2024 Contract Law Masterclass with Jeffrey Goldberger
Hobart 23 September 2024
About the Presenter
Jeffrey Goldberger, Special Counsel, Norton Rose Fulbright
Mr Jeffrey Goldberger has over 25 years' experience in the Australian legal sector and is a recognised authority on Australian contract law. He has advised clients in both the private and public sectors and is well known to, and highly regarded by, major government, finance, resources and corporate clients.
Jeffrey has lectured in contract law and private international law at the University of Sydney Law School and in 2012 he served on the then Federal Attorney General's expert panel established to advise the Australian Government on the effectiveness of Australian contract law.
Jeffrey's ability to articulate the application of contract law in a practical and commercial way is widely known and highly regarded, reflected in his presenting papers on Australian and English contract law at numerous conferences and seminars throughout Australia and the United Kingdom
11:45am Short stretch break
Part V
Lawful act economic duress in English and Australian law
Part VI
The proportionate liability defence to a claim for misleading or deceptive conduct
Paper
Link to Jeffrey Goldberger paper (84 pages)
Contents
11:45
Chapter 1: Contemporary issues in contract formation
Chapter 2: Incorporation of terms by reference
Chapter 3: Contract damages: key principles and latest High Court decisions
Chapter 4: Statutory unconscionability conduct
Chapter 5: Lawful act economic duress in English and Australian law
Chapter 6: The proportionate liability defence to a claim for misleading or deceptive conduct
Hobart, 23 September 2024
Jeffrey Goldberger
Consultant
Email jeffrey.goldberger@nortonrosefulbright.com
For your convenience click on the chapter title to jump to that page.
Jeffrey Goldberger would like to acknowledge Felix Archibold, from his offices, for their assistance with the format of this paper.
Chapter 1: Contemporary Issues in Contract Formation
1 General Principles
In Air Great Lakes Pty Ltd V K S Easter (Holdings) Pty Ltd1 , Mahoney JA identified the three subsidiary questions which will inform the answer to the general question whether in any given circumstances parties have entered into a binding contract.
First, did the parties arrive at a consensus?
Secondly, (if they did) was it such a consensus as was capable of forming a binding contract?
Thirdly, (if it was) did the parties intend that the consensus at which they arrived should constitute a binding contract.
In relation to each of these questions his Honour said:2
The first question looks to the existence of a common intention.
The second question looks to what the parties have agreed and to whether what they have agreed is capable of forming a binding contract. There are some forms of agreement which, because of (as it is conventionally described) uncertainty, are not capable of constituting such a contract. There are various forms or categories of uncertainty in this sense. Thus, some of the terms of the consensus arrived at may be, as to the meaning of them, too vague to be given legal effect: see, eg, the terms referred to in Halsbury's Laws of England, 4th ed, vol 9, par 216 at 90; compare King v Ivanhoe Gold Corporation Ltd (1908) 7 CLR 617 "pay you handsomely"; Hall v Busst (1960) 104 CLR 206 at 226-227 "value", "fair price".
Alternatively, some of the terms of the consensus may be clear as to their meaning but ineffective in the circumstances. Thus, a transaction on "the usual terms" may be incapable of constituting a binding agreement where, in fact, there are no terms which answer the description of "usual terms": see Whitlock v Brew (1968) 118 CLR 445 at 456-457; G Scammell and Nephew Ltd v Ouston [1941] AC 251 at 268-269.
The third question looks to whether, the parties' intention being congruent as to the terms of their agreement, they intend that agreement to be a binding contract in the sense of being legally enforceable as such. It is, of course, open to them to agree that it shallnot…
The ascertainment of intention both as to the existence of a contract and the meaning of its terms is an objective exercise. Thus, in the seminal decision of the High Court in Ermogenous v Greek Orthodox Community of SA Inc the majority said3:
… Because the search for the "intention to create contractual relations" requires an objective assessment of the state of affairs between the parties (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules. Although the word "intention" is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties.
1 (1985) 2 NSWLR309
2 at [327] and[329]
3 (2002) 209 CLR 95 at105
The common approach to the ascertainment of intention in respect of contract formation and contract interpretation was referred to by the New South Wales Court of Appeal in Ryledar Pty Ltd and Anor v Euphoric Pty Ltd4. Campbell JA (Mason P agreeing) said:
[262] For the purpose of deciding whether a contract has been entered, or what construction it bears, the common intention that the court seeks to ascertain is what is sometimes called the "objective intention" of the parties. That is the intention that a reasonable person, with the knowledge of the words and actions of the parties communicated to each other, and the knowledge that the parties had of the surrounding circumstances, would conclude that the parties had, concerning the subject matter of the alleged contract: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462, [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179, [40]; Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114-115 ; 1 WLR 896 at 912-913; Taylor v Johnson (1983) 151 CLR 422 at 429; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549-550.
[263] There is also authoritative recognition that a factor to be taken into account in deciding whether a contract has been entered and if so what are its terms is "the purpose and object of the transaction": Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462, [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179, [40]. In Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462, [22] the joint judgment of Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ recognised the appropriateness of taking into account the purpose and object of the transaction…
The principles were assembled by the New South Wales Court of Appeal in Mushroom Composters Pty Ltd v IS and DE Robertson Pty Ltd5 and were captured in four propositions articulated by Sackville AJA. His Honour said:
[59] First, in Australia the "objective" theory of contract has been accepted: see, most recently, Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at [35]. Consequently, in determining whether a binding contract has been concluded, the law is concerned not with the parties' subjective intentions, but with "the out-ward manifestations of these intentions"
[60] Secondly, it is not necessary, in determining whether a contract has been formed, to identify a precise offer or acceptance; nor is it necessary to identify a precise time at which an offer or acceptance can be identified: Ormwave Pty Ltd v Smith [2007] NSWCA 210 at [68] and authorities cited at [68]-[75] (Beazley JA, Santow and Ipp JJA agreeing). The questions to be asked are:
in all the circumstances can an agreement be inferred? Has mutual assent been manifested? What would a reasonable person in the position of the [plaintiff] and a reasonable person in the position of the defendant think as to whether there was a concluded bargain?
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 ; 53 NSWLR 153 at [81] (Heydon JA).
[61] Thirdly, an agreement that is incomplete will not give rise to an enforceable contract…
[62] An alleged contract will fail for incompleteness if, even though the parties have used clear language, a term which is regarded as essential as a matter of law has not been agreed…
[63] If the parties have not agreed on all essential terms, for example because they have left one such term to be settled by future agreement, the contract is incomplete no matter what the parties themselves may think…Moreover, if the parties have not reached consensus on the essential terms of the contract, there will be no binding contract notwithstanding that one
4 [2007] NSWCA65
5 [2015] NSWCA1
of the parties has commenced work referable to the agreement: British Steel Corp v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504 at 510 (Robert Goff J). Depending on the circumstances, non-contractual remedies, for example on restitutionary principles, may be available but the contract itself is incomplete and therefore unenforceable.
[64] Fourthly, for an agreement for the supply and sale of goods to constitute an enforceable contract, the parties must agree as to price, although they may leave the price to be determined by a third person or by an agreed mechanism. Thus, if a contract for the supply or sale of goods expressly provides for the price to be agreed between the parties, there is no concluded contract.
Importantly, evidence of actual intention is admissible in an action for equitable rectification. Additionally, there is some debate as to the admissibility of evidence of actual intention in identifying the terms of an informal oral contract.6
2 The significance of conduct in contractformation
In Hannigan v Inghams Enterprises Pty Limited, 7 Robb J considered the principles governing the formation of contract by conduct.
Turning to the facts.
Mr Hannigan ran a chicken growing business. He entered into contracts with commercial chicken suppliers. He had a contract with a firm which traded under the name “Sunnybrand Chickens”. In 2011, Sunnybrand was taken over by Inghams and until 2015 Inghams adopted the Sunnybrand contract. However, in January 2016 Inghams issued a new draft standard contract. The contract term was to commence on 6 February 2016 and expire on 6 February 2021.
The draft contract was neither formalised nor executed by the parties.
On 8 August 2017, Inghams purported to terminate the contract or the relationship. Between February 2016 and June 2017, Inghams supplied chickens in Batches 159 to 167 and between April 2016 and August 2017 Inghams gave Mr Hannigan recipient created tax invoices in respect of the growing of chickens and paid him approximately $1.7million.
The primary question was whether a contract on the terms of the draft existed between the parties.
The starting point was the following passage in McHugh JA’s judgment in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd8:
Under the common law theory of contract, the silent acceptance of an offer is generally insufficient to create any contract: Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 at 692 and Robophone Facilities Ltd v Blank [1966] 1 WLR 1428 at 1432; [1966] 3 All ER 128 at 131-132. The objective theory of contract requires an external manifestation of assent to an offer. Convenience, and especially commercial convenience, has given rise to the rule that the acceptance of the offer should be communicated to the offeror. After a reasonable period has elapsed, silence is seen as a rejection and not a acceptance of the offer. Nevertheless, communication of acceptance is not always necessary. The offeror will be bound if he dispenses with the need to communicate the acceptance of his offer: Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 269. However, an offeror cannot erect a
6 Hawkins v Clayton (1987) 164 CLR 539; Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39
7 [2019] NSWSC321
8 (1998) 14 NSWLR 523 at534-535
9 [2016]
contract between himself and the offeree by the device of stating that unless he hears from the offeree he will consider the offeree bound. He cannot assert that he will regard silence as acceptance: Felthouse v Bindley (1862) 11 CB (NS) 869 at 875; 142 ER 1037 at 1040 and Fairline Shipping Corporation v Adamson [1975] QB 180 at 189. The common law's concern with the protection of freedom is opposed to the notion that a person must take action to reject an uninvited offer or be bound by contractual obligations.
Nevertheless, the silence of an offeree in conjunction with the other circumstances of the case may indicate that he has accepted the offer: Rust v Abbey Life Assurance Co Ltd [1979] 2 Lloyd's Rep 334 at 340. The offeree may be under a duty to communicate his rejection of an offer. If he fails to do so, his silence will generally be regarded as an acceptance of the offer sufficient to form a contract.
McHugh JA, having referred to United States authority concluded:
However, the question is one of fact. A more accurate statement is that where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted according to its terms.
Robb J also referred to the decision of the Victorian Court of Appeal in Apple and Pear Australia Limited v Pink Lady America LLC9 in which Tate JA said:
221 It is open to a court to infer the existence of a contract or in this instance, a variation to a contract from the parties’ conduct on the basis of the objectively ascertained manifestation of mutual assent. But, as has been observed, such cases are rare and it will only be ‘in a very clear case that a promise will be implied from facts which do not involve written or oral communication from which a promise appears.’ Although, as noted above, McHugh J’s observed in ICS that in the ‘unrefined’ commercial context the benchmarks of the classical theory of offer, acceptance, consideration and intention to create legal relations may not readily apply, and instead courts may infer a contract from conduct, he still insisted that it is necessary to draw from those circumstances ‘a tacit understanding or agreement’ and that the parties’ conduct ‘must be capable of proving all the essential elements of an express contract’. Moreover, it is ‘not enough that the conduct is consistent with what are alleged to be the terms of a binding agreement. The evidence must positively indicate that both parties considered themselves bound by that agreement.’ There was here no dealing identified by PLA which could properly form the basis of an agreed variation. (footnotes omitted).
His Honour found no inconsistency between Tate JA’s statement and the observations of McHugh J in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd
Having reviewed the evidence, Robb J found that the parties had entered into a contract on the terms of the draft.
More recently, in Forte Sydney Construction v N Moit & Sons (NSW) Pty Ltd10 , Meagher JA (Ward P and Gleeson JA agreeing) summarised the principles as follows.
88 The relevant principles to be gleaned from the authorities, and particularly Empirnall Holdings, may be summarised as follows.
89 While an offeror may not stipulate that silence will be taken as acceptance of the offer (see for example Felthouse v Bindley (1862) 11 CB (NS) 869; (1862)142 ER 1037), acceptance may be tacit, or implied from conduct, as opposed to express
(Empirnall Holdings at 527 per Kirby P, as his Honour then was, and 534 per McHugh JA, as his Honour then was). The silence of an offeree in conjunction with the other circumstances of the case may indicate that he has accepted the offer (see Empirnall Holdings at 534 per McHugh JA, his Honour citing Rust v Abbey Life Assurance Co Ltd [1979] 2 Lloyd's Rep 334 at 340).
90 An offeree who has omitted to accept an offer, but has nonetheless taken the benefit of that offer will be bound by the contract (Empirnall Holdings at 535 per McHugh JA). His Honour formulated the appropriate statement of principle (at 535) thus: where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted according to its terms. In determining whether a party to a putative contract has accepted the offer by its conduct, the ultimate issue is whether a reasonable bystander would regard the conduct of the offeree, including his or her silence, as signalling to the offeror that the offer has been accepted (Empirnall Holdings at 535 per McHugh JA).
91 The conduct of parties may indicate, as was the case in Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32, that although the parties’ negotiations did not proceed in the manner contemplated to the point of contract formation, the parties did intend to contract in the circumstances which had occurred. In that case, Ormiston J concluded that agreement could be inferred by the parties’ conduct, notwithstanding the fact that the situation remained one which was analogous to an agreement subject to finance.
92 Where an offer is neither expressly accepted nor expressly rejected, the subsequent conduct of the offeree in performing in accordance with the terms of the contract which was contemplated in the offer will generally indicate to a reasonable person in the position of the offeror an intention to accept that offer. This was so in the case of Brogden v Metropolitan Railway Co (1877) 2 App Cas 666, where, in the absence of express approval of a finalised contract, theconduct of the offeree in supplying goods in accordance with the draft contract was treated as an acceptance of the offer.
3
The Masters v Cameron question
The courts are often required to determine the contractual status of preliminary agreements such as letters of intent, heads of agreement or agreements in principle which contemplate entry into a subsequent formal agreement following further negotiations. The framework for the legal characterisation of such arrangements is provided by the three classes of agreement identified by the High Court in Masters v Cameron11 as supplemented by a fourth category identified by McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd12
In Masters v Cameron, Dixon CJ, McTiernan and Kitto JJ said at 360-362:
Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the
intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
The fourth category was identified by McLelland J as follows:
... one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.
In Feldman v GNM Australia Ltd13 Beazley P made the following observations on the status of the Masters v Cameron categories:
[68] as is clear from Australian authority, the categories identified in Masters v Cameron are neither strict nor prescriptive. Nor are they exclusive nor necessarily exhaustive. Rather, they describe circumstances in which a finally binding contract may or may not have come into existence. McHugh JA pointed this out on the appeal in the Baulkham Hills case: see GR Securities v Baulkham Hills Private Hospital, at 634-635:
In the earlier decision of the New South Wales Court of Appeal in Pavlovic v Universal Music Australia Pty Ltd14 Beazley P (Bathurst CJ and Meagher JA agreeing) said:
[64] Where parties have reached agreement as to all the terms of a contract, but have also agreed that a further, formal agreement is to be executed the question for determination is whether the parties intend to be immediately bound. That is to be determined objectively from the "outward manifestations" of the parties' intentions: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7 ; 251 CLR 640 at [35]; Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 at [59]-[61] per Sackville AJA (with whom Macfarlan and Gleeson JJA agreed); Taylor v Johnson [1983] HCA 5 ; 151 CLR 422 at 428 per Mason ACJ, Murphy and Deane JJ.
[65] The question, therefore, is "what each party by words and conduct would have led a reasonable person in the position of the other party to believe": see also Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 ; 219 CLR 165 at [40] (per curiam); Pacific Carriers Ltd v BNP Paribas [2004] HCA 35 ; 218 CLR 451 at [22] (per curiam); Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 ; 53 NSWLR 153 at [81] per Heydon JA. An agreement that is incomplete will not give rise to an enforceable contract: Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53 ; 149 CLR 600 at 604 per Gibbs CJ, Murphy and Wilson JJ.
[69] However, as his Honour's review of the case law demonstrated, the Masters v Cameron classifications are no longer, if ever they were, applied as strict categories into which such cases must fall: see Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8 ; 209 CLR 95 at 105. Rather, as McHugh JA stated in GR Securities v Baulkham Hills Private Hospital Pty Ltd(1986) 40 NSWLR 631 at 634-635:
the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances: Godecke v Kirwan (1973) 129 CLR 629 at 638; Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 332- 334, 337.
The contractual issue in Pavlovic turned on an email exchange between the legal representative of the parties.
On 23 December 2014, Gilbert + Tobin sent the following email to Pavlovic's solicitor.
13 [2017] NSWCA107
14 [2015] NSWCA313
Without prejudice save as to costs
Dear Stephen
Please find attached the following:
Deed of release with previous mark-up accepted and new changes in mark-up; and
Deed of release in final form for execution, including schedules.
The Deed of Termination (Schedule 4) contains Angela Pavlovic's address, which we understand has not been confirmed. If it is incorrect please let us know immediately.
As discussed, the relevant people at Universal will execute these documents tomorrow. Once we are in possession of executed copies we will scan them and send them to you, and send you originals by courier. We would appreciate if you would do the same. Along with the executed originals we will also enclose a cheque for $100 as contemplated by cl 4.1(a).
Yours sincerely
Michael Williams/Frances St John
On 24 December, Pavlovic's solicitor responded:
Frances
Please call me on my mobile [***]. He will sign , cannot find his sister today, I want to discuss arrangements. Apologies for keeping you there (I know you are flying out today), sadly I am at my desk as well.
Regards,
Stephen (emphasis added)
The relevant negotiations and the proposed deed related to the termination of a shareholders agreement and an employment agreement.
The deed was never executed by Pavlovic.
Sackar J held that the email exchange resulted in a binding agreement between the parties, even though the proposed deed was never executed by Pavlovic. The Court of Appeal reversed. Beazley P, relevantly, said:
[78] In my opinion, the formal context in which the parties had always dealt with one another, and the fact that up until 23 December 2014, as Universal accepted, the termination of the relationship was to be concluded in the same formal manner, namely, by execution of the Proposed Deed, do not support Universal's contentions. This context also does not support his Honour's finding that the parties intended to be and were bound by the email exchange that occurred on 23 and 24 December 2014. The negotiations were complex. They dealt not only with the conditions upon which Mr Pavlovic's employment with Universal was to be terminated and the assignment of his shares to Universal, but also the assignment of significant intellectual property rights between the parties, the domain name was to be transferred and his resignation as Managing Director was required.
[87] The emails of 23 and 24 December 2014 are to be considered in light of the commercial and formal relationship between the parties, the complex dispute they were facing, and the lengthy negotiations that had culminated in the Proposed Deed. These factors indicate an intention to maintain the formalities which had characterised the relationship between the parties as until 24 December 2014.
The Masters v Cameron point was also considered by the Victorian Court of Appeal in Nurisvan Investment Limited v Anyoption Holdings Limited15
Turning to the facts.
FIBO Australia Pty Limited (FIBO) was the wholly owned subsidiary of Nurisvan, company registered in Cyprus. FIBO held an Australian Financial Services Licence (AFSL). Anyoption which was also registered in Cyprus was interested in acquiring an AFSL. In 2014, it commenced negotiations with Nurisvan with a view to the purchase of Nurisvan’s shares in FIBO.
On 21 December 2014, Anyoption and FIBO entered into a Heads of Agreement (HOA). By mistake the HOA did not allow for execution by Nurisvan. The recitals provided as follows:
A. The Vendor wishes to sell to the Purchaser and the Purchaser wishes to buy from the Vendor the Shares.
B. FIBO holds a valid Australian Financial Services Licence (AFSL).
C. The parties wish to manifest their intention for the Vendor to sell and the Purchaser to purchase all of the shares in this Deed.
D. The parties agree that this Deed is binding on the parties.
Clause 2 stated that “this Deed is legally binding on the parties”
Clause 5 was entitled “Terms of the Share Purchase Agreement” and provided as follows:
The Parties acknowledge and agree that the following conditions, among others, will be included in the Share Purchase Agreement:
5.1 The Purchaser will acquire the Shares from the Vendor free from any Encumbrance.
5.2 The Purchaser will pay the Purchase Price to the vendor as consideration for the acquisition of the Shares and Assets which will be paid as follows…
5.3 Completion of the Share Purchase Agreement is conditional, amongst other matters, on…
5.4 The Vendor will provide reasonable warranties as agreed to by the Purchaser concerning FIBO, the Shares and the AFSL (including, but not limited to warranties to title and compliance with the terms of the licence and the law).
Clause 6 required each party to negotiate the SPA in good faith having regard to the terms set out in Clause 5.
By letter dated 22 September 2015 from Nurisvan’s solicitors to Anyoption’s solicitors, Nurisvan’s solicitors purported to terminate the HOA.
Anyoption sought an order for specific performance of the HOA.
The primary judge ordered that Anyoption and Nurisvan execute a Share Sale Agreement on those terms set out in Clause 5 as were still operative, and on whatever other terms as were reasonably necessary to give it business efficacy.
The principal issue was whether the HOA was legally binding noting that Nurisvan was not a signatory to the document. Nurisvan contended that the HOA lacked essential terms including, relevantly, a completion date, conditions precedent to completion, and vendor warranties.
Nurisvan also contended that the final draft of the SPA revealed a significant number of important issues which remained outstanding as at December 2014.
The Court of Appeal held that the HOA was not legally binding for the followingreasons:
(1) Recital A expressed the wish of the Vendor to sell and was not expressed in the form of a current agreement.
(2) Recital C was expressed in terms of a wish by the parties to manifest their intention and not to manifest their agreement.
(3) Clauses 5.1 and 5.2 were expressed in terms of futurity.
(4) Clause 5.3 identified the conditions precedent to completion as “amongst other matters”.
(1) A comparison between the HOA and the ninth draft of the Share Sale Agreement highlighted the matters yet to be resolved between the parties.
(5) More recently in Sully v Englisch16, Walker J in the Victorian Court of Appealobserved:17
The categories in Masters v Cameron and the further fourth category are taxonomic and should not distract from the fundamental inquiry with which the Court is engaged. That inquiry remains whether, in all the circumstances, the parties objectively intended to reach a binding agreement.
For an agreement to be made with immediate binding force, notwithstanding that a written instrument may be executed at a later time, the original oral agreement must be complete, certain and enforceable on its own terms. Relative completeness and certainty of contractual terms may be taken as indicators of the parties’ intention to be bound, in addition to fundamental aspects of an agreement without which the Court cannot enforce the agreement. However, and as is recognised in Masters v Cameron, parties may in their negotiations leave aspects of an agreement to be decided at a later date while agreeing to be immediately bound in respect of other, concluded terms. In distinguishing the issue of whether the parties intended to reach a concluded agreement and the issue of whether the parties’ agreement is enforceable assuming such an intention, the Victorian Court of Appeal in Nurisvan adopted the following passage from Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd:
It is to be noted that the question in a case such as the present is expressed in terms of the intention of the parties to make a concluded bargain: see, eg, Masters v Cameron (at 360). That is not the same as, although in a given case it may be closely related to, the question whether the parties have reached agreement upon such terms as are, in the circumstances, legally necessary to constitute a contract. To say that the parties to negotiations have agreed upon sufficient matters to produce the consequence that, perhaps by reference to implied terms or by resort to considerations of reasonableness, a court will treat their consensus as sufficiently comprehensive to be legally binding, is not the same thing as to say that a court will decide that they intended to make a concluded bargain. Nevertheless, in the ordinary case, as a matter of fact and commonsense, other things being equal, the more numerous and significant the areas in respect of which the parties failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention.18
In Al-Freah v Thompson19, the Queensland Court of Appeal also considered the Masters v Cameron point. The question for the Court was whether four emails exchanged on the
16 [2022] VSCA184
17 at[62]
18 Englisch v Sully [2021] VSC 434,[32]–[39]
19 [2023] QCA175
same day between two medical practitioners constituted a binding settlement of their existing partnership dispute. Dalton JA (Morrison JA agreeing) said:
82 Nonetheless, the Masters v Cameron point arises because the emails contemplate that a further deed will be entered into, between Drs Thompson and Al-Freah which documents their agreement – numbered paragraph 5 of the first 17 February letter. Nothing is said about whether the parties intend to be bound before that occurs. There are no words such as “subject to contract” from which an implication against any immediate binding effect might be drawn.
83 Attention needs to be paid to the type of transaction said to be the subject of the binding agreement. It has been said that “if the terms of a document indicate that the parties intended to be bound immediately effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction”. Nonetheless if the alleged contract is substantial and complex it will tend against a finding of an immediately binding contract, especially if the communications in issue are not detailed, or appear to be incomplete. Here, the agreement evidenced in the four emails was not a particularly complicated one. In my view the exchange of emails agrees all the detail necessary for the agreement to be immediately binding. It fixes the price to be paid and the date by which all parties are to perform their obligations, cf [81] Feldman. The parties contemplated that the deeds would contain mutual releases and discharges. Paragraph 6 of the first email goes to some lengths to specify the substance of those releases and discharges. I think that finality had been reached about that topic, even though the deed might restate the terms in paragraph 6 “in a form which will be fuller or more precise but not different in effect”.
4
English law
The United Kingdom Supreme Court in RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG20 examined contract formation issues arising in the common situation where performance commences prior to the execution of a final contract which never eventuates.
RTS was an equipment supplier.
On 21st February 2005 Müller sent a letter of intent (LOI) to RTS which stated asfollows:
Thank you for your mail dated 16th February 2005 setting out your offer (number FS04014 Issue J) to supply the Equipment to Müller (“the Offer”).
Please accept this letter of intent as confirmation of our wish to proceed with the Project as set out in the Offer subject to the following terms:-
(i) The agreed price for the engineering, build, delivery, installation and commissioning as set out in the Offer is GBP 1,682,000
(ii) RTS is now to commence all work required in order to meet Müller’s deadlines set out in the Offer to allow commencement of full production by Müller on the Repack Lines by 30th September 2005. Delivery of line also to be in accordance with the timetable set out in the Offer.
(iii) That the full contractual terms will be based on Müller’s amended form of MF/1 contract and the full terms and the relevant technical specifications will be finalised, agreed and then signed within 4 weeks of the date of this letter.
