Introduction to Contract Admin Revision - Contract Law PDF

INTRODUCTION TO CONTRACT ADMINISTRATION REVISION ================================================ The first stage of any contractual dispute is to establish if a contract exists. This depends on proper formation. [There are three key ingredients to formation:] 1. Agreement: based on mutuality ov...

INTRODUCTION TO CONTRACT ADMINISTRATION REVISION ================================================ The first stage of any contractual dispute is to establish if a contract exists. This depends on proper formation. [There are three key ingredients to formation:] 1. Agreement: based on mutuality over the terms, agreement exists when a valid acceptance follows a valid offer 2. Consideration: given by both sides, the quid pro quo, and the proof that the bargain exists, and 3. Intention to create legal relations: since a contract is legally enforceable, unlike mere gratuitous promises [Other factors affecting formation include:] - Capacity: the ability of one party to enter a contract and of the other party to enforce it (e.g., to protect minors) - Certainty and completeness - Privity of contract and the rights of third parties: generally, a contract is only enforceable by or against a party to it, subject to exceptions Form: the way the contract is created (e.g., sales of land can only be made in the form of a deed). Form is an issue with specialty contracts but not with simple contracts [In a dispute situation, the court will ask:] - Is there a contract? (offer + acceptance + consideration + intention + capacity) - What were the terms of the contract? (Express, implied, warranties, representations, etc.) - Have the parties performed their obligations or has there been a breach of one or more terms? (Look for evidence in the facts) - If there is a breach, did the breach cause the loss/injury? - What remedies are available to the injured party? LIST OF... ========== Contents {#contents.TOCHeading} ======== [INTRODUCTION TO CONTRACT ADMINISTRATION REVISION 1](#introduction-to-contract-administration-revision) [TABLE OF CONTENTS **Error! Bookmark not defined.**](#_Toc138709889) [1. Offer and Acceptance 4](#offer-and-acceptance) [Offer 4](#offer) [KEY PARTIES: 4](#key-parties) [ELEMENTS: 4](#elements) [MEETING OF THE MINDS: 4](#meeting-of-the-minds) [OFFER V INVITATION TO TREAT: 4](#offer-v-invitation-to-treat) [INVITATION TO TREAT: 5](#invitation-to-treat) [RESPONSE TO A REQUEST FOR INFORMATION: 6](#response-to-a-request-for-information) [Termination of Offer 6](#termination-of-offer) [REVOCATION: 6](#revocation) [REJECTION: 7](#_Toc138709900) [BATTLE OF THE FORMS: 7](#battle-of-the-forms) [LAPSE OF TIME: 8](#lapse-of-time) [FAILURE OF CONDITION: 9](#failure-of-condition) [DEATH OF A PARTY: 9](#death-of-a-party) [Acceptance 9](#acceptance) [RULES OF ACCEPTANCE: 9](#rules-of-acceptance) [POSTAL RULE 10](#postal-rule) [INSTANTANEOUS FORMS OF COMMUNICATION 10](#instantaneous-forms-of-communication) [2. Consideration 10](#consideration) [PRINCIPLES OF CONSIDERATION 11](#principles-of-consideration) [CONSIDERATION -- PRESENT 11](#consideration-present) [FROM THE PROMISEE 11](#from-the-promisee) [EXISTING DUTY 12](#existing-duty) [3. Contents of a Contract 13](#contents-of-a-contract) [FORM OF THE STATEMENT 14](#_Toc138709915) [PAROLE EVIDENCE RULE 14](#parole-evidence-rule) [EXPRESS AND IMPLIED TERMS 14](#express-and-implied-terms) [PAST DEALINGS 14](#past-dealings) [CUSTOM OR TRADE USAGE 15](#custom-or-trade-usage) [STATUE 15](#statue) [ALTERING THE TERMS OF A CONTRACT 16](#altering-the-terms-of-a-contract) [CLASSIFICATION OF TERMS 16](#classification-of-terms) [EXCLUSION CLAUSES 16](#exclusion-clauses) [SIGNED DOCUMENTS 17](#signed-documents) [UNSIGNED DOCUMENTS 17](#unsigned-documents) [CONTRACTUAL DOCUMENTS AND REASONABLE NOTICE 17](#contractual-documents-and-reasonable-notice) [EXCLUSION OF CONSEQUENTIAL LOSS 17](#exclusion-of-consequential-loss) [4. Misleading Conduct & Economic Duress 18](#misleading-conduct-economic-duress) [MISLEADING AND DECEPTIVE CONDUCT 18](#misleading-and-deceptive-conduct) [MISLEADING CONDUCT 19](#misleading-conduct) [REMEDIES FOR MISLEADING CONDUCT 19](#remedies-for-misleading-conduct) [PENALTIES FOR MISLEADING CONDUCT 19](#penalties-for-misleading-conduct) [DURESS 19](#duress) [REQUIREMENTS FOR DURESS 20](#requirements-for-duress) [SITUATIONS WHERE DURESS IS PRESENT 20](#situations-where-duress-is-present) [REMEDIES WHERE DURESS OCCURS 20](#remedies-where-duress-occurs) [5. REMEDIES 21](#remedies) [DAMAGES 22](#damages) [UNLIQUIDATED DAMAGES 22](#unliquidated-damages) [QUANTUM OF DAMAGES 22](#quantum-of-damages) [TYPES OF DAMAGES 22](#types-of-damages) [ASSESSMENT OF DAMAGES -- EXPECTATION LOSS 22](#assessment-of-damages-expectation-loss) [ASSESSMENT OF DAMAGES: BUILDING DEFECTS 23](#assessment-of-damages-building-defects) [LIQUIDATED or ASCERTAINED DAMAGES (LADs) 24](#liquidated-or-ascertained-damages-lads) [PENALTY 24](#penalty) [QUANTUM MERUIT 24](#quantum-meruit) [RESTITUTIONARY CLAIM FOR QUANTUM MERUIT 25](#restitutionary-claim-for-quantum-meruit) [QUANTUM MERUIT WHERE QUASI-CONTRACT 25](#quantum-meruit-where-quasi-contract) [SPECIFIC PERFORMANCE AND INJUNCTIONS 25](#specific-performance-and-injunctions) [SPECIFIC PERFORMANCE 25](#specific-performance) [INJUNCTION 25](#injunction) Offer and Acceptance ==================== A contract usually begins with acceptance of an offer. Therefore, the first thing we need to show for agreement to have occurred is that there was a valid offer. *ONLY ADDRESS IF RELEVANT, THE OFFER MAY BE CLEAR AND OBVIOUS BY THE FACTS -- MOVE TO ACCEPTANCE* Offer ----- ***Definition: A statement of the terms on which the offeror is prepared to be contractually bound.*** ### KEY PARTIES: - Offeror - person who makes the offer (promisor) - Offeree - person who receives offer (promisee) ### ELEMENTS: - Must be clear - Must be communicated via verbal, written, or conduct ### MEETING OF THE MINDS: - Meeting of the minds = there is an objective understanding of the key terms of the contract - Objective: a reasonable person would have understood at the time the contract was made what the key terms of the contract were - If there is **no** meeting of the minds, there [cannot] be any eventuating contract - e.g. ### OFFER V INVITATION TO TREAT: - An invitation to treat is merely an invitation to another to enter into negotiations/ dealings/ discussions/ bargaining which may eventually lead to an offer ### INVITATION TO TREAT: - An invitation to treat is not capable of acceptance - A person is not bound by an invitation to treat - Examples of invitation to treat include: - Goods on display in shops; - Goods for sale at an auction; - Requests for tenders; and - Most advertisements. - A price tag is an invitation to the customer to make an offer e.g. *Fisher v Bell* \[1961\] 1 QB 394 - Price tag on a flick-knife displayed in shop window - Under legislation, it was illegal to offer a flick-knife for sale - The shop owner successfully argued that the price tag was not a legal offer - Court held the price tag was only an invitation to treat e.g. *Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd* \[1952\] 2 QB 795 - Boots (pharmacy store) displayed medicine on their shop shelves - Under legislation, the medicine was only permitted to be offered for sale under the - supervision of a registered pharmacist - Boots successfully argued that the display of medicine on the shelves was not a legal offer - Court held the display in the shop was only an invitation to treat e.g. *Payne v Cave* (1789) 100 ER 502 - An auctioneer asking for bids from the audience is only making an invitation to treat - Dfdt made a bid at an auction - Dfdt withdrew their bid before the auctioneer 'knocked down' the goods to the dfdt - The seller insisted there was a contract - However, court held that the auctioneer's call for bids was only an invitation to treat, and the dfdt's bid was an offer which could be withdrawn before acceptance - Hence no binding contract for sale, as there was no offer and acceptance of a valid legal offer e.g. *Partridge v Crittenden* \[1968\] 2 All ER 421 - Advert placed in a newspaper -- see picture - Held to be invitation to treat, not an offer - An advert is generally considered to be an invitation to the viewer/listener/reader to make an offer -- in other words, an invitation to treat ### RESPONSE TO A REQUEST FOR INFORMATION: - A mere response to a request for info is not legally binding - It is not intended to be a binding promise and therefore not an offer e.g. *Harvey v Facey* \[1893\] AC 552 - H sent a telegram to F enquiring: *Will you sell us Bumper Hall Pen? Telegraph lowest price.