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MISREPRESENTATION

Misrep concerns precontractual representations that are false. A misrep is a false statement of fact that acts as
an inducement to the party to whom it is addressed, and who is misled by it, to enter into a contract.
The law on misrep is an amalgam of common law rules, equity and statutory provisions. There is also overlap
with the law of negligence.
The law of MDC has overtaken the old law on misrep in commercial situations (trade or commerce),
however the old rules are still required in situations that fall outside trade or commerce. They can still be
used in commercial situations as well, but tend not to be.
Remedy of Rescission
The party that has been misled (misled party) by an actionable misrep is generally entitled to rescind the
contract if and when they choose (including if they are sued by the other party). They have a choice whether to
continue with the contract or to rescind it, the contract us thus voidable.
A rescission of the contract entails restoring the original situation of the parties, taking things back to the status
quo as if a contract had never been made (void ab initio). Everything done from the contract must be undone.
As compared with termination, wherein the contract is valid up until the point of termination.
I CREATION OF THE RIGHT TO RESCIND
Actionable Misrepresentation
1. False Statement of Fact
An actionable misrepresentation is a representation that is a false statement of fact
A representation is a statement (or conduct) made by one party about an existing state of affairs or past event.
FALSITY
The question of whether or not a statement is false is to be determined objectively from the point of view of a
reasonable observer (in the position of the representee). Unlike the test for fraud, the representors state of
mind is not relevant, and neither is the representees actual state of mind: Krakowski
Can draw on MDC decisions about what is misleading, as the concepts are not far removed from one another,
but be careful here.
STATEMENT
Misrepresentation is usually in the form of statement, but can be inferred from active conduct.
Silence or non-disclosure generally does NOT constitute an actionable misrepresentation. Tacit acquiescence
in anothers self-deception generally creates no legal liability. Eg Alati (failure to disclose impending entry of
supermarket not alleged to constitute a misrep)
Something more than silence is required (in exam, watch for something slightly more than silence)
However, there are 3 exceptions to the rule that silence affords no ground of relief. To put it another way, there
are three circumstances in which there is a duty of disclosure on the part of the representor:
(1) Half Truth: Where representor makes a representation on some matter it must be full and frank, not partial such
that what is left out makes it false or misleading. Although what was said might be literally true, it is
considered to be actionably false because of what it leaves out: eg Krakowski
(2) Changed circumstances: Where a party makes a false statement that he believes is true, but then discovers that
it is false, the truth must be disclosed. Similarly, if a party makes a true statement but changed circumstances
make it false, that party is obligated to disclose the truth.
(3) Fiduciary duty and utmost good faith: certain classes of contractual relationship require one party to fully
represent all material facts within their knowledge to the other party.
FACT
An actionable misrep is traditionally required to be one of fact only. However courts have extended the
boundaries of fact to encompass statements that are not merely factual
In order to explain this it is important to remember that the essence of misrepresentation is that one person has
been misled by the other into contracting, and that reasonable people are often just as misled by opinions and
predictions etc as they are by statements of pure fact.
A statement of intention cannot normally be said to be true or false. Consequently, such statements are not
normally considered to be misrepresentations (unless of course they are contractual promises, in which case
they may be breached). The exception is when such a statement is fraudulent (ie where D says he will do
something knowing that he will not) in which case it may be actionable: Ritter
Statements of Opinion: Generally an honest statement of opinion will not generate an actionable misrep.
However this clearly depends on the nature of the opinion and the circumstances. Some circumstances in
which an ostensible opinion may nonetheless be actionable include:

Representor did not actually hold the opinion: ie opinion is fraudulent/dishonest: Ritter, Nicholas; Gould
Speaker entirely ignorant of facts on which opinion based, or, expressed another way, a reasonable person
possessing the speakers knowledge could not honestly have held such an opinion: Ritter(?)
- Definite and Indefinite facts (borderline fact/opinion statements): eg a very large sum of money. Very large
is a relative term, thus not entirely factual. This called an indefinite fact, and the fact finder can decide
whether such a stmt is a fact or opinion. Thus it is arguably sufficient that the opinion is somewhat comprised
of fact: Nicholas;
- Note that the relative knowledge of the parties as to the subject matter of the opinion may be important, eg
where the representor alone was in a position to know the facts upon which the opinion was based;
Puff: Flamboyant stmts about the quality of the subject matter that would not reasonably be considered to be
literally true are not actionable ie sales gimmicks etc. however there is a fine line between puff and stmt of
fact, so must be careful here.
2. Inducement/Materiality
The onus of proof lies on representee to show that he was in fact induced by the misrep to enter into the
contract.
Must ask:
1. Was the misrep material ie would a reasonable person in the position of the representee have been
induced by such a statement? Gould Note that special knowledge by representor of facts that would
make such a representation material to that particular representee are sufficient (eg Krakowski): Gould
2. Looked at objectively, was the misrep calculated/intended to induce?
3. Was the misrep fraudulent?
If the answer is yes to at least one of these questions, then, on the basis of Gould and Nicholas, it seems that
inducement will be inferred and the misrep will be actionable
UNLESS the representor can adduce evidence to show that, despite the misrepresentation, it did not in fact
induce the particular representee. The inference may be rebutted in one of 3 ways. By showing that the
representee:
(1) never knew of the existence of the misrep;
(2) knew of it but knew that it was false. Must be actual knowledge. But P may still be able to recover if knew of
falsity but did not know the extent of the falsity: Gould;
(3) knew of it but did not allow it to affect its judgment (usually overlap with 2).
If the misrep was immaterial, not intended to induce, and innocent, it appears from Gould and Nicholas that it
will not be actionable (though would have to weigh up in each case, as would come under equity).
CAUSATION OF INDUCEMENT
The misrep need not have been the sole inducement. It is sufficient that it contribute some part, even if only a
minor part, in contributing to Ps entry into the contract: Gould
MATERIALITY
if D makes a material misrep (a misrep that would have induced a reasonable person to enter into the contract)
that was calculated (intended is this to be determined objectively?) to induce P to enter into the contract, and
P does, then it will be inferred that he was induced to do so by the misrep: Nicholas. In this case the onus is
then shifted to D to rebut that inference: Gould (It appears that the inducement will be inferred if a reasonable
person would conclude that the representor intended the statement to induce P to enter the contract, whether the
stmt was fraudulent or innocent).
As to the requirement of materiality, this is somewhat elusive. In a case in which D intended the stmt
(whether fraudulent or innocent) to induce and it did in fact induce, materiality will not be relevant: Nicholas
However, where D makes an innocent misrep, with no intention to induce and P was induced but a reasonable
person would not have been (ie stmt not material stmt), the misrep may not be actionable even if P can show
(the onus being on him) that he was in fact induced (this would probably only be the case at equity).
Thus if P was induced and the inducing misrep was:
- fraudulent and calculated to induce (intended by D to induce) actionable: Gould; Nicholas
- innocent but calculated to induce (intended to induce but falsity not known) actionable: Nicholas
- innocent, and not material (would not have induced a reasonable P), but D knew of Ps idiosyncrasy that made
such a representation important to that P (surely intention would be inferred) actionable: Nicholas.
- innocent, not calculated to induce, and not material (would not have induced a reasonable P) potentially not
actionable on the basis of dicta in Nicholas and Gould

In summary, this area of the law is confusing and entirely inadequate. Just go with the three question test
(above) and hope that at least one of them can be answered with a yes.

Fraudulent/Innocent misrepresentation
There are separate rights at common law and at equity. In order to rescind at common law the misrep must
have been fraudulent. At equity, innocent misreps may also be actionable.
Fraudulent Misrep:
- A representation that is made with knowledge that it is false or with reckless indifference to the truth of the
statement: John McGrath Motors; Krakowski
- Did D believe representation to be true in the sense in which he understood it? Krakowski
- Requires an examination of what the representor subjectively meant by the statement
- Comes down to how believable Ds case is. Court will look at objective criteria.
- However will be difficult for D to convince a court that he held a subjective meaning that is different to an
objective meaning.
- If a corporation is involved the knowledge of the corporation will be comprised of that of all its officers, such
that it is no excuse that one officer didnt know if another did know: Krakowski
Innocent Misrep: A misrep that is not a fraudulent misrep (ie not known that it was false)
The equitable right to rescind is somewhat limited. Eg, contracts for the sale of land cant be rescinded for
innocent misrep after settlement. Krakowski
There is an argument that this represents a wider form of the rule whereby cant be rescinded for innocent
misrep after final execution of the contract. But this wider application of the rule is controversial (see
C&Fifoot).
The restitutio requirement
Common Law: It is a requirement of the right to rescind at common law that restoration to the status quo that
existed before the contract should be precisely possible. Court must aid in making the necessary adjustments
between the parties to restore them to the status quo: Alati
Equity: Rescission at equity is discretionary, so a court will weigh up the conduct of the party seeking the
rescission and decide whether or not to grant it. Equitys role is to achieve practical restitution, so must make
the necessary adjustments to do what is practically just to restore the parties to the status quo: Alati; eg in
Vadasz
Equity will be more willing to come to the aid of a victim of fraudulent misrep than innocent misrep: Alati
Factors such as the use by P of Ds property, where such property is irreversibly altered, makes CL rescission
impossible (unless the property was altered by some cause that was not the fault of P: Alati). However, in
equity, Court can make monetary compensation: Alati
Under equity, a court may order partial rescission if this is appropriate (see below): Vadasz
Summary of Differences at common law and at equity:
Common Law: Rescission available only if:
(1) misrep is fraudulent; AND
(2) actual restitution (restoration to the status quo before the contract) is precisely possible.
- If one of these two conditions is not satisfied, then must go for equity:
Equity: Rescission available if:
(1) misrep is fraudulent OR innocent; AND
(2) if restitution is merely practically/substantially possible (ie through payment of a money sum).
BUT: rescission is discretionary, involves weighing up conduct of party seeking rescission.
Rescission at equity more likely if misrep was fraudulent than if it was innocent.
Rescission at equity not available in sale of land after settlement (arguable that not available after any other
contract has been executed).
Hierarchy: Likelihood of rescission in descending order: (1) Common law (fraud and restitutio); (2)
Fraudulent at equity; (3) innocent at equity.
II RESTRICTIONS ON THE EXERCISE OF THE RIGHT TO RESCIND
Contractual Restrictions
Parties can include in their contract a restriction on the right to rescind, and they can exclude liability for
innocent misrep. Byers; Demagogue

However, parties cannot exclude the right to rescind for fraudulent misrep, as this would be against public
policy.
However it should be noted that, in Byers, Pincus J would not have held that the merger clause defeated the
claim for innocent misrepresentation were it not for the existing precedents, noting that the contract containing
the clause was induced by a misrepresentation, which amounted to an estoppel in pais. Thus Dorotea would be
estopped from departing from their representation that induced the assumption that Blvd North would be
bigger and better. Byers
Note, Non-restriction: Failure to Read Contract
It should be noted that where a prior misrepresentation is inconsistent with the contract itself, but the
representee has not read the contract (but has signed it anyway), D may still be liable for misrep. Thus this
seems to trump the rule that if you sign a contract you assent to all its terms: see, eg, Vadasz
Unconscionability
The right to rescind cannot be exercised if to do so would be unconscionable, esp under equity: Alati
This is particularly influenced by the conduct of the representee after notice of rescission is proffered: they
must still act in good faith etc etc: Alati
Partial Rescission
A court may make an order for partial rescission, wherein only part of the contract is rescinded and the rest of
it remains valid. However such an order may only be possible if the facts allow: Vadasz
Only in some cases will it be possible to rescind the contract to the extent that P was misled: Vadasz
Must ask whether P would have entered into a contract at all if not misled. If the answer is no, then partial
rescission cannot apply. However if P would have entered into a contract but not the part over which he was
misled then, according to Vadasz, it may be possible to rescind only that part that he would not otherwise
have entered into.
III LOSS OF THE RIGHT TO RESCIND
Election to Affirm
When the representee obtains knowledge of the facts that give rise to the right to rescind ie learns about the
misrep (and when they learn of the right to rescind?), he has a choice to affirm the contract or to rescind it.
Representee must elect by clear and unequivocal conduct communicated to the other party, to elect or to
rescind.
Election to affirm may be inferred from conduct, thus failing to rescind promptly may result in P losing the
right to rescind
Waiver
Basically same as election to affirm.
Estoppel
An estoppel may arise where A induces B to assume that A would not exercise his right to rescind, in which
case A may be estopped from exercising that right.
IV RIGHT TO DAMAGES
No damages at Common law if misrep is innocent and non-negligent, but potential statutory liability: TPA;
(also SA and ACT legislation).
Potential damages in tort: if misrep is fraudulent (deceit) or negligent (negligence).
No damages for breach of contract unless misrep incorporated into the contract (eg Alati), but can still sue in
tort (note that can only obtain contract damages if contract is affirmed, not if it is rescinded; b/c if rescind, it is
as if the contract never existed, so therefore cant sue for breach of it).
Alati: damage measure in tort is the difference, if any, b/w the true value and the amount paid.
CASES (MISREPRESENTATION)
John McGrath Motors (Canberra) Pty Ltd v Applebee HCA 1964
FACTS:
- P bought a car from D dealer in Canberra
- Car was new in Sydney, but then driven from Sydney to the showroom in Canberra.
- D represented the car to be new as it was inspected by P.
- Also, on the registration form the option second hand was struck out, and new was ticked
- Trial judge assigned a meaning to new in the context and held that Ds rep was fraudulent because he knew
that the car was not new in the sense that the court held it should mean. D appealed

RESULT:
- 3:0 in favour of D
LEGAL IMPORTANCE:
- Court must determine what meaning D had in mind when he used those words and whether he knew the
statement was false according to his subjective meaning.
- Court believed that D had meant new as in not second hand (this was obviously quite reasonable in the
circumstances). Therefore his stmt was not fraudulent.
- The question is thus whether [D] believed the representation to be true in the sense in which he understood it.
- NOTE however that the facts here were clearly important here in leading the Court to accept that D understood
new in a sense that differed from the objective or normal meaning. Thus clearly context has an important
role to play.
- It might otherwise be difficult to convince a court that D held a subjective meaning that was unusual or alien to
the context, thus the court will consider objective criteria rather than accepting Ds word for it.
Krakowski v Eurolynx Properties Ltd HCA 1995
FACTS:
- K (purchaser & plaintiff) negotiated with E (vendor & defendant) for the purchase of a retail shop in a
shopping centre.
- K made it clear that they wanted a reliable tenant to be found by E. They wanted a 10% return.
- E informed K that they had found a tenant willing to pay $156 000 per year, thus purchase price would be
$1.56 million.
- Ryan, a director of E, assured K that the tenant, Swaeder (S), was reliable etc.
- Es solicitors, Mallesons, and Ss solicitors then negotiated over the lease of the unit. E offered S, as
inducement to take the lease, a 3 month rent free period and a lump sum payment of $156 000. Without this
inducement, S would not have taken up the lease.
- E and S agreed that these inducements would be executed in a separate letter, not included in the lease
agreement.
- Neither Ks nor their agent knew of this separate agreement.
- When it came time to execute the sale contract b/w K and E, a copy of the lease contract was annexed to it, but
it did not contain a copy of the separate agreement.
- The sale contract contained a clause stating that the contract was conditional on the execution of a lease for
payment of $156 000 per annum.
- The lease contract contained a merger clause.
- A few days later K sent E a letter requesting particulars of all tenancy arrangements. A reply from E stated that
a copy of the lease was annexed to the contract. No mention was made of the separate agreement.
- The sale contract was then executed.
- When S failed to pay the rent, K discovered the truth about the separate agreement and filed for, inter alia,
rescission.
RESULT:
- 4:1 in favour of K
LEGAL IMPORTANCE:
- K had to show that the misrep was fraudulent in order to rescind, as cant rescind a contract for the sale of land
under equity after settlement unless the representation was fraudulent.
Statements and the duty to disclose
- K thus argued that it was a fraudulent misrep to advance the lease without disclosing the separate agreement.
Whereas E argued they had no duty to disclose.
- Court held that this was not a simple case of non-disclosure of fact, rather this was a category of half-truth
whereby an existing representation was distorted by what was not disclosed.
- Negotiations took place on the footing that a lessee who was willing to pay $156 000 had been found. This was
not entirely true in the light of the separate agreement.
- The annexation of the lease was a further positive representation that was distorted by the non-disclosure of the
separate agreement.
- Additionally, the merger clause, which stated that the lease contained the entire agreement b/w S and E, could
itself be considered a positive misrepresentation made to K.
Falsity
- Falsity is to be determined from the perspective of the reasonable person in the position of the representee,
neither partys actual state of mind is relevant.
Fraud

A fraudulent misrep requires only that the representor did not honestly believe the truth of the representation in
the sense in which he subjectively understood it.
- A representation may be fraudulent without prior planning or evil motive.
- The Court held that in this case, the merger clause was capable of only one meaning. Eurolynx was conscious
of that meaning thus it committed fraud: knowingly making a false misrep.
- E relied on the fact that one of its officers, Gilbert, was of the belief that inducements given to tenants were
immaterial to contract of sale of property. However Court held that the other officers of E knew that the
particulars of the rent were of importance to K, therefore the corporation had the knowledge, it being no excuse
that one of its officers did not.
- Thus the corporate mind is comprised of the knowledge of each of its officers.
- The Court inferred from the behaviour of the other officers of E and their solicitors that E knew of the merger
clause and knew of its meaning. Thus was guilty of fraudulent misrep.
- The drawing of that inference was aided by the fact that E appeared to be deliberately concealing the evidence
of the separate agreement, eg the reply by letter saying that all particulars were contained in the contract and
the event of a phone call in which Ks inquired as to why the full rent had not been paid after the end of the first
month and E replied that this was an internal matter, just an adjustment problem rather than explaining that
payment was actually not required from S due to the separate agreement.
Inducement
- Although not explicitly discussed, it seems that Ks were induced to enter into the contract because they could
show that they were particularly interested in knowing the details of the tenancy arrangement. As Tooheys
dissenting judgment emphasises, they were going to get paid by E anyway, so it shouldnt have mattered to
them where that money came from. Arguably, this representation would not have induced the reasonable
person to enter into the contract (or rather a reas person would not have been fussed by the arrangements b/w S
and E) however it is clear that in this case the Ks were induced by it as they made it clear that it mattered. The
fact that E knew that K cared about the lease arrangement was what (seemingly) made this fact material. As it
was a material and fraudulent misrep, inducement could be inferred.
Nicholas v Thompson Vic SC Ct of Appeal 1924
FACTS:
- N alleged that they were induced by fraudulent misreps from T to enter into two contracts to purchase interests
in companies, for which N had paid $10 000.
- T had told N that he had been offered a very large sum of money for his interests and had refused the same
(so as to persuade N that his interests were quite valuable).
- At trial, the jury found that T made this stmt, that it was false, that T knew it to be false, and that they induced
N to enter into the contracts.
- T appealed, arguing that the stmt was a stmt of opinion, therefore not actionable, and that the stmt was not
material and therefore could not have induced N to enter into the contracts.
- [I dont know why, if T appeals, N is the appellant (??)]
RESULT:
- 3:0 in favour of N.
LEGAL IMPORTANCE:
Statement of Fact not Opinion
- Court held that the stmt that T had been offered and refused money was a stmt of definite fact, and the stmt
that the sum of money was very large was a stmt of indefinite fact, but nonetheless a stmt of fact.
- It is a question for the jury whether the amount could reasonably be described as a very large amount.
- Thus stmts like this that are not entirely factual but are sort of partially factual are capable of being considered
factual for the purposes of actionable misrep.
Material Inducement
- Materiality is not really important.
- If the defendant makes the statement for the purpose of inducing, and the plaintiff is thereby induced, that is
sufficient. It does not matter in such a case that the stmt was material.
- Material was held to mean capable of influencing a reasonable person, or, due to particular idiosyncrasies of
P that D knew of, capable of influencing that particular P. But the stmt in this case did not need to be material
in this sense because the stmt was intended (calculated?) to induce.
- Thus it seems that, where there was no intention to induce (and no fraud?) and P was induced but a reasonable
person would not have been (ie by a non-material stmt), rescission may be barred (this would probably only be
the case at equity).

Alati v Kruger HCA 1956


FACTS:
- K purchased a fruit business from A.
- Stmt included in the contract that the average takings of the shop were $100 per week.
- Trial judge found (and HCA upheld) that this statement was false, D knew it was false or did not care whether
it was false.
- A supermarket was about to be opened opposite the fruit store. A (vendor) knew of this, but K did not.
- The takings proved immediately to be much less than $100 per week.
RESULT:
- 5:0 in favour of K (purchaser)
LEGAL IMPORTANCE:
- because the representation was both precontractual (part of the offer) and a stmt in the contract, K had a
choice of rescission, OR breach of contractual warranty and damages. Elected rescission in this case.
Restitution Requirement
- Common law rescission not possible in this case b/c it was not precisely possible to restore the status quo. This
was so b/c K had used the property and also taken over the stock of the fruit shop.
- The fact that the value of the business had deteriorated, however, did not affect the purchasers right to
common law rescission, because the deterioration of the business was not the fault of the purchaser (it was due
to the presence of a supermarket opposite). Even the common law requirement that property be returned in its
original condition is qualified so as to allow for incidents for which the buyer was not responsible, such as
those caused by the purchaser in the exercise of rights accorded by the contract, or from the inherent
devaluation of the property.
- Nonetheless, the taking of stock and the use of the property were sufficient to preclude common law rescission.
- However, equity can step in where precise restoration not possible, in order to do what is practically just b/w
the parties, thus substantially restoring the status quo.
- Equity allowed the necessary adjustments in this case, ie payment of money sum and redistribution of property
etc.
Unconscionability Affects Equitable Rescission
- Equitable rescission is discretionary, depends on the circumstances and the actions of the party seeking
rescission.
- Court held that if K had left the premises without giving A adequate warning, or failed to carry on the business
in good faith, the Court might refuse relief on the basis that K acted unconscientiously.
- However K did not so act, rather K gave A a reasonable opportunity and also cooperated etc.
Statement
- It was not alleged that the failure of A to disclose the impending entry of the supermarket amounted to a further
misrepresentation.
- This is presumably because K was not obligated to do so as the law requires no duty of disclosure other than in
the three specific circumstances. Presumably none of those circumstances were met here.
Vadasz v Pioneer Concrete (SA) Pty Ltd HCA 1995
FACTS:
- PC had complete concreting works for V, for which V had not paid. V thus had outstanding debts owed to PC.
- PC made V signed a guarantee which required V to guarantee payment of both past and future debts to PC
before they would agree to deliver any more concrete. However PC misrepresented to V that the guarantee
only related to future debts, and V signed it on that basis.
- Trial judge and Court of Appeal held that contract could be partially rescinded to the extent of the misrep ie V
would still be held to his guarantee of future debts, but the part relating to past debts would be rescinded.
- V appealed, arguing that the guarantee must be rescinded in its entirety.
RESULT:
- 5:0 appeal dismissed, partial rescission allowable
LEGAL IMPORTANCE:
- V could not rely on common law rescission b/c could not return the contract already supplied..
Partial Rescission in Equity
- In the case of equity, partial rescission is allowable if it is possible and just to do so in the circumstances.
- Here the evidence shows that V would have entered into a contract for the guarantee of future debts. This is not
a case in which, had PC represented the whole truth V would not have entered into any contract at all. Thus
rescission to the extent that V was misled is an appropriate equitable remedy.

If complete and unconditional remedy is to be granted, it must be to ensure the observance of good conscience
and practical justice.

Gould v Vaggelas HCA 1985


FACTS:
- G wanted to buy Vs resort.
- G negotiated with Vs agent, during which time he made representations to her about the profitability of the
resort.
- V told her accountant that she did not believe Cs claims re profitability, and her accountant told her that they
were unreliable (however she did not know the extent to which they were being overstated)
- Nevertheless, she entered into the contract for the resort.
- The resort venture failed Goulds stuffed, seek rescission of contract for misrep.
RESULT:
- On the issue of inducement: 5:0 in favour of G
LEGAL IMPORTANCE:
Inducement
Brennan J:
- an inference of inducement may be drawn when a party enters a contract after a material misrepresentation, but
this may be rebutted.
- Fact that G did not believe the representation in full did not mean that Vs representations did not induce her.
She was induced despite suspicion that the representations were false, and V cannot escape liability simply
because G did not believe him in full. A knave does not escape liability because he is dealing with a fool.
Wilson J (Dawson, Murphy and Gibbs agreeing):
- Onus of proof lies on P to prove all elements of case, including that he was induced.
- However if D makes a material representation that is calculated to induce, and P enters the contract, inference
will be drawn that P was induced by the misrep.
- D must then adduce evidence to rebut that inference, ie by showing that P had actual knowledge of the truth, or
made it plain that he did not rely on the misrep.
- Causation: the misrep need only be a cause of entry into the contract, need only be a minor influence.
Ritter v North Side Enterprises Pty Ltd HCA 1975
FACTS:
- Prior to entering into a sale of land contract, NSE assured R that the land would be sewered by the local
Council within four months.
- Only upon learning of this did R agree to enter the contract.
- R alleged that NSEs representation was fraudulent because it was made with either knowledge of, or reckless
disregard as to, its falsity.
RESULT:
- 3:0 in favour of R
LEGAL IMPORTANCE:
- Supports proposition that stmts of intention can be misrepresentations if made fraudulently.
- Court said that this was a misrep as to fact, b/c NSEs representative misrepresented his state of mind.

MISLEADING OR DECEPTIVE CONDUCT: TPA


TPA s 52: A corporation [or person] shall not, in trade or commerce, engage in conduct that is misleading or
deceptive or is likely to mislead or deceive.
Note that, despite appearing in the part of the Act entitled Consumer Protection, s 52 is not restricted to
consumer transactions. It has been applied in non-consumer business transactions on many occasions.
By virtue of s 9 of the FTA (Vic), this section also applies to persons.
I MISLEADING (OR DECEPTIVE)
Conduct is misleading if it in fact misleads or is likely to mislead another party.
The state of mind of the defendant is not relevant to the question of whether the conduct was misleading. Ie
there is no requirement of intention to mislead or knowledge that the conduct is misleading: Henjo
It is necessary to show that the victim of the misleading conduct was actually led into error. And relied upon
that error as inducement into the contract. Here, the same principles that applied under the general law relating
to misrep apply.
It is thus necessary to examine the conduct of the victim. It is not the case that conduct is misleading if a
reasonable person would have been led by it. Rather, it must be shown that the victim was misled by it, yet
there is also clearly a threshold that requires some degree of reasonableness on the part of the victim. They are
allowed to be nave and even gullible, but extraordinary stupidity would arguably result in conduct not being
considered misleading.
Thus, just because someone is in error does not necessarily mean that the relevant conduct was misleading.
In regards to entering contracts, the relevant questions are: was the conduct capable of being considered
misleading, from the perspective of the victim? Was the victim actually led into error? Was the victim
reasonable in being misled by the conduct? If not, how unreasonable was it? Was the misleading conduct a
factor that led to the entry into the contract (apply old rules)?
However there is no liability for merely passing on information, that is, where the representor was acting as a
mere conduit for information generated elsewhere. But this depends on the circumstances. This is not a
blanket rule, as merely passing on information could be construed as misleading if D gives no disclaimer when
the context requires one, or adopts the information as his own or otherwise endorses it, or embellishes the
information: see The Saints Gallery
Similarly, if the circumstances are such as to make it apparent that the [defendant] is not the source of the
information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for
what it is worth then it is doubtful that such conduct could be considered misleading: Yorke. This is consistent
with Saints Gallery, in which the circumstances made it clear that F was not the source of the info and he
impliedly disclaimed any belief in its truth or falsity.
II CONDUCT
TPA s 4(2):
(a) A reference to engaging in conduct shall be read as a reference to doing or refusing to do any act, including the
making of, or the giving affect to a provision of, contract or arrangement ... an understanding [or] a covenant.
(c) a reference to refusing to do an act includes a reference to: (i) refraining (otherwise than inadvertently) from doing
that act.
Clearly, conduct includes making statements and other forms of conduct. The issue of engaging in conduct
arises primarily in two situations: (1) silence; and (2) making of promises
Silence
s 4(2) states that conduct includes refusing to do any act. Thus silence can amount to conduct.
Silence may be considered conduct in the situations in which it is so considered under the general law
relating to misrepresentation (Henjo). However, it is not limited to those circumstances: Demagogue
The question is simply whether, having regard to all relevant circumstances, including silence, there has been
conduct that is misleading. There will be a duty to disclose when failure to do so would be misleading:
Demagogue
In terms of a practical test it has been held that: if the context in which information or advice is given gives rise
to a reasonable expectation that certain facts would be revealed, then failure to reveal them is misleading:
Demagogue (Black CJ) Thus must examine the context and look for a reasonable expectation of disclosure.
However the silence issue must be understood in the light of s 4(2)(c)(i), which suggests that silence will only
amount to conduct when it is other than inadvertent ie when it is deliberate.
So a defendant could always claim that, in failing to disclose something that led a plaintiff to be misled, he
simply forgot. However this arguably leads to an inconsistency between s 52 and s 4(2)(c), seeing as s 52

imports strict liability, wherein Ds advertence to the subject matter is irrelevant. Thus Courts have tended to
hold that s 52 prevails. The primary issue is whether the silence is misleading, and the expanded definition of
conduct should not distract attention from this fundamental issue: Gummow J in Demagogue
This view is justified because a reference to refusing to do an act merely includes deliberately refraining from
doing an act.
Predictions and Promises
s 4(2) includes within its definition of conduct the requiring or giving of a covenant (promise) and the
arriving at, or giving effect to an understanding. It would thus seem hard to exclude other conduct relating to
the future, as promises clearly relate to the future and understandings could also be reached regarding the
future. See Jam Factory
However, since the inclusion of s 51(A) we no longer need to construe the definition of conduct.
s 51(A)(1): For the purposes of this Division, where a corporation makes a representation with respect to any future
matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds
for making the representation, the representation shall be taken to be misleading.
s 51A(2) reverses the onus of proof: the corporation shall, unless it adduces evidence to the contrary, be deemed not
to have had reasonable grounds for making the representation.
Thus if someone makes a prediction that turns out to be wrong, he will have to adduce evidence to show that
he had reasonable grounds for making that prediction, otherwise he will be deemed to have engaged in
misleading conduct.
This provision has also been included in the FTA (Vic) s 4, so it also applies to persons.
Statements of Opinion
The general approach to opinions is similar to that under the old law relating to misrepresentation.
Thus opinions are capable of being misleading if they are based on untrue facts or knowledge, or if they are
made dishonestly etc. Also look for disparities in knowledge, ie expert opinions.
Contractual Promises and Statements of Intention
Difficulty arises here due to the fact that promises and stmts of intention relate to future matters but at the same
time are representations as to current state of mind or present ability or intention to carry them into effect.
Pure promises, or stmts of intention are conduct relating to future matters. As such they are actionable under s
52 if made dishonestly or recklessly, or if made without reasonable grounds: s 51A; Futuretronics.
This so even if the promise is embodied in a contract, in which case the promisor must show that he had
reasonable grounds (eg ability, capacity, intention) for making the promise: s 51A; Accounting Systems
The effect of s 51A on contractual promises is really complimentary in that it requires the promisor to adduce
evidence that a promise was made with reasonable grounds. But this should not prove difficult as most
contractual promises are made with deliberation and on reasonable grounds. Nonetheless, the fact that the
promisor bears the burden makes it difficult in some cases for a promisor: eg Futuretronics
Contractual warranties and other promises as to a present state of affairs (such as the quality of a product) can
certainly be misleading (if the facts are not true): Accounting Systems
III TRADE OR COMMERCE
These include any activity associated with a business contract, that is, when one commercial entity deals with
another or with a customer.
There does not necessarily have to be payment for an activity to be in trade or commerce.
However, a company dealing with its employees cannot be caught under s 52.
Activities that, of their nature, bear a trading or commercial character are capable of generating MDC:
Concrete Constructions
However, those that are not of a trading or commercial character but that are undertaken merely in the course
of, or as incidental to the operation of a commercial business, are not covered by the Act: Concrete
Constructions
IV REMEDIES UNDER THE TPA
Contractual Restrictions:
Merger and exclusion clauses cannot operate to defeat an action under s 52: Byers; Henjo; Demagogue.
Byers: Seller relies on cl 8 of the contract, which excludes the right of the purchaser to rely on any other
representations etc. But court holds that this only succeeded in excluding liability for innocent misrep; cannot
exclude liability under the TPA.
Henjo: (Restaurant) D relies on merger clause. Court holds that the assertion that the TPA is defeated by a
contractual provision would be contrary to public policy.

Demagogue: Exclusion clause not effective to defeat TPA but can be effective under the general law relating to
innocent misrep.

Participants and Accessories: s 75B


The remedies provided by ss 82 and 87 are available against the corporation or the person who engaged in the
misleading conduct AND, by virtue of s 75B, against any person involved in the contravention:
s 75B(1): A reference in this Part to a person involved in a contravention of a provision of Part [IVA (unconsc) or V
(MDC)], shall be read as a reference to a person who:
(a) has aided, abetted, counselled or procured the contravention;
(b) has induced, whether by threats or promises or otherwise, the contravention;
(c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d) has conspired with others to effect the contravention.
In s 75B(1)(a) the words aided, abetted, counselled or procured are imported from the criminal law. Under the
criminal law, to be found guilty of aiding and abetting or counselling and procuring the commission of an
offence, the accused must have intentionally participated in it. Such participation requires knowledge of the
essential matters which go to make up the offence: Yorke
75B(1)(c) also requires knowledge, which is explicitly stated here: D must have been knowingly concerned in,
or party to, the contravention. It is not enough that D be knowingly involved in the act of conveying the
information, he must have knowledge of the essential elements of the contravention ie he must know that the
representation is incorrect or potentially misleading: Yorke. See also Henjo (Saade knowingly involved) and
Accounting Systems (Stokes not knowingly involved).
However note that there is arguably some discrepancy over whether there must be an intention to mislead (as
the Court says in Yorke). The Court equates knowledge of the essential elements of the contravention with
intention to mislead, but arguably these are not the same. Although, on one reading of the judgment the Court
is saying that intention is constituted by knowledge, which leads one to wonder why they mention intention at
all in relation to s 75B(1)(c), which mentions only knowledge.
In the case that both the corporation and another person, or simply more than one person, are held liable, the
extent to which the cost of damages is to be divided (if at all) between each is not clear. [But it is probably
enough for us to satisfy the interests of the plaintiff (ie in an exam advise X) and assume that the Ds are joint
and severally liable].
Damages under s 82
s 82(1): A person who suffers loss or damage by conduct of another person that was done in contravention of [s 52]
may recover the amount of the loss or damage by action against that other person or against any person involved in the
contravention.
Loss or Damage
Remedies under ss 82 (and 87) are not to be determined by analogies with tort and contract: Marks
Under s 82, remedy only available for actual loss or damage incurred as a result of the misleading conduct:
Marks; Gates; Futuretronics
Must examine what the victim would have done but for the misleading conduct and determine whether they
would have taken, if available, a more valuable course of action: Marks; Gates
A more valuable course of action may have included not entering into any contract at all: Jam Factory
The award of damages may be the equivalent of expectation loss if, but for the misleading conduct, they would
have taken a course of action that entitled them to what they expected under the existing contract: Marks
NOTE also that the loss may extend to loss of a chance: Sellars.
By conduct in contravention of (Causation/reliance issues)
Loss is suffered by a contravention if it is caused by that contravention.
The normal rules of causation apply: thus the misleading conduct need only be a cause (Henjo), however it
might still be shown that P would have entered the contract anyway (ie it did not influence his mind see the
Gould principles), thus breaking the causal chain.
But it is necessary not just to show that the conduct induced them to make the contract, but that the loss was
caused by the misleading conduct: See I & L Securities; Jam Factory
Is loss causation subject to the same principles as in damages?
Proportionality
s 82(1B): Despite subsection (1), if: (a) a person (the claimant ) makes a claim under subsection (1) in relation to: (i)
economic loss; or (ii) damage to property; caused by conduct of another person (the defendant ) that was done in

contravention of section 52; and


(b) the claimant suffered the loss or damage: (i) as a result partly of the claimant's failure to take reasonable care; and
(ii) as a result partly of the conduct referred to in paragraph (a); and
(c) the defendant: (i) did not intend to cause the loss or damage; and (ii) did not fraudulently cause the loss or damage;
the damages that the claimant may recover in relation to the loss or damage are to be reduced to the extent to which the
court thinks just and equitable having regard to the claimant's share in the responsibility for the loss or damage.
So, where:
(1) P has a claim for damages under s 82 based on misleading conduct causing loss or damage; AND
(2) The loss or damage was economic loss or property loss; AND
(3) The loss or damage to P was caused partly as a result of Ps failure to take reasonable care (negligence?); AND
(4) D did not intend to or fraudulently cause the loss or damage*; THEN
(5) Ps damages are to be reduced to the extent to which the court thinks just and equitable having regard to the
claimant's share in the responsibility for the loss or damage.
* Note that at stage (4), a reduction based on proportionality will be refused only if D intended to cause the
loss or damage; arguably this is not necessarily the same as intending to make the misrepresentation, thus P
must prove that D intentionally caused the particular damage. However, arguably the requirement that D did
not fraudulently cause the loss or damage is merely a requirement that the loss or damage did not occur as a
result of a fraudulent misrepresentation, thus D need only be proven to have knowingly (or recklessly) made a
false representation that eventuated in Ps loss. [But this is only my interpretation as there are no cases on this
yet.]
Another issue relates to the standard of care that P will be held to, as there are numerous decisions in which
nave, even stupid Ps have been awarded damages for MDC. Courts have held that Ps are not required to check
the validity of representations made to them by D. Will this change now as a result of s 82 (1B)? Or will this
only be invoked where the failure to take reasonable care is a separate cause (as in I&L Securities) rather than a
failure to check/naivety situation (eg Henjo)? Arguably it will apply to any lack of care, including the Henjotype situation, as the provision already precludes apportionment where D fraudulently misleads.
As a result of s 82(1B), enacted in mid 2004, the decision of the HCA in I&L Securities, as well as the decision
in Jam Factory, are now redundant.
Mitigation and Remoteness
To what extent is an award of damages restricted to losses that could not have been reasonably avoided
(mitigated) and which were reasonably foreseeable (not too remote)?
It has been held by some members of the high court that remoteness does not limit liability for a breach of s 52:
Marks (McHugh, Hayne and Callinan JJ).
But clearly remoteness principles must provide some practical limitation in extreme situations.
This issue is not settled.
Remedies under s 87
s 87(1): where a party has suffered, or is likely to suffer, loss or damage by conduct of another person that
was engaged in in contravention of [s 52], the Court may make such order or orders as it thinks appropriate
against the person who engaged in the conduct or a person who was involved in the contravention if the Court
considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss
or damage or will prevent or reduce the loss or damage.
(2) The orders referred to in subsection (1) and (1A) are:
(a) an order declaring the whole or any part of a contract void;
(b) an order varying such a contract ;
(ba) an order refusing to enforce any or all of the provisions of such a contract;
[(c)-(g): other orders relating to requiring D to pay money to compensate Ps loss or to supply goods or services or fix
goods loss or damage of which occurred as a result of the contravention, etc]
Loss or damage
The central question here is whether loss or damage in s 87 has a different meaning from that in s 82.
It has been held that loss or damage under s 87 does not necessarily mean pecuniary loss, but can extend to
the sort of unmeasurable loss that arises from the unwanted taking on of legal obligations that occurs when a
party enters a contract on the basis of a misrepresentation and seeks to rescind that contract. Thus it is a
sufficient loss in itself that a party is bound to a contract induced by misrepresentation: Demagogue
Another way of distinguishing between losses under ss 82 and 87 is to say that, under s 82 the Court is
concerned with the precise amount of loss arising from the misleading conduct, whereas under s 87 the Courts
task is a broader one of compensating loss or possible loss: Demagogue

This may have been overruled by three of the judges in Marks, who indicated their disapproval of Demagogue,
but it is not clear which aspect of that case was overruled. These three judges seem to indicate that the sort of
loss referred to above is not compensable under s 87 either.

Is likely to suffer
P may be compensated for losses that they are likely to suffer as a result of the misleading conduct, and the
Court can take action to prevent such likely losses
Likely to suffer means only that loss or damage is a real chance or possibility, not that it is more likely than
not: Marks (Gaudron J)
By conduct in contravention
The same rules apply here as under s 82 (see above).
Discretionary Factors
Unlike s 82 which creates a right to damages for loss or damage, relief under s 87 is discretionary.
Equitable principles may guide the determination of an appropriate remedy under s 87. Thus must consider
factors such as the parties conduct after learning of the misleading conduct; the nature of the breach etc:
Marks (Gummow and Guadron JJ); Henjo.
See also Futuretronics (final paragraph), in which the judge seemed to apply the notion that one must come to
equity with clean hands to the situation in that case.
There is no explicit right to rescind, however a court can declare a contract void ab initio. It appears that a
remedy equivalent to rescission is thus available (although without the restrictions on that right that exist under
the general law such as contractual exclusion clauses and election to affirm): Demagogue; Byers
In Henjo, rescission was denied to the plaintiff on the basis of the difficulty of restoring the status quo, its poor
conduct in running the business and the various delays it imposed on the proceedings of the case in the courts.
Motive may also be relevant to the discretion to order rescission (ie Ps motive for getting out of the contract,
whether fair or bad faith) (CHECK THIS WITH FRED)
Questions to ask re Loss or Damage under ss 82 and 87
What sort of relief does P seek? What loss has P suffered as a result of the misleading conduct? What would
have P done had the misrepresentation not occurred? Did P forego the opportunity of entering a more valuable
contract elsewhere (and were such better deals available)? Or would P have entered the contract anyway? Or
would P simply not have entered any contract at all (in which case P has taken on unwanted legal obligations
that may provide the basis for rescission under s 87)?
CASES (MDC)
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd Fed Ct (Full Ct) 1988
FACTS:
- Saade (director of Henjo) sold a restaurant to CM
- The restaurant was only authorised to seat 84 people, but it in fact sat 128.
- The restaurant was licensed to serve alcohol only in part of the restaurant, but not at the bar
- Saades agent, Le May had been shown a card that said Seats 128. Licensed. Never was it revealed to Le May
that it was not licensed to seat 128. Le May also saw a sign in the front window which had said fully
licensed.
- CMs rep, on seeing an advertisement in the paper, phones Le May, who told him that the restaurant was
licensed with about 120 seats, and showed them the card (above).
- The three men then took a tour of the premises and saw it operating in this way
- CM engaged a solicitor to check the licensing specifics of the restaurant, but the solicitor failed to do the
required checks and therefore did not discover that the restaurant was operating in breach of its licensing
requirements. CM then entered into the contract
RESULT:
3:0 in favour of CM as to liability under s 52. 2:1 as to the issue of relief.
LEGAL IMPORTANCE:
Misleading
- s 52 does not require any intention to mislead, so long as the conduct was misleading in the context.
- Must examine the conduct from the point of view of the plaintiff.
- Here, the info given was apt to mislead without disclosure of the true facts as to the licensing arrangement.
Conduct and Silence
- Here, it was the failure to disclose the truth that was misleading.

