable person in the position of the party (taking into
account that they knew) would have been misled or deceived by the
conduct: Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR
592

Duress
Key elements to duress
- Application of pressure to induce one party to enter into a contract
- The pressure is illegitimate
Outcome of duress is recission.
- Recission occurs where a contract is voidable.
- Party can shoes to rescind the contract, such that the contract never existed
- Parties restored to positions as before the contract. Restitution
Types of duress
- Duress to the person - Physical threats (Barton v Armstrong)
- Duress to goods - Physical threats to goods. Destruction, withholdingHawker Pacific v Helicopter Charter
- Economic duress - Threat of economic harm- Crescendo Management v
Westpac
Onus of proof falls to the purported pressured party to show the use of illegitimate
force. If this is fulfilled on the balance of probabilities then the onus shifts to the
purported pressuring party to show that the pressure had no contribution to the
party entering into the contract, i.e. There may have been pressure but it had no
material contribution to the party entering into the contract.
37

Analysing duress problems

- Must be a threat
- Threat must be unlawful or illegitimate
- What options were available to the pressured party to avoid that pressure?
- Normal rules of recission apply. Possible to have the right to rescind but not if
you affirm the contract
Duress usually comes up when there are two contracts. One party enters into a
second contract under duress of the first contract
North Ocean Shipping v Hyundai Construction (The Atlantic Baron)
- Ship building company demands more money because costs of production
rose due to falling $USD. Extra money paid but 8 months later bring actions to
recover.
- Held that buyers waited too long and therefore seen to have affirmed the
contract
o Duress was found to have occurred. Illegitimate force, no lawful basis to
claiming the extra funds.
o Economic duress under the threat to breach contractual relations
Crescendo Management v Westpac Banking Co Illegitimate pressure
- Illegitimate force does not need to be the main reason for duress, merely one
of the reasons for the other party entering into the contract
- How the onus is applied from one party to the other
- The rationale of the doctrine of economic duress is that the law will not give effect to an
-

apparent consent which was induced by pressure exercised upon one party by another party
when the law regards that pressure as illegitimate
the proper approach in my opinion is to ask whether any applied pressure induced the victim
to enter into the contract and then ask whether that pressure went beyond what the law is
prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful
threats or amounts to unconscionable conduct.

Contracts Review Act 1980 NSW

- NSW courts have the right to vary, void or modify contracts if they were unfair
at the time it was entered into

Unconscionable conduct
Unconscionable conduct is conduct that is against good conscience.
- This occurs where one party, the stronger party, takes unconscionable
advantage of a party burdened with a particular disability, the weaker party,
to gain a contractual advantage Commercial Bank of Australia v
Amadio
- Relief is given because the stronger party has exploited or taken
unconscientious advantage of another. The stronger party who obtained the
benefit of the bargain in such circumstances has the burden of showing that
the bargain was fair. Commercial Bank of Australia v Amadio
Adequacy of consideration may be a component of an Unconscionability claim
Bridgewater v Leahy
What constitutes a disability
- Lack of assistance and education Amadio + Blomley
o E.g. language disability, lack of knowledge
- Mental disorder Gibbons v Wright.
38

o Legislation is most states deems that necessaries must still be paid for
Drunkenness Blomley v Ryan
o Mere drunkenness is not enough, the person must be seriously affected
by drink. Again the rule regarding paying for necessaries still applies.
Emotional dependence Louth v Diprose
o Pathetic devotion and unrequited love had put a man in a position of
dependence upon a woman

Non-statutory Unconscionability Commercial Bank of Australia v Amadio

- Elements of non-statutory Unconscionability
1. Weaker party suffers from a disability
2. Stronger party knows (or ought to know) about that disability
3. Stronger party takes unfair and unconscionable advantage of that
disability to secure an unfair bargain and benefit
- Once the disability is established, the onus of proof falls to the stronger party
to show that the transaction was fair
Drunkenness Blomley v Ryan
- Fullager J
o Mere drunkenness will not permit a person to get out of a contract.
However, where one party was to the knowledge of the other
seriously affected by drink, equity will refuse specific performance. In
addition, if a court is satisfied a contract disadvantageous to the party
affected has been obtained by "drawing him in to drink", or that there
has been real unfairness in taking advantage of his condition, the
contract may be set aside.
o poverty or need of any kind, sickness, age, sex, infirmity of body or
mind, drunkenness, illiteracy or lack of education, lack of assistance or
explanation where assistance or explanation is necessary. The common
characteristic seems to be that they have the effect of placing one
party at a serious disadvantage vis-a-vis the other.

