LWZ118 Lecture 8: Contracts-Lecture-8-notes
Lecture 8
Contracts
DISCHARGE BY BREACH – means when one party breaches a particular term of the contract, or through
the actions of a particular party, not in compliance or inconsistent to what was agreed upon, then that
particular agreement would be breached.
Two types of breach:
Defective Performance - a failure to perform a contractual provision as contemplated by
the contract; or
Repudiation - an unreadiness or unwillingness to perform a contractual obligation.
Failure to Perform Contractual Obligations
Where a term is a condition, the innocent party may elect to continue with the contract or
terminate it and/or claim damages (Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435)
If the term breached is a warranty, there is no right to terminate the contract
If a term is an intermediate term, it is for the court to decide whether a breach of that term enables
the innocent party to terminate the contract
Conditions - A condition is a major term of the contract which goes to the root of the contract. If a
condition is breached the innocent party is entitled to repudiate (end) the contract and claim damages.
In Poussard v Spiers (1876) 1 QBD 410 Madame Poussard entered a contract to perform as an opera singer
for three months. She became ill five days before the opening night and was not able to perform the first
four nights. Spiers then replaced her with another opera singer. Held: Madame Poussard was in breach of
condition and Spiers were entitled to end the contract. She missed the opening night which was the most
important performance as all the critics and publicity would be based on this night.
If the innocent party would not have entered into the contract unless assured of strict and literal
performance of the promise, he may in general treat himself as discharged upon a breach of the
promise (Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 633)
In Tramways Advertising v Luna Park a Sydney tram company contracted to display posters advertising the
Luna Park amusement centre for a minimum running period of eight hours per day at specified peak times.
The trams sometimes ran for less than eight hours a day and sometimes for more than eight hours a day.
The Luna Park management claimed a condition had been breached. The tram company argued that there
had been no breach as the posters were displayed on average for eight hours daily. The High Court held
that the time stipulation was a condition of the contract and as the condition had been breached Luna Park
could terminate the contract and claim damages. A failure to conform any condition exactly as promised
will result in a breach.
Courts are not too ready to construe a term as a condition (Ankar Pty Ltd v National Westminster
Finance (Australia) Ltd (1987) 162 CLR 549)
Warranties - are minor terms of a contract which are not central to the existence of the contract. If a
warranty is breached the innocent party may claim damages but cannot end the contract.
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In Bettini v Gye (1876) QBD 183, Bettini agreed by contract to perform as an opera singer for a three
month period. He became ill and missed 6 days of rehearsals. The employer sacked him and replaced him
with another opera singer. The Court held, Bettini was in breach of warranty and therefore the employer
was not entitled to end the contract. Missing the rehearsals did not go to the root of the contract. If a term
is not a condition, it is ordinarily a warranty, that does not confer a right to terminate.
Intermediate or Innominate Terms - The innominate term approach was established in the case of Hong
Kong Fir Shipping. Rather than classifying the terms themselves as conditions or warranties, the
innominate term approach looks to the effect of the breach and questions whether the innocent party to
the breach was deprived of substantially the whole benefit of the contract. Only where the innocent party
was substantially deprived of the whole benefit, will they be able to treat the contract as at an end.
In Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 QB 26, A ship was chartered to the
defendants for a 2 year period. The agreement included a term that the ship would be seaworthy
throughout the period of hire. The problems developed with the engine of the ship further exasperated by
the fact that the engine crew were incompetent. Consequently the ship was out of service for a 5 week
period and then a further 15 week period. The defendants treated this as a breach of condition and ended
the contract. The claimants brought an action for wrongful repudiation arguing the term relating to
seaworthiness was not a condition of the contract.
The Court held, the defendants were liable for wrongful repudiation. The court introduced the
innominate term approach. Rather than seeking to classify the term itself as a condition or warranty, the
court should look to the effect of the breach and ask if the breach has substantially deprived the innocent
party of the whole benefit of the contract. Only where this is answered affirmatively is it to be a breach of
condition. 20 weeks out of a 2 year contract period did not substantially deprive the defendants of whole
benefit and therefore they were not entitled to repudiate the contract.
