LAW OF CONTRACT - The University of Sydneysydney.edu.au/lec/subjects/contracts/Winter 2016/LEC -...
Transcript of LAW OF CONTRACT - The University of Sydneysydney.edu.au/lec/subjects/contracts/Winter 2016/LEC -...
Lecture 12• Remedies
– (1) Damages• Text: Radan & Gooley, Chapter 29
– (c) Actions for Fixed Sums and Debt
• Text: Radan & Gooley, Chapter 30
• Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79 (R&G(C) [30.2])
• *Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 (R&G(C) [30.3])
• McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 (R&G(C) [30.5])
• White & Carter (Councils) Ltd v McGregor [1962] AC 413 (R&G(C) [30.6])
• *Andrews v Australia and New Zealand Banking Group Ltd (2012) 290 ALR 595, [2012] HCA 30
– (d) Rectification
• Text: Radan & Gooley, Chapter 34
• *Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603
• *George Wimpey UK Ltd v V I Construction Ltd [2005] EWCA Civ 77
– (e) Restitution
• Text: Radan & Gooley, Chapter 38=
• Pavey and Mathews v Paul (1987) 162 CLR 221
• *Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32
• *Lumbers v W Cook Builders Pty Ltd (in liquidation) (2008) 232 CLR 635
• Sumpter v Hedges [1898] 1 QB 673
• *David Securities P/L v Commonwealth Bank of Australia (1992) 175 CLR
REMEDIESActions for fixed sums and debt
• Contracts can include a clause that sets out their obligations to each other if
there is a breach. Often there is a clause which sets out a sum of money to
be paid by the guilty party as compensation for the breach.
• The plaintiff does not have to prove loss for each breach of the agreement
and recover the agreed some as a debt. These are often called ‘liquidated
damages clauses.’
• However such clauses will not be enforceable if they are in fact ‘penalties’
rather than a genuine pre-estimation of the loss that the wronged party
would suffer.
• Traditionally, it was held that the law on penalties does not apply to clauses
in a contract relating to payment of money for a reason other than breach of
agreement. This was changed in Andrews v Australia and New Zealand
Banking Group Ltd (2012) 290 ALR 595, [2012] HCA 30
REMEDIESActions for fixed sums and debt
• The second category of fixed sums are essentially actions for debts. Such an
action will arise where a contract imposes and obligation to pay a sum of money
and the right to payment of that sum has accrued to the plaintiff. This is
different to a claim for damages.
• An common example of this is the recovery of the price paid for goods and
services that have been provided by the plaintiff.
• There are 2 requirements to sue in debt:
1. There is an obligation to pay a certain or ascertainable sum of money.
2. The plaintiff has performed the obligation to which the defendant’s obligation
to pay was attached.
• In relation to contracts for the sale of land, an issue arises as to whether the
deposit can be retained and/or unpaid instalments recovered by the vendor.
REMEDIES• Actions for fixed sums and debt
• Also, in relation to the recovery of a debt, mitigation usually does not
apply (with 2 exceptions).
REMEDIES• Actions for fixed sums and debt
Penalties/liquidated damages
Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79 (R&G(C) [30.2])
• Dunlop Pneumatic Tyre Co Ltd entered into a contract to sell tyres and
other accessories to New Garage Motor Co Ltd on terms design to ensure
that the tyres were not sold below the manufacturers listed price. New
agreed to pay Dunlop “the sum of £5 for each and every tyre 7 sold in
breach of this agreement, as and by way of liquidated damages and not as
a penalty”. New sold tyres in breach of the agreement.
• At issue was whether the clause constituted a penalty and, consequently,
was unenforceable, or whether it was a valid liquidated damages clause.
REMEDIES• Actions for fixed sums and debt
Penalties/liquidated damages
Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79 (R&G(C) [30.2])
Lord Dunedain
1. Though the parties to a contract who use the words "penalty" or "liquidated
damages" may prima facie be supposed to mean what they say, yet the
expression used is not conclusive. The Court must find out whether the
payment stipulated is in truth a penalty or liquidated damages. This doctrine
may be said to be found passim in nearly every case.
2. The essence of a penalty is a payment of money stipulated as of the
offending party; the essence of liquidated damages is a genuine
covenanted pre-estimate of damage.
REMEDIES• Actions for fixed sums and debt
Penalties/liquidated damages
Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79 (R&G(C) [30.2])
3. The question whether a sum stipulated is penalty or liquidated damages is a
question of construction to be decided upon the terms and inherent
circumstances of each particular contract, judged of as at the time of the
making of the contract, not as at the time of the breach
4. To assist this task of construction various tests have been suggested, which
if applicable to the case under consideration may prove helpful, or even
conclusive. Such are:
( a ) It will be held to be penalty if the sum stipulated for is extravagant and
unconscionable in amount in comparison with the greatest loss that could
conceivably be proved to have followed from the breach.