The trial judge found that Müller and RTS set aside a period of 4 weeks from 21 February 2005 to finalise, agree and sign a contract based on Müller’s amended MF/1 form of contract. During that period, work was performed on the terms set out in the LOI. The trial judge further found that there was a contract after the expiry of the LOI contract and that it was not on any of the MF/1 terms. On appeal, the Court of Appeal held that there was no contract following the expiry of the LOI contract. The evidence was as follows:
(1) (a) RTS commenced work on 1 March 2005 and continued to work after the expiry of the LOI contract.
(2) (b) Müller prepared and sent to RTS 4 iterations of a draft contract which included 17 schedules. Schedule 1 incorporated general conditions which extended to 48 paragraphs. Relevantly, clause 48.1 of the draft contract provided:
48.1 This Contract may be executed in any number of counterparts provided thatit shall not become effective until each party has executed a counterpart and exchanged it with the other.
(c) By 5 July 2005 everything was agreed except for the provisions relating to the parent company guarantee.
(d) On 25 August 2005, there was a meeting between the parties to discuss a variation to the delivery plans. The variation was agreed.
The Supreme Court held that notwithstanding clause 48.1 of the draft contract there was a binding agreement incorporating Müller’s MF/1 conditions. On this point Lord Clarke in delivering the judgment of the Court said:
[85] In all these circumstances we agree with Waller LJ’s conclusion (at [58]) that the MF/1 conditions had to all intents and purposes been agreed and the limit of RTS’s liability had been agreed. In short, by 25 August there was in our judgment unequivocal conduct on the part of both parties which leads to the conclusion that it was agreed that the project would be carried out by RTS for the agreed price on the terms agreed by 5 July as varied on 25 August.
In the course of his judgment Lord Clarke made the followingobservations:
[46] The problems that have arisen in this case are not uncommon, and fall under two heads. Both heads arise out of the parties agreeing that the work should proceed before the formal written contract was executed in accordance with the parties’ common understanding. The first concerns the effect of the parties’ understanding (here reflected in cl 48 of the draft written contract) that the contract would ‘not become effective until each party has executed a counterpart and exchanged it with the other’ – which never occurred. Is that fatal to a conclusion that the work done was covered by a contract? The second frequently arises in such circumstances and is this. Leaving aside the implications of the parties’ failure to execute and exchange any agreement in written form, were the parties agreed upon all the terms which they objectively regarded or the law required as essential for the formation of legally binding relations? Here, in particular, this relates to the terms on which the work was being carried out. What, if any, price or remuneration was agreed and what were the rights and obligations of the contractor or supplier?
[47] We agree with Mr Catchpole’s submission that, in a case where a contract is being negotiated subject to contract and work begins before the formal contract is executed, it cannot be said that there will always or even usually be a contract on the terms that were agreed subject to contract. That would be too simplistic and dogmatic an approach. The court should not impose binding contracts on the parties which they have not reached. All will depend upon the circumstances. This can be seen from a contrast between the approach of Steyn LJ in the Percy Trentham case, which was relied upon by the judge, and that of Robert Goff J in British Steel Corp v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504, to which the judge was not referred but which was relied upon in and by the Court of Appeal.
In respect of the first problem, Lord Clarke concluded that the clear inference was that the parties had agreed to waive the subject to contract clause. Any other conclusion made no commercial sense.
In respect of the second problem, Lord Clarke adopted the following passage from the judgment of Lloyd LJ in Pagnan SpA v Feed Products Ltd21:
‘It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word “essential” in that context is ambiguous. If by “essential” one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by “essential” one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by “essential” one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge [at 611], “the masters of their contractual fate”. Of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called “heads of agreement”.’
In Feldman v GNM Australia Ltd supra, Beazley P, cited with manifest approval the above passage from Lloyd LJ’s judgment in Pagnan SpA
5 The admissibility of subsequentconduct
There is abundant authority for the proposition that the subsequent conduct of the parties is admissible on the question on whether a contract has beenformed.22
In Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd23, Gleeson JA (Meagher and McCallum JJA agreeing) observed:
131 It is well established that post-contractual conduct is admissible on the question of whether a contract was formed…
132 However, there are limits as to the use to which subsequent communications can be put. Relevantly for present purposes, two matters need to be kept in mind. First, “the probative value of such subsequent communications must be found in the light they throw on the proper interpretation of the earlier communications alleged to constitute a contract”: Film Bars at 9,255. For example, as McLelland J there explained, subsequent communications may show that, at the time of the allegedly contractual communications there were other uncompleted negotiations between the parties concerning matters omitted from the allegedly contractual communications such that the allegedly contractual dealings could not properly be interpreted as mutual assent to be bound.
134 There is an additional consideration with respect to the probative force of post- contractual conduct as "constituting an admission of the state of the parties' rights": County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [162] (McColl JA). To the extent the evidence reveals an opinion as to a question of law rather than fact, the admission may be irrelevant or valueless:
21 [1987] 2 Lloyd’s Rep 601 at619
22 Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647: Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR [97,023]: Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61: Geebung
Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR 97578: Feldman v GNM Australia
Ltd [2017] NSWCA 107 [90]
23 [2019] NSWCA87
Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 at [83] (Beazley P); at [121] (Basten JA, Gleeson JA agreeing).
However, the Victorian Court of Appeal has expressed some doubt as to the admissibility of subsequent conduct where a party relies on a single document as opposed to an exchange of correspondence. Thus in Nurisvan the Court said:
109 An issue arises in the present appeal as to whether the negotiations and communications between the parties, after 24 December 2014, are relevant to the question whether the Heads of Agreement constituted a binding contract between the parties. In a number of the authorities, it is suggested that evidence, of subsequent negotiations, is admissible to determining whether the parties intended that a particular document be a binding contract between them. However, that view has been expressed, principally, in cases involving contracts that are said to have come into existence as a result of an exchange of correspondence or other communication between the parties, as distinct from a case such as the present, in which the respondent relied on a single document concluded between the parties.
110 In each of those former class of cases, the document relied on as a binding contract, formed part of a series of a chain of correspondence between the parties. In that context, it was relevant for the Court to examine correspondence and communications between the parties, subsequent to the document in question, to place that document in the context of the negotiations, in order to determine whether it could be concluded that the parties intended that the particular document constituted the terms of the binding agreement between them. In the present case, the respondent, Anyoption, relied on one single document, the Heads of Agreement dated 24 December 2014. The issue in the present case concerns whether it was the intention of the parties, on execution of that document, to conclude a binding agreement between themselves. That question was to be determined, objectively, from the text of the document, construed in the context of the circumstances in which it came into being. In such a case, and subject to one qualification, it is difficult to understand how subsequent negotiations between the parties, and, in particular, their subsequent attitude to the Heads of Agreement, could be determinative of the question whether, at the time the document was executed, it was intended to be a binding contract between the parties.
111 The qualification, to that proposition, is that the subsequent negotiations and communications between the parties, and in particular the draft Share Sale Agreements that passed between them, would be relevant, from an evidentiary point of view, to demonstrate the nature and extent of the terms, that might be necessary for the conclusion of Share Sale Agreements, that were not included in the Heads of Agreement. That issue would be relevant to the question whether the parties, in December 2014, could be said to have bound themselves contractually by the Heads of Agreement, notwithstanding that they did not contain those further terms and conditions.
These observations were cited and approved by the Court of Appeal of Victoria in The Edge Development Group Pty Limited v Jack Road Investments Pty Ltd.24
In Al-Freah v Thompson supra the Queensland Court of Appeal addressed submissions as to the admissibility of subsequent conduct concerning the contractual status of the four emails exchanged between the parties. Dalton JA concluded:
88 I was not convinced by submissions from both parties in this case that anything said in correspondence by either Dr Thompson or Dr Al-Freah, or their respective lawyers, after the exchange of the four emails of 17 February, could be received into evidence as bearing upon whether or not a contract existed because such statements were admissions against their respective interests. First, the cases concerning the use of subsequent conduct do not speak of it in terms of it being an admission, but in terms of it being context in which to interpret whether the words relied upon do in fact constitute a contract. Secondly, if one were to allow evidence of “admissions”, there is a risk (or a greater risk) that what is recorded is simply
24 [2019] VSCA
one party’s subjective understanding of the arrangement, (with an associated risk that the party is not recording their sincere understanding, but an understanding which advances their interests). In Australian Energy Ltd v Lennard Oil NL38 Connolly and Thomas JJ both expressed reservations about using statements in correspondence subsequent to the disputed agreement as admissions as to the existence of a contract. As Connolly J put it, he preferred “… to exclude from consideration admissions by one party to a contract of its continued operation when this really depends upon the proper construction of the contract itself.” – p 230.
However, it is most important to stress that subsequent conduct is not admissible in relation to the interpretation of contractual documents.25
6 Oral contracts
The legal principles governing the formation of oral and partly oral contracts were set out by Sackar J in King v Adams26 as follows:
“Ascertaining the existence and terms of an oral contract is a question of fact: Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 at [90] (per Campbell JA, Allsop P and Basten JA agreeing); Gardiner v Grigg (1938) 38 SR (NSW) 524 at 532 (per Jordan CJ, Nicholas J agreeing); Maggs v Marsh [2006] EWCA Civ 1058 at [26] (per Smith LJ, Moses and Hallett LJJ agreeing).
Consideration of surrounding circumstances and post contractual conduct is permissible when the existence or terms of an oral contract are in issue: County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [20] (per Spigelman CJ, Beazley and McColl JJA); Colyer Fehr Tallow Pty Ltd v KNZ Australia Pty Ltd [2011] NSWSC 457 at [47]; King v Benecke [2013] NSWSC 568 at [186].
Spigelman CJ explained in County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [7]:
“The subject matter and the concomitant terms of the [oral] contract must be inferred from a combination of surrounding circumstances including conversations, documents and conduct none of which provide a definitive form of words. The issue is not one of interpretation, because there are no words to interpret. The issue is one of fact: what did the partiesagree?”…
Although the weight of Australian authority favours an objective approach to the identification of the terms of an oral contract, there is countervailing High Court and United Kingdom Supreme Court authority supporting a subjective approach. In Hawkins v Clayton27, Deane J in considering the content of an informal contract between a firm of solicitors and their client said:
Indeed, it would seem clear that the contractual terms upon which the executed will remained in the safe custody of the firm were left largely unarticulated by the parties and must be so inferred or implied if the agreement between them is to be given any relevant content. In these circumstances, it is necessary to identify two distinct stages in the ascertainment of relevant terms. Those stages may well overlap and it will often be unnecessary to distinguish between them in practice. The first stage is essentially one of inference of actual intention: what, if any, are the terms which can properly be inferred from all the circumstances as having been included in the contract as a matter of actual intention of the parties? The second stage is one of imputation: what, if any, are the terms which are, in all the circumstances, implied in the contract as a matter of presumed or imputed intention?
25 Agricultural and Rural Finance Pty Ltd v Gardiner [2008] 238 CLR570
26 [2016] NSWSC 1798 at[65]-[69].
27 (1987) 164 CLR 539,569-570
Subsequently, in Byrne v Australian Airlines, 28 Brennan CJ, Dawson and Toohey JJ in considering the implication of a term in an employment contract said in their joint reasons:
Further, as Deane J has observed, the cases in which the criteria in BP Refinery (Westernport) Pty Ltd v Shire of Hastings have been applied in this Court are cases in which there was a formal contract, complete on its face. He pointed out that a rigid approach should be avoided in cases, such as the present, where there is no formal contract. In those cases the actual terms of the contract must first be inferred before any question of implication arises. That is to say, it is necessary to arrive at some conclusion as to the actual intention of the parties before considering any presumed or imputed intention.
The Victorian Court of Appeal in Masters Home Improvement Pty Ltd (formerly Shellbelt Pty Ltd) v North East Solution Pty Ltd29 summarised the effect of High Court authority as follows:
[59] The distinction between implied and inferred terms is not always easy to identify. Inferred terms are those which 'can properly be inferred from all the circumstances as having been included in the contract as a matter of actual intention of the parties.' On the other hand, the implication of terms is directed to what the parties would have agreed upon had they turned their minds to it at the time they entered into the contract. Some of the authorities speak of a two stage process for the identification of the terms of the contract and observe that the two stages may overlap first, inference of terms based on actual intention and secondly, implication of terms based on presumed intention.
In Realestate.com.au Pty Ltd v Hardingham30 however, Gordon J rejected Deane J’s approach. Relevantly, her Honour said:
[50] Further, given the ascendancy of the objective theory of contract and its “command of the field”, there is now little, if any, distinction between the latter case of an “implied” term by reference to the obvious presumed or imputed intention of the parties, and the identification of the “express” terms of an agreement by reference to the objective intention of the parties. Older cases decided before the ascendancy of the objective theory of contract should be approached with caution. So, for example, the approach in Hawkins v Clayton was that, where the contractual terms were “left largely unarticulated by the parties”, the term could only be inferred to be a term of the contract if the court was satisfied as a matter of actual fact that the contracting parties directed their minds to the question. If not, the term had to be implied by the flexible application of criteria from BP Refinery (Westernport) v Shire of Hastings. That approach no longer applies.
Edelman and Steward JJ in their joint reasons in Hardingham rejected Deane J’s concept of the inferred term in the context of informal contracts where the task is to identify the terms of such contracts.
Significantly, in the recent decision of the United Kingdom Supreme Court in Barton v Morris31, Lord Leggatt, although in dissent on the principal issue, made the following observation on identifying the terms of an oral contract.
[184] The matter does not end there, however, as the agreement made in this case was an oral agreement, the terms of which were never put in writing. When interpreting a written contract, English law adopts an objective approach which requires the court to decide what reasonable people in the situation of the contracting parties would have understood the words used to mean. What the parties thought their obligations were is of no consequence. However, as Lord Hoffman observed in Carmichael v National Power Plc [1999] 1 WLR 2042, 2050, that “austere rule” does not apply to an oral agreement of which no definitive record was made. In such a case the court is not ascertaining the meaning of an agreed text as ex hypothesi there is no agreed text. Nor, unless a recording of the relevant conversation(s) was made, can the court know the exact words spoken nor the full
28 (1995) 185 CLR 410 at422
29 [2017] VSCA88
30 [2022] HCA39
31 [2023] UKSC3
context in which they were spoken, including other potentially relevant details and innuendos of the discussion. In these circumstances, the parties’ subjective understanding of what they agreed is admissible as evidence of what as a matter of fact they did agree: see also Thorner v Major [2009] UKHL 18, [2009] 1 WLR 776, para 82 (Lord Neuberger).
7 The standard of proof for oralcontracts
In Briginshaw v Briginshaw, 32 Dixon J authoritatively formulated the applicable principleas follows:
The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality. No doubt an opinion that a state of facts exists may be held according to indefinite gradations of certainty; and this has led to attempts to define exactly the certainty required by the law for various purposes. Fortunately, however, at common law no third standard of persuasion was definitely developed. Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters “reasonable satisfaction” not be produced by inexact proofs, indefinite testimony, or indirectinferences.
More recently, Hammerschlag J (as his Honour then was) in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd33 relying on Briginshaw said:
[94] Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences: see Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; Helton v Allen (1940) 63 CLR 691 at 712; Rejfek v McElroy (1965) 112 CLR 517 at 521; Watson v Foxman (1995) 49 NSWLR 315 at 319.
[95] The sensation of feeling an actual persuasion, after a contest, that an event has happened or that something exists is one which is well known and recognised by experienced trial judges for what it is.
32 (1938) 60 CLR 336,361-362
33 [2015] NSWSC451
Chapter 2: Incorporation of terms by reference
1 The scenarios
The principles underpinning the incorporation of terms evolved within the framework of the following scenarios.
(a) a party signs a contractual document without reading or understanding its contents. The party may be illiterate or otherwise unable to understand or speak the language of the contract;
(b) a party signs a contractual document which incorporates by reference terms contained in other documents;
(c) a party enters into an unsigned contract the terms of which are brought to the attention of that party by the giving of a notice. In the case of an electronic contract the party may submit an electronic response by ticking a box confirming acceptance of terms and conditions without having read them or otherwise being unsure as to where those terms and conditions are located;
(d) a party enters into an employment contract which purports to incorporate terms contained in other documents such as company policies including policies relating to redundancy or discretionary bonuses;
(e) a party asserts that a contract is made on terms put forward by that party while the counter party asserts that the contract is made on terms put forward by that counter party. This is the so-called “battle of the forms”.
2 The status of a signed document
In Toll (FGCT) Pty Ltd v Alphapharm34 the High Court having considered earlier authority noted the significance of a signature to a contractual document at 180-181:
It should not be overlooked that to sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a reasonable reader of the document. The representation is that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents, as Latham CJ put it, whatever they might be. That representation is even stronger where the signature appears below a perfectly legible written request to read the document before signing it.
The statements in the above authorities accord with the well-known principle stated by Scrutton LJ in L'Estrange v F Graucob Ltd ("L'Estrange v Graucob") that "[w]hen a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not." Scrutton LJ, in turn, was repeating the substance of what had been said by Mellish LJ in Parker v South Eastern Railway Co. The principle was applied in Foreman v Great Western Railway Co. A consignor of cattle sent them for transportation by a railway company. They were put in the charge of a drover, who could not read. The drover signed a contract of carriage which contained an exclusion clause. The drover's employer was held to be bound by the clause. The Exchequer Division said that "the plaintiff who sends the [illiterate] servant to sign the document is in no better or worse position than if he had signed it himself without reading it." In his lecture published as "Form and Substance in Legal Reasoning: The Case of Contract", Professor Atlyah posed, with reference to L'Estrange v Graucob, the question why signatures are, within established limits, regarded as conclusive. He answered:
A signature is, and is widely recognized even by the general public as being a formal device, and its value would be greatly reduced if it could not be treated as a conclusive ground of contractual liability at least in all ordinary circumstances.
Professor Atiyah added:
However, what is, I think, less clear is what is the underlying reason of substance in this kind of situation. The usual explanation for holding a signature to be conclusively binding is that it must be taken to show that the party signing has agreed to the contents of the document; but another possible explanation is that the other party can be treated as having relied upon the signature. It thus may be a mistake to ask, as H L A Hart once asked, whether the signature is merely conclusive evidence of agreement, or whether it is itself a criterion of agreement.
3 Incorporation by notice and the “ticket”cases
The basis upon which an unsigned document (eg a ticket or a brochure) may be imported into a contract was established by the High Court in Oceanic Sun Line Special Shipping Co Inc v Fay35, the leading Australian authority on this issue.
The plaintiff was injured while on a cruise in the Greek Islands. The cruise ship was owned by the defendant shipping company. The carriage contract was made in Sydney when the plaintiff paid the travel agent. Upon payment the plaintiff received a document described as an "exchange order" which was a printed form. It had spaces for particulars of the intending passenger, the ship, the cruise which had been booked, fare and port taxes paid. The "exchange order" was subsequently exchanged for a passenger ticket in Greece. The ticket contained terms and conditions of carriage including a submission to the exclusive jurisdiction of the Greek courts.
The plaintiff's wife received a brochure in Sydney before the booking was made. On the inside of the back cover of the brochure were the words:
The attention of passengers is drawn to the General Conditions of Transportation set out in the Passage Contract.
Under the heading "Responsibility" was a statement that:
The transportation of passengers and baggage ... is governed by the terms and conditions printed on the Passenger Ticket Contract which may be inspected at any Sun Line office.
Passenger tickets were not available in Sydney. It was also unclear whether there was a Sun Line office in Australia.
The High Court held that the contents of the passenger ticket issued in Greece did not form part of the contract between the plaintiff and the defendant.
Brennan J having considered previous authority including the so-called "ticket cases" said at 228:
If a passenger signs and thereby binds himself to the terms of a contract of carriage containing a clause exempting the carrier from liability for loss arising out of the carriage, it is immaterial that the passenger did not trouble to discover the contents of the contract. But where an exemption clause is contained in a ticket or other document intended by the carrier to contain the terms of carriage, yet the other party is not in fact aware when the contract is made that an exemption clause is intended to be a term of the contract, the carrier cannot rely on that clause unless, at the time of the contract, the carrier had done all that was reasonably necessary to bring the exemption clause to the passenger's notice: Hood v Anchor Line (Henderson Brothers) Ltd [1918] AC 837 at 842, 844; McCutcheon v David
MacBrayne Ltd [1964] 1 WLR 125 at 129 ; [1964] 1 All ER 430 at 433; Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 at 169-70 per Lord Denning MR, and per Megaw LJ at 172-3. In differing circumstances, different steps may be needed to bring an exemption clause to a passenger's notice, especially if the clause is an unusual one. In the present case, the only step which the defendant took to bring the exclusive foreign jurisdiction clause to the plaintiff's notice before the fare was paid was the note in the brochure that the conditions of carriage were printed in the (unavailable) passenger ticket contract. In Hollingworth v Southern Ferries Ltd ("The Eagle") [1977] 2 Lloyd's Rep 70, it was held that a mere statement in a carrier's brochure that the carrier contracted on its conditions of carriage was not enough to make those conditions terms of a contract of carriage subsequently made with an intending passenger who had read the brochure.
And at 229 his Honour continued:
As the contract of carriage was made when the exchange order was issued and as the exclusive jurisdiction clause contained in cl 13 of the ticket was not then known to Dr Fay and as insufficient was done to bring such a clause to his attention, that clause was not incorporated into the contract of carriage and could not subsequently be incorporated by insertion in the ticket issued pursuant to the original contract. This conclusion differs from the conclusion at which their Honours arrived in the courts below. It will not, I hope, be thought discourteous if I refrain from analysing the differing reasons advanced by their Honours and merely point out that the two factors which lead me to reject the application to this case of the "conventional analysis" of the ticket cases is that the ticket in this case was issued in performance of an antecedent contract and that, if the ticket were a mere offer, a passenger's election to decline carriage subject to an exemption clause could be exercised only after travelling to Greece and only if the fare were forfeited.
The importance of establishing that an unsigned document is contractual is highlighted by the decision of the New South Wales Court of Appeal in National Australia Bank Limited v Dionys as Trustee for the Angel Family Trust36
Turning to the facts.
On 14 March 2011, Ms Dionys visited the Marrickville branch of NAB and spoke to a bank officer, a Mr Ahmad. On the same day she signed an Account Authority Card (Card) for an account to be opened in the name of "Ms Samantha Dionys as Trustee for Angel Family Trust". Ms Dioyns signed the Card which recorded that she was the only person entitled to authorise transactions on the account. The Card was signed on behalf of NAB by a Mr Melisi who was recorded on the document as the "checking officer".
Mr Ahmad gave evidence that it was his invariable practice to provide a customer with a printed booklet entitled "NAB Business Products Terms and Conditions" (NAB Conditions).
Clause 5.18 of the NAB Conditions provided:
You must check your statements
Without limiting any part of these terms and conditions for your account, you must promptly review your statement of account to check for and tell NAB of any transaction recorded on your statement that you suspect for any reason that you did not authorise or for which the information recorded is incorrect. If you do not, then subject to any applicable law, you do not have any right to make a claim against NAB in respect of such a matter (for example, a forged cheque).
On 18 March 2011 two cheques totalling some $493,000 were paid into the account and on 21 March 2011 NAB debited $492,000 from the account. This amount was transferred to the account of another company which banked with NAB.
In late April 2011 Ms Dionys received a bank statement for the period 11 March to 19 April 2011. It showed the deposits and withdrawals. Six months later in October 2011
36 [2016] NSWCA242
Ms Dionys claimed that the withdrawals were unauthorised and demanded that NAB reinstate her account with the amount of the withdrawals.
In subsequent proceedings commenced by Ms Dionys NAB relied on clause 5.18 of the NAB conditions by way of defence.
In the delivering the principal judgment of the Court, Sackville AJA said:
[49] NAB clearly appreciated that it had to show that cl 5.18 had been incorporated into the agreement with Ms Dionys that governed conduct of the Account. The factual foundation for NAB's case on cl 5.18 was Mr Ahmad's evidence that, in accordance with his usual practice, he handed Ms Dionys the Booklet containing the NAB Conditions when opening the Account on 14 March 2011. Ms Dionys denied that Mr Ahmad told her that there were terms and conditions applicable to the Account or that she had received the Booklet from Mr Ahmad. Both Mr Ahmad and Ms Dionys were cross-examined on their evidence. Ms Dionys adhered to her account, while Mr Ahmad was adamant that there was no possibility that he departed from his invariable practice when dealing with Ms Dionys. There was therefore a conflict in the evidence.
The first issue for consideration was the burden of proof. As noted by Sackville AJA, the basic principle is that a defendant who denies liability on the basis of a "limiting term" bears the onus of showing that the term was incorporated in the relevant contract. His Honour continued:
[58] In my view, cl 5.18, although it does not purport to exclude NAB from liability in all circumstances, is a "limiting term" for the purposes of this principle. The relationship between a banker and a customer maintaining an account in credit is essentially that of debtor and creditor. Unless the customer authorises the bank to make payments in reduction of its undebtedness, or the customer is estopped from denying such authority, the debt remains. Broadly speaking, there are only two exceptions to this principle. First, a customer must exercise reasonable care in drawing cheques to avoid facilitating fraud and forgery and, secondly, a customer must notify the bank of a forgery as soon as the customer becomes aware of the forgery. Attempts by banks to persuade courts to expand the scope of the customer's duties, otherwise than through contractual provisions, have proved unsuccessful.
[59] In imposing a duty on the customer to review a statement of account "promptly" and to inform NAB of any transaction that the customer "suspects" is unauthorised, cl 5.18 significantly expands the duties owed by a customer to a bank under the general law. A customer who fails to comply with cl 5.18 is at risk of losing the right to claim compensation from NAB for losses sustained in consequence of unauthorised transactions on his or her account. Clause 5.18 therefore goes beyond the general law by imposing substantially more onerous duties on customers and limiting the rights of customers to claim compensation in respect of unauthorised transactions facilitated by NAB. As such, cl 5.18 is properly characterised as a "limiting term" for the purpose of determining whether NAB bears the onus of proving that cl 5.18 was incorporated into the agreement between it and MsDionys.
The second and critical question was whether the booklet received by Ms Dionys was a contractual document the answer to which depended on when the agreement with NAB was entered into.