Lockhart J imports the misrepresentation rule relating to non-disclosure. Clearly this case fits within the half
truth category [however, since Demagogue, duty to disclose is not limited to misrepresentation rules]
- It was immaterial that the solicitor failed to make the correct checks. The circumstances do not negate the duty
to disclose.
Reliance/Inducement
- Appears that the same rules apply here as in misrep cases. The loss must be caused by the misleading conduct.
- Nonetheless, the MDC need only be a cause, so the fact that CM hired a solicitor who failed to make the
relevant checks did not affect the fact that the misleading conduct was one of the causes, that being sufficient
for an award of damages under s 82.
- However, due to the recent enactment of s 82(1)(b), this would probably have resulted in a proportional
reduction if the case was heard today.
s 75B and Saade
- Saade clearly knew the true position and had knowledge of the matters that constituted the contravention (ie he
knew of the card, the sign and the restaurant licensing etc), thus held to be knowingly involved in the
contravention. [But it is arguably not enough that Saade knew of the card etc, rather the fact that Saade must
have knowingly acquiesced in the misrepresentation itself, which was constituted by the non-disclosure of the
truth about the licensing agreement, that caused him to be liable under s 75B].
Discretion under s 87
- The Court opposed CMs application for rescission on the basis that CM had made various lengthy delays in
the trial proceedings and, during its time in charge of the restaurant, had caused it to make large losses and to
squander much of its goodwill. Not only is precise restitutio not possible, but it would arguably be unfair in
this case due to the irreparable damage done by CM to the business.
- This situation was distinguished from Alati v Kruger on its facts.
- It is preferable that an award of damages be made to CM to compensate it for its losses.
Byers v Dorotea Pty Ltd Fed Ct 1986
FACTS:
- Byers (P) purchased units in a gold coast bldg called Blvd North, which was represented to them as being
bigger and better than its existing twin, Blvd Towers, in which Ps already owned units.
- It was represented that certain features of the new bldg would be superior in size and quality to the existing
one.
- It was also represented, in a brochure, that there would be a heated indoor pool in the complex. However there
was never intended to be a pool, and in a later brochure, the reference to the pool was crossed out and
reference to a tennis court added. An accompanying letter stated please note a change to the brochure, there
will now be a full-sized tennis court. No attention, other than the cross out, was drawn to the pool.
RESULT:
- D liable for MDC
LEGAL IMPORTANCE:
Misleading
- It was contended that the reference to bigger and better was mere puff. Judge held that, in other
circumstances this may be so, but here, the statement was intended to, and did, convey a clear and wrong
impression. Thus it was important that there was a reference point ie it was bigger and better than Blvd
Towers in certain specified ways.
- The representation regarding the pool was also held to be misleading, despite the fact of the later letter and
amended brochure. Found that the initially misleading brochure was still operating on the minds of the Byers
as the amended brochure and letter were not sufficiently clear as to the situation regarding the pool.
Affirmation of the Contract
- Byers did not rescind immediately, rather asked for extensions on settlement numerous times.
- Held that, under the general law (misrep) this would have amounted to an affirmation, thus barring rescission.
- However, the right to obtain relief under the TPA is not necessarily brought to an end by affirmation.
Exclusion clauses and contractual restrictions
Such exclusion clauses or merger clauses as were contained in the contract here cannot operate to defeat a
claim under s 52 of the TPA.
- However, his Honour felt bound by authority to hold that such clauses are capable of defeating claims under
the general law re misrep.
- However it should be noted that his Honour (Pincus J) would not have adopted such a view were it not for the
existing precedents, noting that the contract containing the clause was induced by a misrepresentation, which

amounted to an estoppel in pais. Thus Dorotea would be estopped from departing from their representation that
induced the assumption that Blvd North would be bigger and better.
Causation/Inducement
- In this case it was held that the misleading representations were still acting on the minds of B when they
entered into the contract, thus they were a cause of the loss occasioned by entry into the contract.
Discretionary factors under s 87
- The powers under s 87 of the TPA are broad enough to allow an order that the deposits be returned (effectively
a rescission of the contract.
- Such an order is not precluded by affirmation.
- The making of such an order was further justified by the fact that neither the builder nor the architect of the
building were as specified and represented by Dorotea.
Demagogue Pty Ltd v Ramensky Fed Ct (Full Ct) 1992
FACTS:
- R made a contract in March 1989 to buy a home unit from D. Settlement was to take place in Feb 1990.
- The building in which the unit was to be contained was not yet constructed, R had been shown a plan of the
site annexed to the contract.
- The only access to the land was from a nearby road which could only be entered via public land. D still had to
obtain a license to build a connecting road over the public land, which they did.
- However Rs had no idea that access to the road was via public land. The plan that they had been shown
showed a driveway apparently within the boundary of the land on which the home unit was to be built.
- When the Rs asked the real estate agent about site access, he also told them that the developers would build a
driveway up to the road.
- Immediately upon finding out about the road their solicitors wrote to D rescinding the contract and claiming a
breach of s 52 of the TPA.
RESULT:
- 3:0 in favour of R. Appeal dismissed.
LEGAL IMPORTANCE:
Silence as Conduct
Gummow J:
- Situations in which silence is actionable are not limited to those under the general law.
- It should be no inhibition to giving effect to the legislation that the result may be to achieve consequences and
administer remedies which differ from those obtaining under the general law.
- It is not helpful to look at this issue in terms of a duty to disclose.
- The question is simply whether, in the light of all the circumstances, including any relevant acts, omissions,
statements or silence, there has been conduct that is misleading or likely to mislead.
- In this case, there was both positive misrep as to the provision of driveway access, and misleading conduct
from failing to say anything about the public access road and the licence.
- As to the issue of inconsistency between s 52 and s 4(2)(c): s 52 imports strict liability, wherein Ds advertence
to the subject matter is irrelevant, whereas as 4(2)(c) requires that silence be otherwise than inadvertent[].
However, the primary issue is whether the silence is misleading, and the expanded definition of conduct
should not distract attention from this fundamental issue.
Black CJ:
- Agrees with Gummow. Question is simply whether, having regard to all relevant circumstances, there has been
conduct that is misleading.
- The context may include facts giving rise to a reasonable expectation that if particular matters exist they will
be disclosed.
Exclusion and merger clauses
- Merger and exclusion clauses cannot operate to defeat an action under s 52. The position is different under the
general law (this was also held in Byers).
Loss or Damage under s 87
- D argued that there was no relevant loss here as the value of the property was not affected by the fact that there
was no direct vehicular access, and that a remedy under s 87 required proof of actual loss or damage as
required under s 82. The Court rejected this argument.
Gummow J:
- Loss or damage under s 87 is concerned with more than pecuniary recovery.
- Rs suffered a loss merely by entering into legal relations from which they otherwise would have abstained.

But Gummow J complicates things further by saying that, even if some pecuniary detriment is required, can
look at what has happened since the contract, ie fact that they have an action against them for specific
performance if rescission not granted, and that the land has depreciated, which means that there is a real chance
(ie it is likely) that it will sustain a future loss as a result of entry into the contract.
Black CJ
- Under the general law in an action for rescission it is not a requirement that a misrepresentation has caused any
pecuniary loss (ie it sufficient that the misrep was actionable and that the contract is unwanted as it implicitly
is if they are trying to rescind it). It would be odd if an action for rescission were to require such a pecuniary
loss under the TPA.
- Loss or damage under s 87 is not limited to that under s 82, rather it includes the detriment suffered by being
bound to a contract induced by MDC.
The Saints Gallery Pty Ltd v Plummer Fed Ct (Full Ct) 1988
FACTS:
- P, a professional art dealer and valuer who conducted valuations and authentications of works at TSG, bought 4
paintings under contract from TSG.
- TSGs director, F, explained to P the history and origins of the paintings according to what he (F) had been told
by the seller of the paintings (K).
- K had told F that the Fairweather paintings had come straight from a client and that the Rees paintings had
originally come from an exhibition at a gallery in Brisbane. The trial judge found that all of this information
was an accurate representation of what K had told F.
- However, this information was entirely false and the paintings were in fact forgeries.
- It is important to note that P knew more about art than F.
- The two knew each other through the work done by P in valuing paintings at TSG. It was held to be common
ground that F lacked the capacity to judge the authenticity of paintings, and that P placed no reliance Fs ability
to do so.
- F made no personal disclaimer as to his knowledge of the truth of what he said, however nor did he have a
particular reason to. Indeed, the Court found that P was really taking a punt on the paintings: a speculation,
pure and simple.
RESULT:
- 3:0 in favour of TSG. No MDC
LEGAL IMPORTANCE:
- F was merely passing on information from K. There was nothing in his comments that was misleading, since
he at all times made it clear that he was recounting the information that been given to him from K.
- This was not a situation in which F had to make a disclaimer about the fact that he was merely passing on
information that he had been given. Rather a disclaimer of any personal knowledge of the paintings
authenticity was deducible from the parties relationship and the whole of the circumstances.
- Clearly, Ps knowledge of art, his qualifications and his relationship with F meant that nothing F had said to
him could be construed as misleading, and nothing more by way of disclaimer needed to be provided by F.
- However the Court acknowledged that it would be quite a different matter is F were shown to have done
anything other than explain what K had represented were the facts.
- [Thus it seems that someone who is an intermediary or a mere conduit, simply passing on information, will
not be liable if that information is false. However this will clearly depend on the circumstances, as merely
passing on information could be construed as misleading if D gives no disclaimer when the context requires
one, or adopts the information as his own or otherwise endorses it, or embellishes the information.]
Brown v Jam Factory Pty Ltd Fed Ct 1981
FACTS:
- Bs leased a shop in JFs chopping centre. Sought relief under TPA for MDC by JF and by its real estate agent
through its officer M, who made 3 statements prior to their entry into the lease contract:
1. at that time (the present), all shops in the centre except two have been let (stmt of fact)
2. when the centre opens, all shops will be let and open for business (rep re future ie 3 or 4 months into the future
a prediction)
3. We (owner and agent) will obtain permission from the local authority to trade 7 days per week (again, a
prediction)
- But, when open day comes along, the shopping centre is about half empty.
- Furthermore, no permission to trade 7 days has been obtained.

Nonetheless, Bs trade for 8 months and then crash, so they bring this action against the owner and agent under
s 52
- Note that s 51A had not yet been enacted by the Commonwealth
RESULT:
- Browns win. Stmts 1 and 2 are misleading.
LEGAL IMPORTANCE:
Predictions as Conduct (prior to enactment of s 51A)
- As to stmt (1): this was grossly inaccurate and clearly misleading. No problem here.
- Stmt was not considered misleading b/c Mr Brown was an experienced businessman who knew that approval
to trade 7 days per week wsa rarely granted, thus he cannot be taken to have been induced by such a stmt. B
would have understood this only as exaggerated salesmans talk and merely as an expression of hope. [But
does this mean the stmt is not misleading or that it was misleading but Bs were not induced by it? Arguably
- As to stmt (2): Court had to decide whether this statement of intention (or opinion of JFs intention) was
capable of being misleading in light of the fact that a statement of opinion or intention cant be true or false at
the time it was made.
- Court holds that it can be, and in this case was, misleading.
- Looked at from Bs perspective, the statements created a reasonable belief in their mind that the JF was likely to
be a busy, thriving shopping centre
- Thus we can now interpret MDC as covering a continuum of conduct in that a stmt can be held to be
misleading when it turns out to be false.
- [This case stands for principle that stmts re the future can be misleading by construing s 52 alone (ie without
the need for s 51A)].
- [We could surely say here, though, that JFs stmt no. 2 was misleading b/c it was dishonestly or recklessly
made, or that jam factory has some responsibility to inform Browns of the likelihood of the stmts being true;
by making a very certain prediction that was arguably apt to mislead them and not informing of the actual
likelihood of the stmt coming true, this could arguably be considered misleading.]
Relief under s 82
- The Judges stated that the applicable damages were analogous to the tort measure, and went on to award
damages equivalent to what the Browns spent in reliance on the running the business.
- Such an award is based on the assumption that the Browns would not have entered the contract at all were it
not for the representations, so there is no need to show that they would have taken a different contract etc as in
Marks.
Causation and remedy
- Need to show that misleading conduct caused not just entry into the contract, but also caused the loss.
- Here, the judge deducted a percentage from the final award because he held that part of the loss was caused by
the Browns management incompetence.
- [However this was criticised by I & L Securities, which held that the judge was wrong to apportion damages.
The MDC caused them to enter the contract, therefore they were entitled to damages for any loss arising from
the contract.
- But now s 82(1)(b) has enacted a proportionality principle, so Brown approach now arguably correct.
- But isnt there a difference b/w cause of entry into contract and cause of loss?]
Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd Fed Ct (Full Ct) 1993
FACTS:
- In 1987 AS acquired from Focus a right to the use of, but not an assignment of copyright in, a focus computer
program providing an accounting system.
- Using this focus program AS developed a new computer program providing an accounting system specifically
targeted at tax agents (the AS program)
- AS then embarked on a joint venture agreement with CCH and Castle Douglas to further develop the software.
- The parties executed 6 contracts, one of which contained warranties by AS that (ii) it was entitled to assign
copyright of the AS program to CD without the consent of anyone whomsoever, and (iii) there is no potential
claim against the assignor for breach of copyright.
- Upon learning of the original Focus agreement, CCH instituted these proceedings seeking rescission for breach
of s 52.
- Trial judge held that the AS program infringed Focus copyright, thus Focus had a claim for breach of
copyright, and that AS was not entitled to assign copyright to CD without the consent of focus. Thus the
contractual warranties were false.
RESULT:

- 2:1 Appeal dismissed


LEGAL IMPORTANCE:
Contractual Promises as Conduct
- the issue is whether promises embodied in a contract can generate liability under s 52.
- s 4(2)(a) states that conduct can include the making or giving effect to provisions of a contract. Therefore,
contractual promises are a potentially actionable form of misleading conduct.
- Where the contractual promise is a warranty an assurance as to an existing fact or state of affairs and that
warranty is false, the making of that warranty may constitute misleading conduct.
- Where the contractual statement relates to a future matter (ie embodied in a contractual promise), a case for
MDC must rely on the extra steps embodied in s 51A.
- Thus contractual promises as to the future can only be misleading if made without reasonable grounds, the
onus being on the promisor to rebut the presumption that the promise was not made with reasonable grounds.
- Thus, according to this case, s 51A regulates/determines the extent to which misleading promises can
constitute MDC.
s 75B and Stokes
- The trial judge found that Stokes honestly believed that AS had acquired copyright in the software that it
assigned to CD. Thus he was not a knowing participant in the misleading conduct and cannot be held liable.
s 87 and loss
- Here, it was likely that CCH would lose $1 million from having to buy the copyright from focus. This was
held to be a sufficiently likely loss so as to enliven s 87. It did not matter that they had yet suffered no tort loss
or would not suffer a contractual loss.
Futuretronics International Pty Ltd v Gadzhis Vic SC 1992
FACTS:
- F owned a commercial building and wanted to sell it by auction.
- Mr Gadzhis (G) inspects the building and makes an offer of 2.4 million paid in instalments, which F reject b/c
want a lump sum immediately. But FI encourages G to come to the auction to create a better atmosphere.
- At the auction, after 11 (dummy) bids, the price is 2.2 million, then puts in a bid for 2.25 million. Then G puts
in a bid and auctioneer sells it to him.
- G then claims that he was not making a real bid, rather was just creating an atmosphere, so he refuses to sign
the contract.
- FI sue G for specific performance ie buying the building (Cant sue for breach of contract b/c sale of land
contract must be signed statute of frauds).
- FI tried a collateral contract argument but this rejected.
- Action brought under the Vic FTA (b/c G an individual, not a corporation) mirroring provisions for MDC.
- Judge found that at the time he made the bid, G did not intend to sign (ie he did make a genuine bid). Only
after the hammer came down did he change his mind.
RESULT:
- G breached s 52, however G succeeded on the remedy issue
LEGAL IMPORTANCE:
- Breach of a contract cant of itself be a breach of the Act, otherwise, every breach of contract would be
regarded as MDC, this not what the Act intended.
- Promises can be misleading if dishonestly made. Or, notwithstanding it was honestly made, that it was made
without reasonable grounds (either never intended to fulfil it or did not have the capacity to fulfil it), in
accordance with s 51A.
- Held that G, at the time he made the bid, did intend to carry it out (thus honestly made); however he did not
have reas grounds for making the promise. Section 51 requires G to adduce evidence that he had reas grounds
for making the promise. He failed to do this (did not show that he was in fact capable of purchasing the
building within the specified time as required), and so was deemed not to have reasonable grounds, therefore
his conduct was misleading.
- Judge also said: Breach [of a contractual promise] may, but only may, provide evidence from which one could
infer that the promisor never intended or never had the ability to fulfil his obligation. However, by virtue of s
51A(2), the Court in fact must presume that D had no reasonable grounds.
- Nonetheless, F failed on the remedy issue.
Remedy under s 87
- On the basis of Gates, the judge refused to grant the remedy sought by F specific performance as this
would amount to enforcing the expectation interest.

In this case, F suffered no actual loss, as there was no other bidder at the auction and, even if there was, the
auctioneer could have reheld the auction in accordance with the 20-minute clause.
The Judge thought that this was fair considering the dodgy way in which the auction had been conducted.
[Perhaps this would be a relevant factor in granting relief under s 87 in the light of Gummow Js comments in
Marks re equity guiding the determination of remedy under s 87. Here, F did not have clean hands and
arguably this would militate against the granting of remedy under s 87 under the Gummow approach.]

Concrete Constructions (NSW) Pty Ltd v Nelson HCA 1990


FACTS:
- P injured at work after D foreman told him it was safe to remove a grate when it in fact wasnt.
- P sued D for misleading conduct.
- D argued that the injury did not occur in trade or commerce.
RESULT:
- 7:0 appeal allowed. (But minority say s 52 restricted to conduct that misleads consumers)
LEGAL IMPORTANCE:
Majority
- s 52 is not to be read down b/c of the heading Consumer Protection. MDC is prohibited in trade or
commerce, regardless of whether or not a consumer is involved.
- Distinguishes between activities that, of their nature, bear a trading or commercial character and those which
are not of a trading or commercial character but which are undertaken in the course of, or as incidental to the
operation of a commercial business.
- The requirement that the activity be in trade or commerce is restricted the former that is, activities that are
inherently of a commercial or trading character.
- The conduct here was merely a conversation between two employees of a company in the course of building a
building. That conduct was not, of its nature, in trade or commerce.
- The minority (Brennan and McHugh JJ) interpret s 52 in the light of the Consumer Protection heading in the
TPA. They argue that s 52 only operates in respect of misled consumers in the course of trade or commerce.
However this view has not prevailed.
Yorke v Lucas HCA 1985
FACTS:
- The Yorkes bought their business from Treasureway Stores, for whom Ross Lucas Pty Ltd (represented by Mr
Lucas) were acting as agents.
- Mr Lucas falsely represented to the Yorkes that the average weekly turnover of the business was $3500 and
average weekly profit was $1200, thus inducing the Yorkes to buy the business.
- Lucas and his company were merely passing on this information to Y, and neither possessed any knowledge
of the falsity of the representations.
- Treasureway, its director and the Lucas company were held liable at first instance.
- Y appealed the finding that Lucas himself was not liable, but failed.
- Issue whether individual persons involved in the commission of a misleading representation can be held liable
on the basis of s 75B(1)(a) and (c) despite the fact that they had no knowledge of the dishonest/misleading
nature of the reps.
RESULT:
- Appeal dismissed. Lucas not liable. Court strongly hints that, had it been cross-appealed, the Lucas company
would not have been liable either due to the passing on information defence.
LEGAL IMPORTANCE:
Knowledge and s 75B(1)(a) and (c)
- In s 75B(a) the words aided, abetted, counselled or procured are imported from the criminal law.
- Under the criminal law, to be found guilty of aiding and abetting or counselling and procuring the commission
of an offence, the accused must have intentionally participated in it. Such participation requires knowledge of
the essential matters which go to make up the offence.
- Although the TPA does not expressly state that the words in this context import their criminal meanings, the
Court held that the words should be interpreted as importing the criminal law requirements unless any contrary
intention appears (which it does not).
- Section 75B makes use of an existing concept drawn from the criminal law and there is nothing to support the
view that the concepts which it introduces should be given a new or special meaning.
- 75B(1)(c) also requires knowledge, which is explicitly stated: D must have been knowingly concerned in, or
party to, the contravention. It is not enough that D be knowingly involved in the act of conveying the

information, he must have knowledge of the central elements of the contravention ie he must know that the
representation is incorrect or potentially misleading.
Knowledge and s 52 a corporation that merely passes on info
- The Court strongly hinted that, had Lucas company cross-appealed, the finding against it would have been
overturned.
- Although under s 52 it is irrelevant whether the company intended to mislead (ie a corporation may have
honestly and reasonably engaged in conduct that misled, yet still be found liable), that does not, however,
mean that a corporation which purports to do no more than pass on information supplied by another must
nevertheless be engaging in misleading or deceptive conduct if the information turns out to be false. If the
circumstances are such as to make it apparent that the corporation is not the source of the information and that
it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth
then it is doubtful that such conduct could be considered misleading.
Gates v City Mutual Life Assurance Society Ltd HCA 1986
FACTS:
- G took out an insurance policy with CM. It was represented to him that if he suffered a certain debilitating
injury and could no longer undertake his existing occupation, a premium would be payable.
- In fact, the relevant clause only allowed a premium where G was incapable of undertaking any work.
- G was injured and unable to participate in his existing job, thus sought payment, only to discover that none was
in fact available under the actual contract.
- G sued, alleging breach of s 52 and seeking damages under s 82 of the equivalent of the amount payable under
the insurance policy (ie the amount payable had the agents representation been true).
- The issue before the court was whether the tort measure or contract measure of damages should apply.
RESULT:
- Tort measure applies, G incurred no loss. Appeal dismissed
LEGAL IMPORTANCE:
- In contract, damages are awarded with the object of placing the plaintiff in the position he would have been in
had the contract been performed. He is entitled to expectation loss and reliance loss.
- In tort, damages are awarded with the object of placing the plaintiff in the position he would have been in had
the tort not been committed (similar to reliance loss).
- It is thus relevant to look at the opportunities foregone by P in relying on the stmt (and entering the contract)
- Court held that the tort measure is applicable in most, if not all s 52 cases, as such conduct is similar to
tortious conduct such as fraudulent stmts.
- Thus, applying the tort measure, it is necessary to ask what G would have done had the representation not been
made and relied on.
- In this case, the evidence shows that P would have entered the contract anyway, as G did not adduce any
evidence that any other insurance company in fact offered the premium he desired.
- But for the misrepresentation, G would have proceeded exactly as he did, except that he would not have paid
the extra amount for the total disability cover.
- It was also not proved by G that the extra amount he paid for total disability cover was not in fact worth what
he had paid for it.
- So there is no relevant loss that can be compensated by the tort measure. G gets nothing
Marks v GIO Australia Holdings Limited HCA 1998
FACTS:
- M borrowed money from GIO under a loan contract called the AAA facility.
- The rate of interest under the facility was represented as being fixed at a margin of 1.25% above an external
variable rate.
- However, the contract in fact contained a clause that entitled GIO to vary any of the terms in the contract as it
sees fit.
- *Part way during the term of Ms loan, GIO decided to raise the margin to 2.25%. GIO notified M of the raise
and offered them the option of withdrawing from the loan without suffering the penalty that would normally
accompany an early withdrawal. [This fact was important because, for Gummow and Gaudron, giving Ms a
free option to get out of the contract allowed GIO to avoid paying for relief under s 87].
- There is no dispute that GIOs initial representations were misleading.
- However, at all material times, the interest rate was the lowest available on the market, even after being raised
to 2.25%.
- Thus Ms only suffered loss in the sense of expectation loss.

It was not suggested here that Marks would not have borrowed at all if the true facts had been represented to
them. Thus this is not a case like Demagogue in which it was open for P to argue that they suffered loss by
incurring legal obligations that they otherwise would not have incurred.
- The issue on appeal regarded damages under s 82 and an order for contract amendment under s 87: in essence,
whether or not M could be compensated under the Act for their alleged loss.
RESULT:
- 5:1 in favour of GIO.
LEGAL IMPORTANCE:
- All judges agreed that the type of remedies available under ss 82 and 87 are not to limited by analogies with
tort and contract remedies. The analogies may be useful but they do not determine the sorts of loss that are
compensable under the Act.
- It is incorrect to interpret Gates as holding that the tort measure always applies.
- Majority hold that there is no compensable loss here b/c Ms could not show that they had incurred any actual
loss or that they were likely to incur any actual loss as a result of the MDC.
McHugh, Hayne and Callinan JJ
- Very often the amount of loss or damage caused by s 52 will be the same as what would have been allowed in
deceit (ie the tort measure), but it is not limited to this measure of damages.
- Section 82 requires a causal link between the loss and the misleading conduct, so must look at the position the
party would have been in but for the conduct.
- Under s 82, a P can only recover for actual loss or damage incurred, as distinct from potential or likely
damage.
- A party suffers no loss or damage unless they could have acted in a way more beneficial or less detrimental
than the course adopted due to the misleading conduct, and only if the more valuable alternative course was
available (and would have been adopted) could it be said that the party suffered a loss by acting on the
misrepresentation.
- Similarly, section 87 can only provide a remedy if actual loss has been, or is likely to be, suffered. In this
sense, these three judges seem to be departing from what was said in Demagogue, but they simply say that, to
the extent that Demagogue held the contrary, we consider it to be wrong. However it is not at all clear which
aspect of Demagogue they were referring to.
- On one hand, the footnote and accompanying text re actual loss seem to imply that an order for rescission
based on the mere loss that arises from entry into an unwanted contract due to misleading conduct is not in fact
available under s 87, as that section requires the same sort of actual loss or damage as does s 82. In which case,
this amounts to an overruling of what the whole Court said in Demagogue.
- On another reading they might only be disapproving of what Gummow J said about being able to pinpoint a
pecuniary loss by looking at what has happened to the party after the contract (which was a bit far-fetched
anyway). In which case the notion that loss is broader under s 87 and can extend to unwanted contractual
arrangements has not been overruled.
- This vague footnote and assertion has left the law in this area unclear.
- However one might argue that Demagogue still stands as only these three judges of the High Court have
disapproved, and it is not clear what aspect they have disapproved of, so should continue to apply what was
held at least regarding the broader definition of loss under s 87 in Demagogue.
Gaudron J
- This judgment explains quite clearly the situation in regards to remedy.
- Her honour makes the useful point that tort and contract damages represent the kind of wrong that occurs in the
respective situations. Contract damages (for expectation loss), rather than being a generic type of damages
applicable in other contexts, reflect the nature of contract law the expectation of parties that promises will be
fulfilled.
- The sort of loss occasioned by misleading conduct is not an inherently contractual loss it is a separate legal
creature thus there should be no immediate right to the damages that are awarded for breach of contract.
- The Act provides for damages for loss suffered as a result of a contravention. The task is simply to identify the
loss actually suffered (or, in the case of s 87, likely to be suffered), which may be equivalent to damages that
equate to expectation loss, but may not (as is the case here).
- Re s 87, P must show that loss/damages has been suffered or is likely to be suffered. Likely to suffer imports
only that loss or damage is a real chance or possibility, not that it is more likely than not.
- If Ms had been held to their contract and they could successfully argue that the rate would increase again to
levels above that of market competition, a remedy may have been available under s 87.
- Agrees with Gummow J that equitable principles can help guide the provision of remedies under s 87.
Gummow J

Loss or damage is the gist of the action for MDC. The cause of action does not accrue until actual loss or
damage is sustained.
- Equitable principles can help guide the provision of remedies under s 87.
- Before granting a remedy under s 87, must look at the circumstances, including the conduct of the parties after
they knew of the misleading conduct. In this case, GIO did not take advantage of its misrep as it wrote to the
Ms giving them the option of withdrawing from the loan contract. The fact that it was an innocent misrep and
that the rate was still the cheapest on the market influenced the outcome.
- In the end, no proof that loss had occurred or was likely to occur, so no remedy under s 87.
Kirby J (dissenting)
- Cannot overlook the fact that GIO has breached s 52 of the TPA. The purpose of the Act is to promote fair
trade practices and to provide remedies for victims of unfair trade practices.
- Thinks it extremely odd that despite the broad remedial powers conferred by s 87 the Court cannot provide a
remedy for a serious breach of s 52.
- Essentially, thinks that loss or damage extends to loss of expectation of profits. Therefore, the Court has the
power under s 87 to grant relief that accords with the loss suffered by the Ms.
Ratio
- Remedies under ss 82 and 87 are not to be determined by analogies with tort and contract.
- Under s 82, remedy only available for actual loss or damage incurred as a result of the misleading conduct
this may be the equivalent of expectation loss if, but for the misleading conduct, they would have taken a
course of action that entitled them to what they expected under the existing contract.
- Under s 87, remedy depends on proof of actual loss or loss likely to occur as a result of the misleading
conduct.
o Gaudron J: Likely to suffer imports only that loss or damage is a real chance or possibility, not that it
is more likely than not.
o Gummow and Guadron JJ: Equitable principles may guide the determination of appropriate remedy
under s 87. Thus must consider factors such as the parties conduct after learning of the misleading
conduct; the nature of the breach etc.
o Not clear whether loss is a broader concept under s 87 due to 3 judges disapproval of Demagogue.
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd HCA 2002 (NOTE: overruled by s 82(1B))
FACTS:
- I&L, a lender, loaned a third party developer, C, $950 000.
- The loan was secured by a mortgage over Cs land, which was valued by HTW at $1.5 million
- The land was in fact valued at substantially less than that the valuation was conducted negligently.
- C defaulted on its payments and went under. I&L could only sell the land for some $500 000.
- It sued HTW for MDC for the difference.
- The lower courts held I&L one third responsible for the loss due to its failure to make adequate checks on Cs
ability to repay the loan, and reduced damages accordingly
RESULT:
- 6:1 Full award of damages reinstated. No proportionality principle under ss 82 or 87
LEGAL IMPORTANCE:
- Majority held that an award of damages under s 82 could not be reduced in proportion with the fault of the
plaintiff, as the Act does not allow for such action. In particular, the wording of s 87 does not confer a
discretion to reduce the award of damages under s 82.
- However this is no longer the case due to the recent enactment of s 82(1B), which allows a proportionality
approach to be taken.

MISTAKE

REMEMBER: mistake may also provide grounds for arguing frustration.


The doctrine of mistake may apply where one or both of the parties to a contract has insufficient or erroneous
information about the transaction for reasons unrelated to the conduct of the other part.
Mistake is quite a vague doctrine and has been treated haphazardly by the courts.
Court must decide whether te mistake is sufficiently serious to vitiate the contract.
There is both a common law and an equitable jurisdiction of mistake. Courts have been reluctant to hold contracts void ab
initio at common law, but have been more willing to render a contract voidable under equity.
Where a party is trying to get out of a contract argue first under the common law (void) and then try equity (voidable).
Common Mistake
Situation: Both parties to the C have made the same mistake (eg both thought ship was in the dock.)
Common Mistake at Common Law AND at Equity
Courts are very reluctant to void contracts for common mistake, even if the mistake is a fundamental one.
However, there are two situations in which a court may render a contract void or voidable under common law or at equity.
Both of these are problems in that they are both cases of a complete failure of consideration on the part of one party:
o Parties believe subject matter of contract exists, when in fact it does not (res extincta) (eg disappeared/never
existed);
o Subject matter to be sold/leased is in fact already owned by the purchaser (res sua)
However the HCA declined to apply the res extincta approach in McRae, so argue this as well:
Common Mistake at Common Law
There is a serious question as to whether this doctrine even exists. Try the McRae approach:
McRae: Where a common mistake is alleged, need to examine what did the promisor really promise? This is a question
of construction. Ask:
o Was the existence of the subject matter a condition of formation?
o Or did one of the parties impliedly assume the risk of the subject matter not being in existence, such that the risk
when materialised that party was at fault? breach contract.
However, if common mistake is an independent doctrine, it is unlikely to be found by the Court.
Even if the mistake is fundamental, it is not likely to render the contract void: Solle.
Where D induced the mistake through its own recklessness/negligence, it may be precluded from relying on mistake:
McRae.
Summary: thus it seems unlikely that there is a doctrine of common mistake at common law. Try the construction
approach. Even if there is a doctrine, Courts unlikely to apply it; unless perhaps if there is a total failure of consideration
or the subject matter was in existence but has ceased to be in existence (unlike McRae).
Common Mistake at Equity
Even if the contract is not void at CL, mistake may still lead to the C/T being rescinded or varied on equitable grounds:
Solle
JURISDICTION
But note that the UK Ct of App overturned Solle and held that common mistake is to be treated at common law, not equity.
This leaves the Australian situation in some doubt.
However, as it stands, equitable doctrine still applies in Australia on the basis of Taylor v Johnson. Although that case
related to unilateral mistake, it appears that the Court incorporated the equitable jurisdiction for all categories of mistake.
EQUITY
Assuming that Solle is still good law in Aus and that the equitable jurisdiction applies here, the court has the power to set
aside a contract whenever it is of the opinion that it would be unconscientious for the other party to retain the advantage
gained: Solle.
Equity will relieve a party against the consequences of mistake, as long as this can be done without causing injustice to a
third party.
TEST: Solle: A court may set a contract aside in equity, provided all of the following are made out:
1. Misapprehension: there was a common misapprehension as to facts/future rights
2. Fundamental: the misapprehension was fundamental, and
3. Not at Fault: No fault on the part of the party seeking to set aside the C/T
OUTCOME: Court may rescind the contract at equity, but may adjust the outcome to do what is practically just between
the parties, with the aim of putting them in the situation they would have been in had the mistake not occurred: Solle.
Partial or substantial execution will NOT be a bar to rescission: Seddons case not followed in: Solle
NOTE: Mistake is different from rectification, wherein the parties have mistakenly recorded their agreement in a
document, court may order rectification so long as there is a common intention: Pukallus

McRae v Commonwealth Disposals Commission HCA 1951


FACTS:
- Cth advertised in newspapers inviting tenders for the purchase of an oil tanker, described in the ads as lying on
a reef near Papua.
- M submitted a tender, which was accepted by the Cth. The Cth then gave M the location of the tanker.
- However, in fact, there was at no material time ever such a tanker lying at or anywhere near the location given.
- The Cth argued that the parties had made a common mistake as to the existence of the tanker (the entire subject
matter of the contract) and therefore contract should be void ab initio.
RESULT:
3:0 Appeal by M successful. Cth in breach.
LEGAL IMPORTANCE:
- Judges held that the law does not recognise common mistake as an actionable doctrine.
- Only way in which non existence of tanker could render contract void is if it were shown that the existence of
the tanker was a condition of formation.
- This is a question of construction of the contract based on their presumed intentions to be inferred form the
contract and surrounding circumstances: what did the promisor really promise?
- Court held that, here, the proper construction of the contract was that the Cth promised that there was a tanker
in the location specified. Since there was no such tanker, Cth breached its contract and M entitled to damages.
- Comes down to a question of allocating the risk of a mistake here Cth bore the risk of the tanker not being
where it said it was.
- However, if there is a doctrine of common mistake, Cth precluded from relying on mistake because it induced
the mistake through its own recklessness/negligence it in fact had no reasonable grounds for asserting the
existence of the tanker.
- [Nothing is mentioned in this case about equity.]
Unilateral Mistake
Occurs when one of the parties is mistaken as to the effect/content of the transaction.
Courts are reluctant to intervene here. On the one hand, consider the unfairness of binding a party who has
made an error and thus hasnt really consented. On the other hand there is a necessity to hold the parties to the
contract that they have objectively consented to.
Common Law Unilateral Mistake
If there is an objective meaning to the contract, notwithstanding one party has made a mistake, the contract will
be enforced and the objective meaning of the contract prevails: Taylor v Johnson
The only exceptions to this are: (1) Non est factum: Petelin v Cullen (Most well known exception); (2)
Mistake as to identity (3) Informal contracts (potentially due to dicta in Taylor, but no-one knows what the
majority means here) See below.
Unilateral Mistake at Equity
Similar to the situation at common law, the Courts will apply the objective test such that regardless of whether
one party subjectively made a mistake, that party will be held to the bargain. HOWEVER, at equity
unconscionability on the part of the non-mistaken party may be relevant:
Court looks to the effect of the mistake and the conduct of the non-mistaken party: Taylor v Johnson
Taylor v Johnson: A will be entitled to equitable relief (ie contract voidable) if all of the following are satisfied:
o Serious Mistake: A entered the contract under a serious mistake about its contents in relation to a
fundamental term;
o Knowledge: B is aware of the circumstances that indicate that A is entering the contract under a
serious mistake; and
o Unconscionability: B deliberately sets out to ensure that A does not become aware of the mistake.
What happens where B knowing that the other party is mistaken but remains passive? This may satisfy the
above test, but this was left open in Taylor v Johnson. This may indicate that some sort of positive conduct is
required. [If this comes up in an exam, note the lack of clarity but apply the general notion of whether it is
unconscionable in all the circumstances to allow the contract to stand. Question whether this broader

principle can be applied in light of Taylor. Perhaps apply substantive unconscionability (ie outcome of
transaction) as well to see if that tips the balance either way.]
If B is found to have acted unconscientiously, the contract will be voidable.
Note that substantive unconscionability (ie outcome of transaction) may also be relevant, this factor probably
influenced the decision in Taylor (though not expressly mentioned).
Limits to the Principle: B must not have materially altered his position and the rights of third parties must not
have intervened: Taylor v Johnson.
NOTE: can Taylor v Johnson be interpreted as standing for a broad principle that contracts can be set aside for
mistake if to enforce them would be unconscionable in the circumstances? Or is it limited to the type of
situation in Taylor v Johnson?
NOTE: Dawson Js dissent in Taylor v Johnson: emphasises the objective approach; necessity of certainty in
commercial dealings. Says that rescission in equity only available where there is fraud, misrepresentation or,
perhaps, sharp practice falling short of fraud. Leans toward the accepted-doctrines-of-unconscionability
approach. Could use this as basis for arguing that current HCA might follow this approach in line with Tanwar,
as current Court seems reluctant to allow unconscionability on the basis of at large equity principles and
vague notions of unconscionability.
Mistakenly Signed Documents non est factum (Common Law)
This may be invoked where A mistakenly signs a document. It has the effect of rendering the contract void.
Thus argue it where equity unavailable b/c cant show knowledge and unconscionability; or where a third
party has acquired an interest in the subject matter and you want to defeat their claim to its title.
The onus of proving non est factum is hard to discharge; clearly restricted to extreme cases.
Petelin: The doctrine is available to A thus contract rendered void where A can prove that:
o A is illiterate or blind or totally reliant on others to advise him re the document or otherwise through
no fault of his own is he is unable to have any understanding of the purport of a the document; AND
o A signed the document in the belief that it was a thing radically different from what it was; AND
o As failure to read the document was not due to carelessness (failure to take reasonable precautions) on
his part [this probably covered by first requirement].
This last requirement (lack of carelessness) is crucial if asserting the contract as against innocent third parties
who have no knowledge of the circumstances in which it was signed.
It seems in Petelin that the defendants state of mind can be (to an extent) objectively determined.
Mistakes as to Identity
A contracts with B, who fraudulently claims to be C or Cs agent. B acquires property from A under the
contract and on-sells it to D, the innocent third party. If B skips town, who bears the loss, A or D?
If common law applies and contract is void for mistake, nemo dat applies, D bears loss and returns property.
If equity applies, contract is voidable for mistake, the innocent party D prevents the order for rescission
In light of Taylor, Court may swing towards equity, favouring the innocent third party.
Mutual Mistake
No difference b/w common law and equity.
Parties have conflicting views about a contracts meaning, and both are incorrect.
This may arise if the contract is objectively ambiguous, ie something is susceptible of more than one
meaning and each party adopts a different interpretation.
In such a situation, could argue that contract void for uncertainty; in the rare case may hold that it is void due
to common law mutual mistake.
The contract may be void for mistake if it cannot be ascribed an objective meaning: Raffles (2 ships called
Peerless in the port of Bombay, each party thought contract referred to a different ship)
However if the contract is capable of being given its objective meaning then it will be enforceable.
Mistake and s 52
Where there is a reasonable expectation of disclosure, failure to inform other party of mistake may amount to
misleading conduct, ie party with knowledge may be obliged to tell the mistaken party (eg Demagogue).
Taylor v Johnson HCA 1983
FACTS:
- Mrs Johnson (J) owns land; sells it to T via a contract document that says total $15,000 for 10 acres.
- But J thinks the contract says $15,000 per acre she didnt read the contract because she didnt bring her
glasses. She thought she was getting a bargain.