* - F replied: *Lowest cash price for Bumper Hall Pen, £900.* - H then telegraphed: *We agree to but Bumper Hall Pen for £900 asked by you.* - Court held no contract existed as F had not made an offer but merely supplied info in response to H's request Termination of Offer -------------------- ### REVOCATION: - No contract is formed until acceptance communicated - Therefore an offer may be revoked at any time before acceptance - Revocation must be communicated (either by offeror or a 'reliable' third party) to be legally effective - A revocation can be implied by conduct that is notified to the offeree by a 3rd party - An offer cannot be revoked if an option has been granted by the offeror - What happens if offeree revokes acceptance after it has been communicated? - Offeror may enforce contract; or - Offeror may accept revocation as a repudiation and abandon the contract. e.g. *Dickinson v Dodds* (1876) 2 ChD 463: - Dodds offered to sell his dwelling in a letter to Dickinson for £800 - The letter was delivered on Wed 10 June and stated, "This offer to be left over until Friday 9 o'clock" - On Thurs afternoon, Dickinson was informed by a 3rd party that Dodds had agreed to sell his dwelling to another - At 7am on Friday, Dickinson handed Dodds a notice of acceptance - Dodds declined to received it saying, "You are too late. I have sold the property" - Dickinson took action in court to enforce the purported contract - The court held that no contract existed as Dickinson was well aware that Dodds' offer no longer stood before he accepted the offer -- in other words, the court found that the offer had been revoked e.g. *Goldsbrough, Mort & Co Ltd v Quinn* (1910) CLR 674 - Q granted G the right to purchase his freehold property for a specified price within 1 week in return for a payment of 5 shillings - Before the 1 week was up, Q informed G that he was withdrawing his offer - Subsequently, G accepted Q's offer to sell his property within the 1 week - Q claimed he had revoked the offer and refused to sell - The court held that Q could not revoke the offer to sell as the promise to keep the offer open was given for value - As such, the court found that a contract for the sale of the property had been formed []{#_Toc138709900.anchor}REJECTION: - Either expressly or impliedly - Express = writing or verbal - Rejection only effective when communicated - After rejection, an offer cannot be resurrected - Implied rejection = actions by offeree which indicate rejection, e.g. counter-offer e.g. *Hyde v Wrench* (1840) 49 ER 132 (counter offer) - W offered to sell his farm to H for £1000 - H made an offer in reply of £950 - W rejected this counter-offer - H then agreed to buy the farm for £1000 - W refused to sell - H sued to enforce sale - Court held there was no contract as H's counter-offer had destroyed W's original offer ### BATTLE OF THE FORMS: - Two important questions now arise: - Was a contract formed? - If so, on whose terms? - The general position in common law is that: - If a supplier starts work based upon the receipt of a purchase order, the supplier's conduct will be an implied acceptance - The last set of t&cs communicated before acceptance are those upon which the contract is formed -- known as the 'last shot' rule - Therefore, in our example a contract would have been formed based upon the buyer's t&cs in their purchase order e.g. *Butler v Ex-Cello Corp* \[1979\] 1 WLR 401 - 23 May -- B quoted \$75,535 for supply of machinery with delivery in 10 months from order - T&Cs on quote stated 'these t&cs prevail over any t&cs in buyer's order' - The t&cs on the quote also contained a price variation clause - E-C placed an order on 27 May with their own t&cs which provided no price variation clause, and adjusted delivery time to 11 months - B signed & returned tear-off slip at bottom of E-C's order with covering letter stating that delivery to be in accordance with their quote on 23 May - E-C couldn't take delivery until 17 months after order - B claimed extra £2,892 for price inflation - E-C refused to pay the extra - Court held: - E-C's order on 27 May was counter-offer - Accepted occurred when B signed and returned the tear-off slip on the purchase order - The covering letter was communicated after acceptance occurred and not effective - None of t&cs in first quotation applied *Avoiding this situation* - Do not sign the purchase order if the buyer's t&cs are different - After a contrary purchase order is received from the buyer, the supplier should send a confirmation of order response to the purchase order restating that the goods/services are being supplied using the original terms of the supplier -- in other words, try to get the 'last shot' - If the contract is for the supply of goods, when those goods are sent the delivery advice should again state the goods are supplied under the supplier's t&cs, and the delivery person should get a signature on a copy of the delivery advice from the customer's representative receiving the goods - Finally, the tax invoice should contain a similar statement that the goods or services were supplied under the supplier's t&cs ### LAPSE OF TIME: - An offer cannot stand forever - Offers may lapse either: - By a stated time - If nothing stated, within a reasonable time - 'Reasonable' depends on nature of contract -- perishable goods, shares, property e.g. *Ballas v Theophilos* (No2) (1957) 98 CLR 193 - an offer to buy deceased business partner's share of business lapsed after 16 months ### FAILURE OF CONDITION: - An offer is sometimes made subject to a condition - E.g., building inspection, finance, RAA inspection - 'Condition precedent' - Condition must be satisfied before contract is formed ### DEATH OF A PARTY: Just when they die lol. Acceptance ---------- - Elements of an acceptance - Consent to offer - Intention to be bound on exact terms ### RULES OF ACCEPTANCE: 1\) Acceptance must be in reliance on offer - Offeree must know of offer for true agreement - 'meeting of the minds' necessary 2\) Acceptance must be absolute & unqualified - *'Acceptance must be unequivocal in that nothing is left to be negotiated between the parties and the language used must be such as would clearly convey a definite decision by the offeree to be bound by the terms of the offer'* 3\) An offer can only be accepted by a person or persons to whom it is made 4\) Acceptance may be verbal, in writing or even by conduct e.g. *Empirnall Holdings v Machon Paull* (1988) 14 NSWLR 523 - Empirnall (property developer) engaged Machon Paull to carry out construction works - MP sent 2 copies of a construction contract it had prepared for E to sign - E's director did not sign, asserting 'I do not sign contracts' - Building works proceeded for 1 year and several progress payments were made in accordance with the unsigned contract - Subsequently, however, E failed to pay MP and a dispute arose about whether the unsigned contract was binding - The court found that acceptance of the unsigned contract could be inferred from the conduct of the parties 5\) If a particular method of acceptance is prescribed in the offer, then the offeree should follow that method to accept the offer 6\) Acceptance must be communicated to the offeror for it to be effective - Therefore silence cannot be an acceptance - e.g. *Felthouse v Bindley* \[1862\] ### POSTAL RULE - Acceptance takes place [when letter posted into mail box] - Even if delayed delivery, or never arrives! - Must be correctly addressed and stamped - Established in *Adams v Lindsell* \[1818\] - Offeror can expressly circumvent postal rule, e.g. 