DISCHARGE OF CONTRACTS AND REMEDIES FOR BREACH OF CONTRACT CHAPTER 15 DISCHARGE OF CONTRACTS AND REMEDIES FOR BREACH OF CONTRACT 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

SPECIFIC PERFORMANCE A court may order that a party in breach of a contract specifically perform (complete) the contract – ie carry out the promises made It is common for courts to enforce contracts involving real estate or expensive/rare items of personal property that cannot be easily replaced by payment of money (damages) Specific performance is an equitable remedy and is entirely in the discretion of the court It will not normally be granted to enforce employment or personal service agreements 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

INJUNCTIONS A court order that directs a defendant to stop some action or conduct that is likely to cause a breach of contract or some harm or detriment to others. It has a general application but may be used in contract law to restrain a person from breaking a contract or preventing them engaging in activities that conflict with their existing agreement. It is commonly used in contracts of personal service: Lumley v Wagner and Warner Bros v Ingolia. It is granted solely at the discretion of the court. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

RESTITUTION Restitution is designed in equity to “restore” some benefit to the plaintiff. It can be applied in a breach of contract or where a contract cannot be enforced due to some technicality: Pavey and Matthews Pty Ltd v Paul. Basically a court will order restitution where: The defendant received from the plaintiff some benefit under an agreement; It would be unjust to allow the defendant to keep it because they would be “unjustly enriched”: Planche v Colburn. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

LIMITS TO EQUITABLE REMEDIES Courts are reluctant to grant equitable remedies for breach of contract in any of the following situations: Damages (common law remedy) are an appropriate or adequate remedy for the plaintiff The plaintiff was (in some way) at fault (no clean hands) Constant supervision by the court would be required It would be unfair or unjust to order equity There has been unreasonable delay in seeking equity 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

DAMAGES Damages is the main common law remedy when a contract has been broken by one party Damages is the payment of MONEY to compensate actual loss (so far as the payment of money can do so) Damages are intended to place the plaintiff in the position they would have occupied had the contract been properly performed as agreed If the innocent party cannot show loss, generally there is no right to damages 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

EXCLUSION / LIMITATION CLAUSES An exclusion or limitation clause is designed to either allow a contractual party to avoid liability or limit liability in the event they breach the contract Such clauses can be legally effective where: The exclusion clause is contained in a signed written document Reasonable notice was supplied prior to the contract Parties had previous dealings with each other The wording of the clause is clear and precise (not ambiguous) In some situations exclusion clauses are prohibited by statutes such as the Sale of Goods Act (NSW) and Trade Practices Act (Cth) where they are contained in a consumer contract 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

DISCHARGE OF CONTRACTS Discharge of a contract means that the contract is treated as finished and the parties are released from any further obligations; Contracts may be discharged in a variety of ways including: Performance Agreement (the contract itself provides for discharge) Subsequent agreement (a later contract may replace an earlier one) Operation of the law Election of one party where the contract has been breached (broken) Frustration (an unforeseen event making completion impossible) 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

TYPES OF DAMAGES Expectation damages: money for lost benefits or gains the plaintiff expected to receive had the contract been properly completed: Victoria Laundry v Newman. These are the most common form of damages. Reliance damages: compensation for moneys spent by the plaintiff in anticipation of the contract being performed: Amaan Aviation case. Nominal damages: where a plaintiff cannot prove any actual losses the court may grant a nominal (token) amount to recognise the contract was broken. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

TYPES OF DAMAGE CONT… Liquidated damages: where a contract provides an amount to be paid in the event of a breach. This is usually allowed if it is a genuine “pre-estimate of losses” and not simply a penalty. Unliquidated damages: where losses are difficult to estimate and are determined by the court. The amount of the damages may even require some guesswork or calculations: Victoria Laundry v Newman. Injured emotions: normally courts are reluctant to allow damages for distress or disappointment. However, where contracts promise pleasure/fun/enjoyment then damages for lost enjoyment may be payable: Baltic Shipping v Dillon. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