Under its then current zoning, the value of the land was $50 000, and that would have increased to $195 000 if
a proposed rezoning of the land had been effective.
- HCA took the view of the evidence that was taken by the Court of Appeal: they inferred from the
circumstances that T was aware of Js mistake and that by refraining from mentioning the true price and by
the manner in which he procured the execution of the contract (positive conduct?), he deliberately set out to
ensure that J was not disabused of her mistake.
RESULT:
3:1 Appeal by T dismissed; contract set aside.
LEGAL IMPORTANCE:
Majority
- The court allows Mrs Johnson to avoid contract, because Mr Taylor knew Mrs Johnson had made a mistake
and intended to keep Mrs Johnson in a state of ignorance. Taylor was engaging in unconscionable
conduct. T took steps to keep Mrs Johnson from learning the truth; didnt want her disabused of her mistake.
- This principle is that a contract can be avoided if it would be unconscionable to enforce the contract in light of
the mistake. We will allow a mistake to invalidate a contract if it would be unconscionable in light of the
mistake to enforce the contract.
- Could also interpret it to represent the finer, narrower principle that a party who enters into a contract on the
basis of a mistake that the other person was aware of, and the other party takes deliberate steps to ensure that
they are not disabused of their mistake, a contract will be void.
- [What happens where B knowing that the other party is mistaken but remains passive? This was left open in
Taylor v Johnson. This may indicate that some sort of positive conduct is required. Seems that the positive
conduct here was the taking of steps to procure the execution of the contract in the way that he did (not clear
what he did from facts). This was obviously enough in the circumstances.]
- [Consider substantive unconscionability: at some point it becomes unconscionable to be deprived of property
below its value; can reflect on the outcome of the transaction.]
Dawson J (dissenting)
- emphasises the objective approach; necessity of certainty in commercial dealings.
- Says that rescission in equity only available where there is fraud, misrepresentation or, perhaps, sharp practice
falling short of fraud.
- [Similar to HCA in Tanwar current HCA might follow Dawson approach].
Petelin v Cullen HCA 1975
FACTS:
- C paid P $50 for an option to purchase Ps land and paid a further $50 later.
- P spoke only a little English and could not read at all.
- Cs agent asked him to sign a piece of paper to acknowledge the 2 nd payment the document he signed was
actually an extension of the option.
- Thus P thought that he was signing a receipt, whereas he was in fact signing the option extension.
- P argued that the option should be void under the doctrine of non est factum
RESULT:
- Contract Void. Appeal by D successful
LEGAL IMPORTANCE:
- Court held that the doctrine is available where P is blind/unable to read/must rely on others for advice; and to
those who through no fault of their own are unable to have any understanding of the purport of a particular
document.
- P must show that s/he signed the document in the belief that it was a thing radically different from what it
was; and that failure to read was not due to carelessness (failure to take reasonable precautions) on his part.
- This last requirement (lack of carelessness) is crucial if asserting the contract as against innocent third parties
who have no knowledge of the circumstances in which it was signed.
- But if merely careless and the other party knew of the circumstances then mistake may apply [NOTE appears
this situation now covered by Taylor v Johnson].
- Court finds Petelin not careless, but even if he was, C knew he could not speak English.
- [It seems in Petelin that the defendants state of mind can be (to an extent) objectively determined.]
- The onus of proving non est factum is hard to discharge; high standard required.

DURESS

Duress is about unacceptable pressure or coercion being exerted against A by B prior to entering the contract.
Duress may blur into other vitiating factors, so may also need to explore UI, UD, UC, misrep and MDC.
There has been a shift of focus from the victim of the duress (whether voluntarily entered the contract) towards
a focus on the perpetrator of the duress, focussing on the legitimacy of the pressure exerted by him.
The test for duress is whether illegitimate pressure of an actionable nature has been applied by B; and such
pressure induced A to enter into the contract.
We need only concentrate on the right to rescind for duress.
A finding of duress will render a contract voidable.
1. Prerequisite: Restitutio?
Does this apply to the right to rescind for duress? We dont know. Perhaps it ought to, but there are no apparent
cases in which this has been the issue.
Perhaps mention briefly in exam and state an opinion before quickly moving on.
2. Illegitimate Pressure
This requires an examination of the conduct of the party exerting the pressure (D) so as to determine whether
or not the acts committed are capable of being viewed as illegitimate pressure in the eyes of the law.
Duress either comprises (1) an unlawful threat; or (2) unconscionable conduct (although it is an open concept,
there may be other forms of duress): Crescendo
The currently (but not closed) recognised forms of duress are thus: threats to commit crimes or torts (against
the other party or his property); economic duress (illegitimate commercial pressure); and the broader category
of unconscionable conduct (thus even lawful acts may be illegitimate if unconscionable).
THREATS TO THE PERSON
Actual violence or threats of violence by B or an agent of B against A or someone close to A clearly constitute
illegitimate pressure. Such threats are clearly unlawful: See Barton.
THREATS TO DAMAGE OR DETAIN GOODS
Situation occurs when A has Bs goods and wont return them unless A signs a contract; or where A threatens to
damage goods belonging to A.
Both types of conduct are likely to be unlawful, both in criminal and in civil law; and there is no longer any
impediment to a finding of duress in relation to As goods: Hawker Pacific
Even if the withholding of the property may not be unlawful (ie if both parties have a proprietary right), argue
that it was unconscionable: Crescendo.
A threat does not have to be express, but can be implied via conduct in the circumstances: Hawker Pacific.
ECONOMIC DURESS
Courts have recognised that economic pressure can amount to duress: TA Sundell.
However courts will be cautious to intervene in the world of commerce, where clearly varying types of
economic pressure are applied by market players all the time.
The Crescendo test applies (unlawful or unconscionable) as it does elsewhere.
An example of successful economic duress is where a bank withholds money lawfully owed to a customer to
get him/her to sign another contract: Crescendo
ECONOMIC DURESS: CONTRACT VARIATION
A common example of economic duress is where B Withholds or threatens to withhold performance of an
existing contract to get A to agree to vary it: eg TA Sundell.
Clearly, such a threat can amount to duress: TA Sundell.
However note that TA Sundell is an old case that was decided before the introduction of the practical benefit
doctrine and before the foundational case of modern duress, Crescendo. Therefore should argue afresh whether
economic duress is made out in a contract variation case. Issues of lawfulness (and whether or not threat to
breach a contract is unlawful); unconscionability (evil or legitimate motive for taking advantage of As desire
to have the contract fulfilled?) and implications for the practical benefit doctrine should be considered
Person alleging duress should argue: no valid variation as the payment was made under duress and the other
party has offered no fresh consideration, promising only to perform an existing legal duty. Argue that the
duress is unlawful b/c amounts to a breach of contract (anticipatory breach); or unconsc in the circs; should try
and show that A protested; manifested discontent at the situation being imposed (Sundell); Bs evil motive.
person who procured the variation should argue: A waived his rights under the original contract by agreeing to
the variation; variation gave A a practical benefit (Musumeci) new contract has been formed; merely

threatening to breach contract not unlawful in the required sense (must also be wrongful); argue not
unconscionable in circumstances; legitimate motive; A did not protest etc.
In an exam, the language used by the parties and the circumstances under which A agrees to the variation will
have to be examined closely to determine whether he was willing to accept the practical benefit or he was in
fact begrudgingly coerced into agreeing to the variation. In this regard, the issue of whether A protested may
be relevant (Sundell).
OTHER FORMS OF DURESS
Economic torts (eg inducing intimidation and inducing breach of contract)
Blackmail, which is making an unwarranted demand with menaces (Crimes Act (Vic) 1958 s 87). So a
contract induced by blackmail could be voided for duress.
Exploiting a situational monopoly/life-threatening situations: The Port Caledonia and the Anna (A in life
threatening situation, needed rescue by B, B charged exorbitant price). This probably covered using
unconscionability (evil motive etc).
PRESSURE MAY BE IMPLICIT FROM CONDUCT/CIRCUMSTANCES
A threat does not have to be express, but can be implied via conduct in the circumstances: Hawker Pacific.
2A. Intention/Evil motive?
Is the intention of B to impose illegitimate pressure on A to enter the contract relevant/necessary? Arguably not
according to Sundell, but probably an important factor in Barton.
Or does it merely go to the issue of unconscionability?
Canvass this in an exam, discuss the above two cases.
3. Causation/Inducement
The threat need only be a reason for entering the contract (not THE reason or the main reason): Barton
The onus of proof in cases of duress is shifted onto the party who makes the threat. That party must show that
the duress contributed nothing to As decision to enter the contract: Barton
Thus in Barton, but for the threats, Barton may still have signed BUT the onus was on Armstrong to show that
the threat had no impact at all.
The onus is thus extremely difficult to discharge, thus if illegitimate pressure is established, causation will
follow almost automatically.
Should argue as a counter-argument that this onus is far too high and court should shift it back to the party
alleging the duress, esp in cases not involving violence and threat to persons (seeing as Barton was a murder
threat Court obviously keen to make the onus difficult to discharge; could thus argue that in cases of property
or economic duress that the test should be loosened). Use the minority from Barton to argue this (minority held
that the pressure was not operative; onus on A to show causation was a cause but even that not established).
Restrictions on the Right to Rescind
(i) Contractual Restrictions
(ii) Unconscionability
(ii) Partial Rescission: Could be possible. Degree of rescission is determined by what A would have done but
for the duress (applying Vadasz). If A would have entered/varied part of the contract, could probably apply
partial rescission. If would not have entered contract at all, then full rescission.
Loss of the Right to Rescind
Election to affirm: Hawker Pacific. Did A elect to affirm the contract at a later stage (obviously when the
duress had subsided)? But clearly A must be aware that they have a right to get out of the contract for duress,
otherwise they could just be fulfilling obligations b/c feel obliged to. Thus, as usual, must be an unequivocal
election to affirm the contract.
Waiver: same as always.
Estoppel: Hawker Pacific. If A promises to complete the contract regardless of the duress, may be estopped
from refusing to complete (again, seems that A must expressly promise not to rely on duress); must be relevant
detriment suffered by the other party in assuming that the contract would be completed (this was measured in
terms of reliance loss in Hawker Pacific, where it was held that the reliance loss was too minimal to amount to
a material detriment).
Effect and Remedies under the General Law
Voidable: A contract that has been entered into under duress is voidable NOT void: (Barton) gives the
wronged party a choice
Damages: Where a contract has been declared void ab initio, the victim must recover in tort, because the C/T
no longer exists.

Duress and the TPA


s 53A(2) relates only to coercion in connection with the sale or grant of an interest in land.
s 60 deals only with corporations as they relate to consumers: A corporation shall not use physical force or
undue harassment and coercion in connection with the supply of Goods and Services to a consumer (or FTA
s21(1),(2) , substituting person in place of corporation and consumer).
Note the use of the term undue harassment or coercion as potentially larger in scope than common law
duress.
However no apparent cases dealing with undue harassment leading to entry into a contract, as distinct to
harassment to enforce a contract, to which it may apply (eg debt collectors)
Although note (but dont read) ACCC v McKaskey. Potential for repeated approaches toward consumers to
amount to a breach of s 60 if these approaches lead to formation of contract.
Remember, if can establish a breach of these sections, remedies would be potentially available under the Act
(ss 80, 82 and 87).
In an exam, raise this and discuss briefly, but doesnt seem to be an important part of the course.
CASES: DURESS
Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd NSWCA 1991
FACTS:
- HP had in its possession two of HCs helicopters, on which it was carrying out painting work pursuant to HCs
request that the original painting work be rectified (it was inadequate).
- HCs representatives went to HP to retrieve the helicopters, which they urgently needed to use that day.
- HPs representative knew that HC needed the helicopters urgently.
- HC then produced a document (the contract) specifying that HC would pay the monies owing for the painting
work and releasing HP for any liability.
- HCs rep believed that if he did not sign that document he would be prevented from retrieving the helicopters,
so he signed it.
- HPs rep did not actually make any representations to that effect, however the court held that HCs belief that
they had to sign the contract to get the helicopters was justified in the circumstances.
- HC argued that it signed the contract under duress.
- A few days later, when HP went to collect the cheques, they were told to come back tomorrow. HP on
numerous occasions thereafter went to collect the cheque, but HC kept fobbing them off.
RESULT:
Appeal by HP dismissed 3:0. Duress established
LEGAL IMPORTANCE:
- Court specifically rejected the traditional view that threats to property cannot constitute duress.
- Held that the threat to withhold the property does not have to be express, but can be implied via conduct in the
circumstances. The circumstances were such that HPs actions constituted duress.
- [Was holding the copter an unlawful act? Hawker had no lien b/c copter only being returned to fix up original
inadequacies. Thus HP, by withholding the copter, were in breach of civil proprietary right and thus unlawful
Also could be considered unconscionable (taking advantage of vulnerability constituted by the urgency of the
situation).]
- Estoppel: HP argued that HC, by saying they would pay (but continually fobbing them off) amounted to a
promise to affirm the contract, denial from which they should be estopped.
- Court held: (i) HC did not unequivocally represent that they agreed to be bound by the contract.
- (ii) HCs disadvantage was minimal, only involved expense of going to try and collect the cheque on numerous
occasions this not sufficient material detriment for estoppel.
- Also argued that the fobbing off amount to an election to affirm, again, not sufficiently unequivocal.
TA Sundell & Sons Pty Ltd v Emm Yannoulatos (Overseas) Pty Ltd NSWCA 1956
FACTS:
- EY manufactured galvanized iron, and by contract agreed to sell to Sundell (S) 88 tons worth if iron at a price
of $108 per ton.
- About 4 months later, EY wrote to S: shipment will shortly commence provided adjustments can be made in
the price owing to the fantastic rises in the price of zinc.

EY made it abundantly clear that if he did not increase his price he would lose his iron, and that he was merely
passing on costs.
- S urgently needed the galvanised iron to fulfil a contract with the Qld Housing Commission.
- S agreed to pay the increase in price but made it clear that he wished to reserve his rights under the original
agreement.
- EY shipped the goods and S paid the full (increased) amount.
- However S then sued to recover the difference between the increase and the original agreed amount, arguing
that he had only agreed to pay the increase in protest and under duress.
- Issue whether EYs action constituted duress
RESULT:
- Duress made out.
LEGAL IMPORTANCE:
- EY argues that refusal to perform a contractual duty cannot amount to duress, but court rejects this.
- Fact that S clearly did not agree to the rise relevant here. Court held that EY clearly made a threat not to ship
the iron if it did not get its price rise, and Ss agreement to pay the increase was explicitly conditional that he
get it back again.
- So duress made out.
- [Note however that this case is very old and would nowadays no doubt be confused by developments in
contract law, notably the practical benefit issue (Musumeci) and the duress requirement in Crescendo:
- Here, EYs failure was strictly unlawful in that it was a threat to breach the contract.
- But S obtained a practical benefit from having the contract fulfilled, as he was able to fulfil his existing
contract with the Housing Commission a better outcome than EY defaulting and S having to sue him and
default on his Housing Commission contract. So if threat to breach a contract is unlawful then every contract
variation situation in which B threatens not to perform will amount to duress. The consequences of this are that
it would virtually eliminate the practical benefit doctrine.
- What about the question of unconscionability and the relevance of an evil motive? Here, EYs increase was
quite legitimate (passing on costs). In Barton the Court implied that the evil intent was relevant, but the lack of
unconscionable motive here was not discussed. Arguably it was also clearly relevant here.
- In the end, S probably would have prevailed anyway here as he made clear all along that he was not agreeing
to the variation (or that the variation he agreed to included a term that the difference would be refunded), but a
party may not be so explicit about its rights in an exam.]
Barton v Armstrong 1975 Privy Council (on appeal from the NSWCA)
FACTS:
- Concerns a development project on land in Surfers Paradise (Paradise Waters).
- A was the original owner of the land and sold it to the Landmark corporation (the developer of the project), of
which A was the Chairman and largest shareholder. B was managing director of Landmark.
- Landmark came into serious financial strife re financial troubles and project costs.
- This led to stress on the parties involved and eventually a falling out b/w A and B
- There was then a boardroom struggle in which A was turfed out, upon which he demands the money to which
he is entitled under his contract. B seeks a loan to pay this but it is refused.
- So the parties do a deal (the deed), the idea being that A agrees to resign from all the companies, in return for
which a number of promises are made to A, such as payments, shares, penthouse etc. B himself makes a
personal guarantee on these promises.
- The trial judge found that A made a very long list of threats to have B killed, including hiring a convicted
criminal to watch him and to threaten to kill him unless B entered the above agreement.
- It was also found that these threats had a very real impact on B, who hired bodyguards and moved house.
- B claims that this sequence of events constitutes duress.
- Despite these attempted rescue operations, Landmark goes under, so B brings this action seeking an injunction
declaring that a contract was invalid so as not to be held personally liable.
- Trial judge found that, although As actions clearly illegitimate pressure, that B would have entered the contract
anyway, as it was the only commercially sensible thing to do the company had to get rid of A.
RESULT:
3:2 Appeal by B allowed
LEGAL IMPORTANCE:
Majority
- This is an obvious case of illegitimate pressure, which clearly impacted on B.

Trial judge applied wrong test of causation, need only show that pressure was a cause of entry into the
contract.
- Even though B probably would have entered anyway, clear that the threats were a factor inducing him to enter
into the contract.
- The onus of proof in cases of duress is shifted onto the party who makes the threat. That party must show that
the duress contributed nothing to As decision to enter the contract.
- Thus even though but for the threats, Barton may still have signed, the onus was on Armstrong to show that the
threat had no impact at all. So duress established.
Minority
- Agreed that need only show a cause, and that this will usually be fairly easy for A to prove.
- However in some exceptional cases, of which this is one, the evidence may reveal that A in fact entered the
contract entirely for other reasons.
- Evidence here established that B happy with the agreement, entered out of commercial necessity. So
inducements not even a cause [but surely this is not how one applies the a cause test??]

UNDUE INFLUENCE

UI concerns the improper exercise of ascendancy or domination affecting the will or freedom of judgment: Buttress
Whereas duress is about forcing someone to enter a contract against his will, UI occurs when A wants to enter the contract
but his will is overborne by B such that he has been influenced to form that will or desire ie no longer exercises
independent judgment.
Intention by B to benefit himself is not necessary; nor is moral wrongdoing on the part of B. It is enough that B has, in his
ascendant position, not made the welfare of A his paramount consideration.
It is a purely equitable doctrine creating the right to rescind.
Right to rescind for UI is created in one of three ways:
1. Actual UI: A affirmatively proves that his will was so overborne by B that the transaction cannot be considered a free
and voluntary act. Uncommon but can arise where there is no antecedent relationship to raise a presumption. A
must prove UI as a fact in particular case.
2. Presumed UI type A (Automatically Presumed): Parties are in a r/ship that falls within the traditional categories of
r/ship in which the law presumes UI. Usually arises in r/ships where B has exceptional authority over A and is under a
duty to give disinterested advice such that the possibility that B might have put his own interest uppermost is so
obvious that B under a duty to prove that the position has not been abused. UI presumed; onus on B to rebut
presumption of UI.
3. Presumed UI type B (Presumed in Particular Case): Where the r/ship is not one of the traditional relationships
recognised in category 2, but where A establishes that s/he generally reposed such trust or confidence in the
wrongdoer that the Court should presume UI. onus on A to establish the general reposition of trust; onus then
shifts to B to rebut presumption of UI.
AUTOMATIC PRESUMPTIONS
UI is automatically presumed (category 2) in the following categories:
o Solicitor-client; Doctor-patient; Parent-child (or person in loco parentis child); Religious adviser/spiritual
master-disciple; Trustee-beneficiary(?); Engaged couples (?)
o NOT husband-wife (a fortiori probably not de facto couples); and NOT financial adviser-client or bankcustomer;
Note, however, that where a r/ship is not presumed (eg husband and wife) does not preclude A from establishing the
relationship in a particular case (ie using category 1 or 3).
ESTABLISHING A PRESUMPTION
It is not enough to merely show that B exercised influence over or advised A; the influence must be undue such that As
will is overborne by Bs influence.
In Buttress, of particular importance was the fact of Bs old age, his illiteracy combined with the fact that B had become
very close to J reposing his general trust and confidence in her and relying on her for management of his personal affairs
meant that the presumption of UI was raised.
REBUTTING THE PRESUMPTION
Where B must rebut the presumption (categories 2 and 3) the onus is on B to affirmatively prove that A in fact acted
voluntarily, of his own free will in entering the contract. That is, A entered the contract without being subjected to UI; or
entered it independently of the relationship with B: Buttress
Independent advice is often a determining factor here: if A has received independent advice about the transaction, then
this may be sufficient to demonstrate that A was exercising an independent will. However, this depends on the
circumstances. In some cases, even if independent advice is attained, the UI may be so strong that the presumption will
not be rebutted. Remember that the onus is always on B to prove that A had an independent will the mere fact of advice
may not be material.
On the other hand, the absence of advice may indicate lack of free will, however there is no rule of law that says that
advice is required if the contract is to stand: Buttress.
Thus, there may be other ways for B to rebut the presumption, for example: full disclosure and careful advice was given
by B; there was no abuse of the position of confidence (no undue influence); the UI was not at all a cause of entry into
the contract.
B could also try and show that the consideration was fair and that the outcome did not put A at a (material?) disadvantage
as evidence that there was no UI. Dixon and Starke JJ in Buttress mentioned that adequacy of consideration was a relevant
factor. However there is some question over whether substantive/outcome factors are relevant at all.
Other Factors Affecting the Right to Rescind for UI
Is restitutio a prerequisite? Since UI is an equitable doctrine it would seem that practical restitution is enough.
Restrictions and loss of the right: presumably the same as for duress: election to affirm; waiver; estoppel. Although it
would have to be shown that the UI had ceased to be acting on A when the election or promise was made.
Partial rescission would presumably be available although UI seems to really be an all or nothing doctrine.
Remedy

The remedy is rescission contract void ab initio.


Equitable compensation in respect of loss suffered as a result of UI has been awarded in Canada and England, but does not
appear to be available in Aus.
There is a possibility that s 51AA of the TPA, which covers UC within the meaning of the unwritten law, giving rise to
TPA remedies. Need only mention this in an exam.

Johnson v Buttress HCA 1936


FACTS:
- Mr Buttress (B) and his wife lived on a small cottage until Mrs B died.
- B was elderly, completely illiterate and quite ignorant of business affairs. He was totally reliant on others for
the management of his affairs, particularly his wife.
- After Mrs Bs death, Mr B formed a r/ship with Mrs Johnson (J) a distant relative whom he had known for
some 20 years and who had cared for Mrs B before her death.
- The two saw each other increasingly and it became evident that B was very much reliant on J, for example J
handled Bs problem regarding tenants of his house.
- B and J went to Js solicitor where B altered his will to transfer his property to J as a gift.
- B understood that he was giving up his property to J, but it was not clear whether he understood the full
consequences of his actions or that he was getting nothing in return.
- This transaction was challenged by Bs son after Bs death
RESULT:
5:0 Appeal by J fails, transfer of property to J set aside
LEGAL IMPORTANCE:
- The circumstances were such as to give rise to a presumption that J exerted undue influence over B.
- Of particular importance was the fact of Bs old age, his illiteracy combined with the fact that B had become
very close to J reposing his general trust and confidence in her and relying on her for management of his
personal affairs meant that the presumption of UI was raised and fell on J to rebut.
- J failed to rebut the presumption, therefore the transaction was set aside.
- Affirmed the categories in which UI is presumed, but reiterated that these are not closed, and that it is open to
any party to try and establish a relationship of trust and confidence such as to give rise to the preumption of UI,
or to try and prove actual UI in a particular case (see above).
- Dixon and Starke J noted the relevance of the inadequacy of consideration and the improvidence of the
transaction from Bs perspective.
- Latham CJ said that it may not be necessary for the donee to establish that the donor received independent
legal advice, but evidence of such is the most obvious means of rebutting the presumption; and absence of
legal advice will plainly be a most important factor.

THIRD PARTY IMPROPRIETY

Context: A contracts with B due to undue influence exerted by C. Common scenario regards guarantees: A
agrees to act as guarantor for B (Bank/creditor), but does so due to undue influence exerted by C (usually a
spouse). Can A have the guarantee contract set aside?
Thee are four different ways in which A may be able to have the contract set aside.
1. Agency: undue influence of the agent is effectively the influence of the contracting party;
2. Notice: if B had notice of the existence of As earlier equitable right to have the contract set aside;
3. Unconscionable Dealing: the UI against A exerted by C may put B in a situation of special disadvantage.
When B takes advantage of the special disadvantage by accepting the guarantee, A may be able to argue
that the contract should be set aside on the basis of Unconscionable Dealing.
4. Special Equity: The Garcia principle (see below).
Special Equity
This is the dominant mechanism by which a surety can have a contract set aside against a lender.
The doctrine is based simply on the fact that spousal r/ships involve repositions of trust and confidence by one
party (usually the wife) in the other regarding business matters: Garcia
TO WHOM IS IT AVAILABLE?
Originally this doctrine was only available to a surety where she was the wife of the borrower: Yerkey
However the Court in Garcia said that the Yerkey doctrine was simply an application of accepted equitable
principles arising out of relationships of trust and confidence. Thus on the one hand they seemed to say the
doctrine could be extended beyond mere husband-wife situations on principle.

However they were cautious in saying the principle may be extended to other emotional relationships that fall
short of marriage. Thus a narrow, or really a literal, interpretation of the majority judgement is that they
confined the doctrine to wives (but they clearly set the scene for incremental development of the law).
Kirby J held that the principle should apply to all intimate relationships in which one party had reposed trust
and confidence in the other, even if these fell short of marriage.
The Vic CA has held that the Garcia doctrine does extend to any relationships of trust and confidence,
however, once taken outside the bounds of intimate r/ships (in which the trust and confidence is assumed), the
Bank must know of the actual trust and confidence or of the circumstances giving rise to it: Kranz.
WHAT IS THE TEST?
The surety can have the contract set aside in one of two ways, according to Garcia:
1. Actual undue influence: If Bank knows that guarantor is borrowers wife, and the husband/borrower has
exercised UI over her, then nothing but independent advice or relief from the ascendancy over her judgement
would suffice, irrespective of whether the wife actually made a mistake or if the Bank explained the transaction
properly. Thus a borrowers wife who is actually induced by undue influence of the husband is excused:
o If the lender knows she is the borrowers wife OR partner OR a r/ship of trust and confidence subsisted
(applying principles from Kranz);
o Even if she made no mistake;
o Even if the lender took steps to ensure understanding eg. Explanation;
o UNLESS she received independent advice.
This first principle is justified from the wifes perspective: she didnt have a free will or independent judgment,
so she should be able to get out of contract irrespective of whether the lender knew of the actual UI
Although Kranz deals with the extension of the Garcia doctrine beyond intimate r/ships it only discusses the
Banks obligations and required state of knowledge in regards to mistaken information arising from a r/ship of
trust or confidence. It does NOT discuss what would happen where such a surety was under actual undue
influence from the borrower. But, applying the principles from Kranz it would seem that the Bank need only
know that there was a r/ship of trust and confidence (as re wives they only need know that there is a r/ship of
husband and wife)
2. Mistaken Understanding of Effect of Transaction: If no actual undue influence, then surety must show that
she was mistaken in some respect about the effect of the guarantee and that she was a volunteer. In such a case
the lender then comes under a duty to take reasonable steps to ensure that the surety is adequately informed about
the effect of the transaction. Thus the surety, if not actually induced by undue influence of the borrower, may still
be excused if she can show:
o Lender knows she is the borrowers wife OR partner OR a r/ship of trust and confidence subsisted
(Kranz); AND
o She was mistaken about the effect of the guarantee; AND
o She is a volunteer (obtained no [material?] benefit from the contract being guaranteed not an
interested party);
o UNLESS the lender took reasonable steps to ensure understanding, including enquiring as to whether
she had received independent advice (but independent advice not necessary).
This second principle is justified as a failure from the lenders perspective: failed to give adequate
explanation/information in circumstances where there is a known intimate r/ship.
The issue of notice is not relevant except that the lender must know that the surety is the borrowers wife [or
partner, if the doctrine is to be extended]: Garcia
However where the surety r/ship is such that it would not normally be presumed to be one involving trust and
confidence (ie not an intimate r/ship) it is crucial that the lender know (or should have assumed) that the
relationship is one of trust and confidence before the Garcia principles can be invoked: Kranz.
As to the voluntary requirement, must examine the extent to which the surety was acting in her own interests:
Garcia suggests there are two thresholds in operation re the voluntariness requirement. If wife/partner is NOT
to be considered voluntary (ie lender will argue):
o Surety must have received a real [substantial?] benefit. Merely indirect benefits flowing from
husbands ability to expand his business probably not enough: Garcia
o Surety must have been directly involved with the company getting the loan. Mere formal
involvement with company (ie wife named as director of husbands company but has nothing
substantive to do with running of business) will not be enough: Garcia.
ONUS OF PROOF

However note that the HCA did not deal with the question of who bears the onus of proof. Must the wife show
that she was not an interested party and that the lender didnt take reasonable steps or must the lender show
that she was a disinterested party and that it did take reasonable steps? The NSWCA has held that the onus is
on the lender to displace the operation of the [Garcia] principle once it is prima facie shown that the loan was
taken out by the husband or his company and that the wife was mistaken about the transaction. The lender must
then argue that the surety was an interested party and/or that the bank took all reasonable steps: Warburton v
Whiteley (not on the course).

Garcia v National Australia Bank Ltd HCA 1998


FACTS:
- In 1979 Mr and Mrs G executed a mortgage over their home in favour of the Bank, securing all monies owing
from time to time, including any future guarantees that either of them might execute.
- Mr G ran a business buying and selling gold, conducted through a company of which Mrs G was a director and
shareholder, though in name only she had nothing to do with the running of the business.
- Mrs G signs a further guarantee securing debts of the company in dubious circumstances:
- Mr G had pressured her into signing the guarantee so he could expand his business and he told there was no
risk b/c he was purchasing gold.
- He consistently told her that she was a fool in commercial matters and he was an expert.
- Trial Judge found that Mrs G was trying to save the marriage.
- Mr and Mrs G went to the bank and signed the agreement, it took less than 1 minute.
- Mrs Garcia was a physiotherapist and was a capable professional herself. She understood that she was
executing a guarantee in favour of her husbands business but did not realise that it was linked to the original
mortgage they signed in 1979 some eight years earlier. She was also mistaken about the level of risk
involved.
- Mr and Mrs G divorced. Mr Gs business went into liquidation and NAB sought to enforce the guarantee.
- Mrs G argued to have the guarantee set aside on the basis of the Yerkey v Jones principle of special equity.
RESULT:
6:0 in favour of Mrs G. But different applications of the principles.
LEGAL IMPORTANCE:
Majority
- Upheld Yerkey doctrine, which they say was simply an application of accepted equitable principles.
- The doctrine is based simply on the fact that spousal r/ships involve repositions of trust and confidence by one
party (usually the wife) in the other regarding business matters. It is not always attributable to power,
emotional or other dependence or misrepresentations by the husband.
- Principle may be extended to other emotional relationships that fall short of marriage. Majority stop short of
extending the doctrine in this case, but clear that principles could apply to similar r/ships.
- Based on Yerkey, principle applies in two circumstances: (1) undue influence actually exerted by H (power
situation); (2) inadequacy of information supplied to W.
- Actual undue influence: If Bank knows that guarantor is borrowers wife, and the husband/borrower has
exercised UI over her, then nothing but independent advice or relief from the ascendancy over her judgement
would suffice, irrespective of whether the wife actually made a mistake or if the Bank explained the
transaction properly. Thus a borrowers wife who is actually induced by undue influence of the husband is
excused:
If the lender knows she is the borrowers wife;
Even if she made no mistake;
Even if the lender took steps to ensure understanding eg. Explanation;
UNLESS she received independent advice.
- Mistaken Understanding of Effect of Transaction: If no undue influence, then wife must show that she was
mistaken in some respect about the effect of the guarantee and that she was a volunteer (obtained no
[material?] benefit from the contract being guaranteed; not an interested party). In such a case the lender is
under a duty to take reasonable steps to ensure that the surety is adequately informed about the effect of the
transaction. Thus borrowers wife who was not actually induced by undue influence of the husband is still
excused if:
She was mistaken about the effect of the guarantee; AND
Lender knows she is the borrowers wife; AND
She is a volunteer (obtained no [material?] benefit from the contract being guaranteed; not an
interested party);

UNLESS the lender took reasonable steps to ensure understanding, including enquiring as to whether
she had received independent advice (but independent advice not necessary).
- Majority held that the issue of notice was not relevant except that the lender must know that the surety is the
borrowers wife [or partner, if the doctrine is to be extended].
- The doctrine is justified in regard to (1) from the wifes perspective, didnt bring free will, able to get out of
contract irrespective of whether the lender knew of the actual undue influence; and (2) from the lenders
perspective, failed to give adequate explanation.
- The volunteer issue: here, Bank argued (1) that Mrs G not a volunteer b/c was a director/shareholder. But
Court held this didnt matter because this was only formal, not substantive she was not directly involved
with the business; and (2) that Mrs G obtained a benefit from the contract indirectly through the expansion of
the companies facilitated by the loan. But Court held that this not really enough, she obtained no real benefit.
[This suggests there are two thresholds in operation re the voluntariness question: Surety must have been
directly involved with the company getting the loan and must have received a real [substantial?] benefit.
Kirby J
- Should not single out wives by putting them in a special category.
- Rather the doctrine should apply to all relationships of trust and confidence of a familial/emotional/sexual
nature; eg de facto r/ships; other familial r/ships etc.
- Aside from that, proposes a test similar to the majority.
Kranz v National Australia Bank Ltd Vic CA 2003
FACTS:
- Involved a guarantee exercised by a brother-in-law (Kranz).
- Kranz was himself a successful businessman with interests in a number of properties, although he could not
write, he could read English.
- Tom Lefkovic borrowed money from NAB to buy shares in a company. Bank demanded security at the last
moment.
- Tom doesnt tell Kranz about the risky nature of the transaction or other key details about the transaction
misled Kranz over the documents and applied pressure in the hasty situation.
- Kranz did not read the documents and relied on Toms representations. Trial Judge found that Kranz would not
have signed if he knew the true nature of the documents.
- Bank seeks to enforce the guarantee, and Kranz seeks to avoid it by establishing an antecedent relationship of
trust and confidence in Tom and applying the Garcia principle.
- All the Bank knew of Kranz was that he was a brother-in-law and that he was a successful businessman.
RESULT:
3:0 appeal dismissed.
LEGAL IMPORTANCE:
- Trial judge held that Garcia limited to intimate family relationships. However CA reject this. Principle in
Garcia applies to any relationships of trust and confidence.
- However it is crucial that the lender know (or should have assumed) that the relationship is one of trust and
confidence before the Garcia principles can be invoked.
- Clearly here the Bank did not actually know, nor is there any evidence from which the Bank should have
assumed that the r/ship was one of trust or confidence.
- There was nothing to put the Bank on notice that Kranz might have received an inadequate explanation as to
the nature of the transaction.
- On the contrary, the only information that the Bank had regarding Kranz was that he was himself a successful
businessman with interests in a number of properties.
- Therefore Bank not required to give further adequate explanation of the nature of the transaction.
- Court also rejected the argument that the contract should be set aside on the basis of UD. Although Kranz was
in a position of special disadvantage (due to lack of assistance when assistance needed) vis--vis the Bank, the
Bank again did not know of this [demonstrates that the two doctrines can overlap]; thus UD not made out.
- [Thus the result is that Garcia extends to r/ships of trust and confidence BUT Bank must know of the
relationship of trust and confidence as that forms the basis for the duty to ask more questions (but Court says
nothing about what would have happened if Kranz was under actual undue influence; presumably would have
made no difference as Banks would still have to know of the r/ship of trust and confidence but not of the actual
UI) in relation to wives, the trust and confidence is deemed to be assumed from the status of marriage, but
when the trust and confidence would not normally be assumed (ie outside of intimate r/ships) it makes sense
that the trust and confidence must be known or must ought to have been known].

UNCONSCIONABLE DEALING

This is an equitable doctrine that concerns the right of a party to rescind a contract because the other party has
knowingly taken advantage of a special disability/disadvantage during the negotiating process.
Special Disadvantage
P must first show that he is at a special disadvantage vis--vis the other party.
A special disadvantage is one that seriously affects the ability of the innocent party to make a judgment as to
his own best interests: Amadio (Mason J).
Clearly, something more than mere inequality of bargaining power is required: Amadio. (However comment by
majority in Bridgewater seems to cast doubt on this)
What amounts to special disadvantage depends on all the circumstances, however a list of factors that may
amount to special disadvantage includes: poverty or need of any kind, sickness, age, sex, infirmity of body or
mind, drunkenness, illiteracy or lack of education, and lack of assistance or explanation where assistance or
explanation is necessary: Blomley (Fullagar J)
Another category includes emotional attachment (Louth; Bridgewater). However it is unlikely that this in itself
is enough. Rather, something more would be required (such as pressure, urgency and atmosphere of crisis in
Louth) to create a special disadvantage. However, the decision in Bridgewater casts some doubt on this.
Commercial vulnerability? Will be difficult to argue: Sampton.
How important is the fact that the alleged victim possessed independence of mind, capacity to exercise
judgment, knew what he was doing and its effect, time to make a deliberate decision etc? The dissentients in
Louth, Blomley and Bridgewater thought the presence of all of these things was a compelling factor that
militated against a finding of special disadvantage. However, clearly, the majorities in those cases didnt think
that this mattered so much. Arguably it is indeed possible for a party to know what they are doing and want to
do it yet still be in a position of special disadvantage, as is illustrated by the facts in Louth.
The fact that P partly caused the disadvantage may militate against a finding of special disadvantage: Sampton.
Taking Unfair Advantage
Once the special disadvantage has been established, P must then establish that the disadvantage was
sufficiently clear to the other party to make it prima facie unconscionable for them to procure Ps signature:
Amadio
In an exam, analyse the three factors below, one by one. If it seems difficult to pin actual knowledge or even
constructive knowledge on the defendant, point out that P only need to make a prima facie case that the
disadvantage was sufficiently clear.
Knowledge
It is well established that constructive knowledge of the other partys disadvantage is sufficient. Once it is
accepted that the other party ought to have known of the disadvantage, the stronger party comes under a duty
to ensure that the other party is properly advised: Amadio.
But must make sure there is at least a prima facie case that the other party should have known, watch for
similarities to Amadio, ie was the fact that Mr A commented on the fact that he thought the loan was for 6
months a crucial factor in making out a case of constructive knowledge?
Procedural Unconscionability
The transaction must be examined so as to determine the unconscionable element. In unconscionable dealing at
equity, the primary concern is to ascertain some procedural unconscionability, that is, unfairness in terms of
the bargaining process: Amadio
This is obviously intimately bound up with the issues of special disadvantage and knowledge, as it requires
consideration of the circumstances of the bargaining process.
The existence of procedural unconscionability is a necessary requirement of unconscionable dealing: Amadio.
However, this is questionable in the light of Bridgewater, which appears to have been based mainly on
substantive unconscionability.
How active was D in influencing the transaction? Very active: Louth (putting pressure on, deliberately
deceiving Diprose etc); Blomley (deliberately supplying alcohol and encouraging drunken bargaining). This
may have an impact.
But clearly, taking advantage does not require much (see esp Bridgewater).
Deciding when more action needed to be taken to redress the imbalance by D may be an issue: Amadio.
The provision of legal advice will usually help redress any disadvantage (eg Sampton). However, it is clear that
the presence of solicitors and advice is not decisive (Blomley; Bridgewater technically Louth as Diprose was a

solicitor). It clearly depends on the quality of advice given to P and whether the solicitor is really on his side
(unlike Blomley and possibly Bridgewater).
The absence of sound legal advice, even if that might not have influenced the outcome, may affect this issue
(majority in Bridgewater, but arguably this is really a causation issue).
Substantive Unconscionability
A secondary concern of unconscionable dealing is substantive unconscionability, that is, unfairness of
outcome, such as where one party is at a serious disadvantage as a result of the transaction.
This is not a necessary nor sufficient element of unconscionable dealing, however it does help to build an
overall picture of the circumstances: Amadio; Blomley
Where the outcome is severely unfair, it will be difficult to resist the conclusion that it was obtained by
unconscionable dealing (but it will not necessarily be so). On the other hand, a manifestly fair outcome can be
used by the defendant in its defence (see below).
Arguably the High Court in Bridgewater elevated the importance of substantive unconscionability as a basis
for determining unconscionable dealing.
Causation
Once these elements have been proved, the inference will normally be drawn that the unconscionable dealing
was a cause of entry into the contract.
Nonetheless, the other party may be able to show on the facts that there was no causal connection.
However, the causation issue was largely ignored in Bridgewater, where it seemed that there was a strong
argument that there was no causation.
Shifting the onus: the fair, just and reasonable defence
Once P has proved special disadvantage and made a prima facie case for taking unfair advantage, the onus
shifts to D to show that the transaction was fair, just and reasonable: Amadio.
Relevant factors in discharging this onus would be the adequacy of consideration and the substantive fairness
of the contracts terms.
The fact that P obtained independent advice is relevant but not conclusive in this regard.
[It is here that the difference b/w unconscionable dealing and undue influence is most clear. In the latter, D
must prove that P acted independently. Here D must prove that the transaction was fair.]
Restrictions on and loss of the right to rescind for UD
Partial Rescission
Deane J in Amadio raised the notion of partial rescission wherein the contract could be set aside to the extent
that it was impacted on by the unconscionable dealing (eg, in Amadio setting aside the guarantee to the extent
that it was unlimited but leaving it in tact to the extent of $50 000 the amount that they thought they were
contracting for), but decided against partial rescission in that case.
The High Court has since endorsed the concept in relation to misrepresentation (Vadasz) so it is eminently
arguable (and likely) that it would now be applied here should the occasion arise.
Partial rescission was sort of applied by the High Court in Bridgewater.
Thus must ask whether P, if properly advised, would have agreed to part of the contract or whether they would
have not entered it at all.
Loss of the Right
It appears that the right is difficult to lose (Blomley), but presumably an unequivocal election to affirm or
waiver of rights from P when no longer in the position of special disadvantage would result in a loss of the
right. Indeed it seems from Blomley that this would be the case.
CASES: UNCONSCIONABLE DEALING
Commercial Bank of Australia Ltd v Amadio HCA 1983
FACTS:
- V, the son of the Amadios (A), ran a business that was in serious financial trouble.
- V was exceeding his overdraft with the Bank (CBA), but CBA was keen to keep propping him up for various
immaterial reasons.
- V, in requesting an increased overdraft limit, told CBA that it could use his parents property as security for the
increased overdraft.
- The Amadios thought Vs business was flourishing by all outward manifestations it was.

