CERTAINTY Flashcards
3 aspects of certainty
Sufficiently complete: agreement must be reached on all essential terms
Sufficiently certain: terms must be clear and certain in meaning
Not illusory
When is a contract sufficiently complete?
Agreement on all essential terms
Whether an omission of an essential term is fatal to the contract depends upon
How important or essential is the term?
Meaning of essentiality in this context
Can the courts apply an objective/reasonable standard to fill the gap (depends upon complexity of the contract and the courts’ understanding of the type of transaction)
Settled categories of essential terms in different contexts
Had the parties turned their minds to the issue?
Agreements to agree are unenforceable. Court will not generally fill the gap
Has the agreement been partly executed (performed)
Mechanisms or formula can be used to set an essential term
What is an essential term?
A term without which the contract cannot be enforced
A term which only the parties can apply
Milne v Attorney-General - issue
Were the missing terms such as the law could supply?
Milne v Attorney-General - decision
No contract is concluded until the parties negotiating are agreed upon all the terms of their bargain unless the terms left outstanding are “such as the law will supply”
Transaction was of a complex and unique nature and therefore the law could not supply its terms
ANZ v Frost Holdings
Issue-
Was there an intention on behalf of ANZ to make the discussions relating to the production and supply of calendars binding
ANZ v Frost Holdings - decision
“It is a first principle of the law of contracts that there can be no binding and enforceable obligation unless the terms of the bargain, or at least it’s essential or critical terms, have been agreed upon. So there is no concluded contract where an essential or critical term is expressly left to be settled by future agreement of the parties”
Parties had not agreed upon matters of design, style, quality and size of paper, and content of the calendar, and the number of calendars to be supplied to the defendant. These were essential matters that had to be agreed between the parties
Why couldn’t s13 of the goods act be used to imply a price into the contract in ANZ v Frost Holdings?
The parties did not form agreement on other essential terms which could not be implied.
Completeness- settled categories of essential terms
- lease of land
- sale of land
- sale of goods
Lease of land:
Essential: Commencement date and term, rental, property, parties
Sale of land:
Essential: The subject matter (the land), parties, price
Not Essential: Settlement date and other conveyancing steps can be implied
Sale of goods:
Essential: the goods
Not essential: Price (reasonable price can be implied)
s13 Goods Act 1958
Price may be fixed in the contract or may be fixed in a manner agreed or determined by the dealing between the parties
Where the price is not determined, the buyer must pay a reasonable price- dependant on the circumstances
Agreement to agree
Contract is incomplete and unenforceable
Unenforceable even if the court could otherwise have implied a term (such as paying a reasonable price) because it would be inconsistent with the parties’ expressed intention
Completeness- Partly executed contract
Courts are less likely to find an agreement incomplete if it has been wholly or partly performed
Foley v Classique Coaches - issue
Was Classique Coaches bound to continue to purchase petrol from Foley?
Foley v Classique Coaches - rule
Due to the fact that Classique Coaches had continued to act on the contract for three years they obviously believed it to be binding- part performance constitutes a certain contract
Implied term that the petrol be supplied at a reasonable price and be of a reasonable quality
Completeness- Mechanism or formula can fill the gap
Parties may make a valid contract that defers agreement on an essential term if they provide an effective mechanism for supplying the term at a later date if they fail to reach agreement
Common for commercial lease to provide an option for renewal of rent to be agreed or failing agreement to be determined by a valuer or arbitrator
Parties may agree on a formula for settling a term, which can be applied by the court in the event of a dispute
Council of Upper Hunter County District v Australian Chilling & Freezing - issue
Whether or not clause 5 of the contract was uncertain due to the term “supplier’s cost”
Council of Upper Hunter County District v Australian Chilling & Freezing - rule
- Not too uncertain, some ambiguity is allowed so long as it is capable of meaning
- So long as the language used by the parties is not so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention, the contract cannot be held to be void or uncertain or meaningless.