Emotional dependence Louth v Diprose

- Mason CJ said:
o it is explicable only on the footing that he was so emotionally
dependent upon, and influenced by, the appellant as to disregard
entirely his own interests. By dishonestly manufacturing an atmosphere
of crisis with respect to the house, the appellant played upon the
respondent's susceptibility where she was concerned.
o Her conduct was unconscionable in that it was dishonest and was
calculated to induce, and in fact induced, him to enter into a transaction
which was improvident and conferred a great benefit upon her.' (para
10)
Active Unconscionability Bridgewater v Leahy
- The equity to set aside the deed may be enlivened not only by the active
pursuit of the benefit it conferred but by the passive acceptance of that
benefit
- Where special disability arose from emotional dependence and lack of
independent advice
- Substantive Unconscionability arising from adequacy of consideration i.e. $1M
in assets for only $350k
- Not actively pursuing unconscionability but circumstances give rise to it
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Inequality of bargaining position ACCC v CG Berbatis Holdings

- Disadvantage arising from unequal bargaining power not special
- For an action to be unconscionable, the weaker party must be in a position of
special disadvantage, that is, exploited by the stronger party
- In this case, while one party was at a distinct disadvantage there was
nothing special about it.
- Did not suffer from an inability to make a judgement, but an inability to get
their own way resulting from their unequal bargaining position a common
disability the courts will not ordinarily relieve.
- To sustain a complaint of unconscionable conduct, it would be necessary in
their view for the applicant to establish that the special disadvantage resulted
in a loss of the weaker partys capacity to make a judgement about their best
interests.
Relief from unconscionable transactions
The contract is rendered voidable at the election of the weaker party.
Statutory protection
- Australian Consumer Law (ACL
o Unconscionable conduct
o Unfair contracts
o Limited to corporations in trade and commerce supplying goods and
services to consumers
- Contracts Review Act
o Unfair contracts
o Limited to consumer contracts
Unconscionable conduct - ACL
- The ACL introduced prohibitions on unconscionable conduct (Part 2-2 of the
ACL)
o The first of these prohibitions entrenches into statute the equitable
doctrine of unconscionable conduct, thereby extending the range of
remedies available to parties affected by unconscionable conduct.
o The second prohibition extends the concepts of unconscionability
beyond that recognised in equity and can be relied upon by all persons,
other than listed corporation, who acquire or supply goods or services in
trade or commerce.
Preservation of the unwritten law
- Section 20 of the ACL prohibits unconscionability engaged in by a corporation
within the meaning of the unwritten law (meaning to the equitable doctrine
of unconscionable conduct). To prevent overlap, s.20 will not apply where s.21
applies
- Section 20(1)
o A person must not, in trade or commerce, engage in conduct that is
unconscionable within the meaning of the unwritten law, from time to
time.
Note: A pecuniary penalty may be imposed for a contravention of this
subsection.
Statutory extension of the unwritten law
- Section 21 prohibits unconscionable conduct in connection with the supply or
acquisition of goods or services by or from a person (other than a listed public
company). It is not intended to be limited by the unwritten law relation to
unconscionable conduct and relevant factors extend beyond consideration of
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the circumstances relating to formation of the contract to the terms of the

contract themselves (substantive unconscionable conduct).
Section 22 sets out a range of factors a court may consider when determining
whether conduct is unconscionable refer to handout
Remedies
o ACL s.87 Repayments
o ACL ss. 237 & 238 Compensation orders

Unconscionable conduct ACL ACCC v Simply No Knead (Franchising)

- Justice Sundberg of the Federal Court was willing to accept a broad definition
of 'unconscionable conduct.
- He found that the franchisor's conduct disclosed "an overwhelming case of
unreasonable, unfair, bullying and thuggish behaviour against five of the
franchisees.
- The franchisor was wound up and the ACCC proceeded against a former
director. The Court found that the franchisor had utilised unfair tactics under
s 51AC(3) of the Trade Practices Act by refusing to deliver certain products. Its
refusal to discuss matters in dispute with the franchisees except on its own
terms was found to be unfair, unreasonable and harsh having regard to the
nature of the franchise relationship.
Unconscionable conduct NSW legislation
Contracts Review Act 1980 (NSW)
Cause of Action
- Unjust: Defined as unconscionable, harsh/ oppressive (CRA s4)
Main provision (CRA s 7)
o Step 1: Determine whether contract/ term was unjust (CRA s 9)
o Step 2: Order must relate to the ground of injustice
o Only applies to consumers, not business/ trades (CRA s 6)
-