V told his parents that they would be providing a temporary guarantee of $50 000 limited to 6 months,
however that claim was completely false. CBA had always maintained that the guarantee would be unlimited
and last for an unlimited time, and this was what the contract stated.
- CBAs manager visited As and obtained their signature for the unlimited guarantee, the circumstances were as
follows:
- As were elderly, aged 76 and 71.
- They were born in Italy and had lived in Aus for over 40 years. Mr A had reasonable spoken English but poor
written English. Mrs A had some understanding of spoken English but gave evidence through an interpreter.
- Neither had much business experience.
- During the transaction the Amadios did not read the contract, nor was it explained to them, as Virgo (from
CBA) assumed that V had informed them of the nature of the contract.
- However Mr A did remark that the guarantee was limited to 6 months, whereupon Virgo explained that it was
unlimited. However Mr A believed his son and the trial judge found that, when the agreement was signed, the
Amadios believed the guarantee was limited to $50 000 and 6 months.
RESULT:
- 5: 2 in favour of As. Unconscionable dealing made out, As win.
LEGAL IMPORTANCE:
Mason J
Special disadvantage
- A special disadvantage is one that seriously affects the ability of the innocent party to make a judgment as to
his own best interests.
- The types of situation in which a special disadvantage will arise are not limited or closed.
- Here, Amadios were in a position of special disadvantage because their ability to judge whether the transaction
was in their best interests was lacking due to their desire to help out their son, whom they believed only in need
of temporary assistance. Combined with their old age and lack of English ability and business skills, they were
at a serious disadvantage in the transaction.
Knowledge
- It is sufficient that, instead of having actual knowledge of the situation, D is aware of the possibility that the
situation may exist or is aware of the facts that would raise that possibility in the mind of any reasonable
person.
- Virgo knew that the Amadios were elderly and lacked English skills. The fact that the transaction was
manifestly not in the Amadios interests should have alerted Virgo to the fact that they might not have been
fully apprised of the situation.
- Mr As comment regarding the 6 months should definitely have alerted Virgo to think that the As did not know
what they were getting themselves into.
- Even if, after all of this, V did not know the full extent of the Amadios lack of understanding, he certainly
ought to have known, and ought to have remedied the situation.
- [Note that, in an exam, absence of any indication by victim (unlike here re Mr As comment) that they are
unaware of the true nature of the agreement, might give rise to an argument that there was no basis for D
having ought to have known no basis for thinking that there should be a need to inquire further.]
Procedural Unconscionability
- The position of special disadvantage of the Amadios, was taken advantage of by Virgo in the negotiating
process by his lack of explanation of the true situation regarding the loan and of the true financial position of V.
Substantive Unconscionability
- The effect of the transaction was disastrous for the Amadios, who stood to lose thousands on their sons
hopeless overdraft. Whereas CBA had a huge windfall security over a loan that no rational person would
have secured moreover, the security even surpassed their exposure from the increased overdraft.
Causation
- Any rational person wouldnt have entered into the contract if unconscionable dealing had not taken place.
Causation inferred.
Deane J (Wilson J agreeing)
Special Disadvantage
- The combination of age, lack of English skills, lack of knowledge of the contents of the document and the
circumstances in which it was presented to them all show that they lacked the necessary assistance and advice.
Knowledge and prima facie unconscionability
- Given that Virgo knew of the effect of the agreement and was aware of the obvious disabilities that the
Amadios had, as well as the comment from Mr A about 6 months, it was prima facie unconscionable for them
to have procured their signature.

It was no excuse that they didnt inquire more. Once it was shown that the disadvantage was sufficiently
evident to Virgo, he then came under a duty to enquire and redress the disadvantage.
Substantive Unconscionability
- This is not a necessary element, but helps to build an overall picture.
Partial Rescission
- Deane J toyed with the idea of rescinding the contract only to the extent that it was unlimited in time and
amount, however decided against such a partial rescission.
- Although in light of Vadasz a court today made have made such an order, it depends on how important was the
point about Virgo not disclosing the extent of Vs financial troubles. Arguably the Armadios lack of
knowledge of this aspect of the transaction would have made even a partial rescission unfair.
Blomley v Ryan HCA 1956
FACTS:
- R sold his farm property to B
- B visited R on numerous occasions seeking to barter a low price for the property.
- R was an alcoholic. B knew of this and on his visits always took some rum with him for them all to drink.
- R had maintained that he would not sell the property for less than $33 000. However, on one visit by B, when
asked whats your price today Tim?, a drunken R replied $25 000.
- Upon hearing this B attempted to procure Rs signature, however R said he would get his solicitor to undertake
the transaction on his behalf.
- The next day, B organised a meeting with Rs solicitor. Evidence was given that the next morning, R was still
drunk and looking very sick.
- The solicitor was present at the meeting, in which the parties executed the contract of sale, however the court
found that the solicitor did not advise R as to the unfair nature of the contracts terms. It seems that the solicitor
was there to oversee the execution of the contract. He was really acting for both parties. He had no knowledge
of the events of the previous day, nor the true value of Rs property.
- R was 76 years old and had poor literacy skills.
- The property was being sold at about $8000 under market value, the deposit was unprecedentedly low, the
interest was 1% below the current rate, and the provisions to pay off the property over four years operated for
the benefit of the purchaser.
RESULT:
- 2:1 in favour of R
LEGAL IMPORTANCE:
McTiernan J
Special Disadvantage
- Due to Rs drunkenness he was at a special disadvantage, as he was not sufficiently in possession of what
threads of intellect he retained to protect his interests.
Procedural Unconscionability and Knowledge
- During the negotiations and the conclusion of the contract, B was aware of Rs drunkenness and lack of ability
to properly consider his situation. Thus Bs knowledge was clearly present.
- B proceeded very quickly so as to deny R the time he needed for recovery so as to regain control of his mental
faculties. He also contributed to his drunkenness by supplying alcohol.
- This was unconscionable in the circumstances.
- The fact that the solicitor was present did not change things, as the solicitor did not actively advise R as to his
position and his best interests.
Substantive Unconscionability
- The terms were clearly disadvantageous to R
- This helped to influence the presumption of unconscionability.
Fullagar J
Special Disadvantage
- Makes the distinction between cases where P is intoxicated and then tries to get out of a contract because of it
(normally no liability) and cases such as this in which P has been encouraged to drink by the other party for the
purposes of obtaining his signature to a contract.
- Clearly the active participation in the drinking was an important factor here.
- Among the many circumstances that could give rise to an unfair disadvantage are poverty or need of any kind,
sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, and lack of
assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be
that they have the effect of placing one party at a serious disadvantage vis--vis the other.

The solicitor was acting for both parties and was of no help to R.
Fullagar J notes, though, that R was not completely gone as he was the night before, and still understood the
basic nature of the transaction. [Presumably, however, his Honour thought he was nonetheless unable to act in
his best interests. This supports the proposition that P need not be totally clueless as to the transaction for it to
be se aside].
Substantive Unconscionability
- Inadequacy of consideration and substantive unfairness are not necessary to support a finding of UD, however
such unfair outcomes will support the inference that a position of disadvantage existed.
- Here, the terms were clearly disadvantageous to R.
Affirmation precluding Rescission
- D argued that P precluded rescission by affirming the contract.
- It took some two months between the execution of the contract and the rescission by R.
- But the his Honour held that he was not sufficiently aware of the full detail of the transaction until he consulted
solicitors two months later. In the intervening period R only had a hazy recollection of the transaction and had
continued to drink heavily, even though he was aware that he had sold his property.
- The fact that R acted promptly once fully aware of his position meant that he did not affirm the contract.
- It seems, however, that if the contract had been affirmed by R in a normal state, rescission would be precluded.
Kitto J (dissenting)
- Reads the facts in an entirely different (and, one would have to say, far more comprehensive and convincing)
manner. Points to the evidence of the solicitor as to the state of R, the dealing with the accountant during the
conclusion of the contract, the long delay between the conclusion of the contract and the changing of his mind
and other factors. All of these points were glossed over by the other two judges and far too easily dismissed.
- Finds that, on the facts, R was not in such a position of relative disadvantage, rather he acted deliberately and
according to what he wanted at the time.
- Moreover the conduct of B could not be considered unconscionable. Sure they took advantage of a great offer,
but they did not do so in circumstances in which R was in a position of special disadvantage.
- [I think that if this was appealed to the current High Court, all judges except Kirby would follow Kittos
reasoning.]
Louth v Diprose HCA 1992
FACTS:
- L (woman) and D (man) were in a relationship in Tasmania for about a year before L moved to Adelaide.
- D was completely in love with her and pursued her to Adelaide, where they again took up a sort of casual
relationship.
- During this time, L made out to be severely depressed, even suicidal, having shown D cuts on her wrist etc [the
majority found that she had manufactured an atmosphere of crisis]
- D helped her out by paying some of her bills etc.
- L was living with here sister and her sisters husband in a house owned by them. They decided to sell this
house. L discussed her predicament with D.
- L made out that she would be homeless and suicidal if she could not stay in the house, implying a sense of
urgency in her situation.
- However there was no such pressure or urgency.
- D agreed to purchase the house for L for $58 000. He and his son then moved in with L.
- However the relationship broke down. D then demanded that the house be returned to him or that the money be
repaid. He instituted proceedings claiming various legal grounds, including UD.
- D owned an old car an aeroplane (worth less than $30 000) and shares in a property. His net assets apparently
totalled less than $100 000. He was a solicitor.
RESULT:
- 5:1 appeal by L dismissed. UD made out.
LEGAL IMPORTANCE:
Majority
Special Disadvantage
- Ds special disability arose in the peculiar facts of the case. Although borne out of his infatuation with and love
for L, this alone was not a sufficiently special disadvantage. It was the fact that he possessed such love for L in
circumstances in which L had manufactured a false atmosphere of crisis.
- The special disadvantage was thus constituted by Ds emotional dependence on a woman whom he believed
would soon be evicted from her house and commit suicide. For it was the combination of these factors that led
D into a position wherein he was totally vulnerable and unable to act in his own best interests.

[The question to ask is whether emotional dependence itself amounts to a special disadvantage or whether
something more, as in this case, is required. Deane J emphasised the fact that the special disability arose not
merely from [Ds] infatuation. Of course, it is a question of circumstances in each case. We can surely at least
say, to paraphrase Brennan J, that a special disadvantage may have its origin in an emotional attachment. In
the light of Bridgewater, it seems that mere emotional attachment is sufficient!]
Procedural Unconscionability and Knowledge
- It seems that the of the false atmosphere of crisis was part of the special disadvantage and its manufacture was
part of Ls unconscionable conduct.
- The fact that L manipulated Ds affection for her by manufacturing a false atmosphere of crisis and then took
advantage of that by effectively asking him to buy the property for him, amounted to procedural
unconscionability.
- More than mere knowledge of disadvantage, the Court was particularly influenced by the fact that L
deliberately set out to establish the disadvantageous circumstances and then to play on those circumstances.
This more than satisfied the constructive knowledge requirement.
Substantive Unconscionability
- The majority stated the outcome was clearly an improvident one from Ds perspective. They emphasised his
lack of personal assets and the fact that he gained nothing whereas she gained everything from the transaction
(although this was not a major point after all, they were dealing with an intended gift rather than a bargain).
- [But is this the case? If viewed from the time of the transaction, one can see that D wanted to give L the house,
and felt gratified by his caring for and satisfying Ls desires. This was arguably his choice.]
Toohey J (dissenting)
- Important in his Honours dissent was the fact that D did not make a rash and hasty act, rather he had plenty of
time to consider what he was doing. The transaction took place over 1 month, and he himself did all of the
relevant conveyancing work for it. He was well aware of all of the circumstances and of his actions and their
consequences.
- However this conclusion was influenced by the fact that Toohey held that D must have known that there was
actually no urgency in relation to the eviction from the house (because D spoke to Ls brother-in-law, the
owner), and so the false atmosphere of crisis had little effect on D.
- [Thus we can use this to argue that time and consciousness of ones actions and their effects can be a factor that
negatives a conclusion that P was in a position of special disadvantage. On the other hand, the fact that the
majority ignored this can be used to counter that argument ie it is not a major factor.]
Bridgewater v Leahy HCA 1998
FACTS:
- The action was bought by the daughters and widow of Bill York against Bills nephew Neil and his wife. Leahy
was the executor of Bills will but played no part in the proceedings.
- Bs challenged the validity of contracts entered into by Bill in which Bill, nine months before his death, sold to
Neil 3 farm properties at a very low price that made them practically a gift.
- The other relatives were left with very little.
- Bill was extremely fond of Neil, who had worked on Bills properties for most of his life. Bill never had a son,
and always felt much more affection for Neil. The trial judge found that Bill wanted to reward Neil and that he
(Bill) thought Neil was entitled to the properties at such a cheap price. He was not worried that his daughters
wouldnt get much as he felt that they had never really helped him or cared for him.
- When Bill made the contracts and the will, he was 85, however it was held that he knew perfectly well what he
was doing and was quite capable of making decisions about his personal affairs.
- The solicitor acting for Bill was also acting for Neil, so Bill didnt receive unbiased legal advice. However the
trial judge found that, even if he had received such advice, he probably would have gone ahead with it anyway.
RESULT:
- 3:2 in favour of the relatives. UD found.
LEGAL IMPORTANCE:
Majority:
Special Disadvantage
- Reaffirmed that a special disadvantage may stem from a strong emotional dependence or attachment. Indeed
this decision seems to affirm the fact that an emotional attachment without much more will be enough to
constitute special disadvantage.
- Bill was suffering from some physical disability due to old age etc. However this was arguably not material as
he clearly knew what he was doing etc.
- The majority found that Bills judgment was impaired due to his emotional dependence on Neil.

the relationship between Bill and Neil meant that they were meeting on unequal terms. [But mere unequal
terms does not give rise to a special disadvantage!!]
- [However, the majority say nothing really about his inability to act in his best interests. It seems, rather, that
Bill was very much acting in his best interests it just so happened that his interests coincided with Neils.]
- [Can use this situation as authority for an argument that mere unequal terms or only slight disadvantage is
enough to constitute special disability.]
Knowledge
- Neil clearly knew of Bills dependence on him, and he conceded that he always got what he wanted from Bill.
Procedural Unconscionability
- Seemingly it was the fact that the initiative for the transaction originated from Neil, thus it was Neils seeking
to procure the properties at a low price in circumstances in which Bill was emotionally attached to him that
made this transaction procedurally unconscionable. [But there was no pressure in this situation, unlike in
Louth. Surely requesting a gift from a close relative is not unconscionable merely because the relative is
attached to you!]
- The majority considered that lack of independent legal advice was an element of unconscionability, despite the
fact that it would not have made much of a difference it was the failure to provide for it that was
unconscionable.
- [The problem here is that Bill knew he was transferring the properties at below market value; he didnt mind
not leaving money for his wife and children; trial judge found that even if he had had independent advice he
would still have done what he did.]
Substantive Unconscionability
- Daughters and wife get very little, and Neil can obtain property well below market price. It seems that this was
the substantial factor that influenced the decision.
- [However this goes against authority that downplays the importance of the outcome. It is not sufficient on its
own.]
Causation
- [Not mentioned by the majority. Arguably there was no causation here b/c even if legal advice was given, Bill
probably would have gone ahead anyway.]
Partial Rescission
- Neil gets to keep the properties, but he must pay more money for them. This is essentially a partial rescission,
extending only to the deed accompanying the transfers which forgives the price.
Gleeson CJ and Callinan J (dissenting):
- There was no special disability in the required sense here. Emphasised that Bill was of sound mind and quite
determined to give his Nephew the properties, for reasons that he justified.
- Bill Yorks independence of mind and capacity to exercise judgment are relevant to all aspects of the case.
- Furthermore, there was no procedural unconscionability (although they dont use this term) because, according
to them, the transaction was Bills initiative. Bill was simply giving effect to his wishes. Neil did nothing wring
by acquiescing in that decision.
- Pointed out that the facts here were far removed from the situations in Amadio, Blomley and Louth.

UNCONSCIONABLE CONDUCT UNDER THE TPA

The leading provisions prohibit corporations from engaging in unconscionable conduct (UC) in trade or
commerce.
Trade or commerce, remedies (ss 80, 82, 87), exclusion by contractual provision, s75B, loss, causation,
mitigation and remoteness and other damages issues etc all apply in this section in the same way as for MDC.
The recently enacted apportionment provisions, s 82(1B) do not apply to UC.
Mirroring legislation has been passed by all state and territory jurisdictions. In Victoria the mirroring
legislation covers all three sections of the TPA.
Two areas excluded altogether: financial services (ASIC Act contains equivalent). However, an ordinary bank
loan will fall under the TPA, not ASIC Act.
51AC, however does not exclude financial services, so they are covered both by the TPA and the ASIC Act.
The other context not included is employment contracts. Services are defined so as to exclude contracts of
service from all sections.
The questions to ask in each section are:
(1) To what type of transactions does each section apply?
(2) What does unconscionability in each section mean?
(3) What factors are specified for the Courts consideration in each section?
s 51AA
s 51AA: (1) A corporation [or person] must not, in trade or commerce, engage in conduct that is unconscionable
within the meaning of the unwritten law, from time to time, of the States and Territories.
(2) This section does not apply to conduct that is prohibited by section 51AB or 51AC.
Thus, any unconscionable dealing situation that occurs in trade or commerce and is NOT covered by ss 51AB
or 51AC can attract the remedies available under the TPA. So first must look at whether the scenario is covered
by 51AB or 51AC. If it is not, it will be soaked up by 51AA and the UD law will apply.
Section 7 of the FTA (Vic) covers person-person transactions, thus it seems that any conduct that amounts to
common law UD, if in trade or commerce, will be covered by the TPA. So can presumably get damages under
the FTA for person-person transactions.
The reference to the unwritten law includes the common law relating to unconscionable dealing: Berbatis;
Sampton.
It may also include other equitable doctrines involving an element of unconscionability (eg unilateral mistake
ie Taylor v Johnson; undue influence incl Garcia extension; unconscionable dealing; equitable estoppel;
forfeiture and penalties). On one view, s 51AA can only be invoked to deal with a specific equitable doctrine:
Sampton; Berbatis.
However, it has been suggested that breach of the underlying equitable principles can themselves enliven s
51AA: Boral.

s 51AB: Unconscionable Conduct in connection with the Supply of Consumer Goods & Services
s 51AB(1) A corporation [or person] shall not, in trade or commerce, in connection with the supply or possible supply of
goods or services to a person, engage in conduct that is, in all the circumstances, unconscionable.
The process for analysing a s 51AB case should be as follows:
Does this section apply?
(5) A reference in this section to goods or services is a reference to goods or services of a kind ordinarily acquired for
personal, domestic or household use or consumption.
(6) A reference in this section to the supply or possible supply of goods does not include a reference to the supply or
possible supply of goods for the purpose of re-supply or for the purpose of using them up or transforming them in trade
or commerce.
This section is truly consumer-oriented. Must look first at whether there is a supply or possible supply of goods and
services, then look at the nature/kind of the goods and determine whether fit within sub-s (5) and then look at
purpose of goods or services and make sure they are not transformable goods, which are excluded by sub-s (6).
It apparently covers real estate/sale of land contracts: George T Collings.
Other Preliminary Matters
Under the TPA the defendant/supplier must be a corporation. However, thanks to s 8 the Fair Trading Act (Vic), the
supplier can also be a natural person.
The recipient of the goods or service (ie the consumer/plaintiff) must be a person. Presumably this includes
corporations (George T Collings; Acts Interpretation Act), so this section can apply to:
o Corporation supplying G&S to a person (TPA)
o Corporation supplying G&S to a corporation (though not likely b/c must be consumer goods)
o Person supplying G&S to a person (FTA s 8)
o Person supplying G&S to a corporation (FTA s 8)
The transaction must take place in trade or commerce. This has the same meaning as elsewhere.
Engage in conduct means the same as s 52: includes doing or refusing to do any act
(7) Section 51A applies for the purposes of this section in the same way as it applies [to s 52]. Thus representations
as to future matters are considered conduct.
4(a) the Court shall not have regard to any circumstances that were not reasonably foreseeable at the time of the
alleged contravention; and
4(b) the Court may have regard to conduct engaged in, or circumstances existing, before the commencement of this
section.
The Meaning of Unconscionable
In ss 51AB and 51AC, there is no reference to the unwritten law. Instead there is in each section a list of matters to
which a court may have regard.
These sections are thus not limited to the parameters of equity: Simply No-Knead.
s 51AB(2) the Court may have regard to:
(a) the relative strengths of the bargaining positions of the corporation and the consumer; [this factor is not decisive in
equity. Under doctrine of UD, special disability is not constituted by mere relatively weak bargaining power (requires
substantial impairment of judgment). Thus this quite potent. See George T Collings (standard form contract and fact that
consumer relied on the representations of supplier as to content of contract result in disparity of bargaining power)].
(b) whether, as a result of conduct engaged in by the corporation, the consumer was required to comply with conditions
that were not reasonably necessary for the protection of the legitimate interests of the corporation; [What constitutes
a legitimate interest? Majority in Berbatis thought that the mutual release clause was at least commercially relevant,
seems they would have held this to be legitimate commercial interest too. See also George T Collings (indeterminate
agency clause not legitimate interest). This is substantive unconscionability as it relates to the terms or outcome of the
transaction, the Act is inviting a very broad casting of the net with this section.]
(c) whether the consumer was able to understand any documents relating to the supply or possible supply of the goods
or services: [in what sense is understand meant? Does that mean that could consider fact that a person cannot understand
legalease? This would be quite different to normal doctrines if this were the case.]
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or
a person acting on behalf of the consumer by the corporation or a person acting on behalf of the corporation [is this
limited to the equitable doctrine of undue influence? Probably not as it is accompanied by pressure and tactics;
unfair tactics might broaden this somewhat. What amounts to unfair?]
(e) the amount for which, and the circumstances under which, the consumer could have acquired identical or
equivalent goods or services from a person other than the corporation; [this potentially quite powerful as departure
from standard prices or circumstances could in theory effect a TPA action (but probably wont be interpreted this
broadly)].

Note that the factors to which the court may have regard in determining unconscionability are not limited to those
specified above.

s 51AC Unconscionable Conduct in Business Transactions


The provisions of s 51AC are essentially aimed at protecting small businesses, be they suppliers or
acquirers of goods or services, in commercial transactions with big businesses (however the section
catches more than just big business-small business transactions).
s 51AC(1) A corporation must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person (other than a listed public company); or
(b) the acquisition or possible acquisition of goods or services from a person (other than a listed public
company);
engage in conduct that is, in all the circumstances, unconscionable.
(2) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a corporation (other than a listed public company);
or
(b) the acquisition or possible acquisition of goods or services from a corporation (other than a listed public
company);
engage in conduct that is, in all the circumstances, unconscionable.
In what circumstances does s 51AC apply?
Section 51AC will be appropriate where:
o A corporation (defendant) supplies goods or services to a small business consumer that is
either a natural person or a corporation that is not a listed public company (1)(a); OR
o A corporation (defendant) acquires goods or services from a small business supplier that is
either a natural person or a corporation that is not a listed public company (1)(b); OR
o A natural person (defendant) supplies goods or services to a (small business consumer)
corporation that is not a listed public company (2)(a); OR
o A natural person (defendant) acquires goods or services from a (small business) supplier
corporation that is not a listed public company (2)(b); OR
o A natural person (defendant) supplies goods or services to a small business consumer that is a
natural person FTA (Vic) s 8A(1)(a); OR
o A natural person (defendant) acquires goods or services from a small business supplier that is
either a natural person FTA (Vic) s 8A(1)(b);
AND:
o The acquisition of the goods or services being supplied is for the purpose of trade or
commerce [sub-ss (7), (8). Thus this excludes consumption goods and limits it to business
transactions]; AND
o The price of the goods or services being transacted does not exceed $3 million [sub-ss (9),
(10)];
o [Note that, in theory, a big corporation could bring an action if it were not a publicly listed
company and was engaging in a transaction worth $3 million or less. ie there is no requirement
that they actually be a small business (see Boral). I just used small business for ease of
identification.]
s 51AC will NOT be appropriate where:
o The plaintiff, be it supplier or acquirer, is a listed public company (ie big business);
o The price of the transaction exceeds $3 million;
o The purpose goods or services being supplied or acquired is other than trade or commerce
Other Preliminary Matters
Engage in conduct means the same as s 52: includes doing or refusing to do any act
(12) Section 51A applies for the purposes of this section in the same way as it applies [to s 52]. Thus
representations as to future matters are considered conduct.
(6)(a) the Court must not have regard to any circumstances that were not reasonably foreseeable at the
time of the alleged contravention; and

(6)(b) the Court may have regard to circumstances existing before the commencement of this section
but not to conduct engaged in before that commencement.

The Meaning of Unconscionable


Again, there is a non-exhaustive list of matters to which a court may have regard. s 51AC adopts the
five criteria from s 51AB and adds a further 6
Remember to first ascertain who the defendant is and whether they are the supplier (sub-s (3)) or
acquirer (sub-s (4)).
s 51AC(3) or (4) the Court may have regard to:
(a) relative strengths of the bargaining positions; and
(b) conditions not reasonably necessary for the protection of the legitimate interests of the defendant; and
(c) ability of plaintiff to understand any documents; and
(d) undue influence, pressure, any unfair tactics used against the plaintiff [see Simply No-Knead];
(e) the amount for which, and the circumstances under which, the plaintiff could have transacted identical or
equivalent goods or services from a person other than the defendant [ie could P have supplied for more
money or acquired for less money?]; and
(f) the extent to which the suppliers conduct towards the business consumer was consistent with the
supplier's conduct in similar transactions between the supplier and other like business consumers; and
(g) the requirements of any applicable industry code; [Part IVB defines applicable industry code as the
provisions of a mandatory industry code for that industry ie prescribed by regulations and the prescribed
provisions of any voluntary industry code that binds the defendant corporation. Compliance by D with the
industry code may militate against a finding of unconscionability: Garry Rogers Motors] and
(h) the requirements of any other industry code, if the plaintiff acted on the reasonable belief that the
defendant would comply with that code; and
(i) the extent to which the defendant unreasonably failed to disclose to the plaintiff:
(i) any intended conduct of the defendant that might affect the interests of the plaintiff; and
(ii) any risks to the plaintiff arising from the defendants intended conduct (being risks that the
defendant should have foreseen would not be apparent to the plaintiff); [This very expansive. What
does it require in terms of disclosure? In Simply No-Knead this was held not to apply. Does this indicate
that it will be interpreted in a less expansive way?] and
(j) the extent to which the defendant was willing to negotiate the terms and conditions of any contract for
supply or acquisition of the goods or services with the plaintiff; and
(k) the extent to which the defendant and the plaintiff acted in good faith [this can apply to require
negotiation of variations to existing contract, not just pre-contractual negotiations: Simply No-Knead. Also,
to what extent does GF here restrict the right of pursuit of legitimate interests? Simply No-Knead seems to
suggest that no evil motive is required for breach of GF. Arguably SNK requires a higher standard of GF than
does the universal implied duty].
Sub-s (5) provides that it is not of itself unconscionable to institute legal proceedings

CASES: UNCONSCIONABLE CONDUCT UNDER THE TPA


ACCC v Samton Holdings Pty Ltd Fed Ct (Full Ct) 2002
FACTS:
- The ACCC brought this action on behalf of the Ranaldis (Rs), who operated a lunch bar shop under lease from
Sampton (S).
- The lease and business were previously held by another party, and the lease was due to expire on 2 June 1997.
It could be renewed by notice in writing to the lessors up to 3 months before the expiration of the lease.
- The other party sold the business to the Rs and S assigned the lease to them. The date of settlement was three
days before the notice of renewal was due.
- Mr R forgot to renew the lease until 16 days after the required date of renewal.
- The trial judge found that the lessors must have known that Mr R was busy taking over the new business and
would have forgotten about the renewal, but that they clearly wanted to renew it (having only bought it less
than a month prior).
- At first S declined to renew the lease, but then changed their mind on the advice of their solicitor and instead
demanded $70 000 in payment from the Rs.
- Rs alleged unconscionable conduct un der s 51AA and sought an order for compensation to be paid to them by
S.
- Note that s 51AC, which would probably govern the situation today, had not yet entered into force.
RESULT:
- 3:0 in favour of S no UC.
LEGAL IMPORTANCE:
s 51AA
- The wording of s 51AA (unwritten law) refers to unconscionable dealing in the Amadio sense, but also
encompasses other specific equitable doctrines involving an element of unconscionability (eg unilateral
mistake ie Taylor v Johnson; undue influence incl Garcia extension; unconscionable dealing; equitable
estoppel; forfeiture and penalties).
- Unconscionable in s 51AA does not mean unconscionability at large ie the dictionary meaning of the
concept (unfair, contrary to conscience etc), rather it is confined to specific equitable doctrine as recognised in
the common law of Australia.
Was Samptons conduct Unconscionable Dealing?
- Held that Ss conduct did not amount to UD. Rs were not in a position of special disadvantage that impaired
their ability to make a judgment in their own best interests.
- Of key importance here was the fact that Rs had lost their right to renewal through their own fault. They had
been told that they had to exercise the option to renew, and they had legal advice from a solicitor. The fact that
they forgot was simply due to their own carelessness, even though it might have been understandable in the
circumstances.
- The decision to pay the $70 000 was made in Rs best business interests it was better than losing the lease.
He was clearly able to make a decision as to the best course of action in the circumstances.
- At least in the case of an experienced businessperson there must be something more than commercial
vulnerability (however extreme) to elevate disadvantage to special disadvantage.
- S had acquired rights after R failed to exercise the option, it put a premium on those rights by offering them to
R. Although this was perhaps morally offensive, it was not unconscionable in the required sense.

ACCC v CG Berbatis Holdings Pty Ltd HCA 2003


FACTS:
- The ACCC brought this action on behalf of the Roberts (Rs) who were lessees and operators of a fish and chip shop
in a shopping centre owned by Berbatis (B).
- Rs lease was due to expire in Feb 1997.
- In 1995 they alerted B that they were thinking of selling their business because their daughter was suffering from a
serious and expensive illness.
- Rs requested a new lease so as to enable them to make a satisfactory sale.
- For some years the Rs, along with other tenants in the centre had been contesting the validity of some of the charges
levied on them under their leases. B wanted to put an end to the claims and litigation.
- In October 1996 Rs signed a contract of sale to H subject to the assignment of a 7-year lease.
- A few weeks before settlement was due, Bs agent sent Rs new lease documents containing a mutual release
clause, which required Rs to drop their claims against the centre regarding the charges.
- Before the lease had been sent to them, Rs had been left with the belief that the release clause would not be insisted
upon. Rs did not know that the new lease document contained the MR clause until it was pointed out to them by a
lawyer who looked through the documents while waiting for his fish and chips!
- Rs informed their solicitor, who phoned B to inquire about the MR clause. But he was told that the clause must stay.
- Not wanting to miss out on the opportunity to sell their business and feeling that they had little option but to accept
the new lease, Rs executed the new lease and sold their business to H.
- The trial judge found for the ACCC, holding that they had breached s 51AA. The full court upheld Bs appeal.
- Section 51AC, which would probably govern the situation today, had not yet entered into force.
RESULT:
- 4:1 in favour of B.
LEGAL IMPORTANCE:
Majority
s 51AA
- Upholds the Sampton approach to interpretation of s 51AA: relates to specific equitable doctrines involving
unconscionability.
Special Disadvantage
- Fact that Rs were in a difficult bargaining position because they had no legal right to renewal and wanted to sell
their business did not put them in the category of special disadvantage. They had legal advice, and they were still
quite capable of making a judgment in their own best interests.
- Rs were businesspeople who had to make choices in commercially difficult circumstances, but there was nothing
special about their disadvantage.
- Important that the parties were businesspeople in everyday business dealings (Gleeson CJ emphasised this point).
- Callinan J expressed serious doubt that the concern for their daughters illness were circumstances capable of
giving rise to a special disadvantage.
Unconscionably taking advantage
- It was not unconscionable in the circumstances for B to drive a hard bargain. It is common in commercial dealings
for one party to extract concessions (such as waiving existing legal rights) from another party.
Kirby J (dissenting):
- Viewed the parties positions and conduct in a different light.
- Rs did suffer from a special disadvantage, which was the product of concern for their daughters illness and need to
sell their business. The primary factor was the fact that they had proceeded for some time, due in no small part to the
actions of B, on the footing that a MR clause would not be inserted. Only after it was pointed out to them by the
lawyer were they able to question it. In the circumstances they effectively had the clause thrust on them at the last
moment, which put them in a disadvantageous situation and meant that they were unable to assess properly their
options and interests.
- The conduct of B, in inserting the clause late in the dealing and in seeking to exploit the weak position of Rs, was
unconscionable.
- Equally resourced corporate players are different to small-traders of the sort that the Act was designed to protect.
[Hypothetical Assume that 51AC existed when Berbatis was decided, would the outcome have been different?
- There was a disparity in bargaining positions;
- Could it be said that the mutual release clause was not in the legitimate interests of the shopping centre
management? Perhaps arguable, but probably not in light of what was said by majority.
- Unfair tactics? Yes, hit them with the clause right at the end (see Kirby jjment esp)
- Willingness to negotiate? Roberts solicitor rang them up and they said no negotiation, so definitely arguable.
- Good faith: opportunistic action? Evil motive. Unwillingness to negotiate. Definitely arguable
- So a different outcome would have certainly been possible.]

Boral Formworks & Scaffolding Pty Ltd v Action Makers Ltd NSWSC 2003
FACTS:
- B (a NSW company) and AM (a UK company) made a contract by which AM undertook to manufacture and
deliver scaffolding equipment to B as ordered, for a period of 4 years.
- AM warranted that the goods would meet certain specifications. A clause in the contract also specified that if B
had a valid warranty claim, AM had the option of requiring B to retain the products while granting to B an
appropriate allowance against the contract price.
- In Feb 2003 B were supplied goods that failed to meet the warranted standard.
- It wrote immediately to AM informing them of the situation and stating that B would retain the goods and
complete the extra work on them that was needed and then deduct the cost of the work from the amount they
would pay AM.
- AMs receivers wrote to B demanding payment of the full amount.
- The payment arrangement b/w the parties was conducted via the Bank, through a system in which AM would
take the money through a secure line on presentation of a certificate and invoices, and B would then pay the
debt to the Bank (a letter of credit system).
- AM was able to obtain the full amount of the disputed order under this system of payment.
- B sought an injunction prohibiting the Bank from paying the full amount and requiring that B retain the
$174065 that it claimed was the cost of fixing the defective goods.
RESULT:
Boral wins. Makes orders for injunctions due to breach of s 51AC (and also finds a breach of 51AA)
LEGAL IMPORTANCE:
s 51AA
- Seems that judge holds that there was an estoppel here. By acquiescing in Bs decision to retain and fix the
goods and deduct the cost, AM were then estopped from claiming the full amount of the payment owing.
- By demanding the money from the bank, AM were making a false statement. Such action was unconscionable.
- [However his Honour simply states that the behaviour was unconscionable without applying any specific
doctrine, as is required according to Berbatis and Samton. Rather, Austin J is invoking broad equitable
principles. Therefore, this casts a shadow on the meaning of UC under s 51AA, b/c arguably his Honour has
applied the dictionary concept of UC. However, insofar as it is inconsistent with Berbatis, no doubt Berbatis
should be followed.]
s 51AC
- Rejects the submission that this does not apply b/c Boral is not a small, weak business of the type that the
section was clearly designed to protect. So long as Boral is not a listed company and the transaction was less
than $3 million, Boral was entitled to relief under s 51AC.
- Simply says that AMs conduct was unconscionable under s 51AC without addressing the criteria.
George T Collings (Aust) Pty Ltd v HF Stevenson (Aust) Pty Ltd Vic SC 1990
FACTS:
- HFS engaged GTC (real estate agents) to try and sell a property.
- The terms of the engagement of GTCs services were contained in a sole agency agreement. The purpose of
such an agreement is to ensure that the agent, during the agreed term of engagement, shall have the exclusive
right to try and sell the property and that, should they sell it, they be entitled to their commission.
- GTC represented to HFS that they were entitled to commission under the agreement should they sell (sell was
defined in the agreement as receiving an offer) the property to a person introduced by them during the term of
the agreement and for a period of 120 days after its expiration.
- Upon signing the agreement HFSs representative asked whether there were any onerous provisions, she was
told that there were not.
- In fact, there was. One of the clauses conferred upon GTC the right to commission, should they sell the
property, for an unlimited time after the expiration of the agreement. This could only be brought to an end by
notice in writing from the vendor or by sale of the property via other means.
- Some time after the term of the agreement had expired, HFS received an offer for the property. They notified
HFS, but HFS declined the offer, thinking it was no longer bound by the terms of the agreement. HFS then
received a bill for $71 160 in commission.
- When HFS refused to pay, GTC brought this action, asserting its rights under the disputed clause.
RESULT:
Nathan J found for HFS: Breach of, iter alia, s 51AB.

LEGAL IMPORTANCE:
s 51AB
- Person: Note that the fact that the consumer was a company was not a problem, despite the fact that the act
refers to the consumers as a person.
- Consumer transaction re supply of services? Nathan J states that the provision of real estate services
amounts to provision of services within the meaning of the section. But did the real estate agents services fit
within the required definition of G&S in s 51AB? Was it a service ordinarily acquired for personal or
household use? This should have been discussed rather than simply stated.
- (2)(b) Legitimate Interests: The clause was not reasonably necessary for the protection of the legitimate
interests of GTC. GTCs legitimate interest was to protect the commission to which it was entitled by virtue of
a sole agency agreement only this is what they had represented, this is arguably the extent of their legitimate
interest. [Surely it was in GTCs interest to make as much money as possible. But this arguably not a
legitimate interest as was beyond the scope of what one would expect under such an agreement.]
- (2)(a) Bargaining Strengths: Held that GTC possessed superior bargaining strength. Although both were
commercial parties, fact that this was a standard form contract probably made GTC the stronger party. Nathan J
focuses on the fact that HFSs representative was relying on GTCs assurances that there were no onerous
terms etc. She thus divested her bargaining power and placed her trust in GTC. This amounted to a disparity in
bargaining power.
- Nathan J also examines misleading conduct briefly. Arguably that was by far the more appropriate path to go
down in a case like this.
ACCC v Simply No-Knead (Franchising) Pty Ltd Fed Ct 2000
FACTS:
- Mr Bates, managing director of SNK owned a franchise system whereby he supplied training and materials for
making bread in the home.
- He entered into 5 franchise agreements with the plaintiffs (on behalf of whom the ACCC brought this action).
- Bates decided he wanted to get rid of his franchisees and to operate in the market himself. So he devised a plan
to cause the Fs to terminate their franchise agreements.
- He refuses to deliver franchised products to them, refuses to negotiate matters in dispute with them, distributes
materials promoting his company without including the Fs, and requires them to pay for them, competes with
his Fs by selling products in their territories.
- Fs dont pay for the promotional materials and demand a meeting with Bates, which he ignores. He refused to
deliver Fs weekly orders unless they pay for the advertising.
- He also refuses to provide current disclosure documents, in breach of the franchise industry code.
RESULT:
Judge finds for ACCC, Bates and SNK contravened s 51AC
LEGAL IMPORTANCE:
s 51AC
- Meaning of unconscionable in s 51AC goes beyond its meaning in equity (and 51AA).
- Bs conduct in this case was overwhelmingly unconscionable. The following criteria were relevant:
- (d) applied undue pressure and tactics. Requirement of Fs to pay for advertising in which they were not
included was unreasonable. Fs refusal to pay for this quite reasonable. Bs refuse to deliver Fs weekly orders
unless they paid for the advertising amounted to unfair pressure/tactics. [Competing with them could also
amount to unfair tactics.]
- (e) lack of good faith. Held that the refusal to negotiate evinced lack of good faith on part of Bates [important
here that this can apply to require negotiation of variations to existing contract, not just pre-contractual
negotiations].
- Also described as a breach of good faith was Bs engaging in competition with the local Fs. Sundberg J says
that this amounted to a lack of good faith because it was calculated to damage the Fs in the sense that SNK
must have known it would damage them, and because it was inconsistent with a proper relationship between
franchisor and franchisee. [However it was surely only a lack of good faith because B had an evil motive an
intention to harm Fs. Otherwise this is inconsistent with the findings in Far Horizons, in which it was
acceptable for D to compete with his franchisor, although that was an explicit term of the contract in that case,
nonetheless, it demonstrates that there may be no such thing as a proper franchising relationship.]
- ACCC argued that (i) also applied, b/c B failed to disclose intended conduct that might affect Fs interests.
Sundberg J doubts whether this applies, but doesnt say why. He does not express a concluded view on this
issue.
- (g) industry code breached by B.

Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd Fed Ct 1999
FACTS:
- In 1997 GRM was appointed by S as its authorised dealer.
- The terms of the agreement provided that either party may terminate the arrangement by giving the other
notice in writing.
- After appointment as Ss dealer GRM updated its showroom and spent considerable funds on preparing its
business for the S dealership.
- GRM was a good dealer, always exceeding its sales targets.
- This arrangement continued up until 1998 (although the contract expired in 1997, this didnt seem to matter).
- In Feb 1997 S introduced a 6-Star revitalisation program under which all dealers were required to make
certain changes to their showrooms, decorations, signage etc.
- GRM did not implement the changes required under the program, and was told to do so in Feb 1998 by S.
- In May 1998 Rogers wrote to S saying that he would increase the size of the showroom but not make the other
changes.
- In June 1998 S terminated the dealership in accordance with the contract.
- GRM changed its mind and subsequently made all of the required changes. Rogers showed S the new changes.
However S refused to withdraw its notice of termination.
- Further negotiations took place, GRM proposed to build a new showroom, it wrote to the Vic Automobile
Chamber of Commerce (VACC), but to no avail.
- GRM then brought these proceedings, alleging, inter alia, breach of s 51AC
RESULT:
Subaru wins. No breach of 51AC.
LEGAL IMPORTANCE:
- The only criterion applied by the judge here is the applicable industry code. The Franchising Code of Conduct,
which applied to the dealership agreement, authorises the franchisor (S) to terminate the franchise agreement
provided that reasons and reasonable notice are given to the franchisee.
- Although S did not provide reasons, the reasons were obvious to GRM. It was not unconscionable to terminate
the agreement without giving reasons where those reasons were known to GRM.
- [Interesting thing here is that not only is there is no positive unconscionable conduct, but also the judge uses
one of the criterion in a reverse way: seeing as S DID comply with the criterion the industry code militates
towards a finding that its actions were not unconscionable].
- Failure to withdraw the termination after GRM complied with the 6-Star program was not unconscionable,
rather was reasonable due to the fact that GRMs original non-compliance resulted in a breakdown of
confidence and trust in GRM, which could not be repaired by a change of heart.

TERMINATION FOR BREACH

This area of contract law deals with the right of a party to terminate the contract prospectively, such that the contract
is valid up until the point of termination but not after. Once the contract has been terminated both parties are
absolved from further performance.
CREATION OF THE RIGHT TO TERMINATE
The right to terminate for breach may be conferred by law and/or by the contract itself.
The right at law is conferred on a party in the event of any of the following:
1. Breach of an Essential term (aka breach of a condition) by the other party: Breach of an obligation that is
central/fundamental to the contract
2. Repudiation: occurs when the other party has manifested an intention to reject obligations under the contract ie if
they are unwilling (or unable) to perform.
3. Substantial loss: where the other partys breach of term (be it essential or otherwise) causes a substantial loss
Breach of an Essential Term
Actual failure to perform an obligation when it is due creates a right of termination in the other party if the
obligation is an essential term (also called a condition) of the contract.
The parties may themselves expressly designate a term as essential, whether or not it is objectively so. In such cases
the Court will normally respect the choice of the parties to determine what is essential, so long as the terms
essentiality for the purpose of conferring a right to terminate is clearly stated.
In the event that essentiality is not specified, the Court must determine objectively what was essential.
In determining essentiality the Court has adopted (in Bancks) the Tramways test of Jordan CJ. Under this test, a term
is essential if:
o it appears from the general nature of the contract as a whole, or from some particular term or terms, that the
term is of such importance to the promisee that he would not have entered the contract unless he had been
assured of its strict or substantial performance.
In order to ascertain the importance placed by the parties on a particular term, the Court will look to the contract as a
whole and to other particular provisions. In addition, post-formational factors such as the effect of the breach and the
parties reaction to it may bear on the courts consideration of essentiality.
Thus the Court may look at:
o Other relevant terms (Burger King);
o The existence within the contract of other sanctions for the breach of the term (Burger King);
o The wording used by the parties in the relevant term as compared with other terms of the contract or
previous contracts used by the parties (Burger King);
o The effect of the breach, ie, how did it affect the parties interests (Burger King; Bancks);
o The terminating partys motives (Burger King);
o Whether the relevant terms was the quid pro quo of an essential term (Bancks);
o Whether the term was enforceable by way of damages (if it is not, may indicate that it must be considered
as essential otherwise its breach would have no consequences): Ankar
Repudiation
A repudiation occurs where a party manifests unwillingness or inability to perform a contract at all or in some
essential respect or an intention only to fulfil it in a manner substantially inconsistent with his or her obligations:
Shevill.
The focus here is on the attitude or conduct of the contract-breaker.
No actual intention to repudiate is required, the issue is determined objectively: DTR Nominees.
Repudiation by Actual Breach
Failure to perform an obligation as required (ie actual breach) may evince a lack of willingness or ability to perform
the contract and hence amount to a repudiation.
Thus breach of an essential term may also amount to a repudiation (eg Bancks), however even breach of an
inessential term may indicate that the party is no longer willing to perform the contract as a whole.
Where a single breach may not be effective to repudiate the contract, numerous or successive breaches may
aggregate to a cumulative manifestation of intention to no longer be bound: Carr; see also Bancks.
In Bancks the fact that the breach was repeated and accompanied by ANs assertion that it was entitled to do what it
was doing and that it intended to keep doing it in the future amounted to a repudiation.
Repudiation by Anticipatory Breach
A party may repudiate a contract by manifesting an inability or unwillingness to perform before any performance is
due.

This is known as an anticipatory breach and will result in a repudiation where the manifestation of unwillingness
or inability relates to the whole contract or an essential term of it, or will result in the loss of the substantial benefit
of the contract: Foran.
In that event, the innocent party may terminate the contract forthwith, without having to wait until performance falls
due.
Once the repudiation by anticipatory breach has been accepted by the innocent party, that is, an election to terminate
has been made, the breach cannot be retracted or made good, even by performing as required under the contract.
On the other hand, if the innocent party does not terminate, the contract remains in existence and the repudiator
retains the opportunity to perform the contract as required. Also the repudiator may take advantage of any
subsequent event that excuses performance of the contract, eg frustration, non-performance of contingent condition,
breach by the other party: Bowes.
Repudiation by Unjustified Termination
Normally, a party who purports to terminate a contract without having the right to do so thereby repudiates the
contract. In addition to the termination being ineffective, it amounts to repudiation.
EXCEPTION: unjustified termination will only be ineffective, not repudiatory, in a different interpretation of terms
scenario (see below).
Adherence to Incorrect Interpretation of Contract
If one party adheres to an interpretation of the contract that is incorrect (whether this results in a breach or
anticipatory breach), such adherence may amount to a repudiation. But this depends on a number of factors:
Was the mistaken party aware that their interpretation was incorrect? If it was plainly incorrect and unjustified,
adherence to it may amount to a repudiation. However, normally the other party must first attempt to persuade the
mistaken party that its interpretation is incorrect and give it an opportunity to reconsider its interpretation. Only once
the mistaken party is aware of its error will insistence on it amount to an unwillingness to abide by the correct
interpretation of the contract: DTR Nominees.
If the terms of the contract are not clear and there is a dispute over their meaning, a bona fide insistence on a
particular interpretation, even if contentious, will not amount to a repudiation: DTR Nominees.
Thus in the event that A adheres to its interpretation which, although bona fide, turns out to be incorrect, Bs
termination on the basis of As adherence to its interpretation might on one view be considered unjustified, as As
conduct was not repudiatory. However, the Court in DTR Nominees instead held that such a termination by B of
itself does NOT amount to a repudiation of the whole contract, but only evinces an intention not to be bound by the
contract insofar as it is incorrectly interpreted by A. Thus the termination by B is not effective but is also not
repudiatory. The contract then remains on foot. [!!!!!]
Termination for Failure to Perform on Time
WHEN IS PERFORMANCE ON TIME ESSENTIAL?
The parties may expressly stipulate (either re the whole contract or re a specific clause) that time is of the essence
ie that performance by the specified time is an essential term.
Where performance on time is not explicitly designated as essential, the court must determine the issue by reference
to the Tramways test. Thus courts look at the wording, surrounding provisions, nature of the contract, parties
interests and the effect of breach etc.
Where the contract fixes the time only approximately, the normal inference must be that performance on time is not
an essential term: see eg DTR Nominees.
Where the contract specifies no time at all for performance, the Court may imply a reasonable time. In such a case,
the obligation to perform on time (within the reasonable time) is not likely to be essential: Laurinda.
WHAT HAPPENS WHEN THERE IS A FAILURE TO PERFORM ON TIME?
If the obligation to perform on time is essential (time is of the essence) and performance is not forthcoming when
due, the other party may forthwith elect to terminate the contract.
However failure to do so may result in time ceasing to be of the essence, and therefore in the loss of the right
terminate without notice (see also loss of the right).
If time is not of the essence, or has ceased to be of the essence, the innocent party cannot terminate for delay without
first giving notice requiring performance within a specified reasonable time: Laurinda; Carr.
The onus is on the party serving the notice to show that the specified time was reasonable: Laurinda
The notice must clearly state that the contract may be terminated if not complied with: Laurinda (but note differing
judicial opinion as to what is required); arguable also that Pan Foods signals a less strict approach to the
requirement of notice.
DELAY MAY NONETHELESS AMOUNT TO REPUDIATION

If time is not of the essence, failure to perform on time may nevertheless give rise to a right to terminate without
further notice if the delay is so long or occurs in such circumstances as to amount to a repudiation of the contract:
See Carr; Laurinda.
Of course, the delay and the evidence of repudiation must relate to either the whole contract or an essential part of it
in order to evince a repudiation capable of giving rise to a right to terminate: Laurinda.

Breach Causing Substantial Loss


There has been some recognition of a third category of conduct giving rise to the right to terminate: where the
breach has caused substantial loss to the other party.
This requires focus on the effect of the breach.
Courts will often consider the effect of the breach in order to determine whether a term is essential or whether
the contract has been repudiated, but a breach causing substantial loss may give rise to the right to terminate
notwithstanding that the term breached was not essential and not accompanied by repudiatory conduct: see
Ankar; Carr.
Right to Terminate Arising from the Contract Itself
A right to terminate the contract for any breach whatsoever, or for any specific breach, may be expressly
provided for by the parties in their contract.
INTERPRETATION
Whether a clause applies in particular case is a matter of construction as with any other clause, and resort must
be had to the rules that govern contract construction, including the rule that, in the event of an ambiguity, the
clause will be construed so as to avoid consequences which appear to be capricious, unreasonable,
inconvenient or unjust. See, eg, Burger King.
COMPLIANCE WITH NOTICE REQUIREMENTS AND EFFECTIVE TERMINATION
It is also common for parties to specify the manner in which the right to terminate must be exercised and what
effect its exercise shall have.
Such requirements (ie the provision of notice) have tended to be construed strictly in the past: Tricontinental.
However, the High Court decision in Pan Foods appears to be signalling a retreat from such strictness in
commercial transactions in preference to a more practical approach concerned more with substance rather
than form.
Nonetheless, the counter-argument is that it was only really Kirby J who advocated this flexible approach. The
other members of the Court decided in favour of ANZ on the basis that they had in fact complied with the
notice requirements sufficiently strictly, not because they did not have to technically comply, as Kirby seemed
to be saying.
RESTRICTIONS ON THE EXERCISE OF THE RIGHT TO TERMINATE
The right to terminate a contract for breach has long been subject to a variety of restrictions designed to
prevent its unfair exercise. These are explored below.
Readiness and Willingness
A party can only terminate for breach if that party is itself ready and willing (and able) to perform the contract.
The terminating party must show that it was ready and willing to perform at the time of termination (or at the
time of service of the notice if notice is required).
In a case of termination for anticipatory breach, the terminating party is not required to show that it would have
been ready to perform on the day on which performance was actually due, so long as they can show that at the
time of termination they were not already unwilling or unable to perform: Foran (Dawson, Brennan, Mason).
An estoppel may operate to preclude reliance on the R&W principle: Foran
THE TENDER PRINCIPLE
An application of the R&W principle is the tender principle. In sale of land contracts, both parties must
perform their obligations contemporaneously (at settlement). It is a prerequisite of termination that the
terminating party has itself tendered performance.
However, tender is excused where it is prevented by the other party or clearly pointless in the circumstances (ie
where other party has committed an anticipatory breach): Foran
Thus in Foran, the vendor, by committing an anticipatory breach by intimating that it would not be able to
perform its obligations, had induced the purchasers to assume that tender of performance was no longer
required. The vendor was therefore estopped from disputing the purchasers failure to tender, thus clearing the

way for the purchaser to validly terminate the contract on the grounds of the vendors anticipatory breach. [But
the issue of detriment was contentious].
Unjust Forfeiture of a Proprietary Interest & Unconscionable Exercise of a Legal Right at Equity
Before the day of settlement, the buyer has a proprietary interest in the land. Therefore, in some circumstances
the buyer can rely on the equitable doctrine of unjust forfeiture in order to obtain relief, even though their
breach would normally give rise to a right of termination in the other party.
We will look only at this doctrine in the specific context of the vendors right to terminate the contract as a
result of the purchasers failure to settle when time is of the essence.
There is an English doctrine and an Aus doctrine. We will examine the Australian doctrine, looking at three
cases that illustrate when this doctrine can be used by the purchaser to obtain relief.
Broadly speaking, the court has the power to grant relief against forfeiture resulting from a termination for
breach whenever in the circumstances it is unconscionable for the vendor to insist on the forfeiture: Legione;
Stern.
As to what amounts to unconscionable circumstances, there has been much difference of opinion.
In Legione and Stern, majorities of the High Court held that it is relevant to consider not just traditional
doctrines of unconscionability, but to look more broadly at the circumstances, particularly at the effect
forfeiture/termination would have on both parties, and also at the nature of the breach (how serious? Was it
deliberate?)
However the Majority of the HCA in Tanwar seemed to express the view that the doctrine does not exist, and
that the vendors right to terminate for the purchasers breach of an essential term is not qualified by any notion
of unconscionability other than the established doctrines of fraud, mistake, accident or surprise. The only
additional factor being whether the vendor, in some significant respect caused or contributed to the breach.
This is largely inconsistent with the established notion that courts have the broad power to grant relief against
an unconscionable termination: Foran; Stern.
It thus appears in light of Tanwar that it will be most difficult for a purchaser to obtain equitable relief against a
valid termination for breach in the absence of one of the vfmas circumstances or an estoppel (although relief
for R&W, above, and based on statute, below, may be available).
Unconscionable Conduct
Sections 51AA, AB and AC of the TPA are also potential sources of restrictions on the exercise of a legal right.
Breach of Implied Obligations
Breaches of implied obligations (good faith; reasonableness; cooperation) can invalidate the termination of a
contract: Burger King; Renard.
In both these cases, P was prevented from performing due to Ds breach of its implied duty of
cooperation/good faith. Ds right to terminate for breach was thus denied because of its earlier breach.
But surely valid termination of a contract of itself cannot amount to a breach of an implied obligation, as that
would be inconsistent with the legal rights of the parties.
LOSS OF THE RIGHT
Election to Affirm or Waiver
When the right to terminate arises in a party, that party must choose whether or not to exercise that right. It
may choose to affirm the contract, in which case, the right to terminate will be lost.
Two issues arise in regards to the election of a party to affirm the contract:
1. What kind of conduct constitutes an election to affirm?
2. Is it purely an objective test? Or is there an element of subjectivity in the test, such that a partys subjective
intention not to affirm (but to reserve its right to terminate) may be relevant?
The case law is varied in this area.
At one extreme, it has been held that mere failure to exercise the right to terminate can constitute an election to
affirm: Suttor
Traditionally, the decision to affirm or terminate is to be judged objectively from the conduct of the party
concerned. Thus there need not be an actual intention to affirm: Carr (affirmation inferred from Bs conduct in
continuing on with obligations under the contract and failure to give notice making time of the essence).
At the other extreme, it has been held that the act of affirmation must be unequivocal, and that the mere doing
of acts consistent with the contract whilst in possession of the right to terminate does not necessarily result in
an affirmation. Depending on the circumstances, the act may also be consistent with reserving the right to
terminate and thus may not be lost. The election need not be made at once: Immer (esp Brennan J)

Where time is of the essence, failure to terminate (election to affirm) may result in time ceasing to be of the
essence. In such a case, the innocent party loses the right to terminate without notice. However, the obligation
must still be performed, so the right to terminate may be regained by the service of a notice specifying a
reasonable time for performance: Laurinda; Carr.
KNOWLEDGE, SUBJECTIVITY AND CONSCIOUS CHOICE
It has been held that the affirming party need not know of the existence of their legal right to terminate in order
for their conduct to be objectively judged as an affirmation, it being a sufficient prerequisite that the affirming
party know the fact(s) on which the right to terminate was based: Sargent
The majority in Immer qualified this further b/c the affirming party was acting under the mistaken assumption
that the CC no longer needed to be fulfilled (thus was as if it had been fulfilled or had simply ceased to be
relevant to the contract). In this case, the fact that the affirming party knew that the CC had not been fulfilled
did not render its continuance of the contract an affirmation (at that stage, Immer did not have to make a
conscious choice to affirm or terminate) until the later stage at which the true situation was discovered. After
that time they were confronted with a conscious choice to terminate or affirm, and they did so: Immer (esp
majority).
Thus it seems knowledge of the relevant circumstances is a relevant subjective element in affirmation.
Estoppel
The right to terminate may also be lost if the party wishing to exercise the right has engaged in conduct that
leads the other party to assume that the right will not be exercised, and that other party relies on that
assumption to its detriment. In such a case an estoppel may operate to preclude the first party from terminating:
Legione.
The conduct giving rise to the estoppel must be sufficiently clear and unambiguous (though it need not be
express). This will depend on the context: Legione (note Gibbs/Murphy take a less strict approach, but the
unambiguous approach was also adopted in Mobil.)
The Court in Foran found detriment simply in the loss of opportunity of performing the contract (ie lost
opportunity of raising the required funds). Dawson J identified the detriment as taking the risk of being liable
for failure to perform.
CASES: RIGHT TO TERMINATE FOR BREACH
Associated Newspapers Ltd v Bancks HCA 1951
FACTS:
- B contracted with AN to produce, for a substantial salary, a weekly comic for ten years that would be published
on the front page of newspaper owned by AN.
- On three successive occasions, and despite the protests of B, the newspaper did not print the comic on the front
page, but on a different page.
- After the third occasion, B gave notice to AN that in light of its repeated failure to abide by its promise re front
page, he would no longer be bound by the contract (termination).
- AN brought proceedings seeking an injunction.
RESULT:
5:0 in favour of Bancks
LEGAL IMPORTANCE:
Breach of Essential Term
- The casse turns on the issue of whether the undertaking to publish the comic on the front page was an essential
term of the contract.
- The Court approved and adopted the following passage from Jordan CJ (the Tramways test):
- The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or
from some particular term or terms, that the promise is of such importance to the promisee that he would not
have entered the contract unless he had been assured of a strict or substantial performance of the promise, as
the case may be, and that this ought to have been apparent to the promisor.
- Important factor was that the obligation to publish on the front page was the correlative promise (the quid pro
quo) for the drawing of the comic (obviously an essential term), thus it would be strange that Bs obligation
was essential and ANs return obligation was not. [But surely payment of salary was the primary quid pro
quo?]
- It was obviously of prime importance to B that his work be published on the front page of the paper.
Analogised with other artistic-related cases in which self-promotion was held to be an essential term in
addition to salary.

Another factor mentioned was that AN had committed three successive breaches. Because of this B was
certainly entitled to terminate the contract. [but how is this relevant to essentiality? Perhaps it simply gets
around a possible argument by AN that the contract was still substantially performed an argument that
might be plausible had there only been a once-off failure].
Repudiation
- Breach also amounted to a repudiation of the contract as ANs conduct amounted to a refusal to be bound by
the contract.
- Here, the conduct of AN in maintaining that it was entitled to do what it was doing and that it intended to keep
doing it in the future amounted to a refusal to be bound by the contract and hence was a repudiation that
accompanied the actual breach.
- Fact that the breach was successive/repetitive more clearly evinces an intention not to be bound by the
contract.
Burger King Corporation v Hungry Jacks Pty Ltd NSWCA 2001
FACTS:
- Clause 2.1 required HJ to open a minimum of four new restaurants per year.
- Other provisions provided sanctions for breach of this term (loss of fees and concessions).
- In previous agreements between the parties, the equivalent clause was expressly designated as essential, it was
not in this case.
RESULT:
Clause 2.1 not essential
LEGAL IMPORTANCE:
Essentiality
- Clause 2.1 was held not to be essential under the Tramways test for the following reasons:
- The absence of the express designation of essentiality from this contract where such appeared in two previous
contracts are surrounding circumstances that can aid in determining the parties intention as to essentiality.
Here, it tends toward a conclusion that the parties did not view it as essential;
- The fact that other clauses in the contract imposed sanctions for breach of this term, thus it is not possible to
say that BKC would not have entered the contract if it was not assured of strict performance of this promise;
- BKCs main benefits under the contract (income, promotion, training) had not been significantly affected;
- BKC had an ulterior motive for the termination (ie negatives a possible inference that BKCs termination was
due to breach of something important to them).
Construction of Termination Clause
- Clause 15.1 provided that BKC has the right to terminate the agreement if (d) HJ fails to comply with any
terms, provisions or conditions of this Agreement, including, of course, the provision requiring HJ to open
four new restaurants each year (clause 2.1).
- However, the contract also included cl 8.1: Any failure to adhere to the Development Schedule shall attract a
liability to pay a franchise fee in respect of each restaurant required to be but not opened. Such franchise fees
shall be paid at the end of the year following the failure, but not if such failure is made good by that time.
- The combination of these clauses made the contract ambiguous, as it was open to two constructions: (1) The
clause providing for remedy of the breach in the following year suggested that no breach of the restaurantopening requirement could occur until the end of the following year; or (2) the requirement to pay a fee could
operate only if BKC elected not to terminate.
- The court adopted the first construction (that favoured HJ) as this provided the more just and reasonable
outcome (if (2) was adopted, BKC could terminate if franchisee was only slightly behind schedule and had
made substantial investments). Court applied ABC v APRA (preference for more reasonable interpretation).
- [Arguable that they really applied a contra proferentem approach to reach a more just result].
Carr v J A Berriman Pty Ltd HCA 1953
FACTS:
- The parties were in an arrangement regarding the construction of a factory building on land owned by C.
- Under the arrangement, B was to be paid to supply the steel (which it had arranged to do through a subcontractor) and to construct the building.
- C undertook to excavate the site in readiness for the construction by 29 May, but this was not done until
December.
- The construction never took place.
- C had failed to prepare the site as required. Furthermore, C had decided to get the steel from elsewhere.

Bs solicitor wrote to C informing them that these two failures constituted two separate breaches of the contract
and that, in accordance with cl 20 of the contract, B was exercising its right to terminate.
- In fact, clause 20 had no relevance at all, thus B had provided an inapplicable reason for termination. However
according to the rule in Shepherd v Felt & Textiles it doesnt matter that the reason specified for termination
was incorrect, so long as there was a valid right to terminate at the time of the termination.
- Thus the issue was whether, at the time of the letter, Cs breaches gave rise to a right to terminate.
RESULT:
5:0 in favour of Berriman
LEGAL IMPORTANCE:
Repudiation
- The failure to excavate the site by 29 May was not by itself a repudiation of the contract.
- Late performance where time is not of the essence does not of itself give rise to the right to terminate.
Furthermore, Bs conduct after 29 May indicated only that it wished to continue with the contract.
- Failure to prepare the site could amount to a repudiation if it manifested an intention no longer to be bound by
the contract but instead to perform it when it suited C. However there was a strong suggestion that failure to
prepare the site was due to inclement weather. This does not excuse the breach but it does suggest that C still
intended to complete the contract (ie negatives the inference that C no longer willing to perform) thus this was
not of itself a repudiation. [But combined with other conduct, eg change of supplier, there was then a clear
manifestation of unwillingness to perform]
- Change of steel supplier alone, however, amounted to a repudiation. This was a deliberate decision by B no
longer to be bound by an essential part of the contract a clear repudiation. [But was it repudiation by actual
breach? C had not breached the obligation as it was Bs obligation to supply, C had simply manifested an
intention not to be bound by the contract, of course, this is enough.]
Cumulative Breaches
- However, when combined with the second breach re changing steel suppliers, there was a manifest
unwillingness to be bound by the contract. Thus the two breaches combined may have a significance which it
might not be legitimate to attach to the first alone.
- Nonetheless, the cumulative breach argument did not have to decide the matter, as grounds for termination
were provided solely by Cs breach of the steel supply provision.
Breach Causing Substantial Loss
- The steel supply represented a substantial part of the contract. It was worth a lot of money to B and B also
became liable to its subcontractor for the cost of the steel.
- The Court does not say anything about this fact alone justifying termination, but arguably it would on the basis
that the breach caused substantial loss to B.
Election to Affirm
- In respect of the first alleged breach (failure to excavate), B lost the right to terminate for breach because its
conducted supported the inference that it had affirmed the contract. It went on with the order of steel and
continued to perform its obligations.
- Assuming that the failure to excavate was a breach of an essential term, B, in electing to affirm, lost its right of
termination. It could only have been regained by serving notice requiring performance within a specified
reasonable time.
- Assuming time was not of the essence, B did not obtain the right to terminate until service of such a notice.
- The Court rejected the notion that each passing day after the due date of performance amounted to a new
breach. Once the promise to do something by a due date has been broken, it is broken finally. Continued failure
to perform is nothing but a failure to remedy the past breach, not the commission of any further breach.
Bowes v Chaleyer HCA 1923
FACTS:
- B contracted to purchase 1780 yards of silk ties from C, which C was to have shipped from France.
- The contract was formed on 8 March 1920 and provided that C would ship 1780 yards of silk ties, half as soon
as possible, half two months later.
- 3 June (before shipment due) B cancels the order b/c cant find buyers.
- 21 October, seller goes ahead anyway but ships only 380 yards.
- 17 November, seller ships 820 yards.
- 13 December, seller ships remainder.
- B refused to accept any of the goods on arrival, claiming that the contract had been cancelled by agreement.
RESULT:
3:0 in favour of B

LEGAL IMPORTANCE:
- The cancellation of the order amounted to a repudiation by anticipatory breach on the part of B.
- At that point, C obtained the right of termination, however it did not exercise that right, rather he proceeded
with the contract.
- Seeing as C elected to proceed with the contract, he remained liable to fulfil his obligations in full, and B was
enabled to take advantage of any supervening circumstance that excused his performance.
- Cs failure to ship the goods as required under the contract amounted to breach of an essential term. Thus B
was then entitled to terminate the contract for Cs essential breach.
- So B is excused from performing his obligation of paying for the goods.

DTR Nominees Pty Ltd v Mona Homes Pty Ltd HCA 1978
FACTS:
- MH had entered a contract for the purchase of land owned by DTR.
- The contract was formed on 12 November 1973. MH agreed to purchase 9 lots of subdivided land.
- Clause 4 of the contract stated as follows: The Plan of Subdivision, a copy of which is annexed hereto, has been lodged
with the Fairfield Municipal Council. The vendor will proceed with all due dispatch to comply with the conditions of
approval of the council and to have the relevant plan of subdivision lodged for registration as a deposited plan [with the
Registrar General] If the said plan has not been lodged for registration as a deposited plan within a period of 12
months from the date hereof either the Purchaser or the Vendor may rescind this contract whereupon all moneys paid
to the Vendor hereunder shall be refunded to the Purchaser
- At the time of the contract DTR had not lodged the plan referred to in the first sentence of cl 4 (the one annexed to the
contract). Instead it had lodged a plan that sought approval of so much of the subdivision as related to the 9 lots. This
subdivision was approved by the Council prior to the formation of the contract.
- 25 Feb 1974: A plan to give effect to this approval was lodged with the Registrar General.
- 7 June 1974: Lodged plan was registered.
- 19 July: MH purported to terminate the contract on the grounds that the plan lodged on 25 February was the incorrect plan
and thus constituted a repudiation of the contract (MH had only just become aware of the incorrectness of the plan).
- 25 July: DTR informed MH that it considered their termination unjustified and, on that basis, purported to terminate the
contract themselves, forfeiting the deposit and reserving its right to damages.
- Both parties essentially had a different interpretation of clause 4 and what was meant by the relevant plan. The task of
the court was thus to determine the validity of the purported terminations.
RESULT:
Contract abandoned, deposit returned.
LEGAL IMPORTANCE:
- Court held that the correct interpretation of clause 4 was that DTR was required to lodge and register the plan annexed to
the contract (the 35 lot plan). The registration of the relevant plan was a reference to the plan referred to in the previous
sentence: the 35 lot plan.
Breach of Essential Term
- By failing to lodge with Council and then failing to register the correct plan, DTR was in breach of cl 4.
- However, the requirement that the correct plan be lodged with all due dispatch was NOT an essential term. Court gives
two reasons: applies Tramways test, no foundation for holding that MH would not have entered into the contract had they
known that DTR had not lodged the correct plan [but why?]; furthermore, time was not of the essence, and cl 4 provided
the right to terminate after 12 months (which had not yet expired), which suggests that mere failure to not act
expeditiously was not an essential term. Therefore its breach did not give MH the right to terminate.
Repudiation
- It was then argued by MH that the breach was repudiatory, in that it evinced an adherence to an incorrect interpretation of
the contract (and thus manifested an unwillingness to abide by the correct contract).
- Whilst adherence to an unjustifiable interpretation can amount to a repudiation, it does not necessarily do so. Rather the
other party must first attempt to persuade the party in error that its interpretation was incorrect and give it an opportunity
to reconsider its interpretation. To put it another way, the mistaken party must evince a deliberate intention to do away
with the contract, therefore it must know that its interpretation is unjustified or wrong.
- DTR were unaware that MH had adopted a different interpretation until it terminated the contract. MH made no attempt to
inform DTR of its mistake, so it was not entitled to terminate.
- Furthermore, where the terms of the contract are not clear and there is a dispute over their meaning, so long as the
insistence on the interpretation was bona fide it will not amount to a repudiation.
- Although DTRs interpretation was wrong, it was bona fide and did not amount to a repudiation.
Repudiation for Unjustified Termination

Seeing as there was no repudiation by DTR, MHs termination was unjustified. Normally, this would give DTR the right
to repudiate the contract.
- However, here the Court says that MHs letter of termination did not amount to a repudiation of the contract as a whole, as
it only amounted to an intention not to be bound by DTRs interpretation of the contract. Therefore MHs termination was
not a repudiation by unjustified termination. [This is a bit cute but arguably produced a fair result.]
- Thus DTR were not entitled to terminate on that basis.
- Since neither party had validly terminated, the contract remained on foot. When these proceedings were launched, it could
be inferred that the parties had abandoned the contract.
- The Court therefore ordered that the deposit be returned to MH.
Readiness & Willingness
- DTRs termination (on the basis of MHs unjustified termination) was itself unjustified for the further reason that, at the
time of the termination, it was itself not willing to perform the contract on its correct interpretation.
- [Thus MHs termination was not repudiatory because it only repudiated the incorrect interpretation, but DTRs
termination was considered unjustified because it evinced an unwillingness to perform the contract as correctly
interpreted.]

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd HCA 1989
FACTS:
- L sought to terminate a lease between itself and C, the lessor. The facts were as follows:
- 31.10.85 Capalaba [shopping centre owner] and Laurinda [tenant] sign agreement to complete and execute
annexed lease [commencing 1.12 85].
- Clause 6.1 provided that C would grant and L would accept a lease that was annexed [but only partially
completed]
- Clause 15.7 provided that: The obligations of the Lessor and the Lessee are not conditional or in any way
dependent upon the preparation and execution of the lease and are not affected by any delay in execution of the
Lease.
- 28.11.85 Capalaba's solicitor informs Laurinda's solicitor that a lease has been executed and will be sent
shortly.
- 03.12.85 Laurinda moves in, operates business.
- 14.03.86 Laurinda requests lease as soon as possible. Capalaba replies: in the not too distant future.
- 21.08.86 Laurinda's solicitor writes again, stating that it is of critical importance to our clients that the Lease
be registered immediately to safeguard their rights of tenure our clients require you to complete registration
within fourteen days ... If the registration is not completed within that time then our clients naturally reserve
their rights.
- 03.09.86 Capalaba's solicitor replies that it has referred the letter to their clients for instructions.
- 05.09.86 Laurinda terminates lease agreement for breach by Capalaba of implied obligation [implication
conceded] to register the lease or deliver to L a registrable lease.
- Laurinda sues for a declaration and damages.
RESULT:
5:0 Appeal by Laurinda allowed.
LEGAL IMPORTANCE:
- Court reads cl 15.7 in light of cl 6, which required that C would grant and L would accept the annexed lease, so
as to conclude that C was not entitled simply to dispense with the lease. Rather, the lease had to be executed
though no time for completion was fixed.
- As a result, time for the performance of cl 6.1 was not of the essence, thus something more was required in
order to give L the right to terminate: either serving of an effective notice making time of the essence; or delay
amounting to a repudiation.
Effective Notice Making Time of the Essence
- REASONABLE TIME:
- Court held that C were actually only given 13 days notice b/c letter was received on 22 August.
- 13 days was not proved by L (the onus being on them) to be a reasonable time. At least 14 days would have
been a reasonable time for such a conveyancing transaction.
- CLEAR INTENTION (differing opinions)
- Brennan, Deane and Dawson JJ: The phrase our clients naturally reserve their rights in respect of your clients
default was not sufficiently clear as to communicate the requirement that the lease had to be completed within
14 days, after which L may elect to terminate. Focuses more on the form of the notice, must plainly convey the
intention.

Mason CJ: The notice must convey a definite and specific intent to require strict compliance, so that the
recipient will be aware that the party giving the notice may elect to treat the contract at an end. Thus focuses
more on substance, ie whether, given the recipients knowledge of circumstances, the notice was sufficient to
communicate the intention.
- Deane and Dawson JJ note that an unequivocal statement that the party WILL terminate if notice not complied
with is not required, only need to show that they will obtain the right to terminate upon expiration of the
reasonable time.
Repudiation by Delay
- The Court held that the sheer length of the delay, combined with the fact that C had made repeated assurances
that it would complete the lease shortly and in the not too distant future, yet continued to delay, and the
evidence of Cs wanting to maintain the delay because doing so suited its commercial interests sustain an
inference that its delay was accompanied by an intention not to complete the contract until it suited it, which
amounted to a repudiation.
- Brennan J: Noted that the execution of the lease was, substantively, an essential term, thus repudiation of it was
sufficient grounds for termination.
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd HCA 1987
FACTS:
- A provided a guarantee for a loan made by NW to another company. Under the arrangement, A provided a
security deposit of $125 000 to NW.
- NW breached the following two terms of the Security Deposit agreement:
- 8. [NW] agrees with the Depositor that it will use its best endeavours to ensure that the machinery . shall
remain in the possession of the Lessee and will notify the Depositor should the Lessee propose to sell or
assign its interest in any of the said machinery.
- 9. Upon the Lessee being in default under the Lease Agreement [NW] shall agree to notify the Depositor
whereupon [NW] and the Depositor shall consult with a view to determine what course of action will be taken
by [NW] ...
- The lessee both defaulted on the lease and assigned its interest to its parent company. NW failed to notify A of
either of these events.
- The issue is whether these two breaches entitled A to terminate the agreement and get its money back.
RESULT:
5:0 in favour of Ankar
LEGAL IMPORTANCE:
Breach Causing Substantial Loss
- Court gives three reasons for holding that clauses 8 and 9 are essential terms thus giving rise to a right of
termination by A.
- 1. Neither clause is readily enforceable by way of damages [presumably this means that, since damages would
be difficult to prove, a breach of this term would have no consequences for the breaching party and provide no
benefit to the innocent party unless it were construed as an essential term.]
- 2. Requirement of an obligation to give notice is designed to allow the guarantor (the surety) to safeguard its
interests. Failure to give notice to A could have seriously affected its ability to safeguard the risk arising from
the lessees default and reassignment of the lease.
- 3. Similarly, it was clearly disadvantageous for A to be liable for a lessee of equipment who no longer had
possession of the equipment.
- The Court decided that these factors (along with the desirability of construing surety contracts in favour of the
surety) outweighed the fact that the wording of the clause tended not to express essentiality (indeed there was
no fixed time limit for the provision of notice by NW etc).
- Importantly, the focus of the last two reasons on the effect on A of the terms breach seems to be a recognition
of the idea that the right to terminate arises as a result of substantial loss. Although the Court says that the
effect of the breach is a reason for holding that the term was essential, it is arguably saying that, on one hand
the terms are not essential, but in light of the effect of breach, they give rise to a right to terminate.
- This is the closest the HCA comes to explicitly countenancing the existence of this basis of the right to
terminate (although there are numerous other cases in which this basis for termination is implicitly sanctioned).
Pan Foods Company Importers & Distributors Pty Ltd v ANZ Banking Group Ltd HCA 2000
FACTS:
- Pan obtained finance to carry on its business from ANZ under a credit facility.

The Bank received reports from accountants that Pan was in financial trouble and would continue to trade at
losses of $200 000 per year and that Pan did not intend to restructure their operations so as to become
profitable.
- Under such circumstances, the contract provided that the Bank was able to terminate the agreement. However
the contract required it to do so in a specific manner. The relevant terms were as follows:
11.1 The Bank may if an Event of Default has occurred, by notice to the Customer
(d) terminate its obligations under the Agreement;
(e) declare that all moneys owing are due and payable
15.3 A notice from the Bank to the Customer must be given by an Authorised Representative, in writing.
- On 15 June 1994 ANZ delivered the following notice to Pan:
- TAKE NOTICE THAT [ANZ] HEREBY DEMANDS payment of [all monies, debts and liabilities to the
Bank] TAKE FURTHER NOTICE that if you do not pay by 10am on 16th June 1994 the Bank may
without further notice to you institute proceedings for the recovery of the said indebtedness and liabilities or
exercise rights [conferred on it by the contract].
- The Letter was signed by the Banks solicitors and hand delivered by Bew, one of ANZs managers.
- Pan was unable to comply with the demand.
- On 28 June 1994 ANZ appointed receivers to sell all of Pans assets etc.
- Pan launched this action to obtain an injunction to stop the action. It claimed that the notice served by the Bank
was ineffective because it failed to comply with the requirements of clauses 11.1 and 15.3.
- Pan argued that the notice (i) was not in declaratory form; (ii) did not specify an event of default; and (iii) was
signed by the Banks Solicitors, not an authorised representative of the Bank.
RESULT:
5:0 in favour of ANZ
LEGAL IMPORTANCE:
- Four of the judges found for ANZ simply on the basis that the notice had been complied with. They held that
(i) the notice was declaratory in that it was a communication to Pan of an expression of its will; (ii) it was not
required to specify the event of default, so long as default had occurred, which it had, therefore the notice was
a valid exercise of its rights; (iii) it was sufficient that Bew had physically given Pan the letter. It did not
matter that the Solicitors had signed it, as they had done so under the instructions of Bew and that was
reinforced by Bews handing it over personally.
Kirby J:
- Whilst agreeing with the outcome Kirby J seemed to dismiss the appeal on broader grounds. His Honour
advocated a more flexible approach to the construction of commercial documents, refusing to annul the parties
substantive rights simply due to some minor technical error (if there were any).
- Commercial documents should be construed practically, so as to give effect to their presumed commercial
purposes and so as not to defeat the achievement of such purposes by an excessively narrow and artificially
restricted construction.
- Business is entitled to look to the law to keep people to their commercial promises.
- [Thus this case may signal a departure from the strict approach adopted in Tricontinental. However, a strong
counter-argument is that it seems that only Kirby J really advocated this flexible approach to commercial
documents. The other members of the Court decided in favour of ANZ on the basis that they had in fact
complied with the notice requirements, not because they did not have to technically comply.]
Foran v Wight HCA 1989
FACTS:
- F was purchaser and W was vendor in a contract for the sale of land.
- Dec 1982 Contract of sale Wight to Foran. Price: $75,000; $7,500 deposit. Settlement to take place on 22 June
1983. In this respect time is of the essence. Sellers required to register a right of way.
- 20 June 83 Fs solicitor telephones to make appointment for settlement on 22 June. Sellers solicitor says W
cant settle - right of way not registered. Buyers stop trying to raise finance.
- 22 June Neither party attends. Forans had only $56,000. [Trial judge: they would not have raised the full
amount even if they kept trying for those two days prior to settlement.]
- 24 June Forans serve notice of termination.
- 22 July Vendor registers right of way.
- Sept 84 Vendor resells for $68,000 (loss of $7000).
- W brings this action for payment of the deposit from F.
RESULT:
4:1 in favour of Foran (purchaser)

LEGAL IMPORTANCE:
- All judges (except Deane) agree on the existence of the R&W principle, which requires that a party wishing to
terminate the contract for breach must itself be ready and willing to perform the contract.
- An application of the R&W is the tender principle, which requires both parties to tender performance where
performance is contemporaneous, as in settlement of a sale of land contract. All judges accept that this is a
relevant principle.
- W argued that Fs termination was unjustified because F was not R&W to perform as it had not yet raised the
required funds (not R&W), and that, similarly, F did not tender performance.
Readiness & Willingness
- All judges held that W could not rely on the R&W principle to invalidate Fs termination, but differed in
reasoning [ignore Gaudron: off on tangent].
- Dawson and Brennan JJ: F needed only to show that, at the time of Ws anticipatory breach, he was not
unwilling to raise or incapacitated from raising the amount required to complete the contract.
- Deane J: Took the estoppel approach to both R&W and tender principle: W estopped from denying that F not
required to be ready and willing to perform. Detriment to F is loss of chance of performance.
Tender Principle
- Deane and Dawson, Brennan JJ: W estopped from denying that F not required to tender performance. Ws
anticipatory breach (a repudiation) induced an assumption in F that they no longer had to raise the finances and
tender performance.
- Deane says relevant detriment is loss of a real chance of performing the contract.
- Dawson says that the detriment was that, after Ws repudiation, F took the risk of not raising the money and
thus becoming liable for failing to tender performance [but this is surely tenuous].
- Brennan says nothing about detriment.
- Mason CJ: an estoppel could operate here but does not in this case b/c F suffered no relevant detriment as a
result of its induced assumption that performance would not be required. It lost the chance of performing, but
that chance would have amounted to nothing (according to the trial judge) because they could not have scraped
together the funds. Fs later termination was thus invalid as he was not R&W nor had he tendered performance.
Legione v Hateley HCA 1983
FACTS:
- H (purchaser) and L (vendor).
- Contract for sale of land made in July 1978. Deposit paid. Completion due 1 July 1979 Time shall be of the
essence in all respects subject to 14-day notice of settlement.
- Purchasers (Hateley) take possession and build house on land.
- 14 June 1979 Vendors solicitor sends remainder
- 29 June Purchasers solicitor requests 3 month extension
- 1 July Time of completion expires
- 12 July Vendors Solicitor (VS) writes refusing extension
- 26 July VS serves notice requiring payment by 10 August.
- 9 August PS telephones VS: Ready to settle on 17 August. Williams (partners secretary): "I think that'll be all
right but I'll have to get instructions."
- 10 August On the basis of secretarys response, Purchasers do not tender money although they could have.
- 14 August VS claims contract has been terminated
- 15 August Purchasers tender bank cheque: rejected.
- Purchasers sue for specific performance. Vendors claim they have validly terminated.
RESULT:
3:2 Vendors not estopped from terminating
4:1 But relief against unjust forfeiture potentially available. Remitted.
LEGAL IMPORTANCE:
Estoppel
- Mason/Deane, Brennan: Secretarys stmt could NOT be treated as a representation that V would extend the
time for settlement to 17 August. A representation founding an estoppel does not have to be express, but it does
have to be sufficiently clear and unambiguous in the circumstances. Here, the conversation took place in the
context of Ps consistent failure to abide by the contract and Vs continued insistence that they wished
settlement to proceed promptly. Such a statement by the secretary was not sufficiently clear as to amount to an
agreement to the proposed extension of settlement.