'Your answer by post is only to bind if it reaches me' -- *Household Fire Insurance Co v Grant* \[1879\] - Postal rule will only apply where clear parties intended it to apply e.g. *Bressan v Squires* \[1974\] 2 NSWLR 460 - Letter of Acceptance posted 18 Dec, arrived 21 Dec - The offer stated acceptance by notice in writing anytime up to 20 Dec - Court held the wording of the offer was not clear enough for the Postal Rule to apply - For the Postal Rule to apply, it is likely the court would want to see the word 'posted' in the offer -- eg, acceptance must be posted by.... ### INSTANTANEOUS FORMS OF COMMUNICATION *Postal rule does not apply to instantaneous forms of communication* - e.g. Fax, Email, Text Messaging etc... - *Electronic Communications Act 2000 (SA)* - Electronic transactions have equal status to written contracts - Where an electronic information system has been designated (e.g. email address or mobile phone no.), the time of receipt is when the message becomes capable of being retrieved by the addressee (likely to be when the email enters into the addressee's server) - Where no eis designated, the time of receipt is when the message becomes capable of being retrieved by the addressee and the addressee become aware that the message has been sent to that eis Consideration ============= The price paid for the promise of the other. In practice, often a promise for a promise. There must be an exchange between the parties of something of value (act/forbearance). *A SIMPLE CONTRACT IS FORMED BY CONSIDERATION (FORMAL UNDER SEAL) -- NECESSARY* PRINCIPLES OF CONSIDERATION --------------------------- - Limitation Period: 6 years from the date on which the cause of action accrues (simple) (15 years under deed) - Must be legal - Must be real - Need not be adequate - Doesn't' have to be of equal value to promise - Parties have freedom to contract and choose what to deal - As long as has real value, it is acceptable - E.g. *Chapell & Co Ltd v Nestle Co Ltd* \[1960\] - *'A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn.'* - Must be present or future, but not past - Must move from promisee - Performance of existing duty is no consideration - Have value in eyes of the law - Not be vague or impossible to perform CONSIDERATION -- PRESENT ------------------------ - The consideration must be in response to the promise - If consideration is in the past in relation to the promise, then it is not valid - The consideration, therefore, cannot come before the promise related to it - Present or future consideration is valid e.g. *Roscoria v Thomas* (1842) 2 QB 234 - R purchased a horse from T - After the deal had been made, T promised that 'the said horse was sound and free from vice' - The horse turned out to be vicious - R sued for breach of contract - The court held that the claim must fail as R had paid for the horse (given consideration) before receiving T's promise - In other words the consideration was in the past in relation to when the promise was given - Past consideration is not valid -- therefore, no contract FROM THE PROMISEE ----------------- - A promise can only be enforced by the person who actually gave the consideration e.g. *Tweddle v Atkinson* \[1861\] - The two fathers of a soon to be married couple mage an agreement with each other to pay a sum of money each to the happy couple when they got married - After the couple got married, the father of the bride unfortunately passed away before paying - The bride groom sued his deceased father-in-law's estate for the money - The court held that he could not sue because no consideration had moved from the bride groom to his father-in-law EXISTING DUTY ------------- - If the promisee tries to use a duty (or obligation) which is already owed to the promisor, it is not valid consideration - *Stilk v Myrick* \[1809\] - Contrast with *Hartley v Possonby* \[1857\] - More recently, the court has recognized commercial context of such promises, by regarding 'practical benefit' as good consideration - Williams v Roffey Brothers & Nicholls (1991) -- UK - Musameci v Winadell Pty Ltd (1994) -- NSW e.g. *Stilk v Myrick* \[1809\] - 2 sailors out of a crew of 12 hired to sail a ship to London jumped ship at a port of call - the ship's captain promised to divide the wages of the 2 deserting sailors amongst the remaining sailors if they sailed the ship back to London - Upon reaching London, the captain reneged on his promise - One of the sailors brought an action in court but failed - The court held that the sailor had done no more than originally contracted to do, i.e. sail the ship to London - In other words, the sailor had provided no fresh consideration in return for the promised extra wages e.g. *Hartley v Possonby* (1857) 119 ER 1471 - 17 sailors out of a crew of 36 hired to sail a ship to Bombay jumped ship at a port of call - The ship's captain promised to pay the remaining sailors an extra £40 each if they completed the voyage - Upon reaching Bombay, the captain reneged on his promise - One of the sailors brought a successful action in court - The court held that the sailor had given consideration for the extra wages as the depleted crew made the voyage more dangerous for the remaining sailors e.g. *Williams v Roffey Brothers & Nicholls* \[1990\] 2 WLR 1153 - Roffey was a head building contractor who employed Williams as a carpentry subcontractor for work at a block of flats - As Williams had underbid on the subcontract, they fell behind schedule - Worried that their client would deduct liquidated damages for a late completion, Roffey offered Williams an extra £575 for each flat if the carpentry work was completed on time - Subsequently Roffey refused to pay the promised extra money - Williams successfully sued to recover the promised money - Although it seemed as though Williams had provided no extra consideration for the extra payment, the court held that Williams had given consideration in the form of 'practical benefit' that Roffey gained from having the flats finished on time. - The court viewed the practical benefit to be threefold: - The continuance of the carpentry work without stoppage, which would have been a breach of the subcontract; - Avoidance of having to pay the building owner for delay; and - Avoidance of the trouble and expense of engaging others to complete the carpentry work. e.g. *Musameci v Winadell Pty Ltd* (1994) 34 NSWLR 723 - W leased a shop unit in a shopping centre to M who was a fruit and veg merchant - M discovered that W was planning to lease another unit in the shopping centre to a much larger fruit and veg business - M sought a reduction in the agreed rent of their shop unit by one-third to which W agreed - W subsequently reneged on the agreement to reduce the rent - When M did not pay the full rent, W repossessed the shop unit - M sued claiming they did not have to pay the full rent - The court found in M's favour finding they had given consideration for W's promise to reduce the rent in the form of practical benefit - In doing so, the NSW Supreme Court relied on the English decision in Williams v Roffey - The court viewed the practical benefit gained by W in return for reducing the rent was: - Avoidance of a vacant unit in the shopping centre; - Preservation of landlord's reputation; and - Immediate receipt of rental repayment instead of having to go through the time, expense and effort of finding another tenant Contents of a Contract ====================== The terms of a contract are the statements of rights and obligations. As well as, allocates the risks for each party. []{#_Toc138709915.anchor}FORM OF THE STATEMENT: - Where there is a written contract, it may be difficult for a party to arfue that an oral statement has become a term - Due to the 'Parole Evidence Rule' ### PAROLE EVIDENCE RULE - Where a contract is reduced into writing, where the contract appears in