Breach of contract – and other ways contracts can go bad
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| What is breach of contract? (1) | show 🗑
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| show | - In some cases a significant breach of contract may lead to termination of the contract, in other cases it may simply entitle the other party to a remedy
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| What is breach of contract? (3) | show 🗑
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| Breach of contract - To successfully enforce a contract and recover remedies, the plaintiff needs to prove: 1) Contract | show 🗑
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| show | The defendant has
breached a term of
the contract
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| show | The breach has
caused some loss
or harm to the
plaintiff
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| show | There is a contract between the
plaintiff and the defendant
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| show | The defendant has breached a
term of the contract
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| show | There is or was a contract between the
principal and the contractor for
carrying out the building work
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| show | The actions of the contractor amounted
to a breach of a specific term of the
contract regarding quality of materials
or workmanship
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| Where the contract contains an express provision about the | show 🗑
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| Where the contract contains an express provision about the quality of | show 🗑
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| Where the contract is not in writing, need to consider what implied terms will | show 🗑
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| Where there is a written contract, but it does not contain express provisions about the quality of materials or workmanship, or it contains terms which are less strict than the general common law standards, need to consider | show 🗑
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| show | Construction work to be carried out
with reasonable skill and care
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| Cause of action for breach of contract – Implied terms for Contractors - Implied terms in construct-only contracts (unless it is unreasonable in the circumstances to imply these terms) (2) | show 🗑
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| show | Completed design and construction work to be
reasonably fit for purpose
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| show | Contractor could be liable for defects arising from design and/or construction work if the completed work is not fit for purpose, even if cannot prove the contractor failed to exercise due skill and care expected of a professional in carrying out work
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| show | materials are reasonably fit for the purpose for which such goods are normally used
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| show | materials are reasonably fit for the particular purpose for which they are required
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| show | imply terms into a contract
for the supply of work and materials that the materials supplied will be reasonably fit for the purpose for which they are used
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| show | merchantable quality and not fitness for the particular
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| If a builder has designed the works and/or specified the materials, generally courts will imply into the building contract terms for both | show 🗑
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| Cause of action for breach of contract Consultants and Other Professionals - Implied terms in consultancy contracts for design (1) | show 🗑
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| Cause of action for breach of contract Consultants and Other Professionals - Implied terms in consultancy contracts for design (2) | show 🗑
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| show | Courts will generally imply a duty that a
professional will exercise due skill and care
when performing contractual obligations
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| show | The required level of skill and care is
generally that used by the ordinary
competent professional, or a significant
number of professional peer
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| show | The most
common
remedy for
breach of
contract is
damages
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| show | expressly
provided for in the contract in the
form of a pre-agreed, stipulated
amount for a specific type of
breach
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| General damages: | show 🗑
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| Aim of general damages for breach of contract at common law is to | show 🗑
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| show | innocent party,
not punish the
defaulting party
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| Damages for breach of contract can be claimed for: | show 🗑
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| The primary basis the court will use in assessing damages for loss is what is known as expectation loss, or loss of bargain - This is the benefit lost to the plaintiff as a consequence of the contract not being performed to successful completion | show 🗑
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| General damages for loss - Where the expected profit or loss (loss of bargain) cannot be calculated, the court can use | show 🗑
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| show | nominal
damages only
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| Examples of expectation loss - Sale of goods contract - If the purchaser does not receive the item they purchased, the measure of damages will be the difference between the | show 🗑
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| Examples of expectation loss - Construction contract - Where the contractor is the plaintiff and the contract is wrongfully terminated, the measure of damages will be the difference between the contract | show 🗑
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| show | cost of making the work conform to the
contract (the cost of remedial work)
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| show | • The injuries were caused by the breach of contract, and
• The damage is not too remote
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| show | exceptional circumstances
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| Tests of causation, mitigation and remoteness 1 | show 🗑
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| Tests of causation, mitigation and remoteness 2 | show 🗑
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| Tests to be applied in awarding damages - To successfully recover damages, the plaintiff needs to prove: 1) Causation | show 🗑
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| Tests to be applied in awarding damages - To successfully recover damages, the plaintiff needs to prove: 2) Mitigation | show 🗑
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| show | Was the loss
reasonably
foreseeable to the
defendant, i.e. not
too remote?
