7/08/2015CLWM4000 Business & Corporations Law Termination & Remedies Lecture Four COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 WARNING This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (the Act). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Do not remove this notice. 1 Objectives for termination/remedies 1. Explain the doctrine of privity of contract 2. Recognise and explain the methods by which a contract is ended, including performance; agreement; frustration; operation of law; by lapse of time at common law; by virtue of a term in the contract breach 3. List the remedies for breach of contract 4. Explain the principles upon which damages are decided 5. Classify the types of damages 6. Describe situations where equitable remedies may be used 2 1 • Tutorial Week 4 – Refer Detailed Weekly Schedule for question numbers 3 Rights of parties and discharge • Privity of Contract • As a general rule. only the parties to the contract can acquire rights and incur liabilities under it • No right of action in contract exists against a person who is not a party to a contract but a third party who knowingly and intentionally induces a breach of contract may commit a tort 3 Discharge Discharge Performance Agreement Frustration Operation of law Lapse of time By virtue of a term Breach 4 2 . O’Reilley & Coleman Tutorial.7/08/2015 References Chapter Reference • Chapters 8 Textbook • Law in Commerce 5th Edition Sweeney. • It would be unjust to hold the parties to their original contract 7 3 . • Neither party contemplated the supervening event.7/08/2015 Discharge by performance 5 Discharge by agreement A contract created by agreement can be undone by agreement: • Waiver • Substitution • Accord and Satisfaction • Condition Precedent • Condition Subsequent 6 Discharge by frustration Frustration can only arise where: • An unforeseen event outside the control of the parties has significantly changed the obligations of the parties. • Neither party caused the supervening event. South Australia: Frustrated Contracts Act 1988 uses an equitable approach to try and ensure fairness. Change in the law rendering performance impossible 4.7/08/2015 Discharge by frustration Cases involving this doctrine fall into five categories: 1. Physical impossibility because of destruction of the subject matter 2. 9 Effect of frustration 10 4 . Impossibility due to non-occurrence of an event basic to the contract 5. Physical impossibility under a contract of personal services 3. New South Wales: Frustrated Contracts Act 1978 adjusts the rights of the parties where a contract has been frustrated. Where the particular state of affairs ceases to exist • The effect of frustration is to discharge the contract but only as to the future 8 Discharge by frustration 3 States have modified the common law position: Victoria: Frustrated Contracts Act 1959 allows expenses incurred before frustration to be recovered. they are liable for breach of contract • Breach may be: • Actual breach where a party fails to perform at the time required by the contract. or • Anticipatory breach where a party threatens not to perform prior to the time required by the contract 13 5 .7/08/2015 Discharge by operation of law • Bankruptcy • Material alteration • Merger • Death if the contract is for personal services • Limitations legislation 11 Discharge through lapse of time • An offer does not remain open for acceptance for an indefinite length of time at common law • It may cease to exist by lapse of time Discharge by breach of term • Terms may be included in the contract that will have the effect of either preventing the contract from coming into force (condition precedent) • Or that can bring the contract to an end on the occurrence of a certain event (condition subsequent). 12 Discharge through breach of contract • Where one party fails to perform their obligations as agreed. and • The defendant has no defences to rely upon 16 6 . • The benefit was at the plaintiff’s expense. • fails to act or act within a reasonable time. • It would be unjust to allow the defendant to keep that benefit or enrichment.7/08/2015 Remedies for breach of contract 14 Rescission • Rescission entitles the injured party to set the contract aside and is only available for breach of a condition • The right to rescission is lost if the injured party: • continues with the transaction. or • if an innocent third party acquires an interest in the subject matter 15 Restitution Restitution is based on the concept of unjust enrichment. The plaintiff must establish: • The defendant must obtain a benefit or enrichment. 7/08/2015 Restitution Restitution can be used if: • The defendant has received a sum of money from the plaintiff and there has been a total failure of consideration or a mistake of fact. • They are calculated on the basis of looking at what the position of the plaintiff would have been if the contract had been properly performed. 18 Damages – steps to obtain them 19 7 . • Damages are a common law remedy and awarded as of right. • Under a mistake of law • Under duress or compulsion • Restitution makes use of the doctrine of quantum meruit (for as much as he has earned) 17 Damages • Main purpose of damages is to enable the innocent party to receive monetary compensation. 7/08/2015 Damages and causation • Is there a causal connection between the breach and the loss suffered? • The plaintiff must show that the breach of contract by the defendant was the cause of the loss. • The court must consider whether the loss suffered by the injured party is a usual and reasonably direct consequence of the breach of contract. and this is a question of fact. Baxendale (1854) indicates two types of loss are recoverable: • loss arising from the breach in the usual or normal course of things. • Damages are recoverable for provable or economic loss as well as: Expectation losses Reliance losses Anxiety and inconvenience Distress and disappointment Frustration Discomfort Mental distress 22 8 . and • loss arising from special or exceptional circumstances where it can be shown that the defendant had actual knowledge of the plaintiff’s needs 21 Amount of damages • The aim of damages is to put the injured party back as close to the position had the breach never occurred. • The plaintiff may not be able to recover if an additional factor unconnected with the defendant’s breach breaks the causal chain between the defendant’s action and the plaintiff’s loss or damage 20 Remoteness • The loss or injury must not be too remote. • Hadley v. Unliquidated damages • Penalty Discussion point: Give examples of each 24 Equitable remedies 25 9 .7/08/2015 Types of damages 23 Types of damages • Nominal damages • Ordinary damages • Exemplary damages • Liquidated v. Week 4 Read and understand Lecture 04 content Read textbook & make notes on Lecture 3 topic Make a list of questions to bring to class Attempt all Tutorial Week 4 Questions Print powerpoint slides for Lecture 5 27 10 .7/08/2015 End of Lecture 04 Action Plan .