Will Barkerʼs 1015LAW Revision Discharge by Performance 2 Discharge by Subsequent Agreement 5 Discharge by Frustration 6 Discharge by Breach 8 Termination for Repudiation 10 Restrictions on the Right to Terminate 11 Measure of Damages 13 Limitations on the Award of Damages 15 Liquidated Damages and the Doctrine of Penalties 18 Restitution (in Contract) 19 Common Law Misrepresentation 21 Misleading or Deceptive Conduct 24 Duress 28 Undue Influence 30 Unconscionable Dealing 32 Statutory Unconscionability 34 Note 35 1
Discharge by Performance There are a number of ways in which a contract can be discharged. Most simply and most often a contract is discharged by performance. The parties must perform to the standard required by the contract and also to the time required by the contract. Specified procedures for termination in a contract are not construed in an overly technical or restrictive sense: Pan Foods Company Importers & Distributors Pty Ltd v Australian and New Zealand Banking Group Ltd (2000) 170 ALR 579. The Standard of Performance Sometimes standards of performance are explicit, other times it is a matter of construction of in an implied term. In many cases the standard of performance is strict. In the case of ʻentire contractsʼ even death of a party is no excuse: Cutter v Powell (1795) 101 ER 573. However, this in some cases would be extremely unjust, if the deficiency is very minor for example. The courts have therefore seen fit to include exceptions to this standard: Divisible contracts The de minimis rule The doctrine of substantial performance The doctrine of acceptance of part performance Prevention of performance Divisible Contracts A contract is divisible where a contract provides or it can be established (matter of construction) that the contract obligations are divided into distinct parts, e.g. progress payments. However, not all contracts that provide for units of performance are divisible, e.g. payments for land by installments in such cases, payments are conditional on complete or substantial performance. There are different types of contract: a divisible contract, which is one in which the consideration and payment thereof is apportioned according to the work to be done: Steele Tardiani (1946) 72 CLR 386. a lump sum contract, which is one which provides for the payment of a specific sum on completion of specific work: Hoenic v Isaacs [1952] 2 All ER 176. De Minimis Rule The rule essentially means that the law is not concerned with trivial or insignificant matters: Shipton Anderson and Co v Weil Brothers and Co Ltd [1912] 1 KB 574. The Doctrine of Substantial Performance A party will not have ʻsubstantiallyʼ performed their obligation/s if their breach goes to the root of the contract. The courts look primarily at two factors: 1. Nature of the defect(s); and 2. Cost of remedying defects as a proportion of the contract price: Bolton v Mahadeva [1972] 1 WLR 1009. [W]hen a K provides for a specific sum to be paid on completion of specific work, the courts lean against a construction of the K which would deprive the contractor of any payment at all simply because there are some defects or omissions. Hoenig v Isaacs [1952] 2 All ER 176 at 80, as per Denning LJ In Hoenig v Isaacs [1952] 2 All ER 176, a contract to decorate and furnish a flat was held to be substantially performed where the defects were that the door of a wardrobe required replacing and a bookshelf which was too short needed to be remade, and the relative cost of these rectifications was about 7% of the contract price. By contrast, in Bolton v 2
Mahadeva [1972] 1 WLR 1009, a contract for the installation of a water heating system was held to not have been substantially performed where the system emitted fumes that made the premises uninhabitable and the system did not properly work due to insufficient radiators and insulation, and where the relative cost of rectification was between 33% and 25% of the contract price. Acceptance of Part Performance In certain circumstances a party may be seen to have accepted defective performance if they take the benefit of that performance; the benefit must have been taken or accepted voluntarily: Steele v Tardiani (1946) 72 CLR 386 Prevention of Performance If a party is prevented by the other party from performing it is not considered be a breach or voluntary variation from the contract. Instead the innocent party may elect to terminate and then claim damages or reasonable remuneration for the work done. Time for Performance Either party must perform both at the time and in the order specified by the contract. A contract may expressly stipulate the time of performance under the contract or include a ʻtime is of the essenceʼ clause. Otherwise performance is required in reasonable time: Perri v Coolangatta Investments Limited (1982) 149 CLR 537, and the order of performance is a matter of construction: Burton v Palmer p1980] 2 NSWLR 878, 895. A party will not have failed to perform unless performance is due under the contract. Types of Obligations Typically there are two primary types of obligations performable under a contract: independent and dependent: Automatic Fire Sprinklers v Watson (1946) 72 CLR 435 1. If obligations are independent, each party is obliged to perform completely irrespective of the performance of the other party; however 2. If obligations are dependent, performance by B is conditional on A having performed first. Furthermore, there are two conditions that can be outside of the performance bounds of the given contract; they are conditions precedent and conditions subsequent. Conditions Precedent A condition precedent must be performed before further performance under the contract is required. It is a provision of a contract that suspends the coming into effect of a contract or a term of the contract unless or until a certain event takes place. I.e. in Cutter v Powell (1795) 101 ER 573 there was a condition precedent to payment (namely the completion of the voyage). Nevertheless, stating that an amount is due on ʻcompletion of all workʼ does not make full and complete performance a precondition to payment: Lord Denning MR in Hoenig v Isaacs [1952] 2 All ER 176. Conditions Subsequent Generally, if a condition subsequent occurs, the contract comes to an end. A condition subsequent brings a duty to an end whereas a condition precedent initiates or requires a duty. 3