REMEDIES• Actions for fixed sums and debt
Penalties/liquidated damages
Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79 (R&G(C) [30.2])
( b ) It will be held to be a penalty if the breach consists only in not paying a sum of
money, and the sum stipulated is a sum greater than the sum which ought to
have been paid. This though one of the most ancient instances is truly a
corollary to the last test. Whether it had its historical origin in the doctrine of the
common law that when A. promised to pay B. a sum of money on a certain day
and did not do so, B. could only recover the sum with, in certain cases, interest,
but could never recover further damages for non-timeous payment, or whether it
was a survival of the time when equity reformed unconscionable bargains merely
because they were unconscionable,
( c ) There is a presumption (but no more) that it is penalty when "a single lump sum
is made payable by way of compensation, on the occurrence of one or more or
all of several events, some of which may occasion serious and others but trifling
damage"
REMEDIES• Actions for fixed sums and debt
Penalties/liquidated damages
Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79 (R&G(C) [30.2])
On the other hand:
( d ) It is no obstacle to the sum stipulated being a genuine pre-estimate of
damage, that the consequences of the breach are such as to make precise
pre-estimation almost an impossibility. On the contrary, that is just the
situation when it is probable that pre-estimated damage was the true bargain
between the parties.
• Here the damage apprehended by Dunlop was indirect rather than direct – if
they got the contracted price from New then it should not matter directly what
he did with it.
REMEDIES• Actions for fixed sums and debt
Penalties/liquidated damages
Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79 (R&G(C) [30.2])
• The evidence showed that Dunlop would be damaged if the price were cut, but
it would be difficult to forecast what that damage would be from each sale. This
seems like a reasonable pre-estimate: NOT PENALTY.
• Here the key factor was the difficulty in assessing damages from possible
breaches by New
REMEDIES• Actions for fixed sums and debt
Penalties/liquidated damages
*Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 (R&G(C) [30.2])
• In May 1999, Ringrow entered into a contract with BP to buy a service
station in Lansvale. Collateral documents included an option deed that gave
BP an irrevocable option to buy back the service station at market price,
exclusive of any goodwill, and a Privately Owned Sites Agreement (POSA),
which prohibited Ringrow from purchasing and on-selling fuel from any
supplier other than BP.
• According to the contract's terms, breach of the POSA by Ringrow gave BP
the right to exercise its buy-back option. At various times, Ringrow bought
and on-sold fuel from an alternative supplier in breach of the POSA. BP
gave notice of the breach, followed by a notice of termination and notice of
its intention to exercise its contractual right to buy back the service station.
REMEDIES• Actions for fixed sums and debt
Penalties/liquidated damages
*Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 (R&G(C) [30.2])
• Ringrow commenced proceedings, claiming that the exercise of the option was
void and unenforceable as a penalty. According to Ringrow, the exercise of the
option was indiscriminate and oppressive due to it being enforceable for minor
breaches of the POSA. The Federal Court and then the Full Federal Court
rejected Ringrow's argument, upholding the validity of the termination of the
POSA's and BP's exercise of the option. Ringrow appealed further to the High
Court.
• The High Court unanimously dismissed Ringrow's appeal. Although typical penalty
cases involve a court comparing what would be recovered as unliquidated
damages with the amount stipulated to be payable on breach, it was necessary in
this case, given it involved the transfer of property, to compare the difference
between the price paid by BP on re-transfer and the actual value of the property
transferred.
REMEDIES• Actions for fixed sums and debt
Penalties/liquidated damages
*Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 (R&G(C) [30.2])
• There must be evidence of an advantage that is oppressively
disproportionate in relation to the benefits flowing from a genuine pre-
estimate of damage.
• The High Court stated that an extravagant or unconscionable difference
between the two needed to be established for there to be a degree of
disproportion sufficient to point to oppressiveness, such that the re-transfer
would be a penalty.
REMEDIES• Actions for fixed sums and debt
Penalties/liquidated damages
*Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 (R&G(C) [30.2])
• As Ringrow alleged that the difference in values as a result of goodwill being
excluded from the second valuation amounted to a penalty, the court considered the
value of the goodwill.
• It found that the expert evidence established the value of goodwill to be insignificant
and it was, therefore, not possible to assess the value of any money sum lost. In the
absence of an established value for the goodwill of the business, the court held it
could not be said that the cumulative imposition of the option on the liquidated
damages clause was oppressive or extravagant and unconscionable in comparison
to the loss flowing from Ringrow's breach of the POSA so as to amount to a penalty.
• The court also held that the fact the agreement could be terminated for minor or
technical breaches did not establish disparity such as to trigger the penalty doctrine.