Relevantly, Sackville AJA, in finding against NAB, said:
[77] In Baltic Shipping Co v Dillon (Mikhail Lermentov), Gleeson CJ observed that the question of whether a limitation clause is included in a contract and the question of when and by what means the contract was made are closely related. His Honour pointed out that a resolution of the first question is ordinarily assisted by an analysis of the second. In the present case, the question of whether cl 5.18 was incorporated into the agreement between NAB and Ms Dionys requires consideration of when that agreement was concluded.
[78] The starting point is the Authority Card signed on 14 March 2011 by Ms Dionys and Mr Melisi, presumably not at the same time. Ms Dionys' evidence, unchallenged on this point, was that she was asked questions by Mr Ahmad, who then produced the Authority Card on
the basis of her answers. Ms Dionys read through the document prepared by Mr Ahmad and signed it at the place he indicated.
[82] Mr Ahmad did not suggest that it was part of his usual practice to inform customers that the NAB Conditions formed part of the agreement with the customer. He simply said that he told customers they could access the terms and conditions on NAB's website. Mr Ahmad's evidence is important for something else he did not say. His evidence was that his practice was to provide the Booklet to customers "when opening a business cheque account" and that, based on his usual practice, he believed that when the Account was opened he handed Ms Dionys the Booklet. Mr Ahmad's evidence does not address whether his practice was to hand the Booklet to the customer before the customer signed the Authority Card or after the document had been signed. Accordingly, his evidence was equivocal as to whether his practice was to hand the Booklet to the customer before or after the customer was asked to sign the Authority Card. If anything, Mr Ahmad's language tends to suggest that the Booklet was not usually given to the customer until after he or she signed the Authority Card. Mr Morrow's evidence is to the same effect.
[83] Mr Ahmed cannot be expected to have any particular recollection of the circumstances in which the Account was opened. Nevertheless, NAB could have elicited further evidence from him to clarify his standard practice. As I have pointed out, NAB bears the onus of proving that cl 5.18 of the NAB Conditions was incorporated into the agreement between NAB and Ms Dionys. NAB's failure to elicit more specific evidence from Mr Ahmad allows an inference to be drawn with greater confidence that his practice was not necessarily to give the Booklet (and the other documents to which he referred) to a customer before the customer had signed the Authority Card.16. In my opinion, NAB has not established on the balance of probabilities that Mr Ahmad gave Ms Dionys the Booklet containing the NAB Conditions before she signed the Authority Card. (emphasisadded)
In Carnival plc v Karpik37 Derrington J in the Full Federal Court comprehensively examined the “ticket” cases. His Honour’s summary of the principles which were not doubted by the High Court in the appeal were (in abbreviated form) as follows:
(a) They form a particular category of cases concerned with the objective assessment of the circumstances in which parties have entered into a contractual relationship in the absence of a signed agreement.
(b) Specifically, they concern whether contractual relations have been created and on what terms, where the transactional conduct is concerned with what the parties have said or done, and the documents they have sought to introduce.
(c) The objective determination of whether a contract has been entered into includes the application of norms of reasonable conduct. Where a party is given reasonable notice of the terms on which the other is prepared to contract it is assumed that, if they thereafter enter into a contract, they have accepted the terms as part of the binding agreement. By proceeding to act in a manner consistent with an intention to enter into the contract they are objectively assumed to have agreed to them, regardless of whether they had taken the opportunity to read them.
(d) The developed principles surrounding “unusual” or “more onerous” terms involve elements of consumer protection policy and pragmatics. It is not sufficient that a party is given reasonable notice of such terms and the implication that they have availed themselves of the opportunity to read them does not similarly arise. The established principles require that the party relying on the onerous terms must do all that is reasonably necessary to bring them to the other’s notice. That, of course, is not logically consistent with the rules in relation to “standard” or “usual” terms and conditions, but it is a consequence of the policy developed by the courts from the perception of the unequal bargaining position of the parties.
(e) The nature of “unusual” or “more onerous” terms is notstatic.
(f) Care must be taken when applying the principles from the “ticket cases” to complex contractual circumstances. It is possible in the case of simple contractual relationships that
37 [2022] FCAFC149.
the exclusion of a contractor’s standard terms and conditions due to a lack of reasonable notice might nevertheless permit the recognition of an agreement between the parties on the most basic terms.
(g) Necessarily, the application of these principles is intensely fact dependant.
The authorities were revisited by Gleeson J in Gispac Pty Ltd v Michael Hill Jeweller (Australia) Pty Ltd38
Turning to the facts.
Michael Hill Jeweller (Australia) Pty Ltd (Michael Hill) is a large successful retail jeweller listed on the ASX. It has international outlets. Gispac is a packaging manufacturer which from 2003 supplied branded carry bags to Michael Hill for use in its business. In 2012 without any prior notification to Michael Hill Gispac significantly changed its terms of trade with the issue of a new set of standard terms and conditions. These new terms had a material impact on Michael Hill’s potential financial exposure in its dealings with Gispac.
On 5 May 2014 Michael Hill through its group distribution manager, a Mr Colvile, entered into two sales agreements with Gispac for the purchase of large and small paper bags. On 8 May 2015 a third sales agreement was entered into also for large and small paper bags between Mr Colvile on behalf of Emma & Roe, a Michael Hill entity and Gispac. Each of the sales agreements incorporated the following provision:
Terms and Conditions of Trading
Please tick to confirm that you agree to agree to the terms and conditions that can befound at the following link: [details of link set out]
Mr Colvile on behalf of Michael Hill signed each of the sales agreements immediately below the ticked box and then returned those signed documents by email to Gispac. His Honour found that the parties made a written contract the subject of the sales agreements when Mr Colvile on behalf of Michael Hill accepted Gispac’s offer by returning the signed sales agreements to Gispac by email. Each of the sales agreements contained a schedule in which there were three columns headed respectively quantity, unit price and total price. The product was also identified.
Mr Colvile had no knowledge of the content of the 2012 standard terms and conditions. Further, he made no inquiry as to their content. His Honour also concluded that the evidence did not establish that the hyperlink to the 2012 terms actually worked when the sales agreements were made.
In a claim in excess of $2 million Gispac, relying on the 2012 standard terms, argued that:
(1) Michael Hill was required to purchase an annual quantity of paper bags pursuant to cl 18.1;
(2) Michael Hill was obliged under cl 18.2 to pay the amounts sought in the “Shortfall invoices” as the amount of product it purchased was less than 25% of the annual quantity in each quarter;
(3) Michael Hill was required under cl 17 to exclusively obtain the products specified in the sales agreements for its retail stores in Australia and New Zealand;
(4) The term of each of the sales agreements was 24 months; and
38 [2024] NSWSC 18 (31 January2024).
(5) The agreements were “rolling” arrangements which automatically renewed for a further period of 24 months unless Michael Hill gave Gispac six months’ written notice before the end of the 24 month term that it did not intend to renew the ePlus facility.
The facts raised multiple contractual and statutory issues. The first critical issue was whether the 2012 standard terms had been incorporated by reference into the three sales agreements.
Michael Hill submitted that the sales agreements should be characterised as unsigned contracts and that, accordingly, the principles governing reasonable notice established by the “ticket” cases applied. On this basis insufficient notice had been given of the standard terms which, therefore, were not incorporated into the three sales agreements. Conversely, Gispac contended that the sales agreements were signed contracts and that the principles in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd39 applied. Thus, the giving of reasonable notice of the 2012 standard terms did not arise and, in particular, the fact that the hyperlink did not work was irrelevant.
In an extensive judgment Gleeson J surveyed the latest case law.
His Honour, in finding that the 2012 standard terms were incorporated into the sales agreements said:
54 Michael Hill’s submission that this is an unsigned document case is bad in law. The submission conflates the mode of term incorporation by signature (and by reference in the case of written contracts), with the mode of term incorporation by notice in the case of unsigned contracts.
In respect of the finding that the hyperlink did not work his Honoursaid:
32 As explained under Issue 1 below, the question of whether the URL link to the 2012 Terms in the Sales Agreements was operable in May 2014 and May 2015 does not arise if, as Gispac contended, the mode of incorporation of the 2012 Terms is by reference as terms of a signed contract. The question only arises if, as Michael Hill contended, the 2012 Terms were incorporated by notice as terms of an unsigned contract.
As to the contractual status of the sales agreements his Honourconcluded:
72 The Sales Agreements were obviously contractual, as were Gispac’s “terms and conditions” referred to in the box headed “Terms and Conditions of Trading”. The question of whether by signing and ticking the terms and conditions box in the Sales Agreements Mr Colvile evidenced Michael Hill’s contractual intention to be bound by the 2012 Terms, is answered by asking what that conduct would have led a reasonable person in the position of the other party to believe: Toll at [40]. Here, Mr Colvile’s act of signing and ticking the box referable to Gispac’s standard terms and conditions indicated an intention by Michael Hill to be bound by Gispac’s terms and conditions regardless of whether they have been read and considered: Oceanic Sun Line v Fay at 228. As said in Carnival Plc v Karpik (Ruby Princess) at [236]:
… the affixing of a signature objectively conveys that the party signing “either has read and approved the contents of the document or is willing to take the chance of being bound by those contents … whatever they might be”: L’Estrange v Graucob ; Toll v Alphapharm at 184 –186 [54]–[59]: and no question of the reasonableness of the notice of any onerous or unusual terms arises.
Michael Hill also relied on the defence of unconscionable conduct under section 21 of the ACL. In addressing the specific matters in section 22 of the ACL, his Honour said said:
226 Nevertheless, Michael Hill is a commercial entity with significant resources and access to legal advice. Mr Colvile was not tricked into signing any of the Sales Agreements or
39 (2004) 219 CLR165.
agreeing to any of the 2012 Terms by ticking the terms and conditions box above the signature clause. He accepted in cross-examination that he understood that Gispac required the 2012 Terms to be agreed before it would proceed with the order of bags. As indicated, Mr Colvile chose not to take steps to satisfy himself of Michael Hill’s obligations under the Sales Agreements and he could have but did not seek legal advice.
In dealing with Michael Hill’s submission on the test for statutory unconscionable conduct, his Honour noted:
220 In opening written submissions, Michael Hill said that the unconscionability claim rests on “what is right and acceptable commercial behaviour”. Expressed at such a high level of generality, that is not the applicable test. In closing written submissions, Michael Hill said that Gispac’s conduct “offends against conscience and ethical and moral principles of fair dealing”. Again, that broad submission is not the applicable test. Further, its conclusionary terms failed to grapple with the facts and ignored the caution expressed in Quantum Housing Group at [78] that “it is no light matter, indeed it is a serious matter”, to have one’s conduct impugned as against or as offending conscience.
The unconscionable conduct defence failed.
Gleeson J gave judgment for the plaintiff in the amount of$2,259,971.40.
An appeal by Michael Hill to the Court of Appeal was allowed in part.40 The majority (Bell CJ and Payne J) held that although the 2012 standard terms were incorporated into the three sales agreements the reference to quantity in the schedules to those sales agreements did not refer to an annual quantity. On this point the majority agreed with Basten JA who said:
184 That which is “specified” must be identified expressly. No “Annual Quantity” is identified expressly in the Sales Schedules of a sales agreement before this Court. Clause 18 did not state that the “quantity” of a product identified in a Sales Schedule is to be taken as an “Annual Quantity”.
In dissent Basten JA found that the 2012 standard terms had not been incorporated into the sales agreements. His Honour put the question as follows:
126 The question is whether the primary judge should have found that there was “an evidential void” as to what document was referred to in the T&C box signed by the officer of the appellant. As noted below in considering the issue of leave, the primary judge did make findings as to the link affirmed by Mr Bogatez between the 2012 Terms and the document which would have been available on the URL link in the T&C box, but in a context which raised the issue only obliquely.
His Honour concluded:
168 … The problem for Gispac remained, namely the absence of documentary evidence as to the form in which the terms and conditions of trading existed in May 2014 or May 2015.
169 Mr Bogatez’ evidence did not fill the evidential gap. Mr Bogatez did not say in his affidavit how or when he obtained a copy of the 2012 Terms, nor, if as appears it was downloaded, from what source it was downloaded. In his oral evidence he was unable to recall when he first saw the particular terms in issue.
The Court of Appeal reduced the plaintiff’s damages to$359,858.
The decision remains a salutary lesson on the contractual consequences of signing a document incorporating terms by reference without having read and understood those terms.
40 [2024] NSWCA 211 (27 August2024).
4 Unusual or onerous terms
Assuming that an unsigned document is contractual, a further question arises as to whether a party seeking to rely upon an unusual or onerous term is required to bring such term to the attention of the other party. This issue was considered in the important decision of the Victorian Court of Appeal in Maxitherm Boilers Pty Ltd v Pacific Dunlop Ltd41
In short compass the sequence of events in this case was as follows.
The plaintiff Pacific Dunlop received a quotation for a new autoclave on 25 November 1988. It was expressed to be "subject to conditions of tender attached". No such conditions were attached.
On 22 March 1989 the defendant's representative sent to the plaintiff's representative what was referred to at the trial as the "confirming fax". The confirming fax contained thewords:
Our offer is based on our standard terms and conditions as per previous quotation V541-1188 dated 25/11/88.
Also, on 22 March 1989 Pacific Dunlop forwarded a purchase order number to Maxitherm.
On 23 March 1989 the representatives of the parties signed a specification which contained certain negotiated changes to an earlier specification and provided for payment of a 25% deposit with the order.
On 29 March 1989 Pacific Dunlop prepared a purchase order which on its reverse side contained a set of the plaintiff's standard purchasing terms.
On 31 March 1989 the defendants submitted a document to the plaintiffs containing nothing but the Maxitherm's standard terms and conditions. That document was accompanied by a "with compliments" slip.
On 22 March 1990 the Autoclave exploded in the course of a production trial.
Maxitherm's terms contained a limitation of liability clause.
The trial judge held that Maxitherm's terms and conditions were not part of thecontract.
The trial judge was reversed on appeal. In his reasons for judgment Buchanan JA made the following observations at 567-569:
In my opinion Pacific Dunlop and Maxitherm did not reach a concluded agreement on 22 March 1989. On that day the parties were in the course of working out the terms upon which the autoclave would be supplied, and neither regarded the process as complete. In determining whether and when a contract is made in the course of an ongoing series of communications, it is necessary to consider the communications as a whole. As Earl Cairns LC said in Hussey v Horne-Payne (1879) 4 App Cas 311, at p316:
"... It is one of the first principles applicable to a case of the kind that where you have to find your contract, or your note or memorandum of the terms of the contract in letters, you must take into consideration the whole of the correspondence which has passed. You must not at one particular time draw a line and say, 'We will look at the letters up to this point and find in them a contract or not, but we will look at nothing beyond.' In order fairly to estimate what was arranged and agreed, if anything was agreed between the parties, you must look at the whole of that which took place and passed between them."
The original quotation incorporated Maxitherm's standard terms. A reasonable reader of the quotation would have concluded that Maxitherm intended to contract in accordance with
41 [1998] 4 VR559.
certain conditions, and that those conditions, which were not contained in the body of the quotation, could be identified. I do not think that the failure to attach the terms would be reasonably taken to countermand the words "subject to conditions of tender". However, even if the absence of attached terms might have been taken to mean that Maxitherm did not intend to contract according to any "conditions of tender", that impression could not have survived the confirming fax, for that document stated in type, not print, that the offer was " ... based on our standard terms and conditions as per previous quotation ... ". Accordingly, in my opinion Maxitherm's standard terms were made terms of the contract because they formed part of the offer which Pacific Dunlop accepted.
Once the conclusion has been reached that an express offer containing a party's standard terms has been accepted, there is no occasion to then consider whether sufficient steps have been taken to bring the standard terms to the attention of the other party. The ultimate question is whether the party relying upon the standard terms can properly assume that the other party has consented to those terms.
I do not intend to convey that express acceptance of an offer which incorporates other terms by reference necessarily connotes acceptance of all those terms. In a case where the person expressing consent has not read the terms, his consent may be taken to be a consent to those terms which are appropriate to a contract of the type in question. If the terms include provisions which no one would anticipate in a contract of the type in question, it would not be appropriate to assume consent to those provisions. The basic enquiry remains whether it is reasonable to assume that a contracting party has assented to the terms put forward by the other party.
As I have said, in my opinion the inclusion of an unusual term, at least in an unsigned document, may require its proponent to take special steps to bring it to the attention of the other party, for otherwise it may not be reasonable to assume consent to the term. Whether special steps are required, and what those steps must be, will depend upon the circumstances of each case. Further, I think that a term may be unusual because it is more than ordinarily onerous. However, I do not consider that the mere fact that a provision is onerous entitles a court applying the common law to reject it as a term unless special steps have been taken to draw attention to it. The relevant question is whether a contracting party can be reasonably taken to have assented to a particular term, not whether a contracting party should be subject to an unreasonable term.
In the present case I doubt that any of Maxitherm's standard terms was so exceptional that it was unreasonable to suppose that Pacific Dunlop was not assenting to it by expressly accepting the offer that incorporated the terms. However, whether or not cl15 and cl16, or parts of them, required special steps to be taken to bring them to the attention of Pacific Dunlop in order to incorporate them as terms of the contract, the point only emerged upon appeal. It was not pleaded that cl15 and cl16 or parts of them were not terms of the contract because they were unusual or onerous. In my view it is now too late to raise the point, for evidence may have been led as to whether the terms were unusual in contracts of this type. A point may not be raised for the first time on appeal when it could possibly have been met by calling evidence at trial. Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, at p438; Water Board v Moustakas (1988)180 CLR 491, at p497-p498.
Ormiston JA said at 561:
Where terms are explicitly referred to by an offeror, it can be rare that an apparent acceptance by the offeree should not carry with it the offeree's assent to the whole of the terms described, but I would agree that, where a term is so onerous or is otherwise of a kind such as to suggest that it might not reasonably be expected to be part of the terms of the contract, the issue is whether the accepting party can reasonably be taken to have assented to the particular term. It has not been shown in this case that any of the terms contained in the appellant's general terms and conditions were of a kind which the respondent Pacific Dunlop ought not to be taken to have accepted.
5 Incorporation of terms in employmentcontracts
In the employment context there are three potential sources of external documentary material which may potentially be incorporated by reference, namely:
(a) company policy documents including policies relating to redundancy, grievance and discipline, anti-discrimination and bullying and harassment and discretionary bonuses;
(b) enterprise agreements;
(c) awards.
Modern Australian law governing the principles for the incorporation of terms by reference has developed from two decisions of the Full Federal Court, namely, Riverwood International Australia Pty Ltd v McCormick42 and Goldman Sachs JBWere Services Pty Ltd v Nikolich43
In Riverwood the question was whether the plaintiff, McCormick, was entitled to a redundancy payment referred to and described in the company’s Policies and Procedures manual. McCormick’s letter of appointment contained the following term:
“Company Policies and Practices
You agree to abide by all Company Policies and Practices currently in place, any alterations made to them, and any new ones introduced.”
Riverwood contended that this provision only imposed obligations on McCormick and did not contractually bind Riverwood to comply with any of the provisions of the manual.
The primary Judge (Weinberg J) in finding for McCormick set out the applicable principles as follows:
[74] In ascertaining the meaning of an expression contained in a contract such as the requirement that the applicant “abide” by all “Company Policies and Practices currently in place, any alterations made to them, and any new ones introduced”, the approach to be adopted differs from that taken in statutory interpretation. It must rest on the premise that the contract was made in good faith with the object of at least potential mutual benefit by due performance.
[75] The court approaches the task of ascertaining the meaning of the parties’ expressions from an objective point of view. In the case of a disputed clause in a commercial agreement “the essential question is what would reasonable business people in the position of the parties have taken the clause to mean.
[76] The parties may be bound by the meaning reasonably to be inferred in the circumstances, even if it does not conform to the interpretation advanced by either. It is not necessary that a statement should be subjectively intended to be a term of a contract in order to be one; it is enough if it can reasonably be so understood.
Riverwood’s appeal to the Full Federal Court was dismissed. The Court endorsed Weinberg J’s formulation of the relevant principles.
Specifically, North J said:
[107] The association of the expression "abide by" with the reference to the Manual, essential characteristics of which have been analysed earlier in these reasons, suggest that the clause was intended to oblige Mr McCormick to comply with his obligations and also to
42 (2000) 117 ALR193.
43 (2007) 163 FCR62.
signify that Mr McCormick had accepted an offer from Riverwood to the effect that it would comply with the obligations imposed on it by the Manual. Thus, the clause reflected the parties' intention to offer and accept mutual obligations in accordance with the provisions of the Manual. The fact that the clause refers only to "You" is consistent with this construction. While Mr McCormick agreed to abide by the Manual, he was in part responding to Riverwood in that he agreed to accept its compliance with its obligations under the Manual. The phraseology of the clause was proffered by Riverwood. Mr McCormick's acceptance carried with it an acceptance of Riverwood's offer to abide by the Manual by conferring the benefits provided in the manual in favour of Mr McCormick.
[108] Thus, in my view the natural meaning of the term under consideration, viewed in the context in which the contract of employment was made, imposed upon Riverwood an obligation to make the redundancy payments in accordance with the provision in the Manual.
And Mansfield J said:
[150] In the light of the factual matrix referred to, I share the conclusion of the learned trial judge that the letter incorporates by reference the terms set out in the Manual from time to time including the Redundancy Agreement. I further agree with the conclusion that the presumed intention of the appellant and the respondent, by reason of the policy clause in the letter, was that the respondent would receive the benefits of the policies of the appellant in the Manual as they applied to him, including under the Redundancy Agreement (subject to that policy being changed by the appellant). The agreement "to abide by" those policies, in the circumstances, means that the respondent would receive or enjoy the benefits provided for by those policies but only according to their terms, and would himself comply with the terms of those policies as they applied to him.
Turning next to Nikolich.
Nikolich was offered employment by Goldman Sachs. His letter of offer was accompanied by several documents including a substantial document entitled “Working with us” (“WWU”) This document contained the following statement:
“JBWere will take every practicable step to provide and maintain a safe and healthy work environment for all people.”
Relevantly, Nikolich was provided with a copy of the document with his letter of offer. He was also required to sign some forms within the document including Goldman’s Health and Safety statement. Further the letter of offer contained the following:
“General Instructions
From time to time the Company has issued and will in the future issue office memoranda and instructions with which it will expect you to comply as applicable…”
The primary Judge (Wilcox J) held that Nikolich’s contract of employment contained a term that Goldman would take every practicable step to provide and maintain a safe and healthy work environment for all people and that Goldman was in breach of this term. Relevantly, Wilcox J said:
[246] In Riverwood, the relevant term of the employment agreement was that the employee would "abide by" the policies and practices contained in a secondary document. In the present case, the relevant term of the employment agreement was that [Goldman] "will expect" Mr Nikolich to "comply as applicable" with presently-existing and future "office memoranda and instructions". There is not much difference between the wording of the two terms. Also, in both cases, the relevant secondary document clearly purported to impose obligations on the employer, some, at least, of which are obligations customarily found in employment contracts and which would otherwise be absent from the employment contract. Accordingly, it seems to me that the approach taken in Riverwood has application to this case.
In dismissing Goldman’s appeal Black CJ said:
[28] In contending that the trial judge was wrong in finding that there was a term of this nature the appellant argued that the language was not contractual and that the statement was merely aspirational. It was said that to construe these statements in WWU as contractual terms involved giving a meaning to them that could not have been reasonably intended.
[29] As I have noted, the test is objective. What matters is what the language used, in context, would have led a reasonable person in the position of Mr Nikolich to believe. Context is very relevant. Here, it is plain that in WWU the firm was holding itself out as having a commitment, which it regarded as very important, to provide a caring and safe working environment based upon mutual respect and concern. To repeat examples referred to earlier: "The JBWere culture and 'family' approach means each person is able to work positively and is treated with respect and courtesy" and "Although we are aggressive in the market place, we are not aggressive with each other".
[30] The difficulty is that the statement in issue is not explicitly contractual in its language and could be seen as merely aspirational. It appears in a document of mixed content and purposes and, although these include contractual purposes, at least the primary repository of the employment contract is unambiguously elsewhere. The context is, however, decisive. In the context of WWU as a whole, if the statement that the firm "will take every practicable step to provide and maintain a safe and healthy work environment for all people" were no more than an aspirational representation, imposing no obligation on the maker, it would be seen as an exercise in hypocrisy. The statement is a reflection of, and is central to, WWU's expression of the "culture" of the firm and its approach to its staff, and its aspirations about the approach its employees will take to each other. The language used, taken in the context as a whole, points to the statement embodying a contractual obligation and the trial judge was correct in holding that it was a term of the contract.
And Marshall J said:
[119] The central question on this aspect of the appeal is whether the parties intended to incorporate into their contract some or all of the matters dealt with in WWU.
[120] The conclusion of Wilcox J on the topic of express incorporation of WWU into the contract is compelling, for the following reasons:
o WWU formed part of the "office memoranda and instructions" which Mr Nikolich's letter of offer of employment said would be issued and with which he would be expected to comply as applicable. Goldman gave him no other document which may be described as "General Instructions" within the context of the letter of offer;
o Mr Nikolich was required to read WWU and sign some forms contained within it, some of which covered the topics on which Wilcox J made findings, such as the Health and Safety Statement; and
o WWU provided entitlements to employees in addition to setting out directions to them. It sets out what each of the parties could expect the other to do, during its subsistence, in respect of a broad range ofmatters.
Jessup J dissented. Importantly, his Honour noted:
[286] …the trial Judge considered that there was "not much difference" between the wording in the contract in Riverwood and the wording in the respondent's letter of offer in the present case and that the secondary document in both cases purported to impose obligations on the employer, some of which were of a kind customarily found in employment contracts. Thus his Honour held that the "approach" taken in Riverwood was applicable in the present case.
[287] With respect to his Honour, I would have no difficulty following the approach which was taken in Riverwood. That approach was to consider all the facts and circumstances surrounding the making of the contract in question, including the content of the documents which were controversial, for the purpose of considering whether the term contended for by
the respondent had been established as a matter of inference. Beyond that, I read Riverwood as a judgment which turned entirely on its own facts. Little is to be gained, I consider, by picking apart the factual matrix in Riverwood with a view to lining up selected elements thereof with individual elements of the matrix in the present case thought to be corresponding in some sense. Riverwood was decided the way it was because their Honours in the majority agreed with the trial Judge that the parties intended a particular provision to be a term of the contract of employment. Necessarily, they arrived at that conclusion after considering every fact and circumstance that had the potential to assist in the process of inference. It would be quite inappropriate, I consider, for a later court to seize upon individual elements of their Honours' fact-finding reasoning as though, somehow, they would have some binding or even persuasive impact upon the fact-finding process in which it was itself engaged.