the writing to be entire, it is presumed that the writing contains all the terms of it and evidence will not be admitted of any previous or contemporaneous agreement which would have the effect of adding to or varying it in any way - EXCEPTION e.g. *Van den Esschert v Chappell* \[1960\] WAR 114 Facts: Immediately before agreeing to buy van den Esschert\'s house, Chappell asked if it was free from infestation by white ants. Van den Esschert said it was, but this assurance was not included in the written contract of sale that Chappell then signed. Chappell sued van den Esschert for breach of contract when the house turned out to be infested with white ants. Issue: Was Chappell entitled to lead evidence of a term, orally agreed, that the house was free of white ants? Decision: The court was of the view that, taking all the circumstances into account, the contract was partly written and partly oral. In such circumstances the parol evidence rule does not exclude evidence of additional orally agreed terms. EXPRESS AND IMPLIED TERMS ------------------------- - Express terms made by the parties with intent - Verbal or Written - Implied terms inserted into contract by law - May be implied under certain circumstances: - Past dealings - Trade Usage or custom - Business Efficacy - Statute ### PAST DEALINGS e.g. *Hillas & Co v Arcos* \[1932\] All ER Rep 494 - Was the contract void for uncertainty? - Facts: The claimant sued the defendant for breach of a written contract providing the claimant an option to purchase Russian softwood timber from the defendant. The defendant argued that the contract was invalid, because the clause the claimant relied on did not sufficiently describe the goods to be sold. There are two kinds of Russian softwood, and within the two categories there are various qualities. Meanwhile, the relevant contract term merely referred to 'standards of fair specification'. The defendant therefore contended that the agreement was void for incompleteness and uncertainty. - Decision: The House of Lords held in favour of the claimant. It was necessary to imply a reference to 'softwood' into the clause. In light of the other terms of the contract, the court interpreted 'fair specification' to mean that the defendant should supply Russian softwood distributed over the various kinds, qualities and sizes for the 1930 season. Since this was capable of being assessed objectively, the subject matter of the contract was sufficiently certain. The contract was not void for uncertainty. - Court must be satisfied that there has been a consistent and sufficiently long course of dealing ### CUSTOM OR TRADE USAGE - If contract made in context of trade or industry - Custom of the trade/industry may be implied - Must be clearly accepted and universally adopted by the industry e.g. *Hutton v Warren* \[1836\] ### STATUE - *SALES of GOODS ACT 1895* (Sa) and AUSTRALIAN CONSUMER LAW -- Schedule 2 *COMPETITION and CONSUMER ACT 2010* (Cth) - Seller has the right to sell the goods - Goods must correspond with any description applied to them - Goods supplied must be of a merchantable quality (fit for purpose for which goods of that description are normally used) - Goods supplied must be reasonably fit for their purpose (especially where buyer relies on expertise of seller in the course of business) - Goods sold by sample will correspond with sample #### SALE OF GOODS ACT 1895 - State based - Applies to supply of goods only - Not contracts where services are carried out and goods supplied, e.g. construction contracts - Covers all sales contracts, both business to business as well as business to consumer #### AUSTRALIAN CONSUMER LAW - Commonwealth Legislation - However, applies to all businesses in Australia (both incorporated and unincorporated) - ACL man be found in Schedule 2 of the Competition and Consumer Act 2010 (Cth) - Incorporated into state Fair Trading legislation to cover non-corporations - ACL applies to supply of goods and services under *consumer contracts* ##### CONSUMER CONTRACTS - Any goods acquired for personal, domestic or household use regardless of value, i.e. Businesses selling to Consumers - Goods purchased by businesses from businesses as long as the goods are \ - A photocopying machine purchased by a business for administrative use, or factory equipment purchased for manufacturing, would be covered under the ACL as long as the purchase price was \$40,000 or less but: - Raw materials used in manufacturing products, or materials purchased to repair an investment property would [not] be covered under the ACL even if they cost less than \$40,000 ALTERING THE TERMS OF A CONTRACT -------------------------------- Either by: - Mutual Agreement, supported by consideration (e.g. part payment of debt) - Where contract allows for variations (i.e. contains variation clauses) CLASSIFICATION OF TERMS ----------------------- - Terms can be categorised into differing levels of importance: - Conditions (most important) - Warranties (lesser importance) - Difference in Remedies - Breach of condition = innocent party can terminate and sue for damages - Breach of warranty = innocent party can sue for damages only - It is up to the court to decide which term is a condition and which is a warranty - A condition is deemed to be a promise which is so essential to a contract, that the promisee would not have entered into the contract unless he/she had been assured of strict and substantial performance of the promise -- *Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd* (1938) 38 SR (NSW) EXCLUSION CLAUSES ----------------- - Excluding a right which the other party may have had - Limiting a party's liability to a specific amount (liquidated damages) - Limiting the right by placing conditions on the exercise of a right (claim must be made within a certain time) - Often used in commercial contract to allocate risk and indicate who should ensure - Court sees exclusion clauses as unfair in consumer contracts -- unequal bargaining power - Hence, under CCA, companies cannot exclude their liability for implied terms SIGNED DOCUMENTS ---------------- - A party who signs a contract with a written exclusion clause is generally bound - A party cannot argue that it didn't read or see the exclusion clause -- *L'Estrange v Graucob Ltd* - The court held the purchaser was bound by the contract since '*having put her signature to the document and not having been induced to so do by any fraud or misrepresentation, cannot be heard to say that she is not bound by the terms of the document, because she has not read that*' UNSIGNED DOCUMENTS ------------------ - If exclusion clause appears on a document one would not expect, it is not contractual and is ineffective - To be effective, needs to be pointed our before contract entered into, i.e. the person relying on the clause must do all that is reasonable to bring to the notice of the recipient - *Cause v Browns* \[1952\] VLR 1 -- exclusion clause on front of dry cleaning ticket invalid CONTRACTUAL DOCUMENTS AND REASONABLE NOTICE ------------------------------------------- - Constructive or actual notice is necessary - Ticket can become contractual if bought to attention of recipient before contract formed - e.g. *Thornton v Shoe Lane Parking* \[1971\] 2 QB 163 - Reasonable steps to bring to customer's attention not taken - Writing on ticket does not notify until after contract formed - *'it \[the exclusion clause\] is so wide and so destructive of rights that the court should not hold any man bound to it unless it is drawn to his attention in the most explicit way... in order to give sufficient notice it would need to be printed in red ink with a red hand pointing to it, or something equally startling'* EXCLUSION OF CONSEQUENTIAL LOSS ------------------------------- - Common in construction contracts - E.g. the builder or designer accepts no responsibility for consequential losses arising from any breach of contract - Recognises a difference between: - Direct losses; and - Indirect or consequential losses caused by a breach - The current