LLB170 Lecture 5: Week 5 – Performance and Breach – Termination
Week 5 – Performance and Breach – Termination
Performance
• Has the party perform its promised obligations?
- Identify the terms – what promises are included in the parties’ contract?
- Construe the terms – what do they mean? i.e. what do they require the parties
to do?
• If the party has performed its contractual promises (terms), it can claim the contract
price as a debt due to it
What amounts to performance?
First determine:
1. Standard of performance required
- May be expressly stated, implied or determined as a matter of construction (see
Luna Park v Tramways)
2. Time at which performance required
- May be expressly stated
- If not, courts imply a term requiring performance within a reasonable time (Perri)
^ i.e. really asking what will amount to breach?
What if a party has not performed as promised?
Breach
• Breach = non-compliance with term(s)
• When P alleges D is in breach, D may (depending on facts) take one of the following
approaches:
- Acknowledge breach and try to fix it
- Acknowledge breach and accept liability
- Deny breach has occurred – e.g. argue P has misunderstood/misconstrued what
term means/requires
- Argue an exclusion clause excludes D’s liability for breach
- Argue D had no obligation to perform (and thus there is no breach) as:
▪ e.g. there is no contract (formation requirements not met)
▪ e.g. contract has been frustrated by some ‘event’
▪ e.g. contract unenforceable for formality problem
▪ e.g. contract rescinded for vitiating factor affecting D’s consent
But if D is in breach, what are P’s rights?
a) P has a right to damages for any breach by D (Luna Park v Tramways)
- If P cannot show any loss caused by D’s breach, nominal damages will be
awarded to P (Luna Park v Tramways)
- If P proves some loss to it caused by D’s breach, substantial damages are
awarded to P as compensation for that loss (Luna Park v Tramways):
▪ These damages seek to place P in same position as if contract performed
(Cth v Amann Aviation) (Week 6)
▪ Substantial damages may be awarded even where calculation is not only
difficult but incapable of being assessed with certainty (Chaplin v Hicks;
Luna Park)
b) P may also be able to:
- obtain an injunction to stop D continuing its breach (Curro v Beyond 2000) (Week
7); or
- obtain an order for specific performance to compel D to perform its contractual
obligations; (Dougan v Ley) (Week 7) or
- terminate contract if D’s breach is sufficiently serious (Luna Park v Tramways)
(Week 5)
The Right to Terminate a Contract
• termination releases the parties from any obligation to further perform the contract
• Benefits to the terminating party:
- “self-help” response to breaches of the contract
- increase other party’s incentive to comply as they may lose their benefit if they
don’t and expenditure in preparing to perform
- useful bargaining chip → renegotiation of contract where express terms are
inadequate
- power to end a contractual relationship that has broken down
Termination vs Rescission
• Termination = prospective effect → discharges from future obligations however any
rights that have accrued prior to termination continue to be unaffected and can be
enforced
• Rescission = granted where the contract is found to be vitiated by reason of
misunderstanding, mistake, undue influence or unconscionable dealing →
retrospective effect → parties restored to position they were in before the contract
was made
1. Termination by Agreement
Termination under the original contract – express and implied rights to terminate
Express power to terminate
• Especially in long term commercial contracts
• Parties may deal with termination by providing the contract is to last for a fixed
period of time → after time frame, automatically comes to end
• Term providing how/when the contract may be bought to an end with a procedure
to be followed before it can be terminated e.g. requiring notice
• Examples:
- Termination “at will” = right to terminate at any time
- Notice may need to be given
- Termination “triggered” by certain events
• Right to terminate may be given to one or both parties by contract’s express terms
e.g. 'either party can terminate on giving one month’s notice'. Issues arising here
include:
- In what circumstances can the power to terminate be exercised? Are those
circumstances satisfied on the facts? e.g. landlord can terminate lease if tenant
keeps a pet on the premises. What = 'a pet'?
- Does the contract specify a procedure to be followed to exercise the right to
terminate? Has it been complied with? e.g. written notice must be given to other
party giving opportunity to rectify defect prior to termination (Cth v Amann)
See Pan Foods Company Importers & Distributers Pty Ltd v Australia and New Zealand
Banking Group Ltd → principles pg 424
Implied right to terminate a contract of otherwise indefinite duration
• Where a contract is silent as to duration, courts may be prepared to imply a right for
one or both of the parties to terminate the contract
• Based on inference that parties didn’t intend contract to continue indefinitely
• Courts usually require reasonable notice → “bring an end in an orderly way” and
“reasonable opportunity to enter into alternative arrangements” (Crawford Fitting
Co)
• The considerations relevant when implying this right are considered in Crawford
Fitting Co v Sydney Valve & Fittings Pty Ltd
- In what circumstances will the Court imply a termination provision into a contract
of indefinite duration?
- What term will be implied? Termination at will? Or only on notice? What factors
are relevant to that determination?
- If imply term re termination on notice - how does court determine period of
notice? What factors are relevant?
Document Summary
Week 5 performance and breach termination. If the party has performed its contractual promises (terms), it can claim the contract price as a debt due to it. May be expressly stated, implied or determined as a matter of construction (see. Luna park v tramways: time at which performance required. If not, courts imply a term requiring performance within a reasonable time (perri) Breach: breach = non-compliance with term(s, when p alleges d is in breach, d may (depending on facts) take one of the following approaches: Acknowledge breach and try to fix it. Deny breach has occurred e. g. argue p has misunderstood/misconstrued what term means/requires. Argue an exclusion clause excludes d"s liability for breach. But if d is in breach, what are p"s rights: p has a right to damages for any breach by d (luna park v tramways) If p cannot show any loss caused by d"s breach, nominal damages will be awarded to p (luna park v tramways)
