Discharge for Breach

Question 1

Where is the problem for breach?

Answer 1

Where the contract can be terminated in the absence of an express term conferred in the contract. This will depend on the nature of the term breached.

Question 1

What are the three sorts of terms?

Answer 1

1. Condition
2. Warranty
3. Innominate term: (the right to terminate and damages depends on the seriousness of the breach).

Question 2

What is a breach?

Answer 2

1. Failure to perform after the time for performance has expired
2. Anticipatory breach prior to time for performance falling due. (e.g. I wish to sell you by my car, but on friday I tell you that I won’t be delivering the car, I’ve sold the car to another person). Can breach the contract prior to the time of performance.

Generally liability in contract is strict (an argument of fault in respect of contracts will fail at court)

Question 3

Any statutory intervention?

Answer 3

ACL ss60-61 - can impose fault in certain situations.

Question 4

What is termination?

Answer 4

Termination is NOT rescission. If you rescind the contract, it’s as though the contract never existed. Termination is different.
Where rescission takes place, the parties are put into the position they would’ve been without the contract.

Where the innocent party elects to terminate the contract, the parties are only released from FUTURE obligations. The contract is not undone.

Even if you’re innocent, you can be sued for breach of contract prior to termination.

Termination is not automatic, it requires election by one of the parties.

Question 5

Photo Production v Securicor Transport

Answer 5

Lord Diplock explains effects of termination: Termination discharges both parties from future performance.
After there is termination, there’s no longer any obligations. Future performance is not required.
What happens is the breaker/person who breached is under a statutory obligation to compensate.

Question 6

Why would someone terminate when there is a breach?

Answer 6

It’s a self help remedy, you can do it without going to court. Good because the other party (breaching party) will have to bring the action if they want to challenge it.
The onus is on the other party to challenge your termination.

Question 7

Express termination clause

Answer 7

When there is an express right to terminate for breach of a term of the contract, the character of the term is not relevant. You just have the right to terminate because that’s in the contract.
Rawson v Hobbs.

Question 8

Le v Qureshi

Answer 8

Contract for the sale of land.
There was a clause and it said: if the buyer fails to comply with any provision of this contract, the seller may defer or terminate the contract.
It was a standard term and it was an express right to terminate for breach.

Question 9

So what’s the problem?

Answer 9

WHere there is not express termination provision, whether or not termination is allowed would depend on the nature of the clause. Where the breached term is a condition, it’s able to be terminated.
The court has to decide whether the breached term is not a condition

Question 10

Is there a right to terminate if the term is a condition?

Answer 10

In a contract, the seriousness of the breach is irrelevant if the term breached is a condition. If it’s a condition, there’s a right to terminate and a right to claim damages.

Question 11

What’s a condition?

Answer 11

Just because a party calls a term, a “condition” doesn’t mean that it actually is. Ultimately its a question for the courts.

Luna Park v Tramways Advertising - A guarantee to do something, or an undertaking is quite a strong indication that it’s a condition

L Schuler AG v Wickman Machine Tool services - The term was labelled a condition, but that didn’t determine the outcome. Courts held that it wasn’t a condition because allowing it to be a condition would be wrong. The judge said where the particular construction (labelling) leads to a reasonable result, this is what is said to be not what the parties intended.

Question 12

Luna Park v Tramways Advertising

Answer 12

HC case in 1938. D was an advertising agent.
D, in consideration for 20 pounds weekly said that for 52 weeks, it would distribute over 3 summer seasons advertising tram cars.
Agreement consisted of a letter and a contract, the terms of which were critical.
Letter contained statement that average time each tram car is on the track and “we guarantee” that it is on board for 8 hours.
Ultimately, it didn’t go on board for 8 hours every day. HC held it was a condition because of the strong use of the words ‘we guarantee”. It was an undertaking.
So condition breached and termination was allowed.

Question 13

L Schuler AG v Wickman

Answer 13

German P’s gave D a sole right to sell over to UK. Clause 8 of contract made it a “condition” (labelled as condition) that two known sale representatives of D should visit named benefactress eeach week to promote P’s goods.
D had right to sell P’s goods but they had to try hard to sell it.
Was it a breach of a condition when they failed to visit particular benefactress?
Held no, because said to be 1000 something visits and in effect, it said if that where they failed to see even 1, the contract was breached and could be terminated. That clause was not reasonable enough to be a condition.

Question 14

Associated Newspapers v Bancks

Answer 14

Leading case in Australia.
All to do with a cartoon newspaper.
D was an artist, he entered into contract with the newspaper over a 10 year period.
He devoted his time and attention to newspaper company and had to promote the newspaper.
As part of agreement, he had a weekly cartoon, that would be on the front page of one of the weekly newspapers in their comics section.
Soon, there was a shortage of newsprint.
His comic didn’t appear on the first page anymore, it was in the back of the colour magazine. This happened several times.
D was disappointed as he wanted his comics to appear on the front.
He protested and claimed he was no longer bound by the contract.

Question for the HC, was the term for his comic to be on the front page a condition?
Courts said it depends on how essential the term is, does it go to the root of the contract.
Term was held to be a condition because he was not an employee of the P, but employed as a comic artist who’s weekly work was to produce comic. It was also for that reason he was to be paid a salary.
The term was of prime importance to the D and there should be continuity of obligation as stated in the contract.