legal position according to *Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd* \[2008\] VSCA 26 - Direct loss = types of losses everyone would suffer in the same situation, e.g. cost to repair a defectively constructed roof - Indirect or consequential loss = types of loss with are at least one step away from the breach and which not everyone would necessarily suffer from that type if breach, e.g. loss of profit due to building being out of action rental payments for temporary relocation etc. Misleading Conduct & Economic Duress ==================================== Factors that may vitiate (destroy or impair the legal validity of) a contract: - Misleading conduct - Duress MISLEADING AND DECEPTIVE CONDUCT -------------------------------- - Section 18 of the ACL states that: *a person must not, in trade or commerce, engage in conduct that is misleading and* *deceptive or likely to mislead or deceive* - Applies to all aspects of trade and commerce, not just consumer contracts - B to B contracts, and B to C contracts - Section 18 of ACL used to be s 52 of Trade Practices Act prior to 2010 - Thousands of cases have been brought to courts on basis of misleading conduct - S 18 ACL imposes 'strict liability', which means no excuse will absolve the party who has misled - No use arguing 'I did my best not to mislead' - A person may, therefore, mislead even if they acted honestly! - Most cases brought on misleading rather than deceptive conduct (easier burden of proof) - Plf needs to show that overall the conduct would likely (on balance of probs) lead a significant number of people into error - If a person can show misleading conduct led them into a contract (ie, persuaded their decision), there may be remedies - Eg, an advert for the sale of a second-hand excavator might say the machine has been regularly serviced when it has not MISLEADING CONDUCT ------------------ - Silence can be misleading conduct - Puffery is not misleading conduct - Parties cannot contract out of s 18 ACL by including exclusion clauses in contracts - Even if it can be shown that Plf was contributory at fault, Dft still liable for misleading conduct - See *Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd* (1988) 39 FCR 546 (page 157 in course text book) ### REMEDIES FOR MISLEADING CONDUCT - A wide range of remedies are available under Chapter 5 of ACL - damages for loss (s 236) - various orders on application of either the injured person or the regulator (Australian Competition and Consumer Commission) (ss 237 & 242): - compensation orders, - an order declaring the contract void ab initio, - an order directing the dfdt to refund or return property to the injured person, - an order directing the dfdt to repair or provide parts for goods supplied to the injured person, - an order directing the dfdt to supply specified services to the injured person, - Which remedies are awarded is at discretion of the court ### PENALTIES FOR MISLEADING CONDUCT - Up to \$1.1 million for each contravention for a body corporate, and up to \$220,000 per contravention for a non-corporation -- see s 224, ACL - The ACCC will bring an action for these amounts as 'civil penalties' under s 228, ACL - If considered to be warranted, the ACCC may pass the prosecution of the offending person over to the Public Prosecutor who may then pursue a criminal action (ss 151 and 152, ACL) - Furthermore, - the ACCC may issue a public warning notice about the conduct of the offending person (s223, ACL) if it has reasonable grounds to suspect contravention; and - the court may grant an injunction to order a stop to the misleading conduct (s 232, ACL) - See Australian Competition and Consumer Commission v Metricon Homes Qld Pty Ltd \[2012\] FCA 797 DURESS ------ - Where a person has been forced or wrongfully induced to enter into a contract - The effect will be the contract is voidable - The innocent party can affirm or rescind the contract at his option ### REQUIREMENTS FOR DURESS - Pressure does not have to be sole cause to be duress - Contributory factor sufficient - For duress, the pressure must be: - Illegitimate (beyond normal commercial pressure); and - Irresistible, I.e. cannot be resisted by a reasonable person ### SITUATIONS WHERE DURESS IS PRESENT 1\) Actual or threatened physical violence to a natural person or his/her immediate family. The threat must be illegal and against the person and not his goods. 2\) Economic or commercial pressure. It has been recognised in English law that duress could take the form of economic duress where one party commercially 'blackmails' the other ### REMEDIES WHERE DURESS OCCURS - At common law, if the court finds duress occurs, they will declare the contract voidable - Additionally, the Plaintiff is likely to make a claim in equity law for restitution on the basis of unjust enrichment to get back what it has been forced to hand over under the duress e.g. *North Ocean Shipping Co Ltd v Hyundai Construction Co. Ltd* \[1979\] QB 705 - The defendants had agreed to build a tanker for the plaintiffs at a price to be payable in five instalments in US dollars. - The plaintiff paid the first instalment but then the dollar was devalued by 10%. - The defendants demanded a 10% increase in the contract price, stating that they would not complete the ship unless this was forthcoming. - This threat was very damaging to the plaintiffs as they had an agreement to charter the ship when it was completed - The plaintiffs pointed out to the defendants that they were legally not obliged to do so but agreed to pay the extra money - All the four further instalments were paid with the increase of 10% - Eight months after taking over the delivery of the ship, the plaintiffs sought to recover the extra money paid. - The court held that: - this was a case of economic duress - but the plaintiffs would not be able to recover because their delay in seeking the recovery of the extra monies paid amounted to affirmation of the new agreement - The legal effect of economic duress is to render the contract voidable and the court will have to consider the following: 1. Did the victim protest at the time of demand? 2. Were there alternatives available to him 3. Did the victim repudiate the contract with a reasonable time-frame? e.g. *Carillion Construction Ltd v Felix (UK) Ltd* \[2001\] BLR 1 - C engaged Felix as a subcontractor for design, manufacture & installation of cladding to an office - Cladding work was 6 weeks late, and still not complete -- whole project was being delayed - F submitted final account in sum of £3.314 million - F made threat it would not continue to supply cladding unless £3.2 million paid - C made it clear to F that they did not believe it was obligated to pay this amount before giving in and paying the £3.2 million making it clear they were unhappy and valued the work at much less - Once paid, F lifted their threat and progressed the works - Once F had completed, C sought to take action for economic duress - In determining whether there has been illegitimate pressure, the court applied a test which took into account a range of factors. These included whether: - there has been an actual or threatened breach of contract; - the victim had any realistic practical alternative but to submit to the pressure; - the victim protested at the time; and - \[the victim\] confirmed and sought to rely on the contract. - Court applied the test and found: - Threat to withhold deliveries was breach of contract - F's insistence on being paid final account sum before works complete and threatening to suspend works also breaches -- no contractual entitlement - Lack of practical alternative (bespoke panels) - C made it know they did not want to pay the \$3.2 million - C took action as soon as the cladding work was complete - Therefore, clear illegitimate pressure and duress Remedies ======== The word 'remedy' simply means the way to repair the harm or injury suffered by the innocent party. The study of remedies is to examine how should the injured party's loss and suffering be 'repaired' 4 types