The Court observed, “The nature of the event to which the breach gives rise will be determinative
of whether a right to terminate is conferred on the innocent party.” Further, “The promisee must establish
deprivation of substantially the whole benefit which it was the intention of the parties as expressed in the
contract that he should obtain as the consideration’ for the performance of the promisee’s own
obligations.”
A court remains at liberty to find that the term is an ‘intermediate term’, and that the breach was
serious enough to justify conferring a right on the innocent party to terminate the contract.
In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] 233 CLR 115, Koompahtoo
entered into a JVA with Sanpine in which Koompahtoo contributed the land, and Sanpine managed its
development.
The joint venture failed to obtain approval for the land to be rezoned for commercial use. An
administrator, subsequently appointed to Koompahtoo, terminated the joint venture agreement, as
Sanpine failed to keep proper financial records for the duration of the joint venture. The administrator
asserted that Sanpine had, by its conduct, repudiated the agreement, by breaching its obligations under
the agreement.
There were no express provisions in the JVA by which any of the parties could unilaterally terminate
the agreement. Sanpine commenced proceedings in the Supreme Court of NSW for wrongful termination
and sought a declaration that the JVA was still on foot.
The High Court dismissed Sanpine's claim, holding that Koompahtoo had validly terminated the joint
venture agreement.
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Lecture 8
Contracts
The majority held that there are three (3) circumstances in which the right to terminate an agreement
arises:
Breach of an "essential" term of the agreement;
Breach of a "non-essential" term or "intermediate" term" of the agreement, which:
is "sufficiently serious" to justify termination;
"goes to the root of the contract" (which takes into account the nature of the agreement
and the consequences of a breach for either party); or
Deprives the innocent party of "a substantial part of the benefit for which it contracted" or
causes "a substantial loss of benefit".
Where one's party's conduct shows an unwillingness or inability to perform its obligations under
the agreement (that is, repudiation).
The majority held that Sanpine's contractual obligations under the agreement were nonessential or
"intermediate terms", and that Sanpine had committed "sufficiently serious" breaches of these obligations,
entitling Koompahtoo to successfully terminate the agreement.
The majority held that the repeated breaches by Sanpine of its obligations under the agreement
went "to the root of the contract" and deprived Koompahtoo "of a substantial part of the benefit for which
it contracted", by preventing Koompahtoo from assessing the financial position of the joint venture and
from making informed decisions about the joint venture.
Termination for Breach of a Time Stipulation
A right to terminate will only be conferred where:
Time is stipulated to be ‘of the essence’ (expressly or impliedly); or
Time is made to be of the essence by service of a notice to complete.
It follows that a term which stipulates a time a performance, but does not stipulate that time is ‘of
the essence’, is an intermediate term that will give rise to a right to terminate where a notice to
complete has been served on a party who breached the term, and that notice has not been
complied with (Zaccardi v Caunt [2008] NSWCA 202)
In order for such a notice to be effective (Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286):
The party on whom it is served but be in breach or ‘guilty of unreasonable delay’; and
The party serving it must not be in ‘default by way of breach or antecedent relevant delay’.
Contractual Right to Terminate
An express term that confers a right to terminate is enforceable unless it is uncertain, ambiguous or
unconscientious, or involves a breach of an implied term of good faith or where the right to
terminate has been lost (Burger King Corp v Hungry Jacks Pty Ltd (2001) 69 NSWLR 558)
Unless a common law (court-conferred) right to terminate is excluded by the contract, any
contractual right to terminate operates concurrently with any common law right to terminate
(Concut Pty Ltd v Worrell (2000) 176 ALR 693)
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Document Summary
Defective performance - a failure to perform a contractual provision as contemplated by the contract; or. Repudiation - an unreadiness or unwillingness to perform a contractual obligation. Where a term is a condition, the innocent party may elect to continue with the contract or terminate it and/or claim damages (automatic fire sprinklers pty ltd v watson (1946) 72 clr 435) If the term breached is a warranty, there is no right to terminate the contract. If a term is an intermediate term, it is for the court to decide whether a breach of that term enables the innocent party to terminate the contract. Conditions - a condition is a major term of the contract which goes to the root of the contract. If a condition is breached the innocent party is entitled to repudiate (end) the contract and claim damages.
