7/08/2015

1

Termination & Remedies

Lecture Four

CLWM4000 Business & Corporations Law

COMMONWEALTH OF AUSTRALIACopyright Regulations 1969

WARNINGThis material has been reproduced and communicated to you by

or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (the Act).

The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of

this material by you may be the subject of copyright protection under the Act.

Do not remove this notice.

1

Objectives for termination/remediesObjectives for termination/remediesObjectives for termination/remediesObjectives for termination/remedies

1. Explain the doctrine of privity of contract

2. Recognise and explain the methods by which a contract is

ended, including performance; agreement; frustration;

operation of law; by lapse of time at common law; by

virtue of a term in the contract breach

3. List the remedies for breach of contract

4. Explain the principles upon which damages are decided

5. Classify the types of damages

6. Describe situations where equitable remedies may be used

2

7/08/2015

2

References

3

Chapter Reference

• Chapters 8

Textbook

• Law in Commerce 5th Edition Sweeney, O’Reilley & Coleman

Tutorial.

• Tutorial Week 4 – Refer Detailed Weekly Schedule for question numbers

Rights of parties and dischargeRights of parties and dischargeRights of parties and dischargeRights of parties and discharge

• Privity of Contract

• As a general rule, only the parties to the contract can acquire rights and incur liabilities under it

• No right of action in contract exists against a person who is not a party to a contract but a third party who knowingly and intentionally induces a breach of contract may commit a tort

3

DischargeDischargeDischargeDischarge

Discharge

Performance

Agreement

Frustration

Operation of law

Lapse of time

By virtue of a term

Breach

4

7/08/2015

3

Discharge by performanceDischarge by performanceDischarge by performanceDischarge by performance

5

Discharge by agreementDischarge by agreementDischarge by agreementDischarge by agreement

A contract created by agreement can be undone by agreement:

• Waiver

• Substitution

• Accord and Satisfaction

• Condition Precedent

• Condition Subsequent

6

Discharge by frustrationDischarge by frustrationDischarge by frustrationDischarge by frustration

Frustration can only arise where:

• An unforeseen event outside the control of the parties

has significantly changed the obligations of the parties;

• Neither party caused the supervening event;

• Neither party contemplated the supervening event;

• It would be unjust to hold the parties to their original

contract

7

7/08/2015

4

Discharge by frustrationDischarge by frustrationDischarge by frustrationDischarge by frustration

Cases involving this doctrine fall into five categories:

1. Physical impossibility because of destruction of the subject matter

2. Physical impossibility under a contract of personal services

3. Change in the law rendering performance impossible

4. Impossibility due to non-occurrence of an event basic to the contract

5. Where the particular state of affairs ceases to exist

• The effect of frustration is to discharge the contract but only as to the future

8

Discharge by frustrationDischarge by frustrationDischarge by frustrationDischarge by frustration

3 States have modified the common law position:

�Victoria: Frustrated Contracts Act 1959 allows expenses incurred before frustration to be recovered.

�New South Wales: Frustrated Contracts Act 1978adjusts the rights of the parties where a contract has been frustrated.

�South Australia: Frustrated Contracts Act 1988 uses an equitable approach to try and ensure fairness.

9

Effect of frustrationEffect of frustrationEffect of frustrationEffect of frustration

10

7/08/2015

5

Discharge by operation of lawDischarge by operation of lawDischarge by operation of lawDischarge by operation of law

• Bankruptcy

• Material alteration

• Merger

• Death if the contract is for personal services

• Limitations legislation

11

Discharge through lapse of timeDischarge through lapse of timeDischarge through lapse of timeDischarge through lapse of time• An offer does not remain open for acceptance for an indefinite

length of time at common law

• It may cease to exist by lapse of time

• Terms may be included in the contract that will have the effect of either preventing the contract from coming into force (condition precedent)

• Or that can bring the contract to an end on the occurrence of a certain event (condition subsequent).

12

Discharge by breach of termDischarge by breach of termDischarge by breach of termDischarge by breach of term

Discharge through breach of contractDischarge through breach of contractDischarge through breach of contractDischarge through breach of contract

• Where one party fails to perform their obligations as agreed, they are liable for breach of contract

• Breach may be:

• Actual breach where a party fails to perform at the time required by the contract; or

• Anticipatory breachwhere a party threatens not to perform prior to the time required by the contract

13

7/08/2015

6

Remedies for breach of contractRemedies for breach of contractRemedies for breach of contractRemedies for breach of contract

14

RescissionRescissionRescissionRescission• Rescission entitles the injured party to set the contract

aside and is only available for breach of a condition

• The right to rescission is lost if the injured party:

• continues with the transaction;

• fails to act or act within a reasonable time; or

• if an innocent third party acquires an interest in the subject matter

15

RestitutionRestitutionRestitutionRestitution

Restitution is based on the concept of unjust enrichment.

The plaintiff must establish:

• The defendant must obtain a benefit or enrichment;

• The benefit was at the plaintiff’s expense;

• It would be unjust to allow the defendant to keep that benefit or enrichment; and

• The defendant has no defences to rely upon

16

7/08/2015

7

RestitutionRestitutionRestitutionRestitution

Restitution can be used if:

• The defendant has received a sum of money from the plaintiff and there has been a total failure of consideration or a mistake of fact.

• Under a mistake of law

• Under duress or compulsion

• Restitution makes use of the doctrine of quantum meruit (for as much as he has earned)

17

DamagesDamagesDamagesDamages• Main purpose of damages is to enable the innocent party to

receive monetary compensation.

• Damages are a common law remedy and awarded as of right.

• They are calculated on the basis of looking at what the position of the plaintiff would have been if the contract had been properly performed.

18

Damages Damages Damages Damages –––– steps to obtain themsteps to obtain themsteps to obtain themsteps to obtain them

19

7/08/2015

8

Damages and causationDamages and causationDamages and causationDamages and causation• Is there a causal connection between the breach and the

loss suffered?

• The plaintiff must show that the breach of contract by the defendant was the cause of the loss.

• The plaintiff may not be able to recover if an additional factor unconnected with the defendant’s breach breaks the causal chain between the defendant’s action and the plaintiff’s loss or damage

20

RemotenessRemotenessRemotenessRemoteness• The loss or injury must not be too remote.

• The court must consider whether the loss suffered by the injured party is a usual and reasonably direct consequence of the breach of contract, and this is a question of fact.

• Hadley v. Baxendale (1854) indicates two types of loss are

recoverable:

• loss arising from the breach in the usual or normal course

of things; and

• loss arising from special or exceptional circumstances

where it can be shown that the defendant had actual

knowledge of the plaintiff’s needs

21

Amount of damagesAmount of damagesAmount of damagesAmount of damages• The aim of damages is to put the injured party back as close

to the position had the breach never occurred.

• Damages are recoverable for provable or economic loss as well as:

Expectation losses

Reliance losses

Anxiety and inconvenience

Distress and disappointment

Frustration

Discomfort

Mental distress

22

7/08/2015

9

Types of damagesTypes of damagesTypes of damagesTypes of damages

23

Types of damagesTypes of damagesTypes of damagesTypes of damages

• Nominal damages

• Ordinary damages

• Exemplary damages

• Liquidated v. Unliquidated damages

• Penalty

Discussion point: Give examples of each

24

Equitable remediesEquitable remediesEquitable remediesEquitable remedies

25

7/08/2015

10

Action Plan - Week 4

Read and understand Lecture 04 content

Read textbook & make notes on Lecture 3 topic

Make a list of questions to bring to class

Attempt all Tutorial Week 4 Questions

Print powerpoint slides for Lecture 5

End of

Lecture 04

27