REMEDIES• Actions for fixed sums and debt
Penalties/liquidated damages
• *Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656
• Ringrow argued that the option deed contravened the doctrine of proportionality in
calling for a reconveyance of the service station after termination of the POSA,
rather than a lease for the balance of the five-year term of the POSA. The High
Court also rejected this argument, stating that there was no authority for the
doctrine of proportionality in Australia.
• According to the High Court, the law of penalties only required that the value to BP
from the exercise of the right would not be significantly greater than, or all out of
proportion with, a genuine pre-estimate of damage. Their Honours stated that:
REMEDIES• Actions for fixed sums and debt
Penalties/liquidated damages
*Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 (R&G(C) [30.2])
‘Exceptions from ... freedom of contract require good reason to attract judicial
intervention to set aside the bargains upon which parties of full capacity have agreed.
That is why the law of penalties is, and is expressed to be, an exception from the
general rule. It is why it is expressed in exceptional language. It explains why the
propounded penalty must be judged 'extravagant and unconscionable in amount'. It is
not enough that it should be lacking in proportion. It must be 'out of all proportion.’
REMEDIES• Actions for fixed sums and debt
• Penalties/liquidated damages
*Andrews v Australia and New Zealand Banking Group Ltd (2012) 290 ALR 595,
[2012] HCA 30
• Andrews was a class action in the Federal Court of Australia seeking recovery of
fees paid by customers to banks.
• The trial judge, Gordon J, ordered that certain questions be answered separately:
were whether a variety of fees charged by the bank for overdrafts, overdrawn
accounts, dishonour fees and overlimit credit card accounts were void or
unenforceable as penalties?
• Applying the New South Wales Court of Appeal’s decision in Interstar Wholesale
Finance Pty Ltd v. Integral Home Loans Pty Ltd, Gordon J ruled that as only the
late payment fees were payable on breach, they were the only fees capable of
being characterised as penalties. Absent of contractual breach, Gordon J held that
the penalty doctrine did not apply.
REMEDIES• Actions for fixed sums and debt
• Penalties/liquidated damages
*Andrews v Australia and New Zealand Banking Group Ltd (2012) 290 ALR 595, [2012]
HCA 30
• The applicants then sought the unusual procedure of, in effect, appealing directly to
the High Court.
Held:
• The jurisdiction of the doctrine of relief against penalties is equitable.
• Because jurisdiction is equitable and not based on contract law, relief does not
depend upon a breach of contract having occurred (this is at odds with the rest of the
common law world and is a major change in Australian law)
• It is the substance (and not the form) of a clause that matters. If a fee or any other
stipulation is out of proportion to the obligation that is sought to be secured, it may be
a penalty.
REMEDIES• Actions for fixed sums and debt
• Penalties/liquidated damages
*Andrews v Australia and New Zealand Banking Group Ltd (2012) 290 ALR 595,
[2012] HCA 30
• A stipulation, on its face, imposes a penalty on one contracting party (the first party) if:
– first, as a matter of substance, the stipulation is collateral to a primary stipulation
in favour of the other party. A stipulation is collateral if its purpose is to force the
first party to satisfy the primary stipulation; and
– secondly, upon the failure of the primary stipulation, the collateral stipulation
imposes upon the first party an additional detriment (the penalty) to the benefit of
the other party. The detriment is "additional", and hence a penalty, if it exceeds
the compensation that is necessary to compensate the other party. However, no
penalty exists if the collateral stipulation is not capable of being quantified in
monetary terms or if the detriment is a genuine pre-estimate of damage.
REMEDIES• Actions for fixed sums and debt
• Penalties/liquidated damages
*Andrews v Australia and New Zealand Banking Group Ltd (2012) 290 ALR
595, [2012] HCA 30
• Importantly, if the collateral stipulation involves some additional
accommodation by the person benefitting from it, it will not be a penalty.
• The High Court gives an example of where a film exhibitor has a right to hire
a film for public showing at certain times but may hire the film at other times
provided the exhibitor pays a hiring fee of four times the usual hiring fee.
The much higher price is not a penalty because the higher payments are
made in exchange for an option to purchase additional hiring rights.
• There does NOT need to be any breach!
REMEDIES• Actions for fixed sums and debt
• The second category of fixed sums are essentially actions for debts. Such an
action will arise where a contract imposes and obligation to pay a sum of money
and the right to payment of that sum has accrued to the plaintiff.
• This is different to a claim for damages: ‘The common law does not and never
did conceive of indebtedness in a sum certain for an executed consideration as
a mere breach of contract; it is rather the detention of a sum of money.’ Young v
Queensland Trustees Ltd (1954) 99 CLR 560, 567.
• An common example of this is the recovery of the price paid for goods and
services that have been provided by the plaintiff.
• There are 2 requirements to sue in debt:
1. There is an obligation to pay a certain or ascertainable sum of money.
2. The plaintiff has performed the obligation to which the defendant’s obligation
to pay was attached.