Relief
CRA s 7, Court can:
o Refuse to enforce the contract
o Declare the contract void
o Can vary the contract

Unfair contract terms Legislation

Sections 23 28 of the ACL
- New consumer protections
- Effect: Unfair terms in standard form consumer contracts are void
3 Elements to satisfy to be eligible for consumer protection under ACL
- Must be a consumer contract ACL s 23(3)
- Must be a standard form contract ACL s 27(2)
- Term in dispute must be found unfair (see next) ACL s 24
3 Elements to satisfy for a term to be found unfair (ACL s 24)
- Term causes a significant imbalance in the rights/ obligations of the parties
- Terms is not reasonably necessary to protect the legitimate interests of the
party benefited by the term (rebuttable)
- Term would cause detriment if it were applied/ relied upon
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Statute provides examples of UNFAIR TERMS as guidance (called the Grey List)
ACL s 25
- Term that permits 1 party (only) to limit performance
- Term that permits 1 party (only) to terminate the contract
- Term that permits 1 party (only) to vary the terms of the contract
- Term that gives 1 party (only) the right to renew/ not renew the contract
Statutory Remedies: 2 Step Process
- Declaration that the term is unfair, thus void (ACL s 250)
- Once declared void assess whether severable from the rest of the Contract
(ACL s 23(2))

Undue influence
Undue influence may be defined as where the dominant party uses influence that
he or she has over a subservient party to obtain some benefit under a contract
Johnson v Buttress
The difference between unconscionable conduct and undue influence is that the
former requires a disability and an element of bad faith.
Undue influence can arise in two ways:
1. Where there is a relationship between the parties is one that gives rise to a
presumption of undue influence due to its nature called presumptive
relationships
2. Through the actual coercion or domination of the will of the subservient
person.
If undue influence is established, the contract is voidable, not void. I.e. it is an
optional remedy. The subservient party may elect to rescind the contract and
recover any money or property transferred under its terms ab initio.
If the party elects to affirm the contract, damages are not recoverable unless some
other ground may be established under tort or statute.
Presumptive relationships
- Parent and child Archer v Hudson
- Guardian and ward Hylton v Hylton
- Solicitor and client Dowsett v Reid
- Trustee and beneficiary Wheeler v Sargeant
- Doctor and patient Williams v Johnson
Relationships between spouses is not included in the class of relationships that give
rise to the presumption Yerkey v Jones
No presumptive relationship Johnson v Buttress
- Where there is no presumed relationship it is possible to plead undue
influence due to the nature of the relationship involving a high degree of trust
and confidence.
- If this can be established then the presumption of influence applies and the
onus of disproving abuse of the influence passes to the dominant party
- Latham CJ Wherever the relation between donor and donee is such that the
latter is in a position to exercise dominion over the former by reason of the
trust and confidence reposed in the latter, the presumption of undue
influence is raised
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Rebutting the presumption Westmelton v Archer and Schulman

- To rebut a presumption, the party accused of undue influence must establish
that the transaction was the result of a free exercise of will of the other party.
- Prove that no advantage was taken of a presumptive relationship.
- This can be done in three ways:
1. By proving the other party had independent advice.
2. By proving that the independent advice would have been
disregarded if it had been provided.
3. By proving the other partys ability to form an independent
judgement.
Undue influence by a 3rd party Garcia v National Australia Bank
- Undue influence may also occur where a dominant party abuses his or her
position of influence over the subservient party causing them to enter into a
contract with a third party.

Remedies
An award for damages is the only common law remedy for breach of contract and is
available as a matter of right.
Damages for breach of contract are viewed as a substitute for performance
consequently, they are designed to put the plaintiff in the position they would have
been in had the contract been properly performed.
The loss claimed must not be too remote from the breach and the non-breaching
party must do what is reasonable to reduce (mitigate) the damage they suffer.
Often subject to limiting clauses in contract.
Damages may also be available for certain pre-contractual conduct (misleading
conduct, misrepresentation, duress etc. and torts or statute).

Equitable remedies
Specific performance
This is an order directing the breaching party to perform the contract in the way
specified by the court. It will only be ordered if damages will not provide adequate
compensation and will not be awarded in relation to contracts of personal service.
Estoppel
Stops a party enforcing their strict legal rights. Requires representation, reliance
and detriment.
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Rescission
Rescission ends all obligations and rights under the contract past and future by
placing the parties in the position as if there had been no contract (restitution).
This is often referred to as rescission ab initio.
Injunctions
These are orders directing a party not to do something - eg, not to persist with a
contractual breach.

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