Three situations where the right will be implied (right conferred by law):
1. breach of a condition
2. sufficiently serious breach of an intermediate term
3. an absence of readiness or willingness to perform constituting a repudiation or capable of being treated as an anticipatory breach of contract (we consider this in the next topic)
Nature of the term determines remedy
Breach of a condition (even trivial: Shevill) damages (up to point, and beyond for loss of bargain) and termination
Breach of a warranty damages (up to point only: Ellul v Oakes).
Breach of an innominate or intermediate term (Hong Kong Fir) depends on the seriousness of the breach.
What is breach?
Two types of breach, depending on when the breach happens:
1. Failure to perform after the time for performance has expired.
2. An anticipatory breach prior to the time for performance falling due.
Liability generally strict, except where express/implied term says you must perform with due care/skill/diligence (ACL ss 60-1).
What is termination?
Photo Production v Securicor Transport per Diplock LJ- termination means that:
1. Innocent party is relieved from his obligation as to further performance.
2. Guilty party’s obligations/right to further performance also ended. Replaced by a secondary obligation to pay money to the innocent party in compensation for loss resulting from failure to perform the primary obligations.
Termination is not automatic. Election is required. Self-help remedy (don’t have to go to court unless challenged by guilty party).
First consider whether express contractual term/right to terminate for breach (eg if drafted as “any breach”).
Le Qureshi - QDC- QLS standard form contract for sale of land- seller may affirm/terminate if buyer fails to comply with anything.
Classification of conditions
Two main ways to classify them.
1. Is breach of the term likely to cause serious loss/detriment to promisee? If every breach likely to be serious, then generally a condition (Wallis v Pratt).
Even if non-serious breach, may still be a condition if the parties have accounted the breach a serious matter, either by express agreement or by implied agreement that the term is to be so treated.
2. Distinguishes cases in which precise or literal compliance with the term is essential from cases in which substantial performance is essential.
Luna Park per Jordan CJ: “ If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight. If he contracted in reliance upon a substantial performance of the promise, a substantial breach will ordinarily justify a discharge.“
Second class should be referred to as intermediate terms post- Honk Kong Fir.
Express agreement
Luna Park v Tramways – Latham/Rich/McTiernan - condition because the word guarantee was used. Emphasized natural meaning of word. Dixon - Too narrow to place weight on grammatical construction. Need to look at wider context. Consider context of clause, consider weight placed on it. A matter of intention.
Schuler v Wickman - Label of condition is an important factor, but not determinative. Here treating it as a condition would be unreasonable. Where label means the result will be unreasonable and disproportionate, more likely that parties cannot have intended it.
Mere use of word ‘condition’ not enough because of its inherent ambiguity.
One surefire way to classify a term as a condition by express agreement is contractual right to terminate.
Implied agreement
Parol evidence rule applies. Cannot negotiations, seriousness of established breach, or how the parties have treated the term.
Prior decisions (classification by courts)
If standard form contracts, presumption that parties agreed to previous interpretation.
If term not precisely the same, courts still follow previous interpretations in the interests of consistency and uniformity.
The Mihalis Angelos - Denning - clause stipulated readiness in a charter party - condition because all cases said clauses like this are a condition. Everyone contracts on this basis.
Ankar v National Westminster Finance - term in a surety contract always seen as a condition in previous cases.
Motivation for entry into contract
Luna per Jordan CJ: “The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor. . . “
Approved and applied by HCA in Associated Newspapers v Bancks - No ordinary employee; importance to the artist that his work was not ‘mutilated’; parties regarded the term as essential, and therefore it was a condition.
Because prior negotiations not admissible, Jordan CJ’s test is therefore objective.
Structure of term and contract
If clear and precise words, more likely to be a condition. See eg Luna.
Term must be construed as a whole, and won’t be condition if right to terminate for any breach inconsistent with its express permission to terminate in defined circumstances (DTR Nominees).
Contract has to be construed as a whole; Schuler - another provision allowed termination for material breach.
Interrelationship between the obligations of the parties; in Bancks, B’s obligation to furnish a drawing was a condition, and because of the direct link the obligation to publish, that was a condition too.
Likely consequences of breach
Bettini v Gye - whether term goes to the root of the matter, on the basis that a failure to perform it would render performance of the rest of the contract by the plaintiff a thing different in substance from what the defendant has stipulated for.
Hong King Fir - Diplock LJ- term will be a condition if it can be said that every breach of the term will give rise to an event which will deprive the party not in default of substantially the whole benefit of contract.
The Hansa Nord - where the term can be breached trivially, it is unlikely to be a condition.
Assessment of damages and reasonableness of result
If damages would be an adequate remedy this indicates that the term was not intended to be a condition (Friedlander).
If damages is not adequate (ie difficulty in assessing them), indication that term intended to be a condition (Ankar).
Where construing the term as a condition would achieve an unreasonable result the court will presume that the parties did not intend that construction to be placed on the contract (Schuler, Hong Kong Fir). Subject to contrary intention.