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| show | • The breach does not have to be the only cause, but it
must be sufficiently important that without the breach,
the loss would not have occurred
• Sometimes described as the ‘but for’ test: but for the
breach, the loss would not have occurred
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| show | • If the plaintiff does not take reasonable steps to mitigate
(minimise) losses arising from breach, the plaintiff may not be
able to claim the full losses from the defendant
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| Awarding damages - Mitigation - Mitigation – Did the plaintiff try to mitigate the amount of loss? 2 | show 🗑
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| Awarding damages - Remoteness - Remoteness – Was the loss reasonably foreseeable? | show 🗑
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| show | The test for remoteness was first set down in Hadley v Baxendale (1854)
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| show | the breach, under the first limb of Hadley v Baxendale, are recoverable only to the extent that they were to be reasonably expected or foreseeable as resulting from the breach
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| The test as now used is that damages will only be awarded if the losses fall within one of the following two limbs: 1 | show 🗑
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| The test as now used is that damages will only be awarded if the losses fall within one of the following two limbs: 2 | show 🗑
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| Other remedies for breach of contract - equitable remedies - Order for injunction or specific performance | show 🗑
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| show | • Restraining a party from doing something,
stopping them breaching the contract
• e.g. to prevent a party calling a bank
guarantee
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| show | • Compelling a party to do something, making
them perform their obligations under the
contract
• e.g. ordering a party to go ahead with the
sale of something unique
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| Limiting available remedies - The parties to a contract can choose to include terms in the contract which | show 🗑
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| show | or disclaimers
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| show | of allocating risks
between the parties
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| show | - Excluding a right the other party may have had, or
- Limiting a party’s liability to a specified amount, or
- Limiting a party’s right by placing conditions on how it can be
exercised
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| show | general
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| show | “Homer’s liability for
damage to Ned’s
property while on
Homer’s premises is
excluded”
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| show | liability for consequential loss
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| Exemption clauses – Excluding a right the other party may have had - Exclusion of liability for consequential loss | show 🗑
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| Exemption clauses – Excluding a right the other party may have had - Exclusion of liability for consequential loss - Courts have taken a variety of views on the meaning of consequential loss, so it is safest to spell out in | show 🗑
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| show | specified amount, most commonly as a cap on the damages which could be recovered under the contract for a specified breach - “Homer’s liability to Ned for breach of this contract is limited to $1000”
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| show | that
right can be exercised
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| show | “Ned must make any claim for damage to his
property under this contract within 5 business
days of the damage occurring; Ned will have no
right to make a claim for damage after this time”
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| show | delaying event; if the claim is not made within that time, the clause states that the contractor will lose its right to an extension of time
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| show | For an exemption clause to be effective, the person
seeking to rely on the clause must have given sufficient
notice to the party whose rights will be limited by the clause
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| Exemption clauses – notice Signed contracts - Signing the contract is usually taken as receipt of notice | show 🗑
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| Exemption clauses – notice Signed contracts - But signing the contract will not be enough if the clause was misrepresented | show 🗑
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| show | The party seeking to rely on
the clause must give
constructive notice to the other
party (must have done all
reasonably necessary to bring
the clause to the attention of a
reasonable person)
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| show | Where there is any confusion or ambiguity about the meaning
of the clause, the court will interpret it against the interests of
the party who put forward the clause in the contract
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| show | How does a valid contract come to an end?
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| Termination of a contract - Vitiation of contracts | show 🗑
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| show | Discharge
of a
contract
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| show | - Discharge (termination) of a contract occurs when the parties are relieved of their obligations to perform under the contract
- When a contract is discharged it comes to an end
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| show | - Performance
- Agreement
- Frustration
- Breach or repudiation
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| Discharge of contract by performance | show 🗑
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| Discharge of contract by agreement 1 | show 🗑
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| Discharge of contract by agreement 2 | show 🗑
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| Discharge of contract by agreement 3 | show 🗑
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| Discharge of contract by frustration - Frustration of a contract occurs where a contract was capable of performance at the time of | show 🗑
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| show | event which made performance impossible
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| show | A contract can be discharged if one party acquires the right to terminate and
chooses to exercise that right
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| Discharge of contract by breach or repudiation - At common law a party may terminate a contract where there has been: | show 🗑
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| What is repudiation? - Repudiation of a contract is when a party indicates, through actions or words, that they are unwilling or unable to substantially perform the contract | show 🗑
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| show | conduct of one
party was such as to suggest to
a reasonable person that the
party is renouncing the contract
(either the whole contract or a
fundamental obligation under
the contract)
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| show | option to terminate (end) or
affirm (continue) the contract
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| show | • Continuing to perform the contract after the right
to terminate arises; or
• Unreasonable delay in notifying the defaulting
party of the decision to terminate
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| The effect of substantial breach or repudiation, once the innocent party terminates, is that the contract is terminated as at the date of breach: | show 🗑
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| show | a contract
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| Vitiation of contracts | show 🗑
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| Where a contract is declared void: • It is viewed by courts as not existing • It will generally will be void from the beginning, as if it had never existed | show 🗑
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| Where a contract is declared voidable: 1 | show 🗑
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| Where a contract is declared voidable: 2 | show 🗑
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| show | If the innocent party chooses to rescind the
contract, the contract will then become void from
the beginning
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| show | something which
suggests the innocent party is happy to continue
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| show | Common law - court can declare the contract voidable
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| show | Common law - court can declare the contract void
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| When can a court vitiate a contract? - Contract formed as a result of unconscionable conduct by one party | show 🗑
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| show | ACL s18 - remedies include damages, court varying the contract and court declaring part or all of the contract void
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| When can a court vitiate a contract? - A term of a standard form consumer or small business contract is declared to be unfair under the ACL, in circumstances where the remainder of the contract cannot continue without that term | show 🗑
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| Recap - Day to day obligations - What constitutes completion of the work? | show 🗑
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| Practical completion - work completed to a stage where remaining defects and omissions: | show 🗑
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| show | fixed period of time for remedying the remaining
defects and omissions
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| Final completion | show 🗑
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| AS 4902 – 2000 | show 🗑
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| show | • Practical completion (cl 34)
• Defects liability period
(cl 35)
• Final completion (cl 37)
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| show | • The contractor may still be liable to the
principal for breach of contract if latent
defects are identified after final completion
• How long does that liability last?
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| show | - In Australia, legislation imposes a limit on the time period between the date when a cause of action accrues and the date that action can be brought to court
- This concept is known as limitation of actions, and the time limit is the limitation period
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| show | date when a cause of action
accrues (arises) and the latest date that action can be brought to court
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| show | breach of contract occurs
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| show | • For most contracts (known in law as ‘simple contracts’), the limitation period is 6 years from the
date the cause of action arose – which means 6 years from the date of the breach of contract
• There are some exceptions to this basic 6 year period
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| show | limitation of action periods
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Created by:
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