6.1 Performance, breach and interpretation (slides).pptx

Principles of Business Law TOPIC 6: PERFORMANCE AND BREACH PERFORMANCE, BREACH & INTERPRETATION Contract law topics: overview (TEST TWO and Final exam) Topic 5: Topic 6: Topic 4: Identifying Contractual Formation of...

Principles of Business Law TOPIC 6: PERFORMANCE AND BREACH PERFORMANCE, BREACH & INTERPRETATION Contract law topics: overview (TEST TWO and Final exam) Topic 5: Topic 6: Topic 4: Identifying Contractual Formation of contractual Performance Contracts terms and Breach Topic 8: Topic 7: Invalidating Remedies for Contracts Breach of (vitiating Contract factors) Performance and breach: overview Video 6.1 1. Discharge by performance 2. Breach of contract 3. Interpretation Video 6.2 4. Different types of breach Video 6.3 5. Performance of divisible contracts Video 6.4 6. Frustration Discharge by performance  Contractual obligations are normally discharged by the parties carrying out their contractual promises.  A contract may also be discharged when remedies have been imposed in relation to a breach. Breach of contract  A breach of contract occurs when a party fails to perform as promised.  We will consider:  How the courts interpret contracts  that is, how do courts determine the required performance so as to determine whether a party is in breach?  Different types of breaches Contractual interpretation: Hide & Skin Trading v Oceanic Meat Traders FPBCL p 365 Test: what would the words mean to the reasonable person in the position of the parties?  When interpreting contracts, an objective approach is adopted.  When interpreting contractual language, the starting point is that words should be given their ordinary and natural meaning.  However, the courts aim to give words a meaning that accords with the purpose of the contract, which may see the court depart from the ordinary and natural meaning.  Note: the court cannot interpret language contrary to its ordinary meaning solely because the court thinks such an interpretation would be fairer or more reasonable.  Where the words are ambiguous, the courts will prefer an interpretation that avoids commercial inconvenience or nonsense. Contractual interpretation: Objective approach: Example  A and B enter into a contract which obliges A to provide ‘red grapes’ and B to make payment.  Both parties (mistakenly) believe that the contract is for ‘green grapes’.  If A were to supply green grapes, this would be a breach of contract.  Objective approach: the reasonable person would interpret the contract to require A to provide for the supply of red grapes, not green grapes, because of the reference to ‘red grapes’ in the contract.  NOTE: parties may be released from their contractual obligations where both parties were mistaken as to the subject matter when they entered into the contract.  Topic 8 Contractual interpretation: Objective approach: Post formation conduct  Contractual obligations should not be defined on the basis of what that parties do after the contract is formed.  This is because:  A party’s behaviour reflects their subjective interpretation of the contract.  A party may be consciously breaching the contract. Contractual interpretation: Courts cannot “improve upon” the contract  The courts must give effect to clearly expressed, unambiguous language.  The court cannot ignore the language used in the contract and instead impose obligations that are, in the opinion of the court, fairer or more reasonable.  Australian Broadcasting Commission v Australasian Performing Right Association Ltd (ABC v APRA) Courts cannot “improve upon” the contract: ABC v APRA FPBCL p 307-8 Facts  ABC and APRA entered into a contract under which ABC promised to pay royalties to APRA.  The plain meaning of the provisions of the contract that determined the fee payable did not properly provide for inflation. Issue  Could the court interpret the fee provision so that, contrary to the plain meaning of the words, the fee would properly account for inflation? Courts cannot “improve upon” the contract: ABC v APRA (ctd) Decision  The court refused to depart from the unambiguous language used in the fee provision. Reason  The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. Note: if the words are ambiguous, the interpretation that avoids unjust consequences and/or avoids commercial inconvenience will be preferred. Interpretation: Exclusion or limitation clauses  Where an exclusion clause clearly and unambiguously excludes liability, the courts will give effect to the exclusion clause  freedom of contract.  However, where an exclusion clause is ambiguous, the term will be interpreted contra proferentem (against the party who stands to benefit). Interpretation: Exclusion or limitation clauses Example NOTE: you do not need to know about the four corners rule  A term in A and B’s contract limits B’s liability to A  The term is open to two competing meanings (that is, it is ambiguous). 1. Broad meaning – B would not be liable  eg, the clause excludes liability for all loss 2. Narrow meaning – B would be liable  eg, the clause excludes liability for loss other than loss was caused by negligent behaviour  Under the contra proferentem rule, the clause would be given the narrow meaning (which goes against B, who seeks to rely on the term).