of remedies are commonly available in cases of breach of contract: 1\. Damages (monetary award) 2\. Quantum Meruit (monetary award) 3\. Specific Performance (court order) 4\. Injunction (court order) DAMAGES ------- - In breach of contract, the injured party is entitled to claim monetary compensation from the defaulting party if the injured party has suffered loss, damage or injury. - The monetary compensation is called damages ### UNLIQUIDATED DAMAGES - The term used when the courts assesses quantum of damages - The Court will try to award an amount to fairly compensate the injured party for their loss - Often the assessment will depend upon the injured party producing evidence to prove the loss ### QUANTUM OF DAMAGES - Enough to place the injured party in exactly the same position (at least financially) he/she would have been in if: - the breach had not happened, and - the contract had been completed successfully ### TYPES OF DAMAGES - Damage may occur in the forms of: - financial or economic loss (eg, loss of profit) - personal injury - damage to property - mental distress/disappointment (rarely awarded) ### ASSESSMENT OF DAMAGES -- EXPECTATION LOSS e.g. 1 - A builder (B) wins a contract - Contract price = \$1 million - \$900k in costs plus \$100k overheads & profit - The Principal (P) breaches after B has spent \$450k - P has to date paid B \$500k in progress payments - B terminates and sues P for damages - B has received \$500k and spent \$450k = net receipt of \$50k - B expects to make \$100k overheads & profit at end of contract on top of recovering costs - Therefore, B is entitled to a further \$50k in damages e.g. 2 - A builder (B) wins a contract - Contract price = \$1 million - \$900k in costs plus \$100k overheads & profit - B breaches after B has spent \$450k - P has to date paid B \$500k in progress payments - P engages another builder to finish remaining works at cost of \$650k - P terminates and sues B for damages - P expects to have completed building for \$1 million - P actually had to pay \$500k (to B) plus \$650k to other builder = \$1.15 million - Therefore, B is entitled to actual price minus expected price - \$1.15 million - \$1 million = \$150,000 damages ### ASSESSMENT OF DAMAGES: BUILDING DEFECTS - Damages for breaching building plans and specs assessed by: - Restitution (usual), or - Diminution in value (where restitution not reasonable) e.g. *Tabcorp Holdings Ltd v Bowen Investments Pty Ltd* (2009) 236 CLR 272 - Commercial lease of offices - Tennant carried out renovation works to foyer (ripped out granite floors and cherry wood panelling) without necessary approval of landlord (this was the breach) - Landlord sued for damages. Wanted \$1.38 million restitution costs to restore the foyer to how it used to be - The High Court applied Bellgrove principles and awarded restitution costs in amount of \$1.38 million - It held that restitution costs were reasonable, even though: - The unapproved renovation works did not affect value of the lease/rent - The diminution in value of the building was only \$34,820 - In Tabcorp, the court stated that it would only be unreasonable to insist on restitution damages in exceptional circumstances, eg where the builder had used new bricks had been used instead of second hand bricks - Also, just because diminution value is far smaller than restitution cost, this will not have any bearing on reasonableness e.g. *Westpoint Management Ltd v Chocolate Factory Apartments Ltd* \[2007\] NSWCA 253 - Builder built apartment block with defects from contract plans and specs - Incorrect skirting profile, inadequate mechanical ventilation - 3500 linear metres of skirting. Installed skirting was 10 cents cheaper per metre than specified skirting, ie total of \$350 difference - Despite defects, the apartments in the building were sold - None of the purchasers of the apartments complained about the defects - The court held that it would be unreasonable to award rectification costs, which would cause massive disruption to the apartment occupiers - Also, because no evidence to show defects had any diminution in value of units nor lengthened time for sale, the court would not award diminution damages ### LIQUIDATED or ASCERTAINED DAMAGES (LADs) - When agreeing the contract, the parties agree to a fixed sum/rate of money being included in the contract which represents the compensation to be paid in the event of a particular breach occuring - This pre-fixed sum of compensation is termed as Liquidated or ascertained damages - Most construction contracts will include a liquidated damages clause stating that in - cases where the contractor delays the work, the owner is entitled to claim certain fixed rate (e.g. \$1200 per day) from the contractor - LADs should be a genuine pre-estimate of the likely loss (and compensation) if a particular type of breach occurs - If the amount of liquidated damages included in a contract is found to be excessive, it is considered to be a penalty in law and a penalty is unenforceable e.g. *Dunlop Pneumatic Tyre Co Ltd. v. New Garage & Motor Co. Ltd.* (1915) AC 79 Liquidated damages amount to a penalty where they are: extravagant and unconscionable in amount in comparison with the greatest loss that could be proved following the breach ### PENALTY - If the liquidated damages (i.e. the pre-fixed sum of damages) are held to be a penalty, the effect is that: - they would not be enforceable and the injured party will have to re-assess his loss and claim the damages accordingly in court as unliquidated damages.  QUANTUM MERUIT -------------- - Meaning: "the amount he deserves" - Derives from equitable principle of unjust enrichment - A claim in quantum meruit arises where work is done by one party for another in circumstances which entitle the party doing the work to receive a reasonable remuneration for the work done even though there may be no contractual entitlement - Traditionally, courts have awarded quantum meruit on the following basis: - A fair commercial rate for the services at the time of supply - Equals the reasonable cost of goods and services supplied plus an allowance for overhead and profit ### RESTITUTIONARY CLAIM FOR QUANTUM MERUIT - Can generally arise in the following circumstances: - There is no contract specifying a sum to be paid; - There is an express agreement between the parties to be paid a reasonable sum; - Work is undertaken outside the contract at the request of the principal; - Work is undertaken under a contract that is later found void or unenforceable ### QUANTUM MERUIT WHERE QUASI-CONTRACT - Quasi-contract is where work carried out on basis of an agreement which is not enforceable at law. For example: - Contract rendered unenforceable by legislation -- see *Pavey & Mathews Pt Ltd v Paul* (1986) 162 CLR 217 - Work carried out under a non-contractual letter of intent -- see *British Steel Corp v Cleveland Bridge* \[1984\] 1 All ER 504 - Where contract has been frustrated, but work continues -- see *Codelfa Construction v State Rail Authority of NSW* (1982) 149 CLR 337 SPECIFIC PERFORMANCE AND INJUNCTIONS ------------------------------------ - Both types of equitable court orders  - Will only be awarded where damages alone not sufficient, ie in the eyes of the court the award of damages only will not fairly compensate the loss - Deriving from equity law, these orders may be granted at the discretion of the court ### SPECIFIC PERFORMANCE - An order from the court that the defaulting party must carry out proper performance of its contract obligations - Not often awarded, as it is difficult for the court to monitor that the defaulting party actually carries out its performance in the future ### INJUNCTION - An order restraining a person from either continuing, or engaging in, a specific act or type of conduct. Discharge ========= In short, when the contractual relationship between the parties is ended, the contract is discharged. A contract may be discharged by: - Agreement - Performance - Frustration - Breach DISCHARGED BY PERFORMANCE ------------------------- - A contract is discharged - if both parties have completed the performance of all the obligations in the contract satisfactorily. - Performance Means: Entire obligation -- exact performance - The parties must carry out the work exactly matching what is required to be undertaken by the contract and no less e.g. *Cutter v. Powell* (1795) - Cutter was employed on board a ship sailing from Jamaica to Liverpool. He would be paid only if he completed the trip on arriving at Liverpool. Unfortunately, Cutter died before the journey completed (about 75% of the way through the voyage). e.g. *Hall & Baker* (1878) - \" \...