[288] A significant respect in which the facts of the present case differ from those in Riverwood is that, here, the secondary document upon which the respondent relies was given to him at the time he was offered employment, whereas there the appellant's manual was not, at least specifically, given to the respondent employee. Necessarily, in Riverwood the "abide by" term was not only important: it was critical. Without it, the respondent's case for express incorporation would have been very different. In the present case, the respondent has the benefit of the circumstance that the appellant provided him with a copy of WWU at the very time it was offering him employment on stated terms.
The next decision is Romero v Farstad Shipping (Indian Pacific) Pty Ltd44
Ms Romero was employed as a deck officer on vessels owned by Farstad under the terms of a letter dated 10 January 2011. Relevantly, that letter contained the following text:
“You will be expected, if required, to serve on any vessel owned or operated by Farstad Shipping and be flexible in regards to availability. Whilst every attempt is made to accommodate individual requests in allocation to vessels, the decision of the Ship Manager and HR department will be final. In addition, all Farstad Shipping Policies are to be observed at all times.”
The Full Federal Court held that Farstad’s workplace discrimination and harassment policy formed part of the contract of employment with Ms Farstad.
Relevantly, the Court said:
55 In situations where clear language is used and sufficient emphasis is placed upon the need for compliance (implicitly by both parties) with the terms of a company policy, then especially where that goes to fundamental conditions of employment, such as payment and the method of compliance with external statutory obligations, objectively viewed, the parties would be expected to regard such terms as contractually binding.
56 The language used in this instance, taking the Policy a as a whole, makes it clear that there is an expectation by the company that there will be mutual obligations. In return for the employee complying with the terms of the Policy, the employer gives a responsive assurance that complaints of non-compliance by other employees will be treated in a certain way.
57 While counsel for Farstad suggested that these elements of the Policy were merely directive, that is, directing the employee as to how to go about making a complaint, on proper analysis they are more in the nature of a bargain with an exchange of undertakings and assurances or promises.
60 It is relevant that the Policy was the subject of an education program at, or contemporaneously with, the offer of employment and was provided to the employee and that the employee was required to sign the Policy. It is also relevant that the benefit provided is consistent with the nature of the benefit which would be expected to be provided by statute and, therefore, a benefit ordinarily conferred in employment contracts. Further, it is relevant that there was regular reinforcement of policies on an ongoing basis. None of
44 [2014] FCAFC177
those matters, taken alone, may be decisive, but the cumulative effect of those features of this relationship point towards the incorporation of the Policy into the contract of employment.
61 The actual employment context is also particularly pertinent. There would be features of the activity involved in Ms Romero’s employment which could readily lead to particularly problematic situations if bullying and discrimination were not precluded. In the context of operating ships, a calm environment is of particular importance, from a safety perspective, not only for the particular employee, but for many who may be affected by departure from such standards.
62 The Policy in this instance was part of the employment contract. The wording of the letter of offer taken with the importance of the Policy terms, the education of employees to reinforce the terms of the Policy are all factors leading to that conclusion. While some parts of the Policy may have been aspirational and some parts directive, Farstad’s obligations in relation to dealing with serious complaints of sex discrimination and bullying were contractual promises given in exchange for employees being obliged to comply with the behavioural requirements imposed on employees by thePolicy.
Following Romero, the New South Wales Court of Appeal in McKeith v Royal Bank of Scotland Group PLC; Royal Bank of Scotland Group PLC v James45 considered each of Riverwood, Goldman Sachs, and Romero in the context of an employment contract which contained the following provision:
ABN AMRO Policies:
You agree to be bound by the policies of ABN AMRO as may exist from time to time. You acknowledge and accept that it is the prerogative of ABN AMRO to vary change or terminate existing policies as well as to devise and introduce new policies.
One of the features of this case was that the redundancy policy operated by the company was closed in the sense that an employee did not have access to the policy itself.
The primary Judge applying Riverwood considered that the redundancy policy formed part of the contract. Relevantly his Honour said:
Although the language was not the same, the decision of the Full Court of the Federal Court of Australia in Riverwood International Australia Pty Ltd v McCormick [2000] FCA 889; 177 ALR 193 and, in particular, the judgment of Mansfield J provided some support for the construction adopted. The expression "to be bound" in the relevant part of Mr James' Contract of Employment needed to be construed in the context in which it is to be found being the letter of 1 January 2007. The letter should be regarded as containing an offer by AAAS of the terms on which Mr James would continue to be employed in the position of Chief Executive Officer of AAAH, which terms and conditions included those which Mr James was obliged to perform and those which AAAS was obliged to perform. Although the letter dealt with the "subject of termination" and with the obligations on termination, it was clear from the Policy which both existed and was known to exist at the time the letter was proffered and accepted by Mr James, that what was said under the heading "Termination" did not exhaust the topic and, specifically, did not deal with the question of what might happen over and above the limited provision set out should Mr James become redundant;
Tobias AJA having considered Riverwood, Goldman Sachs, Romero and Foggo v O’Sullivan Partners46 said:
[125] A number of conclusions may be drawn from the foregoing. First, Riverwood was a case decided purely on its own facts. Secondly, the relevant part of the Manual which was found to be critical to the conclusion of the majority in that case was the strong predominance of provisions beneficial only to the employee. Thirdly, in Goldman Sachs some of the provisions of the WWU which the respondent sought to have incorporated into his contract of employment were clearly contractual in nature but not the complaints process
45 [2016] NSWCA36
46 [2011] NSWSC501.
on which the respondent relied. The case turned on its own facts. Fourthly, the same observation may be made about Romero and Foggo. The nature of the relevant policy provisions in these cases is quite different from that relied on by Mr James. No principle can be derived from the authorities called in aid by Mr James of his claim that the Policy was incorporated into his contract of employment so that AAAS was bound to give effect when it terminated his employment on the ground of redundancy.
[126] Accordingly, the secret terms of the Policy and the relevant text of Mr James' contract of employment when properly construed, would not lead a reasonable person in the position of Mr James to conclude that AAAS intended to be contractually bound by the Policy upon the basis that it was expressly incorporated as a term of Mr James' contract ofemployment.
[127] Accordingly, I am unable to agree with the primary judge's conclusion at [76] of his reasons that the Policy, as it stood at the time Mr James' employment was terminated, was incorporated into his Contract of Employment and was thus binding upon both Mr James and AAAS. It follows that the judgment entered by his Honour in favour of Mr James based upon breach of the Policy as a term of his Contract of Employment must be set aside unless it can be justified on other grounds.
6 A possible new approach in employmentcontracts
In Westpac Banking Corporation v Wittenberg47 Buchanan J in the Full Federal Court proposed a different analysis in relation to the potential application of company policies. His Honour said:
[109] I note that, in McKeith v Royal Bank of Scotland Group PLC [2016] NSWCA 36, the New South Wales Court of Appeal (Tobias AJA, with whom Macfarlan JA and Emmett AJA agreed) considered each of River-wood, Goldman Sachs and Romero and distinguished each of them on various grounds. Tobias AJA concluded in that case that an employer's redundancy policy had not been incorporated in contracts of employment. For separate and different reasons it was found that a promise, which was later made to apply the policy in particular circumstances, was contractually effective. The analysis does not appear to me to provide specific support for the approach to questions of incorporation which I wish to call into question.
[110] It may have been sufficient in each of Riverwood, Goldman Sachs and Romero to imply a term as a matter of fact that, in light of the formal imposition of its policies, the employer would honour so much of those policies as, at any particular time, operated for the real and practical benefit of an employee (eg assured payments, distinct procedural protections) and would not arbitrarily or capriciously withdraw them. An evaluation would need to be made on the facts of particular cases, but I see no reason in principle why an implication of that kind would not in many cases meet the usual tests certainty, necessary to give business efficacy, so obvious it goes without saying, consistency with express terms, etc (see BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266; 16 ALR 363). The approach would be consistent with authority concerning a contractual right to participate in discretionary bonus systems, which I discuss hereunder.
[111] One thing that would be avoided by such an approach would be the artificiality of proposing contractual force to obviously discretionary procedures, or vision statements or general aspirations. It may avoid the tedious complexity which attends attempts to use the notion of incorporation. Any suggestion that less than a full statement of policy is contractually incorporated necessarily operates upon an assumption that such matters must be excluded from the incorporation but, in my respectful view, that approaches the matter from the wrong direction and loads the assessment in favour of contractual obligation. The great strength of the law of contract is its identification of certainty of obligations and corresponding rights at the time the contract is made. Any incorporation must be no less certain at that time. Implication of terms may produce a more flexible outcome. To take only one example an implication (whether as a matter of law or fact) of reasonable notice on termination poses a test which is, in practical terms, to be evaluated for its operative content on termination, not on commencement. An implied term of observance of real and
47 [2016] FCAFC33.
practical benefits under policies and of no arbitrary or capricious withdrawal permits evaluation according to the circumstances and practical realities of thetime.
[112] Whatever might be the correct view about such an approach, in my respectful view it is an error of analysis to argue from the language of a policy to a conclusion that the terms of the policy are contractual. The analysis must begin with the terms of the contract itself. Then, if it is suggested that a requirement for obedience to the terms of a policy (or any other instruction) by an employee is an aspect of some mutual or reciprocal obligation to obey the policy a further enquiry is warranted and necessary. It is whether the employer is free, at its own discretion and without any form of consultation with an individual employee, nevertheless to unilaterally alter the policy - ie its own policy. If it is, I do not readily see how the terms of the policy can be seen as a mutual statement of contractual rights and obligations. It is generally not suggested in cases of this kind that any contractual obligation represented by the policy remains fixed as at the date of contract. It is generally accepted that an employee must comply with the terms of the policy as set by the employer from time to time. That feature, in my view, denies the necessary quality of mutuality. That mutuality is not supplied by what is, in truth, an acknowledgement by an employee in a contract of employment that the policies of the employer are relevant instructions or directions which must be complied with.
[113] A possible exception to this concern, and one which in fact arises on the facts of the present case, is where an adjustment to duties is made for a defined period by reference to published criteria. In the present case, for example, a number of the employees were seconded to Westpac in a context where SGB had a published policy that secondment could not exceed 12 months. It was accepted that there could be no forced secondment; agreement was necessary. Agreement was clearly given in each case upon the basis of the 12 month limitation which was thereby incorporated. Despite a change to the policy in that period, rewording the limitation, I accept that any extension of secondment would require explicit consent. But such is not a case of agreement to abide by policies as stated from time to time. It is a more classic case of incorporation of a known term by reference, in a collateral contract or variation for a fixed term.
Chapter 3: Contract damages; key principles and latest High Court decisions
1 Fundamental Concepts
1.1 Categories of Potential Claim
Depending on the particular fact situation the following categories of claim maybe available to a plaintiff:
(a) Common law damages for breach of contract
(b) Equitable compensation
(c) An account of profits
(d) A claim for loss or damage under section 236(1) of the Australian Consumer Law in respect of a contravention of the prohibition on misleading or deceptive conduct in section 18
1.2 The relationship between restitution and damages for breach ofcontract
The relationship between the remedy of restitution and an award of damages for breach of contract and their combination in one action is explained by the High Court in the leading decision of Baltic Shipping Company v Dillon48
Turning to the facts.
The plaintiff Mrs Dillon purchased a 14 day cruise on the defendant's vessel the "Mikhail Lermontov" for which she paid $2,205. On the ninth day of the cruise the ship struck a shoal on the north-east tip of the South Island of New Zealand. The ship was holed and sunk. After the shipwreck the defendant company refunded some $787 as a "full refund…of the unused portion of the passage money".
After settlement discussions with the company, Mrs Dillon signed a deed of release and received a further $4,700 in compensation.
In subsequent proceedings by Mrs Dillon, the deed of release was declared by the primary judge to be void under the Contracts Review Act 1980 (NSW). In those proceedings, Mrs Dillon was held entitled to restitution of the balance of the fare which she paid, together with compensatory damages for personal injuries and disappointment and distress.
In an appeal to the High Court, Baltic Shipping contended that Mrs Dillon was not entitled to pursue both a claim for restitution of the consideration paid under a contract and a claim for damages for breach of that contract.
In allowing Baltic Shipping's appeal on the restitution claim the High Court addressed two issues of fundamental importance.
First, in what circumstances may a contracting party recover a pre-payment on a failure of consideration?
Secondly, whether a restitutionary claim may be combined with a claim for damages for breach of contract?
As to the first issue Mason CJ said49:
48 (1992) 176 CLR344.
49 at350.
50 at375.
51 at375.
When, however, an innocent party seeks to recover money paid in advance under a contract in expectation of the entire performance by the contractbreaker of its obligations under the contract and the contractbreaker renders an incomplete performance, in general, the innocent party cannot recover unless there has been a total failure of consideration. If the incomplete performance results in the innocent party receiving and retaining any substantial part of the benefit expected under the contract, there will not be a total failure of consideration.
In the context of the recovery of money paid on the footing that there has been a total failure of consideration, it is the performance of the defendant's promise, not the promise itself, which is the relevant consideration. In that context, the receipt and retention by the plaintiff of any part of the bargained for benefit will preclude recovery, unless the contract otherwise provides or the circumstances give rise to a fresh contract.
His Honour concluded50:
The consequence of the respondent's enjoyment of the benefits provided under the contract during the first eight full days of the cruise is that the failure of consideration was partial, not total. I do not understand how, viewed from the perspective of failure of consideration, the enjoyment of those benefits was "entirely negated by the catastrophe which occurred upon departure from Picton", to repeat the words of the primary judge.
Nor is there any acceptable foundation for holding that the advance payment of the cruise fare created in the appellant no more than a right to retain the payment conditional upon its complete performance of its entire obligations under the contract. As the contract called for performance by the appellant of its contractual obligations from the very commencement of the voyage and continuously thereafter, the advance payment should be regarded as the provision of consideration for each and every substantial benefit expected under the contract. It would not be reasonable to treat the appellant's right to retain the fare as conditional upon complete performance when the appellant is under a liability to provide substantial benefits to the respondent during the course of the voyage.
In their joint reasons, Deane and Dawson JJ said51:
The present case is not, however, one in which a party who has provided part only of the promised consideration seeks to recover part of the agreed purchase price. In the present case, it is the promisee, Mrs Dillon, who seeks to recover the whole of a prepaid purchase price on the ground that the consideration for which it was paid has wholly failed. Mrs Dillon does not rely upon any provision of the contract between Baltic and herself under which Baltic was obliged to refund the whole of the fare in the events which happened. There was no such contractual provision. The basis of her claim is the obligation of restitution which the law prima facie imposes upon the recipient of a payment made under a contract which has become "abortive for any reason not involving fault on the part of the plaintiff" in a case "where the consideration, if entire, has entirely failed, or where, if it is severable, it has entirely failed as to the severable residue". Such a claim is not a claim on the contract. Its historical antecedent in terms of forms of action is the old indebitatus count for money had and received to the use of the plaintiff. Its modern substantive categorization is as an action in unjust enrichment. In other words, the receipt of a payment of money for a consideration which wholly fails "is one of the categories of case in which the facts give rise to a prima facie obligation to make restitution ... to the person who has sustained the countervailing detriment".
Their Honours concluded52:
In circumstances where Mrs Dillon accepted and enjoyed the major portion of the pleasure cruise, however, there was no complete failure of the consideration for which she paid the fare. The catastrophe of the shipwreck and its consequences undoubtedly outweighed the benefits of the first eight complete days. It did not, however, alter the fact that those benefits, which were of real value, had been provided, accepted and enjoyed.
Turning to the second issue, namely, the combination of a restitutionary claim with a claim of damages for breach of contract.
Relevantly, Mason CJ said53:
…the earlier cases support the view expressed by Corbin and Treitel that full damages and complete restitution will not be given for the same breach of contract. There are several reasons. First, restitution of the contractual consideration removes, at least notionally, the basis on which the plaintiff is entitled to call on the defendant to perform his or her contractual obligations. More particularly, the continued retention by the defendant is regarded, in the language of Lord Mansfield, as "against conscience" or, in the modern terminology, as an unjust enrichment of the defendant because the condition upon which it was paid, namely, performance by the defendant may not have occurred. But, equally, that performance, for deficiencies in which damages are sought, was conditional on payment by the plaintiff. Recovery of the money paid destroys performance of that condition. Secondly, the plaintiff will almost always be protected by an award of damages for breach of contract, which in appropriate cases will include an amount for substitute performance or an amount representing the plaintiff's reliance loss. It should be noted that nothing said here is inconsistent with McRae v Commonwealth Disposals Commission.
And on the same point, Deane and Dawson JJ state54:
There is a further reason, which would appear not to have been raised in argument in the courts below, why Mrs Dillon's action for restitution of the fare paid to Baltic must fail. It is that she has sought and obtained an order against Baltic for compensatory damages for Baltic's failure to perform its contractual promises to her. In particular, she has received a refund of a proportionate part of the fare and has obtained and will retain (see below) the benefit of an award of damages for the disappointment and distress which she sustained by reason of Baltic's failure to provide her with the full pleasure cruise which it promised to provide. In these circumstances, Mrs Dillon has indirectly enforced, and indirectly obtained the benefit of, Baltic's contractual promises.
Ordinarily, as has been seen, "when one is considering the law of failure of consideration and of the ... right to recover money on that ground, it is ... not the promise which is referred to as the consideration, but the performance of the promise". That statement has nothing to say, however, to the situation which exists when the promisee has sought and obtained an award of full compensatory damages for the failure to perform the promise. In that situation, the damages are awarded and received as full compensation for non-performance or breach of the promise and represent the indirect fruits of the promise. That being so, it would be quite wrong to say either that the only quid pro quo which has been obtained for the payment by the promisee is the bare promise or that the promise and the recovery of compensatory damages for its breach can realistically be seen as representing no consideration at all.
2 The Governing Purpose of an Award of Damages for Breachof Contract
The principle which has been stated by the High Court on numerous occasions and most recently in Cessnock City Council v 123 259 932 Pty Ltd55 was stated by Parke B in Robinson v Harman as follows:
52 at379.
53 at359.
54 at379.
55 [2024] HCA 17 (8 May2024).
“The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”
Conversely, the governing purpose of an award of damages in tort is to put the plaintiff in the same situation as if the tort had not been committed.
Thus the measures of damages in tort and contract are quite different although a claim for reliance damages for breach of contract superficially reflects the tort measure.
The practical significance of the rule in Robinson v Harman is illustrated by the seminal decision of the High Court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd
On 23 December 1996 the respondent granted to the appellant a 10 year lease of premises in Melbourne to serve as the appellant’s headquarters. The lease contained a covenant by the tenant that it would not without the written approval of the landlord make any substantial alteration or addition to the leased premises. The tenant wanted to change the character of the foyer of the premises which it considered unsuitable for its requirements. Representatives of the parties agreed to have a site meeting to examine the proposed alterations. However, on arrival at the premises for the meeting the landlord’s director discovered the foyer had already been substantially destroyed by the tenant in what was a flagrant breach of covenant. In a claim for common law damages for breach of covenant the primary judge gave judgment for the landlord for $34,820 made up of the difference between the value of the property with the old foyer and the value of the property with the new foyer. The Full Court of the Federal Court increased the judgment to $1.38 million which comprised $580,000 as the cost of reinstatement of the old foyer and $800,000 for loss of rent while the restoration tookplace.
In its appeal to the High Court Tabcorp argued that as the substitution of the old foyer did not affect the market value of the building the plaintiff should not entitled to damages. In dismissing Tabcorp’s appeal the Court observed56:
Underlying the Tenant’s submission that the appropriate measure of damages was the diminution in value of the reversion was an assumption that anyone who enters into a contract is at complete liberty to break it provided damages adequate to compensate the innocent party are paid. It is an assumption which at least one distinguished mind has shared. It has been dignified as “the doctrine of efficient breach”. It led, in the Landlord’s submission, to an attempt “arrogantly [to] impose a form of ‘economic rationalism’” on the unwilling Landlord. The assumption underlying the Tenant’s submission takes no account of the existence of equitable remedies, like decrees of specific performance and injunction, which ensure or encourage the performance of contracts rather than the payment of damages for breach. It is an assumption which underrates the extent to which those remedies are available.
The Court then explained the Robinson v Harman rule asfollows57:
Oliver J was correct to say in Radford v De Froberville that the words “the same situation, with respect to damages, as if the contract had been performed” do not mean “as good a financial position as if the contract had been performed” (emphasis added). In some circumstances putting the innocent party into “the same situation … as if the contract had been performed” will coincide with placing the party into the same financial situation. Thus, in the case of the supply of defective goods, the prima facie measure of damages is the difference in value between the contract goods and the goods supplied.
3 Limitations on the Robinson v Harman rule
3.1 Causation of loss
56 at285.
57 at286.
In a claim for damages for breach of contract the plaintiff must establish that the breach caused the loss complained of.
The test of causation in Australian law has embraced two concepts. First, the so-called “but for” test and secondly, the application of common sense.
In Griffiths v Martinez58, Robb J observed:
[633] It may sometimes be difficult for a Court to explain in clear and straightforward language what loss is, and what loss is not, caused by a breach of contract, where the choice is based upon common sense. Where common sense contributes in a substantial manner to the basis of the determination, it is likely to be difficult to explain in ordinary language the dividing line between the consequences of that breach that the law will accept as having been caused by the breach, and the consequences that will not be so accepted. The surrender to common sense contains an implicit acceptance that a value judgment is involved, and the consequences of that value judgment may have to be stated somewhat baldly.
A substantial body of the Australian case law on causation is concerned with tort claims or claims for statutory misleading or deceptive conduct. In Chappel v Hart59, Gummow J noted60:
The “but for” test is not a comprehensive and exclusive criterion, and the results which are yielded by its application properly may be tempered by the making of value judgments and the infusion of policy considerations. So, it may be "unjust" to hold a defendant legally responsible for an injury which, though it may be traced back to the wrongful conduct of the defendant, was the immediate result of unreasonable action on the part of the plaintiff
Turning to common sense as a test of causality, McHugh J in Henville v Walker61 noted at 490:
The common law has avoided the technical controversies inherent in the logic of causation. Unlike science and philosophy, the common law is not concerned to discover universal connections between phenomena so as to enable predictions to be made. The common law concept of causation looks backward because its function is to determine whether a person should be held responsible for some past act or omission. Out of the many conditions that combine to produce loss or damage to a person, the common law is concerned with determining only whether some breach of a legal norm was so significant that, as a matter of common sense, it should be regarded as a cause of damage.
McHugh J returned to this question in Allianz Australia Limited v GSF Australia Pty Limited (2005) 221 CLR 568. In construing the words “caused…by a defect in the vehicle” which formed part of the definition of injury in the Motor Accidents Act 1988 (NSW), his Honour noted at 581:
The common law concept of causation is concerned with determining whether some breach of a legal norm was so significant that, as a matter of common sense, it should be regarded as a cause of damage. In the present case, however, common law conceptions of causation must be applied having regard to the terms or objects of the Act. Those terms and objects of the Act operate to modify the common law’s practical or common sense concept of causation. The inquiry into the question of causality is therefore not based simply on notions of ‘‘commonsense’’.
However, Gummow, Hayne and Heydon JJ in their joint reasons doubted whether the question of causality was to be answered by “common sense” alone.
Subsequently in Travel Compensation Fund v Tambree62, Gummow and Hayne JJ in their joint reasons said:
58 [2019] NSWSC664.
59 (1998) 195 CLR232.
60 at255.
61 (2001) 206 CLR459.
62 (2005) 224 CLR627.
It is now clear that there are cases in which the answer to a question of causation will differ according to the purpose for which the question is asked. As was recently emphasised in Allianz Australia Insurance Ltd v GSF Australia Pty Ltd, it is doubtful whether there is any “common sense” notion of causation which can provide a useful, still less universal, legal norm. There are, therefore, cases in which the answer to a question of causation will require examination of the purpose of a particular cause of action, or the nature and scope of the defendant’s obligation in the particular circumstances.
Writing extra judicially Edelman J in his paper Unnecessary Causation63 said:
Although the test of necessity, as a sole test for causation, is not currentlyfashionable in Australia and England there are some signs that judicial opinion is shifting.
One sign is the growing criticism of the dominant Australian approach which uses the language of ‘common sense causation’. As Dixon J of the Victorian Supreme Court recently observed with great cogency, the ‘common sense’ approach is not a legal test. In difficult cases the ‘sense’ of an answer is rarely common amongst judges. Indeed, in the leading exposition of the common sense test in March,64 the ‘sense’ of the result was not ‘common’ between, on the one hand, the five judges of the High Court of Australia (who allowed the appeal) and, on the other hand, the majority of the Full Court of the Supreme Court of South Australia.
As the common sense approach declines, the ‘but for’ rule is becoming the dominant approach to causation. In Australia it has been held that at common law the ‘but for’ test has an important role to play as a negative criterion. It has been said to be a necessary, but not always sufficient, requirement of causation for the plaintiff to prove that the plaintiff’s loss would not have been suffered but for the defendant’s breach of duty.
And in a detailed analysis of causation in contract law, Beach J in Siegwerk Australia Pty Ltd (in liquidation) v Nuplex Industries (Aust) Pty Ltd65 said:
[69] It has been said that the question whether a breach of contract has caused a loss is a question of fact applying common sense principles. It is said that the common law applies the ordinary man’s notion of causation instead of theories espoused by philosophers and scientists. Clearly, the object of the common law theory of causation is not the same as that of a philosophical or scientific inquiry into causation. But the conceptually elusive if not inutile phrase “common sense”, when discussing questions of causation in the present context, adds little to the problem solving task.
His Honour having referred to the importance of context to the causation analysis said:
[70] … once that contextual lens has been identified, the question then arises as to whether factual causation has been established in terms of the usual “but for” or necessary condition test by reference to linking the act, omission, state of affairs or circumstance referred to in subparagraph (a) with the alleged damage or loss. But even here, to use the vernacular of “common sense” is conceptually unhelpful in a case involving forensic complexity. Moreover, it is otiose in a case where the facts are simple and factual causation obvious.