REMEDIES• Actions for fixed sums and debt
• In relation to contracts for the sale of land, an issue arises as to whether the
deposit can be retained and/or unpaid instalments recovered by the vendor.
• Also, in relation to the recovery of a debt, mitigation usually does not apply
(with 2 exceptions).
TERMINATION• Actions for fixed sums and debt
Recovery of a debt and instalment contract payments
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 (R&G(C) [30.5])
• Involved a contract for the sale of land to be paid for by 4 instalments (including the
deposit) and then the final payment on completion. The final instalment and balance
were not paid on time and contract was terminated.
• Could the instalments other than the deposit be retained (or recovered if not paid), once
the contract had been terminated?
HELD Starke J:
• The termination of the contract did not extinguish it ab initio, but in futuro, so as to
discharge obligations under it still unperformed. A purchaser, not in default, is
discharged from further performance, and entitled to recover any money paid or
property transferred by him under it. A vendor, not in default, is discharged from further
performance, and entitled to return of the land and bound to restore any money paid.
TERMINATION• Actions for fixed sums and debt
Recovery of a debt and instalment contract payments
• McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 (R&G(C) [30.5])
• The vendor cannot have the land and its value too. A deposit as security for the
execution of the contract is often an exception, because it is considered that it is the
intent of the parties that this payment be retained if the contract goes off by default
of the purchaser.
• On the other hand, provisions for forfeiture of instalments of purchase money have
been treated as penalties and relief given in equity against those provisions [ie they
will not be enforced]. After rescission, the vendors could not retain the land and sue
for the balance of the purchase money - they could not have the land and money
too. Assignors of the vendors should be in no better position.
• A guarantee or surety is not liable on the guarantee where the principal debt cannot
be enforced. Here, the rescission means that the principal debt is no longer
enforceable therefore the sureties are not liable under their guarantee.
TERMINATION• Actions for fixed sums and debt
Recovery of a debt and instalment contract payments
• McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 (R&G(C) [30.5])
• The underlying reason why the purchasers did not have to pay was that there had been
a total failure of consideration. The purchasers received nothing - the failure was total -
and this allows recovery of payment made [But then how do you justify the deposit?].
• Strange in this case that the plaintiff did not ask for damages.
Debt
• A failure of a party to pay a fixed sum under a contract gives a plaintiff a right to sue in
debt as well as damages (but you can’t recover twice). But in the case of a sale of land,
you can only sue in debt once the land has transferred.
• It is not the mere breach of contract, it is the detention of monies owing.
• A debt claim has procedural advantages: onus on defendant to prove that it has been
paid
TERMINATION• Actions for fixed sums and debt
Recovery of a debt and instalment contract payments
• McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 (R&G(C) [30.5])
• The contract must contain an obligation to pay a certain or ascertainable sum
of money and the performance to which this relates has occurred.
• But the plaintiff has to have ‘earned’ the right to recover by performance. That
is why it usually does not apply to sale of land because the vendor will usually
not have performed – transferred the land. In such cases, only if owner has
transferred will a debt arise.
TERMINATION• Actions for fixed sums and debt
Recovery of a debt and instalment contract payments
• McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 (R&G(C) [30.5])
Dixon J
• Normally upon termination the contract is not rescinded from beginning. Both
parties are discharged from further performance, but rights are not divested or
discharged which have been unconditionally acquired. But can’t keep land
and insist on payment of money. The vendor’s title to the money is not
absolute until he transfers the land.
REMEDIES• Actions for fixed sums and debt
Duty to mitigate – debt claims
White & Carter (Councils) Ltd v McGregor [1962] AC 413 (R&G(C) [30.6])
• The claimant supplied bins to the Local Authority and was allowed to display
adverts on these bins. The defendant owned a garage. The defendant's
sales manager entered a contract with the claimant for them to place
adverts on the bins for a period of 3 years.
• The agreed price was payable by three annual instalments and if one of the
payments was late the whole price became immediately due. The defendant
had not authorised the sales manager to enter the contract and phoned the
claimant on the same day as the contract had been made, telling them that
he did not want the advertising. The claimant ignored the defendant's
communication and arranged for the advertising plates to be made up and
placed on the bins. The defendant refused to pay the first instalment and
the claimant submitted a bill for the full three years of advertising.
REMEDIES• Actions for fixed sums and debt
Duty to mitigate – debt claims
White & Carter (Councils) Ltd v McGregor [1962] AC 413 (R&G(C) [30.6])
• The House of Lords held that the claimant was not obliged to accept the breach
of contract and could continue with the contract. They were thus entitled to full
payment for the three years advertising.
• When a party sues to recover a debt (as opposed to damages) the rules of
mitigation do not apply.