Gibbs/Murphy (dissenting re estoppel): V was estopped from terminating the contract for Ps breach (not
tendering money for settlement on 10 August). Secretarys comments induced in P the belief that they would
not need to tender performance until further advice from Vs solicitors. They acted on that assumption by not
tendering performance. Therefore V estopped from terminating.
Unjust Forfeiture
- Brennan (dissenting re UF): [English position.] P in breach of essential term, therefore not entitled to specific
performance. The English position is that where P is not entitled to SP due to a breach of an essential term,
they lose their equitable interest in the land. Thus P forfeits interest here.
- Mason/Deane, Gibbs/Murphy (majority): [Australian position] Equitable relief potentially available even if
buyer in breach of essential term if termination by V is unconscionable
- Gibbs/Murphy: Equity will provide relief to a P if it will prevent injustice. Seem to hint that, where P has
breached an essential term it will normally be inequitable to insist on retention of the proprietary interest, but it
depends on the circumstances. They emphasised the EFFECT of the breach: P would lose house, V would get a
large windfall, breach was not deliberate nor did it have a serious effect on V (only four days late etc).
- Mason/Deane: Agree generally with Gibbs/Murphy approach. Note that it would ordinarily be
unjust/inequitable to allow P to retain its proprietary interest despite its breach of an essential term. Note that
equity will provide relief only in exceptional circumstances.
- No problem if there has been fraud, mistake, accident, or surprise retention or purchasers proprietary
interest. But in the absence of any of these, in order to determine when termination is unconscionable,
Mason/Deane say must ask these subsidiary questions:
(1) Did the conduct of the vendor contribute to the purchaser's breach?
(2) Was the breach (a) trivial/slight, (b) inadvertent and not wilful?
(3) What adverse consequences did the vendor suffer by the breach?
(4) What is the purchaser's loss and the vendor's gain if forfeiture is to stand?
(5) Is compensation an adequate safeguard for the vendor?
- Here it was ostensibly unconscionable for the vendors to terminate:
- 1 Vendor contributed to breach (Williams statement)
- 2 The breach was slight payment only a few days late and not wilful
- 3,4,5 The vendors potentially gained a windfall (house, higher value of land)
- However, evidence not clear - case remitted.
- RATIO:
- Equity, through the doctrine of unjust forfeiture, can come to the relief of a P if it would be unconscionable for
V to exercise its right of termination
- Normally, if P has breached an essential term of the contract, equity will not allow P to retain its proprietary
interest. BUT, it depends on the circumstances.
- Exercise of the right to terminate will be unconscionable for the purposes of UF if Ps breach was due to fraud,
mistake, accident, or surprise: nature of the breach.
- But must also examine whether V contributed to breach and whether the breach trivial or serious, deliberate or
inadvertent: also nature of the breach.
- And also examine the effect of the breach on the parties and the effect of the forfeiture on the parties.

Stern v McArthur HCA 1988


FACTS:
- M (purchaser) S (vendor) in sale of land contract.
- 1969 Date of contract. Instalments to be paid by P over 13 years.
- Clause 15. If any default, vendor shall be entitled to terminate.
- Clause 18. Entire balance payable if default continues (ie not remedied) for 4 weeks.
- Buyers build house on land and reside there.
- 1975 Buyers separate, wife (Bates) remains on land
- 1977 Husband ceases to pay instalments, without her knowledge.
- 1978 Bates resumes payment of instalments.
- But sellers demand balance under cl 18.
- Bates tenders payment of all arrears - refused. Property put on market but not sold.
- Jan 79 Sellers give notice to pay within 21 days. [This made time of the essence.]
- Feb 79 Sellers give notice of termination.
- May 79 Bates pays balance into sellers bank account.
- Sellers terminate contract of sale and sue to recover land. Buyers counterclaim for specific performance.
- V stands to gain a large windfall from the termination, as the value of the land has increased substantially. P, on the
other hand lose out big time (although V agrees to pay for the improvements to the land ie building of the house etc).
- However V in no way contributed to the breach here. Rather V did everything right.
RESULT:
3:2 Vendors not entitled to terminate; buyers entitled to specific performance.
LEGAL IMPORTANCE:
- All judgments recognise that Legione allows relief against termination to a party in breach of an essential term if
termination is unconscionable. However the judges take different approaches:
Gaudron J:
- Essentially the only one who followed the thrust of Legione. She did not specifically refer to the subsidiary
questions, in fact she only really deals with unconscionable exercise of a right generally. However she does use the
substantive elements that the four majority judges in Legione use.
- Focuses on the EFFECT of forfeiture: P would lose home, interest under the contract, appreciation in land value and
would forfeit deposit etc as security. V would obtain large windfall.
- Also looked at nature of breach: breach by P was slight and not wilful.
Deane/Dawson JJ:
- Affirm Legione. Recognise that relief can be granted against forfeiture to P in exceptional circumstances; requires
presence of unconscionable conduct.
- vfmas provide grounds for court to intervene, but these are not the sole grounds; can look at other aspects of equity.
- They say this transaction is really like a mortgage, vendors have, as security, a right to terminate and thus take the
land. So they draw an analogy with the doctrine of equity of redemption, which would come to the aid of P here so
as to enforce the retention of their proprietary interest.
- They then go on to say that this is supported by the fact it is not a commercial contract (so can afford to be more
equitable), and that the effect of forfeiture is to grant a large windfall to V.
- Note Deane does not mention his subsidiary questions, but nonetheless applies the effect criteria generally.
Mason CJ (dissenting):
- Affirms Legione but reiterates that relief allowed in exceptional circumstances only.
- Here, there were no such exceptional circumstances. V did nothing unconscionable. It gave sufficient time for
performance and offered to pay for the improvements made on the land. Crucially, the breach was due to the default
of P and in no way due to the fault of V [unlike Legione].
- Mason makes no mention of his subsidiary questions and ignores the windfall and other effects of forfeiture here.
Has this been done away with? Was this a Deane-inspired initiative?
- Signals that the vendors contribution is an important [a hurdle?] requirement.
Brennan J (dissenting):
- Accepts the majority jjment in Legione. But dismisses the Gibbs/Murphy justice concept as too broad; equity will
only restrain the exercise of rights where such exercise is unconscionable.
- Vendor did not contribute here, thus can distinguish Legione.
- Also, no fraud, accident, mistake or surprise.
- Windfall irrelevant, P only entitled to compensation for improvements made to the house.
RATIO:
- Majority recognise that EFFECT (windfall etc) still a relevant factor in determining unconscionability; along with
slight nature of breach etc.

Minority do away with windfall: vfmas are the only factors that give rise to circumstances in which it would be
unconscionable to terminate.

Tanwar Enterprises Pty Ltd v Cauchi HCA 2003


FACTS:
- Tanwar (P) made 3 contracts to purchase land owned by Cauchi (V) and others.
- Total purchase price $4.5 million. 10% deposit payable in instalments; Completion when development approvals
obtained by T.
- Feb 2000 Approvals obtained by T, but extension to August 2000.
- Aug 2000 V serves notices of termination but does not enforce. T completes payment of deposit plus 10% of
balance.
- Jun 2001 Parties sign deeds extending completion to 4 pm on 25 June: time of the essence a final arrangement to
complete the sale.
- 25 June Vendors informed at settlement meeting that funds delayed by a day due to Singapore govt failing to
approve the financial transaction.
- 26 June Funds received, but vendors terminate.
- Buyers sue for specific performance.
RESULT:
7:0 The sellers had validly terminated the contracts; specific performance (relief against UF) not available
LEGAL IMPORTANCE:
Unjust Forfeiture and Unconscionable Exercise of Legal Rights
- Tanwar relied on forfeiture, arguing that termination was unconscionable in light of the Mason/Deane subsidiary
questions (Legione). T argued that its breach was trivial and inadvertent, that the vendors suffered no adverse
consequences, and that the vendors stood to gain a windfall by obtaining Tanwars development approvals and the
increase in value of the land.
Gleeson/McHugh/Gummow/Hayne/Heydon:
- Appear to reject the whole notion of unjust forfeiture of a proprietary interest: the relevant interest of the purchaser
is commensurate with the availability of specific performance. Thus, where P has breached an essential term of the
contract and V has validly terminated by the contract, P has no interest.
- Caution against reliance on unconscionability as providing a basis for restricting the valid exercise of a legal right
simply on the basis that such exercise might seem unfair or involve hardship.
- [It is a] false notion that there is an equitable defence to the assertion of any legal right where it has become
unconscionable for the plaintiff to rely on that legal right.
- Specifically reject Gaudrons approach (in Stern), which relies on broader equitable principles.
- Only established doctrines of unconsc (not unconsc at large) may provide a basis for equitable intervention.
- Fraud, accident, mistake or surprise identify in a broad sense the circumstances making it inequitable for the
vendors to rely on their termination. Where accident and mistake are not involved, it will be necessary to point to
the conduct of the vendor as having in some significant respect caused or contributed to the breach of the essential
time stipulation. [ie, vfmas]
- Thus the subsidiary questions, and the relevance of the effect/windfall have been dropped [cf Romanos v
Pentagold Investments].
- Exceptional circumstances dropped. But: the court will not readily relieve against loss of a contract validly
rescinded for breach of an essential condition.
- In this case: No fraud or mistake; no surprise (no lulling as in Legione); vendor did not contribute (unlike
Legione).
- T argued that accident applied here b/c funds not available due to Singapore govt doing a random check on external
transactions. But Court says there was no accident because the risk of Singapore govt not allowing the transfer was
fairly within contemplation of T, so not the kind of accident that the doctrine requires. So foreseeable and guardable
risks arguably do not amount to accidents
Callinan J
- Has his own 6-requirements test that is essentially an amalgamation of the vfmas + subsidiary questions test. But
this clearly a minority view. Although outcome was the same.
Kirby J:
- On the one hand says that more than the subsidiary question can be considered to determine unconscionability. On
the other hand he resorts to vfmas. But neither approach applies in this case.
- Heavily influenced by the fact that this was a large commercial transaction.
RATIO:
- Unjust forfeiture apparently non-existent as a basis for restricting the right to terminate for breach.
- Equity may intervene to provide relief if exercise of the right is unconscionable in the sense of established doctrines
of unconscionability: namely vfmas

Assessment of windfall and effect of forfeiture, other subsidiary questions, broader equitable principles approach
to determination of unconscionability and reliance on exceptional circumstances are all gone thats right, its the
High Courts bumper precedent clear-out sale, decades-old precedents out the door! No justifications required!
[But note: of the 15 cases that have considered Tanwar, 13 of them have held that the doctrine of UF still exists].

TERMINATION FOR NON-FULFILMENT OF CONTINGENT CONDITION

The obligation to perform a contract or part of it may be conditional on the occurrence of a specified
contingency for which neither party has undertaken to be liable. These are called contingent conditions
(CCs), and are to be distinguished from promissory terms.
CCs are not promissory, as neither party promises to bring them about. Consequently, non-fulfilment of a CC is
not of itself a breach of contract.
Whilst some CCs are conditions of formation (eg subject to contract, see Sem 1), we will here be dealing
with CCs of performance. CCs of performance operate after formation, thus some obligations may have to be
performed before it is known whether the condition will be filled.
Whether a CC is a condition of formation or of performance is a matter of construction, however the High
Court has indicated a preference for treating CCs as conditions of performance: Perri.
Non-fulfilment of a CC excuses performance no matter what kind of contingency has been specified: The
expression of a provision in the form of a [CC] endows it with the character of essentiality: Perri. Thus, in the
event of non-fulfilment of a CC by the fixed (or implied) time, either party may terminate the contract
forthwith, without having to serve a notice of intention to terminate: Perri (majority).
A duty to cooperate is implied in every contract. Most (though not all) CCs fall within the ambit of control of
at least one of the parties. Where performance is conditional on a contingency that is to any degree within the
control of a party, that party is bound to do what is reasonably necessary to enable the condition to be fulfilled,
or at least not prevent its fulfilment: Perri; Meehan
Where the CC operates for the benefit of one of the parties, that party may elect to waive the benefit of the
contingency: Perri; Gange.
Restrictions on the Right to Terminate for Non-Fulfilment of CC
Election Usually Required to Terminate
Where a CC confers the right to terminate upon non-fulfilment, election to terminate is of course required.
However, even where a CC purports to be self-executing (eg upon non-fulfilment the contract will come to an
end) the courts will normally construe this as giving rise to the right of the parties to elect to terminate, rather
than bringing the contract automatically to an end: Gange; Suttor.
Thus it seems that the parties will have to be very explicit if they want their contract to end automatically upon
non-fulfilment.
The normal procedure is therefore that the parties must elect to terminate, however this does not require notice
setting a further reasonable period: Perri (majority).
The other rules for termination for breach also apply here, thus an unequivocal communication that the
contract has been terminated is required.
Breach of Implied Duty to Cooperate
Where performance is conditional on a contingency that is to any degree within the control of a party, that
party is bound to do what is reasonably necessary to enable the condition to be fulfilled, or at least not prevent
its fulfilment. Perri; Meehan.
Breach of the implied duty not only disqualifies the defaulter from reliance on non-fulfilment as a ground for
termination, but may also attract the usual remedies for breach of contract (and may provide the other party
with a right to terminate).
When determining what reasonable efforts requires, the interests of both parties must be kept in mind. Thus
in Perri, putting the price of Lilli Pilli too high over the winter months would have probably been considered
as unreasonable because the other party should not be excepted to wait until summer for completion of the
contract.
Unjust Forfeiture of a Proprietary Interest
Unlikely that this would apply to CCs, especially in light of Tanwar.
In relation to sale of land contracts, the traditional rule is that P in fact obtains no equitable proprietary right in
the title until the CC is fulfilled; (see Brennan J in Perri).
Tanwar seems to strengthen this position that UF not available in this context. So it seems that it would be
doubly difficult for a purchaser of land to rely on UF in the face of a vendors termination for non-fulfilment of
a CC.
Equitable Relief against Unconscionable Reliance on Conditions of Willingness or Satisfaction
Some CCs are phrased such that their fulfilment depends not merely on an external event but on the opinion,
willingness or satisfaction of one of the parties (eg subject to P obtaining satisfactory finance; right to
terminate if unwilling or unable to comply with requisition).

Such conditions do not confer an unfettered discretion to avoid obligations under the contract. Rather, such
CCs may not be relied upon if it would be unconscionable to do so: Pierce Bell Sales.
The issue is whether in each case termination in reliance on such a CC is or is not unconscionable.
In Pierce Bell Sales, V terminated b/c they were unwilling to comply with a requisition from P, in accordance
with a clause that allowed such conduct. HCA held that they did not act unconscionably, the important factors
were that (i) complying with the requisition involved considerable expense and effort because P was a
commercial party; and (ii) disparity in bargaining power, Vs had no legal advice and had misunderstood the
relevant provisions of the contract.
Unconscionable Exercise of a Legal Right Generally
The question is whether the unconsc requirement applies to conditions other than that specific type of
condition (where fulfilment dependant on a partys state of mind etc).
A few cases have held that it applies to other conditions. Indeed, in Pierce Bell the judges acknowledged that
they were applying basic principles relating to the enforcement of contracts generally, suggesting that
termination for non-fulfilment must not be exercised unconscionably.
However, Tanwar would suggest that these at large unconscionability principles do not operate to provide
relief. So Tanwar gives ammunition to vendors in these circumstances.
Note, however, that the universal duties of reasonableness and good faith still apply regardless of Tanwar and
would be applicable in such cases: eg Meehan.
Unconscionable Exercise of a Legal Right (Statute)
The TPA provisions s 51AA, AB, AC all apply here as they would termination for breach.
Loss of the Right to Terminate for Non-Fulfilment of CC
Election to Affirm
As with breach, when the right to terminate for non-fulfilment arises in a party, that party must choose whether
or not to exercise that right. It may choose to affirm the contract, in which case, the right to terminate will be
lost.
Two issues arise in regards to the election of a party to affirm the contract:
3. What kind of conduct constitutes an election to affirm?
4. Is it purely an objective test? Or is there an element of subjectivity in the test, such that a partys subjective
intention not to affirm (but to reserve its right to terminate) may be relevant?
The case law is varied in this area.
Traditionally, it must be shown that the person who has the right to terminate has objectively manifested the
desire to affirm the contract and to abandon the right to terminate; subjective intention of the affirming party
not being relevant.
At one extreme, it has been held that mere failure to exercise the right to terminate can constitute an election to
affirm: Suttor
At the other extreme, it has been held that the act of affirmation must be unequivocal, and that the mere doing
of acts consistent with the contract whilst in possession of the right to terminate does not necessarily result in
an affirmation. Depending on the circumstances, the act may also be consistent with reserving the right to
terminate and thus may not be lost. The election need not be made at once: Immer (esp Brennan J)
KNOWLEDGE, SUBJECTIVITY AND CONSCIOUS CHOICE
It has been held that the affirming party need not know of the existence of their legal right to terminate in order
for their conduct to be objectively judged as an affirmation, it being a sufficient prerequisite that the affirming
party know the fact(s) on which the right to terminate was based: Sargent
The majority in Immer qualified this further b/c the affirming party was acting under the mistaken assumption
that the CC no longer needed to be fulfilled (thus was as if it had been fulfilled or had simply ceased to be
relevant to the contract). In this case, the fact that the affirming party knew that the CC had not been fulfilled
did not render its continuance of the contract an affirmation (at that stage, Immer did not have to make a
conscious choice to affirm or terminate) until the later stage at which the true situation was discovered. After
that time they were confronted with a conscious choice to terminate or to affirm, and they did so: Immer (esp
majority).
Thus it seems knowledge of the relevant circumstances is a relevant subjective element in affirmation.
Waiver
Where a CC is clearly for the benefit of one of the parties, that party can waive the benefit of that condition
ie its non-fulfilment with the result that the other party is also deprived of the right to waive the benefit of the
CC: eg Perri; Gange

In some situations the contract may expressly provide that the CC is purely for the benefit of one of the parties,
or a right to terminate for non-fulfilment may only be exercised by one of the parties: eg Sandra
However difficulty may arise where both parties may benefit from the CC, just not to the same extent. It is not
entirely clear how one-sided the CC has to be before it falls within the ambit of this principle. Does the CC
have to be exclusively for the benefit of one of the parties? Or merely primarily for the benefit of one of the
parties? This question remains unresolved: Sandra.
It seems that where it is substantially/primarily for the benefit of one of the parties, that will be sufficient to
confer a unilateral right of waiver on that party but not the other, even if the other may get some minor benefit
flowing from the fulfilment of the CC: Sandra
Estoppel
Estoppel is also a potential basis for denying a party its right to terminate for non-fulfilment if the terminating
party has induced an assumption in the other party that the CC will not be relied upon as a basis for
termination.
Could Immers conduct have given rise to an estoppel? Was its conduct sufficiently unequivocal?
CASES: NON-FULFILMENT OF CONTINGENT CONDITION
Perri v Coolangatta Investments Pty Ltd HCA 1982
FACTS:
- Ps owned a property called Lilli Pilli (LP). They wished to sell it and purchase another, owned by CI.
- April 1978: P and CI entered into a contract. Special Condition 6 provided: This contract is entered into
subject to purchasers completing a sale of their property [LP]. No fixed time provided, so reasonable time
implied.
- May 1978: CI begins pressing Ps for a sale.
- 17 July 1978: CI serves notice on Ps requiring them to complete on or before 8 August 1978, threatening
termination.
- Ps declined to complete, maintain that the contract should remain.
- 10 August 1978: CI serves notice of termination.
- September 1978: Reasonable time to sell LP expires, according to trial judge. Failure to sell was caused by Ps
wanting to sell at too high a price.
- 29 September: CI commenced proceedings seeking a declaration that it had validly terminated the contract. At
which point Ps began trying to raise finance to purchase the CI property.
- 27 Feb 1979: Ps wrote to CI seeking completion of the sale, purportedly waiving the benefit of the CC. CI
reply stating that they have already terminated.
- 9 March 1979: Ps enter into contract to sell LP.
- 13 June 1979: Sale of LP completed.
RESULT:
4:1 in favour of CI; 3:2 no notice required for termination for non-fulfilment of CC
LEGAL IMPORTANCE:
- P argue that CI served an invalid termination b/c CI did not serve the notice after the time set by the contract
(reasonable time) had elapsed. Trial judge finds that a reasonable time did not elapse until September, thus
accepts this argument (since notice was served in August).
Brennan J (Stephen J agreeing) and Gibbs CJ:
- The sale of LP was a CC of performance. When the time (be it fixed or implied) required for fulfilment has
elapsed and the CC has not been fulfilled or waived, either party, if not in default, has the right to terminate the
contract without notice.
- Termination did not depend on the service of a valid notice, thus it did not matter that the notice was served
before the reasonable time had expired. The commencement of the proceedings was notice that CI wished to
terminate.
- Since the waiver of the CC occurred after the termination, it came too late to have any effect.
Wilson J
A notice was required, however a reasonable time had elapsed by the 17th of July when the notice was served,
therefore the notice was effective.
Mason J (dissenting)
- Also held that a notice was required. Since it was served before the reasonable time had elapsed it was not
effective.
- Court will tend to conclude that a CC is a condition precedent to performance rather than to formation.

The condition carries with it the implied obligation to make all reasonable efforts to fulfil the contingency.
The expression of a provision in the form of a CC endows it with the character of essentiality. Thus CCs are
automatically considered essential terms. However Mason says that this rule is qualified here because time is
not normally of the essence where no time is fixed. Points out (validly, I think) that it is undesirable that the
rights of the parties should rest conclusively on the expiration of a reasonable time, neither party knowing
when such time is. As such, notice is required.
It seems he is saying that, normally a CC will be essential (and thus not require notice?) but where there is no
fixed time for its fulfilment, it cannot be regarded as of the essence. As such, notice requiring fulfilment in a
reasonable time (where such is possible, ie where due largely to one party) will be required before termination,
in order that the parties understand their rights and position under the contract.
[However, the majority view has prevailed: no notice is required to terminate for non-fulfilment of a CC. In the
event of non-fulfilment, either party may terminate after the time provided (or implied) for fulfilment.
Nonetheless, Masons reasoning in respect of CCs in which no time is fixed (and where under control of one
party) is highly persuasive.]

Gange v Sullivan HCA 1966


FACTS:
- G (P) and S (V) were parties to a contract for the sale of Ss land dated 12 March 1965.
- Clause 2 provided: This contract is subject to the purchaser obtaining development approval from the
Warringah Shire Council for the following purposes: [improvements to service station; existing newsagency to
continue; redevelopment of the rest of the property for commercial purposes] The purchaser agrees to make
an application within seven days and in the event of the said council not granting such approval by 31
May 1965, then this contract shall be deemed to be at an end in the event of Council granting the
approval [Purchaser will complete within 20 days of its being granted].
- 2 April: Councils town planner wrote to P granting approval in principle subject to certain minor
modifications that it required.
- 30 April: Vs solicitor writes to P noting that the vendor was entitled to completion of the contract on 23 April
as this was 20 days after approval granted by Council on April 2 nd. We would be pleased to hear from you
regarding completion within the next seven days, failing which the vendor will take such action as he may be
advised in the circumstances.
- 11 May: Ps solicitor replies saying that only in principle approval was granted on 2 nd April, we expect
unconditional approval within 28 days.
- 25 May: Vendor elects to treat the contract at an end (terminates).
RESULT:
5:0 in favour of S (vendor)
LEGAL IMPORTANCE:
- Although words of the contract seem to suggest that the contract will end automatically once the CC has not
been fulfilled by the required time, there is a disposition to treat non-fulfilment [of a CC] as rendering a
contract voidable rather than void. Thus it is the parties that must elect to terminate the contract in the event of
non-fulfilment.
- Also construe the CC as a condition of performance, rather than formation.
- 4 judges held that the town planners letter did not constitute approval because it was not an unconditional
approval. Therefore, the CC remained unfulfilled on 25 May, when the parties solicitors agreed to terminate
the contract [although the CC did not have to be filled until 31 May, it appears that the unlikelihood of that
happening was sufficient for the parties to agree to terminate anticipatory non-fulfilment??)
- Barwick CJ held that the approval was sufficient, because all that the contract required was approval for
business and commercial purposes, and that much was approved. However the fact that the town planner
approved it and not the council directly meant that approval had not been granted by the Council. His Honour
therefore came to the same conclusion as the others re termination.
- All judges agreed that the clause was wholly for the benefit of the purchaser, therefore the purchaser was
entitled to waive the benefit of it and complete the purchase without the relevant approval. However he was
not prepared to waive it in this case, so both parties were able to treat the contract as at an end.
- [Note that, had the Court accepted that the 2 April letter was a valid approval as required by the CC, the
situation would have been quite messy. As the CC had been fulfilled, P would have then come under a
promissory obligation to complete the contract within 20 days. It appears that time was not of the essence, as V
waited a while. Did Vs notice make time of the essence? Was 7 days a reasonable time? If so, P would have
breached an essential term by failing to complete, giving rise to Vs right of termination. But P was relying on

a bona fide interpretation of the contract, so arguably he could not have been held to his breach, in which case
the termination by V was invalid (but not repudiatory). Hmmm]
Meehan v Jones HCA 1982
FACTS:
- Contract of sale of land made subject to special conditions that the purchaser (Meehan) would 1. (a) with the
specified 3rd party, ...enter into a satisfactory agreement ... for a satisfactory quantity of oil AND (b)
...receiv[e] approval for finance on satisfactory terms and conditions
- Jones (owner) argued contract was void for uncertainty because language was meaningless.
RESULT:
Unanimous decision that contract enforceable
LEGAL IMPORTANCE:
Mason J:
- Special conditions 1(a) and (b) were included to protect the purchaser. It was clear in the context of the
contract that an approval for finance on satisfactory terms and conditions meant satisfactory to the purchaser,
clause designed to ensure purchaser not obligated to buy if could not obtain finance.
- Court implied the qualification that the purchaser must act honestly and reasonably in endeavouring to
obtain and deciding whether to accept finance.
- Thus purchaser was bound to the agreement to purchase unless, acting honestly and reasonably, he could not
obtain suitable finance.
- The courts are quite capable of deciding whether the purchaser is acting honestly and reasonably.
- The same applies to clause (a), need only be satisfactory to the purchaser.
- Espoused traditional doctrine: courts should be astute to adopt a construction which will preserve validity of
contract.
- Re-stated general rule that settlement and giving of possession coincide where contract does not indicate how
final balance is to be paid.
Gibbs CJ:
- Similar to Mason J but thought court had to choose b/w whether the purchaser need only be subjectively
satisfied of finance, or whether purchaser required to accept finance that a reasonable man would consider
satisfactory. Gibbs adopted the first option purchaser only need to be subjectively satisfied.
- In this sense differed from Mason purchaser need not act reasonably, only honestly.
- Thus court must find as a fact whether purchaser thought finance satisfactory.
- If test was objective (although Gibbs thought it not) court could look at financial position of the purchaser, the
amount required to complete and the prevailing rates and conditions on which loans are made.
- The principle that a promise may be illusory only relates to promissory conditions, not to contingent
conditions. In regards to CCs, the party is wholly at his discretion to fulfil the CC.
- [The law in regards to CCs has developed along the lines Mason has advocated, namely implied duty to make
reasonable efforts to complete fulfil the CC. Gibbs should not be followed.]
Pierce Bell Sales Pty Ltd v Frazer HCA 1973
FACTS:
- PBS were the purchasers of land owned by F.
- Condition 14 of the sale of land contract stated that; If the Vendor shall be unable or unwilling to comply with
any requisition [made by the purchaser the Vendor shall be entitled [to terminate].
- [A requisition is a formal requirement made by a purchaser to the vendor instructing V to remove any
encumbrances etc so as to ensure that the title is clear for the purchase. V is normally required as a matter of
law to comply with requisitions.]
- But here, due to clause 14, the ability and willingness of V is regarded as a CC of performance a sort of
factual contingency that may or may not happen.
- The Fs had obtained their land under the Closer Settlement legislation ( a special statutory scheme), and there
is a caveat on the title that restricts them from selling the land to a corporation.
- By this time of this transaction, the legislation had been amended to allow owners of closer settlement land to
apply to the Minister to have that land removed from the ambit of the Act.
- The legislation requires the owners to apply and to pay a fee that may be up to 5% of the value of the land to
the Minister. The Minister will then certify that the Act no longer applies to that land.
- PB (a corporation) make a requisition to Fs to apply to the minister for such a certification so that they can
validly purchase the land.

PB indicate that they are willing to pay the application costs but not willing to pay the substantive fee for the
removal and certification.
- Fs respond and say that they are unwilling to comply with that requisition, and so terminate the contract in
accordance with cl 14. [There are also some other reasons for wanting to terminate.]
- PB say that Fs acting unconscionably.
RESULT:
3:0 Fs win, no unconscionable termination.
LEGAL IMPORTANCE:
- All judges confirm the principle that one cannot terminate a CC of willingness or satisfaction if to do so would
be unconscionable in the circumstances.
Barwick CJ (McTiernan J agreeing)
- Noted that it must be a relatively rare case that a clause such as cl 14 (requiring mere willingness or
ability) could be used conscionably to avoid an obligation.
- However, this was such a case, and a number of factors influenced this finding:
- Most important was the fact that PB were a corporate entity. This was significant in a substantive way here
because the fact of their being corporate meant that Fs would have to meet considerable expense in applying
for the certificate. [For Gibbs J, the only unconscionable factor was the fact that PB did not offer to pay for
this, had they paid the full fee, Fs would not have been entitled to terminate]. [But would it have been any
different if all new purchasers, including natural persons, were prevented from acquiring Closer Settlement
land, in which case Fs would have had to apply anyway? Court says nothing about this but could have made a
difference if it were the case.]
- Of additional importance was the disparity in bargaining power and the fact that the Fs had misunderstood the
effect of the contractual provisions, had no legal advice etc.
- And the final important factor was that it was PB who had drawn up the contract.
Sandra Investments Pty Ltd v Booth HCA 1983
FACTS:
- Contract of sale subject to Councils approval of subdivision. In the event of non-approval within 6 months the
contract expressly conferred a right of election to terminate on the purchaser (only).
- After the 6 months and no approval, the purchaser wrote to the vendor and waived the benefit of the condition.
However V then notified P that they no longer wanted to continue with the contract.
- P then sued for specific performance.
RESULT:
Appeal by P successful. Only P was able to waive the benefit of the CC
LEGAL IMPORTANCE:
- Here, right to terminate for non-fulfilment of the CC was expressly for the benefit of the purchaser, so no
problem as to purchasers right to waive the benefit of it.
- Majority say that even if it were available to both parties, it is for the benefit only of the purchaser, so they
were entitled to waive it anyway.
- Only Wilson J, in obiter, questions the circumstances in which the right of waiver will accrue to a benefiting
party. Does it have to be exclusively for the benefit of one of the parties? Primarily for the benefit of one party?
- Nonetheless, here was sufficiently clear that it was for the benefit of purchaser anyway.
- V made some rather stretched arguments about how V also got some benefit from that clause, therefore P had
no right to waiver. But Court disregards these arguments. Seems it would be sufficient that the CC be primarily
for the benefit of one party.
- Nonetheless, Wilson J cautions: one should lightly imply a right of waiver in one party to the possible
prejudice of the other unless it clearly emerges on the face of the contract.
Suttor v Gundowda Pty Ltd HCA 1950
FACTS:
- Contract for sale of land. Cl 12 provided: In the event of the consent of the Treasurer not being obtained
within two months the contract shall be deemed cancelled.
- Parties then varied this clause to swap two months for a reasonable period.
- Consent of the treasurer was not obtained, but G (purchaser) did not immediately exercise the right to
terminate. Rather, G asked for certain variations in the contract. [Although he didnt really do much at all]
- Did this amount to an affirmation?
- S wants to enforce the performance of the contract.
RESULT:

3:0 Contract affirmed, appeal dismissed


LEGAL IMPORTANCE:
- Court holds that where a party has the right to terminate but does not clearly exercise that right the other party
may terminate.
- Consent from the Treasurer was not obtained by G within the reasonable time, yet G failed to waive the benefit
of the CC. By the time the consent was obtained, it was too late to terminate.
- Court basically says that the failure to exercise the right may itself constitute an election to affirm.
- [This case is thus at one end of the spectrum in terms of conduct required to manifest affirmation G hardly
did anything, merely failed to exercise termination, yet was held to have affirmed the contract.]
Sargent v ASL Developments Ltd HCA 1974
FACTS:
- Contract for Sale of Land; V (Sargent) sold land to development company (ASL); was a terms contract, for 3
years V accepted payments under the contract and did other things that affirmed the contract.
- After 3 years V were approached by another development company, who told them that they were willing to
pay much more for the land, and asked whether V could find a way to get out of the contract.
- They found a way: relied on a CC in the contract, which said contract subject to the land in question not being
subject to a planning scheme, but the land had in fact become subject to a planning scheme. So Vs terminated
the contract.
- P pointed to fact they had for 3 years V had affirmed the contracts.
- V says that they cant have elected to affirm or terminate b/c they didnt know they had that right to.
RESULT:
ASL wins
LEGAL IMPORTANCE:
- HCA says affirmation is possible even if you dont know that you have the right to terminate, so long as you
know the fact on which the right to terminate was based.
- In this case, Vs knew the fact that the land was subject to a local planning scheme.
- [note that in this case Vs conduct was pretty unconscionable; they had an illegitimate motive for wanting to
get out of the contract etc]
Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) HCA 1993
FACTS:
- UC was the owner of Pilgrim House, a historic building precinct in Sydney, which it proposed to refurbish.
- UC was entitled by the Council to use a specific volume of floor space, and to sell any remaining space subject
to its approval.
- The Council acknowledged in a letter to UC dated 14/9/88 that an allotted amount of space could be
transferred, but could only be transferred on the condition that the space not be incorporated into any other
development until restoration work on Pilgrim House has been completed to the Councils satisfaction.
- Immer was developing land in the same precinct and agreed to purchase the floor space from UC.
- Under the contract, Immer was required to apply within 14 days to the Council for approval of the transfer of
the space.
- [The following is Freds fact slide (blue = before deadline; black = after deadline, red = conduct relied on by
UC as evincing Immers affirmation, bold red = particularly important evidence).
14.09.88: Council writes to UC: transfer subject to completion of restoration.
14.10.88: Deed of transfer UC to Immer. Clause 7: In the event that approval is not granted by 1.4.89 then the
Purchaser may at any time thereafter rescind [terminate] this Deed by notice in writing. Completion of the contract to
occur within 7 days of approval. Immer pays deposit and applies for approval.
29.03.89: Council solicitor to Immer solicitor: approval "recommended" subject to certain conditions, not including
completion of restoration.
1. 04. 89: Deadline for approval under cl 7 passes.
24.04.89: UC solicitor to Immer solicitor: all conditions satisfied, restoration not required, request completion without
delay.
09.05.89: Another letter requesting completion, reiterating restoration not required.
29.05.89: Immer solicitor sends to UC solicitor an assignment form required by statute.
21.06.89: Council direct to UC: transfer conditional on completion of restoration.
23.06.89: UC solicitor (unaware of this letter) telephones Immer solicitor to press for completion. Immer solicitor (also
unaware) agrees to send draft deed of assignment "immediately" and to arrange for settlement "soon".

26.06.89: Immer solicitor (still unaware) sends draft deed (reciting approval), with letter stating I am awaiting
instructions as to the final date for completion.
29.06.89: UC solicitor and Immer solicitor (now aware) discuss the Councils letter of 21.06 by telephone. Immer
solicitor: settlement might still take place next week, Immer is waiting on its financier, I will chase the matter up.
Representations to Council follow.
14.08.89: Council resolution affirming restoration is a condition of approval.
25.08.89: Immer serves notice of rescission under clause 7, claims return of deposit.
25.09.90: Council approves transfer.
RESULT:
5:0 Immer did NOT affirm the contract, thus validly terminated. Appeal allowed.
LEGAL IMPORTANCE:
Majority
- Objectively speaking, Immers conduct would appear to have evinced an election to affirm, as the approval had
not been granted by the required date (April 1 1989), yet Immer continued with arrangements under the
contract.
- Nonetheless, the Court held that the fact that Immer (indeed, both parties) believed that the approval was no
longer necessary (due to Councils not requiring it in its recommendation) was relevant here.
- Although they knew the fact that gave rise to the right to terminate, they were acting under the mistaken belief
that no approval was necessary.
- When it became known that the Council did in fact wish the parties to wait until its further approval, Immer
elected to terminate.
- At the time Immer was made aware of the Councils true position, it was then confronted with a conscious
choice as to whether it had to terminate or affirm. Whereas when the previous deadline for fulfilment of the
CC had passed, Immer did not have to make such a conscious choice as to termination or affirmation because it
was as if that CC had ceased to be relevant, thus their proceeding with the contract could not be considered an
affirmation.
- [however the Court conveniently ignores the phone conversation of 29 June between the solicitors, in which
Immers solicitor, now aware of the Councils true position, made comments about being ready for settlement
soon etc highly consistent with affirming the contract. It might be argued that the solicitors comments were
not sufficiently unequivocal, or that they had not yet received instructions from Immer regarding their wish to
affirm etc. nonetheless, the fact that the Court ignores this is a weak point in the jjment].
Brennan J
- said that: An act amounting to an election must be unequivocal. The right to terminate is not necessarily lost by
the promisee doing any act consistent with the continuance of the contract. If the act is also consistent with a
reservation of a right to terminate, the right to terminate is not is not lost by the doing of the act.
- [But this is surely too wide what is an action consistent with a reservation of a right to terminate? is
Brennan doing away with the Sargent rule and the objective conduct rule? The majority seems to rely on the
mistaken views regarding the Councils position, but Brennan seems to be saying that an affirmation must be
express]
- [Is there now a subjective element in election to affirm? Or is the test only subjective insofar as the affirming
partys knowledge of the circumstances must be taken into account?]
- [Note that there is a clear distinction between the merits of the cases Sargent vendors were acting
unconscionably, had ulterior motive etc; whereas in Immer, it is arguable that Immer were acting quite
reasonably, esp compared with that of the vendors in Sargent. So an intelligible distinction can be made b/w
the two cases on this basis. However the HCA doesnt discuss this, instead they say a lot of other stuff about
not being confronted by a conscious choice etc. Perhaps we could analyse on this basis and say a court would
bend the rules to do justice using the Sargent and Immer cases??]