His Honour continued:
[74] Where a party breaches a contract by defective or inadequate performance, the circumstances which render the performance defective or inadequate are an integral part of the breach. They form part of the starting point for the analysis of causation (Ramsey v Annesley College [2013] SASC 72 at [434] per Blue J).
[75] More generally, the selection of the relevant cause will vary with the nature of the contract, the nature of the breach and the damage suffered. The scope of a defendant’s legal responsibility for loss caused by a breach of contract is to be assessed by analysing what it promised to achieve (Chand v Commonwealth Bank of Australia [2014] NSWSC 708 at [293] per Robb J). Further, the question of causation is to be informed by the context in which the contract was made, which may reinforce
63 (2015) 89 ALJ20.
64 March v Stramare (E & MH) Pty Ltd [1991] 171 CLR506.
65 [2016] FCA158.
rather than attenuate a conclusion of causation (Programmed Total Marine Services Pty Ltd v Ship Hako Endeavour (2014) 229 FCR 563 at [14] and [15] per Allsop CJ).
The case law reveals a lack of clarity as to the relationship between the “but for” test and the application of common sense as determinants of causation. Differing views have been expressed by members of the High Court. It is also fairly clear that value judgments and policy considerations enter into the discourse on causation in negligence. This is further reflected in the Civil Liability Act 2002 (NSW) where a dichotomy is drawn between factual causation and scope of liability which involves normative considerations.
Conversely, causation in contract is unaffected by issues such as contributory negligence and less impacted by normative considerations involved in determining scope of liability. The better view following the observations of Beach J and Edelman J is that in the field of causation in contract the “but for” test is the relevant determinant. This is especially so where, as noted by Beach J, the facts are simple and factual causation obvious.
Most recently in Young v Chief Executive Officer (Housing)66 Gordon and Edelman JJ in their joint reasons said:
Although causation was once described in this Court as a concept of "common sense", it has since, and repeatedly, been emphasised that the concept of common sense should be eschewed when applying the principles of causation. In the law of contract, the principles related to causation begin with a counterfactual, or "but for", test. Other general contract law rules that are related to causation include the rules concerning mitigation, remoteness of damage, and scope of duty.
3.2 Remoteness
The test of remoteness in Australian law is governed by the familiar rule formulated by Alderson B in Hadley v Baxendale67:
Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.
In European Bank Ltd v Robb Evans of Robb Evans and Associates68 the High Court stated69:
Something immediately should be said respecting the significance for the issues in this appeal of the rule in Hadley v Baxendale. The rule is, of course, associated with the assessment of damages in actions for breach of contract. The principle with respect to damages at common law for breach of contract recently was confirmed by this court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd as that stated by Parke B in Robinson v Harman. The plaintiff is to be placed in the same situation with respect to damages, so far as money can do it, as if the contract had been performed.
As Toohey J remarked in Commonwealth v Amann Aviation Pty Ltd, the rule in Hadley v Baxendale does not detract from what was said in Robinson v Harman. The rule is concerned with the question of remoteness and marks out the limits of the heads of damage for which the plaintiff is entitled to receive compensation. In the same case, McHugh J said of Hadley v Baxendale that the rule is a limit on, rather than a ground of, liability, marking out the boundary of the liability for loss or damage caused by a breach of contract.
66 [2023] HCA31.
67 (1854) 9 Exch341.
68 (2010) 240 CLR432.
69 at437-8.
In respect of the scope and operation of the rule in Hadley v Baxendale it is suggested that the following principles may distilled from the case law:
(1) The two limbs (as they are frequently referred to) are a statement of a single principle. Relevantly, in Baltic Shipping Company v Dillon70 Brennan Jsaid71:
Remoteness is governed by the rules in Hadley v Baxendale which prescribe the measure of damages in respect of breach of contract to include not only damage naturally resulting from the breach ("i.e., according to the usual course of things") but also damage which might "reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as theprobable result of the breach of it". Additional or special knowledge known to both parties may widen or contract the scope of liability for breach. These rules have been merged in a single principle expressed by Lord Reid in C Czarnikow Ltd v Koufos and adopted in this Court:
"The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation."
And in European Bank Ltd v Robb Evans of Robb Evans and Associates, the High Court noted72:
In Commonwealth v Amann Aviation Pty Ltd Mason J and Dawson J, with reference to the speeches of Lord Reid and Lord Upjohn in C Czarnikow Ltd v Koufos, said that the two limbs of the rule in Hadley v Baxendale represent the statement ofa single principle and that the application of that principle may depend on the degree of relevant knowledge possessed by the defendant in the particular case. Lord Reid had used the expression "on the cards".
(2) The test of remoteness in tort is reasonable foreseeability as opposed to the test in contract of reasonable contemplation. The difference is real and not purely semantic. Thus in C Czarnikow Ltd v Koufos73 Lord Reid said74:
The modern rule of tort is quite different and it imposes a much wider liability. The defendant will be liable for any type of damage which is reasonably foreseeable as liable to happen even in the most unusual case, unless the risk is so small that a reasonable man would in the whole circumstances feel justified in neglecting it. And there is good reason for the difference. In contract, if one party wishes to protect himself against a risk which to the other party would appear unusual, he can direct the other party's attention to it before the contract is made, and I need not stop to consider in what circumstances the other party will then be held to have accepted responsibility in that event. But in tort there is no opportunity for the injured party to protect himself in that way, and the tortfeasor cannot reasonably complain if he has to pay for some very unusual but nevertheless foreseeable damage which results from his wrongdoing.
And his Lordship continued75:
To bring in reasonable foreseeability appears to me to be confusing measure of damages in contract with measure of damages in tort. A great many extremely unlikely results are reasonably foreseeable: it is true that Lord Asquith may have meant foreseeable as a likely result, and if that is all he meant I would not object further than to say that I think that the phrase is liable to be misunderstood.
70 (1992) 176 CLR344.
71 at368.
72 at438.
73 [1969] 1 AC350.
74 at385-6.
75 at389.
And in Alexander v Cambridge Credit Corporation Ltd76 McHugh JAsaid77:
In later cases (eg, H Parsons (Livestock) Ltd v Uttley, Ingham & Co Ltd [1978] QB 791 at 807), there has been a tendency to play down the distinction between reasonable foreseeability and reasonable contemplation as semantic only. However, I think that the difference is a real one which results in a significant narrowing of liability. The word "contemplation" seems to be used in Koufos in the sense of "thoughtful consideration" or perhaps "having in view in the future". It emphasises that, if the parties had thought about the matter, they would really have considered that the result had at least a "serious possibility" of occurring.
The actual decisions in Hadley v Baxendale and Victoria Laundry (Windsor) Ltd v Newman Industries Ltd bear out the proposition that the contemplation test limits the area of potential liability. For it was surely reasonably foreseeable as a serious possibility that the millshaft was required for the operation of the mill and that a launderer and dyer might have special contracts with a lucrative profit margin. Yetthe losses of the plaintiffs arising from those circumstances were not recoverable.
(3) The test is based on the knowledge of the contract breaker at the date ofcontract.
(4) The parties need not contemplate the magnitude of a loss if loss of that type or kind falls within the rule. In Transfield Shipping Inc v Mercator Shipping Inc78 , Lord Hoffman said79:
[21] It is generally accepted that a contracting party will be liable for damages for losses which are unforeseeably large, if loss of that type or kind fell within one or other of the rules in Hadley v Baxendale: see, for example, Staughton J in Transworld Oil Ltd v North Bay Shipping Corpn (The Rio Claro) [1987] 2 Lloyds Rep 173, 175 and Jackson v Royal Bank of Scotland plc [2005] 1 WLR 377. That is generally an inclusive principle: if losses of that type are foreseeable, damages will include compensation for those losses, however large. But the South Australia and Mulvenna cases show that it may also be an exclusive principle and that a party may not be liable for foreseeable losses because they are not of the type or kind for which he can be treated as having assumed responsibility.
[22] What is the basis for deciding whether loss is of the same type or a different type? It is not a question of Platonist metaphysics. The distinction must rest upon some principle of the law of contract. In my opinion, the only rational basis for the distinction is that it reflects what would reasonably have been regarded by the contracting party as significant for the purposes of the risk he was undertaking. In Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, where the plaintiffs claimed for loss of the profits from their laundry business because of late delivery of a boiler, the Court of Appeal did not regard "loss of profits from the laundry business" as a single type of loss. They distinguished, at p 543, losses from "particularly lucrative dyeing contracts" as a different type of loss which would only be recoverable if the defendant had sufficient knowledge of them to make it reasonable to attribute to him acceptanceof liability for such losses. The vendor of the boilers would have regarded the profits on these contracts as a different and higher form of risk than the general risk of loss of profits by the laundry.
And in Alexander v Cambridge Credit Corporation Ltd80 McHugh JAsaid81:
An important matter in ascertaining whether the loss or damage is too remote is the extent to which the parties may be taken to have contemplated the events giving riseto that loss or damage. The parties need not contemplate the degree or extent of theloss
76 (1987) 9 NSWLR310.
77 at365.
78 [2009] 1AC61.
79 at70.
80 (1987) 9 NSWLR310.
81 at365.
or damage suffered: Wroth v Tyler [1974] Ch 30 at 61-62; H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd at 813 and South Coast Basalt Pty Ltd v R W Miller and CoPty Ltd [1981] 1 NSWLR 356 at 364. Nor need they contemplate the precise details of the events giving rise to the loss. It is sufficient that they contemplate the kind or type of loss or damage suffered.
The most difficult question in determining the relevant kind of damage concerns the levelof classification of the damage which the parties must have contemplated. Clearly the level must not be so high that the parties are required to contemplate the very loss in question or the precise manner of its occurrence. Nor must it be so low that any loss or damage, no matter how unusual in nature or occurrence, would fall within the classification.
(5) Various expressions have been used to describe the degree of probability of the occurrence of the loss which is to be reasonably contemplated by the contract breaker. These expressions include "a serious possibility", "a real danger", "on the cards" and "a not unlikely event". However, Lord Reid's exposition has been treated as authoritative by the Australian courts. His Lordship said82:
but I think that Hall's case must be taken to have established that damages are not to be regarded as too remote merely because, on the knowledge available to the defendant when the contract was made, the chance of the occurrence of the event which caused the damage would have appeared to him to be rather less than an even chance. I would agree with Lord Shaw that it is generally sufficient that that event would have appeared to the defendant as not unlikely to occur. It is hardly ever possible in this matter to assess probabilities with any degree of mathematical accuracy. But I do not find in that case or in cases which preceded it any warrant for regarding as within the contemplation of the parties any event which would not have appeared to the defendant, had he thought about it, to have a very substantial degree of probability.
His Lordship continued83:
It has never been held to be sufficient in contract that the loss was foreseeable as “a serious possibility” or “a real danger” or as being “on the cards.” It is on the cards that one can win £100,000 or more for a stake of a few pence several people have done that. And anyone who backs a hundred to one chance regards a win as a serious possibility many people have won on such a chance. And the Wagon Mound (No.2) could not have been decided as it was unless the extremely unlikely fire should have been foreseen by the ship's officer as a real danger. It appears to me that in the ordinary use of language there is wide gulf between saying that some event is not unlikely or quite likely to happen and saying merely that it is a serious possibility, a real danger, or on the cards.
In National Australia Bank Ltd v Nemur Varity Pty Ltd84 , Batt J in analysing the probability component of the remoteness test said:
[44] The House of Lords in Koufos made it clear that the test for remoteness in tort is more liberal than in contract, but the members of the House used slightly different formulations to express the degree of probability of the occurrence of the loss which is to be reasonably contemplated, such as not unlikely (Lord Reid), liable to be or at least not unlikely to be (Lord Morris of Borth-y-Gest), liable to be (Lord Hodson) and a serious possibility or real danger (Lord Pearce and Lord Upjohn). The High Court has not, according to my review of its decisions, definitively chosen one of those formulations over the others, though McHugh JA, when a member of the New South Wales Court of Appeal, expressed a preference for Lord Reid's formulation. I shall for simplicity use it.
3.3 Mitigation of loss and the interplay with causation
82 at388.
83 at390.
84 (2002) 4 VR252.
Every lawyer knows that upon breach of contract the innocent party is well advised to take reasonable steps to mitigate any loss flowing from the breach. This advice is often inaccurately said to be founded upon a duty to mitigate. However, as a matter of law, the innocent party is not subject to any obligation to mitigate. As noted by Sir John Donaldson in Sotiros Shipping Inc v Sameiet Solholt85:
A plaintiff is under no duty to mitigate his loss, despite the habitual use by the lawyers of the phrase “duty to mitigate”. He is completely free to act as he judges to be in his best interests. On the other hand, a defendant is not liable for all loss suffered by the plaintiff in consequence of his so acting. A defendant is only liable for such part of the plaintiff’s loss as is properly to be regarded as caused by the defendants breach of duty.
Thus, a failure to mitigate may be analysed in terms of causation in the sense that a component of the plaintiff’s loss may be attributable to a failure to mitigate rather than the breach of contract complained of.
The interplay between mitigation and causation was recently considered by the New South Wales Court of Appeal in Edwin Davey Pty Ltd v Boulos Holdings Pty Ltd86
Turning to the facts.
On 22 November 2010, Boulos as vendor and Edwin Davey as purchaser entered into a sale contract for a property in Pyrmont, Sydney for a price of $10.8m. The completion date was 22 October 2011. However, on 6 January 2011 the completion date was varied by agreement to 23 August 2012. The sale ultimately completed on 18 September 2012 (after receivers had been appointed to Boulos). The contract provided that a deposit of $2.8m was to be paid by Edwin Davey and released to Boulos as to $1.3m on exchange and a further $1.5m by 31 December 2010. On 6 January 2011 Edwin Davey released an additional $1m to Boulos.
The property was subject to a mortgage in favour of Perpetual as security for a $13.2m loan to Boulos. In entering the sale contract and releasing the deposit without Perpetual’s consent, Boulos breached the mortgage terms. However, ultimately Perpetual agreed to discharge the mortgage on the basis of a payment agreement with Edwin Davey under which Edwin Davey agreed to pay Perpetual $500,000 if Perpetual received less than $7m from the completion of the contract. As noted completion did not occur until 18 September 2012 when it ought to have occurred on 23 August 2012. Boulos was, therefore, in breach of contract.
On 28 June 2013 Perpetual demanded payment from Edwin Davey of $500,000 in accordance with the payment agreement. This amount was received by Perpetual under bank guarantees established by Edwin Davey with St George Bank.
Edwin Davey sought recovery of the $500,000 from Boulos by way of damages for breach of contract. Relevantly, the breach complained of was late completion. As noted by Gleeson JA the normal measure of damages for delay in completing a land sale contract is the value of the use of the land, which will generally be taken as its rental value.
Ward CJ in Eq (as her Honour then was) held in favour of Boulos. Her Honour determined that the relevant breach was not causative of the loss of the $500,000 which her Honour also held to be too remote for the purposes of the first limb of Hadley v Baxendale
The Court of Appeal allowed Edwin Davey’s appeal. In delivering the principal judgment of the Court, Gleeson JA (Macfarlan JA and Simpson AJA agreeing) made the following observations.
85 [1983] 1 Lloyd’s Rep 605 at608.
86 [2022] NSWCA65.
As indicated, the primary judge correctly recorded that Edwin Davey put its claim fordamages for breach of contract on the basis that, faced with Boulos’ breach of contract, it took action to mitigate the consequences of the breach of contract, and that in undertaking those reasonable mitigatory steps, it incurred expenditure under the payment deed which is recoverable as damages for breach of contract: see [38] above.
However, in addressing this claim for damages her Honour did not refer to the interplay between causation and mitigation (Castle Constructions at [19]-[21]), nor commence with the causation question raised by Edwin Davey’s claim for consequential loss: whether the mitigating action which caused the increased loss was a reasonable step for Edwin Davey to take. Rather, after observing at [404] that the damages claimedby Edwin Davey for breach of contract were not for the loss suffered by the failure to complete on time, that is, damages for delay, her Honour reasoned that an obligation voluntarily undertaken by Edwin Davey (under the payment deed) did not flow naturally from the breach of Boulos’ obligation to complete on the fixed date (at [405]), and therefore there was no connection between the breach by Boulos in failing to complete on time and Edwin Davey’s loss, being the payment of $500,000 to Perpetual to discharge its mortgage: at [406].
I respectfully disagree with this reasoning and the follow-on conclusion at [410] that the issue of mitigation “does not arise here”. Whilst her Honour was correct in stating that Edwin Davey did not put its damages claim for the expenditure incurred by the mitigating action as damages for delay, it is no answer to the causation question to say that the expenditure was incurred voluntarily. That is the very nature of mitigating action.
Was there a causative link between the breach and the loss?
Critical to the interplay between the issues of causation and mitigation is the fact that the contract completed on 18 September 2012 only after Edwin Davey took action to obtain Perpetual’s promise to provide a discharge of its mortgage. If Edwin Davey had not contingently incurred the expenditure required by the mitigating action, the greater loss that was in prospect, given that Boulos’ failure to complete by the fixed date remained unremedied, was the loss of the property and its $3.8 million deposit and prepayment which had been released to Boulos.
On the remoteness point his Honour said
101 This case is concerned with the second limb of the rule in Hadley v Baxendale. What was in the contemplation of the parties depends upon a consideration of the terms of the contract in the light of the matrix of circumstances in which it was made: The Commonwealth v Amann Aviation at 92 (Mason CJ and Dawson J).
104 In this case, the terms of the contract provided for the release of the deposit and prepayment to Boulos. The contract obliged Boulos to provide clear title to Edwin Davey on completion and this meant that it was necessary for Boulos to provide a discharge of the Perpetual mortgage on the date fixed forcompletion. The matrix of circumstances known to Boulos included that the purchase price was less than the Boulos debt secured by the Perpetual mortgage, and that Boulos had entered into the contract and its variation providing for the release of the deposit and prepayment to Boulos, without Perpetual’s consent.
105 It is not necessary for the parties, specifically the defendant, to contemplate the degree or extent of the loss that was in fact suffered or the precise details of the events giving rise to the loss. It is sufficient, for the party in breach to be liable,that the parties contemplated the kind or type of loss or damage that was suffered: Alexander v Cambridge Credit Corporation Limited (1987) 9 NSWLR 310 at 365366 (McHugh JA).
106 Given the circumstances referred to at [105] above, a finding should be made that it was in contemplation of Boulos at the time of the contract and its variation that (a) Perpetual might not provide a discharge of its mortgage, since Perpetual had not given its consent to the contract or its variation, and had not receivedthe
deposit and prepayment as required under the terms of its mortgage, and (b) that if Boulos failed to complete the contract on the fixed date because it could not obtain a discharge of mortgage from Perpetual, it was “not unlikely” to result in Edwin Davey taking action to mitigate the potential loss of its $3.8 million deposit and prepayment by incurring the expenditure required in mitigating action to secure Perpetual’s promise to provide a discharge of its mortgage.
There are 3 key points to note in relation to this case.
First, expenses incurred by a party in mitigating loss is to be treated as a separate head of consequential loss.
Secondly, an expense incurred in reasonable mitigation of a loss may be recoverable even though the expense is greater in magnitude than the damages recoverable for the relevant breach of contract: Arsalan v Rixon87
Thirdly, in defining consequential loss for the purposes of an exclusion clause lawyers should be mindful that the costs to an innocent party of mitigating a loss arising from a breach of contract is a class of consequential loss.
4 Expectation Damages and RelianceDamages
In their joint reasons in The Commonwealth v Amann Aviation Pty Ltd88, Mason CJ and Dawson J explained the origin of the expression ‘expectation damages’. Relevantly, their Honours said89:
The award of damages for breach of contract protects a plaintiff's expectation of receiving the defendant's performance. That expectation arises out of or is created by the contract. Hence, damages for breach of contract are often described as "expectation damages".
To succeed in a claim for expectation damages the plaintiff must prove by reference to the civil standard, namely, on a balance of probabilities, that his or her expectation of a certain outcome had a likelihood of attainment rather than a mere prospect. Usually, in a commercial contract the expected outcome of performance is net profit. Thus a claim for expectation damages is essentially a claim for loss of profit which is typically referred to as claim for loss of bargain damages. However it is important to note that a claim for loss of bargain damages may only be sustained if the subject contract has been terminated.
There are four important points to note in respect of the joint reasons.
First, it does not follow that no damages are recoverable because either the relevant contract was not profitable or because the amount of profit could not be established on the evidence. As noted by their Honours90:
It would be an invitation to the repudiation of contractual obligations if the law were to deny to an innocent plaintiff the right to recoupment by an award of damages of expenditure justifiably incurred for the purpose of discharging contractual obligations simply on the ground that the contract breached would not have been or could not be shown to have been profitable.
Thus, in place of expectation damages the plaintiff would be entitled to reliance damages, namely, expenditure reasonably incurred and wasted by the plaintiff in anticipation of or in performance of contract which has been wrongfully repudiated.
87 [2021] HCA40.
88 (1991) 174 CLR64.
89 at80.
90 at81.
Secondly, unlike the position in English law a plaintiff under Australian law is not entitled to elect between expectation and reliance damages. As noted in the joint reasons, damages for loss of profit and damages for expenditure reasonably incurred are manifestations of the rule in Robinson v Harman. This point was recently confirmed by the High Court in Cessnock City Council v 123 259 932 Pty Ltd91
Thirdly, if the plaintiff seeks recovery of reliance damages, the plaintiff may rely on an assumption that if the contract had been performed according to its terms and not wrongfully repudiated by the defendant, the plaintiff would have recouped expenditure incurred in anticipation of or in reliance of the defendant’s performance. Thus, to defeat the plaintiff’s claim the defendant would bear the ultimate onus of establishing on a balance of probabilities that the plaintiff would not have recouped expenditure incurred even if the contract had been performed. There has been some discussion in the literature as to whether the defendant in these circumstances only bears an evidential burden in relation to the non-recoupment expenditure by the plaintiff. Indeed this was the approach adopted by Gaudron J in Amann Aviation. Another expression used is that the plaintiff has a prima facie case to recover wasted expenditure in circumstances where the defendant has repudiated the subject contract. This issue must now to be considered in light of the High Court’s recent decision in Cessnock
Fourthly, the expressions “expectation damages”, “damages for loss of profits”, “reliance damages” and “damages for wasted expenditure” are merely manifestations of the Robinson v Amann rule.
Turning to the facts of Amann Aviation
In March 1987 Amann entered into a contract with the Commonwealth to provide aerial surveillance of Australia’s northern coastline for a fixed period of three years commencing in September 1987. In anticipation of commencing performance Amann arranged for the acquisition and fitting out of 14 aircraft in the United States at a cost of some $5million. The contract incorporated a cancellation clause based on a show cause process. By September 1987 it was clear that Amann did not have all of the aircraft to commence performance of the services. The Commonwealth then purported to terminate the contract relying on common law rules to do so. By failing to comply with the termination process in the contract the Commonwealth repudiated the contract. Amann accepted the repudiation and terminated the contract.
It was clear that Amman would only have generated a substantial profit on the contract if the contract were renewed for a further period of three years. Although the primary judge approached the case as a loss of profits claim by Amann the Full Federal Court awarded Amann compensation on a wasted expenditure or reliance basis. On the question as to whether the expenditure incurred by Amann in procuring the aircraft would have been recouped had the contract been performed Amann enjoyed the benefit of a presumption that a party would not enter into a contract in which its costs were not recoverable.
Relevantly Mason CJ and Dawson J in their joint reasons said:
In this case, the law assumes that a plaintiff would at least have recovered his or her expenditure had the contract been fully performed.
Their Honours also held that even though Amann had no contractual entitlement to a renewal of the contract at the end of its term, the prospect of renewal had to be brought into account in considering the value of the contract to Amann Aviation. In the circumstances once it was considered appropriate to factor in the prospect of renewal the Commonwealth faced insuperable difficulties in establishing on a balance of probabilities that Amann would not have recouped its expenses on performance of the contract.
Relevantly, Mason CJ and Dawson J said92:
91 [2024] HCA17.
92 at94.
It follows that we consider that the Full Court was correct in taking into account the prospect of renewal of the contract as a factor relevant to the assessment of damages. The consequence of this conclusion, in view of the onus cast upon the Commonwealth as the party in breach, is that the Commonwealth must demonstrate that the value to Amann of the prospect of renewal of the contract when combined with those expenses that would have been recovered by way of gross receipts was less than the total expenses to be incurred by Amann in the performance of its contractual obligations. If the Commonwealth was able to demonstrate that this would have been the result, had the contract been fully performed, then, in conformity with Robinson v. Harman, Amann would not be entitled to all of its expenditure incurred in reliance on the Commonwealth's promise to perform and wasted as a result of the Commonwealth's breach. The Commonwealth was unable, however, to demonstrate this and so discharge the onus. Accordingly, the presumption that Amann would not have entered into a contract in which it would not recover the value of its expenditure incurred remains undisturbed. We agree with the Full Court's conclusion that Amann was entitled to recover as damages an amount commensurate with what it had expended in reliance upon the Commonwealth's promise to perform its contractual obligations.
Also, Brennan J said93:
The sufficient and necessary justification for shifting the onus to the party in breach in the assessment of damages for wasted expenditure incurred in reliance on the defendant's promise before rescission for breach is that the breach of the contract itself makes it impossible to undertake an assessment on the ordinary basis.
A plaintiff's inability to quantify his lost benefits is no justification by itself for casting on the defendant an onus to prove that the plaintiff would not have recouped reliance damages had the contract been performed. What justifies the reversal of the onus is the defendant's repudiation or breach which denies, prevents or precludes the existence of circumstances which would have determined the value of the plaintiff's contractual benefits.
The availability of reliance damages and the question of onus were further recently considered by the High Court in Cessnock City Council v 123 259 932 Pty Ltd94
Turning to the facts.