• Exceptions:
– Contracts which cannot be completed without the co-operation of the party in
breach
– Public policy
REMEDIES• Rectification
• The rectification of documents is a remedy that has been granted by courts
of equity for many centuries. Although it may be obtained in association with
other remedies such as specific performance, it is an independent head of
relief, and its basis is the protection of an applicant so that he is not put at
risk or prejudiced by the existence of a document reliance on which would,
without rectification, be unconscionable.
• Rectification is the rectification of documents, not the reformulation of
agreements that are expressed in documents. So “Courts of equity do not
rectify contracts; they may and do rectify instruments purporting to have
been made in pursuance of the terms of contracts.” Accordingly save where
it arises through a breach of a trust or of a fiduciary duty or there is some
other special basis of equitable intervention, rectification has been based on
a mistake of one or more of the parties to a document.
REMEDIES• Rectification
• Rectification generally requires a common mistake by all parties to it, to the
effect that the written contract fails to give expression to their true intention.
• In special circumstances, rectification is also available in cases of unilateral
mistake.
• The mistake can be one of fact or of law.
REMEDIES• Rectification
Elements:
• 1. Intention: The parties held a common intention, which continued until the
time the document was executed.
– The time at which the parties held the intention is crucial. If the plaintiff
proves the parties intended something at one time, but the defendant
proves that they changed their intention prior to signing the document,
rectification will not be granted (see, for example, Maralinga Pty Ltd v
Major Enterprises Pty Ltd (1973) 128 CLR 336).
– Likewise, where the plaintiff signed the document under protest,
knowing that it contained a provision different from what the plaintiff
intended, rectification will not be granted (Maralinga).
REMEDIES• Rectification
Elements:
• 2. Mistake: By mistake, the document does not accord with the parties’
common intention.
– Subject to limited exceptions (see "unilateral mistake" below), the mistake
must be common to both parties – if one party knew that the document
differed from the parties' intention, and executed the document anyway,
there will be no common mistake and rectification will be denied.
– Often parties will have known about (and intended) the words used in the
document, but were mistaken about the effect of those words. Historically,
this type of mistake was incapable of rectification. But there is a growing
body of case law which suggests rectification is allowed even if the parties
were only mistaken as to the effect of the words, not the words
themselves. See, for example, Thiess Pty Ltd v FLSMIDTH Minerals Pty
Ltd [2010] QSC 006.
REMEDIES• Rectification
Elements:
• 3. Rectification would correct the mistake: The mistake would be
corrected, and the document would accord with the parties’ intention, if it
were rectified in the manner requested.
– It is not enough to prove that the written document does not accord with
the parties’ intention. You must also prove what the parties’ intention
was, and how this can be reflected in the document. This means you
must show the court exactly how the words in the document should be
amended to reflect the parties' intention. The court will not write the
amendment for you!
REMEDIES• Rectification
Common mistake
• *Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603
• Euphoric Pty Ltd contracted to supply Ryledar Pty Ltd with various gasoline and
oil products. Ryledar was to receive a contractual rebate on those gasoline and
oil products at a rate of 6.2 cents per litre for all of its Sydney Metropolitan stores
and 6.0 cents per litre for all stores outside the Sydney Metropolitan area
• Over time, Ryledar began opening more stores in the state of New South Wales
and the Agreement was amended to reflect that the 6.0 cents per litre rebate was
now to be applied to Wollongong, Central Coast and Newcastle locations as well
as any town on or east of a straight line connecting Newcastle, Bilpin, Katoomba,
Bowral and Wollongong.
• Notwithstanding the recorded terms of the Amended Agreement, Euphoric
adopted a practice of extending the 6.0 cents per litre rebate to each new store
that was opened by Ryledar, regardless of the store's location.
REMEDIES• Rectification
• *Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603
• When Euphoric had a change of management, it notified Ryledar that it
intended to return to the terms of the Amended Agreement and cease
applying the rebate to locations outside of the area described. Ryledar
refused to pay for the gasoline and oil products and continued to withhold
payment of the outstanding amounts as a result of Euphoric's refusal to
extend the 6.0 cents per litre rebate to each new store. Euphoric commenced
legal proceedings for recovery of the amounts.
• Ryledar advanced two primary arguments:
– that it was the common intention of both parties that the rebate would apply
to all stores in New South Wales and that the Amended Agreement should
be rectified to reflect that common intention, and
– that Euphoric should be estopped from denying that the rebate applied
across all stores.
REMEDIES• Rectification
• *Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603
Held
• The Court rejected both of Ryledar's primary arguments. The Court held
that, to obtain rectification, Ryledar must be able to show that "the common
intention for which it contends must be established by clear and convincing
proof".
• The Court found that the language that was used in the Amended Agreement
and the definition of the geographic areas were clear and unambiguous so
that the Court could not find a reason to believe that the parties intended the
rebate to apply to a wider area than the strictly defined area within the terms
of the Amended Agreement.
