LAW 1503 Lecture Notes - Lecture 5: Uberrima Fides, Equitable Remedy, Foxtel
23 May 2018
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TERMINATION
How a Contract Can End
1. performance
2. mutual agreement
3. automatically by law (frustration)
4. unilaterally in response to breach; under express or implied contractual/ statutory
provision which confers a right to terminate, with or without cause eg: employment;
non-fulfilment of a precedent/ subsequent contingency eg: subject to finance/ it not
raining)
1. Performance
Whether a contract ha been terminated depends on the
A. Standards of performance
• Expressly provided by contract: terms require either strict, exact
performance (sell car for $5- under strict obligations to sell car and
pay $5); or best/reasonable effort and care (doctor- obligation to do
reasonably best to diagnose; lawyers make take reasonable care- so
much most professionals.
• Absence of express terms: interpret standard using methods of
construction (see interpretation).
B. Method of performance
• Stipulated in the contract or left to the performer’s discretion. à E.g. if
payment method is not stipulated, law may stipulate reasonable
method of payment (cash, cheque, bank transfer).
C. Timing
• Express; or
• Implied obligation to perform in a reasonable time
D. Implied Duties
Fiduciary
• Hospital Products v US Surgical Corp: fiduciary duties
arise in c* relationship when there is a vulnerability of
one party, and not a commercial relationship with the
intention to gain profit
• Vertical relationship: lawyer to client.
Employer to employee.
• Horizontal: of the same level. Partnerships
• Must act in other party's best interests, avoid
conflicts of interests and conflicts of duties
• Equitable remedy: account for profit. Breach F
duty, must give profit to aggrieved even if they
suffer no loss
For insurance
contracts:
Utmost good faith relationship: at common law,
insurance contracts treated as uberrima fidei (requiring
utmost good faith in their performance) Insurance
Contracts Act 1984 (Cth) s 13
All contracts: duty
of co-operation
Implied by law
• Each party must do all that is necessary to 'enable the
other party to have the benefit of the contract Brett v
McDonald
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• Negative obligation: Includes obligation not to hinder or
prevent fulfilment of contractual promise Shepherd v
Felt
All contracts with
discretionary
powers
exercised honestly and reasonably (not in an arbitrary
manner) Renard Constructions v Minister for Public Works
Good FAITH
• requires conduct that i both honest and reasonable
having regard to the parties interest; Overlook v Foxtel
• Existence of duty discussed and applied in lower
courts, but left open by HCA in Commonwealth Bank v
Barker.
• Time is right to imply duty into all contracts;
commercial contracts, or some classes of contract
Priestley JA in Renard (NOT part of ratio BUT
used in other cases as if it were- Burger King v
Hungry Jacks; Paciocco v ANZ Bank)
• Duty implied in fact but only when necessary:
appropriate to imply term in fact, to protect
vulnerable party Esso v Southern Pacific
• But duty based on construction rather than
implied term: controls on the exercise of powers
and discretions Service Station Association v
Berg Bennett
• No implied duty of good faith and fair dealing
(Gummow J) Service Station Association v Berg
Bennet
E. Order of performance
1. Classify the order of obligations Kingston v Preston (1773) 2 Doug 689.
• Mutual and Independent covenants: each party performs regardless of
whether the other does or not
• Covenants which are conditions and dependant (one party has to
perform first)
• Matter of construction- promises are generally treated as dependant
Hillam v Iacullo [2015] NSWCA 196
• Mutual conditions to be performed at the same time (each party must
perform at the same time)
When there are conditioned and dependant obligations
o Presumption of entirety applies: unless contract is divisible, entire contract
must be exactly performed before right to payment accrues Phillips v Ellinson
Bros Pty Ltd
• Eg: Lump sum contract
• Instalments: Can split up obligations in divisible contracts into entire
obligations when there is a link between work and payment.
• Express terms of the contract can rebut presumption
o Substantial performance may suffice (Bolton v Mahadeva)
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• Disregard minor defects, as long as there is substantial performance (de
minimis rule)
• Substantial performance depends on nature of defect, and the cost of
rectification in proportion to the contract price. not substantial if work is
ineffective for its primary purpose.
• Remedy: If substantial
• performer can bring an action for debt less any damages for their
breach paid to the recipient (customer)
• recipient can sue for damages for the work that has not been
completed. Loss assessed by the principle in Robinson v Harman: put
plaintiff in the position they would have been in if the contract were
performed. Do this by determining the cost of getting someone else to
finish the work) Bolton v Mahadeva (heater instillation case)
o Partial performance= no entire performance and therefore no automatic
entitlement to money due under the contract
• However, recovery may be available in Quantum Meruit (services) or
Quantum Valebat (materials) as a restitution remedy seeking an award of
payment reflecting the reasonable value of the services already performed
('what the job is worth')
• Based on principles of unjust enrichment which serve to prevent the
defendant from being unjustly enriched by retaining benefit gained at the
plaintiff's expense Pavey & Mathews Pty Ltd v Paul
• cannot be used to upset or redistribute allocation of risks; or to
contradict terms under the contract. Lumbers v W Cook Builders Pty
Ltd
• Although according to Cutter v Powell there is generally no recovery on
quantum meruit for partial performance of entire obligation, exceptions exist
Free acceptance of benefit/ property: Recipient must have the
practical opportunity to choose to accept or reject the benefit after the
works completion. Determined subjectively, must be unjust to accept a
benefit with knowledge it was not gratuitous Sumpter v Hedges [1898]
1 QB 673
New contract implied Steele v Tardiani (1946) 72 CLR 386
Full performance wrongly prevented by recipient (Performer
abandons work because recipient refuses to pay)
• Depending on which delivers best remedy, performer can
CHOOSE BETWEEN suing for expectation damages (calculate
by determining how much they expected to make (profit) and how
much they would have had to spend) or QM (reasonable market
rate- allows recovery for more (or less) than the expected profit
under the contract) Sopov v Kane Constructions Pty Ltd (2009)
257 ALR 182
• Remedy: If QM or QV established- court will enforce payment for services
measured at a reasonable market value (advantageous choice of remedy in
comparison to damages when contract price is lower). No limit to how much
performer can claim- contract price does not cap the QM price that may be
recovered Sopov.
Concurrent and dependant obligations: (eg: sale of goods)
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Document Summary
Stipulated in the contract or left to the performer"s discretion. E. g. if payment method is not stipulated, law may stipulate reasonable method of payment (cash, cheque, bank transfer): timing, express; or. Implied obligation to perform in a reasonable time: implied duties. Fiduciary: hospital products v us surgical corp: fiduciary duties arise in c* relationship when there is a vulnerability of one party, and not a commercial relationship with the intention to gain profit, vertical relationship: lawyer to client. Employer to employee: horizontal: of the same level. Partnerships: must act in other party"s best interests, avoid conflicts of interests and conflicts of duties, equitable remedy: account for profit. Breach f duty, must give profit to aggrieved even if they suffer no loss. Utmost good faith relationship: at common law, insurance contracts treated as uberrima fidei (requiring utmost good faith in their performance) insurance.