- When looking at intention no narrow or pedantic approach can be used, particular in commercial contracts
- Cost of doing something is certain and can be determined by the courts
Certainty of meaning- implying and applying objective or reasonable standards
“Reasonableness” is sometimes used as the terms of a contact expressed by the parties or implied by the courts to interpret a term
Concepts are uncertain but courts attempt to give them meaning in order to validate a contract
Can not always provide meaning, and courts often divided as to whether they can be resolved
Whitlock v Brew - issue
Whether the clause 5 “on such reasonable terms as commonly govern such a lease” was too uncertain, thus rendering the contract invalid
Whitlock v Brew - rule
Clause not too uncertain and not severable
However, contract void because parties had not agreed on the essential terms of rent and the term of lease
“The expression ‘upon such reasonable terms as commonly govern a lease would have been sufficiently certain had there been an ascertainable set of terms in common use”
Hall v Busst - issue
Whether the clause regarding the reasonable future price of the island was too uncertain
Hall v Busst - rule
Clause was too uncertain, no external standard of value of additions and improvements to the island
Different in a major city where it would be easier to determine a price
agreements to negotiate
Often alternative dispute resolution clauses within a complex commercial contract, aims to provide a mechanism to avoid litigation- issue as to whether they are clear enough and enforceable
Clauses typically include
“parties must negotiate in good faith the precise terms of a more comprehensive joint venture agreement”
“parties must mediate in the event of a dispute arising out of the agreement”
“negotiation” “good faith” “mediation”
Terms can be sufficiently certain and enforceable
Clauses do not often give rise to particularly substantive rights
United Group Rail Services v Rail Corp of NSW - issue
Was the clause “meet and undertake genuine and good faith negotiations with a view to resolving the dispute or difference” too uncertain in the dispute resolution clause
United Group Rail Services v Rail Corp of NSW
- rule
Not too uncertain and may be enforceable, different to an “agreement to agree”
To negotiate in good faith, it requires the honest and genuine assessment of rights and obligations and requires that the parties negotiate by reference to such. Party may not be entitled to threaten a future breach of contract, and would not be entitled to pretend to negotiate having decided not to settle what is recognised to be a good claim
Illusory promises
Promise is illusory if the promisor has an unfettered discretion in relation to performance
Wherever words, which by themselves constitute a promise are accompanied by words showing that the promisor is to have discretion or an option as to whether they will carry out the promise, the result is that there is no contact on which an action can be brought at all
Terms are not illusory when:
- Party is given a latitude of choice which does not amount to complete and unfettered discretion
- Party must act honestly and reasonably
- Discretion related to the fulfillment of a condition upon which the performance of the contract depends
- The discretion is to be exercised by a third party
Placer Developments v Cth - issue
Was the terms “at a rate to be determined by the Commonwealth from time to time” certain enough for the contract with Placer developments to be binding
Placer Developments v Cth - rule
Illusory promise because Commonwealth had unfettered discretion as to whether or not and how much to pay
No general standard in relation to the quantum of subsidy
Meehan v Jones - issue
Was the contract to sell the oil refinery to Meehan certain due to the satisfactory finance” term?
Meehan v Jones - rule
Not too uncertain because the purchaser must act honestly in determining whether the finance was satisfactory
Purchaser does not have unfettered discretion
Does not matter if it is an illusory term because the discretion relates to fulfilment of a condition on which the contract depends and not to performance of the contract
Godeke v Kirwan - issue
Was the term “containing… such other covenants and conditions as [vendors solicitors] may reasonably require” in a contract for sale of land too uncertain
Godeke v Kirwan - rule
Not too uncertain or illusory
Gibbs J: Terms can be left for a third party to decide and become certain when this third party writes them
Biotech Australia v Pace
issue
Was the disputed claim about the Company’s senior staff equity sharing scheme illusory or uncertain due to the fact that the company actually did not have such a scheme
Biotech Australia v Pace
decision
Term was void for uncertainty, and was also illusory Promise was illusory because it depended on the discretion of Biotech Australia and it could not be saved by impying an objective standard because there was not such standard Promise was uncertain because there were too many uncertain elements (shares, class of shares etc)
Consequences of uncertainty
- void
- severance
- waived
Void?
The whole agreement is void
If the terms of an agreement are incomplete, uncertain or illusory, the courts look at how essential the term is and the intention of the parties in order to determine whether the entire agreement is void
There are two ways in which an agreement can be saved if an agreement is incomplete, uncertain or illusory:
Severance
- Severance – the ineffective term can be severed from the rest of the agreement
The problematic term can be severed from the rest of the agreement, and the remaining terms are able to be performed and enforced
The court will take into account the essentiality of the term and whether severing it is consistent with the intention of the parties. If severing the clause changes the agreement into something the parties did not agree to, the court won’t allow that
Eg: Whitlock v Brew. If the court had severed clause 5 of the contract, it would have turned the sale into something different from what the parties contemplated
Kitto J: “it is therefore clear on the face of the document that the parties had no intention of agreeing upon a sale which would entitle the purchaser to vacant possession without having to grant any lease to Shell Co; and it follows that to treat the ‘contract’ as binding though shorn of condition 5 would be to turn the sale into a different sort of sale from that which the parties contemplated. Courts are of course anxious to hold the parties to what they have agreed upon, but there can be no justification for holding them to something that they have not agreed upon.”
Waiver
Waiver – the ineffective term can be waived by the party for whose benefit that term was stipulated
An ineffective term can be waived by the party for whose benefit that term was stipulated. If the party who is supposed to benefit from the ineffective term elects to forego the benefit, the term is waived and the agreement can be saved
The ineffective term may not be an essential term and it must be inferred from the parties’ intention that there would remain a valid agreement without the ineffective term