In July 2007 the Cessnock Council entered into an agreement for a 30 year lease (AFL) with the respondent, then known as Cutty Sark Holdings Pty Ltd. Under the AFL the Council agreed to take all reasonable action to register a plan of subdivision of the land at Cessnock Airport by 30 September 2011. It was envisaged that the subdivision would consist of 25 lots of which lot 104 would be the subject of the lease to the respondent. Pending the subdivision the Council granted the respondent a license to occupy the proposed lot 104. During this period the respondent constructed an aircraft hangar at a cost of $3.6 million. The Council ultimately decided not to proceed with the subdivision for cost reasons. This decision constituted a repudiation of the AFL which the respondent accepted.
In proceedings against the Council the respondent sought damages of $3.6 million representing cost incurred and wasted in reliance on the Council performing itsobligations under the AFL. As summarised by Jagot J, the Council’s defence was that the respondent’s business proposals for the aircraft hangar were inherently speculative and that even if the Council had obtained registration of the plan of subdivision the respondent would not have recouped its cost of construction. Accordingly, the respondent was in no different position because the registration of the plan of subdivision did not take place.
In dismissing the Council’s appeal, the plurality referred to a “facilitation principle” under which a plaintiff is assisted in proof where a defendant’s breach has resulted indifficulties or impossibilities in proof of loss or damage. So in this case significant uncertainties as to
93 at106. 94 [2024] HCA17.
what would have occurred in relation to the prospective development of Cessnock Airport were created by the Council’s wrongful repudiation of the AFL.
Relevantly, the plurality explained the so-called facilitation principle asfollows:
[168] In summary, the facilitation principle arises in cases where the defendant's breach of an obligation results in uncertainty and difficulty of proof of loss for the plaintiff, who has incurred expenditure in anticipation of, or reliance on, the performance of the obligation that was breached. The facilitation of the plaintiff's proof by an assumption that the plaintiff has suffered loss in the amount of reasonable expenditure is neither a blunt rule nor able to be bluntly dismissed in every case by a slight evidentiary onus. The strength with which the principle applies will depend upon the extent of uncertainty resulting from the defendant's breach. And the extent to which evidence from a defendant can reduce or eliminate the loss represented by a plaintiff's wasted expenditure will depend upon the extent to which that evidence establishes a likelihood of non-recoupment.
Having identified a number of uncertainties arising out of the premature termination of the AFL the plurality concluded:
[183] The uncertainties that arose from the Council's breach of contract made proof of the respondent's loss very difficult. Without any facilitation of the respondent's legal onus of proof to establish that its expenditure on construction of the hangar would have been recouped, the respondent would have been required to lead evidence as to the prospect that, having spent $1.3 million to fulfil the sewerage and water infrastructure requirement in condition 23, the Council would have obtained or used funds to develop the airport, in a manner that would have resulted in a sufficient increase in demand, and within a period of time during which the respondent's businesses could be sustained. Large uncertainties and speculation would be involved.
[184] In the absence of further evidence concerning these uncertainties, the facilitation principle treats the respondent as having established its loss in the amount of its reasonable expenditure on the hangar, incurred in anticipation of, or reliance on, the performance of the Council's obligation that was breached. The extent of the uncertainty that resulted from the Council's breach was such as to require the Council to lead substantial evidence as to these matters of uncertainty to establish that some or all of the respondent's wasted expenditure would not have been recouped.
Relevantly, the Council’s repudiation of the AFL created a number of material uncertainties which made it difficult for the plaintiff to establish on the balance of probabilities that had the AFL been performed the plaintiff would have recouped the expense incurred in the construction of the aircraft hangar. As noted by the plurality “the extent of the uncertainty that resulted from the Council’s breach was such as to require the Council to lead substantial evidence as to these matters of uncertainty to establish some or all of the respondent’s wasted expenditure would not have been recouped”.
The focus by the plurality on the uncertainties arising from the breach is in stark contrast to the approach of the High Court in Amman Aviation.
5 Damages for Distress andDisappointment
5.1 General principles
It is not unusual for a party who has been the victim of a breach of contract to feel a sense of disappointment or injured feeling on the occurrence of such breach. However the general rule of the common law is that distress, disappointment or injured feeling experienced on a breach of contract are not compensable heads of loss. In the seminal decision of the High Court in Baltic Shipping Company v Dillon95 Mason CJ endeavoured to explain the policy governing the exclusionary rule as follows96:
95 (1992) 176 CLR344.
96 at361-362.
At bottom, this approach to the problem is based on a policy of excluding the recovery of compensation for injured feelings in cases of breach of contract or confining recovery to cases of a limited class or classes, viz., those where physical inconvenience is caused by the breach of contract. This policy is based on an apprehension that the recovery of compensation for injured feelings will lead to inflated awards of damages in commercial contract cases, if not contract cases generally.
However Mason CJ identified exceptions to the general ruleincluding:
First, the recovery of damages for pain and suffering, including mental suffering and anxiety where the defendant’s breach of contract causes physical injury to theplaintiff;
Secondly, damages for mental suffering where the plaintiff has incurred physical inconvenience as a result of the defendant’s breach of contract and the mental suffering is directly relating to the physical inconvenience and;
Thirdly, damages for disappointment and distress caused by a breach of a contract to provide a stipulated holiday, entertainment or enjoyment, an object of the contract to provide pleasure or relaxation97
Brennan J in his judgment analysed the recoverability of damages for disappointment and distress within the framework of the rule of remoteness in Hadley v Baxendale. In this context his Honour said98:
But where disappointment of mind is no more than a mental reaction to a breach of contract and damage flowing therefrom, the law has treated such a mental reaction as tooremote.
His Honour continued99:
The institution of contract, by which parties are empowered to create a charter of their rights and obligations inter se, can operate effectively only if the parties, at the time when they create their charter, can form some estimate of liability in the event of default in performance. But no approximate estimate of liability could be formed if the subjective mental reaction of an innocent party to a breach and resultant damage were added on as further damage without proof of pecuniary loss by the innocent party. If the mental reaction to breach and resultant damage were itself a head of damage, the liability of a party in breach would be at large and liable to fluctuation according to the personal situation of the innocent party.
Subsequently in Moore v Scenic Tours Pty Ltd100 the High Court considered whether a claim for disappointment and distress fell within the rubric of personal injury damages for the purposes of section 11 of the Civil Liability Act 2002 and the exclusion of recovery for non-economic loss unless the severity of the non-economic loss is at least 15% of the most extreme case. Further, in section 11 “personal injury” is defined to include “impairment of a person’s physical or mental condition”.
Turning to the facts.
The plaintiff Mr Moore purchased a river cruise from Paris to Budapest. However, the cruise was extensively disrupted by bad weather. Out of the planned 10 days on the cruise, Mr Moore and his wife only cruised for 3 days. Mr Moore questioned that Scenic Tours should have known about the bad weather conditions and ought to have cancelled the cruise.
97 Jervis v Swan Tours Ltd [1973] QB 233, at pp237-238.
98 at368.
99 at369.
100 (2020) 268 CLR326.
In representative proceedings Mr Moore claimed damages for disappointment and distress arising out of breaches of the consumer guarantees in section 60 and section 61(1) of the Australian Consumer Law. Mr Moore argued that his claim for disappointment and distress fell outside the definition of personal injury in section 11 of the Civil Liability Act Conversely, Scenic Tours argued that distress and disappointment did fall within the definition relying on Brennan J’s description of distress and disappointment as “a mental reaction to a breach of contract”.
In finding for Mr Moore the Court said:
[40] Mr Moore submitted that his claim for damages for disappointment and distress for breach of contract falls outside Pt 2 of the CLA because the damages he claimed by way of compensation for his disappointment and distress do not relate to personal injury. He argued that a reaction of disappointment and distress to the breach of such a promise – a promise that had been bought and paid for – is a normal and healthy response to that disappointment rather than an impairment of the plaintiff’s mental condition. It was said that the disappointment of a contractual expectation of recreation, relaxation and freedom from molestation is not “impairment” of a person’s mental condition within the meaning of “injury” in s 11; nor is it “non-economic loss” under s 3 ofthe CLA. There is force in this submission.
[41] Disappointment at a breach of a promise to provide recreation, relaxation and peaceof mind is not an “impairment” of the mind or a “deterioration” or “injurious lessening or weakening” of the mind. Frustration and indignation as a reaction to a breach of contract under which the promisor undertook for reward to provide a pleasurable and relaxing holiday is, of itself, a normal, rational reaction of an unimpaired mind.
[42] Scenic’s submission invites this Court to elide the distinction between loss being disappointment and distress for breach of a contract to provide a pleasurable and relaxing experience and loss being disappointment and distress that is consequential upon personal injury. That submission is untenable in light of this Court’s decision in Baltic Shipping.
Most recently, in Young v Chief Executive Officer (Housing)101 , the High Court revisited the recoverability of damages for disappointment and distress.
The case concerned the recoverability of compensation for disappointment and distress arising out of breach of a statutory tenancy agreement in the Northern Territory.
Ms Young the plaintiff held a prescribed tenancy under the Residential Tenancies Act 1999 (NT) the terms of which were set out in Schedule 2 to the Act. Under section 49(1) it was a term of the tenancy agreement that the landlord take reasonable steps to provide and maintain the locks and other security devices that are necessary to ensure the premises are reasonably secure.
On commencement of the tenancy the premises had no back door, a situation which continued for 68 months. In January 2016 a solicitor from Australian Lawyers who promote Aboriginal rights wrote to the Chief Executive Officer (Housing) complaining of the situation. In late March 2016 a new back door was installed.
Ms Young applied to the Civil and Administrative Tribunal of the Northern Territory for orders of repairs to be made as well as payment of compensation under section 122(1) of the Residential Tenancies Act. Specifically, Ms Young sought compensation for disappointment and distress arising out of the Territory’s breaches of the tenancy agreement. Relevantly, under the Act a landlord or tenant may apply for an order for compensation for loss or damage suffered by the applicant because the other party has failed to comply with the agreement. The Territory argued that the rules of the law of contract applied to claims under the Act and that, accordingly, Ms Young’s claim for damages for distress and disappointment was not maintainable.
101 [2023] HCA31.
The High Court by a majority held that section 122 of the Act was not constrained by the common law and that, accordingly, Ms Young was entitled to damages for distress and disappointment in relation to the Territory’s breach of the tenancy agreement.
The minority (Gordon and Edelman JJ) held that the rules of the common law did constrain section 122 but that in accordance with Baltic Shipping Co v Dillon damages for distress and disappointment were recoverable.
In considering whether the term imported into the tenancy agreement by section 49(1) of the Act concerned the tenant’s state of mind Gordon and Edelman JJ in their jointreasons said:
[75] Not all provisions of a tenancy agreement will have an object concerned with the state of mind of the tenant. But some will. The parties to this appeal focused considerable attention on the contrasting approaches in the authorities concerning whether the obligation of quiet enjoyment in a lease had an object concerned with the tenant's state of mind, such as providing peace of mind or freedom from distress. The obligation of quiet enjoyment is more than an obligation merely to afford possession; it extends also to securing enjoyment of the lease for all usual purposes. In many cases, an object of the obligation will be to provide peace of mind. But every case will ultimately depend upon the contract or the statutory provision creating the term. For instance, an obligation of quiet enjoyment in a retail lease has been held not to involve an object of providing peace of mind because it was not an object of the retail lease to provide enjoyment, relaxation or freedom from molestation.
Their Honours concluded that the term was concerned with the tenant’s state of mind and, accordingly, damages for distress and disappointment of its breach were recoverable.
5.2 Employment contracts
In Addis v Gramophone Co Ltd102 the House of Lords held that in a claim for wrongful dismissal an employee could not recover in an action for damages for breach of contract compensation for injured feelings associated with the manner of the dismissal or for loss of employment prospects arising from the humiliating manner of the dismissal. The correctness of Addis is now under appeal to the High Court following the grant of special leave to appeal from the judgment of the Court of Appeal of Victoria in Vision Australia Ltd v Elisha103. The Court of Appeal of Victoria held that although damages for pain and suffering consequent upon physical injury may include compensation for injured feelings, this did not extend to a psychiatric injury. The Court in dealing with Mason CJ’s analysis of the exceptions to the common law exclusionary rule concerning injury to feelings noted that Mason CJ did not suggest that mental suffering may be a psychiatric injury in its own right.
Chapter 4: Statutory unconscionable conduct
1 The legislation
The unconscionable conduct provisions of the Australian Consumer Law (ACL) and the mirror provisions in the ASIC Act represent one of the most significant reforms to commercial law since the advent of the misleading and deceptive conduct regime in the Trade Practices Act of 1974.
The ACL incorporates the following provisions:
Part 2-2 - Unconscionable conduct
20 Unconscionable conduct within the meaning of the unwrittenlaw
(1) A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time.
Note: A pecuniary penalty may be imposed for a contravention of this subsection.
(2) This section does not apply to conduct that is prohibited by section 21.
21 Unconscionable conduct in connection with goods orservices
(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person (other than a listed public company); or
(b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company);
engage in conduct that is, in all the circumstances,unconscionable.
(2) ,,,
(3) For the purpose of determining whether a person has contravened subsection (1):
(a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(4) It is the intention of the Parliament that:
(a) this section is not limited by the unwritten law relating to unconscionable conduct; and
(b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and
(c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of:
(i) the terms of the contract; and
(ii) the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.
22 Matters the court may have regard to for the purposes of section21
(1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 21 in connection with the supply or possible supply of goods or services to a person (the customer), the court may have regard to:
(a) the relative strengths of the bargaining positions of the supplier and the customer; and
(b) whether, as a result of conduct engaged in by the supplier, the customer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c) whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services;
(l) the extent to which the supplier and the customer acted in good faith.
2 Identifying unconscionable conduct under section21
As the ACL does not contain a definition of “unconscionable conduct” the meaning of the expression will turn on judicial interpretation. In this context an important starting point is Allsop CJ’s judgment in Paciocco v Australia & New Zealand Banking Group Limited104 in which his Honour said:
[296] … The evaluation of conduct will be made by the judicial technique referred to in Jenyns. It does not involve personal intuitive assertion. It is an evaluation which must be reasoned and enunciated by reference to the values and norms recognised by the text, structure and context of the legislation, and made against an assessment of all connected circumstances. The evaluation includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing; and the conduct of an equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment and exercise of power and discretion based thereon.
[304] In any given case, the conclusion as to what is, or is not, against conscience may be contestable. That is inevitable given that the standard is based on a broad expression of values and norms. Thus, any agonised search for definition, for distilled epitomes or for shorthands of broad social norms and general principles will lead to disappointment, to a sense of futility, and to the likelihood of error. The evaluation is not a process of deductive reasoning predicated upon the presence or absence of fixed elements or fixed rules. It is an evaluation of business behaviour (conduct in trade or commerce) as to whether it warrants the characterisation of unconscionable, in the light of the values and norms recognised by the statute.
[305] The task is not limited to finding "moral obloquy"; such may only divert the normative inquiry from that required by the statute, to another, not tied to the words of the statute.
104 [2015] FCAFC50.
In recent decisions, there has been disagreement between members of the High Court as to whether unconscionable conduct requires a high degree of moral obloquy. In Australian Securities and Investments Commission v Kobelt105 Keane J said:
118. The use of the word "unconscionable" in s 12CB – rather than terms such as "unjust", "unfair" or "unreasonable" which are familiar in consumer protection legislation – reflects a deliberate legislative choice to proscribe a particular type of conduct. In its ordinary meaning, the term "unconscionable" requires an element of exploitation. The term imports the "high level of moral obloquy" associated with the victimisation of the vulnerable
119. The legislative choice of "unconscionability" as the key statutory concept, rather than less morally freighted terms such as "unjust", "unfair" or "unreasonable", confirms that the moral obloquy involved in the exploitation or victimisation that is characteristic of unconscionable conduct is also required for a finding of unconscionability under s 12CB.
Conversely, in the same decision Gageler J (as his Honour then was) said:
91. In Paciocco v Australia & New Zealand Banking Group Ltd, I referred to unconscionable conduct within the meaning of s 12CB as requiring "a 'high level of moral obloquy' on the part of the person said to have acted unconscionably". "Moral obloquy" is arcane terminology. Without unpacking what a high level of moral obloquy means in a contemporary context, using that arcane terminology does nothing to elucidate the normative standard embedded in the section. The terminology also has the potential to be misleading to the extent that it might be taken to suggest a requirement for conscious wrongdoing. My adoption of it has been criticised judicially106 and academically107. The criticism is justified. I regret having mentioned it.
92. What I meant to convey by the reference was that conduct proscribed by the section as unconscionable is conduct that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience. To that view of the statutory standard I adhere.
More recently in Productivity Partners Pty Ltd v Australian Competition and Consumer Commission108 Steward J said:
303 The continuing utility and relevance of the concept of moral obloquy is evident when the "values and norms" come to be fleshed out. Thus, in Paciocco, Allsop CJ rightly rejected any application of "personal intuitive assertion" in determining what is and what is not unconscionable conduct and said that what is required:
"is an evaluation which must be reasoned and enunciated by reference to the values and norms recognised by the text, structure and context of the legislation, and made against an assessment of all connected circumstances. …"
304 All of the foregoing is consistent with a need for a grave level of moral obloquy to exist if a finding of unconscionable conduct is to be made.
In referring to Gageler J’s judgment in Kobelt Steward J commented as follows:
289 Gageler J went on to observe that unconscionable conduct should be seen as behaviour "that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience". The rejection of moral obloquy as a measure to test the presence of unconscionable conduct appears to divorce or detach from the concept of good conscience any societal moral principle and replaces it with something called a "normative standard" of commercial behaviour. This analysis dismisses the term "moral obloquy" as "arcane".
105 (2019) 267 CLR 1: This decision was reviewed by Mark Leeming in “From the Bench – case law update”, a paper presented for the 36th Annual Conference of the Banking & Financial Services Law Association (30 August 2019).
106 eg, Ipstar Australia Pty Ltd v APS Satellite Pty Ltd (2018) 356 ALR 440 at 477 [194]-[195], 495-496 [275][278].
107 eg, Baxt, "Continuing 'Furore' Over Moral Obloquy and Unconscionability" (2017) 91 Australian Law Journal 809 at 809-810.
108 [2024] HCA 27 (14 August2024).
290 It is unclear what is meant by a "normative standard"; by "societal norms" of commercial behaviour; or by "generally accepted" "values and norms". These somewhat anaemic concepts appear to mask, or skate over, necessary analysis in accordance with a known methodology. To borrow the words of Professor Birks, it looks like an attempt to "clothe" equitable principle "in more grown-up words".
291 In that respect, the required "normative standard" cannot be that of Australia's judiciary; it is not what each judge subjectively, and perhaps collectively, believes to be an acceptable standard of commercial behaviour. If it meant that, commercial life really would be subject to judicial caprice or, worse, mere fashion. It should not, with very great respect, be a "free-form choice".
292 Nor should recourse to generally accepted "values and norms" be seen as a reference to some form of empirical enquiry into what most Australians might think is a normative standard of behaviour. If it was, how would a judge discern it? Would it be a matter for expert evidence of some kind? Would it be a matter of judicial notice? What if many standards exist: a possibility which is real enough in a multicultural society which may no longer exhibit "monolithic moral solidarity". And what if the standards themselves are offensive or become so? It was undoubtedly the case that some Australian "values and norms" held before the Second World War would now be considered entirely repulsive. That includes standards about racial bigotry.
However, neither Edelman J nor the other members of the High Court in Productivity Partners attached any significance to the expression ‘moral obloquy’ as an essential element of unconscionable conduct. Relevantly, Edelman J, having referred to Allsop CJ’s commentary in Paciocco, said:
232 The assessment of an objective standard of conscience must instead import an evaluation of the extent of departure from principles of interpersonal morality as reflected in the values of Australian common law and statute. It is only in that sense that those values are the values of the Australian community.
233 The difficulty with the application of the values of Australian common law and statute is that they apply at such a high level of generality, and can point in so many different directions, that the concept of unconscionability has been said to be no more useful than the category of "small brown bird" to an ornithologist.
The difficulty in determining whether conduct can be characterised as unconscionable conduct is illustrated by the High Court in Australian Securities and Investments Commission v Kobelt (supra).
Turning to the facts.
Mr Kobelt ran a credit system known as “Book Up” for indigenous customers living in remote communities. The majority of his 117 customers were impoverished and at least half were dependent upon Centrelink benefits as their principal source of income. The customers were vulnerable with that vulnerability arising from a combination of factors; the remoteness of their communities; the limitations on their education; their impoverishment and the limitations on their financial literacy. For a customer to receive Book Up, Mr Kobelt required the customer to provide him with a key card linked to the bank account into which their income was paid, as well as their PIN.
Mr Kobelt’s practice was to withdraw the whole of the funds available in a customer account usually on the day that the funds were paid in by an employer or Centrelink. The withdrawals were made between midnight and 1:00am to forestall any earlier customer withdrawal.
In their joint reasons, Nettle and Gordon JJ noted that Mr Kobelt made inadequate and often illegible records of the Book Up transactions. Further, he did not provide the customers with any written record of his withdrawals. Also, in some cases the credit attracted an interest rate of 43.4% over a 12 month loan. Many of the credit transactions involved the supply of old motor vehicles.
ASIC commenced proceedings against Mr Kobelt alleging that his Book Up credit system contravened the unconscionability provisions of Section 12CB(1) of the ASIC Act 2001 (Cth).
By a majority of four (Kiefel CJ, Bell, Gageler and Keane JJ) to three (Nettle, Gordon and Edelman JJ), the High Court held that Mr Kobelt had not contravened Section 12CB(1).
In their joint reasons Kiefel CJ and Bell J concluded:
78. The basic elements of Mr Kobelt's book-up system were understood by Mr Kobelt's Anangu customers, and those who chose to enter into book-up credit contracts with him appear to have done so because it enabled them to purchase goods which they valued and which otherwise they may not have been able to acquire. The terms on which book-up credit was supplied were perceived by the Anangu customers to be appropriate. This perception was not the product of the Anangu customers' lack of financial literacy: it reflected aspects of Anangu culture that are not found in mainstream Australian society.
79. Book-up credit has a long history in rural and remote Indigenous communities. In this context, Mr Kobelt's supply of book-up credit was not out of the ordinary. No feature of Mr Kobelt's conduct in the supply of book-up credit to his Anangu customers exploited or otherwise took advantage of the customer's lack of education and financial acumen. While Mr Kobelt's book-up credit system was open to abuse, Mr Kobelt did not abuse it. In the circumstances, the Full Court was right to hold that Mr Kobelt's conduct in connection with the supply of credit to his Anangu customers was not unconscionable.
Conversely, Nettle and Gordon JJ in their joint reasons said:
238. Vulnerable persons may be unable to protect their own interests. If a person, unable to protect their own interests, voluntarily enters into a transaction, this does no more than remove the conduct from it being the subject of relief on the ground of undue influence where the elements, and methods of proof, are quite different. It is because it is a transaction that is voluntarily entered into by someone under a special disadvantage that unconscionability, including statutory unconscionability, developed, in order to ensure that persons who are vulnerable and unable to protect their own interests are not the victim of conduct by a stronger party in unconscientiously taking advantage of that vulnerability. And that is what Mr Kobelt's book-up system did.
239. The unconscionability of Mr Kobelt's conduct was that the 117 customers were at such a special disadvantage relative to Mr Kobelt so as to be unable to make a decision in their own interests, and Mr Kobelt, knowing or in circumstances where he ought to have known of their incapacity to make a decision in their own interests, took advantage of that disadvantage toget them to agree to his terms.
240. It is irrelevant that some of the customers might have regarded the requirements of Mr Kobelt's system as not unreasonable or considered that it alleviated pressures of demand sharing. The requirements of the system were unreasonable, regardless of any effects on demand sharing. Even if some of his 117 customers might have thought otherwise, the customers were so disadvantaged by their remoteness, the limitations on their education, their impoverishment and the limitations on their financial illiteracy, as well as the limited available alternatives, as to be in a position where they could not demand a superior system.
Section 22 sets out a list of matters to which a court may have regard in determining whether there has been a contravention of section 21(1). The relationship between these sections is considered in section 3 below.
3 Issues clarified by the High Court in ProductivityPartners
In Productivity Partners the High Court clarified the position in respect of thefollowing:
(a) The relationship between section 21 and section 22; and (b) Systems unconscionability under section 21(4)(b).
Turning to the facts.
The Commonwealth funds a scheme (the VFH scheme) to enable individuals from various demographic groups to access loan funding to pursue online vocational and educational training (VET) with registered training organisations (VET providers). Loan funding for tuition fees was conditional on an individual being enrolled in a unit of study at the end of a “census date” which was the date determined by the VET provider to be the last date on which the individual enrolled could withdraw without incurring any VFH debt to the Commonwealth. Relevantly, the VFH debt consisted of the tuition fees paid by the Commonwealth to the VET provider together with a loan fee of 20%.
Productivity Partners trading as Captain Cook College is a provider of online VET courses. In conducting these courses, the College sought to minimise two identified risks. First, the risk that course advisors acting as agents of the College might recruit unsuitable students simply to enhance commission. Secondly, the risk that students may be misled or unsuitable being enrolled in circumstances where the College had no face to face contact with students and only dealt with students online or via telephone.
The College sought to minimise these risks by two system controls, namely, an outbound quality assurance call by an admissions officer as part of the enrolment process and, secondly, by a process known as a “campus driven withdrawal” which involved an individual being withdrawn from a course if they remained uncontactable during the first weeks of study.
Starting in April 2015 the College experienced declining enrolments and in light of that abandoned the two system controls.
The ACCC commenced proceedings against Productivity Partners alleging that in abandoning the two system controls the College engaged in unconscionable conduct in contravention of the prohibition in section 21 of the ACL. As summarised by the primary judge, the ACCC’s case was that the College changed its enrolment and withdrawal processes knowing that this step would reduce protections for consumers and would lead to a significant increase in the risk of both unsuitable consumers being enrolled and of misconduct by sales agents. The ACCC submitted that as a consequence of the changes the College claimed and retained significantly increased revenue from the Commonwealth and that the vast majority of consumers did not receive any vocational benefit despite incurring a substantial debt.
Both the primary judge and the Full Federal Court found for the ACCC. In its appeal to the High Court the College put two arguments. First, both the primary judge and the Full Court improperly applied section 21 without reference to the presence or absence of all the relevant factors in section 22. Second, the removal of the two system controls was not unconscionable conduct as unconscionability is not a standard attracted by imperfect systems or carelessness.
