Termination

Question 1

What happens to the rights and obligations of the parties when a contract is terminated?

Answer 1

• All rights and obligations accrued before the moment of termination remain binding and enforceable
  
  • All rights and obligations accrued after the moment of termination are not binding
    (as opposed to void: It is as if the contract never existed)

Question 2

When can a contract be terminated?

Answer 2

• As agreed on by parties (by mutual agreement or through a term of the contract)
  
  • Where the common law permits
    ○ Breach of condition
    ○ Sufficiently serious breach of an intermediate term
    ○ Repudiation
    ○ After sufficient delay

Question 3

What is termination by agreement? (and relevant case)

Answer 3

When the parties expressly or impliedly include a term allowing for termination under certain circumstances (Crawford Fitting Co v Sydney Valve & Fitting Pty Ltd)

Question 4

Principle from Crawford Fitting Co v Sydney Valve & Fitting Pty Ltd

Answer 4

There is an implied term that a contract which does not stipulate termination can be terminated on reasonable notice. Reasonable notice will give time to satisfy the common purpose of the parties.

Question 5

Facts from Crawford Fitting Co v Sydney Valve & Fitting Pty Ltd

Answer 5

• Crawford was a corporation (involved in manufacturing specialised valves and fittings used in controlling high pressure gas and liquids) who appointed Sydney Valve as their main distributor in NSW
  
  • Distributor agreed not to deal in any other products
  • In 1984 the appellants gave the distributor 6 months notice of termination of the agreement

Question 6

Decision from Crawford Fitting Co v Sydney Valve Fittings

Answer 6

6 months was not sufficient time to to allow the distributor to regain some of his initial expenditure (at least 1 year would have been better)

Question 7

What is termination by subsequent agreement? What is required?

Answer 7

Both parties agree to termination. Must be supported by good consideration. (Consideration must be sufficient but not necessarily adequate - peppercorn rule)

Question 8

What is sufficient consideration for termination by agreement?

(executory contract, partially executed contract)

Answer 8

Executory (partly completed by both parties): Good consideration is mutual abandonment

Partly executed (fully completed by one party): Good consideration is fresh consideration from the incomplete party (e.g. paying out etc.) Accord and satisfaction.

Question 9

What is accord and satisfaction?

Answer 9

Partly executed (fully completed by one party): Good consideration is fresh consideration from the incomplete party (e.g. paying out etc.)

Question 10

What do executory and partly executed mean?

Answer 10

Partly executed (fully completed by one party)
Executory (partly completed by both parties)

Question 11

Three types of term which can be breached?

Answer 11

Condition, warranty, intermediate term

Question 12

Which types of breach give rise to a right to damages?

Answer 12

Every breach.

Question 13

What is a breach?

Answer 13

§ They didn’t perform any of the obligations
§ They didn’t perform all of the obligation (incomplete)
§ The obligation was completed late

Question 14

Principle from Arcos v Ronaasen

Answer 14

• If the breached term is a condition there is a right to terminate the contract, no matter how minor or inconsequential the breach
• Statute can deem something a condition (Goods Act)

Question 15

Arcos v Ronaasen facts

Answer 15

• Manufacturing of barrels
• When it landed at the dock they didn’t want it anymore because the price of timber had fallen and they wanted to buy it from somewhere else
• Argued it didn’t arrive on time - decided it had
• Argued that it wasn’t the right thickness(because some were slightly over) - used the fact that the sale of goods act states that this is a condition

Question 16

Arcos v Ronaasen decision

Answer 16

• Goods Act means the term is a condition
• Doesn’t matter that the wood could still be used to make the barrels
• Gives right to terminate no matter the reason, or how major or minor the breach etc.

Question 17

What are the three ways a term can be classified as a condition?

Answer 17

1. By statute
2. Designation by the parties
3. As a matter of construction

Question 18

How can the parties expressly categorise a term as a condition?

Answer 18

• Express wording
• Intentions of parties
  Note: use of the word condition is persuasive but not conclusive evidence that the term is a condition.

Question 19

L Shuler AG v Wickman Machine Tool Sales Ltd principle

Answer 19

Use of the word condition is a strong indicator that the term is a condition but is not decisive

Question 20

L Shuler AG v Wickman Machine Tool Sales Ltd facts

Answer 20

• German company agreed to give British company selling rights of their panel presses
• Term of the contract stated: It shall be [a] condition of this agreement that (i) [the respondents] shall send its representatives to visit” the six largest United Kingdom motor manufacturers “at least once in every week” to solicit orders for panel presses.
• Company failed to complete every visit
  German company sought to terminate

Question 21

L Shuler AG v Wickman Machine Tool Sales Ltd decision

Answer 21

The use of the word condition was persuasive but not conclusive: the term is not a condition.
The intention of the parties must be considered.
If the interpretation produces an unreasonable result it is unlikely that it is the correct interpretation.

