Remedies for breach

Question 1

Are liquidated damages enforceable?

Answer 1

Yes they are enforceable if they are a genuine pre- estimate f the loss that would be suffered as a result

Question 2

What are liquidated damages?

Answer 2

Damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach

Question 3

What are penalties?

Answer 3

When the liquidated damages clause is ‘out of all proportion’ it will be a penalty and be unenforceable. (Ringrow)

Question 4

If a liquidated damages clause is deemed a penalty can the aggrieved party still claim damages?

Answer 4

Yes - there will be able to claim damages under the common law.

Question 5

When does the rule against penalties apply?

Answer 5

Payments which relate to compensation payable upon the occurrence or non-occurrence of some event can be penalties, regardless of whether the event is a breach

HOWEVER: obligations to make payments in exchange for some right or benefit cannot be a penalty (this would be an unacceptable interference with the rule that we don’t enquire into the value of consideration)

Question 6

Andrews v ANZ Bank [2012] HCA 30 principle

Answer 6

Payments which relate to compensation payable upon the occurrence or non-occurrence of some event can be penalties, regardless of whether the event is a breach

Question 7

Andrews v ANZ Bank [2012] HCA 30 facts

Answer 7

Andrews argued that ‘exception’ fees were penalties and were unenforceable

Question 8

Andrews v ANZ Bank [2012] HCA 30 decision

Answer 8

• The fees were penalties

- A penalty can be for any fee imposed - does not have to be imposed for a breach

Question 9

Paciocco v ANZ [2014] facts

Answer 9

Bank imposed $20 and $30 late fees on people for credit card payments.
Issue: Are these fees penalties?

Question 10

Paciocco v ANZ [2014] principle

Answer 10

A late fee will be a penalty if it is ‘out of all proportion’. Actual loss suffered is not important - it is the loss envisaged at the formation of the contract.

Question 11

Paciocco v ANZ [2014] decision

Answer 11

The penalty was out of all proportion. Actual loss suffered is not important - it is the loss envisaged at the formation of the contract. Considered:

• Same fee if day late, week late, month late
• Same fee if 1c or $100
• Charges interest of 2.5% on money not paid
• Degree of disproportion between sum and loss likely to have been suffered by bank
• Inequality of bargaining power - standard form contract, no opportunity to negotiate
• Greatest sum it would cost the bank (50c)
• Late payment fees were extravagant and unconscionable - unenforceable

Question 12

Dunlop Pneumatic Tyre Co v New Garage & Motor Co Ltd [1915] principle

Answer 12

Where a single sum is agreed to be paid as liquidated damages on the breach of a number of stipulations of varying importance, and the damage is the same in kind for every possible breach and is incapable of being precisely ascertained, the stipulated sum, provided it be a fair pre-estimate of the probable damage and not unconscionable, will be regarded as liquidated damages and not as a penalty.

Question 13

Dunlop Pneumatic Tyre Co v New Garage & Motor Co Ltd [1915] facts

Answer 13

Appellants manufactured tyres. Defendants dealers in tyres. Agreement required defendants to sell tyres without damage and at certain prices. Any breach subjected them to a liquidated damages clause. Dealers breached by seller a tyre below listed price.

Question 14

Dunlop Pneumatic Tyre Co v New Garage & Motor Co Ltd [1915] decision

Answer 14

Since there is no way of determining the actual loss before the breach and the type of loss is the same for each breach. The amount was fair given the circumstances. Therefore not a penalty.

Question 15

Ringrow v BP Australia (2005) CLR principle

Answer 15

Damages must be ‘out of all proportion’ to the loss suffered for a clause to be classed as a liquidated damages clause.

Question 16

Ringrow v BP Australia (2005) CLR facts

Answer 16

• Appellant bought service station from respondent.
• Collateral documents included Option Deed and Privately Owned Sites Agreement (POSA).
• Option included right to buy back site for breach of POSA.
• Appellant bought and on sold fuel from alternative supplier in breach of POSA.
Issue: Was option to buy back for breach a penalty?

Question 17

Ringrow v BP Australia (2005) CLR decision

Answer 17

Where transfer of property was involved it was necessary to establish an extravagant or unconscionable difference between the price paid by the respondent on re-transfer and the actual value of the property transferred.

Question 18

Zachariadis v Allforks Australia Pty Ltd [2009] VSCA principle

Answer 18

‘Out of all proportion test’ should be used to determine if the damages are out of all proportion to a genuine pre-estimate at the time of formation. Damage need not be proportionate to the actual loss at the time of the breach/event giving rise to damages.

Question 19

Zachariadis v Allforks Australia Pty Ltd [2009] VSCA facts

Answer 19

• Appellant executed guarantees related to company’s performance of obligations under agreements for hire of forklifts between company and respondent.
Claimed clauses in hire agreements which required hirer to pay all charges which would have been payable from date of termination to expiry date of agreements if agreements terminated within hire period were void as penalties.
- Was clause liquidated damages or penalty?

Question 20

Zachariadis v Allforks Australia Pty Ltd [2009] VSCA deicison

Answer 20

VCC should have held relevant clause was penalty because not genuine pre-estimate of loss of damages.
“Out of all proportion test applied to genuine PRE-estimate.

