Week 2 Termination for Breach Termination for Repudiation Termination for Delay

1 Termination for Breach  Discharges the contract  Only relevant where breach occurs before performance of all the obligations of the contract  Party ‘elects’ to terminate or to affirm the contract

2 Termination for Breach  Breach of term expressly providing for termination  Breach of Condition  Serious Breach of Innominate term  Repudiation

3 Termination for Breach  Tri-partite Classification of Terms Condition Warranty Innominate (aka Intermediate) Term

4 Termination for Breach  Tri-Partite Classification of Terms Condition - any breach will justify termination Warranty - termination not allowed Innominate Term - only serious breach justifies termination

5 Tri-partite Classification of Terms  Test of Essentiality  Structure of Term  Structure of Contract  Importance of term, consequences of breach  Variety of breaches  Are damages assessable?  Nature of term, subject matter and contract  Policy Factors - encouraging performance, promoting certainty, providing flexibility

6 Tri-partite Classification of Terms  Express Agreement as to Character of Term Term may be called a ‘condition’ Not decisive - parties adopt language without intending strict legal definition Term specifies that any breach allows innocent party to terminate. Innocent party must comply with any requirements outlined in term eg notice

7 Tri-partite Classification of Terms  Test of Essentiality - Luna Park v Tramways, Jordan CJ  ‘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 into the contract unless he had been assured of a strict or substantial performance of the promise… and this ought to have been apparent to the promisor.’

8 Tri-partite Classification of Terms  Structure of Term Precise language Specific obligations Words such as ‘guarantee’ Support inference that term intended to be a condition

9 Tri-partite Classification of Terms  Structure of Contract If some terms expressly provide termination for breach, then inference is that terms which don’t provide for termination are not intended as conditions If a term specifies a sanction such as penalties, inference that term is not a condition

10 Tri-partite Classification of Terms  Consequences of Breach If every breach of a term is likely to be serious, then it is probably a condition If a term could be breached in a serious way or a trivial way, then probably not a condition

11 Tri-partite Classification of Terms  Breach can have variety of consequences If a term can be breached in a serious way or in a trivial way, it is probably an innominate term rather than a condition

12 Tri-partite Classification of Terms  Are Damages Assessable If damages are difficult to gauge, then term more likely to be a condition If damages not likely to compensate, then term more likely to be a condition

13 Tri-partite Classification of Terms  Nature of term, subject matter and contract Term may have been interpreted by courts in previous cases - eg template contracts Certain types of contract or terms may have been classified as conditions or warranties in previous cases.

14 Tri-partite Classification of Terms  Policy Factors Promoting Certainty - defining a term as a condition promotes certainty because the parties know what response to breach is allowed Encouraging Performance - defining a term as innominate or a warranty encourages parties to perform the contract rather than to terminate Providing Flexibility - one reason the courts favour defining terms as innominate is that this provides greater flexibility in response to breach - ie the response to breach is proportionate to the actual or foreseeable consequences.

15 Termination for Breach  Breach of express condition OR breach of term expressly providing for termination Innocent party must follow whatever procedure is required ie innocent party must comply with term if they want to rely on it If innocent party fails to comply with term, they can still argue under other grounds of termination such as breach of condition, serious breach of innominate term or repudiation

16 Termination for Breach  Breach of Condition Any breach justifies termination, even if the actual breach or its consequences seem trivial When applying test of essentiality, do not consider the actual breach

17 Termination for Breach  Breach of Innominate term Breach must be ‘serious’ Deprive party of substantially the whole benefit of the contract Go to the root of the matter Seriousness includes actual breach, its actual consequences and its foreseeable consequences

18 Termination for Repudiation  Repudiation Party is not willing and able to perform Must be serious Must relate to the whole of the contract May be before time for performance - ‘anticipatory breach’

19 Termination for Repudiation  Anticipatory Breach Innocent party may accept the repudiation, terminate and sue for damages Innocent party may refuse to accept repudiation, affirm the contract and ‘wait and see’ what happens. Can only recover damages for actual breach.  Actual Breach Could include breach of condition (though unnecessary) or non-serious breach of innominate term or breach of warranty.

20 Termination for Repudiation  Forms of Repudiation Express Statement Words and Conduct Actual Inability to Perform Erroneous Interpretation of the Contract Cumulative Breaches

21 Termination for Delay  Contract may or may not contain time stipulations.  If no time stipulated, courts will imply a term that performance must be within a reasonable time  If contract contains time stipulations, they may or may not be conditions.  “Time is of the essence” means that the time stipulation is a condition.  Delay may also amount to repudiation

22 Termination for Delay  In absence of ‘time of the essence’ general rule is that time stipulations are NOT essential.  Innocent party can NOT rescind unless they serve a valid notice to complete.  Can not serve a valid notice to complete until there has been a breach ie the non- essential time stipulation has been breached, or a reasonable time has lapsed.

23 Termination for Delay  Notice to Complete Must specify a time for performance Time must be reasonable Must convey right to terminate if time limit is not complied with eg state that ‘time is of the essence’. Innocent party must be ready willing and able to perform their contractual obligations