There were two stressed points:

1. How important the term was to the D (whether it’s essential)
2. Relationship between P and D.

Question 15

Shevill v Builder’s Licensing Board

Answer 15

The term in this contract was not essential. As far as HC are concerned, in determining whether a term is a condition, one has to consider it’s context and one has to consider whether or not the term is essential.
If however, a statute classifies such a term, then it’s no longer for the court to decide.

Question 16

Any statutory intervention?

Answer 16

Sale of Goods Act s3(1) - definition of warranty
s14(1)(2) when condition to be treated as warranty
s54 - remedy for breach of warranty

Question 17

Classification by the courts

Answer 17

In this situation, the courts look to see how the courts have previously classified terms of the relevant sort.

The Mihalis Angelos
Clause stipulating a date of readiness in the charter party.
Was it a condition? e.g. the ship was a day late, but would it matter?
English COA said no. Lord Denning says: If the ship arrives an hour after the stipulated time, there’s a breach. At the time, the charter market fluctuated significantly. Clearly here, they were trying to bring the contract to an end so that they could get the ship cheaper, elsewhere.
A clause stating that the ship is ready on a specific date, if you deliver the ship after that date, you are in breach.

Question 18

Ankar v National Westminster Finance

Answer 18

HCA have said you have to look (when determining whether a term is a condition) what previous courts have said.

Question 19

What does a breach of warranty give you?

Answer 19

Gives you no right to termination, but gives a right to damages up to the time of action, but not for loss of bargain since the contract continues.
Ellul v Oakes

Question 20

Hong Kong Fir Shipping v Kawasaki

Answer 20

Owners of the ship were required to maintain the ship.
Ship was delivered.
It left port and kept breaking down.
The Chief engineer was a drunkard. He kept drinking.
Maintaining of the ship, was that a condition?
Can you terminate? No because as the contract stands, it’s not a condition entitling termination. Nevertheless, the party can terminate because the term is INNOMINATE.

Why not a condition? The ship isn’t seaworthy. The fact that the ship isn’t seaworthy, Diplock J said no because there were minor things that cold render a ship not seaworthy. IF you’re going to claim contract can be terminated, then you can’t rely on the term being a condition.
This case invented the Innominate term!
Where the breach is significant, then you’re allowed to terminate (with an innominate term).
Question in this case, was it sufficiently serious to allow termination? In this case. no.
The threshold is VERY high for an innominate term. You cannot terminate for an innominate term easily.

IDiplock said it depends on the seriousness of the breach. Where the breach deprives the party of substantial benefit conferred by the contract, that term is innominate.

Question 21

The Hanza Nord

Answer 21

Term of contract was that shipment was made in good condition.
Was this a condition? COA said no.
Did the breach go to the root of the contract? COA said no
On the facts, it’s understandable why the COA would think that because essentially what happened was that D terminates and yet the buy the very same item from a third party for much less money.
They don’t want to pay, so they’re claiming it’s a breach of a condtiion.

Question 22

When do we get the third option?

Answer 22

Bunge v Tradax
The default position in contracts is to treat the term as innominate. We immediately ask if it is innominate unless the contract makes clear either by express provisions or necessary implication that the term is a condition nor warranty. The term is innominate unless contract says otherwise.

This case: buyer required to nominate time and give the seller 15 days notice.
Problem because buyers gave late notice. They didn’t give at least 15 days prior notice.
Lord Scarman says starting point is a term, but on the facts though, he says the term is a condition.
If you’re a commercial party, there’s certainty. But you don’t get certainty with innominate terms as you don’t know before the judge whether the breach will be sufficiently serious before you terminate.

Question 23

Is there innominate term in Australia?

Answer 23

Yes: Koompahtoo v Sanpine

Question 24

Koompahtoo v Sanpine

Answer 24

HCA confirmed intermediate term.
Koompahtoo and Sanpine were in a joint venture agreement. Koompahtoo to contribute land, Sanpine to manage development and maintain books.
Sanpine’s breach was when Koompahtoo visited and Sanpine couldn’t inform Koompahtoo of financial position. Koompahtoo terminated.
Sanpine brought proceedings.

Held: Termination valid.
To know whether the term is an intermediate term:
1. Nature of contract and relationship created from it;
2. Nature of term
3. Kind and degree of breach
4. Consequences of other party’s breach.
In this case, the breach went to the root of the contract.

Question 26

Foran v Wright

Answer 26

Involve sale of contract for land.
Sale of land was due on 22 June. 20 June, vendor’s solicitors called saying that they would not be able to perform.
At the time, purchaser’s had a right to terminate, but did not do so.
22 June, neither party attempted to settle.
24 June, purchasers purported to terminate contract and claim return of deposit.
Purchasers now relying on actual breach of contract as giving the right to terminate.
Vendor claims at the date of termination, purchasers did not have the funds available for completion and therefore were not ready and willing to complete.
Trial judge found purchasers had not proved ability to perform.

HC Held: termination of contract valid and entitled to return of deposit.
Brennan, Dean and Dawson JJ said the reasons that they were entitled because they were not ‘substantially incapable’ of raising needed finance. They said the purchasers relied on the vendor’s intimation that they would not perform and gave up chance of obtaining finance.
Gaudron J reached a similar conclusion, but relied on waiver.