Question 22

What is the test for classifying a term as a condition as a matter of construction?

Answer 22

Tramways essentiality test

Question 23

Tramways v Luna Park principle

Answer 23

The test of essentially is whether it appears form the general nature of the contract…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 a substantial performance of the promise, as the case may be, and this ought to have been apparent to the promisor

Question 24

Tramways v Luna Park facts

Answer 24

Plaintiff [Tramways] entered into an agreement with the Defendant [Luna Park] to advertise for it for 3 seasons.
An express term of the agreement provided that the advertisements will be on for at least 8 hours a day every season.
The Defendant found out, during the second season, that the ads were not displayed a minimum of 8 hours a day.
The Plaintiff admitted this, but argued that they were being displayed on an average of 8 hours a day.
Luna Park sought to terminate

Question 25

Tramways v Luna Park decision

Answer 25

The term is a condition - wording: "we guarantee" - circumstances: payment only began after every ad Condition breached: termination

Question 26

Associated Newspapers Ltd v Bancks (1951) principle

Answer 26

Confirmed essentiality test: If the party wouldn't have entered the contract without assurance the term would be followed the term is a condition and breach gives rise to a right to terminate.

Question 27

Associated Newspapers Ltd v Bancks (1951) facts

Answer 27

- Bancks had a 10 year contract with Associated newspapers: He would provide one full page comic each week and it would be published on the front page. - Associated newspaper published on 3rd page - Bancks sought to terminate

Question 28

Associated Newspapers Ltd v Bancks (1951) decision

Answer 28

Court found that without each of three promises Bancks wouldn't have entered into the contract - He would produce a full page comic - He would do it every week - It would be on the front page of the section - Applied essentiality's test

Question 29

What is an intermediate term?

Answer 29

A term which can be breached in a variety of ways; ranging from minor to serious.

Question 30

When is it determined if a breach of an intermediate term gives rise to a right to terminate?

Answer 30

At the time of the breach - if the breach is sufficiently serious it will give rise to a right to terminate. Depends on the gravity and consequences of the breach.

Question 31

HongKong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha principle

Answer 31

An intermediate term will give rise to breach is sufficiently serious. Question: such as to deprive the charterers of substantially the whole benefit which it was the intention of the parties they should obtain

Question 32

HongKong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha facts

Answer 32

* Hong Kong shipping hired out a ship to Kawasaki and there was an agreement that the ship would be seaworthy * Many issues with quality of ship - long time getting fixed, unavailable for 5 weeks in the first 16 weeks, then only 1 week in the next 16 weeks etc. * Kawasaki wanted to get out of the contract - they purported to do so by terminated the contract by the condition of seaworthiness

Question 33

HongKong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha decision

Answer 33

The damage to the ship was not sufficiently serious - out of action for 6 out of 32 weeks: not serious enough because it is not 'substantially the whole benefit' - they can still use it for 26 weeks

Question 34

Ankar Pty Ltd v National Westminster Finance (1987) principle

Answer 34

The adequacy of damages as a remedy may be a material factor in deciding whether the breach goes to the root of the contract. strictissimi juris: ambiguous contractual provisions should be construed in favour of the surety. Time clause may not be able to be classified as an intermediate term because it can only be breached in one way: lateness

Question 35

Ankar Pty Ltd v National Westminster Finance (1987) facts

Answer 35

• Ankor acted as guarantor for X • X agreed to tell Ankor if circumstances changed - • They weren't notified • Didn't terminate - went to the court and sought a declaration - Issue: Was the breach (no notification) sufficiently serious to give rise to termination?

Question 36

Ankar Pty Ltd v National Westminster Finance CLR (1987) decision

Answer 36

The terms were conditions so there was a right to terminate but if not the breach would have been serious enough to give right to terminate if the term had been classed as intermediate (discussed in obiter).

Question 37

Koomphahtoo Local Aboriginal Land Council v Sanpine (2007) Principle

Answer 37

Intermediate terms doctrine confirmed in Australia (and should have been taken to be confirmed by the case of Ankar)

Question 38

Koomphahtoo Local Aboriginal Land Council v Sanpine (2007) Facts

Answer 38

• K provided land • Sanpine look after business sides • Several clauses - none of which were complied with ○ Sanpine never kept proper accounts, accounts which it did have didn't sufficiently explain spendings etc. • K terminated - Were the terms intermediate? Was the breach sufficiently serious?