The relationship between section 21 and section 22
In rejecting the College’s first argument Gageler CJ and Jagot J said:
60 That the presence or absence of each matter in s 22(1) is not a mandatory relevant consideration to be weighed by a court in every case, irrespective of the circumstances, does not mean that the required evaluation involves nothing more than, as the College put it, an "instinctive reaction that the legislation sought to avoid". The normative standard set by s 21(1) is tethered to the statutory language of "unconscionability". While that term is not defined in the legislation and, in its statutory conception, is "more broad-ranging than the equitable principles", it expresses "a normative standard of conscience which is permeated with accepted and acceptable community standards", and conduct is not to be denounced by a court as unconscionable unless it is "outside societal norms of acceptable commercial behaviour [so] as to warrant condemnation as conduct that is offensive to conscience". The items listed in s 22(1)(a)-(l) are matters that the legislation requires to be considered, in the overall evaluation of the totality of the circumstances to be undertaken for the purpose of s 21(1), if and to the extent those matters are applicable. This is
why both "close attention to the statute and the values derived from it, as well as from the unwritten law" and "close consideration of the facts" are necessary.
Gordon J in also rejecting the College’s first argumentsaid:
102 The ACL does not require a plaintiff in every case to "plead and adduce evidence of facts directed to" the factors in s 22(1). Nor is there warrant for construing the factors in s 22 as "statutory criteria" that set the metes and bounds within which the normative standard prescribed by s 21(1) is to be applied. Neither the text or context of ss 21 and 22 of the ACL, nor the authorities that have considered those provisions, provide any support for that approach.
103 To treat the matters in s 22 as a mandatory set of factors to be applied mechanistically when analysing whether s 21 has been contravened would be contrary to the text of the ACL. It would impermissibly limit the court's capacity to consider the totality of the circumstances that might render a particular person's conduct, system of conduct or pattern of behaviour unconscionable. Those circumstances "include", but are expressly not limited to, the s 22 factors. The appellants' construction of ss 21(1) and 22(1) is irreconcilable with the text of those sub-sections.
Unconscionable conduct and systems liability
As noted by Edelman J, section 21(4)(b) of the ACL implicitly recognises proof of a corporate system might occur either by proof of a pattern of behaviour or by “direct evidence as to the internal structure and elements of the system”. In finding that the ACCC’s systems case had been established Edelman J said:
247 By focusing its case against the College at the level of the system, it was unnecessary for the ACCC to establish that any individual person chose agent misconduct or unsuitable enrolments as a means to maximising profit. It was enough that the College employed a system which adopted, as its means to increased profitability, an increase in unsuitably enrolled students or students whose enrolment was the subject of agent misconduct. For example, prior to the removal of the system controls, 50 per cent of students had been withdrawn by the campus-led withdrawal process. The removal of that system control would mean that the system would achieve increased profitability at the expense of enrolment of disengaged students.
248 The submission of the College that it did not intend the risks to eventuate must be rejected. The removal of the two system controls meant that the College, by its revised system, intended that the end of increasing profitability be achieved by an increase in unsuitably enrolled students or students whose enrolment was the subject of agent misconduct.
4 Commercial transactions and statutory unconscionableconduct
A useful example of a finding of statutory unconscionable conduct in a commercial transaction is the decision of the New South Wales Court of Appeal in Ipstar Australia Pty Ltd v APS Satellite Pty Ltd109
Turning to the facts.
Ipstar was at all relevant times a wholesaler of satellite broadband services. It owned a satellite. It sold satellite dishes, transceivers (called ODU’s) and modems as a package which could communicate with the Ipstar satellite and enable end users to obtain access to the internet.
SkyMesh (later known as APS Satellite) was a retailer of broadband services.
In 2007 SkyMesh and Ipstar entered into an agreement under which Ipstar sold broadband capacity to SkyMesh. The agreement was varied on three occasions, the last of which was under a document dated 27 April 2011 identified as the Second Addendum. Under the Second Addendum Ipstar increased its service fee by 15%. Relevantly, at the time of such
109 [2018] NSWCA15
increase the parties were engaged in adversarial discussions concerning outstanding statutory warranty claims by SkyMesh in respect of defective equipment for which SkyMesh had compensated the end users.
SkyMesh being unable to secure any reimbursement from Ipstar commenced proceedings against Ipstar claiming that:
(1) the price increase imposed by Ipstar under the Second Addendum constituted unconscionable conduct in contravention of section 21 of the Australian Consumer Law; and
(2) the equipment supplied by Ipstar was defective and that Ipstar was required to indemnify SkyMesh for the loss that SkyMesh suffered as a consequence. This aspect of SkyMesh’s claim was pursued under section 74B, 74D and 74H of the Trade Practices Act up to 1 January 2011 and thereafter under sections 54, 55 and 274 of the Australian Consumer Law.
The primary Judge (Rein J) found that SkyMesh had established its unconscionability claim in respect of the price increase. His Honour found that the unconscionable conduct of Ipstar was to require SkyMesh to pay an increased service fee in an amount calculated as the amount that Ipstar would have to pay to SkyMesh for existing warranty claims under the Trade Practices Act and the ACL in respect of Ipstar equipment supplied to SkyMesh’s customers. His Honour noted that this was reinforced by Ipstar not advising SkyMesh of the true basis for the increase and providing answers that were admitted to be neither honest nor frank, in circumstances where only Ipstar could supply the requisite bandwidth and the cost of new equipment required on a change to a new provider would have been prohibitive.
The New South Wales Court of Appeal also found that Ipstar engaged in unconscionable conduct in respect of the price increase but on a different basis to that determined by the primary Judge.
Bathurst CJ in delivering the principal judgment of the Court of Appeal made the following general observations on the unconscionable conduct provisions of the ACL.
[196] In this context, it is important to bear in mind that the question of whether certain conduct is unconscionable does not involve an idiosyncratic determination of what is "fair" and "just" in a particular case. Rather, it involves a consideration of all the circumstances to conclude whetheror not the conduct in question falls below acceptable norms, standards or values such as to warrant it being determined to be unconscionable.
[197] In considering that question, it is appropriate to have regard to, first, the terms of the statute itself, second, the approach taken by the courts in dealing with cases under the unwritten law, whilst recognising these cases do not limit the scope of the provision, and third, judgments in related areas including cases involving want of good faith. It is also necessary to have regard to all the circumstances surrounding the transaction. This was emphasised in Paciocco HC by Gageler J at [189] and Keane J at [294].
[198] As Gageler J pointed out in Paciocco HC at [189], the criterion in s 12CB(2) of the ASIC Act, which, prior to 1 January 2012, was the equivalent of s 22(2) of the ACL, spelt out that "circumstances relevant to the determination of whether conduct was objectively to be characterised as 'unconscionable' ... might or might not include, in respect of particular conduct, all or any of" the matters in the subsection. It should be noted that s 22(2)(1) expressly incorporates the concept of acting in good faith. In the context of the exercise of contractual powers, the concept is well understood as including, relevantly for present purposes, "compliance with honest standards of conduct" and "compliance with standards of conduct which are reasonable having regard to the interests of the parties": Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 at 367D-E; Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187 (Burger King) at [171]; United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618; [2009] NSWCA 177, although, as was pointed out in Burger King at [172], referring to Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] ATPR 41-703 at [37], the obligation does not re-strict a party from promoting its own legitimate interest.
In respect of the particular circumstances under consideration his Honournoted:
[208] Further, and with the greatest respect to the primary judge, I do not think the fact that each of the TPA and the ACL prohibited the "contracting out" of liability for the statutory warranties leads to the conclusion that setting a price designed to recoup such an accrued liability of itself amounts to unconscionable conduct. A corporation has a legitimate interest in taking steps to protect itself against any future or accrued liability. The fact that SkyMesh, as a result of its own commercial decisions, was left in a position where it had little choice but to pay the increased price does not alter that position.
[209] In that context, it must be remembered that neither s 74K(1) of the TPA nor s 276(1) of the ACL do anything more than prohibit "contracting out" of the statutory warranties. It would be wrong, in my opinion, to directly extend the operation of those sections by reference to the unconscionability provisions in each Act.
[210] However, to consider the price increase and its purpose in isolation is not to take account of the whole of the circumstances, which essentially involved imposing a price increase based on an estimated accrued liability whilst taking steps to avoid payment of that liability, including claims which had already been determined as valid. This was done in circumstances where the crossexamination of Mr Cross revealed that he attempted to hide the reason for the price increase, which was unsurprising, considering that all claims made in each of the 14 March 2011 and 28 March 2011 emails sent by Mr Rees had been rejected. In these circumstances, the conduct of Ipstar in requiring the price increase the subject of the Second Addendum was, in my view, unconscionable. It fell well below the standards of conduct expected of commercial enterprises and was not reasonable having regard to the interests of both parties. Ipstar, in these circumstances could not be said to have acted in good faith, one of the matters s 22(2) states the Court may take into account.
Leeming JA agreeing with the Chief Justice made the following additionalobservations.
[271] Secondly, it is true that a commercial party is ordinarily entitled to extract the highest price it can for the supply of its product. It is also true that a commercial party can andshould set its price having regard to that party's liabilities, including in the present case Ipstar's liability for the defective products it had supplied in the past. And it is true that mere inequality of bargaining power, such as was present in the dealings between Ipstar and SkyMesh, is of itself unremarkable and does not engage the statutory proscription of unconscionability. Ipstar rightly emphasised as much.
[272] However, Ipstar's conduct went considerably further. On Ipstar's own case, Ipstar determined the price it would charge SkyMesh by reference to the likely cost to it of the defective goods it had previously supplied to SkyMesh's customers. Ipstar did not raise its price to other purchasers of bandwidth. Instead, it sought to pass on the entirety of its liability generated by defective supplies to SkyMesh's customers to SkyMesh. Then, after the claims had been made and pressed, Ipstar did not pay them. It did not, prior to the commencement of proceedings, pay any of the claims for defective equipment which it used to determine the price increase, even those which it thought were valid. On Ipstar's case, it had calculated a price increase based on a liability to pay claims, while at the same time refusing to pay any of them. The impression from the documents is that Ipstar appears to have taken quite extreme steps to prolong the claims adjudication process. And at the same time as Ipstar was refusing to pay any claims, which on its case were incorporated into the increased price charged to SkyMesh, Ipstar insisted on SkyMesh paying the increase immediately. All this took place in circumstances where SkyMesh was effectively locked in to dealing with Ipstar, because SkyMesh could only change supplier at a cost of tens of millions of dollars in replacing equipment which could only be used for the Ipstar service. Finally, throughout this time, Ipstar intentionally kept secret the real reason for the price increase, by giving explanations which those officers which it called accepted were known by it to be false at the time they were given.
5 Pure Asset Lending
The practice of pure asset lending involves the lender considering only the value of the security and not whether the borrower has the financial capacity to repay the loan. Thus, the lender may entirely disregard the borrower’s personal financial circumstances including whether the borrower has any income. This form of lending was recently considered bythe
High Court in Stubbings v Jams 2 Pty Ltd110. Although the Court appears to accept that there is nothing inherently unconscionable about asset based lending there is asignificant risk that it will fall foul of both equitable and statutory unconscionable conduct.
In this case the appellant guaranteed a loan to his company which was secured on his two properties in Narre Warren in Melbourne. The appellant was unemployed and had no regular income. A solicitor on behalf of the lender arranged for the appellant to receive independent legal and financial advice. In respect of the certificates provided by the advisers the plurality noted:
49 In addition, given the bland boilerplate language of the certificates and the statement therein of the purpose of the loan (which Mr Jeruzalski must have known to beinaccurate), it is open to draw the inference that the certificates were mere "windowdressing".
In finding that the appellant was entitled to relief in equity the pluralityobserved:
5. The appellant's lack of commercial understanding coupled with his inability to repay the loans from his own income or other assets meant that default in repayment, and the consequent loss by the appellant of his equity in his properties by way of interest payments to the respondents, were inevitable as a matter of objective fact. The respondents, through their agent, sufficiently appreciated that reality that the exercise of their rights under the mortgages to turn the appellant's disadvantages to their own profit was unconscionable. Equitable intervention was justified in this case "not merely to relieve the [appellant] from the consequences of his own foolishness ... [but] to prevent his victimisation"
41 At all times, the appellant was incapable of understanding the risks involved in the transaction . He was unable to perform simple calculations, such as 10 per cent of $130,000
43. The inevitable outcome of the transaction was, objectively speaking, that the appellant's equity in his properties would be taken by the respondents by way of interest payments, including at default interest rates. The dangerous nature of the loans, obvious to Mr Jeruzalski but not to the appellant, was central to the question whether the appellant's special disadvantage had been exploited by the respondents.
Gordon J in a separate judgment found that the lenders system of conduct was contrary to section 12 CB(1)(a) of the ASIC Act 2001. Her Honour noted:
57. Section 12CB of the ASIC Act, like equity, requires a focus on all the circumstances . The court must take into account each of the considerations identified in s 12CC if and to the extent that they apply in the circumstances . The considerations listed in s 12CC are non exhaustive, but they provide "express guidance as to the norms and values that are relevant to inform the meaning of unconscionability and its practical application" . They assist in "setting a framework for the values that lie behind the notion of conscience identified in s 12CB" . "The assessment of whether conduct is unconscionable within the meaning of s 12CB involves the evaluation of facts by reference to the values and norms recognised by the statute, and thus, as it has been said, a normative standardof conscience which is permeated with accepted and acceptable community standards. It is by reference to those generally accepted standards and community values that each matter must be judged" .
58 Put in different terms, the s 12CC considerations assist in evaluating whether the conduct in question is "outside societal norms of acceptable commercial behaviour [so] as to warrant condemnation as conduct that is offensive to conscience" . A court should take the serious step of denouncing conduct as unconscionable only when it is satisfied that the conduct is "offensive to a conscience informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society" .
Steward J also invoked the ASIC Act. In reversing the decision of the Court of Appeal of Victoria in favour of the lender, his Honour noted:
110 [2022] HCA 6
151 In reaching this conclusion, the Court of Appeal may have been distracted by the "concept" of asset-based lending . "[P]ure" or "mere" asset-based lending was said to comprise a situation where lenders deliberately intend neither to seek nor to receive information about the personal and financial circumstances of the borrowers . The Court of Appeal was of the view, based upon its understanding of the prevailing authorities, that this type of asset based lending "is not, by itself, unconscionable conduct" , especially when combined with a system of lending that includes a requirement for certificates of independent legal and financial advice. The Court of Appeal then characterised the reasoning of the primary judge as constituting "in substance an adverse view of asset based lending as a concept" . That view, it was said, "infected" the reasoning of the primary judge
152 With respect, those observations are not sustainable. In the first place, as already mentioned, there is not one "type" of asset based lending. In that regard, determining whether identified conduct is unconscionable cannot turn upon some a priori categorisation of a product – here a type of lending – as being either immune from, or subject to, equitable remedies. Observing that asset based lending "by itself" is not unconscionable conduct is not, with respect, a useful proposition. Rather, in every matter there must be "close consideration of the facts of each case" . Secondly, that is exactly what the primary judge did here. His Honour's reasoning was not concerned with asset based lending generally but with the particular circumstances of the entry into the two loans here, and upon the application of AJ Lawyers' "system of conduct" to those facts. So much is clear from his Honour's careful examination of the actions of Mr Jeruzalski, Mr Zourkas and others in connection with the application of that system to the appellant.
The key message is that in considering whether a particular loan contract is unconscionable the Courts will not focus specifically on the type of lending but rather will focus on whether in all the circumstances the lender engaged in unconscionable conduct. Nevertheless, there is an enhanced degree of risk with pure asset lending.
Chapter 5: Lawful act economic duress in English and Australian law
1 The concept of economic duress
In Australian law there is ongoing uncertainty as to the boundaries between duress, undue influence and unconscionable conduct. Indeed, there is a real question as to whether the doctrine of economic duress forms part of Australian contractual jurisprudence. Historically, a contract induced by a threat to life or limb was void under the rules of the common law which were subsequently expanded to include duress to goods. However, in Universe Tankships Inc of Monrovia v International Transport Workers Federation (The Universe Sentinel)111 the House of Lords recognised economic duress as a part of English law. More recently, the United Kingdom Supreme Court in Pakistan International Airline Corporation v Times Travel (UK) Ltd112 characterised economic duress as an equitable doctrine founded on unconscionable conduct to be distinguished, however, from unconscionable conduct as explained by Mason J in Commercial Bank of Australia Ltd v Amadio113. Importantly, the Supreme Court also held that a contract induced by a threat of a lawful act fell within the rubric of economic duress but within narrow limits. Lord Burrows in his separate judgment adopted a less restrictive view of the doctrine.
Pakistan International Airline is considered in detail in section 3 below.
Returning to the Universe Sentinel.
Lord Diplock in discussing the development of economic duress in English law said114:
It is, however, in my view crucial to the decision of the instant appeal to identify the rationale of this development of the common law. It is not that the party seeking to avoid the contract which he has entered into with another party, or to recover money that he has paid to another party in response to a demand, did not know the nature or the precise terms of the contract at the time when he entered into it or did not understand the purpose for which the payment was demanded. The rationale is that his apparent consent was induced by pressure exercised upon him by that other party which the law does not regard as legitimate, with the consequence that the consent is treated in law as revocable unless approbated either expressly or by implication after the illegitimate pressure has ceased to operate on his mind. It is a rationale similar to that which underlies the avoidability of contracts entered into and the recovery of money exacted under colour of office, or under undue influence or in consequence of threats of physical duress.
Two points arise out of the above passage. First, economic duress involves the imposition of illegitimate pressure which vitiates the consent of the victim. Secondly, the avoidabilityof a contract on the ground of economic duress has an equitable foundation akin to the doctrine of undue influence.
His Lordship in analysing the relationship between economic duress and tort observed:
The use of economic duress to induce another person to part with property or money is not a tort per se; the form that the duress takes may, or may not, be tortious. The remedy to which economic duress gives rise is not an action for damages but an action for restitution of property or money exacted under such duress and the avoidance of any contract that had been induced by it; but where the particular form taken by the economic duress used is itself a tort, the restitutional remedy for money had and received by the defendant to the plaintiff’s use is one which the plaintiff is entitled to pursue as an alternative remedy to an action for damages in tort.
Lord Scarman shared Lord Diplock’s view that economic duress, if proved, vitiates the consent of the victim. His Lordship said:
111 [1983] 1 AC366.
112 [2021] UKSC40.
113 (1983) 151 CLR447.
114 at384.
It is, I think, already established law that economic pressure can in law amount to duress; and that duress, if proved, not only renders voidable a transaction into which a person has entered under its compulsion but is actionable as a tort, if it causes damage or loss: Barton v. Armstrong [1976] A.C. 104 and Pao On v. Lau You Long [1980] A.C. 614. The authorities upon which these two cases were based reveal two elements in the wrong of duress: (1) pressure amounting to compulsion of the will of the victim; and (2) the illegitimacy of the pressure exerted. There must be pressure, the practical effect of which is compulsion or the absence of choice. Compulsion is variously described in the authorities as coercion or the vitiation of consent. The classic case of duress is, however, not the lack of will to submit but the victim’s intentional submission arising from the realisation that there is no other practical choice open to him. This is the thread of principle which links the early law of duress (threat to life or limb) which later developments when the law came also to recognise as duressfirst the threat to property and now the threat to a man’s business or trade. The development is well traced in Goff and Jones, the Law of Restitution, 2nd ed. (1978), chapter 9.
After referring to the dissenting joint reasons of Lord Wilberforce and Lord Simon in Barton v Armstrong115 his Lordship said:
As the two noble and learned Lords remarked, in life, including the life of commerce and finance, many acts are done “under pressure, sometimes overwhelming pressure”: but they are not necessarily done under duress. That depends on whether the circumstances are such that the law regards the pressure as legitimate.
In determining what is legitimate two matters may have to be considered. The first is as to the nature of the pressure. In many cases this will be decisive, though not in every case. And so the second question may have to be considered, namely, the nature of the demand which the pressure is applied to support.
The origin of the doctrine of duress in threats to life or limb, or to property, suggests strongly that the law regards the threat of unlawful action as illegitimate, whatever the demand. Duress can, of course, exist even if the threat is one of lawful action: whether it does so depends upon the nature of the demand. Blackmail is often ademand supported by a threat to do what is lawful, e.g. to report criminal conduct to the police. In many cases, therefore, “What [one] has to justify is not the threat, but the demand …”: see per Lord Atkin in Thorne v. Motor Trade Association [1937] A.C. 797, 806.
An important point made by Lord Scarman is that where a threat consists of a lawful act the focus of the enquiry is on the nature of the demand, a point subsequently developed by Lord Burrows in Pakistan International Airlines Corporation
2 Economic duress in Australian law
In Thorne v Kennedy116 the plurality made the following observations onduress:
26 The vitiating factor of duress focuses upon the effect of a particular type of pressure on the person seeking to set aside the transaction. It does not require that the person’s will be overborne. Nor does it require that the pressure be such as to deprive the person of any free agency or ability to decide. The person subjected to duress is usually able to assess alternatives and to make a choice.
27 Historically, the primary constraint upon an action based on duress was the threats that were recognised as sufficient for an action. The early common law rule was that the duress which was necessary to set aside an agreement required an unlawful threat or conduct in relation to the person’s body, such as loss of life or limb. Even duress in relation to a person’s goods was not a basis upon which an agreement could be avoided at common law, although it was a basis for restitution of a payment of money. The abandonment of this common law restriction introduced a difficult question. This question is whether duress should be based on any unlawful threat or conduct or, alternatively, whether other illegitimate or improper, yet lawful, threats or conduct might suffice. In 1947, Dawson
115 [1976] AC104.
116 (2017) 263 CLR85.
described that question as one “which has chiefly arrested the modern development of the law of duress”.
However, the Court not having received detailed submissions on lawful act economic duress did not consider it necessary to provide an opinion on whether recognition of such a principle would add anything to the equitable doctrine of unconscionable conduct as formulated by Mason J in Commercial Bank of Australia v Amadio
As to the relationship between the equitable doctrines of undue influenceand unconscionable conduct the plurality noted:
40 Although undue influence and unconscionable conduct will overlap, they have distinct spheres of operation. One difference is that although one way in which the element of special disadvantage for a finding of unconscionable conduct can be established is by a finding of undue influence, there are many other circumstances that can amount to a special disadvantage which would not establish undue influence. A further difference between the doctrines is that although undue influence cases will often arise from the assertion of pressure by the other party which might amount to victimisation or exploitation, this is not always required. In Commercial Bank of Australia Ltd v Amadio, Mason J emphasised the difference between unconscionable conduct and undue influence as follows:
“In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position.”
The starting point, however, of an analysis of economic duress is McHugh JA’s judgment (Samuels and Mahoney JJ, agreeing) in Crescendo Management Pty Ltd v Westpac Banking Corporation117. His Honour in questioning the correctness of the House of Lords’ approach in The Universe Sentinel said118:
In my opinion the overbearing of the will theory of duress should be rejected. A person who is the subject of duress usually knows only too well what he is doing. But he chooses to submit to the demand or pressure rather than take an alternative course of action. The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate?
Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress.
Subsequently, the New South Wales Court of Appeal (Beazley, Ipp and Basten JJA) in Australia and New Zealand Banking Group Limitd v Karam119 examined the role of economic duress in Australian law and the significance of McHugh JA’s judgment in Crescendo Management. The Court made three key points.
First, there were a number of difficulties with McHugh JA’s characterisation of illegitimate pressure in the passage set out above. The Court said:
54 Two aspects of this passage were to cause difficulty. First, although thecontext was one in which his Honour was considering an extension of the common law doctrine of duress, the introduction of the criterion of “unconscionable conduct” appeared to invoke equitable principles. As Lord Diplock had referred to “undue influence” as enjoying a similar rationale, the reference to equity may have been deliberate. Secondly, the reference to “overwhelming pressure”, in a context in which his Honour had rejected the need for the will to be overborne, was also apt
117 (1988) 19 NSWLR40.
118 At45-46.
119 [2005] NSWCA344.
to create uncertainty. The term appears to have been a reflection of the passage in Lord Diplock’s speech in The Universe Sentinel.
The Court also noted that it was unclear how the doctrine of economic duress fitted with the equitable doctrines of undue influence and unconscionable conduct.
Secondly, the Court cited with manifest approval the following passage in Kirby P’s judgment in Equiticorp Finance Ltd (in liq) v Bank of New Zealand120:
“The doctrine of economic duress may be better seen as an aspect of thedoctrines of undue influence and unconscionability respectively. If relief, beyond statute, is appropriate, courts would be better able to provide such relief in a consistent and principled fashion under the rubric of undue influence and undue unconscionability rather than by pretending to economic expertise and judgment which they generally lack.”
The Court agreed with Kirby P’s view that the term ‘economic duress’ should be abandoned and that questions of ‘illegitimate pressure’ should be accepted.
Thirdly, in explaining their approach the Court said:
66 The vagueness inherent in the terms “economic duress” and “illegitimate pressure” can be avoided by treating the concept of “duress” as limited to threatened or actual unlawful conduct. The threat or conduct in question need not be directed to the person or property of the victim, narrowly identified, but can be to the legitimate commercial and financial interests of the party. Secondly, if the conduct or threat is not unlawful, the resulting agreement may nevertheless be set aside where the weaker party establishes undue influence (actual or presumptive) or unconscionable conduct based on an unconscientious taking advantage of his or her special disability or special disadvantage, in the sense identified in Amadio. Thirdly, where the power to grant relief is engaged because of a contravention of a statutory provision such as s 51AA, s 51AB or s 51AC of the Trade Practices Act, the Court may be entitled to take into account a broader ranger of circumstances than those considered relevant under the general law. Pursuant to both Trade Practices Act provisions and the Contracts Review Act, the relative strengths of the bargaining positions of the parties, and their ability to negotiate terms, will be relevant. However, it does not follow that because, for the purposes of s 9(2)(a) of the Contracts Review Act, there was a material inequality of bargaining power, a contract between such parties will necessarily be set aside. Most “contracts of adhesion” will fall into that category, but most will be valid.