REMEDIES• Rectification
• *Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603
• The Court found that the parties had "purposely used the words which are now
sought to be rectified" and, in fact, it was Ryledar who had proposed the particular
amendments to the Amended Agreement which Ryledar was now seeking to resile
from. Therefore, in the circumstances, the Court was not convinced that the parties
were in complete agreement as to Ryledar's alleged "common intention".
• Ryledar, in the alternative, sought to argue that there existed an estoppel by
convention based on Euphoric's continued conduct in not enforcing the terms of
the Amended Agreement. The Court also rejected this argument. The Court found
that, for the same reasons as outlined above, there was no evidence of an
assumed state of affairs by the parties which they would be estopped from
denying. It was clear from the evidence that Euphoric had continued to extend the
rebate to Ryledar purely on a "commercial basis" and Ryledar could not establish
that there was an intention for the rebate to apply to the whole of New South
Wales.
REMEDIES• Rectification
Unilateral mistake
• Thomas Bates & Son v Wyndhams Ltd [1981] 1 All ER 1077
• Elements:
1. A is mistaken as to whether a particular term of the contract is or is not
included.
2. B knows of A’s mistake.
3. B fails to draw to A’s attention the mistake in circumstances where equity
would require B to take some step or steps, depending upon the
circumstances, to bring the mistake to A’s attention.
4. The mistake must be one calculated to benefit B.
REMEDIES• Rectification
Unilateral mistake
• *George Wimpey UK Ltd v V I Construction Ltd [2005] EWCA Civ 77
• Wimpey agreed to purchase land from VI for residential development. The
price was subject to a complex formula. Wimpey’s representative made the
mistake of leaving out an element of the formula which meant the
agreement was less favourable for Wimpey. VI knew of the omission of the
element from the formula. Wimpey sought rectification setting out the
corrected formula.
• Was Wimpey entitled to rectification based on unilateral mistake?
REMEDIES• Rectification
Unilateral mistake
• *George Wimpey UK Ltd v V I Construction Ltd [2005] EWCA Civ 77
• NO.
• What is usually requires is an element of sharp practice on the part of the non-
mistaken party, in circumstances where it would be unconscionable for that party
to take benefit from the other party’s mistake.
Peter Gibson LJ
• Wimpey has not provided convincing proof that VI has knowledge of Winpey’s
mistake.
Sedley LJ
• The mistake was Wimpey’s failure to renegotiate. It couldn’t have been mistaken
as to the contract, as they had the draft missing the clause and could see that it
was missing.
REMEDIES• Restitution
• Restitution can be contrasted with compensation (which reverses a
plaintiff’s loss) because it is directed to reversing a defendant’s gain.
• The payment to the plaintiff is justified on the basis that otherwise the
defendant would be unjustly enriched.
• It is not an independent cause of action, but explains the availability of relief
in a number different circumstances.
• Elements of restitution:
– A benefit has been received by the defendant.
– The benefit is at the expense of the plaintiff.
– It would be unjust in the circumstances to allow the defendant to retain
the benefit.
REMEDIES• Restitution
• It arises out of quasi-contract in common law, where if a contract was
ineffective or not enforceable a restitutionary remedy may be available:
– Money had and received.
– Quantum meruit – a reasonable sum representing the value of services
or goods requested and accepted by the defendant.
• Examples:
– Payment under a mistake
– Payment under compulsion
– Payment following an ultra vires demand
– Payment following an illegal demand
– Payment made on consideration that failed totally.
REMEDIES• Restitution
• Pavey and Mathews v Paul (1987) 162 CLR 221
• Pavey & Matthews Pty Ltd held a builders’ licence under the Builders
Licensing Act 1971 (NSW). Pavey entered into an oral agreement to work
on Paul’s property in return for ‘a reasonable remuneration’ based on
prevailing rates in the building industry. After the work Pavey sued Paul for
the value of work done and materials supplied under an oral contract. Paul
submitted that any such contract was unenforceable by force of the
requirements of the Builders Licensing Act 1971, which required the
contract to be in writing. Pavey claimed under quantum meruit.
• Deane J held that the basis of the obligation to make payment for an
executed consideration given and received under an unenforceable contract
should now be accepted as lying in restitution or unjust enrichment.
• The underlying obligation for debt for the work done, goods supplied or
services rendered does not arise from a genuine agreement at all.
REMEDIES• Restitution
• Pavey and Mathews v Paul (1987) 162 CLR 221
• It is an obligation or debt imposed by operation of law which arises from the
defendant having taken the benefit of the work done, goods supplied or
services rendered and which can be enforced as if it had a contractual
origin.
• The quasi-contractual obligation to pay fair and just compensation for a
benefit which has been accepted will only arise in a case where there is no
applicable genuine agreement or where such an agreement is frustrated,
avoided or unenforceable. In such a case it is that very fact that provides
the occasion for (and part of the circumstances giving rise to) the imposition
by the law of the obligation to make restitution.