TERMINATION BY CONSENT

A contract can be terminated, and varied, by the mutual consent of the parties. This may be achieved in a number of ways.
Termination by Formation of a Contract of Discharge
A contract may be terminated if the parties form a new contract by which they release each other from their obligations
under the old contract.
Whether such a contract has been formed is determined by the usual rules of contract formation: offer, acceptance,
consideration, intention, certainty: BP Refinery
Thus in BP Refinery, the Councils argument that the rating agreement had been terminated by a communication of two
letters was rejected by the Court as the letters were not in the language of offer and acceptance and could simply not be
read as an agreement to terminate the contract.
A problem may arise in relation to consideration. Normally, consideration in a discharge contract is the mutual release of
obligations. However, where one party has performed all of its obligations, he will have nothing to release and therefore
provide no consideration. So must look for an unperformed obligation that may be released in order to establish good
consideration.
Also, be careful as to certainty issues the extent to which obligations/rights have been released may not be entirely clear.
Such a contract may be made verbally. Note also that contracts required to be in writing by the Statute of Frauds can be
terminated verbally, but cannot be varied verbally: see, eg, Creamoata.
Global Approach to Termination by Further Contract
A global approach may be adopted in regards to the formation of the contract of discharge, whereby the conduct of the
parties manifests a clear intention to bring all obligations to an end: Creamoata.
In Creamoata the High Court inferred from the circumstances of the case that the parties agreed to terminate the contract.
The important factor here was that the obligations and rights under the contract were so bound up in the membership of
the Association that it was not at all practicable to have one without the other. On that basis the Court could infer from the
resignation and separation by C that the parties intended to bring all of the relevant obligations to an end.
Abandonment
The parties may treat their contract as having come to an end without any express agreement to that effect. In such
circumstances, the contract is said to have been abandoned.
Abandonment can be manifested by mutual unwillingness to perform: thus in DTR both parties had ineffectively
terminated such that the contract was still on foot, by the time proceedings were brought it was clear that the contract had
been abandoned;
It may also be manifested by prolonged inactivity (long time lapse in which neither party has done anything or called on
the other to do anything in relation to the contract): Fitzgerald
However the inference of abandonment will be less readily drawn where the contract has been performed to some extent,
or if proprietary rights have been created: see Fitzgerald.
In Fitzgerald, despite the long lapse of time, the Court concluded that the contract had not been abandoned. Importantly,
Masters had paid half the price, had an equitable interest in the land and had registered his contract. If he had at any time
regarded the contract at an end he would have surely demanded repayment.
Variation
The parties may vary their existing contract. This is to be distinguished from termination.
Where the contract is varied, the contract must still be performed, though in modified form: Electronic Industries
Whether a contract has been varied or terminated depends on the interpretation of the words and conduct of the parties. As
with termination by consent, variation must take place by agreement.
Two different views can be taken of the effect of a variation:
1. The variation can terminate the existing contract and replace it with a new one, on the new terms, commencing
from the replacement date.
2. The variation merely alters the existing contract such that the existing contract remains on foot, in modified form,
and its commencement was on the date it originally commenced.
In some situations it will not matter which view is taken. However, in other circumstances, this issue will be crucial, as the
date of formation may be relevant to an obligation etc: eg Sara Lee.
The effect of contract of variation depends on the intention of the parties as manifested by the wording of the later
agreement and their conduct and the degree of variation that is accomplished by the contract of variation (sort of a twostage test).
Intention: This may be inferred primarily from the wording used by the parties in the later agreement, but may also be
inferred from parties conduct and the surrounding circumstances: Sara Lee
Degree of variation: The parties intention may be inferred from the degree to which the original contract has been
modified. Note that the fact that the changes are large in and of themselves is not so relevant as the degree to which the
amendments alter the original agreement. Thus in Sara Lee increasing the price by $1 million and reducing the no. of

employees by 40 were not insubstantial, but in the context of the original contract, which contained many obligations and
had global operation, these two alterations were really quite minor.
Restrictions
The normal restrictions of estoppel and waiver apply. Thus if one party induces an assumption that the new contract
terminated or was merely an amendment of the original one he may be estopped from denying that promise.

CASES: TERMINATION BY CONSENT


BP Refinery (Westernport) Pty Ltd v Shire of Hastings Privy Council 1977
FACTS:
- The parties were under a contract called a preferential rating agreement, which fixed the rates payable by BP
for use of the Councils land at preferential levels for a period of 40 years.
- BP wrote a letter to the Shire stating that, as part of its corporate restructuring, it proposed to transfer the site to
another company in the BP group. The letter went on: I hope I may assume that there will be no difficulty over
transferring rights and privileges.
- The Shire secretary replied: Council has resolved to allow the agreement to lapse.
RESULT:
No contract of discharge formed
LEGAL IMPORTANCE:
- BPs letter cannot be read as a contractual offer to terminate, nor can the Councils letter be read as an
acceptance or even a counter-offer.
- The Councils reply was merely a notice informing BP of a resolution that the Council had passed in response
to BPs letter.
- There was clearly no agreement reached here on the termination of the contract.
Creamoata Ltd v Rice Equalization Association Ltd HCA 1953
FACTS:
- In the late 1940s, rice grown in NSW became vested in the Rice Marketing Board. Rice Millers applied to the
Board for allocations of rice to mill.
- Prior to 1949, there were 8 rice millers in NSW. They decided to form an incorporated association.
- To that end, each miller made a contract with the new association, recorded in a deed, whereby each agreed on
portions of rice that would be obtained from the Rice Marketing Board. The purpose was to equalize the
distribution of rice for milling.
- Under the contracts, each party agreed not to obtain any variation on their quotas without the consent of the
other parties.
- The Articles of the Association provided that if a party resigned from the Association, that does not affect any
contract between the association and the members.
- Creamoata (C) enters the picture in 1949, deciding that it wants to enter into the milling business. It applies for
an allocation of the rice harvest and joins the Association.
- C are allocated a mere 5.5% of the harvest, but they are bound not to attempt an alteration of the 5.5% harvest
by their contract.
- Soon after, a growers cooperative is formed that opts to enter the milling market. The millers get worried and
there is much antagonism to the entry of the growers cooperative coming from most of the millers, but not C.
- Rumour circulates that C prepared to cooperate with the new cooperative and were prepared to mill for it until
it established its own mill.
- The other members agree to have a meeting and execute a supplemental deed, obliging them all not to assist
the growers cooperative. C refuses to participate.
- At a meeting of the board of directors of the Association, the other members interpreted Cs refusal as a
determination on Cs part to go its own way and as an implied withdrawal from the Association, and order C to
resign.
- C resigns and then goes and applies for an increase in the quota, thinking it was no longer bound by the
contract.
- The Association brings this action, arguing that the meetings resolution was confined to an agreement that C
would resign, but that it would remain bound by the contract.
RESULT:
Appeal by C successful
LEGAL IMPORTANCE:
- C were released from the contract as a whole as a result of the meeting.
- In this case, Court inferred from conduct that parties agreed to terminate.

Williams ACJ: The powers of control which the Association could exercise over the businesses of the
defendant were so wide that it is impossible that any present at the meeting could conclude that C could resign
but still remain bound to the contract.
Kitto J: essentially agrees with Williams. Points to the minutes of the meeting as evincing the clear intention of
the Association to present C with a choice of remaining part of the whole scheme or opting out, such that: It
was surely not the dry husk of membership that was in question, but the whole scheme. Must have been clear
to all present that the r/ship b/w C and the Association was over.
Thus important factor here was that the obligations and rights under the contract were so bound up in the
membership of the Association that it was not at all practicable to have one without the other. On that basis the
Court could infer that the parties intended to bring all of the relevant obligations to an end. This was clearly
supported by the evidence of the circumstances of the meeting.
Fullagar J: thinks that the evidence does not establish a sufficiently clear agreement b/w the parties to terminate
the contract. But allows the appeal for a different reason: implies a CC that the contracts will come to an end if
the rice marketing board allocates part of the rice harvest to a party other than a member of the association.
[Note, this case also shows that can make an oral contract to terminate an existing contract (but can you orally
terminate a contract that the Statute of Frauds requires to be in writing as, at the time, this one did? Yes you
can. But not in the case of variation.)]

Fitzgerald v Masters HCA 1956


FACTS:
1927 Contract of sale of interest in Fitzgeralds farm to Masters.
Price 850. 350 paid before signing. Balance by monthly installments of 10.
Further payments of 130. Masters entitled to possession from date of contract.
1929 Masters begins work on farm.
1931 Masters moves to farm with wife and child. Offers further payments, but Fitzgerald requests him not to.
1932 Masters leaves property. Consults solicitor and has contract stamped and registered.
Tells Fitzgerald he intends to retain his equity in the property. Fitzgerald: "You put your money into the property, Rupe.
You own half of it, and I won't let you down. You will get your money back some day." Masters: "It will be a long time,
Jack, but I will probably have to take you through the Equity Court to do it."
1937 Masters writes letter to Fitzgerald prompted by account sent to him (no reply).
1948 Masters solicitor writes to Fitzgerald asking for "suggestions". No reply.
1951 Fitzgerald dies. Further correspondence.
1953 Masters commences action.
RESULT:
5:0 Masters wins, contract not abandoned.
LEGAL IMPORTANCE:
- Fs first argument was that the contract was terminated by consent/agreement. This harks back to the
conversation you will get your money back someday. F argued that this showed that they had agreed to
terminate the sale of an interest and to return the money. But Court rejects this as an unconvincing
interpretation of the phrase in the context.
- F secondly argued that the contract had been abandoned, based on the fact that 16 years had elapsed b/w 1932
and 1948 in which no effort to perform any obligations was made by either party.
- Court answered Fs claim that the fact that M had not paid certain monies on a required date led to the
conclusion that M unwilling to perform, by pointing out that F had requested that M not pay that sum b/c
wanted to avoid tax (or something like that).
- Court held that prolonged silence and inactivity may give rise to the inference that the contract has been
abandoned.
- However, the Court they then goes on to say that abandonment cannot be inferred, despite the 16 years. Even
such a long time in these circumstances was not strong enough to lead to the conclusion that the contract was
abandoned.
- Important in the conclusion that there was no abandonment were the following facts: Masters had paid half the
price; he had an equitable interest in the land; and he had registered his contract. If he had at any time regarded
the contract at an end he would have surely demanded repayment.
Electronic Industries Ltd v David Jones Pty Ltd HCA 1954
FACTS:
- EI agrees to install TV equipment to DJ to give demonstrations on certain dates (idea that this will draw
customers to the store during winter).

However, there is a coal strike in June 1949, and DJ requests a postponement of the demonstration.
EI says: We appreciate the difficulties you face we will be pleased to vary our agreement with you by an
alteration of dates of the demonstration.
- DJ later replied, stating it would discuss the matter when the industrial position becomes clear.
- Coal strike ends, months pass, but DJ says nothing.
- EI wonders whats happening, sends DJ a letter noting the settlement of the industrial action and the return to
normality, and requesting the fixing of a date for the demonstration.
- DJ then replied, declining to proceed at this late date.
- EI brings this action. DJ argued contract had been terminated.
RESULT:
5:0 Appeal by EI successful
LEGAL IMPORTANCE:
- Court held that this was merely a variation, such that there were still obligations under the contract.
- Clear that EI always intended to perform and to hold DJ bound to the contract. All EI did was to accede to DJs
request for a postponement.
- The fact that a time was not immediately fixed did not matter. DJ was required to suggest a reasonable time for
the performance of the contract and reasonably comply with requests from EI (as was EI to DJ). DJ failed to do
this.
- [note here that the terms were very clearly in the language of variation. This may not always be the case, ie in
an exam.]
- [Note that which view of variation the court took here is irrelevant to the outcome, but that is not always the
case see Sara Lee, below]
Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd HCA 2002
FACTS:
- 31 May 1991 SL made a contract to sell its business to Roche (R), to be completed by a transfer of assets after
30 July.
- This agreement was signed by a director of SL (Patten) who was at the time not authorised by the board of SL
to sign such agreements. The signature was ratified by the Board on 20 August.
- 30 August 1991: parties executed an amendment agreement which increased the price by $1 million, reduced
the number of employees to be retained by R, and provided for the transfer of SLs assets to a subsidiary of R.
- The deed of assignment stated that it was made pursuant to a [the 31 May Agreement] as amended.
- The amendment agreement itself contained a clause (cl 11) stating: This Amendment Agreement shall be
deemed an amendment of the [31 May Agreement] Except as provided in this amendment the Agreement
[of 31 May 1991] remains in full force and effect.
- The Income Tax legislation provided that a capital gain occurs when an asset is disposed of , and the disposal
of an asset under contract occurs when the contract was made.
- The Commissioner claimed tax from SL on the basis that a capital gain had occurred at the formation of the
contract on 31 May, as it provided for the sale of assets.
- SL argued that the amendment agreement terminated the original contract, thus the sale did not take place
until 30 August, in which case they were entitled to certain deductions due to the fact that that date was after
the end of financial year.
RESULT:
5:0 allowing the appeal by the Commissioner: contract varied not replaced.
LEGAL IMPORTANCE:
- Court held that the ratification of the signature takes effect retrospectively so as to remedy the initial
deficiency, so the original contract was effective on 31 May.
- The effect of contract of variation depends on the intention of the parties as manifested by the wording of the
later agreement and their conduct and the degree of variation that is accomplished by the contract of variation
(sort of a two-stage test).
- Intention: The Court was easily convinced that the intention of the parties was to leave the original contract
alive Important factors were: Provisions of the Amendment Agreement itself, esp cl 11; the deed of assignment
also refers to the original agreement as amended.
- As to degree of variation, concedes that upping the price by $1 million and reduction of employees by 40 were
not insubstantial, but in the context of the original contract, which contained many obligations and had global
operation, these two alterations were really quite minor.
- So held that original agreement remains and is varied, so Cmr of Tax wins. SL also argued that the CC not
fulfilled, but Court held that this was a CC of performance, not formation.

TERMINATION BY FRUSTRATION

Concerns the occurrence of an event after a contract has been made that has some adverse impact on the
contract or on a partys ability to perform its obligations.
Frustration brings about an automatic termination from the time at which the frustrating event (FE) occurs.
But one makes a contract as a guarantee of performance in the face difficult circumstances; so therefore has to
be some limits on the ability of parties to be excused from contracts just because of difficult circs. Contract is
about allocation of risk and there will always be a degree of uncertainty about the future. That is why courts are
generally reluctant to excuse performance of a contract on the basis of frustration. The original response of
English law (eg 18th century) was to say too bad, unless party actually qualified performance within the
contract itself (eg through CCs). Old rule was absolute contracts are absolutely enforceable. But this has
softened somewhat.
Nonetheless, mere hardship or difficulty faced by one party is insufficient to amount to frustration (c/f
UNIDROIT principles)
r/ship of frustration to other vitiating factors and termination doctrines: quite often frustration arises
concurrently; indeed there are some recurrent concurrencies:
o Mistake/Frustration: mistake about mistakes at time of formation whereas Frustration about events
after formation. But as Codelfa shows, they can be argued concurrently.
o Frustration/non-fulfilment of CC: A school of though that says that implied CC can become the
rationale for frustration (see Scanlons) (But this no longer the dominant school). Other possibility is
that may concurrently rely on F and non-ful CC.
Mistake and Frustration
The fact that the parties made a mistaken assumption when they entered the contract as to the current or future
state of affairs does not preclude a finding that an injunction can be a FE: Codelfa
If parties make a mistaken assumption about future fact is a frustration issue: Codelfa
If parties make a mistaken assumption about present fact is a common mistake issue: Codelfa
Mason in Codelfa says the assumption about not being any prospect of injunctions is a mistake about the
future, thus is a frustration issue, although surely it could be said that the mistake was about the present state of
the law? Seems could go either way.
Frustrating Event
The first task is to IDENTIFY THE ALLEGED FE.
Types of FEs are infinite, although there are commonly recurring categories that have become popular
examples, eg outbreak of war, natural disasters, incapacitation or death of persons, destruction of infrastructure
of contracts (eg ship sinks etc), industrial action, change in the law (eg Scanlons), cancellation of events, act of
authority/govt agency (eg compulsory acquisition of land, court injunctions etc).
In order to determine whether an event is an FE, courts now apply the fundamental difference test (see below).
However it is worth noting other tests that have been used in the past
Objective Justice Test
Simplest test. When court has to decide whether an event is a FE, court simply looks at the situation and
determines whether it is objectively just to terminate the contract. But this rejected by HCA in Scanlans.
Nonetheless, it is a good way to guide the inquiry. Objective justice clearly has a subconscious or non-official
influence, as it always does in law. In an exam, start by briefly mentioning your gut feeling with regards to
what seems just (Fred likes this).
Implied Contingent Condition test
This test has been used in the past, and still lingers to an extent, although it has been officially superseded by
the FD test (below).
Court would determine whether to imply a CC in the contract providing that in the event of such a FE the
contract will come to an end. Implication under this doctrine could be made only on two levels:
o Universal: basis of the contract, implied in every contract that if something happens that destroys the
basis of the contract, then the contract comes to an end; OR
o Specific: hypothetical intention of reasonable parties, whether implied in the specific contract that if X
happens, the contract will come to an end.
Fundamental Difference Test
HCA has adopted this test. Involves a comparison of two situations: the performance situation as it was
envisaged when the parties formed their contract; and the situation that has actually eventuated. If there is a FD
b/w these two situations, then there is a FE. This is the modern view.

Important factors in determining FD are:


o Extent to which benefits of performance are diminished;
o Extent to which the FE has obstructed the commercial purpose of the contract.
Group Projects: Compulsory acquisition of the land that that was the basis of a contracted-for development
project meant that the project had fundamentally changed. For GP, the whole purpose of the contract had been
removed as had all benefits from the contract. But important factor here was fact that BCC received no
disadvantage from loss of contract b/c was a govt body and sought no profit, thus its benefits were not
diminished. The FE obstructed entirely the commercial purpose of the contract. [Different from Scanlans: S
stood to lose out, had completed their side of bargain; T still received some benefit].
Codelfa: Performance of the contract on a two-shift basis was F/D from performance on a three-shift basis [this
doesnt seem as F/D as was the case in Group Projects. Perhaps decided on the basis of commercial purpose].
Meriton ? F/D not recognised back then but court says Green Bans potentially frustrating, as they substantially
diminished the value of the land and frustrated the commercial purpose for which the land was purchased.
Other Factors
In addition to the FD test, there are three further factors that must be considered in order to establish a FE; they
are like prerequisites or limiting factors.
IMPOSSIBILITY
What relevance is it that the FE makes the performance of a partys obligations impossible?
It is a relevant factor in all the cases, but is not determinative. If performance is largely impossible, may tend
towards a finding of frustration and visa versa, but this clearly depends on all of the other factors.
Scanlans: The change in the law did not affect the parties ability to perform their obligations: S had already
installed the signs and T could still pay rent No FE
BUT, in Group Projects, the performance by GP of its obligations was still possible (although would have been
pointless), nonetheless the HCA found that there was a FE.
Codelfa: Codelfa could still build the tunnels, however performance of the contract on time no longer possible
C severely prohibited in performance of obligations. Mason J thought this was a relevant factor in concluding
that there was a fundamental difference FE
NOT SELF-INDUCED
Where a party actually causes the FE, he then cannot rely on frustration to terminate the contract.
This seems obvious, but there are clearly complications that might arise. eg, what sort of causation is required,
what about indirect causation.
Unfortunately there is not much law on this issue. So just mention it in an exam and speculate briefly.
Codelfa: fact that noise was induced by Codelfa did not preclude a finding of frustration. Probably b/c noise
was done pursuant to the contract exactly as was anticipated. Not like Codelfa set fire to the railway tunnel etc.
RISK ALLOCATION
If the risk allocated to one party then cannot claim FE.
Commonly 2 kinds of Risk Allocations:
o Express: stipulated in contract; requires interpretation. Can come in the form of Force Majeure clauses
(provide for a FE); CCs; absolute promises to perform; specific allocation of a particular risk to a
party.
o implied allocation: in circumstances, assumption of risk may be implied to one of the parties.
Scanlans: fact that contract provided that rental payable whether or not the sign shall be used or operated by
the lessee indicated that risk of inability to illuminate borne by lessee of the signs. The clause didnt apply
specifically to the FE, but can be used as the basis for impliedly allocating risk. Contrast with Group Projects.
Group Projects: cl 7: GPs obligations are to remain in force although it is for any reason precluded from
benefiting either wholly or partly from rezoning. Seems to allocate the risk of inability to reap benefit from
land to GP. However Court holds that this clause not intended to apply to the situation. Thus can argue that the
FE was clearly beyond the purview of what the parties contemplated when they included the clause in
question. Thus a clause that ostensibly allocates risk may not necessarily do so in the circumstances.
Codelfa: similar to Group Projects. A clause provided The Contractor shall not be entitled to additional
payment if the Engineer requires that measures be taken to reduce noise and pollution. Seems to allocate risk
to Codelfa, but Mason says that this clause does not cover this situation; is a matter of interpreting the clause to
see if it was intended to cover this type of situation.
Meriton: Court held that Meriton impliedly bore risk of green bans or other industrial action b/c express
allocation to McLaurin of the risk of non-approval by Council implied that, once approval was granted all

other risks were allocated to Meriton. [Note this seems a very radical basis for allocating risk; court says that
one party has an express risk, other party impliedly assumes all other risks. But perhaps f/seeability of this risk
made it easier to imply to Meriton]
FORESEEABILITY
It has been said that a party who has foreseen a FE or should have foreseen it but failed to provide for it in the
contract impliedly accepted the risk of the FE (thus f/seeability really linked to Risk allocation).
However fact of foreseeability does not necessarily preclude a finding of FE, as the parties may have
deliberately agreed not to provide for the event indeed every f/seeable contingency cannot possibly be
provided for.
Scanlans: some indication that potential for lighting restrictions before the war was common knowledge; thus
more likely that the purchaser/lessee of such signs would bear the risk.
Codelfa: Mason J approves of the foreseeability requirement. Says parties were given legal advice that an
injunction was not possible; but argument that they could have foreseen that the legal advice was wrong.
However holds that Codelfa were an Italian company and were well entitled to accept the legal advice obtained
by the SRA, thus the injunction was not reasonably f/seeable. Thus Mason seems to suggest that f/seeability a
subjective test; considers idiosyncrasy of being Italian).
Meriton: This sort of industrial action (Green Bans) was a kind of risk that a purchaser might be expected to
encounter in the execution of a commercial development [Reas f/seeability thus seems to influence the
decision.]
Effect of Frustration
Automatic termination: The effect of a FE is that the contract automatically comes to an end, such
termination being prospective from the date at which the FE occurred: Scanlans, BCC, Beaton, Meriton
But problems may arise if benefits have already been received under a contract.
Common Law & Restitution
Total failure of consideration doctrine: Baltic: a passenger who went on a holiday cruise which sank after 9
days; passenger seeking fare back. High Court holds the passenger gained 9 days worth of holiday, hence no
total failure of consideration.
Acceptance of the benefit doctrine: The acceptance of a benefit gives the plaintiff a restitutionary cause of
action.
o Codelfa: after injunctions issued, Codelfa constructed tunnel with permission of State Rail Authority.
Restitution relating to post-frustration benefits; difficult where benefits received while contract still on
foot. See also Beaton.
Nowadays benefits accrued under a contract may be dealt with under the law of restitution
Restitution (legislation)
Frustrated Contracts Act 1959 (Vic)
Section 3 Adjustment of Rights and Liabilities of Parties to Frustrated Contracts.
(1) Where a contract has been frustrated and the parties thereto have for that reason been discharged the
following provisions shall have effect
(2) All sums paid or payable to any party in pursuance of the contract before the time of discharge shall be
recoverable and cease to be so payable:
Provided that, if the party to whom the sums were so paid or payable incurred expenses before the time of discharge in
or for the purpose of the performance of the contract, the court may, if it considers it just to do so having regard to all
the circumstances allow him to retain or recover . the sums so paid or payable, not being an amount in excess
of the expenses so incurred.
(3) Where any party ... has by reason of anything done in or for the purpose of the performance of the contract
obtained a valuable benefit before the time of discharge, there shall be recoverable from him such sum (if any)
not exceeding the value of the said benefit as the court considers just
Section 4 Application of this Act
(3) Where any contract to which this Act applies contains any provision intended to have effect in the
circumstances the court shall give effect to the said provision
Things to consider are:
o All sums paid before the time of discharge [the FE] shall be recoverable, all sums payable shall cease
to be payable.
o Except to the extent that the party returning the money incurred expenses for the purpose of the
performance of the contract. In such a situation, that party may retain some of the money if it considers
it just;

A must pay compensation to B if A incurred a valuable benefit under the contract.

CASES: TERMINATION BY FRUSTRATION

Scanlons New Neon Ltd v Tooheys Ltd HCA 1943


FACTS:
- Scanlans installs and leases neon signs to Tooheys (on top of ATooheys hotels) for 5 years at a
monthly rental.
- Cost of installation is 50-80% of total rental, thus S makes its profit by installing and then recouping
the costs through rental.
- S installs the signs, thus completing in full its part of the bargain.
- The purpose of the signs is obviously to be bright and conspicuous and thus have advertising value.
However, even when unlit the signs are visible and legible and still have some advertising value.
- After Japans entry into war (1942) NSW government prohibits illumination of signs indefinitely
under National Security Act 1939-1940 (Cth).
- T stops paying rent b/c says can no longer illuminate the sign, S brings this action.
- T gets less benefit out of the contract as a result of less advertising.
- Contract provides that rental payable whether or not the sign shall be used or operated by the
lessee.
RESULT:
3:0 No frustration
LEGAL IMPORTANCE:
- Latham rejects the idea that F to be determined by objective justice test, but says that even if it did
apply, would not be unfair to deny that this was a FE, b/c S has already given most of its
performance/consideration etc.
- They decide this case on specific implication of a CC. Decide that was not an implied CC that
contract would come to an end in event of illegality of the signs.
- No impossibility: the allegedly FE does not make performance of the contract impossible for either
party, all it does is reduce the benefits flowing to T.
- Compares the situation to the purchaser of goods (ie the weeding dress fact that wedding gets
cancelled doesnt entitle bride to get a refund for frustration same applies here).
- Foreseeability? Williams seems to think that potential of lighting restrictions was common
knowledge, even before Japan entered the war. Latham seems to agree.
- Thus foreseeability does play a role here (though not as an independent factor, rather it is merged in to
the overall decision to find against T).
- Allocation of risk: clause in the contract that states that rent payable regardless of whether signs
operated by lessee. Although clause not specifically designed to allocate risk in these circumstances,
it is clearly a basis on which an argument about allocation might be made.

Brisbane City Council v Group Projects Pty Ltd HCA 1979


FACTS:
- GP was the owner of land which it sought to develop, however zoning prevented development. With a
view to facilitating re-zoning to allow the development, GP entered into negotiations with BCC,
resulting in the following arrangement:
- 30 Oct 1975: deed by which BCC agrees to apply for rezoning of land to enable its development
- GP in the event of [approval of] the application agrees to pave roads, provide curbs, channels,
footpaths, contribute to cost of sewerage, water, electricity, parks, bridge, invest $122,600 in Council
shares, and furnish $200,000 performance bonds as security
- Clause 7: GPs obligations are to remain in force although it is for any reason precluded from
benefiting either wholly or partly from rezoning.
- But cl 19 provides that in the event only partial rezoning is granted, GPs obligations are to be
reduced.
- 13 Nov 1976: State govt compulsorily acquires land (FE)
- GP encourages BCC to get approval for rezoning b/c it intends to appeal the compulsorily acquisition.
- 25 Dec 1976: BCCs application for rezoning successful; Land rezoned.
- But compulsory acquisition takes effect. GP is not prevented from performing its obligations on the
land, however it is entirely deprived of the benefit that was intended to flow from the agreement.
- GP sues for declaration that contract terminated by frustration on 13 Nov (date land compulsorily
acquired the FE).
RESULT:
Contract terminated (5:0) on the basis of
(a) Non-fulfilment of contingent condition (3 judges)
(b) Frustration (2 judges)
LEGAL IMPORTANCE:
Stephen J
- Stephen Js jjment has become the classic case.
- The alleged FE is the compulsory acquisition, GP have lost the intended benefit of the contract; loss
of value (ie from the inability to develop the land). Both judges hold this was a frustrating event.
- Stephen J starts by noting that this is not an ordinary commercial venture. BCC did not seek
commercial profit, but the attainment of a new subdivisional area to be used for amenities. Thus
cannot be said that BCC really lost any benefit as a result of the FE [different from Scanlans where S
stood to lose out if T stopped paying rent due to FE]
- The FE did not prevent GP from performing its obligations (ie no impossibility), however the FE
wholly destroyed GPs purpose in undertaking obligations at all.
- Rejects the implied CC approach, but decided to import from the UK the fundamental difference test
(see above). They say of course there is a fundamental difference here, b/c the project that the parties
originally envisaged was fundamentally different from the post-FE situation.
- Not self-induced.
- Foreseeable? Stephen seems to approve of the foreseeability reqt but doesnt say anything about its
application.
- Allocation of risk? What about clause 7? Both judges decide that this doesnt apply to this kind of
situation [which begs the question, to what sort of situation is the clause intended to apply? Surely it
applies here? Stephen J seems to say that comp acq was completely beyond the purview of their
contemplation when they entered the contract; the clause interpreted as not intending to apply to this
type of situation.]
Also cl 19 indicates that rezoning is linked to GPs obligations, so militates in favour of finding a FE.

Codelfa Construction Pty Ltd v State Rail Authority of NSW HCA 1982
FACTS:
- Codelfa, an Italian firm, won a contract to construct two tunnels for the building of a railway by the SRA. The
contract contained the following terms:
- The contract set out the amount payable to Codelfa, and stated that the work had to be carried out by a certain
date regardless of its difficulty.
- The contract also stated in Cl G.44(7) that the SRA could not cancel the contract because of delays that were
beyond the control of or not caused by Codelfa.
- The Engineer shall extend the time for completing the works when, in the opinion of the Engineer, the
findings of fact justify an extension.
- The operation of all plant and construction equipment shall be such that it does not cause undue noise,
pollution or nuisance. The Contractor shall not be entitled to additional payment if the Engineer requires
that measures be taken to reduce noise and pollution.
- The contractor was deemed to have informed itself fully of the conditions affecting its carrying out of the
works. If it did not inform himself fully it was not thereby to be relieved of the responsibility "for satisfactorily
performing the works as required regardless of their difficulty".
- Codelfa commenced work when instructed. But soon local residents began to complain about the noise.
- An agreement was reached between the residents and Codelfa restricting Codelfas hours of operation
- Codelfa then claimed for additional payment from the SRA b/c of the increased costs and reduced profit it
would receive as a result of the new construction timetable.
- Codelfa continued to work on the tunnels, and correspondence as to compensation and an extension of time
passed b/w the parties for some two years. Eventually a large extension was granted, but when the work had
not been completed by the extended date, SRA cancelled the contract with Codelfa.
- Codelfa, in suing the SRA claimed, in addition to the implied term argument, that the contract had been
frustrated.
- The arbitrator found that both parties had entered the contract under the common understanding that the works
would be able to be undertaken on a full 3-shift per day basis, and that the SRA had represented and Codelfa
had accepted that no injunction or restraining order could be granted against them in relation to noise or other
work.
RESULT:
4:1: Contract frustrated (fundamental difference)
LEGAL IMPORTANCE:
Brennan J
- Decides that is is really a mistake issue. No basis for frustration; situation not fundamentally different.
Mason J
- Says the fact that the parties made a mistake when they entered the contract as to the potential for future
injunctions does not preclude a finding that an injunction can be a FE.
- If parties make a mistaken assumption about future fact is a frustration issue
- If parties make a mistaken assumption about present fact is a common mistake issue.
- Mason says this is a mistake about the future, thus is a frustration issue [although surely it could be said that
the mistake was about the present state of the law? Seems could go either way].
- Adopts the fundamental difference test from BCCC v GP.
- Holds that performance of the contract on a two-shift basis was F/D from performance on a three-shift basis.
- Important that the FE made it impossible for Codelfa to complete its obligations.
- Self-induced? Codelfa were responsible for noise, perhaps could have reduced it if changed its practices. But
this not even discussed. Cl G44(7) provides that the SRA could not cancel the contract because of delays that
were beyond the control of or not caused by Codelfa. But arguably C were just doing what they thought they
were entitled to do under the contract surely cant say that their obligation in and of itself caused the FE.
- Foreseeability? Mason says fact that must show that the injunction was not foreseen nor foreseeable. Says
parties were given legal advice that an injunction was not possible; but argument that they could have foreseen
that the legal advice was wrong. However holds that Codelfa were an Italian company and were well entitled
to accept the legal advice obtained by the SRA, thus the injunction was not reasonably f/seeable (so is
f/seeability a subjective reqt? consider idiosyncrasy of being Italian?)
- Allocation of risk? Mason discusses the plant and equipment clause: The Contractor shall not be entitled to
additional payment if the Engineer requires that measures be taken to reduce noise and pollution. But Mason
says that this clause does not cover this situation (similar to BCC v GP); this clause about changing practices re

noise pollution but not so wide as to extend to completely changing the operation of work. [what about the fact
that an extension had been granted?]
Beaton v McDivitt NSWCA 1987
FACTS:
- D (Mr McDivitt) owned a large block of land which he had decided to divide into 4 blocks.
- D agreed to give P (Mr Beaton) one of the blocks if P engaged in permaculture on that block
- When council were to rezone the land, D would transfer the title of the block to P.
- P considered the proposal and some time later, (26 December 1977) upon inquiring whether the offer was still
open, accepted that offer.
- 5 days later (31 Dec 1977), P offered to pay the rates for the block, but agreed upon Ds request that he would
maintain the road that bisected two of the properties instead.
- Jan 1978: road cleared by D providing access to Ps block
- April 1978: P and family moved in, over time constructed a residence and began permaculture.
- May 1982-August 1984: Dispute arose between parties over use of the land. Council inspected Ps residence
but building did not comply with council regs. Council ordered its demolition, informed D.
- D told P that bldg was to be demolished, asked P to leave, barred road access to Ps block.
- Beaton sues to enforce promise by McDivitts to transfer block of land on rezoning expected in 2 years.
- 10 years later the land is still not rezoned; no present prospect.
RESULT:
- 2:1 Appeal by Beaton dismissed.
- Kirby P: No consideration no contract cant be frustrated McDivitt wins
- Mahoney JA: Consideration Contract BUT contract frustrated McDivitt wins
- McHugh JA (dissenting): Consideration Contract contract NOT frustrated
LEGAL IMPORTANCE:
Mahoney J:
- Says this is a Non-fulfilment of CC situation: performance was contingent on the rezoning of the land within a
reasonable time. Such time has elapsed, the contract should be terminated. BUT the parties did not argue this.
- So holds that the contract was frustrated by the lack of rezoning. Does this on the basis of an implied CC
objective bystander approach.
- [But very hard to pin down an event here, so how can it be a FE?]
McHugh J:
- Contract not frustrated (rezoning not essential to subdivision; frustration has not yet been reached)
Meriton Apartments Pty Ltd v McLaurin & Tait (Developments) Pty Ltd HCA 1976
FACTS:
- McLaurin agrees to sell to Meriton land adjoining Centennial Park, Sydney.
- Contract subject to approval of development application by Sydney City Council. Approval had to be obtained
by McLaurin. The approval was successfully obtained
- Green bans imposed by building Unions.
- Meriton claims termination.
- McLaurin sues for specific performance.
- Meriton argues that contract frustrated by green ban.
RESULT:
3:0 Appeal by Meriton dismissed. No FE.
LEGAL IMPORTANCE:
- Green bans potentially frustrating, as they substantially diminished the value of the land and frustrated the
commercial purpose for which the land was purchased [fundamental difference?]
- But held that Meriton impliedly bore risk of green bans or other industrial action b/c express allocation to
McLaurin of the risk of non-approval by Council implied that all other risks occurring once approval was
granted were allocated to Meriton.
[Note this seems a very radical basis for allocating risk; court says that one party has an express risk, other
party impliedly assumes all other risks. But perhaps f/seeability of this risk made it easier to imply to Meriton
]
- Said that this sort of industrial action was a kind of risk that a purchaser might be expected to encounter in the
execution of a commercial development [Reas f/seeable?]

DAMAGES

Damages for breach of contract are awarded with the object of placing the injured party in the situation he
would have been in had the contract been performed, thus preserving that partys expectation of performance
(known as his expectation interest).
The awarding of damages thus involves a comparison between the situation that would have occurred had the
contract been performed and the situation that actually occurred as a result of the breach. If the value of the
hypothetical performance position is greater than that of the actual position, a loss has occurred.
Damages are awarded to cover the full expectation loss, including all benefits, direct or indirect, that would
have flowed from full performance of the contract.
Expectation damages are distinguished from reliance damages (as in tort), awarded to compensate the plaintiff
for expenses incurred in reliance on the contract, in which the object is to put the plaintiff in the position he
would have been in before the contract was made or breached.
But note that reliance damages may also be awarded for breach of contract, as they sometimes form part of the
overall expectation interest. For example, where a party spends money in readiness for a contract, it then
expects to recoup the start-up costs and make a profit. The gross expectation interest is the total of the reliance
expenditure plus the expected profit, and the net expectation interest is the expected profit.
It is important to remember that the award of damages is to some extent a pragmatic process. As such, the
following should be treated as guidelines rather than as rigid rules: Amann (Deane J).
Compensatory damages
The purpose of contract damages, as noted above, is to compensate the injured party.
To that end, Aus law does not recognise other sorts of non-compensatory damages (eg exemplary damages,
disgorgement damages although this available in the UK; Blake spy case).
Termination and Damages
It is not necessary to terminate in order to claim damages for actual breach. However, it is necessary to
terminate before damages can be sought for anticipatory breach.
Applications of Expectation Damages
Loss of Profit
Any profit that would have been made if the contract had been fully performed is normally recoverable (profit
= income/receipts costs incurred).
The onus is on P to prove that he would have made a profit.
However damages for loss of profit are not awarded on a merely speculative basis.
Thus in McRae, the value of the tanker never existed and its value could not by any means be ascertained, thus
the plaintiff was limited to damages covering wasted expenses and loss of chance/opportunity.
Wasted Costs
Reasonable costs or liabilities incurred by P in preparation for or in the course of performance of a contract
may be recoverable.
Limitation I: Such costs can only be recovered to the extent to which no value has been gained. This is b/c
where P, in reliance on the contract, has incurred expenditure in the purchase of a valuable asset, he may
nonetheless retain some value from the acquisition (ie he can use it elsewhere/sell it etc). Thus the inherent
value of an asset must be taken into account when considering the net loss incurred in purchasing the asset.
Thus: wasted costs = total expense incurred in reliance value of assets attained: eg in Amann, the amount
awarded for wasted cost on airplanes was reduced by the residual value of the airplanes.
Limitation II: Such costs can only be claimed to the extent to which they would have been recovered or
recouped if the contract had been fully performed. P will not be put in a better position than that which he
would have been if the contract had been fully performed. According to Amann:
o P must prove that the costs were reasonably incurred;
o Once he has done this, there is a presumption that the costs would have been recouped;
o the onus shifts to D to try and prove that those costs would not have been recouped;
Thus in Amann, once the chance of renewal of the contract had been taken into account, Cth could not
demonstrate that Amann would not have recouped its expenses.
Loss of Chance or Opportunity
The law awards damages for loss of any foreseeable chance or opportunity of a benefit that can be causally
linked to a breach of contract [AND to a breach of TPA: Sellars].