\...if a shoemaker agrees to make a pair of shoes, he cannot offer you one shoe and ask you to pay half the price \" ### EXCEPTIONS TO PERFORMANCE RULE - As the law evolved, the courts recognised the following exceptions so that equity will prevail in cases where the party can discharge the contract by performance although the performance is not entire and completed. - Substantial Performance - Acceptance of Partial Performance - Divisible Contracts ### SUBSTANTIAL PERFORMANCE - Substantial performance of agreed obligation - If there are only minor defects to be rectified, the work is considered substantially completed - Defaulting party can still enforce their contractual rights, and innocent party is protected by right of counter-claim/set-off - See *Hoenig v Isaacs* \[1952\] 2 All ER 176 - The principal objective of the contract must be reached for substantial performance to be allowed - Thus in *Cutter v Powell*, no substantial performance as voyage not completed - If principal objective achieved with minor defects, then substantial performance allowed e.g. *Bolton v. Mahadeva* (1972) All ER 1322 - Central heating was installed but not working properly (failed to heat the property) - Contract sum was £560 - Cost to repair the defect was £174 - No substantial performance because the defects are critical -- the principal objective of contract was never achieved ### PARTIAL PERFORMANCE - One party partially completes contractual obligation and the other accepts the partial work done - This allows the performing party to be discharged from the contract - Acceptance only valid if the recipient party is given the option/free choice to accept or to reject the part performance e.g. *Sumpter v Hedges* \[1898\] 1 QB 673 - The contractor abandoned the work after completing about 60% of the work - Hedges left with no choice but to complete the work himself - Builder failed to recover payment for part performance of building works - But was able to claim for unfixed materials left at site DIVISIBLE CONTRACTS ------------------- - Where parties intended for the contract obligation to be clearly divided into separate portions, and - Completion of each portion entitles payment for that portion - Viewed as if there are few separate 'smaller' contracts grouped together to form the original 'bigger' contract - Eg, Stage payments for residential contract DISCHARGED BY FRUSTRATION ------------------------- The contract is possible to perform at the time of contracting -\ An intervening event happens, beyond the control of contracting parties -\> Now, it makes the contract impossible to perform - As such, the contract will have to be ended and is considered as discharged by frustration. - The contract will be taken as discharged as soon as it is not possible to perform upon the happening of the frustrating event. ### FRUSTRATION DUE TO DESTRUCTION OF MATTER e.g. *Taylor v Caldwell* (1863) 122 ER 309 - The defendants agreed to let the plaintiffs have the use of a Music Hall on 4 specified days for concerts - The Hall was destroyed by fire before the date of the first concert - It was held that both parties were excused from the performance of the contract - The basis of the contract, the music hall, was destroyed ### FRUSTRATION DUE TO RADICAL DIFFERENCE - The performance required under the contract has become radically different from that undertaken by the contract -- through no fault of the parties - Based on Latin maxim "non haec in foedera veni" = it was not the thing I agreed to do e.g. *Codelfa Construction Pty Ltd v State Rail Authority of NSW* (1982) 149 CLR 337 - Contract to excavate tunnels & concrete work for Eastern Suburbs Railway in Sydney - Agreed to complete whole of works within 130 weeks - Very noisy works resulted in a resident obtaining injunction preventing Codelfa working between 10pm-6am - Codelfa contended frustration (think why) - Arbitrator found parties has a common understanding work would be carried out on a 3 x 8 hour shift basis, 6 days per week, and that no injunction could be granted (based on legal advice to the State Rail Authority) - Therefore, neither party could have foreseen the working restrictions imposed - Court held that contract frustrated due to performance of contract becoming radically different - *A contract will be frustrated when the parties enter into it on the common assumption that some particular thing or state of affairs essential to its performance will continue to exist or be available... and that common assumption proves to be mistaken* ### RADICAL DIFFERENCE VERSUS COMMERCIAL RISK e.g. *Codelfa* with *Davis Contractors Ltd v Fareham Urban District Council* \[1956\] 2 All ER 557 - Davis agreed to build 78 houses over 8 months for £92,425 - Due to shortage of skilled labour & adequate quality materials, the work took 17 months and went £17,651 over budget - Davis claimed frustration due to lack of labour & materials, and wanted quantum meruit - Court held no frustration - Circumstances under which performance took place were not radically different enough, only more onerous for the builder - They had voluntarily taken market/commercial risk - *It is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.* DISCHARGED BY BREACH -------------------- - A breach of contract will occur when one of the contracting parties without lawful excuses, fails or refuses to perform the contract according to the contractual terms - When a breach is proved, the innocent party will have the right of action to claim remedies from the defaulting party - A breach can occur in the following ways: 1. Actual breach: A party fails to do what it is obligated to when the time for performance arrives 2. Anticipatory breach: A party indicates that it will not perform the contract obligation before prior to the date for performance. An intention to breach declared ahead of time is called an anticipatory breach. ### ANTICIPATORY BREACH e.g. *Hochster v De La Tour* (1853) 2 E&B 678 - 12 Apr 1852: De La Tour employed Hochster as a tour guide for 3 months starting 1st June - 11 May: De La Tour wrote to Hochster stating that his services were no longer required - 22 May: Hochster claimed that the defendant had breached the contract and asked for compensation - Court held that the plaintiff was entitled to take an action for damages on 22 May and did not have to wait until 1st June Negligence ========== The tort of negligence can be defined as a breach of duty owed to the plaintiff to take reasonable care which results in damage. - Most litigated issue in HCA - Categories of negligence unlimited - Creation of frailty of human nature - Potential 'monster' roaming out of control If a plaintiff is to succeed in an action for negligence, he must prove: \(1) That the defendant owed him a legal duty of care; \(2) That the defendant has breached that duty; and \(3) That damage has been caused to the plaintiff by that breach. e.g. *Donoghue v Stevenson* - a friend purchased for the plaintiff a bottle of ginger beer in a café - The House of Lords held that the manufacturer was liable in tort of negligence for their carelessness when bottling the ginger beer. - This was a landmark case. - There was no contract in existence between the plaintiff and the manufacturer. - The court had never allowed a person to sue for damages caused by a defective good before the case of Donoghue v Stevenson, unless a contractual relationship