Question 21

What is specific performance?

Answer 21

A remedy where the court will order a party performs an obligation under the contract

Question 22

Requirements of specific performance

Answer 22

1. Contract must be made with good consideration
2. Contract must be enforceable at common law
3. Damages must be inadequate
4. Mutuality: specific performance must be available to both parties so if specific performance is awarded both parties receive benefits under the contract

Question 23

The court must exercise it’s discretion in relation to giving specific performance. What factors should be considered?

Answer 23

§ Not a right like damages
§ Common bar: likelihood the court will need to supervise the parties in order to enforce the specific degree (e.g. continuing to run a business)
§ Nature of contract: close proximity etc. is unlikely - courts don’t see it as desirable to force parties in dispute to work in close proximity
§ Undue hardship to defendant
§ Behaviour of plaintiff: he who comes to equity must come with clean hands
□ Brought about breach, wasn’t ready, unconscionable conduct, delay in bringing legal action
§ Relevance of factors depends on degree and factors are determined on balance.

Question 24

Dougan v Ley (1946) CLR principle

Answer 24

• Specific performance will not be granted for something which is readily available on the marketplace (damages will be sufficient)
• Specific performance will be granted for something which is unique and not easy to come by (even if they manage to find another by chance)

Question 25

Dougan v Ley (1946) CLR facts

Answer 25

• Contract for taxi cab and licence £1850 for cab and licence (licence was valuable)
  
  • Mr Lugan refused to hand over licence
  • He knew he had breached
  • Argued he should just have to pay to compensate for loss (difference between contract price and for them to buy a new licence)
  • Just before trial they bought a licence and cab at £1900
  • He wanted to pay expectation damages
  • Purchasers wanted specific performance

Question 26

Dougan v Ley (1946) CLR decision

Answer 26

• Where you have a contract for something that can readily be purchased in the marketplace they will not grant specific performance. They will only grant specific performance where by so doing it can do more perfect and complete justice than damages. If it won’t be better for the plaintiff
  
  • Licence is rare - they should have the taxi and licence in specie rather than damages and loss
  • Once it has become apparent that the subject matter is sufficient for specific performance the subsequent purchase of similar property is irrelevant

Question 27

What is an injunction?

Answer 27

An order compelling a party to perform certain acts or refrain from certain acts

Question 28

What is an interlocutory injunction?

Answer 28

An order issued before the case is finally decided.

Question 29

When is the court most likely to grant an injunction?

Answer 29

For negative conduct (stopping someone doing something) because it requires less supervision by the court and will often result in the completion of the positive conduct.

Question 30

Curro v Beyond Productions (1993) NSWLR principle

Answer 30

An injunction will be granted to stop someone from doing something if the contract is fairly negotiated

Question 31

Curro v Beyond Productions (1993) NSWLR facts

Answer 31

• Curro signed a contract stating that she would not work for any other companies without talking to Beyond Production
• She accepted a job with 60 minutes
Beyond Productions sought an injuction

Question 32

Curro v Beyond Productions (1993) NSWLR decision

Answer 32

• Court - upheld injection because it was a fair and freely negotiated and she was just required to do what she was required
• Wouldn’t have granted if it had been unfair

Question 33

Supreme Court Act 1986 (Vic) s 38

Answer 33

Damages in addition to or in place of other remedies
If the Court has jurisdiction to entertain an application for an injunction or specific performance, it may award damages in addition to, or in substitution for, an injunction or specific performance.

Question 34

Where will s 38 Supreme Court Act be applied

Answer 34

• Often applied where specific performance and injunctions are not suitable on discretionary grounds
• Cash payment is more convenient
• In addition to specific performance where excess monetary value is necessary to perform justice

Question 35

JC Williamson Ltd v Lukey & Mulholland (1931) CLR principle

Answer 35

• Won’t grant specific performance if it is not fair for both parties (mutuality)
• Won’t grant specific performance if it requires the courts supervision

Question 36

JC Williamson Ltd v Lukey & Mulholland (1931) CLR facts

Answer 36

Exclusive rights to sell sweets etc. for weekly payment
Had to employ staff
Had to provide confectionery
Clothing subject to theatre manager

Repudiation by theatre
Sweet-sellers sought specific performance

Failure to abide by the statute of frauds - requires contracts which wouldn’t be fully performed within a year, it had to be in writing or it would be unenforceable

Question 37

JC Williamson Ltd v Lukey & Mulholland (1931) CLR decision

Answer 37

• Agreed that there were sufficient acts of part performance
  ○ Unequivocally shows that contract exists
• Didn’t think specific performance wasn’t appropriate
  ○ ‘In specie’ the actual thing must be completely and full executed - put parties in position which they originally expected
  ○ Court could grant they let in to sell
  ○ Couldn’t enforce defendants rights because they required too much ongoing interaction by the courts and also, interaction between the parties
  ○ Court could give plaintiff’s specific performance but not the defendants - mutuality
  ○ Contrary to equity principles to enforce one part of an agreement and leave no remedy for the remainder of the agreement. Unfair for both parties.