The constraint on illegitimate pressure to threatened or actual unlawful conduct was doubted by Nettle J in Thorne v Kennedy121. His Honour said:
70 Were it not for the decision of the Court of Appeal of the Supreme Court of New South Wales in Australia & New Zealand Banking Group v Karam, I should be disposed to decide this appeal on the basis that Ms Thorne’s entry into the agreements was the result of illegitimate pressure (or duress, as the primary judge aptly described it) of such degree as to engage equity’s jurisdiction to grant relief. The difficulty with doing so, however, as the plurality observe, is that Karam decided that the concept of illegitimate pressure should be restricted to the exertion of pressure by “threatened or actual unlawful conduct”, and, by and large, Karam has since been followed without demur.
72 Karam was a significant departure from the preponderance of relevant Australian authority. Moreover, Karam’s rejection of illegitimate pressure by lawful means was largely based on a view that the concept is too uncertain to be acceptable. Yet it is by no means immediately obvious why it should be considered
120 (1993) 32 NSWLR50.
121 (2017) 263 CLR85.
any more uncertain than the equitable conceptions of unconscionable conduct and undue influence to which Karam held it should be consigned.
74 The equitable doctrine of unconscionable conduct is not restricted to unlawful means. Equity may intervene to relieve against the consequences of a party taking unconscientious advantage of another party’s position of special disadvantage regardless of whether the conduct is otherwise lawful.
However, the plurality made no adverse observations on the correctness of the approach in Karam
The uncertainty in Australian law as to the effect of economic duress was exacerbated by the decision of the Court of Appeal of Western Australia in Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd122. In addressing a submission that Verve entered into short term gas supply agreements as a result of economic duress McLure P said:
23 Economic duress is a common law doctrine which is part of the law ofcontract and unjust enrichment and is a close cousin of the equitable doctrine of undue pressure.
24 It is apparent from the pleading that Verve relied on the common law doctrine. There are two material facts of the cause of action in economic duress being (1) that illegitimate pressure was applied which (2) induced the victim to enter into the contract (or make a non-contractual payment); the illegitimate pressure does not have to be the sole reason for the victim entering into the contract, it is sufficient if it is one of the reasons: Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40, 46 (McHugh JA).
25 If the pressure involves an actual or threatened unlawful act, it is prima facie illegitimate. If the pressure is lawful, it may be illegitimate if there is no reasonable or justifiable connection between the pressure being applied and the demand which that pressure supports: Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366, 401 (Lord Scarman); R v Her Majesty's Attorney-General for England and Wales (New Zealand) [2003] UKPC 22 [15] - [20].
26 An actual or threatened breach of contract is unlawful conduct for the purposes of the economic duress doctrine: Furphy v Nixon (1925) 37 CLR 161; Smith v William Charlick Ltd [1924] HCA 13; (1924) 34 CLR 38; TA Sundell & Sons Pty Ltd v Emm Yannoulatos (Overseas) Pty Ltd [1956] SR (NSW) 323.
Murphy J in his judgment said:
The buyer claimed, in its prayer for relief (par (d)) 'restitution or repayment of the amounts of money by which the [sellers] were overpaid and unjustly enriched'. There was no pleaded claim for damages in tort, contrary to the formulation of this issue in the grounds of appeal. The absence of a damages claim for the 'tort' of duress accords with the view that economic duress is not, in and of itself, a species of tort: Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366, 385 per Lord Diplock (cf Lord Scarman at 400); Dimskal Shipping Co SA v International Transport Workers Federation (The Evia Luck) [1992] 2 AC 152, 166. That would seem to me, with respect, to be the correct view, particularly as the modern law of duress has been developed under the influence of equity and the exercise of the Chancellor's jurisdiction in respect of pressure which the Chancellor considered to be illegitimate: Barton v Armstrong [1973] 2 NSWLR 598, 631, 634 (Barton v Armstrong [1976] AC 104, 118, 121); Royal Bank of Scotland plc v Etridge (No 2) [2000] 2 AC 773, 795.
These judgments of the Western Australia Court of Appeal are inconsistent with the approach of the New South Wales Court of Appeal in Karam and do not sitcomfortably
122 [2013] WASCA36.
with Thorne v Kennedy in which the High Court relied on undue influence rather than economic duress.
3 Pakistan International Airline Corporation v Times Travel (UK)Ltd
3.1 The facts
Times Travel (TT), the plaintiff is a travel agent. It entered into an agency agreement with Pakistan International Airline Corporation (PIAC) under which PIAC paid TT by way of commission in an amount determined by PIAC from time to time. The agreement was terminable by PIAC on one month’s notice. There was no dispute that the agreement was heavily biased in favour of PIAC. Subsequently, PIAC failed to pay outstanding commission to a number of travel agents including TT. However, TT did not participate in recovery proceedings brought by the other travel agents against PIAC. In September 2012 PIAC notified TT that its agency agreement would terminate at the end of October 2012. Following this notice TT’s ticket allocation from PIAC was suddenly reduced from 300 to 60. As a result of pressure TT agreed to a new agency agreement with PIAC which included a provision under which TT waived outstanding claims against PIAC for unpaid commission. If the original reduction in ticket allocation had continued TT would have been put out of business. Subsequently, TT commenced proceedings against PIAC claiming that it was entitled to rescind the new agency agreement on the ground of economic duress. TT also sought recovery of unpaid commission.
3.2
Disposition
Lord Hodge delivered the majority judgment which contained three key elements.
First, in enunciating the basic principles Lord Hodge said:
2 … As I will seek to show, the courts have developed the common law doctrineof duress to include lawful act economic duress by drawing on the rules of equity in relation to undue influence and treating as “illegitimate” conduct which, when the law of duress was less developed, had been identified by equity as giving rise to an agreement which it was unconscionable for the party who had conducted himself or herself in that way to seek to enforce. In other words, morally reprehensible behaviour which in equity was judged to render the enforcement of a contract unconscionable in the context of undue influence has been treated by English common law as illegitimate pressure in the context of duress.
3 The boundaries of the doctrine of lawful act duress are not fixed and the courts should approach any extension with caution, particularly in the context of contractual negotiations between commercial entities. In any development of the doctrine of lawful act duress it will also be important to bear in mind not only that analogous remedies already exist in equity, such as the doctrines of undue influence and unconscionable bargains, but also the absence in English law of any overriding doctrine of good faith in contracting or any doctrine of imbalance of bargaining power. As I will seek to explain, the absence of those doctrines in English law leads me to conclude that Times Travel’s claim for lawful act economic duress would not have succeeded in this case even if it had shown that Pakistan International Airline Corporation (“PIAC”) had made what Lord Burrows has defined as a bad faith demand.
Secondly, Lord Hodge considered that lawful act economic duress operated within narrow limits. His Lordship identified two circumstances in which the courts have upheld a plea of lawful act duress, namely, where a defendant uses his knowledge of criminal activity by the claimant or a member of the claimant’s close family and where the defendant having exposed himself to a civil claim to the claimant by illegitimate means forces the claimant to waive his claim.
Thirdly, lawful act duress has an equitable basis and in this context, interestingly, his Lordship cited McHugh JA’s judgment in Crescendo Management in support.
Lord Hodge in disagreeing with Lord Burrows’ wider formulation of the scope of lawful act economic duress continued:
52 I therefore do not accept that the lawful act doctrine could be extended to a circumstance in which, without more, a commercial organisation exploits its strong bargaining power or monopoly position to extract a payment from another commercial organisation by an assertion in bad faith of a pre-existing legal entitlement which the other organisation believes or knows to be incorrect.
Turning to Lord Burrows’ separate judgment. His Lordship summarised the principles in the following series of propositions:
(i) Lawful act duress, including lawful act economic duress, exists in English law.
(ii) Three elements need to be established for lawful act economic duress: an illegitimate threat; sufficient causation; and that the threatened party had no reasonable alternative to giving in to the threat.
(iii) As the threat is lawful, the illegitimacy of the threat is determined by focusing on the justification of the demand.
(iv) A demand motivated by commercial self-interest is, in general, justified. Lawful act economic duress is essentially concerned with identifying rare exceptional cases where a demand, motivated by commercial self-interest, is nevertheless unjustified.
(v) In relation to a demand for a waiver by the threatened party of a claim against the threatening party, a demand is unjustified, so that the lawful act economic threat is illegitimate, where, first, the threatening party has deliberately created, or increased, the threatened party’s vulnerability to the demand and, secondly, the “bad faith demand” requirement is satisfied. The demand is made in bad faith where the threatening party does not genuinely believe that it has any defence (and there is no defence) to the claim being waived.
Returning to Australian law. The decision of the New South Wales Court of Appeal in Karam remains an obstacle to the development of economic duress. As Nettle J in Thorne v Kennedy observed:
73 Nevertheless, there would need to be detailed argument and deep consideration of the ramifications of departing from Karam before this Court would contemplate that course, and, although counsel for Ms Thorne essayed something of that task in written submissions, in oral argument it was accepted that what was said about illegitimate pressure by lawful means was subsumed by what was advanced under the rubric of unconscionable conduct.
A “deep consideration” of current Australian law on duress would bewelcome.
Chapter 6: The proportionate liability defence to a claim for statutory misleading and deceptive conduct
4 The concept of proportionate liability
In the context of the New South Wales proportionate liability legislation the plurality in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd123 explained the rationale of the regime as follows:
10. Part 4 of the Civil Liability Act represents a departure from the regime of liability for negligence at common law (solidary liability), where liability may be joint or several but each wrongdoer can be treated as the effective cause and therefore bear the whole loss. Under that regime, a plaintiff can sue and recover his or her loss from one wrongdoer, leaving that wrongdoer to seek contribution from other wrongdoers. The risk that any of the other wrongdoers will be insolvent or otherwise unable to meet a claim for contribution lies with the defendant sued. By comparison, under a regime of proportionate liability, liability is apportioned to each wrongdoer according to the court's assessment of the extent of their responsibility. It is therefore necessary that the plaintiff sue all of the wrongdoers in order to recover the total loss and, of course, the risk that one of them may be insolvent shifts to the plaintiff.
5 Proportionate liability for misleading and deceptiveconduct
There are three Commonwealth statutes which introduce proportionate liabilityfor misleading and deceptive conduct as follows:
(a) Part 2, Division 2, Subdivision GA of the Australian Securities and Investments Commission Act 2001 (Cth);
(b) Part 7.10, Division 2A of the CorporationsAct 2001 (Cth);
(c) Part VIA of the Competition and Consumer Act 2010(Cth) (CCA);
Taking as a model Part VIA of the CCA.
Part VIA - Proportionate liabilityfor misleading and deceptive conduct
87CB Application of Part
(1) This Part applies to a claim (an apportionable claim) if the claim is a claim for damages made under section 236 of the Australian Consumer Law for: (a) economic loss; or (b) damage to property; caused by conduct that was done in a contravention of section 18 of the Australian Consumer Law.
(2) For the purposes of this Part, there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or adifferent kind).
(3) In this Part, a concurrent wrongdoer, in relation to a claim, is a person who is one of 2 or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim.
(4) For the purposes of this Part, apportionable claims are limited to thoseclaims specified in subsection (1).
(5) For the purposes of this Part, it does not matter that a concurrent wrongdoeris insolvent, is being wound up or has ceased to exist or died.
87CD Proportionate liability for apportionable claims
(1) In any proceedings involving an apportionable claim:
(a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant’s responsibility for the damage or loss; and
(b) the court may give judgment against the defendant for not more than that amount.
(3) In apportioning responsibility between defendants in the proceedings:
(a) the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law; and
(b) the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings.
(4) This section applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceedings.
(5) A reference in this Part to a defendant in proceedings includes any person joined as a defendant or other party in the proceedings (except as a plaintiff) whether joined under this Part, under rules of court or otherwise.
6 Key Issues
Three key issues arise in connection with the operation of the regime.
First, if two or more persons contribute jointly to the commission of a single act causing harm, are those persons concurrent wrongdoers under section 87CB(3) of the CCA?
Secondly, is a claim against an individual for misleading and deceptive conduct who is the directing mind of a corporation, an apportionable claim as between that individual and the corporation?
Thirdly, where claims are based both on misleading and deceptive conduct and on other causes of action eg: a breach of a contractual duty of care, are all of the claims apportionable claims or only those claims relating to misleading and deceptive conduct.
Turning to the first issue.
This issue was considered by the New South Wales Court of Appeal Williams vPisano124
This was an action by purchasers of property against the vendors, a Mr Williams and a Ms Dandris. The vendors instructed an agent who made certain representations as to the state of the property and the standard of renovations which appeared on a commercial website. Further, during an inspection the purchasers were handed a brochure which alsocontained statements concerning the property and the standard of renovations. The representations induced the purchasers to purchase the property. Following the purchase the purchasers discovered defects including significant water penetration. The purchasers commenced
proceedings against the vendors seeking damages on a number of bases including a contravention of section 18 of the Australian Consumer Law.
The primary judge entered a verdict against both vendors holding that each had made the same representations and had jointly participated in a single act.
Williams’ contention that the claim against the vendors was an apportionable claim under Part VIA of the CCA was rejected by the primary judge. His Honour concluded that Mr Williams and Ms Dandris bore equal responsibility for the loss and damage suffered by the purchasers.
The Court of Appeal allowed Williams’ appeal.
Emmett JA in delivering the lead judgment said:
67 The question of construction raised by the present appeal is whether s 87CB(3) applies to a situation where a single act that causes damage that is the subject of a claim under the Consumer Act is committed by two or more persons jointly.
80 Neither the explanatory memorandum nor the speech on the second reading of the Bill leading to the introduction of Pt VIA is of assistance in the resolution of the construction question. Clearly enough, the purpose of Pt VIA is to introduce a system of proportionate liability for joint and several wrongdoers who contravene s 18 of the Australian Consumer Law. The evident purpose is to give effect to a legislative policy that, in respect of claimsfor economic loss or property damage, a defendant should be liable only to the extent of his or her responsibility. The court must apportion that responsibility where the defendant can show that he or she is a “concurrent wrongdoer”. That is to say, the defendant can show that there is another, or there are others, whose acts or omissions (or act or omission) can be said to have caused the damage that the plaintiff claims, whether jointly with the defendant’s acts or omissions (or act or omission), or independently of them. If there is another wrongdoer or there are other wrongdoers, then he or she or they, together with the defendant, are all concurrent wrongdoers. There is no reason why that purpose should not extend to wrongdoers who jointly commit a single act that causes the loss claimed by the plaintiff.
Turning to the second issue.
Is it open to an individual who is the directing mind of a corporation against whom aclaim for misleading and deceptive conduct has been made to raise a proportionate liability defence on the basis that the corporation is a concurrent wrongdoer?
This was considered by the Full Federal Court in Robinson v 470 St Kilda Road Pty Ltd125
Reed Constructions Australia Pty Ltd (Reed) entered into a design and construct contract with St Kilda Road, as principal for the redevelopment of a building at 470 St Kilda Road, Melbourne. Robinson was the chief operating officer of Reed. In respect of one of Reed’s payment claims, Robinson provided a statutory declaration that all subcontractors and suppliers had been paid. This declaration was materially untrue and misleading or deceptive.
St Kilda commenced proceedings against Robinson for contraventions of section 18 of the Australian Consumer Law.
Robinson, relying on the decision of Williams v Pisano126 argued that where two persons are jointly and directly liable for a single representation, the claim is an apportionableclaim and thus Reed and Robinson as its COO were jointly liable for Robinson’s false statutory
125 [2017] FCA597
declaration. In their joint reasons McKerracher and Markovic JJ noted in respect of Emmett JA’s judgment:
On considering the concept of concurrent wrongdoers, his Honour identified (at [67]) thata question of construction which arose on appeal was whether s 87CB(3) applies to a situation where a single act that causes damage that is the subject of a claim under the CCAis committed by two or more persons jointly.
In finding against Robinson the court adopted the approach of Mossop J in Dunn v Hanson Australiasia Pty Ltd127 McKerracher and Markovic JJ said:
51 His Honour opined, and we agree, that, first, it cannot be said that the acts are independent because there is a single act carried out by the person which is also the act of the company. Secondly, it cannot be said that the acts “jointly” causedthe damage or loss. There is no capacity for joint conduct because there is only a single act, which makes it artificial to say that there are two acts of persons, one of the company and one of the director. The company, on the facts of Dunn, did nothing, but was directly liable only by reason of the acts of its senior officer. In those circumstances, there cannot be any concurrent wrongdoing within the definition of s 87CB(3) of the TPA or in any common use of the expression “concurrentwrongdoer”.
52 In the present circumstances also, and for those reasons, there could be no apportionment of the wrongdoing to Reed, represented by Mr Robinson. This construction also appears more harmonious with the view of the Queensland Court of Appeal in Hadgelias (at [21]).
53 The reason why s 87CB(3) of the CCA could not apply may be put another way. The provision requires that the concurrent wrongdoer be a person who is one of two or more persons whose individual acts or omissions would, independently of each other, have caused the damage or loss. In the present instance, there is no independent act at all of Reed which could fall for consideration. While the company would have been 100% liable if sued for the acts of Mr Robinson, the acts were not acts which were independent of the acts of Mr Robinson. To the contrary, they were directly dependent upon his conduct in that they are regarded at law as one and the sameact.
54 As a consequence, it would be impossible to form any view that Reed, by virtue of conduct of some other employee or officer, should contribute any percentage, let alone 50% by way of apportionment. The very concept of apportionment requires an assessment of the degree of wrongdoing of the contributory wrongdoer. There is no evidence of any wrongdoing on the part of Reed, but for the actions of Mr Robinsonhimself.
55 We respectfully agree with the views of Mossop J in Dunn and of McFarlan JA in Tomasetti. Had Reed been joined in this case, each of Reed and Mr Robinson would be 100% liable. There would be no basis for apportionment. The purpose of the statute is to limit the liability of the defendant to that proportion of the loss the Court considers just, having regard to the defendant’s responsibility for the damage or loss. As McFarlan JA said in Tomasetti, each would be fully liable, as would be the case here. But, in any event, in this instance, there is no doubt in the finding that 100% of the liability rests with MrRobinson.
The question whether a corporate entity and the individual who controls that entity may be concurrent wrongdoers under section 87CB(3) was recently considered by the New South Wales Court of Appeal in DSHE Holdings Ltd (Receivers and Managers) (in liq) v Potts128 The Court (consisting of Leeming JA, Kirk JA and Basten AJA), relevantly, observed:
438 Liability can be characterised as joint or several, or both. Separately, it can be characterised as direct or vicarious. These different forms of characterisation will have different purposes. The statutory purpose of proportionate liability is to prevent a solvent concurrent wrongdoer being liable for the whole of the loss or damage suffered by the plaintiff in circumstances where there are one or more other concurrent wrongdoers who will escape liability because they are impecunious.
439 Some care must be taken when these provisions are applied to cases where a natural person and a corporate entity which is controlled by the natural person are each said to be concurrent wrongdoers. That was the case in Tomasetti v Brailey [2012] NSWCA 399 (where the acts of Mr Brailey were the corporate acts of his company) and in Robinson v 470 St Kilda Road Pty Ltd (2018) 263 FCR 572; [2018] FCAFC 84 (where the company had a sole director). There are statements in the former case at [154]-[156] that each of two concurrent wrongdoers may be 100% liable to a plaintiff. If so, that would be directly contrary to a principal objective of the regime. In the latter case, upon which Mr Potts relied, the question arose as to whether a company, with a sole director who was the alter ego of the company, could be a concurrent wrongdoer with the director. McKerracher and Markovic JJ reasoned:
“51 His Honour opined, and we agree, that, first, it cannot be said that the acts are independent because there is a single act carried out by the person which is also the act of the company. Secondly, it cannot be said that the acts ‘jointly’ caused the damage or loss. There is no capacity for joint conduct because there is only a single act, which makes it artificial to say that there are two acts of persons, one of the company and one of the director.”
440 It is difficult to reconcile the rejection of a single act for which two wrongdoers are jointly liable with statutory language which expressly contemplates the possibility that there is a single act or omission of two or more persons. Further, it is important to bear in mind that, although perhaps obscurely worded, the legislation does not allow a vicariously liable principal to be a concurrent wrongdoer. That follows from two provisions. First, s 87CF, which confers on a defendant who is a concurrent wrongdoer immunity from claims for contribution or indemnity by any other wrongdoer. Secondly, s 87CI(a) provides that “[n]othing in this Part… prevents a person being held vicariously liable for a proportion of an apportionable claim for which another person is liable”. These provisions would not work harmoniously if a defendant whose liability was purely vicarious could be a concurrent wrongdoer. That that was the intention of the provision appears from the report of Professor JLR Davis, upon which the proportionate liability defence in various statutes was based: Commonwealth of Australia, Inquiry into the Law of Joint and Several Liability: Report of Stage 2 (1995). Professor Davis recommended that the proposed scheme for proportionate liability should not apply to instances of vicarious liability, as noted in Woodhouse v Fitzgerald (2021) 104 NSWLR 475; [2021] NSWCA 54 at [101]. Emmett JA noted in Williams v Pisano, that that consideration would justify the result in Hadgelias Holdings Pty Ltd v Seirlis [2015] 1 Qd R 337; [2014] QCA 177 at [14], [21], which had inappropriately held there must be “distinct acts (or omissions) or sets of acts (or omissions) by different actors”.
441In the present case, the difficulty faced by Mr Potts was that he accepted he was not the alter ego of the company (in which case his acts would have been the acts of the company) (Tcpt, p 4270(1)); rather, the company may have been vicariously liable for his acts, but on that basis it would not have been a concurrent wrongdoer.
Subsequently in Taylor v Stav Investments Pty Ltd129 the New South Wales Court of Appeal with Mitchelmore JA delivering the lead judgement (Simpson AJA and Basten AJA agreeing) relied on the guidance provided by DSHE Holdings but distinguished it on the facts. In this context Mitchelmore JA said:
121 The misleading and deceptive conduct that her Honour found in this case was constituted by the giving of the warranties in cl 2.17 of the First and Second Contracts to which I have referred above. True it is that Mr Taylor and Mr Wilkinson were the individuals who were engaged in the discussions and other communications which led to the giving of those warranties, on behalf of Yatango Mobile. However, when it came to the final terms of the First and Second Contracts, the warranties were expressly provided, “jointly and severally”, by Mr Taylor, Mr Wilkinson, and Yatango Mobile. In circumstances where the warranties were given in those terms, Yatango Mobile was a concurrent wrongdoer within the meaning of s 87CB(3). This was not a case in which the liability of the company was limited to its vicarious liability for the acts of its directors: cf Potts at [440].
Turning to the third issue.
129 [2023] NSWCA204
Are claims when combined with claims for misleading and deceptive conduct, apportionable claims under the federal legislation?
This issue was finally settled by the High Court in Selig v Wealthsure Pty Ltd130following conflicting decisions in the Full Federal Court131
The case involved section 1041L in Division 2A of Part Pt 7.10 of the Corporations Act 2001 which relevantly provides:
(1) This Division applies to a claim (an apportionable claim) if the claim is a claim for damages made under section 1041I for:
(a) economic loss; or
(b) damage to property;
caused by conduct that was done in a contravention of section 1041H.
(2) For the purposes of this Division, there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind)…
A company issued a prospectus to obtain finance from investors. The scheme described in the prospectus was in effect a “Ponzi scheme”. Wealthsure, a financial planner had a retainer with Mr and Mrs Selig, the investors. Mr Bertram was an authorised representative of Wealthsure.The primary judge found that Wealthsure and Mr Bertram breached the retainer and breached their duty of care. The primary judge also found that apart from the contravention of section 1041H (misleading and deceptive conduct), Mr and Mrs Selig’s claims were not apportionable. The Court of Appeal reversed. The High Court reinstated the judgment of the primary judge.
In their joint reasons French CJ, Keifel, Bell and Keane JJ said at 672:
22 The loss and damage alleged to have been suffered by the appellants as a result of each of the various contraventions of the Corporations Act 2001 or the ASIC Act, or breach of contract or of duty of care, was the same. The question is whether Div 2A applies so that this loss and damage is to be apportioned between the first, second, fifth and sixth respondents in respect of all of those claims or whether Div 2A is limited in its application to the claims based on contraventions of s 1041H. The answer to that question lies in the meaning given by the provisions of Div 2A to an "apportionable claim".
23 Section 1041N(1) provides that a court must apportion liability for loss and damage having regard to the extent of a defendant's responsibility for it, where proceedings involve an "apportionable claim". Attention is thereby directed tos 1041L(1), the purpose of which, clearly enough, is to define what is an "apportionable claim" to which Div 2A applies.
Their Honours’ concluded:
27 In determining what is an "apportionable claim" for the purposes of Div 2A, the reasons of the majority in the Full Court did not focus upon s 1041L(1), but rather s 1041L(2). The two aspects of sub-s (2) which were considered to be critical to an understanding of what constitutes an" apportionable claim" were (i) the requirement that the loss or damage the subject of the causes of action be the same; and (ii) the acknowledgment that there may be more than one cause of action and that they may be of differentkinds.
28 Consistently with the approach of the majority, the first and second respondents submitted before this Court that the effect of s 1041L(2) is to disregard the legal basis for the claim, leaving any claim for the same loss and damage as the basisfor apportionment.
130 (2015) 255 CLR661
131 Wealthsure Pty Ltd v Selig [2014] FCAFC 64 and ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65
The underlying assumption to the approach for which the first and second respondents contend is that the "cause[s] of action" referred to in s 1041L(2) are to be equated with "the claim for the loss or damage". On this view each cause of action pleaded is to be treated as an apportionable claim.
29 Applying well-settled rules of construction, the same meaning should be given to the word "claim" where it appears in sub-ss (1) and (2). The first and second respondents' construction of s 1041L(2) results in an inconsistency between the meaning given to the word "claim" in sub-ss (1) and (2). The "claim" in s 1041L(1) is a claim for damages under s 1041I for damage caused by conduct in contravention of s 1041H. When s 1041L(2) speaks of a claim based on more than one cause of action, it cannot be speaking of a claim liability for which arises due to contravention of a norm of conduct different from that which creates liability to a claim for damages described in s 1041L(1), namely s 1041H.