Question 39

Koomphahtoo Local Aboriginal Land Council v Sanpine (2007) Decision

Answer 39

High court: § Assumed all contractual terms breached were intermediate terms not conditions and went on to consider the seriousness § Breach were gross ○ Kirby: § Skip the step asking if the term could have been breached in a variety of ways and simply ask if the has been a breach of essential term or a breach of a non-essential term causing substantial loss of benefit or a renunciation of the contract

Question 40

What is delay?

Answer 40

Failure to perform the contract in time. A specific type of breach.

Question 41

When does a contract need to be completed by if there is no time stipulation in the contract?

Answer 41

Within a reasonable time - determined based on the circumstances

Question 42

When will a delay give rise to a right to terminate?

Answer 42

When time is of the essence or if the breach is sufficiently serious (uncertain area of law: might not be intermediate term) or if delay amounts to repudiation

Question 43

When will time be of the essence?

Answer 43

§ Expressly indicated by the parties - courts will usually accept that time is of the essence § Not expressly stated by parties - only of the essence if that's what the parties intended: Tramways

Question 44

When does delay amount to repudiation?

Answer 44

○ When the delay is so long or is in circumstances where it demonstrate a fundamental unwillingness or inability to perform under the contract ○ Where the breaching party is given notice to perform within a reasonable time (specified) but fails to do so

Question 45

When can notice be given?

Answer 45

□ If the time was expressly stipulated the notice can be given as soon as any delay occurs □ If the time was not expressly stipulated then notice cannot be given until after an unreasonable delay has occurred

Question 46

Goods Act 1958 (Vic) s 15

Answer 46

Unless a different intention appears from the terms of the contract, stipulation as to time of payment are not deemed to be of the essence of a contract of sale

Question 47

Property Law Act 1958 (Vic) s 41

Answer 47

Stipulations in a contract as to time or otherwise, which according to the rules of equity are not deed to be or to have become the essence of the contract shall be construed and have effect at law in accordance with the same rules

Question 48

Louinder v Leis 1982 CLR principle

Answer 48

- Notice must identify the correct breach - A notice can only be issued for something that has already had a delay around it - Entitled to give notice as soon as delay is evident, no need to wait for actual default - Where there is no date stated for performance, then the date for completion is a reasonable time after the signing of the contract. Delay beyond what is reasonable may itself constitute a repudiation

Question 49

Louinder v Leis 1982 CLR facts

Answer 49

- Contract for the sale of land for which a date for completion was not fixed and it was not stated that time was of the essence - Very relaxed transaction. Vendor asked for 3 month extension, purchasers agreed. - Contract provided that within 28 days from the delivery of the vendor’s statement of title the purchaser should tender a transfer to the vendor for execution - Purchaser did not comply with this provision - Vendor posted a notice to the purchaser requiring completion of the contract within 21 days - Notice was not complied with, vendor purported to terminate

Question 50

Louinder v Leis 1982 CLR decision

Answer 50

- Notice must identify the correct breach - Vendors issued notice for fulfilment of contract rather than term - incorrect breach - They could only issue notice for that breach if there was unreasonable delay which there wasn't - No right to terminate

Question 51

Laurinda Pty Ltd v Capalaba Park Shopping Centre 1989 CLR principle

Answer 51

• The notice must specify a time for performance; of a particular obligation • The time allowed must be reasonable in all the circumstances; and • The notice must clearly convey that:  ○ the time fixed for performance is of the essence; or  ○ the party giving the notice will regard himself/herself as being entitled to terminate should the notice not be complied with

Question 52

Laurinda Pty Ltd v Capalaba Park Shopping Centre 1989 CLR facts

Answer 52

• Contract for lease of shop in shopping centre: Oct 1985 • Possession in Nov • Tenant required to pay for registration of the lease • Tenant complied and paid • Land lord didn't register • Tenant's accountant asked for receipt of registration • Owner said it was being processed • Tenant found out owner was trying to sell • Sept. “In such circumstances, and in view of the unexplained and lengthy delay, it appears reasonable that our clients require your client to complete registration within 14 days from the date hereof. If registration is not completed within that time then our clients naturally reserve their rights in respect of your client’s default.” - Not registered in 14 days Tenant terminated on the basis of either repudiation or breach of essential terms

Question 53

Laurinda Pty Ltd v Capalaba Park Shopping Centre 1989 CLR decision

Answer 53

Notice was not sufficient to give rise to a right to terminate - Didn't give reasonable time (cannot be registered in 14 days) - Didn't explicitly state what would happen after 14 days if they didn't comply - right to repudiate based on unwillingness to comply: No steps taken to register despite receiving money quickly