Discharge by Subsequent Agreement Discharge by agreement of the parties is probably the simplest method of discharging a contract. Essentially it is a consensual discharge of the contract or agreement mutually by both of the parties to the agreement. Unlike discharge for breach or repudiation, discharge by agreement does not involve the exercise of a right conferred by the contract or by common law or statute. Furthermore, discharge by agreement is totally grounded in the will of the parties. Discharge by agreement can be other expressed or implied. Discharge by Express Agreement The parties to a contract may expressly agree to its discharge at any time, by stating that the former contract has been ʻrescindedʼ, ʻabrogatedʼ, ʻabandonedʼ, ʻcancelledʼ, ʻdischargedʼ or by the use of some similar expression, provided there is at least one executory obligation: Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854 at 915, per Lord Diplock. Where there are executory obligations on both sides, a rescission is established by a discharge by agreement which amounts to a release of both sets of obligations. In contrast, when there are only executory obligations on one side the discharge will involve the release of only one party. Discharge by Implied Agreement Discharge by implied agreement may be inferred from the conduct of the parties. This can be tied in with discharge by abandonment. If both parties decide to go no further under the contract and disregard it all together it is also considered discharged. Discharge can be implied by the conduct of the parties, e.g. if both parties cease to continue performing contractual obligations and both go separate ways it could be assumed that the contract was discharged by implied agreement. Implied right to terminate a contract of otherwise indefinite duration If a contract is silent as to its duration, courts may imply a right for one or both of the parties to terminate the contract. They usually need to give reasonable notice to the other party before they can do this though. The period of time required for reasonable notice will depend on the circumstances of the particular case: Crawford Fitting Co v Sydney Valve & Fitting Pty Ltd (1988) 14 NSWLR 438. 5
Discharge by Frustration Frustration occurs whenever the law recognises that, without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 729, as per per Lord Radcliffe. The doctrine of frustration applies in cases where the disruption is of such catastrophic proportion that it goes well beyond what the parties could have anticipated at the time of making their contract - it is an excuse for non performance. The doctrine of frustration is kept within narrow limits and rarely applied: Bank Line Ltd v Arthur Capel and Co [1919] AC 435. The fact that performance has become more onerous due to some superseding event does not amount to frustration unless it radically changes the contract: Tsakiroglou & Co Ltd v Noblee & Thorl G.m.b.H. [1962] AC 93. To determine whether a contract is frustrated it is necessary to consider what the parties undertook to perform under their contract. This is constructed in light of the surrounding circumstances. It is then necessary to compare the original intentions to the situation produced by the frustrating event. If the situations are ʻradicallyʼ or ʻfundamentallyʼ different, the contract will be frustrated. Accepted Grounds for Application of the Doctrine Frustration is when performance becomes literally impossible or where future performance has been rendered commercially unfeasible. This does not include risks inherent in contract, such as hardship, inconvenience, material loss, etc. Some examples of frustration include: illegality, such as in a time of war: Metropolitan Water Board v Dick Kerr & Co Ltd [1918] AC 119 delay (that is substantial). Contracts can be frustrated at the beginning of the period of delay (if it is likely to be substantial). Whether a contract will be frustrated due to delay is also dependent upon whether it is a short-term or long-term contract. Bank Line Ltd v Arthur Capel and Co [1919] AC 435 destruction of subject matter: Taylor v Caldwell (1863) 3 B&S 826 disappearance of the basis of the contract, this is similar to destruction of subject matter but can be, for example, the cancellation of an event: Krell v Henry [1903] 2 KB 740 state of affairs essential to performance: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 death or incapacity of a party: Lobb v Vasey Housing Auxiliary (War Widows Guild) [1963] VR 239 contracts involving land, although its application is restricted. Limits on the Doctrine There are three limitations on the doctrine of frustration: 1. The risk of the frustrating event must not have been provided for by the parties in their contract. This is because the occurrence of an event provided for in the contract will not make performance radically different from that contemplated by the parties when making their contract. Commercial contracts meant to last a long time often have an allinclusive type of provision called a force majeure clause (Lat. ʻgreater force). Whether a clause excludes frustration or not is a matter of construction. Even though a clause specifies the consequences of a broad class of potentially disruptive events, this does not necessarily prevent the contract from being frustrated by an event apparently in 6