• The High Court concluded that Pavey was entitled to recover the agreed
remuneration for building work done notwithstanding that the contract was
“not enforceable” for want of writing.
REMEDIES• Restitution
• Pavey and Mathews v Paul (1987) 162 CLR 221
• A party in breach of contract to perform certain work for a fixed price may be
able to bring a restitutionary claim for the work performed, provided that the
other party has accepted the part performance
REMEDIES• Restitution
• *Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC
32
• Fairbairn contracted to deliver machines to Fibrosa in Poland. Fibrosa paid
£1,000 in advance. WWII broke out and Germany occupied Gdynia in Poland.
The contract was frustrated. Fibrosa sued to recover the deposit.
• Even though there was complete frustration of the agreement, and the agreement
was therefore at an end, could Fibrosa recover the pre-frustration payment?
• House of Lords held: as there was a total failure of consideration, Fibrosa was
entitled to the return of the money.
• Where there is a total failure of consideration as the result of frustration,
payments made before frustration can be recovered under the law of restitution.
• Chandler v Webster is wrong.
REMEDIES• Restitution
• *Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC
32
• Where a party obtains no benefit from a contract, and she has paid part of a
sum before frustration, then that party can recover the money paid in
advance because it can be said there has been total failure of
consideration.
REMEDIES• Restitution
• Baltic Shipping Co v Dillon (1992) 176 CLR 344
• Dillon contracted for 14 day cruise. The cruise was cut short when the Mikhail
Lermontov sank off the coast of NZ nine days into the voyage. Dillon suffered
physical and emotional damages.
• Mason CJ said that Fibrosa is good law in Australia.
• But it only applies where there has been total failure of consideration. If sums
have been paid, and some (small amount) of benefit has been received, then
it does not apply: the common law does not have an effective solution.
• The plaintiff has a claim in damages and restitution (but can’t double recover).
• Here there was only a partial failure of consideration, so can’t recover the
fare.
REMEDIES• Restitution
• *Lumbers v W Cook Builders Pty Ltd (in liquidation) (2008) 232 CLR 635
• Lumbers contracted with Cook & Sons to build a house. During the
construction, Cook & Sons sub-contracted the work to Cook Builders, a
closely related company, but Lumbers were not told.
• At the end of the project Cook Builders said to Lumbers that it owed nothing
more to Cook & Sons, but should pay Cook Builders instead.
• Could Cook Builders sue Lumbers for unjust enrichment (not having a
contract with it). The claim failed because there was no unjust enrichment
of Lumbers at Cook Builders’ expense.
• “Lumbers are not shown to have received a ‘benefit’ at [Cook] Builders’
‘expense’ which they ‘accepted’ and which it would be unconscionable for
them to retain without payment.”
REMEDIES• Restitution
• *Lumbers v W Cook Builders Pty Ltd (in liquidation) (2008) 232 CLR 635
• The decision reflects a concern that to allow the claim in restitution would
result in the interference with contractual allocation of risk. U
DISCHARGE• Discharge by performance
• Sumpter v Hedges [1898] 1 QB 673 (R&G(C) 38.4)
• Sumpter contracted to build on Hedges’s land for a lump sum. Sumpter did
part of the work and then abandoned the contract due to a lack of funds.
Hedges completed the work. Sumpter sued Hedges for quantum meruit for
the value of the work that he had completed.
• Quantum meruit may be available if there is some evidence of a new
contract after the abandonment. This may be the case if the defendant has
the option of taking the benefit of the work performed and does so. Where
the work is done on land, the circumstances are that the defendant has no
choice but to take the benefit (stuck with the land), so you have to look at
other facts rather than the taking of the benefit in order to ground the
inference of a new contract. The mere fact of possession of the land does
not ground the inference.
• Does the other party have a real choice to accept or refuse the benefit??
DISCHARGE• Discharge by performance
• Sumpter v Hedges [1898] 1 QB 673 (R&G(C) 38.4)
• Another way of looking at this is that a party in breach of a contract for work
for a fixed price may be able to bring a restitutionary claim for the work
performed, provided that the other party as accepted the part performance.
REMEDIES• Restitution
• Money paid by mistake
• *David Securities P/L v Commonwealth Bank of Australia (1992) 175 CLR
353
• David Securities borrowed money from the CBA through its Singapore
office. Clause 8(b) of the agreement required payment of certain sums to
the bank. However cl 8(b) was void pursuant to s 261 of the ITAA. David
Securities sought to recover the sums paid under cl 8(b).
• Could the payments be recovered as a restitutionary claim, because they
were made as the result of a mistake of law.
• The High Court held in favour of Davis Securities but also held that a
defence to a restitutionary claim exists if the payee has adversely changed
his position in reliance upon the payment.