existed between the parties. - Established that Plaintiff can sue for: - Physical damage to person or property other than the defective good itself - But not for pure economic loss, e.g. the replacement cost of the bottle of ginger beer -- afterall, Mrs D didn't purchase the bottle! DUTY OF CARE ------------ - A duty of care may be: a. imposed by an Act of Parliament (e.g. s 5(1) of the *Occupiers Liability Act 1985* (WA), employers' duties under WHS legislation towards their employees) b. shown to exist in a particular set of circumstances by referring to previous case law -- established categories of negligence (e.g. Doctor/patient) c. a new category of negligence may be established by the courts if they believe the conduct and circumstances meet the relevant common law tests for negligence - Neighbour in Law: any person so closely affected by my actions that I ought to have them in mind when directing my mind to the consequences of my actions. BREACH OF DUTY -------------- - Once it has been established that a duty of care exists, then a plaintiff must shown that the duty was breached. - the plaintiff must show that the defendant did not take reasonable care. - The level of care required is that of a reasonable person - If he/she fails to take a standard of care expected of a reasonable person, then he did breach the duty of care. e.g. *Alderson B in Blyth v Birmingham Waterworks Co.* (1856) "*Negligence is the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable man would do*." e.g. *Bolam v Friern Hospital Management Committee* \[1957\]:"*exercising the ordinary skill of an ordinary competent man exercising that particular art...... In the case of a medical man negligence means failure to act in accordance with the standards of reasonably competent medical men at the time..... and if a medical man conforms with one of those proper standards then he is not negligent*." Statute: S.31 Civil Liability Act 1936 (SA) "*For determining whether a person (the \"defendant\") was negligent, the standard of care required of the defendant is that of a reasonable person in the defendant\'s position who was in possession of all information that the defendant either had, or ought reasonably to have had, at the time of the incident out of which the harm arose*." Statute: S.41 of the Civil Liability Act 1936 (SA) states: \(1) A person who provides a professional service incurs no liability in negligence arising from the service if it is established that the provider acted in a manner that (at the time the service was provided) was widely accepted in Australia by members of the same profession as competent professional practice. \(3) The fact that there are differing professional opinions widely accepted in Australia by members of the same profession does not prevent any one or more (or all) of those opinions being relied on for the purposes of this section. \(4) Professional opinion does not have to be universally accepted tobe considered widely accepted. CAUSATION AND REMOTENESS OF DAMAGE ---------------------------------- - Was the breach the cause of the Plf's damage? - The straightforward test for determining causation is the 'but for' test. The court will ask the question: *But for the defendant's behaviour, would the harm to the plaintiff have occurred?* - In simple terms, this means: - If the defendant had not been negligent, then would the damage still have occurred anyway? - If the answer is YES, then we can deduce that the damage was not caused as a result of the defendant's negligence. - If the answer is NO, then we can deduce that the damage is directly due to the defendant's negligence e.g. *Barnett v Chelsea & Kensington Hospital* (1969) - The 'but for' test is easily applied to Barnett v Chelsea & Kensington Hospital because it concerns a scientific matter. PURE ECONOMIC LOSS (PEL) ------------------------ - Traditionally -- no claim in torts for pure economic loss - Why? - PEL doctrinally belongs to contract law - Potential to create excessive liability - PEL (expectation loss) is role of contract where very proximate relationship -- parties chose to form relationship - Otherwise what's difference between contract and tort law -- can't possibly give same rights to Plaintiff in tort - Difference between: - economic loss consequent upon damage to property; and - Pure economic loss e.g. *Spartan Steel & Alloys Ltd v Martin & Co. (Contractors)* Ltd \[1973\] 1 QB 27 - Martin negligently damaged power cable supplying Spartan's steel factory - Power cut for 15 hours causing following damage: - Physical damage to furnaces and steel n furnace at time of power cut; - Loss of profit on the ruined steel in the furnace; and - Loss of profit on steel which could not be manufactured during power cut. - The court allowed (i) to be recovered, as it was physical damage to property. - The court allowed (ii) to be recovered, as it was economic loss directly consequent upon - physical damage to property. - However, the court would not allow (iii) to be recovered as it was a pure economic loss ### EXCESSIVE LIABILITY "*If liability for negligence exists, a thoughtless slip or blunder...may expose \[defendants\] to a liability in an indeterminate amount for an indeterminate time to an indeterminate class*" e.g. *Cardoza CJ in Ultrameres Corp v Touche, Niven & Co* 174 NE 441 (NYCA) 1931 - A negligently severs an electricity cable which leads to the business premises of B, C, D and E, who are unable to produce goods for 48 hours and suffer economic loss as a result. - B has contracts with F, G and H, each of whom suffers economic loss as a result of B's being unable to perform. C, D and E each have several further contracts which are interrupted. If liability is imposed on A, then where would the liability end? ### EXCEPTIONS - Negligent misstatement - Hedley Byrne v Heller \[1964\] AC 534 - Reasonable reliance - Voluntary assumption of responsibility - Consider what this means for building professionals! - Defective Buildings - Bryan v Maloney \[1995\] 182 CLR 609 -- liability for residential premises - But, also consider Woolcock Street Investments v CDG \[2004\] 205 ALR 522 -- no liability for pure economic loss for commercial buildings ### WHY A BUILDING DEFECT IS A PURE ECONOMIC LOSS - A construction or design defect is 'damage' to the defective good itself' - Remember Donoghue v Stevenson principles -- Mrs S could not recover money for the damaged/contaminated bottle of ginger beer - Generally, PEL only claimable in contract BUT there are exceptions e.g. *Bryan v Maloney* - Mrs Maloney bought house in 1986 - 6 months after moving in, cracks appeared in walls - Cracks due to defective foundations -- negligent construction - Mrs M was 3rd house owner - High Court of Australia upheld Tas SC decision to award damages for economic loss to repair the house DUTY OF CARE -- PROXIMITY ------------------------- - Proximity due to: - the builder had assumed responsibility for erecting a structure with footings adequate to support it to the first owner and there was no reason not to carry through this responsibility to a subsequent owner; - the likelihood that the purchase of the house would be one of the most significant investments the subsequent owner would ever make, - the foreseeability of the economic loss being suffered by the person who owned the house at the time when the latent defect first became manifest, and - The permanent nature of the house as a structure e.g. *Woolcock v CDG* - Warehouse building - Woolcock was 3rd building owner - Structural distress apparent due to defective foundations - Negligent design by the engineer, CDG - W sued, but High Court of Australia said W had no case for economic loss in tort of negligence - HCA found insufficient proximity - Viewed that Woolcock were not vulnerable - This was a commercial building and W was a corporate investor in real estate - W should have protected themself: - In purchase contract through warranty for freedom from defect - By carrying out a building inspection before purchase LOOK AT TUTORIAL.