Thus P may be compensated not merely for a loss of a chance that the other party promised to provide, but also
for a loss of chance that was not promised but may have otherwise arisen as a result of performance of a
contract: Amann.
Damages are assess by reference to the probability of success. The advantage of this is that it allows greater
flexibility in the award of damages than does a simple all or nothing approach.
It is not necessary to establish that the probability was greater than 50%: any probability is capable of being
compensated: Amann; Sellars
Unless the chance is so low as to be speculative (eg less than 1%), the Court will take the chance into
consideration when assessing damages. (Obviously if the chance is so high as to be a virtual certainty, it will be
treated as such); Sellars.
A precise figure or percentage does not have to be calculated (though this is the normal approach); a global or
lump sum assessment is OK: Burger King.
In recognising that a chance of less than 50% is compensable, the courts have not done away with the
requirement that P must prove the loss on the balance of probabilities. P must still prove on the balance of
probabilities:
o That performance of the contract would have led to the creation of the chance at all in that that chance
had some value and was not merely speculative or negligible (once this is shown then can proceed to
assessing the likelihood of the chance eventuating) (Sellars) ;
o Where realisation of the chance depends on Ps own decision to avail himself of the chance, P must
prove on balance that he would have taken it up;
o In accordance with normal causation principles, P must prove that the breach relied on caused the loss
of the chance in question (see below).
Personal Injury
It is clear that damages can be awarded for physical injury as well as mental injury such as nervous shock etc.
Distress and Disappointment
In most cases, breach of contract not only deprives a party of expected benefits but causes them distress and
disappointment. (Note this is different from actual mental injury, which is clearly compensable).
Damages for distress and disappointment are only awarded in some defined circumstances.
HCA has noted that the rule rests on shaky policy grounds, and is based on pragmatism rather than logic (ie
logically P should be compensated, but this is difficult in practice to calculate), and policy reasons such as not
wanting to inflate awards of damages: Baltic
Thus, the rule is that, in general, disappointment and distress is too remote and thus not available.
There is, however, a general exception in situations in which it would have been in the contemplation of the
parties that disappointment and stress would have followed from a breach [in an exam, could mount an
argument that this general exception applies] However the Court says that the general exception applies to two
specific circumstances (Baltic):
o If the breach of contract causes physical injury or physical inconvenience, P may recover for distress
where it results from that physical injury or inconvenience;
o If the distress is caused by breach of an express or implied promise to provide pleasure,
entertainment or relaxation or to prevent molestation or vexation (such as a pleasure cruise).
Calculation of Damages
The onus is on the plaintiff to establish both the fact and the amount of the loss: Amann.
However awarding damages necessarily involves a degree of speculation and pragmatic calculation; the fact
that calculating damages may be difficult or evidence of value inconsistent or lacking does not deter the court
from doing its best to place P in the position he would have been in if the contract had been performed.
Nonetheless, if P has failed to produce a minimum amount of evidence the court may refuse to grant damages
for the relevant item.
Time
Damages are normally assessed as at the time of the breach.
This means that damages are assessed by reference to events that have occurred or could reasonably be
expected to occur as of that date, and market or other values then prevailing or predictable.
Market Value
Where performances of the kind contracted for can be readily obtained elsewhere there is said to be a market in
such performances. Where such a market exists, the value of the lost performance is the difference between the
contract price and the market price/value: eg P agrees to sell D a fridge for $120, but D backs out of the

contract before the transaction takes place. The market value of the fridge is $100. P is entitled to receive $20
from D (as P is presumed to readily be able to sell the fridge elsewhere for $100)
But not all losses can be quantified in this way, not only b/c not everything is marketable, but also b/c it is not
always appropriate to apply market values even if they exist.
The market value will only apply if the market substitute is a true equivalent of the performance contracted
for. Where such an equivalent is not available, the injured party would not be adequately compensated by a
market-based award. Therefore, the actual cost of remedial action may be awarded instead: Bellgrove.
Thus in Bellgrove, E contracted for a house built on her land in conformity with certain specifications. A
building not built to specifications may be valuable but E still incurs a loss the loss here is not simply that of
a marketable commodity, therefore damages could only be measured by the cost of rectification
BUT, the principle is qualified: rectification must be reasonable (eg. If E had required second hand bricks and
the builder installed new bricks, which were actually worth more, it would not be reasonable to require
rectification). Cant make trivial, irrational objections. However:
a. Just b/c rectification is economically wasteful does not necessarily mean that it is unreasonable (eg
some eco waste in Bellgrove but not unreasonable)
b. That P might pocket the damages and resell the goods/house is immaterial: they are entitled to
damages based on full performance.
Contingency Discounts
If there is an identifiable chance that the loss in question would have occurred independently of the breach,
damages may be reduced or discounted accordingly: Amann
In Amann, three of the judges held that a discount for a contingency should only be made if the probability of
its occurrence is more than 50%; but this is to apply a different principle than that applied when positively
assessing damages for loss of chance (as in Sellars), namely, damages are assessed by reference to the
probability, whatever that probability may be.
However the majority [Deane etc + Brennan] agreed in principle to the discounting of damages on the same
basis as Sellars. SO damages can be reduced due to a contingency having any probability of occurrence.
In addition to specific contingencies, a general sum may be discounted for vicissitudes.
Causation
P must show that the loss claimed was caused by the breach of contract relied on.
In contract (as in negligence) causation of loss is to be determined by common sense (March).
It is generally enough that the breach be a cause of the loss: Alexander.
But it may not be enough merely to show that the breach is a but for cause of the loss. The causal chain may
be broken by a NIA, or the Court may hold that common sense and policy considerations dictate that the
breach was not sufficiently causally potent to be regarded as the cause: Alexander.
In Alexander, causation was denied b/c, so far as common sense and good policy were concerned, the incorrect
audit was not the legally relevant cause of the losses. Rather there were many other causal chains in operation
that contributed to the losses in question such that policy regarded the original cause as spent.
It will often simply come down to an unstated decision as to where it is more just to let the loss lie.
Novus actus interveniens
Alexander (McHugh and Glass): an intervening act or event breaks the causal chain if it is in a practical
sense the only cause of the loss - unless it should have been foreseen as a serious possibility.
[Thus similar to tort: unforeseeable, unreasonable, voluntary acts are considered to break the chain of
causation]
Alexander (McHugh): The package of economic factors, starting with an expansionary budget in 1972 leading
to rapidly rising interest rates in 1973 and the collapse of land prices in 1974, together with the decisions of the
directors of Cambridge to increase its borrowings and investment in real estate constituted, a NAI.
Limiting Factors
There are two main factors that can limit the award of damages:
Remoteness
Damages may not be awarded for a loss that is considered too remote.
Generally speaking, a loss is too remote if a reasonable person in the defendants position at the date of
formation of the contract would not have foreseen the loss as a likely consequence of the breach: Burns;
Amann
However, f/seeability seems to have been replaced by reasonable contemplation, which McHugh J thinks is a
narrower or less remote concept: Alexander; Burns v MAN.

In an exam, apply both, although it seems that the contemplation test is now more in favour.
The parties need not contemplate the degree or extent of the loss; nor need they contemplate the precise events
giving rise to the loss. It is sufficient that they contemplate the kind or type of loss or damage suffered:
Alexander (McHugh)
Loss may be foreseeable on the basis of (i) Ds imputed knowledge of the usual course of things; (ii) Ds
actual knowledge.
Mitigation
Losses that could have been mitigated (reduced/prevented by reasonable effort) by P are not recoverable.
The party in breach (D) bears the onus of proving failure by P to mitigate: Burns.
There is overlap b/w mitigation, remoteness and causation. (eg failure to mitigate may be a NAI; failure to
mitigate is considered unreasonable thus may be beyond the bounds of f/seeability and therefore too remote).
However the doctrine has an independent ethical basis.
In general, if P can, through reasonable (but not too costly/onerous) steps, obtain a substitute performance
elsewhere, any loss that flows from the failure to obtain it is not compensable.
Eg: if D sells P a faulty bike in the CBD, and P fails to buy a new one in a reasonable time, then P cant claim
for loss of income as a result of not being able to ride the bike.
Failure to mitigate due to impecuniosity probably does not bar P from claiming damages; certainly this would
be the case where the breach contributes to Ps lack of means: Burns
Burns (Brennan J dissenting): MAN had to show Burns acted unreasonably in engaging in intrastate haulage.
Reasonableness must be assessed in light of the party's actual financial situation. Here, given Burns
impecuniosity, which precluded him from reconditioning the engine, or terminating the h-p agreement (which
would leave him with a debt), it was not unreasonable for Burns to act as he did.
Agreed Damages
The parties may themselves stipulate what damages shall be payable for a particular breach. These are called
liquidated damages.
The law will generally accept such provisions, however it does exercise some control over them: liquidated
damages clauses that do not rest on a genuine pre-estimate of loss but require payment of an exorbitant amount
constitute a penalty and are unenforceable (Plessnig). In which case the injured party is still entitled to
receive damages for the actual loss under the normal common law procedure.
Thus the critical issues are the degree of difference b/w the actual loss likely to be suffered and the loss
provided for in the L/D clause, and whether or not the parties made a genuine attempt at a pre-estimate.
Plessnig: An agreed sum is a penalty only if it is extravagant, exorbitant or unconscionable, ie out of all
proportion to the damage likely to be suffered, not a genuine pre-estimate. The mere possibility of windfall
not enough.
In considering the penal nature of the provision, the court is entitled to consider the genesis of the clause and
the nature of the r/ship b/w the parties: Plessnig.
Court in Plessnig indicated that the courts should give greater latitude to the parties own agreements on L/D
than has sometimes previously been the case: there is much to be said for greater latitude.
However note Deane J thought that unjust enrichment may be available.
Commonwealth of Australia v Amann Aviation Pty Ltd HCA 1991
FACTS:
- A successfully tendered for a 3 year contract to provide air surveillance on the north coast of Australia.
- Previously Skywest had done this job, but they lost the tender to Amann.
- A was obligated to operate 11 aircraft in surveillance and to comply with specifications in the contract.
- On the day that performance is due to start, A only has 7 planes ready and they do not accord with the specifications
of the contract. Cth had known about this for a while.
- Skywest have told Cth that if they want to reinstate Skywest, they need to do so ASAP because otherwise Skywest
will sell their planes.
- Contract includes a show cause clause, whereby the Cth must demand A show cause why Cth should not terminate.
- On day performance was scheduled to start, Cth terminates the contract on common law grounds b/c they are in a
hurry (want to reinstate skywest), but they did not terminate in accordance with the show cause clause.
- Judge says that the show cause clause impliedly removes any right to terminate the contract on common law
grounds it is an exclusively applicable clause; judge finds anyway that the breach was not sufficiently serious.
Thus Cth wrongfully terminated the contract, which is a repudiation, entitling A to terminate.
- A exercised its right to terminate and sued for damages.

- By time get to HCA, all of this is accepted. Only issues is damages.


- Below is a list of relevant figures:
Net revenue expected over 3 years:
Payments by Cth 17.1m
Refund of security deposit 0.1m
Total 17.2m
Minus operating expenses 15.8m
NET REVENUE 1.4m
Damages claimed by Amann:
Pre-performance expenses (ie what had to spend to equip themselves for contract performance):
Net cost of aircraft 4.4m (5.3m less residual value 0.9m [planes specially equipped so market value low])
Other pre-performance expenses 0.9m
Security deposit 0.1m
Total 5.4m
Plus termination payments to employees 0.1m
TOTAL DAMAGES 5.5m
- If A had performed the contract for three years, they would have made an operating profit (of 1.4m) but would have
made an overall loss taking into account pre-performance losses.
- A undertook the contract b/c assumed it would be renewed (numerous times).
RESULT:
Damages for wasted costs awarded to A.
LEGAL IMPORTANCE:
Wasted Costs
- If Amann had proved in this case, taking into account the value of the loss of the chance of renewal, and comparing
it with the actual and putative expenses, that the contract would yield a profit, then the expectation damages
principle would entitle them to sue for the loss of those profits. They chose not to do this: too speculative/difficult.
- Rather, they sued for damages for wasted expenses rather than for lost profit.
- Normally, if suing for loss of profit, cant also recover wasted expenses, as they are included in the profit
calculation. Thus Court held that in a case like this a losing contract can recover wasted costs.
- However there is a limit on recoverability of wasted costs: can only recover to the extent that the costs would have
been recouped in the course of the contract.
- Commonwealth has the onus of proving the expenses would have been recouped.
- Mason, Dawson, Gaudron, Toohey: Amann had established that these expenses were reasonably incurred, and hence
a presumption arises that expenses would have been recouped. Hence onus lies on the Commonwealth to establish
that the expenses would not have been recouped.
Toohey: a prima facie inference.
Gaudron: an assumption.
- Deane/Brennan, McHugh: the breach by the Commonwealth made it difficult to assess whether costs would have
been recouped (ie. by repudiating the contract on the first day of operations), hence the onus lies on them. The
exercise becomes purely speculative due to the breach by the Commonwealth.
- Once chance of renewal taken into account, Cth could not prove that costs would not have been recouped by A.
Loss of Chance
- This situation raises question whether, in valuing the contract, court can take into account not merely the promised
benefits, but the other/non-promised benefits? Very powerful (though remember that there are remoteness
constraints etc etc).
- Court holds that unpromised benefits are included in calculation of damages. So do take into account loss of chance.
- Court does assert that loss of chance is part of the value of the performance.
- A did not apply for loss of chance damages here, but Court said they would have been available.
- Loss of chance damages available even if probability is less than 50%.
- Mason/Dawson: loss of chance does not apply to purely aleatory contracts [contract in which promisors obligation
to pay becomes enforceable on the occurrence of a fortuitous event that neither party wants to happen, eg an
insurance contract. No assurance of benefits]; (eg. McRae: why is it not a purely aleatory contract? Nobody knew
whether there was oil in the tanker). How pure does the chance have to be?
Contingency discounts
- Cth argued that although their termination was unjustified on that day, the contract gave it a right of cancellation on
which it could have relied thereafter.
- It was accepted that there was a 20% chance that the Cth would have exercised that right (in which case A would
have lost the benefits anyway)
- Deane, Toohey and McHugh JJ held that the damages should be discounted by 20%.

Brennan J agreed with that in principle, but held that the damages should not be so reduced in this case (goes off on
his own tangent; dont even bother.)
Mason CJ, Dawson and Gaudron JJ held that although there was a 20% chance, this should not be taken into
account. Such a contingency should only be taken into account if it is more probable than not ie greater than 50%
chance [but this is to apply one principle here and a different principle when assessing damages for loss of a chance
surely both assessments should be made in accordance with the same principles.]
Thus, in this case, a majority [Mason etc + Brennan] held that the damages should not be reduced by 20%.
However a different majority [Deane etc + Brennan] agreed in principle to the discounting of damages on the same
basis as Sellars: damages discounted by reference to the probability, whatever that probability may be.

Sellars v Adelaide Petroleum NL HCA 1994


FACTS:
- Regards an action for misleading conduct under the TPA; but court makes it expressly clear that recovery
based on loss of chance is equally applicable to contract law.
- AP entered negotiations with two separate companies, Poseidon and Pagini with a view to an agreement which
would help to attract underwriters for a new share issue.
- AP came close to agreement with Pagini. A draft contract was drawn up. It was subject to 7 contingent
conditions of performance (incl. approvals, finance)
- But AP was induced by false representations of an executive of Poseidon (Sellars) to make a contract with
Poseidon instead. Sellars said that Poseidon directors would come on board and assume management of AP.
- When Poseidon refused to do this, AP resumed negotiations with Pagini. A new contract with Pagini was
executed, less beneficial in specified respects.
- AP sued Poseidon and Sellars for damages for misleading conduct under the Trade Practices Act.
- The trial judge (French J) held that, on the balance of probabilities, the first Pagini contract would have been
executed but for Sellars misleading conduct, and the nominated benefits would have been realized on
completion. But there was only a 40% chance of completion because it was subject to contingent conditions,
therefore AP was entitled only to 40% of the value of the benefits which would have been realized.
- Sellars and Poseidon appealed. The Full Court and High Court dismissed the appeal.
RESULT:
5:0 appeal dismissed
LEGAL IMPORTANCE:
Mason CJ, Dawson, Toohey and Gaudron JJ:
- [355] The general standard of proof in civil actions will govern the issue of causation and the issue whether the
applicant has sustained loss or damage. The applicant must prove on the balance of probabilities that he or she
has sustained some loss or damage. In a case like the present, the applicant shows loss by demonstrating that
the contravening conduct caused the loss of a commercial opportunity which had some value (not being a
negligible value), the value being ascertained by reference to the degree of probabilities or possibilities.
- [350] [Court cites with approval from Malec]: Unless the chance in so low as to be regarded as speculative say less than 1 per cent - or so high as to be practically certain say over 99 per cent the court will take that
chance into account in assessing damages.
Misleading conduct prevented realization of chance of benefit
- Here the original Pagini contract would on the balance of probabilities have been entered into, but for the
misleading conduct of Sellars and Poseidon.
- This would have created a significant chance of its completion, resulting (again on the balance of
probabilities) in significant chances for Adelaide and its directors to dispose of and acquire shares, to obtain
payouts and options, and to raise and invest capital.
- These chances were lost as a result of Sellars misleading conduct (which induced Adelaide to abandon Pagini
and to negotiate with Poseidon).
Damages were recoverable although chance of completion less than 50%
- Because there would have been only a 40% chance of completion of the contract because of the contingent
conditions, damages were recoverable for 40% of the value of the specified benefits.
Baltic Shipping Co v Dillon HCA 1993
FACTS:
- Dillon was taking a pleasure cruise on BSCs ship.
- Ship sank on the 10th day of a 14 day holiday cruise.
- Dillon pursued a breach of contract action (a negligence action was abandoned). In it, he claimed for damages
for disappointment and distress

- At trial damages were awarded on the following basis:


Damages for breach of contract
1. Loss of personal property ($4,265)
2. Personal injury [emotional trauma] ($35,000)
3. Disappointment and distress ($5,000)
Restitution:
4. Restitution for balance of fare ($1,417) [HC refuses because restitution is only available if there is a total
failure of consideration; further reason for refusing is that there is double compensation: damages for distress
represent the missing enjoyment because of the sinking of the ship. Restitution of the fare gives double
compensation (ie. in order to get enjoyment, would have had to pay fare)].
- Only 3 and 4 challenged on appeal.
RESULT:
7:0 Dillon was entitled $5000 to damages for distress and disappointment. BUT
Dillon was not entitled to restitution of the balance of the fare.
LEGAL IMPORTANCE:
- In general, disappointment and distress is too remote. Pragmatic rather than logical rule. (But note that if it is in
the reasonable contemplation of the parties that there will be distress and disappointment). Policy reasons to
limit the recovery of damages.
- But exceptions:
o Breach of promise of marriage [no longer available in Australia]
o Distress caused by physical injury or inconvenience caused by breach;
o Distress caused by breach of an express or implied promise to provide pleasure, entertainment or
relaxation or to prevent molestation or vexation.
- The last exception is the premise on which the courts allow the plaintiffs to recover damages in this case. Here,
Baltic had impliedly promised to provide pleasure. [Also caused physical injury and inconvenience, surely.]

Bellgrove v Eldridge HCA 1954


FACTS:
- Bellgrove builds a house for Eldridge on her land.
- The contract specified that all concrete used should contain certain proportions of metal, sand and cement.
- But B used concrete that did not at all conform to these requirements
- As a result, the house is unstable.
- Eldridge claims damages of $4950 comprising the cost of demolition and re-erection.
- Bellgrove argues that building could still have been resold, thus damages should be the difference between the
value as is and the value which it would have had if built to specifications.
RESULT:
3: 0 Eldridge entitled to the cost of rectification.
LEGAL IMPORTANCE:
- Court held that the normal measure (eg. sale of goods) is prima facie the difference between market value and
hypothetical performance value.
- However E contracted for a house built on her land in conformity with the specifications. Thus the loss here
not simply that of a marketable commodity [Perhaps different if built for a commercial developer?] therefore
damages could only be measured by the cost of rectification. In this case, the foundations were dodgy so
rectification involved demolition and reconstruction of the house.
- BUT, the principle is qualified: rectification must be reasonable (eg. If E had required second hand bricks and
the builder installed new bricks, which were actually worth more, it would not be reasonable to require
rectification). Cant make trivial, irrational objections.
- But:
c. Just b/c rectification is economically wasteful does not necessarily mean that it is unreasonable (eg
some eco waste here but not unreasonable)
d. That Eldridge might pocket the damages and sell the house was immaterial.
Alexander v Cambridge Credit Corporation Ltd NSWCA 1987
FACTS:
- In 1971 Alexander (auditors) prepared incorrect reports for CCC.
- The trial judge found that correct reports had been prepared and thus the truth had been known the trustee
would have appointed a receiver forthwith.

Instead Cambridge continued to trade at a loss until liquidated in 1974.


Cambridge sued the auditors for breach of contract, claiming as damages the total loss accumulated by the
company after 1971. [In 1971 Cambridges liabilities exceeded assets by $10m. By 1974 the shortfall was
$155m. Thus trial judge awarded the difference, $145m, as damages]
- The trial judge awarded the damages claimed on the footing that the incorrect report was a but for cause of the
loss, therefore causation was established.
RESULT:
Held: appeal allowed (2:1).
1 Causation. The loss sued for was not caused by the breach
(a) Not commonsense causation (McHugh, Mahoney)
(b) There had been a novus actus interveniens (McHugh)
2 Remoteness. The loss was too remote (McHugh)
3 Mitigation?
LEGAL IMPORTANCE:
Causation in general
1. The inquiry is not scientific or philosophical but commonsense.
2. It is not necessary to show dominant, efficient or real cause. It is enough if the breach is a cause.
3. McHugh and Glass: but-for test is applied according to commonsense and policy. (Mahoney rejects but-for test.)
4. McHugh and Mahoney: not commonsense to say that the companys position deteriorated because it continued
to exist. Glass JA dissenting: it is commonsense.
McHugh J:
- The causative effect of the 1971 audit was soon spent, as it was followed by further audits and reports.
- Cambridge did not suffer a single loss. There were independent causal chains leading to separate losses eg
flooding in Queensland.
Novus actus interveniens
- McHugh and Glass: an intervening act or event breaks the causal link if it is in a practical sense the only
cause of the loss - unless it should have been foreseen as a serious possibility.
- McHugh: The package of economic factors, starting with an expansionary budget in 1972 leading to rapidly
rising interest rates in 1973 and the collapse of land prices in 1974, together with the decisions of the directors
of Cambridge to increase its borrowings and investment in real estate constituted, a novus actus interveniens.
- Glass (diss): The auditors breach remained a cause but for which the loss could not have occurred.
Remoteness
- Reg Glass v Rivers (1968): The loss must be when the contract was made, reasonable foreseeable as likely to
result from such a breach. Wenham v Ella (1972), Burns v MAN (1986), Alexander (1987) on the
information available to the defendant when the contract was made, he should, or the reasonable man in his
position would, have realised that such loss flowed naturally from the breach or that loss of that kind should
have been within his contemplation (Hadley v Baxendale)
- McHugh: the 1974 economic situation could not have been in contemplation.
- Glass (diss): there was a serious possibility. Auditors of land development companies should reasonably
contemplate that a boom will be followed by a slump.
-

Burns v MAN Automotive (Aust) Pty Ltd HCA 1986


FACTS:
- MAN (supplier of truck) falsely warrants to Burns (driver) that engine has been fully reconditioned. Burns
hire-purchases the truck.
- MAN knows that truck will be used for interstate haulage.
- For one year Burns tries the truck, but truck proves unsuitable for interstate haulage;
- Instead Burns attempts intra-state haulage, but also breaks down;
- Burns cant make repayments and truck is repossessed.
- Burns sues MAN for breach of contract. Trial judge awards $220,000:
Profits from interstate haulage for life of engine as warranted [4 years]
Losses incurred in intrastate haulage
$2000 for nervous stress
RESULT:
- Full Court and High Court (4:1) award $70,000:
LEGAL IMPORTANCE:

1. No damages for nervous stress: causation not proved. Stress didnt manifest for some years after the contract.
Given the gap in time, cant prove that nervous stress is due to failure of the truck to operate.
2. Reconditioning cost + loss of profit for 1 year only, rest too remote. The losses beyond one year were not
within the reasonable contemplation of the parties: not in reasonable contemplation that he would keep trying
to use the truck; he should have stopped. (But he depends on the truck for his livelihood: how can we expect
him to stop?)
3. No losses from intrastate haulage: too remote.
4. Gibbs: not reconditioning was not a failure to mitigate (due to Bs impecuniosity), but not stopping in Nov
1979 was failure to mitigate (hence intrastate losses not recoverable).
5. Brennan (dissenting): neither was a failure to mitigate (impecuniosity).
Overlap of causation, remoteness and mitigation
Brennan (dissenting):
- Causation: Burns decision to continue operations by engaging in intra-state haulage was not a novus actus
which destroyed the chain of causation, as the breach caused or contributed to Burns' impecuniosity which led
him to make this choice.
- Remoteness: Losses incurred in intra-state haulage were also not too remote. Foreseeability extends until it
would be unreasonable to fail to act to mitigate.
- Mitigation: The onus is on the contract breaker to show failure to mitigate. MAN had to show Burns acted
unreasonably in engaging in intrastate haulage. Reasonableness must be assessed in light of the party's actual
financial situation. Here, given his impecuniosity, which precluded him from reconditioning the engine, or
terminating the h-p agreement (which would leave him with a debt), it was not unreasonable for Burns to act as
he did.
Esanda Finance Corp Ltd v Plessnig HCA 1989
FACTS:
- Esanda lends $44,000 to Plessnig to buy a second-hand truck (hire-purchase contract)
- Repayment by 36 monthly installments [total $67,640]
- Plessnig pays installments for 14 months [total $24,900] [outstanding: 32,740]
- 4 successive non-payments
- Esanda terminates under clause 5, repossesses truck, sells it for $27,000
- Esanda claims $13,000 from Plessnig under clause 6:
Total instalments payable 67,640
Plus repossession costs: 70____
67,710
Minus
Instalments paid 24,900
Sale proceeds 27,000
Rebate
6,520
_______58,410
Amount of loss 9,300
Plus interest
3,700
TOTAL
13,000
- Effect of clause 6
- Esandas receipts after 16 months (on loan of $44,000):
Instalments paid
25,000
Sale of truck
27,000
Amount due under clause 13,000
Minus repossession costs 70
Total
64,930
Profit
20,930
Profit under contract after 3 years: 23,000.
RESULT:
- 5:0: not a penalty. E wins
LEGAL IMPORTANCE:
- Plessnigs argue that clause 6 was a penalty because:
- 1. It could give Esanda a windfall if at the time of termination the truck was worth more than unpaid
installments (it wasnt here).
- 2. It defined value of goods as wholesale value. [Truck worth more than 27,000 retail.]

Wilson/Toohey:
- An agreed sum is a penalty only if it is extravagant, exorbitant or unconscionable, ie out of all proportion to
the damage likely to be suffered, not a genuine pre-estimate.
- There is much to be said for greater latitude.
- Mere possibility of windfall not enough.
- (Deane: unjust enrichment may be available.)
- Wholesale value reasonable as Esanda not dealer.

EQUITABLE REMEDIES (ERs)

Involves r/ship of equity and common law.


ERs are designed to serve an ancillary role used only if damages are not available or are inadequate in
the case.
ERs are discretionary; as c/f damages which are available as of right to a P who can establish a breach of
contract.
Of course the discretion is guided by equitable rules (not an unfettered discretion).
Most relevant remedies to contract are: Specific Performance (SP) (particular to the law of contracts);
injunctions (not confined to contract this fact has caused difficulty in contract); and equitable damages
(statutory remedy, aka Lord Cairns Act).
This raises a jurisprudential issue: if ERs are discretionary and auxiliary, can we really say that our law
requires the enforcement of contracts OR is it the case that a contract provides a choice to perform or to pay
damages because compelling a party to perform is an auxiliary remedy (OW Holmes). C/f European system
where compulsion of performance is the starting point for remedies.
Specific Performance
SP is an order to do some definite thing that is required for the performance of the contract (eg execution of a
transfer, payment of money, delivery of goods etc).
SP is often applied to sale of land contracts, for the simple reason that every piece of land is said to be unique,
thus damages for breach will always be inadequate.
If SP is to be granted, the whole contract must be specifically performed cannot grant specific performance of
some obligations and not others [but under conditionality doctrine can make full SP conditional on other
things]: JCW.
Conditionality
Orders of SP can be conditional, this is important b/c this is how the remedy can be made more flexible.
Conditional decrees can help get around supervision issues (eg Dougan).
Eg also Fitzgerald v Masters in which Court makes SP conditional on compensation for improvements of the
land. Need to be able to make a decree that takes into account various factors that may have changed since the
breach etc.
Prerequisites
CONSIDERATION
The effect of this prerequisite is that equity will not enforce gratuitous contracts enforced in a deed. Equity
wont come to the aid of a volunteer to enforce a contract..
INADEQUACY OR UNAVAILABILITY OF DAMAGES
SP will be precluded in most cases b/c an award of damages would be adequate. However, this is not always
the case.
The Court gives SP instead of damages only when it can by that means do more perfect and complete justice:
Approved in Dougan.
Types of case in which damages are inadequate usually involve goods or services that are unique or special
in some way, such that an alternative (or rectification of the existing thing) is not readily available.
Sale of land is the obvious example The hypothesis here is that every piece of land is unique, so to give
damages fails to honour the uniqueness of the land (ie buyer wants that particular piece of land).
Dougan: Not really sale of a car, but the sale of a business; taxi has a special value b/c it includes license and
registration. [Note it didnt matter that the purchasers had actually managed to buy another taxi. That particular
taxi still had special value] order of SP granted.
Curro: exclusivity agreement for personal services damages are entirely inappropriate b/c what is wanted is
the exclusive thing. [However SP is often precluded in personal services cases (see below).]
JC Williamson: In this case a purely oral agreement was not enforceable due to the old Statute of Frauds
requirement contracts lasting more than 1 year be in writing. So damages not available. But doctrine of part
performance. Question of whether other remedies available where damages are not so much inadequate, but
unavailable. Court says yes, unavailability is a basis for invocation of the equitable jurisdiction.
Damages will also provide an inadequate remedy to enforce a contract that confers a benefit on a third party
(privity), so SP will be granted, even if the relevant obligation is simply to pay money: Coulls
Discretionary Factors (DFs)

The following DFs must be taken into account by the court in determining whether it should exercise its
discretion to grant SP:

MUTUALITY
Most fundamental DF. P will not be able to get SP unless the other party can get SP. So must ask whether D
could get SP from P (ie look for elements of personal service or difficulty of supervision). Unless both partis
could get SP from each other there will be an inclination not to award SP.
This is so b/c it would be unfair to decree SP against D where the Court could not ensure performance of Ds
obligations.
Note that mutuality can also work positively in Ps favour: if D would have been entitled to a grant of SP, P
should also be entitled to such a grant notwithstanding that damages are an adequate remedy for P.
JC Williamson: Sweet vendor has to show an entitlement as to SP (to get Eq damages). Held that he has no
such entitlement b/c theatre owner could not have got SP from the sweet seller (due to supervision factor).
Thus application of supervision occurs within the context of a mutuality argument. Indeed all of the other DFs
are applicable to, and must be considered in relation to, both parties.
Dougan: Seller (D) argues no mutuality b/c couldnt have got SP against purchaser due to supervision, as
purchaser has to go and apply for a transfer, satisfy the Commissioner of Transport that he is a fit and proper
person etc. But Court says can get around this by conditional SP.
Curro: Curro relies on no mutuality b/c of supervision requirement, said she couldnt enforce the contract
against the production company b/c that would require supervision. But this fails, as is only a discretionary
factor to be weighed with all the others.
DELAY (AKA LACHES)
Whether P has delayed in seeking relief.
Court considers whether the delay has caused disadvantage to D that cannot be compensated.
Fitzgerald: V says P waited too long. Court addresses this at some length. Dixon/Fullagar say that the delay
can be ignored b/c it hasnt worked to the prejudice of the V; on the contrary it has advantaged the vendor as he
has maintained sole possession during the whole time in which P was entitled to share it. Improvements can be
accounted for by conditional SP. (Other judges say this is normally sort of case in which delay relevant, but the
Moratorium Acts had the effect of putting the contract on hold, so Rupe didnt have to pay anymore therefore
he hasnt delayed).
BREACH BY P
Whether P himself is in breach of the contract.
This analogous to the R&W principle and is an illustration of the maxim he comes to equity must do so with
clean hands.
This as an important factor in considering whether to grant SP, HOWEVER it will not necessarily preclude a P
from being granted SP.
Fitzgerald: Purchaser supposed to have paid off the land in 5 years, but had not paid it off. Normally this
would disentitle P from being granted SP, but in this case, V actually requested him to stop paying and never
countermanded that request. So Court said that although there was a technical breach, it did not let it guide
their discretion b/c of the circumstances.
READINESS AND WILLINGNESS
Whether P himself is ready, willing and able to perform all of his obligations.
HARDSHIP
Whether requiring D to actually perform his obligations is just too harsh to D.
D can simply argue that SP simply too harsh.
Suttor (subject to approval of Treasurer case) Argues that if he goes through with it he will have to pay too
much tax. Court says hardship is potentially available as a ground, but there must be some element of
unconscionability on part of the other party linked to the hardship. (But even though there was
unconscionability in this case, court says cant rely on it in HCA b/c didnt bring it up in the court below).
Meriton: Green-ban case. Brought by V for SP. Linked to the frustration issue; court held not an issue of
hardship.
MISTAKE OR MISREPRESENTATION
Court may refuse SP if D entered into the contract on the basis of mistake or misrep, even where such a
mistake or misrep was not such as to justify rescission.

Taylor (?): Mrs J says not enforceable on the basis of mistake. What if court held that it was a valid contract?
Mistake could still be raised at the remedial level, Mrs J could argue that should not be required to give SP on
the basis of mistake (but we dont know whether would have succeeded)
IMPOSSIBILITY
If the obligation simply cant be performed, Court may refuse to grant it.
ILLEGALITY
If performance involves some illegal act, court can take into account when deciding whether to order SP.
FUTILITY
A label applied to a rag-bag of cases where simply futile to perform. Eg Group Projects; could also argue that
the undertaking is worth nothing b/c undertaking involves large element of discretion, or heavily conditional
etc. Court may simply say it is pointless to order SP.
SUPERVISION (& PERSONAL SERVICES)
Whether the performance is of such a nature that the continued supervision of the Court would be required in
order to ensure SP.
Most commonly cited example here is personal services (eg employment contracts; partnership etc). It is
considered both undesirable for a court to force a person to perform such a contract and practically impossible
to enforce b/c involves continuing acts on both sides and cooperation.
Look at the type of acts that are alleged to require onerous supervision. Are they merely simple and definite
acts, easily capable of supervision (Williams J in Dougan)? Or are they more complex and onerous?
Dougan: Seller (D) argues no mutuality b/c couldnt have got SP against purchaser due to supervision, as
purchaser has to go and apply for a transfer, satisfy the Commissioner of Transport that he is a fit and proper
person etc. But Court says can get around this by conditional SP. Williams J simply said supervision not
required b/c acts required here were simple and definite (Fred agrees with this).
Curro: BP could not rely on SP as this was a contract for personal services, thus supervision not possible.
Therefore relies on injunction to restrain her breach of the negative obligation.
JC Williamson: Argument that performance by sweets vendor requires acts that require supervision (a bit odd
that this was a successful supervision argument, nonetheless, it is the basis of the courts finding here).
Suttor: Like personal services?
Injunctions
An injunction is an order of the Court forbidding or commanding the performance of an act.
Whereas SP can only be granted to ensure compliance with the whole contract, an injunction can be granted to
ensure compliance with a particular term.
Injunctions are generally granted to restrain breaches of negative stipulations in contracts; eg undertakings not
to do something.
Courts are reluctant to grant injunctions requiring compliance with positive obligations as this would be
tantamount to an order of SP for a term.
The distinction b/w positive/negative obligations is not unproblematic: all obligations can be put in terms of
positive and negative light eg to perform and not to breach. However an obligation will be generally
considered as negative obligation if inactivity would constitute compliance.
Inadequacy of damages is not a strict requirement here, but is taken into consideration. Court will usually
consider whether it would be just to confine P to a remedy of damages.
The discretionary factors relating to injunctions are basically the same as those for SP (above).
PERSONAL SERVICES AND FORCED PERFORMANCE
As SP is not generally available for contracts of personal services, the only possible relief other than damages
is an injunction forbidding the service-provider from performing his/her services elsewhere.
However, courts are confronted with a dilemma: they cannot force the provision of the services by decreeing
SP, yet at the same time if they were to grant an injunction as is normally done in situations of negative
obligations, their actions would be tantamount to forcing the provider to perform the services under the
contract.
The issue is resolved by applying the rule in Lumley v Wagner (Opera singer restricted by contract from
performing in any other theatre): courts have the power to forbid the infringement of the negative stipulation in
a contract for special personal services (eg celebrities, musicians). It is said that in these circumstances,
despite being precluded from performing elsewhere by an injunction, the performer will usually have the
option of earning a living in some other way, thus s/he is not compelled to specifically perform the original
contract if an injunction is ordered.

The exception to the rule in Lumley v Wagner is that: where the injunction forbidding the service provider from
performing elsewhere results in them being positively compelled to complete their initial contract or starve,
then the injunction will not be granted (eg in Lumley the opera singer had no other option than to go back to
her original employer). [Basically, this whole area is ridiculous].
In Curro, Court holds that this was a contract for special services (TV star), thus according to the rule in
Lumley v Wagner, the court has the power to forbid the breach of a negative undertaking not to act as a TV
presenter anywhere else by awarding an injunction restraining such a breach. Such a result would obviously
encourage C to perform her contract fully with BP, however it did not amount to compelling her to do so, as
this was not a case where she had no other option than to act as a TV presenter for BP, she could have earned a
living via other means.
Court in Curro also noted also that the injunctions would only operate for a very short period, and that Cs
breach was flagrant and opportunistic.
Equitable Damages
Statutory form of damages; ancillary to the award of SP and injunctions.
Section 38 of the Supreme Court Act 1986 (Vic): if Court has jurisdiction to entertain an application for
injunction or SP, it may award damages in addition to or in substitution of an injunction or SP.
Seems to refer to the prerequisites if court has the RIGHT to exercise a discretion then it can instead award
damages. However the words have not been interpreted in this way by the HCA. Instead the court says must
show not just that there was jurisdiction but also have to show that the award of SP or injunction would (or
could?) have been awarded; there must not be any discretionary factors that preclude the award. Hence the
argument of all of the issues in JC Willaimson.
However there have been a number of Sup Ct cases since this that hold that need only show that the
prerequisites have been met jurisdiction of equity to grant discretion must be established but that is all. Case
most relied on for this interpretation: Madden v Kevareski (NSW SC). So some doubt now about what is meant
by the words of the section.
Situations in which EDs could be awarded include where SP or injunction have been refused on some
discretionary ground, or where it is more convenient to award damages rather than specific relief, or where it is
necessary to award some damages in addition to specific relief.
Some discretionary grounds for refusing relief will also result in a refusal to award EDs, eg where P himself is
in breach or is not R&W to perform himself.
However other discretionary obstacles to specific relief, eg hardship/delay will not preclude an award of EDs
Obviously the provisions are most important where damages are not recoverable at common law (eg due to
statute of frauds) and SP has been refused due to discretionary factors.
Most judges have agreed that damages here are awarded on the same compensatory basis as contract damages
at common law (eg expectation-based compensation).
CASES: EQUITABLE REMEDIES
Dougan v Ley HCA 1946
FACTS:
- The parties contracted for the sale of Dougans taxi to Ley for $1850.
- L sued D for SP of the contract of sale (ie transfer to him of the taxi).
- Taxis were tightly regulated by legislation that limited their total number and the number of transfers.
- Transfers were subject to approval by the Transport Commissioner; thus L would have been required to apply for the
transfer and to prove himself an able driver etc.
- Despite the short supply of taxis, just before the hearing of the action L was able to purchase another taxi for $1900.
- The trial judge awarded SP, ordering D to do everything necessary to allow the transfer of the registration and
license and to deliver the cab if the transfer was approved.
RESULT:
- Appeal by D dismissed. SP granted
LEGAL IMPORTANCE:
- D argued that damages should have been awarded b/c (1) were available; (2) was wanting in mutuality because Ls
act in having transfer approved required supervision
- Equity will decree SP where the performance (eg goods) is/are unique/special/peculiar.
- Equity can also protect persons who have interests in licenses and also where the goods are necessary for P to carry
on business.

In this case the taxi was special b/c it contained both these elements. It was not merely a car, but a valuable privilege
annexed to a car; a business. Indeed the greater part of the consideration was for the licensing and registration
rather than the vehicle itself these were unique and rare commodities
As to mutuality/supervision: Court made order of SP conditional on the granting of the transfer by the
Commissioner. Once transfer granted, D obliged by SP to transfer the cab no supervision required.
Williams J simply said that supervision is not required b/c the acts required here were simple and definite, easily
capable of supervision by the Court [thus arguably some supervision is OK if acts are easily definable and simple].
The fact that L had managed to buy another taxi was irrelevant, they were entitled to buy more taxis for their
business without prejudice to the original contract.

JC Williamson Ltd v Lukey and Mullholland HCA 1931


FACTS:
- JCW owned a theatre and an adjacent sweet stall. The original lessee of the sweet stall was Divoli.
- Ps made an oral contract with JCW whereby they agreed to take over the existing lease of the sweet shop from
Divoli, and then after the lease expired to lease the ship for a further 5 years from JCW. During this time Ps were to
have the exclusive right to sell sweets in the theatre.
- Ps took over the lease in 1927 and upon expiry took a further 5 year lease. For 3 years Ps sold sweets in the theatre.
- However in 1930 JCW awarded the exclusive right of selling sweets to another party, claiming that no fixed period
had been agreed b/w the plaintiffs.
- Ps sought a declaration that they had the exclusive right to sell sweets and SP of the contract granting that right as
well as an injunction preventing JCW from stopping them exercise their right.
- JCW claimed that the contract was unenforceable due to the Statute of Frauds, which required contracts for greater
than one years duration to be in writing.
- However the Statute only bars common law remedies. P is still capable of receiving an equitable remedy if he has
partly performed the contract, thus trial Juge held that this oral contract was enforceable b/c there had been part
performance.
- Trial judge awarded damages but not SP or injunction; JCW appealed.
RESULT:
5:0 Appeal by JCW allowed.
LEGAL IMPORTANCE:
Specific Performance
- Court accepts the argument by JCW that performance by sweets vendor requires acts that require supervision,
therefore SP barred for want of mutuality.
- Held that both the acts of the Ps (selling sweets as required) and the acts of JCW (enforcing the exclusivity
agreement) required constant supervision of the Court, therefore SP is barred.
- Also applied the rule that if SP is to be granted, the whole contract must be specifically performed cannot grant
specific performance of some obligations and not others [but under conditionality doctrine can make full SP
conditional on other things]
Injunctions
- Ps also sought an injunction to restrain JCW from allowing anyone else to sell sweets in the theatre.
- Although there has been part performance as Ps had been selling for three years, Dixon says all that tells us is that
he had a right to sell; does not establish that there was a negative duty to exclude all others from selling. So really a
construction issue Court not satisfied that the contract contained the alleged negative duty, therefore unprepared to
order to the injunction.
- Moreover, even if there was such an exclusivity agreement, cant order the injunction restraining breach of a
negative duty here as this would require the positive and negative duties to be separated. However they cannot be so
separated cant have one without the other. [I think this is what they are saying].
Curro v Beyond Productions Pty Ltd NSWCA 1993
FACTS:
- BP was the producer of the TV series Beyond 2000 on channel 7, on which Curro was the main presenter.
- BP sued C to restrain her from working for a competitor, Channel 9.
- Beyond relied on two contracts made in August 1991: a service agreement made with C herself, and a services
agreement made with her and her company, Talking Heads, jointly.
- The agreements required that C work exclusively for BP for the duration of the contracts (binding until August
1993)
- In Jan 1993 Curro advised BP that she had been offered a job as a reporter for Channel 9 and that she wished to
accept the offer. Two weeks later she signed a contract with Ch 9.
- BP then bought this action seeking an injunction restraining C from working for Ch 9
RESULT:

Appeal by Curro dismissed.


LEGAL IMPORTANCE:
- Court holds that this was a contract for special services (TV star), thus according to the rule in Lumley v Wagner,
the court has the power to forbid the breach of a negative undertaking not to act as a TV presenter anywhere else by
awarding an injunction restraining such a breach.
- Such a result would obviously encourage C to perform her contract fully with BP, however it did not amount to
compelling her to do so, as this was not a case where she had no other option than to act as a TV presenter for BP,
she could have earned a living via other means.
- Court noted also that the injunctions would only operate for a very short period, and that Cs breach was flagrant
and opportunistic.

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