LIMITS TO DAMAGES Not all losses caused by a breach of contract can be recovered. Damages are subject to the following rules: Losses must not be too remote. A defendant will only have to pay for losses that were reasonably foreseeable: Hadley v Baxendale and Victoria Laundry v Newman. Losses must be mitigated (minimised or reduced by the plaintiff where possible). A plaintiff is legally required to take reasonable steps to reduce or minimise any losses (where possible). 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

THE RULE IN HADLEY v BAXENDALE Where a defendant breaches a contract the plaintiff will only be able to recover such damages that are “not too remote”. This will only occur where: the losses arose naturally from the breach of contract – ie the loss occurred in the normal course of things as a result of the breach; OR there were special or other types of losses that were made known to the defendant so that the defendant would contemplate them or foresee them should the contract be broken. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

PROMISSORY ESTOPPEL This is a remedy in equity It literally means that a party who makes a promise may be stopped from breaking that promise where it would be unfair or unjust for them to do so Promissory estoppel was originally used as a defence in England (High Trees Case) Promissory estoppel has been adopted in various Australian cases and has been used to commence legal action as well as for defending a claim (see Waltons v Maher and Legione v Hateley) Promissory estoppel has been used as a remedy even where there is no legal and binding contract 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

MITIGATION OF LOSSES A plaintiff who suffers from a breach of contract has a legal obligation to mitigate their losses – ie minimise or reduce losses. The law presumes the plaintiff is the only party in a position to be able to reduce or minimise any losses. This means they must take reasonable steps to reduce, lessen or minimise the losses caused by the breach of contract. In the event a plaintiff fails to reduce their losses, then the defendant may legally argue this in court. If successful the defendant will generally not be liable for all losses as the plaintiff is deemed partly responsible for their own losses. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

REMEDIES FOR BREACH OF CONTRACT Common Law Equity Damages Repudiation Rescission Specific Performance Injunction Rectification Restitution Promissory estoppel 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

REPUDIATION This is a common law remedy that can be exercised by plaintiffs themselves Where a condition in a contract has been breached, the plaintiff is entitled to repudiate the contract (terminate the contract) and refuse to proceed with it If the breach has caused losses to the plaintiff they may also claim damages If a warranty is breached, the plaintiff may claim damages but is not permitted to repudiate the agreement 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

RESCISSION Equity may allow a court to cancel or set aside the agreement where a serious breach has occurred. This is called “rescission” of the contract and it makes the contract void. The purpose of rescission is to return the parties to their positions prior to the contract. A plaintiff who wishes to terminate a contract due to a breach of an important term may apply to the court for an order to rescind the contract. Rescission will normally be granted where: the parties can be restored to their original positions; the plaintiff has not affirmed the contract; and the rights of innocent third parties are not at risk. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

RECTIFICATION Rectification is an equitable remedy that permits a court to correct errors in a written contract. It is used by the courts only where the parties have concluded an agreement but the terms and clear intentions of the parties have been written down incorrectly. As a result it is available only in very limited situations and is designed to correct the written agreement only to the extent to make it conform with the parties’ true intentions and correct an obvious error. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition

REMEDIES UNDER STATUTE LAW Various statutes provide remedies for breaches of contracts and unfair or unjust agreements. Examples include: The Contracts Review Act (NSW): allows a court to declare a contract wholly or partially void where it is “unjust”. The Trade Practices Act (Cth) and similar State and Territory Fair Trading Acts: allow for damages; avoiding a contract; injunctions; corrective advertising; and other remedies where a contract is either unconscionable or there have been unfair practices by a contracting party (particularly in relation to consumers). The new Australian Consumer Laws: have replaced the TPAct in 2011 and offer much the same remedies. 2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint slides to accompany A Guide to Business Law, 19th Edition