La1106 – Exam Notes

Lecture 3

Termination for delay

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  Breach of procedure, not substance
  
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  It is a breach of the term regarding the time of completion
  
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  Requirement for notice
  
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  Special terminology
  
  • 
    Time is of the essence
    

Terms – time of performance

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  Time indicates time and time is of the essence; OR
  
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  Term indicates time; OR
  
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  No term as to time
  

No term as to time

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  Court would infer that time is not of the essence
  
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  Obligation must be performed within a reasonable time
  

Time is of the essence

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  If time is of the essence – the breach of that term entitles innocent party to terminate the contract
  
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  Determining whether time is of the essence:
  
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    Expressed term
    
    • 
      May give an exact date, or may be more general
      
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      Must make clear that time is essential
      
      • 
        Often by mentioning that time is of the essence or words to that effect
        
      • 
        May be expressed that the failure to comply with this term gives a party the right to terminate the contract
        
    • 
      Can apply to the entire contract or specified obligations under the contract
      
  • 
    Implied term
    
    • 
      It is not expressly indicated that time is essential or of the essence
      
    • 
      Whether or not it is determined that time is of the essence is a question of construction. The contract as a whole will be looked at, as will the surrounding circumstances.
      
  • 
    Condition or innominate term
    
    • 
      Even a minor breach can allow for termination, therefore will mostly be considered an innominate term
      
  • 
    PLA – section 62
    

Time is not of the essence

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  Does not entitle aggrieved party to terminate the contract.
  
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  Implied term that performance is needed within a reasonable time.
  
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  But, aggrieved party is allowed to terminate:
  
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    If delay amounts to repudiation; or
    
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    If the defaulting party has been served a notice
    
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  To amount to repudiation there must be a substantial delay
  

When will delay constitute repudiation?

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623

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  If the inference to be drawn from the circumstances is that the defaulting party intends to perform an essential promise after some minor delay, repudiation cannot be inferred; but if the inference is that the defaulting party intends so to delay performance that the promisee will be substantially deprived of the benefit of the promise, repudiation can be inferred’. (per Brennan J, 643)
  

Making time of the essence

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  If time is not of the essence and A has not performed by time stipulated or by a reasonable time, B can serve a notice on A.
  
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  If A fails to comply with the notice, this amounts to repudiation.
  
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  Therefore, B can terminate the contract.
  

Notices

When can notice be given?

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  If a date has been stipulated, notice cannot be served until after that date
  
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  If no date has been stipulated, a reasonable time must have been passed
  

Does notice turn the time term from a warranty to a condition?

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  No
  
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  It effectively tells the defaulting party that if they continue to default they will be repudiating and give the other party the ability to repudiate
  

Notice must specify

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  What the promisor must do to perform
  
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  A reasonable time in which to complete
  
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    What constitutes a reasonable time depends on the circumstances of the case
    
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    The subject matter
    
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    What remains to be done
    
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    Whether the agreed party has been consistently pressing for performance
    
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  Consequences of non-performance
  
  • 
    Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd
    

If it is not valid and you terminate the contract after serving an invalid notice, then you have repudiated and the other party is able to terminate the contract and receive damages

Extension of time

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  Variation of the contract by subsequent agreement
  
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  Binding on both parties
  
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  Is able to be given even if time is of the essence
  
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  May be a subsequent agreement or an extension of the contract
  
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  A party that has waivered their right to have the contract performed on time cannot then sue when it is not completed on time
  

Termination and affirmation

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  Breach or repudiation of a contract does not automatically terminate the contract but gives innocent party the right to terminate.
  
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  The innocent party must elect between:
  
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    Affirming the contract
    
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    Terminating the contract
    

Procedures and consequences

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  Determined by common law
  
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  Affected by terms of contract, for example:
  
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    Contingent condition
    
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    Notice, show cause for terminating contract
    
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    Will only override common law procedures if the terms in the contract cover the circumstances comprehensively
    

Election to terminate the contract

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  Must be communicated to the other party
  
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    Can be by communication or may be implied by conduct
    
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    Must be unequivocal
    
    • 
      Immer v Uniting Church (1992) 182 CLR 26
      
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    Can be notified by a third party rather than the innocent party
    
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  Preventing performance of the other party
  
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    E.g. if someone was to sell something to someone, but they don’t have their finances so you sell to someone else instead.
    
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  Failing to perform one’s own obligations
  
  • 
    Vitol v SA Norelf Ltd [1996] 3 W.L.R. 105
    
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  Once a party has terminated the contract, they cannot affirm it
  
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  Notice is not required but recommended
  

Ready, wiling and able

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  Aggrieved party must be ready, willing and able to perform its obligations at the time of the breach
  
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  For anticipatory breach, it is sufficient if party is ‘not substantially disabled’
  
  • 
    Rawson v Hobbs (1961) 107 CLR 466
    
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  Aggrieved party is not required to be RWA if it would be futile
  
  • 
    Foran v Wight (1989) 168 CLR 385
    

Restrictions on termination

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  Equity will prevent a party from terminating a contract if it would be unconscionable to do so.
  
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  Two situations:
  
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    Equitable estoppel
    
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    Relief against forfeiture
    
    • 
      Legione v Hateley (1983) 152 CLR 406
      
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  If the contract has been terminated due to breach, it is up to the innocent party to give notice
  

Consequences of termination for the parties

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  Future obligations lapse
  
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  Past obligations stand
  
  • 
    McDonald v Dennys Lascelles (1933) 48 CLR 457
    
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  Innocent party entitled to damages for unperformed obligations
  
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  Some procedural terms may survive termination
  
  • 
    Heyman v Darwins [1942] 1 All ER 337
    

Election to affirm the contract

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  By unequivocal words or conduct:
  
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    Accepting, encouraging or insisting on performance
    
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    Continuing to perform
    
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    Unreasonable delay in terminating
    
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  But the following do not necessarily amount to affirmation:
  
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    Granting an extension.
    
    • 
      Tropical Traders Ltd v Goonan (1964) 111 CLR 41
      
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    Pursuing alternative remedies.
    
    • 
      Johnson v Agnew (1980) AC 367
      
    • 
      Lord Wilberforce: ‘A vendor who seeks and gets specific performance is merely electing for a course which may or may not lead to the implementation of the contract. What the vendor elects for is not eternal and unconditional affirmation but a continuance of the contract under the control of the court which control involves the power in certain events to terminate it.’
      

Termination

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  Right of termination for the breach is lost upon affirmation but termination is possible for:
  
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    A further/different breach
    
    • 
      Tropical Traders v Goonan
      
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    The same breach if continuous
    
    • 
      Larking v Great Western (Nepean) Gravel Ltd (1940) 64 C.L.R. 221
      
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  Aggrieved party’s knowledge of right to terminate is required.
  

Consequences for innocent party

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  Remains liable to perform.
  
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  May not be required to perform obligations, if the repudiating party has implied it would be futile to do so.
  
  • 
    Peter Turnbull & Co v Mundus Trading Co (1954) 90 CLR 235
    
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  Entitled to sue for damages for breach.
  
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  For anticipatory breach, right to claim damages accrues only upon breach.
  

Consequences for defaulting party

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  Remains liable to perform
  
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  Liable for damages
  
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  Entitled to terminate the contract for any breach by the other party
  
  • 
    Bowes v Chaleyer (1923) 32 CLR 159