REMEDIES• Restitution
• Money paid by mistake
• *David Securities P/L v Commonwealth Bank of Australia (1992) 175 CLR
353
• A plaintiff can recover money for a mistake of law. That is circumstances
where the recipient is not legally entitled to receive the money. It does not
extend to case where the money was paid under a mistaken belief that they
were legally due and owing under a particular clause of a particular contract
when in fact they were legally due and owing to the recipient under another
clause or contract.
• It is not enough to show change of position to say that you have spent the
money on living expenses.
• ‘Must have acted to his or her detriment in faith of the receipt.’
REMEDIES• Restitution
Money paid by mistake
• *Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd &
Anor [2011] NSWSC 267
• AFSL made payments to Hills and Bosch Security Systems Pty Ltd
(Bosch), suppliers of goods and trade creditors of a customer of AFSL.
• AFSL was induced by the customer's fraud to make the payments. At the
customer's request Hills and Bosch applied the payments to discharge
debts owed by the customer to them.
• When AFSL discovered the fraud and demanded repayment Hills and
Bosch resisted, claiming they had changed their position on the faith of the
payments. They argued that in the six months since payment they had
treated the customer's debts as repaid, ceased enforcement action against
the customer and its directors and continued trading with the customer.
REMEDIES• Restitution
• *Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd & Anor
[2011] NSWSC 267
• At trial AFSL was successful against Hills but not Bosch. AFSL lost both claims
on appeal and appealed to the High Court.
• Counsel for AFSL submitted that the High Court should place a value on the
recipients' lost opportunity to pursue the debts owed by the customer. AFSL
relied on the concept of "disenrichment", arguing the court needed to calculate
the net "enrichment" of each recipient as a result of the receipt. In other words,
the Court should deduct from the mistaken payment the value of the recipients'
lost opportunity and the net result is the extent to which the recipients are
unjustly enriched and should make restitution.
• AFSL said the customer's debts and the opportunity to pursue them were
worthless because the customer could not have paid (within 12 months of the
mistaken payment the customer was placed in liquidation and its directors
bankrupted).
REMEDIES• Restitution
• *Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd &
Anor [2011] NSWSC 267
• The High Court unanimously dismissed AFSL's appeal.
Decision
• Referring to High Court decisions in David Securities Pty Ltd v
Commonwealth Bank of Australia7 and Equuscorp Pty Ltd v Haxon, the
High Court confirmed disenrichment is inconsistent with Australian law:
"Disenrichment operates as a mathematical rule whereas the inquiry
undertaken in relation to restitutionary relief in Australia is directed to who
should properly bear the loss and why. That inquiry is conducted by reference
to equitable principles“
• Applying this reasoning AFSL's approach was rejected.
REMEDIES• Restitution
• *Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd &
Anor [2011] NSWSC 267
• The majority, referring to David Securities, identified detrimental reliance as
a central element of the defence of change of position and confirmed
detriment is not narrow or technical and so long as it is substantial, need not
consist of expenditure of money. Chief Justice French agreed that a
recipient of a mistaken payment has changed its position if:
o it acted on the faith of the payment,
o suffered a detriment; and
o that detriment cannot be reversed at the time repayment is demanded.
REMEDIES• Restitution
• *Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd &
Anor [2011] NSWSC 267
• In this case "(t)he suppliers suffered an irreversible detriment when they
decided, on the faith of the payments Unot to pursue their legal
remediesU“
• The majority considered it inappropriate to define the change of position
defence comprehensively saying such attempts "are apt to mislead by
detracting attention from the content of the principle to the manner of its
expression“
• It was agreed the defence operates pro tanto (to the relevant extent) where
the detriment can be readily quantified. However this was not such a case
and a complete defence was available to Hills and Bosch.
REMEDIES• Restitution
• *Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd &
Anor [2011] NSWSC 267
• What this means
• The High Court rejected the mathematical disenrichment approach to the
defence of change of position. Instead we can take the following from the
High Court's reasoning:
• A recipient of a mistaken payment is prima facie obliged to make restitution
to the payer.
• The obligation is displaced if the recipient shows circumstances making
restitution unjust.
• Change of position is one such circumstance.
REMEDIES• Restitution
• *Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd &
Anor [2011] NSWSC 267
• To establish change of position a recipient must show they acted in good
faith in reliance on the payment and:
– if they were required to repay the amount when demanded they would
be in a worse position than if they had never received the payment
(Galeger J); or
– the disadvantages the recipient would suffer if required to make
restitution are such that it would be inequitable to require repayment
(majority); or
– the recipient has suffered detriment which cannot be reversed at the
time the demand for repayment is made (French CJ).
REMEDIES• Restitution
• *Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd &
Anor [2011] NSWSC 267
• The High Court decision means Courts are unlikely to take a narrow
approach when analysing change of position and non-pecuniary loss is
likely to be relevant. Because the High Court purposely left the parameters
of the defence open it remains to be seen how far they can extend.